What Is Eminent Domain?

Eminent domain is the power of the United States government, states, and municipalities to take private property for public use, following the payment of just compensation.

Key Takeaways

  • Eminent domain is the right of governments like the United States to usurp private property for public use, following fair compensation.
  • Everything from airspace, land, and contract rights to intellectual property is subject to eminent domain if a case can be made for its public use.
  • The legal debate surrounding unfair invoking of eminent domain, such as when property owners are not fairly compensated, is called inverse condemnation.

Understanding Eminent Domain

Eminent domain is a right granted under the Fifth Amendment of the Constitution. Similar powers are found in most common law nations. Called "expropriation" in Canada, "compulsory acquisition" in Australia, in the U.K., New Zealand, and Ireland eminent domain is known as "compulsory purchase."

Private property is taken through condemnation proceedings, in which owners can challenge the legality of the seizure and settle the matter of fair market value used for compensation. The most straightforward examples of condemnation involve land and buildings seized to make way for a public project. It may include airspace, water, dirt, timber, and rock appropriated from private land for the construction of roads.

Eminent domain can include leases, stocks, and investment funds. In 2013, municipalities began to consider using eminent domain laws as a way to refinance underwater mortgages by seizing them from investors at their current market value and reselling them at more reasonable rates. Congress passed a law prohibiting the Federal Housing Administration from finance mortgages seized by eminent domain in 2016. But it is still an issue that could undermine the mortgage market.

Because contract rights, patents, copyrights, and intellectual property are all subject to eminent domain, the federal government could, theoretically, use eminent domain to seize Facebook and turn it into a public utility to protect people's privacy and data.

Eminent Domain Abuses

The definition of what constitutes a public project has been expanded by the Supreme Court, from highways, trade centers, airport expansions, and other utilities, to anything that makes a city more visually attractive or revitalizes a community. Under this definition of public use, eminent domain began to encompass the interests of big business. General Motors took private land for a factory in the 1980s because it would create jobs and boost tax revenues.

Seizing land for private use has led to serious abuses. Most notoriously, Pfizer seized the homes of a poor neighborhood in New London, Connecticut in 2000 to build a new research facility. Americans were outraged to learn a city could condemn homes and small businesses to promote private development. While the Supreme Court upheld this ruling in 2005, several states passed new laws to protect property owners from abusive eminent domain takings. Long after the homes were bulldozed, Pfizer abandoned its plans, leaving behind a wasteland.

Inverse Condemnation

There is also legal debate about the debt of the government to fairly compensate those whose property or assets have been taken or impacted due to eminent domain. Private property owners have sued the government in proceedings called inverse condemnation, in which the government or private business has taken or damaged property but failed to pay compensation. This has been used to obtain damages for pollution and other environmental problems.

For example, electrical utilities can be found liable for economic damages caused by a wildfire they started. In another case, when the Army Corps of Engineers released a torrent from Houston's two reservoirs during Hurricane Harvey, houses were deliberately flooded, leading property owners to demand compensation under inverse condemnation.