Opinion ID: 852958
Heading Depth: 1
Heading Rank: 3

Heading: Fair Market Value of Billboards

Text: The State argues that the trial court erred both in admitting evidence relating to the capitalization of income approach for determining fair market value and in excluding evidence of the cost to move the billboards. Because both alleged errors relate to the proper way to determine damages, we address them together. It is well established in Indiana that the basic measure of damages in eminent domain cases is the fair market value of the property at the time of the take. State v. Church of the Nazarene of Logansport, 268 Ind. 523, 526, 377 N.E.2d 607, 608 (1978). [4] Fair market value is the price at which property would change hands between a willing buyer and seller, neither being under any compulsion to consummate the sale. Ohio Cas. Ins. Co. v. Ramsey, 439 N.E.2d 1162, 1167 (Ind.Ct. App.1982). Anything affecting the sale value [on the date of the taking] ... is a proper matter for the jury's consideration in attempting to arrive at a `fair market value.' Southern Ind. Gas & Elec. Co. v. Gerhardt, 241 Ind. 389, 393, 172 N.E.2d 204, 205-6 (1961). Three widely accepted approaches to estimating the fair market value of property taken by eminent domain are: (1) the current cost of reproducing the property less depreciation from all sources; (2) the `market data' approach or value indicated by recent sales of comparable properties in the market, and (3) the `income-approach,' or the value which the property's net earning power will support based upon the capitalization of net income. State v. Jones, 173 Ind.App. 243, 251, 363 N.E.2d 1018, 1024 (1977) (emphasis in original) ( quoting State v. Covich, 260 Cal. App.2d 663, 67 Cal.Rptr. 280, 282 (1968)); Ramsey, 439 N.E.2d at 1167. In the appraisal of real estate, any one or all three of these approaches to estimate the fair market value may be applied. Annon II, Inc. v. Rill, 597 N.E.2d 320, 327 (Ind.Ct.App.1992). The State argues that it was error for the trial court to exclude evidence regarding the cost to move the billboards from the condemned property to an appropriate location on the residue. We agree. The cost to move the billboards was evidence of the cost to reproduce the improvements situated on the condemned property and therefore should have been presented to the jury. [5] Likewise, while capitalization of income is sometimes admissible to establish the fair market value of condemned billboards, for reasons which will be apparent from the discussion below, income capitalization was not relevant to market value given the facts of this case. [6] Prevailing Rules on Valuation. Because this Court has not previously addressed the question of the appropriate way to value billboards in an eminent domain case and because we are remanding this case for a new trial on values, we address the question now. Other jurisdictions have treated billboards the same as other improvements to realty, adhering to the guiding principle that improvements are compensable to the extent that they enhance the value of the land as a whole. Eminent Domain: Determination of Just Compensation for Condemnation of Billboards or Other Advertising Signs, 73 A.L.R.3d 1122, 1125. In surveying the way various jurisdictions value billboards, the A.L.R.'s editors concluded that in arriving at this `enhancement' value, virtually every court has appeared to limit its consideration to the evidence of the replacement or reproduction cost of the appropriated sign, less depreciation. Id. [7] Evidence of the rental income that the appropriated sign could be expected to produce has been deemed admissible only where it was shown that the condemnee was unable to relocate a sign within the same market area. Id. [8] When the rental income approach is allowed, it is often subject to limitations. For example, the Arizona Court of Appeals has held that the income approach was permissible subject to two important limitations: (1) the property itself must be income-producing rather than simply producing income from business being conducted thereon, and (2) if the billboards can be relocated in the same market area, the income approach is inappropriate. Scottsdale v. Eller Outdoor Advertising Co., 119 Ariz. 86, 579 P.2d 590, 597-98 (Ariz.App.1978). The New Hampshire Supreme Court has held that the cost valuation of the signs coupled with the income value of the ground leases awarded all the value that could reasonably be expected to accrue to the [owner] and that value is limited here by the brevity of the leaseholds and their uncertain renewal prospects. State v. 3M Nat'l Advertising Co., 139 N.H. 360, 653 A.2d 1092, 1094 (1995). This approach is consistent with current Indiana eminent domain law. It has long been the established rule that in determining the value of property taken by condemnation or appropriation the availability and adaptability of property for uses other than that to which it is applied at the time of taking, so far as it may appear from the evidence, may be taken into consideration, but inquiry as to damages cannot go into an intended specific use. State v. Tibbles, 234 Ind. 47, 49, 123 N.E.2d 170, 170 (Ind.1954) (citations omitted). It follows that billboards on condemned property are compensable to the extent that they enhanced the value of the property on the day of the take but not for any lost income based on potential future leases. Capitalization of income evidence is allowed only in limited circumstances. Income from property is an element to be considered in determining the market value of condemned property when the income is derived from the intrinsic nature of the property itself and not from the business conducted on the property. Jones, 173 Ind.App. at 252-53, 363 N.E.2d at 1024 (quoting State v. Williams, 156 Ind.App. 625, 635, 297 N.E.2d 880, 886 (1973)). Jones involved the appropriation of land suitable for quarrying which was part of an ongoing quarrying operation. The court distinguished the facts of that case from those in Williams, which involved a restaurant business being conducted on the land, because the quarrying business derive[d] its income by processing material which is an intrinsic part of the land. Id. at 253, 363 N.E.2d at 1024. Billboards are more akin to a restaurant than a quarrying operation because, like a restaurant, a billboard can be relocated to another appropriate location and continue to produce the same or similar income. Unlike a quarrying operation, its value is not tied to the land itself. The income approach is also limited to situations where the property is being operated as a going concern, is in good condition, and is capable of producing the income to be capitalized. J.J. Newberry Co. v. City of East Chicago, 441 N.E.2d 39, 42-43 (Ind.Ct.App.1982). We do not mean to say that capitalization of income is never appropriate for determining the fair market value of billboards, but the circumstances will be rare. While it might be appropriate to consider the anticipated income from an existing lease when calculating fair market value, attempting to determine the potential future profits of an unleased billboard is inherently speculative. Finally, we note that the purpose of these proceedings is to compensate the landowner for the value of what was taken, no less and no more: Irrespective of the method adopted for the ascertainment of such value, it is incumbent upon the condemnor to endeavor to reach a result that is truly `just compensation,' that is, fair to the public as well as to the owner of the property taken. The criteria for determination of compensation and the elements which command consideration have not become unalterably fixed, and consideration must be given to the nature of the property affected and the extent of the interest acquired. `Value' is a term which is relative in character. Jones, 173 Ind.App. at 250-51, 363 N.E.2d at 1023 (quoting 4 Nichols on Eminent Domain, Third Edition, § 12.1 (citations omitted)). In this case, the Bishops retained the ability to lease billboards on land adjacent to the highway. They are not entitled to compensation for something that was not taken.