Property Owners May Not Recover Precondemnation Damages for Decline in Property Values - Appellate Court Rules That Property Owners Must Prove Public Agencies Actually Caused the Drop in Value

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In a ruling that benefits public agencies, a state appellate court yesterday overturned a finding of precondemnation liability against the California Department of Transportation. The court held that a causal relationship between the agency’s precondemnation conduct and a property’s decline in value must be established in order for the property owner to prevail. The court reaffirmed that a property owner may not recover precondemnation damages for a general market decline where the property owner has not proven a physical invasion or direct legal restraint.

The collapse of real estate values from 2007 through 2009, and the continuing uncertainty in the real estate market has impacted the way that property owners view eminent domain cases, and precondemnation claims in particular. As public agencies condemn property for infrastructure projects, property owners are likely to bring claims for precondemnation damages. It can take years between project inception and property acquisition, leaving property owners with the sense that they would have been better off had the property been acquired/condemned at an earlier time. The property owner’s solution is to seek precondemnation damages. 

Yesterday’s ruling in Department of Transportation v. McNamara puts the burden on property owners to prove that the decline in value during the precondemnation period is actually caused by the public agency, and not merely reflective of general market conditions. In this case, it was undisputed that Caltrans’ precondemnation conduct for a freeway bypass project did not affect the value of the residential property in Monterey County; instead the decline in value was caused solely by the general decline in the market. The property owners had asserted precondemnation damages measured as the difference in value between September 2006, the precondemnation date, and July 2008, the date of value. During that timeframe, property values plummeted nationwide. The appellate court held that although a decline in market value existed, there was no evidence that Caltrans caused the decline, leading to the property owners’ precondemnation damages claim to fail.