The City of South San Francisco isn't required to compensate a property owner for the city's own leasehold interest in the property - as well as the value of the property itself - in an eminent domain action, the First District Court of Appeal has ruled.
The case involves South San Francisco's decision to take the property of the Mayer family by eminent domain - property that the city had already leased from the Mayers for use as a city conference center.
The Mayers leased the property to the city in 1989 for 20 years. The city paid no rent for the first 18 months, during which the city constructed the conference center at a cost of $7.5 million. (The property had previously been used as a warehouse.) The city agreed to pay all expenses and surrender all improvements to the Mayers at the end of the lease term. The lease did contain a condemnation clause in case the city wanted to take the property.
In 1997, the city initiated eminent domain proceedings against the property but specifically not against the leasehold. The city valued the property at between $4.3 million and $5.15 million, which did not include the value of the leasehold. The Mayers valued the property at $9.5 million, including the value of the leasehold interest, which the city had not condemned. San Mateo County Superior Court Judge Shelton Phrasel ruled in favor of the city and the First District, Division Two, affirmed.
In court, the Mayers argued that under the lease agreement the city could not initiate eminent domain proceedings against the property alone and not against the leasehold as well. But the First District disagreed. Instead, the court agreed with the city's argument that it is possible to condemn only the property and not the leasehold based on three strands of eminent domain law - specifically, (1) the requirement that property be condemned only for a "necessary" public purpose, (2) the notion that a public agency cannot be required to either purchase an interest it already owns or purchase more property than is "necessary", and (3) the legal prohibition against reading a contract to require a city to exercise its eminent domain power in any particular way.
The Mayers argued that a public agency must take its own contractual obligations into account when it exercises the power of eminent domain because if it does not it would place landowners at a severe disadvantage in eminent domain proceedings. But the First District concluded that "none of Mayer's parade of horribles convinces us that the City should be required to compensate Mayer for the value of the leasehold interest."
The Case:
City of South San Francisco v. Mayer, No. A081531, 98 Daily Journal D.A.R. 11910 (issued October 27, 1998; publication ordered November 23, 1998).
The Lawyers:
For South San Francisco: David Skinner, (510) 351-4300.
For the Mayers: George Yuhas, (415) 773-5446.
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