Experience

When Business and Road Construction Collide:
Do Business Owners Have Compensation Rights?

By Virginia Bell

It is almost summer in Minnesota, and that means road construction. Although all of us suffer from the inconvenience of road construction, Minnesota's businesses often bear the brunt of this activity when noise, dust, restricted visibility and restricted access translate into lost customers and lost revenues. Are these consequences just another cost of doing business, or can property owners recover some or all of their losses?

The Minnesota and United States Constitutions protect property owners from the taking of private property without just compensation. The Minnesota Constitution states that "Private property shall not be taken, destroyed or damaged for public use without just compensation therefore, first paid or secured." Minnesota statute provides that a taking by the government includes "every interference, under the right of eminent domain, with the possession, enjoyment, or value of private property." Businesses have argued that changes in access during road construction along with construction related noise, dust and reduced visibility are an "interference" with the owner's use of private property for which they should be compensated. In State v. Strom, 493 N.W. 2d 554 (Minn. 1992), the Minnesota Supreme Court agreed with this position, at least in part. The Court held that if a portion of an owner's property is physically taken for a construction project, evidence of construction-related interference is admissible to show how much the value of the remaining property has been diminished by the government's taking.

But what if no part of the property is actually physically taken for the construction project? Are you still entitled to compensation for the losses occasioned by the noise and inconvenience of the project? Maybe. If no part of your property has been physically taken, you may be entitled to compensation if you can show a "substantial invasion" of your property rights and a definite and measurable diminution of the property's market value occasioned by this invasion. As a practical matter, this means that the property owner needs to show an injury that is peculiar to the property (that is, an injury that is different than that suffered by other property owners) and she needs to be able to quantify the loss in terms of a marked drop in rental income or a diminution in the market value of the property. For instance, if construction has necessitated a ridiculously circuitous route to the property over a long period of time and that has caused a loss of tenants or drop in market value, the owner may be entitled to compensation.

Whether a part of the property has been physically taken is an important consideration in how the legal action for road construction damages will be handled. If some part of the property is actually physically taken, the State (or other condemning authority) will initiate a condemnation action against the property owner and others who have an interest in the property. The property owner will have an opportunity to present evidence of the extent to which she has been damaged by the taking, including the construction related interference. On the other hand, if no part of the property has been physically taken, the property owner will generally have to initiate what is known as an inverse condemnation action. In this case, the property owner essentially asks the court to order the condemning authority to start a condemnation action to determine the amount of damages to be awarded to the property owner. Although starting an inverse condemnation action involves more work for the property owner, it is one of the rare instances in Minnesota when attorneys' fees may be recoverable if the property owner is successful.

The extent to which property owners can recover damages for road construction involves important questions of public policy, particularly at a time when Minnesota is experiencing budget cuts. For instance in arguing that property owners should not be compensated for construction related damages, the State in the Strom case argued that "to allow admission of evidence of construction-related interferences on the issue of market value would make highway projects prohibitively expensive." The Minnesota Supreme Court answered this argument by stating: "This is not a reason to under-compensate abutting landowners." The Court further quoted with approval the California Court of Appeals which stated: "Any consideration of [means of transportation other than by private automobile] is clouded if the true economic burden of providing freeways for motor vehicle travel is concealed by requiring adjacent owners to contribute more than their proper share to the public undertaking."

As with many issues in the area of eminent domain, the law on recovery of construction related damages remains fluid, dependent on the facts of each case and subject to public policy concerns as interpreted by the courts and condemnation commissioners. However, if you are a property owner and you believe the revenue or value of your property has been diminished by road construction, you should not hesitate to contact a member of Maslon's Maslon's Real Estate Litigation Group or your attorney to determine if there is a basis for recovery.

Virginia Bell is a trial lawyer practicing in the areas of civil and commercial litigation, specifically focusing on real estate disputes. She regularly handles eminent domain and tax appeal matters, as well as disputes between buyers and sellers, land use disputes, and real estate foreclosures and workouts.