By James M. Wyman, Best Best & Krieger LLP
Condemning property for public projects in California is a hard reality for both government officials and the owners of property that is in the path of a new road, freeway expansion or mass transit project. There is often little that can be done to avoid having to acquire private property for these types of public projects. For major infrastructure projects, it can take years between project inception and property acquisition, leaving some property owners with the sense that they would have been better off had the property been acquired/condemned at an earlier time, especially if their property once had a higher value.
In general, property acquisition flows through a typical process without many problems: The public entity determines what property it needs, appraises it and acquires it. However, the process doesn’t come without peril and is subject to mistakes that can end up costing the public agency dearly. And in a topsy-turvy real estate market, where values may be lower in the future than the past, property owners are looking at new and untraditional ways to collect what are known as precondemnation damages.
Under California law, mistakes that occur in the property acquisition process can lead to a unique type of property-related damages known as precondemnation or Klopping damages. In the seminal case on precondemnation damages, Klopping v. City of Whittier, the California Supreme Court in 1972 set forth the basic parameters under which a property owner would be entitled to recover damages for a public agency’s unreasonable conduct or delay in condemning property.
Traditionally, property owners who seek precondemnation damages claims rely on lost rental profits as a means of measuring precondemnation damage. In a recent case involving a freeway improvement project in northern Monterey County, the property owners tried a different approach for measuring damages in a declining real estate market; they measured damages by calculating the difference in value of the property between the start and the end of the precondemnation period. One shortcoming with this approach was that the property owners were unable to distinguish between the decline caused by the general market and the decline caused by the public agency’s conduct. A state appellate court rejected the measurement of precondemnation damages, holding that the property owner’s method of calculating damages was limited to situations in which the property owner could prove a physical invasion or direct legal restraint on the property.
While avoiding paying precondemnation damages is a goal of the legal process, it is advisable to avoid precondemnation liability on all fronts. On many levels, avoiding precondemnation liability is somewhat straight forward – act reasonably in your dealings with the public and property owners in particular. There are four key points that public entities should consider during project delivery to minimize precondemnation damages claims:
- Be Gracious, Respectful and Professional. Condemning property is the most significant civil power that a government entity holds. Be mindful of this during the acquisition and relocation processes. Having a home or business condemned is difficult enough for property owners so treating property owners with respect and being gracious towards them is an easy way to show that the public entity understands and can sympathize with them. Likewise, being professional is a way to demonstrate the seriousness of the situation and showing respect. Following these practices will go a long way to engender goodwill throughout the process.
- Be Honest with Project Plans but Do Not Overstate. Government activity, including most aspects of project planning, is best practiced in the open. When discussing projects with property owners in the path of a public project, public entities need to be honest that a project is being planned but they need to be careful and circumspect in making statements about the exact parameters of a project before it is approved and right-of-way requirements are finalized. Avoid public statements that unequivocally state the need for a particular property and recognize that options may be available in the future to avoid certain impacts.
- Document Decisions. It is important to document decisions that may affect certain property owners. This is particularly true when a property owner requests a redesign to part of a project to avoid a specific feature of his/her property. As all project engineers know, not every redesign will meet with the approval of the project proponent or be sufficient to meet the property owner’s needs. In deciding to redesign a portion of the project, the public entity needs to ensure that the decision is documented in order to protect against precondemnation claims. One method is to prepare a memo to file explaining that the public entity is undertaking the redesign at the behest of the property owner and that such a course of action may delay the actual date of acquisition.
- Do Not Burden Property. Property owners have a right to seek development of their property. Public entities that are not acting in a regulatory capacity should not interfere with property rights, especially for the nefarious purpose of depressing the property value. Direct interference or preventing a property owner from using the property in a manner that is otherwise permissible could be the basis for a lawsuit. While a government agency may envision using certain property in the future, it cannot take actions outside of the law to suppress the value of the property for future acquisition. For instance, one public entity cannot prevent another public entity from subdividing property to ensure that its value does not increase when the time for acquisition has arrived. For road projects, there are mechanisms for right-of-way protection that are legal so be sure to use those.
If a property owner has a valid claim for precondemnation liability, a viable defense may be found in causation. (i.e., did the public agency’s conduct cause the decline in value or is it attributable to another factor?). For instance, when a property owner claims that the property has suffered as a result of the public entity’s precondemnation conduct or delay, the public entity may be able to defend itself by arguing causation. In the Monterey County case, the property owners claimed that the delay associated with the public entity’s conduct entitled them to precondemnation damages. They were, however, unable to link the public entity’s conduct to the decline in property value. The appellate court ruled that there was no evidence that the public entity caused the decline in value and that a public entity is not responsible for a general decline in market value tied to precondemnation liability. Forcing a property owner to prove causation is a necessary defense tactic. Differentiating between market conditions and the public entity’s conduct may be even harder to prove where the market is declining during the precondemnation period.
The type of precondemnation conduct or delay that leads to precondemnation damages is relatively rare. Being in a position to prevent the issue and armed with knowledge about the developing law in this area is a simple way to avoid unnecessary project costs.