NC Supreme Court: Condo Developer Entitled to Just Compensation

When the government takes private property using the power of eminent domain, the property owner is entitled to receive just compensation. But what happens when another party shows up with an interest in the property? Should they get a slice of the compensation pie? In a legal showdown that could have been from a real estate drama series, the North Carolina Supreme Court faced this question.

In DOT v. Bloomsbury Estates, LLC, 905 S.E.2d 36 (N.C. 2024), the City of Raleigh granted a developer approval for a two-phase condominium project. The developer successfully completed the first phase, recorded a Declaration of Condominium, and established the condominium homeowners’ association. Ownership of the property transferred to the association, and the developer was ready to move on to phase two of the project. Before the second phase could begin, however, the Department of Transportation (DOT) swooped in using eminent domain to take part of the property. This forced the developer to hit the brakes on the project.

After mediation talks, DOT agreed to pay $3,950,000 in just compensation for the partial taking. But when it was time to divvy up the funds, the developer and the association could not agree on how much they each were entitled to get. They initiated legal actions against each other over the validity of development rights, the parties’ interests in the property, and their shares of just compensation.

The dispute over the parties’ shares of just compensation was first decided by a trial court. The court ruled in favor of the developer and found that the loss of development rights required the developer to be compensated before the association could receive any remaining funds. Ultimately, the developer was awarded $2,929,225, while the association received just $54,410.

As one might expect, the association was not happy with the trial court’s decision. On appeal, the appellate court reversed, finding that there were issues from the parties’ actions which precluded summary judgment. It also found that a jury needed to evaluate the credibility of each appraiser involved in the property’s valuation, which was the basis for the amount of just compensation.

The developer then took the case to the North Carolina Supreme Court. There, it argued that summary judgment was proper because the Fifth Amendment was the only legal issue at play. The association, on the other hand, argued that summary judgment was not proper because the parties’ other legal disputes should have been resolved first. It also argued that the developer cannot have its cake and eat it too by receiving compensation for the loss of development rights and then re-acquiring those rights later on.

In the grand finale of this tumultuous legal dispute, the developer prevailed once more. Since the parties agreed that the developer was entitled to compensation for the loss of development rights and no other issues of material fact remained, the court found that summary judgment was properly granted by the trial court. It also found that the trial court did not abuse its discretion when it distributed funds to the developer before distributing the remaining amount to the association.

The court acknowledged that the developer could potentially “double dip” by receiving just compensation for losing development rights and having those rights restored later on. However, it was not persuaded by this argument and entrusted a later court to make an accurate determination of the future development rights.

DOT v. Bloomsbury Estates emphasizes that development rights are an essential aspect of property value. The North Carolina Supreme Court recognized this when it ruled in favor of the developer. Since the developer had rights to build on the land, it had an interest in the property and therefore an interest in the condemnation award. By awarding the developer a share of just compensation, the court ensured that the developer’s property rights were honored.

Note:  In New Jersey eminent domain proceedings, properties taken are valued using the “unit rule” where all interests are valued together as a single unit.  If there is any dispute as to how the just compensation for the taking should be allocated, the parties’ disputed allocation will ordinarily be resolved in a separate, post-trial proceeding before the trial court.

To read the full decision, click here.