One particular issue that arises in eminent domain valuation cases involves the impact of property dedication requirements on just compensation. Dedications are defined as an uncompensated transfer of a private property interest to a public entity for public use. Courts have long held that it is within a public entity’s police power to condition development of property on a dedication of a portion of the property to public use. Typically such dedications involve a strip of frontage for a street widening or a sidewalk. But when the public entity decides to take either the frontage or the larger parcel by eminent domain, how is the property to be valued? These issues take on greater significance when the government looks to condemn property and contends that the owner should receive little or no value for part of the property because the owner would eventually have to dedicate that area to the public if she ever wanted to develop the property.
To explain this issue, a hypothetical is helpful. Assume that the Town of Mayberry is considering condemnation of a property that is presently used and zoned for agricultural purposes but would logically have a highest and best use of residential or office purposes. Assume also that the town has an existing policy that as a condition to granting a change in use, the town will require the owner to dedicate a portion of the frontage for sidewalks, a street widening, or both.
California courts have long used what is commonly referred to as the Porterville doctrine, set out by the court in City of Porterville v. Young (1987) 195 Cal.App.3d 1260. Under the Porterville doctrine, the owner can obtain the existing (in our hypothetical agricultural) value of the strip that would otherwise have to be dedicated, and the fair market value at highest and best use of the remainder of the taking. The rationale is that the property owner could never have achieved a highest and best use for the remainder of the property if she did not dedicate the strip.
The first step in the analysis is to determine whether it is reasonably probable that future development of the property would have required a dedication of the property taken. In other words, did the government entity have a policy requiring such a dedication, or is the imposition of such a requirement “reasonably probable” on the date of the valuation?
If such a dedication requirement is reasonably probable, the next step is to determine whether the requirement is constitutionally permissible. A dedication requirement must meet the tests set out in Nollan v. California Coastal Commission, 483 U.S. 825 (1987) and Dolan v. City of Tigard, 512 U.S. 374 (1994). Under Nollan and Dolan, the government cannot compel a person to give up her right to just compensation in exchange for a discretionary benefit where the benefit sought has no relationship to the property, and there must be essential nexus between the dedication and the public purpose that would otherwise be served by denying the permit outright. In other words, there must be some relationship between the nature of the dedication and the impacts of development—“essential nexus” and “rough proportionality” are required.
Even if the dedication requirement was reasonably probable and meets Constitutional muster under Nollan and Dolan, the analysis is not complete. The next issue is whether the dedication requirement is simply an effort by the governmental entity to reduce the value of property in anticipation of condemnation. While it may seem shocking to some that government agencies would deliberately downzone property or put up dedication requirements to minimize the cost of a public improvement, it has happened. See, e.g., Jones v. People ex rel. Dept. of Transportation (1978) 22 Cal.3d 144, 147; City of San Diego v. Rancho Penasquitos Partnership (2003) 105 Cal.App.4th 1013, 1034. If the dedication requirement is imposed by the governmental entity in an effort to deny the owner of just compensation, the requirement must be disregarded.
In California, the property must be valued without reference to the condemnation action or any preliminary actions of the government. Under Section 1260.330 of the Code of Civil Procedure, often called the project influence or project effect rule, the fair market value of a property subject to a taking cannot include “any increase or decrease in the value of the property that is attributable to” the project for which the property is being taken, the eminent domain proceeding for the taking, any actions relating to the taking. If the dedication requirement is put in place after it becomes probable that the property subject to the dedication will be included in development, the requirement should be disregarded.
Dedications can become quite thorny issues, transforming a fairly straightforward taking case into the Nollan and Dolan analysis as well as a fact-intensive inquiry into the origination and basis of the dedication requirement in the first place. Keeping these issues in mind when such an issue arises will help you analyze whether a dedication analysis can affect your taking.