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The Supreme Court’s decision in Kelo v. New London has caused an immediate nationwide re-examination of eminent domain laws. What happened in Kelo? And what have been the effects on the states? As a general rule, before a condemning authority can use eminent domain to take private property, it must show that the taking meets the “public use” requirement set forth in the Fifth Amendment. To demonstrate public use, many states have developed community redevelopment legislation, which requires a finding of blight or some variant of a blighted condition. Other states, however, use eminent domain to condemn private property, as long as the condemning authority can show it promotes economic development. Connecticut’s statutory scheme, which requires the promotion of economic development, gave rise to the now well-studied Kelo v. New London. The decision created a firestorm of controversy when it was handed down on June 23. The decision reaffirmed the long-standing principle of “legislative deference.” A local government, through state statute, could take nonblighted private property by eminent domain and convey that property to a private developer. The private developer, in turn, based on what the Court interpreted as a carefully formulated redevelopment plan, would use the property for economic development. In sum, the Court held that the potential economic development accomplished by the transfer of nonblighted property from one private owner to another met the Fifth Amendment’s public use requirement. As expected, the Kelo holding generated a range of reactions. Ultimately, the crystal ball to answer the question of what states will do has been left squarely in the domain of state legislatures. The Court said Kelo is merely a baseline and that states are free to create stricter standards to limit the use of eminent domain. Reaction to Kelo, both at state and federal levels, has been swift. States are working overtime to allay citizen fears that Kelo will hasten the conversion of neighborhoods and small businesses to mixed-use developments. The House of Representatives has moved to strengthen the Ownership of Private Property Act, which would bar all federal economic development assistance to any state or locality using eminent domain to obtain property for private commercial development. Likewise, the Senate is moving forward with its version, the Protection of Homes, Small Businesses and Private Property Act of 2005. Controversy about the nature of eminent domain has had a long history in the United States. Well before Kelo, the Supreme Court, in Berman v. Parker, 348 U.S. 26 (1954), decided a similar eminent domain redevelopment case that resulted in a similar outcome. Berman stood for the legal proposition that in defining the parameters of blight and in targeting areas for redevelopment, courts will, in effect, defer to legislative determinations of what does and does not meet the Fifth Amendment’s public use requirement. Since Berman, that has often meant using terms such as “blight,” “slum,” and “economic development.” The requirement to establish blight does not guarantee private property owners a safe harbor from a taking, however. In fact, the statutory criteria for establishing economic development or a blighted condition can in many cases be vague, broad, and subjective. Along these lines, Professor Colin Gordon notes in a 2004 Fordham Urban Law Journal article that “local governments . . . have enjoyed wide latitude in defining or determining blight. In most states, this reflects the laundry list of health and safety concerns that often serve as the only statutory definition.” Gordon writes that “local officials . . . need only identify one of these problems in a[n] . . . area in order to qualify the entire area as blighted.” Similarly, legislative findings regarding economic development that is intended to improve health and safety concerns have enjoyed the same wide berth. Kelo does nothing to erode the latitude afforded to condemning authorities. In fact, Kelo reaffirmed the principle of legislative deference laid down in Berman. And in so doing, Kelo is a constant reminder to reviewing courts to defer to legislatively approved economic development plans and blight designations. Therefore, in theory, Kelo appears to do nothing more than reinforce Berman and highlight the fact that states apply different legislative criteria to meet the public use requirement. In practice, however, Kelo‘s adherence to the principle of legislative deference might actually bolster state court decisions and local government condemnation activities. Two recent state court decisions acknowledged the relevance of Kelo, while local government officials appear emboldened, citing Kelo as a virtually unassailable authority to condemn private property. For instance, recently in Hollywood, Fla., city commissioners voted to use eminent domain to acquire a small retail building, owned by a family for 34 years, and a private parking lot. Both properties will be conveyed to a developer to promote economic development. When asked about the public purpose of eminent domain, the city attorney answered: “economic development, which is a legitimate public purpose according to the United States Supreme Court.” In another case in Daytona Beach, Fla., a state circuit court judge found that the city can condemn three private businesses — where legislative blight determination was made in 1981 — because the private redevelopment project will promote a public use. Finally, when appearing before the U.S. Senate Committee on the Judiciary, a senior attorney for the Institute of Justice testified that in July a Missouri state court judge referred to the Kelo decision in his ruling that permitted the taking of a home for a shopping center. STRATEGY TIME Knowing all this, what should private landowners do? They should develop strategies to overcome the holdouts, who might prevent groups facing a redevelopment project from working together. These groups need to work to assemble properties to avoid both a taking by eminent domain and the typically low “fair market values” offered in condemnation proceedings. Their goal should be to create marketable areas, often involving diverse lots and land uses. Since these areas are already attractive to developers, cities would be hard pressed to undertake eminent domain proceedings in the name of economic development. The Kelo opinion teaches that private landowners must be one step ahead of the governmental condemning authorities, who, at any time, may be discreetly studying their properties or the value of their properties as part of a larger blighted area or economic development plan. Private property owners must figure out a way to deal with the invariable holdout phenomenon, when individual property owners refuse to go along with a plan for land assembly. It often causes the entire assembly plan to fall apart. But in other cases, a plan for land assembly can successfully head off eminent domain. Here are some examples of private land assembly efforts outlined in Frank Schnidman’s brief for the Congress for New Urbanism, a San Francisco-based nonprofit group. Schnidman is a senior fellow at the Center for Urban and Environmental Solutions at Florida Atlantic University, in Fort Lauderdale. • In Las Vegas, Focus Property Group assembled 2,400 acres of land consisting mostly of parcels of five acres or less to build 10,000 single-family residences, 3,000 multifamily units, 150 acres of commercial development, parks, trails, and several schools. • In Providence, R.I., Commonwealth Development Group assembled 21 separate parcels of land to construct a 1.4-million-square-foot mall. • In West Palm Beach, Fla., developers assembled 77 acres of a run-down inner city area by purchasing more than 300 parcels from 240 landowners. • In Atlanta; Oak Brook, Ill.; and Arlington, Va., neighbors worked collectively to assemble their properties, work with a developer, and sell as a single site. Neighbors assisted the developer during the rezoning process, the success of which was a precondition for the purchase by the developer of the properties. Once the assemblage was successful, neighbors were compensated not on the current market value, but for the value of their land for the more intensive use allowed by the rezoning. • In Boca Raton, Fla., condominium owners agreed to dissolve their condominium development and sell everything to a developer. They received approximately three times the fair market value of their units. • In Schenectady, N.Y., downtown business properties were pooled to revive a deteriorated downtown business district into a two-level shopping mall. • In Northern Virginia, a group of neighbors in a subdivision hired a broker to work with a developer to rezone their land. They wanted to replace their 70 homes on 40 acres with 1,326 residential units. In this case there were five holdouts among the 70 owners in the subdivision. The holdouts, though, should not sidetrack the assemblage effort because in this case the developer can build around them. • In Dallas, a private developer worked with landowners in the downtown area to form an “assemblage partnership,” which was eventually approached by other investors and developers with an attractive offer. • In Fort Lauderdale, Fla., a joint venture between a developer and lot owners included nine purchases of older homes, apartment buildings, motels, and duplexes, as part of a development known as “The Ellington at Victoria Park.” CREATIVE PLANS Realistically speaking, successful voluntary assemblages are not readily available to developers and are quite limited in number. Nonetheless, creative land assembly techniques do exist. Here are a few general assemblage methods that can be adapted to meet specific development needs, taken from Mark Brnovich’s Goldwater Institute Policy Report, “Condemning Condemnation: Alternatives to Eminent Domain.” • Purchase agreement. This is the simplest method to effect a simple transfer from private owners to a developer. • Lease arrangement. Lease agreements convey what the developer requires — use and development rights — and at the same time provide private businesses with the flexibility to attract developers by tailoring various lease forms, such as long-term, escalating, performance-based, or convertible to fit a particular development plan. Along these lines, private businesses can structure leases to avoid potential holdouts by, for example, apportioning remuneration according to a property value that may be higher than the pre-development fair market value of the property, enticing possible holdout owners. In exchange, the developer can avoid larger upfront costs that might otherwise make the development infeasible. Further, the developer can request a performance-based lease payment or buyout provision. • Partnership. The property owners can enter into a partnership with the developer, allocating the level of risk through negotiation. • Joint venture. In this arrangement, individual property owners are an integral part of the assemblage process. In Fort Lauderdale, for example, the developer approached the owner of the first of three sites who, after being provided cash out of the deal, then assisted the developer in obtaining contracts from his neighbors. • Land swap. Business owners seeking an alternate location can swap property with the developer, perhaps with the retailer’s desired improvements in place. Although prepackaged private land assemblages finalized for development are rare, it is still too early to tell whether the Kelo effect will alter this situation. It is not too early, however, for landowners to work together in the spirit of cooperation to embrace existing market-based assembly methods. By working cooperatively, private landowners have a better chance to avoid overzealous condemning authorities and their woefully inadequate fair market valuations.
Albert E. Dotson Jr. is a partner and Thomas R. Gould is an associate in the land use and government relations group at Bilzin Sumberg Baena Price & Axelrod in Miami.

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