§ 1263.510.Proof Required For Compensation For Loss; Goodwill Defined; Leaseback Agreement
Title 7. Eminent Domain Law · Chapter 9. Compensation · Article 6. Compensation for Loss of Goodwill · Last amended 2007 · Last verified July 29, 2026
In one sentenceSection 1263.510 entitles a business owner on condemned property to compensation for lost goodwill only if the owner proves the loss stems from the taking, could not reasonably have been avoided through relocation or prudent precautions, and is not otherwise covered by relocation payments or duplicated in the property compensation award.
(a)The owner of a business conducted on the property taken, or on the remainder if the property is part of a larger parcel, shall be compensated for loss of goodwill if the owner proves all of the following:
(1)The loss is caused by the taking of the property or the injury to the remainder.
(2)The loss cannot reasonably be prevented by a relocation of the business or by taking steps and adopting procedures that a reasonably prudent person would take and adopt in preserving the goodwill.
(3)Compensation for the loss will not be included in payments under Section 7262 of the Government Code.
(4)Compensation for the loss will not be duplicated in the compensation otherwise awarded to the owner.
(b)Within the meaning of this article, "goodwill" consists of the benefits that accrue to a business as a result of its location, reputation for dependability, skill or quality, and any other circumstances resulting in probable retention of old or acquisition of new patronage.
(c)If the public entity and the owner enter into a leaseback agreement pursuant to Section 1263.615, the following shall apply:
(1)No additional goodwill shall accrue during the lease.
(2)The entering of a leaseback agreement shall not be a factor in determining goodwill. Any liability for goodwill shall be established and paid at the time of acquisition of the property by eminent domain or subsequent to notice that the property may be taken by eminent domain.
Plain-English Summary
This section sets the eligibility test for one of eminent domain law's narrower compensation categories: loss of business goodwill. A business owner on the property taken -- or on the remainder, if the taking only cut into a larger parcel -- can recover for that loss, but only by proving four things at once. The loss has to be caused by the taking or by injury to the remainder. It has to be a loss the owner could not reasonably have avoided by relocating the business or by taking the precautions a reasonably prudent owner would take to preserve goodwill. It cannot already be covered by relocation assistance payments under Government Code § 7262. And it cannot duplicate compensation the owner is already receiving through some other part of the award.
Subdivision (b) defines what counts as goodwill in this context: the benefits a business gets from its location, its reputation for dependability, skill, or quality, and any other circumstance likely to result in keeping old customers or drawing new ones. That definition ties goodwill to the business's standing with its customers, not to the value of the real estate itself.
Subdivision (c) addresses what happens when the public entity and owner agree to a leaseback under § 1263.615 -- letting the owner keep operating on the property after acquisition. No additional goodwill accrues during that lease, and entering into the leaseback is not itself a factor in determining goodwill. Any liability for goodwill loss gets fixed and paid based on the situation at acquisition, or at the notice that the property might be taken -- not adjusted based on how the leaseback later plays out.
Frequently Asked Questions
What four things must a business owner prove to recover for lost goodwill?
That the loss was caused by the taking or injury to the remainder; that it could not reasonably have been prevented by relocating or by prudent precautions; that it is not already covered by relocation assistance payments; and that it is not duplicated elsewhere in the compensation award.
Does relocating the business always defeat a claim for lost goodwill?
No -- only if relocation would reasonably have prevented the loss. If the loss could not reasonably have been avoided by moving or by taking prudent precautions, the claim survives.
Does receiving relocation assistance payments block a goodwill claim?
Only to the extent the goodwill loss is already included in those payments under Government Code § 7262 -- the owner cannot recover the same loss twice.
How does a leaseback agreement affect a goodwill claim?
No additional goodwill accrues during the lease, and entering into the leaseback is not treated as a factor in determining goodwill; any liability is fixed and paid based on the acquisition or notice date instead.
Source & verification. Section text is reproduced verbatim from
the Deering's California Codes Annotated / vLex. Enacted by the California Legislature.
Last verified July 29, 2026.
· Official source
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