Opinion ID: 2637438
Heading Depth: 1
Heading Rank: 4

Heading: Land Use Restrictions and Fair Rental Value

Text: Boulder owed just compensation to the Trust for the fair rental value of Parcel B during the twenty-six months it occupied the Trust Property. In determining fair rental value, the trial court and the jury must assume a free bargaining transaction between a hypothetical lessor and lessee. Thus, the Trust was entitled to value the Trust Property at the highest and best use it could have made by lease of the property during the temporary taking period. It could introduce evidence of any probable change in use or building restrictions that did occur or probably could have occurred during the temporary taking period. Our precedent involving probable changes in zoning restrictions is instructive. We have held that [u]nder some circumstances, evidence of a probable change in zoning may be admitted where such change is unrelated to the acquisition of the subject property. However, where the change in zoning results from the taking of the subject property ... it is not admissible. [6] Williams, 147 Colo. at 201-02, 363 P.2d at 175. The federal and state constitutions require payment for the value of the use of the land during th[e] period of the hypothetical bargained-for leasehold. First English Evangelical, 482 U.S. at 319, 107 S.Ct. at 2388, 96 L.Ed.2d at 267. In Boom Co. v. Patterson, 98 U.S. 403, 408-09, 25 L.Ed. 206, 208-09 (1878), the Supreme Court held that where owners of private property had the right to modify their land for their own purposes, evidence of the change in value was a pertinent consideration. See Olson, 292 U.S. at 259-60, 54 S.Ct. at 710-11, 78 L.Ed.2d at 246-47 (stating that because the owners of private property had the right to modify their land for their own purposes, evidence of a change in value was not prohibited just because the contemplated modification would occur as a result of the taking). In a permanent taking case, valuation evidence may include a probable future change in land use restrictions for purposes of calculating present market value: [7] The rule is clear in this jurisdiction that the probability of rezoning may be considered... insofar as it would reasonably be reflected in present market value. However, a totally speculative or conjectural estimate of future use of property would not and should not be reflected in the determination of the property's present value. Accordingly, unless the evidence relating to the likelihood of rezoning rises to the level of a probability, it is inadmissible in a condemnation proceeding. Stark v. Poudre Sch. Dist. R-1, 192 Colo. 396, 398, 560 P.2d 77, 79 (1977) (emphasis in original); see also Union Exploration Co. v. Moffat Tunnel Improvement Dist., 104 Colo. 109, 119, 89 P.2d 257, 263 (1939) (holding that After considering any and all reasonable uses to which the property may be put in the future, the question is, taking all things into consideration, what is the present market value, not what will or may be its value later on account of some use to which it may be put in the future); Boom Co., 98 U.S. at 408, 25 L.Ed. 208 (holding that in a takings action, The inquiry ... must be what is the property worth in the market, viewed not merely with reference to the uses to which it is at the time applied, but with reference to the uses to which it is plainly adapted); United States v. 161 Acres of Land, 427 F.Supp. 582, 584 (D.Colo.1977) (ruling that evidence of a future zoning change is admissible for calculating just compensation only where it can be shown that there is a reasonable probability of a change in zoning, and the value added to the land by this probability of change can be taken into account); 4 Sackman, supra, § 12B.14, at 12B-143 to 144 (reciting that, [T]he zoning ordinances must be such that the use would be permitted in that location, or at least the likelihood of a variance being granted need be shown). In the permanent taking context, the just compensation inquiry asks this question: considering the property's reasonable availability for all valuable uses, or the most advantageous use, how much would the property bring in cash if offered now for sale by one who desired but was not obligated to sell, and was bought by one who was willing but not obligated to buy. Union Exploration Co., 104 Colo. at 119, 89 P.2d at 263. In the temporary taking context, the just compensation inquiry asks this question: considering the property's highest and best use during the period of the temporary taking, what rental would the property have produced. Proof must simulate a willing lessor/willing lessee transaction, not a simulated sale of the property, and produce a fair rental value for the temporary taking period. See Kimball Laundry, 338 U.S. at 7, 69 S.Ct. at 1438, 93 L.Ed. at 1773; United States v. 1735 N. Lynn St., 676 F.Supp. 693, 697, 702 (E.D.Va.1987). The landowner is entitled to recover an amount equal to the loss which he has suffered by reason of the taking, and nothing more. E-470 Pub. Highway Auth., 3 P.3d at 23. The award must be just to both the property owner and the public. See Williams, 147 Colo. at 199, 363 P.2d at 173-74 (citing Searl v. School Dist. No. 2, 133 U.S. 553, 562, 10 S.Ct. 374, 377, 33 L.Ed. 740, 746 (1890)). The landowner is not entitled to a windfall at the taxpayer's expense based on speculative considerations. See Williams, 147 Colo. at 199, 363 P.2d at 173. The Trust had the burden of proof. [8] See Board of Comm'rs v.. Noble, 117 Colo. 77, 79-80, 184 P.2d 142, 143 (1947). A willing lessee in a fair bargaining situation would look at the actual uses that could be made of the property. This would necessarily include considering the then-existing land use restrictions in valuation appraisal testimony. In order to gain increased rental value due to a change in land use restrictions, the landowner must show that the change probably could have occurred during the taking period. The Trust did not show that the floodplain/high-hazard restrictions could probably have been removed during the temporary taking period. The Trust based its valuations entirely on commercial properties that were free of such restrictions. These were speculative values because no evidence showed that a change in the existing restrictions against building for commercial use in the floodplain could have been accomplished between June 1993 and September 1995. The record demonstrates without question that these speculative values directly and materially contributed to the jury's $123,000 rental award. Factoring in the existing land use restrictions, Boulder's appraisals showed a $5,500 fair rental value. Accordingly, the court of appeals correctly required a new trial to determine the fair rental value of Parcel B. [9] Next, we consider whether the jury's award of restoration costs for physical damage to the property was proper.