Center for Contract and Economic Organization
Center for Law and Economic Studies
Who has a constitutionally protected "property" interest when the government condemns land subject to a lease? Is it the landlord? The tenant? Or do both parties have property rights that entitle them to compensation? Further, how should the size of the total condemnation award be determined? Should we value the property rights of the landlord and the tenant separately and sum? Or should we value the entire parcel as if it were an undivided fee simple and apportion the award between the landlord and the tenant? If the condemnation award is based on the value of a fee simple and apportioned, who should make this division? Is this an issue of consitutional law as to which the courts have the final say? Or do the principles of constitutional law enunciated by the courts merely provide "default rules," i.e., rules that apply only if the parties fail to address the issue of compensation in the lease?
In this article, we offer a normative framework for answering these questions. Our approach evolved by working backwards. We started with the question of how to apportion condemnation awards between landlord and tenant. Why, we asked, should courts do the division? Why not let the parties do it themselves? Insofar as commercial leases are concerned, all the prerequisites for efficient bargaining would seem to be present here: a small number of parties (two), an established vehicle for conducting the negotiations (the lease), and both parties typically represented by counsel. Furthermore, provided the issue is addressed in the lease-before condemnation takes place-there should be no problem of ex post strategic behavior.1
Victor P. Goldberg, Thomas W. Merrill & Daniel Unumb,
Bargaining in the Shadow of Eminent Domain: Valuing and Apportioning Condemnation Awards between Landlord and Tenant,
UCLA L. Rev.
Available at: https://scholarship.law.columbia.edu/faculty_scholarship/675