Eminent Domain Report

When people think about eminent domain disputes, they usually think about appraisers, lawyers, depositions and trials. But I’ve found that many times the greatest impact on the ultimate cost of a case happens long before anyone files a complaint. That is true for both sides. For public agencies and utilities, an early project or acquisition decision can unintentionally create a much larger compensation claim. For property owners and developers, failing to understand the impact of a proposed acquisition early can mean losing opportunities to protect the property or improve the ultimate outcome. Here are five issues worth focusing on before litigation begins.

1. Acquire the Right Property Interest

One of the first questions should be one of the simplest: What property rights does the project actually need? Fee title? A permanent easement? A temporary construction easement? Access rights? Utility rights? Acquiring more than the project requires can unnecessarily increase compensation and create additional disputes, including right-to-take challenges. Acquiring too little can create operational problems and force the agency to come back later, potentially leading to significant project delays.  And if the correct acquisition areas and rights were not analyzed as part of the project’s environmental approvals, that can also result in a CEQA challenge. The language of the easement matters too. Small differences in permitted uses, access, exclusivity, maintenance rights and future expansion can have major consequences for both project delivery and the remaining property's value.

2. Look Beyond the Square Footage Being Acquired

A common mistake is focusing too heavily on the value of the land physically being taken. In many partial acquisitions, that isn't where the real dispute is. The larger issue may be what happens to the property that remains. Does the acquisition change access? Parking? Circulation? Visibility? Development potential? Setbacks? Utility availability? The ability to expand an existing business? A relatively small acquisition can create a very large claim if it materially affects the usefulness or value of the remainder. Identifying those issues early gives both sides more options. I have a case right now where the public agency did not describe the easement rights whatsoever, or provide any description or duration of the “temporary easement”. It has led to a massive valuation dispute, and exposes the agency to a large damages claim or a partial abandonment claim that could trigger an award of attorneys’ fees.

3. Understand the Property's Development Potential

A property’s current use is only part of the valuation story. Zoning, entitlements, density, access, infrastructure and the reasonable probability of future development can dramatically affect value. That means project teams should understand the owner's development plans before finalizing an acquisition. Owners and developers, meanwhile, should evaluate whether the proposed taking affects those plans before negotiations get too far along. Sometimes a modest change in project design can preserve development potential and eliminate a much larger damages claim. That can be a better result for everyone. I recall a case several years ago where a public agency planned a construction staging / laydown area on the frontage of a vacant lot, only to later realize the lot had just secured entitlements, and the 3-year TCE would delay a major new development. If the agency had done their due diligence and checked on the property’s entitlements, it would have selected a different site.

4. Don't Treat the Appraisal as the Beginning of the Analysis

An appraisal is essential, but it should not be the first time the difficult property issues are identified. By the time an appraiser receives a final legal description and project map, important decisions may already have been made. The strongest project teams tend to bring the real-estate, engineering, appraisal and legal perspectives together early. That allows questions about property rights, highest and best use, access, damages and project design to be considered before positions harden. Property owners should take a similar approach. Understanding the acquisition's actual impact before responding to an offer is usually far more useful than simply obtaining a competing appraisal.

5. Leave Room for Practical Solutions

Not every property problem needs to become a valuation dispute. Over the years, some of the best results I've seen have come from solutions that don't fit neatly on an appraisal spreadsheet. A redesigned driveway. A modified easement. Replacement parking. Relocated utilities. Revised construction access. A change in project timing. Those solutions may preserve property value while also allowing the public project to move forward. Once litigation begins, those options can become harder to implement.

The Bigger Lesson

Eminent domain cases are ultimately about compensation, but they are also real-estate problems. The parties that recognize that early usually have more tools available to them. I've had the opportunity to see this from both perspectives—representing public agencies and utilities acquiring property for major infrastructure projects, and representing property owners, developers and businesses affected by those projects. The recurring lesson is that the best time to solve an expensive condemnation problem is often before it becomes a condemnation case.