Just compensation in condemnation has long been held to require payment that is fair to both the property owner having its property seized and the public taking it. Two of the rules that have developed in this pursuit of fairness came face to face in a recent case, City of Perris v. Stamper, No. S213468, 2016 Cal. LEXIS 6749 (Cal. Aug. 15, 2016). In light of the court’s holding in Perris, property owners reviewing compensation offers may need to pay particular attention to the timing of land use plans and public project announcements applicable to their property.

In Perris, the City bisected Stamper’s vacant light-industrial zone property with a 1.66 acre acquisition to construct a road. The City offered Stamper $44,000 in compensation. Stamper demanded $1.3 million. The basis for this vast difference in valuation lay in the appraisal assumptions.

The City took the position that Stamper’s industrially zoned land should be valued as if it were agricultural. Given that developing his larger property with an industrial use would, in the City’s estimation, require as a condition of City approval that Stamper dedicate the property that the City was condemning to the City without compensation, the true value of the property was no more than its value in agricultural use. The City’s theory was consistent with the holding in another case, City of Porterville v. Young, 241 Cal. Rptr. 349 (Cal. Ct. App. 1987), that deemed the valuation approach appropriate so long as the dedication met the constitutional requirements of rough proportionality of the required dedication to the development’s impact and essential nexus of the required dedication to a valid public purpose.

Stamper argued that application of the Porterville rule was properly cut off by the project influence rule. Under the project influence rule (codified in California in Civil Procedure Code § 1263.330), any increase or decrease in property value due to the project for which the property is taken must be disregarded. This is fair. The condemnor should not have to pay for the benefit it creates but also should not benefit from any depression it causes. As the court explained in Perris, a condemnor taking property for a reservoir is not required to pay a premium for the property as waterfront (an increase), and a condemnor taking property for a sewage plant is not allowed to discount the property as sewage front (a decrease).

Looking at the project influence rule and Porterville, the court concluded that where it is probable that the property being condemned was included in the public project before the dedication requirement was in place, the value paid to the property owner should not be discounted to reflect the dedication requirement. In light of the court’s holding in Perris, in future cases where valuation is discounted based on a dedication requirement, in addition to evaluating whether a proposed dedication could constitutionally be required, the parties evaluating valuation will need to investigate the general applicability and timing of the dedication requirement. A property owner will want to check the record to see if there is evidence that dedication requirements are standard. Land use plans generally lay out future road circulation plans and may describe dedication requirements. The court also noted that a short period of time between identification of the property as part of the public project and indications that condemnation is coming and adoption of dedication requirements may support a conclusion that inclusion of the property in the project was likely when the dedication requirement was put in place.