CACI No. 3502. “Highest and Best Use” Explained

Judicial Council of California Civil Jury Instructions (2023 edition)

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3502.“Highest and Best Use” Explained
You must determine fair market value based on the property’s highest
and best use. The highest and best use is the most profitable legally
permissible use for which the property is physically, geographically, and
economically adaptable.
Do not consider any personal value of the property to [name of property
owner] or [his/her/nonbinary pronoun/its] need for the property. Also, do
not consider the particular need of [name of condemnor] for the property.
New September 2003; Revised June 2015
Directions for Use
Give this instruction if the owner claims that the property’s fair market value should
be determined based on some use for which the property is geographically and
economically adaptable other than the current use. (See San Diego Gas & Electric
Co. v. Schmidt (2014) 228 Cal.App.4th 1280, 1288 [175 Cal.Rptr.3d 858].)
Sources and Authority
“The property taken is valued based on the highest and best use for which it is
geographically and economically adaptable.” (County of San Diego v. Rancho
Vista Del Mar, Inc. (1993) 16 Cal.App.4th 1046, 1058 [20 Cal.Rptr.2d 675],
internal citation omitted.)
“The highest and best use is defined as ‘that use, among the possible alternative
uses, that is physically practical, legally permissible, market supportable, and
most economically feasible . . . . The appraiser must make a determination of
highest and best use as part of the appraisal process.’ (San Diego Gas &
Electric Co.,supra, 228 Cal.App.4th at p. 1289.)
“It is long settled that the condemned property may not be valued based on its
special value to the property owner . . . . Thus, the cases have generally held
that a property owner may not value his property based upon its use for a
projected special purpose or for a hypothetical business.” (County of San Diego,
supra, 16 Cal.App.4th at pp. 1058-1059.)
“Just as the property may not be valued based on its special value to the owner,
the property may not be valued on the basis of its special value to the
government.” (County of San Diego, supra, 16 Cal.App.4th at p. 1061, internal
citation omitted.)
“Simply stated, purchasers of property that is known to be condemned are
prevented from inflating the value of the property by conjecturing what the
condemner will actually pay for the property.” (People ex rel. Dept. of Water
Resources v. Andresen (1987) 193 Cal.App.3d 1144, 1156 [238 Cal.Rptr. 826],
internal citation omitted.)
“In condemnation cases it is a firmly established principle that the compensation
payable is to be based upon the loss to the owner rather than upon the benefit
received by the taker. The California Supreme Court early stated that ‘it seems
monstrous to say that the benefit arising from the proposed improvement is to be
taken into consideration as an element of the value of the land.’ This has been
construed to mean that ‘[the] beneficial purpose to be derived by the
condemnors use of the property is not to be taken into consideration in
determining market values, for it is wholly irrelevant.’ This rule, however, does
not mean that evidence of the highest and best use of the property must be
excluded simply because that is the use that the condemner intends to make of
the property . . . . [I]n City of Los Angeles v. Decker, the court reiterated that it
is improper to award compensation based upon the value to the condemner, but
held that it was proper in that case to consider the value of the property for
parking purposes (the highest and best use) despite the fact that the city intended
to use it for such purposes.” (Pacific Gas & Electric Co. v. Zuckerman (1987)
189 Cal.App.3d 1113, 1127 [234 Cal.Rptr. 630], internal citations omitted.)
‘The right to future exploitation of undeveloped natural resources has a present
and ascertainable value for purposes of eminent domain.’ Accordingly, “[i]n
determining just compensation in eminent domain proceedings, the existence of
valuable mineral deposits in the land taken constitutes an element which may be
considered insofar as it influences the market value of the land.” [Citations.]’
(San Diego Gas & Electric Co.,supra, 228 Cal.App.4th at p. 1289, internal
citation omitted.)
“[Defendant] also argues that the developers rule precluded defendants’ experts
from testifying that the highest and best use of the property was a mining
operation because such an operation did not currently exist on the property. We
reject this assertion as a condemnee may present evidence that the property is
suitable for a particular purpose even if the property has not yet been developed
to that particular highest and best use. Moreover, ample authority supported the
income approach used by defendants where, as here, the property at issue
contains undeveloped natural resources.” (San Diego Gas & Electric Co.,supra,
228 Cal.App.4th at p. 1293, internal citation omitted.)
“Once the highest and best use of the property is determined, one of several
approaches to valuation must be selected. Evidence Code sections 815-820 set
forth various methodologies sanctioned for use by valuation experts, including
considering sales contracts of comparable properties and capitalizing income
from the subject land and its existing improvements.” (San Diego Metropolitan
Transit Development Bd. v. Cushman (1997) 53 Cal.App.4th 918, 926 [62
Cal.Rptr.2d 121], internal citations omitted.)
Secondary Sources
8 Witkin, Summary of California Law (11th ed. 2017) Constitutional Law, § 1368
1 Condemnation Practice in California (Cont.Ed.Bar 3d ed.) §§ 4.9-4.21
20 California Forms of Pleading and Practice, Ch. 247, Eminent Domain and
Inverse Condemnation, § 247.134 (Matthew Bender)

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