that the spirit of condemnation law is to “make the property owner whole”. After all, the property owner
is being obliged to sell, often against his desire. Our condemnation laws do not distinguish between TRPs and non-TRPs.
Yet, they should. The fairness of the compensation to the TRP property owner is significantly different.
For all TRPs,
the motivation and reason for owning the real estate is the profit, or business income that is earned over and above the economic
requirements of the real estate. In other words, all operating TRPs earn more than the real estate is worth. If
they didn’t, no one would own them. Using a convenience store as an illustration, the average pre-tax profit today
is about $47,000 per year. This is the reason the convenience store operator purchases or builds the real estate: to
earn this $47,000 per year of business profit that is over and above the investment requirement in the real estate.
The real estate is simply a means to this end. A trained workforce, negotiated supplier contracts, in-place management,
and assumption of risk are some of the elements that produce this profit.
Courts across the nation have ruled that business profit is not
compensable, reasoning that the property owner has the ability to transfer the business to another location and continue to
receive profits. So, the courts limit damages exclusively to the real estate. For TRPs, important elements are missing
from this line of reasoning.
In a condemnation taking, the TRP owner has one of two relocation alternatives. He can purchase an existing
property or build. Continuing with a convenience store as an example, in the first instance all sellers of operating
stores demand something for their on-going business, over and above the price of the real estate. After all, they have
an in-place, operating business that required effort to create. They are not going to give up the business portion without
adequate compensation. In acquiring a substitute store, the convenience store condemnee could theoretically use the
damage award for the condemned real estate to buy an exact duplicate store. But, to do this he must also pay the required
additional price for the on-going business relinquished by the seller.
The existence of this additional price premium can be proven by
simply interviewing buyers and sellers, or by looking at public data bases. BizComps® is one of the nation’s
largest publishers of business sale transactions. Of over 200 convenience store sales, the average value of the intangible
asset component is $270,600, or about 5.7 times the pre-tax profit noted above. This is the reported part of the sale
price that was over and above the real estate and equipment when an existing store passed from seller to buyer.
If the condemnee
is not awarded for lost intangible assets, then this price premium becomes an out-of-pocket cost to relocate to an existing
In the second
instance of acquiring a substitute property, building a new convenience store requires from 12 to 24 months and during this
construction period no business profit can be earned.
So, when a convenience store or any other TRP is condemned and the damage
award is limited to the market value of the real estate, the property owner has not been made whole. The TRP owner will
either pay a price premium for an existing substitute store or do without business profit during the construction interim
of a new store.
For TRPs, lost business profit should be considered a legitimate element of relocation expenses and awarded as compensable
For condemnation attorneys wishing to pursue lost business income as a compensable damage for your client, please