Legal Alert

Arizona Supreme Court Expands Just Compensation Rights in Eminent Domain Case

by Edward D. Rogers, Brian Schulman, Nathan Farris, and James E. Mills
January 31, 2025

Summary

In a significant victory for property owners, the Arizona Supreme Court held this week that damages in condemnation cases can include compensation for the reduction in value caused by the proximity of homes to a new highway even if the state has only condemned easements. The immediate effect of the decision was to triple the homeowners’ just compensation award from $6 million to $18 million. More broadly, the decision promises to have a far-reaching impact on future condemnation cases. In awarding “proximity damages,” Arizona joins the majority of states that have considered this question in recognizing landowners’ right to such compensation, although in many states no appellate court has decided the issue.

The Upshot

  • The Arizona Supreme Court decided that property owners can receive compensation for reduced property value due to new infrastructure, even if only easements are condemned, tripling compensation in State of Arizona v. Foothills/Hanke.
  • This decision aligns Arizona with most states recognizing such compensation rights and sets a significant precedent for future condemnation cases involving residential areas near major public works.
  • The ruling strengthens property rights under the Arizona Constitution by ensuring condemnation law maintains property owners' financial positions as if their property had not been affected.

The Bottom Line

The Foothills decision has significant implications for eminent domain proceedings in Arizona – especially those involving residential subdivisions near major public works projects, such as highways. Attorneys in Ballard Spahr’s Eminent Domain Group regularly advise and represent property owners in condemnation proceedings.

In a significant victory for property owners, the Arizona Supreme Court held this week that damages in condemnation cases can include compensation for the reduction in value caused by the proximity of homes to a new highway even if the state has only condemned easements. The immediate effect of the decision was to triple the homeowners’ just compensation award from $6 million to $18 million. More broadly, the decision, State of Arizona v. Foothills/Hanke, promises to have a far-reaching impact on future condemnation cases. In awarding these so-called “proximity damages,” Arizona joins the majority of states that have considered this question in recognizing landowners’ right to such compensation, although in many states no appellate court has decided the issue.

The case arose when the state condemned the common areas consisting of two undeveloped desert parcels next to a planned residential community in Phoenix to construct the Loop 202 South Mountain Freeway. The owners of the homes in the planned community all had easements to use the common areas, and those easements passed with the titles to the homeowners’ properties. The state agreed to compensate the homeowners for the value of the easements, but the HOA sought additional damages consisting of the reduction in the value of the nearby homes caused by the construction of the new road. The state argued that these proximity damages were not available because it had only taken easements.

The Superior Court ruled in favor of the homeowners, but the intermediate appellate court reversed. The Supreme Court reversed again, reinstating the Superior Court’s award for the homeowners. The court based its ruling on the Arizona Constitution, which provides that the court may award severance damages “[i]f the property sought to be condemned constitutes only a part of a larger parcel [. . .].” The court held that the easements constituted a part of the homeowners’ “larger parcel,” and therefore the homeowners were entitled to proximity damages for any loss in value suffered by the remaining portion of the larger parcel. The court reinstated the full $18 million in compensation, including not just the $6 million for the easements but an additional $12 million for the reduction in property values due to the proximity of the state’s new freeway.

The Foothills decision has significant implications for eminent domain proceedings in Arizona – especially those involving residential subdivisions near major public works projects, such as highways. In holding that landowners can receive proximity damages when their appurtenant easements are condemned, the decision reflects the court’s view that condemnation law should place the owners in as good a financial position as if their property had not been taken. In this respect, it reinforces the protection of property rights under the Arizona Constitution and clarifies the scope of just compensation in eminent domain cases.

Attorneys in Ballard Spahr’s Eminent Domain Group regularly advise and represent property owners in condemnation proceedings. Please contact us with questions or if you have a potential condemnation claim.

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