The Court of Appeal has squarely held that a prohibition on development of a portion of a shopping center project site, in order to “bank” that property for possible future acquisition, was a temporary taking. (Jefferson Street Ventures, LLC v. City of Indio (2015) 236 Cal.App. 4th 1175.) The decision highlights the sometimes elusive line between a municipality planning for future land use needs, which is permissible, and a municipality completely eliminating the economic value of specific property through such planning, which it is not. It also confirms that when the government completely prevents the economic use of property, even for a temporary period, a compensable taking results.

Jefferson Street Ventures involved a property owner’s efforts to develop his 27-acre vacant parcel into a shopping center. The land was next to the I-10 Freeway, which was slated for enlargement to accommodate an increased population. In the course of the approval process, the City of Indio – which at that time was the agency responsible to acquire the necessary land – explained that the expansion of the freeway was contemplated and may require some of the future shopping center site. Accordingly, the City imposed a condition on approval of the shopping center development, namely, that about one-third of the site remain vacant for possible – but not certain – future acquisition to accommodate the freeway expansion. The property owner protested, explaining that it was not feasible to come back and develop the vacant part later if the condemnation did not ultimately occur. The City stood firm, and approved development of the shopping center on a 17-acre footprint, with the remaining portion of the property to be a “temporary no-build area.”

The property owner elected not to develop a truncated center, and filed an action for writ of mandate and damages for inverse condemnation against the City. The trial court denied the writ and ruled against the owner with respect to the inverse condemnation claim, finding that the “no-build” restriction imposed by the City was consistent with its police power authority to plan for future needs. Ultimately, a direct condemnation action was filed by the County of Riverside – which had by then replaced the City as the responsible agency – to acquire the “no-build” area for the freeway expansion.

The question before the Court of Appeal was whether the City’s condition precluding development within the “no-build” area constituted an unconstitutional taking under the state and federal Constitutions. The Court of Appeal held that it did.

A “per se” compensable taking occurs when a regulation deprives an owner of “all economically beneficial or productive use of the land.” Moreover, a “temporary” taking of real property is compensable in the same manner as a permanent taking when a landowner is deprived of all use of his property for a temporary period. The Court found that under these circumstances, the prohibition on development of about one-third of the property owner’s land to accommodate a possible future acquisition was a taking. The City’s primary rationale for removing the acreage from the developable site was to avoid incurring additional cost for demolishing the buildings and relocating the tenants in the event of a future taking. These efforts to “bank” otherwise developable property for possible future condemnation constituted a per se taking, since it denied the property owner of all economic value with respect to that portion of property.

The Court rejected the argument that there was no taking because the remainder of the property was developable, and therefore not all economic use had been denied. The City by its own actions had divided the property into discrete segments, including the “no-build” area. By its action the City effectively precluded the property owner from building on a discrete portion of otherwise developable property simply because it may be needed in the future. The Court of Appeal reversed the trial court’s order denying the writ of mandate, and remanded the action back to the trial court for determination of just compensation.

This case draws a line between permissible “police power” planning activities of a city, which may impact the value of affected property, and actions which eliminate the economic value of a specific piece of property. The former does not constitute a taking while the latter does. In the real world, this line can be fuzzy because it is not always clear where the “planning” phase ends and the “acquisition” phase begins. In this case the court found the line had been crossed, probably because the (admitted) reason for the development restriction was to make the property less expensive to acquire in the future.