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[Commercial Marketplace]

Does the State Own Your Shoreland Property?

BY LARRY J. SMITH
Graham & Dunn PC

Owners of western Washington marinas, shipyards, and shoreline industrial facilities may be surprised to learn that sections of their piers, docks or other marine structures that extend beyond extreme low tide may technically be the property of the state.

A bizarre legal "loophole" was exposed in a recent case in which the state attempted to avoid paying full value for a pier on property condemned for the state ferry system. The Washington constitution gives the state title to all "bedlands" (seafloor) seaward of extreme low tide. So, structures connecting an on-shore industrial operation to deep-drafted vessels may be owned by the upland property owner to the line of extreme low tide and by the state from that point seaward.

This fact affects the title to and the valuation of numerous permanent marine improvements that are used to distribute raw materials and finished products from Washington ports.

In 1957, the state initiated its Department of Natural Resources (DNR) lease program and required owners of facilities that utilized areas above state bedlands to cease using them or lease the bedlands from the state. Since the rates for this revenue generating program are normally well below probable private market value, the program has never caused significant controversy.

Without authorization to build on state land, a person could be treated as a trespasser, improvements made by a trespasser upon another person's land belong to the property owner.

Circumstances arise, however, where the upland property owner leasing adjacent DNR bedlands discovers that the state is a significantly different landlord than a private owner. The most glaring example occurs if the state or another party, such as a port district, initiates proceedings to condemn the shoreland property for public use.

The government must pay fair market value for condemned property. That value is normally calculated by benchmarking against comparable, recently sold properties and determining a reasonable price for the condemned property. However, a site such as a shipyard or saltwater marina can be difficult to value because nearby, identical sites are virtually impossible to find. In such circumstances, the fair market value is often based on comparable nearly land that is similarly zoned.

A per-square-foot price for land in a particular zoning category can usually be determined from recent sales of comparable properties, and that price can then be applied to the condemned property. Any unique qualities can be used to enhance the value of the condemned land.

Where the unique quality is the ability to use off-shore land leased from the DNR, the marketplace values the upland property higher. Unfortunately, condemnation law prohibits property owners from arguing that their property is enhanced by the use of adjacent land owned by the condemning government.

Additionally, the state can be expected to claim that the upland property owner may not assert as the property's best use a function that presumes that the use of adjacent government land. The state argued in a recent condemnation proceeding that a site used as a shipyard since 1902, and condemned for use as a shipyard, could NOT be valued as a shipyard for condemnation purposes. The reason the site could not be operated as a shipyard without using bedlands leased from the state.

In a condemnation, the owner of a marine industrial facility or a marina may be forced to present the property value without the exclusive right to use leased off-shore state bedlands. The fact that the leasehold itself is valuable, because it allows the use of an area at below private market rates, is little consolation, particularly if the lease has almost run. This scenario is extremely critical if there are substantial marine improvements that span the area from the upland fee-owned land to the deep water area above the state's bedlands.

An owner of a pier or other marine improvement should determine title to the structure in its entirety. The owner should ensure that there is a deed for the improvement. If the portion of the structure on the bedlands was constructed before the DNR lease program, determine who gave you or your predecessor the right to build on the land.

Without authorization to build on state land, a person could be treated as a trespasser, improvements made by a trespasser upon another person's land belong to the property owner. Without a document that says otherwise, you may not own any portion of a structure that extends beyond extreme low tide.

This could be true even if you do have a lease from the DNR. Check the lease to see what it says about improvements. Ensure that existing improvements are listed on the lease and that it acknowledges your ownership of the improvements. Review the lease language regarding what happens to improvements if the lease is renewed. Also, verify what the lease says about repairs, renovations or replacements.

Ownership of improvements could be critical if your upland fee-owned area is condemned. The condemnor is required to pay for the value of improvements only if you own them. In many operations using land leased from the DNR, most of the value of the seaward side of the operation is in the improvements.

At the very least, determining ownership will dictate an appropriate strategy for repairing or replacing improvements. Knowledge of legal rights regarding improvements should direct future DNR lease negotiations. Additionally, this issue should be considered if you sell or lease your facilities, since representations regarding ownership and continued ability to use these facilities must be accurate.

Understanding the ramifications of leased DNR land will enable you to stay informed about your property value. Knowing what you own and, more importantly, what you do not, will help you monitor the sale of comparable sites, including those with a DNR lease. Knowing the value of these sites will enhance your position when it's time to renew your DNR lease and will be especially valuable if you ever face having your property taken for public use.

Larry J. Smith is a shareholder of Graham & Dunn PC and heads its litigation group.

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Copyright © 1996 Seattle Daily Journal of Commerce.