Eminent domain -- the right of the government to take your home -- has been much in the news since the Supreme Court's 2005 Kelo decision, but now comes word of a New Jersey court decision that adds a fresh aura of common sense to the debate

First, a little background:

The Fifth Amendment says that government has the right to take private property for "public use" but not "without just compensation." In other words, if government is going to build a road, a school or something with a plain public benefit then it can obtain title to your land if it is willing to pay a fair market value for your property.

The Fifth Amendment carefully balances private and public rights and generally worked well for more than 200 years until the Supreme Court's 2005 Kelo v. New London decision changed the rules.

Under Kelo, said five justices, government could take your home not only for "public use" but also when there was a "public purpose" such as increasing the tax base.

In other words, if a developer wanted to build a shopping center and you did not want to sell, the local government could acquire your house under public domain, pay you for the property as if it were valued as a home, then sell it to a developer with different zoning and a higher price. Since a shopping center would also yield more tax revenue than a few dozen homes, the use of eminent domain would be justified under Kelo.

The Kelo decision effectively meant that local governments could increase tax revenues by squeezing a few homeowners instead of doing the unpopular thing and raising taxes.

The public understood instantly what the Kelo decision meant. And politicians -- many acting on principle -- also understood how Kelo could be mis-used. The result, according to the National Conference of State Legislatures, is that 30 states have enacted laws to re-establish pre-Kelo standards and 10 more states passed ballot initiatives in 2006 to accomplish the same purpose. Now from New Jersey comes a new eminent domain decision which may be adopted in many states.

In basic terms, a developer in Mount Laurel Township wanted to build 23 new homes on 16.3 acres that had been zoned for residential use. The developer followed local requirements and had obtained all necessary permits and permission, but then the community decided it wanted the land for an "open spaces" program; that is, it wanted the land to stay undeveloped.

In Mount Laurel Township v. MiPro Homes, the New Jersey Supreme Court ruled 6-1 that the community could, in fact, take the property for "recreation and conservation purposes," in part because the "township's motive to limit development and thereby limit overcrowded schools, traffic congestion and pollution that accompanies development is not inconsistent with the motive driving the public interest in open space acquisition generally."

Mount Laurel, said the Court, was just doing what local governments have been doing since the Fifth Amendment was written, taking private property for public good.

The New Jersey Court also said that if government is going to seize property, then it must pay for the "optimum use" value which is this case meant that the owner was entitled to additional compensation because the highest and best use of the land had been increased by the acquisition of building permits and permissions.

You can expect that many players in the development process will be screaming about the Mount Laurel decision because it says that even after permits and zoning have been obtained, development can be stopped -- but only if governments are willing to pay full price for the land.

The real issue, of course, is that land is only one source of revenue in the development process. If land cannot be developed then there can be no profits from home and lot sales, brokerage commissions, mortgage fees, loan interest, closing charges and management payments.

For more articles by Peter G. Miller, please press here.

Published: January 2, 2007

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