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Tennessee Eminent Domain Cases: A Potential Zoning Change as Increasing Value for the Land Owner

Zoning laws and zoning maps are not caste in stone. They are subject to change for any number of reasons including recognition by a legislative body of a change in the character of an adjacent area. In Middle Tennessee these days, it is not at all fantastical for a land owner to expect a change in the current zoning of his or her property, which rezoning would allow new uses and development parameters.

In many cases, land owners’ real estate increases in value when a zoning change is enacted. For example, the value of a piece of property might dramatically increase when its zoning is changed from some form of residential to some form of commercial or industrial use. Can a possible change in zoning that would increase the value of a piece of property that is the subject of a condemnation case be considered by a jury?  In Tennessee, the answer is “yes.”

A couple of Tennessee eminent domain cases are excellent authority for the position that a potential change in zoning may be considered by a jury. In Shelby County v. Mid-South Title Company, Inc. (Tenn. Ct. App. 1980), the property owner’s property was zoned R-1 (single family residential).  The condemning authority, Shelby County, appealed a jury verdict on the grounds that the trial judge should not have permitted the property owner’s experts to testify as to the value of the land being taken based on appraisals wherein they considered comparable sales of commercially zoned properties.

At trial in the Shelby County case, the proof was that the county was taking 1.842 acres of the property owned by the defendant land owner. All three of the land owner’s expert witnesses testified that the property at issue had immediate and imminent commercial value that would be taken into account by any potential buyer. These opinions were based on their opinions that the property would be rezoned for commercial use in the near future. Consistent with the aforementioned opinions, each expert based his opinion of the value of the land being taken on appraisals based on comparable commercial sales.  The three experts for the county based their appraisals strictly on comparable residential sales because they believed that any commercial potential for the subject property was far-off.

The jury in the Shelby County case returned a verdict based on the land being condemned being worth $25,000 per acre, which was much closer to the value per acre as to which the land owner’s experts had testified than as to which the county’s experts had testified. The county appealed to the Court of Appeals of Tennessee arguing that it was error for the trial judge to permit the land owner’s experts to testify to a value based on comparable sales of commercial property when the land at issue was zoned residential.

The appeals court determined that the trial court did not err. In reaching its decision, the court rationalized that property zonings are changeable and, in fact, are generally changed “after the fact” —- after the character of the neighborhood has begun to change.  The court stated that, whether the alleged probable rezoning of the subject property would or would not happen was a question of fact for the jury.

Since the Shelby County decision, the rule set forth in it has been cited in other cases, including State v. Williams (Tenn. Ct. App. 1991).  The facts in the Williams case were very similar, except it added a twist.  In addition to the property at issue in that case being zoned residential, it was subject to a restrictive covenant prohibiting any commercial use.  Nevertheless, relying on the Shelby County decision, the court held that it was up to the jury to evaluate the position of the land owner that, not only would the property be re-zoned for commercial use in the near future, but also, those neighbors entitled to enforce the restrictive covenant would not do so and would waive it.

For Tennessee condemnation lawyers, particularly in light of the rapidly changing use of many neighborhoods in Tennessee, the Shelby County and Williams cases are obviously important. Keep in mind, though, that a jury can decide to reject the position that a rezoning of a residentially zoned property to allow commercial uses is imminent.  If it does so, it is hard to see how it would not also have to reject any expert opinion based on an appraisal which was based on sales data for commercially zoned properties.