For the prior video in this series covering police power – the first of California’s four main constitutional powers – click here.
Eminent domain
The second key power of the state to regulate real estate is the power of eminent domain. [Calif. Constitution, Art. 1 §19]
Eminent domain is the right of the government to take private property for public use. The process of using the power of eminent domain is called condemnation.
However, the government needs to pay the owner the fair market value of the property taken. [Loretto v. Teleprompter Manhattan CATV Corp. (1982) 458 US 419]
Examples of eminent domain include condemning property to provide highways and roads, establish parks, construct flood control levees and provide land for redevelopment.
Inverse condemnation
The government’s exercise of police power may become a taking of an owner’s real estate by inverse condemnation if the government surpasses their power of eminent domain.
For example, an owner demolishes their beachfront bungalow. The owner intends to rebuild a better home and submits an application to the coastal commission which has jurisdiction over the use of beachfront property.
A public beach is located nearby, but not directly adjacent to the owner’s real estate.
The coastal commission grants the owner a permit to build, conditioned on the owner granting to the public a frontage easement across their beachfront property. The coastal commission claims its goal is to allow better public viewing of the coastline.
The owner refuses to comply with the condition unless the coastal commission pays for the easement. The coastal commission denies the owner’s application and permit to build, claiming it is reasonably exercising its police power.
Does the coastal commission have to pay for the easement across the owner’s beachfront?
Yes! The coastal commission has not merely restricted the owner’s use of their land, it has required the owner to deed an interest away in the form of a frontage easement. [Nollan v. California Coastal Commission (1987) 483 US 825]
Conditioning a permit to build on the granting of an easement to the public is a taking which requires reimbursement to the owner from the governmental agency. The coastal commission did not show the easement related to a legitimate state interest to constitute eminent domain. Instead, the government agency’s action — in this case, demanding an easement as a condition of administratively granting a permit — leads to the taking of real estate and is inverse condemnation.
However, most California inverse condemnation cases filed by owners fail. California courts do not want to burden local governments with the obligation of paying for any diminution of property values which result each time it regulates or downgrades the use of real estate. [First English Evangelical Lutheran Church of Glendale v. County of Los Angeles (1989) 210 CA3d 1353]
The power to tax
State and local governments also regulate the crucial power to tax real estate activities to generate revenue and fund state and local governmental functions under their police power. [Calif. Const., Art. XIII D §6]
For example, a city passes an ordinance which imposes an inspection fee on all landlords renting residential properties. The fee charged is based on a flat rate per unit, not on current property values.
A landlord subject to the ordinance claims the ordinance is unenforceable since the city must have voter approval before adopting an ordinance which imposes a regulatory fee on property.
The city claims the ordinance is enforceable without voter approval since the fee is imposed on a use of the property — renting — not on the mere ownership of the property, which requires voter approval.
Here, the ordinance imposing the inspection fee on landlords based on a flat rate per unit offered for rent is enforceable. Voter approval is only required when fees and taxes are imposed on owners simply because they own real estate. Fees and taxes imposed on the owner’s exercise of his uses and rights which come with owning the property do not require voter approval. [Apartment Association of Los Angeles v. City of Los Angeles (2001) 24 C4th 830]
The power of escheat
The last constitutional power is escheat.
Escheat also refers to the process of transferring abandoned property to the state, whether or not the rightful owner is still alive.
For example, banks possessing an individual’s property (read: money) have a duty to return the property to the owner after three years of inactivity. [California Code of Civil Procedure §1513(a)(a)(A)]
Intangible personal property escheats to the state when:
- the last known address of the apparent owner is in California;
- no address of the apparent owner appears on the records of the holder and:
- the last known address of the apparent owner is in California; or
- the holder resides in California and has not previously paid the property to the state of the last known address of the apparent owner; or
- the holder is part of California’s government and has not previously paid the property to the state of the last known address of the apparent owner;
- the last known address of the apparent owner is in a state that does not provide by law for the escheat of such property and the holder is:
- domiciled in this state; or
- a government or governmental subdivision or agency of this state; or
- the last known address of the apparent owner is in a foreign nation and the holder is:
- domiciled in this state; or
- a government or governmental subdivision or agency of this state. [CCP §1510]
Holders of unclaimed property have a duty to notify owners of unclaimed property valued over $50 before reporting it to the state. [CCP §1520(b)]
One can access the public interface on the website of the State Controller’s office to determine whether the state holds any unclaimed property that has been escheated to the state after a period of inactivity.
Just as one regularly checks their credit score, brokers and other small business owners ought to make it a habit to periodically determine whether they have any unclaimed property with the state so they may get it back.
