June 26, 2009, by
Although there is no constitutional right to compensation for business goodwill (benefits that accrue to a business as a result of of its location, reputation, skill and quality of its products and/or employees) in eminent domain proceedings, under California Code of Civil Procedure section 1263.510, the owner of a business conducted on property taken by eminent domain may be compensated for loss of goodwill under certain conditions.
The Court of Appeal, Second Appellate District, has just published a decision in Los Angeles Unified School District v. Pulgarin (filed 6/23/09) holding that there is no requirement in the plain language of the statute that the owner of a business seeking goodwill prove that he or she is the owner of, or has a written lease on, the property being taken: "What is required is that '[t]he owner of a business conducted on the property taken' prove that the loss is caused by the taking of the property." "A business which is required to move because of the taking of the property on which it operates has suffered a loss from the taking. This is true whether the tenancy is for a fixed term, or is a periodic tenancy as in this case.
If not challenged, the Pulgarin decision appears to be inconsistent with another Court of Appeal decision in San Diego Metropolitan Trnsit Dev. Brd. v. Handlery Hotel, Inc. (1999) 73 Cal.App.4th 517, which held that a business owner has "no enforceable property interest" in the absence of a lease. It may be that the California Supreme Court will need to clarify whether and to what extent a business owner must have a vested, legally compensable property interest in the property being acquired by a public entity, to be entitled to claim loss of goodwill. In the interim, the value of the loss of business goodwill is still affected by the probable remaining term of a tenancy; evidence of no lease or a month-to-month tenancy are still probative elements for the determination of the amount of compensation for loss of goodwill.