Author: Alan A. Sozio

Oftentimes, an offsite acquisition is required to construct a public improvement required by the city as a condition of a subdivider’s development project, and the offsite improvement is not complete when the subdivider files a final map for approval.  For example, a subdivider’s development may be conditioned upon the construction of a roadway leading up to the future development site, but the developer has been unable to purchase the necessary rights to build the road.  Under these circumstances, Section 66462.5 of the Government Code gives the city the right to commence eminent domain proceedings to acquire the necessary rights to allow the public improvement to be constructed by the subdivider.

Before beginning the condemnation process, however, the city should make every effort to assure that it will be reimbursed by the developer for the cost of the offsite acquisition.  Always consider the possibility that a developer may become insolvent or abandon the project after significant acquisition costs have been incurred. Also to keep in mind is the city’s liability to the property owner if the developer walks away from (i.e., abandons) a condemnation award that it considers too high.

Additionally, the city may want to consider requiring — in addition to the standard subdivision agreement or deferred improvement agreement — a replenishing security deposit from the developer/subdivider (or a bond indemnifying the public entity) in advance of final map approval to cover all acquisition costs.  This listing of costs should be comprehensive and include, at a minimum, the city’s and property owner’s court costs, the city’s legal fees, appraisal and other expert fees, the deposit necessary for an order of possession, the payment of the judgment, interest, and any awarded expenses and costs.  The city may also wish to consider other terms regarding the city’s retention of litigation discretion (including an allocation as to whether the city or developer is responsible for any sanctions awarded in the litigation), the developer’s right to participate in settlement discussions and decisionmaking, and access to the city’s status reports and billing records related to any eminent domain litigation.

A good discussion of the rights and obligations provided under Section 66462.5 may be found in the case of  Hill v. City of Clovis Co. (2000) 80 Cal.App.4th 438.  If you’d like more detailed information about this topic, let me know and I’d be happy to point you to additional materials on the subject.

Closing costs are fees–including escrow and title fees–associated with the purchase of real property that are paid at the close of escrow.  In typical arms-length transactions, both sellers and buyers are responsible for paying some amount of the closing costs.  As discussed below, special treatment should be given to closing costs in an eminent domain situation.

During the course of an ordinary purchase of property by a public entity (i.e., an acquisition where the agency is not planning to initiate an eminent domain action if the property cannot be acquired voluntarily), there is no duty to purchase the property at its appraised value.  However, special rules apply if an agency intends for its offer to comply with Government Code section 7267.2, which is a prerequisite to condemnation.

Section 7267.2 mandates that, prior to adopting a resolution of necessity and initiating an eminent domain action, an agency must make an offer not less than the agency’s approved fair market value appraisal of the property to be acquired.  Often times, this offer is accompanied by a draft purchase and sale agreement.  To comply with Section 7267.2, the proposed purchase and sale agreement should specify that the agency will bear all of the normal closing costs (except for those incurred by seller to clear title exceptions).  Otherwise, the owner could argue the agency’s offer is less than the full amount of the property’s appraised value, since a portion of the closing costs are being deducted against the full appraised value of the property. An offer out of compliance with the mandates of Section 7267.2 could result in the property owner’s successful challenge to the agency’s right to take, holding up the time frame for the property’s acquisition and adding unnecessary costs to the overall project.  To avoid this, simply have the agency offer to pay all of the closing costs.

For a discussion of an agency’s obligations regarding a garden-variety negotiation of a buy/sell agreement, see Melamed v. City of Long Beach (1993) 15 Cal.App.4th 70, 78-79.

Also, for eminent domain attorneys, a new appellate case entitled Weiss v. People ex rel. Dept. of Transp. came out of the Fourth Appellate District on March 1, 2018, which ruled that the special motion under the eminent domain law which allows for the early determination of legal issues (Code of Civil Procedure section 1260.040) may not be used in inverse condemnation actions.  You may click here for a link to the decision.

During the precondemnation process, public agency staff may be asked to make written estimates of the value of properties that are needed for an upcoming project.  Similarly, a budget for a proposed project may call for such estimates.  Often these estimates are well above market value because they include acquisition costs as well as unrelated contingencies to assure sufficient funding to complete the project. If uncovered, property owners may later attempt to use such estimates against the condemnor as an admission of value in an eminent domain action.  For this reason, staff should be careful not to use a dollar figure which may be construed as an admission or appraisal of market value or severance damages.

To avoid this situation, in a multi-parcel project staff should, where possible, estimate the lump sum acquisition cost of all parcels together, and not the cost of each separate parcel. In a single-parcel project, staff should avoid putting anything in writing (e.g., in an internal staff memo) which purports to place a value on the required parcel.

Practice Tip:  Where the estimate of land acquisition costs must be listed separately and cannot be lumped in with non-land related costs, or for reasons of policy must be disclosed in the budget request, include language similar to the following:

It is estimated that acquisition costs for required real property—including all environmental studies, engineering, acquisition, potential legal costs, and overhead—will be $___________.  As the [name of the public entity] is considering several sites (alternative projects), no estimate was made of the acquisition cost of a particular site; and no appraisal was made of the market value of or severance damages to a specific site.  Rather this estimate is based upon gross land acquisition costs in general, including costs of acquisition by eminent domain, contingencies, and overhead unrelated to the market value of any individual sites under consideration. This estimate is for budgetary purposes only.

There are many common and not-so-common situations where a public entity may not have the power of eminent domain.  These include:

• Property sought is outside the public entity’s territorial limits. Staff might propose to acquire property outside the public entity’s territorial limits. Extra-territorial takings are
  permitted in only certain circumstances.
• Property sought is in excess of what is actually needed. Staff might propose the acquisition of property in excess of what is actually needed for the project or its protection. Acquiring more property than needed for the public use is not authorized unless the property is an uneconomic remnant or is a statutorily authorized substitute taking.
• Property sought is for the primary benefit of private rather than public use. Staff might wrongfully propose that private property be acquired to aid in the development of another privately owned property.

Example: To encourage a large commercial center to locate within a city, staff proposes that the city acquire a private access for the developer across an adjoining ownership and connecting to a public street entering an interchange.

• Property that is already or may likely be appropriated to a public use. A public agency may condemn property already appropriated to public use only if the use for which the condemned property is being taken is either “more necessary” than its current use or, alternatively, that the proposed use will not unreasonably interfere with or impair the continuance of the current public use as it exists or may reasonably be expected to exist in the future.
• Acquisition of Properties Covered by Williamson Act Agricultural Preserve Contracts. A preliminary title report may disclose that a property, all or a portion of which a public entity proposes to acquire for a public use, is under a Williamson Act contract (Gov. Code § 51200 et seq.). Early in the project planning process, public entity staff should immediately determine if their project is covered by or exempted from the acquisition restrictions and notice requirements of the Williamson Act. If the property being considered is covered by a Williams Act contract, public entity staff should promptly comply with state notice and findings requirements.

The state Director of Conservation is charged with the duty of enforcement. General and process questions regarding acquisition of land subject to Williamson Act preserve contracts may be directed to the California Department of Conservation, Division of Land Resource Protection (916) 324-0850, or to the department’s legal office at (916) 323-6733.

This is a practice tip to avoid the potential for precondemnation damages.  In all project documents, refer to future land acquisitions in noncommittal, tentative, conditional language.

Examples:

• “The proposed acquisition”
• “The acquisition under staff consideration”
• “The recommended acquisition”
• “No decision has been made to acquire the property”
• “Only the governing board can make the decision to acquire the property by eminent domain”

Project maps showing required acquisitions should be referred to as “studies.” Internal memos, studies, and maps dealing with the proposed project should carry disclaimers such as: “This document is for preliminary staff project study purposes. Staff has no authority to approve or implement projects or land acquisitions without prior [insert name of governing board] approval.”

Obtain legal possession of all parcels required for the project before letting any construction contracts.

Both in reality and in appearance, advise staff not to leave a paper trail suggesting that the governing board had made up its mind to acquire property for a project before CEQA compliance and the hearing on the resolution of necessity.

Public entity counsel should become involved early in the planning stage of the project.  If this does not occur, the ability of public entity counsel to acquire a needed parcel at fair market value could be compromised by the time counsel gets the file.  For example:

• Staff may have left a paper trail demonstrating that the required Code Civ. Proc. § 1245.235 hearing on the adoption of the resolution of necessity was a sham, and so jeopardized the public entity’s right to take.
• An inadequate appraisal may have been made which will hang like an albatross around the neck of counsel at trial. The credibility of the appraiser may be hurt if s/he must later correct what was initially a flawed appraisal. The retention of a second appraiser adds cost to the litigation. Moreover, if a second appraiser is retained for trial to replace a less-than-adequate appraiser and the first appraiser is undisclosed, owner’s trial counsel may indirectly suggest to a trial jury that there is a “secret” or “phantom appraiser” being hidden by the public entity. The inference will be that the phantom appraiser agrees with the owner’s valuation and the condemnor may be unable to dispel this suggestion without calling the inadequate appraiser as a witness.
• Negotiations may have taken place before the Gov. Code § 7267.2(a) statutory written offer has been made, or the Gov. Code § 7267.2(a) offer itself may be legally inadequate. Similarly, Staff may have been unaware that certain administrative or procedural requirements were required before the adoption of a resolution of necessity, such as obtaining findings that the project is consistent with the General Plan or that it complies with the California Environmental Quality Act, thus inviting a challenge to the right to take.
• Staff may have inadequately described the scope and extent of the property to be acquired (typically easements) or omitted mention of significant aspects of the project in the resolution of necessity, resulting in unexpected valuation issues.
• Late consultation with counsel may result in contractual agreements and planning documents that prematurely commit the agency to acquire the property, causing damages to occur to the property owner before the condemnation actually occurs.
• Statements may have been made by staff to the owner or tenants appear to irrevocably commit the public entity to a potential eminent domain land acquisition before the adoption of a resolution of necessity, creating the potential for precondemnation liability.

Eminent domain is the power of government to take private property for a public purpose without the owner’s consent. The power of eminent domain is invoked only after every effort is made to acquire property through negotiation with the property owner and only as a last resort. The power of eminent domain is inherent in governmental sovereignty.  It precedes the Constitution and is not constitutionally conferred. Because eminent domain is an inherent attribute of sovereignty, the federal and state constitutional provisions merely place limitations upon its exercise.  The power of eminent domain is further legislatively limited and regulated by the California Eminent Domain Law.

Possibly the earliest known exercise of the power of eminent domain is found in the Bible at 1 Kings XXI. King Ahab sought to acquire Naboth’s vineyard. Upon refusal to sell the subject property, Naboth was stoned to death.

The first known use of the term eminent domain (dominium eminens in Latin) was taken from the legal treatise De Jure Belli ac Pacis, written by the Dutch jurist Hugo Grotius in 1625, who wrote of the power of the state to alienate private property:

…  The property of subjects is under the eminent domain of the state, so that the state or those who act for it may use and even alienate and destroy such property, not only in the case of extreme necessity, in which even private persons have a right over the property of others, but for ends of public utility, to which ends those who founded civil society must be supposed to have intended that private ends should give way. But, when this is done, the state is bound to make good the loss to those who lose their property

(Nichols on Eminent Domain (revised third edition, 1997) § 1.12[1], pages 1–14; Nowak, John E.; Rotunda, Ronald D. (2004). Constitutional Law (Seventh ed.). St. Paul, MN: Thomson West. p. 263.)

While the power of eminent domain was well established in England before the American revolution for highway acquisitions, the adjudication of the “recompense” appears to have been determined in a proceeding wherein the property owner had no opportunity to be heard (an ex parte proceeding). (Nichols on Eminent Domain (revised third edition, 1997) § 1.12[3], pages 1–74.)

Much of California’s eminent domain law has its origins after World War II when public construction programs boomed and eminent domain trials became commonplace in the courtroom.  Because no piece of legislation can cover every factual situation which may arise and because the legislature left to “judicial development” some provisions of the law, the law of eminent domain continues to evolve.