Eminent Domain Issues Affecting New Jersey Condominiums – Can the Government Really Take Part of Our Common Elements?
Eminent domain, sometimes referred to as condemnation, occurs when the government exercises its power to take private property for public use. When this awesome power is exercised, the government must pay the property owner “just compensation” for the property taken, as required by the Fifth Amendment of the United States Constitution.
The government can take all of an owner’s property, or just a portion of the property, depending on the government’s needs. Condemnation of condominium association common elements presents unique and complicated issues, especially when only part of the common elements is taken. Examples we have experienced over the past few years involving the taking of common elements are:
road widening projects, where 10 to 15 feet of road frontage is taken to widen a road,
condemnation of utility easements to run new gas or oil pipelines,
acquisition of easements to construct dunes along oceanfront properties, and,
taking of a parking lot to build a new utility facility.
In each case, only part of the common elements was taken, but the damages are often significant.
When confronted with a potential eminent domain action, the Board of the Condominium Association must first review the governing Master Deed, By-Laws, and New Jersey Condominium Act to determine who must get notice of the potential eminent domain action and what rights the various parties may have (i.e. unit owners, mortgagees, etc.). For example, the New Jersey Condominium Act requires unit owners to receive notice of any taking of common elements, a requirement that is also included in many Master Deeds. N.J.S.A. § 46:8B-25. Also, many Master Deeds have a “Mortgagee” clause which requires mortgagees of unit owners to receive notice of certain actions, such of condemnation of common elements, with the notice sometimes being limited to actions which have a material impact on the property or unit.
Although unit owners are entitled to notice, the New Jersey Condominium Act expressly provides that a “condominium owner should participate in the condemnation proceedings through its association, and the association should collect and distribute damages to each individual owner.” NJDEP v. Midway Beach Condo Assn, 463 N.J. Super. 346, 354 (App. Div. 2020); N.J.S.A. § 46:8B-25 (“each unit owner shall be entitled to notice of such taking and to participate through the association in the proceedings incident thereto.”) Therefore, only the Condominium Association will be named as a defendant in a condemnation lawsuit and is the party who is charged with handling the litigation.
After confirming who gets notice and who oversees negotiations and litigation, the Board needs to address the merits of the case, which generally focuses on the issue of just compensation to be paid by the government to the Association. For purposes of this article, we will assume the government has established a public use and the right to acquire the property, leaving the only issue of “just compensation.” The right to take private property can be challenged and should be reviewed by the Board, but a discussion of defenses to a taking is beyond the scope of this article. Since most takings of common elements are “partial takings,” the just compensation analysis is more complex and requires a valuation of the property taken and analysis of damages to the property which is retained (known as severance damages). The Board should consider retaining an experienced eminent domain lawyer and appraiser to help with the valuation and damage analysis since the analysis is very difficult, even for experts.
Finally, once the case is settled or reduced to a trial verdict, the responsibility to allocate the award of just compensation is vested in the Board. N.J.S.A. § 46:8B-25 (“Any damages shall be for the taking, injury or destruction as a whole and shall be collected by the Association and distributed by it among the unit owners in proportion to each unit owner’s undivided interest in such common elements, except to the extent that the Association deems it necessary or appropriate to apply them to the repair or restoration of any such injury or destruction.”).
In order to accurately determine the allocation of the award of just compensation among the unit owners, the Board will need to review the Master Deed and By-Laws to see how units are described and the corresponding percentage as they pertain to a condemnation action. Also, the Board is generally entitled to retain a portion of the just compensation award to the extent necessary to repair or restore any property that was injured or destroyed. N.J.S.A. § 46:8B-25. Finally, unit owners will need to review their own individual mortgages to determine what rights, if any, their mortgagees have in the award.
Condemnation actions are expected to increase in the near future. Large infrastructure spending bills have been working their way through the federal and state governments for years and, once approved, will result in an increase in condemnation cases since the government and utility companies often need to acquire private property for their projects. Property owned by Condominium Associations will likely be necessary for certain projects. Condominium Associations need to know their legal rights.