California Eminent Domain Report

OK, before I get into this one, you should know that I've been sitting on this story for a week, trying to decide whether it warranted a blog post.  I still haven't quite figured out what happened, and I was just about to let it go, but then my colleague Brad Kuhn pointed out earlier today that the very fact that the whole thing is so odd makes it worthy of a discussion.  So here goes. 

Last week, the City of San Clemente appealed from an earlier ruling by an Orange County Superior Court judge that the City of San Clemente was liable for a taking that resulted when the City (apparently in secret) down zoned a property and then tried to prevent the developer from completing its already approved plans to construct four residential lots on 2.85 acres.  The Court ordered the City to pay the developer $1.3 million, apparently representing the assumed $2.8 value of the property, less the cost to build an access road that would have been required to facilitate development.   

Now comes the weird part.  The development plans were approved in 1983 (yes, 1983), but the developer never proceeded.  According to an April 19 Orange County Register article, Judge: San Clemente owes developer $1.3 million, the reason the development did not proceed was because "[t]he developer held off construction because of high interest rates."  I understand that "high interest rates" might have deterred development for a few years in the 1980s -- but nothing happened for more than 20 years. 

The City apparently updated the zoning for the property in 1993 (ten years after granting the project approvals), but it failed to provide specific notice to the property owner -- this was the City's big mistake.  Apparently, nobody noticed the property had been rezoned until more than 10 years later, when the developer sought in 2006 to renew is application to develop the property.  The City denied the application, concluding that the 1993 zoning applied to the 2006 application, meaning the developer could build only one residential unit.  

The developer complained that it received no notice of the 1993 zone change, and the court agreed, ordering the City to "take it back."  Ultimately, I'm pretty sure that the court ruled that the City has a choice.  It can either pay the $1.3 million (effectively, a rough version of fair market value representing a taking of the entire property), or it must review the developer's new application under the pre-1993 zoning.  Doing so would not necessarily ensure project approval, but at least the developer would get another chance to entitle the property under the old zoning.  

So, what's the moral of the story?  I guess there are two:

1. If you are a developer with valuable entitlements, don't sit and ignore them for 20 or more years and then expect that you can simply pick up where you left off (though that ultimately may be the result here); and 
2. If you are a city trying to enact zone changes (and especially if you want to down zone property), make sure you are meticulous about giving proper notice to all affected owners so that you don't find yourself in a lawsuit fighting over a zone change that occurred more than a decade earlier.