Stacked Against You: NC’s (Unfair!) Laws for Business Condemnations
At our firm, we believe North Carolina’s laws covering land condemnations are, as a general rule, squarely stacked against property owners – especially business owners.
The government has the power to take your private property and convert it to a public use as long as they reasonably compensate you for your loss. They can take your “real property” (land and things permanently attached to the land), your “personal property” (things you own that are movable, such as cars, boats, etc.) and finally, the government can take your intellectual property.
But normally, the government takes land. In fact, in North Carolina, an Act of the State Legislature prohibits the State Department of Transportation from taking anything but land. Because the vast majority of condemnation cases involve land, the courts have created detailed rules on how to compensate a property owner for the losses they suffer when their land is taken.
Historically, when the land being condemned was mostly vacant, these rules made sense for a lot of people. However, since they were used to dealing with vacant land, the courts tend to treat business owners as if their businesses are distinct, separate, and wholly divorced from the land. As a result, the losses a business owner suffers when her business is taken or damaged have been overlooked by the courts, who focused their gaze on the “land” and away from the businesses sitting on top of the land.
It’s Just Land…Right?
Essentially the courts treat the condemnation as if the government is only taking a piece of land and ignore any affects this taking might have on the business (read on for examples). It is easy to understand how this body of laws developed. Historically, we were an agricultural society – your land and your business where one and the same. But these rules developed for a farming economy have failed to keep pace with how other people use their land in the 21st century.
In my experience, these rules tend to hurt the small and midsize business owner more than the large business owner. Large business owners frequently have the political and economic clout to have their concerns addressed and fixed by the government before the problems become acute. Small and midsize business owners do not typically have the easy access to the relevant elected officials and have a much harder time making themselves heard.
When a government entity, like the North Carolina Department of Transportation, builds a project, the construction often results in noise, dust, pollution, and inconvenience. These impacts can severely injure or kill a business. Some of our clients have even been confronted by the DOT temporarily closing their driveways, temporarily closing their freeway exit, and/or temporarily closing their lanes of travel during the construction of a project. While the DOT will often work with you to provide some access to your property, these detours and temporary driveways may be confusing, uncomfortable or inconvenient and thereby detour your customers away from your business.
And while the DOT has to pay you for the property rights they acquire, they don’t have to pay for any of these losses, what the courts often describe as “mere inconvenience” – they don’t have to pay you because your customers couldn’t get to your property, stopped coming because of the noise and dust from the construction, or simply cut back on visiting your business because it was more of a hassle to visit you than your competitors during construction. It will simply pay you for a “rental” of the land divorced from the business.
The construction activities alone can put you out of business and currently, there aren’t a lot of ways to get you compensated for these losses. If you are forced to relocate your business, there may be relocation benefits available to help in the transition. Otherwise, you need to work with the DOT to minimize the impact of the construction on your property. If there are construction easements on your property, they may temporarily impact the value of your remaining land, and you should be paid for that, but this will not compensate you for the lost business resulting from the construction.
Can I Get Paid for Lost Profits? What About Leased Property?
Unfortunately, if the lost profits are from your business, the answer is probably “no.” (However, click here to ask a land condemnation attorney about your specific situation.)
If you lease your property, the property can be valued in a condemnation proceeding as either a multiple of the market lease rate or by capitalizing the market rents. Either way, these methodologies approximate the value of the lost rental income resulting from the taking.
But, these methodologies do not squarely address or value directly the lost business income resulting from the taking, even if it puts you out of business.
Are All States This Unfair?
Why should the courts focus just on the land? Your business is valuable, it belongs to you, and it is being taken or injured by the government to build a public road, a courthouse, or a park. Aren’t they converting your private property into a public good? Why shouldn’t they compensate you for your loss? Does it make sense that the government will pay you for your land, but not your livelihood?
In some states, people are entitled to compensation for business interruption damages and lost profits. But this is only true in a minority of states. The federal government and most states cling to the notion that the taking of land is special and that the taking of a business is not. Consequently, they will compensate you for taking your land, but not your business – which we do not think is fair.
Is Your Business Being Hurt By Condemnation?
If you find your business has been impacted by a taking, you need to identify all the other things for which you may be entitled to compensation and aggressively pursue them. We may be able to help. Click here to tell a NC land condemnation lawyer about your situation.
Stay tuned for more information on “special use” properties – a rare instance in which lost profits from a business are compensable.