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Eminent Domain and Real Estate Valuation Blog Condemnation and Real Estate Litigation

NJ Court Issues Important Ruling On Eminent Domain Valuation

Posted in Eminent Domain

The NJ Supreme Court recently issued an important decision regarding valuing properties in eminent domain cases for a use not permitted by the zoning as of the valuation date. In Borough of Saddle River v. 66 East Allendale, LLC, the Court considered whether “it was proper to allow the jury to hear evidence on the likelihood of a zoning change without the trial court first determining outside of the jury’s presence that there was a reasonable probability of a zoning change.”

It is very common in eminent domain cases for a property to be valued for a use not permitted by the zoning at the time of the taking. However, to do so, there must be proof of the “reasonable probability” of the zoning change.

In Borough of Saddle River the Borough filed a motion to strike the reports of the condemnee’s expert witnesses as inadmissible “net opinions” on the reasonable probability of a zoning change for the property. In NJ, an opinion is an inadmissible “net opinion” if is “an expert’s bare

opinion that has no support in factual evidence or similar data.” In the alternative, the Borough requested that the court perform its gatekeeping function, and conduct a preliminary N.J.R.E. 104 hearing outside the presence of the jury to assess whether there was a reasonable probability of a zoning change. The trial court denied the Borough’s motion.

At trial, the condemnee’s experts testified that that highest and best use of the property would be a 10,000 square foot bank building and that there was a reasonable likelihood of obtaining the necessary zoning relief for that use. Based on the experts’ opinion that there was a reasonable probability that a variance would be granted, the condemnee’s appraiser testified that the property had a fair market value of $5,250,000. The Borough’s experts proposed a site

plan that provided for a 3,312 square foot bank, which did not require a bulk variance and was appraised to have a $1,325,000 fair market value. The jury returned a verdict for just compensation in the amount of $5,250,000.

On appeal, the Appellate Division affirmed and held that there was sufficient evidence of a reasonable probability of a zoning change such that the jury could consider that evidence.  The panel also found that the judge was not required to conduct a pretrial hearing in every case alleging the probability of a zoning change.

The NJ Supreme Court reversed. In reaching its decision, the Court held that a trial court must first determine whether there is evidence of the probability of the zoning change before submitting the issue to the jury. It stated that there should be a two-step process for evaluating potential zoning changes. First, as a gatekeeping function, the court must determine whether there is sufficient evidence to support the conclusion that a zoning change is “reasonably probable.” After that determination is made, the jury determines whether a premium should be added to the value of the property based on the probability of the future zoning change.

The Court further held that the expert testimony was insufficient to support the reasonable probability of a zoning change because it did not address all the criteria necessary to obtain that zoning change. The Court remanded the case for a new trial.