EMINENT DOMAIN GUIDE TO JUST COMPENSATION
Knowledge is power. At Oliver, Sandifer & Murphy, we know that the anger, uncertainty and confusion property owners feel when faced with an eminent domain proceeding often stems from a lack of knowledge and understanding of the process. Our clients are smart, sophisticated people who own property, run businesses and are accustomed to making the decisions that affect their financial interests. We want to help you understand your rights and options. This guide is designed to give property owners and business owners whose properties are being taken by the government through the power of eminent domain a general understanding of California eminent domain law, procedures and compensation.
Please understand, this guide is intended only as an aid for understanding general eminent domain issues. It does not constitute legal advice on any particular action, and may not be relied upon for that purpose. Laws and the application of the law can change at any time. If you are a property owner whose property interests are threatened or being taken by a governmental authority for public use, contact one of the experienced California eminent domain attorneys at Oliver, Sandifer & Murphy. We will protect your rights to just and full compensation and work with you to ensure that the governmental exercise of its power is authorized.
The Power of Eminent Domain
- What is eminent domain and when can it be used?
- Can I challenge the government's right to acquire my property?
- What is a "public use?"
- What if I am successful in challenging the government's right to take my property?
- If I am unsuccessful in challenging the right to take, will I have any liability for the government's costs?
Eminent Domain Procedures
- What steps must the government take in order to acquire my property by eminent domain?
- Is the government required to make me an offer for my property before filing a court action?
- Am I entitled to a copy of the appraisal report on which the government bases its offer to purchase my property?
- Am I required to accept the amount of the government's offer, or can I seek a higher price?
- Does the government have to give me notice before deciding to take my property by eminent domain?
- What is a "Resolution of Necessity"?
- When can the government take possession of my property?
- What if I disagree with the amount of the government's deposit?
Just Compensation
- What is "just compensation"?
- Who is entitled to just compensation?
- What is "fair market value"?
- As of what date will my property be valued?
- What happens if the property is rented - who gets the compensation?
- What if only part of my property is taken?
- What about improvements - is compensation paid for these?
- Are business losses compensated?
- Is there anything I need to do to protect my right to seek business losses?
- Am I entitled to interest?
- Am I entitled to recover my litigation expenses?
The Power of Eminent Domain
What is eminent domain and when can it be used?
"Eminent domain" (also called "condemnation") is the power of the government or some other entity with governmental authority to acquire property for "public use" in exchange for payment of "just compensation" to the property owner. The government may exercise its power of eminent domain even if the property owner does not wish to sell the property. Some recognized public uses for which the power of eminent domain may be exercised used include acquiring property to build schools, parks, roads, highways, subways, fire and police stations, public buildings, and the elimination of blight through redevelopment.
Can I challenge the government's right to acquire my property?
Yes, in some very limited circumstances. Typical challenges to a government or government agency’s right to take are for failure of the government to follow the proper procedural steps towards eminent domain (see Eminent Domain Procedures). However, the circumstances allowing a successful challenge to the right to take are rare. The attorneys at Oliver, Sandifer & Murphy have the knowledge and experience to evaluate the circumstances of your particular case and determine if a challenge is possible and what remedy is available to you. In many cases, a challenge only results in a delay, rather than outright prevention of the government taking of the property. More often, the property owner’s available remedy is in seeking additional compensation for the taking.
The Fifth Amendment of the United States Constitution and Article I, Section 19 of the California Constitution allow private property to be taken by eminent domain only for a "public use." However, the term "public use" has been interpreted very broadly by the Courts, which have generally required only that a public benefit must result from the project. For example, the planned project need not be actually open to the public to constitute a public use. Elimination of blight through redevelopment projects, for example, is a public benefit which courts have held satisfies the "public use" requirement of the Federal and State Constitutions. This is true even though the property will typically be transferred to a private redeveloper and may never be open to the general public. It usually does not matter if the redeveloper may be doing nothing more than building a new mall or a complex of movie theaters.
Property owners can sometimes challenge the government's right to take when we can show the project for which the property is being taken is not for a "public use."
What if I am successful in challenging the government's right to take my property?
When a property owner is successful in challenging the government's right to acquire his or her property by eminent domain, California law provides that the eminent domain proceeding may be dismissed. In addition, the property owner may be entitled to recover his or her litigation expenses including attorneys' and appraisers' fees incurred in the action.
However, even where a successful challenge to the right to take is made, the courts have the authority under some circumstances to allow the government agency to correct any procedural mistakes and proceed with the acquisition. In addition, even when the action is dismissed outright, there is nothing to stop the government agency from starting the process all over again. Bottom line, prevailing on the right to take challenge does not provide permanent protection if the government is intent on acquiring the property.
If I am unsuccessful in challenging the right to take, will I have any liability for the government's costs?
No. Where a right to take challenge is raised but is unsuccessful, the government may proceed with the acquisition, and the property owner will not be liable for the government's costs.
Eminent Domain Procedures
What steps must the government take in order to acquire my property by eminent domain?
Generally, when the government wants to take your property by eminent domain, you can expect to encounter some or all of the following procedures in approximately the following order:
- Initial contact by government agency to express interest in the property and set a scheduling date for appraisal of the property;
- Appraisal of the property, including improvements, by an agency retained appraiser;
- An offer to purchase the property is made to the owner, together with summary of the appraisal upon which offer to purchase is made;
- Notice of a public hearing to adopt a "resolution of necessity" to acquire property by eminent domain;
- A public hearing is held to adopt the "resolution of necessity" to acquire the property by eminent domain;
- The eminent domain case is filed in court and served on property owner;
- A deposit by the agency of the probable amount of just compensation is paid into the court and a request by the agency is made for early possession of the property;
- Discovery (for example, depositions and document production) takes place in the eminent domain action, and both the property owner and government hire appraisers to determine "fair market value" of the subject property;
- The property owner and government exchange their respective appraisers' reports;
- Final settlement offers and demands are exchanged;
- If a settlement cannot be reached, trial of the eminent domain action takes place before a jury whose job it is to determine "fair market value" of the subject property;
- The jury returns verdict and judgment is entered;
- The government pays judgment within 30 days following entry of judgment and title to subject property is transferred to the government by the court.
In addition, at some point during the process (usually early on), the property owner and any tenants should be contacted by a relocation agent hired by the government. The purpose of the relocation agent is to provide assistance to residents and business owners to relocate their residence or business.
The experienced California eminent domain attorneys at Oliver, Sandifer & Murphy can assist property owners at every step of the process, from challenging the initial appraisal to negotiating for a full and fair settlement amount and representing property owners at trial.
Is the government required to make me an offer for my property before filing a court action?
Yes. California Government Code section 7267.2 requires government agencies to obtain an independent fee appraisal and make an offer to the owner of record of real property to be acquired before the agency may commence court proceedings. The offer generally must be in an amount no less than the independent appraisal approved by the agency.
Am I entitled to a copy of the appraisal report on which the government bases its offer to purchase my property?
When the government makes its offer to purchase property as required by Government Code section 7267.2, the agency must provide the owner of record with a "summary" of the basis of the offer. Usually, this means that the agency must provide the owner of record only with a brief summary of the appraisal upon which the offer is based.
If the property to be acquired consists of owner occupied residential property of four units or fewer, the agency must also provide the owner of record with a copy of the initial appraisal when requested by the owner. For other types of property, the agency does not have any obligation to provide the owner with a copy of the initial appraisal and generally will not do so. Until litigation is commenced, the owner is entitled only to the summary of the basis for the offer.
However, once litigation is underway, the parties will generally exchange appraisal reports approximately 90 days prior to trial. In some jurisdictions, the parties must request an exchange of appraisal reports or no exchange is required. Exchange of appraisal reports gives both the government and the owner the opportunity to evaluate the case prior to trial and attempt to reach a mutually satisfactory settlement.
Am I required to accept the amount of the government's offer, or can I seek a higher price?
A property owner is not required to accept the condemning agency's offer. In fact, it is often advisable for a property owner to make a counter-offer or seek a higher value for their property once the eminent domain action is filed in court.
At Oliver, Sandifer & Murphy, our experienced California eminent domain attorneys have decades of personal experience and a network of qualified appraisers and other experts to assist in determining a full and fair value for the property. Property owners, tenants and business owners often receive higher, and in some cases, much higher compensation than the amount of the condemning agency's initial offer by making a claim for greater compensation in the eminent domain proceeding. While this is not always the case, our attorneys will give you a straight forward evaluation of the merits of your case and the value that should be paid for your property.
Does the government have to give me notice before deciding to take my property by eminent domain?
Before a government agency can commence an eminent domain proceeding in court, it must adopt a formal resolution to acquire the property. The formal resolution to acquire property is known as a "resolution of necessity" and must be adopted at a public hearing. The condemning agency is required to give the property owner of record notice of the hearing and an opportunity to speak.
A property owner must usually advise the condemning agency in writing, no later than fifteen days after the notice was mailed, if the owner or his or her representative wishes to be heard and make the owner's position known at the hearing. Contact Oliver, Sandifer & Murphy immediately if you have received notice of the resolution of necessity hearing so we can help to protect your rights. In some situations, failure to raise certain arguments at the hearing on the resolution of necessity could result in a waiver of the ability to raise those arguments later in the process.
What is a "Resolution of Necessity"?
A "resolution of necessity" is the government agency's formal decision to acquire property by eminent domain. It must be adopted before the condemning agency can begin an eminent domain action in court.
California Code of Civil Procedure section 1245.230 provides that in order to adopt a resolution of necessity, the government agency must find: (1) that the project for which the property is to be acquired is necessary; (2) that the property is necessary for the public project; (3) that the project is located in such a manner as to offer the greatest public benefit with the least private detriment; and (4) that an offer to purchase the property has been made. Unless there are extraordinary circumstances (such as gross abuse of discretion, fraud or bribery), the agency's finding that it needs the property is generally considered conclusive.
When can the government take possession of my property?
More quickly than you might think. California Code of Civil Procedure section 1255.410 authorizes the condemning agency to ask the court for possession of the property even before judgment has been entered in the eminent domain proceeding. The court may only do so, however, if the condemning agency has first deposited into the County or State Treasury the amount which it determines as the probable compensation to be paid for the property. If the court grants the condemning agency's request for early possession – which the court almost always will – the property owner will, in most cases, be given 90 days notice before having to vacate the property.
Once the condemning agency deposits the amount of probable compensation, the property owner or tenant may apply to the court to withdraw that portion of the deposit that represents the owner's or tenant's probable amount of compensation. You may withdraw the amount of the agency's deposit without waiving your claim for greater compensation. However, withdrawing the deposit does waive any challenge to the government's right to take the property.
What if I disagree with the amount of the government's deposit?
As a property owner, if you believe the condemning agency's deposit of probable compensation is too low, you may apply to the court for an order requiring an increase in the amount of the deposit. The courts only grant requests for an increase in the deposit upon a very strong showing that the deposit is much too low. Generally, the property owner's remedy will be to litigate the amount of compensation at trial or try to settle the amount of compensation before trial.
Asserting a claim for greater compensation in the eminent domain action often results in the owner obtaining higher compensation than that offered by the condemning agency. The experienced California eminent domain counsel at Oliver, Sandifer & Murphy have the skill and resources to assess your case and advise you on the most appropriate course of action. Usually, your case can be handled on a contingency-fee basis, with our fees based on a percentage of the amount our attorneys obtain for you over and above the amount of the condemning agency's offer.
Just Compensation
The Fifth Amendment of the United States Constitution provides that private property may not be taken for a public use without payment of "just compensation." Similarly, article I section 19 of the California Constitution provides that private property may not be taken or damaged by the government unless it pays "just compensation."
The items for which a property or business owner may generally attempt to seek just compensation are: (1) real property, (2) improvements pertaining to realty (sometimes referred to as fixtures and equipment), and (3) business goodwill. Just compensation for these items is generally calculated at the "fair market value" of the item as of a particular date. Under the California Constitution, property and business owners are entitled to have just compensation determined by a jury.
Who is entitled to just compensation?
Anyone whose property interest is acquired by the government agency is entitled to just compensation. This includes not only the record owner of the property, but may also include tenants. For example, a business tenant on property to be acquired by eminent domain may be entitled to compensation for the value of his leasehold interest, the value of his fixtures and equipment, and the loss of business goodwill suffered because of the government agency's acquisition.
Many leases include a "condemnation clause" which set out the tenant’s entitlement to compensation as between the owner and tenant. These clauses generally specify whether the tenant is, or is not, entitled to any "leasehold bonus value" – that is, the value of the tenant's leasehold interest. Courts have virtually uniformly held such condemnation clauses to be enforceable. Even under these provisions, however, the tenant is still often entitled to the value of his own fixtures, equipment and business goodwill.
The government is required to pay the "fair market value" of the property it acquires by eminent domain. California's Eminent Domain Law generally defines fair market value as:
"The fair market value of the property taken is the highest price on the date of valuation that would be agreed to by the seller, being willing to sell but under no particular or urgent necessity for doing, nor obliged to sell, and a buyer, being ready, willing and able to buy but under no particular necessity for so doing, each dealing with the other with full knowledge of all the uses and purposes for which the property is reasonably adaptable and available."
Evidence of fair market value is generally presented to the jury by real estate appraisers retained by each of the parties. Real estate appraisal is not an exact science, and as such, appraisers often differ in their opinions of value in a particular case. In fact, in a great many cases, the government's appraiser and the owner's appraiser may disagree by tens of thousands, hundreds of thousands…even millions of dollars.
It is particularly important in this regard to retain appraisers who have significant experience in eminent domain matters. The experienced eminent domain attorneys at Oliver, Sandifer & Murphy have a network of highly qualified appraisers with whom we work and recommend to our clients. Eminent domain appraisals must comply with statutory and case authority peculiar to eminent domain matters. Working with an appraiser or attorney who is inexperienced in eminent domain can be a very costly mistake.
As of what date will my property be valued?
When property is appraised, the appraiser must provide an opinion of value as of a particular date. California law provides several possible dates of value, depending on the circumstances of the particular case.
In most cases, the date of value will be the date the government makes a deposit of probable compensation into court. Alternative dates are either the date the eminent domain complaint is filed in court, or the date of trial. Which particular date applies in your case will depend on the specific facts of your case.
What happens if the property is rented - who gets the compensation?
When a property is leased or rented, both the owner and tenant may be entitled to compensation, depending on whether the lease contains an enforceable condemnation clause. If there is no condemnation clause, the property is generally valued as a whole and that value is then divided among the owner and the tenants according to their respective interests in the property. What many property owners do not realize is that if their property is leased at below market rents, and their lease does not contain a condemnation clause, the tenant may be entitled to receive a sizeable portion of any compensation paid for the real estate.
It should be noted that the government can alternatively require that each party's interest be separately valued, rather than valuing the property as a whole and then dividing that whole. This is, however, rare.
What if only part of my property is taken?
Often, the government needs only a portion of a particular property, such as a strip of land needed for street widening. In those cases, just compensation is determined not only by the value of the part taken, but also by the damage to the remaining property. Such damages are called "severance damages," i.e., damages caused by severance of the remainder from the part taken. "Severance damage" as a general proposition, is the amount of damage to the remaining portion of the parcel which is caused by the severance of the remainder from the part taken, or by the construction and operation of the project for which the property is taken. Severance damages may be minimal or non-existent in some cases. In others, they can be quite high – sometimes approaching the value of the entire property.
As with appraisal for eminent domain in general, severance damages is one of those areas which is highly specific to eminent domain cases. As such, it is imperative that only an appraiser experienced in eminent domain be retained to evaluate these damages.
What about improvements – is compensation paid for these?
Owners are entitled to compensation not only for their property, but also for "improvements pertaining to realty." These improvements can be anything from pavement and fencing to furniture and machinery, depending upon the facts of a particular case.
The government is required to pay the fair market value "in place" of such improvements. Value "in place" generally means the value of the improvements as part of a going concern, as opposed to salvage value or replacement cost.
The fair market value of improvements pertaining to realty is generally determined through appraisal. Ultimately, a jury decides value if the parties cannot reach settlement prior to trial.
Are business losses compensated?
California's Eminent Domain Law – unlike the laws of most other states – provides that a business owner may be entitled to any loss of business "goodwill" caused by the taking of property on which the business is located. Business "goodwill" is defined in the Eminent Domain Law as:
"The benefits that accrue to a business as a result of its location, reputation for dependability, skill or quality, and any other circumstances resulting in the probable retention of old or acquisition of new patronage."
Generally, goodwill is valued based on the sustainable income flow generated by the business. How that income translates into goodwill value is determined through experienced eminent domain business appraisers. Generally, value varies based upon factors such as length of time in the business, nature of the industry, customer base, economic conditions, reputation, security of occupancy, nature of the business' fixed assets, and risk associated with the business. Some businesses possess no goodwill value. Others may possess thousands or even millions of dollars of goodwill value.
It is very important in eminent domain cases to work only with business appraisers who are experienced in eminent domain valuations. The experienced California eminent domain attorneys at Oliver, Sandifer & Murphy have a trusted network of qualified appraisers with whom we work on a regular basis. Hiring inexperienced eminent domain counsel or an appraiser inexperienced in eminent domain matters can be a very costly mistake.
Is there anything I need to do to protect my right to seek business losses?
Yes. A business owner is only entitled to compensation for loss of business goodwill if he proves all of the following:
- The loss is caused by the taking of the property or injury to the property on which the business is located;
- The loss cannot reasonably be prevented by a relocation of the business or by taking steps and procedures which a reasonably prudent person would take in preserving the goodwill; and
- Compensation for the loss will not be included or duplicated in any other payments made to the business owner.
Thus, a business owner generally must take reasonable steps to try to relocate the business if the relocation would result in retention of all or some of the business' goodwill value. However, it should be noted that even if a business is relocated, it could still suffer a loss of goodwill. Relocation can result in loss of patronage, loss of income or higher expenses. California courts have held, for example, that if a business experiences higher expenses at a relocation site, the business may be entitled to a loss of goodwill based on the resulting decline in net income, even if the business loses no patronage at all as a result of the taking.
If you are a business owner facing eminent domain proceedings you should avoid providing information about your business income to the condemning agency until after you have consulted with experienced eminent domain counsel. Anything you say can – and will – be used against you by the agency.
The government must generally pay interest on the amount of any award of just compensation from wither the date it takes possession of the property or from the date of judgment, whichever is earlier. The amount of interest is variable and changes every six months. The amount applicable to any six-month period is determined by a procedure set forth in the Eminent Domain Law.
Am I entitled to recover my litigation expenses?
Most eminent domain cases are handled on a contingency fee basis, though certainly an hourly fee arrangement is available.
Usually, the contingency fee is based on the amount over and above the government's initial offer, which the attorney is able to obtain for the client. In these cases, therefore, the property owner bears no risk of exposure to paying attorneys' fees; if the attorney does not obtain greater compensation than the amount of the government's initial offer, the client will not be responsible for attorneys' fees. If the attorney does obtain greater compensation than the amount of the government's offer, then the attorney is entitled to a percentage of that excess.
Normal court costs, such as filing fees paid to the court, deposition fees paid to court reporters and certain witness costs are generally reimbursed to the property owner at the conclusion of the case. In addition, in some cases, all or a portion of the attorneys' fees and appraisal fees may be recoverable from the condemning agency at the conclusion of the case. For example, if 20 days before trial a property owner makes a reasonable settlement demand, and the condemning agency makes an unreasonable offer, then the property owner may be entitled to recover all or part of his attorneys' and appraisers' fees, whether the fee is based on a contingency or hourly basis. Of course, the individual circumstances of each case are different and must be evaluated on their own merits.
