Advertising income is relevant in assessing compensation for billboard property.(Recent Court Decisions)

When an outdoor advertising site was condemned, the income generated by the billboard must be considered as a factor affecting the property's value, according to the Court of Appeals of Tennessee.

Eller Media Company (Eller) leased a parcel in the city of Memphis containing a billboard, which Eller owned and rented to advertisers. When the property was condemned in 2001, the city compensated only the landowner, and not Eller. Eller intervened in the condemnation action and filed an appraisal valuing its leasehold at $556,000.

Eller's appraisal was based primarily on the income approach, multiplying Eller's net operating income with a capitalization rate. Before trial, the court found that this appraisal was invalid because it improperly compensated Eller for lost profits and for the billboard, which was personal property and not compensable. Without any other evidence of the value of the leasehold, the trial court dismissed Eller's claim. Eller appealed.

On review, the appellate court began by noting that leaseholds are compensable interests in condemnation actions and that generally, any factor affecting a leasehold's value is admissible on the issue of damages. The court found that here, the use of the property for outdoor advertising and the resulting income were elements affecting the market value of Eller's leasehold. Whether the billboard was personal property was irrelevant, according to the court, because Eller was not seeking compensation for the fixture itself.

Next, the court found that while lost profits are not usually compensable, evidence of profits are admissible to establish the property's value. The court held that here, again, evidence of Eller's income was admissible on valuation and not evidence of lost profits. The court thus concluded that the appraisal was competent evidence and that Eller was entitled to a trial to assess compensation. The trial court decision was reversed.

Eller Media Company v. City of Memphis

Court of Appeals of Tennessee

December 22, 2008

2008 WL 5330431 (Tenn. Ct. App. 2008)

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