A Background to North Carolina Eminent Domain

Eminent domain is the power of the government to take private property and convert it into public use through a process known as condemnation.

Federal Law

The power of eminent domain exists as an inherent governmental power. The power of eminent domain is not contingent on a particular legislative or constitutional “trigger” in that it ”appertains to every independent government. It requires no constitutional recognition; it is an attribute of sovereignty.” Boom Co. v. Patterson, 98 U.S. 403, 25 L. Ed. 206, 25 L. Ed. 2d 206 (1879).

North Carolina Law

Just as is the case under Federal law, the power to take property through the exercise of eminent domain is viewed as an inherent function of the state in that it does not need to be bestowed by a particular law. “The right to take private property for public use, the power of eminent domain, is one of the prerogatives of a sovereign state. The right is inherent in sovereignty; it is not conferred by constitutions. State v. Core Banks Club Properties, Inc., 167 S.E.2d 385, 275 N.C. 328 (1969). Department of Transp. v. MM Fowler, Inc., 637 S.E.2d 885, 361 N.C. 1 (2006).

Statutory Authority for Eminent Domain Exercised by Private Condemnors, Local Public Condemnors and the North Carolina Department of Transportation.

The North Carolina General Assembly has granted the power of eminent domain to some private condemnors, local public condemnors and the North Carolina Department of Transportation “[f]or the public use or benefit:”

N.C.G.S. § 40A-3 provides a list of entities that may exercise eminent domain and under what conditions they may exercise this power. The statute authorizes eminent domain power for private condemnors such as private utilities and other entities engaged in public works projects and local public condemnors such as counties, municipalities, and other local public entities.

Constitutional and Statutory Limitations on Eminent Domain Power

Both federal and North Carolina law limit the exercise of eminent domain power.

Federal Law Limitations

The Fifth Amendment of the U.S. Constitution provides the primary limitation on eminent domain power. The Fifth Amendment provides in part “nor shall private property be taken for public use, without just compensation” The Fourteenth Amendment made the Fifth Amendment’s limitation on uncompensated taking applicable to state and local governments.

North Carolina Limitations

North Carolina Constitution provides further protections against uncompensated takings. Article I, Section 19 of the North Carolina Constitution provides in part: No person shall be . . . disseized of his freehold . . . or in any manner deprived of his life, liberty, or property, but by the law of the land.

The “law of the land” clause contained in the North Carolina Constitution has been interpreted to incorporate the “public use” limitation on the use of eminent domain from the Fifth Amendment of the U.S. Constitution. Long v. City of Charlotte, 293 S.E.2d 101, 306 N.C. 187 (1982).

Just as under Federal Law, North Carolina courts place the following limitations on eminent domain power:

(1) the taking must for a public use or purpose State Highway Commission v. Batts, 144 S.E.2d 126, 265 N.C. 346 (1965).

(2) the property owner must receive just compensation for property condemned under the legitimate exercise of eminent domain power Lea Co. v. North Carolina Bd. of Transp., 304 S.E.2d 164, 308 N.C. 603 (1983).

Types of Condemnation

There are two basic types of condemnation, direct condemnation and inverse condemnation.

Direct Condemnation

In a direct condemnation proceeding, a government entity moves to condemn property, questions of proper public use and just compensation due to the property owner are then considered.

Inverse Condemnation

Inverse condemnation describes a legal action whereby a property owner seeks to just compensation from a government entity for a “taking” of his or her “property.” City of Charlotte v. Spratt, 140 S.E.2d 341, 263 N.C. 656 (1965). Recognized examples of inverse condemnation fall into the following three broad categories:

Permanent Physical Occupation

Permanent physical occupations involve some government activity that interferes with the use of property. Even minor interferences will qualify as a taking. Loretto v. Teleprompter Manhattan CATV Corp, 458 U.S. 419, 427 (1982). Further, indirect entry to property caused by a government entity such as flooding, nuisances or odors may also qualify as a taking. Lea Co. v. North Carolina Bd. of Transp., 304 S.E.2d 164, 308 N.C. 603 (1983).

Regulatory Takings

North Carolina courts have held that certain government regulations of land use can be tantamount in its effect to the direct physical invasion of land by the government. In Helms v. City of Charlotte, 255 N.C. 647, 122 S.E.2d 817 (1961), the Court stated “In other words, if the application of a zoning ordinance has the effect of completely depriving an owner of the beneficial use of his property by precluding all practical uses or the only use to which it is reasonably adapted, the ordinance is invalid.”

Categorical (Per Se) Regulatory Takings

Government regulation creates a per se taking in two scenarios:

1. Where an owner is required to suffer a permanent physical invasion of property, however, minor. Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 605 S.Ct. 2886, 120 L.Ed.2d 798 (1992)
2. Where a regulation denies all economically beneficial or productive use of land. Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 436-37, 102 S.Ct. 3164, 73 L.Ed.2d 868 (1982)

Partial Takings

These claims include circumstances where the application of a regulation to particular property is a taking of some interest in property that is less than the whole, although the regulation may not effect a taking on its face. To determine whether there is a taking under this category, apply the three Penn Central Transportation Co. v. City of New York, 438 U.S. 104, 57 L.Ed.2d 631 (1978), factors, which require an examination of the following:

1. the character of the invasion,
2. the economic impact of the regulation as applied to the particular property,
3. the property owner’s distinct investment-backed expectations regarding the property.

Land-use Exactions

A land-use exaction involves compensation that a development is required to pay to the government before starting construction or putting the land to a new use. To be valid, an exaction must satisfy two conditions:

1. There must be an essential nexus between the exaction itself and the state interest that the exaction is advancing. Nollan v. California Coastal Comm’n, 483 U.S. 825, 107 S. Ct. 3141, 97 L. Ed. 2d 677 (1987).
2. There must be a “rough proportionality”- the exaction must be related in both nature and extent to the impact of the proposed development. Dolan v. City of Tigard, 512 U.S. 374, 391 (2005). See also Batch v. Town of Chapel Hill, 376 S.E.2d 22, 92 N.C. App. 601 (Ct. App. 1989).

Statute of Limitations

Inverse condemnation actions are limited by N.C. Gen. Stat. § 136-111 and § 40A-51 which state that the landowner must institute an action within 24 months of the date of the taking or the date the “project” is completed, whichever occurs later. McAdoo v. City of Greensboro, 91 N.C. App. 570, 372 S.E.2d 742 (1988).

The Condemnation Process

N.C. Gen. Stat. § 40A-1 outlines the procedure in condemnation matters.

There are three basic condemnation procedures, which vary depending on the condemning entity.

N.C. Gen. Stat. § 40A-2 Private Condemnors

N.C. Gen. Stat. § 40A-3 Local Public Condemnors

N.C. Gen. Stat. §136-1 Department of Transportation and Department of Administration (State Agencies)

Public Uses Compared to Nonpublic Uses in Condemnation Actions

What constitutes Public Use?

Federal and state North Carolina courts maintain that a condemned property must confer a public benefit, not necessarily use by the public. To authorize a taking within the meaning of the “public use” requirement contained in the Fifth Amendment. Berman v. Parker, 348 U.S. 26 (1954). See also City of Charlotte v. Heath, 226 N.C. 750, 40 S.E.2d 600, 605 (1946). which stated, “the use which will justify the taking of private property under the exercise of the right of eminent domain is the use by or for the government, the general public, or some portion thereof as such, and not the use by or for particular individuals or for the benefit of particular estates.”

Public Use and Economic Development

In Kelo v. New London, 545 U.S. 469, 125 S. Ct. 2655, 162 L. Ed. 2d 439 (2005) whereby the United States Supreme Court allowed the condemnation and transfer of land to a private corporation for economic development purposes. In North Carolina, the type of eminent domain authority that was exercised in Kelo is restricted by North Carolina’s Urban Redevelopment Law, particularly against blighted properties.

Challenging Condemnation Actions

Landowners may challenge a condemnation action in two ways, through a challenge against the condemning authority’s “taking.” If the condemnation action if found to be a legitimate exercise of authority, then the landowner may present a challenge against the amount of “just compensation” offered in exchange for the property.

Challenges against Public Use

Although a landowner may present a challenge based on allegations that the condemning authority decision to exercise eminent domain is based on bad faith or an oppressive or manifest abuse of discretion. City of Charlotte v. McNeely, 190 S.E.2d 179, 281 N.C. 684 (1972). In re Housing Authority, 235 N.C. 463, 70 S.E.2d 500 (1952).

Challenges against Just Compensation

Challenges against the calculation of just compensation enjoy a greater latitude in North Carolina courts. As stated below the issue of what defines just compensation is quite clearly defined by the various statutes on the topic, however many disputes will center on how the accepted method of calculation was conducted, primarily as to the assessment of fair market value by appraisers and other experts who provide evidence as to these assessments. In this case, the court may be placed in a position of weighing the validity of each party’s assessment to arrive at the one, which complies most closely with North Carolina law.

Recovering Costs in a Condemnation Action

Under N.C. Gen. Stat. § 40A-8 Attorney’s fees and other costs may be recovered to the property owner “If a condemnor institutes a proceeding to acquire by condemnation any property and (i) if the final judgment in a resulting action is that the condemnor is not authorized to condemn the property, or (ii) if the condemnor abandons the action”

What if the Condemning Authority No Longer Needs the Land?

In cases where the condemning authority may attempt to return condemned property also known as surplus property N.C. Gen. Stat. § 40A-70, states the landowner must pay the original condemnation price, and the cost of any improvements, plus the legal rate of interest.

Issues Related to Just Compensation

What Constitutes Just Compensation?

In North Carolina, just compensation is defined by statute.

Under N.C. Gen. Stat. § 40A-64 “the measure of compensation for a taking of property is its fair market value. (b) If there is a taking of less than the entire tract, the measure of compensation is the greater of either (i) the amount by which the fair market value of the entire tract immediately before the taking exceeds the fair market value of the remainder immediately after the taking; or (ii) the fair market value of the property taken.

Under N.C. Gen. Stat. § 136-112 the measure of compensation applicable to condemnation actions involving the Department of Transportation, the Department of Administration, and to those cities and towns authorized to use Chapter 136 is as follows:

(1) Where only a part of a tract is taken, the measure of damages . . . shall be the difference between the fair market value of the entire tract immediately prior to said taking and the fair market value of the remainder immediately after said taking, with consideration being given to any special or general benefits resulting from the utilization of the part taken for highway purposes.

(2) Where the entire tract is taken, the measure of damages for said taking shall be the fair market value of the property at the time of taking.

See North Carolina Highway Commission v. Pearce, 261 N.C. 760, 136 S.E.2d 71,

Just Compensation in a Partial Taking

Just compensation in a partial taking is calculated using the “before and after” rule, or “the measure of damages for injury to personal property is the difference between the market value of the damaged property immediately before and immediately after the injury.” Carolina Power & Light Company v. Paul, 136 S.E.2d 103, 261 N.C. 710 (1964). See also Department of Transportation v. Bragg, 308 N.C. 367, 302 S.E.2d 227 (1983).

Just Compensation for Separate and Independent Parcels

Under North Carolina law, when the whole or a part of a particular tract of land is taken the owner is not entitled to compensation for injury to other separate and independent parcels of land belonging to him. Barnes v. North Carolina State Highway Commission, 109 S.E.2d 219, 250 N.C. 378 (1959).

Damage to Property

Under N.C. Gen. Stat. § 40A-64 and N.C. Gen. Stat. § 136-112 a condemning authority must compensate the landowner for any damage to his property when the condemnor enters property before condemnation. If the parties cannot agree on the damages owed, the landowner may institute an action against the condemnor under the statute.

Under N.C. Gen. Stat. § 136-112 a private condemnor and local public condemnor may be required, in the court’s discretion, to pay a landowner’s reasonable attorney fees, if the landowner recovers damages of 25% over the amount offered by the condemnor.

However, under N.C. Gen. Stat. § 136-112 a landowner is entitled to be reimbursed for attorney fees where his property was damaged but not “taken” by the Department of Transportation or other state agency. Kaperonis v. State Highway Commission, 260 N.C. 587, 133 S.E.2d 464 (1963).

Liens on Property and Just Compensation for Condemnation

When a property is subject to a lien such as a mortgage question arise as to how the lienholder’s rights are considered when just compensation is being calculated. N.C. Gen. Stat. § 40A-68, provides the procedure for dealing with liens on condemned property:

(1) If there is a partial taking, the lienholder may share in the amount of compensation awarded only to the extent determined by the commissioners or by the jury or by the judge to be necessary to prevent an impairment of his security, and the lien shall continue upon the part of the property not taken as security for the unpaid portion of the indebtedness until it is paid; and

(2) Neither the condemnor nor the owner is liable to the lienholder for any penalty for prepayment of the debt secured by the lien, and the amount awarded by the judgment to the lienholder shall not include any penalty therefor.

Life Tenants and Payments of Just Compensation

When condemned property is held in life, tenancy questions arise as to how the compensation award should be distributed between the life tenant and the remainderman. In Redevelopment Com’n of Greenville v. Capehart, 150 S.E.2d 62, 268 N.C. 114 (1966). the court, relying on the American Jurisprudence Treatise as guidance stated that “According to the predominate view, where property is condemned and the question is raised as to whether the award should be distributed between a life tenant and remaindermen, the award stands in the place of the realty and must be maintained as a whole, with the life tenant receiving the income and the corpus being reserved for ultimate distribution to the remaindermen.”