Where the administration and the owner of immovable property fail to agree on a price during purchase negotiations, the route taken so that the real value of the property is established by the court and ownership is registered in the name of the administration against that value is the action for the determination of expropriation compensation and registration.
Two principles lie at the core of expropriation law: protection of the owner’s right to property, and the rule that expropriation may be carried out only by paying the real consideration in advance. For that reason, where no settlement is reached, neither party is permitted to fix the value of the property unilaterally; the compensation must be determined by the court, through independent experts, according to objective criteria. The purpose of the arrangement is to strike a legal balance between the public interest and the right to property.
In this briefing note we examine, in systematic fashion, the legal character of the action, the preconditions required, the criteria taken as a basis in determining the compensation, the conduct of the proceedings and the procedural rules governing payment of the compensation.
Character and Basis of the Action
The action for determination of compensation and registration forms the mandatory judicial stage of the process by which the State or other public legal entities take private immovable property where the public interest so requires. Recourse is had to it where the administration has been unable to acquire the property consensually by way of purchase, and the expropriation is thereby completed lawfully.
The function of the action is not confined to transferring ownership to the administration; it also ensures that the real value of the property is determined by an independent judicial authority. In this respect the action is regarded as one of the most important safeguards of the balance between the right to property and the public interest.
Definition
The action for determination of compensation and registration is an action brought, where the administration conducting the expropriation has been unable to acquire the property by way of purchase, in order that the real value of the property be determined by the court and that ownership be registered in the name of the administration against payment of that compensation.
Passing through this stage is essential if the expropriation is to be concluded. The administration may not bring an action directly without having duly operated the settlement procedure and without that procedure having proved fruitless.
Legal Basis
The action rests both on a constitutional safeguard and on the provisions of a special statute.
Under Article 46 of the Constitution, expropriation may be carried out solely for reasons of public interest and on condition that the real consideration for the property is paid in advance. This provision is the constitutional basis for the compensation being determined by the court.
Article 10 of the Expropriation Act No. 2942, for its part, governs the administration’s obligation, where no settlement is reached, to bring an action before the Civil Court of First Instance at the place where the property is situated, the determination of the compensation by judicial means, and the registration of the property in the name of the administration.
Circumstances Requiring the Action to Be Brought
Not every expropriation process ends in a court judgment; where agreement cannot be reached at the administrative stage, however, recourse to the courts is unavoidable. The action in question is not a free choice on the administration’s part but a route that must be taken once the mandatory procedures laid down by the statute have been completed.
Failure to Reach a Settlement
Under Act No. 2942, where the administration wishes to expropriate a property it must first operate the purchase procedure (settlement). In that context a valuation commission constituted by the administration establishes the value of the property and the owner is invited to negotiate.
The situations in which a settlement is deemed not to have been reached and the matter proceeds to the litigation stage are as follows:
- The administration does not accept the counter-offer submitted by the owner
- The owner does not attend the negotiation at all
- The compensation offered is rejected by the owner
In these cases the record of non-settlement drawn up demonstrates that the fundamental condition required for the action to be brought has been satisfied.
The Necessity of a Court Judgment for Transfer of Ownership
Since the Constitution and the statutes safeguard the right to property, the administration cannot, so long as it has not reached agreement with the owner, transfer ownership of the property to itself and have it registered in the land registry by a mere administrative decision.
Contrary to the widespread belief, this action is not brought by the owner of the property. It is an action which the administration conducting the expropriation is obliged to bring. In order to acquire ownership the administration is required both to bring the action and to deposit the compensation determined by the court with a bank in the name of the owner.
Preconditions of the Action
Whether a property may be made the subject of this action depends on the administrative process laid down by the statute having been completed in full. The action is not a route the administration may take whenever it wishes, but a mandatory judicial stage that may be operated only where certain conditions are met.
Before entering into the merits the court reviews the existence of these preconditions of its own motion (ex officio). The absence of one of the conditions may lead to the action being dismissed on procedural grounds and may also render the expropriation act unlawful.
A Public Interest Decision Having Been Taken
The first and fundamental condition of expropriation is that the act rest on the public interest. Before the process can be commenced, a duly adopted public interest decision must have been taken by the competent administrative authority and the approval formalities must have been completed.
Funds Having Been Allocated
Before expropriation may be embarked upon, the administration must have allocated in its budget the funds needed to meet the estimated compensation for the property to be expropriated. This obligation is an important safeguard both for the protection of the right to property and for ensuring that the process is conducted seriously.
Carrying out an expropriation, or bringing an action, within the framework of a project for which no funds exist amounts to an unnecessary restriction of the right to property and is regarded as unlawful.
The Purchase Procedure Having Been Exhausted
The most critical condition for bringing the action is that the administration has attempted the purchase procedure and has been unable to obtain a result.
Article 8 of the Expropriation Act No. 2942 imposes a three-stage obligation on the administration: to serve an invitation to settle on the owner, to conduct negotiations on the value of the property, and, where no agreement is reached, to record that outcome by means of a record of non-settlement.
For that reason, the due completion of the settlement process is a mandatory condition for the action to be brought.
The Property Being Amenable to Expropriation
Expropriation may be carried out only in respect of immovable property in private ownership. Public property such as pastures and common assets cannot be made the subject of expropriation; for these, different administrative methods such as a change of allocation are used.
Determination of the Compensation
The expropriation compensation is not a figure assessed unilaterally by the administration. It is the real value established by the court, through independent experts, within the framework of the objective criteria laid down by the statute. The fundamental principle of expropriation law is that the owner’s right to property be protected and that expropriation be carried out only by paying the real consideration in advance.
For that reason, in determining the compensation the real value of the property in line with market conditions is taken as a basis, and the valuation is conducted in accordance with specific legal criteria.
The Basic Principle: Real Value
Pursuant to Article 46 of the Constitution, expropriation may be carried out only on condition that the real consideration for the property is paid in advance. The principle taken as a basis in determining the compensation is therefore the establishment of the real and current value of the property as at the date of the action.
What is decisive here is not the past value of the property or the estimated figure envisaged by the administration, but its market value as at the date on which the action was brought. In establishing that value the court relies on the report of a panel of experts composed of technical specialists.
Criteria Observed in the Valuation
In determining the compensation, the objective criteria set out in Article 11 of the Expropriation Act No. 2942 are applied. Although these criteria differ according to the nature of the property, they generally cover the following elements:
- The type and nature of the property
- Its surface area
- Its location and transport links
- Its zoning status
- Its manner of use
- Comparable sales
- Its income position and economic potential
- The features of any structures or facilities on it
- The land share and use value
- Other objective factors affecting the value of the property
The court assesses the expert report, determines the real value and orders the registration of the property in the name of the administration on condition that this compensation is deposited with a bank in the name of the owner.
Difference in Method According to the Plot and Land Distinction
Whether the property is in the nature of a building plot or of land alters the valuation method to be applied.
Properties in the Nature of Building Plots
For building plots the value is as a rule found by the comparable sales method. In operating this method the sale values of similar properties in the same area are examined, the location and the particular characteristics of the parcel are taken into account, and a value in line with market rates is thereby reached.
Properties in the Nature of Land
For land, by contrast, the income method is predominantly used. In the calculation, the agricultural production capacity of the property, the annual net income it generates, the characteristics of the soil, the availability of irrigation and crop yield are assessed together.
The Value of Structures and Trees
Where there are buildings, facilities or trees on the property that is the subject of the expropriation, their value is also included in the compensation.
In carrying out separate valuations in this context, the age and state of use of the structures, the quality of the construction, the depreciation allowance, and the species, age and yield of the trees are taken into account.
Factors Not Taken into Account in the Valuation
In determining the compensation, certain factors are deliberately left out of account. The purpose is to safeguard the objective establishment of the real value.
By way of example, increases in value arising after the expropriation decision, rises in value that will arise on account of the investment to be made by the administration, speculative transactions subsequently entered into by the owner and probable gains expected to be obtained in the future are not taken into account.
Parties to the Action
Unlike many other actions, the action for determination of compensation and registration is one that may be brought only by certain persons and directed only against certain persons. The parties are the administration carrying out the expropriation and the owner or the holders of rights over the property.
Correct identification of the parties is of great importance if the proceedings are to be conducted soundly.
Claimant: The Administration Carrying Out the Expropriation
The capacity of claimant in the action belongs to the administration performing the expropriation act.
That administration may be one of the following public legal entities:
- Ministries
- Municipalities
- Special provincial administrations
- The General Directorate of Highways
- The General Directorate of State Hydraulic Works
- Public legal entities such as electricity distribution companies
Contrary to what is frequently misunderstood, the action is one that must be brought not by the owner of the property but by the administration conducting the expropriation.
Respondent: The Owner and Other Rightholders
On the respondent side stand the owner of the property subject to expropriation and the persons holding a right in rem over the property.
The persons who may hold that capacity are as follows:
- The registered owner of the property
- Co-owners in the case of joint ownership in shares
- Co-owners in the case of collective ownership
- The holder of a usufruct
- The holder of a right of superficies
- The holder of an easement
- The holder of a pledge or mortgage
Particularly in the case of properties subject to joint ownership in shares or collective ownership, all rightholders must be present in the action as parties. Otherwise the legal validity of the judgment to be given may become a matter of dispute.
Conduct of the Proceedings
The proceedings begin with the action being brought before the court with subject-matter and territorial jurisdiction, continue with service and publication formalities, proceed with an on-site examination and expert inspection, and conclude, once the compensation has been determined and deposited with a bank, with the registration of the property in the name of the administration.
Courts with Subject-Matter and Territorial Jurisdiction
Court with subject-matter jurisdiction: In an action for determination of compensation and registration, jurisdiction lies with the Civil Court of First Instance.
Court with territorial jurisdiction: This is the court of the place where the property subject to expropriation is situated. This rule of jurisdiction is mandatory in character and cannot be altered by agreement between the parties.
Service, Publication and the Preclusive Period
Once the action has been brought, the court arranges for service on the owner and the other rightholders. Where the address is unknown, notification is effected by way of publication in a newspaper. Service and publication formalities are among the most critical links in the process, because it is only through such notification that the owner is able to exercise the legal remedies available against the expropriation.
Preclusive period: The owner must bring an action for annulment of the expropriation act before the administrative courts within 30 days of the date of service or publication effected by the court.
That period is preclusive in character; if no action is brought within time, the possibility of bringing an action for annulment against the expropriation act is lost.
Expedited Procedure and the Four-Month Period
Departing from many other civil actions, this action is subject to the expedited procedure. The purpose of the arrangement is twofold: that the owner receive the compensation without delay, and that public investment not be needlessly held up.
The court is therefore obliged to conclude the proceedings within the shortest possible time.
The Four-Month Period and the Application of Interest
Under the Expropriation Act No. 2942, if the action is not concluded within 4 months of the date on which it was brought, statutory interest runs on the compensation determined from the date on which the 4th month expires until the date of the judgment.
This interest is a right arising from the statute; it need not be claimed separately and is applied by the court of its own motion.
On-Site Examination and Expert Inspection
In order that the real value may be established, the court appoints a panel of court-appointed experts composed of specialists. The panel carries out an on-site examination at the place where the property is situated and inspects on the spot the nature, location and state of use of the property and the other factors affecting its value.
The value arrived at as a result of the inspection is set out in a report and submitted to the court. The report is then served on the parties and they are afforded the opportunity to object.
The matters on which the parties may object include calculation errors in the report, the comparable sales selected, the valuation method adopted and the technical findings.
The court assesses the objections and may, where necessary, obtain a supplementary report or a fresh expert report. Following all these assessments the expropriation compensation is definitively determined.
Deposit of the Compensation with a Bank
Once the expropriation compensation (and any balance) has been determined by the court, the administration is given a strict time limit within which to deposit that sum with a bank in the name of the owner. This stage serves as a statutory "block" so far as the change of ownership is concerned.
- Time limit and procedure: The court affords the administration, as a rule, a period of 15 days for the compensation to be deposited. Upon the administration’s request and where justified grounds exist, this period may be extended once. If the deposit is not made within the periods granted, the court may dismiss the action.
- Accrual of interest: So that the sum deposited does not lose value until the action is concluded, the court instructs the bank to hold the money in an interest-bearing term account. The owner thereby also receives the accrued interest when withdrawing the money.
- Mandatory condition: Deposit of the compensation with the bank in full is an indispensable condition if the expropriation is to be completed. By virtue of the Constitution’s principle that the consideration be paid in advance, no registration order may be made without the deposit having been carried out.
The Registration Order and Payment of the Compensation
Once the court has confirmed that the compensation has been deposited with the bank in the name of the owner, it gives judgment in the action. This judgment is the final stage, effecting both the passing of ownership into public hands and the payment of the compensation to the owner.
- Registration of the property in the name of the administration: Upon the judgment, the land registry entry for the property is cancelled and the property is registered in the name of the administration. The Land Registry Directorate carries out this transaction of its own motion on the basis of the court’s notification.
- Payment of the compensation to the owner: The court orders that the sum deposited with the bank be paid to the owner. The owner may collect the money by applying to the relevant bank branch with the payment letter or the reasoned judgment obtained from the court.
The most critical advantage for owners here is this: payment of the expropriation compensation does not await the judgment becoming final.
Costs of the Proceedings and Legal Fees
Court fees and costs
In these actions the court fees and the costs of the proceedings are as a rule borne by the administration carrying out the expropriation. Since the owner of the property is not the party bringing the action, no separate obligation to pay court fees arises for the owner by reason of the action.
Legal fees
If the compensation determined by the court exceeds the sum offered by the administration at the settlement stage, the court may award legal fees in favour of the owner calculated on the difference.
Appeals
The parties have the right to appeal against the judgment given in an action for determination of compensation and registration. An appeal may be lodged within 2 weeks of service of the judgment. Against the decision given following the appeal examination, an appeal on points of law is available where the conditions are met.
As Regards the Compensation
If the parties consider the expropriation compensation determined by the court to be erroneous, they may lodge an appeal and an appeal on points of law.
Within that framework, arguments to the effect that the value of the property has been assessed as too low or too high may be made the subject of appellate review.
As Regards the Registration
Under the Expropriation Act, the registration order given by the court is final.
No appeal may therefore be lodged against the ruling on registration of the property in the name of the administration. Nor does the lodging of an appeal suspend either the registration or the payment of the expropriation compensation.
Independent Legal Assessment
In this type of action the owner’s position appears passive at first sight; the administration brings the action, the registration order is final and the process is subject to the expedited procedure. In practice, however, the real contest that determines the outcome is fought over the expert report. Technical choices such as the selection of comparables, the capitalisation rate, the depreciation allowance and the way the zoning status is read can alter the compensation to a considerable degree.
The second critical point is that two separate branches of the judiciary operate in parallel. If the 30-day preclusive period running from the date of service or publication is missed, the unlawfulness of the expropriation act can no longer be argued; all that remains is the dispute over the compensation. Setting this timetable up from the outset is decisive for the course of the file.
The headings to be observed in a concrete dispute are as follows:
- Reviewing whether the settlement stage was conducted in due form
- Examining whether the public interest decision and the requirement of allocated funds are documented in the file
- Meeting the comparables and the valuation method in the expert report with technical support
- Checking that all holders of rights in rem over the property have been joined to the action
- Reviewing the calculation of interest where the four-month period has been exceeded
- Scheduling the 30-day annulment period before the administrative courts by reference to the date of service
Independent Legal provides advisory services and litigation management throughout the entire process in expropriation disputes, from settlement negotiations to actions for increased compensation and for annulment.