Levin, J.
The State Highway Commission commenced an action to condemn 22 acres of a parcel of land.
The condemned land had been improved with a half-mile automobile racing track and grandstands, known as the Grand Rapids Speedrome. Ora, Inc. owned the property. L & L Concession Company had acquired the lessee’s interest in a food and souvenir concession lease made by Ora as lessor. The lease gave L & L the exclusive right to sell food and souvenirs in the grandstand until January 1, 1976.
At the hearing before the commissioners the judge refused to allow L & L to prove the existence and value of the lease and L & L made an offer of proof.
The judge declared that the lease was, by its terms, to be operative only as long as Ora was conducting races, that Ora had ceased to operate the track and, therefore, L & L’s interest was valueless.
The commissioners made an award of $168,950, and a judgment on the award for that amount was entered in favor of Ora. L & L appealed. Our Court granted a stay of proceedings pending the appeal.
Paragraph 7 of the lease provided:
“Second party [L
&
L] shall conduct the concession business at the leased premises only at such times as races are being conducted at the racetrack premises. Second party, at its option, may operate the concession at such times as other public events are being conducted at the race track premises.”
Ora ceased to operate the track in July, 1966, several months before the taking in September, 1966. But the decision to close the track appears to have been attributable to the impending condemnation.
It is an established rule of condemnation law
that the value of an interest in property is to he determined without regard to any enhancement or reduction of the value attributable to condemnation or the threat of condemnation.
Viewing the matter, as we must, as if on the date of taking there had been no threat of condemnation, there is no record evidence which would support a finding that the lease was valueless because, for reasons not attributable to the threatened condemnation, the racetrack would not be operated at any time during the remaining nine years of the term of L & L’s lease.
Paragraph 7 of the lease was not a condemnation clause, it did not confer on Ora the right to cancel L & L’s lease in the event of condemnation or for any other reason. The lease rental was a percentage of L & L receipts. Paragraph 7 addresses itself to the question of the extent of L & L’s duty to operate the concession. Such clauses are common in percentage leases.
Without such a clause, it might be contended that L & L was obligated to operate the concession at times other than when races were being held at the track.
The agreement of the parties, as expressed in paragraph 7, was that L
&
L would be obligated to operate the concession only during such times as
races were being field and that it might operate the concession at other public events at its option.
L & L does not contend that Ora was under a duty to operate the racetrack and thereby enable L & L to profit from the operation of its food and souvenir concession,’ accordingly, there is no need to consider whether such a covenant might properly be implied.
Even if Ora was not under an obligation to operate, nonoperation of the track would not terminate L & L’s concession which, by its terms, continued until a date nine years after the taking.
The possibility that for economic or other reasons the racetrack might not be operated during some portion of the nine-year period must, indeed, be considered in evaluating L & L’s concession. That contingency does not render it impossible to determine the value of the concession with reasonable certainty.
It is a “settled rule in Michigan that a leasehold, and rights derived from a leasehold, constitute
‘property’, for the taking of which just compensation must be made or secured.”
Ordinarily no compensation is allowed for the goodwill or going-concern value of a business operated on the real estate being condemned.
This view has been strongly criticized by commentators who argue that “the owner has no assurance after the taking that he can again combine [at a new location] all the factors of production into his previously efficient and profitable operation.”
However, since the state hut rarely intends to operate the
business, the courts have been unwilling to award compensation unless the destruction of the business was a necessary consequence of the condemnation.
Where the condemnee’s business has been destroyed, recovery of the value of the business has been awarded. In
Jackson
v.
United States
(Ct Cl, 1952), 103 F Supp 1019, 1020, the government redefined certain restricted military proving ground areas to include fishing grounds where a commercial fisherman had been licensed by the State of Maryland to operate All other locations had been appropriated by other fishermen and, therefore, the fisherman could not secure a license to fish elsewhere. In requiring the government to compensate the fisherman for the loss of his livelihood, the court declared that he “had a sort of property right in his fishing ground, and that the Government took that property from him”. Similarly, see
United States
v.
Smoot Sand and Gravel Corporation
(CA 4, 1957), 248 F2d 822, 828, holding that whether the rights granted by a state statute to a riparian landowner in sand and gravel under tidal waters “is called a revocable though unrevoked ‘license’, or a ‘profit a prendre’ is immaterial. The label does not matter; the substance cannot be taken away by the United States even for a public use without the owner being made whole.”
In
State, ex rel. Mattson,
v.
Saugen
(1969), 283 Minn 402 (169 NW2d 37), the Supreme Court of Minnesota held that the owner of a liquor license was entitled to recover for the destruction, as a result of condemnation proceedings, of the going-concern value of his business where he had proven that he was unable to transfer the license to a new location and there was no evidence that he could not continue to operate the business successfully at the premises being condemned.
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Levin, J.
The State Highway Commission commenced an action to condemn 22 acres of a parcel of land.
The condemned land had been improved with a half-mile automobile racing track and grandstands, known as the Grand Rapids Speedrome. Ora, Inc. owned the property. L & L Concession Company had acquired the lessee’s interest in a food and souvenir concession lease made by Ora as lessor. The lease gave L & L the exclusive right to sell food and souvenirs in the grandstand until January 1, 1976.
At the hearing before the commissioners the judge refused to allow L & L to prove the existence and value of the lease and L & L made an offer of proof.
The judge declared that the lease was, by its terms, to be operative only as long as Ora was conducting races, that Ora had ceased to operate the track and, therefore, L & L’s interest was valueless.
The commissioners made an award of $168,950, and a judgment on the award for that amount was entered in favor of Ora. L & L appealed. Our Court granted a stay of proceedings pending the appeal.
Paragraph 7 of the lease provided:
“Second party [L
&
L] shall conduct the concession business at the leased premises only at such times as races are being conducted at the racetrack premises. Second party, at its option, may operate the concession at such times as other public events are being conducted at the race track premises.”
Ora ceased to operate the track in July, 1966, several months before the taking in September, 1966. But the decision to close the track appears to have been attributable to the impending condemnation.
It is an established rule of condemnation law
that the value of an interest in property is to he determined without regard to any enhancement or reduction of the value attributable to condemnation or the threat of condemnation.
Viewing the matter, as we must, as if on the date of taking there had been no threat of condemnation, there is no record evidence which would support a finding that the lease was valueless because, for reasons not attributable to the threatened condemnation, the racetrack would not be operated at any time during the remaining nine years of the term of L & L’s lease.
Paragraph 7 of the lease was not a condemnation clause, it did not confer on Ora the right to cancel L & L’s lease in the event of condemnation or for any other reason. The lease rental was a percentage of L & L receipts. Paragraph 7 addresses itself to the question of the extent of L & L’s duty to operate the concession. Such clauses are common in percentage leases.
Without such a clause, it might be contended that L & L was obligated to operate the concession at times other than when races were being held at the track.
The agreement of the parties, as expressed in paragraph 7, was that L
&
L would be obligated to operate the concession only during such times as
races were being field and that it might operate the concession at other public events at its option.
L & L does not contend that Ora was under a duty to operate the racetrack and thereby enable L & L to profit from the operation of its food and souvenir concession,’ accordingly, there is no need to consider whether such a covenant might properly be implied.
Even if Ora was not under an obligation to operate, nonoperation of the track would not terminate L & L’s concession which, by its terms, continued until a date nine years after the taking.
The possibility that for economic or other reasons the racetrack might not be operated during some portion of the nine-year period must, indeed, be considered in evaluating L & L’s concession. That contingency does not render it impossible to determine the value of the concession with reasonable certainty.
It is a “settled rule in Michigan that a leasehold, and rights derived from a leasehold, constitute
‘property’, for the taking of which just compensation must be made or secured.”
Ordinarily no compensation is allowed for the goodwill or going-concern value of a business operated on the real estate being condemned.
This view has been strongly criticized by commentators who argue that “the owner has no assurance after the taking that he can again combine [at a new location] all the factors of production into his previously efficient and profitable operation.”
However, since the state hut rarely intends to operate the
business, the courts have been unwilling to award compensation unless the destruction of the business was a necessary consequence of the condemnation.
Where the condemnee’s business has been destroyed, recovery of the value of the business has been awarded. In
Jackson
v.
United States
(Ct Cl, 1952), 103 F Supp 1019, 1020, the government redefined certain restricted military proving ground areas to include fishing grounds where a commercial fisherman had been licensed by the State of Maryland to operate All other locations had been appropriated by other fishermen and, therefore, the fisherman could not secure a license to fish elsewhere. In requiring the government to compensate the fisherman for the loss of his livelihood, the court declared that he “had a sort of property right in his fishing ground, and that the Government took that property from him”. Similarly, see
United States
v.
Smoot Sand and Gravel Corporation
(CA 4, 1957), 248 F2d 822, 828, holding that whether the rights granted by a state statute to a riparian landowner in sand and gravel under tidal waters “is called a revocable though unrevoked ‘license’, or a ‘profit a prendre’ is immaterial. The label does not matter; the substance cannot be taken away by the United States even for a public use without the owner being made whole.”
In
State, ex rel. Mattson,
v.
Saugen
(1969), 283 Minn 402 (169 NW2d 37), the Supreme Court of Minnesota held that the owner of a liquor license was entitled to recover for the destruction, as a result of condemnation proceedings, of the going-concern value of his business where he had proven that he was unable to transfer the license to a new location and there was no evidence that he could not continue to operate the business successfully at the premises being condemned.
In a carefully reasoned opinion, the Minnesota Court declared that the “intangible character of going-concern value does not preclude compensation for its taking.” The Court relied in part on
Kimball Laundry Company
v.
United States
(1949), 338 US 1, 5, 13, 14 (69 S Ct 1434, 93 L Ed 1765, 7 ALR2d 1280). In
Kimball,
the Federal government, during a war, had temporarily taken a laundry because it needed the facility to launder military uniforms. The temporary take-over destroyed the goodwill and going-concern value (route lists) of the business. Although the government had no need for the route lists, they had a “transferable value” and the government, therefore, was required to compensate the owner for the destruction of the going-concern value of his business: “this transferable value has an external validity which makes it a fair measure of public obligation to compensate the loss incurred by an owner as a result of the taking of his property for public use.”
In so holding, the
Kimball
Court referred to public utility condemnation cases, where the condemning authority has been required to pay for going-concern value, and observed:
“The rationale of the public-utility cases, as opposed to those in which circumstances have brought about a diminution of going-concern value although the owner remained free to transfer it, must therefore be that an exercise of the power of eminent domain which has the inevitable effect of depriving the owner of the going-concern value of his business is a compensable ‘taking’ of property. (See
United States
v.
General Motors Corp.
[1945], 323 US 373, 378 [65 S Ct 358, 89 L Ed 311, 318, 156 ALR 390];
cf. United States
v.
Causby
[1946], 328 US 256, [66 S Ct 1062, 90 L Ed 1206]). If such a deprivation has occurred, the going-concern value of the business is at the government’s disposal whether or not it
chooses to avail itself of it. Since what the owner had has transferable value, the situation is apt for the oft-quoted remark of Mr. Justice Holmes, ‘the question is what has the owner lost, not what has the taker gained.
Boston Chamber of Commerce
v.
City of Boston
[1910], 217 US 189, 195 (30 S Ct 459, 54 LEd 725, 727).”
In a large number of cases owners and lessees have recovered going-concern value where the condemned property could not be realistically valued apart from the business there conducted, or, as it is sometimes said, the business for which the property is best “adapted”.
In this case L & L claims that it can prove both that its concession at the Speedrome had a transferable value and that the business it there conducted could not be transferred to another location.
The going-concern value of L & L’s business is not related to customers L & L cultivated but to the
patronage of the racetrack; the concession gives L & L a monopoly on food and souvenir sales at the Speedrome. The value of the concession flows from locational advantage and L & L’s monopoly position at that location, not conventional customer goodwill.
The value flows from an “adaptation” of the grandstand to a use for which it is suited. Viewed from that perspective, allowing compensation for the value of the concession is consistent with the case law which recognizes that in valuing real estate for condemnation purposes it is proper to include value attributable to a use for which the real estate is adapted.
The efforts to limit
Kimball
to temporary takings elides the central meaning of that case.
The Federal government was not required to pay for the route lists because the plant was only temporarily taken or because they represented customer goodwill but because their value was destroyed by the taking. The circumstance which caused the destruction of the value of the route lists was the temporariness of the taking which precluded construction and outfitting of a replacement plant. L & L claims that, given the opportunity to prove its case, it can provide comparable assurances that the value for which it seeks compensation has been destroyed, not saved to its advantage elsewhere.
In the case of
In re Park Site on Private Claim 16, City of Detroit
(1929), 247 Mich 1, 4, the city had
condemned the land and building operated by the Belle Isle Coliseum Company. The property was operated by the coliseum company under a lease from a private property owner. The unexpired term of the lease was 24 years. The question presented was whether the coliseum company was entitled to recover damages for business losses in addition to the $280,000 which the property owner (lessor) and the coliseum company (lessee) had before the trial agreed was “the value of the leasehold interest of the Belle Isle Coliseum Company”. In holding that prospective profits could not be recovered, the Supreme Court ruled (p 3) that “all of the damages recoverable in this case are included in the value of the leasehold interest for which the lessee has received payment”. The Court observed:
“In estimating the value, it is proper to consider the location of the premises, their special adaptability to the business there being conducted, the length of time it has been established, its earnings and profits, the unexpired term of the lease, and every other fact that may affect its value. All of these matters go to
enhance the value of the
lease. They are not substantive elements of damages in condemnation proceedings.
“In the instant case, the lessee stipulated that the value of its leasehold interest was $280,000. The profits of the business, now the subject of this suit, are included in the stipulated value of the leasehold, for which it has received payment from the lessor.” (Emphasis supplied.)
Thus, in many cases, as in the case of the
Belle Isle Coliseum,
where the value of the leasehold as an estate in land and the value of the business there conducted cannot readily be separated, the valuation ascribed to the leasehold may reflect the value of the business there operated. In such a case it is
entirely sound to refuse to award as a separate element of damages anything for loss of going-concern value or goodwill; to do so would he redundant.
But where the valuations of the estates of the lessor and of the lessee in land do not reflect the going-concern value of the lessee’s business there operated, then, as in
State, ex rel. Mattson,
v.
Saugen, supra,
and the other cases cited, the going-concern value can, without making the total damages awarded redundant, and, if full compensation is to be paid, must be determined and awarded to a businessman whose business has been destroyed by the taking.
“Nothing can be fairly termed just compensation which does not put the party injured in as good a condition as he would have been if the injury had not occurred.”
The principle here applicable was recognized in an early Michigan case,
Grand Rapids & I. R. Co.
v.
Weiden
(1888), 70 Mich 390, 395, where our Supreme Court declared:
“Both of the appellants were using their property in lucrative business, in which the locality and its
surroundings had some bearing on its value. Apart from the money value of the property itself, they were entitled to be compensated so as to lose nothing by the interruption of their business and its damage by the change. A business stand is of some value to the owner of the business, whether he owns the fee of the land or not, and a diminution of business facilities may lead to serious results.
There may be cases when the loss of a particular location may destroy business altogether, for want of access to any other that is suitable for it. Whatever damage is suffered, must be compensated.
Appellants are not legally bound to suffer for petitioner’s benefit. Petitioner can only be authorized to oust them from their possessions by making up to them the whole of their losses.” (Emphasis supplied.)
In its offer of proof, L
&
L offered to prove both “destruction of business and lack of access to substitute”. It will, of course, be for the trier of fact to determine on remand whether the business conducted by L & L at the Grand Rapids Speedrome was transferable to another location, that is to say, the extent to which, if at all, the business was destroyed by the condemnation of the Speedrome.
It is clear on this record that nothing was included in the computation of the $168,950 award made to Ora in respect to the going-concern value of L & L’s concession business. The appraisers used the three
traditional approaches in establishing their appraisals : comparable sales,
replacement cost,
and capitalization of economic rent.
In establishing an economic rent for the Grand Rapids Speedrome for the purpose of arriving at their appraisals of its value, Ora’s and the state’s appraisers treated the rent paid by L & L to Ora as the economic rent of the space rented to L
&
L. It is, of course, true that Ora might itself have operated the concession instead of leasing it to an independent operator, such as L
&
L. And, without regard to whether it had done so, the appraisers might, in capitalizing income, have capitalized the income deprived or that might be derived from the operation of the concession as well as the racetrack. But they did not, they capitalized only the rent paid by L & L which did not reflect the going-eoncern value of the concession business.
This brings us to the rule of
State Highway Commissioner
v.
Woodman
(1962), 366 Mich 385, 392, 393, where the Court held that under the relevant statute
the commissioners may not separately appraise the lessor’s and lessee’s interests but, rather, must make a unitary appraisal of the value of the property as a whole, and that it is for the court to divide the award among the several claimants.
On the authority of
Woodman,
the highway commission contends that, in the event we decide that
L & L is entitled to be compensated, the $168,950 award should be apportioned between Ora and L & L. Ora responds, we think correctly, that this does not make sense because the $168,950 award does not include any amount attributable to L & L’s interest.
The State Highway Commission, having succeeded in excluding any evidence concerning the value of L & L’s concession, should not be heard to argue that the award made by the commissioners includes some amount in respect to the going-concern value.
The appraisal of the separate interests of Ora and L & L could, and, perhaps, should have been made at the same time and a lump sum awarded to be apportioned between them by the court. However, even though the state is willing to relitigate the entire case, it would be an undue burden on Ora to require it to relitigate the value of its interest in order to preserve a procedural point under the circumstance that the value ascribed to Ora’s interest does not reflect any amount attributable to the going-concern value for which L & L seeks compensation. The product of many days of trial is not to be Lightly disturbed.
Our disposition of this ease makes it unnecessary to consider whether the alleged failure of the state to make an offer to L & L deprived the court of jurisdiction to decide the controversy.
There is no merit in the highway commission’s contention that L
&
L waived its right to object to the refusal of the court to entertain its proofs because it did not object to the instructions given to the commissioners. When the case was submitted to the commissioners and the court instructed them in that regard, the court had already ruled that L & L would not he allowed to prove its case. It would have been entirely superfluous for L & L to object to the instructions after the court had refused to allow it to present any proofs.
The judgment on the award is affirmed as to Ora, Inc., and the cause is remanded for further proceedings to determine the amount of compensation payable by the State Highway Commission to L & L Concession Company. Costs to L
&
L Concession Company.
All concurred.