CACI 3502 “Highest and Best Use” Explained

New September 2003; Revised June 2015

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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].)

•“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 condemnor’s 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 developer’s 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.)