By Zak Rosenberg

Government entities generally have the right to take property from private citizens if that taking is for a public use or benefit. In exchange for the property, the government pays the former landowner “just compensation.” For instance, if the federal government or state is building a new road, it may need to take portions of a private citizen’s land so that it can complete construction.

In Louisiana, when a governmental entity wishes to take — or expropriate — privately owned property pursuant to Article I, Section 4 of the Louisiana Constitution, it must follow the judicial procedure set forth in La. R.S § 19.1, et. seq. As many Louisianans can attest to, the formal expropriation process can be costly and time consuming.

Frequently, the state attempts to avoid the expropriation process by threatening a landowner with expropriation and then negotiating a traditional sale. Under these circumstances, the land is sold in the same manner as a landowner selling to another citizen: the parties negotiate and execute an act of sale (or deed), and avoid the costs and time spent in court. Moreover, the state may even offer higher compensation for the land to entice the landowner to accept the offer (and thereby allow the state to save time and money by not having to go through the formal process).

To the casual landowner, both options seem to accomplish the same thing since the state receives the property and the landowner receives money for that property. In fact, sale under threat of expropriation may be even more appealing due to the potential for higher compensation.

The savvy landowner, however, will want to know whether the different types of transfers are made subject to any warranties. In Louisiana, a sale of immovable property is made subject to several warranties — or “guarantees” — contained in the Civil Code. These warranties can be waived in sales between private citizens with the addition of an “as-is” clause in the act of sale, whereby the purchaser accepts the property “as-is.”

But what about warranties in the context of expropriation? What option better protects a landowner down the road? Or does it not matter? In other words, if the landowner accepts a higher price for the land and avoids the formal expropriation process, is she opening herself up to the possibility of future litigation?

Formal Expropriation Proceedings

Once the state completes the formal expropriation proceedings, the landowner’s property is transferred to the state by judicial declaration. There is no act of sale or additional document that lays out the terms of that transfer. Property that was once owned by the private citizen is now “owned” by the state.

Because the transfer is made by expropriation, the warranties contained in the Civil Code do not apply since the Code is clear that those warranties apply only to sales. There is no case law on this point and while it is possible that a court could impute warranties to the transfer, it is extremely unlikely since expropriation is clearly not a sale, as contemplated by the Civil Code.

Sale Under Threat of Expropriation

The trickier analysis involves sales made under threat of expropriation. Unlike formal expropriation proceedings, sales made under threat of expropriation involve the landowner selling property to the government via an act of sale in an effort to avoid formal proceedings. This raises the following question: if the only reason a landowner sells is because the state has made it clear that if the landowner does not sell it will initiate expropriation proceedings, shouldn’t sales made under threat of expropriation be treated the same as land transferred by formal expropriation proceedings (and therefore made without warranty)?

Courts have consistently held that for purposes of valuing property in formal expropriation proceedings, sales made under threat of expropriation cannot be used as comparable sales because they are not “the result of free bargaining power.” Cases like State ex rel Dep’t of Highways v. McDuffie, 123 So. 2d 93 (La. 1960) and Tennessee Gas Transmission Co. v. Violet Trapping Co., 200 So. 2d 428 (La. App. 4 Cir. 1967) imply that there is no difference between an expropriation and a sale under threat of expropriation because at the end of the day, the seller really has no choice. Either she (a) sells her land to the state, or (b) the land is taken by expropriation.

Under this analysis, a sale made under threat of expropriation would—and should—be made without warranty. However, there is no case law to support this argument so the landowner cannot be entirely sure how a court would ultimately rule.

Mitigating Future Risks

A landowner facing the threat of expropriation who is concerned about future litigation over an alleged breach of warranty has a few options at her disposal to try to mitigate that risk. At the outset of negotiations with the state, the landowner should request adding an “as-is” clause in the act of sale. Unfortunately, in our experience, it is highly unlikely the state would acquiesce to this request. Thus, the landowner is realistically left with the following two options:

  1. If the landowner is truly concerned with the potential for future litigation relating to breach of warranty, then she should stop negotiations and let the state initiate formal expropriation proceedings. As noted above, property taken via an expropriation proceeding is not made subject to any warranties since it is not a sale. Although going through expropriation proceedings could ultimately reduce the value of the property and require the landowner to spend substantial amounts of money and time, the landowner would at least have peace of mind knowing she has no future liability for breach of warranty.
  1. However, if the landowner does not want to spend the time and money in court (and perhaps take advantage of an offer of higher compensation), she has a very strong argument that sales under threat of expropriation should be treated the same as property taken as a result of expropriation proceedings (see McDuffie and Tennessee Gas, supra). Thus, a sale under threat of expropriation would also be made without warranty. The risk here is that since there is no case law on this issue, a court could always reach an opposite conclusion.

The Upshot – Understand the Risks and Benefits of Both Options

At the end of the day, there are several factors to consider when determining whether to sell under the threat of expropriation or to let the state initiate formal expropriation proceedings: are you willing to take less money and go through formal expropriation proceedings in exchange for peace of mind, or are you willing to take the higher offer and the risk that someday a court may not agree with your analysis that sales under threat under expropriation should be treated the same as land taken through formal expropriation proceedings? As always, a landowner should understand the risks and benefits of each option and make an informed decision based on her own risk tolerance.


Filed under: Industry News, Residential Real Estate, Title Insurance
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