Eminent domain is the right of a government or a government agent to take private property for public use. The government must provide just compensation for the taking. All levels of government exercise the power of eminent domain, from the federal government and the state down to county and city governments. Some agencies associated with local governments have limited eminent domain rights. For example, a municipal water company can exercise the power of eminent domain to acquire property on which it will build canals and dams.
What Is a Taking?
A taking is an action by a government or government agency that is a literal seizure of the property. A taking can also be the government’s passage of a regulation that prevents the owner from using the property. A taking can be total or partial. Examples of a partial taking include taking only 50 percent of an owner’s land or a perpetual easement, a lasting right to cross the land on part of the owner’s property.
When the government seeks to take property, it applies a balancing test. The agency looks at the character of the government action and its effect on the dollar value of the property. There are situations when a government action will not constitute a taking. For example, a government action to protect public health and safety, like a regulation that limits commercial property development along a polluted river, might not be considered a taking.
Governments' Legal Right to Take Property
A government’s right to exercise eminent domain is found in statutes that apply to that arm of government. The federal government’s right regarding eminent domain is found in the Fifth Amendment to the U.S. Constitution. The pertinent clause reads: “...nor shall private property be taken for public use, without just compensation.” California’s right regarding eminent domain is in the California Constitution, Article 1, Section 19. The pertinent line states: “Private property may be taken or damaged for a public use and only when just compensation, ascertained by a jury unless waived, has first been paid to, or into court for, the owner.”
California has additional state laws that restate and explain the right of eminent domain. For example, the California Code of Civil Procedure Section 1245.245(a) reads, “Property acquired by a public entity...shall only be used for the public use.” Section 7 of the California Public Utilities Code details the eminent domain rights of a railroad, electrical, gas, heat, pipeline, telephone or water corporation. City and county ordinances, particularly those that pertain to specific takings, restate and clarify the eminent domain rights of local governments.
What Is a Public Use?
A public use can cover many different types of activities. A gas corporation can condemn any property necessary for construction and maintenance of its gas plant. A city can acquire property for a recreation area or park. The private property it acquires might be a driveway, yard or home.
The California Constitution places specific limitations on what constitutes a public use. The state and local government cannot use eminent domain to acquire an owner-occupied residence and convey it to a private person. The state and local government can use eminent domain to protect public health and safety, prevent serious, repeated criminal activity, respond to an emergency and remedy environmental contamination that poses a threat to public health and safety.
Example of Public Use
State and local governments can use eminent domain to acquire private property for a public work or improvement. As an example, in 2016, the Santa Clara County Housing Authority signaled it was willing to exercise eminent domain to acquire a mobile home park in Palo Alto. A family owned the park and indicated it wanted to sell it to a developer. The Housing Authority wanted to keep the park open.
The mobile home park was home to approximately 400 residents, many of whom were Latino and low-income. The Housing Authority, which is responsible for creating affordable housing within the county, did not want to see the mobile home park close and the residents be displaced. In 2017, the matter was resolved without the necessity of exercising the right of eminent domain since the family sold the park to the Housing Authority for $40.4 million.
Understanding Quasi-Public Entities
The California Code of Civil Procedure classifies certain organizations, including nonprofit hospitals and cemetery authorities, as quasi-public entities. These organizations cannot begin eminent domain proceedings until a legislative body has adopted a resolution consenting to the acquisition of the property through eminent domain. Public colleges and universities are also quasi-public entities. These institutions often attempt to purchase land or encourage property donations to avoid the expense and time involved in persuading a legislative body to adopt a resolution regarding eminent domain.
Damage to Private Property
A government or government agent can use the power of eminent domain to destroy or damage private property. A government can physically negatively impact a lot, like flood it with water so building cannot occur, or negatively affect the property owner's ability to profit from the lot. One way that the government can negatively affect an owner's economic interest without causing physical damage is to pass a regulation that prevents the owner from building. In the U.S. Supreme Court case, Lucas v. South Carolina Coastal Council (1992), the State of South Carolina passed the Beachfront Management Act. This act prevented property owner David Lucas from building homes on his oceanfront lots. The U.S. Supreme Court found that the statute totally deprived Lucas of all economically beneficial use of his property.
Understanding Inverse Condemnation
Inverse condemnation is a specific two-step process relating to a government taking of private property. First, the government attempts to purchase the parcel of private property. If the property owner does not agree to the purchase, the government takes the parcel through condemnation proceedings in court. The condemnation proceeding determines the just compensation that the government will pay the property owner.
What Is Just Compensation?
Compensation is the value that the government pays the property owner for the taking of her property. “Just compensation” is the fair market value of the property at the time of the taking. The government pays the fair market value in money to the property owner.
When the federal government engages in a taking, it estimates fair market value using the practices found in the Generally Accepted Government Auditing Standards. Collectively, the standards are called the Yellow Book. The federal government may also utilize the testimony of independent real estate appraisers who provide expert opinions. In complex cases that involve water, oil or mineral rights, the federal government may also require the testimony of professional experts like geologists and hydrologists.
Future Uses Change Compensation
The fair market value can be increased by the possibility of future uses for the land. A property owner can argue for higher compensation if she can show the land has more potential uses than is readily apparent, and that a buyer would be willing to pay for these uses. For example, in 2015, a property owner of a 34-acre site in Marin County was able to successfully argue that the California Department of Transportation’s valuation of the property was extremely low. The property owner said the site could potentially be used for a winery. A jury agreed and awarded the property owner $3.2 million for the property.
Different Approaches to Determine Value
Three approaches to determine the value of property are: the market approach, the income approach and the cost approach. Of the three, the market approach is the most commonly used. In the market approach, the government compares the value of the property to be seized with that of other properties of size and value that have sold recently. Appraisers then set the value of the property lower or higher depending on the property's unique attributes, which may include size, location, zoning and access to water.
The market approach is typically used to determine the value of residential properties like homes and yards. Using this approach can present a concern if local sales have been affected by rumors of a substantial project involving eminent domain, such as a railroad. The numbers for recent sales are likely to be lower than they would be otherwise. This can severely disadvantage the property owner.
The Income Approach
In the income approach, the government determines the operating income of a property. Operating income, also called net operating income or NOI, is the amount of profit that the owner realizes after subtracting operating expenses like property taxes, insurance and maintenance.
In real estate investment, operating income is the amount of income collected from the property after the owner has subtracted operating expenses and vacancy losses. A vacancy loss accrues when a tenant vacates the property before the lease is up and fails to make her lease payments. A vacancy factor can be calculated with current lease expirations and market-driven figures that use similar property vacancies. The owner also factors in the capitalization rate or cap rate, found by dividing the NOI by the asset’s value. The cap rate calculates the owner’s potential return on investment for the property.
The Cost Approach
In the cost approach, the government estimates the value of a specific, unique structure on the property. The government determines the cost of recreating this structure on a new parcel. The calculation adds the value of the empty land and the cost to recreate the structure and subtracts the depreciation of the current structure.
Easements and Eminent Domain
A government or government agent does not always need to acquire an entire property. It can use eminent domain to establish a limited use on private property. This type of limited use is called an easement. The easement may be temporary or permanent. Both types of easements make it more difficult for the owner to sell the property.
Even temporary easements can have serious, permanent consequences. For example, a temporary easement may consist of allowing the government to store materials or use roads on the property. A property owner's ability to grow crops or trees on the area covered by the easement can be impacted. The government must pay for the damage caused by an easement.
Challenging Eminent Domain
A property owner has a number of options to use the legal system to challenge a taking. She can allege that the government lacks authority to condemn her property or that the government does not have an adequate public purpose to condemn the property. She can state the government does not need the property for a public project. She can provide evidence that the government has not offered just compensation for the property. The success of a property owner’s case depends on the validity of her argument, the amount of evidence she can assemble and the litigation skills of her attorney.
A property owner has many tools to argue his case. For example, he can show that a government’s appraiser offered inconsistent or inaccurate testimony. Yet it can be costly and time-consuming to fight an eminent domain case. A property owner must pay for an attorney and for experts to provide testimony.
When Condemned Property Is Not Used
Sometimes a government does not use property it has taken. California’s Code of Civil Procedure provides that a government entity that has not utilized a property for a public use within 10 years of adopting a “resolution of necessity” must sell the property. There are several exceptions. The entity does not have to sell the property if it authorizes a different use of the property. It also does not have to sell the property if it reauthorizes the existing public use of the property by a vote of at least two-thirds of all the members of the governing body of the public entity or a greater vote as required by statute, charter or ordinance.
When Governments Do Not Agree
Federal, state and local governments do not always agree about an agency’s power to exercise eminent domain. Sometimes a city or county uses ordinances to limit what activities can occur within its limits. As an example, the City of Oakland banned the storage of coal at the Port of Oakland in 2016. In 2018, a federal judge ruled Oakland could not enforce the ban. As of March 2020, the city is still appealing the ruling.
- California Civil Code Section 1245.245 Eminent Domain Law
- San Diego Tribune: Trump Floats Eminent Domain to Build Wall. Here's How It Could Work
- San Francisco Planning Commission: Centennial Celebration Brochure
- California Public Utilities Code, Division 1. Regulation of Public Utilities [201 - 3297] Part 2. SPECIFIC PUBLIC UTILITIES [2701 - 2897], CHAPTER 3. Private and Mutual Water Service Law 2725
- Capitol Weekly: Water and Eminent Domain, a Volatile Mix
- California Public Utilities Code, Chapter 3. Rights and Obligations of Public Utilities [451 - 651], Article 7. Eminent Domain 610
- California Constitution: Article 1, Section 19
- U.S. Environmental Protection Agency: What About Taking of Private Property Relating to Wetland Regulations?
- San Francisco Chronicle: Federal Judge Strikes Down Oakland’s Ban of Coal Facility Operations
- U.S. Government Accountability Office: The Yellow Book
- Columbia Law Review, Vol. 117, No. 8: Partial Takings
- Marin Independent Journal: Marin Jury Awards Rancher $3.2 Million for Land Seized in Novato
- The U.S. Department of Justice: The Appraisal Unit
- Silicon Valley Business Journal: Eminent Domain Floated to Save Palo Alto Mobile Home Park
- Palo Alto Online: $40.4M Deal Saves Buena Vista Mobile Homes
- California Code of Civil Procedure Section 1245.310 Resolution Consenting to Eminent Domain Proceeding by Quasi-Public Entity