Can the government retake just compensation that it was required to pay a property owner for a taking of private property if the property owner doesn’t use the compensation fast enough? Can a mere statute amend the California Constitution? The obvious answer to these questions is no. Yet, it is precisely these questions that are now before the California Court of Appeal in Olive Lane Industrial Park, LLC v. County of San Diego.
To understand how we have arrived in such a strange legal climate, some historical context is helpful. The process of eminent domain can be very painful for property owners. When the government takes private property for public use it can turn the property owner’s life upside down. The market value of the property alone seldom compensates for that damage.
Prior to the passage of Proposition 3, that problem was exacerbated for victims of eminent domain in California. The California Constitution locks property tax rates in at the time the property is purchased. Thus, property owners who lost their property through eminent domain not only lost their property, but any new property that they purchased to replace the one that was taken would be taxed at the current rate– a rate that was almost always much higher than the rate attached to the taken property.
Recognizing this injustice, the voters of California adopted Proposition 3 which amends the California Constitution to provide that just compensation for a taking shall include the right to purchase an equivalent replacement property at the same tax rate as the taken property. Yet the California government, which is always in need of more tax revenue, tried to limit this right through the tax code. After the adoption of Proposition 3, the tax code was amended to provide that any replacement property purchased more than four years after a taking would not get the tax benefits constitutionally mandated under Proposition 3.
Such a blatant contradiction to the language of the California Constitution should have been struck down years ago, but the issue has never made it to the courts. This is not surprising. After all, most individuals who have their property taken through eminent domain are either lucky enough to find a replacement property within four years or, by necessity will take a property of lesser value within that time period in order to move on with their lives.
Olive lane Industrial Park (OLIP) was not that lucky. In late 2003 OLIP’s property was taken through eminent domain. In accordance with Proposition 3, OLIP immediately began searching for a comparable property in the area to act as replacement property for the property that was taken. However, due to a tight real estate market at the time, OLIP was unable to locate and purchase a comparable property until late 2006. Construction and financing on that property were not complete until 2008.
OLIP then filed the requisite paperwork to have the new property designated as replacement property for the original property that was taken and, consequently, to have the base value assigned to the new property for tax purposes. That request was denied because OLIP did not give notice within the four year time period mandated by Revenue and Taxation Code. As a result, OLIP’s replacement property was taxed an amount more than three times in excess of what the taxable value of the property would have been if Proposition 3 had been enforced.
OLIP sued, claiming that the 4 year time limit was unconstitutional. The government argued that the time limit is not a violation of rights held under Proposition 3, but is instead a reasonable statute of limitations on the execution of rights held under that provision.
As we point out in our appellate brief, this is not so. Statutes of limitations are time limits on the right to sue to litigate the existence of an injury. No court has ever applied a statute of limitations to the use of an award of damages (in this case, compensation for a taking) after an injury has already been litigated.
Indeed, calling such a seizure a statute of limitations doesn’t make sense. Statutes of limitations are generally justified by the court as a means to protect individuals from having to defend against injury claims years after the fact once evidence of the injury is no longer available. Those equitable concerns are not present here when the taking has already been adjudicated and the award of just compensation has already been granted.
The government cannot avoid its duty to respect its award of just compensation under Proposition 3 by placing a time limit in the tax code, any more than it could pass a law that allowed it to remove financial compensation from a property owner’s bank account if the property owner didn’t spend it fast enough.
If you are experiencing a similar legal matter, don’t hesitate to contact the Sacramento land use and appeal lawyers at Kassouni Law by calling 877-770-7379. Owner and managing partner Timothy Kassouni will speak with you personally.