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Feb 2007
01
February 01, 2007

Michigan Residents Vote to Protect Property Owners

On November 7, 2006, Michigan residents overwhelmingly approved Proposal 4, which amends the State Constitution to limit Governmental authority and add greater protection for property owner’s in the area of eminent domain. Advocates of Proposal 4 believe that the Proposal would (i) limit governmental abuse in the area of takings and (ii) provide property owners just compensation in situations where their property is properly condemned. Critics of Proposal 4 argue that it will cause many necessary renewal projects to be either too expensive or legally impractical.

By enacting Proposal 4, Michigan voters have changed many of the rules associated with eminent domain in the State of Michigan. Condemning authorities are now required to pay a property owner, whose principal residence is taken through eminent domain, at least one hundred twenty-five percent (125%) of the market value of such property. Historically, only market value was required to be paid for residential property. In addition, condemning authorities are now specifically prohibited from using the power of eminent domain merely for economic development or to increase government tax revenue. The new act also limits the categories of takings in which the government may use eminent domain to acquire property and convey such property to another private owner (largely related to transportation and communication). In addition, the new act shifts to the government the burden of proof that a taking is for a "public use." The new act raises the standard of review to a "preponderance of the evidence" in most cases, and to "clear and convincing evidence” in takings which are undergone to address blight. Further, with respect to each and every property which is being taken to address the problem of blight, the new act requires that all condemned property actually be blighted. This now prevents the taking of unblighted properties which are closely situated to blighted properties.

Critics of the new act fear that it will negatively impact important efforts to renovate blighted areas. Condemning authorities will now be required to pay a premium for residential property, making such projects more costly. In addition, since only properties that are actually blighted may be condemned, broad projects that renovate entire areas may no longer be feasible without 100% support from the local community. This will allow “hold-outs” to further drive up the cost of such projects or prevent them altogether. Critics argue that these provisions will impair Michigan's economic recovery by slowing or halting many redevelopment projects.

Supporters of new act believe that it bolsters fundamental rights of private property owners by limiting a condemning authority’s ability to condemn property and then convey it to private third parties. Since the Act limits the definition of a “public use”, it will make it harder for municipalities to take property for illicit purposes (e.g. merely to increase tax revenue). Supporters argue that, Prior to Proposal 4, the “public-use” requirement of the Fifth Amendment had lost its force. They believe that our courts have become too deferential to the condemning party’s position that its taking constituted public use. This deference, they believe, has essentially read the “public-use” requirement out of the constitution. Supporters believe that the new act remedies this by limiting the definition of a “public use.”

Love it or hate it, Proposal 4 is now law in the State of Michigan. For the moment, the pendulum of power has swung in favor of the property owner. Over time we will see whether such increased protection impedes the development needs of the State.

West Michigan Commercial Development & Real Estate Quarterly

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