Valuing Contaminated Property in a Condemnation Case

by: Michael Realbuto
31 Oct 2022

Regarding the intersection of eminent domain and environmentally contaminated property, the New Jersey Supreme Court made the following observation:

In general, eminent domain springs from two separate legal doctrines. The right of the State to take private property for the public good arises out of the necessity of government, whereas the obligation to make “just” compensation stands upon the natural rights of the individual guaranteed as a constitutional imperative. 1 Nichols, supra, § 1.11, at 1-10 (citing 1 Thayer’s Cases on Constitutional Law 953); U.S. Const. amend. V; N.J. Const. art. 1, ¶ 20. There is an inherent tension between those notions in every condemnation case. Nowhere is that tension more obvious than at the point at which contaminated property is taken by condemnation. Housing Auth. of New Brunswick v. Suydam Investors, 177 N.J. 2, 7 (N.J. 2003)

The impact of environmental regulations upon the value of the condemned property has become an increasingly relevant consideration with the proliferation of environmental statutes and regulations. See, e.g., Spill Compensation and Control Act, N.J.S.A. 58:10-23.11 et seq. (the “Spill Act”) (Imposing strict liability, jointly and severally, without regard to fault on any person who has discharged or is any way responsible for discharge of hazardous substances and providing limited defenses to owners). A prospective condemnor must determine whether the public purpose and available alternatives justify projects upon contaminated or otherwise environmentally sensitive properties. Governmental entities that acquire property by eminent domain have a qualified immunity under the Spill Act from costs associated with the cleanup and removal of hazardous substances that began or occurred prior to the transfer of title. N.J.S.A. 59:10-23.11g-d(4).

Following years of disparate court determinations, both in New Jersey and nationally, in Housing Auth. of City of New Brunswick v. Suydam Investors, 177 N.J. 2 (2003), and New Jersey Transit Corp. v. Cat in the Hat, 177 N.J. 29 (2003) the New Jersey Supreme Court established a framework to be followed in acquisitions of contaminated properties. The framework, in part, requires as follows:

  • Contaminated property that is the subject of condemnation is to be valued for condemnation purposes as if it has been remediated;
  • Environmental issues should be handled in separate cost-recovery proceedings under the Spill Act. Such proceedings allow for third-party claims against insurers, title companies, and prior owners, none of whom have a place at the condemnation table, and makes available to the condemnee Spill Act defenses;
  • Where property is contaminated, the condemnor should appraise the property as if remediated and deposit that amount into a trust-escrow in court;
  • The condemnor may reserve its right in the condemnation proceeding to initiate a separate cost-recovery action to recover remediation costs from the responsible party.

The requirement that contaminated property is to be valued “as if it has been remediated” in a condemnation matter is a safeguard for property owners to ensure that constitutional “just compensation” is received for the property taken. Specifically, separate consideration of environmental contamination avoids the risk of an unconstitutional reduction in “just compensation.” Prior to Suydam, if a property owner received a condemnation judgment discounted by the presence of contaminants, there was no guaranty against a claim by the taking agency (or some other regulatory agency) for the precise same contamination cleanup. Following the Court’s decision in Suydam, property owners are better protected against double liability on the issue of contamination.

While the information above provides a basic outline of the process, the condemnation of contaminated property can be very complicated and each case presents its own intricacies. An experienced condemnation lawyer can help you navigate through the specifics of each individual case. McKirdy, Riskin, Olson & DellaPelle, P.C. has specialized in this particular field for over fifty years. Please feel free to contact us for a complimentary consultation.