Mark Bateman

California’s High-Speed Rail Authority is engaged in a multibillion-dollar project, the goal of which is to construct a “transportation improvement” running through the Central Valley and connecting the major metropolitan areas of California. Many believe the high-speed rail project will fail before it is completed. That won’t stop HSR from taking part of your farm in the interim. So, if HSR has its sights set on your property, here are some of the things you should be considering:

Retaining counsel

The legal process through which HSR acquires land is called “eminent domain” or “condemnation.” Before HSR can take property through that process, it must make an “offer” of compensation to the property owner for the voluntary purchase of the property. If the property owner deems the amount of monetary compensation offered by HSR to be fair, the property owner may decide to proceed without consulting an attorney. While retaining an attorney will likely cost the property owner money in the form of legal fees, proceeding without legal counsel may come at its own cost and involve considerable risk.

Counsel can assist the property owner in determining the likelihood of increasing the net recovery above the amount offered to the owner by HSR for the property. With the benefit of counsel’s advice, the property owner can make an informed decision as to whether the cost of legal representation and potential litigation are warranted in light of the amount offered, or at a minimum, what steps the property owner should consider taking before accepting or rejecting HSR’s offer.

HSR’s offer may include paperwork that HSR informs the owner is to be signed in order to complete the property acquisition outside of court, such as a “right of way” contract. Such documentation may include material provisions deserving of input from counsel, such as representations and warranties requested of the property owner, title conditions and limitations on HSR’s obligation to close the transaction.

The requested documentation may also fail to include or adequately address items that are potentially important to a property owner. For example, does the proposed contract sufficiently address nonmonetary terms that bear upon the sufficiency of the monetary compensation offered? Does the contract include a specific allocation of the total compensation to be received by the property owner as between the monetary award for the property taken and the award of “severance” damages (such a specific allocation may be desirable because of the difference in tax treatment between those two kinds of compensation)? Does the proposed form of grant deed include any necessary or appropriate reservations of easements or other interests that the property owner intends to keep?

Those are just some examples of questions a property owner may want to consider. Potential issues to be covered in such documents can be numerous and not always obvious to business people without the requisite legal expertise. Even if the property owner is completely satisfied with the dollar amount of the purchase price, the owner should consider having experienced property counsel review the proposed documentation and provide the owner with legal advice concerning those documents.

Investigate

The property owner should not assume that the dollar amount offered by HSR is necessarily its “best and final offer” or that it addresses all factors pertinent to the loss that will be sustained by the property owner as a result of the condemnation of the property.

HSR’s appraisal of the property may not accurately reflect the property’s fair market value for a number of reasons. It is up to the property owner to conduct its own investigation and determine whether or not the amount of monetary compensation offered by HSR is appropriate under applicable law.

As part of the property owner’s investigation, the owner should consider obtaining an independent professional appraisal of the property. California law requires condemning governmental agencies to offer to reimburse the property owner for the reasonable cost, not to exceed $5,000, of an independent appraisal of the property.

The property owner’s investigation should also include, among other things, consideration of whether and the extent to which there may be nonmonetary factors bearing upon the sufficiency of the dollar amount offered. For example, will construction of the railway across the owner’s property affect the existing irrigation system of the farming unit? Will it affect the property owner’s ability to access portions of its remaining property through use of the existing farm roads and/or public access routes? Those and any number of other factors should be identified and investigated by the property owner in determining whether or not to accept HSR’s offer. The property owner may want to consult with various professionals to assist with such investigation.

Negotiate

California’s Relocation Assistance Act (Government Code Sections 7260-7277) establishes various guidelines for public agencies to encourage acquisition by negotiation and to avoid litigation. HSR’s acquisition agents are likely to make themselves available to the property owner and its representatives to discuss the potential voluntary sale of the property that HSR would otherwise seek to take by legal action.

Property owners should avail themselves of the opportunity to negotiate with HSR when feasible. Litigation is expensive to the property owner and time-consuming. With the benefit of having conducted their own investigation concerning the proposed “take” and the offer made by HSR, the property owner should be able to deliver a well-reasoned and supported response (addressing monetary, nonmonetary and other contractual considerations). Negotiation may lead to favorable results to the property owner that may not be available through the litigation process and may also increase the net recovery of the property owner.

Any agreement the property owner may desire to enter into with HSR in connection with or as a consequence of such negotiations should be put in writing. The authority of HSR’s right of way agent may be limited and the property owner may not be able to rely upon verbal (often caveated) statements made in the course of negotiations.

Conversations between people having even the best of intentions can lead to future misunderstandings. Counsel should be able to assist the property owner in appropriately memorializing communications and any agreement that the owner may decide to enter into with HSR.

Be prepared

HSR’s objective will presumably be to acquire the targeted property through negotiation or, if necessary, through an action in eminent domain. The property owner needs to prepare to protect his or her interests on both the negotiation and litigation/potential litigation fronts simultaneously. The litigation process is rife with deadlines and procedural requirements.

The property owner cannot make the mistake of assuming that disputes and points of contention with HSR will be resolved outside of court or that there is a “deal” before a purchase contract is executed and performed. Rather, the property owner must assume that the matter may not be resolved through negotiation, and accordingly, the owner should meet any applicable litigation deadlines and prepare to defend him- or herself at trial. Lack of preparation is likely to weaken one’s negotiation position and may ultimately lead to unintended and undesirable consequences for the property owner.

At the end of the day, we can all question the wisdom and economics of the California High-Speed Rail Project. But don’t let frustration cloud your judgment. Farmers should be proactive when HSR comes knocking and take steps necessary to protect their interests.

— Mark Bateman is a partner with the law firm of LeBeau-Thelen LLP. His practice focuses on business and real estate law.

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