May an owner of condemned property recover damages for a decline in property value between when a project was proposed and commenced?

Facts: A government entity planned to construct a freeway bypass through an owner’s property. The government entity initially intended to seize only a portion of the owner’s property and staked out the boundaries of the partial take before commencing work. Two years later, the government entity began work and seized the entire property, providing compensation to the owner in the amount of the property’s fair market value (FMV) at the time the entire property was condemned.

Claim: The owner sought additional precondemnation damages, claiming the property devalued between the initial proposed partial taking and the condemnation, since the government unreasonably delayed commencement of the project.

Counter claim: The government entity sought to base the owner’s compensation solely on the FMV of the property on the date the property was seized, claiming the owner was not eligible for precondemnation damages since the property’s devaluation was due solely to a general market decline, not the government entity’s precondemnation conduct.

Holding: A California Court of Appeals held the owner is not entitled to precondemation damages since the owner’s compensation is solely based on the FMV value of the property on the date the property was seized as the devaluation was not due to the entity’s precondemnation conduct, but a general decline in property values. [Department of Transportation v. McNamara (2013) __ CA 6th__]

Editor’s note – As government entities condemn properties for infrastructure projects through eminent domain, there are frequently years between the inception of the project and the actual full seizure of a property. Eminent domain actions occurring over the course of the housing boom and bust show the great disparity in compensation awards.

For example, the owner’s neighbors whose properties were fully seized in 2006 received compensation at the market’s peak. The owner, whose property was not fully condemned until 2008, however, received compensation based on the value of the property after the market bust – a $400,000 difference.

When condemned property owners are thwarted by broad scale declines in property values, many respond by seeking precondemnation damages. The burden is placed on property owners to prove a decline in FMV during the precondemnation period is directly attributable to the government entity seizing the property, not merely the result of a general decline in market values conditions.