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M-Industries, LLC v. New Jersey Transit Corporation

A-4490-06T3 (N.J. Super. App. Div. 2008) (Unpublished)

CONDEMNATION; INVERSE CONDEMNATION — Even if one-half of a building has been rendered useless by the condemning authority’s acquisition and construction plans, that is no basis for concluding that the beneficial use of the property has been substantially destroyed and even if the affected part were treated as a separate property, no condemnation would have taken place if it was still capable of being leased to another tenant or could be sold or made substantially useful.

A property owner had a very large commercial building that was used as a warehouse. It was divided into two sections by a wall. The slightly larger portion was leased to a clothing manufacturer and the other portion was vacant. In 1997, a public agency notified the owner’s predecessor in title that it had identified a portion of the property as having potential public use and that “it would be undertaking surveys and subsurface soil investigations of the property shortly.” About a year later, the agency notified the predecessor in title that a portion of its property would be acquired and that an appraiser would be inspecting the property. The agency never proceeded with its project, “apparently due to lack of funding” and never took any further steps over the next seven years. During that interim, the latest owner acquired the property and then entered into a five year lease of the vacant section of the building for use as a warehouse. As landlord, it claimed to have no knowledge of any threatened or pending eminent domain proceeding. In preparation for occupancy, the tenant made improvements, but then, before it took occupancy, the public agency notified the new owner that it “planned to start surveying, appraisal and environmental investigation work shortly.” It identified the same portion of the property that had been identified in its letters to the prior property owner. The landlord notified its tenant of the acquisition and construction plans and the tenant terminated the lease after concluding that the project would make it impossible for it to operate its business from the building. The landlord was never able to find another long-term tenant. Instead, it leased the vacant portion to two temporary tenants, “one for four months and the other for six months.” The occupied portion of the building always remained occupied.

Subsequently, the condemning authority told the owner that because of a delay in funding, it would not begin acquiring properties until some time later. With that as background, the property owner filed an inverse condemnation action, alleging that the condemning authority had caused it “to lose all economic and beneficial use of its property and to suffer substantial destruction of the value of its property.” In its action, it sought condemnation of its property or, in the alternative, an order that the condemning authority abandoned its project. It sought compensatory and punitive damages. The lower court concluded that the agency’s “planning activities for acquisition of [the] property had not substantially destroyed its beneficial use and therefore [the property owner] was not entitled to an order compelling [the condemning authority] to proceed with acquisition of the property or other relief.” The lower court concluded that the building had to be “treated as a single property, even though it [was] currently separated into two warehouse facilities.” Therefore, according to that logic, “even if one-half of the building had been rendered useless by [the condemning authority’s] acquisition and construction plans, there would be no basis for concluding that the beneficial use of the property had been substantially destroyed because the other half [was] currently leased to a clothing manufacturing company.” Further, the lower court concluded that even if the now vacant part had been treated as separate property, “it [had] not been rendered practically useless because it [was] still capable of being leased to another tenant” or could be sold or made substantially useful.”

The Appellate Division adopted the lower court’s holdings and findings, and affirmed that there had been no inverse condemnation taking.

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