August 10, 2018
Author: Michael G. Thornton
Organization: Nossaman LLP

The acquisition of easements through eminent domain by public agencies and privately owned utilities raises several legal and appraisal issues that must be carefully considered. Understanding the scope and nature of the easements being acquired and the differences between the public agencies and the private utilities that acquire the easements is very important. This presentation will explore some of these issues and highlight areas that require special attention by practitioners.

Eminent domain, also called condemnation, is defined as: “The inherent power of a governmental entity to take privately owned property, esp. land, and convert it to public use, subject to reasonable compensation for the taking.” (Garner, Black’s Law Dictionary, 9th Ed. (2009).) The power to condemn easements is limited by the requirement that just compensation must be awarded for the property taken and that the property being taken or damaged must be for a “public use,” as opposed to a “private” use. (U.S. Constitution, Amendments 5 and 14; California Constitution, Article 1, § 19; City of Oakland v. Oakland Raiders (1982) 32 Cal.3d. 60, 78.) The term “Public Use” is very broad and generally refers to a public work or improvement, such as facilities or infrastructure used for the delivery of public services, that concern the whole community rather than just particular individuals. The types of easements discussed herein would almost always constitute public uses which a governmental entity could use eminent domain to acquire.

In California, the Legislature has adopted the Eminent Domain law at Code of Civil Procedure §§ 1230.010, et seq. These provisions of the Code of Civil Procedure provide the statutory framework that applies when the State and public agencies and private utilities seek to take property by eminent domain in the State of California. The federal government has a somewhat different statutory approach to eminent domain, but that will not be addressed in this presentation.

Many types of easements may be acquired through condemnation, including: airspace easements, aqueduct easements, beachfront easements, cable television easements, clearance easements, pipeline easements, power transmission line easements, railroad easements, sewer line easements, street and highway easements, canal easements, flowage easements, light air and access easements, mass transit easements, overflight easements, preservation easements, prescriptive easements, private street easements, scenic easements, sub-surface easements, taxation and conservation easements, highway construction easements, temporary construction easements, slope easements, and many kinds of utility easements. Each type of easement presents its own legal issues and valuation problems. Easements may be taken for a temporary period or be acquired permanently.

A. Entities authorized to acquire easements by eminent domain.

Public agencies may elect to acquire easements, rather than fee title to property for a variety of reasons and they are permitted to do so. In addition to public entities, various privately-owned public utilities have been given the power by the Legislature to exercise eminent domain under the Public Utilities Code. Public Utilities Code, §§ 612 et seq. Water corporations, telegraph corporations, heat corporations, pipeline corporations, electrical corporations, gas corporations, motor or water carriers and sewer system corporations, are among the privately-owned public utilities that have the power of eminent domain. A limitation on this power is that the power to condemn must be exercised for a purpose related to the actual service that the utility provides to the public. In addition to public utilities, specific statutes also grant condemnation power to certain private persons who condemn property. These private persons are classified as “quasi-public entities” under C.C.P. § 1245.320. Under § 1245.330:

Notwithstanding any other provision of law, a quasi-public entity may not commence an eminent domain proceeding to acquire any property until the legislative body has adopted a resolution consenting to the acquisition of such property by eminent domain.

B. Eminent Domain valuation principles that apply to easements.

As held in City of San Diego v. Rancho Penasquitos Partnership (2003) 105 Cal.App.4th 1013, 1028: “In order to determine the fair market value of a property being condemned in an eminent domain proceeding, ‘there must be a determination of the highest and best use to which the property being condemned can be put.’” The elements of highest and best use that must be considered include: (1) physical feasibility, (2) legal permissibility, (3) financial feasibility, and (4) maximal productive use. See Appraisal Institute, The Appraisal of Real Estate, 12th Ed. (2001) Chapter 12, Highest and Best Use Analysis,” pp. 305-327.

Once the highest and best use is determined, then, in order to determine the amount of just compensation required under the California and federal Constitutions, the fair market value of the property must be determined. Code of Civil Procedure § 1263.320(a) defines Fair Market Value as:

The fair market value of the property taken is the highest price on the date of valuation that would be agreed to by a seller, being willing to sell but under no particular or urgent necessity for so doing, nor obliged to sell, and a buyer, being ready, willing, and able to buy but under no particular necessity for so doing, each dealing with the other with full knowledge of all the uses and purposes for which the property is reasonably adaptable and available.

In Sierra View Local Health Care District v. Sierra View Medical Plaza Associates, LP (2005) 126 Cal.App.4th 478, 487, the Court held that: “Fair market value is to be determined in terms of what the property would be worth to a knowledgeable but disinterested buyer in the general market—a generic buyer as opposed to a specific one—as if there were no condemnation action.” It is important to understand that: “the evidence need not show the existence of an actual seller and buyer, or the existence of an actual market; a showing of potential sellers and buyers in a potential market will suffice” (South Bay Irrigation District v. California-American Water Co. (1976) 61 Cal.App.3d 944, 970. Finally, “If an owner is making only a minor use of the premises, he cannot be deprived of his value for a major use if that major use is authorized and gives it a higher market value . . .” People v. Jones (1945) 67 Cal.App.2d 531, 537.

With respect to valuing easements, as stated in 1 Matteoni & Veit, Condemnation Practice in California (3d ed. 2013), § 4.80:

To determine compensable loss to the landowner, the appraiser must examine the terms and restrictions of the easement agreement and determine the nature of the burden placed on the land. He must ascertain exactly what uses (if any) the condemnee will be allowed to make to the land. [¶] The formula for valuation of the take is straight forward. It is the difference between the market value of the land before and after the imposition of the easement. PG&E v. Hufford (1957) 49 Cal.2d 545, 553.

The entity that condemns the easement may also have the right to perform activities on the property that are also compensable as part of the damage. For example, an easement holder may retain the right for access across the property to the easement area for the purpose of constructing, maintaining, or repairing the property within the easement area, such as utility power poles or sewer lines. This may be an additional burden on the land that should be considered. City of Gilroy v. Filice (1963) 221 Cal.App.2d 259, 269. In general, a permanent easement will entitle a landowner to greater compensation than a temporary easement. As stated 1 Matteoni & Veit, supra, at § 4.80: “The question in each easement case is how many of the rights making up the property interest have effectively been taken by the condemning agency. The condemnee is entitled to full compensation for all uses to which the easement may be put, e.g., sewer lines, power poles, railroad tracks, and pedestrian subways.

C. Severance Damages

In most cases, the easement being acquired will not take all of the owner’s interest or value in the larger property being burdened by the easement. However, the easement may have a significant impact on the value of the remainder of the property after the easement has been acquired. California Code Civil Procedure § 1263.410 provides:

(a) Where the property acquired is part of a larger parcel, in addition to the compensation awarded pursuant to Article 4 (commencing with Section 1263.310) for the part taken, compensation shall be awarded for the injury, if any, to the remainder.

(b) Compensation for injury to the remainder is the amount of the damage to the remainder reduced by the amount of the benefit to the remainder. If the amount of the benefit to the remainder equals or exceeds the amount of the damage to the remainder, no compensation shall be awarded under this article. If the amount of the benefit to the remainder exceeds the amount of damage to the remainder, such excess shall be deducted from the compensation provided in Section 1263.510, if any, but shall not be deducted from the compensation required to be awarded for the property taken or from the other compensation required by this chapter.

Section 1263.420 defines “Damage” as:
Damage to the remainder is the damage, if any, caused to the remainder by either or both of the following:

(a) The severance of the remainder from the part taken.

(b) The construction and use of the project for which the property is taken in the manner proposed by the plaintiff whether or not the damage is caused by a portion of the project located on the part taken.

Under Los Angeles County Metropolitan Transportation Authority v. Continental Development Corp. (1997) 16 Cal.4th 694, 712: “Severance damages are not limited to special and direct damages, but can be based on any factor, resulting from the project, that causes a decline in the fair market value of the property.” As long as the effect of these factors on market values is not conjectural, speculative, or remote, it is for the jury to decide the extent to which they may affect the value of the property. Metropolitan Water District of Southern California v. Campus Crusade for Christ, Inc. (2007) 41 Cal.4th 954, 972. Under CCP § 1263.450, “[c]ompensation for injury to the remainder shall be based on the project as proposed . . .” In People Ex Rel. Department of Public Works v. Schultz Company (1954) 123 Cal.App.2d 925, 926, the Court held: While it is true that a condemnation award must “once and for all” fix the damages, present and prospective, that will accrue reasonably from the construction of the improvement, and in this connection must consider the most injurious use of the property reasonably possible [citation omitted], that does not mean that the jury may speculate on the possibility of damage from some future abandonment of the improvement. Remote, speculative, or conjectural elements of damage cannot be submitted to or considered by the jury. Property owner counsel should keep in mind that:  

The jury in a condemnation action must “. . . once and for all fix the damages, present and prospective, that will accrue reasonably from the construction of the improvement, and in this connection [the jury] must consider the most injurious use of the property reasonably possible.” [citation omitted] … [¶] In determining the most injurious use of the property reasonably possible, the jury must consider the entire range of uses permitted under the resolution of necessity.County of San Diego v. Bressi (1986) 184 Cal.App.3d 112, 123. In Bressi, the Court held:

Applying the foregoing principles to the case before us the jury on retrial may consider evidence concerning proposed, intended or possible future use of Palomar Airport coextensive with the scope of the easement. The County may not, however, introduce evidence which purports to limit the taking by contradicting the resolution itself. The jury must focus on the probability of the occurrence of particular uses under the aviation easements and not on uses which contradict those easements. In practical terms this means the County may not offer evidence that an airport accommodating jumbo jets will not be built, but may offer evidence of the number of jumbo jets which may use the airport.

This is particularly important in instances where the easement does not contain a limit on how it might be used. In those cases, the property owners must consider what the most injurious possible uses of the easement are. In settlement negotiations, it may be possible to work with the acquiring agency to limit the uses of the easement or limit the scope of the easement so that it is less damaging. In some cases, it may be possible to work out a stipulation with the acquiring agency that future damages resulting from particular potential uses of the easement are not foreseeable at the time of the settlement so damages may be recovered in the future if the easement is used in a damaging way

D. Scope of Easements

Thus, a key issue for both the acquiring entity (due to the required compensation) and property owner (due to its need to continue use and operation of its property) is the relative scope of the easement. As stated above, many different kinds of easements may be acquired, and most condemnors will require access and utility easements. Attached to this presentation are several examples of access and utility easements from cases where the authors represented property owners in condemnation actions, but details that may identify the parties have been obscured. For comparison, we have also provided an extensively-negotiated utility easement between two private parties. Each of these documents is discussed further below, but they provide examples of easement scope issues that may arise in condemnation actions.

From the real property law perspective, easements are limited in scope to those rights established by the express text of the easement or, in the case where easements are created by implication, the historic use of the easement. In all instances, easement scope may be further limited by a balancing of the equities as between the easement holder and property owner. For example, the court in Langazo v. San Joaquin Light & Power Corp. (3d. Dist. 1939) 32 Cal.App.2d. 678 held that the holder of an overhead power line easement did not have the right to build fences, as (1) the rights of the easement holder were limited to access necessary to maintain and repair the power lines, and (2) the fences would unreasonably restrict the rights of the property owner to use and enjoy the property. This kind of balancing of the equities requires a factual analysis and consideration of the parties’ original intent and, if necessary, historic use of the easement area. Finally, note that the right to use the easement area is not exclusive to the easement holder unless expressly stated.

One category of easement rights that are very frequently necessary are access or ingress/egress rights. Under California law, a property owner that is subject to an ingress/egress easement may not obstruct any portion of the easement so long as the width is clearly specified. (See MILLER & STARR, CALIFORNIA REAL ESTATE 3D, EASEMENTS § 15:59.) The property owner’s rights, however, may include parking within the easement area so long as there is no “interference with free passage of other vehicles.” (Id.) Similar rules apply to installation of a fence or gate, and in each instance, assessment of interference is a factual issue.

For the purpose of analyzing easements acquired during condemnation, scope of the easement holder rights must be carefully assessed by both the acquiring entity and property owner. The acquiring entity should be sure that necessary access to the easement area, rights to maintain (and potentially rebuild) any improvements and rights to trim interfering trees and shrubs are preserved. However, acquiring entities should not include unnecessary or overbroad rights, as the property owner can then claim that the easement significantly interferes with the owner’s remainder interest, thus increasing the just compensation payment. Similarly, owners should not overlook how easements might affect their property usage post-condemnation, as they do not have rights to claim additional compensation or modify the easement scope during later proceedings if the condemning entity has acted within the easement scope and the “balance of the equities” does not favor the owner’s position. Both parties should be particularly cautious about blanket easements (i.e., those that affect the entirety of the property owner’s parcel, which are heavily disfavored in the commercial real estate industry and could adversely affect future financing or sale

E. Negotiation Issues

As an alternative to adjusting just compensation to reflect easement scope, the parties may instead agree to modify the text of the easements. Some condemning authorities will require that all easements be substantially similar due to a significant burden in administering different easements across a lengthy easement area (such as a trunk electric transmission line). If a condemning authority is willing to negotiate specific easement terms, owners should include standard protections, such as grantee obligations to carry appropriate insurance, to maintain the easement area, and to indemnify the property owner for acts or omissions of the grantee and anyone accessing the easement area on behalf of the grantee, as well as a default and remedies section. Samples of these provisions are included in the attached utility easement that was negotiated between a property owner and private utility outside of a condemnation action

F. Real-Life Examples and Issues

Attached to these materials are several examples of easements that condemning authorities have sought to acquire as part of construction of a new transportation facility.

The relevant authorities in Example A and Example B took slightly different approaches to easement condemnation. In Example A, the condemning authority did not specify extensive rights and responsibilities (presumably relying on common law rights), while the condemnor in Example B provided more detail. However, the condemnor in Example A had clearly delineated easement areas for each easement and limited blanket rights, while the condemnor in Example B included blanket rights across the entirety of the relevant parcel. In each case, the property owner could argue that, absent additional detail, the court that assesses just compensation must assume the most extensive easement use possible under the express easement text. For example, the Example B ingress/egress easement allows for vehicular and pedestrian access but does not specify the maximum vehicle size. The property owner could very reasonably argue that the easement scope included ingress and egress of several of the largest vehicles within the condemning authority’s existing fleet across the entirety of the relevant parcel, and the court should assess just compensation for impairment of that scope. However, a condemning authority could keep the broad easement grant but reduce this potential for an increased payment by (1) maintaining the easement area, (2) repairing any damage to the parcel caused by use of the easement and (3) limiting the size, number or timing of vehicular access.

Both property owners and condemning authorities should not overlook easements in any condemnation action. Easements can have a significant effect on the overall amount of compensation due any property owner and could adversely impact the property owner’s interest post-condemnation. Both sides should consider their relative needs and interests as part of any settlement or damage assessment.