Opinion ID: 2632741
Heading Depth: 1
Heading Rank: 5

Heading: Compensation for loss of a business in a condemnation action

Text: The State argues that the award of damages for lost business goodwill is reversible error. Generally speaking, this court's case law supports the State's position. In Clark County v. Sun State Properties, we held that NRS 37.115 codifies the undivided-fee rule, by which the condemned property is first valued as though it were unencumbered and then the total award is apportioned among the various interests. [3] Ordinarily, under the undivided-fee rule, the lessee would be compensated only for the value of the leasehold, but not for damages based on any business loss. [4] This court in Sun State Properties explained the reasoning behind the rule as follows: The duty of the public to make payment for the property which it has taken is not 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 the amount so paid is to be divided among the various claimants, according to the nature of their respective estates. [5] Under this rule, the State is required to pay for what it gains, namely, the real property, but not for the loss to the business owner. Traditionally, damage to a business (as opposed to the taking or damaging of its physical assets) has been treated as a noncompensable loss, even when the damage or destruction occurs because a condemning agency takes the land on which the business is conducted. [6] Since the business is not taken for use as a going concern, the condemnor does not acquire the going-concern value of the business and should not be required to compensate for that which is not taken. [7] In this case, NDOT is not getting any benefit from the business, as it is acquiring only the real property. However, this court has recognized that under certain exceptional circumstances, the business owner may be compensated over and above the value of the real property. In National Advertising Co. v. State, Department of Transportation, this court recognized that when the condemnation of the real property results in the business being destroyed, the business owner should be compensated. [8] Specifically, this court reasoned that lessees of billboards should be compensated for lost billboard advertising income when the State condemned the underlying property and the billboards could not be relocated. [9] The instant case is analogous to National Advertising . The evidence presented at trial supported the finding that when the Sahara-Rancho property was condemned, the Cowans' business was destroyed. The Cowans were unable to relocate their business because oil companies were not extending new leases for gas station franchises in the Las Vegas area. Consequently, the lease's value was inextricably tied to the unique location of the real estate that was condemned. In this situation, we conclude that the undivided-fee rule does not adequately compensate the lessee for what was taken. The Nevada Constitution mandates that [p]rivate property shall not be taken for public use without just compensation. [10] Therefore, the State must compensate the Cowans for the destruction of their business.