Inverse Condemnation Explained

Inverse Condemnation Summary

Under the rules of eminent domain law, the condemning authority must declare a taking when acquiring private property without an owner’s consent. This taking triggers the property owner’s right to pursue additional just compensation. Unfortunately, for a variety of reasons, the condemning authority may take property or property rights from an owner without declaring a taking and initiating the eminent domain process; thus preventing the property owner from pursuing a claim for just compensation. In this situation, a property owner has the right to file an inverse condemnation claim.

Under inverse condemnation, the property owner has the right to go to court and explain that the actions of the alleged condemning authority amount to a taking of property. The court will then declare that a taking of property has occurred, giving the property owner the ability to move on to the damages phase of their case where they can pursue a claim for just compensation.

Physical Takings

Rarely will a condemning authority fail to declare a taking and institute proper eminent domain procedures when taking physical property such as a portion of a property owner’s front yard, or the parking lot of a business. However, occasionally a condemning authority will take away property rights, such as restricting or removing access without declaring a taking. The taking of property rights such as access is treated as a physical taking in eminent domain law and therefore requires the payment of just compensation. In this situation, a property owner has the right to file an inverse condemnation claim to initiate the eminent domain process.

As an example, we recently litigated a case involving a commercial property owner who had direct driveway access onto a major road that was sufficient for the company’s commercial operation. It also had a small easement that provided narrow access onto a side road. When a condemning authority decided to convert this road into a restricted access highway, it was agreed that the property owners would still have access to the newly designed highway.

Years later, the condemning authority began closing off driveways of property owners, effectively eliminating their access to the highway. The Department of Transportation did not declare a taking and initiate the eminent domain process with the property owner noted above because they still had access through the small easement that led to a side road.

The loss of access is a physical taking. In this particular situation, the property owner still had access, but was it reasonable access? The property owner argued that the remaining access was not nearly wide enough to accommodate the commercial use for which the property was zoned. An inverse condemnation action was initiated and a judge ruled in favor of the property owner by declaring a taking and therefore allowing the property owner to pursue a claim for just compensation.

Regulatory Takings

Regulatory Takings are the most common inverse condemnation situation and arise when a government entity passes some type of regulation that restricts a property owners ability to use their property. The common term for this is zoning. In the past few decades, zoning ordinances have started to encroach more and more on property owners, consequently restricting and changing the way they can use their property.

Fortunately for property owners, the courts have taken notice of this practice and now give owners the opportunity to take legal action if this occurs. If a new zoning ordinance restricts the use of property so significantly that it effectively takes the property from the property owner, or if the ordinance takes the use of the property away from the owner, then the property owner has the right to pursue an inverse condemnation claim to initiate the eminent domain process.

Standard Tests for Regulatory Takings

There are two standard tests that have been established by the US Supreme Court with regards to regulatory takings:

Lucas Test

If the regulation takes away all the use for that property, a total taking – or a Lucas taking – has occurred. If a property owner has a Lucas taking, they are entitled to the entire value that property had before the regulation was imposed.

Penn Central Test

Under the Penn Central Test, a partial taking has taken place. With a Penn Central taking, the owner still has some use to the property after the regulation is imposed, but the use has been so severely restricted that it causes the value of property to decrease significantly. If this occurs, a property owner has a valid regulatory taking claim.

This area of the law is fairly complicated and complex and typically involves some of the more sophisticated areas of litigation in eminent domain law. Therefore, it’s important to consult with and hire an experienced eminent domain attorney to assist you with your claim.

Police Damage Actions

A subtype of physical takings is a police damage action. Sometimes the police or other law enforcement damage the property of innocent citizens in their pursuit of accused criminals. In these situations, no taking is declared but the damage is done. Many states allow compensation to the affected owners (and compensation may be available under federal laws too). If your property is severely damaged by police actions through no fault of your own, inverse condemnation may be the appropriate means of receiving compensation.

Unreasonable Development Restrictions

Unreasonable development restrictions are akin to regulatory takings and arise when a government authority imposes restrictions on a property owner who is attempting to develop their property. This occurs when the governing authority restricts development of property to its highest and best use, or development of any kind is entirely restricted because of regulations imposed on a property owner when they attempt to obtain building permits or zoning changes.

The situations noted above will result in a loss of value to property because it can no longer be developed to its highest and best use. Under eminent domain law, a property owner who is faced with unreasonable development restrictions can pursue a court order to reverse this decision and also file an inverse condemnation claim.

If a property owner is running into road blocks while moving forward with the development of their property, the courts will not allow them to move forward with their claim until they have first exhausted all the available administrative remedies. What does that mean? Let’s pretend that you wish to develop your vacant property with a 5-story condominium complex. In order to do this, you need to file the application for the permit and then you must go before the planning commission, the zoning commission, the board of adjustment, and possibly the city council or the town board. This is called the administrative review process. The courts will not listen to your claim until you have first taken these steps and been denied.

How far through the administrative process you need to go prior to presenting your claim is highly inconsistent in eminent domain law. For example, some cases required the property owner to complete the administrative process two or three times. In other cases, the property owner didn’t even need to go through the process in its entirety. Determination in these cases is almost always done on a case-by-case basis. However, the farther you go through the administrative process, the more likely the courts will agree that you have exhausted your options.

This process is accompanied by what is called a doctrine of futility. This means you can establish that the actions you have completed to date show that even if you did continue down the administrative review process, the end result will be the same, meaning no matter what you do, the government authority will continually deny your development. If this can be established, the courts will accept that any efforts to continue down the road of the administrative review will be futile. They will then allow you to bring your case for review at that point and time.

Claims through the administrative process for inverse condemnation have two components. First, the property owner will go through the administrative process and then seek a court order claiming that the local authority is not granting them the permits to which they think they are entitled. Owners must assert that the local authority’s reason for denying them is arbitrary, capricious or not reasonable. They must also plead inverse condemnation, so that if the regulation is somehow upheld and they are denied the right to develop their property, then an inverse condemnation claim is in place to alternatively ask for the remedy of just compensation.