Special Purpose Properties

Special purpose or special use properties are properties having limited or specialized uses such as religious buildings, private schools, hospitals, theaters, museums, campgrounds and other specialized properties. A special purpose property may also be unique due to its physical design, layout or improvements which might restrict the use of the property to only that for which it was built. Because of the specialized nature of these properties, the marketability of such properties may also be quite limited

Due to their limited use and/or specialized nature, special use properties can face unique challenges in eminent domain, especially relating to the determination of just compensation. It is important to recognize and understand the use and function of such properties in order to identify the impacts the taking will have upon the property and determine the amount of compensation due to the owner for both the taking and any damages to the remaining property.

Eminent domain attorneys and expert witnesses such as appraisers and land planners must consider how best to value special use properties in condemnation. How does one value a property when there may not be an active market or comparable sales to rely upon? In some cases, special purpose properties can be valued based upon a replacement cost analysis in which the cost to purchase replacement land, prepare that land to be used in the same way, and construct any replacement buildings or structures is considered. In such an analysis, the final value may be discounted for the depreciation of the improvements.

Case Studies – Special Use Properties Taken Using the Power of Eminent Domain

Case Study #1 – Whole Take of Church Property for Urban Highway Construction

The State Department of Transportation (DOT) determined that a portion of a state highway through a municipality required significant repairs and improvements. To accomplish this, the DOT needed to acquire the entire property owned by a church consisting of several lots located near the highway for the purpose of constructing a storm water retention pond. The church building was constructed in the 1940s and did not meet current specifications for newly constructed buildings. The DOT made an initial offer to purchase the church building and surrounding lots using a replacement cost analysis discounting the value of the property due to depreciation. Members of the church located a suitable vacant replacement property within a short distance of the original location and consulted an architect and general contractor to design and build the replacement. The church was able to obtain variances from the city to allow it to construct the desired building on the new lot. However, the total expenses the church determined would be necessary to construct a replacement building and parking exceeded the DOT’s initial offer. Negotiations between the parties staled and the DOT filed suit to take the property using its eminent domain power. With the assistance of experienced eminent domain counsel, the church continued to defend its right to just compensation and proceeded to trial. Following a jury trial to determine the value of the property, the jury awarded the church the full amount to which its expert witnesses – including land planner, engineer, general contractor and appraiser – had testified at trial.

Case Study #2 – Partial Taking of Private Non-Profit School for Roadway Expansion

A municipal transportation authority sought to extend a roadway between an existing road and the freeway. The proposed extension would bisect a private school campus. To accomplish the project, the City condemned a tract of land including a parking lot, building, and playground. The condemnation separated a small strip of land from the remainder of the campus, which the school argued was rendered unusable. The school also contended that an educational building located less than six feet from the new road right of way was rendered unusable and that the remainder of the campus suffered substantial damages as a result of the taking. At trial, the condemnation attorneys defending the school argued that the non-profit school was entitled to compensation for the cost of purchasing substitute facilities. The jury returned a verdict for the school in excess of $18 million. The city appealed, arguing that the trial court erred in allowing the testimony regarding substitute facilities doctrine to apply in this partial taking of a private school. The state Supreme Court reversed finding that a private school should be treated differently than public schools in determining compensation, and that the compensation should be based on market value using the comparable sales approach. The case was sent back to the trial court to be retried, however, the City offered $12 million to settle all claims before the second trial was held.