4 min read Growth Strategies

Law of the Land

Government interest in your property could bring business to a screeching halt. Know how to work the system for the best deal.

June 1, 2002

This story appears in the June 2002 issue of Entrepreneur. Subscribe »

Bad news. Your brother just overheard two regional planners having a discussion about a proposed freeway access ramp, and it seems they want to run it right through your store. "No way!" you cry. "They can't do that to me!"

Well, yes, they can. Under the legal principle of "eminent domain," the government has a right to take private property from you when it's needed for a public purpose. If a federal, state or local government wants to widen a road or build a new city hall and needs your property to do it, it has a right to force you to sell. You do have a right to fair compensation, but you might not agree with what the government offers to pay.

A PHONE CALL AWAY:Following up on our July 2000 "Legal Aid" column, a Florida jury recently awarded nearly $21 million to a woman who was severely injured in a crash caused by a driver who was talking to a customer on his cell phone. Because the driver was on business at the time, the employer, Dyke Industries Inc. of Little Rock, Arkansas, was held liable.

"Every business should have an employee car cell phone use policy, not just to prevent accidents but also to protect against punitive damages," says Miami attorney Mark Cheskin. "Due to the potential size of these verdicts, a small business could find itself just one cell phone call away from bankruptcy."

That's when it pays to be proactive. If you get involved early in the process, you may be able to negotiate changes that have a less damaging impact on your business. And if the government refuses to consider anything other than buying your entire property, you may be able to negotiate a price that takes into account the effect of interruption and relocation on your business.

That won't necessarily be easy, however. Because the government's goal is to obtain the land for the lowest possible price, you'll probably be offered what an appraiser estimates as the value of the land and buildings. Chances are that won't match what the place is worth to your business, because it's more than just land: It's where you've built your customer base, and there may not be a suitable alternative nearby. You might have older buildings or work with outdated machinery, and relocation would entail replacing machines or upgrading facilities. Even if the land is undeveloped, it may be worth far more than farmland or a vacant lot because of its potential for development.

Fortunately, courts in recent years have become more sympathetic to the plight of the business owner forced to sell land to the government. While only a fraction of the condemnation cases ever go to trial, this trend in the courts makes it more likely the agency you're dealing with will be open to arguments.

The Process
Start by understanding the process. While you'll probably hear rumors of the coming action in advance, your first official notice will be a letter from the agency stating that it's interest in your property. This letter or one that soon follows will include the agency's initial offer, called a "pro tanto" offer. Then you and your attorney have a chance to negotiate with the agency, bringing in your own evidence for the value of the property and what it would cost to relocate.

If you choose to reject the pro tanto offer, there's a hearing where a commissioner examines evidence, hears arguments and proposes a compromise. If you're still unhappy, you have a right to a jury trial, where experts on behalf of each side try to convince the jury what the property is worth.

Get Going
Your best bet is to get going as soon as you hear about the project.

Hire an attorney who has substantial experience in eminent domain cases.
Get your business records in order to show what you stand to lose.
If you have plans for developing the site, draw them up so you can seek compensation the land's "highest and best use."
Choose a respectable appraiser in case you're hit with a low-ball offer.
Get bids on relocation costs.
Use all this information to begin negotiating long before the official notice, when you still have a chance to influence the project itself.
Keep your requests reasonable.
Most important, don't sit on your hands, or you'll find yourself watching your options evaporate.

Steven C. Bahls, dean of Capital University Law School in Columbus, Ohio, teaches entrepreneurship law. Freelance writer Jane Easter Bahls specializes in business and legal topics.