We were all set to offer our deep analysis of the California Court of Appeal's recent (published) opinion in Three Aguila, Inc. v. Century Law Group, LLP, No. B289452 (July 2, 2019), when our colleagues at the California Eminent Domain Report blog beat us to it.
In "Court Decision Serves as Important Reminder on Crafting Lease Condemnation Provisions," Brad Kuhn writes about a case in which the condemnation clause in a lease provided that the landlord would be entitled to "[a]ll awards for the taking" (subject to the usual/common limitations).
In California eminent domain cases, businesses may recover goodwill by statute. When the premises were condemned, the landlord invoked the condemnation clause and asserted that it, not the tenant, was entitled to recover the goodwill. Brad writes:
On appeal, the Court held that the property owner was not entitled to compensation for the business’ goodwill. While parties are free to contract between themselves to allocate eminent domain awards, the lease provision here did not specifically allocate the goodwill of the business to the owner. While the lease language stated that “any payment” made under eminent domain belonged to the landlord, it went on to state that this applied regardless of whether the compensation was for “diminution of the value of the leasehold or for taking of the fee or as severance damages . . . .” In other words, the assignment to the landlord was for all real estate claims, which are separate and apart from the lessee’s goodwill as an owner of a business. The Court explained that goodwill exists separate and apart from the parties’ interests in the property taken, and the owner’s attempt to broadly interpret the lease’s condemnation provision was inappropriate. The goodwill award continued to belong to the business.
The court concluded:
The Legislature has determined that a business owner’s goodwill for a business operated on property taken by eminent domain is compensable separate and apart from the parties’ interests in the property taken. The Supreme Court in Fielder has likewise distinguished between property taken by eminent domain and the goodwill held by the operator of a business located on property taken by eminent domain. And neither the language in the form lease nor Thee Aguila’s arguments give us any reason to read the lease language more expansively or as counter to Code of Civil Procedure section 1263.510.
Check out the case, and Brad's write up.
Three Aguila, Inc. v. Century Law Group, LLP, No. B289452 (Cal. Ct. App. July 2, 2019)
