Lamar Corp. v. Commonwealth Transportation Commissioner , 262 Va. 375 ( 2001 )

Present: All the Justices
THE LAMAR CORPORATION
v. Record No. 002415 OPINION BY JUSTICE BARBARA MILANO KEENAN
September 14, 2001
COMMONWEALTH TRANSPORTATION
COMMISSIONER OF VIRGINIA, ET AL.
FROM THE CIRCUIT COURT OF HENRICO COUNTY
George F. Tidey, Judge
In this appeal, we consider the extent to which a lessee
may participate in condemnation proceedings when the lessee owns
a billboard affixed to its leased portion of the condemned
property.
L. F. Loree, III, and Norwood H. Davis, Jr., co-trustees
under the Goodwin Children's Trust Agreement (collectively, the
landowners), own a parcel of land located near the intersection
of Route 250 and Three Chopt Road in Henrico County. Since
1983, the landowners have leased a portion of the property to
the Lamar Corporation, or its predecessors, to permit the
installation and maintenance of a "back-to-back," four-panel
billboard. Lamar, in turn, has engaged in the business of
renting space and installing advertising on the billboard.
In September 1995, the Commonwealth Transportation
Commissioner (the Commonwealth) recorded a certificate
condemning a portion of the landowners' property for
construction of improvements to Route 250. The condemned
property included the portion of the landowners' property leased
to Lamar.
At the time of the condemnation, the lease in effect
between the landowners and Lamar provided for a term of five
years beginning in August 1992. The lease stated that it "shall
continue from year to year unless either party shall give the
other party written notice of nonrenewal at least 60 days prior
to the expiration of the then-current term."
The lease provided ownership rights to Lamar in all
structures Lamar placed on the premises with the right to remove
any structures within 30 days after the expiration of the lease
term or any extension. The parties agree that under the lease
terms, Lamar owns the billboard. The lease also provided that
"[I]n the event of condemnation of the subject premises[,] . . .
[a]ny condemnation award for [Lamar's] property shall accrue to
[Lamar]."
In April 1998, the Commonwealth filed a petition in the
trial court, requesting that commissioners be appointed to
determine the value of the land taken and any damage that may
accrue to the residue as a result of the taking. Lamar filed a
petition to intervene in the first stage of the condemnation
proceedings (the valuation proceeding) as an " 'owner' of the
structure acquired by the Commonwealth," and as a "'tenant' of
the land acquired."
2
The Commonwealth moved the trial court to dismiss Lamar's
petition or, in the alternative, to restrict Lamar's
participation in the valuation proceeding to that of a "tenant"
to the extent authorized by Code § 25-46.21:1. That statute
provides, in relevant part:
Any tenant under a lease with a term of twelve months or
longer may participate in the proceedings described in
§ 25-46.21 to the same extent as his landlord or the
owner. . . . Nothing in this section shall be construed,
however, as authorizing such tenant to offer any evidence
in the proceedings described in § 25-46.21 concerning the
value of his leasehold interest in the property involved
therein or as authorizing the commissioners or jurors, as
applicable, to make any such determination in formulating
their report.
Lamar also filed with the trial court a list of nominees to
serve as condemnation commissioners in the valuation proceeding.
The landowners moved to preclude Lamar from participating in the
selection of commissioners on the ground that "[t]he owner of a
leasehold interest such as a billboard is not a proper party" to
a valuation proceeding. After hearing argument on the motions,
the trial court entered an order granting Lamar's motion to
intervene in the valuation proceeding as a tenant "to the extent
permitted by [Code] § 25-46.21:1," and granting the landowners'
motion to preclude Lamar from nominating commissioners.
Lamar notified the Commonwealth and the landowners that it
planned to present expert testimony at the valuation proceeding
from Donald T. Sutte, a nationally recognized expert on the
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subject of billboard appraisals. Lamar indicated that it
expected Sutte to testify that "just compensation in this case
consists of two elements: (1) the fair market value of the land
taken plus damages, if any, to the residue; and (2) the fair
market value of the billboard."
The Commonwealth filed a motion in limine to exclude
Sutte's testimony on the ground that it would include "evidence
of the alleged economic value of Lamar's sign to Lamar." The
Commonwealth contended that such testimony would be inadmissible
because it would be equivalent to evidence of Lamar's leasehold
interest in the property.
The trial court entered an order granting the
Commonwealth's motion. The trial court ruled that "the only
issues at this stage of the instant action are the determination
of the compensation award for the fair market value of the land
taken, and any damages or enhancements to the residue." The
trial court also ruled that Lamar was not entitled to "a
separate valuation of its improvements."
Following the trial court's ruling, Lamar notified the
landowners and the Commonwealth of its intention to present
expert testimony from Sutte and Ivo H. Romenesko, a licensed
commercial real estate appraiser. The stated subject of their
anticipated testimony was "the fair market value of land and
improvements taken by the Commonwealth of Virginia and damages
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to the residue of the subject property." Lamar stated that it
expected both Sutte and Romenesko to testify that the fair
market value of the land and improvements taken was as follows:
.221 acre land taken $129,965
temporary construction
easement on .104 acre land 12,232
billboard $ 60,600
TOTAL FAIR MARKET
VALUE OF TAKE $202,797
The Commonwealth filed a supplemental motion in limine
seeking to prohibit Sutte's testimony in its entirety and any
testimony from Romenesko concerning "the value of the billboard
or Lamar's leasehold interest." After a hearing, the trial
court excluded Sutte's proposed testimony and ruled that
Romenesko could not testify regarding his $60,600 valuation of
the billboard as part of the fair market value of the condemned
property.
In a deposition containing Sutte's proffered testimony,
Sutte was asked whether he agreed with the landowners' expert
appraiser that no value should be assigned to the billboard
structure. Sutte disagreed, stating that "[t]he signs
contribute value to the whole property. They have a value."
Sutte testified that in making his appraisal, he disregarded
Lamar's lease and assumed that the land and the billboard
belonged to a single owner.
5
At the beginning of the valuation proceeding, Lamar asked
the trial court to clarify its ruling concerning the exclusion
of Romenesko's testimony. The trial court stated, "I'm not
going to allow him to testify as to the value of the
billboard. . . . Even the fair market value." Because
Romenesko's opinion of the fair market value of all property
taken would have included the fair market value of the
billboard, he did not testify at the valuation proceeding.
Michael McCall, a licensed commercial real estate
appraiser, testified on behalf of the Commonwealth. McCall
appraised the total fair market value of the condemned property
at $114,366, which included a value of $16,000 for the "sign
lease." McCall explained that this "sign lease" valuation
represented the amount of rent the billboard would have been
expected to generate to the landowners over a five-year period.
McCall's appraisal did not include any valuation of the
billboard structure.
R. W. Tolleson, a licensed commercial real estate
appraiser, testified on behalf of the landowners. Tolleson
appraised the total fair market value of the condemned property
at $142,042. Tolleson's appraisal did not include any valuation
relating to the billboard because the landowners asked him “not
to consider” the billboard. In his testimony, Tolleson stated
that the billboard “may have had some interim value,” but added
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that in his opinion, the billboard “was not a proper use of the
site.”
At the conclusion of the evidence in the valuation
proceeding, Lamar renewed its motion to introduce the valuation
testimony of Sutte and Romenesko. Lamar argued that its
evidence was admissible to rebut McCall's valuation of the "sign
lease," and as evidence that was "contrary" to both McCall's
testimony and Tolleson's testimony. The trial court denied
Lamar's motion.
The commissioners returned an award of $115,000 for "the
value of the aforesaid land taken by [the Commonwealth]
(including any easements taken)" and $35,000 for the damage to
the residue. The trial court overruled Lamar's exceptions and
entered judgment confirming the commissioners' award.
Under Code § 25-46.28, the matter proceeded to a hearing
before the trial court (the allocation proceeding) to determine
the respective shares of the competing claimants, the landowners
and Lamar, in the award. Lamar presented testimony from its
expert appraiser Sutte regarding his appraisal of the billboard
"structure, as well as the leasehold and the site itself."
Sutte determined that the "fair market value of Lamar's
interests" was $60,600 based on a "sales comparison" method of
valuation, or $63,000 based on an "income" method of valuation.
7
The landowners presented testimony from their expert
appraiser Tolleson that the fair market value of the condemned
land was $577,500 per acre. Over Lamar's objection, Tolleson
testified that, based on his per-acre valuation, the annual
economic rental value of the 500 square-foot portion of the
condemned land that had been leased to Lamar was $794 per year.
Tolleson's valuation of Lamar's interest in the condemned
property did not include any valuation relating to the billboard
structure.
The trial court held that Lamar's interest in the award was
$6,462. In its letter opinion, which was incorporated by
reference into the final judgment order, the court stated that
its determination of Lamar's interest was "based on the value of
the property based on the Commissioners' Award and two months of
gross income."
On appeal, Lamar first argues that it qualifies as an
"owner" of condemned property under the Virginia General
Condemnation Act (the Act), Code §§ 25-46.1 through -46.36, and,
thus, was entitled to participate in the valuation proceeding as
an "owner" rather than as a "tenant." Although the Act does not
define either term, Lamar emphasizes that the Act defines
"[p]roperty" to include "land," which is defined as encompassing
"land, lands and real estate and all rights and appurtenances
thereto, together with the buildings and other improvements
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thereon." Code § 25-46.3. Based on this terminology, Lamar
contends that it was an "owner" of "property" under the Act
because it owned an "improvement" on the land. In the
alternative, Lamar argues that it should have been permitted as
a "tenant" to participate in the valuation proceeding under Code
§ 25-46.21:1 "to the same extent as . . . the owner." Thus,
Lamar asserts that as either a "tenant" or an "owner," it had
the right to participate in the nomination of commissioners. We
disagree with Lamar's arguments.
We have adopted the general rule that as between a
condemnor and a lessee, structures such as billboards that are
affixed to land but owned by the lessee are realty. Lamar Corp.
v. City of Richmond, 241 Va. 346, 351, 402 S.E.2d 31, 34 (1991);
Foodtown, Inc. v. State Highway Commissioner, 213 Va. 760, 763,
195 S.E.2d 883, 886 (1973). The fact that the billboard is
"realty," however, does not mean that the lessee is entitled to
participate in a valuation proceeding to the same extent as the
owner of the underlying land. We have held that a lessee who
owns a billboard affixed to condemned land does not have a
"separate, condemnable interest" entitling the lessee to a
separate condemnation proceeding. Lamar, 241 Va. at 350, 402
S.E.2d at 33. Instead, a lessee who wishes to protect his
interest in condemned property is permitted under Code § 25-
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46.21:1 to intervene as a "tenant" in the valuation proceeding
between the condemnor and the landowner.
Neither Code § 25-46.21:1 nor any other provision in the
Act entitles a "tenant" to be treated as if it were an "owner"
of the underlying land. The plain language of Code § 25-46.21:1
limits a tenant's participation to "the proceedings described in
[Code] § 25-46.21." Those proceedings all occur after
commissioners have been selected and include a viewing of the
condemned property, a hearing on the issues joined, the filing
of exceptions to the commissioners' report, and the trial
court's determination confirming or setting aside the report.
A different statute, Code § 25-46.20, governs the selection
of commissioners and has no provision allowing tenants to
participate in this process. Therefore, the trial court did not
err in refusing to allow Lamar to participate in the selection
of commissioners because the Act restricts the right of a tenant
to participate in a valuation hearing in accordance with the
terms of Code §§ 25-46.21:1 and –46.21.
Lamar next argues that the trial court erred in excluding
the testimony of Sutte and Romenesko from the valuation
proceeding. Lamar contends that these experts properly
appraised the total value of the condemned property, including
the value of the billboard, as if the property were owned by a
single person and did not appraise Lamar's "leasehold interest."
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In response, the Commonwealth argues that Lamar's proffered
valuation testimony was inadmissible because Lamar's experts
improperly included in their appraisal the value of the
billboard, which the Commonwealth contends is equivalent to the
value of Lamar's leasehold interest. The Commonwealth also
contends that by taking the value of the billboard into account,
Lamar's experts failed to appraise the condemned property as if
it were owned by a single landowner. The Commonwealth also
challenges the methodologies used by Lamar's expert Sutte to
value the billboard. The Commonwealth contends that the record
shows that Sutte improperly relied in his "income" method on
evidence of the billboard's future business income, and that he
used inappropriate sales figures in his "comparable sales"
method. We disagree with the Commonwealth's arguments.
As a tenant, Lamar was entitled in the valuation proceeding
to introduce its own valuation testimony under Code § 25-
46.21:1, which authorizes a tenant "to offer admissible evidence
concerning the value of the property being taken or damaged."
Code § 25-252(a) provides that a condemnor who acquires real
property also acquires "an equal interest in all buildings,
structures, or other improvements located upon the real
property." Code § 25-252(b) further provides:
For the purpose of determining the just compensation
to be paid for any building, structure or other
improvement required to be acquired as above set
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forth, such building, structure or other improvement
shall be deemed to be a part of the real property to
be acquired notwithstanding the right or obligation of
a tenant, as against the owner of any other interest
in the real property, to remove such building,
structure or improvement at the expiration of his
term, and the fair market value which such building,
structure or improvement contributes to the fair
market value of the real property to be acquired or
the fair market value of such building, structure or
improvement for removal from the real property,
whichever is the greater, shall be paid to the tenant
therefor.
We have recognized that a billboard affixed to condemned
property is a "structure," and that the fair market value of
such a structure is properly included in a total award of just
compensation, even when the lessee may remove the structure
under the terms of the lease. Lamar, 241 Va. at 352, 402 S.E.2d
at 34; see Exxon Corp. v. M & Q Holding Corp., 221 Va. 274, 281,
269 S.E.2d 371, 376 (1980); Foodtown, 213 Va. at 763, 195 S.E.2d
at 886. Thus, for purposes of determining just compensation in
a valuation proceeding, Code § 25-252 mandates the inclusion of
the fair market value of the billboard as determined by using
one of that statute's two specified valuation approaches,
whichever yields the greater valuation.
This statutory directive is consistent with our prior
holdings that "the proper course is to ascertain the entire
[just] compensation as though the property belonged to one
person." Lamar, 241 Va. at 350, 402 S.E.2d at 33 (quoting
Fonticello Mineral Springs Co. v. City of Richmond, 147 Va. 355,
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369, 137 S.E. 458, 463 (1927)); Stanpark Realty Corp. v. City of
Norfolk, 199 Va. 716, 724, 101 S.E.2d 527, 534 (1958) (quoting
Fonticello, 147 Va. at 369, 137 S.E. at 463). The provisions of
Code § 25-252 are also consistent with the requirement of Code
§ 25-46.21:1 excluding evidence concerning the value of the
tenant's "leasehold interest." Under either valuation approach
permitted by Code § 25-252, just compensation for the billboard
is determined based on its fair market value without regard to a
tenant's leasehold interest in the billboard. Moreover,
compensation for the billboard structure is a component of the
total award of compensation for all property taken and, thus,
the ultimate effect of Code § 25-252 is to value the billboard
as if it were owned by the landowners along with the underlying
land.
Here, the evidence that Lamar sought to admit concerning
the "fair market value of land and improvements taken" satisfied
the requirements of Code § 25-252 and was improperly excluded.
Sutte testified in his deposition testimony that he valued the
billboard in terms of the fair market value that it
"contribute[d] . . . to the whole property." He stated that in
making his appraisal, he disregarded Lamar's lease and assumed
that a single entity owned the land and the billboard. As
evidence of the value that the billboard contributed to the
total value of the property, this testimony satisfied the first
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valuation approach set forth in Code § 25-252 and should have
been admitted during the valuation proceeding. 1
We disagree with the Commonwealth's contention that Sutte's
use of "sales comparison" and "income" methods of valuation in
determining the billboard's value rendered his testimony
inadmissible. Sutte testified that he is one of the leading
experts in the United States in the field of billboard
appraisal, and that these two approaches are typical methods
used to appraise the fair market value of billboard signs. The
Commonwealth did not present any contrary evidence regarding the
use of these methods to determine the fair market value of a
billboard. Moreover, the issue whether Sutte properly applied
these methods in fixing the fair market value of Lamar's
billboard structure is a matter related to the weight to be
given his testimony, which is not an issue before us in this
appeal.
We also observe that Sutte's consideration of the income
generated by the billboard was not offered in the valuation
proceeding as an appraisal of the business conducted by Lamar on
the property, but as a component consideration of the intrinsic
1
We do not consider the second valuation approach under
Code § 25-252 for determining just compensation for the
billboard. Because Lamar's valuation testimony fell squarely
within the first approach, and because Lamar proffered no other
type of valuation testimony, we presume that the first approach
produced the "greater" valuation.
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nature and value of the billboard structure. See Ryan v. Davis,
201 Va. 79, 82, 109 S.E.2d 409, 413 (1959); Anderson v.
Chesapeake Ferry Co., 186 Va. 481, 495-96, 43 S.E.2d 10, 18
(1947). Thus, his consideration of the income generated by the
sign was not a violation of the general rule barring a landowner
from presenting evidence of expected income from the operation
of a business conducted on the condemned property. Id.We disagree with the Commonwealth's contention that the
exclusion of Lamar's expert testimony in the valuation
proceeding was rendered harmless by its admission in the
allocation hearing, since the amount of the total condemnation
award exceeded the amount of Lamar's claim for the billboard.
The trial court's exclusion of Lamar's expert testimony at the
valuation proceeding denied Lamar its right under Code § 25-
46.21:1 to offer admissible evidence during the valuation
proceeding concerning the value of its condemned property.
Absent Lamar's evidence or any other evidence attributing value
to the billboard structure, the commissioners' total
determination of just compensation for the condemned property
was erroneous as a matter of law, because their award did not
include compensation for the fair market value of the billboard
structure.
Finally, Lamar argues that the trial court erred by
permitting the Commonwealth's expert appraiser, McCall, to
15
testify during the valuation proceeding about the value of the
"sign lease" to the landowners. Lamar contends that McCall's
testimony was inadmissible because he appraised the value of the
lease to the landowners, rather than the value of the billboard
affixed to the land as if it belonged to the landowner.
In response, the Commonwealth argues that McCall properly
valued Lamar's lease by considering only the lease's effect on
the value of the underlying fee. The Commonwealth contends that
McCall's appraisal methodology was not improper because it
addressed the value of the lease only to the extent that the
lease provided income in rent paid to the landowners. We are
not persuaded by the Commonwealth's arguments.
Just compensation is measured according to the property's
fair market value and not by its peculiar value to the landowner
or to any other party. See Fairfax County Park Authority v.
Virginia Dept. of Transp., 247 Va. 259, 263, 440 S.E.2d 610, 612
(1994); State Highway Commissioner v. Reynolds, 206 Va. 785,
789, 146 S.E.2d 261, 264 (1966). Here, McCall's appraisal
addressed the peculiar value that Lamar's lease had to the
landowners. His appraisal was based on the discounted annual
rent that the landowners could expect to receive under this
particular lease with Lamar over the next five years until the
property might be developed. Thus, the trial court erred
admitting McCall's testimony because it addressed the value of
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Lamar's particular lease and likely renewals of the lease,
rather than the fair market value of the billboard structure as
if it belonged to the landowners. See Lamar, 241 Va. at 350,
402 S.E.2d at 33 (quoting Fonticello, 147 Va. at 369, 137 S.E.
at 463); Stanpark Realty, 199 Va. at 724, 101 S.E.2d at 534
(quoting Fonticello, 147 Va. at 369, 137 S.E. at 463).
For these reasons, we will reverse the trial court's
judgment and remand the case for new proceedings in accordance
with the principles expressed in this opinion. 2
Reversed and remanded.
2
Based on our holding, we do not reach Lamar's additional
assignment of error regarding the trial court's instructions to
the jury at the valuation hearing, or the assignments of error
and cross-error addressing certain rulings of the trial court
during the allocation proceeding.
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