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The Bar on the Pier, Inc. v. Bassinder

358 N.J. Super. 473, 818 A.2d 424 (App. Div. 2003)

EMINENT DOMAIN—Principles of tax law are inapplicable when determining whether a condemnation by eminent domain constitutes a “sale.”

The owner of an amusement facility on a pier purchased a liquor license from the owner of a nightclub after a fire on the pier totally destroyed the nightclub. The amusement facility, or arcade, occupied its premises pursuant to two ninety-nine year leases. The contract of sale for the liquor license called for two relatively small payments, and the balance of the purchase price was to be paid on the earlier of: (a) when the liquor license went into use; (b) was transferred to another person or to another place; (c) when the arcade premises were sold by the buyer of liquor license to a third party; (d) when the arcade leases were assigned to a third party; or (e) when the liquor license buyer voluntarily terminated one or both of the leases. Another provision of the purchase agreement, titled “Reversion of Seller,” provided that the license would revert to the seller if: (a) either lease was invalidated or voided by a court order; (b) was terminated by the ground landlord; (c) was foreclosed in a mortgage foreclosure action; (d) the arcade lost its interest in the leases; or (e) if law prohibited use of the liquor license at the arcade premises.

Apparently the license was not used, but the arcade continued in business just as it had before the purchase of the liquor license. About ten years after the license was sold, the municipality filed a declaration of taking which made the municipality the owner of the ground that the arcade had leased from its ground landlord. It then instituted a condemnation action naming all of the tenants on the pier, including the arcade owner, as defendants. In that action, a court “determined that by virtue of the ‘eminent domain’ clause in [the arcade’s] leases with [its ground landlord], the condemnation action by [the municipality] terminated [the] leasehold interest in the premises.” The seller of the liquor license then sought to collect the balance due under the theory that the arcade’s premises were sold by the arcade owner to a third party. In order to bolster its argument, the seller of the liquor license argued that the “Reversion of Seller” provision was intended to mean that the seller was entitled to be paid the monies “instead of” the reversion. Apparently, the value of the liquor license had dropped dramatically from the time of the original sale because the municipality, subsequent to the sale of the liquor license, made licenses available to all beachfront property owners, thereby devaluing the licenses that had previously been sold.

The lower court ruled that condemnation of the ground landlord’s interest in the land triggered the “Reversion of Seller” provision and not the provision calling for payment of money by the arcade owner to the seller of the liquor license. Its reasoning was that the plain language of the provision led to the conclusion that condemnation of the property did not constitute a “sale” because condemnations were “involuntary” transfers of title, rather than “sales” of property. On appeal, the Court upheld the result, but on a different basis. The Court read the contract to require the arcade to pay only upon “sale” of the premises by the arcade owner. Had the arcade owner “prevailed in the condemnation proceeding by convincing the court that he was the owner of the subject property by virtue of his ninety-nine year leases,” then the condemnation might have constituted a “sale.” Here, however, it was the title holder of the ground itself who “sold” the premises to the municipality, not the arcade owner. Although the result was the same as in the lower court, the Appellate Division felt that the lower court was wrong when it tried to resolve the issue of a “sale” based on cases decided in the field of taxation. According to the Court, the holdings in those cases were “based on legislative intent and underlying tax policy considerations.” Here, the issue was the “contractual intent of two private parties. The Court read the contract carefully and concluded that the conditions which would have required the arcade owner to pay the balance of the purchase price were all based on a voluntary divestment of either the premises or the license. In fact, under five of six of those “conditions,” the arcade owner would have been paid for the sale or transfer. Termination of the “leasehold as a result of the condemnation was totally involuntary, and it clearly did not yield pecuniary gain.”

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