Daily
Development for
by:
Patrick A. Randolph, Jr.
Elmer
F. Pierson Professor of Law
UMKC
School of Law
Of
Counsel: Blackwell Sanders Peper Martin
Kansas
City, Missouri
dirt@umkc.edu
EMINENT
DOMAIN; POWER TO CONDEMN; LEASES: Rights
pursuant
to a chopping center lease, including control over the naming of
the
center, are not solely contract rights but are real
property interests
subject
to the power of eminent domain and such rights may be
condemned
without the concurrent condemnation of the underlying real
property
or even of the leases as a whole. Kaufmann's Carousel v.
City of
Several
anchor tenants at a
rights
which empowered the anchor tenants to control the name of the
mall
and restrict the use of the surrounding land. The mall originally had
been
developed as an economic development project, and the underlying
fee
was publicly owned, and leased to the mall developer.
The
Industrial Development Agency, as part of a larger economic
development
program, desired to alter and further develop the mall. It
sought
to merge the mall with another one nearby and alter certain uses
within
the mall itself, and to change the name. The IDA therefore sought
to
condemn those certain leasehold rights that were inconsistent with its
objectives,
while leaving the leases intact.
Held:
Such condemnation satisfied a public purpose, did not require the
concurrent
condemnation of the underlying real property, and was valid
under
a statute giving the agency only the ability to condemn "real
property interests."
The
court rejected the anchor tenants' position that the
leasehold rights
are
not solely contract rights. It held that all leasehold rights, even those
involving
the naming of the mall or similar business considerations, are
actually
"real property" subject to the power of eminent domain. The
statute
defined "real property" to include "every estate, interest and
right
in
land."
Additionally,
the court held that the underlying real property need not be
condemned
together with the leasehold rights because the IDA is
empowered
to condemn real property or rights or easements therein.
Comment
1: It appears that the
determined
to authorize redevelopment and economic stimulus activities,
and
the judicial interpretations follow that course. The fact that an
interest
appears in a document entitled "lease" does not necessarily make
it
an interest in real estate. Is the right to control the name of a real
estate
project
in and of itself an interest in real estate? Hard to say. Would one
record
it in the land records? Would one place a mortgage on it? Don't
think
so. The right to control the uses of other elements of the leased
premises,
however, smack of a covenant that does touch and concern
land.
Comment
2: Even more problematic to the editor is the notion that the
condemning authority can
"cherry pick" specific items in the lease and
nevertheless,
at least as of this moment, keep the anchor tenants bound
by
their leases. The court acknowledges (and then ignores) the tenants'
argument
that the elements of a lease are necessarily interrelated, and
that
the tenant might not have entered into the lease were it not able to
get
each and every element. Despite this reality, it may be impossible to
place
a proper value on various separate parts of the lease, such as a
naming
right or a control on use of elements of the premises.
Consequently,
the tenant loses some of the parts of the lease that made it
valuable
for the tenant, gets paid bupkus, and still remains
bound by the
lease.
But
we're not done here. If, indeed, the condemning authority does
modify
the lease, then the tenant might well be able to argue to a court
that,
without the deleted elements, the lease is a different deal and that its
purpose
has been frustrated, supporting a rescission. Then we might see
the
landlord in court asking the redevelopment agency for
compensation!!
(Even though the landlord was the moving party in the
current
"cherry pick" operation.)
If
this gets to be a significant problem, lessees might have to start putting
into
their leases the right to terminate the lease if elements of the lease
are
terminated. Or they might provide for revisions in the rent if
elements
of the lease are cancelled. What they really want is to be left
alone.
Failing that, they can be bought out. The "death of a thousand
cuts"
administered here is far worse than the condemnation of the
leasehold
in one fell swoop.
Readers
are encouraged to respond to or criticize this posting.
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