NJ Supreme Court overturns Karan, changes rules on partial takings
The New Jersey Supreme Court reversed and remanded Borough of Harvey Cedars v. Harvey Karan and Phyllis Karan, thereby overturning a jury verdict, trial court and appellate decisions that awarded the Karans $375,000 for the taking of a beach replenishment easement and damages to the remainder. The partial taking amounted to 3,400 square feet, approximately one-fourth of the Karans’ oceanfront lot. The chief issue in the case was whether or not Harvey Cedars should have been permitted to present testimony concerning special benefits which protected the Karans’ property as a result of the construction of a 22 foot high dune between their home and the ocean. Karan argued that the dune partially obstructed his ocean views and diminished the market value of his property by approximately $500,000. Harvey Cedars sought to introduce testimony before the jury that these damages should have been offset by the benefit of having the home protected from future storms. The trial court rejected this testimony based on long standing case law in New Jersey: Projects such as this would be considered a general benefit to the entire island, and not a special benefit to Karans or any other beachfront owner. Today, the Supreme Court rejected the Karan argument and changed the long standing rule on benefits, which has been in effect for more than121 years:
We now conclude that when a public project requires the partial taking of property, `just compensation’ to the owner must be based on a consideration of all relevant, reasonably calculable, and non-conjectural factors that either decrease or increase the value of the remaining property. In a partial-takings case, homeowners are entitled to the fair market value of their loss, not to a windfall, not to a pay out that disregards the home’s enhanced value resulting from a public project. To calculate that loss, we must look to the difference between the fair market value of the property before the partial taking and after the taking. In determining damages, the trial court did not permit the jury to consider that the dune would likely spare the Karans’ home from total destruction in certain fierce storms and from other damage in lesser storms. A formula – as used by the trial court and Appellate Division – that does not permit consideration of the quantifiable benefits of a public project that increase the value of the remaining property in a partial-takings case will lead to a compensation award that does not reflect the owner’s true loss. Compensation in a partial takings case must be `just’ to both the landowner and the public. United States v. Commodities Trading Corp., 339 U.S. 121, 123, 70 S. Ct. 547, 549, 93 L. Ed. 707, 712 (1950). A fair market value approach best achieves that goal.
Because that approach was not followed in this case, we reverse the judgment of the Appellate Division and remand for a new trial.
In changing the rule on benefits that apply to beach replenishment easements, the Court has also changed the law with respect to all partial takings that may occur for any railroads, highway widenings, and utility easements. The Court in these partial taking cases will now have to conduct a Rule 104 hearing to determine whether there is adequate proof of benefits to present to the jury to offset the damages that occur as a result of partial takings. The Court has said that the standard for determining compensation will be the value before the taking as established by real estate testimony and the value after the taking, taking into consideration all factors which would be considered in the marketplace by the willing buyer and willing seller. At page 44 in the slip opinion issued today, the Court said:
Speculative or conjectural benefits conferred on a property owner whose land is partially taken by a public project should not offset a condemnation award because such benefits would not factor into a calculation of fair market value. On the other hand, reasonably calculable benefits – regardless of whether those benefits are enjoyed to some lesser or greater degree by others in the community – that increase the value of property at the time of the taking should be discounted from the condemnation award.
However, any future benefit, by its nature, is speculative or conjectural. What absolute assurances do the Karans or any other beachfront homeowner have that a dune will preserve their house in the next storm?
Although not discussed by the New Jersey Supreme Court, this decision will also effect the long-standing "project influence rule," which states that increases or decreases in market value, which have occurred as a result of the project should not be considered by a jury. See Jersey City Redevelopment Agency v. Kugler, 58 NJ 374 (1971). This will be a virtual Pandora's box of issues for trial judges and assuredly will result in more appeals.