DailyAdvance.com reports that after originally making an offer of $146,000 the North Carolina DOT setted a case involving a partial taking of a school property for $1,550,000, which according to our calculator is more that ten times the amount of the origial offer. See Toby Tate, Camden Agrees to Deal With State DOR on Widening, DailyAdvance.com, April 3, 2010. See http://www.dailyadvance.com/news/camden-agrees-deal-dot-widening-19084

In an earlier post we promised to say something about the rule of noncompensability of options to purchase land that becomes involved in condemnation. So here goes. In the recent Connecticut Supreme Court opinion in the Branford case (988 A.2d 229), the court held that the optionee lacks a property interest in the option and is therefore not entitled to any compensation when land that is the subject of the option is taken.  We had some trouble believing our eyes when reading that part of the Branford opinion because the court said there that in Connecticut, entering into an option agreement confers no property rights on the optionee. Does that mean that the optionee’s interest under an option agreement is illusory? We’ll let the Connecticut folks worry about that one. Our task at hand is to say something about that noncompensability rule which is still followed in some states.  

The rationale behind that rule is that an option to buy land is a contract, not an interest in land, so when the property that is the subject of the option is taken, the owner of the contractual right has no protected property right. That used to be the law in California until 1975, when the state supreme court decided County of San Diego v. Miller, 119 Cal.Rptr. 491 (Cal. 1975) where it actually analyzed the law and reversed its prior precedent, holding that thenceforth unexercised options to buy land are compensable in eminent domain. You faithful servant had the honor of representing the optionee in that one, so he has a warm spot in his heart reserved for that holding. 

We could spend a lot of time in analyzing the legal aspects of this problem, but in reality the issue is quite simple. In a typical case the owner sells an option to the optionee for, say, $X. So if later the price rises to $Y which is greater than $X, the optionee pays the $X, takes title, and can then resell the property for $Y, thus making a profit. Or he can develop the property himself. Now, along comes a condemnation before the option is exercised.

Typically, at this point the condemnor yells: “No property interest, Your Honor, the optionee has only a contractual right.” True enough, but the correct response at this point is “So what?” The U.S. Supreme Court has held that contractual rights are property rights, so no doctrinal reason appears why the option holder should not be compensated for those rights. 

But more important, it is black letter law that when land is condemned, the monetary award becomes a substitute for it, so if there are any competing claimants seeking a share of the award, that is of no concern to the condemnor. After the jury returns a verdict of fair market value, the condemnor (at least around here) writes a check for the total amount of that award, made out to all claimants “as their interests may appear,” deposits it in court and leaves the scene since it no longer has any interest in the matter.

In other words, the condemnor has no legitimate interest in how the condemnees (including the owner-optionor and the would-be buyer-optionee) divide that award between them. And since the optionee has the right to demand title in exchange for $X – which is all the optionor is entitled to under the option contract – it’s a done deal. The only question is whether $X is greater or less than $Y. If it is greater, the optionee loses his bet and gets nothing. If it isn’t, the optionee is entitled to the difference between $X and $Y. 

But since this does not involve the condemnor, why do you suppose condemnors are forever yelling that the optionee should not be compensated? Good question. They do it because they love to use the existence of the option as a club to be wielded on the owner-optionor. If the optionor and only the optionor is the defendant in the valuation case, the condemnor can now argue: “Why should we pay the optionor $Y when he has already agreed to accept $X which is less? Why should the taxpayers have to pay more than what the owner has already agreed to accept from the optionee?” Faced with the prospect of facing this problem, and appearing greedy to the trier of fact, owner-optionors often settle for a few bucks more that $X. The condemnor is then happy because it pays less than market value, and the owner-optionor is, if not happy, at least satisfied with getting a bit more than $X. So the condemnor gets a good deal, and to a limited extent, so does the owner-optionor. The optionee gets screwed. 

So the better rule is to have the condemnor pay the property’s fair market value into court, and let the optionor and optionee divide it up in accordance with their option agreement. Sounds reasonable to us because that way each party gets compensated for its economic interest in accordance with its reasonable expectations, and the condemnor pays fair market value, just as it is supposed to do. 

Solomonic justice – that is what it is.

A tip of our hat to Jacob Sullum, writing for the Reason Foundation,  for cleverly coining the phrase “big blighters” to characterize redevelopers who — particularly but not exclusively in New York — abuse the term “blight” in manufactiring a justification for the use of eminent domain to wrest usable, ordinary properties from their rightful owners, in order to consolidate them into redevelopment sites on which they build for private gain and call it “public use.”

See http://reason.org/news/show/big-blighters, December 9, 2009.

Remember our reports about the ups and downs of that Everglades deal whereby the government would buy gazillion dollars’ worth of land and transform it in time from sugar cane cultivation to a natural condition that would tend to restore the Everglades? Sure you do. If not, take a look at https://gideonstrumpet.info/?p=392 for a refresher.

Anyway, today’s New York Times reports that things aren’t going well down there. See Damien Cave, Court Ruling May Imperil Florida Deal, N.Y. Times, April 1, 2010, at p. A15. It appears that a federal court has ruled that the stoppage of the construction of a $700 million reservoir in Palm Beach County is illegal. It seems that local Miccosukee Indians have sued, arguing that this project would unlawfully divert money from other projects they favor. Evidently, the court agreed.

The problem is that, accordng to the Times story, if the South Florida Water Management District is required to complete this expensive reservoir project, that will jeopardize the deal calling for the purchase of 70,000 acres from United States Sugar for $536 million. There is evidently not enough money for both projects.

“Now officials are trying to determine if the two [projects] are once again on a collision course.”

Rots of ruck, guys.