Constitutional Law: Eminent Domain

The following question was asked on the Asked & Answered Facebook page @ http://www.facebook.com/pages/Asked-Answered-The-Multi-State-Bar-Exam/122156504533565

Can you comment upon condemnation of leasehold and it's effect on tenant's obligation to pay rent?

Response:

Before addressing this question directly, this question provides a good opportunity to discuss the topic of Eminent Domain. It's seen in both Property questions and Constitutional Law questions.

The concept of Eminent Domain originates in the Fifth Amendment, which states that private property may not be taken for public use without just compensation. If the federal government is doing the taking, the question is, therefore, analyzed under the Fifth Amendment; if it's the states doing the taking, it is analyzed under the Fourteenth Amendment.

The amendments only allow the government to take private property for public use, so an initial consideration is to determine whether the use is public. The test is whether the government's action is rationally related to a legitimate government purpose. This is a fairly easy test to satisfy, so the public use requirement will not act as much of an obstacle for the government.

The next issue is to determine if the government's action is, in fact, a taking. In other words, the government can use private property for pubic use, and that use may be deemed a regulation, rather than a taking. If so, the constitutional amendments requiring the government to compensate the private individual do not apply. An actual physical appropriation of property will almost always amount to a taking. In addition, if the government regulation denies a landowner of all economic use of his land, the regulation amounts to a taking. Watch, however, for situations in which principles of nuisance law require an individual to stop using his land in a certain way; if that's the case, then the government can deny a landowner that particular use of the land, and not be required to provide compensation to the landowner.

In addition, temporarily denying an owner of all economic use of property does not necessarily constitute a taking. Considerations include the length of the delay, the effect that the delay had on the value of the property, the reasonable expectations of the landowner, etc. This can be somewhat of a gray area, so the analysis is more important than the conclusion. If a regulation merely decreases the value of property, it will not constitute a taking if an economically viable use for the property remains.

Assuming the 'public use requirement" and the "taking" requirement have been satisfied, the government will be required to provide "just compensation" to the landowner. This can amount to either the fair market value of the property, or, if the government chooses to terminate the taking, the damages that occurred while the regulation was in effect.

All of the above are principles of Constitutional Law. An area of Real Property law that touches upon these issues deals with a situation in which the government is deemed to have taken the property that is currently being leased to another, and now must provide compensation for that taking. An issue is how should that money be distributed among the owner of the property and the tenant of the property, as well as whether the tenant's obligation to pay rent remains after the taking.

The issue is determined by whether the entire leasehold is taken by eminent domain. If so, then the tenant's liability for rent is extinguished because both the leasehold and the reversion have merged in the condemnor, and there is no longer a leasehold estate. In addition, the tenant is going to receive compensation in proportion to his interest in the property. If the taking is partial rather than entire, then the tenant will not be discharged from his obligation to pay rent, but will still be entitled to compensation (ie, a share of the award), for the taking.