Eminent Domain

Under both the U.S and state Constitutions, the federal and state governments have the power to take property from property owners under the power of eminent domain, provided the property owners are fairly compensated for the property taken. Additionally, California is one of the few states which allows business owners to recover lost business goodwill in addition to the loss of real estate when a public agency exercises its powers of eminent domain or condemnation. Other states which either allow for recovery of business damages or loss of business goodwill due to eminent domain include Ohio, Wyoming, Louisiana, Idaho, Georgia Minnesota, Vermont and Florida.

Accredited Business Appraisals specializes in both the valuation of real property and compensable loss of business goodwill. Accredited Business Appraisals is one of the leading appraisal firms in this specialty, having a thorough familiarity with eminent domain court cases, legal precedent, and state eminent domain statutes such as California’s Code of Civil Procedure Code §§1263.320 and 1263.330. We have worked both for the condemning public agency and the condemnee business or real property owner. Among the public agencies which Accredited Business Appraisals has either worked for or in opposition to include the Community Redevelopment Agency of Los Angeles, the City of Riverside, Cal Trans, Metropolitan Water Agency, Los Angeles Unified School District, etc. In addition the principals of Accredited Business Appraisal are current or past members of the International Right of Way Association which is an organization representing law firms, appraisal firms, and public agencies in the eminent domain field.

Accredited Business Appraisal Eminent Domain Valuations include but are not limited to:

  • Loss of Business Goodwill
  • Real Estate Valuation
  • Furniture, Fixtures and Equipment
  • Full Takings
  • Partial Takings
  • Severance
  • Inverse Condemnation
  • Before and After Appraisals

Some Influential California Eminent Domain Case Law:

County of San Diego v. Morrison (1984) 153 Cal.App3d 233.

No compensation in California prior to 1976. Prior to the enactment of CCP § 1230.010 et seq., which became operative on July 1, 1976, compensation for loss of goodwill was not available in eminent domain proceedings or in proceedings initiated prior to January 1, 1976.

U.S. v. General Motors Corp (1945) 323 US 373.

Loss of goodwill to a condemnee’s business is not recoverable in a taking by the federal government of the United States.

People ex sel. Dept. of Transportation v. Salami (1991) 2 Cal.App4th 37.

CCP § 1263.510 places the burden on the defendant in an eminent domain action to establish that the necessary conditions exist that entitle the defendant to compensation for loss of goodwill. However, there is no requirement that the owner bear the burden of proof on the amount of compensation for goodwill loss. The trier of fact must determine the amount of compensation based on the evidence.

Redevelopment Agency v. International House of Pancakes, Inc. (1992) 9 Cal.App.4th 1342.

Absent a partnership, joint venture, or agency relationship with a franchisee, a franchiser may not be entitled to any compensation for loss of goodwill as would otherwise be an owner of a business. CCP § 1263.510 allows compensation for lost goodwill only to the owner of a business conducted on the property taken.

Community Development Commission v. Asaro (1989) 212 Cal.App.3d 1297.

Neither CCP § 1263.510 (compensation of property taken by eminent domain), nor valuations of goodwill in other contexts indicate an exclusive method for calculating lost goodwill.

People ex rel. Dept. of Transportation v. Leslie (1997) 55 Cal.App. 4th 918.

Goodwill may be measured by the capitalized value of the net income or profits of a business or some similar method of calculating present value of anticipated profits. However, there is no single method to evaluate goodwill, and valuation methods differ with the nature of the business and the purpose for which the valuation is conducted.

People ex rel. Dept. of Transportation v. Muller (1984) 36 Cal.3d 263.

A condemnation proceeding forced a veterinarian to move his practice from an older building with cheap rent, which enabled the practice to show a profit, to a new building with rent about $29,000 per year higher. The practice maintained its patronage. The veterinarian was entitled under CCP § 1263.510, to compensation for the loss of the benefit of lower rent. The statute does not limit goodwill to patronage.

New Haven Unified School district v. Taco Bell Corp. (1994) 24 Cal.App.4th 1473.

Taco Bell operated a fast food restaurant in a shopping center under a long-term lease. It was a favorable lease to the tenant, but included a clause in which the tenant waived any claim of bonus value. Because of the condemnation, Taco Bell relocated, but at a higher rental. Although there was a loss of goodwill, it was appropriate to assign a separate value to the bonus value in the condemned leasehold and deduct that from the loss of goodwill. The court did recognize that the recovery of goodwill loss can include bonus value.

City of San Diego v. Sobke (1998) 65 Cal.App.4th 379.

Increased operating expenses after a condemnation do not, in and of itself, establish lost goodwill. Goodwill must first be established in its pre-taking condition.

Inglewood Redevelopment Agency v. Aklilu (2007) 153 Cal.App.4th 1095.

Despite never generating excess profits and consequently having no goodwill under the traditional excess earnings method, an auto smog inspection shop, was still found to have goodwill under “the cost to create goodwill” where its future prospects are bright and there was great potential for increased patronage and profit.

Los Angeles Unified School District v. Pulgarin (June 23, 2009) 2009 Daily Journal D.A.R. 9179

The court held that a business need not have a written lease in order to recover lost business goodwill. The court reasoned that, on its face, Code of Civil Procedure section 1263.510 (the statute governing goodwill claims) contains no such limitation, and that the correct inquiry is causation – i.e., whether the taking caused the loss of goodwill, regardless of the nature of the tenancy.

Redevelopment Agency of the City of Emeryville v. Arvery Corp. (1992) 3 Cal.App.4th 1357

Held that expenses that could be recovered under the Relocation Act must be excluded from an award of business goodwill.

Los Angeles Unified School District v. Casasola (Aug. 5, 2010)

The Court held that items that might be recoverable under the Relocation Act cannot be included in a claim for loss of business goodwill.  The Casasola opinion expands these concepts, holding that even if the expenses cannot be recovered under the Relocation Act, they are nonetheless precluded under the goodwill statute if they are the types of things that might have been recoverable under the Relocation Act.   In Casasola the business owner spent over $1 million on business reestablishment costs to prepare the relocation site.  Since the Relocation Act caps such costs at $10,000, the court held that anything above that amount was not compensable — under either the Relocation Act or as business goodwill.  The Casasola court concluded that it could not second guess the Legislature’s decision to place a $10,000 cap on reestablishment costs by allowing the claim to come in under the guise of the goodwill statute.

Chhour v. Community Redevelopment Agency (1996) 46 Cal.App.4th 273

In which a tenant was permitted to pursue a goodwill claim despite the existence of a broad, general waiver.  Thus, while a general waiver can fairly be said to encompass all real estate claims (including the tenant’s bonus value), the same cannot be said for goodwill.

Galardi Group Franchise & Leasing, LLC v. City of El Cajon (June 7, 2011, Case No. D056737) 

The Court held that (1) despite its involvement, the franchisor still fails to qualify for recovery of goodwill because it is not operating a business on the property unless it has an ownership interest in that business, but (2) a franchisee’s waiver of its rights to compensation can effect an assignment of those rights to the franchisor, including rights to goodwill losses (which, as a result, allows the franchisor to recover for the franchisee’s loss of goodwill).