You asked how property value is determined in a condemnation case involving a redevelopment agency.

SUMMARY

The law gives property owners the right to go to court to challenge the compensation amount the redevelopment agency offers them for their property in a condemnation process. In determining fair market value in such a case courts consider everything that legitimately affects the property’s value. But they may not consider factors that do not affect market value.

In determining fair market value, courts must consider evidence of environmental contamination and remediation costs. Also, they may consider the availability of state economic development grant funds, and the possibility of a landowner's recovery from prior owners under state and federal laws for environmental contamination in calculating a property’s fair market value.

When a court awards more than the redevelopment agency offered, the law also gives property owners court costs including reasonable fees. These fees can include the costs of any witness necessary for the court's determination of the property’s value, not just for appraisers.

STATUTORY RIGHT TO CHALLENGE COMPENSATION OFFER (CGS § 8-132)

Any person claiming to be harmed by the amount of compensation the redevelopment agency offers to acquire property may apply to the Superior Court for the judicial district in which the property is located for a review. The court, after notifying the redevelopment agency, may appoint a judge trial referee to review the offer.

The judge trial referee must hear the applicant and redevelopment agency, view the property, and take whatever testimony he deems material. The referee may revise the compensation offer however he deems proper and report to the court. The report must contain a detailed statement of findings sufficient to permit the court to determine the basis for the judge trial referee’s conclusions. The report must take into account any evidence relevant to the property’s fair market value, including evidence of the property’s environmental condition and required environmental remediation. The judge trial referee must make a separate finding for remediation costs, and the property owner is entitled to a setoff of such costs in any pending or subsequent action to recover remediation costs for the property.

The court must review the report and may reject it for any irregular or improper conduct by the judge trial referee. If the court rejects the report, it may appoint another judge trial referee to make such review and report.

If the court does not appoint a judge trial referee, it conducts the hearing. It may take whatever testimony it deems material, view the property, and must make a finding regarding the statement of compensation. The court’s findings must take into account any evidence relevant to the property’s fair market value, including evidence of its environmental condition and required environmental remediation. The court must make a separate finding for remediation costs and the property owner is entitled to a set-off of such costs in any pending or subsequent action to recover remediation costs for the property.

FAIR MARKET VALUE IN CONDEMNATION CASES

The trial court has very broad discretion in what factors it considers in determining fair market value. But it is limited to “relevant evidence” of value. “Relevant evidence” is evidence that has a logical tendency to aid the court in determining an issue. The trial court has wide discretion to determine whether evidence is relevant. When our Supreme Court is asked to review a trial court’s decision regarding the relevancy of evidence, it gives every reasonable presumption in favor of the correctness of the trial court's determination.

Expert witnesses testify about a property’s fair market value. In attempting to determine a property’s fair market value, experts generally use three methods, the cost approach, the income capitalization approach, and the market sales approach.

Under the cost approach to valuation, the appraiser estimates the current cost of replacing the subject property, with adjustments for depreciation, the value of the underlying land, and entrepreneurial profit. (See J. Eaton, Real Estate Valuation in Litigation (2d Ed. 1995) p. 157. )

The income capitalization approach is a procedure that appraisers use to develop an indication of market value by applying a rate or factor to the anticipated net income from a property. Appraisers arrive at the anticipated net income by considering the property's actual rental income, as well as the rental income for comparable properties in the vicinity, property expenses, and allowances for vacancy and collection losses. It also requires a market analysis of comparable leases. (See J. Eaton, Real Estate Valuation in Litigation (2d Ed. 1995) p. 194. )

The market sales approach is also known as the "sales comparison approach" or the "market data approach. " Under the market sales approach, the subject property's appraised value is derived from a comparison to recently sold similar properties in the vicinity, with appropriate value adjustments “based on the elements of comparison. ” (See J. Eaton, Real Estate Valuation in Litigation (2d Ed. 1995) pp. 197-98. )

The court selects the method it determines is most appropriate for the case (Bencivenga v. City of Milford, 2 Conn. App. 374 (1984)).

FACTORS AFFECTING MARKET VALUE

Recently, the state Supreme Court ruled that evidence of environmental contamination and remediation costs is relevant to the valuation of real property taken by eminent domain and admissible in a condemnation proceeding to show the effect, if any, that those factors had on the property’s fair market value on the date of the taking (Northeast Ct. Alliance, Inc. v. ATC Partnership, 256 Conn. 813 (2001)). The Court stated that “[i]t blinks at reality to say that a willing buyer would simply ignore the fact of contamination, and its attendant economic consequences, including specifically the cost of remediation, in deciding how much to pay for property because of the various financial and legal consequences attendant to contaminated property. ” But the Court cautioned that the admissibility of the costs of remediation should not necessarily result in, or necessarily preclude, a dollar-for-dollar reduction in the market value of the property. It merely noted that such evidence was admissible, with the appropriate weight to be determined by the trier of fact.

Finally, the Court emphasized that it was not including or precluding any other factor that a trial court appropriately may deem relevant in its determination of the amount, if any, that is to be awarded as a result of condemnation of the property.

In a more recent decision the Court held that a trial court may properly consider the availability of state economic development grant funds in calculating the fair market value of the property (Northeast Connecticut Economic Alliance Inc. et al. v. ATC Partnership et al. 2004 WL 2777060 (December 14, 2004)). The Court determined that

The Court also held that a trial court may consider the possibility of a landowner's recovery from prior owners under state and federal law for environmental contamination in valuing property in eminent domain case. It reasoned that a prospective purchaser might consider the reasonable possibility of recovering remediation costs from potentially responsible parties.

Finally, the Court held that costs of witnesses who testified about the availability of public funding for the rehabilitation of contaminated property and the solvency of a corporate successor to a prior owner were “appraisal fees” within the meaning of statute permitting the award of appraisal fees if a landowner obtains an award from the court greater than the amount the redevelopment agency offered (CGS Section 8-133). The Court reasoned that the costs were necessary for the court's determination of the value of the taken property.

GC: ro