Bill Ledford Motors, Inc. v. Department of Transp.

• Decision Date: 05 March 1997
• Docket Number: No. A97A0372,A97A0372
• Citation: 225 Ga.App. 548,484 S.E.2d 510
• Parties: , 97 FCDR 1164 BILL LEDFORD MOTORS, INC. v. DEPARTMENT OF TRANSPORTATION.
• Court: Georgia Court of Appeals

Page 510

484 S.E.2d 510

225 Ga.App. 548, 97 FCDR 1164

BILL LEDFORD MOTORS, INC. v. DEPARTMENT OF TRANSPORTATION.

No. A97A0372.

Court of Appeals of Georgia.

March 5, 1997.

Reconsideration Denied March 18, 1997.

Certiorari Denied Oct. 31, 1997.

Reynolds & McArthur, Charles M. Cork, III, Macon, for appellant.

Michael J. Bowers, Attorney General, Harris & James, John B. Harris III, William C. Harris, Lisa D. Neill-Beckmann, Macon, for appellee.

ELDRIDGE, Judge.

This case comes to us by way of an interlocutory appeal. The sole issue, as stipulated by the parties to this inverse condemnation case, involves an inquiry as to whether the trial court correctly determined that "it is not permissible for an expert to base an opinion of the leasehold value of unique property on the profits and/or business value of the property[.]"

Appellant Bill Ledford ("Ledford") operated three separate motor vehicle dealerships on leased property located between State Route 18 and Juliette Road near I-75 in Monroe County. In August 1987, the State Department of Transportation ("DOT") began work on widening I-75 in that area. In September 1987, a condemnation petition was filed against appellant on behalf of DOT in the Superior Court of Monroe County under civil action no. 87-V-370.

The taking of appellant's leaseholds was temporary, not permanent; upon completion of the construction project, a new off-ramp of I-75 provided direct access to one of appellant's dealerships, thereby increasing the value of that leasehold as a consequential benefit thereto.

In November 1989, appellant Ledford filed a complaint for damages alleging that appellant's leaseholds and the merchandise (automobiles) thereon were damaged by the dust and dirt caused by the DOT construction, thereby "diminishing the value of [appellant's] leasehold and by destroying [appellant's] business." Ledford retained an expert who calculated the value of the leaseholds by the loss of profits and diminution of business value Ledford had allegedly sustained for the time it took to complete the construction: approximately three million dollars.

DOT filed a motion in limine regarding this expert testimony, alleging that such evidence was inadmissible for the purpose of proving the leaseholds' value. The trial court granted the motion in limine, ruling that such evidence was inadmissible in determining the value of the leaseholds and finding, in addition, that "[p]laintiff is limited in its evidence [of loss of profits and business value] to seeking consequential damages to the value of each of its three leases of real property." This appeal followed.

For purposes of this appeal, the parties have stipulated, among other things, that the leaseholds were "unique" under Georgia law, which thereby precluded appellant from applying, as Ledford puts it, a "typical approach" to reducing damages, i.e., moving inventory "to one of the substantially similar locations available on the market and resume business unaffected by DOT's work."

Appellant contends that the trial court erred in granting the motion in limine because the law authorizes a party to prove the value of "unique" leasehold interests by alternative means of valuation, such as through lost business profits and value. Appellant seeks to measure the lost value of the leaseholds by the lost profits of the business. Appellant contends that, in instances such as the case sub judice, wherein a plaintiff does not seek business losses as a separate item of recovery, such losses should be admissible to establish the value of the leaseholds; otherwise, a plaintiff would suffer damage to its business and inventory without compensation of any sort. Thus, through a valuation of his leasehold interests, appellant seeks recovery for: (a) damage to his property rights; (b) damage to his business; and (c) physical damage to his inventory, i.e., automobiles. Held:

(a) Evidence of Value of Property Rights. The constitution of this state provides that private property is not to be taken for public purposes without just and adequate compensation being paid. Ga. Const. of 1983, Art. I, Sec. III, Par. I; see Harrison v. State Hwy. Dept., 183 Ga. 290, 293, 188 S.E. 445 (1936). The issue is always, "What has been lost?" See State Hwy. Dept. v. Thomas, 115 Ga.App. 372, 376, 154 S.E.2d 812 (1967). The answer to that question encompasses the issue before this Court.

A leasehold interest is "property" for which the leaseholder is entitled to receive compensation when his interest is taken or damaged for a public purpose. Hayes v. City of Atlanta, 1 Ga.App. 25, 57 S.E. 1087 (1907). The traditional measure of compensation is the market value of the leasehold for the remainder of the unexpired lease on the date of taking. Id; MARTA v. Funk, 263 Ga. 385, 387, 435 S.E.2d 196 (1993). With regard to a temporary condemnation of leased real estate, the lessee loses only the use of the property for a specified time at a set amount of rent. Funk, supra at 387, 435 S.E.2d 196. Thus, the valuation of a leasehold cannot be decided by anything other than the fair market rental value of the property, and the evaluation includes proof of any consequential damages that may affect the market value of the leasehold, as that is all that the lessee has lost with regard to the real estate.

Recovery on the basis of damage to the actual business, itself, as opposed to the real estate, must be pled as a separate item of recovery. The rationale for this is based upon common sense and has been articulated for many years: "The destruction of an established business is and must be a separate item of recovery. The holdings of some cases that the loss of prospective profits is to be considered in determining the value of the real estate is one thing. This means no more than that the potential uses of the property [consequential damages] may be proved for that purpose. The loss of an established business is an altogether different matter; such loss not merely reflects the value of the real estate, for frequently the value of the business greatly exceeds that of the premises where it is conducted.... For instance, in a shabby and cheap building a very valuable business may be established. If the business has a value of $100,000 and the [property] $5,000, by what process of reasoning can the value of the business be included in the appraisal of the [property]?" Bowers v. Fulton County, 221 Ga. 731, 739, 146 S.E.2d 884 (1966); see also Pursley, Ga. Eminent Domain, § 5-11, p. 132 ("loss of business" is different from consideration of business use of property that affects the value of the property itself, because the loss of business may exceed the value of the property where the business is conducted). This rationale controls in the case sub judice and supports the notion that measuring the value of an interest in real estate by the value of the business located thereon is the "Property Law" equivalent of judging a book by its cover.

The parties' stipulation as to the "unique" nature of the leaseholds does not alter this result or aid appellant in his attempts to incorporate business loss into the value of his leasehold interests. This is because, with regard to a valuation of realty, if a leasehold is "unique," then such "uniqueness" would be properly measured in its fair market value. With regard to the valuation of a loss of business operated on a leasehold, evidence that a leasehold is "unique" goes to support a plea for special damages in a condemnation action seeking the recovery of such business losses when there is a permanent taking. Accordingly, business losses are pled as a separate element, apart from the valuation of the leasehold upon which the business is operated. "[B]usiness losses can be recovered as a separate element in instances when the business belongs to a separate lessee or when the business belongs to the landowner and there is a total taking of the business. In either event, business losses are recoverable as a separate item only if the property is 'unique' and the loss is not remote or speculative. [Cit.]" (Emphasis supplied.) Dept. of Transp. v. Acree Oil Co., 266 Ga. 336, 336-337, 467 S.E.2d 319 (1996).

Thus, the "unique" aspect of a leasehold may affect the valuation of a leasehold interest as it reflects an unusual value in the fair market; however, such does not permit, as argued by appellant, the inclusion of business loss into the leasehold value simply because the leasehold...