When a public agency acquires a portion of property, under California law the property owner is entitled to “severance damages” — or damages to the remainder portion of the property that was not acquired. Usually, determining what constitutes the “remainder property” is relatively straight-forward. But not always. And, the determination could have a significant impact on the amount of compensation the public agency must pay, as a property owner is not entitled to compensation for damages to separate and independent parcels that are not touched by the condemnation.
So how is the “larger parcel” determined? In California, the judge ultimately decides what constitutes the “larger parcel” by utilizing a three-part test, evaluating whether the property has (i) unity of ownership, (ii) unity of use, and (iii) contiguity. What does this mean?
- Unity of Ownership: the first test is unity of ownership, which requires that all the property is owned by one owner or one set of owners. But this is not necessarily a hard and fast rule: courts will consider equitable ownership, and will also factor in who controls various ownership interests (such as separate corporate entities that share similar officers or members).
- Unity of Use: the second test is unity of use, which requires the property to be put to one overall use. This is the most critical of the three factors, and the one that is the subject of the most dispute and scrutiny. This factor becomes even more complicated when the use does not currently exist, but is a purported prospective or future use. When analyzing potential future uses, courts consider whether there is a reasonable probability that the property will be available for development as a single economic unit in the reasonably near future. This is a fact-intensive determination which is typically based on the property’s highest and best use and the following factors:
- Evidence of the existing uses of the property
- Time and expense necessary for their termination
- Existing and proposed zoning applicable to the several parcels
- Physical adaptability of the property for use as an integrated whole
- Property owner’s plans for development Local regulatory climate
- Local market conditions
- Contiguity: the third test is contiguity, which generally means the property is contiguous and not physically separated. This factor is probably given the least amount of weight by the courts, as properties have been found to constitute a larger parcel even when separated by a street or other division.
The “larger parcel” test can create massive discrepancies in appraisal opinions. If you’re interested in learning more about this particular issue, and how it can affect regulatory takings claims, assemblage theories, and damages in eminent domain and inverse condemnation actions, I will be presenting on this topic at the ALI-CLE Eminent Domain & Land Valuation Litigation Seminar later this week in San Francisco. Feel free to join me, or give me a call or shoot me an e-mail and I can pass along my presentation.