By: Cameron W. MacLeod, Esq.

New Jersey courts determining the “just compensation” value for a piece of property have long relied on the distinction between “special” and “general” benefits in deciding what evidence to admit for consideration.  “Special” benefits that affect that particular parcel could be considered for purposes of valuation; “general” benefits affecting the municipality more broadly could not.  The New Jersey Supreme Court, however, recently determined that such a distinction has “outlived its usefulness,” and adopted a valuation approach that takes into account the fair market value of the land based on all “non-speculative, reasonably calculable benefits,” regardless of whether these are due to public or private improvements.  This brings New Jersey in line with more contemporary just compensation case law, and broadens the evidentiary scope for condemnation hearings for both total and partial takings cases.  It also creates an interesting benefit for municipalities conducting improvement projects such as dune building or beach restoration, where those projects either preserve or possibly increase the value of the taken property.

As part of a beach restoration and preservation project funded by local, state, and federal government, the Borough of Harvey Cedars sought to acquire perpetual easements to strips of beachfront property along the ocean to build new artificial dunes.  Sixty-six of the eighty-two landowners granted consent; sixteen held out, including the Karans.  Exercising its eminent domain powers over these strips, the Borough acquired these pieces of property by suit in 2009.  The Borough and the Karans could not come to an agreement on valuation, and eventually the issue of just compensation for the taking came before a jury.  On the Karans’ property, a dune approximately twenty-two feet high was constructed, taking up approximately one-quarter of the property and interfering with the view of the ocean and beach from the two decks on the back of the home.  At trial, the Borough sought to admit testimony regarding the benefit to the Karan’s property because of the dune project, in an attempt to offset the valuation of the taking.  The trial court found that because the dunes were being constructed for the benefit of all those on the island, they were “general benefits” and the jury would not hear testimony about the value added by the project when determining the valuation of the property.  The jury, after hearing testimony about the impact on the Karans’ view and their property from the dune’s construction, eventually awarded the Karans $375,000 as just compensation for the partial taking.

On appeal, the Appellate Division affirmed the trial court’s exclusion of this evidence, relying on the distinction between general and specific benefits.  The panel found that because the added benefit to the property was for all the properties on Long Beach Island, the benefit afforded was general.  Further, they found that there was no proof on the record of any special benefit for this tract of property, there was no basis for finding that the claims it was safer from storm damage would be of any benefit at all to the property’s value.

The Supreme Court found that the distinction of general and special benefits with regard to determining just compensation was no longer useful, and abandoned that approach in favor of the fair market value approach outlined by the California Supreme Court in Los Angeles Cnty. Metro. Transp. Auth. v. Continental Dev. Corp., 941 P.2d 809 (Cal. 1997).  The Court found that  just compensation should instead be based on “non-conjectural and quantifiable benefits,” which are reasonably known at the time of the taking. As before, speculative benefits should not be considered, because of the potentially adverse effects. “Benefits that both a willing buyer and willing seller would agree enhance the value of property should be considered in determining just compensation, whether those benefits are categorized as special or general.”   In rejecting the general and special benefit categories, the Court found that the terms were no longer accurate, and instead, a fair market analysis based on known benefits at the time of the taking was more reasonable.  Further, the Court also announced that landowners should not be able to benefit from a windfall from a public project which positively affects the value of their property, which may be the case in shore communities now better protected from large storms or any property benefiting from a municipal project.  As the Court rightly recognized, the Karans could not receive a total sum more than the fair market value of their home for a total taking, yet the trial court here precluded information that would effectively allow for such an absurd result to occur.  Accordingly, the matter was remanded for a new trial, so that testimony regarding the extent of the improvements made by the public project and impacts to the property valuation could be properly heard and a determination of the appropriate fair market value could be made to determine just compensation for the partial taking.

The Supreme Court’s decision here changed the focus of its analysis in just compensation cases away from whether there was a special benefit to this specific property to the broader market factors affecting value.  While this approach of relying on known rather than speculative benefits is not entirely new, the incorporation of municipal improvement projects into the considerations does mark a shift in those factors which may be considered.  This should create a more realistic valuation for properties taken either in whole or in part through governmental action, and afford a reasonable and just compensation to those landowners accordingly.  It could also reshape the landscape of takings law, where the taking is either in whole or in part for benefits which increase the value of the property in question.