Valuation of an Easement – Appreciation in Value of the Servient Tenement

The recent decision in SCI California Funeral Services, Inc. v. Five Bridges Foundation (2012) 203 Cal.App.4^th 549, confirms a new valuation approach for determining damages in the termination of an appurtenant easement.

Background of the Case

In this case, SCI California Funeral Services, Inc. (“SCI”) was negotiating to purchase a cemetery lot located in famous “cemetery town” of Colma, California. SCI wanted to buy the assets of the defendant Five Bridges Foundation (“Five Bridges”). Among other assets, Five Bridges had options to buy adjoining cemetery land (“Options”), and an option for an easement for signage purposes on a portion of property along a major public street (“Signage Easement”). The owner of the servient tenement for the Options and Signage Easement was Cypress Lawn. To make the sale more attractive, Five Bridges attempted to exercise its options with Cypress Lawn before the sale to SCI. While Five Bridges agreed to purchase the options, it left it unclear whether it was releasing the Signage Easement. Thereafter, upon sale of Five Bridge’s assets to SCI, there was no disclosure regarding a possible release of the Signage Easement.

After close of the sale, SCI and the owner of the servient tenement for the Signage Easement (“Cypress Lawn”) disagreed whether the Signage Easement was released, and Cypress Lawn ultimately prevailed in court, releasing the Signage Easement. SCI then sued Five Bridges over a breach of the asset sale, for its failure to convey the Signage Easement. The court ruled in favor of SCI and awarded damages of $1.7 million, based upon the appreciation in value of the Cypress Lawn’s property, the servient tenement, upon the release of the Signage Easement, since the release of the Signage Easement would allow Cypress Lawn to develop a commercial building on the major thoroughfare.

On Appeal

The court of appeal affirmed the trial court and rejected Five Bridges argument that the measure of damages was limited to the diminution in value of the dominant tenement that SCI purchased, i.e. the difference in value of the land SCI purchased with the Signage Easement and without the Signage Easement. The court held that any valuation method, including the valuation of the servient tenement, could be used to determine damages in the termination of an appurtenant easement. Accordingly, the court of appeal affirmed the valuation approach used by the trial court. The court’s decision confirms that an acceptable measure of damages for the termination of an appurtenant easement is the appreciation in value of the servient tenement.

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For questions relating to this article or for assistance with an easement dispute, contact the real estate attorneys at White and Bright.