Stinson v. 138 Fifth Avenue South ( 1998 )

GEORGE STINSON, ED D. LEWIS, and )
GELSCO OF TENNESSEE, INC., )
) Davidson Circuit
Plaintiffs/Appellees, ) No. 94C-4001
)
VS. )
) Appeal No.
138 FIFTH AVENUE SOUTH, INC., ) 01A01-9702-CV-00060
138 FIFTH AVENUE SOUTH )
ASSOCIATES, L.P., ALBERT DEL
FAVERO, JR., and METROPOLITAN )
DEVELOPMENT and HOUSING
)
)
FILED
AUTHORITY, )
January 14, 1998
)
Defendants/Appellants. )
Cecil W. Crowson
Appellate Court Clerk
IN THE COURT OF APPEALS OF TENNESSEE
MIDDLE SECTION AT NASHVILLE
APPEAL FROM CIRCUIT COURT OF DAVIDSON COUNTY
AT NASHVILLE, TENNESSEE
HONORABLE HAMILTON V. GAYDEN, JUDGE
STEVE NORTH, #3921
1215 Gallatin Pike, South
Madison, TN 37115
ATTORNEY FOR PLAINTIFFS/APPELLEES
Clark H. Tidwell, #2280 GEORGE B. BARRETT, #2672
LASSITER, TIDWELL & HILDEBRAND 217 Second Avenue North
213 Fifth Avenue, North Nashville, TN 37201
Nashville, TN 37219 For: Defendant/Appellant, MDHA
ATTORNEY FOR DEFENDANTS,
138 Fifth Avenue South, Inc.
138 Fifth Avenue South Associates, L.P.,
Albert Del Favero, Jr.
MODIFIED AND REMANDED.
HENRY F. TODD
PRESIDING JUDGE, MIDDLE SECTION
CONCUR IN SEPARATE OPINION:
BEN H. CANTRELL, JUDGE
WILLIAM C. KOCH, JR., JUDGE
GEORGE STINSON, ED D. LEWIS, and )
GELSCO OF TENNESSEE, INC., )
) Davidson Circuit
Plaintiffs/Appellees, ) No. 94C-4001
)
VS. )
) Appeal No.
138 FIFTH AVENUE SOUTH, INC., ) 01A01-9702-CV-00060
138 FIFTH AVENUE SOUTH )
ASSOCIATES, L.P., ALBERT DEL )
FAVERO, JR., and METROPOLITAN )
DEVELOPMENT and HOUSING )
AUTHORITY, )
)
Defendants/Appellants. )
OPINION
The captioned defendants, Metropolitan Development and Housing Authority (hereafter
MDHA, or “the Authority”), has obtained the permission of the Trial Court and this Court for
this interlocutory appeal from rulings of the Trial Court relating to the rights and liabilities of the
parties.
The Authority is an agency of the Metropolitan Government of Nashville and Davidson
County, Tennessee, with power of eminent domain. The Authority was authorized to exercise
its powers to acquire title to land in the vicinity of the Nashville Arena, including a tract known
as 138 Fifth Avenue South owned by the defendant, 138 Fifth Avenue South, L.P. a limited
partnership of which the defendant, 138 Fifth Avenue South, Inc., was the general partner. At
all material times, the defendant Albert Del Favero, Jr., was the duly authorized agent of the
owners.
On December 1, 1992, Albert Del Favero, Jr., acting for the owners, leased the subject
property to the plaintiffs, George D. Stinson and Edward D. Lewis, for a period of two years with
options for two successive renewals of five years each. Lessees were obligated to carry out
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extensive repairs to the improvements on the property. The lease contained the following
provision:
17) If a portion or all of said premises shall be
taken by any public authority under the power of eminent
domain, then the term of this lease shall cease on the part so
taken from the day the possession of that part shall be
acquired for any public purpose and the rent shall be paid up
to that day, and the rent thereafter shall be adjusted in
proportion of the rental value of the premises taken vs. the
unimproved land (the parking areas). If the parties are unable
to agree on the reduction, each shall appoint one arbitrator,
who together shall appoint a third arbitrator, and the decision
of any two of the said arbitrators shall be final. All damages
awarded for such taking shall belong to and be the property of
the Lessor, whether such damages shall be awarded as
compensation for diminution in value to the leasehold or to
the fee of the property herein leased; provided, however, that
the lessor shall not be entitled to any portion of the award
made to the lessees for loss of business, moving expenses, or
for any trade fixtures located thereon. (Emphasis supplied)
On December 28, 1992, the plaintiffs, Stinson and Lewis, assigned their interest in the
lease to the plaintiff Gelsco, Inc.. The lessees and their assignee are hereafter designated
collectively as the plaintiffs. Said sublease contained the following provision:
33. If a portion or all of said premises shall be
taken by any public authority under the power of eminent
domain, then the term of this Lease shall cease on the part so
taken from the day the possession of that part shall be
acquired for any public purpose and the rent shall be paid up
to that day, and the rent thereafter shall be adjusted in
proportion of the rental value of the premises taken versus the
rental of the remaining premises.
On May 9, 1994, Albert Del Favero, acting for the owners/lessors, executed a deed to the
Authority conveying the subject property with the usual covenants and warranties.
On May 9, 1994, plaintiffs filed the present suit against all of the captioned defendants
stating the following claims:
18. Damages for breach of the lease.
19. Interpretation of Paragraph 17 of the December 1, 1992 lease.
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21. Reformation of the same lease.
22. Damages for unjust enrichment.
23. Compensation under T.C.A. § 2529-16-123 the Inverse Compensation Law.
24. Compensation under the theory of constructive trust.
In response to a motion to enjoin the lessors from disposing of their assets, the lessors
filed the affidavit of Bob Howard, agent of the Authority, which read in part as follows:
MDHA has the power of eminent domain and if the
landowner had refused to sell, the property would have been
condemned. This was a total as opposed to a partial taking.
The $1,250,000 represents payment for the fee simple interest
in the property. The identity of the landowner is determined
by a title search.
----
The $1,250,000 which MDHA paid to Fifth Avenue
Associates was for the land and improvements. It did not
include compensation for loss of business, moving expenses,
or personal property used in the operation of the business of
the tenant. MDHA does not pay for loss of business. MDHA
will pay the tenant in possession for moving personal property
used in the operation of the tenant’s business.
One of the defendants, Albert Del Favero, Jr., filed an affidavit containing the following
excerpts:
We entered into the Lease and Agreement with
George W. Stinson and Ed D. Lewis in December of 1992.
We required the tenants to spend a total of $150,000 in
improvements and repairs and because of this we agreed to
lower fixed monthly rental payments as opposed to a
percentage lease. At the same time we agreed to correct
existing environmental problems at the expense of the lessor.
We are not able to recover this expenditure except to the
extent our cleanup efforts affected the city’s offer to acquire
the property.
----
After the city contacted us about taking our property,
our attorney and I met with the lessees and their attorney in an
effort to reach a compromise after they threatened to prevent
us from being paid for our property by the city. It is my
understanding that if the city filed a condemnation petition
against us, the city would deposit what it thought the property
was worth with the clerk, and the lessees’ attorney assured us
that he could keep our money tied up a long time in court.
----
In fact, we had several face to face meetings with one
or more of the lessees and their attorneys. We were being
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asked to disregard Paragraph 17 of the Lease and Agreement
and divide the condemnation award with the lessees so that
they could get their money back. We were accused of being
greedy because Paragraph 17 favored the lessors over the
lessees. We had no idea what the city was going to pay us
and we left the negotiating table.
----
The city offered and we accepted $1,250,000 for our
land and improvements based upon two MAI appraisals. We
notified our attorney and he so informed lessees’ counsel.
Thereafter this lawsuit was filed.
----
We have not received payment from the city for loss
of business profits, moving expenses, or compensation for
trade fixtures, but only for our fee simple title.
One of the plaintiffs filed an affidavit containing the following excerpts:
2. Throughout all of the negotiations for the lease
of this property, eminent domain was never mentioned, nor
was there ever any suggestion on the part of Lessors or their
agents of the possibility that the property would be taken by
eminent domain. In the negotiation of the terms and
conditions of the lease eminent domain was never discussed
or mentioned. The lease was drafted by agents of the Lessors
and neither before, during or after the execution of the lease
was any mention made of the provisions regarding eminent
domain.
3. After the execution of the Lease, my partner
and I have complied in full and in a timely manner with every
condition and term of the lease. The lease required that we
spend One Hundred Fifty Thousand Dollars ($150,000.00) in
improvements on the building within the first ten months of
the lease. In fact, we spent Seven Hundred Fifty Thousand
Dollars ($750,000.00) in improvements.
7. After it was learned that the City intended to
acquire the property for the Nashville Arena Project, the
appraisers for the City asked to inspect the property. On
February 15, 1994, my attorney and I met with Albert Del
Favero, Jr. and his attorney, Clark Tidwell along with the
appraisers from the City at the subject property.
----
The appraisers asked for construction plans and a list
of all of the improvements that had been made and indicated
that the City intended to employ a general contractor to give
them an estimate on replacement costs. Prior to divulging any
of that information, a private meeting involving myself and
my attorney and Mr. Del Favero and his attorney was held.
At that meeting it was pointed out that the cooperation of the
Lessees could greatly enhance the appraisals of the property
but that there was no reason for the Lessees to cooperate if the
landlord was going to take the position that the Lessees were
not entitled to share in the award.
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----
Although no final agreement was reached as to the actual
apportionment, Lessees proceeded to furnish to the appraisers
and the City a complete set of construction plans, photographs
of the property and a complete list of the improvements that
were made.
8. In addition, copies of the lease and sub-lease
as well as details of a sub-lease on the parking lot were
furnished to the appraisers and the City.
On June 13, 1994, the Authority notified plaintiffs to vacate the premises within 90 days.
Plaintiffs amended to sue the Authority in inverse condemnation.
On November 30, 1994, the case was transferred from the Chancery Court to the Circuit
Court which had jurisdiction of inverse condemnation cases.
On October 7, 1996, the parties filed the following Stipulation:
As evidenced by signature of counsel for Plaintiffs and
counsel for MDHA it is stipulated as follows:
1. Attached hereto are the following documents:
(1) a claim for moving expenses in the
amount of $767,033.00 by Plaintiffs and an
approval by MDHA of $57,137.37.
(2) An agreement between Plaintiffs and
MDHA which is self-explanatory.
2. It is stipulated that MDHA has paid a total of
$57,137.37 to Plaintiffs without prejudice to Plaintiffs’ claim
that it is entitled to more than that amount for moving
expenses and without prejudice to any of the other claims
made in this lawsuit.
(Signature)
Steve North #3921
Attorney for Plaintiffs
1215 Gallatin Pike, South
Madison, TN 37115
(615) 860-7644
(Signature)
George E. Barrett
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Attorney for MDHA
217 Second Avenue, North
Nashville, TN 37201
On November 18, 1996, the Circuit Judge filed the following memorandum:
This case is before the Court upon motions to dismiss
filed by both defendants, 138 Fifth Avenue South, Inc. et.al.
(hereinafter Fifth Avenue), and Metropolitan Development
Housing Authority (hereinafter MDA). The Court will treat
both motions as Rule 56 motions for summary judgment as
there are matters considered by the Court beyond the
pleadings.
FACTS
Plaintiffs, Stinson and Lewis, entered into a 12-year
lease with defendant Fifth Avenue on December 1, 1992, for
the lease of the property subject to this lawsuit. Stinson and
Lewis subsequently assigned the lease to a corporate
sublessee, Gelsco; however, Stinson and Lewis are the
principals in the corporate sublessee and plaintiffs are thus
collectively referred to as plaintiffs. The lessor was also an
assignee of the defendant Del Favero and will be identified
as one entity, Fifth Avenue.
The lease and the subsequent sublease contained the
same language relative to the value and disposition of the
leasehold interest in the event of condemnation. Identical
language in each document provided that the portion of the
funds representing the value of the leasehold interest would
go to the lessors/fee owners in the event of condemnation.
On April 21, 1994, the MDHA purchased the subject
property in its entirety by warranty deed from the lessor/fee
owner, Fifth Avenue. No condemnation suit filed. The
purchase price for the property, $1.25 million, was based on
the value of the fee and the improvements. See affidavit of
Robert Howard, MDHA.
None of the $1.25 million paid to the lessors/fee
owners for the fee and improvements represented the value
of the leasehold interest of the lessees, Stinson and Lewis.
Thus nothing was paid by MDHA to the lessor/fee owners
that purported to represent an evaluation of the value of the
leasehold interest. See affidavit of Robert Howard, MDHA.
Later, the plaintiffs accepted the approximate sum of
$55,000 for moving expenses, reserving the right to
additional compensation for moving expenses, if any.
The plaintiffs filed an inverse condemnation against
MDA claiming a right to compensation for their leasehold
interest, reformation of the lease (and sublease), equitable
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estoppel, loss of profits, value of nonremovable trade
fixtures and additional incidental expenses for moving.
This lawsuit was filed in Chancery Court and
transferred to the Circuit Court by Chancellor Robert Brandt.
Chancellor Brandt ruled that paragraph 17 of the lease and
sublease that apparently gives to the lessors/fee owners the
entire funds representing the value of the leasehold interest
in the event of condemnation is ambiguous.
RULING
The Court grants the motion of the Fifth Avenue for
summary judgment and denies the motion of MDHA in part,
but grants the motion for summary judgment by MDHA in
other particulars.
DEFENDANT MDHA
The court denies the motion of MDHA for a
summary judgment as to plaintiffs’ right to be justly
compensated for a property right, specifically the value of the
plaintiffs’ leasehold interest and fair moving expenses, if
any. Otherwise, the physical taking would amount to a
taking without the exercise of an original eminent domain
proceeding, and the concomitant denial for plaintiffs’
constitutional right not to have their property taken without
just compensation. State v. Gee, 565 S.W.2d 498 (Tenn.
App. 1977); Shelby County v. Barden,527.
The court grants the motion for a summary judgment
in all of the other legal and factual issues: Reformation,
estoppel (except as stated in narrow exception herein), the
loss of business profits, unjust enrichment and the value of
nonmovable trade fixtures.
Implicit in this ruling is the Court’s conclusion that
the sale of the property by the lessor to MDHA was not an
exercise of an eminent domain and therefore paragraph 17 of
the lease (and sublease) is not relevant. And the lease is
silent as to the division of the proceeds in the event of a sale
as opposed to an eminent domain proceeding. See State v.
Gee. In addition, even if the sale of the property by the
landowners to MDHA was a proper exercise of eminent
domain, the sale evaluation did not include the value of the
leasehold interest, which is different from the value of the
improvements. See Metropolitan Government of Nashville
and Davidson County, Tenn. v. Schatten-Cypress Co., 530
S.W.2d 277 (1975).
The Court, however, grants the motion of MDHA as
to the issue of loss of business profits, value of fixtures and
the value of improvements, if any, except to the extent loss
of business profits, value of fixtures and/or the value of
improvements are to be considered in a recognized
evaluation method of the value of the leasehold interest that
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was destroyed. Accord: Lamar Advertising of Tenn. v. City
of Knoxville, 1995 Tenn. App. Lexis (Ct. App. 1995); Lamar
Advertising of Tenn. v. Metropolitan MDHA, 803 S.W.2nd
686 (1993); Metropolitan Government of Nashville and
Davidson County, Tenn. v. Schatten-Cypress Co., supra.
Also, the Court overrules the motion to dismiss the
amended complaint on the grounds of lack of standing of the
plaintiffs and nonpayment of state taxes.
DEFENDANT FIFTH AVENUE
The Court grants the motion as to Fifth Avenue in
totality.
None of the funds received by the defendant Fifth
Avenue represented an evaluation for the leasehold interest.
The affidavit of Ben Howard, MDA, in reference to the
interest purchased by MDA from Fifth Avenue, et.al., reads
as follows, “The $1.25 million which MDA paid to Fifth
Avenue Associates was for land and improvements...” Thus,
MDA did not purchase the leasehold interest from the lessor,
or lessee; nor was the leasehold interest evaluated for the
purpose of determining the purchase price. Therefore, the
ambiguity, if any, surrounding Paragraph 17 of the lease is
not relevant for two reasons: (1) There was no
condemnation; (2) There was no evaluation of the leasehold
interest in arriving at the final purchase price for the land and
improvements.
The judgment of the Trial Court concludes as follows:
1. That the Motion to Dismiss or for Summary
Judgment of Fifth Avenue is granted and that the case be and
hereby is dismissed as to Defendants Fifth Avenue.
2. That the Motion of MDHA to dismiss the
Amended Complaint on the grounds of lack of standing of the
Plaintiffs and non-payment of state taxes is overruled.
3. The Motion of MDHA for Summary Judgment
or to dismiss the cause of action for taking the property and
property rights of Plaintiffs and for the fair market value of
the Plaintiffs’ leasehold interest and reasonable moving
expenses is denied.
4. The Motions of MDHA with regard to loss of
business profits, value of fixtures and the value of
improvements is granted except to the extent that loss of
business profits, value of fixtures and improvements are to be
considered in a recognized evaluation method of the value of
the leasehold interest that was taken.
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The Trial Court overruled the motion of the Authority to alter or amend, but ruled:
The Court is of the opinion that a determination of the
following issues by interlocutory appeal prior to trial would
prevent needless, expensive and duplicative litigation; and the
Court finds pursuant to Rule 9 of the Rules of Appellate
Procedure that the following issues should be resolved by
interlocutory appeal before this case proceeds further, and
they are: (1) whether the sale under threat of eminent domain
constitutes a “taking under the power of eminent domain”; (2)
whether the “condemnation clause” in the lease between Fifth
Avenue and Plaintiffs is enforceable and, when property
interpreted, amounts to a termination of the Plaintiffs’
leasehold interest by an evaluation of the improvements to the
fee as distinguished from an evaluation of the leasehold
interest; and (3) whether Fifth Avenue should remain a party
in order to indemnify MDHA on the basis of the agreement
between MDHA and Fifth Avenue, since Fifth Avenue may
suffer irreparable harm by being bound by the results of a trial
without having had the opportunity to participate.
For all of these reasons, the Court overrules MDHA’s
Motion to Alter or Amend, but grants to MDHA an
interlocutory appeal.
This Court approved the interlocutory appeal on the questions stated in the last quoted
order of the Trial Court.
The Authority has presented to this Court the following issues for review:
I. Is there a genuine issue of material fact relating
to the construction, validity, enforceability, applicability, or
conscionability of the so-called “condemnation clause”
involved in the lease in this case?
II. Did MDHA take from the plaintiffs an interest
in real estate without due process or just compensation?
III. Did the Trial Court err in dismissing the
lessors and limiting the issue at trial to the value of the
leasehold interest and moving expenses?
The Authority first relies upon an interlocutory ruling in Chancery Court prior to the
transfer of the case to Circuit Court. Under the procedure above narrated, the ruling of the
Chancery Court was superseded by the subsequent ruling of the Circuit Court, and it is the last
ruling of the Circuit Court which is before this Court for review.
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Paragraph 17, of the lease, quoted above, provided:
If a portion or all of said premises shall be taken by
any public authority under the power of eminent domain - -
the term of the lease shall expire - - -. All damages for said
taking shall belong to and be the property of the lessor, - - -
however, - - - the lessor shall not be entitled to any portion of
the award made to the lessee for loss of business, moving
expenses, or for any trade fixtures located thereon.
Interpretation of a written argument is not a matter of fact, but a matter of law for
decision by the Court, as to which appellate review is de novo without a presumption of
correctness, and the instrument must be interpreted and enforced as written according to its plain
terms. Rainey v. Stansel, Tenn. App. 1992, 836 S.W.2d 117; Park Place Center Enterprises,
Inc., v. Park Place Mall Associates, Tenn. 1992, 836 S.W.2d 113; Estate of Haynes v. Braden,
Tenn. 1992, 835 S.W.2d 19.
This Court has determined as a matter of law that the quoted words of the contract “shall
be taken by any public authority under the power of eminent domain” means “taken by any
public authority by the exercise of the power of eminent domain in the manner provided by law”
and said words do not mean by the threat of the exercise of such power.
The power of eminent domain and the power of condemnation are synonymous. State
v. Harr, 24 Tenn. App. 298, 143 S.W.2d 893 (1940).
T.C.A. Title 29, Chapter 17, Part 4, provides for the exercise of the power of eminent
domain by housing authorities. § 29-17-401 provides for procedure of taking, beginning with
the filing with the clerk of the appropriate court, a petition and a formal “declaration of taking”
including:
1. An adequate description of the property to be taken.
2. The estate or interest in said property being taken, and
3. A statement of the estimated amount of just compensation for the taking.
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Nothing is found in the present record to indicate that any part of the above required
procedure has taken place.
Section 29-17-403 provides that, upon deposit of the estimated just compensation with
the court, title shall vest in the Authority which shall be entitled to an order of possession.
Section 29-17-404 provides that the owner may withdraw the deposit of estimated just
compensation from the clerk of the court and litigate the amount of just amount of compensation
in excess of the amount deposited. Nothing is found in the record to indicate that this procedure
occurred.
On the contrary, the record shows without dispute that, by threat of condemnation the
Authority induced the defendant, Del Favero to execute a deed to the Authority conveying the
land with the usual covenants and warranties of title and right to convey. This was not the
exercise of the power of eminent domain in the manner provided by law. This record indicates
that actual possession was obtained by the Authority from the lessees by the issuance of a writ
of detainer from the Court of General Sessions, and not in the Circuit Court which has
jurisdiction of eminent domain proceedings.
The Authority cites Scott v. McReynolds, 36 Tenn. App. 289, 255 S.W.2d 401 (1952)
which was a dissolution of a partnership and not a lease/eminent domain case. It is clearly
distinguishable upon the facts and applicable law.
The Authority cites Dobbs v. Guenther, Tenn. App. 270, 846 S.W.2d 270, which was a
complaint for fraud and declaration of rights, and is distinguishable on the facts and law.
The Authority argues that plaintiff’s alternate claim of inverse condemnation is an
admission that a condemnation took place. Alternative pleading may not be used as an
admission. Worley v. Weigals, Inc., Tenn. 1996, 919 S.W.2d 589.
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T.C.A. § 29-16-123 reads as follows:
Action initiated by owner - (a) If, however, such
person or company has actually taken possession of such land,
occupying it for the purposes of internal improvement, the
owner of such land may petition for a jury of inquest, in
which case the same proceedings may be had, as near as may
be, as hereinbefore provided; or he may sue for damages in
the ordinary way, in which case the jury shall lay off the land
by metes and bounds and assess the damages, as upon the trial
of an appeal from the return of a jury of inquest.
The evidence in this record shows that plaintiffs were dispossessed by the Authority’s
general sessions possessory action, thereby satisfying the requirement of Haase v. City of
Memphis, 149 Tenn. 235, 239 S.W. 545 (1923).
Under the facts of this case, the rights of the dispossessed owner of an interest in the land
are alternative. Johnson v. Roane County, 212 Tenn. 433, 370 S.W.2d 496 (1963); East Tenn.
and WNCRR v. Gouge, 30 Tenn. App. 40, 203 S.W.2d 170 (1947).
The foregoing supports the right of the plaintiffs to recover under the theory of inverse
condemnation. Nevertheless, defendants/lessors insist that lessors execution of the deed to the
Authority under threat of condemnation must be considered a “taking.” The Authority argues
that, if the lessors argument is correct, then the amount paid to the lessors for the deed must be
divided between the lessors and the lessee in accordance with State ex rel Commissioner of
Transportation v. Teasley, Tenn. App. 1995, 913 S.W.2d 175. The cited authority involved a
billboard lease, and the decision was controlled by 42 USC § 4652, the Uniform Relocation Act
of 1972, T.C.A. § 13-11-101, and by the determination by the Trial Court of the credibility of
witnesses.
In State ex rel Department of Transportation v. Gee, Tenn. App. 1977, 565 S.W.2d 498,
the lease provided that, if less than 25 feet was condemned, the rent would not be reduced, but
lessors and lessees would share in the award; and that, if more than 25 feet were taken the rent
would be reduced by agreement. It appears that there was no provision for sharing the award if
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the taking was more than 25 feet. Only six feet were taken, so there was no reduction of rent but
there was a sharing of the award. This Court held:
In the absence of any express provision by the parties,
Tennessee law requires an apportionment of the award
according to the value of the respective interests of lessor and
lessee in the property taken. See Shelby County v. Barden,
527 S.W.2d 124 (Tenn. 1975); Mason v. City of Nashville,
155 Tenn. 256, 291 S.W. 1074 (1927).
----
In Tennessee, condemned land is to be valued as one
estate and a fair market value fixed for the taken property as
a whole before apportionment of that amount is made among
the various interests in the property. Moulton v. George, 208
Tenn. 586, 348 S.W.2d 129 (1961); State v. Texaco, Inc., 49
Tenn. App. 278, 354 S.W.2d 792 (1961). Apportionment
between lessor and lessee is accomplished by determining the
value of the latter’s interest in the taken property, which in
turn is calculated by determining the fair rental value of that
property for the unexpired term of the lease and subtracting
the rent that would actually have been paid for it by the lessee
during that term.
----
In other words, the total fair market value of the taken
property is apportioned by first determining the lessee’s
interest, which is the fair market value of the leasehold on that
property minus rent actually called for under the lease, with
the remainder of the property’s fair market value going to the
lessor. Incidental damages to each interest are also allowed,
but are not an issue in the instant case.
----
On remand, the trial court should retry only the issue
of exactly how the award is to be apportioned between the
Gees and Madison, both of whom are entitled to share in it
according to their interests.
Regardless of whether a “taking” occurred, plaintiffs are entitled to fair compensation for
their losses as a result of the events narrated above.
Nevertheless, the Authority argues that no consideration should be given to the sums
spent by the lessees in the improvement of the property, because said improvements became
“fixtures”, i.e., a part of the land. Under the facts of the present case, this Court cannot agree.
Even though the improvements were affixed to the realty, they were installed for use during a
long term lease, and the value of the lease to the lessees was thereby enhanced. Thus, under
State v. Gee, supra, the lessees interest in the property will be ascertained by fixing the value of
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the occupancy of the improved premises for the term of the lease and deducting therefrom the
agreed rental.
The Authority insists that, if it is to be burdened with payment to the lessees of the value
of their leasehold, it (the Authority) is entitled to claim indemnity or contribution from the
lessors pursuant to the warranty and covenants of the deed. This Court agrees with this
insistence. TRCP Rule 19.01, Citizens R. Est. & Loan Co., Inc. v. Mtn. States Div. Corp., Tenn.
App. 1981, 633 S.W.2d 763.
The final clause of Paragraph 17 of the lease is:
[T]he lessor shall not be entitled to any portion of the
award made to the lessees for loss of business, moving
expenses or for any trade fixture located thereon.
Only those chattels are fixtures which are so attached to the freehold that, from the
intention of the parties and the uses to which they are to be put, are presumed to be permanently
annexed, or removal of which would cause serious harm to the freehold. Harry J. Welchel Co.
v. King, Tenn. 1980, 610 S.W.2d 710.
The uncontroverted evidence in this record shows that both parties, lessors and lessees
made substantial improvements to the freehold as agreed in the lease. It is clear from the lease
that, in event of taking by eminent domain, the lessees would not be deprived of the value of
occupancy for the remainder of the lease minus the rental due under the lease for the remainder
of its term. This interpretation of the intent of the parties preserves the right of the lessors to
realize upon the enhancement of the value of the property resulting from the improvements
performed by them and the residual value of the improvements made by lessees at the end of the
term of the lease.
The lessees have filed the following issues for review:
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I. Is there a genuine issue of material fact relating to the
construction, validity, enforceability, applicability, or conscionability
of the so-called “condemnation clause” involved in the lease in this
case?
II. Did MDHA take from the plaintiffs an interest in real estate
without due process or just compensation?
III. Did the Trial Court err in dismissing the lessors and limiting
the issue at trial to the value of the leasehold interest and moving
expenses?
The issues just stated have been discussed and decided, or are rendered moot by the
preceding portions of this opinion.
The judgment of the Trial Court is modified to find that plaintiffs are entitled to recover
from the Authority the fair value of their leasehold interest to be determined in a further
evidentiary hearing in accordance with the pronouncements of State ex rel v. Gee, Tenn. App.
1977, 565 S.W.2d 498, and to permit the Authority to implead the lessors to enforce its rights
against them under their deed. Any judgment in favor of the lessees should include prejudgment
interest from the date of their eviction. Any judgment in favor of the Authority should include
prejudgment interest from the date of the payment to lessors of the consideration for their deed.
Costs of this appeal are taxed against the lessors. The cause is remanded to the Trial Court for
further proceedings in conformity with this opinion.
MODIFIED AND REMANDED.
HENRY F. TODD
PRESIDING JUDGE, MIDDLE SECTION
CONCUR IN SEPARATE OPINION:
BEN H. CANTRELL, JUDGE
WILLIAM C. KOCH, JR., JUDGE
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