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In temporary construction easement, condemnor liable for damages flowing from use of easement, not injury to business.

Jay Butmataji LLC (Landowner) owned a 3.573acre property on which it operated a motel located along a highway. The state Department of Transportation (DOT) sought to widen the highway, and needed to appropriate 0.184-acres of Landowner's property as a temporary construction easement. DOT instituted a condemnation action for the temporary easement, and Landowner requested a jury trial to determine just compensation for the taking.

Landowner contended that ingress and egress to the motel was limited by the temporary construction easement during construction of the road. Landowner's appraiser based his valuation on the assumption that the actual physical access to the motel was cut off or could be cut off at any time during the five-year construction project. He also used the loss of income from the rental of rooms during the period of the temporary construction easement as a portion of his opinion of damages.

Before the trial, DOT made a motion in limine, requesting that the trial court instruct all parties, counsel, and witnesses not to mention certain information in the presence of the jury. Specifically, DOT argued that Landowner's appraiser should not be permitted to testify regarding the portion of his appraisal dedicated to the business income lost during the period of the temporary easement, and that those pages from his appraisal should be excluded. The trial court granted the motion in limine, and the jury ultimately determined damages of $ 150,000. Landowner appealed the judgment on the premise that its appraiser should have been permitted to testify regarding the income that would be lost to the motel business because of the temporary construction easement.

On appeal, the state court of appeals first clarified that Landowner's appraiser was not excluded as a witness. Indeed, there was no question as to his qualifications and no question that he used recognized methodologies in valuing the property generally. But even expert testimony may be limited by the rules of evidence and the law applicable to the subject of the testimony. In condemnation cases, for example, the trial court must consider whether the appraiser's opinion is based upon the correct factual basis or any element of damages not considered proper for that type of case.

The court of appeals found that Landowner conflated the measure of damages for a permanent partial taking with the damages for a temporary construction easement. For a permanent partial taking, just compensation is based upon the fair market value of the property just before the taking as compared to the value immediately after the taking. This measure of damages skips over the construction period and any temporary interference with use of the remaining property during construction. In contrast, damages for a temporary construction easement are based upon the same general principles of valuation as for a permanent taking but considers interference with the property's use during the construction, not the impact of the project as completed on the remaining property's value as a whole.

The court held that, generally, the measure of damages for a temporary taking is the rental value of the land actually occupied by the condemnor. When the taking is a temporary construction easement, the condemnor is liable for additional elements of damages flowing from the use of the temporary construction easement, which may include, among other things, the cost of removing the landowner's improvements from the easement, the cost of constructing an alternate entrance to the property, and the changes made in the area resulting from the use of the easement that affect the value of the area in the easement or the value of the remainder of the property. Injury to a business--including lost profits--however, is a noncompensable loss. Awarding damages for lost profits would provide excess compensation to a successful business owner while a less prosperous one would receive less money for the same taking. Limiting damages to the fair market value of the land prevents unequal treatment based upon the use of the real estate at the time of the condemnation. Accordingly, when evidence of income is used to value property, care must be taken to distinguish between income from the property and income from the business conducted on the property.

Here, the land actually occupied for the temporary easement was 0.184 acres of Landowner's 3.573 acres, so the rental value of only the 0.184 acres was the proper element of damages. Thus, the court of appeals held that the trial court did not abuse its discretion by granting DOT's motion in limine.

Department of Transportation v. Jay Butmataji, LLC

Court of Appeals of North Carolina

August 7, 2018

818 S.E.2d 171

Benjamin A. Blair, JD, is an attorney in the Indianapolis office of Faegre Baker Daniels LLP, where his practice focuses on state and local tax litigation for clients across the United States. A frequent speaker and author on taxation and valuation issues, Blair holds a juris doctorate from the Indiana University Maurer School of Law, where he also serves as an adjunct professor. He thanks his colleague Julie Weiler for her contributions to this article. Contact:
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Title Annotation:Recent Court Decisions on Real Estate and Valuation; Department of Transportation v. Jay Butmataji, LLC
Author:Blair, Benjamin A.
Publication:Appraisal Journal
Geographic Code:1U5NC
Date:Jan 1, 2019
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