Factoring Out Project Effects and Project Influences In Determining Value

It is a basic principle of eminent law that any increases or decreases in value that are due to the public project for which the property is acquired should be factored out in determining the property’s fair market value.  California Code of Civil Procedure section 1263.330 embodies this principle, stating:

The fair market value of the property taken shall not include any increase or decrease in the value of the property that is attributable to any of the following:

(a) The project for which the property is taken.

(b) The eminent domain proceeding in which the property is taken.

(c) Any preliminary actions of the plaintiff relating to the taking of the property.

At its core, this principle is simple common sense.  A property owner should not receive MORE compensation because a project has made the owner’s property worth more.  The owner is not responsible for that increase and would receive a windfall if paid for the resulting increased value.  Nor should a property owner receive LESS because a project has made property worth less.  The owner is not responsible for the decrease and should not be penalized because of it.

Of course, whether an increase or decrease is due to project activity is often an area of hot dispute.  For example, California courts have held that commercial vacant land taken for public use should be valued only at vacant agricultural value, if its eventual development would have triggered standard, general dedication requirements that existed BEFORE the project, that the land taken be dedicated for right of way, sidewalk or setback uses and the like.  (E.g. City of Porterville v. Young (1987) 195 Cal.App.3d 1260.)  The courts reason that, if the vacant property would have had to be dedicated anyway as a condition to commercial development, the owner could not have used it for commercial purposes and should, therefore, not receive full commercial value for it.  However, California courts have also held that, where a dedication requirement is not standard and was created with the project in mind or with the idea that the owner’s property would be included eventually in the project, such a “project effect” or influence should be ignored in determining value.  (E.g. City of Perris v. Stamper (2016) 1 Cal.5th 576, 603–605.)  All relevant evidence needs to be gathered and considered in making this determination.  Such evidence may include:  the timing of the dedication requirement, its nature and the circumstances under which it arose, the reasonable expectations of the owners and the governmental agency imposing the requirement. A “nonstandard dedication requirement and a record devoid of an agency’s imposition of similar requirements may tend to show that the designation of the property for public use was related to the agency’s planned inclusion of the property in an upcoming project. Also, a short period between the time the property is designated for public use and the time the agency first signals its intention to condemn the property may support an inference that inclusion was probable when the dedication requirement was put in place.”  (Ibid.)

Therefore, a property owner impacted by a taking where the governmental agency claims that the property would have had to be dedicated anyway, needs to get his or her legal team and appraisal team looking for evidence to show whether the claimed dedication requirement arose BEFORE or BECAUSE OF the project for which the property is to be acquired.  The legal and appraisal teams need to “factor out” project related effects and influences.

Government agencies are using their teams of experts to protect public projects. It is only prudent for property and business owners to do the same. Make us the legal part of your team. Our attorneys have over 40 years combined experience on representing property and business owners impacted by eminent domain. Contact us to schedule a free initial consultation.

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