Supreme Count Ruling Increases Costs and Complexity of Redevelopment
By: CHRISTOPHER J. DOLAN
August 2006
The Minnesota Supreme Court’s recent decision in Wren v. HRA of City of Richfield requiring the City of Richfield to pay relocation benefits to a residential property owner may increase the cost and complexity of redevelopment projects.
Richfield, through its Housing and Redevelopment Authority (“HRA”), initiated efforts to redevelop a “blighted and substandard” area within the city. In January of 1999, the HRA contracted with a private developer to develop the area with a mixture of residential, retail and office structures. The contract required the developer to diligently pursue property acquisitions through negotiation. If negotiations failed, the developer could ask the HRA to “undertake condemnation,” and the HRA agreed that it would make good faith efforts to acquire such property. The developer was responsible for any acquisition costs, relocation benefits, and assistance provided as a result of the development. In November of 1999, Wren purchased a residence within the redevelopment area for $116,900 without any knowledge of the redevelopment efforts.
In 2002, Richfield established a TIF district to finance the project. A real estate broker hired by the developer contacted Wren to negotiate the purchase of his property. The broker submitted a purchase agreement to Wren for $170,000 that stated Wren was waiving any claim to relocation benefits. Wren negotiated a $10,000 increase that the broker testified related to moving costs. After closing on his property, Wren claimed relocation benefits from the HRA. The Supreme Court analyzed the issue under the Minnesota Uniform Relocation Act (“MURA”), which provides that the acquiring authority, as a cost of acquisition, must provide any relocation assistance required by the Uniform Relocation Assistance in Real Property Acquisitions Policy Act of 1970. The Court determined that the HRA had, in fact, undertaken acquisition of Wren’s property. The HRA was contractually obligated to use its eminent domain powers to acquire the property if private negotiations failed, and its frequent communications with property owners made it clear that the purchase price would be determined through condemnation if they did not agree to a negotiated price. By initiating the project, controlling the developer, encouraging property owners to negotiate with the developer, providing financing to make the purchase possible, and, most importantly, assuring the developer that its power of condemnation was available, the HRA became an important partner in the acquisition. In addition, the Court determined that Wren’s waiver of relocation benefits was ineffective because the HRA failed to comply with certain statutory requirements.
To avoid paying relocation benefits, cities will have to be very careful not to become actively involved in the redevelopment process. A city must allow the developer to deal directly with property owners and not commit to use its eminent domain powers, even though this approach will make it much more difficult and expensive for developers to acquire property for redevelopment.