When the government needs to acquire private property for public use, it can do so through a procedure known as eminent domain. The Fifth Amendment to the United States Constitution prohibits the government from taking property from a private individual or business “without just compensation.” Eminent domain is intended to provide a means of determining fair compensation. When the government exercises eminent domain over real property that is subject to a lease, both the property owner and the lessee are entitled to compensation. A California appellate court recently ruled on a dispute between a former property owner and its former tenant in the aftermath of an eminent domain proceeding. The court’s decision addressed the various types of property that can be involved in an eminent domain or other condemnation action.
Eminent Domain in California
The California Eminent Domain Law (EDL) limits the government’s use of eminent domain to situations in which it needs private property for public use. If a civil action for eminent domain is necessary, the government must name all owners of record as defendants along with anyone else the government knows “to have or claim an interest in the property.” This includes individuals or businesses that occupy the property under a lease.
Condemnation Clauses in California Commercial Leases
A lease creates a real property interest for the lessee who is also known as the tenant. When real property is primarily used for commercial leasing purposes, lessees often stand to lose the most in eminent domain since they are the ones who will be displaced by the procedure. Therefore, many leases contain condemnation clauses, which address matters like the distribution of compensation if the property becomes unavailable or unusable because of government actions like eminent domain.
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