Commercial Litigation

You Take It, You Buy It: Texas Courts Require Condemning Authorities to Compensate Billboard Property Owners for their Interests

After years of Texas condemning authorities and appraisers attempting to treat billboard owners and their interests differently from other property owners and their interests, Texas courts are saying, “Enough is enough.” Three recent Court of Appeals decisions are developing a body of law in Texas confirming that the protection of the rights of billboard property owners in condemnation is on par with that afforded to owners of other real property interests.

These opinions collectively hold that a billboard property owner is entitled to just compensation for the loss of income from advertising on a sign because such income is not “business income” but rather income generated from the land. Further, this line of cases establishes that a sign structure is a real estate fixture, and the taking of the structure is thus compensable.

Procedurally, these cases support the exclusion of valuation expert testimony where the expert fails to consider the billboard owner’s full interests in valuing the land. Significantly, these decisions have also firmly rejected the arguments repeatedly attempted by condemning authorities that sign structures are not fixtures as a matter of law because they are removable and/or considered personalty by the sign owner for tax purposes or under a ground lease.

In the case of Harris County Flood Control District v. Roberts, 2008 WL 878507 (Tex. App.—Houston [14th Dist.] 2008, pet. filed), the Court of Appeals upheld the trial court’s award of compensation to the billboard property owner for the taking of its sign structure and related property interests, finding that the billboard structure was a real estate fixture at the time of the taking, and the related lease and property interests should be compensated. The Court refused the condemnor’s argument that, as a matter of law, the sign structure was not a fixture and the billboard property owner was, therefore, entitled only to the bonus value of the lease, which had a nominal value.

Further, the Court in Harris County Flood Control District rejected the condemnor’s argument that the sign structure was not a real estate fixture because the billboard property owner considered it personal property for tax purposes and had the right under the lease to remove it. The Court instead found the evidence sufficient to establish the sign structure as a real estate fixture, making it a compensable interest in condemnation and requiring an award of just compensation to the billboard property owner for the taking of the sign, which the Court found to be properly valued at approximately 1,111 times greater than the value offered by the condemning authority.

In the case of Harris County v. Clear Channel Outdoor, Inc., 2008 WL 1892744 (Tex. App.—Houston [14th Dist.] 2008, no pet. h.), the Court upheld the award of compensation to the billboard property owner for both its leasehold interest and its sign structure. Finding that the Fifth Amendment to the U.S. Constitution requires the government to compensate the billboard property owner for the taking of the billboard structure, the Court rejected the government’s argument that the sign structure was not a compensable interest. Specifically, the Court denied the government’s arguments that the sign structure was personal property as determined by the billboard property owner’s intent as implied by the terms of the lease; that the sign structure was not sufficiently affixed to the real property to become a real estate fixture; and that the only compensation to which the billboard property owner was once again entitled was the bonus value of the lease, which was nominal.

Citing the U.S. Supreme Court’s decision in Almota Farmers Elevator & Warehouse Co. v. U.S., 409 U.S. 470 (1973), the Court in Harris County found that a condemning authority, such as the government, cannot take advantage of a lease agreement designating an improvement made by lessee as personal property. Further, the condemning compensate for taking business improvements, such as a billboard, by dismissing them as worthless simply because the condemnor does not intend to use them. The Court held that if a business improvement is attached to the real estate, as with a billboard, it must be treated as real estate in determining the total award. The Court thus awarded the billboard property owner the value it requested.

Finally, in the case of State v. Central Expressway Sign Associates, 238 S.W.3d 800 (Tex. App—Dallas 2007, pet. filed), the Court addressed the valuation of a billboard site in the context of a billboard easement. The Court found that in determining the value of the easement, income dederived from advertising on the sign was not “business income,” but rather income generated by the land which should be properly considered in valuing the sign site. The Court thus upheld the award of just compensation based on an income valuation approach using the advertising income from the billboard face rentals.

These precedents reinforce established property rights of billboard property owners and show that Texas courts will not allow condemning authorities to skirt their legal obligations to pay just compensation for taking billboard property interests in condemnation. Condemning authorities should take note of these appellate decisions in making statutorily mandated pre-condemnation settlement offers in compliance with the recently adopted Texas Landowner’s Bill of Rights as prescribed by the Texas Legislature in Texas Government Code § 402.031 and Chapter 21 of the Texas Property Code.

By J. Allen Smith and Michael R. Steinmark

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