[author: Robert Kuhn]
Condemning agencies contemplating the use of eminent domain at times hire third-party acquisition agents to purchase properties ahead of an incoming infrastructure project without the provision of written good faith offers. This practice presents concerns. Under Michigan’s Uniform Condemnation Procedures Act (“UCPA”), a written good faith offer generally includes a real estate appraisal and provides residential property owners with a basic statement of rights. The good faith offer serves an essential role in providing property owners information about their land and facilitates the intelligent and knowing transfer of property for incoming eminent domain projects. Condemning agencies such as public utilities have at times used third party agents to lock in purchase agreements for incoming and foreseeable eminent domain projects without providing good faith offers. Specifically, utilities at times approach property owners and negotiate for option contracts in which the property owner agrees to sell their land at the discretion of the utility at a set price in the future, thereby facilitating land purchases necessary for infrastructure projects.
In circumstances involving the potential and foreseeable use of eminent domain, the purchase of land by public utilities and governments without the provision of a good faith offer can seriously impact the rights and day-to-day lives of local property owners. Owners, especially those with residential lots or small businesses, can be unsophisticated with limited or no prior exposure to eminent domain procedures and expectations. The terms offered by third-party agents and agreed to by property owners can impose significant restrictions on the owners’ future use of their property, often with reduced compensation in return.
The legality and remedies concerning the use of third-party negotiations prior to the provision of an appraisal and good faith offer are worthy topics of further discussion. Although the legality of such practices is uncertain, their use remains troubling.
I. The UCPA and Written Good Faith Offers
The Uniform Condemnation Procedures Act (“UCPA”) “governs the acquisition of property” by public and private agencies in Michigan “through the power of eminent domain.” Mich Dept of Transportation v Frankenlust Lutheran Congregation, 269 Mich App 570, 575 (2006). The law provides clear and defined guidelines for how governments and utilities can condemn private property and fulfill the constitutional mandates of just compensation. Under the UCPA, agencies are statutorily required to provide a “good faith written offer to acquire [a] property.” MCL 213.55(1). This written offer must be made “before initiating negotiations for the purchase of [the] property.” Id. (emphasis added); see Frankenlust Lutheran, 269 Mich App at 583 (“[T]he UCPA require that the condemning authority establish what it believes to be just compensation before initiating negotiations for the purchase of private lands.”); Indiana Michigan Power Co v Community Mills, Inc, 336 Mich App 50, 56 (2020) (“The purpose in requiring that a condemning authority first offer to purchase property for an amount no less than that which it believes to be full and just compensation is to encourage negotiated purchases of property needed for a public purpose and, thereby, avoid condemnation litigation entirely.”). A good faith offer must be based either upon a professional real estate appraisal or, in certain circumstances when the property owner does not comply the agency’s requests for information, a “written statement and summary, showing the basis for the amount the agency established as just compensation for the property.” MCL 213.55(1). The amount stated in the good faith offer cannot be “less than the agency’s appraisal of just compensation.” MCL 213.55(1). Therefore, under the express terms of the UCPA, a condemning agency cannot even negotiate with a property owner unless there is a written and defined amount of just compensation based on a reasonable determination of value.
There are other significant aspects of the statutory good faith offer that ensure fairness and an even playing field for the property owners, who almost always have far less sophistication, resources, and experience with eminent domain procedures than governments and utilities. If the taking requires relocation of individuals who reside on the property, the good faith offer embodies a type of statement of rights, similar to Miranda warnings. In such circumstances, the UCPA requires the condemning agency to provide notice that “an eminent domain proceeding has commenced” and outline “the occupants' basic legal rights in the process,” such as compensation for relocation expenses. MCL 213.55(1). The good faith offer also notifies property owners if the condemning agency intends to seek cost recovery for certain environmental hazards on the property. Id. It cannot be doubted that the statutory good faith offer includes many highly significant features that are foundational to a property owner’s understanding and ability to intelligently participate in condemnation proceedings.
The statutory good faith offer later serves as a basic reference point for all later proceedings under the UCPA. The condemning agency cannot bring a suit to obtain the property until a written good faith offer is provided. Board of County Road Commissioners for Washtenaw County v Shankle, 327 Mich App 407, 414 (2019). The provision of a good faith offer is a jurisdictional prerequisite to obtain possession of property through eminent domain proceedings. Id. Further, significant deadlines for filings within condemnation actions are based upon the good faith offer, which then establishes additional deadlines and the timing of condemnation actions generally. See, e.g., MCL 213.55(3)(a) (deadline to seek additional just compensation based in part on the timing of the initial good faith offer); MCL 213.58(1) (setting deadline for the payment of estimated just compensation in escrow based on the timing of the complaint, which requires a good faith offer); MCL 213.59(6) (requiring payment of the escrow amount prior to physical dispossession).
Repayment of attorney fees and costs is significantly influenced by the amount of the good faith offer. MCL 213.66(3) (reimbursement for attorney fees); MCL 213.68(1) (reimbursement for abandonment). Under the UCPA, the government or utility may be required to pay the property owner’s attorney fees to the extent that the ultimate just compensation award is higher than the good faith offer. In this way, the statute is written to “penalize[] agents of a condemnor for deliberately low offers because a low offer may result in the condemnor paying the owner's litigation expenses as well as its own.” Mich Dept of Transportation v Robinson, 193 Mich App 638, 645 (1992).
In all, reading the plain text and structure of the UCPA, the written good faith offer is foundational to the eminent domain process and Michigan’s designated condemnation scheme.
Moreover, the statutory good faith offer is by no means an obscure anomaly or unique to Michigan law. It was a central feature of major condemnation reform in the 1970s and 80s, exemplified in the federal Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 (“Policy Act”). The federal Policy Act set basic guardrails for eminent domain practices to encourage amicable resolution of disputes, avoid litigation, “assure consistent treatment for owners,” and “promote public confidence in Federal land acquisition practices.” 42 USC 4651. To fulfill these objectives central to modern eminent domain, the Policy Act set basic standards for federal land acquisition and directed federal agencies to perform professional real estate appraisals “before the initiation of negotiations.” 42 USC 4651(2), (3). Federal agencies were asked to provide offers to property owners that were at least the amount of the professional appraisal. Through the Policy Act, the federal government expected agencies to meet these basic standards even if they were “uneconomical,” burdensome, or produced higher payouts for property owners. See City of Columbia v Costle, 710 F2d 1009, 1013 (CA 4, 1983). The UCPA, passed in 1980, incorporated many basic interests that Policy Act embodied and sought to advance.
II. Third-Party Acquisition Agents and Informal Negotiations
Despite the centrality of the written good faith offer in modern condemnation law, third party agents have approached owners seeking properties for incoming eminent domain projects through the use of informal discussions, without the provision of an appraisal or a written good faith offer. For instance, public utilities hire third party companies to negotiate with property owners who have not received a good faith offer or a notice of condemnation and ask the owner to sign an option contract. An example of such an option contract is discussed in detail in a prior article titled, “ITC Easement Offers for Mid-Michigan Transmission Line Project,” found here.
Option contracts may allow the utility to purchase the owner’s property at a later date and at a set price. No appraisal or written good faith offer is provided to the property owner during the negotiations for these option contracts. These informal offers can be at reduced values and with highly restrictive contractual terms. However, with a large infrastructure project forthcoming, the use of eminent domain may be known and reasonably foreseeable if the owner were to refuse offered option terms.
In performing these informal negotiations and offers, agents may make assertions or representations as to the nature of the project, the extent of the property owner’s rights, the value of the property, and the authority’s intentions once the condemnation is complete. For instance, agents can minimize the ability of property owners to contest the taking and obtain greater compensation if they reject the agent’s informal offers, or the agents can assert that the government or utility will not take certain actions with the land, in conflict with express terms stated in the offered easement. The agency may imply that the property owner has little choice and should agree to sign over land with unfavorable terms.
Property owners with no prior experience or special knowledge of condemnation may sign such agreements with these agents. And the agreements can significantly restrict the use and enjoyment of the property, while giving the utility wide breadth to access and operate on the property. For instance, agreements may prevent the property owner from selling, leasing, or taking a mortgage out on any portion of the remaining property, even those areas outside of the utility’s easement. Agreements may also give the utility rights to use the land for multiple infrastructure projects, beyond the specific project for which they have obtained regulatory approval and for which they will eventually condemn the land if the option is refused. The agreements may provide the owners with no guarantees as to where incoming transmission lines or utility poles will actually be placed on their properties. Significantly, these agreements may also contain strict integration clauses, preventing any oral representations from the acquisition agents from binding the utility in a court of law.
III. Legality of Acquisition Agent Negotiations Without a Good Faith Offer
The power of eminent domain is extraordinary, implicating fundamental rights of property ownership and just compensation. Therefore, as a basic legal principle, Michigan courts require strict and exact compliance with controlling eminent domain statutes. See Toledo, AA v Munson, 57 Mich 42, 44 (1885) (“In proceedings based upon the right of eminent domain it is well settled that every material requirement of the statute must be strictly followed, and the proceedings must show affirmatively substantial adherence to the course therein prescribed.”); Chesapeake & Ohio Railway Co v Herzberg, 15 Mich App 271, 277 (1968) (“The law of eminent domain is a harsh remedy necessitating a strict construction of and compliance with eminent domain statutes.”); Shankle, 327 Mich App at 412-13; see also Schafer v Kent County, Case No 164975, --- NW3d ---- (Mich 2024) (collecting sources) (“Requiring just compensation for public use of private property is a basic right lying at the heart of rule-bound government in Michigan and the United States more broadly.”).
The requirement of a written good faith offer, backed by a professional appraisal, provides basic fairness and ensures informed decision-making on the part of property owners. Reviewing the UCPA as a whole and its unambiguous text and structure, condemnation law is clearly designed to facilitate the fair, informed, and negotiated transfer of property, without strategic maneuvering or adversarial litigation. See MCL 213.55(1); MCL 213.66(3); MCL 213.68(1); Frankenlust Lutheran, 269 Mich App at 583; Community Mills, Inc, 336 Mich App at 56; Shankle, 327 Mich App at 414; Robinson, 193 Mich App at 645; see also Frankenlust Lutheran, 269 Mich App at 583-84 (“The UCPA requires that the state deal with the landowner in a fair and honest manner, and refrain from coercive tactics to compel an agreement on the price to be paid for the property” (citing MCL 213.74)); 42 USC 4651(2), (3). Without the provision of an expert review of property value, and the reiteration of basic legal rights in the case of residential takings, many property owners would be forced to negotiate without full knowledge, appreciation, or perspective as their legal rights and the value of their land. In many cases, the value of real estate is the primary source of wealth for the residents and owners. Before engaging in negotiations with a sophisticated party with the authority to take land, with or without their consent, the law has long required that governments and utilities provide property owners with a fair and objective measure of compensation through a good faith offer.
The good faith offer ensures the property owner’s informed consent in circumstances of extraordinary power and information imbalances. Yet when unknowing property owners are approached by agents of a government or large utility company and provided informal offers without a good faith offer, basic protections of condemnation statutes are avoided. Owners are left to negotiate with governments and large utilities alone, with less knowledge, expertise, and far fewer resources.
Through the use of informal negotiations, condemning agencies can present property owners with low offers favorable to the agency without complying with the strict requirements of a good faith offer. This tactic also limits the potential downside of providing low payment offers in the form of attorney fee awards in resulting eminent domain proceedings. Property owners can recover attorney fees in condemnation suits from condemning agencies to the extent the payment of just compensation is above the agency’s good faith offer, subject to the discretion of the court. MCL 213.66(3). However, by approaching property owners without conducting an appraisal and outside the scope of official pre-complaint negotiations under the UCPA, the condemnation agency gains flexibility by offering terms of payment that may not bind the agency in attorney fee calculations before a court.
Even if the condemning agency ultimately must participate in regulated condemnation practices for some property owners who refuse informal offers, the condemning agency can secure enough properties that are needed for an incoming infrastructure project from other owners to make it financially advantageous. To the extent that the condemning agency saves money from engaging in litigation, there is little reason that cannot be achieved through standard good faith offer procedures, which are designed to facilitate negotiations. See Indiana Michigan Power Company, 336 Mich App at 56 (explaining that the good faith offer requirement is established to “encourage negotiated purchases of property needed for a public purpose and, thereby, avoid condemnation litigation entirely”).
Michigan courts have repeatedly “disapproved the practice of an agency attempting to bind an owner to a low offer and then revising its offer just before filing suit in order to minimize attorney fees.” Detroit/Wayne County Stadium Auth v 7631 Lewiston, Inc, 237 Mich App 43, 49 (1999). Legal approval of such practices would “encourage condemning authorities to make incomplete offers to the unwary,” cutting against the basic structure and operation of the UCPA. Id. Yet third-party acquisition agents may achieve this very result by providing one offer in informal negotiations and providing another offer through an official good faith offer after an appraisal is complete and the full spotlight of regulated condemnation proceedings is applied.
When drafting the UCPA, the Legislature clearly understood how to impose different deadlines or requirements for agency actions in eminent domain projects. For instance, an agency can request land inspections “before filing an action,” MCL 213.54(3), and it can request financial information from the property owner “during the period in which the agency is establishing just compensation.” MCL 213.55(2). Yet the Legislature intentionally chose to require the provision of a written good faith offer before any negotiations on the purchase of land could take place. MCL 213.55(1); see People v Harris, 499 Mich 332, 352-53 (2016) (explaining that the use of different language in a separate statutory provision demonstrates that the Legislature “knows how” to impose the requirement and chose not to). Moreover, the statute does not limit or restrict the type or manner of “negotiations” to which the good faith offer applies. MCL 213.55(1).
Before the condemning agency can contract for the “purchase of property,” a good faith offer must be provided. Id. The statute contains no limitations, conditions, or exceptions for the purchase of property structured as an option contract. See, e.g., Randolph v Reisig, 272 Mich App 331, 339 (2006) (“The promisee in an option contract holds the power to purchase the property at will for the specified price during the specified period.”). Contracts for the purchase of land with an incoming and foreseeable eminent domain project, including option contracts, implicate the same basic interests and statutory language of the UCPA. To have an operational eminent domain system, condemning agencies cannot avoid basic procedural requirements and the appraisal process by imposing contractual conditions on purchase terms or merely describing property purchases as an option. If the UCPA were read so formalistically, all condemnation acquisitions, no matter how imminent or broad in scope, could be pursued without good faith offers using contract conditions or option agreements. The basic protections and statutory language of the UCPA’s good faith offer requirement would have substantially less meaning and application. See Danse Corp v Madison Heights, 466 Mich 175, 182 (2002) (“The court must presume that every word has some meaning and, if possible, effect should be given to each provision.”); Sweatt v Mich Dept of Corrections, 468 Mich 172, 179 (2003) (explaining that statutory terms “must be assigned such meanings as are in harmony with the whole of the statute” and must be understood within their “placement and purpose in the statutory scheme” (quotations and citations removed)).
Of course, condemning agencies such as governments and utilities are not prevented from engaging in standard purchases outside the use of property takings and eminent domain. For instance, an energy company can purchase desks or negotiate for the purchase of office space unrelated to infrastructure projects or the use of eminent domain. Those basic purchases do not in any way implicate the acquisition of property under the broad sweeping eminent domain authority provided to condemning agencies. See MCL 213.52(2); Frankenlust Lutheran, 269 Mich App at 576 (explaining that the UCPA prescribes “the manner in which just compensation for the taking of private property is to be ‘made or secured’” (quoting MCL 213.55(1)). In the cases that involve informal negotiations and option contracts offered by acquisition agents, the properties subject to purchase are necessary parts of a future and incoming infrastructure project, unrelated to arms-length purchases for basic operations. If the property owner refuses to voluntarily agree to terms for the sale of the property, the government or utility will foreseeably use eminent domain to secure the properties. In fact, the condemning agency may even be in the process of obtaining regulatory approval for the use of eminent domain for the project while it engages in informal negotiations.
In all, the practice of sending acquisition agents to negotiate the purchase of private property as part of a government or utility’s eminent domain project, without first completing an appraisal and complying with the good faith offer requirements of UCPA, presents serious questions both legally and in the practical administration of eminent domain. Those concerns extend to cases where utilities negotiate with property owners for option contracts ahead of an incoming infrastructure project, for which the utility or government can reasonably foresee the use of eminent domain if the owner declines to voluntarily sell the property.
However, the question of whether this practice complies with the UCPA has not been directly resolved by courts. The UCPA unambiguously requires the provision of a good faith offer prior to the initiation of negotiations for the purchase of property, and Michigan courts have repeatedly acknowledged the good faith offer as a basic requirement underpinning the UCPA. See Shankle, 327 Mich App at 414-15 (citing Frankenlust Lutheran, 269 Mich App at 572); 7631 Lewiston, 237 Mich App at 49-50 (discussion in the context of attorney fees). The good faith offer sets the groundwork for defined, organized, and fair proceedings for the taking of private property by governments and utilities. Without it, the informed consent and intelligent participation of lay property owners would be in serious jeopardy. Further litigation and legal development are required before this question is fully settled.
IV. Remedies and Responses
Without any judicial decision directly rejecting this practice, what can be done? That is an even more challenging question. Once individuals have signed an agreement with a condemning agency, their rights to additional compensation under the UCPA may be lost. It may be difficult for property owners to even obtain an attorney to represent them, given that the reimbursement provisions under the UCPA may not apply and the ability to recover additional compensation may be uncertain.
That being said, there could be a colorable argument that a violation of the good faith offer requirement demands voidance of the resulting contract as a derogation of public policy. In determining whether a contract violates public policy, courts can consider the policies advanced by legislatively enacted statutes. See Terrien v Zwit, 467 Mich 56, 66-71 (2002). Nonetheless, the burden of proving a violation of public policy remains very high. Id. In recent years, however, the Michigan Supreme Court has shown a much greater openness to claims reliant upon public policy theories. See, e.g., Soaring Pine Capital Real Estate v Park Street Group, 511 Mich 89, 102-27 (2023) (discussing public policy in the usury context in broad and extended terms); Stegall v Resource Technology Corporation, --- NW3d --- (2024) (establishing new, broad exceptions at will employment under various federal and state statutes).
To prevent uncertainty and to protect property owners who were not provided the opportunity to review a good faith offer, it may be superior if the Legislature addressed these concerns through amendments to the UCPA. Action from the legislature would have the added benefit of placing public policy decisions in the hands of the branch of government in the best position to make policy judgments. An amendment could state that agreements for the purchase of property attendant to a foreseeable eminent domain project and made without the provision of a good faith offer are voidable at the election of adversely the affected property owner. The Legislature could narrow the scope of the voidability provision to allow the agency to retain land necessary for an incoming or ongoing project while allowing the property owner to seek additional just compensation under standard UCPA proceedings.
Further, the UCPA should be amended to clarify expressly that violations of the good faith offer requirement through the use of informal offers can subject the utility or government to court sanctions, even if the property owner did not ultimately agree to the offered terms. The UCPA prohibits “coercive” conduct on the part of condemning agencies, and the failure to provide a valid good faith offer prior to negotiations could certainly be classified as coercive, especially for unsophisticated owners. MCL 213.74. However, the UCPA does not clearly delineate legal consequences for engaging in negotiations without a good faith offer, nor does the statute expressly condone the use of court sanctions. Such sanctions may already be permitted under the inherent authority of the court through the interest in ensuring compliance with the law, good faith, and fair play. Tolas Oil & Gas Exploration Co v Bach Serv & Manuf, LLC, --- NW3d ----, Case No 359090 (Mich Ct App 2023) (noting court’s inherent authority to respond to misconduct and unfair litigation practices, and the “discretion to fashion any remedy . . . that promotes fairness and justice” (quoting Brenner v Kolk, 226 Mich App 149, 160 (1997)). Nonetheless, to effectively reduce the occurrence of this practice, it would be best for the UCPA to state explicitly that engaging in land purchasing negotiations without the provision of a good faith offer could subject condemning agencies to sanctions.
The use of acquisition agents to approach and negotiate with lay property owners to facilitate purchases of land outside of official condemnation proceedings and without the provision of a written good faith offer is deeply concerning. The practice undermines the balanced and organized system of the UCPA. To the extent possible, the recognized process of notice, informed consent, and a level playing field that is embodied in modern condemnation law should be reasserted. The use of informal negotiations, outside the protections and oversight of official condemnation procedures, should be reduced if not eliminated.
