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Eminent Domain

DEFINITION

Government’s right to acquire title to real property for public use purposes through condemnation.

EXPLANATION

The state and federal governments have the authority to assume a property for public or governmental use. This is called eminent domain. Common eminent domain claims by the government have been historically used for making space for roads, highways, and bridges. The property in question will be required to be sold to the government for fair market value. The owner has no choice but to grant the sale to the government. The practice of eminent domain, although necessary, has many opponents who argue that the forced, concurrent sale of many properties depresses the fair market value of all affected, thereby reducing the fair market value of the neighborhood.

Easements and Eminent Domain

An easement by condemnation refers to the right of the government to acquire land for a public purpose through eminent domain.

Potential scenarios where easement by condemnation would be utilized by the government include: railroad right of way, transmission lines, piping, electrical grids, etc. In these scenarios, the user of the land will likely be responsible to compensate the landowner for use of the land and the reduction in property value. Property value would decrease because of increased activities on the property which would reduce the landowner’s full enjoyment of the property.

The Fifth Amendment of the United States grants the government the power to confiscate private property and divert it to public use through eminent domain.

The purpose of eminent domain is to convert private property for such purposes as the construction of roads, highways, schools, and public utilities.

The Power to Enforce Eminent Domain

Although the federal government holds the ultimate claim to eminent domain, power is dispersed to the state and local levels. Confiscated properties may then be diverted to third parties tasked with managing the property’s development.

Police power is the government’s right to create and enforce laws that promote the wellbeing of the public. Police power is used to take the title to a property through eminent domain.

Compensating a Party Whose Property is Confiscated Through Eminent Domain

A property owner who is subject to eminent domain is entitled to compensation for his or her loss. Compensation must be just and fair, and adhere to the property’s current market value. It is advised that a property owner use recently sold comparables to negotiate a fair price. Should a property value increase at a future date, the property owner is not entitled to the difference in price.

If a property owner objects to the determined fair market value of his or her property, the owner has the right to have his or her case heard in court. As real estate values are difficult to calculate — especially in the absence of recently sold comparables — eminent domain acquisitions often go to court.

A jury determines the fair market property value to which a property owner is entitled. The final compensation amount includes the reasonable costs of relocation and moving. If the owner owns a rental property, he or she must be compensated for the lost rental income.

Certain private parties may have the right to claim eminent domain over a portion of a property owner’s property in the form of an easement. For this to occur, there must be the following:

A great need for an easement (i.e. power, electrical, driveway)

The hardship of a private party outweighs the hardship of the property owner (Civil Code Section 1001(c))

The portion of a property where an easement is implemented is the least intrusive and least damaging location on the property

In 2006, President George Bush issued an executive order affirming that in the event of eminent domain, the government must confiscate land only for public use and must include just payment to the property owner.

Government Police Power and Eminent Domain

Governments at the state, local, and federal level can confiscate property from private citizens and corporations by police power. Police power is the government’s right to create and enforce laws that promote the well-being of the public including issues relating to health, safety, and equality of its citizens.

Federal, state, and local governments can exercise their policing power by using eminent domain to seize a person or company’s property. This policing power grants the government the right to take away property to protect public health, promoting safety, and using land for the “greater good” of the community. The government must compensate the landowner whose property is being compensated for the fair market value of his or her property.

Due Process

According to the fifth amendment of the Constitution, the owner of private land must be granted due process, even in instances of eminent domain which pertain to public health and safety. The process of paying a private individual or corporation for the seizure of their land is known as condemnation.

A common example of the government exercising eminent domain includes the decision to seize land for the construction of freeway parts that now extends into the land of a private citizen or corporation. Under this example, the private citizen’s rights to his or her land are taken away because the freeway ramp serves the interests of the public.

The value paid to the private individual or corporation whose land is being taken for the purpose of eminent domain is based on its current fair market value. If only a portion of the land is taken, the compensation paid out to the private individual or corporation is calculated by calculating the amount per square foot. To calculate the value of the land and the ensuing payment to the private citizen or corporation, the government will calculate the value of the total land, minus the parcel size being taken, by subtracting it by the price per square foot or square acre.

When calculating the compensation paid out for the seizure of private individuals or corporations, the government must consider the costs associated with moving and mortgage prepayment penalties, if applicable. If the property is a factory, the government may have to consider the loss of income incurred by a third party company or individual who has hired the services of the factory. This means if a client of the factory has already paid an advanced payment for the production of goods, the government may have to compensate the third party company or individual back whose goods have yet to be produced.

Case Law Regarding Eminent Domain

Case Review: City of Turlock v. Paul M. Zagaris, Inc. (1989)

The case, Paul M. Zagaris Inc. v. City of Turlock (1989) 209 Cal.3d 189., involved a broker who sued the city for a dispute over eminent domain.

A broker (Zagaris) introduced a buyer and a seller. They entered into a sales contract for the seller’s property, a transaction on which Zagaris would earn a 6 percent commission. However, while in escrow, they were made aware of the City of Turlock’s intention to acquire the property through eminent domain. Zagaris brought legal suit against the City of Turlock for the loss of his commission.

Zagaris claimed that the government’s actions deprived him of the benefit of his bargain. The court disagreed and ruled in favor of the City. California law does not protect a broker’s right to compensation; a broker’s commission is dependent entirely upon his or her performance within a contract. As no transaction closed in this case, Zagaris was not able to retain the commission.

Case Review: People ex Rel. Caltrans v. Woodson (2002)

The case, People ex Rel. Caltrans v. Woodson (2002) 93 Cal.4th 954., involved an eminent domain case.

The Department of Transportation (Caltrans) wished to widen a freeway entrance. In order to do so, it had to confiscate a nearby mobile home park. It offered the property owner (Woodson) $1.3 million for the acquisition, even though an appraiser valued the property at well over $2 million. Woodson brought legal action against Caltrans over the below fair market value offer. He also wanted attorney and court costs included in the offer.

The Superior Court ruled partially in favor of both parties. It held that the government’s proposed purchase price of $1.3 million was far below the fair market value. However, it contended that Woodson was responsible for paying attorney and court costs. It awarded Woodson an increase in the government’s purchase price, requiring the government to pay $1.876 million.

Woodson appealed the Superior Court’s decision regarding the lack of refund on legal fees. In the Court of Appeals, the court reversed the lower court’s ruling. It contended that because Caltrans’ first offer for Woodson’s property was clearly unfair and below market value, Woodson had been forced to bring Caltrans to court and to incur legal fees. The court concluded that if Caltrans’ initial offer for the property was fair, Woodson would have had no reason to go to court or incur legal fees. Therefore, Caltrans was responsible for refunding Woodson’s legal fees.

Case Review: City of San Diego v. Sobke (1998)

In the case, City of San Diego v. Sobke (1998) 65 Cal.4th 379., involves a dispute over eminent domain.

The City of San Diego notified a property owner (Sobke) of its plans to acquire Sobke’s business property through eminent domain. Sobke sued the City for a loss of goodwill. His claim was based on the notion that his business would have decreased viability after being forced to move to a less desirable area.

The Superior Court reasoned that there was no way to measure a loss of goodwill. Therefore, Sobke was not to be compensated for loss of goodwill, pursuant to California Civil Procedural Code, Section 1263.510. The Court of Appeals affirmed the lower court’s ruling, and Sobke was forced to vacate his property after receiving payment.

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