Minimum Compensation

The Offer and Analysis

117.187 MINIMUM COMPENSATION.

When an owner must relocate, the amount of damages payable, at a minimum, must be sufficient for an owner to purchase a comparable property in the community and not less than the condemning authority's payment or deposit under section 117.042, to the extent that the damages will not be duplicated in the compensation otherwise awarded to the owner of the property. For the purposes of this section, "owner" is defined as the person or entity that holds fee title to the property.

I. Two Step Offer:

A. Fair Market Value Analysis.

The acquiring agency completes an appraisal and determination of the fair market value of the property. This is used to establish the traditional concept of “just compensation.” This process remains the same as under the previous statute.

B. Minimum Compensation Analysis.

After completing the fair market value analysis, the acquiring agency completes a minimum compensation analysis. The minimum compensation analysis is presented together with the fair market value estimation of “just compensation” with the agency offering as payment the higher of the two numbers. The offer letter should state that the agency has had the property appraised and that the just compensation for the property as established by a fair market value appraisal is X. The offer letter should then describe that, under Minnesota law, owners are entitled to “minimum compensation.” If the minimum compensation analysis results in a higher number than the “fair market value” of the property, the offer letter should state that although the fair market value is X, the agency has determined that minimum compensation provides for additional damages to be paid to the property owner. This higher amount serves as the amount of the offer.

II. Determination and Documentation of Minimum Compensation.

A. Who Completes this Analysis?

There are no state or federal standards that dictate who is qualified to complete the minimum compensation analysis. Minimum compensation can be determined by appraisers, realtors, acquisition agents, relocation advisors, agency staff, and even lawyers. The consultant or staff member selected may ultimately effect the strength of the presentation to commissioners and/or a jury. The most likely approach will be to use appraisers who complete the analysis with the assistance of realtors. Lawyers and acquisition professionals can provide guidance to the appraiser in this role as well.

B. Analyze the Subject.

First, the agency should complete an analysis of the defining characteristics of the subject. This should include consideration of items such as the subject’s size, location, use, customer base, traffic counts, visibility, accessibility, access, parking, structural attributes, aesthetics and other defining characteristics.

C. Determination of the Applicable Community.

Based upon the characteristics of the subject property, the acquiring agency will need to determine the “community” for purposes of its minimum compensation analysis. The community may be different for each property and even for adjacent properties. The community may include the entire city or just a neighborhood. In determining the community, the agency should look to items such as the use of the subject, service area, customer base, type of business, and franchise requirements, if applicable. For residential properties, the review should include proximity to school, work, shopping, worship, and other services typically part of a residential community.

D. Review of Available Properties.

After information concerning the subject property has been compiled and analyzed and the agency has made a preliminary determination of what the community is, the agency will review available properties within the “community.” This review of available properties can be completed using the assistance of realtors, internet sites, appraisers, and other local agencies.

E. Comparable Properties.

In analyzing comparable properties, a property should be at least as good as the subject. It may be that comparable properties are superior to the subject. If inferior properties are all that is available, the agency will need to review whether or not those inferior properties can be made comparable through additional investment. Comparability refers to the subject’s defining characteristics discussed above such as location, size of land, size of building, parking capacity, access, and visibility.

F. No Comparable Available.

If no comparable property is available, the first approach is to find a property which, although not currently comparable, could be made comparable. Comparability can be achieved through estimating the cost of expanding a building and otherwise altering the property. If, after attempting to modify existing properties, a comparable property is still not available, the agency may as a last resort use a replacement cost analysis. This approach involves establishing the replacement cost of land and buildings. A deduction for depreciation should not be included in the replacement cost analysis since it’s impossible to construct a depreciated building.

III. Relationship to Relocation Funds.

A. Relocation Reimbursement and Minimum Compensation are Different.

There were discussions at the legislature in the Judicial and Conference Committees confirming that the legislature considered minimum compensation different from relocation benefits. In fact, they are significantly different. Relocation funds are received as a reimbursement for actual expenses. Minimum compensation is not related to actual expenses and is not an amount that must be spent as a condition to receipt of payment. Minimum compensation is paid as damages and ultimately determined by the commissioners or a jury. Relocation benefits are separate and apart from damages and ultimately determined by a district court outside of the condemnation proceedings.

B. Impacts on Business Relocation Reimbursement.

Minimum compensation may reduce business relocation claims by reducing potential reestablishment costs; however, this is not likely. In most situations, a relocating business will still have increased costs of operations during its first two years, costs to make code improvements, signage costs, and the cost of advertising its new location.

C. Impacts on Residential Relocation Reimbursement.

The Uniform Act provides that owner occupants of residential structures are entitled to a replacement housing supplement. This analysis is, however, completed separate from the damages analysis. The factors used to determine this compensation are very similar to these which an agency will use in determining minimum compensation. In instances where an owner occupant is required to relocate, minimum compensation will likely reduce the housing replacement payment. However, many items will still be eligible such as an upgrade to decent, safe and sanitary housing, closing costs on the new structure, increased interest costs, etc.