Example of Highest and Best Use Analysis and Future Development

A matter that I resolved recently is a good example of how, in condemnation, just compensation must be determined based on the highest and best use of property, which would include considering the impact on the future development of vacant land.

Appraisers must evaluate the highest and best use of the property. In an eminent domain case, the concept of highest and best use is summarized in Michigan Civil Jury Instruction 90.09, which reads “In deciding the market value of the subject property, you must base your decision on the highest and best use of the property. By ‘highest and best use’ we mean the most profitable and advantageous use the owner may make of the property even if the property is presently used for a different purpose or is vacant, so long as there is a market demand for such use.”

Additionally, when evaluating the impact of a partial taking, many factors must be analyzed. Michigan Civil Jury Instruction 90.12 describes some example factors. 

This case involves what is known as a “partial taking”; that is to say, the property being acquired by the condemning authority is part of a larger parcel under the control of the owner.

When only part of a larger parcel is taken, as is the case here, the owner is entitled to recover not only for the property taken but also for any loss in the value to his or her remaining property.

The measure of compensation is the difference between (1) the market value of the entire parcel before the taking and (2) the market value of what is left of the parcel after the taking.

In valuing the property that is left after the taking, you should take into account various factors, which may include: (1) its reduced size, (2) its altered shape, (3) reduced access, (4) any change in utility or desirability of what is left after the taking, (5) the effect of the applicable zoning ordinances on the remaining property, and (6) the use which the condemning authority intends to make of the property it is acquiring and the effect of that use upon the owner’s remaining property.

Further, in valuing what is left after the taking, you must assume that the condemning authority will use its newly acquired property rights to the full extent allowed by the law. 

The last sentence is perhaps the most critical because it emphasizes that “further, in valuing what is left after the taking, you must assume that the condemning authority will use its newly acquired property rights to the full extent allowed by the law.” I wrote an article published in the International Right of Way Association’s Right of Way Magazine that described this issue in several contexts. 

I recently completed a case in which I represented the Washtenaw County Farm Council in a taking imposed by Wolverine Pipe Line Company that illustrates these to concepts in tandem.

This aerial depicts the property and the surrounding area, including high-end residences on a golf course.

The Farm Council is a type of non-profit organization, with a mission of educating children in agriculture. For example, it supplies its facilities to the local 4H program. It also rents its facilities both to generate income to support its charitable mission and as an event location that benefits the community. This is not the highest and best use of its property, which is adjacent to some of the most expensive houses in the Ann Arbor area.  The property could be developed as a subdivision. But the Farm Council, as a non-profit, is not seeking to maximize its return, it seeks to continue operating as a charity.

However, condemnation law does not punish the property owner for making less than full use of its property. Both appraisers recognized that the highest and best use of the property was residential subdivision development.

When Wolverine acquired its easement, the appraiser did not take into account the impact on the property if developed as a residential subdivision. However, that impact was very real. Through the retention of an expert civil engineer, I was able to establish that the proposed taking had significant impacts on the type of subdivision that could be developed after the taking. The property is located in a community with no water service, all development is on well systems. The nature of the pipeline being installed by Wolverine required a greater setback to be imposed. The setback reduced the number of lots that could be developed and increased the development cost per lot for those that remained. 

The civil engineer developed a proposed site plan before the taking and compared it to what could be developed after the taking. The appraiser was able to use this to evaluate and quantify the impact on the highest and best use of the property, resulting in a substantial just compensation claim.

This case was a good example of why cases should be handled by experienced counsel who can retain the type of experts required to fully evaluate the impact of a taking.

If you have any eminent domain issues, please feel free to contact me.