Eminent Domain & Leases

An interesting issue that shows up on the MBE deals with the government taking private property for pubic use. The government is using its eminent domain power but the property taken is subject at the time to a lease.  Here's how to analyze that:

If property is condemned and the government pays "just compensation" and if at the time the property is condemned it is occupied by a tenant rather than occupied by the owner, the tenant is entitled to a share representing the current value of the unexpired term of the lease less any rent that has not yet been paid. So, importantly, tenants are entitled to a portion of the condemnation award.

The next issue generally deals with whether the tenant must continue to pay rent to the owner after the property is condemned. This will depend on whether the condemnation was partial or total.  If only part of the property is condemned, the relationship between landlord and tenant is generally unaffected; the tenant is generally still liable for rent reflecting the amount of the property not condemned. If, however, the property is completely condemned, the tenant will be absolved of any future responsibility to pay rent.