The Infrastructure Boom: Navigating the Pre-Condemnation Acquisition Process

By: Clint Schumacher and Tyler Milton of Dawson & Sodd, PLLC

Between the growth Texas is experiencing and the inflow of funds from the Infrastructure Investment and Jobs Act, there are many public projects planned across the state – roads, schools, water and sewer lines, and powerlines.  Additionally, Texas is spending historic sums to acquire land to manage floodwaters.  Continued development of hydrocarbons from shale formations requires transmission pipelines to carry product to processing facilities and end users.  This all requires acquisition of property rights from private owners, often by the exercise of eminent domain.

Eminent domain is the inherent right of the sovereign to acquire private property to be repurposed to public use.  The right can be delegated by the legislature to governmental entities or certain private companies, such as gas pipeline operators or electric transmission companies.  The property owner has a constitutional right to just compensation under the Fifth Amendment of the U.S. Constitution and Article I, Section 17 of the Texas Constitution (which uses the term “adequate compensation”), and a statutory right to compensation under Chapter 21 of the Texas Property Code.  When an entire piece of property is taken, the compensation is generally determined by ascertaining what the property would sell for in the market, with the caveat that some typical considerations must be ignored in condemnation proceedings.  When only a portion of the property or property rights are taken, the compensation is generally determined by calculating the difference in the property value before the acquisition and the property value after the acquisition. 

Early in the process, a property owner will often be contacted by a real estate professional, called a right-of-way agent, hired by the condemning authority to try to negotiate a purchase without litigation.  These are trained professionals with contractual obligations and duties to the condemning authority and, though they will seek to build rapport with a property owner, all interactions should be viewed through that lens.  A property owner may also be contacted by a surveyor who wants to visit the site to prepare a legal description of the property to be acquired.  Sometimes more invasive soil sampling or testing may be requested.  These requests, like any made in the context of a potential condemnation, should be carefully reviewed.

Before condemnation proceedings (the lawsuit that exercises the eminent domain power) can commence, the condemning authority must make a written “bona fide” offer to buy the rights it seeks.   The condemning authority must present the form of legal instrument it wishes to use, provide a written appraisal prepared by a licensed appraiser that supports the compensation it is offering to pay, and provide a copy of the Landowner’s Bill of Rights (a publication promulgated by the Texas Attorney General’s Office).  If negotiations are unsuccessful, the condemning authority can commence the condemnation lawsuit to forcefully take the rights.   A careful and nuanced review of the appraisal is perhaps the single most important step in the initial stages of condemnation.  Great care should be taken to ensure that the condemnor’s appraiser has both followed Texas law and the Uniform Standards of Professional Appraisal Practice.

From the earliest contact, a property owner can best position itself to deal with this difficult and unfamiliar situation by consulting with someone who deeply understands the eminent domain process and the unique rules of valuation used in these proceedings.  Measures taken (or not) during the pre-negotiation phase can enhance or detract from the eventual total compensation.  A few of the many factors that should be diligently analyzed include: (i) are there entitlements or zoning designations that may influence value; (ii) are there existing lease agreements or loan agreements that may impact valuation or the disbursement of proceeds;  (iii) is the property being marketed and if so, what are the terms of the listing; (iv) what is the effect of property tax valuation appeals; and (v) is the access, elevation, or drainage on the property being impacted by the taking.   

Once negotiations begin, having an experienced team is critical.  Condemnation valuations are unlike a bank appraisal; they have a unique subset of rules and requirements.  An appraiser should be selected who understands the law and can explain the valuation to a factfinder.  Similarly, there may be other professionals, such as engineers or land planners, that are necessary to study how a property will function both during and after construction.  Finally, the language of the conveyance instrument (whether a deed, an easement, or a court judgment) will materially impact the future use and burdens on a property.  In fact, the instrument wording can frequently be more important than the compensation paid. 

Acquisitions under threat of eminent domain are a distinct subset of real estate transactions.  They have their own customs and rules and must be navigated with great care.   

Clint Schumacher and Tyler Milton are partners in the Dallas office of Dawson & Sodd, PLLC.  The lawyers at Dawson & Sodd focus solely on representing property owners in eminent domain matters.