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The Power Of Eminent Domain In Economic
Revitalization Projects
By
John P. Slagter, Esq.
 A
pending U.S. Supreme Court case, Kelo v. City of New
London, could have significant consequences for
individual owners of real estate. Increasingly, cities are
using the power of eminent domain to take property that is
located within a redevelopment area and transfer it to a
private developer. Although the taking of private property
is authorized under the United States Constitution,
governmental entities may only do so if it is for a
“public use.” As cities become active participants in
economic revitalization efforts, the nature of the debate
between private rights and public needs is evolving, along
with the definition of “public use.”
The
central issue before the U.S. Supreme Court is whether a
city's condemnation of non-blighted, private property for
the purpose of developing private residential and office
space is a valid "public use." The increased tax revenues
to be paid by the new development are seen as benefiting
the public as a whole. This redefinition of "public use"
strikes a sensitive nerve, particularly given that today,
the developers and the cities are often on the same side
of a land-ownership dispute. In a typical land use takings
case from earlier times, the developer would oppose the
city's actions or ordinances on the grounds that they
constitute an uncompensated taking of the developer's
property rights. In the Kelo v. City of New London
case, however, the developers are supporting the use of
the government's power of eminent domain to take property
from private individuals – the owners of property needed
for an economic revitalization project. The common
perception is that the land is really just being swapped
from one private entity to another, with the government
serving only as a middleman.
A
city’s ability to take land by using the power of eminent
domain arises from the Fifth Amendment to the United
States Constitution, which states in part, "Nor shall
property be taken for public use, without just
compensation." The Fifth Amendment protects the right to
own private property, but it also recognizes that the
greater good may require the government to take private
property for public use. The definition of "public use,"
however, has evolved over the years. Initially, takings
disputes largely centered on wide-open areas needed for
railroads and other public facilities.
More
recently, the battleground became the urban neighborhood,
where cities faced declining tax revenues as areas became
"blighted" and values decreased. In 1954, this use of
eminent domain was upheld by the U.S. Supreme Court in
Berman v. Parker, where the Court held that the use of
eminent domain as a planning tool to eliminate "blight"
was a valid public use. Cities are now further expanding
their use of eminent domain to take private property that
is not blighted and transfer it to private developers with
the expectation that the new development will generate
increased tax revenue for the city. This expanded use of
eminent domain gave rise to the case currently before the
Supreme Court, Kelo v. City of New London.
In
this case, the Supreme Court will address the use of
eminent domain to take property from a private individual
(the homeowner) and give it to another private individual
(the developer). Cities argue that the redevelopment of
property, even though it is not blighted, leads to an
increased tax base, which benefits the public in general.
Opponents argue that the practice is not about “public
use,” but rather about giving favorable deals to
developers.
While cities generally are in favor of an expansive power
of eminent domain, there is growing opposition from
private citizens concerned that without sufficient
restrictions on the power, anyone's property can be taken
whenever a developer proposes a new use that may generate
greater tax revenue. On the other hand, economic
revitalization of urban areas may be severely restricted
without the use of eminent domain. Whatever the outcome
by the Supreme Court, it is expected that the limits of
the use of eminent domain should be established this year
by this Supreme Court’s decision in Kelo v. City of New
London.
If
you have any questions or concerns about this or another
land ownership issue, you may contact Attorney John P.
Slagter at 216-615-7331.
John Slagter is a Shareholder in the
Real Estate &
Construction Law Practice Group. His practice focuses in
the area of land use and zoning. In March of 2005,
Mr.
Slagter was interviewed by WCHV-AM, a commercial station
owned by Clear Channel Communication and affiliated with
ABC Radio Networks, concerning his opinion on this
U.S. Supreme Court case. He can be contacted at
jslagter@bdblaw.com
or 216.615.7331.
2005
Snapshot of
Florida Real Estate
By
Rana M. Gorzeck, Esq.
 The
2005 real estate market in
Florida
continues to be rosy. New residents continue to arrive in
Florida at the average rate of 1,000 per day, and there
does not appear to be any let up in the flow. Some of the
new residents become part of the burgeoning workforce;
others are retiring baby boomers. Another set, which may
also fall into either of the above categories, are
foreigners from many countries including, most notably,
Canada and South America. These new residents require,
and, as mentioned, are often part of, the expanding
workforce needed to provide the services and
infrastructure of the expanding South Florida community:
new homes, schools, roads, parks, supermarkets,
restaurants, retail centers, hospitals, office buildings,
warehouses, industrial centers, and so on.
All
of these factors create a fast moving real estate market
with values escalating more rapidly than the national
norm. The average sales price of a home in Fort
Lauderdale in November, 2004 was $377,565. This average
sales price represents a 28% increase over 2003. The
median sale price of a home in
Fort Lauderdale
in November, 2004 was $294,000. This represents a 23%
increase over 2003. Nationally, the average
November, 2004 home sales price was $255,100 and the
median home sales price was $175,000. One can see
that the Florida prices are dramatically higher than their
national counterparts. Bolstering the market is the
average 30 year fixed mortgage, which has remained below
6%, thus enabling residents to obtain higher priced homes
at lower interest rates.
Another exciting trend is the revitalization of downtown
areas, business centers and industrial developments. As
downtown areas become more populated, the available real
estate decreases. Gentrification of blighted city areas
is on the increase. Urban areas, such as Atlantic Avenue
in Delray Beach, Florida are in the process of being
beautified and urban market rates are rising. Office
vacancy rates are going from the double digits to the
single digits…for example, in
Palm Beach
County the 2004 office vacancy rate of 12.2% fell to
9.9%. Similarly, industrial space development is
booming. In Palm Beach County, 478,500 square feet of
industrial space is now under construction. This will
increase the already existing 44.6 million square feet of
industrial space.
Nationally, 2005 is predicted to be a strong year for home
sales, commercial centers and industrial developments.
Florida is not only expected to follow suit, but is
expected to continue to be one of the fastest growing
states in the nation. You may contact the Florida office
of BDB for more information on how we can assist you in
acquiring or selling real property in Florida.
U.S. Supreme Court Limits
Recovery By
Party Conducting
Voluntary Remediation
By
William L. Caplan, Esq., and
David J. Hrina, Esq.
 On
December 13, 2004, the U.S. Supreme Court issued its
decision in the case of Cooper Industries, Inc. v. Aviall Services, Inc., 125 S.Ct. 577 (2004). This
decision is expected to have a significant impact on the
ability of property owners to recover costs expended to
remediate environmental contamination and on the viability
of the different Brownfields programs. The purpose of
this article is to alert the reader to the Court’s
decision in
Cooper,
and its anticipated consequences.
In
1981, Aviall Services, Inc. (“Aviall”) purchased four
parcels of property in Texas (collectively, the
“Property”) from Cooper Industries, Inc. (“Cooper”). Many
years later, Aviall discovered that both the soil and
groundwater on the Property were contaminated with
hazardous substances, and that Aviall and Cooper had each
contributed to the contamination. Aviall proceeded to
disclose the existence of the contamination to the Texas
National Resource Conservation Commission and the U.S.
Environmental Protection Agency, but neither agency
initiated legal action to require remediation of the
Property.
In
1984, under the supervision of the Texas authorities,
Aviall voluntarily initiated remediation to address the
contamination. In August 1997, after Aviall had spent in
excess of $5 Million to remediate the contamination,
Aviall filed a contribution action against
Cooper
under Section 113(f) of the Comprehensive Environmental
Response, Compensation, and Liability Act (“CERCLA”) to
recover a portion of these costs. CERCLA imposes joint
and several liability on current owners and operators of
contaminated property, and on former owners and operators
of the property if the former owner/operator owned or
operated the property at the time the contamination
occurred. CERCLA also permits a party who is held liable
under CERCLA to file a contribution action against a third
party who may also be responsible for the contamination.
The
U.S. District Court for the Northern District of Texas
decided the case in favor of Cooper, and held that Aviall
could not pursue a private contribution action against
Cooper because Aviall had voluntarily initiated the
remediation. Aviall appealed the decision, and the U.S.
Court of Appeals for the Fifth Circuit reversed the lower
court. Cooper then appealed the decision to the U.S.
Supreme Court. The Supreme Court reversed the Fifth
Circuit and held that because Aviall had voluntarily
initiated the remediation, it could not recover its
environmental costs from Cooper in a Section 113(f)
contribution action under CERCLA. The Supreme Court found
that Congress intended that a party may only assert a
contribution action under CERCLA in two situations: (1)
“during or following” specified civil actions, or (2)
after an administrative or judicially approved settlement
that resolves liability to the United States or a state.
It
is anticipated that the Court’s decision in
Cooper
will have a chilling effect on a party’s decision of
whether to voluntarily remediate contaminated property.
The Court’s decision will also impact the manner in which
parties structure their transactions involving
contaminated or potentially contaminated property. For
example, in the past, parties engaging in the transfer of
ownership to real property typically allocated
environmental risks through the use of indemnification
provisions within the agreement. While the use of these
indemnification provisions were somewhat effective in
contractually allocating the environmental risk, such
provisions typically capped a seller’s liability and were
limited in duration. Consequently, the typical provision
potentially exposed the new owner/operator to
environmental liability based upon actions of a prior
owner/operator. However, prior to the Court’s decision in
Cooper, in the event that an environmental problem
surfaced, the new owner/operator could always voluntarily
remediate the real property, and absent release language
in the purchase agreement, seek contribution against a
prior owner/operator, notwithstanding the fact that the
contribution claim may have exceeded the contractually
determined liability of the prior owner/operator or that
the indemnification covenant may have expired.
Following the Court’s decision in
Cooper,
a party such as a developer who voluntarily remediates
contaminated property will no longer be able to initiate a
contribution action against a potentially responsible
party under CERCLA. Therefore, current and prospective
owners/operators of contaminated property must find
alternate means to address and allocate the risks
associated with developing or operating contaminated
property, such as through the use of comprehensive
indemnification covenants that are not limited based upon
time or amount. Because the Court’s decision in Cooper
presents unique challenges to all current and prospective
owners/operators of contaminated property, it is important
that these parties consult with their legal representative
prior to engaging in any remediation effort or transaction
involving the ownership and/or operation of contaminated
property. Buckingham,
Doolittle
and Burroughs, LLP has a host of environmental and real
estate attorneys that can assist with these and other
environmentally sensitive issues.
Bill Caplan is a Shareholder in the
Real Estate &
Construction and
Business Practice Groups. He is the
Chair of the
Environmental Law Department. He can be
contacted at
bcaplan@bdblaw.com or
330.258.6458.
David Hrina is an Associate in the
Business
Practice Group and is a member of the
Environmental Law
Department. He can be contacted at
dhrina@bdblaw.com or
330.643.0212.
American Jobs
Creation Act
By
David J. Lindner, Esq.
 Congress
recently enacted the American Jobs Creation Act, which
permits depreciation of qualified leasehold improvements
to be taken over 15 years instead of 39. Qualified
leasehold improvements include any improvements to the
interior of commercial property that is more than three
years old, regardless of whether the tenant or landlord
pays for them. Anyone interested in taking advantage
of this provision must act quickly because it is only in
effect until January 1, 2006, after which the depreciation
period will revert to 39 years.
Township
Authority May Be Reduced
By
David J. Lindner, Esq.
Amended Substitute House Bill 148 expanded the power of
Ohio townships to include the right to make residential
zoning decisions in the interest of the "general
welfare." However, it appears that townships may be on
the verge of losing their new power. Municipalities have
long had the power to act in the interest of the general
welfare, but the expansion of the general welfare power to
townships was opposed by groups such as home builders who
were concerned that the townships would use it to impose
unreasonably restrictive zoning ordinances. At the urging
of the home builders, Senate Bill 18, which would revoke
much of the new power given to townships, has been passed
by the General Assembly and is awaiting Governor's Taft's
signature to become law.
David Lindner is an Associate
attorney and member of the
Real Estate & Construction Practice Group. He can be
contacted at
dlindner@bdblaw.com or
216.453.4290.
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Hank Reder joined the
Cleveland
office of Buckingham, Doolittle & Burroughs last year
as a partner. He brings to the firm a wealth of
experience in architecture, construction and the law.
Hank’s first degree was a Bachelor of
Architecture, which he earned in 1973 from Kent State
University. During his undergraduate years, he
traveled to
Italy
and studied at the University of the Arts in Florence.
As a graduate, he worked for architectural firms in
England as well as the U.S. and subsequently held the
position of professor at Kent State University’s
School of Architecture and Environmental Design and in
Florence, Italy.
Hank’s interest in the law began when
he was working for an architectural firm in Akron.
“They encouraged us to branch out into fields related
to architecture,” Hank explained. “The thinking was
that architects should expand the profession into the
business world, the legal world and other related
areas, so that we could understand the full picture
and not let outside influences control our work.”
After five years of night school – and while working
as an architect during the day – Hank earned his J.D.
from the Cleveland Marshall College of Law at
Cleveland State University and embarked on a 25-year
career in private practice focusing on architectural
and construction law.
With his diverse experience in both
architecture and the law, Hank brings a valuable
perspective to BDB’s Real Estate and Construction Law
team. “I see my experience working at two levels,”
Hank said. “First, there’s my technical background,
which is very valuable to our clients. Having trained
as an architect and practiced as an architect, I
understand detailing, specifications and the
construction industry. In addition, I know how people
in this industry think. Architects think very
differently than contractors. My background gives me
insight into how all the different parties involved in
construction think as well as their interests and
concerns arising from their involvement in a
project.”
Hank enjoys working with clients who
are unfamiliar with the world of architecture and
construction.. “When people become involved in a
design and construction project, they do it so seldom
in their lives they don’t know what to expect. I like
to help people know what they should expect and to
understand the risks and rewards. It’s important for
them to have reasonable expectations.”
His education and experience in
architecture also give Hank a creative approach to
problem solving. “I learned to think outside of the
box,” he explained. “As an architect, you first find
the problems and then you find ways to resolve them.
It may not necessarily be the normal or standard way,
but it may be a pragmatic solution. People describe me
as being very pragmatic.”
Hank is an active member of the
American Institute of Architects (AIA). At the state
level, he is currently Vice President/President-Elect
of AIA Ohio, and has served on a number of the
organization’s committees. Locally, Hank has served on
the Board of Directors and President of AIA Cleveland,
and in 2001 he received the President’s Award for
Outstanding Service from the organization. Among his
other professional affiliations are the Construction
Specification Institute and the American Arbitration
Association. “My active membership in these
organizations helps me stay at the cutting edge of
where my clients need me to be,” Hank said. “This way
I stay current on lobbying and legislative matters and
I’m exposed to current trends impacting the
construction industry. Staying up to date and involved
has been very valuable for my clients.”
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KUDOS__________________________________________
Nicholas T. George, President & CEO, (Buckingham
AkronSM)
has been chosen to receive the Alumni Honor Award from the
University of Akron Alumni Association, which will be held
on
June 4, 2005. This award recognizes individuals for their community
involvement, professional achievement, and service to the
University. Congratulations
Nick!
Robert A. Hager
(Buckingham
ClevelandSM)
was published in Properties Magazine, Inc., November
2004. The title of his article was “Legal
Perspectives – Contingent Payment Clauses: If and When –
What’s that Difference?”
Congratulations to
Donald B. Leach, Jr. (Buckingham
ColumbusSM), for his recent election to the Ohio State Bar Association Council
of Delegates for District 7. His two year term will
commence
July 1, 2005.
Kudos to
L.A.
Perkins (Buckingham
Boca
RatonSM),
Philip
R. Wiese
and
David
W. Woodburn (Buckingham
AkronSM)
who were recently elected to Shareholder of the law firm.
L.A. is a member of the firm’s
Litigation,
Employment Law &
Workers’ Compensation, and the
Real Estate & Construction Law Practice Groups. Phil
is a member of the
Litigation Practice Group with an emphasis on
Intellectual Property and
Creditors’ Rights & Bankruptcy. David
is a
member of the law firm’s
Trusts & Estates and
Real Estate & Construction Practice Groups.
SPEAKING OUT__________________________________
.
Save the Date:
On
May 5, 2005,
Edward V. Buehrle
and
David W. Woodburn (Buckingham AkronSM),
will be speaking to the Akron Area Board of Realtors
Commercial and Industrial Forum. Ed’s topics include what
an attorney is looking for from the broker and what the
broker should expect from an attorney, and how to make
letters of intent work for you. David will be discussing
the key elements that an attorney looks for when reviewing
contracts and leases.
Out
and About – Recent Presentations:
On
October 22, 2004,
Richard J. Lolli
(Buckingham
CantonSM)
and
David J. Lindner (Buckingham ClevelandSM)
spoke on Real Estate Contracts in Ohio at a seminar
sponsored by the National Business Institute.
On February 2,
2005,
Donald
B. Leach, Jr.
(Buckingham
ColumbusSM)
presented at the Columbus Bar Association. He discussed
Real Property Institute: Construction Critical Path
Scheduling – A Primer. In addition, Mr. Leach spoke
at the Builders Exchange on February 4, 2005. His topic
was Risk Management. Finally, on March 3, 2005,
Mr. Leach presented to XL Insurance on the topics of
Privileged Communications, Economic Loss Doctrine
and Construction Critical Path Scheduling – A Primer.
On February 23,
2005, the Real Estate & Construction Law group hosted its
annual seminar. The following presentations were made:
·
Nicholas T. George (Buckingham AkronSM)
presented How to Work Efficiently With Your
Lawyer.
·
James L. Fisher (Buckingham AkronSM)
presented
Jim
Fisher Does a Good Deed.
·
David J. Lindner (Buckingham ClevelandSM) discussed the New Developments in
Ohio Condominium Laws.
·
Henry
I. Reder (Buckingham ClevelandSM)
spoke on Construction Observation Inspection and
Testing.
·
John P. Slagter (Buckingham ClevelandSM) provided opening and closing remarks as well as
introductions of speakers.
For
a complimentary copy of the materials provided at this
event, or to be placed on our mailing list for the 2006
seminar, contact
Jennifer
Hoffman at
jhoffman@bdblaw.com or 330.643.0311.
On March 3,
2005,
Robert
A. Hager
(Buckingham ClevelandSM) spoke to XL Insurance at their facility in
Exton, PA. His topics included Privileged
Communications, Economic Loss Doctrine and
Construction Critical Path Scheduling – A Primer.
David W. Woodburn (Buckingham AkronSM)
recently spoke to attendees at an Area Agency on Aging
seminar. His topics were Intentional Interference with
an Inheritance, and Avoiding Real Estate Pitfalls
in Trust and Estate Matters.
If you are interested in obtaining information on upcoming
seminars or would be interested in having speakers from
Buckingham, Doolittle & Burroughs, LLP make a presentation
to your organization, please contact: Lorna J. Henderson,
Client Relations Administrator at
lhenderson@bdblaw.com
or 800.686.2825 ext. 473.
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Buckingham
Cleveland
