Eminent Domain

Post-taking land sales can be used as a means for estimating the value of taken land

reported by Anthony Renaud

A landowner applied for a permit to develop his unimproved property. During the approval process, the Federal Government filed a condemnation action to take a portion of the land. The owner was paid the fair market value of his property based on its undeveloped condition. Later, the owner developed and sold the remaining parcels for a price measurably higher than the amount received for the taking. The landowner sought additional compensation from the Federal Government for the taking claiming the compensation due him should reflect the property’s value as developable land as opposed to the undeveloped price he was paid since he applied for permits to develop the land prior to the taking. The Federal Government claimed it was not liable to compensate the owner for land prices the owner was able to achieve after the taking and after development since those sales occurred too far later than the taking to be considered as comparable sales for estimating the fair market value of the undeveloped land. A United States appeals court held prices received by the owner for his developed parcels were comparable sales which could be used as a basis for estimating the fair market value of the undeveloped land the Federal Government took since the owner intended to develop by applying for permits prior to the taking and the sale prices of the developed land far exceeded what the Federal Government paid for the undeveloped land. [United States of America v. 4.85 Acres of Land (9th Cir. 2008) ___F2d___]

City’s insurmountable administrative process is a permanent taking

reported by Anthony Renaud

A city imposed a moratorium against construction on an owner’s land, preventing the landowner from building a home. The city obtained an expert’s opinion which concluded construction on the owner’s plot would not negatively affect existing structures or the stability of surrounding land, the basis for the construction moratorium. The city then required an additional study to be paid for by the landowner as part of the administrative process to obtain a building permit. The cost of the study required by the city was prohibitive to development of the owner’s land. The landowner made a demand on the city to pay him the full value of his property, claiming the city’s permit approval requirements constituted a permanent taking of his land since further expert study would be redundant to available expert opinion and posed an insurmountable administrative process. The city claimed the moratorium on construction was not a taking since all the landowner had to do to obtain a building permit was to comply with their administrative process. A California appeals court held the conduct of the city constituted a taking of the owner’s land and the city had to pay him the value of the property since the city’s administrative process of requiring an additional redundant study to be paid for by the landowner imposed an insurmountable precondition to development, depriving the owner of all economic use of his land. [Monks v. City of Rancho Palos Verdes (October 1, 2008) 167 CA4th 263]

Environmental Documents

Definitive development agreement with city void when entered into before EIR prepared

Reported by Bradley Markano

A city entered into an agreement with a developer to develop property, contingent upon the developer’s preparation of an environmental impact report (EIR) in compliance with the California Environmental Quality Act (CEQA). Prior to completing an EIR, the city entered into a further agreement to lend the developer funds for immediate relocation of tenants and publicly announced its intention to proceed with the development. Later, after the development plans had been approved, the city prepared an EIR for the project. A citizen’s group sought a court order to set aside the agreement to develop the property, claiming the city’s development agreement was invalid since the EIR had been completed after the city entered into the development agreement, and thus a new development agreement was necessary under CEQA. The city claimed the development agreement was valid since the development agreement was contingent on the EIR and the city had completed an EIR as required by the CEQA. The California Supreme Court held the development agreement was invalid and ordered the city to consider a new development agreement based on the completed EIR since, under the CEQA, the EIR had to be prepared and reviewed before entering into a development agreement which, with other conduct, commited the city to a definite plan. [Save Tara v. City of West Hollywood (October 30, 2008)__C4th___]

Fair Housing

No unlawful discrimination on rejection of an offer for carryback financing

Reported by Bradley Markano

A seller’s agent received an offer to purchase a listed property from a prospective buyer who was a member of a protected group. The price offered in the purchase agreement was greater than the listed price, but the financing was structured as an installment sale calling for the seller to carry back a trust deed note in a no-downpayment, cash-back transaction without additional collateral. The seller’s agent, who was not a member of a protected group, rejected the offer by informing the buyer that the seller was not interested in a carryback note or a kickback of cash. Later, the seller sold the property for less than the listed price in an all cash transaction to an individual who was not a member of a protected group. The prospective buyer sued the listing agent for illegal discrimination against a member of a protected group, claiming the listing agent had unfairly prevented him from obtaining housing since the listing agent had failed to submit his offer to the seller. The listing agent claimed he had not discriminated against the prospective buyer since the carryback financing in lieu of cash and the cash kickback made the offer less desirable than an all cash price. A federal court of appeals held the listing agent’s behavior presented no unlawful discrimination since the the only discrimination practiced by the listing agent was over the distinction between two offers with dramatically dissimilar financial consequences for his client the seller. [McDonald v. Coldwell Banker (September 10, 2008)__F3d___]

Editor’s Note— An external issue in McDonald v. Coldwell Banker, of no consequence tothe court but of interest to the first tuesday editor, was the listing agent’s failure to advise his client, the seller, of the existence of the offer. The offer was never submitted to the seller for acceptance or rejection. Without the seller’s written rejection to return to the prospective buyer, the listing agent unnecessarily exposed himself to unfounded claims of unfair treatment.

Property Management

Landlord with right to possession is liable for injuries on defective premises

reported by Anthony Renaud

A tenant defaulted on his lease agreement and the landlord filed an unlawful detainer (UD) action to evict the tenant. The landlord was awarded possession of the leased property, but did not inspect the property prior to the actual eviction of the tenant to determine if any maintenance or repairs were needed. The structure was in need of maintenance to remedy a water leak. After the landlord received the UD judgment of eviction and prior to the tenant vacating the premises, the tenant hosted a party during which a guest slipped on a puddle of standing water resulting from the leak and fell, injuring himself. The injured guest made a demand on the landlord to recover his losses caused by the slip and fall injury, claiming the landlord was liable for his injury since the landlord had a duty of care to inspect the property and to remedy the hazard that lead to his injury. The landlord claimed he was not liable for the guest’s losses due to the injury since the landlord had no duty to inspect the tenant’s premises for hazards and correct any defects while the tenant remained in actual possession. A California court of appeals held the landlord was liable for the guest’s losses due to the injury caused by the failed maintenance since the unlawful detainer judgment awarding the landlord possession imposed an immediate duty on the owner to inspect the property and make any repairs necessary to prevent future injury to others. [Stone v. Center Trust Retail Properties, INC. (May 30, 2008) __CA4th___]

Motel guest retains right to privacy until receipt of demand to pay rate or leave

reported by Anthony Renaud

An individual entered into a reservation agreement as a guest for a room in a motel. The agreement included no specific check-out time, allowing the guest to stay in his room as long as he paid the daily rate each day. The guest paid his rate with dollar currency the manager suspected included a counterfeit bill. Without making a demand for the guest to repay the daily rate with legal tender or leave, the manager called the police, who searched the guest’s room without the guest’s permission. The police recovered items which were used as evidence to file criminal charges against the guest. The guest sought to suppress the evidence, claiming he had a right to privacy in his room since the manager never made a demand for him to pay or leave. The prosecution claimed the guest had no right to privacy in the room since paying in counterfeit currency constituted a failure to pay the daily rate. A California appeals court held evidence gathered in the room occupied by the guest must be suppressed and cannot be used against him since on remitting payment for the room, the guest had a right to privacy in the room which was violated when the police, with the aid of the manager, entered without permission from the guest. [The People v. Munoz (September 29, 2008) __CA4th___]

Editor’s note—See first tuesday form 593 (Guest Occupancy Agreement for Transient Occupancy Properties)

Syndication Issues

LLC Member is Liable on his Guarantee of LLC’s Mortgage

Reported by Bradley Markano

A limited liability company (LLC) vested in title to real estate as trustee under a title-holding trust agreement signed a note and trust deed. As further security, a guarantee agreement in favor of a lender was entered into by a member of the LLC. On a default under the trust deed, the lender foreclosed on the property and underbid, leaving a balance due on the note. The lender then made a demand on the LLC member under his guarantee agreement for the difference between the purchase price received at foreclosure and the amount due on the loan. The LLC member claimed his guarantee agreement was unenforceable since his membership interest in the LLC made him liable as a debtor under the trust deed note, rendering the guarantee unenforceable. The lender claimed the LLC member was liable for the deficiency under the guarantee since the LLC, not the member, was liable as trustee under the note. A California appeals court held the LLC member was liable for the portion of the debt remaining unsatisfied by the bid at the foreclosure sale, since his interest in the LLC separated him from any obligations of the LLC as a trustee and debtor under the trust deed loan. [Talbott v. Hustwit (2008)164 CA4th 148]