Lawyers need to be aware that business clients facing the prospect of eminent domain and subsequent relocation may be eligible to receive compensation not only for taken land but for relocation expenses. Here’s what you need to know about the relevant federal and state laws.
Your business client has just learned that its property will be taken by eminent domain. In a few short months, the business must vacate the property from which it has always conducted operations. This can be a profoundly distressing experience for a client. Suddenly, the client is confronted with numerous uncertainties concerning the continued operation of the business, such as: How is the business supposed to start anew in a location I know nothing about? Where is the money to transport all this equipment going to come from? Is the business going to be stuck holding the bag for all these costs? These are important questions; after all, moving and associated expenses may cost anywhere from tens of thousands to millions of dollars for complex operations.
It is commonly known that the law requires just compensation to be paid for the value of land taken by eminent domain; less commonly known, but in a significant number of cases just as important, is that federal and state law—specifically, the federal Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 (URA) and the Minnesota Uniform Relocation Act (MURA)—may entitle a business to reimbursement for, among other things, the costs of searching for a replacement site, moving expenses, and various types of expenses to reestablish the business at a new location. This article explores the ins and outs of relocation benefits for Minnesota businesses—analyzing, first, the threshold criteria for receiving benefits; second, the types of benefits offered; third, the process for filing a benefits claim and the payment procedure. The article concludes by examining the procedure for appealing the denial of a benefits claim.
Minn. Stat. §117.52 provides the launching point for the discussion of relocation benefits available under the MURA. The statute provides:
In all acquisitions undertaken by any acquiring authority and in all voluntary rehabilitation carried out by a person pursuant to acquisition or as a consequence thereof, in which, due to the lack of federal financial participation, relocation assistance, services, payments and benefits under the [URA], as amended… are not available, the acquiring authority, as a cost of acquisition, shall provide all relocation assistance, services, payments and benefits required by the [URA] and those regulations adopted pursuant thereto[.]1
At the outset, it should be recognized that if federal funds comprise an element of a project causing displacement, Minn. Stat. §117.52, and any Minnesota-specific procedures set forth in the MURA, likely have no application. (Rather, the URA itself will control.) The first sentence of this statute contains numerous requirements that must be present for the URA and the MURA to have application. First, there must normally be an “acquisition.” Second, there must be an “acquiring authority.” And third, the acquiring authority must “undertake” the acquisition. Battles are frequently fought over whether these criteria are satisfied when businesses are displaced—if not, there may be no obligation to pay relocation benefits.
“Acquisition” may mean one of four things: (1) acquisition by eminent domain; (2) acquisition by negotiation; (3) programs of areawide systematic housing code enforcement; and (4) demolition.2 Acquisition by negotiation refers to the process that begins with the authority presenting a written offer of compensation for the taking of land.3 This negotiation provision is particularly important: It requires the payment of relocation benefits even though a business owner accepts the authority’s compensation “offer.”
“Acquiring authority” is defined to include the state and every public and private body and agency thereof that has the power of eminent domain.4 Given the widespread reliance of municipal development authorities upon private developers to carry out redevelopment projects, disputes ensue concerning whether an authority has undertaken an acquisition, or its private developer has. The governing standard is whether the authority’s actions are “sufficiently intertwined” with those of the developer such that the acquisition can be characterized as a joint undertaking. 5 Factors that tip in favor of the conclusion an authority has undertaken an acquisition include: (1) whether the authority provided the developer financial assistance for the project; (2) whether the authority obligated itself to exercise the eminent domain power if the developer failed to acquire the land via negotiation; and (3) whether the authority contacted landowners and encouraged them to work with a developer.6
Business Must Qualify as Displaced Person
Even if the above criteria are satisfied, other limitations may excuse an acquiring authority from paying benefits.7 For instance, for a business to receive relocation benefits, it must fall within the definition of “displaced person.”8 To qualify,
a business must move from real property or move personal property:
- as a direct result of a written notice of intent to acquire or the acquisition of such real property in whole or in part for a program or project undertaken by a Federal agency or with Federal financial assistance; or
- on which such person is a residential tenant or conducts a small business, a farm operation, or a business… as a direct result of rehabilitation, demolition, or such other displacing activity as the lead agency may prescribe, under a program or project undertaken by a Federal agency or with Federal financial assistance in any case in which the head of the displacing agency determines that such displacement is permanent[.]9
Whether a business qualifies as a displaced person is a question of statutory interpretation; the business’s property rights in the subject land are not dispositive. For example, in In re Jensen Field Relocation Claims Jensen Field, Inc., a displaced commercial tenant was held to be a displaced person even though it had no enforceable property right allowing it to demand continued tenancy.10 Relying upon the plain language of the URA, the Minnesota Court of Appeals concluded the tenant was a displaced person because it used the property while the acquiring authority planned the property’s redevelopment.
Temporary displacement from land will not, in and of itself, be enough to qualify for displaced person status. However, federal regulations provide that, “if a business will be shut-down for any length of time due to rehabilitation of a site, it may be temporarily relocated and reimbursed for all reasonable out of pocket expenses or must be determined to be displaced at the Agency’s option.”11
If applicable, the URA imposes various obligations on the acquiring authority. Perhaps the most significant is the authority’s obligation to provide the business with a written notice at least 90 days in advance stating the earliest required moving date.12 Additionally, the authority must provide relocation counseling and services to a business once it becomes eligible. Eligibility occurs on the earlier of: (a) the date of a notice of intent to acquire, (b) the initiation of negotiations, or (c) the actual acquisition of the property.13 The law obligates the authority to personally meet with the business owners and explain, among other things, available relocation assistance.14
Certain obligations are also placed on the business. Of vital importance is that the business must give the authority “reasonable advance notice of the approximate date of the start of the move or disposition of the personal property and an inventory of the items to be moved.”15 If the business fails to do so, it will be ineligible for reimbursement of moving expenses unless the failure is waived by the authority. Additionally, the business must permit the authority to make reasonable inspections at both the displacement and replacement sites and the authority must be allowed to monitor the move.
Actual Moving Expenses
Assuming the requisite qualifications have been met, the business is entitled to “payment of [its] actual moving and related expenses, as the Agency determines to be reasonable and necessary.”16 To be reimbursed, out-of-pocket expenses must actually be incurred. There is no cap on the amount of reimbursement a business may receive for moving expenses, although all expenses must be reasonable and necessary. Generally, the business will only recoup its expenses after the move has taken place (though a business may request an advance payment for relocation expenses, discussed infra).
There are multiple ways to seek reimbursement for moving expenses under the URA, such as: (1) hire a commercial mover to complete the move and seek reimbursement for the cost; (2) elect a self-move; or (3) certain businesses may decide to forego reimbursement for specific moving costs and instead elect a fixed, lump-sum payment based upon a statutory formula (the payment is not less than $1,000 and not more than $20,000). Each of these methods has its own restrictions and requirements and they should be strictly followed to guarantee reimbursement.
The URA contains a list of expenses that are expressly declared eligible moving expenses.17 Reimbursement may also be awarded for other expenses that the authority deems reasonable and necessary. Eligible expenses include costs incurred before, during, and after the move.
Reimbursable expenses incurred before the move include costs incurred in packing and crating property and in disconnecting, dismantling, and removing machinery and equipment.18 The cost of professional services performed prior to the purchase or lease of a replacement site to determine its suitability for the business may be recovered.19
Also, expenses sustained while searching for a replacement location may be recouped, up to a maximum of $2,500 (this cap only applies to search expenses).20
Common reimbursable expenses incurred during the move are: (1) up to 50 miles of travel to either an interim storage site or to the final replacement site; (2) up to 12 months of property storage (travel costs from the storage site to the replacement site may be recouped as well); and (3) the cost of insurance for the replacement value of the property being moved, both in transit and while in storage.21 If a business prefers not to move particular items because it is impractical or infeasible to do so, the URA allows the business to recoup expenditures in attempting to sell the item(s), and even part of the replacement cost of the item(s).22
Even expenses incurred after the move are declared eligible moving expenses. For instance, machinery and equipment installation costs are eligible for reimbursement, as are the costs of modifying the personal property as necessary to adapt it to the replacement site or structure.23 If utilities at the replacement site must be modified to adapt it to the personal property, those costs also qualify.
Various costs are declared ineligible for reimbursement as moving expenses. Perhaps the most significant is the exclusion of reimbursement for interest paid on any loans taken out to cover moving expenses.24
A business will incur a multitude of other expenses in reestablishing itself at a new location, which is why provision is made for so-called “reestablishment expenses.” Only “small business[es]—that is, those having no more than 500 employees “working at the site being acquired or displaced by a program or project, which site is the location of economic activity”—may recoup such expenses.25 Under the federal URA, a business may only receive up to $10,000 in reestablishment expenses; the MURA is far more generous, allowing recoupment of up to $50,000.26 Whichever of these limits applies, businesses have significant incentive to avoid expenses being characterized as (capped) reestablishment expenses and instead to designate them basic moving expenses (for which, again, there is no cap).
Reestablishment expenses must be reasonable and necessary to qualify. Particular categories of expenses are expressly permitted, though the authority has discretion to pay other expenses as it deems proper. Costs incurred in modifying the replacement property to support the operation of the business are provided for.27 Additionally, advertising is recognized as a valid reestablishment expense.28 And although reimbursement for increased operating expenses is generally disallowed, allowance is made for four particular types of increased costs experienced during the first two years of operation at the replacement site: (1) lease or rental charges; (2) personal or real property taxes; (3) insurance premiums; and (4) utility charges, excluding impact fees.29
Attorneys’ fees may even sometimes be recovered as a reestablishment expense. For instance, in In re Application of Relocation Benefits of Wilkins Pontiac, Inc., the court of appeals determined that attorneys’ fees incurred by a franchisee in negotiating with its franchisor for the approval of a new franchise location may properly be recouped.30 However, any recovery of attorneys’ fees is subject to the caps placed on the amount of reimbursable reestablishment expenses.
Certain items are declared per se unreasonable as a reestablishment expense. This includes a business’s purchase of capital assets or supplies used in the normal course of business.31 Also, in symmetry with the exclusion noted above for moving expenses, a business may not recover interest on money borrowed to cover the move or the purchase of replacement property.32
Making a Claim for Relocation Benefits
Unless a business elects to receive a lump-sum payment, it is crucial that receipts and documentation be kept for all reimbursable expenses. Businesses must prove reimbursement claims by submitting documentation to the authority. If the authority determines that the documentation provided is inadequate, it must specify the additional documentation it needs to pay the claim. Once sufficient documentation has been submitted, and assuming entitlement to payment, the authority must provide reimbursement in an expeditious manner.
In some cases it is possible to obtain an advance payment of relocation expenses. To qualify, the business must demonstrate an advance payment is needed “to avoid or reduce a hardship.”33 Once the hardship showing has been made, the authority has no discretion to deny an advance payment, although appropriate safeguards may be imposed on the payment.
There are deadlines applicable to claims for relocation benefits. The pertinent deadline depends upon whether the business was a tenant or owner of real property. For tenants, the deadline is within 18 months of the date of displacement.34 For owners, the deadline is within 18 months of the later of either (a) the date of displacement, or (b) the date of final payment for the acquisition of the real property.35 Regulations require that the authority “shall waive this time period for good cause” (emphasis added).36 Given this mandatory language, courts have held in some instances that agencies were obliged to grant a benefits claim despite a failure to comply with the deadline. A key consideration appears to be whether the authority had prior notice (before the deadline passed) that a claim for relocation benefits was going to be made.
Appealing Denial of Relocation Benefits
The law establishes clearly defined procedures to appeal the denial of a relocation benefits claim. The applicable appeal procedure depends upon whether the MURA applies. Without question, the appeal procedure under the MURA is far preferable for business owners to the federal URA procedure. But even if the MURA has no application, the dispute may ultimately find its way to the same place—the Minnesota Court of Appeals—just as if the MURA applied.
Under the MURA, if a business disagrees with the acquiring authority’s denial of relocation benefits or disagrees with the amount of relocation benefits, the authority must initiate administrative contested case proceedings.37 This entails a hearing before an impartial administrative law judge (ALJ).38 At the hearing, the parties have the right to offer evidence, call witnesses, cross-examine adverse witnesses, and submit rebuttal evidence.39 The authority must pay the costs of the administrative proceedings.40
The appeal procedure under the MURA contrasts strikingly with the default URA procedure. Under the URA, the burden is placed on the business to initiate the appeal.41 Once an appeal has been taken, the authority considers the merits of the appeal by appointing either the head of the authority, or his or her authorized designee, to decide the appeal. The only limitation is that the person deciding the appeal cannot have been personally involved in the action appealed.
If the first appeal does not provide relief, a business may further appeal an adverse ALJ decision—or an adverse decision of the authority if the URA applies—to the Minnesota Court of Appeals by writ of certiorari. The petition must be filed with the appellate court and served on all parties not more than 30 days after receiving the final decision and order.42
Forced relocation can be a traumatic experience for a business. Businesses often incur significant expenses throughout the process. Unfortunately, authorities presented with substantial benefits claims sometimes attempt to shirk their legal responsibilities by wrongly denying valid claims. When this happens, the only way to secure benefits may be to take the authority to court. Determining the availability and proper amount of relocation benefits—and ensuring that all necessary steps are taken to secure the ultimate payment of benefits—requires an understanding of the intricate web of statutes and regulations governing these claims. It is advisable to consult counsel to verify that every benefit required by law is properly provided.
BRYAN HUNTINGTON is an attorney with Larkin Hoffman Daly & Lindgren. Bryan practices in a variety of real estate-related areas including condemnation, landlord/tenant, contractor disputes, association disputes, and foreclosures.
1 Minn. Stat. §117.52, subd. 1 (emphasis added).
2 Minn. Stat. §117.50, subd. 4.
3 See, e.g., 49 C.F.R. § 24.2(15)(i).
4 Minn. Stat. §117.50, subd. 5.
5 In re Wren, 699 N.W.2d 758, 764 (Minn. 2005).
6 Id. at 763-765.
7 By way of example, governmental subdivisions ordinarily need not pay relocation benefits when real estate is acquired because it is deemed a nuisance. Minn. Stat. §117.56; but see Minn. Stat. 463.261 (requiring the payment of relocation benefits in certain circumstances even though the taking is to rectify a nuisance).
8 See, e.g., 42 U.S.C. §4622(a).
9 See Minn. Stat. §117.50, subd. 3 (adopting the federal definition of “displaced person”); 42 U.S.C. §4601(6)(A)(i)(I)-(II).
10 In re Jensen Field Relocation Claims Jensen Field, Inc., 817 N.W.2d 724, 732-733 (Minn. Ct. App. 2012).
11 Appendix A to 49 C.F.R. §24.2(a)(9)(ii)(D).
12 49 C.F.R. §24.203(c).
13 49 C.F.R. §24.203(b).
14 49 C.F.R. §24.205(c)(2)(i).
15 49 C.F.R. §24.301(i)(1).
16 49 C.F.R. §24.301(a)(1).
17 49 C.F.R. §24.301(g).
18 49 C.F.R. §24.301(g)(2)-(3).
19 49 C.F.R. §24.303(b). This may include, but is not limited to, “soil testing, feasibility and marketing studies (excluding any fees or commissions directly related to the purchase or lease of such site).”
20 49 C.F.R. §24.301(g)(17).
21 49 C.F.R. §24.301(g).
22 See 49 C.F.R. §24.301(g)(15); In re Relocation Benefits of James Brothers Furniture, Inc., 642 N.W.2d 91, 100 (Minn. Ct. App. 2002) (recognizing that extraordinary advertising and administrative costs associated with the liquidation of inventory are reimbursable as actual costs of selling personal property that is not to be relocated), rev’d in part by statute as recognized in In re Wren, 699 N.W. 2d 758 (Minn. 2005); 49 C.F.R. § 24.301(g)(16).
23 See 49 C.F.R. §24.301(g)(3).
24 49 C.F.R. § 24.301(h)(2).
25 49 C.F.R. §24.304; 49 C.F.R. § 24.2(a)(24) (defining “small business”).
26 49 C.F.R. §24.304; Minn. Stat. § 117.52, subd. 1a.
27 49 C.F.R. §24.304(a)(2).
28 49 C.F.R. §24.304(a)(3),(5).
29 49 C.F.R. §24.304(a)(6)(i)-(iv).
30 530 N.W.2d 571, 575 (Minn. Ct. App. 1995)
31 49 C.F.R. §24.304(b)(1)-(2).
32 49 C.F.R. §24.304(b)(3).
33 49 C.F.R. §24.207(c).
34 49 C.F.R. §24.207(d)(1).
35 49 C.F.R. §24.207(d)(ii).
36 49 C.F.R. §24.207(d)(2) (emphasis added).
37 See Minn. Stat. § 117.52, subd. 4.
38 By law, ALJs must “be free of any political or economic association that would impair their ability to function in a fair and impartial manner.” Minn. Stat. §14.48, subd. 3(b).
39 See Minn. Stat. §14.60.
40 Minn. Stat. §117.52, subd. 4.
41 49 C.F.R. §24.10(c).
42 See Minn. Stat. §14.63.