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Valuing Residential Property Which Has Commercial Potential in Tennessee Condemnation Cases

In Tennessee eminent domain cases, also referred to as condemnation cases, it occurs sometimes that the governmental authority seeks to take property which is currently used and zoned as residential, but which has the potential for commercial development.  It is also frequently the case that the property has a substantially higher value as commercial property than as residential property.

In such cases, where the property is zoned residential, but has the potential for re-zoning to commercial and for commercial development, is the landowner stuck with the value of the property as residential property?  The answer to that question is no.

A property owner in Tennessee whose property is subject to a condemnation case may well be able to recover the commercial value of the property rather than just the residential value of the property. This is so even if the property is zoned residential at the time of the taking.

Here are summaries of three cases that are helpful if you are in a condemnation case and believe that your residential property has the potential to be rezoned for commercial use.

1. Shelby County v. Mid-South Title Co., Inc. (Tenn. Ct. App. 1980):  The landowner owned land that was zoned residential. Shelby County sought to condemn part of the property.  At trial, the landowner called two real estate appraisers who testified that the property had imminent commercial value, and they based their appraisals on comparable commercial sales. As expert witnesses, the County called appraisers who had appraised the property as residential property using comparable residential sales. Those appraisers testified that any commercial potential for the property was “far off.”

The jury believed the landowner’s appraisers, and awarded a judgment accordingly. The county appealed. It argued on appeal that the trial judge should not have let the landowner’s appraisers testify as to the commercial value of the property because the property was zoned residential and there was no probability that the property would be zoned commercial.

The Court of Appeals of Tennessee affirmed the trial court. It held that whether the property might be re-zoned and commercially developed was a question for the jury to decide in determining the value of the property taken.

2. State of Tennessee v. Williams (Tenn. Ct. App. 1991): In this case, the Tennessee Department of Transportation (“TDOT”), which pretty frequently condemns property, condemned property in Gallatin that was zoned residential. At trial, the landowner’s appraisers testified based on appraisals they had prepared which reflected the commercial value of the property.  There was extensive evidence at trial about the dramatic changes of property in the immediate vicinity of the landowner’s property from residential to commercial. TDOT took the position that the property should be valued as residential property. It even offered the testimony of the Gallatin City Planner that, at the time of the taking, he would not have recommended the property be re-zoned to commercial.  The jury based its verdict on the value of the property as commercial property.

TDOT appealed arguing that the testimony of the appraisers who testified as expert witnesses for the landowner was too speculative because the property was zoned residential. The court of appeals disagreed. It stated that, where the experts of the condemning authority and of the landowner offer differing opinions as to the probable commercial use of the property, the jury must decide whether to value the property as commercial property or as residential property.

3. State of Tennessee v. Cox (Tenn. Ct. App. 1991):  This is another case where TDOT condemned land in Gallatin which was zoned residential at the time of the taking, but which was in an area that had been transformed from residential to virtually all commercial.  The facts, jury verdict, arguments on appeal, and result on appeal in this case, as well as the reasoning of the Court of Appeals, is substantially similar to the above case involving TDOT in which the landowner was able to recover a value greater than the property’s residential value.

As the above three cases demonstrate amply, in Tennessee, a landowner is not stuck with the value that his or her property has as residential property just because it is zoned residential at the time of the taking.  Before you reach any conclusions about the value that you should receive for your property if it is being condemned, you should consult with an experienced Tennessee condemnation lawyer.