4.7. Leaseholds and Other Temporary Acquisitions.When the government acquires a leasehold or other temporary interest in property, the measure of compensation is the market rental value of the premises acquired for the term acquired.920 

Definition of Market Rental Value 

The rental price in cash or its equivalent that the leasehold would have brought on the date of value on the open competitive market, at or near the location of the property acquired, assuming reasonable time to find a tenant. 

As with market value, the federal definition of market rental value921 requires willing and reasonably knowledgeable market participants, not compelled to buy or sell, giving due consideration to all available economic uses of the property.922 Temporary acquisitions also require a rigorous, well-supported analysis of highest and best use—as in permanent acquisitions.923 As a district court recently held, “only direct evidence of market rental value, to the exclusion of remote, hypothetical conjecture, should be considered in ascertaining just compensation for a taking.”924 In keeping with the unit rule (Section 4.2.2), market rental value must be determined for the property as an unencumbered whole, regardless of any sub-leases or other subsidiary interests into which it may have been divided.925 

The measure of compensation for temporary acquisitions rarely arose in federal jurisprudence until the World War II era, when war-time exigencies prompted condemnations of leaseholds and other temporary interests.926 As Justice Reed observed in 1951, “[t]he relatively new technique of temporary taking . . . is a most useful administrative device[,]” allowing for properties to be occupied for public uses “for a short time to meet war or emergency needs,” and then “returned to their owners.”927 But temporary acquisitions present “a host of difficult problems . . . in the fixing of just compensation.”928 Of these valuation problems, perhaps the most frequently encountered arise in the context of federal leasehold acquisitions—particularly leaseholds of office space.