Gray & Gregory v. GTE South Inc.

Present: 	All the Justices
GRAY & GREGORY
OPINION BY JUSTICE LEROY R. HASSELL, SR.
v. 	Record No. 000293 	January 12, 2001
GTE SOUTH INCORPORATED
FROM THE CIRCUIT COURT OF THE CITY OF VIRGINIA BEACH
J. Warren Stephens, Judge Designate
In this appeal of a final order entered in a condemnation
proceeding, we consider whether the circuit court erred by
excluding the landowner's evidence of the amount of rental
income generated by the land subject to the taking.
GTE South, Inc., a Virginia public service corporation,
filed a petition for condemnation as permitted by Title 56,
Chapter 2 and Title 25, Chapter 1.1 of the Code to acquire by
the exercise of the power of eminent domain three separate
parcels of land owned by Gray & Gregory, a Virginia
partnership. 	The parcels of land that GTE South sought to
acquire are located in the City of Virginia Beach and are
identified as: 	the International Parkway parcel that consists
of 0.0574 acres; the London Bridge Road parcel that consists
of 0.0649 acres; and the Salem Road parcel that consists of
0.0367 acres.
Gray & Gregory acquired each parcel in 1984 and leased
each parcel to Continental Telephone Company of Virginia, GTE
South's predecessor in interest. 	Each lease contained a term

of 15 years with $30,000 rent paid in full for each lease at
the commencement of each lease term. 	All real estate taxes,
insurance premiums, and other costs and expenses were the
responsibility of the tenant. 	The leases were in full force
and effect on March 9, 1999, the date that the petition for
condemnation was filed, which is also the date of the taking
for purposes of determining just compensation.
GTE South filed a motion in limine requesting, among
other things, that the circuit court
"exclude any evidence of the fact that GTE South was
leasing the property from the landowner at the time
this action was filed. 	The amount paid for those
leases is irrelevant because only evidence of
transactions involving comparable property that 'are
close enough in time and are on a free and open
market so as to permit a fair comparison' are
admissible."
The circuit court granted GTE South's motion in limine.
At a condemnation trial, GTE South presented evidence of
the fair market value of the subject parcels. 	Dennis W.
Gruelle, a commercial real estate appraiser who testified on
behalf of GTE South, opined that the total fair market value
for the parcels combined was $7,855. 	Gruelle also testified,
on direct examination, as follows:
"Q: 	Mr. Gruelle, you're familiar with the
three leases that were on these parcels; is that
correct?
"A: 	Yes, sir, I am.
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"Q: 	Have the owners received a single payment
since 1984 for any of these properties under the
leases?
"A: 	Under the leases they would not have
received a single payment.
"Q: 	This property was not generating income in
1985, '86, '87 all the way up through today, hasn't
generated a nickel?
"A: 	No, it hasn't."
On cross-examination, however, Gruelle responded as follows:
"Q: 	That's because the rent was paid in one
lump sum payment in advance at the commencement of
the lease, was it not?
"A: 	That's correct.
"Q: 	So, the lease rights that GTE obtained in
that property was paid for by GTE all in advance to
cover the full 15-year term?
"A: 	That's not a fair —
. . . .
"A: 	It was not GTE. 	It was Contel that
received that payment.
"Q: 	And Contel was purchased or otherwise
acquired by GTE?
"A: 	They received the site. 	I presume they
somehow gained ownership."
William J. Jonak, Jr., a professional real estate
appraiser and consultant, also testified on behalf of GTE
South. 	He opined that the total "fair market value of these
three sites [was] $15,000."
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Gray & Gregory also presented evidence of the fair market
value of these parcels. 	James K. Gregory, Jr., a partner in
Gray & Gregory, testified that the fair market value of each
parcel was $240,000. 	D. L. McKnight, a commercial real estate
appraiser, testified that the fair market value of the three
parcels combined was $513,000.
The condemnation commissioners returned a report which
fixed the fair market value of each parcel at $20,000 for a
total of $60,000. 	Gray & Gregory filed exceptions to the
commissioners' report and requested a new trial. 	The circuit
court denied this request and entered an order confirming the
commissioners' report. 	Gray & Gregory appeals.
Greg & Gregory argues that the circuit court erred by
refusing to permit it to present evidence that each parcel
earned $30,000 in rent, paid in advance, for the 15-year lease
which was in effect when the condemnation proceeding was
filed. 	Responding, GTE South argues that the admissibility of
evidence regarding prior real estate transactions in a
condemnation case falls within the discretion of the circuit
court and that the circuit court did not abuse its discretion.
Continuing, GTE South, relying upon May v. Dewey, 201 Va. 621,
112 S.E.2d 838 (1960), and Collins v. Pulaski County, 201 Va.
164, 110 S.E.2d 184 (1959), argues that "[a]bsent evidence
that a condemnor did not pay a premium to avoid the costs of
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litigation, such as comparable sales, transactions with a
condemnor are not admissible in Virginia condemnation
actions." 	We disagree with GTE South's contentions.*
The principles that govern the taking of property in
condemnation cases are well established. 	We have stated that
the
"measure of compensation for the property taken is
the fair market value of the property at the time of
the taking. 	In determining fair market value,
consideration is given to the property's
adaptability and suitability for any legitimate
purpose in light of conditions and circumstances
that exist at the time of the take or that
reasonably may be expected in the near future."
Lynch v. Commonwealth Trans. Comm'r, 247 Va. 388, 391, 442
S.E.2d 388, 389-90 (1994); accord Revocor Corp. v.
Commonwealth Trans. Comm'r, 259 Va. 389, 394, 526 S.E.2d 4, 7
(2000). 	Evidence of the amount of rental income generated by
real property subject to a taking is a relevant factor that
the commissioners are entitled to consider when establishing
the fair market value of that property. 	We established this
principle in May, 201 Va. at 633, 112 S.E.2d at 847, when we
held that evidence of the amount of rent paid by a tenant to a
condemnee was admissible evidence to prove the value of the
condemned land. 	However, the lease, which generated the
* Our review of the record indicates that Gray & Gregory
properly raised its objections in the circuit court and,
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rental income, must be the result of an arms length
transaction and not the result of collusion. 	See 5 Nichols on
Eminent Domain §§ 19.02, .03 (3d ed. 1997).
Here, the circuit court erred by refusing to permit Gray
& Gregory to introduce in evidence the amount of the rent
generated by each parcel. 	Even though the total amount of the
rent for each parcel had been paid at the inception of each
lease, it is undisputed that each lease was still in effect on
the date that the condemnation petition was filed. 	And, GTE
South failed to assert in the circuit court that the leases
were not the result of "arms length transactions" or that the
leases were entered into because of collusion.
Contrary to GTE South's assertions, the principle stated
in Collins and May, regarding the sales price of land subject
to condemnation, is not pertinent here. 	In Collins, we
stated:
"It is generally the rule that the sum paid by the
condemnor for similar land is not admissible because
it is usually not a fair indication of market value.
This rule of exclusion applies unless the offering
party produces evidence sufficient to establish that
the sale was not by way of compromise but voluntary
and free from compulsion."
Collins, 201 Va. at 171, 110 S.E.2d at 189 (citations
omitted). 	We restated and applied this rule in May, 201 Va.
therefore, GTE South's contention that Gray & Gregory failed
to preserve its alleged error is without merit.
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at 634, 112 S.E.2d at 848. 	This rule, however, has no
application in the present case because the evidence that the
circuit court refused to admit in this case relates to lease
payments and not the sale of real property as discussed in
Collins and May.
GTE South also argues that "the lease transactions upon
which [Gray & Gregory] bases its appeal were executed some
fifteen years before the valuation date. 	They were simply too
remote in time to provide a reliable basis for valuing the
parcels, particularly given the absence of any evidence
pertaining to the condition of the surrounding areas." 	We
disagree. 	The leases were in effect on the date that GTE
South filed its condemnation petition and, therefore, the
amount of income generated by the leases was relevant to the
fair market value of the parcels.
It is true, as GTE South asserts, that Gray & Gregory's
expert witness did not rely upon the amount of income
generated by the leases when he opined about the fair market
value of the parcels. 	However, his failure to do so does not
render this evidence inadmissible or irrelevant to the issue
of the fair market value of the parcels. 	Additionally, the
order granting GTE South's motion in limine prohibited the
expert witness from informing the commissioners about the
amount of the rents generated by the leases.
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Accordingly, we will reverse the final order confirming
the award, and we will remand this case to the circuit court
for a new trial on compensation.
Reversed and remanded.
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