Eminent Domain Just Compensation
Just Compensation for Your Property or Business
Obtaining a just settlement or award of compensation when your property or business is taken in eminent domain is not just a matter of asking the government for more money. You need evidence to support your valuation arguments. The government will have its own evidence. If you do not have yours, the government will have a tremendous advantage. You need to work with experienced legal counsel and experts to build the best possible case for the highest possible value. How?
Experienced, eminent domain real estate appraisers are not “drive by” appraisers. They must spend the time to thoroughly study your property and the market for it in order to determine its fair market value. They must do more than simply give a number. They must be skilled at testifying in court under fire. Usually they use three approaches to determine value.
In the market approach, they look for sales of other comparable properties. You can help by keeping your eyes open for comparable sales in your area and reporting what you learn to your legal counsel and your appraiser. While a signed purchase contract or signed escrow instructions might be admissible, listing agreements and property tax assessed values are not.
The income approach is also used because sometimes the value of property is determined by the income it generates. Other comparable property may not generate as much income and may not, therefore, sell for as much. You can help by providing records of your rental income and expenses. You can also help by providing the inside information and background experience you have had with the property. For example, your tenants may be very good tenants and your vacancy rates may be very low. As a result, your property may be more valuable than other comparable property.
The replacement cost approach is also used because sometimes the value of a given property may be what it would cost to replace it; i.e. rebuild it on a new piece of land. You can help by providing your own cost records for construction and land acquisition, if the information is recent, or by obtaining contractor bids for replacement.
Improvements to the Realty and Movable Improvements
The government must also pay for your improvements to the realty if they are not included in the value of the real estate. Improvements to the realty are fixtures, equipment or furnishings that cannot be easily removed without damage. Experienced improvements appraisers determine the replacement cost of improvements, their value in place and their salvage value. Value in place is the legal measure of compensation, but the other measures of value sometimes provide useful information. For example, you may be able to buy back some of your improvements from the government at salvage value.
If you operate a business on the property, you also need an improvements appraiser to determine the value of your movable improvements. This is needed to determine the goodwill value of your business as discussed below.
California law requires that businesses displaced by eminent domain receive compensation for lost or damaged business goodwill. What is goodwill?
A business may have both tangible and intangible value. The tangible value is the value of the business’s tangible assets; its equipment, furniture, inventory, etc. The intangible value is what a buyer, on the open market, knowing all the facts, might pay for a business over and above its tangible value, because the business is already up, operating and making money at a particular location that attracts customers. This intangible value is the goodwill of the business.
Sometimes businesses do not have goodwill. Because they are not generating income or can be easily moved, no one would pay more than tangible value for them.
However, often businesses that are displaced by eminent domain will lose all or part of their value because they are forced to move. This loss is usually evaluated by experienced, eminent domain goodwill appraisers. They appraise the goodwill value of a business before the taking (the “before condition”), then reappraise it after the taking (the “after condition”). The difference between the two is the amount of the loss.
You can help by providing financial records that show the performance and profitability of your business. Appraisers like to see three to five years of such records, on a monthly and on an annual basis. By law, the government may look at your California tax returns for the business. Therefore, it is very important for these to accurately reflect profitability and performance. If income is under-reported on the tax returns, it may limit the compensation you receive.
Furthermore, the law requires that you act reasonably to prevent or minimize goodwill loss. You have the burden of proof on this. Therefore, it is crucial that you work with your legal counsel and appraiser to find relocation opportunities for your business that make economic sense, and to document your search efforts so that you have evidence that you acted reasonably.
Inventory and Other Movables
Sometimes displaced businesses cannot move their inventory or other tangible but movable assets without suffering a loss of value. For example, as a store closes down in order to relocate, inventory may be sold at a discount. Some inventory items (e.g. liquor stock or scrap metal) cannot be relocated in a reasonable and economic fashion. When this happens, the resulting losses may be compensable in eminent domain. Inventory and improvements appraisers will help value the loss.
The government may relocate your tenants before it pays you for your property. When this occurs, the government should pay you the rents that are lost as a result. However, the government usually delays as long as possible in doing this. Keep good records of your rental income and expenses. Keep your rents up to date at fair rental value. Obtain experienced legal counsel to help you negotiate a lost rents agreement with the government so that the stream of rental income that you count on continues during the eminent domain process.
Let us help you build a case for the highest compensation obtainable under the eminent domain laws. Call for a free initial consultation. We appreciate the opportunity to earn your business.