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Indopco Inc. v. Tai Plainfield, Inc.

A-6474-03T1 (N.J. Super. App. Div. 2005) (Unpublished)

CONDEMNATION—Even though unity of use between two properties exists, if unity of ownership does not, then the owner of the property not actually being taken by eminent domain is not entitled to severance damages arising out of the taking of the other, related property.

A tenant leased office and research space across the street from a building that it owned and operated. It also leased parking spaces in the same complex as the leased space. Those parking spaces were used for parking in connection with the property that it owned across the street. In fact, the subdivision that allowed the tenant to use the property it owned was expressly conditioned on the availability of the extra parking. The planning board’s resolution provided that if “the parking lease [was] terminated for any reason, [the tenant’s] right to occupy the subdivided plot [it owned across the street was] also terminated.”

A time came when, under threat of condemnation, the public authority offered to purchase the property within which the leased space and the parking spaces were located. The personal property of the existing tenants in that building was specifically excluded from the appraised value. This particular tenant’s lease permitted the landlord to terminate the lease if the entire building were conveyed under the threat of a taking through eminent domain. Further, the lease reserved the entire award or taking price to the landlord, leaving to the tenant only “any portion of such award which represents, and is allocable by the condemning authority to, the taking of any property of Tenant, or which results in injury thereto or to Tenant’s business or is paid in respect of moving expenses, consequential or incidental damages of Tenant.”

After the property was conveyed to the public authority in lieu of a taking, and after the landlord terminated the lease, the tenant sought to recover an award from the condemning authority. One of its claims was that the property it owned and the space that it leased within the property that was taken “represented a single integrated unit.” Further, it argued that when the condemning authority took the mandated off-site parking, the tenant was damaged because it could no longer rightfully use the facility that it owned because its subdivision approval had conditioned continued use of the owned property on the availability of the parking that was taken. Lastly, it claimed that it was entitled to an allocation of the purchase price.

The lower court first found that the tenant was required to “exhaust all administrative remedies before [the condemning agency] and the Division of Housing and Community Resources, before seeking intervention by the courts.” In fact, “[t]he issues of relocation assistance and related moving expenses [were] currently proceeding through the administrative process.” The lower court also found that the tenant “had effectively waived any allocation right that it may have had in the purchase price paid to [its landlord] and that the reservation in the lease agreement embraced relocation and moving expenses rather than compensation for the value of its leasehold.” Both the lower court and the Appellate Division pointed out that lease agreement made “any award pursuant to a taking ‘... payable to the landlord.’” The items that the provision attempted to reserve “amount[ed] to nothing more than the fair and reasonable damages provided” by New Jersey law, “which are not part of a condemnation award and cannot therefore be reserved.” Further, “there was no condemnation award nor was there any allocation by the condemning authority respecting [the tenant’s] property ... . Instead, the property was conveyed voluntarily by agreement. Additionally, the lease expressly provided that it would terminate on condemnation or sale on the threat of condemnation, upon notice. Thus, [the tenant’s] leasehold had no value upon transfer of title and its remedy was to seek relocation expense under the Relocation Assistance Act.”

As to the tenant’s claim that it was entitled to an award for the loss of its property across the street, the lower court “observed that even though unity of use between the two properties had been established, they lack[ed] unity of ownership and, therefore, [the tenant] was not entitled to severance damages.” Although a 1976 New Jersey Supreme Court case held otherwise in a similar situation, the Appellate Division distinguished that case by pointing out that, in the earlier case, the corporation owned one property and its shareholders were the owners of the condemned property. In that case, it was by piercing the corporate veil that the court “found unity of ownership because the same three individuals owned the properties. ... Here, there was no beneficial ownership, simply a leasehold… .”

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