Karan property (photo courtesy of ctpost.com)
Last week, the New Jersey Supreme Court threw its hat into the ring in the controversy between New Jersey’s municipalities and beachfront property owners regarding the construction or replenishment of sand dunes to protect the shore from future storms. This dispute has been going on for years, but has become front page news since Superstorm Sandy, which confirmed that areas protected by properly engineered dunes fared much better than unprotected areas. But the debate is not, and should not be, about whether the dunes are needed to protect the Shore, at least for the foreseeable future. Rather, the debate has focused on who should pay for the dunes, and whether those who paid a premium for their beachfront properties should be forced to bear the unconstitutional result of having their property taken without receiving just compensation.
In Borough of Harvey Cedars v. Karan, 425 N.J. Super. 155 (App. Div. 2012), rev’d and rem’d, ___ N.J. ___ (2013), the Supreme Court reversed a $375,000 condemnation award awarded by an Ocean County jury for damages caused to an oceanfront home on Long Beach Island for the loss of the ocean view from the property caused by a 22-foot high dune erected as part of the U.S. Army Corps. of Engineers replenishment project. The Court clarified the rules for determining just compensation in partial taking cases, and remanded the case for a new trial.
At stake in Karan was an oceanfront home which had previously enjoyed pristine beach, shoreline and ocean views. As a result of the project, these views were virtually eliminated, leaving the property with views of the ocean only, and only from the highest floor of the home. The owners did not challenge the right to condemn and the parties agreed that the home was worth approximately $1.9 million “before” the taking. The Borough offered Mr. and Mrs. Karan $300 based upon its appraisal which contended that the loss of view was de minimus, while the Karans’ appraiser concluded that the damages resulting from the loss of view totaled $500,000.
Before trial, the owner sought to limit the testimony of the Borough’s appraiser regarding his theory that the property realized a “special benefit”, in the form of storm protection, from the dune construction. At an evidentiary hearing before the trial court, the Borough introduced evidence that the dune provided Karan greater storm protection than inland properties, but conceded that the dune would benefit all of the island’s properties. On this basis, the trial judge held that the benefits to the Karan property were “general benefits”, i.e., those which affected the whole community or neighborhood, and not special benefits unique to the property taken. As a result, the jury was not allowed to hear evidence about the storm protection benefits and returned its $375,000 damage award.
On appeal, the Appellate Division affirmed the trial court, holding that the benefits of the dune project which the Karan property enjoyed in common with other property owners were general benefits which could not be considered to offset or otherwise affect a compensation award. Significantly, the appellate court also commented on a practical just compensation issue that will have to be addressed on remand and in future cases:
“[the condemnor] did not present any expert testimony that a prospective buyer would be willing to pay the same price for a house with a largely-obstructed view of the ocean as for a house with a magnificent panoramic view, because the former house was safer from storm damage.”
Last year — before Superstorm Sandy — the New Jersey Supreme Court granted certification to hear the Karan case. After Sandy, the Court also granted several parties, including the State of New Jersey and several public interest groups, leave to file briefs as amici curiae. In May of this year, the Court heard oral argument, during which the Justices revealed their clear distaste for the special benefits doctrine which has been recognized by New Jersey courts for more than 100 years.
In reversing the decisions below, the Court eviscerated the special benefits doctrine as outdated:
“Today, the terms special and general benefits do more to obscure than illuminate the basic principles governing the computation of just compensation in eminent domain cases.. . . . We find that the Appellate Division’s use of the general-benefits doctrine in this case is at odds with contemporary principles of just-compensation jurisprudence. . . . The historical reasons that gave rise to the development of the doctrine of general and special benefits no longer have resonance today”. [Karan, __ N.J.__, Slip Op. at 40-44.]
The Karan Court therefore created a new formula for determining just compensation in partial takings cases, holding that a jury may be allowed to consider the benefits accorded to a property as an offset to the damages caused to the remaining property by the partial taking. But it cautioned that consideration should not be given to speculative or conjectural benefits:
“[W]hen 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”. [Karan, __ N.J.__, Slip Op. at 44-45.]
As anticipated, interested public officials were very pleased with the decision, and media reports overwhelmingly suggested that the decision would lead beachfront property owners, who had formerly refused to donate their private property for dune construction, to now change their minds and succumb to the public and political pressures which had previously portrayed them as rich, “greedy” villains who were looking for a windfall at the public’s expense. Some even suggested that the decision represented a directive from the Court’s that the loss of an ocean view was somehow non-compensable.
While the euphoric reaction of many would suggest that the more than 1,000 beachfront property owners along the Jersey Shore labeled as “holdouts” would now instantly reverse course and agree to donate their property, this has not occurred. While there are apparently very few who are opposed to the dune replenishment project itself, perhaps the holdouts recognize these very simple truths about the project as it affects them and their properties:
- Privately owned oceanfront property in New Jersey is owned to the high-tide line
- The dunes are being placed on that private property, not public property, thereby creating a taking of that private property via eminent domain
- The act of using/pumping sand from the ocean floor onto the private beaches (known legally as “avulsion”) provides the public the right to use the affected areas under the “public trust” doctrine, thereby depriving the owner of the private beach that had previously placed a premium on the value of the property
- The new dunes will deprive some of the beachfront owners of direct access from their homes onto the beaches they adjoin
- The new dunes will deprive some of the beachfront owners, in whole or in part, of ocean and beach views
- Some of the beachfront owners already have, and have historically maintained, their own dunes which meet the engineering specifications of the dunes now being built by the government
- Some of the beachfront owners have opposed these preliminary efforts because the language in the easements proposed does not clearly delineate the rights which would be acquired and have asked for clarification thereof
- Regardless of the types of damages caused to the properties in question, the owners are entitled, as a matter of constitutional right, to just compensation for the taking of their properties which compensation does normally include damages for loss of view, privacy and access
With these basic facts in mind, the only thing that Karan does to alter the legal landscape is to give the government the right to present evidence – provided it is not speculative and is “reasonably calculable” – that the project provides a benefit to the property which can be used to offset the damages caused to the property by the taking. In other words, until there is reliable evidence that the dunes provide a quantifiable benefit to the homes in question – a benefit which can be proven by market data, not conjecture – condemning agencies may find themselves in exactly the same position they were in before, suggesting that the owners are entitled to nothing. What can be proven is that the private real estate market places a premium on not only ocean views, but also the exclusivity that private beaches afford to those fortunate enough to own them. To the extent that these real and tangible benefits are impaired or destroyed by a taking such as one for dune construction, the cost of acquisition will undoubtedly continue to be significant. And until the condemning authorities recognize that beachfront property owners are entitled to the constitutional guarantee of just compensation, just like everybody else in this country, they may continue to be disappointed and even unsuccessful in their efforts.
What the Karan decision may portend for other types of future partial takings cases is unknown. On the one hand, it virtually assures that the litigation of partial takings matters in the trial court will be more difficult and burdensome to manage, as condemning authorities are likely to now take the position that the project for which a portion of a property is taken will provide some benefit to that property which can be used to offset the damages that the taking creates. However, these agencies would be prudent to bear in mind that the stated purpose of dune takings is to provide a benefit to the property in question (storm protection) while most other takings cannot claim the same benefit and purpose. Regardless of the purpose of these future takings, unless and until the benefit can be proven, as a reasonably calculable sum by objective market data, the mandate of the Karan Court will not necessarily lead to lower condemnation awards.