BILL ANALYSIS Ó SENATE JUDICIARY COMMITTEE Senator Noreen Evans, Chair 2011-2012 Regular Session SB 328 (Kehoe) As Introduced Hearing Date: April 12, 2011 Fiscal: Yes Urgency: No BCP:rm SUBJECT Eminent Domain Law: Conservation Easement DESCRIPTION This bill would state that a person authorized to acquire property for public use by eminent domain shall exercise that power to acquire property that is subject to a conservation easement only as provided in this bill. Specifically, this bill would impose the following requirements on the condemnation of a property subject to a conservation easement: The person notifies the holder of a conservation easement not later than 105 days prior to the hearing on a resolution of necessity, or, at the time an offer is made to the owner of the property, whichever occurs earlier, as specified; The holder informs the person seeking to acquire the property of any public entity that provided funds for purchase of the easement, or imposed conditions that resulted in its creation, and notifies that entity of the potential eminent domain action; The holder and the public entity receiving notice have the right to provide written comments to the person seeking to acquire the property, and, that person must respond to those comments within 30 days; The holder is named as a defendant and may appear in the proceedings, as specified; and The holder of the conservation easement is an owner of property entitled to compensation, as specified. BACKGROUND (more) SB 328 (Kehoe) Page 2 of ? In 1979, the Legislature declared that the preservation of land in its natural, scenic, agricultural, historical, forested, or open-space condition is among the most important environmental assets of California. In conjunction with that declaration, the Legislature broadly defined a "conservation easement," and codified that those easements are an interest in real property, perpetual in duration, not personal in nature, and having the characteristics granted or specified in the instrument created in the easement. Generally speaking, a conservation easement is a legal contract between a property owner and a third party (often a land trust) that restricts the use of the land for the purpose of conservation (retaining the land predominantly in its natural, scenic, historical, agricultural, forested, or open-space condition). Those easements typically restrict development and subdivision of the property, run with the land (ie. bind the original and subsequent owners), and are recorded with the county recorder to provide public notice of the easement. Since the property owner retains ownership of the property, conservation easements also represent a less expensive alternative to outright purchase of the property for nonprofits seeking to protect land, and may result in a tax advantage to the property owner. The easement itself is held by the third party (nonprofit 501(c)(3), Native American Tribe, or government entity, as specified). The sponsor, California Council of Land Trusts, provides the following two examples of recent conservation easement donations to the Land Trust of Santa Barbara County: ÝThe first donation was] a 195-acre avocado farm that protects farmland, wildlife habitat and a creek, and provides scenic views from a public trail. The second donation was appraised at $42 million on a 3,100-acre property. It contains extensive watershed lands and farmland, and because the property abuts a very popular public hiking trail, it also provides scenic views to the public. In response to prior concerns about the condemnation of conservation easements, AB 910 (Wayne, Chapter 863, Statutes of 2001) prohibited a governmental entity from condemning wildlife conservation easements acquired by a state agency, or the property under those easements, unless certain procedures were complied with, including giving notice of the proposed condemnation to the holder of the easement, and allowing that SB 328 (Kehoe) Page 3 of ? holder to state its objections and to receive a response. (Fish & G. Code Sec. 1348.3.) The sponsor of that bill, the California Waterfowl Association, argued that the ease with which conservation easements could be condemned under California law, at that time, "threatenÝed] to undermine one of California's most successful and economically prudent natural resource conservation strategies." This bill, sponsored by the California Council of Land Trusts, would similarly ensure that holders of conservation easements, and any public entity involved with the easement, receive notice of a potential eminent domain action, are involved in the eminent domain process, and are entitled to compensation if the property is taken, as specified. This bill is identical to the enrolled version of SB 555 (Kehoe, 2009) that was vetoed due to concerns that it could delay infrastructure projects. (See Comment 4.) CHANGES TO EXISTING LAW Existing federal law provides that "private property Ýshall not] be taken for public use, without just compensation." (U.S. Const. Amend. V.) Existing state law provides that private property "may be taken or damaged for public use only when just compensation, ascertained by a jury unless waived, has first been paid to, or into court for, the owner." (Cal. Const. art. I, sec. 19.) Existing state law defines "just compensation" as a property's fair market value "as determined by any method of valuation that is just and equitable." (Code Civ. Proc. Secs. 1263.310-1263.320.) Existing law further provides that the power of eminent domain may be exercised to acquire property only for a public use, and only if all of the following are established: (1) the public interest and necessity require the project; (2) the project is planned or located in the manner that will be most compatible with the greatest public good and the least private injury; and (3) the property sought to be acquired is necessary for the project. (Code Civ. Proc. Secs.1240.010, 1240.030.) SB 328 (Kehoe) Page 4 of ? Existing law states that any person authorized to acquire property for a particular use by eminent domain may exercise the power of eminent domain to acquire property appropriated to public use: (1) if the proposed use will not unreasonably interfere with or impair the continuance of the public use as it then exists or may reasonably be expected to exist in the future; or (2) if the use for which the property is sought to be taken is a more necessary public use than the use to which the property is appropriated. (Code Civ. Proc. Secs. 1240.510, 1240.610.) Existing law finds and declares that the preservation of land in its natural, scenic, agricultural, historical, forested, or open-space condition is one of the most important environmental assets of California, and states that it is to be the public policy and in the public interest of this state to encourage the voluntary conveyance of conservation easements to qualified nonprofit organizations. (Civ. Code Sec. 815.) Existing law defines a "conservation easement" as any limitation in a deed, will, or other instrument in the form of an easement, restriction, covenant, or condition, which is or has been executed by or on behalf of the owner of the land subject to such easement and is binding upon successive orders of such land, and the purpose of which is to retain land predominantly in its natural, scenic, historical, agricultural, forested, or open-space condition. (Civ. Code Sec. 815.1.) A conservation easement has the following characteristics: voluntarily created interest in real property that is freely transferable; perpetual in duration; not deemed to be personal in nature, but shall constitute an interest in real property; and the particular characteristics shall be those granted or specified in the instrument creating or transferring the easement. (Civ. Code Sec. 815.2.) Existing law only allows the following entities or organizations to acquire and hold conservation easements: (a) tax-exempt nonprofit 501(c)(3) organizations with a primary purpose of preserving, protecting, or enhancing land in its natural, scenic, historical, agricultural, forested, or open-space condition or use; (b) the state or any city, county, city and county, district, or other state or local government entity, as specified; and (c) a California Native American tribe, as specified. (Civ. Code Sec. 815.3.) Existing law also requires SB 328 (Kehoe) Page 5 of ? the recordation of instruments creating, assigning, or otherwise transferring conservation easements, and provides for the creation of a conservation easement registry. (Civ. Code Sec. 815.5; Pub. Res. Code Sec. 5096.520.) Existing law provides that no governmental entity may condemn any wildlife conservation easement, as defined, unless, prior to the initiation of condemnation proceedings by a governmental entity, the entity: (a) gives notice to the holder of the easement; (b) provides an opportunity for the holder of the easement to consult with the governmental agency; and (c) provides a response to objections. In the condemnation proceedings, the condemning governmental entity shall be required to prove by clear and convincing evidence that its proposed use satisfies specified requirements under the Eminent Domain Law. (Fish & G. Code Sec. 1348.3; Code Civ. Proc. Sec. 1240.610 et seq.) This bill would state that a person authorized to acquire property for public use by eminent domain shall exercise the power of eminent domain to acquire property that is subject to a conservation easement only as provided below: The person seeking to acquire the property subject to the easement provides notice to the holder of the conservation easement: (1) not later than 105 days prior to a hearing by the governing body on a resolution of necessity, or at the time an offer is made to the owner to acquire the property; (2) if no hearing is required, notice must be given 105 days prior to the time an offer is made to the owner of the property. That notice must include the following: o a general description of the property subject to the conservation easement; o description of the public use or improvement; o that written comments must be submitted no later than 45 days from the mailing of the notice, as specified; o that the holder of the easement is required, within 15 days of receipt of the notice, to send a copy of the notice to each public entity that provided funds for the purchase of the easement or imposed conditions on approval or permitting that were satisfied by creation of the easement, inform the public entity regarding written comments, and notify the person seeking to acquire the property of the name and address of the public entity. SB 328 (Kehoe) Page 6 of ? The holder of the conservation easement, within 15 days of receiving the notice, must send a copy of the notice to each affected public entity, as specified, inform that entity of regarding the ability to submit written comments, and notify the person seeking to acquire the property of the public entity. This requirement would only apply when the holder of the easement is the original grantee of the easement and there is a public entity, as specified, the holder of the easement has actual knowledge of a public entity, as specified, or the recorded documents evidence the involvement of a public entity. The holder of the conservation easement or the public entity receiving notice, or both, may provide written comments to the person seeking to acquire the property, including any potential conflict between the public use proposed for the property and purposes and terms of the easement. Written comments must be submitted no later than 45 days from the date the notice was mailed to the holder of the conservation easement. The person seeking to acquire the property subject to a conservation easement must respond in writing to comments from the holder of the easement or from the public entity, as specified, within 30 days of receiving those comments. Notice of the hearing on the resolution of necessity must be sent to the holder of any conservation easement and to any public entity, as specified. The notice shall state that failure to file a written request within 15 days after mailing of the notice will result in waiver of the right to appear and be heard. Any resolution of necessity to acquire property subject to a conservation easement must refer a section of existing law that: (1) permits a property appropriated to public use to be acquired by eminent domain if the proposed use will not unreasonably interfere with or impair the continuance of the public use, as specified; or (2) permits a property appropriated for public use to be acquired if the use for which the property is sought to be taken is a more necessary public use than the sue to which the property is appropriated. This bill would require the holder of the conservation easement to be named as defendant in the eminent domain proceedings to acquire property subject to a conservation easement. This bill would also require the holder to be allowed to appear in the proceedings, as specified, and state that the holder shall have all the same rights and obligations as any other defendant in SB 328 (Kehoe) Page 7 of ? the eminent domain proceeding. This bill would provide that the holder of the conservation easement is an owner of property entitled to compensation, as specified, to be determined in accordance with all of the following: The total compensation for the acquisition of all interests in property encumbered by a conservation easement shall not be less than, and shall not exceed, the fair market value of the property if it were not encumbered by the conservation easement. If the acquisition does not damage the conservation easement, the total compensation shall be assessed by determining the value of all interests in the property as encumbered by the easement. If the acquisition damages the conservation easement, the compensation shall be determined, as specified, and the value of the fee simple interest of the property shall be assessed as if it were not encumbered by the easement. This bill would provide the above compensation provisions do not apply if similar provisions in existing law relating to agricultural conservation easements apply. This bill would not apply in its entirety if existing law's provision relating to wildlife conversation easements applies. COMMENT 1. Stated need for the bill According to the author: The current provisions of the CCP ÝCode of Civil Procedure] do not identify or recognize conservation easements in spite of the public benefits and investment in creating them. Tremendous public and charitable assets have been invested in the acquisition of conservation easements in California. Yet, with the narrow exception created for a relatively small number of easements in the Fish and Game Code section 1348.3, conservation easements are as vulnerable to condemnation as any other property in private ownership. The fact that a conservation easement exists, that sometimes millions of dollars in public dollars have been expended to conserve it, or that a public agency has said that the SB 328 (Kehoe) Page 8 of ? property's conservation advances certain public goals are all irrelevant to a potential condemnation proceeding. In spite of the implicit recognition of the public value of conservation easements as evidenced in law and public funding, they are not recognized as having any public use for the purposes of eminent domain law. Further, the easement holder - who holds a real property interest - does not have to be notified of the proposed condemnation. Nonprofit easement holders report that governmental entities with the power of eminent domain often fail to recognize a conservation easement as a separate and distinct property right. In numerous instances, the entity has refused to acknowledge the easement holder until the holder of the fee title land refuses to talk with the entity about the condemnation without the easement holder or the easement holder has retained counsel to force discussion. The conservation community is facing an increasing number of condemnations of conservation easements, and it expects this trend to increase as development pressure continues and communities are built out. The conservation community is not trying to eliminate the power of eminent domain - it recognizes that other societal needs will sometimes require the condemnation of a conservation easement. However, it is seeking to ensure that easement holders receive notice and have a right to object, and to create a high standard for condemning easements to help ensure that public use and investment is not lightly lost. 2. Eminent domain; formal recognition of conservation easements The Fifth Amendment of the U.S. Constitution states that a person's private property may be taken for a "public use" if the owner is given "just compensation." When a public entity takes private property under this provision, the public entity is exercising its power of eminent domain. Although existing law codifies various rights for the owners of the property that the public entity is seeking to acquire, those sections are ambiguous about whether or not the holder of a conservation easement has similar rights, even though existing law defines those easements as a property right. The author similarly notes that "Ýn]umerous provisions in the Code of Civil Procedure are applicable by reference to the condemnation of properties encumbered with a conservation easement, but the law is not explicit." This bill would clarify the issue by enabling owners SB 328 (Kehoe) Page 9 of ? of conservation easements to receive notice, submit comments, and potentially receive compensation if the property is taken. Staff notes that similar provisions were enacted with respect to wildlife conservation easements by AB 910 (Wayne, 2001). a. Notice to holder of the conservation easement and public entity Prior to filing an eminent domain action in court, a public entity seeking to acquire property by eminent domain must generally adopt a "resolution of necessity" and, before adopting that resolution, must give each person whose property is to be acquired by eminent domain a reasonable opportunity to appear and be heard. (Code Civ. Proc. 1245.235.) Those individuals then have a forum to dispute the three requirements that must exist for a property to be acquired by eminent domain: (1) that public interest and necessity require the project; (2) the project is planned or located in the manner that will be most compatible with the greatest public good and the least private injury; and (3) the property sought to be acquired is necessary for the project. That entity must also, before adopting that resolution, establish an amount that is believed to be just compensation for the property and make an offer to the owners to acquire the property for that amount. That offer, which must be not less than the entity's appraisal of the fair market value, generally provides owners who are willing to sell with the opportunity to do so at an early point in the process. To ensure that holders of conservation easements are aware of the potential eminent domain action, this bill would require the public entity seeking to acquire the property to give a specified notice to the holder not later than 105 days before the hearing on the resolution of necessity, or, at the time the entity makes an offer to the owners of the property, whichever occurs earlier. (If no hearing is required, notice must be given 105 days prior to the time of the offer made to the owner.) That notice would include a general description of the property and outline the right and responsibilities placed on the holder of the easements by this bill, including, the obligation to notify any interested public entities, as specified. By receiving notice of the pending eminent domain action, holders of conservation easements would be empowered to become involved in the process pursuant to the provisions described below. SB 328 (Kehoe) Page 10 of ? To provide notice to public entities with an interest in the easement, the bill would also require the holder to provide a copy of that notice to each public entity that had provided funds for purchase of the easement or that imposed conditions on approval or permitting of a project that were satisfied, in whole or in part, by the creation of the easement. The holder of the easement would also be required to notify the person seeking to acquire the property (condemning public entity) of the name and address of any public entity that they sent a copy of the notice to - that notification would make the condemning entity aware of the other public entity's interest. The providing of that notice, and the additional rights discussed below, would allow those entities to participate in the eminent domain process and potentially safeguard public funds used for that easement. Absent these provisions, the author contends that "Ýt]he fact that a conservation easement exists, that substantial public dollars have been expended to conserve the property, or that a public agency has said that the property's conservation advances certain public goals Ýwould continue to be] irrelevant to a potential condemnation proceeding." b. Involvement of the easement holder and public entity To provide the holder of the easement or public entity with an interest in the easement, with an opportunity to comment on the proposed taking of the property, this bill would allow those parties to provide written comments on the acquisition. Since the conservation easement itself is arguably already a public use, those comments may include identification of any potential conflict between the public use proposed for the property and the purposes and terms of the conservation easement. Those comments must be submitted no later than 45 days from the date the person seeking to acquire the property mailed the notice to the holder of the conservation easement. To ensure that those comments are received, and arguably considered, the bill would require the person seeking to acquire the property to respond in writing within 30 days after receiving the comments. The bill would also require that the holder of the easement, and any public entity receiving a copy of the notice, be sent a notice of the hearing on the resolution of necessity. The adoption of that resolution is generally a prerequisite for filing an eminent domain action, and serves to provide a SB 328 (Kehoe) Page 11 of ? public forum for interested parties to object and challenge the bases for the resolution. The California Outdoor Heritage Alliance (COHA), in support, further emphasizes that the bill "would not prohibit condemnationÝ,but] would help to ensure a more comprehensive analysis of the potential impacts to wildlife and other natural resources found on the property subject to the easement." Consistent with the rights of the owner of the property, and those with a claim or interest in the property, the bill would require the holder and interested public entity to file a written request to be heard within 15 days after notice of the hearing on the resolution of necessity, require the holder of the easement to be named as a defendant, and permit the holder to appear in the proceedings, as specified. The bill would also state that the holder of the conservation easement shall have the same rights and obligations as any other defendant in the eminent domain proceeding. 3. Compensation requirements Pursuant to the federal and state Constitutions, property cannot be taken for public use without just compensation. The Eminent Domain law further states that the owner of property acquired by eminent domain is entitled to compensation, that compensation shall be awarded for any property taken, and that the measure of that compensation is fair market value, as specified. This bill would additionally state that the holder of a conservation easement is an owner entitled to compensation under the Eminent Domain Law in accordance with accordance with three principles: (1) the total compensation of all interests shall not be less than, nor exceed, the fair market value of the property as if it were not encumbered by the easement; (2) if the acquisition does not damage the easement, the total compensation shall be assessed by determining the value of all interests in the property; and (3) if the acquisition damages the conservation easement, compensation shall be determined consistent with the Eminent Domain law, and the value shall be assessed as if it were not encumbered by the easement. The sponsor notes that it is necessary to specify that the easement holder is entitled to compensation because situations have arisen where public agencies have argued that no compensation should be paid to the easement holder because the property is actually worth less after the easement was put in place. Although conservation easements are negative rights (ie. SB 328 (Kehoe) Page 12 of ? restrictions on the use of the property), significant funds may have been expended to purchase that easement, and those easements are arguably worth the amount the encumbrance diminishes the value of the underlying parcel of land. The sponsor provides the following example of how the valuation would work under this bill in a circumstance where both the fee title and conservation easement are condemned: If a property that has an appraised value of $1 million dollars and the easement is valued at $400,000, the condemning agency may want to use an appraisal based on the encumbered value of the property, $600,000 ($1,000,000 - $400,000), and contend that that fee title holder and easement holder should split the $600,000. The sponsor asserts that, instead, the compensation should reflect the total unencumbered value of the property ($1,000,000), with the fee title holder and easement holder splitting that amount according to the relative values of their property rights. Accordingly, the bill seeks to ensure that, in the above situation, the compensation would be $1,000,000, not $600,000. 4. Veto of SB 555 (Kehoe, 2009) This bill is identical to the enrolled version of SB 555 (Kehoe, 2009) that was vetoed due to concerns that it could delay infrastructure projects. Specifically, the Governor stated: While protecting the value of conservation easements is a noble endeavor, this measure unintentionally provides opponents of controversial infrastructure projects another tool to impede or discourage vital public infrastructure planning and development in energy, water, and transportation which are crucial for our state's job growth and economic well-being. Despite those concerns, the author notes that SB 328 represents a compromise product and that: "There were a number of groups who had concerns about SB 555 in 2009 and some initially opposed the bill. We worked very hard with stakeholders throughout the session so that by the time we reached the final enrolled version, virtually all initially concerned were either supporting the bill or had gone neutral. We checked in with those we worked with in 2009 and so far no one has raised any concerns." Although the Committee has received no opposition letters as of the time of writing this analysis, the author notes that the County of Orange "opposed the introduced version SB 328 (Kehoe) Page 13 of ? of ÝSB 555], and although the bill changed radically over the course of the session, the county never withdrew its opposition." Support : Amargosa Land Conservancy; American Land Conservancy; American River Conservancy; Bay Area Open Space Council; Bay Area Ridge Trail Council; Big Sur Land Trust; Bolsa Chica Land Trust; Catalina Island Conservancy; California Outdoor Heritage Alliance; Center for Natural Lands Management; East Bay Municipal District (EBMUD); Eastern Sierra Land Trust; Lake County Land Trust; Land Trust for Santa Barbara County; Land Trust of Santa Cruz County; Lassen Land and Trails Trust; Marin Agricultural Land Trust; Mendocino Land Trust; Pacific Forest Trust; Palos Verdes Peninsula Land Conservancy; Placer Land Trust; Redwood Coast Land Conservancy; Sacramento Valley Conservancy; San Diego County Water Authority; San Joaquin River Parkway and Conservation Trust; Sequoia Riverlands Trust; Sierra-Cascade Land Trust Council; Solano Land Trust; Southern California Open Space Council; Transition Habitat Conservancy; Trust for Public Land; Wildlife Heritage Foundation Opposition : None Known HISTORY Source : California Council of Land Trusts Related Pending Legislation : None Known Prior Legislation : SB 555 (Kehoe, 2009), see Comment 4. AB 910 (Wayne, Chapter 863, Statutes of 2001), prohibited a governmental entity from condemning any wildlife conservation easement acquired by another state agency, except as provided. ************** SB 328 (Kehoe) Page 14 of ?