Key takeaways
- The real estate award and the business relocation payments are two different claims. Do not treat the offer for the land as the whole recovery.
- A displaced small business, farm, or nonprofit may receive up to $33,200 for reestablishment expenses at a replacement site under 49 CFR 24.304.
- A displaced business may instead choose a fixed payment in lieu of actual moving and reestablishment costs, equal to average annual net earnings, not less than $1,000 and not more than $53,200.
- Average annual net earnings means one half of net earnings before income taxes over the two taxable years before the year of displacement.
- Where only part of a site is taken, severance damages to the remainder are part of just compensation.
Two claims, not one
When a condemning authority reaches a commercial property, an owner tends to focus on one number: what the agency will pay for the real estate. That is only part of the picture.
The first claim is constitutional. Just compensation for the property taken is ordinarily its fair market value on the date of the taking, and where the taking is partial it includes the loss in value to what remains.
The second claim is statutory. If the project is federal or federally assisted, the Uniform Relocation Assistance and Real Property Acquisition Policies Act and its implementing regulation at 49 CFR Part 24 provide moving and related expense payments to displaced businesses. These payments are separate from, and in addition to, the price paid for the property.
Reestablishment expenses
Under 49 CFR 24.304, a small business, farm, or nonprofit organization is entitled to a payment not to exceed $33,200 for expenses actually incurred in relocating and reestablishing at a replacement site. The expenses must be reasonable and necessary as determined by the agency.
The regulation lists eligible categories, including repairs or improvements to the replacement property required by law or code, modifications to accommodate the business operation, exterior signage, redecoration or replacement of worn surfaces, advertisement of the new location, and estimated increased operating costs during the first two years at the replacement site for items such as rent, property taxes, insurance premiums, and utility charges.
It also lists what will not be paid. Capital assets such as furniture, filing cabinets, machinery, and trade fixtures are excluded, as are manufacturing materials, production supplies, and inventory. So is interest on money borrowed to move or to buy the replacement property, and construction costs for a new building at the replacement site.
The fixed payment in lieu of actual costs
49 CFR 24.305 offers a different route. A displaced business may choose a fixed payment instead of both actual moving and related expenses and actual reasonable reestablishment expenses. The fixed payment equals the average annual net earnings of the business, but not less than $1,000 and not more than $53,200.
Average annual net earnings is defined precisely. It is one half of the net earnings of the business before federal, state, and local income taxes during the two taxable years immediately before the taxable year of displacement. Net earnings include compensation taken out of the business by its owner, the owner spouse, and dependents. The business must document the figure through tax returns, certified financial statements, or other evidence the agency finds satisfactory.
Eligibility conditions apply. Among them, the business must own or rent personal property that must be moved, must vacate or relocate, and must not be relocatable without a substantial loss of existing patronage. The regulation assumes that substantial loss test is met unless the agency determines otherwise. The business also must not be part of a commercial enterprise having more than three other entities not being acquired that are under the same ownership and in the same or similar business, and it must have contributed materially to the owner income during the two taxable years before displacement.
Choosing between the fixed payment and actual costs is a calculation, not a preference. A profitable business with a cheap move often does better on the fixed payment. A thin margin business with an expensive buildout usually does better claiming actual costs and reestablishment.
Partial takings and the remainder
Many commercial takings are partial. The agency wants frontage, a corner for a turn lane, or a strip for a utility easement, and the building stays.
United States v. Miller established that a parcel used and treated as an entity is considered as such in assessing compensation, so a partial taking includes value arising from the relation of the part taken to the whole. For a business site this often means severance damages for loss of access, lost parking, an awkward remainder, or the loss of the property highest and best use.
Parking count and access are frequently decisive. A restaurant that loses a curb cut, or a retailer that drops below the parking its zoning requires, may suffer a loss far larger than the square footage taken suggests.
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Get Your Free Case ReviewLost business goodwill
Owners often ask whether they can recover lost profits or lost goodwill. Federal law generally does not compensate business losses as part of just compensation for the real estate, which is why the relocation statutes exist.
Some states do provide for lost business goodwill by statute, and the standards and proof requirements vary considerably among them. Whether goodwill is recoverable in your case depends on the law of the state where the property sits. Confirm this with counsel licensed there. [NEEDS SOURCE for state goodwill statutes]
What to do first
Request the appraisal supporting the offer and ask how the agency allocated value among land, improvements, fixtures, and damages to the remainder.
Separately, ask the agency for the relocation entitlement in writing and identify which payments you may claim. Begin assembling two full years of tax returns and financial statements now, because the fixed payment calculation depends on them.
Do not move or dispose of trade fixtures before the entitlement is settled. Fixtures are often valued as part of the real estate, and moving them can forfeit that treatment.