Eminent Domain Report

Downzoning property is always a thorny issue:  on the one hand, zoning changes are typical, "police power"-type governmental activities; on the other hand, they can significantly impact property values, and in some cases can result in governmental takings liability.  When a property owner experiences a change in zoning, there are typically two theories that can be pursued:  one is so-called "spot zoning," and the other is a regulatory taking.  

Under the first theory, "spot zoning," a property owner can have a zoning designation invalidated if it can prove the government targeted the property for zoning treatment different from other similarly-situated properties – especially if done for an improper purpose.  Under the second theory, a regulatory taking is analyzed using Penn Central's three pronged test: (1) the economic effect on the landowner; (2) the extent of the regulation's interference with investment-backed expectations; and (3) the character of the governmental action.  

It's not every day we see these issues pop up in California; however, there is an interesting new case brewing in San Diego that's worth following.  According to an article in the San Diego Source by Dick Daniels, Legal battle looms over open space, the City of Escondido recently took action to forever preserve the 110-acre Escondido Country Club as open space.  While designating a golf course as open space doesn't sound like a big problem, in this case it may be.  The course was struggling, with membership dwindling down from 500 to 130 members, and tax and water bills mounting.  When a new owner purchased the course, it terminated club memberships, turned off the water, and announced plans to build several hundred homes on the site through its existing residential zoning designation.  

Country club residents fought back against the developer's plans, claiming their existing home lots were developed in a density transfer deal that required the actual golf course area to be counted as community open space.  And, because this was meant to be a master-planned community with a golf course, the course should be untouchable -- forever.  After gathering enough resident signatures, the City Council took action to "downzone" the property as open space.

The new course owner has filed a lawsuit alleging the downzoning -- from residential to open space -- amounts to a taking of property without the payment of just compensation.  The owner claims it purchased the property with the intent of building homes, and the golf course property is essentially worthless given its continuing to lose money every month, with no other viable use.  The owner is seeking compensation based on the course's "highest and best use" -- residential -- which the owner claims is $100 million.

Stay tuned.