Eminent Domain & Taking Issues

Nixing Dix: North Carolina Legislature Proposes Law to "Condemn" Its Own Land Lease With Municipality

The Dorothea Dix Hospital Campus in Raleigh, North Carolina used to house the State’s oldest mental health hospital.  The Hospital closed in 2012, at which point the State and the City of Raleigh entered into a lease for the 325-acre property a rate to the City of $500,000 per year, plus a compounded 1.5 percent increase each year to account for inflation.  The lease is to be valid for the next 75 years, with a one-time 24-year extension possible.  Just on the lease, alone, the deal is worth $68 million to the State over the 75-year life of the lease.  This does not account for the value to the State of a significant park in its Capital City, including economic impact.

City leaders referred to a planned “destination park” on the Campus, hailing the approval and execution of the lease as “an historic step that clears the way for Raleigh to begin planning its own version of Central Park on the leafy, rolling grounds of the former psychiatric hospital.”

Do you think Sondheim would write a musical about Dix Park?

Not so fast.  

The State Senate has introduced a Bill, Senate Bill 334, with the express and sole purpose of voiding the lease between the State and the City of Raleigh.  According to reports, the main arguments against the lease–and in favor of Senate Bill 334–are that (1) the lease doesn’t provide the state with a fair return on the fair market value of the property and (2) the lease would end up costing taxpayers money because state Department of Health and Human Services offices at the site would have to be moved.  

It’s not that the State Senate is opposed to a park.  Of course not.  Rather, the proposed legislation calls for the lease to be renegotiated at a fair-market price, with the proceeds designated for mental health programs. Also, DHHS would be allowed to maintain its offices on part of the site.

Ok, but what about the fact that the State legislature both has the power to and appears perfectly willing to undo a contract into which the State entered at arm’s length?  Also, the legislation is properly entitled “An Act to Condemn the Leasehold Interest …”.  Is this a proper use of the State’s eminent domain powers?  If so, is just compensation required and what is the measure just compensation?  Are constitutional prohibitions against the impairment of contracts involved?   

We’ll anticipate and cover the imminent lawsuit.

Mike Thelen practices in Womble, Carlyle’s Real Estate Litigation and Land Use practice group. He regularly represents a wide variety of clients, from local governments to businesses, in land use and land development matters in both state and federal venues throughout North Carolina.  Follow the North Carolina Land Use Litigator on Twitter at @nclanduselaw.

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