The Minnesota Supreme Court has just handed down an opinion dealing with the often muddled area of valuation of contaminated property that is taken by eminent domain.
The basic problem seems deceptively simple: you take the value of the property, deduct from it the cost of remediation, and – voila! – there is its contaminated value. Unfortunately doing it that way doesn’t work. For one thing, the cost of remediation is not reflected dollar-for-dollar in the value of the property. The cost of decontamination may or may not be fully reflected in the market value of the property’s post-remediation condition, and the post-decontamination market value of the property may not be all that different than it was in the before condition.
Also, since valuation involves consideration of comparable sales, it is likely that at least some of the comparables are also contaminated, and if so, that means that the market has already considered and discounted the cost of decontamination in arriving at the sales price. So deducting the cost of decontamination, would amount to a double whammy on the owner: first, the fair market value of his property arrived at in the eminent domain valuation process (i.e., what an informed buyer would pay for it in a voluntary transaction) would already reflect the diminution in value caused by its contaminated condition, and then, second, he would be charged again, in the form of a deduction for decontamination costs.
Then there is the problem of determining the cost of decontamination – a process that can range from minimal compliance with environmental laws to an all-out “Cadillac” approach that would achieve the highest degree of decontamination.
So the Minnesota Supreme Court took the efficient approach of holding that contaminated property should be valued as if uncontaminated, because the cost of decontamination is taken care of in other proceedings under various environmental laws.
The case is Moorehead Economic Devevelopment Authority v. Anda, Nos. A07-1918 and A07-1930. To read the whole opinion go to http://www.mncourts.gov/opinions/sc/current/OPA071918-0902.pdf