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Town of Kearny v. Discount City of Old Bridge

205 N.J. 386, 16 A.3d 300 (2011)

REDEVELOPMENT; CONDEMNATION — A tenant is not entitled to specific notice of a municipality’s holding of blight designation hearings; it is only entitled to notice by way of a newspaper publication and when it doesn’t participate in hearings or challenge a blight designation in a timely action, it is foreclosed from pursuing the issue even though it may later be the sole condemnee.

A municipality conducted a redevelopment study. Pursuant to state law, the municipality issued notices to persons who were interested in, or would be affected by, a determination that the delineated area was a redevelopment area. Two hearings were conducted and all persons who requested to be heard did so. The municipality then recommended a redevelopment area, designated it in need of redevelopment, and adopted a redevelopment plan authorizing the municipality to exercise its condemnation powers.

A ground tenant owning a leasehold estate within the redevelopment area filed a complaint in lieu of prerogative writs seeking to invalidate both the blight designation and the redevelopment plan. The lower court dismissed, with prejudice, all but the inverse condemnation claims, which were dismissed without prejudice.

The municipality then designated a redeveloper, but did not notify the ground tenant. The agreement between this redeveloper and municipality allowed the developer to request the municipality to use its eminent domain powers at the redeveloper’s sole cost and expense, of the redeveloper if needed to acquire the ground tenant’s leasehold. The redeveloper then began negotiating the termination of the leasehold and, in doing so, it proposed relocation options, offering the ground tenant a sum of money far exceeding the cost of relocation. The ground tenant declined and counter-offered with a considerably higher sum.

The municipality sought a condemnation judgment against the leasehold, and the lower court entered an order in its favor. The ground tenant appealed, and the Appellate Division affirmed in part, and reversed and remanded in part. It found that the municipality had the authority to condemn the lease as an independent interest in property; that the redeveloper had used its best efforts to terminate the leasehold; and that the ground tenant had no right to individual notice as a tenant. The Court remanded the issue as to whether the ground tenant had a right to just compensation and relocation expenses. On remand, the lower court held that the lease’s condemnation clause governed the taking, disallowing any compensation to the ground tenant.

On appeal, the ground tenant conceded that it was not entitled to individual initial notice because it was not a record owner. However, it contended that, as the sole condemnee, it should have the right to challenge the blight determination. Analyzing the Local Redevelopment and Housing Law, the Court noted that the legislature intended to limit the right of actual notice to owners of record. The ground tenant here was entitled to notice only by way of newspaper publication. Because it did not participate in the municipality’s hearings or challenge the blight designation in a timely action, it was foreclosed from pursuing the issue even though it was later the sole condemnee.

Both parties agreed that a municipality was empowered to condemn a leasehold. The Court noted that New Jersey follows a unit rule for condemnation appraisals, evaluating the total bundle of rights making up the fee interest. Thus, typically, a condemner need not negotiate with every interest holder; the holders of interests other than fee simple interests are better protected by letting them participate later during the valuation determination. However, the Court found that, where a fee interest is not involved, the holder of the interest that is actually the party at stake with whom negotiations must take place.

On the other hand, the Court found that the redeveloper’s single lump-sum offer did not meet the bona fide negotiation requirement of New Jersey’s condemnation law; the amount offered was either faulty for being ignorant of the underlying value of the lease or, if it did appreciate the value of the lease, it was faulty for being unaccompanied by appraisals or an explanation of the valuation method used. Finally, the Court determined that the lease’s condemnation clause, viewed in light of its purpose to protect the landlord’s interest in its own award, was not controlling here because it was out of synchronicity with the purposes underlying a condemnation clause. The Court remanded the matter to the lower court for dismissal of the condemnation complaint and ordered that any new condemnation must be preceded by bona fide negotiations with the ground tenant.

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