Municipal Law Alert, April 2012
Periodically, a municipality becomes involved in eminent domain, more commonly referred to as condemnation. Chapter 32 of the Wisconsin Statutes controls eminent domain proceedings for a municipality engaged in the taking of property from a private property owner. There are numerous bodies that may engage in eminent domain proceedings, including: any county, town, village city, school district, state department of health services, the department of corrections, the board of regents, a railroad corporation, a Wisconsin telegraph or telecommunications corporation and several others. Eminent domain is used when the property cannot be acquired by gift of purchase at an agreed price. There are a variety of purposes for which eminent domain may be exercised, but most often the property will be used for a public purpose related to the local government or entity initiating the condemnation procedure.
In condemnation matters the first step is for the condemnor to obtain one or more appraisals of the property. Upon completion of the appraisal or appraisals, copies are provided to the property owner. The property owner then has an opportunity to obtain his or her own appraisal. The next step is a negotiation period in which the parties attempt to reach an agreement on the purchase of the property. The condemnor will provide the property owner with information regarding other adjacent properties that are receiving offers and maps of the properties being condemned upon the request of the property owner. If an agreement is not reached, the condemnor makes a jurisdictional offer. If the offer is not acceptable to the property owner, the property owner may appeal.
If an appeal is filed, the rules for determining just compensation are found in Wisconsin Statute § 32.09. The first method is to look at sales or contracts for sale of comparable property. Under the appeal process, the condemnor still acquires the property. The appeal simply determines if the property owner is entitled to additional compensation.
In the case of a partial taking of property other than an easement, the compensation is the greater of the fair market value of the property or the fair market value of the property immediately before and the fair market value of the remaining property immediately after the evaluation.
Wisconsin has three primary methods of appraising the value of commercial property in eminent domain matters. The comparable sales approach focuses on sales of comparable properties. The income approach focuses on the income generated by the property. Finally, the cost approach focuses on the cost of replacement for the property. In Wisconsin, income evidence is not admissible for establishing property values in condemnation cases of commercial properties. The reasoning has been that there are too many variables that affect business income in order for it to serve as a reliable guide for determining fair market value. For example the income often times depends on the labor and skill of the management of the property. Exceptions to the general rule are allowed if: 1) the income produced is without the skill or labor of the owner; 2) income reflects the property’s chief source of value; and 3) the reason comparable sales are unavailable is that the property is “so unique.”
Specific statutory procedures must be followed when a municipality exercises its eminent domain powers. When engaging appraisers as part of the eminent domain process, it is important that they are familiar with the specific rules for determining just compensation.