City of Atlantic City v. Cynwyd Investments

148 N.J. 55, 689 A.2d 712 (1997)
  • Opinion Date: March 10, 1997

MUNICIPALITIES; CONDEMNATION—The requirements of the Eminent Domain Act respecting negotiations with prospective condemnees and property appraisals may be waived by a condemnee. Although 99 year lessees are considered equivalent to fee simple owners for certain purposes that doctrine does not apply in condemnation cases.

This is an Atlantic City casino case. As a condition for obtaining development approvals, each of two adjacent property owners was required to dedicate a portion of its land to form half of what was to become a public roadway separating the two parcels. One of the developers built a casino and dedicated its one-half of the roadway. The other developer gave a 99 year lease (with an option to purchase) to a casino company, but that casino company never built its project. Instead, the casino company sublet the land to a parking lot operator. As a consequence, the other half of the roadway was never dedicated.

The parking lot operator learned that its sublease included one-half of the roadway and it placed a fence across the road that prevented the casino operator from access to its loading dock. The municipality then leased the undedicated portion of the road, but the casino operator ultimately had to rent a portion of the undedicated roadway itself to access its loading dock and front door. The casino operator subsequently sued the municipality and the adjacent property owner to compel the municipality either to acquire the undedicated roadway by eminent domain or to pay damages to the casino operator. As part of the settlement of that law suit, the municipality agreed to acquire the property for a public right-of-way. The casino operator agreed to pay the cost of the property acquisition and all associated costs. The municipality then adopted an ordinance authorizing implementation of the agreement and acquisition of the property by condemnation, if necessary. The ordinance made no appropriation of funds for the acquisition of the property.

The municipality negotiated an acquisition price with the landowner which was substantially below the appraised value of the property. Problems with the land tenant at the undeveloped property and with the parking lot operator, however, required the municipality to institute condemnation proceedings. The 99 year land tenant and its subtenant, the parking lot operator, complained that the authorizing ordinance was improper because it did not comply with the New Jersey Budget Law and that acquisition by condemnation without following the statutory appraisal process also invalidated the condemnation. The municipality and the owner of the condemned land argued that the Budget Law was satisfied because the municipality was not expending any of its own funds and that the property owner had waived compliance with the appraisal and other technical requirements of the condemnation law.

The purpose of the Budget Law, which regulates the budget making process for all municipalities in New Jersey, is to require local governments to follow sound business principles in budgetary practices. The New Jersey Supreme Court found this purpose satisfied by the ordinance in question since the company agreed to pay the cost of acquiring the property, and the cost to the municipality was, therefore, zero. The second issue was whether the Act’s requirement that the City obtain an appraisal and make an offer to acquire the land for at least the appraisal price before instituting a condemnation action may be waived by the record owner of the property. Such a requirement encourages settlement and voluntary acquisition of property while allowing landowners to receive just compensation, thereby avoiding the costly expense and delay of litigation. The Supreme Court held that these requirements may be waived by the record owner regardless of its effect on any other party. The Court then stated that even 99-year lessees are not considered fee simple owners for condemnation purposes, although courts have found them to be de facto fee simple owners for other purposes. Accordingly, the sublandlord and the subtenant did not have the same rights as the landowner and could not participate in the condemnation hearing. However, the Court went on to hold that while the sublandlord and subtenant may not have compensable interests in the condemnation award, they had enough interest in the outcome to participate during the later stages of the condemnation proceedings. Specifically, they could present their arguments during the hearing when value is determined, or when the compensation is allocated.