Case Law Summaries

Township of West Windsor, in the County of Mercer v. Nierenberg

• Opinion Date: December 13, 2001
• Real Property Law
• E-Mail

CONDEMNATION; INTEREST RATES—In determining the interest rate to be paid on condemnation awards, it is appropriate for a court to consider the prevailing commercial interest rates, the prime rates of interest, and the legal rates of interest and select the rate which will best indemnify the condemnee for loss of use of the compensation.

After a property was condemned, numerous legal battles ensued. Not only was there disagreement about the fair market value of the property, but the property owner and the condemning authority litigated over the appropriate valuation date and the rate of interest to be paid for the difference between the ultimate value of the property as determined by the condemnation commissioners and the smaller amount deposited by the condemning authority with the court at the outset of the proceedings. The property owner was permitted to intervene in Casino Reinvestment Development Felony v. Hauck, 317 N.J. Super. 584 (App. Div. 1999), aff’d, 162 N.J. 576 (2000). In that case, the property owner argued, as an intervener, only as to the date from which the interest would run. As a result, this property owner was bound by the decision in the Hauck case, “that interest runs from the date of commencement of the action, unless there is a taking on an earlier date ... .” This left, for the Appellate Division in this case, solely the issue as to the appropriate interest rate to be paid.

The municipality argued that the rate set forth in Rule 4:43 (the “tort” rate) should govern, because of the rule itself, and because of the outcome in the Hauck case with respect to the applicable interest rate. The property owner, on the other hand, argued that the appropriate interest rate should have been the prime rate or the national mortgage survey rate for ten-year commercial mortgages. An evidentiary hearing was held, and testimony was taken. An expert witness called by the municipality opined that the rate for tort cases should apply in condemnation awards except in times of extraordinarily volatile interest rates. “He concluded that when market rates were stable, pre-judgment interest should be based on Rule 4:42-11 simple interest rates. In times of volatile rates, commercial rates were appropriate on a case by case basis.” He further opined that during the period in question, market interest rates were “relatively stable.” Further, he concluded that “risk” should not be added despite the fact that risk is involved in most commercial investments. On the other hand, the property owner’s expert “used interest rates related to real estate, taking into consideration the element of risk.” He predicated interest on the prime rates or the commercial loan rate for ten year mortgages. According to the property owner’s expert, “these rates represented the minimum interest rate that an individual, such as [the property owner] would incur if” it borrowed in the market place on the basis of the real estate. Consequently, in this particular expert’s view, such interest rates would indemnify the property owner “for loss of use of compensation to which [the property owner] was entitled as a result of the condemnation.” If this approach were followed, the interest payable to the property owner would have been double that put forth by the municipality.

The Court held that “the prime rate represents the interest that will best indemnify [the property owner] for the loss of use of the compensation.” It was satisfied that the opinion offered by the property owner’s expert was reasonable, fair, and appropriate and application of the prime rate actually represented “a conservative estimate.” It cited Hauck in that, “the allowance on interest on a condemnation award is a requirement of constitutional magnitude where the actual taking of the property is not contemporaneous with payment.” The Eminent Domain Act provides that “the amount of such interest shall be fixed and determined by the court in a summary manner after determination of compensation… .” Consequently, it was appropriate for the lower court to “consider the prevailing commercial interest rates, the prime rates of interest, and the legal rates of interest, and select the rate ‘which will best indemnify the condemnee for the loss of use of compensation to which he has been entitled from the date on which the action for condemnation was instituted, less interest on all amount previously deposited… .’ Further, the Court was unwilling to adopt a rule that the tort interest rate should be applied “absent some threshold showing that application of the rule would violate the property owner’s constitutional rights or would otherwise be unfair.”

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