As the title of Dep't of Transportation v. Adams Outdoor Advertising of Charlotte LP, No. 206PA16 (Sep. 29, 2017) might indicate, this is a condemnation case involving billboard valuation in North Carolina. But the issues in the case go much deeper, we think.
On the surface, the North Carolina Supreme Court resolved a question of which state statute applies when the DOT acquires land on which an income-generating billboard is located: a statute which requires DOT to pay "fair market value of the property at the time of the taking" when it takes property for highway purposes (Article 9), or a statute which requires inclusion of the "value of the outdoor advertising" in compensation when certain prohibited billboards on leased land are condemned (Article 11) in order to remove them. The billboard was one of those now-prohibited billboards (it was a nonconforming use, since it was ok when first installed), and DOT took the land for a highway-widening project.
The DOT, naturally, took the position that Article 9 governed, and a billboard is personal (moveable) property, it was taking the land on which the billboard sat for highway improvement purposes and not to remove an nonconfirming billboard. It therefore instructed its appraiser not to account for the substantial income which the billboard would have generated. The owner argued that the specific statute controlled over the more general. But the court agreed with DOT, concluding:
DOT therefore was not exercising its authority under Article 11 to acquire prohibited outdoor advertising and all related property rights by condemnation; it was exercising its authority under N.C.G.S. § 136-18(2)(e) to condemn property in order to widen a highway. After all, even if the billboard had been conforming, DOT still would have condemned the leasehold interest because it needed the property for its highway-widening project. So the fair market valuation provision specific to Article 11 does not govern this condemnation proceeding; the general fair market valuation provision in Article 9 does instead.
Slip op. at 10 (footnote omitted). Things were not looking too good for the property owner's claim for lost income from the billboard.
But don't give up just yet. Read on. The court held that under the "fair market value" standard of Article 9, the owner was entitled to just compensation for the rental income from the billboard. Now the court didn't phrase it that way, and instead held that it was only valuing the land and not the billboard. But the value of the land was tied up with the billboard, so we end up in pretty much the same place.
So the question here is whether a billboard owned by Adams Outdoor, and situated on the site of Adams Outdoor’s leasehold interest, would be a factor that a willing buyer and a willing seller would consider when agreeing on the price of that leasehold interest. We are not considering the fair market value of the physical billboard structure as compensable property; we are considering only whether any value that the presence of the billboard adds to the value of Adams Outdoor’s leasehold interest should be a factor in determining the fair market value of that interest.
Slip op. at 11. Okay, got it. Same difference, as they say, right? The court made a fine distinction. It court agreed with the court of appeals' conclusion (like Texas, for example), that billboards are moveable property, a trade fixture, and thus noncompensable. The Supreme Court did agree it qualified as a "trade fixture," and that the billboard itself was not compensable in condemnation. Slip op. at 13 ("So we are not saying that the trier of fact should add the fair market value of the physical billboard structure to the amount that it determines to be the fair market value of the leasehold interest."). But what should be considered in a just compensation trial is the value which the billboard added to the land.
Again, a subtle distinction, and not one we are sure makes a whole lot of sense. But the law is made up of fine distinctions that lead to differing results, and we must say that the result the court reached certainly seems like a just one.
Here's the money quote. Kind of long but worth reading, since it gets the sense of these things right, in our opinion:
The value that the billboard added to the leasehold would not just come from rental income, which we discuss separately below. It would also come from the inherent value of the billboard’s presence on the property: that is, from the potential to rent it out to advertisers even if it is not currently being used in that way, and from the ability to use the billboard to communicate messages to an audience of approximately 85,000 vehicles per day. Certainly a willing buyer who is purchasing a leasehold that can be used only for outdoor advertising purposes would consider whether the property actually had a billboard on it in determining the price that he or she was willing to pay for the leasehold interest. And certainly a seller who owns a grandfathered-in nonconforming billboard on a leasehold that can be used only for outdoor advertising purposes would consider the presence of that billboard on it in determining the price for which he or she was willing to sell the leasehold interest. We therefore hold that evidence concerning the value that the billboard added to the leasehold interest is admissible to help the trier of fact determine the fair market value of that interest.
Slip op. at 12.
The court also addressed some other nuances in "business losses," concluding:
We conclude that (1) the fair market value provision of Article 9, not Article 11, governs this condemnation proceeding; (2) the value added by Adams Outdoor’s billboard may be considered in determining the fair market value of Adams Outdoor’s leasehold interest; (3) evidence of rental income derived from leasing advertising space on the billboard may be considered in determining the fair market value of the leasehold interest; (4) the value added to the leasehold interest by the permits issued to Adams Outdoor may be considered in determining the fair market value of the leasehold interest; (5) the automatic ten-year extension of the lease may be considered in determining the fair market value of the leasehold interest, but the options to renew the lease after the automatic ten-year extension may not be; and (6) the bonus value method evidence offered by DOT may not be considered in determining the fair market value of the leasehold interest.
Slip op. at 24.
Three Justices dissented, arguing that the lost income from the billboard cannot be considered part of compensation for the taking. They would have held that the billboard could have been removed and was thus personal property, and should not have been considered by the majority as part of the value of the land on which it sat.