Daily Development for Monday, January 30, 2006
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

EMINENT DOMAIN; LEASES; TERMINATION ON CONDEMNATION: Settlement with condemning authority under threat of condemnation is not a “sale” within meaning of lease clause executed by condemnee providing that lease may be terminated by landlord in the event of a “sale” to a party who does not wish to continue the lease.

Eller Media Co. v. Mississippi Transportation Commission, 900 So. 2d 1156 (Miss. 2005)

The lease in question was a billboard lease.  Mississippi law provides that owners of personal property on the land are entitled to compensation for such personal property even if they have the right to remove the personal property.  The court here cited a prior Mississippi case for the proposition that this statute created a compensable interest in the lessee under a billboard lease, apparently even if the lease itself had no “bonus value.” 

A 1987 Mississippi case, involving the same billboard company, had found enforceable a lease providing that, upon termination, the rights of the billboard lessee terminate.  Likely the present language in the billboard lease was the billboard company’s attempt to respond to that case.  Instead of the usual language that one finds in leases - “terminate upon condemnation” - the lease provided that it would terminate upon sale of the property.  Mississippi precedent did not regard a condemnation proceeding as a “sale.” 

But, in this case, there was not a condemnation - but rather a settlement of a condemnation suit in which the lessor/condemnee agreed to sell the property to the condemning authority.  Nevertheless, said the court, there was no “sale” within the meaning of the lease termination clause.  It noted that the lessor/condemnee had no desire to sell the property, and in fact negotiated to prevent the condemnation altogether.  But the opinion goes beyond those special facts, and holds that any negotiated sale with a party holding the power to condemn is not an “arms length” negotiation and (apparently) not a sale.

The court notes that its opinion is directly contrary to a Minnesota precedent involving very similar facts.

Comment: The decision is wrong.  First - it is hopelessly overbroad, and would apply to any sale to a public agency with the power to condemn, even one in which the seller initiated and hotly pursued the sale.  Second, even in a case such as the one here, where the condemnee initially did not want to be condemned, when it did negotiate the sale, it clearly was interested in selling the property free of the billboard company’s interest.  And the condemning authority was interested in taking the property without the billboard on it.  Thus, the landlord got a higher price if it terminated the lease.  This seems completely consistent with the intent of the clause - to leave with the landlord the write to profit by selling its property unencumbered by the lease.

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