On January 14, 2013, California's Public Works Board authorized the California High Speed Rail Authority ("CHSRA") to begin negotiating with property owners in Madera and Merced counties for the purchase of their property needed for the first construction segment of high speed rail ("HSR") route. This action initiates a process, known as eminent domain, which is one of the most controversial powers afforded to the State by Article I, section 19 of the California Constitution. These constitutionally based powers allow public agencies, like CHSRA, to take private property for a public use. Many farms, ranches, businesses and individuals in the Central Valley will be affected by this process over the coming months. The purpose of this article is to provide a broad overview of the eminent domain process and to generally describe the rights which property owners have to ensure that they are justly compensated for their land, buildings, improvements and businesses which are located within the planned rights of way needed for the HSR project.
The CHSRA is allowed to use eminent domain powers to acquire the right of way for the HSR project because the trains will serve a public use. The definition of "public use" is extremely broad and applies to anything that confers a public benefit. Because this definition has been applied by the courts to projects of far less public significance, legal challenges by property owners located within the planned HSR right of way, on the basis of a lack of public benefit, are not going to succeed. For this reason it is likely more beneficial for owners to turn their attention and resources away from challenging the CHSRA's right to take their property, and focus instead on how much the CHSRA should pay to justly and fully compensate the owners for their property.
The California Legislature has codified the procedures to be followed for the eminent domain process beginning at Code of Civil Procedure. The procedures are strictly applied by the courts. While the statutory process includes all of the steps to follow leading to a court trial, if necessary, public agencies typically attempt to negotiate privately with the property owner and avoid court action. This is because going to court is expensive for the public agency and for the property owner. The negotiating process can often be lengthy. Like other public agencies, the CHSRA is required to first obtain a formal appraisal of the property to determine the "fair market value" of what is being taken. The initial offer from the CHSRA may not be less than the value stated in the formal appraisal. The property owner is entitled to a copy of the appraisal summary indicating the value determined by the CHSRA appraiser. In addition, the property owner is allowed to obtain his own appraisal, paid for by the CHSRA, at a cost not to exceed $5,000. Our advice to property owners is to always obtain the second appraisal.
Why might a property owner refuse the State's initial offer? There are several reasons. Chief among them is that the CHSRA's initial offer may not fully and justly compensate the owner for the full value of the property or may not compensate the owner for other expenses allowed under the law. A property owner whose land is being taken by the CHSRA is entitled to what is called "just compensation." Such compensation includes not only the value of the actual land and buildings, but other costs or charges to make the property owner whole. For example, if the taking of a portion of property devalues the owner's remaining property, the owner is entitled to the loss in value for the remainder. If the CHSRA takes so much of a parcel of land that the remaining portion has little value or is unusable, the owner might be paid for the entire property. If the CHSRA removes part of a building, the owner has a right to be reimbursed for the costs associated with the modifying or repairing the building, or possibly a new building entirely. If the CHSRA route divides a farm or ranch, cutting off access to a water supply for one part of the property, the owner is entitled to the cost of adding a new water supply. Interruption of business operations can also increase the value of the just compensation. In some instances, the CHSRA will be required to pay for the full relocation of a family, farm, ranch or business. These scenarios are a few examples of many possible items that can be included in determining just compensation for the unique circumstances of an individual property owner.
Another reason a property owner might refuse the State's initial offer is simply to allow for the passage of time. The acquisition process can take anywhere from a few days to more than a year to complete. The final value of the property and compensation to be paid may not be determined until a court trial is completed. Therefore, in a rising economic market it may be beneficial to the property owner to wait instead of rushing to trial. Because the CHSRA's appraisal and the property owner's appraisal are only valid for six months, the passage of time can be beneficial in a market where property values are increasing. It is no secret that in that last two years, the value for Central Valley farmland has increased dramatically, with some areas even seeing price increases above 10%. As a result, refusing the State's initial offer to see where property values might be in eight months might pay dividends.
If the CHSRA's initial offer is refused, it may make a modified offer, or it may file a formal court action, a lawsuit, seeking possession of the property to be acquired and stating the just compensation to which it believes the owner is entitled. The statutory process allows the CHSRA to deposit with the court the compensation it offered to the property owner and take possession of the property to be acquired. If this happens, the CHSRA asks the court to separate the issue of its right to take the property and the issue of just compensation. Once the CHSRA deposits the amount of its just compensation with the Court, it can obtain a court order, or writ of possession, giving the CHSRA possession of the property. The property owner can obtain the deposited funds from the court while the negotiations continue and still pursue additional compensation. If the property owner and CHSRA cannot come to agreement on the amount of compensation, the court will eventually set trial to determine the value of the property and how much the CHSRA is required to pay. Because the CHSRA is on a very tight schedule with the overall project, it is probably going to take possession in this manner if there is any disagreement over value. Although not necessary in every circumstance, the assistance of an attorney, experienced in the eminent domain process, can be very helpful to the property owner in negotiating to obtain maximum compensation.
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