“Developers face entitlement woes as self-storage projects rise.”

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LEED Certified Storage Facility. Image Courtesy of SelfStorage.com.

Depending on local regulations, a landowner may need to secure real-estate entitlements before being allowed to develop land. Such entitlements can be difficult to obtain, as the law surrounding them is often dense and complex. In the area of self-storage facility construction, the sheer variety of local regulations can sometimes impose additional administrative costs and thus damage the profit potential of a new development. In this article by Kerry Curry for SpareFoot.com, Justin Hodge, a Partner at Johns Marrs Ellis & Hodge LLP provides commentary on the barriers facing landowners seeking entitlements.

To read Ms. Curry’s article, click here.

Mitigation Credits as “Highest and Best Use”

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Mitigation Bank Swampland in King County WA. Photo Courtesy of King County Washington.

In Eminent Domain cases, the acquiring entity or condemnor, must compensate the landowner for the property they are taking. Fulfilling this requirement typically raises two questions:

             1) How much should the landowner receive for their land?

             2) How should we determine that amount?

Under Texas law, a landowner is entitled to compensation for an amount to be determined by an application of the “Highest and Best Use” (HBU) principle. The principle requires that the value of the land be established, not merely by evaluating the current use, but by analyzing four factors. Thus, a landowner may receive an amount derived from a potential highest and best use, rather than the current one. Therefore, an application of the HBU principle must operate within the boundaries established by these four limiting conditions. The purported HBU must be:

             1) Legally permissible

             2) Physically possible

             3) Financial feasible

             4) Maximally productive

In short, the HBU attempts to hold the condemnor responsible for the greatest compensation amount that can be sustained by an objective analysis of a respective property.

             An interesting application of the principle was attempted recently in the California case of County of Santa Barbara (Plaintiff and Respondent) v. Double H Properties, LLC (Defendant and Appellant). This case was initiated by the County for the purposes of obtaining an easement to serve as a habitat for the endangered California Tiger Salamander. In valuing the land, the owner’s appraiser submitted two theories, one which analyzed the property as rural farmland, and one which calculated the value of the property when used for mitigation credits.

Mitigation credits are a way that a developer can obtain entitlements when a project is likely to impact an environmentally sensitive or protected habitat. To earn these entitlements, the developer can purchase mitigation credits with a mitigation bank. The bank then purchases and preserves another property to offset the environmental impact of the original construction.

The owner’s appraiser argued that, only when the land was valued as mitigation credits, did it fulfill its highest and best use, and obtain the greatest value. Their assessment also exceeded in value the one put forth by the County’s appraiser, who valued the property as farmland. The County moved to exclude the landowner’s valuation, a motion which the Trial Court granted.

The owner took the case on appeal. In reviewing the Trial Court’s dismissal of the owner’s mitigation credit theory, it became apparent to the Appeals Court that the appraiser had never provided any evidence that the land could be entitled for mitigation credits. In other words, the appraiser had failed to show that the use of the land for mitigation credits was affirmatively permissible in the law. The Appellate Court held that the Trial Court did not abuse its discretion in excluding the mitigation credit appraisal.

This will likely not be the last time we see this argument made in regards to a highest and best use analysis in California or elsewhere.

“That’ll Be the Day” – The Accommodation Doctrine and Landowner Dispute Resolution

“You say you’re gonna leave, you know it’s a lie,

‘Cause that’ll be the day when I die.”

– Lyrics from “That’ll Be the Day,”by Buddy Holly.

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Image of Buddy Holly – Courtesy of Oddopolis.com.

In American property law, an ownership distinction can be made between the holders of the surface rights and the mineral rights of a particularly property. In other words, it is possible for the surface of a property and its subsurface, to have separate owners. Predictably, the ability of the law to make this distinction has led to legal conflict. These clashes, over time, have produced what is known as the Accommodation Doctrine, a principle which seeks to govern the relationship between surface interests and mineral interests. It attempts to balance the interests of both parties in a just and proportional manner.

One formulation of the Accommodation Doctrine states that “an oil-and-gas lessee has the implied right to use the land as reasonably necessary to produce and remove the minerals but must exercise that right with due regard for the landowner’s rights.” (Getty Oil Co. v. Jones)  Under this principle, the mineral estate is understood in the law to be dominant. Because a mineral estate would be worthless were it inaccessible, and because surface alterations may be required to ensure access, the mineral estate receives the right to use the surface estate. Therefore, the mineral estate is considered dominant. It is for the same reason that the surface estate is considered servient.

The Texas Supreme Court recently considered the accommodation doctrine in Coyote Lake Ranch, LLC v. The City of Lubbock, in the Supreme Court of Texas. The Coyote Lake Ranch, located in Bailey County, sits atop the Ogallala Aquifer, a water table stretching across multiple states. Over 60 years ago, during a severe drought, the City of Lubbock, Texas purchased the Ranch’s groundwater to provide water to its residents. The deed preserved certain amounts of groundwater for the Ranch to use for domestic purposes, ranching operations, oil and gas production, and irrigation. The deed also granted the City of Lubbock tremendous latitudes to extract water and conduct exploratory drilling operations.

In 2012, the City indicated that it was interested in developing new wells, in addition to the eighteen that it had established since purchasing the groundwater rights. Specifically, the City expressed an intent to drill as many as eighty new wells, and argued that its rights, granted by the deed, permitted these activities. Understandably, the Ranch’s management did not respond with enthusiasm, and attempted to work with the City to find an alternative. Unable to reach an agreement, the City began clearing vegetation from the Ranch to create pathways to potential drilling sites. In response, the Ranch sued the City, successfully in the trial court, to enjoin their actions.

Application of the Accommodation Doctrine seemed the surest way to resolve the conflict of interest between the City and the Ranch. However, uncertainty arose from the fact that the Doctrine had never been applied to cases involving groundwater estates. Upon its examination of the issue, the trial court found that groundwater interests were sufficiently similar to mineral interests, and held the Doctrine applicable.

In light of this finding, the Court ruled that the City had a right to the reasonable use of the surface insofar as the use of the surface was necessary to access and recover the groundwater. The Court found that, by barring the City from damaging the surface vegetation, the trial court’s injunction effectively precluded any possibility for recovery of the groundwater. For these reasons, the Supreme Court upheld the Court of Appeals’ judgment reversing the trial court’s injunction and remanding the case for further proceedings.

As the study of cases like Coyote Lake Ranch, LLC v. The City of Lubbock may suggest, applications of the Accommodation Doctrine rarely produce satisfactory results for all parties. Often, the Doctrine is applied to situations where contract language is unclear or absent on such issues. Perhaps there will one day be a more effective method of resolving these disagreements to the satisfaction of all parties involved, but it seems clear that such a remedy has not yet been found. As Buddy Holly used to say, “That’ll Be the Day…”

New TxDOT Plan “CityMAP” Presents New Alternatives to Reduce Congestion

Landowner's Bill of Rights TX

The Texas Department of Transportation (TxDOT) recently announced a new plan called CityMAP which outlines the department’s initiatives to address Dallas’ current and future transportation issues. CityMAP, short for Dallas City Master Assessment Plan, constitutes a change in direction for TxDOT, which has a long tradition of attempting to resolve congestion issues by funding road-expansion projects. After years of mixed results, the department has decided a change in methodology was required.

A major finding emphasized by the report was the fact that many Dallas highways currently function as physical barriers that isolate neighborhoods, making them nearly inaccessible, and severely limiting economic opportunities. The report suggested that removing highways or highway sections, or applying modifications such as lowering highway might help improve access, which could in turn spur economic development.

The study projects that at its current growth rate, the number of drivers will surpass the capacity of the highway system by 2040, despite a number of active highway-expansion projects. Such research, combined with a new focus on urban development, has led to a shift from highway traffic, to city, or urban related traffic. The thought is that making the city more suitable for cyclists or pedestrians would cause citizens to walk or bike with greater frequency, which would decrease the overall number of cars on the road and improve traffic efficiency.

But how will complete abandonment of these highways impact the landowners who lost their property to the original highway construction? Subchapter E of the Texas Property Code may have the solution.

To view the Texas Landowner’s Bill of Rights, click here.

Transfer of Pipeline Easements Cannot Be For Private Use

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– Enbridge pipeline under construction. Photo Courtesy of CBC.com.

In Allen v. Enbridge G & P, L.P., Enbridge G & P brought condemnation action against the Allens for the purpose of securing two easements, one permanent and one temporary, from the landowners. Enbridge required the easements for the installation and maintenance of a pipeline which would carry natural gas products. A permanent easement of 50 feet in width would contain the pipeline and a 25-foot easement would be used as a temporary workspace. At the special commissioners’ hearing, Enbridge was awarded the easements. Mr. and Mrs. Allen filed objections, and the proceeding was brought to the trial court.

On appeal, Mr. and Mrs. Allen brought two issues, the second of which concerned the ability of the easement holder both to maintain the benefits and burdens of the Plaintiff and Defendants, and allow an assignee to do likewise. Paragraph X of Enbridge’s Second Amended Petition contained the following:

“The benefits and burdens of this Permanent Easement shall be binding upon and shall ensure to the benefit of Plaintiff and Defendants, and to their respective successors and assigns.”

Mr. and Mrs. Allen argued that this language allowed Enbridge to assign the property for private use, rather than strictly public use, and was therefore in violation of the constitutional prohibition against private use takings. The Tyler Court of Appeals found that though “certain easements may be assigned to a third party, that third party’s use cannot exceed the rights expressly conveyed to the original easement holder.” Cantu v. Cent. Power & Light co. It also found that “companies possessing the right to condemn private property for a public use cannot do what they please with the land condemned, but only what is reasonably necessary to carry out the purpose for which the land is taken,” and that “anything beyond this is not the taking of private property for public use, but the taking of private property for private use.” Aycock v. Houston Lighting and Power Co.

Because the language in the Second Amended Petition permitted Enbridge to assign the easement without restriction, the Court of Appeals modified the trial court’s final judgment by restricting the easement’s assignment only to an assignee that qualifies as a transporter of natural gas as defined in Texas Utilities Code, Section 121.001(a).”

In summary, landowners should diligently look at the language of the pipeline company’s proposed easement to make sure it cannot be transferred for a private benefit.

To view the case, click here.

Round Rock’s Stagecoach Inn May Be Moved to Accommodate Road Project

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Round Rock’s Stagecoach Inn. Photo courtesy of Stagecoachinrr.com.

The Texas Department of Transportation, City of Round Rock, and Williamson County, have proposed a road construction project they hope will help alleviate traffic on a frequently congested portion of Ranch-to-Market Road (RM) 620. The proposal, which seeks to improve a stretch of road from Deepwood Drive to IH 35, calls for a widening of RM 620 from four lanes to six, and advocates the construction of an elevated four lane road above RM 620.

Incidentally, the Stagecoach Inn, a historic landmark dating back to the 1850’s, located in the project’s path, would need to be demolished or moved to accommodate the construction. Reluctant to demolish the property, the Round Rock Historic Preservation Commission deferred on a decision for demolition, allowing residents an additional four-month period to propose relocation-based solutions.

One solution, put forth by the Director of the Commission, Gary Hudder, would see the Inn moved to a portion of its current property that would be unaffected by the project.

“Is it better to haul it across town somewhere? Yes. But if we can keep it somewhere close to the actual Chisholm Trail, that’s what makes the most sense from a historical preservation perspective,” said Hudder.

Hudder also noted that as it stands, the Inn currently lacks a foundation, and relocation would provide the opportunity to add stability to the structure.

Projects which impact historical sites raise the question of trade-offs between past and future, serving as a reminder that the use of Eminent-Domain can force citizens to choose between the two.

Senate Committee on State Affairs Reopens Eminent-Domain Issue

As part of its efforts to study the eminent domain-issue, the Senate Committee on State Affairs recently heard testimony from concerned parties on the subject, with emphasis placed on the matter of fair-landowner compensation for lost property. The hearing was in response to a charge from Lt. Gov. Dan Patrick, who asked legislators to research the problem in preparation for the 2017 legislative session.

At the hearing, representatives for condemning authorities stated that Senate Bill 18, passed in 2011, offered sufficient protections for landowners. They suggested that the three-step process consisting of an initial offer, a special commissioners’ hearing, and if necessary, a jury trial, gave landowners plenty of opportunity to obtain fair compensation.

Tom Zabel, an attorney representing the Texas Pipeline Association, noted that the bulk of necessary land could be acquired through negotiations with landowners without using the power of eminent domain.

“Pipeline companies don’t have time to condemn 90 percent of the tracts on a pipeline project. No pipelines would go in the ground,” he said.

Property rights advocates voiced concerns over the ability of landowners to negotiate favorably with entities seizing their land, citing disparities between landowners and condemnors inherent in the law.

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Sen. Jane Nelson. Photo Courtesy of MindingHouston.com.

“Fair market to me is two parties getting together to work out an agreement,” said State Senator Jane Nelson who wasn’t compensated for damages a pipeline company dealt to her property. “Under eminent domain, property owners are forced to negotiate.

Kathleen Hunker, a policy analyst with the Texas Public Policy Foundation had a similar view, noting that “Property owners walk into a negotiation with a sword dangling over their head. It is an inherently unequal relationship that Texas law exacerbates.” If a landowner and eminent domain user don’t reach an agreement, then the landowners know the condemning authority will just condemn their property anyway.

Property rights advocates also raised the issue of legal fees, citing that a combination of lowball initial offers, and having to compensate an attorney to fight to protect their rights hinders landowners from obtaining fair compensation. Judon Fambrough, an expert at the Texas A&M Real Estate Center, suggested that seeking a remedy in court rarely made financial sense unless the appeal had an expected return of $500,000 or more. He suggested that one solution could be to require condemning parties who provide low-ball initial offers to pay landowners’ attorney’s fees when cases result in compensation above a certain threshold.

Law Schools at UT-Austin and University of Houston Offer First Courses on Eminent Domain Law

HOUSTON and AUSTIN Texas, May 10, 2016 /PRNewswire/ — The University of Texas School of Law is offering the state’s first law school course devoted solely to eminent domain law, and the University of Houston Law Center will be starting a similar course later this year.

At UT, Austin-based attorneys Luke Ellis and Chris Johns, partners at Johns Marrs Ellis & Hodge LLP, are currently teaching “Eminent Domain and Private Property Rights.” The spring semester class, which ends in May, examines the inherent tension between the public’s need to accommodate growth and the fundamental private property rights protected by the U.S. and Texas constitutions. Eminent domain laws allow the government and other condemning entities to take private property and convert it to public use for just compensation. Houston attorney Justin Hodge, also a Johns Marrs Ellis & Hodge partner, recently received approval to teach a similar class at the University of Houston this fall.

Eminent domain is generally a small subsection of a first-year law student’s course on property law, but these professors believe the state’s explosive growth and corresponding infrastructure demands merit separate courses focusing on the law of takings.

“The UT class is the first of its kind in Texas, but we also believe it is the only class in the nation dedicated exclusively to eminent domain law,” Mr. Ellis said. “Two of the best law schools in Texas recognize the need to focus more attention on eminent domain and condemnation as an evolving and important area of law.” To learn more about the attorneys and their work, visit http://jmehlaw.com/attorneys.

Texas is home to eight of the nation’s 15 fastest-growing cities and five of the country’s 10 largest cities overall. This kind of growth generally requires additional infrastructure such as roads, power lines and pipelines, and these projects often require privately owned land held by individuals or businesses.

“As Texas continues to grow, more entities will use condemnation power to take land for infrastructure projects,” Mr. Johns said. “But in taking property for public use, our communities and courts must also respect the rights of private property ownership, which is the foundation that makes growth and prosperity possible in the first place.”

Johns Marrs Ellis & Hodge is a litigation boutique built to win high-stakes condemnation, property, probate and business disputes. The Austin– and Houston-based firm’s founding partners, all classmates at the University of Texas School of Law, became successful trial and appellate lawyers initially at some of the country’s most prestigious law firms, often after serving as law clerks for prominent judges. Learn more about the firm at http://www.jmehlaw.com.

For more information about the new eminent domain classes, please contact Mary Flood at 800-559-4534 or mary@androvett.com.

SOURCE Johns Marrs Ellis & Hodge LLP

Dallas Mechanic Forced to Close Business through Amortization

Hinga Mbogo

Hinga Mbogo, outside his shop. Photo Courtesy of Forbes.com.

Hinga Mbogo is a Dallas mechanic who operates Hinga’s Automotive Company on Ross Avenue bordering the Arts District in the downtown area. In operation since 1985, Mbogo’s business has become one of the most highly rated in the city with clients including the Dallas Police Department, and even a member of the Symphony.

Recently however, the business’s very existence has come under threat. In 2005, the Dallas City Council, through a process called amortization, re-zoned the neighborhood, deeming it a “planned development district.” Properties that failed to meet the new zoning criteria were given a limited time to adjust. In April, Mr. Mbogo appealed to the Dallas City Council for a special operating permit that would allow him to remain open for an additional two years. In an 8-5 vote, the Council denied the permit.

An immigrant, Mbogo was born in Nairobi, Kenya. Raised on a farm, he soon learned how to repair tractors and other mechanical equipment. He moved to the United States with his wife in 1974, where his skills landed him a job as an aviation mechanic in South Florida. Naturally, he was thrilled to become a business owner, and devastated upon hearing he would be forced to close.

“When I opened this shop, I thought I had made it. I thought I had the American dream,” he said. “When I found out I had to lose my livelihood, I couldn’t believe that I was in America.

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