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Utah Supreme Court Denies Recovery for Lease Termination

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.

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What is the Eminent Domain Process?

What happens between a project announcement and paying you just compensation can sometimes be a mystery.  Here, we set out some of the basic steps you can expect if your property is taken by the government.

First, your property is identified as being necessary for the project.  This can include release of a proposed route for a road, acquisition for a new development, or other indication that your property is needed for a public use.

Second, your property will be appraised by the condemning authority (for example, the Utah Department of Transportation).   Although you may be provided with a copy of the appraisal, the appraisal is just an opinion and appraisal values can vary significantly from one appraiser to the next.  This means that the appraisal provided by the condemning authority is not necessarily the proper valuation of your property.

Third, you will be contacted by the condemning authority.  For example, a right-of-way agent will contact you and try to reach an agreement with you to sell the property and to allow the condemning authority to occupy your property.  At this stage, you have no obligation to allow the government to occupy your property or to agree to sell your land to them.

Fourth, if you can’t reach an agreement with the government on the sale or occupancy of your property, the government may suggest that you use the Utah Property Rights Ombudsman’s office.  The Ombudsman’s office facilitates discussions between you and the government, but it does not advocate for your interests in the way an attorney will.

Finally, if no agreement is reached the government may threaten court action.  Although this proposition may be unsettling to some landowners, it can be beneficial to you if the compensation previously offered by the government was too low.  A judge oversees the proceedings and you can hire an attorney and get an independent appraisal.  As a property owner, you can request that a jury decide what your property is worth and to what extent the government’s project has damaged your property.  In this way, the litigation proceedings can become a tool for you to ensure that just compensation is paid for the government’s taking.

*Please note that nothing in this article constitutes legal advice or creates any attorney-client or other relationship.  Should you have questions regarding legal rights and obligations, you should contact and consult with an attorney.  Attorneys with Utah Condemnation Law can be reached at (801) 998-8888.