How to Value Contaminated Land

          This Appellate Division, in Matter of City of New York v Mobil Oil Corp., 12 AD3d 77 (2d Dept, 2004), a case of first impression in New York, held that the most efficacious way to acknowledge that land may be contaminated in an eminent domain proceeding is to value the condemned property as if remediated, but to hold in escrow any condemnation award pending the outcome of the Navigation Law proceeding.[1]  This court stated,

[B]y excluding evidence of remediation costs in an eminent domain proceeding, the potential that the condemnee may incur a ‘double taking’ is obviated.  Furthermore, it is logical that the subject of ‘cleanup’ costs which arise as a result of petroleum contaminated property be handled in a proceeding commenced pursuant to the Navigation Law, i.e., legislation which was enacted to address this very issue.  In fact, the statute speaks to various topics, such as third-party liability, which could not even be effectively raised in a condemnation proceeding.  (Citation omitted)  We thus conclude that evidence of the costs of remediation should not be admitted into this condemnation proceeding.

At the condemnation proceeding, the property should be valued ‘as if remediated.’  It must be pointed out that valuation of property ‘as if remediated’ is not exactly equivalent to valuation of ‘clean’ property.  As stated by Professor Nichols in his treatise on eminent domain, ‘even after remediation ‘stigma’ may persist, depressing value below ‘fair market value’’ (citations omitted); see Matter of Commerce Holding Corp. v Board of Assessors of Town of Babylon, 88 NY2d 724, 732; Matter of Allied Corp. v Town of Camillus, 80 NY2d 351, 356 (1992); Housing Auth. of City of New Brunswick v Suydam Invs., LLC.  Thus the term ‘as if remediated’ takes into account any residual stigma which may attach to real property as a result of the fact that it was previously contaminated. 

          Mobil Oil Corp. holding has been followed by Minnesota in Moorhead Econ. Dev. Auth. v Anda, 789 NW2d 860 (2010) and Wisconsin in 260 N. 12th St. LLC v State DOT, 2011 W1 103 (2011), and New Jersey in Housing Auth. of City of New Brunswick v Suydam Investors, LLC, 177 NJ 2 (2003).

[1] This assumes that a Navigation Law action has been commenced.  If there has been no action brought, the money need not be held in escrow.

Posted in Contaminated Land, Uncategorized, Valuing Contaminated Land
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