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Analysis and Impact of Connecticut Appellate Level Opinions Involving Real Property Issues

Inverse Condemnation: Taking Parking Lot Takes Building

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parking lotA city inversely condemned a commercial building when it took the parking lot that served it, according to the Connecticut Appellate Court in Barton v. Norwalk, to be officially released on February 23, 2016.

In this appeal, plaintiff had purchased an office building in 1981. The city said the building had insufficient parking, so plaintiff constructed a lot across the street to serve it. Years later, the city condemned the parking lot in connection with its construction of a new police station. Plaintiff challenged the city’s just compensation for the lot, claiming that the “highest and best” use for the property was mixed development. Plaintiff also “twice tried to amend his pleadings in that case to add a claim for losses to [the commercial building] as a result of the taking of [the parking lot].” The city successfully objected to both amendments.  Superior Court found that the highest and best use was mixed development and awarded plaintiff additional compensation.

Plaintiff then commenced a separate action to recover for losses to the commercial building on a theory of inverse condemnation. “The [trial] court found that the lack of parking, caused by the taking of 65 South Main by eminent domain, ‘ha[d] substantially destroyed the [plaintiff’s] ability to operate the property as a leasable facility and enjoy even a modicum of financial success. The evidence shows the lack of parking, which the [city] initially insisted upon, reduced the . . . [property’s] chances of commercial success to negligible or nonexistent’ and amounted to ‘a substantial destruction of the [plaintiff’s] ability to enjoy or use the property . . . .’ As such, the plaintiff ‘proved [his] claim of inverse condemnation.'”

Defendant appealed. The Appellate Court affirmed.

City’s Main Arguments on Appeal

“The [city] appealed … , arguing that: (1) judicial estoppel barred the plaintiff’s recovery for losses to 70 South Main; and (2) in any case, the interference with the plaintiff’s use of [the commercial building] was not so substantial as to be an inverse condemnation.”

The thrust of the city’s judicial estoppel argument was that plaintiff had obtained additional compensation for the parking lot by asserting that its highest and best use was mixed development. Plaintiff could not now be heard to say that he needed it to be a parking lot.

Appellate Court Concludes Taking Parking Lot Inversely Condemned Building

The Appellate Court noted that “[t]ypically, judicial estoppel will apply if: 1) a party’s later position is clearly inconsistent with its earlier position; 2) the party’s former position has been adopted in some way by the court in the earlier proceeding; and 3) the party asserting the two positions would derive an unfair advantage against the party seeking estoppel.”

The court concluded that the first prong failed. Plaintiff’s “parking lot as mixed use” position in the first action was not “clearly inconsistent” with its “parking lot as parking lot” position in the second action because the law does not require the owner actually to put the property to its highest and best use. In other words, “highest and best use” determines just compensation. Actual use is irrelevant to just compensation.

Moreover, plaintiff’s claim that the best use for the parking lot, standing alone, was mixed development did not contradict his argument that the best use for the building and the lot, standing together, was as an office building with a parking lot to serve it.

The court also concluded that the third prong failed: “[T]he question is whether a party gained more by taking inconsistent positions than it would have by taking consistent positions…. [P]laintiff’s two positions allowed him to recover once for [the lot] and once for [the building], the same as if he had valued [the lot] as a parking lot instead of as a mixed use development. He gained no advantage, let alone an unfair one.” In other words, plaintiff was entitled to recover twice and did recover twice so he did not gain anything extra.

As to the city’s second argument on appeal, the court noted that “inverse condemnation requires either: (1) total destruction of the property’s economic value; or (2) substantial destruction of the owner’s ability to use and enjoy the property.” The facts showed substantial destruction. Plaintiff had been unable to lease roughly 90% of the building’s space because there was no parking. One tenant, a church, remained, at a below market rent, solely because the city allowed church members to park for free on city property. Plaintiff’s expert testified without contradiction that the land might be worth more than the land and building.

Other Things to Note

In the trial court, plaintiff claimed that he was entitled to offer of compromise interest because the city rejected his offer of compromise. “The court denied the plaintiff offer of compromise interest on the ground that he failed to meet two requirements of § 52-192a: (1) that a plaintiff offer to settle his action ‘for a sum certain’; and (2) that, after the defendant rejects the offer, the plaintiff recover ‘an amount equal to or greater than the sum certain’ he requested.”

Plaintiff cross-appealed. The Appellate Court concluded that plaintiff’s offer was not for a sum certain. It included not a certain dollar amount but an amount for fees and costs “up to $20,000” and permits and approvals to renovate the buildings. “Up to” is not a sum certain, nor is permits/approvals.

 

No Zoning Variance Absent Practical Confiscation

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used carsThere can be no zoning variance absent practical confiscation of the property. The Connecticut Supreme Court determined in Caruso v. Zoning Board of Appeals that land use regulations for a regional development zone did not result in a practical confiscation of a property within the zone. The Supreme Court also determined that the Appellate Court’s decision reversing the trial court did not impose a requirement of diminution in value evidence for every practical confiscation claim.

The Meriden zoning regulations permit only six uses within a “Regional Development District.” The six uses are: conference center hotels; executive offices; research and development; medical centers; colleges or universities accredited by the state; and distribution facilities combined with executive offices or research and development.

The developer applied to the board for a variance claiming essentially that limiting its uses to these six things practically confiscated the property. The developer asked for permission to operate a used car lot on it. The board voted to grant the variance.

Plaintiffs appealed to the Superior Court claiming that the developer failed to demonstrate a practical confiscation and that the vote was void because one voting board member had a conflict of interest. Superior Court concluded that there was substantial evidence that the property had been practically confiscated. But, because Superior Court also concluded that the one board member should have disqualified himself from the vote, it remanded the case to the board for further proceedings.

The developer appealed to the Appellate Court, arguing that the vote was proper. Plaintiffs cross-appealed Superior Court’s decision that there was substantial evidence of a practical confiscation. The Appellate Court concluded that there was no substantial evidence of a practical confiscation because the developer “offered no evidence of the current value of the property or its efforts to market, sell, or develop the property for any permitted use within the development district.” The Appellate Court reversed and remanded to Superior Court with a direction to sustain plaintiffs’ appeal.

The Supreme Court affirmed.

Arguments on Appeal

The developer argued that the Appellate Court improperly concluded that there was insufficient evidence supporting the developer’s practical confiscation claim.

The developer also argued that “the Appellate Court improperly required evidence of the property’s diminished value in proving practical confiscation and, in doing so, created a categorical rule that all practical confiscation claims must contain such evidence, contrary to [Supreme Court] precedent.” This, I’m fairly certain, is the reason the Supreme Court took the case.

Supreme Court’s Conclusions

The court noted that “[a] zoning board of appeals is statutorily authorized to grant a variance if two requirements are met: (1) the variance will not ‘affect substantially the comprehensive zoning plan’; and (2) the application of the regulation causes ‘unusual hardship unnecessary to the carrying out of the general purpose of the zoning plan.'” The court continued, “[u]nusual hardship may be shown by demonstrating that the zoning regulation has deprived the property of all reasonable use and value, thereby practically confiscating the property.” There is no practical confiscation where, even as regulated, the property can be reasonably used or still has value.

The court concluded that the developer “failed to prove practical confiscation because it did not demonstrate that the property has been deprived of all reasonable use and value under the regulations.”

As for the purported categorical rule requiring evidence of the property’s diminished value, the Supreme Court concluded that the Appellate Court did not impose any such rule. The Supreme Court explained, as follows (quotes and cites omitted; emphasis original):

[T]he Appellate Court … noted that the defendant presented no evidence that it was unable to sell the property or unable to develop the property for any of the uses permitted in [the development district] …. Additionally, the Appellate Court did not declare that all practical confiscation cases must contain evidence of the property’s diminution in value. The Appellate Court simply held that without such evidence in this case, with no evidence that the property could not reasonably be used as permitted in the development district, there was no reliable evidence on which to form the conclusion that application of the . . . regulations had destroyed the value of the property.

Impact

You don’t necessarily have to show a diminution in value to get a variance based on a practical confiscation, but it helps.

About the Photo

It’s a used car lot, of sorts.

Affordable Housing Trumps Local Law

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city-road-people-streetAffordable housing trumps local law, according to the Connecticut Appellate Court’s decision in Brenmor Properties, LLC v. Planning and Zoning Commission, to be officially released on February 2, 2016.

The main issue in this relatively long opinion surrounded an interior road in a proposed affordable housing development. The commission maintained that the interior road did not comply with the town’s road ordinance, which specified things like minimum width and maximum grade. Since the town’s road ordinance was enacted to protect the public health and safety, any deviation from it is per se unacceptable and requires denial of the application.

The developer countered that the interior road did not present any safety risk, notwithstanding its noncompliance with the road ordinance. The developer’s traffic expert submitted a report and testified to that effect.

The commission denied the application. The developer appealed to the Superior Court, who reversed and remanded to the commission with an instruction to grant the application “as is.”

The commission appealed to the Appellate Court, who affirmed the trial court.

Arguments on Appeal

The commission’s principal argument essentially was that it didn’t really have to consider anything beyond the road’s noncompliance with the road ordinance because the road ordinance represented what was necessary for public health and safety.

The commission also argued that the proposed development did not comply with the fire code based on the fire marshal’s report. I’m not going to address this claim because it doesn’t warrant any discussion. The court noted that the argument was not well-made because everyone conceded that the fire marshal’s report was based on an earlier version of the application, not the final, revised application.

The commission’s final argument was that Superior Court did not have the authority to remand with an instruction to grant the application “as is.”

The developer offered an alternative ground for affirmance, namely that the commission failed to state its reasons for denying the application.

Appellate Court’s Conclusions

The Appellate Court agreed that the road ordinance protects public health and safety. The court disagreed that the affordable housing statutes allowed the commission to end the inquiry there. Rather, the court concluded:

“In an affordable housing appeal pursuant to § 8-30g, the commission bears the burden of demonstrating that its denial was necessary to protect a substantial public interest that clearly outweighs the need for affordable housing. When a municipal legislative enactment is involved, the commission—as well as a reviewing court—must look to the rationale behind that enactment to determine whether that standard is satisfied.”

The evidence showed that the road ordinance’s restrictions were not necessary to protect a substantial public interest. The developer’s traffic engineer explained that the proposed interior road could safely accomplish all of the things that a road needed to accomplish. In contrast, there was no evidence, other than speculation, from anyone that the proposed interior road posed any risk for anyone.

As to the commission’s argument that the Superior Court could not direct the commission to accept the application “as is”, the Appellate Court concluded that “[t]he court’s authority under § 8-30g (g) includes ‘the power’ to order a commission to grant an affordable housing application on remand.” The trial court did not abuse its discretion with its remand order.

The Appellate Court rejected the developer’s alternate ground for affirmance, as follows: “Admittedly, the motion to deny the plaintiff’s modified application was not a model of precision. It nonetheless set forth various grounds for denial in plain fashion…. As a result, we conclude that the record contains a clear basis on which to review the commission’s decision.”

Impact

The notion that noncompliance with a town ordinance is not a per se ground to deny an affordable housing application appears to me to be an extension of existing law. The Appellate Court explained that one of the reasons we have the affordable housing statutes is to prevent commissions from pre-textual denials based on noncomformance with planning and zoning regulations. For that reason, it is established law that a commission cannot deny an affordable housing application based on mere nonconformance with planning and zoning regulations. The Appellate Court seems to have extended that reasoning to all town regulations and ordinances.

About the Photo

A road like the one in the photo probably would have supported denial of the application.

Foreclosing Plaintiff Had Standing

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commercial buildingA foreclosing plaintiff had standing to foreclose because it was the holder of the note and defendant failed to rebut the resulting presumption of ownership. Also, defendant failed to preserve an appellate challenge to the existence of an agency relationship between the loan servicer and plaintiff because defendant didn’t object or otherwise raise the issue during the servicer’s testimony.

The Connecticut Appellate Court made these determinations in AS Peleus, LLC v. Success, Inc., which will be officially released on February 2, 2016.

Standing is one of my pet issues. What the court didn’t say about standing in this case is more interesting to me than what it did say. I will explain that in the “Impact” section. For now, I note that plaintiff apparently plead that it was the owner and holder of the note. Defendant left plaintiff to its burden of proof on that allegation. At trial, plaintiff introduced the original note which “contained” six allonges ending with a special endorsement to plaintiff. Plaintiff also introduced testimony from a representative of plaintiff’s loan servicer.

Defendant did not offer any evidence at the trial. Nor did defendant object to the competence of the servicer representative to testify about the existence of an agency relationship between itself as agent and plaintiff as principal. Defendant instead made a tactical decision to raise that issue in its post-trial brief.

The trial court found that plaintiff was the owner and holder of the note and had established the other elements of its foreclosure claim.

The Appellate Court affirmed.

Arguments on Appeal

Defendant argued that the trial court erred in determining that plaintiff was the owner and holder of the note. I can’t give you any specifics of why defendant thought the trial court erred in this regard because the Appellate Court didn’t give any specifics in the opinion. If I had to guess, I would say it had something to do with the allonges because the Appellate Court said the note “contained” the allonges, rather than the allonges were attached to the note. It also dropped a footnote defining “allonge” and explaining that an allonge is considered part of the note. Without digressing too much, an allonge isn’t an allonge unless it’s physically attached to the note, which means that an allonge isn’t part of the note unless it’s attached to the note. In short, I don’t think the court used “containing” accidentally.

Defendant also argued that the trial court erred in accepting the servicer representative’s testimony absent proof that he was plaintiff’s agent.

Appellate Court’s Conclusions

The court concluded that the note and allonges established plaintiff’s holder status, which gave rise to the rebuttable presumption of ownership. Defendant, who didn’t offer any evidence at trial, failed to rebut the presumption. Thus, the trial court properly determined that the foreclosing plaintiff had standing as the owner and holder of the note.

As to defendant’s agency argument, the court concluded that defendant had not preserved it for appeal because defendant did not object to any of the servicer representative’s testimony, including his testimony that he was authorized to speak for plaintiff. Defendant’s decision to raise the issue for the first time in its post-trial brief was inconsistent with the preservation requirement. It also effectively ambushed plaintiff, who was deprived of the opportunity to supply curative evidence.

Impact

Defendant left plaintiff to its proof on the owner and holder issue. “Leaving plaintiff to its proof” of an allegation is like a denial, with one big difference: Defendant does not get to controvert the allegation as it would with an outright denial. So, all plaintiff has to do is offer some evidence to support the allegation, which establishes it as fact, prima facie. Since defendant can’t controvert it, the weakness of plaintiff’s evidence is irrelevant. That would make you think that a defendant who leaves a plaintiff to its proof of the owner/holder allegation forgoes the right to rebut the presumption. The court didn’t say that defendant lost the right to rebut the presumption. It said that plaintiff didn’t attempt to rebut the presumption.

On the other hand, standing is an aspect of subject matter jurisdiction, which can’t be created by waiver or consent. This might mean that borrower can’t lose the right to attempt to rebut the presumption.

The case leaves these issues open. I think the better course of action for a borrower is to deny the owner/holder allegation. That way, there can be no question of forfeiting the right to attempt to rebut the ownership presumption.

About the Photo

I used this picture in my first post, which was about another foreclosure case. It might become my go to pic for this category of cases.

Municipal Parking Lot is Not A Nuisance

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parking lotA municipal parking lot is not a nuisance in and of itself, even if it is right next to your house. The Connecticut Appellate Court came to this conclusion in Perry v. Putnam, which will be officially released on February 2, 2016.

The Town of Putnam built an athletic facility on property adjoining plaintiffs’ residence. The town also constructed a parking lot to service the athletic facility. The parking lot is close to the plaintiffs’ home. Plaintiffs commenced an action that they thought sounded in nuisance based on all of the things that occur in parking lots next to town athletic facilities. Think teenagers, beer league softball players and truckers.

The trial court struck the complaint because it did not allege facts sufficient to state a nuisance claim. Plaintiff filed an amended complaint. The trial court struck that too, for the same reason. The Appellate Court affirmed.

Arguments on Appeal

Plaintiffs’ principal argument on appeal seems to have been that their amended complaint stated a nuisance claim because it alleged that the town engaged in a “positive act.” The positive act allegation is essential to a nuisance claim against a municipality. As the trial court noted, however, the other four elements of a nuisance claim also are essential to assert a nuisance cause of action against a municipality. A positive act allegation alone will not suffice.

Appellate Court’s Conclusions

The Appellate Court found lacking plaintiffs’ allegations relating to the positive act and two of the four other elements of the nuisance cause of action: (i) condition complained of has a natural tendency to create danger and inflict injury; and (ii) the use of the land was unreasonable and unlawful.

As for the positive act, the court noted that the requirement is that the municipality engages in a positive act that causes the alleged nuisance. In this case, it was not the municipality’s positive act in locating the parking lot near plaintiffs’ home that rankled them. Rather, the alleged nuisance stemmed from the positive acts of people using the parking lot, not from the location of the parking lot in and of itself. In other words, if no one was doing in the parking lot the things plaintiffs were complaining about, the lot would not have posed a problem.

The court also concluded that a parking lot does not have a natural tendency to create danger or inflict injury. The court noted that the lot was not like the town dump where fires routinely burned unattended or the landfill that leaked contaminants into the water supply.

The court further concluded that using town land for a parking lot to service an adjoining athletic facility was not unreasonable or unlawful. “Building a public parking lot is a quintessential public function, and … to be functional, a parking lot must be in proximity to the facilities it is intended to serve.” The placement of the lot on town land but in close proximity to plaintiffs’ home was not unreasonable or unlawful.

Impact

The case seems to have been an attempt at a new tactic for the “not in my backyard” opposition to public projects. It didn’t work. I don’t think it will work in the future, unless you’re talking about something that really is a nuisance, like a landfill.

About the Photo

I couldn’t find a picture of an outdoor parking lot. This was the next best thing.

Release of Lis Pendens

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pencil sharpener

A release of lis pendens is not available for the asking.

I know that sounds too obvious to require the Connecticut Appellate Court’s attention but it’s really the only thing worth mentioning about the opinion in Levinson v. Lawrence, to be officially released on January 26, 2016.

Levinson and Lawrence had had an on again, off again relationship since college. Lawrence married, and eventually divorced, someone else. She got her house in the divorce, subject to a short-term mortgage in favor of her ex-husband. When the mortgage matured, Levinson paid it off. Shortly after that, Levinson moved into the house.  He made, and paid for, some renovations.

If you’ve ever watched Judge Judy, you know what happened next. The relationship soured. After some trouble of the usual kind in these circumstances, Levinson moved out. He brought a small claims action seeking to recover some personal property and lost. He started an action in Superior Court and recorded a lis pendens against the house. Superior Court dismissed that action. He started a second Superior Court action and recorded another lis pendens. In the second Superior Court action, Levinson claimed that he paid off the mortgage in exchange for a 50% ownership interest in the house, which should be recognized as a resulting trust. He also claimed compensation for the renovations on an unjust enrichment theory. Lawrence counterclaimed alleging slander of title arising out of Levinson’s lis pendens.

During the litigation, Lawrence sent Levinson at different times two separate notices demanding release of lis pendens. In the first notice, Lawrence claimed that Levinson did not properly serve the first lis pendens. The opinion doesn’t mention Lawrence’s basis for her second notice, which related to the second lis pendens.

Years later, the parties stipulated during the litigation that Levinson would release the lis pendens by a certain date and Lawrence would market the house. Levinson was late with his releases and Lawrence apparently never marketed the property.

The trial court found for Lawrence on Levinson’s complaint and Lawrence’s counterclaim.

Arguments on Appeal

There’s not much to say here. Levinson argued that the evidence showed that there was a resulting trust and that Lawrence had been unjustly enriched by Levinson’s renovations. He also argued that the trial court should not have found for Lawrence on her counterclaim or awarded damages under CGS § 49-8. The statute provides for actual or statutory damages, plus attorney’s fees, if a plaintiff fails to timely release an ineffective or invalid lis pendens.

Appellate Court’s Conclusions

The Connecticut Appellate Court affirmed the trial court as to the rulings for Lawrence on Levinson’s complaint. It reversed the trial court’s decision on Lawrence’s counterclaim.

A resulting trust arises only if that is what the parties intended. There was no evidence that the parties intended for Levinson to have a 50% ownership interest in the house.

There is no “unjust” enrichment if one party officiously confers a benefit on another. There’s enrichment, but it’s not unjust because the recipient did not solicit it. There was no evidence that Lawrence solicited the renovations that Levinson made. Rather, the evidence showed that Levinson did the renovations because he wanted them and Lawrence was more or less indifferent.

As for Lawrence’s counterclaim, § 49-8 provides damages if a plaintiff fails to timely release a lis pendens that “has become of no effect pursuant to section 52-326.” CGS § 52-326 essentially provides that a lis pendens becomes ineffective when the controversy underlying the lis pendens is formally disposed — by a judgment or withdrawal of the action, for example. Neither Lawrence’s notices nor the parties’ stipulation disposed of the action. So, it was improper for the trial court to award damages under § 49-8.

Impact

My takeaway from the opinion is simple: If the litigation remains pending, you don’t have to release a lis pendens simply because the other party claims it’s ineffective or invalid. I think that’s true even if the other party turns out to be right.

About the Photo

My son took it. I like it, and not just because he took it. He’s got more that I like and I will feature them in future posts. You can see some of his work here.

Income Capitalization Approach in Deficiency Proceedings

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commercial building

A trial court may properly rely on the income capitalization approach of property valuation in a commercial foreclosure deficiency judgment proceeding, at least sometimes.

The Connecticut Supreme Court considered the issue in J.E. Robert Company, Inc. v. Signature Properties, LLC (officially released January 5, 2016). In the trial court, plaintiff sought a deficiency judgment. To support its claim as to the property value, plaintiff offered evidence from its appraiser, who relied primarily on the income capitalization approach.

What is the Income Capitalization Approach?

The income capitalization approach uses the property’s income to determine the property value. The income is the rent. If the property is leased, the lease determines the rent. If the property is not leased, the appraiser uses market rent. If the property is partially leased, as it was in this case, the appraiser uses the contract rent for the occupied portion and market rent for the unoccupied portion. To derive the property value, you divide the rent by the rate of return. For example, if the rent is $125,000 per year the rate of return is 10%, the property value is $1,250,000 ($125,000 / .10 = $1,250,000).

Doesn’t the Approach Value just the Lease and not the Property?

Yes and No. If an income producing property, like an office building, is vacant, the approach assumes that market rent is the most the landlord could obtain in income. Let’s assume you are looking to buy an office building and hoping for a 10% rate of return. The building is unoccupied and your research shows that the market isn’t going to pay more than $125,000/year in rent. That means you could pay up to $1,250,000 for the building and preserve your hoped-for rate of return.

Now let’s assume that the building is fully occupied with tenants who are paying more than market rent — $140,000. If you buy it, you will have to honor those existing leases. The tenants will too. In this scenario, you could pay up to $1,400,000 and still earn your 10% rate of return. Likewise, if the tenants are paying less than market rent, say $110,000, you could not pay any more than $1,100,000 to preserve your rate of return.

So, when using market rent, the income capitalization approach gives you the value of the fee simple interest, i.e. the property without any leases. When using contract rent, the approach gives you the value of the leased fee interest, which is the fee simple interest encumbered by a lease.

The Appeal

Defendant argued that the deficiency judgment statute, CGS § 49-14, required plaintiff to establish the value of the fee simple interest. Plaintiff’s income capitalization approach valued only the leased fee interest. For this reason, the trial court should not have accepted the income capitalization approach in valuing the property.

The court noted that the market and contract rents were the same in this case. Since the rents were the same, under the income capitalization approach, the values of the fee simple and leased fee interests were the same.

Because the values were the same, the court didn’t decide whether § 49-14 requires proof of the value of the fee simple, as opposed to the leased fee, interest. I wouldn’t expect the issue to go away, at least not where the property is leased and the parties liable on the deficiency judgment have assets. Plaintiffs want to access, and defendants to protect, those assets. If the income capitalization approach yields a “better” deficiency for one party or the other, that party will want the court to use the value of leased fee interest, not the fee simple interest.