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July 1st, 2010 — By — In News & Events

Just Compensation Is No Compensation for Wisconsin VFW Case

In a majority opinion authored by Chief Justice Shirley Abrahamson, the Supreme Court concluded that no compensation can be just compensation.

The case was centered on determining fair market value for a property in serious disrepair.

Decades earlier, the Veterans of Foreign Wars gave its ownership of a valuable property to a developer in exchange for a 99- ear lease of the building the developer constructed on the land. The rent was $1 per year. Despite several changes in ownership of the building, each owner honored the lease.

Over the years, the condition of the building and the surrounding neighborhood deteriorated, so the Redevelopment Authority for the City of Milwaukee (RACM) condemned the property. As compensation, RACM offered $440,000 to the VFW and the building’s owner. The VFW appealed the adequacy of the award to the Condemnation Commission, which valued the property at $425,000, according to the unit rule.

Under the “unit rule,” condemned real property is to be valued as if it were held as an undivided interest, rather than assigning a value to each owner’s partial interest. The amount of an award is then divided among the multiple owners.

At trial, the jury heard the RACM appraiser testify that the cost of demolishing the building outweighed any value derived from the vacant land. The RACM appraiser also said the costs of renovating the building exceeded its potential benefits. As a result of the appraisal, the jury determined the fair market value for the entire property to be $0.

Before the court of appeals, the VFW argued that the terms of the lease were so favorable, that it had value independent of the underlying property. The court of appeals agreed that application of the unit rule in these circumstances deprived the VFW of just compensation in violation of the Wisconsin Constitution.

But the Supreme Court concluded that the VFW’s sweetheart sale-and-leaseback business deal reflected a business-contractual arrangement and should not be considered when determining the fair market value of the fee simple estate, therefore, no compensation can be just compensation for a leasehold interest in a property without value.