NMSC Reverses Denial of Lost Rents in Inverse Condemnation Case

In City of Albuquerque v. SMP Properties, LLC, the New Mexico Supreme Court reversed a district court decision that the City of Albuquerque was not liable for lost rents when a tenant declined to renew its lease after the city had spoken to it about its plans to condemn part of the landlord’s property.

This case involved the condemnation of a 30-foot wide strip of land on a 10 acre parcel owned by SMP Properties. The city condemned the land and paid SMP $144,000 for it in “just compensation.” However, about a year before initiating the condemnation, the City discussed the possible condemnation with one of SMP’s tenants. That tenant chose not to renew its lease. At issue in this case is whether the city was also required to pay SMP just compensation for the lost rents.

The city sought summary judgment that the lost rents did not represent a taking, and the district court ruled in its favor. On appeal, the court of appeals reversed, concluding that there were fact questions as to whether a taking had occurred and, if so, whether the loss of rent was attributable to that taking.

Analysis

The state can take private property for public use; however, when it does so, it must pay “just compensation.” There are, however, a wide variety of ways the state can make a taking. On one end of the spectrum, it can take an entire property. On the other end, it can deprive an owner of the use of part of the property for a small amount of time. In this case, the state took part of the property, but also may have deprived the owner of rents for a period of time.

When looking at takings, whether a taking occurred and the proper measure of damages ends up being fairly case specific, and how the taking is framed is important. As the Court explained, property need not be physically taken for there to be a taking. A taking can occur based only on consequential damages. Whether this happened in a particular case requires the fact-finder to resolve disputed questions of fact. Only then can the court decide whether there was substantial interference–and therefore a taking–as a matter of law.

To determine whether the precondemnation activity was a taking, the fact finder had to answer two questions. First, a fact-finder must determine that the government manifested “a present [concrete] intention to condemn specific property.”  Second, a fact-finder must determine that the government took “action that substantially interfere[d] with the use and enjoyment of the potential condemnee’s property.” Here, everyone agreed that the first factor was met, so the inquiry depended on the second factor.

In looking at the second factor, the district court assumed that the city’s precondemnation activity caused the tenant not to renew its lease. However, it did not believe this was enough to satisfy the second factor. This was because it believed that Santa Fe Pacific Trust v. City of Albuquerque, a court of appeals case on takings, it imposed an additional requirement that the city must have imposed a direct restriction on SMP’s use of its property. Since the City had not done so, the district court concluded there had been no taking.

The Court took this case as an opportunity to clarify the meaning of Santa Fe Pacific Trust. Where a property owner alleges there has been an unconstitutional taking that is not based on the physical dispossession of property, New Mexico has not established a bright-line rule. Alleged takings are viewed on a case-by-case basis in light of the specific circumstances presented. Where those circumstances are disputed, summary judgment will not usually be appropriate. Here, whether there was “substantial interference” was disputed, and summary judgment was therefore not appropriate.

Although not necessary to the decision, the Court also discussed the issue of damages. The district court had incorrectly stated that the measure of damages was the difference in fair market value immediately before and after the taking. The Court explained that this was unduly narrow, and that damages could include the lost rents. But it could not tell the lower court how to fashion a remedy because the proper remedy would depend on the facts as they emerged on remand. The Court therefore remanded to the district court for further proceedings.

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