Case ID: so2d_364/html/0292-01.html
Source: Caselaw Access Project
Author: {"author": "SHORES, Justice. TORBERT, Chief Justice MADDOX, Justice MADDOX, Justice", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

SHELL OIL COMPANY, a corp. v. Margaret GUYTON et al.
    77-250.
    Supreme Court of Alabama.
    Sept. 22, 1978.
    Rehearing Denied Nov. 10, 1978.
    
      Romaine S. Scott, Jr., and John H. Morrow, Birmingham, for appellant.
    Samuel Tenenbaum, Birmingham, for ap-pellees.
   SHORES, Justice.

This appeal involves only the question of the proper allocation of a consent condemnation award of $400,000 between the owners of the condemned property and the lessee thereof, Shell Oil Company. The property is a 40,000 square foot lot on the northwest corner of 8th Avenue North and 22nd Street in the City of Birmingham on which was situated a Shell Oil service station and a rental parking lot. After holding a hearing on the allocation petition, the trial court allocated the $400,000, $366,522 to the lessors and $33,478 to the lessee. The lessee appealed. We affirm.

At the time of taking, Shell’s lease (including four renewal options of 5 years each) had 27 years and 8 months remaining. The court’s final decree is, in part, as follows:

“The court has considered the testimony of all the witnesses and the authorities submitted by the parties.
“It seems clear that in a condemnation case such as this, the lessee is entitled to the difference between the fair and reasonable market value of the unexpired portion of the lease and the amount of rent which would have been due to be paid by the lessee for the unexpired portion of the lease. City of Dothan vs Wilkes, 269 Ala. 444, 114 So.2d 237 [1959].
“The court is of the opinion that the renewal options contained in the lease should be included and considered by the court in determining the lessee’s interest in the condemnation award. These renewal options, if exercised, would extend the term of the lease for a period of about twenty-seven years from the date of the condemnation taking.
“The court is further of the opinion that the lessee is not entitled to a portion of the condemnation award as compensation for improvements over and above the difference between the value of the unexpired portion of the lease and the amount of rent due to be paid by lessee for the unexpired portion of the lease, as referred to above. This, because the lessee contends that the renewal options should be included in a determination of lessee’s interest, with which position the court agrees, and in view of the fact that over a period of twenty-seven years the value of the improvements would be substantially, if not completely, depreciated.
“The court is of the opinion that the fair and reasonable annual rental value of this property, under the evidence, cannot be fixed simply by capitalizing at the rate of 10 per cent the amount of the condemnation award. The court finds and determines from all the evidence that the fair and reasonable annual rental value of this property was Twenty Thousand Dollars ($20,000.00) at the time of the condemnation taking. Under the terms of the lease the rent is Fifteen Thousand Dollars ($15,000.00) a year for the first period, Eighteen Thousand Dollars ($18,-000.00) for the first and second option periods and Nineteen Thousand Two Hundred Dollars ($19,200.00) for the third and fourth option periods.
“To attempt to foresee the course of inflation over a twenty-seven year period or to predict changes in business and economic conditions during such span of years is impossible. It is, of course, impossible to know with certainty that the four options to renew this lease would have been exercised had the property not been taken by condemnation.
“The court has given due consideration to the rental value, the rents due to be paid under the lease, and the options to renew and determines and finds and orders, adjudges, and decrees that the defendants Margaret Guyton and husband, Clayton Guyton; Lenora Caldwell and husband, Joseph Caldwell; Miss Winifred Gilb, an individual; Miss Winifred Gilb, Executrix of the Estate of Clara O’Neill, are entitled to Three Hundred Sixty-Six Thousand Five Hundred Twenty-Two Dollars ($366,522.00) of the condemnation award, and that the defendant, Shell Oil Company, is entitled to Thirty-Three Thousand Four Hundred Seventy-Eight Dollars ($33,478.00) of the condemnation award.

The trial court correctly followed the rule in cases such as this as set out in City of Dothan v. Wilkes, infra, cited in its judgment and reiterated as follows in Gamble v. State, 289 Ala. 131, 136, 137, 266 So.2d 286, 291 (1972):

“The only proper measure of the amount of compensation to which a lessee is entitled for the condemnation and taking of the unexpired portion of his leasehold interest in real estate owned by another is the difference between the fair and reasonable market value of the unexpired portion of the lease and the amount of rent which would have been due to be paid by the lessee for the unexpired portion of the lease, all to be considered as of the time of the taking of the leasehold interest. City of Dothan v. Wilkes, 269 Ala. 444, 114 So.2d 237 [1959] (Charge No. 1), [4, 5] and authorities there cited.”

Shell contends that, in fixing the amount to be allocated to the lessee, the trial court must accept a percentage of the total value of the property and, for that purpose, is bound by the fair market value of the property as fixed in the condemnation proceedings.

Shell’s argument is that, because the experts agreed that a fair rent for commercial property is 10% of the value per year, the value of its lease for the unexpired term was $40,000 per year (i. e., 10% of $400,000 as fixed by the condemnation award), rather than $20,000 as found by the trial court.

It is true, as Shell points out, that the trial court, in arriving at the fair market value of the unexpired portion of the lease, accepted Shell’s argument that this amount could be determined by calculating 10% of the total value of the property, but rejected its contention that the fair market value of the property for this purpose was the amount of its condemnation award. The trial court arrived at the $20,000 per annum figure by taking 10% of $200,000, not $400,-000. While, at first glance, it appears that the trial court was not justified in disregarding the amount of the condemnation award in calculating the value of the unexpired lease term, this method produced a figure of $20,000 per year.

We agree with Shell that where all of the parties agree to the condemnation award as they did here, they are bound to accept that figure as the value of the property in determining the value of the unexpired lease term. They are not, however, bound to determine the fair value of the lessee’s interest by a fixed percentage of this amount. In this case, the landlords objected to this method of determining the value of the leasehold interest and offered evidence of its value notwithstanding the value of the property. Their expert testified that, in his opinion, the property would not rent for more than $20,000 per year regardless of the value of the property itself. The method urged by Shell for determining the value of the unexpired lease term is not the only method for establishing this figure.

The trial court’s finding is, therefore, supported by evidence. Where it is conflicting, as the evidence is here, we are bound by the trial court’s conclusions. The result reached by the trial court is consistent with the rule announced in City of Dothan v. Wilkes, supra, and we are not persuaded that the rule should be changed. It is followed by most jurisdictions and, although it does not always produce perfect equity, this would be true of any formula adopted for allocating condemnation awards among various interests. See Nichols, Eminent Domain, Vol. 4, § 12.42[3] (3d ed. 1977); Annot., 3 A.L.R.2d 286 (1949); Polasky, The Condemnation of Leasehold Interests, 48 Va.L.Rev. 477 (1962).

Shell also argues that the trial court erred to reversal because the allocation to Shell was less than the value of the improvements placed upon the land by the lessee. By its lease, Shell had the right to remove certain improvements, viz:

“13. REMOVAL - ' SURRENDER-FORFEITURE. Any automobile service station erected on the premises, together with all pumps, machinery, compressors and other similar equipment which is devoted exclusively to the sale and service of petroleum products, tires and automobile accessories, constructed, installed or placed on the premises by Shell, or acquired by Shell at any time during the continuance of this or any previous lease or any tenancy thereafter; shall be and remain Shell’s property and Shell shall have the right to remove any or all of the same from the premises at any time during, and within sixty (60) days after any termination of, this lease or any tenancy thereafter. All other buildings, structures and improvements placed upon the leased premises by Shell during the continuance of this lease, of a kind and character normally deemed in law to become a part of the realty and without limitation, including any parking deck structures or building for the parking or storage of automobiles, shall be and remain the property of Lessor, and upon the expiration or termination of this lease shall be delivered to Lessor, natural wear and tear and damage from fire or other casualty excepted. Any holdover by Shell After any termination of this Lease shall create no more than a month-to-month tenancy at the rent and on all other applicable conditions herein provided. If forfeiture of this Lease is permitted by law for Shell’s default, Lessor shall not be entitled to declare any such forfeiture unless Lessor has given Shell notice of such default and Shell has failed to remedy same within twenty (20) days after receipt of such notice.”

Shell concedes that a lessee is not entitled to compensation for diminution in value of personal property used by him on the leased premises. It contends, however, that a lessee is entitled to recover for the value of improvements taken by the condemning authority if the lessee has the right to remove the improvements. Nichols, Eminent Domain, Vol. 4, § 13.121[1], states the rule as follows:

“. . . The tenant is generally not entitled to recover the value of the buildings or fixtures as a separate item in addition to the value of his leasehold interest. Moreover, the tenant is not entitled to the diminution in value of such fixtures as are removed by him [citing City of Dothan v. Wilkes], nor the cost of their removal. The measure of damages is the increased market value of the leasehold interest by reason of the buildings and fixtures. . . . Hence, the structural value of the buildings and fixtures may be a fair test of what they add to the market value of the leasehold, if they are well adapted to the best use of the property. But in such case, the lease must be of such duration that it will outlast the fixtures, or must contain a covenant of perpetual renewal at the option of the tenant.”

Even if the lessee has the right to remove improvements, the general rule seems to be that he is not entitled to the value of the improvements as a separate item of damages, but they may be considered in determining the value of the leasehold interest. 27 Am.Jur.2d, Eminent Domain, § 292.

The trial court appears to have so treated the improvements. It agreed that the lessee was entitled to have the option periods considered in determining the value of its interest and found that at the end of the leasehold estate, including the option periods, the improvements would have no value. This is a fact issue; therefore, we are not free to substitute our judgment for that of the trial court.

The judgment appealed from is affirmed.

AFFIRMED.

BLOODWORTH, FAULKNER, JONES, ALMON, EMBRY and BEATTY, JJ., concur.

TORBERT, C. J., and MADDOX, J., dissent.

TORBERT, Chief Justice

(dissenting):

I respectfully dissent. I believe that the trial court erred in disregarding the value of the property as established in the condemnation proceeding.

The function of a condemnation proceeding is to determine the total compensation required to be paid for the property taken. City of Dothan v. Wilkes, 269 Ala. 444, 114 So.2d 237 (1959). The compensation is to be equivalent to the full value of the property which is commonly expressed as its “fair market value.” 4 Nichols, The Law of Eminent Domain § 12.1 (3d ed. 1977). Where there are different interests in the property, all parties are, of course, entitled to compensation; however, the proper procedure is to ascertain the total compensation, or, value of the property, as if the property belonged to one person and then allocate this value among the respective parties in interest. City of Dothan v. Wilkes, supra. Therefore, once the value of the property has been established, all that remains is to apportion the award to the interested parties.

In the present case, the value of the property was fixed in a consent condemnation award where all parties in interest were represented. After entering the order for the condemnation award, the trial court expressly retained jurisdiction of the case for the sole purpose of allocating the award between the various parties in interest.

The majority says that the parties are not “bound to determine the fair value of the lessee’s interest by a fixed percentage of this amount,” that is, the fair market value of the property. However, experts for both the lessors and lessee testified that commercial property should yield 10 per cent of its market value as its annual rental or economic rent. Lessors’ expert, Mr. Haynes, testified as follows:

Q. All right. So, if I had a $400,000.00 piece of property and I went to you and I said, “Mr. Haynes, I want you to handle this for me and I want you to get as much as you can in handling it,” you would do a decent job for me and try to get me ten or eleven percent of that $400,000.00 on an annual basis?
A. That’s correct, or otherwise I wouldn’t take the listing.
Q. So, that if you assume that this property — I mean, forget about your predisposition about the value, but if you assumed that this property is worth $400,000.00, let’s just assume that it is fixed and X’d and stoned and is worth $400,000.00 and everybody agrees, everybody in the market place, everybody in the whole wide world agrees that it is worth $400,000.00, you would expect that property if you were handling it to be able to fix a lease on it from $40,000.00 to $44,000.00 a year, wouldn’t you?
A. If it had a $400,000.00 value.
Q. If it had a $400,000.00 value?
A. That’s right.

Mr. McGehee, another expert for lessors, testified similarly:

Q. What do you — if you are going to list some property for me, what kind of yield would you expect on a rental basis?
A. I would say today more people are trying to — more investors are trying to get a safer — safer tenant, safer income stream, and maybe coming down from — there was a period three or four years ago that people talked in the 12 to 15 percent return range, and I would say now they are — the last few years they have been more in the 9, 10 and 11 percent return range, if their — if they have a good sound lease and substantial tenant.
Q. So, you would expect commercial property back in ’75 — -in 76 in the Birmingham area to yield approximately, in terms of annual rent, 10 percent of its value?
A. I would say that would be a good figure to hand your hat on.

The trial court, in its final decree, determined that the economic rent or the fair rental value was $20,000. By so computing this fair rental value or economic rent, it necessarily follows that the fair market value of the property was $200,000, not $400,-000 as fixed by the condemnation award.

Lessors maintained that the fair market value of the property condemned was in fact worth only $200,000, not $400,000.

Accordingly, the trial court disregarded the amount of the condemnation award as to the fair market value of the property condemned. I would hold, that absent fraud or collusion, the award fixed in a condemnation proceeding is determinative as to the fair market value of the property taken and should be utilized to apportion the' award between the various parties in interest, i. e., between the lessor and the lessee.

It is my opinion that the majority erred when it stated:

It is true, as Shell points out, that the trial court, in arriving at the fair market value of the unexpired portion of the lease, accepted Shell’s argument that this amount could be determined by calculating 10% of the total value of the property, but rejected its contention that the fair market value of the property for this purpose was the amount of its condemnation award. The trial court arrived at the $20,000 per annum figure by taking 10% of $200,000, not $400,000. . . .
We agree with Shell that where all of the parties agree to the condemnation award as they did here, they are bound to accept that figure as the value of the property in determining the value of the unexpired lease term. They are not, however, bound to determine the fair value of the lessee’s interest by a fixed percentage of this amount.

But it was the lessors’ own witnesses who testified that the fair rate of return was about 10 per cent of the value of property at this time in Birmingham.

Accordingly, I would reverse and remand this case to the trial court for an appropriate decree apportioning the award between the lessors and the lessee consistent with this opinion.

MADDOX, Justice

(dissenting).

I respectfully dissent. I believe that the amount apportioned to the lessee, Shell Oil Company, was inadequate, and that it does not fairly represent the difference between the fair and reasonable market value of the unexpired portion of the lease and the amount of rent which Shell would have had to pay during the unexpired portion of the lease, as of the time of the taking.

It is undisputed that the lessee was entitled to remove the building within sixty days after the expiration of the lease. Therefore, the lessee should be entitled to be compensated for the value of this building taken by the condemning authority. U. S. v. Seagren, 60 App.D.C. 183, 50 F.2d 333 (1931).

“If, as against the lessor, the lessee has the right, prior to or upon the expiration of his term, to remove fixtures, structures, or other improvements installed or erected by him upon the property taken, he is, generally speaking, entitled to be compensated for such improvements.” 27 Am.Jur.2d Eminent Domain § 292, p. 100 (1966). Accord., Annot. 3 ALR 2d 286 (1949); 4 Nichols, Eminent Domain, § 13.121[1] (1977).

By taking the building, the condemning authority has abridged the right of the lessee Shell to remove the building at any time; or upon the expiration of the lease, to sell it to the fee owner or new lessee. Thus, it is the lessee, not the lessor, who has been damaged and who should be awarded the value of the building. The record shows that the building was valued at $64,000 and this amount was included in the $400,000 consent award. Obviously, the lessee is entitled to at least the value of the building which was included in the condemnation award.

In this case, the trial court placed the fair market value of the lessee’s interest at $20,-000 (including the value of the building). The majority’s attempt to uphold the inadequacy of the award to the lessee is bottomed on the theory that the trial judge came to a correct conclusion by using the wrong method. It is obvious from the trial court’s decree that he allowed the lessees nothing for their building (valued at $64,-000) because “over a period of twenty-seven years, the value of the improvements would be substantially, if not completely, depreciated). He obviously determines that the fair market value of the lease is $20,000. This value for the leasehold, in my opinion, is grossly inadequate. The condemnation award was $400,000. Although this was a consent award, there is $400,000 which the public pays and which stands in the stead of the pi’operty. It is this amount which is to be apportioned, not some theoretical amount. The trial court permitted experts to testify at the apportionment hearing that the fair market value of the property was between $180,000 and $240,000. This was completely improper, in my opinion. The public is paying $400,000 for the property. For the purposes of apportionment between lessor and lessee, the actual award, whether by a jury verdict or by consent, is the amount to be apportioned, not some theoretical amount. As was said in City of Dothan v. Wilkes, 269 Ala. 444, 114 So.2d 237 (1959):

“In State ex rel. McCaskill v. Hall, 325 Mo. 165, 28 S.W.2d 80, 81, 69 A.L.R. 1256, the Missouri court cited as a general rule the following, which is taken from Lewis on Eminent Domain:
“ ‘ “When there are different interests or estates in the property, the proper course is to ascertain the entire compensation as though the property belonged to one person and then apportion this sum among the different parties according to their respective rights. The value of property can not be enhanced by any distribution of the title or estate among different persons or by any contract arrangements among the owners of different interests. Whatever advantage is secured to one interest must be taken from another, and the sum of all the parts cannot exceed the whole.” 2 Lewis on Eminent Domain (3d Ed.) § 716, p. 1253.’
“The same rule is laid down in 4 Nichols, The Law of Eminent Domain, 3d Ed., § 12.36[1], as follows:
“ ‘It was formerly looked upon as one of the most firmly established principles of law of eminent domain, and it is still the law in the usual case, that when a tract of land is taken by eminent domain, as the land itself is taken by a paramount title rather than the separate estates of different persons having interests in the land, the compensation awarded is for the land itself, and not for the sum of the different interests therein. The duty of the public to make payment for the property which it has taken is not, it- is said, affected by the nature of the title or by the diversity of interests in the property. The public pays what the land is worth, and lets the amount so paid be divided among the various claimants, according to the nature of their respective estates. The rule was expressed in the following language:
“ ‘ “No contracts between the owners of different interests in the land can affect the right of the government to take the land for the public use, or oblige it to pay by way of compensation more than the entire value of the land as a whole.” ’ ” (Emphasis added.)

Can the lessor take the value paid to him by the public and apportion at a different value? I think not. The $400,000 award is the value of all the interests in the land, and the apportionment among the intérests should be made on that value, certainly in the absence of fraud or collusion.

The lessee Shell claims that the economic rent should be 10% times the condemnation award. I do not agree with that premise, because that would mean that the lessee would have been entitled to an economic rent of $40,000 per year, and the lessee would get an excessive windfall. Nevertheless, I would say that the economic rent, should never be less than the legal rate of interest times the condemnation award, which would have been $24,000 (6% X $400,000). As I said, the award stands in the stead of the property.

I cite another example that the award to the lessee here was inadequate. In awarding damages, it is proper to consider the highest and best use to which the property could be put. Sayers v. Mobile, 276 Ala. 589, 165 So.2d 371 (1964). Expert testimony established that the highest and best use of this property would be the rental of parking spaces. The experts testified that between 160 and 189 cars could be parked on this area. With the going rate of $15.00 per month, the rental of this property for parking would be worth between $28,800 and $34,020.

I would reverse and remand with instructions to the trial court to make a new determination on value.

I am clear to the conclusion that the lessee was entitled to at least that part of the condemnation award which represented the value of the building, not because the building added to the value of the leasehold, but because the building belonged to the lessee, and its value entered into the value of that which was taken.

ON DENIAL OF REHEARING

MADDOX, Justice

(dissenting).

I would grant rehearing to prevent a gross miscarriage of justice.

The property owners state in their brief in opposition to the application for rehearing, in part, as follows:

“The minority opinion stressed the fact that appraisers on both sides stated that an investor in real estate ought to receive a return of ten per cent (10%) on his investment. Both of the real estate appraisers for the Appellee stated, however, that regardless of the amount of the award, in their judgment the County overpaid for the property. Nevertheless, it is common knowledge that a parcel of property, particularly if it is vacant, may be worth a million dollars and at the same time have a nominal rental value because of the lack of improvements. In any event, the Lessee is not entitled to the same measure of damages as the fee owner. The Lessee owns a commodity, namely, a leasehold. The valuation of a leasehold is measured by the reasonable market value of the rent that it produces irrespective of the value of the fee.
“ ‘The term “rental value”, as applied to realty, is but another form of saying the value of the use, and means simply the value of the use of the land’. White Roofing Company v. Wheeler, [39 Ala.App. 662] 106 So.2d 658 (1957).

If his leasehold has not increased in value he is not entitled to anything. He cannot recover for personal property, permanent improvements, nor for loss of business. White Roofing Company v. Wheeler, supra.

“The ten percent (10%) factor used by the witnesses on both sides and also by the Court was merely an interest factor to commute to its present value the total amount of the increase in the rental value over the contract rental for the entire term of the lease including the option periods.”

* * * * * *

“Under the terms of the lease Shell was not entitled to be reimbursed out of the award for the improvements. Paragraph 13 of the lease provided as follows:

“ ‘Any automobile service station erected on the premises, together with all pumps, machinery, . . shall be and remain Shell’s property and Shell shall have the right to remove any or all of the same from the premises at any time during, and within sixty (60) days after any termination of, this lease or any tenancy thereafter.
“ ‘All other buildings, structures and improvements placed upon the leased premises by Shell during the continuance of this lease, of a kind and character normally deemed in law to become a part of the realty . . . shall be and remain the property of Lessor, and upon the expiration or termination of this lease shall be delivered to Lessor, natural wear and tear and damage from fire or other casualty excepted.’

“The removal of the building would have no practical value'to Shell because the expense of removing the building from the leased premises and storing the remnants would be prohibitive and would more than offset any value attributed to the debris. Furthermore, under the law, in view of the lease provision, the building would be deemed personal property and is not recoverable as a permanent fixture. We quote from 36A C.J.S., § 15, FIXTURES, Page 631:

‘Effect as rendering article personalty. The cases are ordinarily to the effect that an article which is annexed by the tenant, subject to a stipulation granting him the right of removal, retains its chattel character, as long as the right of removal continues, as between the parties, although it may lose its chattel character, if so closely annexed as to become an integral part of the land.’

“We cite the following headnote from Powers v. Harris, 68 Ala. 409: ‘A house, fence or any other erection placed upon the land of another with his permission and with the intention that it should be held as property of the builder is personal property and not a fixture.’ For the difference between a chattel and a fixture, see Southern Cotton Oil Company v. Lowery, 163 So. 629, 231 Ala. 119 (1935); also Groves v. Segars, 261 So.2d 389, 288 Ala. 376 (1972).

“Furthermore,

“ ‘The authorities in support of the holding in Wilkes are the same we would cite here and will not be repeated. The trial court erred in failing to sustain objections to the questions relating to personal property in the store building.
“ ‘. -. . There is, in this state, no constitutional provision or statute requiring compensation for damages to personal property in a condemnation of realty. Consequential damages to personal property have never been compensable in Alabama. The usual reason stated for the rule is that personalty which is not affixed to realty can be removed by the owner to another place. See Ridings [Ridings v. State, 16 Ala.App. 467, 79 So. 141], supra.' State v. Woodham [288 Ala. 608, 264 So.2d 166], supra.

“If the building becomes an integral part of the land and loses its chattel character it becomes the property of the Lessor, or if by the provision in the lease, is deemed to be personal property and not a fixture, in either event, the Lessee under the law in Alabama, is not entitled to recover damages therefor out of the award.”

I have quoted from the landowners’ brief because I think it appropriate that bench and bar know exactly what this case holds.

The property owners impliedly admit that witnesses on both sides testified that economic rent should be 10% of the fair market value of the property. They say, however, the county paid too much for the property. My question is: Did the county pay twice what the property was worth? The consent award was $400,000 and the court’s finding of fair market value for the purpose of distribution was $200,000.

Also, the landowners say the building was “personal property” and that the leaseholder, even though having a right to remove, was not entitled to a penny out of the condemnation award. Yet, the landowners got $60,000 for the value of this improvement. The landowners contend in brief that Shell’s building was not worth anything because to remove and store it would be prohibitive. Nevertheless, the landowners were awarded $60,000 for this “personalty”, which they contend belongs to Shell.

At the very least, Shell should be paid $60,000 in addition to the amount originally awarded by the trial court under any theory of what would be considered a fair and just apportionment of the award.

TORBERT, C. J., concurs.