Eminent Domain Report

In an eminent domain proceeding, tenants of property subject to condemnation have constitutional rights to just compensation. However, those rights can be assigned to the landlord through a lease agreement. A recent unpublished Court of Appeal decision confirmed that commercial tenants can assign all claims to just compensation through the terms of a lease agreement. 

Background 
In People ex rel. DOT v. Hawara (2019 Cal.App.Unpub. LEXIS 7098), the property at issue was situated adjacent to a State Highway and was subject to a lease agreement. The terms of the lease articulate what would happen if the property was subject to eminent domain proceedings. The language at issue here stated the following: “LESSEE hereby irrevocably assigns to LESSOR any right to compensation or damages to which LESSEE may become entitled by reason of the condemnation of all or a part of the demised premises.”

The tenant in this case assumed the lease in 2005, including a written addendum that stated all other terms except those expressly stated in the addendum would remain the same. The addendum made no mention of the provision regarding condemnation. 

The Trial Court
In 2016, an eminent domain lawsuit was filed and the tenant sought just compensation for their leasehold interest in the property. The property owners filed a motion for summary judgment/ajudication to dismiss the tenant based on the terms of the lease agreement excluding them from any recovery of just compensation. The trial court granted the property owner’s motion and determined that any damages would be awarded solely to the owners. The tenant appealed. 

The Court of Appeal
On appeal, the tenant argued that the terms of the lease did not preclude them from recovering a portion of just compensation. The tenant argued the terms of the lease were (1) ambiguous and (2) that the owner subsequently made them ambiguous through an addendum. The Court concluded that the terms were not ambiguous either in the original lease or in the addendum and affirmed the trial court’s finding.

Conclusion
The Court of Appeal concluded that while a tenant does have a constitutional right to just compensation, they also have the ability to contractually assign away their right to such compensation. Here, the tenant assigned their right to just compensation to the property owner through the terms of lease. This case serves to remind both landlords and tenants that rights to just compensation can be circumvented through contract.