A Closer Look at Right of Way
Appraisal Issues: Part III
Appraisal of Negative Interests
for Right of Way Acquisitions
Conservation Easements
Restrictive Covenants
Home Owner Associations
Issues
•Negative Interests in the sense that they limit
the economic utility of the property
•Similarities and differing characteristics of
Conservation Easements, Restrictive Covenants
and Home Owner Association (HMO) property
•Are the permanent conditions to be treated as
restrictive – similar to the impacts of zoning?
•What defines value – and to whom?
Conservation Easements
•Traditional Approach – Appraise the
acquisition subject to the limitations of the
easement
•Virginia statute requires that we compensate
the holder of the conservation easement as
well.
•How is this accomplished
•What are the impacts on the appraisal
process?
Conservation Easement
Right of Way Appraisal Issues
•Easement in perpetuity is not extinguished by
conveyance
•Easement has a negative value i.e. it is an obligation
to monitor the property
•Was any money ever paid for the easement?
Tax Benefit – who is due the loss of the conservation
easement ?
Who received the benefit and should be compensated –
public?
Landowner already received tax benefit and should not be
compensated again for the removal of ease.
“Modern” and “Majority” Views
•Nancy McLaughlin published an article in the
U.C. Davis Law Review in June of 2008 entitled
Condemning Conservation Easements:
Protecting the Public Interest and Investment
in Conservation
•Articulated the concept of Majority
interpretation based on modern thought.
“Majority” Explanation
“Courts at the federal level and in a majority of
states that have addressed the issue have held
that negative restrictions ….. constitute
compensable property for eminent domain
purposes.”
Condemning Conservation Easements, by Nancy A. McLaughlin, University of California,
Davis Vol. 41:1897, p.1910
“Modern” Legal Thought
•“As a result of this expansive modern view, a
variety of intangible rights or interests in real
property have been treated as compensable
property for eminent domain purposes,
including appurtenant and in gross easements,
restrictive covenants …..
•Ibid p.1910
The Question of Market Value
•Difficulty of finding market value of a negative
interest
•McLaughlin quotes a Supreme Court Case (Va.
Elec. & Power Co., 365 U.S. at 633) which “approved a before
and after method to value existing in gross
flowage easement upon its taking, and noting
that there was no evidence of a market in
flowage easements …”*
•*Ibid footnote 159
Question of Market Value (cont.)
•The actual quote from the Supreme Court in
this case was as follows:
•“This Court has never attempted to prescribe a
rigid rule for… “just compensation”.. Fair Market
value has normally been …the standard. But when
market value has been too difficult to find or .. Its
application would result in manifest injustice to
owner or public, courts have fashioned and
applied other standards..”
•Ibid p.1935
“Minority” Opinion Arguments
•The more traditional opinions (referred to as
“minority” in the McLaughlin article) offer
several points of justification*
•1) Restricting the Exercise of Eminent Domain
•2) Intolerable financial and Procedural Burdens
•3) Bad Faith and Fraud
•* Ibid pp. 1916-18
“Majority” Responses
•1) The “majority” commentators point out
that these interests do not prevent the exercise
of eminent domain, just require that they be
adequately compensated.
•2) The intolerable burden issue pertains to the
potential for having to address and
compensate a large number of property
owners where restrictive covenants are
acquired (cont)
“Majority” Responses (Cont.)
•2) (cont.) The “majority” commentators
counter that there may be no impact in many
cases and when there is, the impact may often
be confined to nearby properties.
•3) The bad faith argument is wary of owners
who may place restrictions on property at the
last minute hoping for windfall compensation.
The “majority” opinion is that potential abuse
is not justification for denying compensation
when it is due.
•Ibid pp. 1916-19
Restrictive Covenants
•Property restrictions similar to conservation
easement in that:
•Can’t be sold – must be extinguished
•Negative interest implying benefit
•In this case, benefits specifically intended for other
properties
•Values to beneficiaries supported by Virginia
case law
Meagher v. Appalachian Power Co.,
195 Va. 138, 77 S.E.2d 461 (1953) Supreme Court of Virginia
•Power company bought lots in a subdivision with
restrictive covenants limiting development to
housing.
•Court ruled for property owners who were the
holders of the beneficial interest
•Owner purchasing with knowledge of impending
purchase was compensated
•Owner who moved prior to purchase not
compensated
•Owners of lots in adjoining subdivision not
compensated
Minner vs. City of Lynchburg
204 Va. 180 (1963)Supreme Court of Appeals of Virginia
•Subdivision had restriction against additional
streets
•City purchased lot to build street
•Lot owners sued city and heirs of original
developers and on appeal prevailed
Home Owner Assoc. (HOA) Issues
•Differs from preceding in that property may
be voluntarily conveyed
•Is land committed by jurisdiction to
subdivision use?
•Is it required “open space” or part of an approved
planned use?
•If so, is this a regulatory restriction (like zoning)
that is not directly tied by ownership interests to
the subdivision lots?
HOA Issues (Cont.)
•What is ownership structure?
•Is it owned by HOA as a separate entity?
•Are there specifically described ownership
interests held by the owners of the subdivision
lots?
HOA Issues (Cont.)
•Does land have an alternate use?
•Is it essentially excess land? – or surplus?
•Unusable surplus land sales are good uneconomic
comparables
•Usable excess land is addressed as any other property
through an analysis of Highest and Best Use
Summary
•As noted, the acquisition of property with
negative restrictions is not always a straight
forward proposition and the appraisal issues are
often complex.
•A review of local, state and federal case law is a
mandatory first step. That said with the caveat
that interpretations vary and understanding does
often evolve over time.
•Whatever conclusion the appraiser reaches must
be well informed and not based solely on
traditional assumptions
Contact Information
Michael C. McCall, MAI
Chief Appraiser, Virginia Department of Transportation
Michael.McCall@VDOT.Virginia.gov
(804) 786-3029
A Closer Look at Right of Way
Appraisal Issues: Part III
Appraisal of Negative Interests
for Right of Way Acquisitions
Conservation Easements
Restrictive Covenants
Home Owner Associations