Business Losses Are Compensable in Temporary Takings Cases

by: Anthony F. Della Pelle
28 Aug 2009

A New Jersey appeals court has held that a temporary taking of a commercial property for public infrastructure repair requires compensation for resulting business losses.  In a July 27, 2009 opinion, the appellate court upheld a trial court’s dismissal of the New Jersey Department of Transportation’s attempted taking of such a property where its offer of compensation failed to consider the business losses. The appellate court, in State v. Arifee, A-5633-07, adopted a U.S. Supreme Court ruling that “an exercise of the power of eminent domain which has the inevitable effect of depriving the owner of the going-concern value of his business is a compensable ‘taking’ of property.”

The property in question was the Palace Car Wash, on Bloomfield Avenue in Montclair, New Jersey, owned by Mohammed and Jawed Arifee, who bought it in March 2007, for over $2.85 million, and estimated it would earn $1.08 million to $1.26 million annually. Shortly after their purchase, the New Jersey Department of Transportation commenced efforts to close the car wash for about nine months to rebuild a nearby bridge on Bloomfield Avenue. The DOT, using a base value for the property of $1.7 million, offered the Arifees $171,000 which the DOT suggested represented a fair rental value for the property during the taking period but without considering any profits lost or other business losses suffered during that time. Negotiations were unsuccessful, largely because the State did not offer any compensation for business losses, and the condemnation case ensued. In 2008, Essex County Assignment Judge Patricia Costello dismissed the complaint based upon the objections filed by the owners, finding that because the State did not take into account the temporary loss in business revenue, it had not engaged in bona fide negotiations as required by N.J.S.A. 20:3-6.  On appeal, Appellate Division Judges Rudy Coleman and Jack Sabatino agreed.  The appeals panel held that while just compensation in permanent takings does not include losses such as destruction of good will, the expense of moving to a new location, lost business profits or inability to relocate, the rule of law for temporary takings is different. The appellate court relied largely on Kimball Laundry Co. v. United States, 338 U.S. 1 (1949), in which the U.S. Supreme Court ruled that a laundry company, whose business had temporarily been taken during World War II to handle Army personnel laundry, should be awarded compensation for the loss in commercial business it suffered. Following Kimball Laundry, the appeals court in Arifee reasoned that a temporary taking is different than a permanent taking because it deprives the owner of conducting any business during the taking period: “Thus, while the business operations are suspended, all the owner can likely do is wait and hope to rebuild any going-concern value that is lost in his trade routes as a result of the taking,” the court held. “Under these circumstances, the owner suffers an unavoidable diminished value in his going concern for which the government must provide compensation”.  Read the Arifee opinion here.

Because business losses are compensable in temporary takings and the NJDOT failed to consider those issues in making its offer of compensation, its offer was defective and the dismissal of the State’s complaint was upheld on appeal.

Read more about the case here

The property owners in this matter, Mohammed and Jawed Arifee and the Palace Car Wash, were represented by McKirdy & Riskin’s Edward McKirdy, Anthony Della Pelle and Joseph Grather at trial and on the appeal.