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Public utilities rely on access to private and public land to build and maintain essential infrastructure. Understanding the right-of-way and condemnation process enables utilities to secure land legally, avoid delays and maintain a balance between operational needs and property owners' rights. Without a firm understanding of this basis, projects may be delayed, costs can quickly rise and risk exposure increases.
Any acquisition has two parts: (1) the pursuit of a negotiated acquisition through the pre-condemnation process and (2) the involuntary condemnation of the property through litigation, if needed. The pre-condemnation process is outlined below (and the condemnation procedure will be highlighted in a future post).
PRE-CONDEMNDATION PROCESS
1. Environmental Review
The first stage of the pre-condemnation process is the project's environmental review, which ensures compliance with applicable laws before property acquisition or project construction. This review enables a utility to identify potential impacts and address regulatory obligations during project planning, including site selection and alternatives analysis. In some cases, discretionary permit approvals may require adherence to the California Environmental Quality Act ("CEQA"). In others, a project may qualify for CEQA exemptions.1
At the outset, the public utility should set a clear timeline to ensure the environmental review is completed properly. Project approval depends on scope and potential exemptions, so accounting for this time at the outset will make for a more realistic timeline. For instance, full CEQA approvals can take over a year, making close coordination between environmental and construction teams essential.
Looking ahead, a public utility will need to show that the acquisition is necessary for a proper public purpose and maximizes public benefit while minimizing private harm to support its use of the eminent domain power. Accordingly, even at the environmental review stage, the public utility should include an analysis of alternatives.
2. The Planning Phase
Next comes the planning phase. Successful planning requires extensive coordination and careful preparation to ensure lawful and efficient access to the properties at issue. Coordination efforts typically include communication with governmental agencies, other utility companies, neighborhood groups and private property owners.
To carry out these planning activities, utilities will need access to the property or properties at issue for tasks such as surveys, environmental testing and site assessments. Access to the property for survey purposes is generally permitted under California Civil Code section 846.5, which allows licensed surveyors to investigate boundary evidence and conduct surveys. For pre-condemnation activities beyond surveys, utilities must obtain voluntary consent through right-of-entry agreements or seek a court-issued petition under California Code of Civil Procedure sections 1245.010 through 1245.060. Such court orders define the purpose of entry, scope and timing of activities, as well as compensation for potential damages.
Although planning activities can create potential liability for pre-condemnation damages, thorough documentation, early communication and fair compensation help minimize risk or undue delay while ensuring compliance with legal requirements.
3. The Engineering Design Phase
The next stage is the engineering and design phase, which focuses on three main tasks: (1) identifying right-of-way needs; (2) establishing a reliable budget for acquisition; and (3) creating a realistic project schedule.
First, the public utility must determine what property rights it will need to acquire. Generally, utilities will need to order a title report or otherwise identify existing property rights in the property to be acquired. This is a balancing act; utilities need to ensure they are obtaining sufficient property rights to complete construction and maintain operation of the facility, while simultaneously ensuring they take no more than is needed to avoid constitutional challenges and minimize project costs. When evaluating risks, utilities must consider how the project may impact the landowner's use and specific needs, identifying how the utility will handle items such as access, driveways and restoration obligations. Slight adjustments to project alignment, or using alternative construction methods, may help to avoid a property taking altogether. These small changes can reduce costs and streamline the project timeline.
Second, the public utility must determine its budget for the acquisition. The budget should account for all potential costs, including relocation, goodwill, damages and acquisition expenses. As a practical tip, it is helpful to budget at key design milestones to minimize a potential claim for increased compensation based on construction delay and unexpected costs. Utilities may consider retaining appraisers and other experts to assess the full fiscal scope of a project.
Creating a realistic project schedule is a vital part of the engineering and design phase. Issues with securing right-of-way may result in construction delay claims or change orders, which may potentially exceed the cost of the property acquisition itself. Leaving in some wiggle room to allow time to resolve potential issues allows the utility to complete the project efficiently while maintaining control over the timeline.
A solid project schedule should account for key steps such as finalizing project design, surveying the property, ordering title reports, completing appraisals, issuing an offer and negotiating in good faith. When needed, a utility should also factor in the time required for filing a condemnation action and securing an order for possession. Even in best case scenarios, moving from initial appraisal to possession can take upwards of 10 to 18 months. Even then, court backlogs, service issues and design changes can extend the timeline.
4. The Appraisal Phase
The appraisal phase sets the foundation for negotiations and, where needed, early court actions. The process begins with the utility issuing a Notice of Decision to Appraise to the owner. The Notice of Decision to Appraise identifies the utility, project, property and the intent to appraise. The notice must identify the portions of the property being appraised and include an offer for the owner or their representative to accompany the appraiser during the inspection. See California Government Code section 7267.1. A well prepared pre-condemnation appraisal serves a dual purpose; it supports the utility's offer of just compensation and provides the basis for the deposit of probable compensation needed to obtain an order for possession.
Initial appraisals should be thorough as they may be scrutinized if possession of the property at issue is contested. A strong appraisal uses recent comparable sales data, genuinely considers severance damages, assesses temporary impacts and demonstrates appropriate due diligence. Further, a thorough appraisal fosters rapport with property owners and is more likely to lead to fruitful settlement negotiations. Ultimately, investing in a clear, well-supported appraisal at the outset strengthens the entire pre-condemnation process and positions the project for smoother, more efficient progress.
5. The Offer and Negotiation Phase
The offer and negotiation phase of pre-condemnation marks the point where valuation meets dialogue, requiring the agency to engage the owner in a transparent, good-faith effort to reach an agreement.
California Government Code section 7267.2 provides the legal requirements for the pre-condemnation offer. The pre-condemnation offer must match the approved appraisal and include a summary of the basis (the appraisal) for the offer. An offer letter typically should identify, at least, the project, property, specific acquisition details, an offer amount and the conditions related to environmental clearances awaiting approval. As a best-practice tip, providing the owner with clear and even legally superfluous, information helps them understand the project, feel that they are being treated fairly and gain confidence that the compensation is sufficient. Additionally, and where needed to ensure timely completion of the project, a utility may consider possession and use agreements to allow entry and start of construction on the property even before the final determination of just compensation. Finally, the acquisition should be documented through a purchase and sale agreement outlining compensation, escrow and acquisition details.
6. Title Review
Title review is necessary to confirm ownership, uncover encumbrances and ensure the acquisition of clear and marketable title. As a best practice, title reports should be ordered as early as possible in the pre-condemnation process, as a preliminary title review may alert of encumbrances or impacted utilities.
The goal is to determine who has an interest and who can convey the property to the utility. After all, this process does a utility little good if it fails to acquire the property rights it actually needs to complete its project. All interest holders must be identified and notified to avoid future claims or challenges to utility's right to acquisition. Incomplete identification of ownership can lead to errors when transferring title, delay the project, or create legal complications. If there are any encumbrances that must be included, such as recorded easements, they will be identified at this stage. Or, if there is a conflicting property right already in the land, it will be found and addressed accordingly, possibly through consents or subordination agreements to protect existing rights.
While each of these steps could warrant a dedicated post, this refresher on the pre-condemnation process aims to provide a helpful overview. For insights into the next phase, the involuntary condemnation of the property through litigation, stay tuned for Part Two.
Footnotes
1 Examples of possibly exempt projects include existing facilities, small-scale construction, minor land alterations, small hydroelectric or cogeneration projects as part of existing facilities and small habitat restoration.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
