Establishing A Leasehold Through Eminent Domain: A Slippery Slope Made More Treacherous by Kelo

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Catholic University Law Review


Consider this situation. A public college is in the process of expanding a campus. Students are registered for classes and it is important to those students, the local economy, and the quality of life in the community, that higher education continue to be provided on an ongoing basis. Unfortunately, despite careful planning to anticipate need and timely commencement of the construction project, unforeseen difficulties have arisen. Completion of construction will be delayed by six to eighteen months. The college has been leasing space for classes in a nearby office building, but the lease is expiring. The landlord refuses to extend the lease on any terms. After an exhaustive search, the college can obtain no other space in the area. It is faced with canceling most classes for the remainder of the construction period. Students and the public will be outraged. The college administration very much wants to continue to serve the public's needs. Consider another example. In response to the sudden bankruptcy and closure of the manufacturing plant of a major local employer, a governmental entity needs to lease space in which to provide job retraining and workforce development services to those who have lost their jobs. In order to properly provide services, the governmental entity needs to locate the service center within a specific area of the county that is easily accessible by public transportation and that provides lots of free parking for the large number of clients who will be making lengthy visits to the service center. The governmental entity can find no space within the targeted area that meets all of its needs, except for a large vacant space within a shopping center. The center's owners refuse to rent the space for this type of use because of the demand on parking, and because the clientele is not that which the shopping center wishes to attract. The government does not want to purchase a facility because it believes that the program is not likely to be needed in this location for longer than three 2 years. Why not use eminent domain to create the leaseholds that will provide solutions to these important problems? Perhaps it is time for governmental entities to seriously consider using eminent domain to acquire less than a fee simple interest in real property when the specific need is important, of a limited-rather than an indefinite-duration, and a bargained- for exchange cannot be negotiated. Many state and local governments are in financial difficulty, and the federal government claims to seek more cash-conscious means of providing services in order to reduce the deficit. The public might be better served if cash-strapped governments leased property rather than expending scarce tax dollars to purchase real property in fee simple through use of eminent domain. However, serious problems lie just below the surface of this seemingly good solution. It is fairly common for part or all of a tenant's interest in real property to be taken when a governmental entity uses eminent domain to acquire fee simple title to the landlord's realty in which the tenant's space is located. Commercial leases typically contain provisions applicable to partial or total condemnation. Treatises address the situation, and much has been written about strategies for such situations in texts on commercial leasing and eminent domain. By contrast, there is little literature about the legal issues, policy considerations, or practical ramifications that arise when the government seeks to use eminent domain to create a leasehold interest in real property rather than acquiring a fee simple. The limited writings and case law on the topic summarily state that government can engage in such action as if it were beyond question. The careful analysis necessary to prove or disprove the conclusion is missing from the literature. Likewise, the controversial consequences of an affirmative answer have not been examined. This Article seeks to fill a part of that void. It examines, in detail, the question of whether or not a governmental entity can establish a leasehold through condemnation proceedings under its power of eminent domain. It then moves to the question of whether, or under what circumstances, government should use condemnation proceedings to establish a leasehold. The Article examines the severe problems that can arise from such government action. Finally, the Article suggests possible solutions. It suggests limitations that both respect the government's ability to engage in takings, and uphold the checks and balances and individual autonomy that are essential to our social order and system of government. Part II provides an overview of that portion of takings law that is germane to the Article. Part III analyzes whether a governmental entity can create a term for years through condemnation proceedings based on the exercise of its power of eminent domain. It concludes that, under current law, government can take such action whenever eminent domain is a permissible means of obtaining fee simple title. This includes the power to use eminent domain to create leaseholds to be transferred to private parties in transactions analogous to Kelo v. City of New London. Part IV of this Article summarizes the circumstances, albeit limited, in which government ought to use eminent domain proceedings to establish a leasehold. It also introduces some of the concerns that can arise even from appropriate use of the power. Part V exposes serious problems that can arise out of such takings. A number of these harms are specific to takings that create a leasehold. Others can arise in takings in general but are exacerbated because of the unique circumstances that accompany condemnation proceedings to create a leasehold. Part V also explores whether these concerns are so intractable as to require prohibition of condemnation proceedings to establish leaseholds on the basis of public policy, but concludes that such a drastic remedy is not warranted. Ultimately, adjustments to the calculation of just compensation can ameliorate a number of the concerns, and refinements to the calculation are suggested. There are, however, remaining concerns that are so severe that I propose that eminent domain to create leaseholds through condemnation proceedings be limited as a matter of public policy to eliminate the most egregious harms to the public. Part V suggests limiting the permissible scope of condemnations that create leaseholds to those in which government itself, the public, or a private entity acting as an agent of government is occupying the leasehold. This provides the most effective and efficient solution. It is simpler to administer than other approaches, preserves the ability of government to use condemnation proceedings to establish a leasehold in appropriate circumstances, eliminates the most egregious harms, and protects from government intrusion the sphere of individual autonomy that is essential to the preservation of our social fabric. Part VI summarizes the proposed solutions.

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Publication Date

Winter 2007