Property Management/Leases
What are the Effects of
Condemnation?
If land
which has been leased to a tenant is condemned under the government's
power, the tenant may be able to demand either a reduction in the rent or
a portion of the condemnation award which is the price paid by the
government to the owner, depending on the amount of land that was taken,
and the current value of the leasehold property.
Such a partial taking
over of the land by the government does not relieve the tenant from paying
full rent; instead the tenant may collect a portion of the condemnation
award equal to the apportioned rent for the property condemned.
For instance, assuming
that a tenant leases a piece of land for a period of 6 months for $1,000
per month, and two months later, the government condemns 25% of the land.
The tenant will be entitled to take a portion of the condemnation award
equivalent to 25% of the rent due for the remaining four months of the
lease that is $1,000, derived from $250 per month for four
months.
A full taking as part
of condemnation, however, nullifies the lease, and excuses all rent
payable from that point onwards. However, the tenant will not be entitled
to any portion of the condemnation award, until and unless the value of
the lease was greater than the rent that was being paid, in which case the
tenant can recover the difference.
Assuming that in the
above example, the market value of the land being leased was in reality
$1,200 a month, but the $1,000 per month rate represented a break given to
the tenant by the landlord. Since the tenant is losing the ability to
continue renting the land at this bargain rate and probably must move to
more expensive land, the tenant will be entitled to the difference between
the lease rate and the market value that is $200 per month for a total of
$800.
