Facts: A commercial tenant enters into a long-term lease for a property to be used for a performance space. The property provides multiple benefits specific to the tenant’s use. The tenant completes additional improvements which contribute to an increase in revenue generated by the property. During the term of the lease, a government agency seizes the property through eminent domain. The tenant relocates to a new property, cancelling multiple revenue generating public events that were scheduled before the property was seized. The new property does not provide the same improvements or operational benefits as the previous property to function as a performance space. The government agency provides compensation to the tenant for the improvements they installed. The tenant then applies to the government agency for compensation for loss of goodwill and is denied.
Claim: The tenant seeks compensation from the government agency for loss of goodwill, claiming the tenant is entitled to recover compensation under eminent domain laws since the government agency’s taking of the leased property resulted in a loss of the operational benefits and improvements provided by the property, which reduced the public’s use of the business.
Counter claim: The government agency claims the tenant is not entitled to recover compensation for lost goodwill since, though the tenant lost revenue, they did not prove a quantifiable loss in goodwill.
Holding: A California court of appeals holds the tenant is entitled to compensation for loss of goodwill from the government agency since the taking of the leased property resulted in the tenant’s loss of operational benefits and improvements provided by the property, negatively affecting patronage and the business’ reputation — which the tenant is not required to quantify under eminent domain laws. [People ex rel. Department of Transportation v. Presidio Performing Arts Foundation (November 3, 2016)_CA4th_]