Forced to Move

According to the Federal Highway Administration, approximately 7,000 U.S. businesses were forced to relocate last year as a result of eminent-domain takings funded or financed by the federal government.
   Eminent domain refers to the government’s legal right to acquire privately held real estate for public purposes. In some cases, the public purpose is clear—a highway, for instance, is being widened and private property is needed to complete this project that will benefit the general public.
   In other cases, though, the public purpose isn’t as clear—for example, a government agency may decide to “redevelop” an area that has been designated as “blighted.” Under urban renewal, the government can use its eminent-domain powers to acquire real estate in an area viewed as run-down and then turn the property over to a private developer in the hope that new development will spur economic growth in the area.
   The fairness of this process can be debated. What matters is that such eminent-domain takings have occurred and will continue to occur in the scrap industry. In fact, one recent report stated that scrap processing businesses are particularly susceptible to relocation due to eminent-domain takings. 
   One reason is that scrap processing is a business that can require fairly large tracts of land, often in or near urban areas. Many government agencies either have a policy to minimize displacement caused by their eminent-domain takings or, through experience, know that the process is time-consuming and expensive. So if a project requires, say, 10 acres of land near a city and the project planners have a choice of taking 10 acres occupied by one scrap business or 10 acres with 20 multifamily houses, they’ll choose to take the scrap business every time.
   Another reason is that scrap operations are particularly susceptible to being displaced for government urban renewal projects. As cities grow, scrap plants that may have once been on the outskirts are now being encroached by new development. It’s not unusual for urban planners to view a large parcel of property occupied for years by a scrap business as blighted—and a target for urban renewal—once it becomes surrounded by newer buildings. Once such urban renewal plans are accepted, the scrap business could be acquired by eminent domain and forced to relocate, with its parcel subsequently cleared and turned over to a private developer.
   Such is the reality of eminent domain. And, yes, it could happen to your company. It’s prudent, therefore, for all scrap processors to have some understanding of this process and know steps they can take to protect themselves.

Understanding the Law
   In 1971, Congress enacted Public Law 91-646, known as the Uniform Relocation Assistance and Real Property Acquisitions Act (URA), currently codified as 42 U.S.C. 4601 et seq.
   The URA standardized the benefits available to people who have their property acquired as well as the procedures to be followed by federal government agencies that undertake property acquisition and relocation. Prior to this law, different federal agencies followed separate, albeit similar, rules and procedures. While there are separate state laws on eminent domain and relocation assistance, such laws and regulations generally follow the standards set forth in the URA.
   Any business owner facing an eminent-domain taking should first become familiar with the URA and any applicable state laws and regulations dealing with eminent domain and relocation assistance.
   In general, once an eminent-domain taking of real estate has been recorded, the public agency owns the real estate. At that point, the business becomes a tenant of the government and its occupancy can be terminated with a 90-day notice. 
   As you can imagine, this can lead to a strained landlord/tenant relationship, especially if the real estate acquisition was contentious or the government agency is under pressure to clear the acquired site.
   Under all eminent-domain takings of real estate, the government is required to pay “just compensation” to the property owner for the real estate as well as reasonable relocation expenses to any person or business that’s forced to move from the acquired property.
   It’s important to understand the distinction between just compensation for acquired real estate and payment of relocation expenses. 
   Generally, payment for real estate taken by eminent domain is based on the appraised value of the real estate for the “highest and best” use. Government agencies will often use an independent real estate appraiser to determine this value.
   Relocation payments include many different categories of expenses that are meant to cover actual and reasonable moving costs. A person may own real estate that’s taken by eminent domain and operate a business on the acquired property. In such a case, that person would receive two payments: one for the real estate and another for the cost of relocating the business. Similarly, a business that’s a tenant on real estate taken by eminent domain would usually be eligible to make a claim for relocation expenses. In both cases, a business can claim relocation expenses once the real estate is acquired and it’s required to move by a government agency.

Eminent Domain in Action
One of the main purposes of the URA as well as most state laws regarding eminent-domain relocation is to ensure that any business that’s forced to relocate doesn’t suffer “disproportionately” to the general public. Toward that end, the URA and most state laws and regulations dealing with relocation assistance include language directing public agencies to provide advisory services to displaced businesses. Some of these advisory services are specific. For example, the displacing agency must prepare a relocation plan for each project, describing the problems displaced businesses could face and addressing how the agency will mitigate these problems.
   Another advisory service requires the displacing agency to assist the displaced business in searching for and obtaining a suitable replacement location and refer the business to agencies that will help it obtain financing to successfully complete its move.
   Such advisory services can be helpful to displaced scrap plants, which can be particularly difficult to relocate. Not only do scrap processing firms need a site that’s accessible to customers and employees, within the financial needs of the company, and adequate in size and condition, but they also have to contend with permitting and zoning requirements that can be quite stringent.
   In addition, the work to prepare a location for a scrap business can be daunting, as Alan Sidell, executive vice president of Seattle Iron & Metals Corp. (Seattle), discovered. After 50 years in the same location, his firm had to relocate to make way for the expansion of the Port of Seattle Terminal. Though the company was fortunate to find a suitable site within 3 miles of its original location, it still had to construct 11 new buildings, install new machinery—including a new shredder and nonferrous baler, lay 3 inches of asphalt over 10 inches of concrete, and install a storm water treatment system. And the firm did all this work on a time schedule set by the Port of Seattle. According to Sidell, the company bought its new property in May 1998 and completed all design work, secured all the necessary permits, constructed the new facilities, and completed its move within 15 months.
   In general, the intent of the government’s eminent-domain advisory services is to ensure that displacing agencies are sensitive to the needs of displaced businesses and that the agencies help the businesses survive their move. Often, displacing agencies hire private consulting firms to provide these advisory services and manage the relocation process for affected businesses. Unfortunately, it’s not unusual for displacing agencies and their consultants to view displaced businesses in adversarial terms. When that happens, any benevolent intent of the law gets overlooked in favor of clearing a site in an expeditious and cost-effective manner.
   One case in point is International Metal Corp., formerly Castle Metal Co.
   Castle Metal had operated for nearly 35 years at a site in downtown Boston that was taken by eminent domain in March 1994 by the Massachusetts Highway Department for work on I-93 in the city. According to Bruce Balder, the firm’s vice president, the highway department gave Castle Metal little help in the way of advisory services. “We spent a huge amount of time looking for a site that met our needs,” he recalls. “When we finally found one [in nearby Stoughton, Mass.], there was very little consideration given to how much time we needed to get the new location ready. It was clear that the highway department was more concerned with getting us out of its way than making sure we were treated well.”
   Sidell of Seattle Iron had a similar experience with the Seattle Port Authority. “We had no help from them finding a new location or obtaining our permits,” he asserts. “They got away with spending as little as possible.”
   Some of the problems International Metal and Seattle Iron faced were because the displacing agencies and their consultants didn’t understand the complexities of moving a scrap business. Faced with an eviction notice from the Massachusetts Highway Department, Castle Metal found itself having to move 3 million pounds of metal in 30 days. Yet, if the company moved anything before receiving authorization, then the highway department would refuse to pay. To make matters worse, the department’s estimated moving costs were low. “The estimates the department got to move our stock were simply unrealistic,” says Balder.
   Sidell’s experience wasn’t any better. “One estimate the Seattle Port Authority got was $4.50 a ton to move some of our stock, while the best price we could get was $25 a ton,” he says. When Sidell offered to use the authority’s contractor, he was told that “the agency isn’t in the moving business and wouldn’t identify its estimator.”
   In both cases, the agencies apparently saw mounds of scrap and concluded the material was just junk. The owners of the scrap businesses, though, knew the value of their inventory and the substantial costs of properly preparing the inventory to move. In the end, both companies had to go through arbitration to recover additional expenses from the public agencies.

Fighting for Your Rights
Given all the vagaries of the eminent-domain process, what can you do to protect your company’s interests?
   As a preventive measure, you should be proactive and participate in any public meetings on urban renewal plans that may target your property for redevelopment. At a minimum, such participation should focus on the difficulties of relocating a scrap business, including the length of time it takes and the high cost involved in successfully relocating such an operation.
   If your firm does receive an eminent-domain notice, don’t depend exclusively on the displacing agency to help you understand the monetary benefits that are available to displaced businesses under the URA. Generally, relocation benefits are viewed as reimbursable expenses. They’re categorized in such a way as to cover all reasonable expenses that businesses are likely to incur as a result of moving. In addition, there are 11 categories of expenses that are classified in the URA as ineligible for reimbursement as relocation expenses.
   Of course, there are many shades of gray in determining what’s a reasonable reimbursable relocation expense and what may be deemed an ineligible expense. Some agencies or their consultants are prone to make determinations that don’t favor the displaced business or simply neglect to inform the displaced business of the full range of benefits available to it. These benefits can include:
   Compensation for Site-Searching. Displaced businesses are entitled to be paid for the time spent searching for a replacement location. Generally, it takes scrap businesses a long time to find a suitable replacement location. Balder of International Metal says he looked at 75 to 100 sites before finding one that met his company’s needs. While most agencies or their consultants will tell you that this benefit is capped at $1,000, the Federal Highway Administration—the federal agency that administers the URA—states that this limit can be waived on a case-by-case basis if a displaced business has unique requirements or circumstances. Most scrap businesses can easily argue that they have unique needs that require them to spend more time than most businesses to find a replacement location. Accordingly, they should be paid for the actual cost of the time they spend searching for a new location.
   Payment for Substitute Equipment. Displaced businesses should also know that they’re entitled to payments for purchasing and installing new equipment to replace similar equipment that isn’t moved. This benefit can be particularly useful for displaced scrap operations. In such situations, the displaced scrap company could purchase and install new equipment and then be paid by the displacing agency for the lesser of either the cost to dismantle, move, and reinstall the old equipment or the cost to purchase and install the new. Usually, the displaced business will have to show what it paid to purchase and install the new equipment and provide an estimate of what it would cost to disconnect, move, and reconnect the old equipment. Since displacing agencies may not always fully explain this option, any displaced scrap business should be sure to ask about the agency’s policy regarding the substitute equipment benefit.
   The Right to Liquidate. Displaced businesses can also liquidate some or all of their personal property, including equipment and stock. For some businesses, it’s simply not viable to relocate. In such cases, the business may be paid for the lesser of either the appraised in-place value of its personal property or the estimated cost to disconnect, move, and reconnect the property. If taking this option, the business should obtain its own estimate of the in-place value from an expert appraiser as well as a detailed estimate of the relocation costs that would be incurred if the business moved. Unfortunately, disputes are common between the displacing agency and the displaced business as to appraised values and estimated moving costs.
   Moving Expenses. It’s important to note that relocation benefits generally cover expenses for moving personal property. Under the URA, contractual expenses such as costs for electricians, plumbers, and carpenters can be reimbursed if they’re necessary to reconnect and operate personal property at a new location. In addition, site-preparation costs can usually be recovered if they relate directly to expenses to reconnect moved or substituted personal property.
   Generally, expenses for improvements to real estate aren’t covered. It’s critical, therefore, for displaced businesses to document what personal property they own and what they consider to be part of the real estate. After all, one agency might look at a baler and scale and consider them part of the real estate, while another agency might view them as personal property.
   There are reams of case law regarding what’s real estate and what’s personal property. Displaced scrap business would be wise, therefore, to resolve disagreements regarding the classification of property as real or personal as early in the acquisition process—preferably prior to the taking—as possible. In general, displacing agencies adamantly refuse to pay to move property they believe they bought as part of the real estate. The best way to deal with this is to prepare an inventory of personal property and submit it to the displacing agency when it’s appraising the property.
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   Moving is one of the more stressful events a person or business can face. Being forced to move under an eminent-domain taking only increases this stress. The fact is, though, that most scrap businesses that are displaced due to eminent domain are able to manage and, in many cases, end up in a facility that’s better than their old one.
   If eminent domain touches your company, though, remember that the scope of relocation benefits available to displaced businesses under the URA is comprehensive. It’s certainly worth your time to review this law independent of the displacing agency and see for yourself what you’re entitled to receive for compensation. In many instances, it’s worthwhile to hire an expert relocation consultant to help prepare the necessary documentation to support your relocation claim and ensure that your displaced business is fully reimbursed for its relocation expenses.
   The bottom line is: Learn about your rights under the law and be prepared to fight for them if necessary. •