Eminent domain: a concern for property owners. (San Fernando Valley Real Estate).

Most property owners pay little or no attention to the issues of eminent domain. These days however, if you own property in a redevelopment area, along a major transportation corridor or in a neighborhood the Los Angeles Unified School District (LAUSD) believes is undeserved, you could be subject to government action utilizing eminent to condemn your property.

The principal of eminent domain

The process of condemning private property in the interest of the public good, is a long standing legal principle. Most governmental agencies use it as a last resort after negotiations with property owners prove fruitless. However, don't be lulled into a sense of complacency. If you are aware of the local redevelopment agency, Caltrans, or LAUSD holding public hearings or undertaking environmental impact reports in your neighborhood, your property could well become the target for condemnation.

As an owner or tenant you should be aware of any and all communications sent to you related to public hearings or other actions contemplated in regards to your property. Your on-site managers (or tenants) should be told to forward all such communications, otherwise it's likely you will only become aware of the condemnation when you receive by Certified mail a Notice of Hearing to Condemn your property. In our experience, the process of condemnation usually takes at least two years from initial inception of a project until completion. This allows property owners and tenants ample time to retain competent legal counsel with the objective of protecting and maximizing the value of their asset(s).

Fair market value

Once a tentative decision to acquire your property has been made, your first contact with the governmental entity will be through the receipt of a friendly letter advising you of its intention to appraise your property. The purpose of this appraisal is ostensibly to determine the property's fair market value. Conceptually this will be the highest price for which a willing seller would sell and a buyer would purchase the subject property. However, since it's in the interest of the public agency to pay the least and in your interest to obtain the most for the property, the process can become adversarial. Given this scenario, never provide any information about your property to any governmental agency or individual representing such an agency without consulting your legal counsel. Since the information flow is a one way street, your case for fair compensation could be damaged and will certainly not be helped by talking.

Obviously, regardless of what value the agency's appraiser designates for your property, you should retain your own valuation expert. Be careful, you need to find an appraiser who is a specialist in eminent domain. No run of the mill appraiser will do. And, you need to have your attorney hire that appraiser so that your appraisal remains confidential until trial.

In addition to paying fair market value, governmental agencies are supposed to pay compensation for loss of good will and/or damage to remaining property. Good will is tough to prove and often requires businesses to open up their books and tax records for scrutiny. This many are unwilling to do.

Damage to remaining property is another matter. In many instances the agency will only condemn part of a property, as in the case of a street widening. This could prove problematic than if it had taken the entire parcel. For example, the condemnation could eliminate the property's frontage or take away parking which, among other things, could cause the parking ratio to become nonconforming. The action might impact truck access, requiring expensive reconfiguration of truck routes into and out of the property. In all instances the owner and his or her tenants and any tenants will be adversely impacted and should be compensated accordingly.

Increasing property value

Since the valuation of a property by the governmental entity will take place close to the actual condemnation, an owner will have ample time to increase its value by doing several things. First, it's important to review leases carefully with all tenants including related entities. In the latter case, a related entity might be leasing the property from the partnership that holds title Depending on the situation and the tax consequences to the various entities it may be prudent to adjust the lease terms or rental schedule. In the case of non-related tenants, be sure that your condemnation clauses are well written otherwise tenants could receive the major share of the condemnation award.

If your property is undeveloped, you should consider getting it entitled in order to enhance its value. This could be costly requiring architectural design, environmental impact reports and other demonstrations of your seriousness to develop the property. While not directly recoverable, these expenditures might sufficiently enhance the value of your property to make the effort worthwhile. Here again, consultation with an experienced condemnation lawyer or appraiser is vital.

In some instances, the same agency that is trying to condemn the property will have to approve your application for entitlements. Thus it may intentionally drag its feet or simply refuse your application. Keep good records of any such actions because juries take a dim view of this type of activity and major damage awards stemming from such conduct are not unknown.

Finally, if your property has potential toxic problems, clean it up. The cost of your doing it will be a great deal less than that which the government will estimate thus reducing its fair market value.

As I hope I've illustrated, the whole area of eminent domain and condemnation is complex. Because following the wrong advice can cause irreparable damage, seek help early from an expert in the field.

Pamela S. Schmidt, is a partner in the Land Use, Energy and Environmental Department at the law firm of Jeffer, Mangels, Butler & Marmaro LLP.