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Our office routinely handles utility takings, which often involve partial takings of easements for transmission lines or pipelines.  As governments attempt to improve the electrical grid to support the transportation of wind and solar energy, this type of case is likely to become increasingly common.  Although these takings may serve a public purpose, they often devastate residences and businesses whose properties become encumbered by invasive easements (and the humming and hissing of high-voltage transmission lines).

As in any case involving partial takings, just compensation is based on the difference in the property’s “fair market value” before and after the taking.  In utility cases, the most challenging part of calculating that diminution is valuing the property after the taking.  It is difficult to value a property subjected to an intrusive transmission line or pipeline.  But it is even more complicated to value the property under the hypothetical situation where the utility company uses its newly acquired easement to the maximum extent allowed by law.

This blog illustrates the complications of valuing a property subject to utility easements and explains why property owners must fight for compensation based on the condemnor’s maximum possible use of the easement, even where that use is theoretical or unlikely.

Example of this in practice:

About a year ago, we represented the owners of an office building on which a utility company condemned a permanent easement for a pipeline.  The utility company caused some damage and disrupted the use of the office building when it installed a pipeline on a grassy area between the building and a busy road, but once the project was completed, the pipeline was below ground and invisible to the naked eye.  At this point, you may wonder why the valuation of the property after the taking was so complicated.  Sure, there was a pipeline, but on the surface, the property looked the same.

Well, there were a couple of complications:

First, the pipeline reduced the property’s buildable area, and “fair market value” in eminent domain cases is based on the “highest and best use” of the property, even if the property is not used for that purpose at the time of the taking.

And second, and perhaps more importantly, the permanent easement granted the utility company the right to do far more than install the pipeline it had put in place.  Instead, the easement granted the utility company the right to modify and upgrade the line, including by replacing the mostly innocuous existing pipeline with one far greater in size and above ground.  The easement also granted the utility company the right to use the rest of the property whenever it needed to work on the pipeline.

Just compensation must be based on the utility company’s maximum use of the easement

In cases like this, the jury must determine the property’s fair market value following the taking as if the utility company ‘will use its newly acquired property rights to the full extent allowed by the law.’  As you can imagine, it is often difficult to value a well-maintained professional office building under the hypothetical condition in which it has been burdened by a hideous above-ground pipeline and had its regular business repeatedly disrupted by the utility company’s maintenance work.  But that is necessary to protect the property owner’s interests.

As I explain below, owners have only one opportunity to obtain just compensation for the condemnation of a permanent easement to their property.  The utility company may intend to install a two-foot-in-diameter pipeline under the ground, but the easement may grant it the right to do much more.  And if the utility company later decides to use the easement in a more invasive manner, the property owner will have no recourse.  Compensating property owners based on the utility company’s maximum possible use of the easement protects the owner’s interest.  It also serves as a check on the utility company, which typically selects the easement terms when filing the condemnation action.

Use of the easement may exceed what the condemnor initially intends:

In many cases, utility companies have after decades of consistent use or even non-use of easements expanded their use to the detriment of property owners.  When that happens, the utility companies are constrained not by their initial intended use of the easement but by the terms of the easement itself.

As an example, consider Rolland v. Int’l Transmission Co., No. 274411, 2008 WL 2038025 (Mich. Ct. App. May 13, 2008) (available on Google Scholar).  That case centered around easements originating from the 1940s and 1950s, when the Detroit Edison Company “acquired easement rights to ‘construct, operate and maintain’ electrical power lines, ‘including the necessary H-frames, towers, fixtures, wires and equipment’” over the owners’ properties.   Id. at *1.  Detroit Edison Company installed many wooden H-frame poles, which remained in place for many years.

Then, in 2000, Detroit Edison assigned its easement rights to another utility company, which replaced the wooden H-frame poles with steel “monopoles” and installed new monopoles where they did not previously exist as part of a major project.  After the successor utility company notified the landowners that it intended to enter their properties to install the monopoles, the owners objected and sought a declaratory judgment and injunction prohibiting any power line or pole upgrade work on their land.

At both the trial and appellate levels, the utility company won.  The court concluded that the utility company could install the colossal monopoles under the terms of the existing easements—specifically, the easement language granting the predecessor-in-title Detroit Edison Company “the right to construct, operate and maintain its lines for the transmission and distribution of electricity”—even though steel monopoles did not even exist when Detroit Edison obtained the easements.

The reasoning behind that was relatively straightforward:  The utility company was constrained by the terms of the easement, not its initial intended use.

This example is far from unique.  See, e.g., Consumers Energy Co. v. Acey, No. 277039, 2008 WL 2779896 (Mich. Ct. App. July 17, 2008) (also available on Google Scholar) (holding that a utility company could construct a second pipeline on an owner’s property based on a 1951 easement), rev’d in part on other grounds, 483 Mich. 985 (2009).

Property owners typically have only one chance to obtain just compensation:

In the previous example, Rolland, the property owners were not entitled to additional compensation when the utility company replaced the H-frames with monopoles.  That is because the utility company already owned the right to install the monopoles under the existing easement.  See also, e.g., Highway Comm’n v. Great Lakes Express Co., 50 Mich. App. 170, 175 (1973) (explaining that because the landowner “is forever barred from claiming additional compensation,” the condemnor must compensate the landowner as if it will “make use of every one of the quantum of rights it had arguably taken”).

Compensating property owners based on the utility company’s maximum possible use of the easement incentivizes utility companies to take as little property as possible:

Under Michigan’s quick-take statute, utility companies typically file a complaint that specifies the property they seek to condemn.  Although property owners may challenge whether the taking is for a public purpose or necessary, they are often bound by the utility companies’ chosen easement language.  Compensating property owners based on the utility companies’ maximum possible use of the easement they drafted provides an important check on utility companies and disincentivizes them from obtaining an easement that extends beyond what is necessary for their initial project.

In sum, in cases involving partial takings of easements, just compensation must be based on the condemnor’s maximum possible use of the easement, even if that use appears theoretical or unlikely.