Legal Definitions - economic obsolescence

Economic obsolescence refers to a loss in a property's value caused by factors that are *external* to the property itself and beyond the owner's control. These factors typically stem from changes in the surrounding economic environment, market conditions, or neighborhood characteristics, which make the property less desirable or useful for its intended purpose.

Here are some examples to illustrate this concept:

• Imagine a well-maintained office building in a city whose primary industry suddenly collapses, leading to a mass exodus of businesses and residents. Even though the office building itself is structurally sound and modern, its value significantly decreases because there are no longer enough tenants in the area to fill its spaces. This is economic obsolescence because the loss in value is due to a downturn in the local economy, an external factor, rather than any physical defect or functional issue with the building.

• Consider a retail storefront located in a once-bustling downtown area that has experienced a long-term shift in consumer behavior towards online shopping, coupled with the opening of a large, popular shopping center on the outskirts of town. Despite the storefront being in excellent physical condition, its market value drops considerably because foot traffic has dwindled, and fewer customers are frequenting the downtown area. The decline in value is a result of broader market changes and competition, which are external economic factors, demonstrating economic obsolescence.

• A homeowner owns a house situated near a large, open tract of land. Over time, a new municipal landfill is approved and constructed on that adjacent land. While the house itself remains in perfect condition, its market value plummets due to the proximity of the landfill, which brings unpleasant odors, increased traffic, and potential environmental concerns to the neighborhood. This depreciation is an example of economic obsolescence because the value loss is caused by an undesirable external development that the homeowner could not control.