Just Compensation Under Oregon Law: The Basics

This post explores some of the basic concepts surrounding the constitutional right to “just compensation,” which is one of the foundations of condemnation law.

What is “just compensation”?

When the government takes private property for a public use, it is constitutionally required to pay the property owner “just compensation” for the property.  Just compensation embodies the fundamental ideas of justice and fairness; that one private property owner should not shoulder an unfair share of the burden of providing for public uses.  Just compensation provides an express constitutional counterweight to the government’s power to take private property for public use.

How is “just compensation” determined?

Just compensation is the amount of money necessary to make whole a property owner for the taking of his or her property.  This amount is determined by the fair market value of the highest and best use of the property taken by the government, plus, in the case of a partial taking, the reduction in fair market value to the remainder of the property.  For example, if the government takes part of your property for a highway project, it must compensate you for the property it physically took, but also for the diminished value of your remaining property considering that it is now adjacent to a highway.

What is fair market value?

In normal market conditions, fair market value is generally defined by what a private buyer would pay a seller for the property at the time of the acquisition or taking, with no compulsion to either buy or sell.

What is highest and best use?

The highest and best use of real property is the most profitable use of the property.  It can be a use other than the current use of the property if it is reasonably probable that the property has an actual potential for a higher and better use.  For instance, if the property currently has a residential structure on it, but under current or reasonably imminent zoning laws, it could be developed as a retail shopping center, redevelopment as a retail shopping center is most likely its highest and best use.

What is included in the determination of “just compensation”?  What is not included?

In the typical condemnation matter, in which the government is taking the whole or part of a parcel of real property, you are entitled to just compensation for (1) the real property taken and the effects to remaining real property; and (2) fixtures (personal property that is considered part of the real property).  You may also qualify for just compensation if the government takes from you permanent or temporary easements, or deed restrictions.

A property owner is not typically entitled to just compensation for (1) private property that can be removed from the real property; (2) the costs of relocating a home or a business; and (3) loss in value to business—i.e., the value attached to a business being in the same place for 20 years, reduced revenue, etc.  Certain relocation and business reestablishment costs, however, qualify for “reimbursement” under the federal and state law.

Who determines just compensation?

The government will typically employ an appraiser to render an opinion of value of the property it intends to take.  This is usually the basis for the government’s initial “offer.”  The property owner will also typically employ an appraiser, in addition to formulating his or her own opinion of value.

The final amount of just compensation may be reached either in pre-trial negotiations or after a jury renders its verdict.  In the latter case, subject to a judge’s instructions on the law, the jury will have the final say as to what constitutes just compensation.

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