Opinion ID: 2571591
Heading Depth: 1
Heading Rank: 6

Heading: Rental Value Methodology and K.S.A. 26-513(d)

Text: First, the Sextons contend that the jury's verdict was contrary to both the evidence and Kansas condemnation law because the jury, in awarding $10,900, obviously relied upon the opinion of Shaner, the City's expert. His opinion, according to the Sextons' argument, is contrary to Kansas law because it does not include the appropriate factors to be considered under Kansas law in arriving at the fair market value of the property immediately after the taking. More specifically, the Sextons claim that use of fair rental value fails to take into consideration the K.S.A. 26-513(d) statutory factors. Because Shaner's opinion is contrary to law, the Sextons further argue, the verdict which was based on that opinion is also contrary to the law. The City responds that the Sextons' argument is a disguised objection to the admissibility of the evidence, an objection which the Sextons waived by not making it contemporaneously. Acknowledging that the issue formulated by the Sextons focuses upon the denial of the motion for a new trial, the City makes an additional argument, citing support for the conclusion that Shaner's methodology comports with standard appraisal practice. While Kansas eminent domain statutes do not specifically mention the fair rental value methodology as an appropriate means of calculating the value of temporary takings or, for that matter, any taking, income capitalization is specified as one of the methods for calculating fair market value. K.S.A. 26-513(e) (fair market value is to be determined by the use of the comparable sales, cost or capitalization of income appraisal methods or any combination of such methods). The capitalization of income method utilizes a formula to capitalize the fair rental value of the property being appraised. Mooney v. City of Overland Park, 283 Kan. 617, 622, 153 P.3d 1252 (2007). Thus, the income capitalization method utilized by Shaner is statutorily recognized and has been utilized in many Kansas cases. Despite the statutory recognition of the method, the Sextons have some basis for their complaint regarding the use of the rental value method for valuing the subject property. Phillip Nichols, a prominent commentator on eminent domain law, notes that generally [i]mplicit in the use of the capitalization method is the futurity of the rental. 4 Nichols on Eminent Domain § 12B.08[3], p. 12B-54.1 (3d ed.2006). In this case, there is no evidence of the actual rental income, either past or future. Despite this anomaly, the City is correct that rental value is an accepted method of valuing the fair market value of temporary easements. In fact, Nichols categorizes the rental value approach as the most widely accepted measure of compensation for the taking of a temporary easement. 9 Nichols on Eminent Domain § 32.08[2][a], p. 32-38. Nichols recognizes that partial takings and temporary easements are often difficult to value; generally the before and after rule (like the one in K.S.A. 26-513) measures permanent reductions in fair market value. Hence, appraisers sometimes utilize a rental approach as if the easement area were being rented for the duration of the temporary easement. See 9 Nichols on Eminent Domain § 32.08. Nichols explains, The advantage [the rental value] method offers is simplicity, particularly if a rental value per square foot can be established. 9 Nichols on Eminent Domain § 32.08[2], p. 32-38. The rental value approach provides the owner of the property affected by the easement with compensation for the restriction on the owner's fee interest and any resulting interference with the owner's use. 9 Nichols on Eminent Domain § 32.08[2], pp. 32-38 to 32-39. Other states have also used the fair rental value methodology in the context of temporary easements. See, e.g., City of Fort Smith v. Findlay, 48 Ark.App. 197, 893 S.W.2d 358 (1995) (temporary easement is valued as the fair rental value of the property for the time it is used); Fowler v. City of Boulder, 17 P.3d 797, 801-02 (Colo.2001) (finding that owner of parcel that was temporarily taken during construction of drainage project was entitled to parcel's fair rental value, as well as restoration costs); State ex rel. Missouri Highway & Transp. Comm'n v. Beseda, 892 S.W.2d 740, 741 (Mo.App.1994) (damages for a temporary partial taking are reasonable rental value of the land temporarily acquired and damages which the jury might find will result to the remaining land because of such temporary use). In this case, in stating an opinion regarding the damages caused by the temporary easement, Shaner utilized a methodology recognized under K.S.A. 26-513(e), and his testimony complied with the Kansas definition of fair market value when he testified to the difference in the fair market value of the Sextons' property before the taking and the fair market value after the taking and opined that the difference was best measured by the rental value during the use of the easement. The Sextons complain that the fair rental value methodology does not take into consideration the statutory factors of K.S.A. 26-513(d). The provision states: the following nonexclusive list of factors shall be considered if such factors are shown to exist. K.S.A. 26-513(d). We agree that the provision requires the jury to consider the factors. Instruction number 13 included several of the factors listed in K.S.A. 26-513(d), and the Sextons did not object to the instruction. Moreover, Shaner opined that the rental value methodology took into account the K.S.A. 26-513(d) statutory factors for determining compensation and damages. He explained that in a situation involving a temporary construction easement, the City's rights are more limited than in a situation involving, for instance, a typical residential rental. Shaner indicated that he considered: (1) which factors were relevant to the City's use of the property and (2) how a buyer would perceive this use. Acknowledging that there are circumstances where a rental value alone would not adequately reflect the fair market value of an easement taking, Shaner gave an example of a temporary easement associated with a road widening project that would require removing a large tree from the easement area. To the extent the tree adds value to the property and is not going to be replaced by the condemning authority at its own cost, Shaner opined that an addition would have to be made to the rental value to compensate the landowner for the loss of the tree. By contrast, Shaner indicated that, in his opinion, no additions to rental value were necessary in this case. According to Shaner's reasoning, such additions were unnecessary because the condemnation petition required the City to restore or replace all grass, plants, shrubs, and trees to match existing plantings and landscaping as close as possible with like-kind landscaping and to repair, replace, or restore all existing hardscape and improvements, including sidewalks, wall, fences, lighting systems, and sprinkler systems, to conditions not less than those existing before the commencement of construction. See Jeremy P. Hopkins, Just Compensation: Elementary Principles and Considerations to Ensure the Property Owner is Made Whole, Fundamentals of Condemnation Law and Land Valuation, ALI-ABA 53, 113 (January 2006) (stating the cost to cure damages inflicted to the property is a mitigation of damages doctrine); see also City of Riverside v. Kraft, 203 Cal.App.2d 300, 303, 21 Cal.Rptr. 425 (1962) ([O]n the `cost to cure' theory of severance damage value . . ., that as to the property not taken, the cost of necessarily relocating improvements on the land not taken so as to place the owner as nearly as possible in the position he was before the front of his property was taken, might be considered on the question of the difference in fair market value before and after the taking.). Consequently, Shaner's opinion did comply with the mandate of K.S.A. 26-513(d); he considered the impact of various factors on the fair market value of the property before and after the taking. It follows that the jury verdict, which was consistent with Shaner's opinion, was not contrary to Kansas law. Thus, in testifying regarding the damages caused by the taking of the temporary easements, Shaner utilized a methodology recognized by statute, and his testimony complied with the Kansas definition of fair market value when he opined that the difference in the fair market value of the condemned property before the taking and the fair market value after the taking is best measured by the rental value during the use of the temporary easement and that such a method takes into account the statutory factors of K.S.A. 26-513(d). We further note that to the extent the Sextons questioned Shaner's opinion in the context of whether the legally acceptable methodology most appropriately measured fair market value under the facts of the case, any deficiencies in Shaner's analysis were explored through cross-examination. See Willsey v. Kansas City Power & Light Co., 6 Kan.App.2d 599, 603, 631 P.2d 268 (1981) (once witness has qualified as expert, court cannot regulate the factors used by the witness or his or her mental processes to arrive at his or her conclusion; matters can only be challenged by cross-examination). In this case, although Shaner's valuation testimony was presented in its entirety on direct examination without objection from the Sextons' attorney, Shaner did undergo vigorous cross-examination regarding his valuation methodology. Ultimately, the weight of the two experts' opinions was left in the hands of the jury. Without question, a fact-finder can find one expert opinion more credible than another. It is not this court's duty to pass on the credibility of witnesses, including expert witnesses. See Wahwasuck, 250 Kan. at 617, 828 P.2d 923. Consequently, we conclude there was no error in the use of the rental value methodology and the trial court was correct that there was no basis for granting a new trial because of Shaner's expert testimony or because the jury accepted that testimony as the basis for its verdict.