Eminent Domain and Business in Texas

The Fifth Amendment to the U.S. Constitution provides: “Nor shall private property be taken for public use, without just compensation.”  U.S. Const. amend. V.  From this—the Takings Clause—it follows that the federal government may appropriate private property, so long as the appropriation satisfies two basic requirements: (1) the taking must be for a valid public use, and (2) just compensation must be given to the owner.

The Texas Constitution contains similar language but creates a higher threshold.  Article I provides:

No person’s property shall be taken, damaged, or destroyed for or applied to public use without adequate compensation being made, unless by the consent of such person, and only if the taking, damage, or destruction is for:

(1) the ownership, use, and enjoyment of the property, notwithstanding an incidental use, by:

(A) the State, a political subdivision of the State, or the public at large; or

(B) An entity granted the power of eminent domain under law; or

(2) The elimination of urban blight on a particular parcel of property.

Tex. Const. Art. I, § 17.  As such, Texas possesses eminent domain powers and even constitutionally confers them upon certain private entities.  Still, any use of those powers must meet requirements beyond those found in the Federal Constitution.

Texans should acquaint themselves with the possibility that their private property can be taken by the State (or by a private entity in some circumstances).  More importantly, businesses should have a base-level understanding of when their property can be taken and whether a given taking is valid.

A valid exercise of the eminent domain power requires that it be a for a public use.  “[T]he ultimate question of whether a particular use is a public use is a judicial question to be decided by the courts.”  Maher v. Lasater, 354 S.W.2d 923, 925 (Tex. 1962).  An important part of answering that question is considering the extent to which the public benefits.  In Maher, the Court held that a taking of private property to construct a road that only one party, a private individual, would benefit from is not a public use.  See id. at 926.  A pipeline, to provide another example, may serve a public use, so long as the transportation of resources through the line is not subject to the builder’s exclusive use.  See generally Denbury Green Pipeline-Texas, LLC v. Tex. Rice Land Partners, Ltd., 510 S.W.3d 909 (Tex. 2017).  The building of railroad lines, public parks, and sewage systems may also constitute public uses.

Under the paramount-public-importance doctrine, “a condemnation authority may not condemn land already dedicated to a public use if doing so would effectively destroy its existing use, unless the condemnor can show that the intended use is of ‘paramount public importance’ and cannot be achieved by any other means.”  Hidalgo Cty. Water Improvement Dist. No. 3 v. Hidalgo Cty. Irrigation Dist. No. 1, 669 S.W.3d 178 (Tex. 2023).

The Local Government Code imposes an additional restriction on municipal takings, adding that “the condemnor must consider the taking necessary for public use.”  City of Austin v. Whittington, 384 S.W.3d 766, 772 (Tex. 2012).  The Code states: “When the governing body of a municipality considers it necessary the municipality may exercise the right of eminent domain for a public purpose to acquire public or private property . . . for any other municipal purpose the governing body considers advisable.”  Tex. Loc. Gov’t Code § 251.001(a).  In short, as the Texas Supreme Court has explained, a municipality must “demonstrate: (1) that it intends to put the property to public use (the public use requirement); and (2) the condemnation is necessary to advance or achieve that public use (the necessity requirement).”  Whittington, 384 S.W.3d at 772 (emphasis added).

To start, the process through which the government subjects property to eminent domain is called condemnation.  When the government condemns property, it must assess the property’s value in order to meet the “adequate compensation” requirement.

Typically, the condemnor “negotiates with the landowner to purchase the property.” Id.  If the parties cannot agree on a price, the condemnor files a condemnation petition, which prompts a judge to order a value assessment by an uninterested third party.  Tex. Prop. Code §§ 21.001, 21.012, 21.013.

“Compensation for land taken by eminent domain is measured by the fair-market value of the land at the time of the taking.”  Exxon Pipeline Co. v. Zwahr, 88 S.W.3d 623, 627 (Tex. 2002).  The general rule for determining fair-market value is “the before-and-after rule, which requires measuring the difference in the value of the land immediately before and immediately after the taking.”  Id.  (citing Callejo v. Brazos Elec. Power Coop., Inc., 755 S.W.2d 73, 76 (Tex. 1988)).

If only part of one’s land is taken, the same rule applies, but “compensation is measured by the market value of the part taken plus any diminution in the value to the remainder of the land.”  Zwahr, 88 S.W.3d at 627.  If, in such a case, the purpose of the government’s taking is, say, to build a state park, and the park’s placement enhances the landowner’s property value as a result, the project-enhancement rule applies.  That rule prevents the factfinder from considering such value enhancements because to compensate the owner in that amount would “place the landowner in a better position than he would have enjoyed had there been no condemnation.”  Id.  This would conflict with the goal of “adequate compensation,” which is to “make the landowner whole.”  Id.

Section 402.031 of the Texas Government Code provides that the Attorney General must notify a landowner that their land is subject to condemnation and provide a Landowner’s Bill of Rights, and sums up all the rights that landowners should be cognizant of.  These rights, many of which have already been discussed in this article, include:

1.  notice of the proposed acquisition;

2.  a bona fide good faith effort to negotiate with the condemnor;

3.  an assessment of damages to the owner that will result from the taking;

4.  a hearing under Chapter 21 of the Property Code, including a hearing on damages;

5.  an appeal of a judgment, in a condemnation proceeding, including an appeal on the assessment of damages; and

6.  the right to file a written complaint with the Texas Real Estate Commission regarding any alleged misconduct on behalf of the condemnor.

It thus goes without saying that there are ways to push back on any attempted exercise of eminent domain on privately owned commercial property.  If anything, businesses should know that they can respond to a condemnation notice by seeking counsel and initiating a takings proceeding if compensation negotiation doesn’t proceed amicably or fruitfully.