Property owner’s expert established condemned property not subject to project-enhancement preclusion and was separate economic unit

Texas Department of Public Safety v. Joseph Trent Jones, 01-13-00953-CV (Tex. App. – Houston [1st Dist.] April 2, 2015)

This is an eminent-domain case which goes into detail about the proper way to evaluate property value based on project-enhancement, highest and best use, and separate economic unit standards.  The case comes to the court based on a challenge to expert testimony so is of significance to litigators.  However, the standards used can be extremely helpful to city attorney’s dealing with valuation determinations prior to condemnation proceedings.

The Chanas owned 7.765 acres of land subject to the State’s desire to use 2 acres (and some change) for a detention pond as part of a roadway expansion. During county court condemnation proceedings the trial court admitted the testimony of Chanas’ real-estate appraisal expert, Mark Sikes over the State’s objection. Sikes testified the highest and best use was to divide up the 7 acres into three separate tracts (consistent with what other property owners were doing at the time) and the 2 acres at issue was a separate economic unit with a value of over $940,000.  The jury adopted Sike’s appraised values and the State appealed.

This 45 page opinion goes into a lot of factual detail and outlines the standards for use. However, the main points to take way from the case are how a property owner can avoid the project-enhancement rule and qualify for a separate economic unit. In determining market value, the project-enhancement rule provides that the factfinder may not consider any enhancement to the value of the land-owner’s property that results from the taking itself. In other words the property only became more valuable because of the condemning entity’s project and therefore cannot be considered. The existing use of the land is the presumed highest and best use, but the landowner can rebut this presumption by showing the property was adaptable and needed or would likely be needed for future use. The Houston Court held Sike testified dividing the property up into smaller parts was not based on the project, but on what other similar property owners were doing irrespective of any road expansion. As a result, the project-enhancement rule did not preclude his testimony. And since the norm has been to separate larger tracts into small self-sustaining ones, that became the highest and best use instead of merely a proportional share of the value of the entire 7 acres. The fact cross-access would have been needed or that full infrastructure was not installed does not eliminate the fact the subdivided tract could be self-sustaining. The Court of Appeals then presumed, without deciding, that the admission of several comparable sales was error. It then held the admission was harmless since ample additional evidence existed to support Sike’s opinion. Finally, the court sustained the exclusion of tax contestation testimony where the Chana’s attempted to reduce the taxable value of their property to below $350,000. The State attempted to admit the entire record and not separate out the testimony. Since the tax case testimony asserted the basis for the opinion was also on listing prices and in a condemnation suit, evidence of the price for which a similar property is being offered for sale is not admissible evidence to establish the fair market value of the condemned property, the exclusion of the record was proper.  The court ultimately affirmed the jury verdict against the State.

If you would like to read this opinion click here.  Panel: Justice Jennings, Justice Higley and Justice Huddle. Opinion by Justice Higley. The attorney listed for the state is Victoria Jimenez.  The attorney listed for the Chanas is George R. Murphy III.