Eminent Domain Report

A recent article from Border Report, "Tijuana residents holding out for more money, slowing construction of border crossing," caught my attention.  Not only because we're advising on the border crossing project on the U.S. side, but also because it raises an interesting valuation issue.

According to the article, property owners in eastern Tijuana, where the new port of entry is going to be built, are holding up the project by demanding more money for their land.  Specifically, the owners want to be paid what the land will be worth once the border crossing is built instead of current value.  These increased payment demands are slowing down the land-acquisition process.  While I'm not familiar with eminent domain or condemnation law in Mexico, in California, that valuation approach would not fly.

Specifically, in California, under Code of Civil Procedure section 1263.330, 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:

• The project for which the property is taken;
• The eminent domain proceeding in which the property is taken; or
• Any preliminary actions of the plaintiff relating to the taking of the property.

This is known as the "project influence rule," which prohibits the fair market value of condemned property from being influenced by the project for which the property is being condemned. For example, if the government is acquiring property to build a sewage plant, the government does not get a discount because its project renders surrounding properties less valuable. Similarly, if the government is building a new road or highway which will increase development potential and raise property values, the property owner does not get the benefit of the increased value attributable to the project.

It seems relatively straight-forward, but things can get complicated.  For example, there's a different applicable rule where the property being acquired was not originally slated for acquisition when the project was announced.  In such situations, the owner may get the benefit of an increase in value due to the project -- but only for a certain period of time.  Similarly, there are odd rules that come into play if the property may be required to be dedicated in order to achieve its development potential, even though the government project is triggering the dedication (we've written about this previously).

Nothing's quite as easy as it sounds.  If you run into these issues, just call me....