Precondemnation Blight in New Jersey

As you probably know by now, New Jersey Governor Chris Christie made some waves lately when he announced the cancellation of New Jersey’s participation in the construction of a new tunnel under the Hudson River to provide additional rail access to New York. He did it on the remarkable grounds that the State of New Jersey was broke – it did not have the necessary funds, though one suspects that the fact that under that deal, New Jersey was to bear a disproportional share of the cost may have had something to do with it. But be all that as it may, the cancellation has given rise to an interesting problem involving eminent domain law. 

Evidently, that tunnel has been planned for a while, and it progressed to the point where land acquisition for it had actually begun. As of the time of the cancellation, New Jersey had already acquired some land in its path, and is now stuck with it. Additional land had been taken and not yet paid for, and that land will now have to be paid for. But the really interesting part involves the third category of land — land that had been targeted as being on the State’s acquisition list, but not yet taken by eminent domain.  When this happens, there usually occurs a phenomenon known as precondemnation blight – i.e., a situation where people and businesses shun the targeted properties which become unrentable and unsaleable (at least not at a reasonable price), because people don’t want to own or lease land that is going to be taken from them by eminent domain in the foreseeable future. This is to be distinguished from just plain old “blight” which is a condition said to justify takings for redevelopment. Rather, it is a form of economic and physical deterioraion that is caused by the imminence of condemnation – what the treatise Nichols on Eminent Domain aptly termed a situation in which “a sword of Damocles” hangs over the property.

This situation gives rise to two problems. First, the market value of such land gets depressed, and second, as the delay in acquisition drags on, the neighborhood deteriorates, tenants leave, these properties’ owners become unable to carry them, and at times face foreclosure or tax sale.  

At times, the local condemning agencies took the position that they should be able to acquire such land at its depressed market value. But that approach was shot down by the Supreme Court which held in United States v. Virginia Electric & Power Co., 365 U.S. 624 (1961) that the government may not first depress values and then take the affected land at its depressed value. Alas, that did not keep the government from trying, notably in in Cleveland and Detroit where the city was known to give the blighting process a little help by withholding trash pickup and police services from the targeted neighborhoods. But the courts would not buy it. Eventually, the federal courts in Michigan put a stop to it in the famous Foster litigation (330 F.2d 87), where they held that not only must the subject property be valued as if the city blighting had not occurred, but when those activities go too far, either by way of delay or interference with the owners’ private use, that owner has a right not to wait for the delayed consemnation, but after the degree of interference with the property got to be unreasonable, may take the initiative and sue in inverse condemnation.

In New Jersey, it was Jersey City Redevelopment Agency v. Kugler, 267 A.2d 64 (1970) in which the agency had the chutzpa to argue that it had a constitutional right, no less, to acquire the affected land at its blighted price. Nothing doing, said the New Jersey Supreme Court. Other state courts followed – see e.g., Luber v. Milwaukee County, 177 N.W.2d 380 (Wis. 1970), Klopping v. City of Whittier, 500 P.2d 1345 (Cal. 1972), Lincoln Loan Co. v. State Highway Commission, 545 P.2d 105 (Ore. 1976), And Lange v. State, 547 P.2d 282 (Wash. 1976). 

The New Jersey Supreme Court joined this view in Washington Market Enterprises v. City of Trenton, 343 A.2d 408 (N.J. 1975). It granted the owners the right to sue in inverse condemnation in such cases, but its copensation formula is a bit confusing.

At this point it gets to be a bit of long story, so if you are interested in this topic, we suggest that you read Gideon Kanner, Condemnation Blight: Just How Just Is Just Compensation? 48 Notre Dame Lawyer 765 (1973). That article is an oldie but goodie. It received the Shattuck Prize from the American Institute of Real Estate Appraisers, and was relied on by the Oregon Supreme Court in the Lincoln Loan case as the sole authority for rejecting a much more restrictive New York rule. Not bad, if we do say so. 

So it looks like there will be much useful and productive work for condemnation lawyers in New Jersey, as they try to mop up the mess that this tunnel cancellation is creating. Good luck to them and their clients.

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