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49 CFR 24 - Non-Regulatory Supplements

Subpart B - Real Property Acquisition Acquisition Of Tenant Owned Improvements

Federal-Aid Policy Guide
February 16, 2006, Transmittal 35
NS 49 CFR 24B
Section 24.105

Non-Regulatory Supplement

  1. LANDOWNER NOTICE TO VACATE TO OWNER(S) OF TENANT-OWNED IMPROVEMENTS (49 CFR 24.105(a)). When the owner(s) of land know that it is to be acquired under Title III of the Uniform Act, notice should not be issued requiring the owner(s) of tenant-owned improvements to vacate the premises prior to the acquisition of the property by the acquiring agency. Such action is considered to be an attempt to circumvent the rights and entitlement of the tenant-owners under Title III of the Uniform Act.

  2. TENANT-OWNED IMPROVEMENTS WITH NO RIGHT OF REMOVAL (49 CFR 24.105(a)). To be covered by Section 302(b) of the Uniform Act, a tenant must have an ownership interest in property to be acquired. The interest of a tenant who constructs an improvement on leased land, but does not have the right to remove it, will not be covered by this section of the Uniform Act. A tenant must have an ownership interest and ownership interests must be determined in accordance with State law. In the absence of proof of ownership and a disclaimer by the landowner, a tenant-owner's recourse is with the property owner, assuming there is no subsequent agreement on ownership and a disclaimer by the property owner after negotiations have started.

  3. REFUSAL TO MAKE OFFER FOR TENANT-OWNED IMPROVEMENTS IS COERCIVE ACTION (49 CFR 24.105(a)). Refusal by the acquiring agency to make an offer to acquire buildings, structures, or other improvements of a tenant-owner when the fee to the land is being acquired constitutes a coercive action under Section 301(7) of the Uniform Act. Presuming that the buildings, structures, or improvements meet the tests prescribed in Section 302(a) of the Uniform Act (i.e., that they must be removed from the real property, or that they will be adversely affected by the use to which the real property will be put and the owner is willing to disclaim all interest in the improvements of the tenant), failure to offer to acquire them would be: (1) a violation of the law, (2) a coercive act on the part of the acquiring agency, and (3) a potential cause for the filing of an inverse condemnation action. The provisions of Section 302(a) of the Uniform Act apply to all buildings, structures, and improvements, regardless of their ownership.

  4. WRITTEN OFFER OF JUST COMPENSATION TO LANDOWNER AND OWNER OF TENANT-OWNED IMPROVEMENTS (49 CFR 24.105(a)). Tenant-owners are entitled to a written offer and summary statement. However, the content of the offer will vary depending upon the landowner signing a disclaimer, or recognizing the existence of a leasehold interest. If a disclaimer has been signed because there is agreement as to ownership interests, the tenant-owner's offer would cover only his/her interest with the same principle applying to the landowner. The offer of just compensation and summary statement should reference the requirements of Section 302(b)(2) of the Uniform Act, i.e., the landowner's disclaimer and the tenant-owner's assignment of ownership rights. In the case of a leasehold interest where the tenant does not own any buildings, structures, or improvements, State law would govern whether the tenant would be entitled to a written offer and summary statement.

  5. VALUATION PREMISE FOR TENANT-OWNED IMPROVEMENTS (49 CFR 24.105(c)). When estimating the value of tenant-owned improvements, value in place and contributory value are essentially the same. The following procedure is used to estimate the value of tenant-owned improvements:

    1. Determine highest and best use of the property and then allocate value of tenant-owned improvements from the value of the whole.

    2. Consider full value or interim use value of tenant owned improvements as follows:

      1. full contributory value in place of building, structure, or other improvements for their remaining economic life when such building, structure, or other improvements are consistent with the highest and best use of the land;

      2. interim use value of the buildings, structure, or other improvements which is not the highest and best use of the land for a specific time period longer than the lease term (include present worth of salvage value); or

      3. value in place of the building, structure or other improvement, plus the present worth of the salvage value at the end of the lease term.

    3. Specialty reports should be obtained for the valuation of items not readily measured in the marketplace.

    4. In instances where a situation may not fit accepted appraisal guidelines/techniques, an administrative settlement may be used with a written justification and explanation.

  6. TENANT-OWNER RETENTION VALUE OF IMPROVEMENTS (49 CFR 24.105(c)). When the contributory value of a tenant-owned improvement exceeds its salvage value, a tenant-owner may elect owner retention and be paid the difference in the two values.

  7. ALLOCATION OF VALUE TO TENANT-OWNED PROPERTY (49 CFR 24.105(c)). The appraiser or review appraiser must allocate separately owned property rights in his/her evaluation. State procedures should make both appraisers and review appraisers responsible for determining the existence of, and estimating the value of, any tenant-owned buildings, structures, and other improvements. The reviewer has the ultimate responsibility to see that the recommended or approved estimate of just compensation contains the appropriate allocation. The review and approval process should be the same, regardless of whether tenant-owned interests are involved.

  8. OWNER ACCOMPANIMENT DURING APPRAISAL INSPECTIONS (49 CFR 24.102(c)). The purpose of the Uniform Act is, in part, "To insure consistent treatment for owners." Therefore, all owners, whether part-owner, full-fee owner, or tenant owner, are covered by the provisions of Section 301(2) of the Act. For tenant-owners where buildings, structures, and improvements are not involved (such as a tenant-owned leasehold in realty), then the obligations to the tenant are a matter of State law.

  9. SALVAGE VALUE VS. VALUE FOR REMOVAL (49 CFR 24.102(c)). The fourth edition of "The Dictionary of Real Estate Appraisal," dated 2002, defines salvage value as "The price expected for whole property, e.g., a house, or a part of a property, e.g., a plumbing fixture, that is removed from the premises, usually for use elsewhere." Thus, salvage value and value for removal are considered to be synonymous.

  10. LANDOWNER DISCLAIMER OF TENANT-OWNED IMPROVEMENTS REQUIRED PRIOR TO PAYMENT TO OWNER OF TENANT-OWNED IMPROVEMENTS (49 CFR 24.105(d)). In acquiring properties with tenant-owned improvements, a payment may be made to a tenant-owner only after the landowner has provided a disclaimer of all interest in the improvements of the tenant and in consideration for any such payment, the tenant assigns, transfers, and releases to the acquiring agency all right, title, and interest in and to such improvements in accordance with Section 302(b)(2) of the Uniform Act. While the provisions of Section 302 of the Uniform Act do not necessarily apply to life estates or leaseholds when the value is created by a favorable rental rate, releases by the owner of the real property should be obtained prior to making payment directly to the tenant-owner in these instances. State law may govern how to proceed with such acquisitions.

  11. TENANT-OWNED LEASEHOLDS AND LIFE ESTATES (49 CFR 24.105(d)). Offers for tenant-owned improvements could include leaseholds or life estates of less than 50 years. Section 301 of the Uniform Act provides for payment of just compensation to any owner of real property. A leasehold interest (leasehold estate) and a life estate are legally recognized real property interests. If the leasehold interest has value because of a favorable rental rate, the lessee may be entitled to a written offer, along with the real property owner, depending on the requirements of State law. Such a leasehold interest in itself would not invoke the provisions of Section 302(b) of the Uniform Act itself. To be covered by Section 302(b), the tenant must have an ownership interest in physical property improvements.

Updated: 9/5/2014
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