## Facts

- Almota Farmers Elevator & Warehouse Co. operated grain-elevator facilities on railroad-owned land under a series of successive leases.
- Almota built substantial, permanent improvements (grain elevators and related facilities) with a useful life extending beyond the then-current lease term.
- When the United States condemned the railroad’s fee interest, approximately 7½ years remained on Almota’s existing lease.
- Almota sought compensation based on what a willing buyer would pay for the improvements in place, accounting for the realistic likelihood that the lease would be renewed and the improvements would continue in use.
- The United States argued compensation must be limited to the market value of Almota’s legal rights under the unexpired lease term, excluding any added value from renewal expectations.
- The district court valued the improvements in place over their useful life; the Ninth Circuit reversed; the Supreme Court granted review.

## Issues

1. In determining just compensation for tenant-constructed improvements on leased land, may valuation reflect what the market would pay given the realistic possibility of lease renewal?
2. Must compensation be limited to the value of the tenant’s strictly defined legal rights under the unexpired lease term, disregarding renewal expectancy?

## Decision

- The Supreme Court reversed the Ninth Circuit and reinstated the district court’s judgment.
- Just compensation is measured by what a willing buyer would have paid for the tenant’s improvements, considering both the possibility of lease renewal and the possibility of nonrenewal.
- The Court rejected an approach that values improvements as if continued use beyond the current term were impossible, because that does not reflect market valuation.
- The Court reasoned that excluding renewal expectancy would understate what the tenant lost and would not put the tenant in the same pecuniary position as if the taking had not occurred.
- A dissent would have limited compensation to the value of the unexpired lease term (and any salvage value), excluding value tied to renewal expectations.

## Legal Principles

- The Fifth Amendment requires payment of the full monetary equivalent of the property taken, aiming to place the owner in as good a financial position as if no taking had occurred.
- Fair market value is ordinarily determined by what a willing buyer would pay a willing seller at the time of taking.
- For tenant-built, long-lived improvements, fair market value may include market recognition of a realistic renewal expectancy, even if that expectancy is not a separately compensable legal interest.
- Valuation must reflect economic realities of the marketplace rather than a formalistic limitation to the bare remaining lease term when the market would price the improvements based on likely continued in-place use.

## Conclusion

The Court held that just compensation for a tenant’s condemned, long-lived leasehold improvements must reflect what the market would pay for the improvements in place, including the realistic possibility that the lease would be renewed, rather than being limited to the value of the unexpired lease term alone.


Almota Farmers Elevator & Warehouse Co. v. United States, 409 U.S. 470 (1973)