3513. Goodwill

In this case, [name of business owner] is entitled to compensation for any loss of goodwill as a part of just compensation. "Goodwill" is the benefit that a business gains as a result of its location, reputation for dependability, skill or quality, and any other circumstances that cause a business to keep old customers or gain new customers. You must include the amount of any loss of goodwill as an item in your award for just compensation.

Sources and Authority

Code of Civil Procedure section 1263.510 provides:

(a) The owner of a business conducted on the property taken, or on the remainder if such property is part of a larger parcel, shall be compensated for loss of goodwill if the owner proves all of the following:

(1) The loss is caused by the taking of the property or the injury to the remainder.

(2) The loss cannot reasonably be prevented by a relocation of the business or by taking steps and adopting procedures that a reasonably prudent person would take and adopt in preserving the goodwill.

(3) Compensation for the loss will not be included in payments under Section 7262 of the Government Code.

(4) Compensation for the loss will not be duplicated in the compensation otherwise awarded to the owner.

(b) Within the meaning of this article, "goodwill" consists of the benefits that accrue to a business as a result of its location, reputation for dependability, skill or quality, and any other circumstances resulting in probable retention of old or acquisition of new patronage.

"Historically, business goodwill was not an element of damages under eminent domain law. As recently as 1975, the California Supreme Court reaffirmed the principle that damage to a business conducted on property condemned for public use was not compensable as a property ight under the just compensation clause of the California Constitution. But in 1975, the Legislature enacted a comprehensive revision of California's eminent domain law, which, among other things, authorizes compensation for the loss of business goodwill." (Community Development Com. v. Asaro (1989) 212 Cal.App.3d 1297, 1301-1302 [261 Cal.Rptr. 231], internal citation and footnote omitted.)

"As to entitlement of goodwill, the landowner bears the burden of proof." (San Diego Metropolitan Transit Development Bd. v. Handlery Hotel, Inc. (1999) 73 Cal.App.4th 517, 537 [86 Cal.Rptr.2d 473], internal citations omitted.)

"We . . . hold that where the presence of [the conditions in section 1263.510(a)] is disputed, the determination of that dispute, including the resolution of any disputed factual issues, is for the trial court. Only upon proving to the court's satisfaction that the statutory conditions are satisfied may the landowner present evidence of lost goodwill to the jury." (Emeryville Redevelopment v. Harcros Pigments, Inc. (2002) 101 Cal.App.4th 1083, 1119 [125 Cal.Rptr.2d 12].)

"After entitlement to goodwill is shown (which includes a showing that compensation for the loss will not be duplicated) neither party has the burden of proof with regard to valuation." (Redevelopment Agency of the City of Pomona v. Thrifty Oil Co. (1992) 4 Cal.App.4th 469, 475 [5 Cal.Rptr.2d 687], internal citations omitted.)

"Only an owner of a business conducted on the real property taken may claim compensation for loss of goodwill." (San Diego Metropolitan Transit Development Bd., supra, 73 Cal.App.4th at p. 537, internal citation omitted.)

"The underlying purpose of this statute is to provide compensation for the kind of losses which typically occur when an ongoing business is forced to move and give up the benefits of its former location. It includes not only compensation for lost patronage itself, but also for expenses reasonably incurred in an effort to prevent a loss of patronage." (San Diego Metropolitan Transit Development Bd., supra, 73 Cal.App.4th at p. 537, internal citations omitted.)

"Goodwill must, of course, be measured by a method which excludes the value of tangible assets or the normal return on those assets. However, the courts have wisely maintained that there is no single acceptable method of valuing goodwill. Valuation methods will differ with the nature of the business or practice and with the purpose for which the evaluation is conducted." (People ex rel. Dept. of

Transportation v. Muller (1984) 36 Cal.3d 263, 271, fn. 7 [203 Cal.Rptr. 772, 681 P.2d 1340], internal citations omitted.)

"Although the statutory scheme applies only to eminent domain proceedings, the right to recover lost goodwill has been extended to the indirect condemnee. Thus, 'goodwill is compensable in an inverse condemnation action to the same extent and with the same limitations on recovery found in . . . section 1263.510.' " (San Diego Metropolitan Transit Development Bd., supra, 73 Cal.App.4th at p. 537, internal citations omitted.)

"Goodwill may be measured by the capitalized value of the net income or profits of a business or some similar method of calculating present value of anticipated profits. Valuation methods differ with the nature of the business and the purpose for which the evaluation is conducted. There is no single method to evaluate goodwill." (People ex rel. Dept. of Transportation v. Leslie (1997) 55 Cal.App.4th 918, 922-923 [64 Cal.Rptr.2d 252], internal citations omitted.)

Secondary Sources

8 Witkin, Summary of California Law (9th ed. 1988) Constitutional Law, § 1031

1 Condemnation Practice in California (Cont.Ed.Bar 2005) §§ 4.64-4.78

4 Nichols on Eminent Domain, Ch. 13, Loss of Business Goodwill, § 13.18[5] (Matthew Bender)

6A Nichols on Eminent Domain, Ch. 29, Loss of Business Goodwill, §§ 29.01-29.08 (Matthew Bender)

20 California Forms of Pleading and Practice, Chapter 247, Eminent Domain (Matthew Bender)

(New September 2003)