Landowner Prevails In Spot Zoning Case

By Randy Sullivan

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The court of appeals recently considered whether spot zoning occurred in the City of San Clemente and thus entitled the property owner to compensation as a “constitutional taking” of property by the government.

The term spot zoning refers to a situation in which a small parcel is restricted more than surrounding properties. It is often described with the analogy that one property is an island surrounded by a sea of properties with greater property rights. In this case, the one property was being treated as an island that was restricted from developing properties with ocean views.

The subject property is in the City of San Clemente, where the topography consists of mountainous canyons and cliffs with views of the Pacific Ocean.

The property owners acquired the subject parcel in the early 1980s and received approval to construct four residences on an undeveloped 2.85-acre parcel. At the time the approval was within the land-use restrictions, which permitted six dwellings per acre. The owners intended that certain residences would have views of the Pacific Ocean. But development was delayed, partly because of the cost of constructing an expensive driveway.

Later, after a landslide, the city created a zoning classification, “new residential, very low.” This new land-use restriction limited development for these properties to one dwelling per 20 acres. The intent was to provide significant acreage for open space and canyons.

In 2006, the owners sought approval to proceed, and requested an amendment to the general plan. The City denied the request. After a trial, the judge found that the new zoning classification constituted spot zoning with respect to the subject parcel.

These decisions were upheld on appeal. First, the parcel was surrounded by properties where two to six houses per acre could be constructed. Second, the court rejected the alleged reason for treating the property differently.

The city claimed the zoning was necessary to protect neighboring properties, because the subject property was on a canyon and could cause a landslide. The court disagreed and found that the subject parcel was located on a slope and not on a canyon. And there had been no prior landslide on or affecting the subject parcel.

The court found that the alleged topographical reason was not enough to justify denying the application to proceed with the previously approved development plan. And the city had no evidence that the parcel’s topography posed a risk. There was no negative geotechnical data, and the property’s stability was demonstrated by a nearby cliff that faced a street without a retaining wall.

As a result, the court of appeals upheld the compensatory “taking” finding, because the economic effect was dramatic, the regulation undermined the investment expectations of the owners, and the city’s motivation was to create open space – not safety.

The appeals court also found that the property did have some value. And even though there was less than a complete taking, the impact on the subject parcel was significant enough to constitute a partial taking that is compensable.

The appeals court then analyzed the trial court’s damage analysis. In short, the trial court did not abide by a process designed to arrive at the fair market value impact of the city’s downzoning of the subject parcel.

Instead of first arriving at the property’s fair market value by taking its full, best use with four residences constructed, the court took the lowest appraised value and then subtracted the cost for constructing the access road.

The appeals court overturned this decision and remanded it to the trial court with instructions. On remand, the court was to first take the fair market value based on the construction of four residences, some with ocean views, and then deduct the value that the property would have if a single dwelling was constructed. The difference in value would constitute the damages to the property owner. The trial court likely did not perform this calculation, because it incorrectly found that nobody would be willing to develop a single house on 2.85 acres.

Lastly the appeals court upheld the award of prejudgment interest and attorney fees to the property owners. In an inverse condemnation action the prevailing party is entitled to reasonable attorney fees, expert fees, costs of suit, and prejudgment interest.

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Randy Sullivan, a partner at Patton & Sullivan LLC, specializes in business and real estate litigation.

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