People ex rel. Dept. of Transp. v. Quincy Coach House, Inc.
| Citation | 332 N.E.2d 21,29 Ill.App.3d 616 |
| Decision Date | 03 July 1975 |
| Docket Number | No. 12826,12826 |
| Parties | PEOPLE ex rel. DEPARTMENT OF TRANSPORTATION v. QUINCY COACH HOUSE, INC., et al. |
| Court | United States Appellate Court of Illinois |
William J. Scott, Atty. Gen., Springfield, for petitioner-appellant; Roy E. Frazier, Asst. Atty. Gen., Samuel J. Naylor, Sp. Asst. Atty. Gen., Carthage, of counsel.
Keefe, Snowden, Gorman & Brennan, Quincy, for defendants-appellees.
Petitioner, the Department of Transportation of the State of Illinois, brought suit in the Circuit Court of Adams County to condemn 7-foot strips on the south and west sides of a parcel of real estate together with a diagonal strip across the corner of the premises where the other two strips met. The realty was a 90 by 100 foot plot at the northeast corner of Broadway and 24th Streets in Quincy. Defendant Quincy Coach House, Inc. owned the property and operated a restaurant on it. Judgment was entered on a jury verdict awarding defendant $7500 for the land taken and $68,000 as damages to the remainder. Petitioner appeals.
The restaurant business was operated in a one story building which has 2080 square feet of first floor area and 1120 square feet of basement area and sits on the premises. No part of the building was taken by the condemnation. Prior to the taking, parking spaces were available for 17 or 18 cars along the sides of the property from which the strips were taken. This loss of the area in the strips virtually eliminated the availability of parking space on the premises for customers. Defendant owned no adjacent land. All witnesses agreed that most of the damages to the land not taken arose from this loss of parking.
The most serious questions raised, however, concern the rulings of the trial judge as to the admissibility of evidence relating to the opinions of expert appraisal witnesses, called by defendant, as to the value of the tract prior to the taking. The land was not used as a church, college, cemetery, railroad or other type of 'special use.' When property of that nature is condemned, a wide variety of evidence, otherwise considered to be too speculative, including computations of income from a business operated on the premises is permitted to be received to prove the value of the property (City of Chicago v. Farwell, 286 Ill. 415, 121 N.E. 795). On the other hand, no witness for either side knew of the sale of a single property sufficiently similar to the one in question, that either the appraisal witnesses or the jury might directly consider the sales price as a basis for determining the value of the tract in question prior to the taking. Determining value by any method under these circumstances is inherently rather speculative.
E. M. Talcott, Donald P. W. Voth and George Mating testified at the trial as experts on behalf of the defendant. Louis Kienzler and Robert P. Hayes did so on behalf of the petitioner. Prior to trial, Kienzler had also testified on behalf of petitioner at a hearing to determine preliminary just compensation. He, at that hearing, and the other expert witnesses at trial, testified that the three recognized methods of appraising real estate are the market, cost of reproduction and income approaches and that they considered all of these approaches in forming their opinions of value. Kienzler was not questioned on the subject at the trial. All presented evidence of being experienced appraisers with knowledge of property values in Quincy.
Talcott testified that restaurants are often leased with a rent based on a percentage of the annual sales from the operation. He said that it was standard appraising practice when using the income approach to value restaurant property by capitalizing at the going investment rate the expected rental return on such a lease after deducting expenses such as real estate taxes, depreciation and repairs. He explained that in order to determine depreciation it is necessary to ascertain a separate value for the land, since land is not depreciable. He obtains that figure by the market approach, an estimate based on the general trend of real estate prices in the community and comparable sales, if any.
The income from the land so valued is then computed at the capitalizing rate. This figure is then deducted from the projected rental income minus real estate taxes and all expenses except depreciation. The amount thus obtained is then capitalized at a percentage being the sum of the percentage at which the land was capitalized plus the expected annual percentage of depreciation on the improvements taken on a straight line basis. The resultant figure obtained is the estimated value of the improvements which when added to the value of the land determined by the market approach gives the estimated value of the parcel computed by the income approach.
Talcott then ran through a computation before the jury. He used a figure of 6% For the estimated percentage of sales which would be obtained in rent although he said that owners of chain restaurants were receiving 7 1/2 to 8 1/2%. He capitalized the income at 8 1/2% And computed the depreciation at 4%. On this basis he computed the value of the parcel at $119,516.
Talcott did not use that figure, however, because he computed a figure on the cost of reproduction method which was less and which he testified that he thought represented the actual market value. He also illustrated that method before the jury by stating some of the figures that he used in his computation. In this method, he likewise first valued the land separate from the improvements by the market approach. He then estimated the cost of replacing the improvements and added the figures together. By that method he arrived at a value of $117,000.
Voth and Mating also both testified to using both the cost and income approaches calculating by the same methods as Talcott. Voth's opinion of value was $116,000 which was substantially the same as his computation using the income approach. He did not present his computations to the jury. He made a computation on the cost basis which was stated in detail to the jury and which rendered a figure of $117,750. Mating stated that by the cost approach he calculated a value of $100,667 and by using the income approach he calculated $98,156. He gave an opinion of value of $100,000. He did not recite the details of his calculations to the jury.
In City of Chicago v. Giedraitis, 14 Ill.2d 45, 150 N.E.2d 577, real estate being condemned was improved with a building, the front of which was used by the owner as a tavern and the rest of which she used as a residence. On appeal, the striking of the testimony of an expert appraisal witness for the land owner was approved because that witness had considered his estimate of the rent obtainable from the property in forming his opinion as to market value. The opinion cited Chicago Land Clearance Commission v. Darrow, 12 Ill.2d 365, 146 N.E.2d 1, and City of Chicago v. Central National Bank, 5 Ill.2d 164, 125 N.E.2d 94, for the rule that when premises are owner occupied future projections of rentals are too conjectural to be a proper element to consider in fixing value.
Based on the foregoing authority, petitioner contends that because the property in question here was also owner occupied, the trial court committed reversible error in overruling its objections to the testimony of defendant's witnesses as to prospective rental income from the property and as to opinion of value which considered that income. Where, as here, there are no comparable sales to consider, it is difficult to see how it is any more conjectural to estimate the rent that would be agreed on between a willing landlord and a willing tenant, negotiating without compulsion, than it is to estimate the sale price that would result from similar bargaining between buyer and seller. In any event, in this case, the witness Kienzler at the hearing to determine preliminary just compensation gave an opinion of value of the whole tract that was based in part on rental income obtainable from the owner occupied premises. In City of Lincoln v. Chicago and Alton R. Co., 262 Ill. 98, 104 N.E. 282, the defendant appealing from an assessment for a local improvement was ruled to be precluded from complaining of the trial court's allowance over its objection, of testimony in regard to benefits that violated the ultimate issue rule. The defendant had previously introduced evidence that violated that same rule. Here, petitioner having introduced evidence based on projected rentals from the owner occupied property is precluded from complaining when defendant did likewise (see Cleary, Handbook of Illinois Evidence, 2d Ed., p. 100).
The difficulty of appraising the market value based on estimated future rental income from presently owner occupied real estate was compounded in this case because defendant's witnesses estimated the rental income upon the supposition of a lease that provided for a percentage of the gross sales from the premises to be paid as rent. The Supreme Court has clearly ruled that except when a property is devoted to a special use, income from a business operated on the premises may not be considered as a basis for the value of the property (Jacksonville and Southeastern Railway Co. v. Walsh, 106 Ill. 253; Forest Preserve District of Cook County v. Hahn, 341 Ill. 599, 173 N.E. 763; and City of Chicago v. Central National Bank, 5 Ill.2d 164, 125 N.E.2d 94). The reason for this ruling is that such income or profit reflects the skill, goodwill and other characteristics of the...
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