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Town of Kearny v. Discount City of Old Bridge, Inc.

A-6220-07T3 (N.J. Super. App. Div. 2009) (Unpublished)

REDEVELOPMENT; CONDEMNATION; LANDLORD-TENANT — A condemning authority may take a leasehold interest and tenants do not have the right to individual notice of a proposed blight designation because the controlling statute only requires notice to the parcel owners and to persons noted on the tax assessment rolls as having an interest in the parcels.

A tenant’s commercial lease stated that if the building or the premises were condemned, the lease would be terminated and the tenant would have no claim to any portion of the condemnation award. The municipality adopted a redevelopment plan that included the subject property, and the landlord was appointed as the redeveloper. The redevelopment agreement obligated the municipality to acquire various leaseholds, including the tenant’s by using its power of eminent domain. The landlord was to use its best negotiation efforts to terminate the leases designated for condemnation by making reasonable relocation offers. The landlord/redeveloper’s fee simple interest in the property was not listed as one of the interests to be acquired by the municipality. After the statutorily set forty-five day period to challenge a blight designation had passed, the tenant sued the landlord, claiming breach of: (a) its lease, (b) the covenant of good faith and fair dealing; and (c) the covenant of quiet enjoyment. The tenant also claimed it did not get the planned redevelopment designation notice, and claimed that the landlord’s reconstruction plans were inconsistent with the adopted redevelopment plan.

The lower court rejected the tenant’s argument that the municipality was required to negotiate with the tenant before filing the condemnation complaint since the statute only required negotiation with fee owners. Next, it rejected the tenant’s claim that the landlord breached the covenant of good faith and fair dealing and the covenant of quiet enjoyment by acting as both landlord and redeveloper. The lower court relied on the lease’s condemnation clause, construing the clause as the tenant’s agreement “to termination of the leases upon condemnation without any compensation due.” The tenant appealed.

The Appellate Division affirmed in part and reversed in part. First, it held that the municipality had statutory authority to condemn a leasehold interest separate from a landlord’s fee interest because a leasehold interest is a property interest separate and apart from the landlord’s fee ownership. It also noted that the Eminent Domain Act defined “property” as “land, or any interest in land,” and provided a broad grant to municipalities to acquire, by condemnation, any property necessary for a redevelopment project. The Court further found that nothing in the history of the Local Redevelopment and Housing Law that suggested that the Legislature intended to preclude a municipality from condemning less than a fee simple interest to carry out a redevelopment plan. It believed that such a “cramped construction” of the Act could prevent a municipality from condemning an easement or any other less-than-a-fee interest needed in furtherance of a redevelopment plan. Second, since the statute only required the municipality to negotiate with the fee owner, it rejected the argument that the municipality had to negotiate with the tenant before commencing the condemnation action. Third, it held that the tenant did not have a right to individual notice of the proposed blight designation because the statute only requires notice to the parcel owners and to persons noted on the tax assessment rolls as having an interest in the parcels. Accordingly, because the tenant’s challenge was untimely and it was not excused from such untimeliness as a result the lack of personal notice, the tenant was not entitled to contest the condemnation case. Fourth, the Court saw no reason why the tenant couldn’t argue that landlord/developer’s proposed project was inconsistent with the redevelopment plan. According to the Court, if the landlord, as the acting redeveloper, intended to evict its tenants in order to build something at variance with the redevelopment plan, it was manipulating the redevelopment process in violation of the statute. It ordered the lower court to address that issue on remand. Finally, the Court noted that if it could be proven that the landlord avoided condemnation of its property interest by having itself designated as the redeveloper, the tenant had the right to pursue just compensation in condemnation proceedings. It remanded to the lower court for further consideration on the right to just compensation and relocation expenses.

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