The Impact of Eminent Domain On Commercial Leasing: Understanding Owners’ and Tenants’ Rights

Eminent domain is the government’s power to take private property for public use, with compensation provided to the owner. While most people are familiar with eminent domain in the context of residential properties, it can also significantly impact commercial real estate. Whether you are a property owner or a tenant in North Carolina, understanding how eminent domain affects business owners and commercial leases is crucial to navigating potential challenges.

Rights of Commercial Property Owners

As the property owner, you have the primary right to negotiate with the government when your property is subject to eminent domain. Key aspects that owners should be aware of include:

1. Compensation for the Property. Property owners are entitled to compensation for the fair market value of the land or building being taken. If only part of the property is taken (e.g., for a road expansion), the owner may be entitled to compensation for the value of the portion taken, and possibly damages for any loss of value to the remaining property.
2. Relocation Assistance. In some cases, if the entire property is seized, the government may offer relocation assistance to help the business move to a new location.
3. Negotiation of Terms. Owners can negotiate with the government for a higher compensation amount. This is particularly important if the government seizes a portion of the property, which will significantly impact the value or functionality of the remaining property.
4. Impact on Tenants. If the property being taken is leased, the owner should be aware that tenants’ rights may be affected. The lease terms, including how eminent domain affects them, should be reviewed closely.

Rights of Tenants in Commercial Leases

While the owner may negotiate with the government, tenants also have rights that must be addressed. In most commercial leases, the relationship between the tenant and the property owner is outlined in the lease agreement. When eminent domain comes into play, tenants may face disruption but may also be entitled to specific compensation or protections, depending on the lease terms.

1. Lease Termination. Many commercial leases contain clauses that address what happens if the property is taken through eminent domain. If the entire property is seized, the lease is often terminated, and the tenant will be entitled to compensation for the loss of their leasehold. The compensation could be related to the remaining value of the lease term, such as prepaid rent or moving costs. In some cases, tenants may be entitled to compensation for their improvements to the property.
2. Partial Property Seizure. Suppose only a portion of the property is taken. In that case, the tenant may still be able to continue operations in the remaining space, depending on the nature of the seizure and the impact on the business. However, the tenant should evaluate whether the remaining property is suitable for continued use.
3. Compensation for Tenant Improvements. If the tenant has invested in property improvements, such as build-outs or renovations, they may be entitled to compensation for those improvements if the property is taken.
4. Right to Relocate. If the government acquisition displaces their business, tenants may be entitled to relocation assistance. This is particularly relevant when a significant portion of the building or land is seized.

Essential Considerations for Both Owners and Tenants

Both owners and tenants should take proactive steps to protect their rights when eminent domain comes into play.

For tenants, it’s essential to carefully review the lease to understand how eminent domain is addressed. Many leases contain clauses explicitly addressing the government’s right to take property and tenants’ rights in such situations. Owners should also be aware of these clauses, which may influence the compensation process.

The eminent domain process can be complex and time-consuming. Both owners and tenants must understand their rights and responsibilities throughout the process. Consulting with an eminent domain attorney can help ensure you are adequately represented.

Property owners and tenants should also consider hiring appraisers or consultants to assess the fair market value of the property and any potential compensation for lost income or property improvements. Both parties should strive for fair compensation, particularly regarding tenant improvements or loss of business income. Government compensation might not always cover the full cost of business disruption or the cost of moving, so negotiating for the best possible outcome is key.

Finally, owners and tenants should keep thorough records of their business operations, improvements made to the property, and any losses they incur due to the eminent domain process. These records will be essential in securing appropriate compensation.

Eminent Domain Lawyers Safeguarding Your Rights as a Property Owner

The impact of eminent domain on commercial leases is not a situation any property owner or tenant wants to face. However, understanding the process and your rights is crucial for navigating this complex process. Whether you’re a commercial property owner or a tenant, having the proper legal counsel and preparing for the potential implications of eminent domain can make all the difference in securing a fair and just outcome.

Our eminent domain lawyers help property owners and tenants understand their rights and protect their interests throughout the process. If you have questions about eminent domain and your commercial lease, contact us for a consultation. We’re here to ensure that your rights are upheld every step of the way.

Contact us today by submitting a form online or calling our office at 919-781-1107 for a free appraisal review.