Eminent Domain Report

We reported several months ago about the property owner impacted by the expansion of the Everglades National Park petitioning the US Supreme Court to determine how to treat the government's enactment of tougher zoning standards that decrease the value of property which the government may want to acquire in the future.  The issue presented was whether the government's actions must be the primary cause of the precondemnation depression of the property's market value, or whether there must only be a nexus between the government's actions and the depressed market value.

This is an interesting debate, and according to a recent blog post by the Cato Institute's Ilya Shapiro, the US Supreme Court declined to hear the case.  Shapiro was clearly disappointed, explaining:

[t]he case involved the federal government maneuvering to unjustly drive down property values before taking land for (legitimate) public use — in this case expanding the Everglades — thus greatly diminishing the compensation it was obligated to pay the owners."

I think most people will agree that if the government is taking steps to drive down the acquisition price of property it eventually seeks to acquire, and those government activities result in the property's losing value, such actions should be disregarded when valuing the property.  California's eminent domain law addresses exactly this issue, and courts routinely hold that in such circumstances, the property is to be valued without considering such "project-related impacts."  

The issue becomes tricky, however, when a property owner is trying to prove why the government undertook certain actions that resulted in the property's losing value.  Were the government's actions really in an effort to reduce the property's eventual acquisition price, part of the project for which the property is being taken, or for some other legitimate, but unrelated, purpose?  

I have seen government agencies attempt to avoid paying compensation at all by simply enacting tougher zoning standards on a property, or designating a property for potential conservation (see, for example, the Western Riverside County Regional Conservation Authority's conservation efforts), which actions essentially make it impossible for the owner to make a viable use of the property.  A nexus standard, as argued by the property owner in the Everglades case, would make proving compensable government impacts much easier.  As it now stands, however, there is no bright-line rule, at least in California, as to whether the "primary cause" or "nexus" test should apply in determining whether the government's actions should be disregarded in determining a property's fair market value.