Sullivan, Workman & Dee, LLP represents private property owners whose interests are threatened by governmental action, or whose property is being taken for public use under the government’s power of eminent domain.
The government’s power to condemn private property for a public use is known as eminent domain. It has been a basic principle of law for centuries and is found in both the United States Constitution (Fifth Amendment) and the California Constitution (Article 1, Section 19). The Eminent Domain Law is set forth in California Code of Civil Procedure section 1230.010, et seq.
In a typical eminent domain case, the firm’s attorneys will contest the government’s right to take the property when appropriate, and will work with competent appraisers to determine the value of the property taken. We also pursue any right the client might have to recover damages to any adjacent land not included in the taking (severance damages), available relocation benefits, lost or damaged business goodwill, the value of any improvements to the realty (such as fixtures and equipment), the value of any inventory rendered unusable because of the take, pre-condemnation damages where the government has engaged in unreasonable conduct or delay, and litigation expenses where such recovery is permitted.
The firm also represents clients in land use disputes, where private property is impacted by governmental action. Public projects and public activities often impact surrounding property, even where no private property is acquired for public use. Furthermore, private property owners often have to interface with governmental regulators regarding zoning, environmental, public safety and other concerns. The firm is experienced in addressing these land use issues.
The government’s power is not absolute. There are two constitutional limitations on the power of eminent domain: 1) just compensation must be paid for the property condemned and 2) the property must be necessary for a public use. The power of eminent domain may be exercised only by a condemnor that is authorized by statute to exercise this power. Appropriate condemnors may include state agencies, special districts, cities and counties, public utilities, redevelopment agencies, and certain quasi-public agencies.
Before a condemnation (or eminent domain) action can be filed, the condemnor must usually hold a public hearing and adopt a resolution of necessity. The resolution may be adopted only after the property owner has been given notice and a reasonable opportunity to appear and be heard on the issues of public use and necessity. Before adopting a resolution of necessity, the condemnor must also make an offer based on an appraisal to the owner of record. A condemnation action must be filed in the appropriate court within six months after the resolution is adopted.
A condemnation action is a lawsuit filed by a condemnor against persons (known as defendants or condemnees) who may have an interest in the property condemned or in businesses on it.
Once the condemnation action has been filed, the condemnor can apply to the court for an order to take possession of the property before the litigation is completed. In order to take possession, however, the condemnor must deposit its estimated value of the property and give adequate notice. A condemnee will usually have 90 days to vacate occupied property and 30 days if the property is vacant.
Under certain circumstances, a condemnee may request the court to stay the order to take possession. The owner or other persons with an interest in the property may also apply to the court to withdraw all or a portion of the deposit without waiving the right to claim greater compensation.
Like all lawsuits, many condemnation actions are settled prior to trial. Settlement conferences are often held by the court prior to trial in an attempt to resolve property or other issues.
If the matter cannot be settled, a trial will be held. In most cases, the amount of the just compensation that must be paid is the primary issue. The attorney for each side must be prepared to present evidence at trial to support the value claimed by the client. This evidence includes the opinions of appraisers and other experts.
At the trial, the jury will determine the amount of just compensation to be awarded. The judge will decide all other issues such as public use, public necessity and the interests of the parties in the property.
Condemnation actions take precedence over other civil actions in scheduling a hearing or trial. Therefore, a condemnation action is usually resolved more quickly than other civil actions.
Fair Market Value
The Condemnor must pay the fair market value of the property. Fair market value is the estimated highest price that the property would bring if it was offered for sale in the open market for a reasonable period, and if the buyer had knowledge of all uses and purposes to which it is adaptable.
The California Evidence Code sets forth the standards and methods used to determine fair market value and requires examination of the highest and best use of the property. Fair market value is based on the most advantageous and profitable use to which the property is adaptable, considering the size, shape and topographical conditions of the property and the character and trends of development in the neighborhood. The fair market value of the property may not include any increase or decrease in value resulting from the project for which the property is being condemned.
Sometimes a condemnor takes only a portion of a parcel. The condemnee is entitled to receive just compensation for the fair market value of the portion taken. In addition, the remainder of the parcel may suffer damage because the partial taking or the public project may diminish the value of the portion not taken. This injury to the remaining portion is compensable as severance damages.
Severance damages usually are measured by the decrease in the fair market value of the remaining portion. Severance damages also may be measured by the cost to cure or restore the property to its condition prior to condemnation. If the condemnee’s remaining property will be benefitted by the proposed public project, the value of the “special benefits” may be offset against severance damages.
Fixtures and Equipment
All “improvements pertaining to the realty” must also be paid for by the condemnor. These improvements refer to fixtures, machinery or equipment installed for use on the property that cannot be removed without a substantial economic loss or without substantial damage to the property on which they are installed.
Buildings are not classified as improvements relating to the realty. They are valued as part of the property unless the highest and best use of the property would call for their demolition.
Divided Interests in Property
Frequently, there are co-owners of property or liens, encumbrances, deed restrictions and leases. A condemnation award may need to be apportioned between each of these divided interests.
Generally, a tenant is entitled to the value of its leasehold interest in the property unless the lease provides otherwise. The leasehold interest is a part of the fair market value of the property and is generally not considered to be in addition to that value.
A lienholder (such as a beneficiary of a deed of trust) is entitled to share in the condemnation award where there is a partial taking, only to the extent that there is an impairment of the security for the lien. Options to purchase and future interests in the property may also be compensable.
Loss of Business Goodwill
Goodwill consists of the benefits a business enjoys from its location, reputation for dependability, skill or quality, and ability to develop and keep patrons. If these benefits are lost as a result of the condemnation and the owner of the business has made “reasonably prudent” efforts to relocate or otherwise keep the loss as low as possible, compensation for loss of goodwill may be awarded.
Loss of goodwill may arise if the condemnation forces the business to close or move to a less favorable location. If the profitability of the business decreases as a result, the owner may be entitled to compensation for loss of goodwill.
Calculating loss of goodwill is complex and normally requires the assistance of an expert business appraiser.
Before the court will award compensation for goodwill, the owner must prove four elements: the existence of goodwill, the loss is caused by the condemnation, the goodwill cannot reasonably be preserved by relocation or other steps, and the loss will not be duplicated by other compensation awarded or relocation benefits.
Traditionally, the inventory of a business located on condemned property has not been compensable. An appellate court decision, in a case handled by our office, however, has held that the owner of a business is entitled to be compensated for business inventory under certain circumstances. In that case, the owner was unable to relocate because of the nature of the business and the absence of any reasonable relocation sites. As a result, his inventory lost value and the condemnor was required to pay just compensation for it.
If the condemnor excessively delayed the commencement of the condemnation action following an announcement of its intent to condemn the property or engaged in other unreasonable conduct, a condemnee may be entitled to additional damages. These damages may include the loss of rental income from the property caused by the delay or the additional amount the property would have been worth on the date of valuation absent the delay. These damages are known as precondemnation damages or “Klopping damages” after the case Klopping v. City of Whittier.
Contamination and Environmental Issues
Expanded civil liability, based on the concept of strict “no fault” liability, has increased the exposure of property and business owners to damages for the clean-up of environmental problems. Liability, in many instances, is imposed on certain parties simply because they have a connection to the property where toxic or hazardous substances have been founded.
Property subject to acquisition by eminent domain is no exception. The condemnor often will argue that the value of the subject property should be decreased because of its contaminated condition and the anticipated clean-up expenses. It is crucial to determine a condemnee’s rights and remedies concerning property that may be contaminated. The determination may focus on whether the requisite clean-up would have been as expensive or even necessary absent the filing of the condemnation action. Often it is prudent for a condemnee to retain an environmental engineer who is qualified and experienced in evaluating these problems.
Interest and Costs
Interest on the condemnation award may provide additional compensation. If the condemnor takes possession of the property before trial, a condemnee is entitled to interest on the award commencing on the date possession is taken. Interest is not paid on any amount after it is withdrawn from the deposit or otherwise paid by the condemnor. An award of interest may also be offset by the amount of any rents received by the condemnee after the condemnor is authorized to take possession of the property.
A condemnee is entitled to recover normal “court costs.” These costs include filing fees, deposition fees, and some witness fees incurred in defending the condemnation action. However, court costs ordinarily do not include attorney’s fees, appraisal fees or fees for other experts.
Attorney’s Fees and Appraisal Fees
Usually, litigation expenses (such as attorney’s fees, appraisal fees and fees for the services of other experts) are not recoverable from the condemnor and are paid by the condemnee. However, if the owner’s final settlement demand before trial is reasonable and the condemnor’s final offer is not, a claim may be made after a trial for reasonable litigation expenses.
Litigation expenses may also be recovered in two other instances: inverse condemnation actions and direct condemnation cases that are dismissed or abandoned by the condemnor.
Relocation benefits are separate from and in addition to the payment of just compensation. The condemnee is generally entitled to the “actual reasonable” cost to relocate from the condemned property but some limits are imposed by law. Relocation benefits may include moving costs, reasonable expenses in searching for a replacement site, costs to reinstall and reconnect machinery and equipment, printing of new stationery and other expenses incurred because of the relocation.
Relocation proceedings are handled separately from the condemnation action. These proceedings are often as complicated as condemnation proceedings, especially if inventory, fixtures and equipment need to be relocated and reinstalled.
In most condemnation actions, the single most important issue is the fair market value of the property. That value is usually proved at trial only through opinion testimony. The California Evidence Code permits the property owner to testify as a valuation witness. However, the opinion of a professional appraiser is generally the most persuasive evidence of value. An appraiser is often necessary at trial because of the complex evidence and various valuation approaches that must be interpreted for the jury.
In the usual situation, a property owner relies on the attorney to recommend experienced appraisers. A condemnee should inquire into the appraiser’s qualifications, experience, knowledge of the area where the property is located, and fees. Appraisers normally specialize in either real estate, fixtures and equipment, or business goodwill.
Other foundational experts may also be required. These experts include civil engineers, toxic engineers, architects, geologists, planners and economists to assist the appraiser.
An inverse condemnation action differs from a “direct” condemnation action because the property owner files the lawsuit rather than the public entity. Generally speaking, an action for inverse condemnation alleges that there has been a taking or damaging of property by a public entity without payment of just compensation. The action may be brought under the provisions of the United States Constitution, the California Constitution, or both.
An inverse condemnation action can arise in a variety of contexts. The action can be the result of a direct, physical taking of or interference with real or personal property by a public entity. For example, inverse condemnation liability has been established where there is flooding, escaping sewage, interference with land stability, impairment of access, or noise from overflying aircraft.
Inverse condemnation liability can also result from a so-called “regulatory taking.” Such a claim usually involves a land use regulation that goes “too far” and amounts to a taking or damaging of property. Examples include overly restrictive zoning designations, and (in certain cases) denial of building or demolition permits, and onerous conditions placed on development.
Inverse condemnation is a rapidly developing area of the law. In recent years, there have been several important United States Supreme Court decisions in this area and more can be expected in the future. As with a direct condemnation action, any property owner who feels he or she may have a claim for inverse condemnation should consult an experienced attorney who practices in this area of the law.