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New Jersey Schools Construction Corporation v. Warminster Investments Corporation

A-5319-07T1 (N.J. Super. App. Div. 2009) (Unpublished)

CONDEMNATION; VALUATION — Because lead and asbestos in a building to be taken by eminent is not considered to have been “discharged” under New Jersey law, the condemnee is not liable for the removal and therefore the cost of the removal of lead and asbestos may be properly deducted from the condemnation value of the building.

A commercial property owner sought just compensation when its property was taken. At the time of the taking, the property contained a non-conforming industrial building located in a residential zone with several cell phone towers and antennas located on its roof. At the trial to determine the property’s fair market value, the lower court heard the testimony of a number of experts. The condemning authority submitted evidence that the highest and best use of the property was as a conversion into a residential development. Its expert also testified that it would cost a substantial sum for the owner to remove lead paint and remediate asbestos currently located in the existing building on the premises. The owner’s expert testified that the highest and best use would be to build a larger residential development than that proposed by the condemning authority. This would require adding three floors to the existing building and a two story parking facility on the first two floors. On cross-examination, the owner’s expert acknowledged that he had made no calculations to account for remediation costs or the costs associated with converting the shell building into a residential structure. He also admitted that a variance would be needed to add three floors and construct the proposed parking garage to the existing building.

At trial, the municipality pointed out that to enlarge or structurally modify or add to a building would require a variance. The lower court refused to permit the testimony of the owner’s expert planner on the issue relating to cell towers because it held that the expert lacked knowledge pertaining to the municipality’s cell tower ordinance and therefore had no factual basis to testify as to the likelihood of a cell tower variance being granted. After the lower court determined just compensation, the owner challenged the amount award as well as several pretrial rulings relating to the admissibility of evidence, including: (a) the lower court’s denial of a motion to bar the condemning authority from presenting testimony concerning the cost to remediate the property; (b) the barring of evidence concerning the value of the cell tower leases because the court believed the towers were non-conforming uses that needed to be removed and any leases relating to such towers were irrelevant because they were not part of the future plans for the site; and (c) the lower court’s decision to disregard the testimony of the applicant’s licensed professional planner.

The Appellate Division affirmed. First, it rejected the owner’s contention that the lower court erred when it heard testimony relating to the cost of asbestos and lead paint removal in renovating the building. It did not believe that doing so would force a “double-dip” on the property owner, where the subject property is devalued for condemnation in condemnation, and then later, pursuant to an environmental law, the owner would be forced to pay the full cleanup costs. The Court noted that the owner’s position was premised upon the argument that the lead and asbestos were contaminants that had to be removed. It found that these types of contamination would not make a condemnee liable under the environmental statute; the owner must have “discharged” contamination to be liable, which was not the case here. It considered the lead paint and asbestos to be equivalent of “waste stored in containers,” which was not a discharge because there had been no interaction with the environment. These items merely needed to be removed from the property prior to “sale.” Thus, the Court concluded that the cost of removal of these items was properly considered in determining fair value.

The Court also believed, contrary to the owner’s position, that if the lower court did not so rule, the owner would be receiving a windfall because abatement costs can not be the subject of a separate cost-recovery action and the owner would be uncompensated for costs which should have been deducted from the fair market price.

It then agreed with the lower court when it refused to consider evidence concerning the value of cell tower leases on the property at the time of the taking. According to the Court, such evidence was properly excluded because the owner failed to demonstrate that the grant of a variance, permitting the towers to remain was reasonably probable. It concurred with the lower court’s conclusion that, due to the planned conversion of the building to a residential use, the non-conforming cell towers could not be maintained and that any leases involved in the property’s industrial use were irrelevant because they were not part of the future, highest and best use. Further, it ruled that the owner had failed to satisfy its burden to show that once the property was converted to a residential development, the continued existence of the tower and the leases were legally permissible. In this regard, it found that none of the experts were able to offer an opinion on the reasonable probability of the variance being granted, and that it would not do so on its own. Finally, it agreed that the lower court could disregard the testimony of the owner’s licensed professional planner. It noted that the lower court was not obligated to accept his expert opinion and that there was sufficient credible evidence to support the lower court’s determination, including: (a) testimony from the owner’s own expert that variances would be needed to complete the proposed project and that there was a greater likelihood of obtaining variances for the scaled-back plan that the municipality proposed was the highest and best use; and (b) that none of the owner’s experts considered the cost of asbestos and lead paint abatement in valuing the property. Consequently, it declared that the lower court was entitled to conclude that conversion to the owner’s proposed large-scale project was speculative, and that the condemning authority’s valuation based on a smaller proposed project was comparatively more probable and feasible.

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