The Utah Supreme Court reversed a $1.4 million condemnation award to Kmart because Kmart’s lease automatically terminated under its own terms as a result of the condemnation action. Because the lease terminated, and no longer existed, Kmart did not have any interest left for which compensation could be awarded.
Lessees, in general, have compensable interests in their leases. The court, however, adopted the “termination clause rule” that is applied in a majority of other courts across the nation. This rule provides that if a lease contains a clause terminating the lease upon a condemnation action, then the lessee is not entitled to receive compensation for its lease interest. Because the lease is extinguished based on its own terms, there is no interest left for which the lessee can request compensation.
In this case, the specific terms of the lease caused it to terminate if access to the property was materially impaired. Because the condemnation proceeding materially impaired access to the property, the lease automatically terminated and Kmart was not entitled to compensation. Although the lease could have been written to preserve the right to compensation, the court concluded that this particular lease was not written to preserve that right and, therefore, no award was due to Kmart because of the condemnation.
The court’s decision can be read here.
