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Cost to Cure – Only In My Back Yard

Generally speaking, there are two kinds of takings in condemnation proceedings – total and partial. Of the two, all else being equal, the total taking is the easier valuation problem. Although it is not as simple as it sounds, all the parties and the Court usually have to determine is the price the property would have sold for, had it been for sale and were there no condemnation.

Partial takings, however, are an entirely different animal. We must, of course, determine the value of the part taken. Then we must consider what, if anything, has happened, as a result of the taking, to the remainder of the property. The generic term for that concept is consequential damages. Care must be taken not to confuse consequential damages with severance damages which is only one of two elements that make up consequential damages. The other element is also called consequential damages, confusing as that may be.

Severance damages are those damages that occur to the remainder of the property simply by virtue of the fact that the part appropriated is no longer in the condemnee’s ownership. An example of this is the taking that changes the configuration of the property so that it can not be used with the same utility it had before. Consequential damages, those that are not severance damages, refer to damages by reason of the use to which the portion taken is to be put. (South Buffalo Rwy Co. v. Kirkover, 176 N.Y. 301, Hill & Aldrich v. Mohawk & Hudson River Rwy Co., 7 N.Y. 152, County of Erie v. Friedenburg, 221 N.Y. 389, Bohn v. Railway Co., 129 N.Y. 576). Obviously, a partial taking for a sewage disposal plant, a landfill or an airport runway is going to affect the remainder in a different way than a passive park. For the purposes of this article, we will refer to both as consequential damages.

It is of great practical importance to know that the concept of the total taking or of the direct taking of part of a property is not the same as a consequential damage in that the value of the whole or part directly taken, is determined on a taking basis and that may not be diminished in any way. What the condemnor takes must be paid for. There may be no mitigation or offset for benefit. A consequential damage, on the other hand, is just that, a damage. There is an obligation to mitigate and there may be an offset. In condemnation, however, sometimes the rules for mitigation are not the same as elsewhere.

Usually, in condemnation proceedings, the mitigation is called a “cost to cure.” Many people know of the “cost to cure” concept but, experience tells us not too many fully understand it. One of the common sense rules, in condemnation, involving “cost to cure” is that the cost may not exceed the amount the consequential damages would be were there no “cost to cure.” A lesser known and, in some circles, sometimes forgotten rule, pertaining to “cost to cure” in condemnation proceedings, is that you may not look outside the boundaries of the subject property to find a “cost to cure.” An exploration of some of the cases that have expounded this rule is necessary, we believe, to understand its application. Many of the cases, but not all, involve the question of access or its denial to the remainder property because the denial of access can not be cured without going outside the boundaries of the remainder property.

Reading Yochmowitz v. State of New York, 47 Misc.2d 85, a 1965 Court of Claims case, it is important to understand that decision in the context of the case it cited as support. In dealing with finding a “cost to cure” the access that had been denied to the remainder property, the Court said:

“The Court is in accord with claimant’s posture that the traditional `cost to cure’ theory utilized to fix the maximum limit of consequential damages in normal permanent easement acquisitions should not be applied to the case at bar, since such an approach must necessarily be predicated on a clear and unequivocal stipulation by defendant’s Department of Public Works that not only access to the highway as improved will be guaranteed in perpetuity but also that this agency will approve the removal of the fill required to restore access. Wolfe v. State of New York, 23 A.D.2d 136, 259 N.Y.S.2d 13….”

“The Court finds that the express reservation contained in the aforesaid representa-tion…does not meet the minimum requirements of the stipulation heretofore mandated by the Appellate Division in Wolfe v. State of New York, supra. …Therefore, claimant is entitled to an award for consequential damages not limited to the cost to cure but based upon the proof introduced as to the diminished value of claimants remaining property by reason of the denial of access…”

In effect, the Court of Claims, relying on the Appellate Division decision in Wolfe v. State of New York, held that there was a denial of access to the remainder property which could be cured by going outside the subject property’s boundaries if the condemnor would unequivocally agree to give that access over its property (the permanent easement). But the Appellate Division’s decision in Wolfe was later reversed (Wolfe v. State of New York, 22 N.Y.2d 292) on the basis that the access, which, of necessity, had to be outside the property, had to be there at the time of the taking, not by a subsequent “cure.” Clearly, then, substituting the Court of Appeals decision for the Appellate Division decision, the “cost to cure” in the Yochmowitz case, occurring outside the property, could not be made to apply by a subsequent act of the condemnor.

Three years later, the Appellate Division, Third Department, stated it in terms that leave no doubt. In St. Patrick’s Church, Whitney Point v. State of New York, 30 A.D.2d 473, 294 N.Y.S.2d 275, the condemnee actually cured the problem by purchasing land adjacent to the appropriated property fourteen months after the appropriation and the State offered the price paid for the land as the “cost to cure.” The Appellate Division, Third Department said, at 294 N.Y.S.2d 277:

“We are not here dealing with any mitigation of damages by something that occurred or could occur upon the property remaining after the appropriation as in Mayes Co. v. State of New York, 18 N.Y.2d 549, 277 N.Y.S.2d 393, 223 N.E.2d 881 where the `cost to cure’ theory was allowed because the cure was to occur within the bounds of the claimant’s lands. Sound reason requires that the theory cannot be used in cases of subsequent acquisitions of lands outside the bounds of the appropriated property; nor should a condemnee’s right to compensation be made to depend upon whether adjacent land could easily be purchased. These established principles are clearly recognized in 4 Nichols, Eminent Domain (3d ed.) (S 14.22, p. 525) where, in referring to the rule of cost of restoration, it is stated that `the restoration must be possible without going outside the remaining portion of the tract in controversy,’….That the adoption of the novel theory advanced by the State, illogical in its foundation, might well lead to confusion and havoc in the use of well-reasoned and judicially founded principles of providing just compensation for the taking of a citizen’s lands, is all too evident.”

The same Appellate Division restated that position in 1972, in Campbell v. State of New York, 39 A.D.2d 615, 331 N.Y.S.2d 75, where it said, “The State’s `cost to cure’ theory of damages was properly rejected since the lack of access could not be cured without using land outside of the subject property.”

Following these two decisions, two cases arose with the same issue. We represented claimants in both of those cases. The first one, Pollak v. State of New York, 41 N.Y.2d 909, 394 N.Y.S.2d 617 was a taking for a grade crossing elimination, depressing the grade of the road below the grade of the property, thereby cutting off all practical access to the property. During construction, they built a detour that carried vehicles by the remainder property and provided physical access to it but neglected to create a legal street. After claimant’s appraisal, on exchange, alerted the State to its error, it attempted, at that late date, to cure the access problem by creating a legal road across their own and another’s land to the remainder property where the detour had been built. The Court of Claims held that the State had thereby cured the problem and declined to award damages on the basis of loss of access. We argued to the Appellate Division that, based on the cases we recited above, and some others, including Wolfe, that the State could not, after the appropriation, cure the problem they caused by creating an access outside the boundaries of the property. The Appellate Division reversed the decision of the Court of Claims (50 A.D.2d 201, 377 N.Y.S.2d 259) and the Court of Appeals affirmed the decision of the Appellate Division, saying:

“The fact is that deprivation of the legal right to access rendered claimants titles unmarketable. In like circumstances, we have held that the absence of an explicit reservation of a right to access in the original appropriation may not be cured by provisional expedients, offered by and subject to the grace of the State.”

Had the “cure” been of the type that it could be effected within the property’s boundaries, an obvious impossibility in that case, and thereby, inherent in the property, the result probably would be different.

The second case we referred to above, following on the heels of the Pollak case, was Matter of County of Suffolk (Arved, Inc.), 63 A.D.2d 673, 404 N.Y.S.2d 676. In that case, Suffolk County, in building a limited access highway, took property from Arved, “without access” to the remainder. It did provide access at a point further down where they believed another road existed that led to the remainder property. It was shown that the road, if it ever existed, even though it was on local maps, was not shown to be at the point argued for by Suffolk County leaving another person’s property between Arved’s property and the new highway. We also argued that even if the legal right to use the area described was at that point, the “road” was not improved and could not be used as an access road. The trial court declined to find a damage based on a loss of access and the Appellate Division, Second Department, reversed, saying, inter alia, at 404 N.Y.S.2d 678:

“Finally, we are of the view that requiring claimant to cure its access problem by constructing a new road on the alleged roadbed of Old Town Road which bisects Gifford’s property, from its own westerly property line to the beginning of the County’s paved road, is a prohibited application of the cost-to-cure doctrine. Claimant had no right or permission from the County, Town or Gifford, at the time of the taking to extend the road to its property line; the cure must be accomplished without going outside the boundary lines of the subject property if severance damages are to be mitigated (see Gluckman v. State of New York, 37 A.D.2d 870, 325 N.Y.S.2d 99).”

The Second Department repeated this in 1983 in B&B Food Corp. v. State of New York, 96 A.D.2d 893, 466 N.Y.S.2d 60 when it said, “Furthermore, the `cost to cure’ theory of damages, proffered by the State may not be used to mitigate consequential damages where the cure must be accomplished by going outside the tract in controversy.” Also, see Footnote 1 in Matter of County of Schenectady, 194 A.D.2d 1004, 599 N.Y.S.2d 674 (1993).

As part of this concept, the Courts have included what, to us, is basically the same proposition but applied to a different type of fact situation. It is that the “cost to cure” method of mitigation may not be used if the cure involves getting a permit or permission from an outside source such as a government agency, even though the physical work might be accomplished within the boundaries of the subject property. It really grew out of the Arved case, supra, and Gluckman v. State of New York, 37 A.D.2d 870, 325 N.Y.S.2d 99. Although Gluckman involved the right, asserted by the State, to improve an area as a road that was outside the subject property when there was an easement of access over that area, the Third Department held that the “cost to cure” may not mitigate damages when it must be accomplished outside the subject property. As the Court stated, it was based, in part, on the fact that, “the extension would have to be constructed over a public right of way and claimants neither had a permit from the town to complete the road nor even a permit or any document or other evidence that the State, as of the appropriation, had granted them a right to complete the road.” In Arved, the Second Department, although holding that there was no public road, said that even had there been one, Arved did not have permission to build on it and, therefore, the proposed cure could not be used.

This application of the concept was referred to more specifically by the Appellate Division, Third Department and the Court of Appeals in Donaloio v. State of New York, 99 A.D.2d 335, 472 N.Y.S.2d 946, aff’d 64 N.Y.2d 811, 486 N.Y.S.2d 924). The Appellate Division said at 472 N.Y.S.2d 950:

“We also must reject the trial court’s concept of a `partial cure’ as found in these circumstances. It is clear from the testimony that the proposed cure, being an on-site sand filtration system, requires a discharge of effluent through facilities provided, or to be provided, by the State in order to be discharged into the Susquehanna River. Obviously, this requires the use of land outside the subject property, as well as permits from governmental authorities, a concept which has consistently been rejected by the Courts of this State in determining consequential damages.” (Emphasis ours)

This was followed by the decision of the Court of Appeals at 624 N.Y.2d 811 which said:

“The only feasible alternative method demonstrated at trial for claimants to dispose of the sewage generated by their restaurant required governmental approval of the use of certain State facilities not previously committed to this purpose. Representations at trial, years after the appropriation, that the necessary authorizations would be forthcoming upon application by claimants do not satisfy the requirement — if the proposed cure is to affect a mitigation of damages — for timely unequivocal assurance by the State, the condemnor, that this alternative would be implemented.”

From all that we have recited above, it is clear that, in condemnation or appropriation proceedings, when there is a partial taking and a consequential damage, a “cost to cure” method of mitigating damages may not be used if, after the acquisition, it requires accomplishing it by going outside the boundaries of the property, including seeking governmental approvals not existing at the time of the condemnation or appropriation.

Reprinted with permission from the February 26, 1997 edition of the New York Law Journal © 2010 Incisive Media Properties, Inc. All rights reserved. Further duplication without permission is prohibited.