Legal Definitions - unearned increment

An unearned increment refers to an increase in the value of an asset, most commonly land, that occurs due to external factors rather than any effort, investment, or improvement made by the owner of that asset. These external factors can include community growth, public infrastructure projects, changes in zoning laws, or shifts in market demand that make the property more desirable or valuable.

Here are some examples to illustrate this concept:

• Example 1: Public Infrastructure Development

  Imagine a person who purchased a plot of undeveloped land on the outskirts of a city several decades ago. At the time, the land was relatively inexpensive due to its remote location. Years later, the municipal government decides to build a new subway line with a station conveniently located just a few blocks from this property, along with new roads and public parks in the vicinity. As a result, the demand for land in the area surges, and the value of the owner's plot increases dramatically.

  This situation demonstrates an unearned increment because the significant rise in the land's value is not due to any improvements or investments made by the owner, but rather directly attributable to the public infrastructure projects and the resulting increased desirability of the location.

• Example 2: Zoning Changes and Urban Growth

  Consider a small business owner who owns a commercial building in a quiet part of town. For years, the area was zoned for low-density commercial use, limiting the types and sizes of businesses that could operate there. The city council then votes to rezone the entire block, allowing for high-rise mixed-use developments and attracting several large corporations to build new offices nearby. This change transforms the neighborhood into a bustling commercial hub, and the value of the business owner's property skyrockets.

  The substantial increase in the property's value is an unearned increment. It stems from the city's rezoning decision and the subsequent economic development and increased demand in the area, not from any renovations or expansions made by the business owner to their building.

• Example 3: Discovery of Natural Resources

  A family owns a large ranch that has been passed down through generations, primarily used for cattle grazing. One day, geological surveys conducted by a mining company reveal that the land sits atop a vast, previously unknown deposit of a valuable rare earth mineral. The discovery instantly makes the ranch property immensely valuable, far beyond its agricultural worth.

  This sudden and dramatic increase in the ranch's market value represents an unearned increment. The family did not invest in mineral exploration or make any improvements to uncover the resource; the value increase is purely due to the external discovery of a natural resource beneath their land.