Eminent Domain Report

My partner Brad Kuhn and I spoke yesterday at the IRWA Chapter 1 Valuation Conference.  Our topic involved large-scale acquisitions, and what makes them different from a typical, single-parcel acquisition.  As always, the Conference was well attend.  And as always, both the panelists and the audience are made up of a great cross-section of the top right of way practitioners in Southern California.  This mix often leads to some great discussions -- and yesterday was no exception.

One of the questions that arose during our presentation involved the fairly recent requirement that agencies offer to reimburse the property owner up to $5,000 to obtain his or her own, independent appraisal of the property.  This is a topic that comes up frequently at these events; indeed, it commanded a large block of time at a recent ASA-sponsored seminar at which our group spoke. 

The requirement comes from Code of Civil Procedure section 1263.025 (one of the statutes enacted in the wake of the Supreme Court's 2005 Kelo decision).  Section 1263.025 reads, in pertinent part:

A public entity shall offer to pay the reasonable costs, not to exceed five thousand dollars ($5,000), of an independent appraisal ordered by the owner of a property that the public entity offers to purchase under a threat of eminent domain, at the time the public entity makes the offer to purchase the property.

The statute's purpose is to facilitate early resolutions, hopefully avoiding the time and cost of an eminent domain action.  But the statute leaves some questions concerning its application. 

First, nothing in section 1263.025 specifies when the owner must obtain the appraisal or request the reimbursement.  We have come across situations recently where owners sought to use the $5,000 to obtain a trial appraisal just before the expert exchange.  In my view, this does not comply with the statute's intended goal, in that it cannot facilitate early settlement if the owner does not even obtain the appraisal until shortly before trial. 

Don't get me wrong.  I am not arguing that owners should be forced to provide agencies early, "free discovery" by turning over these early appraisals.  We've written about this subject before, and I continue to believe that agencies in general have no right to demand a copy of the owner's appraisal before making the $5,000 reimbursement.  (For present purposes, I'm leaving aside the specific statute applicable to Caltrans, which does require that the owner present the appraisal in order to obtain the reimbursement.) 

An owner should expect, however, to disclose at least some of the information in that independent appraisal if the owner wants to use that appraisal as leverage for an early settlement.  But such a voluntary disclosure in an effort to reach a settlement is different from compelled disclosure in order to obtain reimbursement.

The bottom line:  I think agencies should have a right to expect that owners who wish to take advantage of this $5,000 appraisal reimbursement will do so early in the process and with the intent of seeing if an early resolution is possible. 

The second question involves negotiation timing.  Now that the agency must offer to pay for this independent appraisal, must the agency also wait for the owner to obtain that appraisal before proceeding with a condemnation action?  While this sounds logical, I don't believe this is a fair requirement.  California's extended possession timeline already wreaks havoc with many projects and can even put federal funds in jeopardy.  Adding another barrier to gaining possession -- especially considering the timing of the independent appraisal falls outside the agency's control -- does not reflect good policy, in my view.

On the other hand, where the agency does not have a compelling reason to proceed more quickly, no reason exists that the agency should not encourage owners to get their appraisals quickly in exchange for the agency's not proceeding with eminent domain in the interim.  This would help fulfill the statute's goal by giving the parties a more meaningful chance to negotiate with similar information before condemnation proceeds. 

In the end, it will take either an amendment to section 1263.025 or a published decision to clarify these issues.  But they seem to arise frequently as practitioners struggle with how to interpret this new law, and for what it's worth, I thought I would share my view of how I think the law should evolve when all is said and done on this issue.