Florida Eminent Domain – Calculating and Proving Business Damages (Part 2)
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When a business suffers economic harm due to a taking in Florida, the business owner bears the burden of proving the amount of damages. Calculating and substantiating business damages requires a thorough, thoughtful approach and detailed evidence. This article explores the key steps and considerations in measuring and demonstrating business damages in Florida eminent domain cases.
The Business Owner’s Offer and Timing
The process for seeking compensation for business damages starts with the business owner. Florida law requires a business owner to submit a good faith written business damage offer to the condemning authority within 180 days of receiving notice of the taking. [1]. The business damage offer must explain the nature, extent, and monetary amount of damages claimed. [2].
Failing to timely submit a business damage offer with supporting documentation can jeopardize a business owner’s right to recover damages later in the eminent domain lawsuit. Thus, business owners must promptly evaluate their losses, gather evidence, and present a strong offer package.
Documentation Needed to Prove Business Damages
To prove business damages, a business owner has 180 days from the receipt of notice of a taking to provide the condemnor with detailed documentation of the historical financial performance of the business and evidence of how the eminent domain taking will harm the business going forward. Essential records to substantiate a business damage claim typically include but are not limited to:
- Tax returns, financial statements, and accounting records for the five years preceding the taking;
- Business operating contracts, leases, and other agreements (e.g., franchise agreements) impacted by the taking;
- Evidence of relocation costs, renovation expenses, and increased operating costs (e.g., invoices and receipts);
- Customer, sales, and market data showing lost sales and profits; and
- Appraisals, valuations, and expert analysis of the business’ lost profits and/or diminished value.
The condemning authority has a right to review a business owner’s financial records as part of the business damage claim process. If a business owner fails to disclose requested records, they may forfeit the right to rely on those records in court.
Methods for Measuring Business Damages
The two most common (but not necessarily the only) approaches to measuring business damages in eminent domain cases are:
- The lost profits method, which quantifies the business income lost due to the taking.
- Lost profits are typically measured by comparing the business’ projected income to its actual income impaired by the taking.
- The business valuation method, which evaluates the overall decrease in value of the business as a going concern.
- Valuation experts often use the income capitalization approach, analyzing factors such as the business’ earning capacity, goodwill, and projected income stream to assess the diminution in business value.
Under either measurement method, a business damages expert will analyze the business’ historical performance and trends and then adjust for how the eminent domain taking will impact the business’s future earnings and expenses. The calculations must account for the specific ways the condemned property impacts the business while controlling for unrelated market conditions. Accordingly, eminent domain practitioners commonly consult with a business damages expert as soon as possible.
Engage a Business Damages Expert Early in the Case
Thoroughly substantiating business damages is critical to a business owner’s ability to recover compensation in an eminent domain case. Business owners should engage experienced financial and valuation experts to analyze their records, market data, and the impact of the taking to develop a credible damages calculation. A convincing business damage claim is built on solid documentation and objective financial analysis methods.
The final article in this series discusses strategies for settling or litigating business damage claims to achieve a successful financial recovery for impacted businesses.