Oceanfront landowners who endure the building of protective sand dunes on their property aren't just losing a view; they're gaining a sea wall.
That's the import of Monday's New Jersey Supreme Court decision that lets juries weighing compensation for partial takings for dune construction to factor in the special benefit flowing to the owner.
"In a partial-takings case, homeowners are entitled to the fair market value of their loss, not to a windfall, not to a pay out that disregards the home's enhanced value resulting from a public project," the unanimous court held in Harvey Cedars v. Karan, A-120-11.
The ruling promises to reduce drastically the cost to towns and the state for the massive shoreline rebuilding needed in the aftermath of Hurricane Sandy.
A beach restoration project took one-third of Harvey and Phyllis Karan's $1.9 million oceanfront property in Harvey Cedars on Long Beach Island and obstructed their view with a 22-foot-high dune. The town sought easements from 82 property owners. The Karans were among 16 owners who refused.
Ocean County Superior Court Judge E. David Millard ruled the dune conferred no special benefit to the Karans, only the general benefit of protecting the island and its inhabitants from destructive storms. He said the jury could not consider the possibility that the dune would enhance the home's value by making it less vulnerable to storm damage. The jury awarded $375,000. The Appellate Division affirmed.
In Monday's reversal, Justice Barry Albin found the lower courts' views to be shortsighted. "A formula … that does not permit consideration of the quantifiable benefits of a public project that increase the value of the remaining property in a partial-takings case will lead to a compensation award that does not reflect the owner's true loss," Albin said. "Compensation in a partial-takings case must be 'just' to both the landowner and the public. A fair market value approach best achieves that goal."
There is no argument that if the borough had condemned all of the Karans' property in a total-takings case, they would have been entitled to the fair market value of $1.9 million. The same principle should apply when there is a partial-taking, Albin said.
"The fair-market considerations that inform computing just compensation in partial-takings cases should be no different than in total-takings cases," he said. "They are the considerations that a willing buyer and a willing seller would weigh in coming to an agreement on the property's value at the time of the taking and after the taking."
The Karans enjoy a special benefit because their house is much less vulnerable with the dune and much more vulnerable without it. "A willing purchaser of beachfront property would obviously value the view and proximity to the ocean," Albin said. "But it is also likely that a rational purchaser would place a value on a protective barrier that shielded his property from partial or total destruction. Whatever weight might be given that consideration, surely, it would be one part of the equation in determining fair market value."
Legislation in Progress
Monday's ruling is in step with a bill in the state Senate, S-2599, providing that compensation should include "consideration of the increase in value to the entire property due to the added safety and property protection" of the dunes.
The Senate Environment and Energy Committee unanimously recommended passage of the bill, sponsored by Sen. James Whelan, D-Atlantic, in April.
The bill may be put up for a vote later this year. An identical version, A-3889, is before the Assembly Environment and Solid Waste Committee, but has not been scheduled for a hearing.
Harvey Cedars' attorney, Lawrence Shapiro, says the ruling makes "common sense," and could drastically reduce the amount of taxpayer money the state and Shore municipalities may have to spend to erect protective dunes.
"There could be rulings similar to the Karans, but that will be less likely because the jury will be able to consider the positive impact of these projects," says Shapiro, of Ocean Township's Ansell Grimm & Aaron. "This ruling should enure to the benefit of municipalities," and therefore to taxpayers.
Michael Drewniak, a spokesman for Gov. Chris Christie, says the ruling is a "decisive victory" for taxpayers and provides the "critical next step" in securing the state's shoreline.
"Engineered dune systems paid for with public dollars benefit everyone, including holdouts who selfishly refuse to provide easements to protect not just their own homes but the homes and businesses inland of them as well," he says. "Those holdouts are the greatest beneficiaries of dune systems and are not entitled to a windfall at the public's expense.
"The [court's] decision embraces what Governor Christie has been arguing ever since Sandy, that oceanfront properties protected from destruction are safer and more valuable than those that are not."
William Dressel, the executive director of the New Jersey State League of Municipalities, says the ruling will provide "great assistance" to local governments and taxpayers.
"The court, while assuring just compensation to home owners, has established a reasonable and workable means to determine the compensation," he says. "This will be of great assistance in our Sandy restoration efforts."
The Jersey Shore Partnership, a beach-preservation advocacy group, participated as amicus. "The ruling balances the rights of property owners and the public when determining equitable compensation," says its attorney, David Apy, of the Princeton office Saul Ewing.
The Karans' lawyer, Peter Wegener, says he is not surprised by the ruling, given the nature of the questions put to him during oral arguments in May.
"It seemed pretty clear that the court was determined to reach a solution that was more palatable and more politically correct," says Wegener, of Lakewood's Bathgate, Wegener & Wolf.
"We have a ruling that is very favorable to government and potentially has a much wider application," he says. "In any case involving a partial taking, the government will be able to argue that the remainder is enhanced by the project."
Michael Booth is a reporter for the New Jersey Law Journal, a Legal affiliate.