Eminent Domain Report

With the improving real estate economy, there have been an influx of new large development projects throughout California.  With these new proposed developments, it is common for local government agencies to require public improvements -- such as streets or utilities -- to support the influx of traffic and people to a previously undeveloped area.  Those public improvements commonly take place off the developer's property, so what happens if surrounding property owners do not want to sell their land to support such improvements for a private development?  Can eminent domain be utilized, and if so, how does it work?

A recent example of this situation appears in an article in last week's Voice of San Diego titled Developer and County May Seize Private Property for Lilac Hills Development Project.  According to the article, the County of San Diego has conditioned approval of a new 600-acre, 1,700-home project on the developer's widening two existing roads that border the project.  In order to do so, the developer will be required to acquire several private properties from owners who are unwilling to sell.  So what happens next?

The developer will make reasonable efforts to acquire the property voluntarily, but if unsuccessful, ultimately, the decision will be up to the local government agency on how to proceed.  The law provides that the agency can either assist with acquiring the land for the off-site improvements, or waive the condition of approval.  (See Gov. Code, sec. 66462.5.)  Where the off-site improvements are necessary to satisfy safety standards, it is unlikely the condition will be waived.  Therefore the local agency generally condemns the necessary property.  The agency typically has 120 days after the approval of the final map to acquire the property by negotiation or commence eminent domain proceedings.

While this process may seem unfair, essentially giving a developer the extraordinary power of eminent domain for a private project, the concept is that a local government agency cannot limit approval of a project on a condition that is completely outside the developer's control.  And while developers should be hesitant to resort to requiring the local agency to use eminent domain, this process provides a powerful negotiating tool.

Once the process is complete and the agency acquires the necessary property, the developer will then typically complete the improvements, and reimburse the agency for acquiring the off-site property interests (including the agency's attorneys' fees).  This is generally negotiated on the front-end through some sort of reimbursement or development agreement.

Even with the elimination of redevelopment in California, we will likely be seeing more and more eminent domain to support public infrastructure supporting private development projects as the real market continues to improve.