The Pennsylvania Constitution provides that private property shall not be taken or applied to public use without authority of law and without just compensation being first made or secured. So while the Commonwealth and municipalities are invested with the authority to take private property for public use, they are required to make just compensation for property taken, injured, or destroyed by the construction or enlargement of their works, highways, or improvements.
This power to take private property for public use is the power of “eminent domain,” and the process by which a state or municipality takes private property for public use through the power of eminent domain is known as “condemnation.”
The law in Pennsylvania dealing with condemnation, the Pennsylvania Eminent Domain Code, is intended to provide “a complete and exclusive procedure and law to govern all condemnations of property for public purposes and the assessment of damages therefor.” The Code details the procedure that must be followed in order to condemn private property, including the filing of a document known as a “declaration of taking,” and the procedure for determining just compensation and the measure of the owner’s damages. However, this is not to imply that only the owner of the condemned real estate is entitled to damages under a condemnation proceeding. Many companies (perhaps your own) do not own the real estate from which they operate, but rather are under leases for the space. Because a leasehold interest is considered to be a property interest, the holder of such an interest is entitled to just compensation for any whole or partial taking of the interest by eminent domain.
A condemnee (the person or entity whose property is being condemned) is entitled to just compensation for the taking of his property, but what actually constitutes his property? Is it just the real estate or leasehold interest? What about the elements that form the business such as the good will of the company, machinery, equipment, fixtures, or liquor license?
There have been many cases in Pennsylvania concerning specific items of property being taken by condemnation. In one case, the court held that an award of $20,000 for damage to the condemnee’s liquor license following the condemnation of property which he leased and on which he operated a bar was proper despite the argument that the liquor license should have been valued at what it would be worth detached from the business. In a 1979 case, the court held that machinery incapable of being removed without significant injury to the condemned property is considered to be taken as a part of the realty and just compensation therefor is required; however, if such items can be relocated without substantially destroying or diminishing their value, they are considered personal property and no award for their taking is required.
On the other hand, if the lease agreement provides that all alterations, improvements, additions, or fixtures shall remain on the premises at the expiration of the lease and become lessor’s property unless agreed otherwise, a lessee’s machinery, equipment, and other fixtures would be not compensable property interests under the Eminent Domain Code. (This is yet another item to consider in negotiating a lease.)
Another issue is whether a company can recover for damages which it incurs in relocating such personal property caused by the condemnation, or the value in place of such personal property if it cannot be moved without substantially destroying or diminishing its value, whether because of the unavailability of a comparable site for relocation or otherwise. While special damages for actual displacement from the premises may be statutory rather than constitutional in origin, in Pennsylvania they fall within the statutory definition of “just compensation.”
This article has only touched on certain aspects of condemnation and eminent domain. It may not always be readily apparent to what damages a property owner is entitled, therefore, it is important to seek legal counsel to protect your rights.
— Denise Ciampitti