The following post was originally written in response to the LinkedIn in response to the question:  In an eminent domain case, what would limit the fair market value a property owner could receive under just compensation?

As lawyers and courts like to say, the existence of such an agreement would likely be “probative but not dispositive.” Meaning that the fact that a buyer and seller had agreed in the past to such a cap would be important information for an appraiser (or other trier of fact tasked with determining FMV) to consider, but would not, by itself, resolve the issue. The justification for it would have to be considered.

ISTM you would have to analyze the conditions under which the cap was negotiated and agreed upon in the first place in order to determine whether those conditions still exist and should continue to limit the value. If the logic no longer prevails, then the cap should not continue to impact value. (Of course, if the capping agreement is contained in a option that is still in effect, and which limits the seller’s ability to sell, then it would still be relevant.)

So, for example, if the cap was negotiated in order to accommodate conditions unique to a governmental buyer (e.g., legislative limits on the use of redevelopment funds, some sort of restriction on use of tax money, etc.) and the buyer had acceded to them for some other reason (like he wanted to be the one who provided this “public service,” or there was a possible tax benefit to agreeing to such a deal, or any of a thousand other motivations) then the conditions that gave rise to the cap may no longer exist. In that case the cap would no longer seem to have a bearing on FMV. If on the other hand, the cap was based on an externally imposed market factor that would impact any user (like the existence of a conservation easement that restricts the building envelope) then it would affect FMV.


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