November 01, 2018

Eminent Domain and the Reasonable Probability of Rezoning: Why It Matters for a Property’s Highest and Best Use

Landowners are constitutionally guaranteed just compensation when their property is taken for a public project. But the precise amount of just compensation is often an area of significant disagreement between landowners and the government entities taking their property. Just compensation is based on the fair market value of the property. And one dispute that can sometimes contribute to major differences in value between the landowner and the government comes down to a question of whether the property being acquired could be rezoned for other uses.

Under Colorado law, landowners are not necessarily limited to a value based on the current use of their property. Instead, the property is to be valued considering the most advantageous use or uses of the property. This is often referred to as the “highest and best use” of the property, which requires that the use is: (1) physically possible; (2) legally permissible; (3) financially feasible; and (4) maximally productive.

Sometimes the most advantageous use of property is not legally allowed under the existing zoning. For example, a parcel of property may be zoned for industrial uses, which could prohibit other commercial uses, like multi-family residential development. If the appraiser believes that multi-family residential development is the most advantageous use of the property, the appraiser might consider whether there is a reasonable probability of rezoning the property at issue.

While a landowner has the burden of proving a reasonable probability of rezoning, Colorado law allows a landowner to rely upon qualified expert testimony to meet that burden. This expertise often comes from the appraiser, but other professionals who specialize in planning or buying/selling similar properties can also be called as expert witnesses to add further support. The appraiser’s ultimate job is to value the property from the perspective of a hypothetical buyer and seller, so landowners are not required to show that they took any steps to rezone their property in the real world.

In Colorado, the landowner gets to choose whether their case will be tried to a commission (made up of three property owners), a jury or a judge. After hearing the evidence, that factfinder—whether it be a commission, jury or judge—will ultimately decide whether there is a reasonable probability of rezoning the parcel of property at issue. The Colorado Supreme Court has held that the factfinder can consider the probability of rezoning so long as it helps them determine the market value of the property.

Colorado law has identified a number of factors to guide the factfinder in answering the reasonable probability of rezoning question. Those factors include the following: (a) rezoning of nearby property; (b) growth patterns; (c) change of use patterns and character of the neighborhood; (d) demand within the area for certain types of land uses; (e) sales of related or similar properties at prices reflecting anticipated rezoning; (f) physical characteristics of the subject property and of nearby properties; and (g) the age of the zoning ordinance.

Determining whether property has a reasonable probability of being rezoned can substantially affect that property’s value. Engaging an experienced eminent domain attorney who can guide the landowner through that process will help them get to the right answer on this important issue.

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