City's Planning To Acquire Property Does Not Trigger Precondemnation Damages Or Inverse Condemnation Liability

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Planning and constructing large public works projects can take years. When those projects will impact private property, owners are left in a difficult situation...
United States Real Estate and Construction
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Planning and constructing large public works projects can take years. When those projects will impact private property, owners are left in a difficult situation, as the cloud of condemnation hangs over their property, making it difficult to lease or sell. When do planning activities for public projects go too far, and trigger inverse condemnation liability? A recent court of appeal decision, Ramsey v. City of Chowchilla (2023 Cal.App. Unpub. LEXIS 2147) provides some clarity on just how much flexibility is afforded to public agencies.

Background

In Ramsey, the City initiated discussions with a property owner in 2005 to acquire private property for a highway improvement project. City officials told the owner that the highway project was an "eminent domain project", and the property would be acquired for just compensation. In 2007, the City asked the owner to provide a price to voluntarily sell the property, so the owner secured a broker's opinion of value, and the City secured its own appraisal. In 2008, the City informed the owner that it was waiting for an approved project study report, which would take several weeks, but then property negotiations would occur "due to the fact that your property must be acquired in order to construct the new interchange" and "it appears certain that your property will be acquired." In 2009, the City informed the owner it had initiated the process of land appraisal and that it would complete the appraisal and negotiation process and move to acquire the needed land within 18 months. In 2011, the City then adopted a general plan which rezoned the property to "public facilities." Several more years passed, and Caltrans then began the environmental review process for the project.

Given the delays and uncertainty with the public project, the owner retained a real estate agent to market the property for sale or lease. More than a dozen prospective buyers or tenants expressed interest, but once the City's planned acquisition was disclosed, all prospective buyers/tenants were no longer interested. This went on for more than 8 years. The owner was left with leasing the property on a month-to-month basis with undesirable tenants at below market rates.

In 2020, the owner finally sued the City for inverse condemnation and precondemnation damages, claiming that the City's actions constituted a direct and special interference with the property, lowered its value, eliminated the income it could otherwise enjoy, and specifically targeted his property since it was the only one that was rezoned for public facilities uses.

Court Ruling

The City filed a demurrer, asserting that the claimed actions did not constitute a taking of the property, and did not give rise to precondemnation damages, as the activities were planning activities that are not actionable. The trial court sustained the demurrer, and the owner filed an appeal.

On appeal, with respect to the inverse condemnation claim, the Court held that the change in zoning to "public facilities" did not eliminate all economically beneficial use of the property, and did not constitute a taking under the Penn Central factors. Private economic uses were still permitted under the public facilities designation, including private schools, agricultural uses, hospitals, gas stations, recycling facilities, and other similar uses subject to a conditional use permit. Moreover, the owner still achieved some rental income from the site in its current condition, and because the owner never attempted to secure permits or approvals for other uses, the issue was not ripe.

With respect to the precondemnation damages (or Klopping) claim, the Court explained that the owner must demonstrate the public agency acted improperly by either (i) unreasonably delaying an eminent domain action following an announcement of intent to condemn or (ii) other unreasonable conduct. The Court further highlighted that adoption of a general plan, by itself, is insufficient to trigger liability under Klopping. Finally, the Court explained that planning activities cannot give rise to precondemnation damages liability, even as here, where the city made it known it was planning a project that would result in the condemnation of private property, appraised the property, communicated its intent to acquire the property, and expressed specific intent over a number of years to build the project. The Court held:

"The allegations of the governing complaint do not demonstrate City's conduct had progressed from the planning stage to the acquiring stage. City's alleged conduct did not constitute an announcement to condemn the subject property sufficient for potential liability under Klopping and, thus, there was no unreasonable delay following an announcement to condemn. The allegations of the governing complaint do not demonstrate unreasonable conduct on the part of City."

Therefore, the Court found no precondemnation damages liability.

Take-Aways

While the Ramsey decision is unpublished, it highlights the uphill battle property owners face in establishing inverse condemnation and precondemnation damages liability. It also highlights the significant impacts the planning of public projects can have on private property, while leaving open the question of what constitutes an announcement of intent to condemn.

A lot of this could have been avoided if the city did not start the appraisal and negotiation process long before it had environmental approvals for its project. It also could have been avoided if the city did not make such definitive and certain statements about its plan to condemn the property.

In reality, public agencies should not be making such statements until it is clear that the project will be environmentally approved, the alignment has been selected, and the project is closer to becoming a reality. Otherwise, there is a blur between what constitutes "planning" and what constitutes "acquiring". Staying in the planning phase avoids liability and also minimizes impacts on private property.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

City's Planning To Acquire Property Does Not Trigger Precondemnation Damages Or Inverse Condemnation Liability

United States Real Estate and Construction
Contributor
For more than 80 years, Nossaman LLP has delivered the highest quality legal expertise and policy advice to our clients nationwide. We focus on distinct areas of law and policy, as well as in specific industries, ranging from transportation, healthcare and energy to real estate development, water and government.
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