Does The Government Want Your Property? Don’t Panic
Jennifer Polovetsky, chair of Herrick 's Eminent Domain practice, spoke to Law360 Real Estate Authority about the Second Avenue Subway Expansion and some of the details about what a taking looks like in New York State. Jennifer has been representing clients in eminent domain negotiations for 23 years. While her practice now is devoted to representing property owners facing eminent domain acquisitions by the government, she has also been on the other side of the table. She started her career as an assistant corporation counsel in the New York City Law Department.
Can you give me a view of your role? When do you get called in?
It varies. Some clients call us when they see something in the newspaper. We've had clients call us about the Penn Station redevelopment who are going to be in the pathway of that. And they're like, "What do we do? What's going on? What can we do?" A lot of times we're retained at that point on a consulting or counseling level.
Take me through how the process works with respect to the Second Avenue subway extension.
It's a project that is happening now. It's happening quickly. The MTA had a public hearing in March for the Second Avenue subway phase two expansion.
Affected property owners are sent notices of a public hearing in advance, no more than 30 days or less than 10 days before the public hearing — and all affected property owners and anyone else in the community. Tenants are sent public notices as well. The hearing is open to the public.
At the public hearing, the condemnor, which is the government, outlines the public purpose for the project. They outline what the project is going to entail, the parameters of the project, in this case, it's from 96th Street straight up to 125th Street, and expanding the Second Avenue subway line there.
And they basically go through the elements of a procedural law referred to as the EDPL [Eminent Domain Procedure Law]. Why it's lawful, what the public use is, why it's constitutional, what they can do, what the acquisition process will entail.
We go to these public hearings and the clients usually attend as well, either in person or virtually. So now that the Second Avenue subway extension public hearing has happened, the MTA is going to make initial offers to affected property owners and business tenants, called an advanced payment under the EDPL. And a property owner, every business tenant, has the option to accept it as a settlement and follow and sign away their rights to sue for additional compensation. Some people do that. They don't want to pay for a lawyer, or they don't want to hire a lawyer, or they just don't know that they have rights.
So oftentimes, I think 90% of the time, people call us after the public hearing. And they say, "I've done this. What do I do?" You have the option under the law to reject that offer and say, "I'm going to accept this offer as an advance payment only, and I'm going to reserve my right to file a claim for additional compensation."
Then we try to negotiate with the condemnor. In this case, it's the MTA trying to negotiate a higher payment in lieu of condemnation, or perhaps a sale in lieu of condemnation. And if we can't do that, and we can't get to a price and terms that are acceptable to both parties, then the government will make a motion to acquire the property in court. In New York, it's usually a rubber stamp as long as the condemnor has complied with all of their statutory prerequisites. And the court grants the order and allows the condemnor to file an acquisition. The condemnor then serves what is called a notice of acquisition to the property owners and effective tenants, and they effectively own the property.
When the government gives the public use that they are taking the property for, obviously Second Avenue Subway Extension falls squarely under a public use heading. But are there examples of cases where the public use was a little bit murkier, where its perceived merit was not as strong, or it was arguably not public use? And does that have any bearing on the property owners' negotiating position?
There's a 30-day comment period after the public hearing, and once that 30-day comment period has closed, then the condemnor publishes a notice that they have reviewed everything in the public record, their environmental studies, the public purpose, and they have determined that they're moving forward with this proceeding.
The property owner has 30 days from the date they are served with that notice to file what's called an EDPL 207 challenge, to challenge public use by saying that the condemnor didn't comply with certain statutory prerequisites.
I will say in New York, 99% of those challenges fail. It doesn't fail in the rest of the country, but New York has some of the broadest eminent domain authority in the country. That's just our case law. That's how it is.
Eminent domain authority is pretty broad, especially after the 2005 Kelo v. New London case. The city of New London wanted to redevelop an area. And this woman, her last name was Kelo, she had this little pink house. And she said, "I don't want to sell, and you don't have valid public use because you're taking it and then you're giving it to a private developer to redevelop this, and that's unconstitutional." Interestingly enough, it went all the way up to the United States Supreme Court, and the United States Supreme Court said it is constitutional because it is for public use, because it's an urban renewal. It is a redevelopment of property for the public good, for the public purpose.
You've also seen negotiations from the other side. When trying to determine just compensation, obviously the property owner is looking to get fairly compensated for their property. But what is the government seeking? Are they trying to lowball the property owner to see if they go for it? Are they trying to speed the project along at any cost?
I'll tell you how the procedure works, and then you can take what you want from it. The government must get two pre-vesting appraisals. Vesting is an acquisition. It's just a term. Then they must offer the higher of the two approved appraisals. But that doesn't mean that they're offering a higher value. One of the appraisals might not have been approved.
In the Second Avenue subway extension, you are negotiating with the MTA. How different is the process when you're negotiating with a different entity? I recall a few years ago, when federal authorities seized properties in the Jho Low fraud case. If you looked at how much they recouped on the properties, the government sold them for much less than they had been sold previously. Are there certain government entities that are known for being better negotiators, driving a harder bargain, getting more money, or being harder to deal with from the standpoint of the property owner?
It doesn't matter if it's the MTA, if it's the city, if it's the DOJ. Everybody has their interests to protect, and I tell this to my clients all the time. "Why are they being so ridiculous? Because they have their interest to protect and we have ours to protect and sometimes the two don't meet."
It's not easy to get what we want, but it's also not easy for them to get what they want. So a lot of times we're able to make a deal, which is beneficial for both parties, because you save on litigation costs, and there's a level of certainty. You never know what you're getting in court.
I can't say that there's one agency or one government entity that's easier to deal with. You have a lot of smart people working on both sides, I'm not going to take away from that. Everybody has their own interests and their own clients to protect.
What's next for the Second Avenue subway extension?
Based on our understanding, what we heard at the public hearing and in our conversations with the MTA, we are told that the MTA would like to acquire these property interests, subject to government delays, by the end of the year, beginning of next year. What we were told, definitely by the first quarter of next year, that they will have acquired the property interests. We're also told that the construction is not scheduled to begin until 2025. But that could change.
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