Eminent Domain Report

The Arizona Court of Appeals recently held that members of a homeowners’ association are not entitled to severance damages to their residential parcels when common areas are condemned.

Property owners in Arizona eminent domain actions are entitled to just compensation. Just compensation includes (1) “the value of the property sought to be condemned” and (2) “[i]f the property sought to be condemned constitutes only a part of a larger parcel, the damages that will accrue to the portion not sought to be condemned by reason of its severance from the portion sought to be condemned. . . .” A.R.S. 12-1122(A). The latter category of damages is referred to as “severance damages” and constitutes the reduction in value suffered by property not taken by reason of its severance from the property taken.

In State v. Foothills Reserve Master Owners Assoc., Inc., 540 P.3d 1236 (App. 2003), the Court of Appeals addressed the question of whether the severance damages statute required the taken property to constitute a parcel of land. The Foothills Reserve subdivision is a 590-home community located on the south-side of South Mountain. The Foothills Reserve Masters Owners Association (the “HOA”) owned unimproved desert parcels as common areas (the “Common Areas”). The Declaration of Covenants, Conditions, Restrictions and Easements for Foothills Reserve (“CC&Rs”) gave each homeowner “a nonexclusive easement for the use and enjoyment in and to the Common Areas.” The homeowners also owned a negative easement under a recorded plat dedication over the Common Area, requiring the Foothills Reserve Community Association to maintain the Common Areas as open space.

The Arizona Department of Transportation (“ADOT”) condemned the Common Areas, including the homeowners’ easements, for the South Mountain Freeway project. While ADOT and the HOA agreed on the value of the easements, the parties disagreed on the value of any severance damages due to the homeowners because of the condemnation of the underlying Common Areas. The trial court found the property owners were entitled to severance damages, and ADOT appealed.

In a published opinion, the Court of Appeals reversed, holding that an easement is not a “parcel of land,” precluding the availability of severance damages. A.R.S. § 12-1122(A)(2) requires that “the property sought to be condemned constitute[] only a part of a larger parcel.” A parcel is a “continuous tract or plot of land in one possession.” Parcel, Black’s Law Dictionary (11th ed. 2019). So, for an individual to be entitled to severance damages, the individual’s parcel, as opposed to any property right, must be condemned.

The court next determined whether an easement interest constitutes a parcel. An easement is a nonpossessory right to use property or limit another’s use of property. Thus, an easement is not land, and it cannot constitute a “parcel.” On this basis, the Court concluded that the homeowners could not articulate an entitlement to severance damages under A.R.S. § 12-1122(A)(2) from their loss of an easement interest.

A Petition for Review is pending before the Arizona Supreme Court.