It is a little-known fact that in New York eminent domain proceedings, if the government loses after a valuation trial (resulting in an award of additional compensation to the property owner/condemnee), it may be liable for payment of the claimant’s legal fees and expert appraiser fees, subject to the discretion of the court. See Eminent Domain Procedure Law (the EDPL) §701.

The award of legal and appraiser fees in eminent domain cases is not mandatory, but instead is left to the discretion of the trial court pursuant to statute. See Hakes v. State, 81 NY2d 392, 397 [1993]; Matter of New York State Urban Development, 183 Misc2d 900, [Sup Ct NY Co, 2000]); EDPL §701.

EDPL §701, which governs such discretionary applications, states the following:

In instances where the order or award is substantially in excess of the amount of the condemnor's proof and where deemed necessary by the court for the condemnee to achieve just and adequate compensation, the court, upon application, notice and an opportunity for hearing, may in its discretion, award to the condemnee an additional amount, separately computed and stated, for actual and necessary costs, disbursements and expenses, including reasonable attorney, appraiser and engineer fees actually incurred by such condemnee. The application shall include affidavits of the condemnee and all parties that have incurred expenses on the condemnee's behalf, setting forth inter alia the amount of the expenses incurred.

What does this language really mean, and what needs to happen in order to trigger this discretionary award of attorney fees by the condemnation judge? The case law on this issue is wide-ranging, since every fact pattern is different and each condemnation judge must decide how much effort was required to achieve “just and adequate compensation.” See EDPL §701.

Before we delve into the case law, it is important to understand that before a condemnor acquires property, they must first make a written offer under EDPL §303. EDPL §303 states the following:

The condemnor shall establish an amount which it believes to represent just compensation for the real property to be acquired. The condemnor shall make a written offer to acquire the property for one hundred per centum of the valuation so established. In no event shall such amount be less than the condemnor's highest approved appraisal. Wherever practicable, the condemnor shall make the offer prior to acquiring the property and shall also wherever practicable, include within the offer an itemization of the total direct, the total severance or consequential damages and benefits as each may apply to the property.

This written offer is called an “advance payment.” Once the condemnee receives the advance payment offer, they can either accept it as a settlement in full (in which instance the case is over), or they can accept it as an advance payment only—then reserve their right to file a claim for additional compensation under Article 5 of the EDPL. If the condemnee chooses the latter option, and the case does not settle before trial, there is a possibility that EDPL §701 (i.e., the condemnee’s right to make an application for reimbursement of its legal and expert fees after a trial) will come into play; especially if after a trial, the condemnee obtains an award “substantially in excess” of the advance payment.

What does “substantially in excess” mean in terms of this discretionary award of legal and expert fees? Courts have held that the baseline for this discretionary award is the condemnor’s initial offer (i.e., the advance payment), and not the condemnor’s “proof at trial,” because there have been instances where the condemnor’s trial appraisal may have a higher valuation than that of the advance payment. Courts have also held that “… in applying the test set forth in EDPL §701, we look to the condemnor's initial offer, not its trial proof.” See Matter of Village of Haverstraw, 180 AD3d 791, 794 [2d Dept 2020] (citing Matter of New York City Transportatin Authority [Superior Reed & Rattan Furniture], 160 A.D.2d 705, 709–710, 553 N.Y.S.2d 785; and General Crushed Stone v. State of New York, 93 N.Y.2d 23, 27, 686 N.Y.S.2d 754, 709 N.E.2d 463).

This distinction is important because the advance payment offer is the deciding factor for a condemnee in regard to whether or not they proceed with filing a claim for additional compensation under EDPL §501 et. seq. and moving forward with a trial of the matter. Since the condemnor’s initial offer is usually deemed too low by the condemnee and their appraisers, this is the value that triggers the need to file a claim for additional compensation, and requires the condemnee to expend significant amounts of money in their fight for just and adequate compensation. Therefore, it makes sense that New York courts have consistently held that the initial advance payment offer is the value that serves as the baseline for the EDPL §701 “substantially in excess” calculation, so as to ensure that condemnees are adequately compensated for both the loss of their property and the monies they are forced to expend in legal proceedings.

In Hakes v. State of New York, the New York Court of Appeals held that “EDPL §701 assures that a condemnee receives a fair recovery by providing an opportunity for condemnees whose property has been substantially undervalued to recover the costs of litigation establishing the inadequacy of the condemnor’s offer.” See Hakes v. State of New York, 81 NY2d 392 [1993]. But courts have held the opposite way as well. In First Bank & Trust Co. of Corning v. State of New York, 184 AD2d 1034, [4th Dept 1992], the Appellate Division held that where the proof offered by a claimant at trial has no effect on the final award, “then it cannot be found to have been necessary to achieve just and adequate compensation and the Court will not award an additional allowance as to those efforts.”

Using the advance payment offer as a baseline for the EDPL §701 calculation, how then does the court determine whether claimant is entitled to the reimbursement of its fees and costs after winning more money in a condemnation trial?

The issuance of an EDPL §701 award requires two determinations: whether the final award is substantially in excess of the amount of the condemnor's advance payment; and whether the court deems the award necessary for the condemnee to achieve just and adequate compensation. “Where both tests are satisfied, the court may award reasonable fees.” See Hakes v. State of New York, 81 N.Y.2d at 397, 599 N.Y.S.2d 498; Matter of City of Long Beach v. Sun NLF Ltd. Partnership, 146 AD3d 775 [2d Dept 2017]; Matter of Village of Spring Valley, 171 AD3d 934, 935 [2d Dept 2019]. Although there is no hard and fast rule about what “substantially in excess” means when analyzing condemnation awards, generally a final award in an amount that is approximately 25% (or more) over and above the condemnor’s initial advance payment is deemed to satisfy this requirement.

Reprinted with permission from New York Law Journal, © ALM Media Properties LLC. All rights reserved.