Court Opinion

ID: 1059527
Source: CourtListenerOpinion
Date Created: 2013-10-09 18:37:46.281866+00
Date Added: 2024-06-11T12:36:16.551950
License: Public Domain

Present:   All the Justices

GRAY & GREGORY
                       OPINION BY JUSTICE LEROY R. HASSELL, SR.
v.   Record No. 000293              January 12, 2001

GTE SOUTH INCORPORATED

      FROM THE CIRCUIT COURT OF THE CITY OF VIRGINIA BEACH
               J. Warren Stephens, Judge Designate

      In this appeal of a final order entered in a condemnation

proceeding, we consider whether the circuit court erred by

excluding the landowner's evidence of the amount of rental

income generated by the land subject to the taking.

      GTE South, Inc., a Virginia public service corporation,

filed a petition for condemnation as permitted by Title 56,

Chapter 2 and Title 25, Chapter 1.1 of the Code to acquire by

the exercise of the power of eminent domain three separate

parcels of land owned by Gray & Gregory, a Virginia

partnership.    The parcels of land that GTE South sought to

acquire are located in the City of Virginia Beach and are

identified as:   the International Parkway parcel that consists

of 0.0574 acres; the London Bridge Road parcel that consists

of 0.0649 acres; and the Salem Road parcel that consists of

0.0367 acres.

      Gray & Gregory acquired each parcel in 1984 and leased

each parcel to Continental Telephone Company of Virginia, GTE

South's predecessor in interest.   Each lease contained a term
of 15 years with $30,000 rent paid in full for each lease at

the commencement of each lease term.    All real estate taxes,

insurance premiums, and other costs and expenses were the

responsibility of the tenant.     The leases were in full force

and effect on March 9, 1999, the date that the petition for

condemnation was filed, which is also the date of the taking

for purposes of determining just compensation.

     GTE South filed a motion in limine requesting, among

other things, that the circuit court

     "exclude any evidence of the fact that GTE South was
     leasing the property from the landowner at the time
     this action was filed. The amount paid for those
     leases is irrelevant because only evidence of
     transactions involving comparable property that 'are
     close enough in time and are on a free and open
     market so as to permit a fair comparison' are
     admissible."

The circuit court granted GTE South's motion in limine.

     At a condemnation trial, GTE South presented evidence of

the fair market value of the subject parcels.    Dennis W.

Gruelle, a commercial real estate appraiser who testified on

behalf of GTE South, opined that the total fair market value

for the parcels combined was $7,855.    Gruelle also testified,

on direct examination, as follows:

          "Q: Mr. Gruelle, you're familiar with the
     three leases that were on these parcels; is that
     correct?

          "A:   Yes, sir, I am.

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          "Q: Have the owners received a single payment
     since 1984 for any of these properties under the
     leases?

          "A: Under the leases they would not have
     received a single payment.

          "Q: This property was not generating income in
     1985, '86, '87 all the way up through today, hasn't
     generated a nickel?

           "A:   No, it hasn't."

On cross-examination, however, Gruelle responded as follows:

          "Q: That's because the rent was paid in one
     lump sum payment in advance at the commencement of
     the lease, was it not?

           "A:   That's correct.

          "Q: So, the lease rights that GTE obtained in
     that property was paid for by GTE all in advance to
     cover the full 15-year term?

           "A:   That's not a fair —

                              . . . .

          "A: It was not GTE.      It was Contel that
     received that payment.

          "Q: And Contel was purchased or otherwise
     acquired by GTE?

          "A: They received the site.     I presume they
     somehow gained ownership."

     William J. Jonak, Jr., a professional real estate

appraiser and consultant, also testified on behalf of GTE

South.   He opined that the total "fair market value of these

three sites [was] $15,000."

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Gray & Gregory also presented evidence of the fair market

value of these parcels.   James K. Gregory, Jr., a partner in

Gray & Gregory, testified that the fair market value of each

parcel was $240,000.   D. L. McKnight, a commercial real estate

appraiser, testified that the fair market value of the three

parcels combined was $513,000.

     The condemnation commissioners returned a report which

fixed the fair market value of each parcel at $20,000 for a

total of $60,000.   Gray & Gregory filed exceptions to the

commissioners' report and requested a new trial.    The circuit

court denied this request and entered an order confirming the

commissioners' report.    Gray & Gregory appeals.

     Greg & Gregory argues that the circuit court erred by

refusing to permit it to present evidence that each parcel

earned $30,000 in rent, paid in advance, for the 15-year lease

which was in effect when the condemnation proceeding was

filed.   Responding, GTE South argues that the admissibility of

evidence regarding prior real estate transactions in a

condemnation case falls within the discretion of the circuit

court and that the circuit court did not abuse its discretion.

Continuing, GTE South, relying upon May v. Dewey, 201 Va. 621,

112 S.E.2d 838 (1960), and Collins v. Pulaski County, 201 Va.
164, 110 S.E.2d 184 (1959), argues that "[a]bsent evidence

that a condemnor did not pay a premium to avoid the costs of

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litigation, such as comparable sales, transactions with a

condemnor are not admissible in Virginia condemnation

actions."   We disagree with GTE South's contentions. *

      The principles that govern the taking of property in

condemnation cases are well established.   We have stated that

the

      "measure of compensation for the property taken is
      the fair market value of the property at the time of
      the taking. In determining fair market value,
      consideration is given to the property's
      adaptability and suitability for any legitimate
      purpose in light of conditions and circumstances
      that exist at the time of the take or that
      reasonably may be expected in the near future."

Lynch v. Commonwealth Trans. Comm'r, 247 Va. 388, 391, 442
S.E.2d 388, 389-90 (1994); accord Revocor Corp. v.

Commonwealth Trans. Comm'r, 259 Va. 389, 394, 526 S.E.2d 4, 7

(2000).   Evidence of the amount of rental income generated by

real property subject to a taking is a relevant factor that

the commissioners are entitled to consider when establishing

the fair market value of that property.    We established this

principle in May, 201 Va. at 633, 112 S.E.2d at 847, when we

held that evidence of the amount of rent paid by a tenant to a

condemnee was admissible evidence to prove the value of the

condemned land.   However, the lease, which generated the

      *
       Our review of the record indicates that Gray & Gregory
properly raised its objections in the circuit court and,

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rental income, must be the result of an arms length

transaction and not the result of collusion.     See 5 Nichols on

Eminent Domain §§ 19.02, .03 (3d ed. 1997).

     Here, the circuit court erred by refusing to permit Gray

& Gregory to introduce in evidence the amount of the rent

generated by each parcel.   Even though the total amount of the

rent for each parcel had been paid at the inception of each

lease, it is undisputed that each lease was still in effect on

the date that the condemnation petition was filed.    And, GTE

South failed to assert in the circuit court that the leases

were not the result of "arms length transactions" or that the

leases were entered into because of collusion.

     Contrary to GTE South's assertions, the principle stated

in Collins and May, regarding the sales price of land subject

to condemnation, is not pertinent here.   In Collins, we

stated:

     "It is generally the rule that the sum paid by the
     condemnor for similar land is not admissible because
     it is usually not a fair indication of market value.
     This rule of exclusion applies unless the offering
     party produces evidence sufficient to establish that
     the sale was not by way of compromise but voluntary
     and free from compulsion."

Collins, 201 Va. at 171, 110 S.E.2d at 189 (citations

omitted).   We restated and applied this rule in May, 201 Va.

therefore, GTE South's contention that Gray & Gregory failed
to preserve its alleged error is without merit.

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at 634, 112 S.E.2d at 848.   This rule, however, has no

application in the present case because the evidence that the

circuit court refused to admit in this case relates to lease

payments and not the sale of real property as discussed in

Collins and May.

     GTE South also argues that "the lease transactions upon

which [Gray & Gregory] bases its appeal were executed some

fifteen years before the valuation date.   They were simply too

remote in time to provide a reliable basis for valuing the

parcels, particularly given the absence of any evidence

pertaining to the condition of the surrounding areas."    We

disagree.   The leases were in effect on the date that GTE

South filed its condemnation petition and, therefore, the

amount of income generated by the leases was relevant to the

fair market value of the parcels.

     It is true, as GTE South asserts, that Gray & Gregory's

expert witness did not rely upon the amount of income

generated by the leases when he opined about the fair market

value of the parcels.   However, his failure to do so does not

render this evidence inadmissible or irrelevant to the issue

of the fair market value of the parcels.   Additionally, the

order granting GTE South's motion in limine prohibited the

expert witness from informing the commissioners about the

amount of the rents generated by the leases.

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     Accordingly, we will reverse the final order confirming

the award, and we will remand this case to the circuit court

for a new trial on compensation.

                                         Reversed and remanded.

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