## Facts

- J.J. Newberry Company operated a variety store under a 25-year written lease executed in 1953, using a rent formula of fixed rent plus a percentage of gross annual income.
- On December 31, 1971, a fire destroyed the leased building and improvements.
- The lease required the lessor to reconstruct after a fire, but the lessor did not rebuild; Newberry ceased operating on the premises.
- In 1973, Newberry filed a separate contract action against the lessor seeking specific performance of the reconstruction obligation or damages for lost profits.
- On June 16, 1976, the City of East Chicago, acting through its redevelopment department, filed a condemnation action to acquire the property; Newberry had about 28 months remaining on the lease.
- At the time of taking, the structure had not been rebuilt and the site was effectively vacant; Newberry had no ongoing business on the premises.
- The trial court excluded Newberry’s proposed capitalization-of-income valuation based on historical store earnings, treated the property as vacant as of the taking, and awarded Newberry $760 plus interest for its leasehold.

## Issues

1. Whether the trial court erred by excluding a capitalization-of-income method to value the tenant’s leasehold interest.
2. Whether the trial court erred by holding that combined compensation for the fee and leasehold interests could not exceed the fair market value of the property as a single unit.

## Decision

- The Indiana Court of Appeals affirmed the condemnation judgment.
- The court held capitalization-of-income was properly excluded because it assumes valuation of an operating enterprise, and no going concern existed at the time of taking.
- The court held total just compensation for all interests was limited to the property’s unified fair market value, with allocation among interest holders to occur within that cap.
- The award of $760 plus interest to Newberry for its leasehold interest was upheld.

## Legal Principles

- Just compensation is measured as of the date of taking and based on the property’s condition and market value at that time.
- Income-capitalization is generally inappropriate where the taking does not include a going concern and the business was not operating at the time of taking.
- Eminent domain compensates for property interests taken, not for lost profits or breach-of-lease claims that are separate from the condemnation.
- The condemnor’s total payment is the fair market value of the property as a whole; separate interests (fee, leasehold, etc.) may be valued for allocation but may not be aggregated to exceed the unified market value.

## Conclusion

Because the leased premises were unimproved and non-operational at the time of condemnation, the tenant could not recover a business-based, income-capitalized value; and because condemnation requires a single unified market-value award for the property, the tenant’s and landlord’s recoveries together could not exceed that amount.


J.J. Newberry Co. v. City of E. Chi., 441 N.E.2d 39 (Ind. Ct. App. 1982)