by Debra Herman and Jorge Martinez-Esteve
When the government acquires property from a private owner in eminent domain proceedings, the owner is entitled to full and fair compensation.1 In this manner, the government can efficiently satisfy public needs, while compensating the private owner for the acquisition of the property necessary to fulfill such needs. In Florida, full and fair compensation to the owner is typically achieved by the payment of the fair market value of the property.2
Fair market value is defined as what a willing buyer would pay to a willing seller, neither party being obligated to act.3 Importantly, this concept assumes that the buyer and seller are aware of all relevant facts regarding the property, including restrictions legally imposed on the property by the government, such as zoning and use regulations.4
In condemnation cases, fair market value is determined not only by looking at the existing zoning and use of the property, but also any change in zoning or use that is reasonably probable.5 Thus, under Florida law, the property owner is permitted to argue that the property should be valued at a higher or better use than that which exists on the date of acquisition. For example, an owner of property zoned and used for agricultural purposes may appraise the property under a different use, such as commercial, if it is reasonably probable that the more profitable use of the land is feasible at the time of the condemnation. Likewise, even if no change in zoning is required, a property owner may assert a change in use that is higher and better than the existing use, such as a change from office to commercial retail.
Sometimes, however, such proffered changes trigger the application of zoning restrictions, including the required dedication of property to the public. Whether and how such dedication requirements for the proffered change in use affect fair market value in condemnation cases remains an unsettled question in Florida. This article explores the history of dedication requirements in Florida, discusses the current open questions in Florida law regarding this issue, reviews how other jurisdictions have addressed this issue, and analyzes the applicability of national caselaw to current Florida law and policy.
“Zoned Right-of-Way” Caselaw in Florida
In condemnation cases, the interplay between zoning restrictions and compensable damages is most likely to occur in the taking of private property for the construction and expansion of public rights-of-way. In Florida, counties and municipalities plan for future roadway expansion by establishing minimum right-of-way widths for both current and planned roads.6 These widths, defined in local zoning ordinances, are usually referred to as “zoned right-of-way.” Property identified as zoned right-of-way is still owned and may be used by a property owner prior to its development as a road, usually subject to a restriction regarding placing permanent structures within this area in anticipation of the eventual taking. Zoned rights-of-way are often the subject of condemnation proceedings, because these areas, by their very nature, are typically needed to expand existing roadways.
The Florida Supreme Court has upheld the establishment of minimum right-of-way requirements and held that these requirements generally do not constitute a taking until actual acquisition by the government.7 Florida courts have, however, achieved some balance for property owners by prohibiting the introduction of certain types of evidence in condemnation proceedings.8 For example, the Florida Supreme Court has held that, during the actual condemnation of such zoned right-of-way, the government cannot benefit from the depression in property value caused by the earlier designation of the property as zoned right-of-way.9
This approach makes sense from the standpoint of both common sense and equity. Governmental entities benefit from the imposition of zoned right-of-way restrictions by limiting construction within these areas, which concomitantly limits subsequent acquisition and construction costs. Property owners, however, do not derive any benefit from the designation of their property as zoned right-of-way until the roadway is built. Thus, to allow the government to benefit from the designation of property as zoned right-of-way by discounting the property’s value at the time of taking, without providing any benefit to property owners in exchange, would result in an inequitable reduction in the compensation due to property owners.
A Change in Use or Zoning Requires the Dedication of Property to the Public
Florida cases addressing the condemnation of zoned right-of-way have been limited to cases involving property where the existing use of the property is already the highest and best use.10 But when a property owner in a condemnation case seeks to argue the reasonable probability of a change in use or zoning, an additional factor should be considered. This additional factor is the requirement that property owners developing property must dedicate, or convey, to the public, certain portions of the property — free of compensation — in exchange for development approvals.11
The rationale underlying these dedication requirements is simple: The development of property — particularly for a more intense use — increases the burdens upon public infrastructure. Therefore, property developers must pay their proportionate share of the burden.12 For this reason, Florida courts have held that it is permissible to condition development approval upon the dedication of private property for public use, such as for drainage canals, parks, or public rights-of-way.13
Additionally, because the property owner benefits from the conditions imposed upon the property (e.g., by obtaining access, flood control, emergency services, schools, or parks for purchasers of the newly developed property), local governments are not required to compensate developers for the dedicated property.14 In Florida, dedication requirements have been upheld as long as they are rationally related to the development of the property, premised upon the rationale that the property owner benefits from the provided public infrastructure.15 Similarly, the U.S. Supreme Court has held that dedication requirements are constitutionally valid so long as there is a sufficient nexus to a legitimate public purpose.16 More specifically, the U.S. Supreme Court has held that “[d]edications for streets, sidewalks, and other public rights-of-way are generally reasonable exactions to avoid excessive congestion from a proposed property use.”17
Although no Florida court has directly addressed the effect of a future dedication requirement in a condemnation proceeding in which the owner bases a claim for compensation on the probability of rezoning or change of use, cases from other jurisdictions have squarely addressed this issue. Significantly, every court across the United States that has decided this issue has held that future dedication requirements are admissible in evidence, although different jurisdictions handle admissibility in different ways.18
Courts in California give the greatest legal significance to evidence of required dedications: If the property acquired would have to be dedicated to achieve the higher use for the remainder of the property, California courts limit the valuation of the condemned property to its existing (and under-developed) use.19 California courts reason that where the government would require the dedication to achieve the higher use (and value), the property taken should be valued solely for the use that can be made in the existing state, because the portion subject to dedication could never be used for a different purpose.20
The rationale behind this preclusive approach is the prevention of a windfall.21 If the owners do not develop the parcels beyond their presently permitted uses, the owners will have been paid exactly what the property was worth. On the other hand, if the parcels were developed to a higher use, thus triggering the dedication, the government would have paid for land the owners would have had to dedicate to achieve the higher zoning value. This approach prevents the owner from receiving an unfair profit — in essence, “double-dipping” — by valuing property as if the benefits of a more intense use or zoning could be achieved without also accepting the burdens of the change, particularly where a willing buyer would presumably purchase the property for the same amount with or without the strip of property that would have to be dedicated.
Missouri and Illinois courts also admit evidence as to the dedication requirement in the context of a probability-of-rezoning analysis, although their approach differs from the approach taken in California.22 These courts have concluded that the reasonable probability that the property would have to be dedicated in exchange for the rezoning can be relevant to the determination of the value of the remainder.23 Unlike California, these courts do not directly limit valuation to existing uses, but instead admit dedication requirements as part of the valuation evidence to be weighed by the jury. However, these courts allow the condemnor to argue that the property owner suffered no damages, if the condemnor can prove: 1) that the dedication requirement is based upon a reasonable relationship between the dedication and the activity for which the rezoning was sought; and 2) that there is a reasonable probability that the dedication would be required.24
Similarly, the Oregon Supreme Court has concluded that a dedication requirement is admissible if such dedication would be required to develop the property to its highest and best use.25 As explained in Department of Transportation v. Lundberg, 825 P.2d 641 (Or. 1992), “A reasonable seller or buyer would want to consider the ordinance in determining fair market value because it imposes a restriction on the owner’s use of the condemned property, which tends to affect the property’s fair market value.”26
Finally, in both Nevada and Colorado, evidence of dedication requirements is also admissible and, although these courts approach this evidentiary issue in yet another manner, such evidence is more than simply one of several factors considered in the fair market value analysis.27 As explained by the Colorado Supreme Court in Palizzi v. City of Brighton, 228 P.3d 957, 961-62 (Colo. 2010), dedication requirements are clearly admissible because of their relevance to market value and the costs of potential future development.28 These courts reason that a dedication requirement is no different from other development costs that a buyer would consider.29 Thus, in these jurisdictions, the dedication requirement is admissible as part of the overall assessment of the total value of the property, as part of the calculation of the overall price a willing buyer would pay.30 Accordingly, rather than severing out the property that is subject to the dedication, these courts attempt to spread the costs or burdens of dedication across the value of the entire property.31
Probability of Rezoning Caselaw Indicates Implicit Approval of Evidence of Dedication Requirements
Although Florida courts have not directly addressed the admissibility of dedication requirements, existing condemnation caselaw involving the probability of rezoning firmly supports the admissibility of that evidence. First, in determining the probability of utilizing the property for a different use, an appraiser is prohibited from evaluating the rezoning as if it were already a fait accompli.32 Instead, the appraiser must consider the impact upon market value of the likelihood of a change in zoning and use.33 To accurately reflect market conditions, which is the cornerstone of valuation in condemnation proceedings, future risks and contingencies attendant to such rezoning cannot be ignored.34
Thus, in Florida, an appraisal premised upon a change in use or zoning must consider the fact that a “knowledgeable buyer would offer less value for property that may require significant future expenses and more value for property with minimal future expenses. Likewise, the value of future improvements that may be probable also will factor into the equation when a knowledgeable buyer determines fair-market price.”35 Consequently, condemnation valuation must consider not only factors that would enhance the value of the property, but also factors that would decrease the value of the property.36 More specifically, the Florida Supreme Court has held that it constitutes error to refuse to allow evidence regarding negative factors associated with a property that a willing buyer would consider.37 Therefore, when considering the effect of a probable future use on the market value of property, the jury must also necessarily consider evidence of the costs of achieving that future use.38
By requiring consideration of the costs of developing property, existing Florida caselaw supports the admissibility of evidence of dedication requirements in condemnation proceedings. This is buttressed by the fact that Florida courts employ an extremely expansive approach to the admissibility of valuation evidence in condemnation proceedings, by striking expert opinions regarding valuation only if “the method used by the witness is so totally inadequate or improper that adoption of the method would require departing from all common sense and reason or would require adoption of an entirely new and totally unauthenticated formula in the field of appraising.”39
Therefore, in Florida, the determination of fair market value should properly account for dedication requirements, as part of the analysis of what a buyer and seller would consider in a voluntary market transaction. Evidence of probable rezoning to higher or better use, which is beneficial to owners, is undoubtedly a factor a buyer and seller would consider. So, too, however, are cost factors related to developing the property to such use. Those costs include dedication requirements and mandatory improvements (e.g., paying the actual construction costs of the roadway). For a court to exclude evidence of those dedication requirements would allow property owners to put before the jury only those market factors that increase the value of their property, while shielding from the jury’s view those market factors that decrease its value. Such a holding would be inconsistent with Florida law, as well as the decisions of the many courts across the country that have considered this precise issue, and it would result in an inequitable windfall at the expense of the taxpayers.
1 See Fla. Const. art. X, §6; Broward County v. Patel, 641 So. 2d 40, 42 (Fla. 1994).
3 Dep’t of Agric. & Consumer Servs. v. Polk, 568 So. 2d 35, 41 (Fla. 1990).
5 See, e.g., Bd. of Comm’rs of State Insts. v. Tallahassee Bank & Trust Co., 100 So. 2d 67, 70 (Fla. 1st D.C.A. 1958).
6 See, e.g., Miami-Dade County Code of Ordinances, Ch. 33, art. VIII, §§33-133 – 33-137 (2010).
7 See City of Miami v. Romer, 73 So. 2d 285, 286-87 (Fla. 1954).This is true unless the restriction denies substantially all economically beneficial or productive use of the land, thus amounting to a de facto taking. See Tampa-Hillsborough County Expressway Auth. v. A.G.W.S. Corp., 640 So. 2d 54, 58 (Fla. 1994).
8 See, e.g., Dade County v. Still, 377 So. 2d 689, 690 (Fla. 1979).
9 See id.
10 See, e.g., id.
11 See, e.g., Wald Corp. v. Metro. Dade County, 338 So. 2d 863, 865-67 (Fla. 3d D.C.A. 1976).
12 See id.
13 See id. (drainage canals); Hollywood, Inc. v. Broward County, 431 So. 2d 606, 613-14 (Fla. 4th D.C.A. 1983) (parks); Dolan v. City of Tigard, 512 U.S. 374, 395 (1994) (public rights-of-way).
14 In Wald Corp., 338 So. 2d at 868, the court held that: “This ‘rational nexus’ approach provides a more feasible basis for testing subdivision dedication requirements than the two methods of review discussed earlier. It allows the local authorities to implement future oriented comprehensive planning without according undue deference to legislative judgments. It requires a balancing of the prospective needs of the community and the property rights of the developer. But above all, it treats the business of subdividing as a profit-making enterprise, thus drawing proper distinctions between the individual property-holder and the subdivider. While the former may not ordinarily have his property appropriated without an eminent domain proceeding, the latter may be required to dedicate land where the requirement is a part of a valid regulatory scheme.”
15 See, e.g., Hollywood, Inc. v. Broward County, 431 So. 2d 606, 614 (Fla. 4th D.C.A. 1983). The court in Wald Corp., 338 So. 2d at 867, further held that: “It is eminently reasonable, therefore, to allow the municipality to impose certain conditions upon the developer so that it may provide for the needs of persons who would not otherwise have been a local concern. And in a very real sense, the subdivider profits from the conditions imposed upon him, since the provision of safety and health requirements benefits potential buyers, thus rendering the lots of the subdivision more attractive.”
16 See Nollan v. California Coastal Comm’n, 483 U.S. 825, 834 (1987) (holding that a government agency could not condition a building permit for a house upon the granting of an easement across the beach, because the easement was not sufficiently related to any impacts of the proposed house on the public’s access to the beach).
17 Dolan v. City of Tigard, 512 U.S. 374, 395 (1994).
18 See, e.g., Contra Costa Flood Control & Water Conservation Dist. v. Lone Tree Investments, 7 Cal. App. 4th 930 (Cal. Ct. App. 1992); City of Fresno v. Cloud, 26 Cal. App. 3d 113 (Cal. Ct. App. 1972); State ex rel. Dep’t Transp. v. Lundberg, 825 P.2d 641 (Or. 1992); State ex rel. Mo. Highway & Transp. Comm’n v. Modern Tractor & Supply Co., 839 S.W.2d 642 (Mo. Ct. App. 1992); State ex rel. Mo. Highway & Transp. Comm’n v. Sturmfels Farm Ltd., 795 S.W.2d 581 (Mo. Ct. App. 1990); Dep’t of Pub. Works & Bldgs. v. Exch. Nat’l Bank of Chicago, 356 N.E.2d 376 (Ill. App. Ct. 1976); City of N. Las Vegas v. Robinson, 134 P.3d 705 (Nev. 2006); Palizzi v. City of Brighton, 228 P.3d 957 (Colo. 2010).
19 See, e.g., Contra Costa Flood Control & Water Conserv. Dist. v. Lone Tree Inv., 7 Cal. App. 4th 930, 937 (Cal. Ct. App. 1992). See also City of Fresno v. Cloud, 26 Cal. App. 3d 113 (Cal. Ct. App. 1972).
22 See, e.g., State ex rel. Mo. Highway & Transp. Comm’n v. Sturmfels Farm Ltd., 795 S.W.2d 581, 585 (Mo. Ct. App. 1990); Dep’t of Pub. Works & Bldgs. v. Exch. Nat’l Bank of Chicago, 356 N.E.2d 376, 386 (Ill. App. Ct. 1976). See also State ex rel. Mo. Highway & Transp. Comm’n v. Modern Tractor & Supply Co., 839 S.W.2d 642, 653 (Mo. Ct. App. 1992).
24 State ex rel. Mo. Highway & Transp. Comm’n v. Sturmfels Farm Ltd., 795 S.W.2d 581, 588 (Mo. Ct. App. 1990).
25 See State ex rel. Dep’t Transp. v. Lundberg, 825 P.2d 641, 645 (Or. 1992).
27 See, e.g., City of N. Las Vegas v. Robinson, 134 P.3d 705, 708-09 (Nev. 2006); Palizzi v. City of Brighton, 228 P.3d 957, 961-62 (Colo. 2010). In Palizzi, the condemnor sought to condemn a strip of land for roadway expansion from a larger parent tract currently zoned for agricultural use. The parties agreed that, given the reasonable probability of rezoning, the highest and best use of the parent tract was as commercial property. The rezoning and development of the parent tract for commercial use, however, would require the owner to dedicate the strip of property that was the subject of the condemnation. The Colorado Supreme Court held that the relevant evidence to be considered by a jury in determining just compensation included not only the highest and best use of the property, but also any dedication requirements and other costs associated with rezoning.
28 See Palizzi v. City of Brighton, 228 P.3d at 961-62; see also Robinson, 134 P.3d at 708-09.
32 Broward County v. Patel, 641 So. 2d 40, 44 (Fla. 1994).
34 Id. at 44.
35 Id. at 43.
36 Id.; see also United States v. 158.24 Acres of Land, 696 F.2d 559, 564 (8th Cir. 1982) (“Account must be taken of all factors which would be considered by a prospective purchaser,” including costs such as loss of land for streets and utility easements, platting and surveying expenses, and road improvements.); 4 Nichols on Eminent Domain §12B.14[a] (3d ed.) (“[I]f evidence is offered as to developed value, consideration must be given to the cost of developing that value.”).
37 See Polk, 568 So. 2d at 41-42 (holding that threat of citrus canker infection amongst citrus trees must be admitted into evidence as factor that willing buyer of citrus groves would consider).
38 See Patel, 641 So. 2d at 43.
39 Fla. Dep’t of Transp. v. Armadillo Partners, Inc. 849 So. 2d 279, 287 (Fla. 2003).
Debra Herman is an AV-rated lawyer who heads the eminent domain section at the Miami-Dade County Attorney’s Office. Her practice focuses equally on real estate litigation and transactional work. She received her J.D. magna cum laude from the University of Miami.
Jorge Martinez-Esteve practices in the tax and finance and zoning and land use sections of the Miami-Dade County Attorney’s Office. He has an extensive litigation background, having tried dozens of jury trials and hundreds of bench trials since becoming a member of The Florida Bar in 1998. He received his J.D. magna cum laude from the University of Miami in 1997.
The authors thank Thomas Goldstein for his assistance in developing the concepts discussed in the article and Dennis Kerbel for his help editing the article.