Severance Damages: Loss of Parking

Severance Damages: Loss of Parking

We’re going to discuss the concept of loss of parking and its impact on severance damages. As a reminder, severance damages relate to the loss of value to the remainder (portion of property left after the taking) above and beyond the value of the land and structures taken by the government.  Severance damages play an important role in the valuation process because they are not always obvious and they can produce a significant amount of just compensation for a property owner.

I think the best way to illustrate this concept is through an example.  Let’s say that you own commercial property that is being used for a restaurant.  Current zoning laws require a minimum number of parking spaces to meet the needs of the patrons that are served by the restaurant.  The highway department decides to widen the road in front of your property, which requires the acquisition of a significant portion of your parking lot. Your parking has now been reduced to such a level that it fails two tests for the purpose of successfully carrying on a restaurant.  What are these tests?

1. Current zoning ordinances

You’ve lost so much parking that you fail to meet current zoning laws, which means operating a restaurant on your property will be in violation of the local parking ordinances for restaurants.  Frequently, these ordinances will be grandfathered in, but once the property is sold, that grandfathering provision could change.  Additionally, depending upon local codes, you could lose your grandfather provisions if the use for the property changes for a period of time.

2. Change in highest and best use

You’ve lost so much parking that it not only violates local ordinances, but also makes the operation of the property as a restaurant infeasible because there are not enough parking spots to meet the demands of the patrons.  Consequently, the property’s highest and best use is negatively impacted.  Before the taking occurred you had a property with a highest and best use as a valuable restaurant or retail site.  Because of the reduced parking after the taking, the market desirability for the property might only support what we call a destination office type of highest and best use.  The value for destination offices is typically much less than the value on a unitary basis for land or buildings that can be used for restaurants or impulse commercial type of developments.

The loss of parking in an eminent domain taking can cause significant damage to the remainder parcel, which means the severance damages can be  significant, especially if the highest and best use has changed from impulse commercial to one that is clearly less valuable, like a destination commercial.