Court Opinion

ID: 9790381
Source: CourtListenerOpinion
Date Created: 2023-08-31 01:52:22.88619+00
Date Added: 2024-06-11T07:37:29.273007
License: Public Domain

KLEINSCHMIDT, Judge,
dissenting.
I respectfully dissent. The majority accepts the rule that even though Gannett has a property interest that has real market value, the state may, in taking property, extinguish that interest without paying compensation for it. Whatever the weight of authority from other jurisdictions, in my opinion such a result is unfair and runs counter to the spirit of our own constitution, statutes, and our decisions which stress that just compensation requires the consideration of any factor that has a material bearing on the value of the property taken.
The state took a property interest from Gannett that had real market value. One of Gannett’s officers testified that the location of the sign in question was one of the company’s best, and that Gannett intended to keep the location as long as the Salt River Project would let it. The Salt River Project’s Supervisor of Property Management & Services testified that the Project had renewed the lease every year since 1983 and planned to continue to do so as long as Gannett wished to renew. Gan-nett’s appraiser, based on Gannett’s history of lease renewal, said that the sign in question would produce income for another eight years. The state’s appraiser concluded that an estimated renewal for five years was the most realistic.
The Arizona Constitution, article 2, section 17 provides that property shall not be taken without just compensation and that such shall be ascertained by a jury in the manner prescribed by law. Our statutes flesh out these provisions. Arizona Revised Statutes section 12-1122 says that:
A. The court or jury shall ascertain and assess:
1. The value of the property sought to be condemned and all improvements thereon pertaining to the realty, and of each and every separate estate or interest therein, and if it consists of different parcels, the value of each parcel and each estate or interest therein separately.
*585B. As far as practicable, compensation shall be assessed for each source of damage separately.
The terms of these provisions do not, of course, compel compensation for the renewal value of this lease. They do, however, reflect a genuine intent that property owners be fully and fairly compensated for everything of value that is taken. Even more persuasive on this general point are several Arizona cases which have analyzed the factors that must be taken into account in fixing compensation.
In City of Tucson v. Estate of DeConci-ni, 155 Ariz. 582, 748 P.2d 1206 (App.1987), the owner of property which was leased to a restaurant insisted that if the city condemned the property the owner was entitled to compensation based upon an increase in the restaurant’s revenue that was expected to result from a planned remodeling. The city argued that such increased profits were not compensable because they were remote and speculative. Division Two of this court disagreed.
In Moschetti v. City of Tucson, 9 Ariz. App. 108, 449 P.2d 945 (1969), the same court held that the trier of fact may consider the probability of rezoning if that is a factor that influences the market value of the property, saying:
The ultimate inquiry in any condemnation case is the market value of the eon-demnee’s land. Evidence which has a material bearing on market value should be admissible, without regard to whether it relates to an eventuality that might or might not occur in the ‘near’ or more ‘distant’ future, as long as the prospect of the event has substantial present influence on market value.
Id. at 113, 449 P.2d at 950.
In Flood Control District of Maricopa County v. Hing, 147 Ariz. 292, 709 P.2d 1351 (App.1985), we held that if a person whose property is condemned can show a reasonable probability that the property will be rezoned and that a willing buyer would pay a premium for that probability, such must be taken into account in assessing the value of the condemned property.
There is at least one case from another jurisdiction which strongly supports the idea that the possibility that the lease will be renewed must be taken into account. Canterbury Realty Co. v. Ives, 153 Conn. 377, 216 A.2d 426 (1966), held that a renewal option which could be terminated by the lessor was compensable because it had market value. The court said:
We do not overlook the provisions in the lease under which [the lessor] reserved the right to terminate it, under specified conditions, at any time after the expiration of the original ten-year term. We cannot say, as a matter of law, however, that these provisions rendered the lease of no value to [the lessee]____ Whether the lease, including the options to renew, has a value under all the circumstances disclosed and, if so, what that value is is a question of fact for determination under established procedures.
Id. at 385, 216 A.2d at 430 (citations omitted).
The Supreme Court of the United States applied precisely the same reasoning in Al-mota Farmers Elevator & Warehouse Co. v. United States, 409 U.S. 470, 93 S.Ct. 791, 35 L.Ed.2d 1 (1973). The question presented there was whether, upon condemnation of a leasehold, a lessee with no right of renewal was entitled to receive the market value of its improvements unlimited by the remaining term of the lease because of the expectancy that the lease would be renewed. The court rejected the government’s argument that a tenant’s expectancy in a lease renewal was not a compensa-ble legal interest because it was speculative. Instead, it took the realistic view that such an approach failed to recognize what a willing buyer would have paid for the property — another way of saying that the majority’s “legal interest” approach does not really compensate for fair market value. See also Georgia Outdoor Advertising, Inc. v. City of Waynesville, 690 F.Supp. 452, 456-57 (W.D.N.C., 1988).
I acknowledge that the holding in Almo-ta is restricted to requiring compensation for improvements, as opposed to compensation for the value of the leasehold. Why the Supreme Court drew this distinction is *586unclear, but there is nothing to compel us to make a similar differentiation, and I see no reason to do so.
Finally, I do not find the Arizona cases discussed by the majority to be persuasive. Cracchiolo v. State, 146 Ariz. 452, 706 P.2d 1219 (App.1985) dealt with a written grazing lease that had expired and had been orally extended before eminent domain proceedings were started. The lessees contended that the leases would have been extended for another twenty-five years. The written leases, however, specifically provided that they would expire upon condemnation and that the lessee would have no compensable right in the condemnation proceeds. The effect of this clause was the primary focus of the court’s attention. Moreover, there was no evidence in Crac-chiolo that the lessor had any intention of extending the lease.
Pepsi-Cola Metropolitan Bottling Co. v. Romley, 118 Ariz. 565, 578 P.2d 994 (App.1978) did not involve a claim for the value of a lease enhanced by the probability of possible renewals. As the majority concedes, it provides little guidance on this point.
The essence of the rule the majority adopts in this case is that a property value which is not speculative as a matter of fact is speculative as a matter of law. I would reverse and remand this matter to the trial court for a determination of the fair market value of the lease.