16 Mass. App. Ct. 666 | Mass. App. Ct. | 1983
On August 12, 1977, the defendant (district) took by eminent domain 41.51 acres of land which was part of a 525-acre campsite belonging to the plaintiff and located in South Sandwich. The portion of the campsite taken by the district was undeveloped and wooded and had access only by dirt road. Prior to the taking, the land had been tested for well sites by a private consulting firm, and the district contemplates locating three wells on the property, each capable of pumping 700 gallons per minute. One such well was in fact in operation by the time of trial. The plaintiff brought this action for damages under G. L. c. 79, § 14, and a jury found in its favor in the amount of $1,500,000.
The evidence concerning the value of the land (locus) taken by the district was sharply conflicting.
I.
The district argues that it was error for the judge to permit expert opinion based on capitalization of income without a showing that it was impossible or impracticable to determine the value of the locus by reference to comparable sales. The cases do not seem to support such a rule. Where net income attributable to real property can be reliably predicted, the two approaches, both being based on market data, should produce roughly comparable results with respect to certain kinds of commercial properties, because the sales prices of such properties are presumably based on their
II.
The district contends that Coleman’s capitalized income opinion should have been excluded because, under the zoning applicable to the locus, use of the premises as a commercial water resource was forbidden. It is true, as the district argues, that “[cjare must be taken to distinguish ‘between availability for public use which constitutes availability even in private hands and availability which is peculiar to the government.’” Roach v. Newton Redevelopment Authy., 381 Mass. 135, 139 (1980), quoting from 4 Nichols, Eminent Domain § 12.315, at 12-403 (rev. 3d ed. 1979).
The evidence on this point was as follows. The locus was zoned for low density residential use, but land in the district could be used for commercial water supply purposes if a special permit were obtained from the board of appeals.
In determining whether a use barred by law, or subject to restriction, is sufficiently “likely to eventuate and so imminent as to deserve being taken into account” by the finder of fact, “the judge has a margin of ultimate discretion.” Skyline Homes, Inc. v. Commonwealth, 362 Mass. 684, 687 (1972). Roach v. Newton Redevelopment Authy., supra at 136-137. Colonial Acres, Inc. v. North Reading, 3 Mass. App. Ct. 384, 386-387 (1975). In view of the liberal tenor of the by-law with respect to special permits and the fact that such use had been sanctioned in the past, it cannot be concluded that the judge abused his discretion in permitting the jury to take into account the value of the locus for use as a water resource.
III.
Despite the admissibility, as an abstract proposition, of opinions of value based on income capitalization (compare, in this respect, Lic, Inc. v. Hudson, 10 Mass. App. Ct. 815 [1980]), the Coleman opinion was based on a misapplication of the income-capitalization method of valuation and lacked, for that reason, the theoretical reliability which
The principal defect in the Coleman opinion is that he capitalized gross, rather than net, income. Coleman deflected cross-examination on the point with formidable verbal agility, but the transcript when scrutinized leaves no doubt that his opinion was based on capitalization of gross income.
His method of calculation was as follows. The property was tested for three wells, each of which was rated for seven hundred gallons per minute. The yield per hour per well (700 x 60) would be 42,000 gallons. The yield per day per well (42,000 x 24) would be 1,008,000 gallons. The yield per year per well (1,008,000 x 365) was figured to be 367,920,000 gallons. Coleman then multiplied that figure by $200 per million gallons, which he testified was the unit value of water at wholesale rates in the South Sandwich area.
Despite Coleman’s characterization of the $73,584 figure as “net income,” it is clear that it is a gross income figure. It is the product of units sold and the selling price per unit. By definition that is gross income. Such a figure cannot be used as a valid basis for capitalization unless one can reasonably assume that there will be no expenses required to generate the sales. There was no evidentiary basis for such an assumption in this case.
The capitalization of income approach to valuation presupposes, of course, capitalization of “net,” not “gross,” income. Correia v. New Bedford Redevelopment Authy., 5 Mass. App. Ct. at 294. 5 Nichols, Eminent Domain §§ 19.1,19.23 & n.2 (rev. 3d ed. 1981). Because there was no rehable evidence from which a finding could be made as to the likely costs of construction and operation of the wells in question, the record furnishes no evidentiary basis for assuming there would be any “net income” based on a selling price of $200 per million gallons. Thus the question for decision is whether the fact that the Coleman opinion was based on capitalization of gross income goes merely to its weight or whether a judge is required to exclude such an opinion altogether. We hold that it is error for a judge to permit an appraisal based on capitalization of gross income to be put before a jury in the absence of evidence warranting a conclusion that gross income will be substantially identical to net income.
IV.
For similar reasons the finding of the judge sitting without a jury was based upon error of law, and the admission of that finding in evidence would independently require reversal.
V.
Both the Coleman opinion and, derivatively, the first judge’s decision were fundamentally misdirected in that they valued the water that was to be produced from the wells rather than the land that was taken. The rule is clear. “The market value to which the petitioner was entitled was made up of the value in the market of the land apart from its special adaptability for water supply purposes, plus such sum as a purchaser would have added to that value because of the chance that the land in question might some day be used as a water supply. Moulton v. Newburyport Water Co., 137 Mass. 163 [1884].” Sargent v. Merrimac, 196 Mass. 171, 174 (1907). The difference is not merely semantic. All parties agree that the entire South Sandwich area is underlain by a geological formation known as the Mashpee Pitted Outwash Plain, a layer of glacial sand and gravel hundreds of feet thick permeated with water, and with a water table fifty to sixty feet above sea level. In essence, this means that all of South Sandwich (together with many other Cape Cod towns) sits atop a massive groundwater reservoir, access to which is not exclusive to the plaintiff’s land but is the common heritage of whole communities. There was evidence (see note 3, supra) that large unimproved tracts of land in the vicinity of the plaintiff’s camp had sold in the recent past for prices ranging from $2,300
If the taken land had been valued on the basis of comparable sales data, we could not have sustained an award in excess of roughly $3,000 per acre. The jury has awarded the plaintiff $36,135.87 per acre. What apparently gave the plaintiff’s land its special value in Coleman’s formulation is the fact that the District selected it as the location for its wells. If the District had selected instead some other parcel, that parcel, by the Coleman method, would have bestowed on it the value of the water in the reservoir, and the plaintiff’s land would be relegated again to a value in the order of $3,000 per acre. It should be evident that the award cannot be sustained without flying in the face of the long-established principle that the owner of the land which is taken is not to receive any enhancement in value based on the contemplated improvement. See Benton v. Brookline, 151 Mass. 250, 257-258 (1890); Cole v. Boston Edison Co., 338 Mass. 661, 665-666 (1959); Malden Equip. Corp. v. Malden Redevelopment Authy., 353 Mass. 495, 497 (1968); Roach v. Newton Redevelopment Authy., 381 Mass. at 137.
VI.
The judgment is reversed, and the case is remanded for further proceedings not inconsistent herewith.
So ordered.
The judgment was in the amount of $1,748,736, reflecting the addition of interest ($340,736) and subtraction of the pro tanto payment ($92,000).
One of the appraisers formulated his opinion in terms of the value of the plaintiff’s camp before and after the taking. See Kane v. Hudson, 7 Mass. App. Ct. 556, 559-560 (1979). The other opinions were formulated in terms of the fair market value of the portion taken. There is no contention that the plaintiff’s land has suffered a diminution in value in addition to the loss of the locus.
The principal sales used by the appraisers were (1) a 130-acre parcel located a few hundred feet away from the locus, which was sold within a week of the taking for $350,000, or $2,692 per acre; (2) a parcel of 43 acres a mile east of the locus, sold in January, 1975, for $120,000, or $2,800 per acre; (3) a parcel of 27 acres sold in February, 1975, for $76,000, or $2,800 per acre; (4) a parcel of 46 acres abutting the plaintiff’s property on the north, sold in January, 1974, for $106,600, or $2,300 per acre; and (5) a parcel of 387 acres southwest of the locus, sold in December, 1972, for $965,000, or $2,500 per acre. The fifth parcel had a functioning well of a million-gallons per day capacity. The third parcel had been tested posi
The Coleman opinion, as will be seen later in our decision, was based upon the anticipated output of two of the three proposed wells. In denying the district’s motion for a new trial, the judge ruled that the jury could have thought Coleman too conservative in his approach and allowed something additional for the anticipated output of the third well.
Retail rates at the time of the taking showed wide variation: $416 per million gallons in Sandwich; $602 in Harwich; $418 in Falmouth; $508 in Chatham; $520 in Orleans; $453 in Provincetown; $508 in Dennis; $887 in Yarmouth. Retail rates presumably take into account the amortized capital cost of the retail distribution system and the various costs (personnel, meters and other equipment, fuel, supplies, postage, etc.) associated with the maintenance and billing functions.
There was no testimony bearing on whether the wells could be capable of round-the-clock operation for indefinite periods. There was testimony to the effect that the existing wells of the Sandwich Water District are in operation on the average twenty-two to twenty-eight percent of the time.
The fact that a jury may come back with a figure higher than the opinion of any witness does not necessarily imply that its verdict is excessive. See Loschi v. Massachusetts Port Authy., 361 Mass. 714, 716-716 (1972). As mentioned in note 4, supra, the judge, in denying the defendant’s motion for a new trial, reasoned that the jury may have thought Coleman too conservative in allowing for one third down time. Compare nn. 6 and 10.
Under cross-examination the witness stated that the “net income” concept did not take cost of production into account because he was not valuing a water business and that the income-producing potential of the land for water production purposes should be conceptualized in terms of the rent chargeable by a landlord who leases the land to a water producer under “a pure net lease”; but it is clear that Coleman’s income figure was not derived from evidence of comparable rentals and that a water producer leasing the land could not be expected to agree to pay the lessor his entire gross income as rent on an ongoing basis.
The consultant on whose report the district based its taking of the locus estimated that the construction costs of the three phases of development of the well field would run $6,440,000. The estimate was made in 1972, does not appear to involve capital costs of the retail distribution system, but does appear to involve water main extensions which might or might not be applicable to a hypothetical commercial water-wholesaling operation, depending on who its customers might be.
The power costs per well would doubtless be significantly higher if the three new wells were to be operated two thirds of the time, the assumption on which Coleman’s valuation was based. As mentioned in note 6, supra, the district’s existing wells were operated only twenty-two to twenty-eight percent of the time.
The procedure which prevailed under G. L. c. 79, § 22, as in effect at the time of both trials required the judge presiding at the jury trial to allow admission of the first judge’s finding in evidence although he might disagree with the first judge’s rulings of law. Roach v. Newton Redevelopment Authy., 381 Mass. at 137-138. Unless the first judge reports the matter for interlocutory decision, the correctness of his rulings of law cannot be reviewed until the case has gone to judgment following the jury trial. Haufler v. Commonwealth, 372 Mass. 527, 529-530 (1977). Because the judge at the jury trial cannot properly exclude the first judge’s finding, the party against whom the finding is offered is not required to
The basis for computation of the value of the water was, of course, Coleman’s opinion that $200 per million gallons was a fair price for water at wholesale in South Sandwich. That testimony fell short of establishing a market value for the water. The small number of water producers, the fact that many of them are governmental rather than commercial, the almost exclusively local character of the distribution and the wide divergences in prices charged in the handful of inter-municipal sales testified to by Coleman tend to suggest that water may not have a “market price” determined by the usual supply and demand considerations but may instead have a price based on recovery of the cost of production. If this is the case, the income-capitalization approach would be of dubious validity. See Gloucester Water Supply Co. v. Gloucester, 179 Mass. 365, 382 (1901). The income-capitalization method is most often applied to rental properties, where the relatively large number of comparable units on the market provides a reliable guide to market value.
The testimony of several witnesses suggested that the significance of the prices charged for the several inter-municipal sales testified to by Coleman might turn on whether those sales represented basic and on-going needs of the purchasing communities, decided on after evaluation of competing sources of supply, or instead represented emergency or occasional peak-day needs. The evidence indicated that the rule of thumb in small communities serviced by municipal wells is that a community needs enough wells to supply the highest expected peak-day demand with its largest well out of service. Demand is expected to peak in the summer in hot, humid weather, and peak demand will be three or more times the community’s average daily demand. This suggests that the capital cost of providing peak-day production capability will substantially exceed the capital cost of providing average-day production capability and that a community might in some instances economize by supplying its peak-day demand by purchases from neighboring communities despite a price-per-unit-purchased substantially in excess of its own unit cost of production.
