How is 'Just Compensation' Determined When the Federal Government Takes Private Land

Like the government here in North Carolina, the federal government has the power under eminent domain to take private land for public use. To be lawful, however, the federal government must pay "just compensation" for the land taken.

Under federal court decisions, "just compensation" is, essentially, the fair market value of the land. In other words, as one court phrased it, just compensation is an "amount of money necessary to put a landowner in as good a pecuniary position, but no better, as if his property had not been taken." When an easement is taken -- rather than the whole property -- then just compensation is the difference between the value of the property before and after the easement was imposed.

Further, federal courts have held that the "fair market value" of the land taken is the highest price that a willing buyer would pay -- in cash -- to the landowner as measured at the time of the taking of the land by the United States. Since a given parcel of land may be adaptable to many different uses and since, when the federal government takes private land, the question of fair market value involves a hypothetical "willing buyer," landowners are allowed to prove fair market value by measuring the highest and best use of the land in question. In the marketplace, the highest and best use would, of course, bring the highest price.

Under federal law, there is a legal assumption that the highest and best use is what the land is being used for at the time of the taking. However, landowners can rebut that assumption. To do so, landowners must be able to prove that there are "reasonable" prospects for FUTURE development and use of the land that would be better and higher uses than the current use. Facts that might be used to prove a future-use value include:

• Highest and best current usage on adjacent properties
• Specific purchase inquiries from land developers
• Trends in the neighboring geographic areas of higher use development
• Prices for recently-sold comparable properties with higher and better usage
• Government plans for public works projects -- like a new highway -- that might impact future development, usage and value
• The number of parcels and owners
• Physical suitability for the land in question for the landowner's suggested future usage
• Laws and restrictions with respect to allowable possible future usage
• General compatibility and suitability of possible future uses with respect to surrounding land usage

Generally, landowners -- and the government -- use real estate appraisers to provide evidence of the fair market value of the land in question. And, typically, it is through the reports and testimony of the appraisers that issues of future use are presented to a court for resolution. A good illustration of these legal principles comes from the case of United States v. 269 Acres Located in Beaufort, South Carolina, 995 F. 3d 152 (US Court of Appeals, 4th Cir. 2021). In that case, the US Department of Defense took private land -- by imposing many restrictive rules -- on land near a Marine Corps air base in Beaufort, SC. For example, the landowners were not allowed to subdivide the land, develop their land with industrial or residential structures and there could be no land use that might attract birds.

The government hired appraisers that valued the acreage in question at about $940,000. The landowners hired their own appraisers that valued the land at just shy of $9.7 million. The court ultimately held the value of the land to be about $4.4 million. The issue turned on whether some portion of the acreage was suitable for development for residential homes and for light industry. The government argued that such potential future usages were too speculative.

At the US District Court level, the court disagreed. The court noted a number of facts to support a higher valuation including these:

• The larger surrounding areas of Beaufort had been quickly developing for residential and light industry uses
• The specific locality around the 269 acres was also quickly developing
• The potential light industry and residential areas were owned by only a few landowners easing the path to development
• Evidence was presented of higher market prices for comparable sales of similarly undeveloped land which was ultimately developed into residential and light industry usage
• Evidence of near-future demand from home buyers and others

On appeal to the Fourth Circuit Court of Appeals, the trial court's decision to award about $4.4 million was affirmed. The Court of Appeals said that it might have made a different decision, but it gave deference to the factual determinations made by the District Court.

For more information, and to schedule a confidential consultation with experienced and dedicated eminent domain and condemnation attorneys in Charlotte, contact Arnold & Smith, PLLC. Use our “Contact” page or give us a call at 704-370-2828. We handle land use, zoning and condemnation legal matters in federal court, in Mecklenburg County and elsewhere in North Carolina. We have offices in Charlotte, Lake Norman, and Union County.