On December 7, 2023, the Arizona Court of Appeals held in State of Arizona v. Foothills Reserve Master Owners Association, Inc. that 589 homeowners in an Ahwatukee subdivision were not entitled to “proximity damages” after the State of Arizona condemned their easement interests in the subdivision’s common areas.1
Located at the base of South Mountain, the Foothills Reserve subdivision is comprised of 590 single-family homes.2 When established in 2001, the subdivision was bordered by two undeveloped desert parcels (one to the east and one to the west), both of which were owned by the Foothills Reserve Master Owners Association, Inc. (the “HOA”) and used by the homeowners as common areas (the ''Common Areas'').3 Although the Common Areas were owned by the HOA, each homeowner enjoyed a positive easement to use the Common Areas and a negative easement to ensure the Common Areas were preserved as open space.4
In 2017, the State of Arizona (the ''State''), via the Arizona Department of Transportation (''ADOT''), condemned the Common Areas to construct an expansion for the South Mountain Freeway.5 This taking was permissible under the State’s power of eminent domain, which allows the government to take private property and convert it into public use (such as a freeway), so long as the government provides “just compensation” to the owner of the property.
Having lost the right to use and enjoy the Common Areas, the homeowners filed suit against the State, seeking compensation for the taking of their easement interests.6 There was no dispute that the homeowners were entitled to compensation for the value of their lost easement interests. ADOT indeed conceded that compensation was due to the homeowners for the value of the easement interests they lost (by comparing the value of their homes with the easements and the value of the homes without the easements). However, the parties disagreed on whether the homeowners should also be awarded proximity damages, a form of severance damages.7
Severance damages arise when the property sought to be condemned is “part of a larger parcel.”8 In other words, these are damages to the portion of land not being condemned by reason of its severance from the condemned land.9 This case hinged on proximity damages, which compensate property owners for the loss in value to their remaining property due to its “proximity” to a proposed improvement (e.g., a newly constructed freeway).10
Here, the homeowners argued they should be awarded proximity damages because of the proximity of their homes to the South Mountain Freeway, which resulted in “noise, pollution, loss of view, and unsightliness.”11 The Superior Court agreed with the homeowners, explaining that the damages consisted of the difference in value to the homes before and after the State condemned the easement interests.12According to the Superior Court, this type of before and after analysis is the “essence of severance damages” and proximity to the freeway is a relevant consideration in awarding damages.13 ADOT disagreed. The Superior Court preserved the State’s right to appeal the issue of proximity damages, noting that if the Court of Appeals declined to authorize an award for proximity damages, the State would only be liable for $6 million to compensate the homeowners.14 On the other hand, if the Court of Appeals authorized an additional award to the homeowners for proximity damages, the State would be liable for an additional $12 million.15
The homeowners raised two main arguments on appeal. First, because severance damages are only appropriate when the condemned land is part of a “larger parcel,” the homeowners argued their positive and negative easements represented the “property sought to be condemned” and their homes represented the larger parcel.16 The court rejected this argument, explaining that the plain language of the statute makes clear that the “property sought to be condemned must be a smaller parcel.”17 The court explained that because an easement is not a “parcel” of land, the homeowners were not entitled to proximity damages as matter of statutory construction.18
The homeowners next argued they should be awarded severance damages because their homes were severed from the Common Areas, which represented the “larger parcel.”19 The court similarly rejected this argument, noting that “severance damages are available only if the claimant owns the larger parcel from which a smaller parcel is condemned.”20 Although the individual homeowners had easement interests in the Common Areas, the Common Areas were owned by the HOA, not the homeowners.21 Accordingly, the homeowners were not entitled to proximity damages — not having any “ownership” in the Common Area parcels — and the court, thus, remanded the case for entry of a new judgment without severance (proximity) damages.22
This case illustrates some of the important issues that arise in the context of eminent domain. Parties should be careful to distinguish between the different types of interests in land and the implication those interests may have in condemnation proceedings. In this case, the difference between an easement interest and fee simple ownership resulted in a $12 million difference in damages. Although not always obvious, severance damages are important to consider and can significantly increase the amount of compensation owed to property owners for takings of land. As the Phoenix metropolitan area continues to grow, so will the need for infrastructure and development, making it important for property owners to understand the nuances that can arise in eminent domain cases.
Footnotes
1. State v. Foothills Rsrv. Master Owners Ass’n, Inc., No. 1 CA-CV 22-0371 (Ariz. Ct. App. Dec. 7, 2023). [Back]
2. Id. ¶ 3. [Back]
3. Id. South Mountain Park and Preserve bordered the community to the north, creating desert space on three sides of the community — the east, west, and north. [Back]
4. Id. ¶ 4. [Back]
5. Id. ¶ 5. [Back]
6. Id. ¶ 7. [Back]
7. Id. [Back]
8. Id. ¶ 15 (citing A.R.S. § 12-1122(A)(2)). [Back]
9. Id. [Back]
10. Id. ¶ 16. [Back]
11. Id. ¶ 6. [Back]
12. State v. Foothills Rsrv. Master Owners Ass’n Inc, No. CV 2017-010259, at *6 (Ariz. Super. Ct. July 2, 2019). [Back]
13. Id. [Back]
14. Foothills Rsrv. Master Owners Ass’n Inc., No. 1 CA-CV 22-037, *¶ 8. [Back]
15. Id. [Back]
16. Id. ¶ 18. [Back]
17. Id. ¶ 19. [Back]
18. Id. ¶ 21. [Back]
19. Id. ¶ 23. [Back]
20. Id. [Back]
21. Id. [Back]
22. Id. ¶ 25. [Back]
