Legal Memorandum: Admissibility of Future Profits as Evidence

Issue: Under California law, to what extent will evidence of future profits from enterprise be barred as speculative?

           The general rule in California is that just compensation for a taking, either by condemnation or by inverse condemnation, is based on "a determination of the highest and best use to which the property being condemned can be put . . . . [T]he fair market value is fixed at its most advantageous and potentially profitable use."  San Diego Gas & Elec. Co. v. Daley, 205 Cal. App. 3d 1334, 1344, 253 Cal. Rptr. 144, 149 (1988).  As a general rule, evidence based on a projected development plan is not admissible.  City of Los Angeles v. Retlaw Enters., Inc., 16 Cal. 3d 473, 488, 546 P.2d 1380, 128 Cal. Rptr. 436, 446 (1976).  That rule, however, merely bars determination of the value of property based only upon an owner’s speculative scheme.  Id., 16 Cal. 3d at 488, 128 Cal. Rptr. at 446.

The California cases apply this rule very liberally.  So long as the project is probable, rather than merely possible, courts have held that evidence as to future value is admissible and treat the matter as a question of weight.  If there is some realistic expectation of the use, the evidence will be admitted. 

In Redevelopment Agency v. Contra Costa Theatre, Inc., 135 Cal. App. 3d 73, 85, 185 Cal. Rptr. 159, 166 (1982), the court recognized the rule "that the fair market value of condemned land must include a […]