Understanding Eminent Domain vs. Inverse Condemnation

When making the decision to invest in real estate it is crucial to understand the difference between eminent domain and inverse condemnation. Eminent domain is when the government or another agency uses compensation through a legal process to acquire private property. Inverse condemnation is the opposite of this process and occurs when property has been taken in an unfair manner and an owner attempts to get it back.

What is Eminent Domain?

Eminent domain is defined by “the power of the government to take private property and convert it into public use”. The Legal Information Institute at Cornell University describes the circumstances in which eminent domain falls under the Fifth Amendment. Under this law, the government must provide just compensation to the property owners in order to exercise eminent domain. When a government is exerting the power of eminent domain, there is a certain set of rules and proceeded they must follow to ensure there is a fair level of compensation.

However, the laws of condemnation, another term for government exercising eminent domain, are complicated and vary by state. In some cases, state regulations are different from the federal laws. While these procedures may look different in each state, there are some basic steps in the eminent domain process:

• First, the government or agency needs to identify a public project that could potentially require the use of public property in which eminent domain would be enacted.
• The “condemner”, which is the term used for the government or other agency that aims to take the property, notifies the current property owners and presents them with an offer. The condemner needs to provide proof that this potential project is necessary and worthy of an eminent domain case.
• The offer can be to either purchase the property or negotiate a price for the property. If the property owner accepts this offer, the condemner can buy the property and the transition will be complete.
• If the property owner declines this offer and the two parties are unable to negotiate, the condemner will attempt to acquire the property with the power of eminent domain with just compensation and file a claim.
• While the next steps will vary state by state, an independent commission, judge, or jury will outline just compensation for the property and any potential lost profits.

What is Inverse Condemnation?

Inverse condemnation occurs when the government takes your private property without the process of eminent domain and without providing any just compensation. For example, this may occur if the government builds a road or any other construction on someone’s private property. In the case of physical property, If this does happen, a property owner can take up a case of inverse condemnation to retrieve their property or some form of compensation. The reason this is called inverse condemnation is because the property owner in initialing the process, not the government.

The process of inverse condemnation follows the same set of rules outlined in the eminent domain section above. For this, the property owner is required to provide evidence that the property in question was acquired without compensation.

At Ellrich, Neal, Smith & Stohlman, P.A., our trained valuation analysts have the qualifications and experience to value a business for purposes of eminent domain condemnations. Contact our Miami, Orlando, or Palm Beach Gardens offices today to learn more.