Recent Developments in Associations and Federal Takings Laws
January 20, 2014

Seldom do we see federal cases pertaining to homeowners and condominium owners associations.  The U.S. Fifth Circuit Court of Appeals has recently decided a case involving a townhouse development in Louisiana, United States v. 0.073 Acres of Land, 705 F.3d 540 (5th Cir. 2013).   Admittedly, this case is about a Louisiana development and this is a blog about Tennessee law, but the case involves an intriguing area of law of interest to all associations – federal takings actions for public use.  A takings occurs when the government takes or otherwise converts private property.  The Fifth Amendment to the U.S. Constitution provides that private property shall not be taken for public use without just compensation.

In this case, the U.S. Army Corps of Engineers determined that it needed to acquire fourteen (14) townhomes in a homeowners association development to make repairs to a levee in the aftermath of Hurricane Katrina.  It acquired the townhomes and settled with the owners of the townhomes for the takings.  However, the Association argued that it should also have been compensated for the reduction in the assessment base caused by the taking of the fourteen (14) townhomes.  The government argued that any reduction in the assessment base was merely incidental to the taking of the townhomes and that the association was not entitled to any compensation.

The Fifth Circuit found that, under Louisiana law, the homeowners association’s right to collect assessments was an interest in real property similar to a real covenant under common law.  Many courts have held that covenants are compensable in takings cases.  In this case, however, the Fifth Circuit held that the association was not entitled to compensation because of the collateral loss rule.  Under the collateral loss rule, an owner of real property is entitled to recover for the value of his land that is taken, but not for losses to his business or other collateral damage.  In other words, the court found that the association’s expectation to collect future assessments from these fourteen (14) townhomes was more like a service or maintenance contract than an actual interest in land.  Consequently, the Fifth Circuit held for the government.

It should be noted that the Fifth Circuit’s holding appears to have created a split amongst the Federal Circuit Courts.  This means that there is now conflicting decisions amongst the Federal Circuit Courts on takings matters pertaining to covenants.  Consequently, a petition for certiorari was filed on this case with the U.S. Supreme Court.  Should the Supreme Court decide to hear the case, there could be additional developments.

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