Clients Prevail on Damages in Encroachment Case: Remand to Decide Whether Building Must Be Removed

Lommen Abdo lawyers Kay Nord Hunt and Michael Moline recently won a real estate boundary dispute case that provides new precedent for analyzing trespass damages related to encroaching buildings. The Minnesota Court of Appeals clarified the relief available for trespass and upheld an award to Lommen Abdo’s client totaling more than $1.2 million, including $400,000 in prejudgment interest.

The dispute started with what should have been a straight-forward commercial development project. RTB purchased a two acre parcel at the corner of Highway 101 and 90th Street in Otsego, Minnesota. RTB planned to maximize the lot’s visibility and access to build a stand-alone retail store. Unfortunately, before RTB could begin construction, a neighboring property owner built an office building that encroached 18 feet onto RTB’s property. Soon after the encroachment was discovered, Minnwest Bank foreclosed on the building and found itself in possession of a building that straddled two properties. RTB found itself in possession of a lot that could now only be used for a relatively small office building. Minnwest initiated a declaratory judgment action against RTB to determine how to resolve the encroachment.

Minnwest argued that it was entitled to resolve the encroachment by forcing RTB to sell the land its building occupied. Minnwest further argued that it should only have to pay the fair market value of the land its building occupied – an amount it contended was between $35,000 and $50,000. RTB objected to the forced sale of its property and demanded the encroaching building be removed. RTB argued that if the court did not order removal of the building from its land, then it was entitled to be compensated for the value of its property that was lost due to the encroachment, not just the value of the land being taken.

The Minnesota Court of Appeals ruled in RTB’s favor. It held that if RTB sold the disputed land to Minnwest, it was entitled to the value of the remaining property that was lost due to the encroachment (diminution-in-value damages) plus the value of the property being sold to cure the encroachment (conveyance damages) together with the carrying costs for the disputed property and the administrative expense to complete the property. The Court upheld an award of $638,434 for the diminished value of the lot, $100,563 in conveyance damages, $12,000 in administrative expense and $19,905 in carrying costs. The court also determined that RTB was entitled to prejudgment interest totaling more than $400,000 – for a final award of more than $1.2 million.

Significantly, the Court of Appeals also found that RTB had the right to demand the encroaching building be removed. The Court remanded the case to the trial court with instructions to consider a three part test: whether the encroachment irreparably harmed the neighbor’s property, whether the encroachment was innocently made, and whether the cost of removal would be great compared to the inconvenience caused by continuance of the encroachment.

The Court of Appeals noted that the precedents relating to trespass of encroaching buildings is sparse and dates back to the 1890s. The ruling in RTB will likely be used to establish damages for trespass and resolve encroachments over boundary lines.