Case Notes

Eminent Domain and a Tenant' s Trade Fixtures

What happens to a tenant's right to retrieve or be compensated for trade fixtures when a landlord's property is taken by a government entity through eminent domain?

In a recent condemnation proceeding brought by New York's village of Spring Valley, a commercial tenant appealed from the trial court's grant of summary judgment to the village dismissing the tenant's claim for compensation of trade fixtures. The Appellate Division, Second Department, reversed and remitted for a determination of the tenant's cross-motion to exchange appraisal reports. Matter of Village of Spring Valley Sport Club v. Village of Spring Valley, NYLJ 2/16/16, p. 29, col. 4 (AppDiv, Second Dept.).

In 2005, the tenant in Village of Spring Valley Sport Club leased the subject premises for operation of a billiard hall. The lease provided that the landlord would not acquire title to the tenant's trade fixtures and that the landlord could not prevent the tenant from removing its trade fixtures. The lease also provided that all property “permitted or required to be removed by [tenant] at the end of the term remaining in the premises after [tenant's] removal shall be deemed abandoned.” The landlord would have the option of retaining the property or removing it at the tenant's expense.

Another article of the lease provided that in the even the premises were acquired in an eminent domain proceeding, the tenant would have no claim for the value of an unexpired term of the lease.

In 2009, the village acquired the premises in a condemnation proceeding. The tenant asserted a claim for trade fixtures, but the village moved to dismiss the claim. The tenant cross-moved to direct the village to exchange appraisal reports. Supreme Court granted the village's motion.

In reversing, the Appellate Division started by citing the common law rule that a tenant who owns a trade fixture, but not the property to which the fixture is affixed, may seek compensation for fixtures it had a right to remove but elected not to remove by the time of the taking. In this case, the court found an ambiguity in the lease about whether the trade fixtures would be considered abandoned by the tenant only when the tenant voluntarily abandoned its fixtures. As a result, the court held that questions of fact precluded summary judgment.

An Analysis

In general, upon a condemnation, where a lease provides the lessee with the right to remove trade fixtures upon termination of the lease, the lessee is entitled to compensation for fixtures he has installed. In In re Allen St. & First Ave., Borough of Manhattan, City of New York, 256 N.Y. 236, 176 N.E. 377 (1931), New York's highest court, the Court of Appeals, held that the lessee was entitled to compensation for trade fixtures when the leased property was condemned because the lease expressly provided that the lessee was entitled to remove the fixtures at the end of the lease. Id. at 249. The court held that this express provision controlled the tenant's right to compensation for fixtures even though the tenant was not entitled to compensation for the leasehold itself because the lease contained another clause providing that the lease would terminate upon a condemnation. Id. at 243.

In contrast, the lessee is not entitled to compensation for trade fixtures if the lease expressly vests ownership rights to fixtures in the landlord. In City of New York, Coll. Point Indus. Park Urban Renewal Project II v. G & C Amusements, Inc., 55 N.Y.2d 353, 434 N.E.2d 1038, (1982), the lease provided that “[a]ll improvements [made would] become the property of the [l]andlord on annexation.” The Court of Appeals held that, because the lessee had no rights to the trade fixtures, the lessee was not entitled to any compensation for the value of the fixtures upon the condemnation of the property. Id. at 363.

When the lease provides that any fixtures not removed by the lessee before moving out of the premises upon the termination of the lease will become property of the landlord, courts have reached conflicting results on the lessee's right to compensation upon a condemnation. In both Gristede Bros. v. State, 11 A.D.2d 580, 200 N.Y.S.2d 755, 7 (3rd Dept 1960) and in Conklin v. State, 46 A.D.2d 936, 361 N.Y.S.2d 743 (3rd Dept 1974) aff'd, 38 N.Y.2d 726, 343 N.E.2d 755 (1975), the lease provided that “If ' upon the expiration of this lease, the Tenant moves out ' and fails to remove any trade fixtures or other property prior to ' [the termination and the lessee' s subsequent removal from the property] ' the said fixtures and property shall be deemed abandoned by the said Tenant and shall become the property of the Landlord.” Gristede held that the tenant was entitled to compensation for the fixtures, reasoning that the clause implied that tenant would be given time to remove the fixtures before expiration of the lease, and that the landlord would be entitled to the fixtures only in cases where the tenant voluntarily abandoned them. Because the lease terminated immediately upon condemnation, the court concluded that the tenant' s failure to remove the fixtures could not constitute voluntary abandonment. By contrast, in Conklin, despite identical language in the lease, a divided court held that the lessee was not entitled to compensation. Conklin at 937.

The majority in Conklin apparently relied on a second clause in the lease providing that “upon the option of the landlord ' [any trade fixtures left on the property by the lessee upon termination of the lease and the lessee' s removal]' shall become the property of the Landlord.” Id. In light of that language, the landlord would have been entitled to compensation for the fixtures if the tenant had abandoned them. The majority, apparently concerned that the state had already compensated the landlord for the fixtures, emphasized the tenant's failure to prove that the state had not paid the landlord for the fixtures, or that the andlord had not made a claim that included the fixtures.

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