Notice to commercial tenants in eminent domain cases

Iron Mountain Newark NJ

 Iron Mountain Information Management, Inc. v. City of Newark et al (A6561-06).
Download the case here.

Commercial tenants are not entitled to notice provisions of the Local Redevelopment Housing Law according to a recent decision of the New Jersey Appellate Division. In a unanimous decision approved for publication, the court affirmed Summary Judgment granted by the trial court to the City of Newark. The tenant, Iron Mountain Document Systems, Inc., has a long-term lease of a 350,000 square foot building, located at the corner of McCarter Highway and Edison Place. In addition to its lease, Iron Mountain negotiated an option to purchase and maintains a right of first refusal with the landlord.

Plaintiff, the sole tenant in the building, has occupied the property since August 28, 1996, when it entered into a long-term lease with the owner, the Berkowitz Company, to rent the property until August 31, 2014, with the option to extend the term of the lease for two successive five year periods.

The lease also afforded plaintiff the option to purchase the property "at a fixed formula during the period from September 1, 2006 [to] December 31, 2008," and provided plaintiff a right of first refusal if another party offered to purchase it. Finally, the lease entitles plaintiff to share, according to a fixed formula, in any proceeds realized by Berkowitz if the property is taken by eminent domain, but only if the taking occurred prior to September 1, 2007. [Slip Opinion at 4]

The prerogative writs suit challenging the building’s blight designation was filed within 120 days of the ordinance declaring the building in an area in need of redevelopment because the tenant was given no notice and, therefore, did not have an opportunity to appear before the planning board and the mayor and council. The Local Redevelopment Housing Law (LRHL) and the court rules 4:69-6(a) require suit to be filed within 45 days; however, case law, such as Concerned Citizens of Princeton , gives the courts leeway to extend the time for the filing of the suit where questions of public importance are involved. Iron Mountain argued it never received proper notice of the municipal proceedings contrary to the recent Appellate Division opinion in Harrison Redevelopment Agency v. DeRose.  [See related blog post on three Harrison redevelopment cases and the notice issue.]

When courts decide cases on limited procedural issues, they do a disservice to the litigants by ignoring the substance of the case.  In this case, the Appellate Division held that a commercial tenant such as Iron Mountain was not entitled to notice under the LRHL. This ruling not only conflicts with the DeRose case, but it also conflicts with an older case, State v. Jan-Mar, Inc. 236 NJ Super 28 (App Div, 1989), which held that a commercial tenant with an option to purchase possesses a compensable property right that is recognizable in an eminent domain case. This affirmed a lower court ruling reported at 210 NJ Super 236 (Law Div, 1985). Jan-Mar is consistent with rulings in other states which treat options as a compensable interest in condemnation proceedings. See also Nichols on Eminent Domain Section 5.02.

The Appellate Division in Iron Mountain notes that tenants may raise blight issues as a defense to eminent domain in the condemnation case. The reasoning of the court is that the Eminent Domain Act, N.J.S.A. 20:3-1 and the Court Rules R.4:73-2 governing eminent domain assure that all owner/occupants are entitled to be named as defendants and participate in the eminent domain proceeding:

Unquestionably, the EDA provides clear and adequate procedural safeguards that protect a commercial tenant's leasehold interest in condemned property by affording the tenant the right to challenge the authority to condemn, and by affording him compensation for any losses that result from lease termination. As we have observed, the LRHL and the Eminent Domain Act must be read in tandem, not in isolation. DeRose, supra, 398 N.J. Super. at 409. The provisions of these related statutes must be "construed together as a unitary and harmonious whole." Am. Fire and Cas. Co. v. N.J. Div. of Taxation, 189 N.J. 65, 80 (2006) (citation omitted). So viewed, when the two statutes are read as a whole, it is evident that the notice procedures and substantive rights afforded a commercial tenant pursuant to the EDA make unnecessary any additional procedural safeguards at the earlier blight designation stage. Thus, plaintiff has not satisfied the second Mathews prong.
[Slip Op. at 25]

The problem with the court's reasoning is that the landlord could sell the building directly to Newark without eminent domain, and the tenant would be left with a relocation claim under the Relocation Assistance Act, N.J.S.A. 20: 4-1 and no eminent domain case within which to assert the value of its leasehold and its option.

Adopting a procedural device to decide the case on the notice issue, the Appellate Division avoided the substantive merits of the case where Iron Mountain argued that the building was not blighted under the recent New Jersey Supreme Court decision of Gallenthin v Paulsboro. Furthermore, the Iron Mountain case warranted reversal due to the complete absence of findings of fact and conclusions of law by the trial judge as required by R.1:7-4.

Iron Mountain will petition the New Jersey Supreme Court seeking certification of this matter, based on the conflicting appellate decisions which must be reconciled by the Court. See R. 2:12-4.
 

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