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April 21, 2000

Record No. 991306





Everett A. Martin, Jr., Judge

Present: Carrico, C.J., Lacy, Hassell, Keenan,
Koontz, and Kinser, JJ., and Whiting, Senior Justice


In this appeal of a declaratory judgment, we
consider whether the chancellor properly approved a report of a
commissioner in chancery that fixed the value of a leasehold
interest in a portion of a parcel of condemned property.

Snyder Plaza Properties, Inc. (Snyder) owned a
parcel of land, which was used as a parking lot and was bounded
by St. Paul’s Boulevard, City Hall Avenue, and Plume Street in
the "downtown financial district" of Norfolk. Since
1953, Snyder had leased a portion of the land to Adams Outdoor
Advertising, Inc. (Adams), or its predecessor, to permit the
installation and maintenance of four 12′ X 25′ billboard signs.
Adams, in turn, engaged in the business of renting space and
installing advertising on the billboard signs.

In July 1995, the City of Norfolk (the City)
exercised its power of eminent domain and condemned Snyder’s
property. Snyder and the City reached a settlement agreement
concerning the value of the property taken. The City agreed to
pay Snyder $2.4 million "plus up to . . .
($38,000) to pay one-half (?) of Snyder’s settlement with Adams
Outdoor Advertising."

At the time of the condemnation, Snyder and
Adams had in effect two written leases involving the four
billboard signs. The leases, dated January 3, 1990, were each for
a term of three years with a provision for an automatic renewal
for a term of five years (collectively, the initial terms). The
leases stated that they "shall continue year-to-year
thereafter unless terminated by either party," and that
Snyder reserved the right to cancel the leases "if the
property is sold or developed." In paragraph 9, the leases

In the event of condemnation or threat of
condemnation, Lessee [Adams] shall have the right to timely
participate in any condemnation award or settlement to the extent
of Lessee’s damage for the loss of revenue of the structure; the
costs of removal from the above-described premises; replacement
costs; and, the loss of its leasehold interest and other related

After Snyder’s condemnation settlement with the
City, Adams filed this declaratory judgment suit against Snyder,
seeking a determination of the amount of damages to which Adams
was entitled as a result of the condemnation. The trial court
referred the matter to a commissioner in chancery, who was
directed to receive evidence and make a recommendation regarding
the damages due to Adams.

At an evidentiary hearing, the commissioner
heard testimony from three real estate appraisers concerning the
value of Adams’ leasehold interest.
[1] Adams’
principal expert witness was Donald T. Sutte, a licensed real
estate appraiser, who testified that he used two types of
analyses to determine the leasehold’s value, a sales comparison
approach and an income approach. Under the sales comparison
approach, Sutte determined that the leasehold value was $112,300.
Under the income approach, he determined that the value of Adams’
leasehold interest was $98,800.

Sutte stated that the sales comparison approach
was the "most valid" method of appraising Adams’
interest, and explained that this method of valuation was
commonly used throughout the outdoor advertising industry. Using
that method, Sutte examined eight recent sales of similar
leasehold interests involving billboard signs located in a number
of other states. He divided the leasehold sale price in each
transaction by the annual gross income generated by the billboard
signs involved in the sale, to arrive at a "gross income
multiplier" for each transaction.

The range of "gross income
multiplier[s]" resulting from the eight comparison sales was
2.97 to 7.04. Sutte testified that a "gross income
multiplier" range of 3.0 to 6.0 has remained fairly constant
in the outdoor advertising industry over the past ten years.
Based on the desirable location of the billboard signs at issue,
their long history at that location, and the lack of any other
billboard signs in the general area, Sutte used a "gross
income multiplier" of 4.0 to value Adams’ leasehold

Sutte next determined the annual "economic
rent" of the billboard signs. He explained that this term
represents the annual rent that the billboard signs should
command in the marketplace. He calculated this amount by
including such factors as each sign’s location, rental history,
and daily effective circulation. Sutte concluded that the annual
economic rent of the billboard signs was $31,200. From that
amount, he subtracted a 10% figure for vacancy and collection
losses to arrive at the effective gross annual income of the
billboard signs, which he calculated at $28,080. Sutte multiplied
this amount of effective gross annual income by the "gross
income multiplier" of 4.0 to conclude that Adams’ leasehold
interest in the subject billboard signs had a market value of

Sutte testified that although only 30 months
remained on the initial terms of Adams’ leases with Snyder at the
time of the condemnation, there was "no reason to
believe" that the leases would have been terminated had the
property not been condemned. He explained that all the national
sales he used as comparisons involved the sale of similar
leasehold interests, and that the risk of termination of the
leases at issue was factored into the "gross income
multiplier" he used to arrive at his valuation.

Under his alternative method, the income
approach to value, Sutte subtracted sign vacancy and collection
losses from the billboard signs’ annual economic rent of $31,200
to reach the effective gross annual income figure of $28,080.
From this annual gross income amount, he subtracted operating
expenses to yield a net annual operating income of $14,321. He
applied a capitalization rate of 14.5% to the "net operating
income" amount to reach his leasehold valuation of $98,800.

Adams presented the testimony of another
licensed real estate appraiser, Gregory A. Hanson, who used the
sales comparison approach to determine the value of Adams’
leasehold interest. Hanson agreed with Sutte that this method of
valuation was commonly used in the outdoor advertising industry.
Applying a "gross income multiplier" of 3.4 to his
calculation that the billboard signs had an annual gross income
of $24,281, Hanson concluded that Adams’ leasehold interest had a
value of approximately $83,000.

Hanson explained that the billboard signs at
issue are no longer a permitted use under the existing zoning
classification of Snyder’s property and, thus, are a
non-conforming use of the property. Under the terms of the
leases, Adams owned the billboard signs and retained the right to
remove them. Hanson testified that if Snyder had terminated its
leases with Adams, and Adams had removed the billboard signs,
Snyder would have been unable to replace them. Since continuation
of the leases would have been "beneficial" to both
Snyder and Adams, Hanson stated that he had "no reason to
assume" that the leases would have been cancelled at the end
of 30 months.

Snyder presented the testimony of a licensed
real estate appraiser, Bruce F. Hatfield, who stated that in his
opinion, the fair market value of Adams’ leasehold interest was
$21,500. Hatfield arrived at this sum by multiplying the net
monthly income from the billboard signs, which he calculated at
$436, by the number of months remaining on the leases, and then
adding three years of "possible" renewal income and
deducting the cost of removing the signs.

Hatfield acknowledged that he had very limited
experience in appraising leasehold interests in billboard signs.
He also stated that he was not aware that the billboard signs at
issue had been located on the Snyder property since 1953.
Hatfield testified that he considered it likely that the leases
would have been renewed for as much as three years beyond the
initial terms. However, he also concluded that the
"demographics of downtown Norfolk, though, would dictate
that sometime within a five-year period this property would fall
to development or be sold."

The commissioner issued a report in which he
applied a variation of the income approach to reach his
conclusion that the present value of Adams’ leasehold interest on
the date of condemnation was $61,731.05. The commissioner arrived
at this sum by incorporating Sutte’s calculations of the
billboard signs’ annual economic rent, annual gross income, and
annual net income. The commissioner divided the billboard signs’
annual net income of $14,321 by 12 to determine a "Monthly
Net Sign Rental" amount of $1,193. The commissioner
multiplied this monthly income figure by 60 months, which
represented the "Remaining Term of Lease (31 months) and
probable renewal (29 months)," and determined a "Total
Income for Sign Rental" of $71,508. The commissioner
discounted this "total income" figure to reflect the
present value of Adams’ leasehold interest, which he fixed at

Both Snyder and Adams filed exceptions to the
commissioner’s report, challenging the method adopted by the
commissioner in determining the value of Adams’ leasehold
interest. The chancellor overruled both parties’ exceptions and
entered judgment in favor of Adams in the amount recommended by
the commissioner. Snyder appeals from the final judgment and
Adams assigns cross-error.

On appeal of a chancellor’s decree approving a
commissioner’s report, we apply an established standard of
review. A decree of this nature will be affirmed unless it is
plainly wrong or without evidence to support it. Lansdowne
Dev. Co. v. Xerox Realty Corp.
, 257 Va. 392, 402 n.5, 514
S.E.2d 157, 162 n.5 (1999); Lim v. Choi, 256 Va. 167, 171,
501 S.E.2d 141, 143 (1998).

Although a commissioner’s report does not carry
the weight of a jury verdict, Code ? 8.01-610, a chancellor
should sustain the report if the evidence supports the
commissioner’s findings. Lim, 256 Va. at 171, 501 S.E.2d
at 143; Chesapeake Builders, Inc. v. Lee, 254 Va. 294,
299, 492 S.E.2d 141, 144 (1997); Morris v. United Virginia
, 237 Va. 331, 337-38, 377 S.E.2d 611, 614 (1989). This
rule applies with particular force to the report’s factual
findings that are based on evidence that the commissioner heard ore
, but does not apply to pure conclusions of law
contained in the report. Id. On appellate review, the
commissioner’s findings of fact that have been confirmed by the
chancellor will be reversed only if they are plainly wrong or
without evidence to support them. Moore & Moore Gen.
Contractors, Inc. v. Basepoint, Inc.
, 253 Va. 304, 306, 485
S.E.2d 131, 132 (1997); Cooper v. Cooper, 249 Va. 511,
518, 457 S.E.2d 88, 92 (1995).

In its first three assignments of error, Snyder
essentially contends that the commissioner erred in including in
his valuation calculation an amount of lost income for 29 months
beyond the initial terms of the parties’ leases. Snyder argues
that since in a condemnation proceeding, a lessee generally is
entitled to compensation only for the value of any remaining term
of a lease, the commissioner was plainly wrong in considering a
"mere expectation of renewal" in fixing the value of
Adams’ leasehold interest. We disagree with Snyder’s arguments.

The commissioner’s decision to calculate Adams’
lost income over a period of 60 months was not plainly wrong or
without evidentiary support. That decision was supported by the
language of the leases, the evidence concerning factors peculiar
to the outdoor advertising industry, and the opinions of the
three expert witnesses that it was unlikely that the leases would
have terminated at the end of their initial terms.

The lease language provided that the leases
"shall continue year-to-year [after the initial terms] unless terminated by either party." Donald Sutte explained
that this type of lease, which provided an initial term of years
followed by renewal options that included a termination clause in
the event the land is sold or developed, is "typical"
in the outdoor advertising industry, and that leases containing
such provisions are bought and sold routinely on the open market.

The commissioner was entitled to consider these
renewal provisions in his valuation calculation, based on his
factual finding that "there is a good likelihood that the
leases would [have] be[en] renewed until the site was converted
to develop office buildings, multifamily high rises and the like.
Mr. Hatfield saw that day to be no more than five (5) years from
the date of the taking." The commissioner noted that the
billboard signs had been located on Snyder’s property for several
decades. He also observed that Snyder’s own expert had testified
that it was likely that the leases would have "roll[ed] over" for another two or three years beyond the period
remaining on the initial terms. We conclude that this testimony
and evidence supports the commissioner’s decision to calculate
Adams’ lost income over a 60-month period.

Snyder next asserts that the commissioner erred
in admitting testimony that the annual economic, or market, rent
of the billboard signs was $31,200, when the actual annual rent
was $24,282. Snyder also contends that the commissioner’s use of
the economic rent figure was inappropriate, alleging that Sutte
and Hanson calculated that amount based on "fee simple
interest rather than leasehold interest." We find no merit
in these arguments.

Initially, we observe that Snyder is incorrect
in its assertion that Sutte and Hanson calculated annual economic
rent "based on a fee simple interest." After Snyder
raised this objection during Sutte’s testimony at the
commissioner’s hearing, Sutte restated the fact that his
calculations were based on his appraisal of Adams’ leasehold
interest. Hanson likewise testified that he appraised the value
of the leasehold interest.

We also disagree with Snyder’s assertion that
the commissioner erred in admitting and ultimately adopting the
expert testimony concerning the economic rent of the billboard
signs. We previously have recognized the distinction between
economic rent and actual contract rent in the valuation of a
leasehold interest in condemned property. In Exxon Corp. v. M
& Q Holding Corp.
, 221 Va. 274, 269 S.E.2d 371 (1980), we
considered a trial court’s ruling in a condemnation proceeding
denying a lessee recovery of the value of its leasehold interest
in the condemned property.

In that case, Exxon Corporation, which had
operated a gasoline station on the condemned property, presented
two witnesses at the condemnation proceeding who testified
concerning the value of its leasehold interest. The experts
applied a methodology that in part used the economic, or market,
rent of the leased parcel to obtain the differential amount above
Exxon’s actual contract rent that Exxon lost as a result of the
condemnation. 221 Va. at 281, 269 S.E.2d at 376-77. In reversing
the trial court’s judgment denying Exxon the value of its
leasehold interest, we noted that the valuation method used by
Exxon’s appraisers had been applied previously in this and other
jurisdictions. 221 Va. at 280-82, 269 S.E.2d at 375-77.

In the present case, we conclude that the
commissioner did not err in accepting Adams’ expert testimony
concerning the economic rent of the billboard signs in valuing
the leasehold interest. Sutte explained, in considerable detail
that we need not repeat, the factors he considered in calculating
the economic, or market, rent generated by the billboard signs.
The commissioner, in his role as fact-finder, found that Sutte’s
economic rent figure was the most accurate reflection of the
billboard signs’ value to Adams, and the chancellor confirmed
this finding. This conclusion is supported by the evidence and is
not plainly wrong.

Snyder also argues that the commissioner erred
in prohibiting Louis D. Snyder, the president and part owner of
Snyder Plaza Properties, Inc., from testifying regarding his
opinion of the value of Adams’ leasehold interest. The
commissioner based his ruling on Snyder’s failure to identify
Louis Snyder as an expert witness on the subject of valuation of
the leasehold interest, in response to interrogatories propounded
by Adams. Snyder argues that Louis Snyder, as an
"owner," was qualified to express a lay opinion
regarding the value of the leasehold interest, and that Snyder
had no obligation to list him as an expert witness in response to
Adams’ interrogatories. We disagree with Snyder’s argument.

We have recognized the general rule that an
owner of property is competent and qualified to render a lay
opinion regarding the value of that property. Haynes v. Glenn,
197 Va. 746, 750, 91 S.E.2d 433, 436 (1956); see Parker
v. Commonwealth
, 254 Va. 118, 121, 489 S.E.2d 482, 483
(1997); Walls v. Commonwealth, 248 Va. 480, 482, 450
S.E.2d 363, 364-65 (1994). This rule does not apply here,
however, because Louis Snyder was not the owner of Adams’
leasehold interest, which was the property about which he sought
to state an opinion.

Snyder, citing Kerr v. Clinchfield Coal
, 169 Va. 149, 192 S.E. 741 (1937), asserts,
nevertheless, that he was competent to testify as a lay witness.
In Kerr, we recited the general principle that a witness,
who is not a true expert, may give evidence regarding the value
of real estate based on a demonstrated acquaintance with the
property at issue or with properties of like general character
and location. Id. at 156, 192 S.E. at 743. In the present
case, however, Snyder made no claim that Louis Snyder had any
knowledge concerning leasehold interests in the outdoor
advertising industry or the type of leasehold interest at issue.
Therefore, we conclude that the commissioner did not abuse his
discretion in excluding Louis Snyder’s proposed valuation

Adams assigns cross-error to the chancellor’s
confirmation of the valuation method used by the commissioner.
Adams argues that the commissioner and the chancellor should have
applied the sales comparison approach using "gross income
multipliers," instead of using an income approach. We
disagree with Adams’ argument, because Adams’ own appraiser,
Sutte, testified that an income approach was an acceptable method
of valuing a leasehold interest, although he preferred a sales
comparison approach of valuation. The commissioner and chancellor
were not obligated to accept Sutte’s evaluation of the merits of
the two methods. Since the record contains evidence supporting
the method used by the commissioner, we conclude that there is no
error in the chancellor’s decision confirming the use of that
method. Thus, we hold that the chancellor did not err in
approving the commissioner’s report and in entering judgment in
accordance with the commissioner’s recommendation.

For these reasons, we will affirm the
chancellor’s judgment.





[1] Adams did not present evidence concerning any other
element of damage.

[2] Snyder also alleges that the
chancellor erroneously accorded credibility to testimony from
Sutte and Hanson that "there was no difference between the
leasehold interest and the fee simple interest of the
plaintiff." In addition, Snyder asserts that the chancellor
erred when he "permitted evidence of national sales of
outdoor sign companies outside of Virginia as comparable[] to a
leasehold interest in this particular case." These
allegations inaccurately characterize the testimony of Sutte and
Hanson, as well as the evidence of comparable sales presented to
the commissioner. Moreover, we discern no basis for concluding
that either the chancellor or the commissioner based their
calculation of Adams’ damages on such evidence or theories.