Highest and Best Use of Property in eminent domain

Determining the property's highest and best use is one of the most fundamental aspects of valuation. The highest and best use is the most profitable legally permissible use for which the property is physically, geographically, and economically adaptable.  As applied in eminent domain, the four criteria that real estate appraisers generally consider are:

1. Legal permissibility.

2. Physical possibility.

3. Financial feasibility.

4. Maximum productivity. 

Zoning is one of the most important and analyzed factors in a highest and best use analysis.  A determination of the property's highest and best use is not necessarily limited by current zoning or land use restrictions. If a jury decides that there was a reasonable probability of a change in zoning or other use restrictions in the near future, then the jury must determine the highest and best use of the property based on that change.

Many readers may find the concept of inverse condemnation alien. One way to think of it is that it is like the flip side of eminent domain. While government uses its powers of eminent domain to take private land for public benefit, inverse condemnation is a means through which property owners can seek compensation for property damage and losses suffered due to government actions.

In the case of wildfires in our state, including those in 2007 in the San Diego area and more recently in the North Bay, utility companies are trying to evade the inverse condemnation crosshairs.

As recent news headlines have noted, the California Public Utilities Commission is being asked to approve a plan by San Diego Gas & Electric to pass $380 million dollars in costs associated with the 2007 fires on to consumers through rate hikes. Joining with SDG&E are Pacific Gas & Electric and Southern California Edison.

Their action comes as state investigators assess whether PG&E wires that came down in a windstorm the night the North Bay fires began sparked the blazes. If they find PG&E bears liability, the question of inverse condemnation could be something for affected property owners to explore.

One thing that has some consumer advocates on edge is that the CPUC has put off taking a vote on the utility's request four times. It had been slated to hold a vote this week, but delayed action again until Nov. 30. Advocacy group representatives say they're concerned the commission's delays are a ploy to allow the whole issue to fade from public attention before approving the utility's request.

And so, the watch continues.

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