Is Eminent Domain Imminent?
Infrastructure improvements such as road widening projects and intersection reconstruction projects have increasingly disrupted convenience store owners and even forced operators to relocate, experience a decrease in sales or to cease operations completely. Because of their proximity to highway interchanges, busy city streets and intersections, gas stations and c-stores are highly susceptible to eminent domain takings resulting from infrastructure improvements.
When owners are confronted with an eminent domain taking, they will be forced to make legal decisions about their property and their business; an owner's rights will be affected. Legally, though, it is virtually impossible to stop an eminent domain taking that results from any transportation project. An owner's only remedy is to ensure that full payment is received for the property taken (direct damages) and any resulting loss in value to the property that remains (indirect or severance damages).
Convincing the government to properly value a convenience store/gas station is a frequent challenge confronting owners who suffer an eminent domain taking. The government typically contends that value should be determined by comparison to other stores that have been sold. That perspective ignores the industry approach, which places significant weight on the revenues generated by the store.
While eminent domain will not compensate for business value (net profits), real estate value is determined by qualified appraisers using gross revenues. For a high-performing location, this analysis translates into a higher value when a store is totally acquired. It also will best reflect a loss in real estate value when only a partial taking occurs. The following examples illustrate where this analysis can be effective.
Because of their location on busy roads and highways, convenience stores are often subject to a restriction in access to their property when local agencies upgrade roadways. Such loss of access is frequently an element of severance damages that is often overlooked by the government. Typically, the loss of access causes in a drop in traffic and can result in compensable condemnation damages.
In City of Sevierville v. Green, the City of Sevierville, Tenn., sought to upgrade a portion of U.S. Highway 441 from four lanes to six. As a result of the upgrade, the city restricted access to the landowners' convenience store. The trial court properly awarded damages for this loss of access. The Tennessee Court of Appeals noted that a loss of access would, by its very nature, reduce the amount of traffic at a commercial property. Convenience store owners should be especially aware of this type of eminent domain taking and its potential ramifications.
In Department of Transportation v. Bales, the Georgia Department of Transportation (DOT) condemned 296 acres of land in LaGrange, which was the site of Bales' convenience store and gas station. The store was well located and enjoyed robust sales. After condemnation, sales at his new location just two blocks away were down 75 percent. The DOT refused to acknowledge that the decrease in sales showed the superior location and value of Bales' former store. Bales, however, prevailed in introducing this evidence and it increased his compensation.
An often-overlooked issue in eminent domain law involves the claims by store owners who lease, rather than own, the real estate where the store is located. Many states adopt what is called the "undivided-fee rule." Under this rule, the condemned property is first valued as though there was no lease. Then, the total award is apportioned among the various interests. The apportionment is based upon the terms of the lease. Most leases have an eminent domain clause, and many of these clauses strip the c-store owner from any claim to eminent domain damages. C-store owners who execute leases should read these clauses carefully.
Every condemnation case is different, and each store owner will face different challenges and issues in obtaining just compensation. The rules and results discussed above will vary from state to state. Store owners and franchisees would be well advised to contact an attorney to properly understand their unique cases.
Dan Biersdorf is the principal attorney for Biersdorf & Associates, a national eminent domain law firm, and has been a trial lawyer since 1977. He frequently lecturers on property valuation matters, lobbies for property owner rights, and has personally represented property owners in 13 states around the country. Biersdorf & Associates has handled eminent domain cases in various appellate and state supreme courts across the country, and has 13 eminent domain attorneys licensed in 21 states. More information can be found at www.condemnation-law.com.