In addition to the “fair market value” compensation long required by Supreme Court precedent, Virginia property owners are now also entitled to compensation for foregone profits and lost access to remaining property they own in the area. For reasons I explained here, this was a long-overdue reform. Scholars and jurists across the political spectrum have long argued that the fair market value formula often results in compensation far below the true value of owners’ losses. The Virginia amendment tries to address two of the most common such shortfalls.

Small businesses forcibly expelled by eminent domain often suffer the loss of good will and customer relationships in addition to losing the fair market value of their land. Consider, for example, a restaurant with a loyal clientele in a particular neighborhood. If it is forced out, the new location may no longer be as convenient for its old patrons, and it may take a long time to accumulate comparably loyal new ones. Question 1’s compensation for profits is intended to partially remedy such losses. Opponents of amendment claimed that compensation for lost profits is somehow unfair because it “gives more rights to businesses than people.” But this is a false dichotomy, since businesses are in fact owned by people. Moreover, the amendment does not distinguish between profits from land owned by corporations and other formal commercial enterprises, and those earned by individuals who derive income from their land.

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Compensation for lost access is even less problematic. Sometimes, a condemnation takes only a part of the owner’s property, but in the process reduces his or her ability to access the rest. The classic case is a condemnation for a road that runs through an owner’s lot, dividing it into two parts. In such situations, compensation payments for the fair market value of the land that was taken do not account for the owners’ diminished access to his or her remaining property.

Like compensation for other losses inflicted by takings, compensation for lost profit and access is justified even in cases where the property is condemned for a perfectly defensible government project. As the Supreme Court put it in 1960, the whole point of requiring compensation for takings is to “bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.” Loss of access and profits is clearly a part of the burden that takings impose on property owners.

The wording of Question 1 does not define how much compensation should be paid for profits and lost access. It explicitly leaves that question up to the legislature. As I noted at the time, this could easily lead to insufficient compensation, since people whose land is targeted for condemnation are often poor or politically weak, while the local governments who would have to pay compensation have considerable clout in the state legislature.

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Last year, the legislature did pass a law defining compensation for these two types of losses, and it is in fact relatively low, especially in the case of profits. For example, lost profits compensation covers only one year of losses (calculated by averaging the profits from the previous three years; without counting any profits that might be recouped by moving the business elsewhere). In many cases, business owners forced to relocate may suffer losses for more than one year, and some may have to close down entirely. Compensation for lost access is limited to offsetting the “loss in market value of the remaining property from lost access caused by the taking or damaging of the property.” In some cases, lost access also has a “subjective value” that goes beyond the reduction in the property’s market value. In fairness, however, inadequate compensation for loss of subjective value is a common problem in eminent domain law, and a very difficult one to solve.

The state legislature’s standards for compensating for profits and lost access leave some key issues open for judicial interpretation. For example, compensation for profits is only available if the owner “proves with reasonable certainty the amount of the loss and that the loss is directly and proximately caused” by the exercise of eminent domain. Given the vagaries of market conditions for many small businesses, it may be difficult or even impossible to prove the likelihood of losses with “reasonable certainty,” unless what counts as “reasonable certainty” is itself defined with reference to the difficulty of predicting future market conditions. There may also be dispute over what it means for the loss to be “directly and proximately” caused by a taking, as opposed to indirectly. These and other issues may come up in litigation resulting from the road-building project described in the Daily Progress article.