The Highest and Best Use Valuation for Property – The Synergy Between the Condemnation Award and the Escrow Amount

October 26, 2016 | No Comments
Posted by Connor E. Phalon

The Appellate Division of Superior Court recently published a decision providing further clarification of the seminal New Jersey Supreme Court condemnation case Housing Authority v. Suydam Investors, L.L.C. By way of background, in Suydam, the Court held that a condemned contaminated property should be valued “as if remediated” rather than “as is” when determining the condemnation award. In reaching this conclusion, the Court recognized that the valuation inquiry should not be limited to the actual use of the property, which would inherently be circumscribed by its contaminated status, but instead should rely on the property’s highest and best use. The Court emphasized, however, that an “as if remediated” valuation was an “enhanced value,” which included the estimated transactional costs associated with the remediation of the property to achieve its highest and best use. And in order to ensure that parties are not provided an unfair windfall through this form of valuation, the Court in Suydam opined that the condemnor may seek an order requiring such estimated transactional costs to be set aside in escrow to satisfy the condemnee’s clean-up and transfer obligations.

In the October 19, 2016 Appellate Division decision titled New Jersey Transit Corporation v. Franco, the court rejected a challenge by the condemnees to the amount of estimated transactional costs set aside in escrow by the Law Division. The condemnees argued that said costs should have been based on the highest and best use of the property which the condemnor originally intended, not the use for which was ultimately utilized to calculate the amount of the condemnation award. The court disagreed. In Franco, the condemnation award was based on the highest and best use of the property as if remediated for residential development. Accordingly, the court held that the escrow amount should reflect the estimated remediation costs necessary to achieve such a use. Therefore, as evident from this holding, the focus when calculating an escrow amount is not on the original highest and best use intended by the condemnor for the property, but rather the use relied upon and utilized when determining the final condemnation award. This approach, the court opined, and we concur, is consistent with the Suydam rationale and most fairly treats both the condemnor and condemnee.

Leave a Reply