City of Scottsdale v. Eller Outdoor Advertising Co. of Arizona, Inc.

EUBANK, Presiding Judge,

specially concurring.

I agree that there can be no severance damages due appellee. Here, there was a *97whole taking of Eller’s leasehold interest, not a part of taking of it. See A.R.S. § 12-1122. I also agree that the trial court erred in barring the testimony of Scottsdale’s expert witness. His opinion was based on the reproduction cost less depreciation approach to the valuation of the billboards. The fact that part of his information was based on hearsay evidence makes no difference. Such matters go to the weight of the expert’s testimony. On these two bases alone reversal is required.

Since this case is to be retried, I believe it is necessary to point out several problems that I see. First, 42 U.S.C. § 4601 et seq. does not change the nature of the estate being condemned: a leasehold estate. Under our law, the only market value to a lessee such as Eller in the event of condemnation is the economic value of the rental over and above the actual rental paid reduced to present value. See County of Maricopa v. Shell Oil Co., 84 Ariz. 325, 327 P.2d 1005 (1958). This has been termed “bonus value.” In determining this value, the length of time that the lease has to run, the rent to be paid, and the various obligations of the parties under the lease are relevant to the price that a willing, informed buyer and a willing, informed seller of the lessee’s interest would pay for the leasehold interest. This price is fair market value or just compensation which is required by Article 2, Section 17, Arizona Constitution, 1 A.R.S.

Second, the market value of Eller’s leasehold is complicated because 42 U.S.C. § 4652 requires the payment of “Just Compensation PLUS.” This is just compensation plus an additional amount of compensation: either the amount the billboards enhance the value of the real property, or, if greater, the value of the structure in place, notwithstanding the obligation under the lease to remove the structures at the expiration of the lease. 42 U.S.C. § 4652. I believe this means that just compensation will include either the bonus value of the lease, if any, plus enhancement value, or the bonus value plus purchase of the billboards, whichever is greater. See U. S. v. 40.00 Acres of Land, More or Less, 427 F.Supp. 434 (W.D.Mo. 1976).

Third, I agree that the income approach to value is proper evidence of value. However, Eller’s approach, set out in the main opinion, is not properly the income approach as I understand it. The income approach applied to the billboards would be the income produced by the six billboards, less rent and expenses, capitalized and then adjusted for the remaining term of the lease. The difference between this value and the rent would be the bonus value, if any. Eller’s approach to value consisted of its personal business loss due to the taking of six billboards out of the Company’s inventory of billboards. This is a form of severance damage to Eller’s going business; it is a form of business loss to appellee’s going concern value; it treats different estates in property as equal, and in particular treats the leasehold as the real property interest. This cannot be done because the real property interest is owned by Scottsdale.

Fourth, I agree that the trial court erred in not offsetting rent. Obviously, if Eller remained on the real property under its lease, the lessor would be entitled to the lease rent. Since the lease provided for such a contingency, its provisions should have been enforced.