Business owners

Business loss in condemnation

When a business is operated by the property owner, business loss is only available in cases where the condemnation acquires all of the land, known as a ‘total taking’. When a condemnation acquires only a portion of the land, known as a ‘partial taking’, business loss is available only when the business owner is separate from the property owner. Naturally, there are ways around this general rule, such as by having one entity (such as an LLC) own the property while another entity owns the land and leases it to the business owner. When considering how to structure such an arrangement, it is important to consult a lawyer who does condemnation to avoid certain pitfalls.

There are other considerations when it comes to business loss, especially when structuring a lease between unrelated parties whereby one party owns the land and leases it to another entity who will operate the business. The considerations are important to protect both parties in the event of condemnation.

To recover for business loss, the property must also be unique, which means that it is incapable of being relocated to another location in the same vicinity that it was in before and continuing to operate. Since the burden of proof for business losses is on the business owner, a condemning authority will not typically offer business-loss damages before condemnation. But, the condemning authority may offer relocation expenses. In that case, it is important to understand the impact of accepting relocation damages on claiming that a property is unique for purposes of later establishing a business-loss claim.

While the forgoing information is intended to be general in nature, if you are a business owner and have been contacted by a condemning authority regarding a potential condemnation, we would be happy to speak to you regarding your rights. Contact our office to schedule a free consultation.

Business Loss Damages You May Be Entitled To During Condemnation

In many cases, especially with the widening of roads and highways, businesses are directly impacted by a condemnation action in a variety of different ways. For some, the road widening simply takes away some of their parking spaces. For others, the road widening and introduction of a median into the roadway completely cuts off the business’s access to the main road, decreasing the overall amount of potential customers. In either case, having an attorney who is experienced in litigating business loss cases is vital when negotiating with condemning authorities. This blog post will take a deeper dive into business loss within the condemnation context and how it is measured.

            In the most basic sense, the measure of compensation for business loss is the difference between the market value of the business before the condemnation compared to the market value of the business after the condemnation. To prove this difference in market value, courts will look at factors such as lost profits, loss of customers, or a general decrease in the earning capacity of the business because of the condemnation. However, in order to recover business losses separate from the overall condemnation award itself, the property must be considered “unique” and the business losses must not be remote or speculative. There are three tests under Georgia law for whether property is considered “unique.”

            The first test is the Relocation Test. For this test, the business depends upon its current location for its operation and no substantially comparable site exists within the area for relocation of the business. This test focuses on specific elements such as certain access, traffic flow, signage, and improvements to the current property that would make relocation to a new location extremely difficult or impossible.

            The second test is the Value to the Owner Test. For this test, the property’s particular value to the owner cannot be passed to a third party. This test typically comes into play when there is a business that provides certain benefits to the operator that may be contractual and, therefore, they would not be transferable to a new owner. It is important to note that the court is not concerned with sentimental value or even whether the owner operates a business and lives on the property, there has to be something more definite connecting the property owner to the property.

            The third and final test is referred to as the No Market Value Test. For this test, the property is a type that is not generally bought and sold on the open market and, therefore, fair market value would not afford the property owner with just and adequate compensation. This test is best suited to instances where there is a unique value to the real estate itself rather than where business damages are primarily implicated.

            These tests may sound complicated, and you may be thinking that your business wouldn’t fit into any of these categories. Fear not! Because business loss in the condemnation context can be complex, our attorneys partner with expert accounts, bookkeepers, business analysts, and real estate appraisers to evaluate your business before and after the condemnation to provide their opinion as to the difference in value.