Department of Public Works and Buildings v. Metropolitan Life Ins. Co.

• Decision Date: 29 May 1963
• Docket Number: H,D,Gen. No. 48881,No. 18997,18997
• Citation: 192 N.E.2d 607,42 Ill.App.2d 378
• Parties: The DEPARTMENT OF PUBLIC WORKS AND BUILDINGS, Plaintiff, v. METROPOLITAN LIFE INSURANCE COMPANY, a corporation of New York, La Salle National Bank, as Trustee under Trustenry M. Jung, John H. Jung, Helen M. Jung, Margaret M. Jung, et al., Defendants. LA SALLE NATIONAL BANK, as Trustee under Trustefendant, Appellant, Cross-Appellee, v. Henry M. JUNG, John H. Jung, Helen M. Jung, and Margaret M. Jung, Defendants, Appellees, Cross-Appellants.
• Court: United States Appellate Court of Illinois

Page 607

192 N.E.2d 607

42 Ill.App.2d 378

The DEPARTMENT OF PUBLIC WORKS AND BUILDINGS, Plaintiff, v. METROPOLITAN LIFE INSURANCE COMPANY, a corporation of New

York, La Salle National Bank, as Trustee under Trust No.

18997, Henry M. Jung, John H. Jung, Helen M. Jung, Margaret

M. Jung, et al., Defendants.

LA SALLE NATIONAL BANK, as Trustee under Trust No. 18997, Defendant, Appellant, Cross-Appellee, v. Henry M. JUNG, John H. Jung, Helen M. Jung, and Margaret M.

Jung, Defendants, Appellees, Cross-Appellants.

Gen. No. 48881.

Appellate Court of Illinois, First District, Second Division.

May 29, 1963.

As Modified on Denial of Rehearing Sept. 25, 1963.

Koven, Koven, Salzman & Homer, Chicago, for LaSalle Natl. Bank as trustee, defendant, appellant, cross-appellee; Paul Homer, Robert Rosenman, Chicago, of counsel.

Ader & Ader, Chicago, for appellees and cross-appellants; Zeamore A. Ader, Chicago, of counsel.

BURKE, Justice.

The Department of Public Works and Buildings of Illinois filed a petition to condemn certain real estate in Cook County. An award of $14,600 was made with respect to the land subject to a 99-year lease. The amount of the award was not contested. Subsequently the tenant filed a petition for apportionment of the award between itself and the landlord. In a trial without a jury the tenant was awarded $8,300 and the landlord $6,300. The tenant, appealing, asks that the judgment be reversed and that the entire amount be awarded to it. The landlord, in a cross-appeal, asks that it receive a larger share or in the alternative, that the judgment be affirmed.

On April 18, 1956, the parties entered into a 99-year lease of approximately 16.2 acres of land adjoining and adjacent to Milwaukee Avenue and near Golf Road, for a term commencing May 1, 1956, to and including April 30, 2055 at an agreed rental of $8,000 per year, payable semi-annually, which rental is subject to no deductions or abatements whatsoever. The lease gives the lessee an option to purchase the tract for $160,000 exercisable between the 14th and 20th lease years. The present value of the land subject to the option is $1,500,000 according to lessee's witness or $700,000 according to lessor's witness. The lease also stipulates that the lessee (1) is to pay all real estate taxes and various other charges imposed on the land, (2) has the free unrestricted right of improvement of the premises, (3) may mortgage or assign its leasehold interest without the landlord's consent, and (4) must not encumber lessor's title. The lease further provides that upon partial or total condemnation, the lessee has the right to prosecute claims for injury to its interest and that any condemnation award is to be divided fairly and equitably between the fee simple estate and the leasehold estate.

On June 1, 1960, the Department filed its petition against the owners and other parties having an interest in the land to be taken for the purpose of improving the Golf Road-Milwaukee Avenue intersection. The leased area was vacant except for a small frame building housing a tavern. One of the tracts involved was designated in the suit as 'Parcel 16,' a strip of land abutting on Milwaukee Avenue which was to be taken for the purose of widening that thoroughfare. All of 'Parcel 16' was included under the 99-year lease between the parties to this appeal. Both lessor and lessee were named parties defendant with respect to the parcel and both filed appearances. The court entered an order, without trial, awarding a total of $14,600 as just compensation to those having an interest in 'Parcel 16.' The award consisted of $12,100 for damage to the land taken and $2,500 for damage to the remainder of the realty of which 'Parcel 16' was a part. The entire tract subject to lease consists of 705,960 square feet; the area taken consists of 11,960 square feet or approximately 1.69% of the total area.

The parties introduced various plats and the 99-year lease. Lessee introduced the testimony of a real estate broker and appraiser who stated that the fair market value of the entire fee on the date of the condemnation, subject to the 99-year lease, was $135,000-$160,000, arriving at this determination on the basis that for the investment of $160,000, the return (rental) is $8,000 annually, or 5% of the investment. He estimated the fair market value of the leasehold property taken on the date of condemnation at $23,000. He testified that in matters like the instant case, no reversionary value is attributed to the fee, and that since the rent continued unabated notwithstanding the condemnation, there was no reason to capitalize any loss of income to lessor; that, therefore, the lessor suffered no loss and that the award should belong wholly to the tenant. He estimated the square foot value of the fee on the date of condemnation at $1.50 per square foot. Lessee's attorney testified as to the square foot value of the contiguous land for comparison purposes, indicating a $1.50 per square foot value for the property under the lease.

The lessor's witness, a broker and appraiser, testified that the fair market value of the fee, subject to the lease, on the date of condemnation, was $286,000. When queried as to the rate of return (rentals) accruing to an investor purchasing the fee for this price, he stated that the fee could not be sold at this price because of the low rate of return, but that this did not affect his estimate of the fair market value. He maintained that the fee ownership had a reversionary value of $286,000, notwithstanding that the property would not and could not be sold for this price because nobody would purchase it. Thus, the lessor's expert testified that the value of the fee subject to the lease on the date of condemnation was $286,000 and that this was also the reversionary value of the fee. His estimates were based upon a valuation of the land at $1.00 per square foot. Lessor's witness testified as to the rental value of the leasehold, attributing a value to it of $41,600 per year as compared with the stipulated rent in effect of $8,000 per year. There was a stipulation, 'that the lease is held in a land trust, the trustee being the lessee, and there are no assets in value or money or anything in the trust except the lease, and there is no personal liability on the lease.'

The lessee's theory is that it is entitled to all the award, or $14,600. The lessor's theory is that the parties expressly contracted in the lease that 'any and all condemnation awards or judgments shall be divided fairly and equitably between the fee simple estate and the leasehold estate'; that this agreement must be enforced and the award divided between them fairly and equitably according to equitable principles; that common law condemnation rules of apportionment are not equitable and do not apply and that the landlord is entitled to the amount awarded to it or to a greater portion.

It is well established that lessees for years holding under a valid lease have such an interest in real property as to be classified as owners in the constitutional sense and are entitled to compensation for the taking of their interest in the property. Corrigan et al. v. City of Chicago, 144 Ill. 537, 543, 33 N.E. 746, 21 L.R.A. 212; Stubbings v. Village of Evanston, 136 Ill. 37, 41, 26 N.E. 577, 11 L.R.A. 839. It is not disputed that the tenant has an interest under the lease nor is there a dispute respecting tenant's continuing obligation for rent at the annual rate of $8,000 without deductions or abatement whatsoever. In the Stubbings case, a strip of land subject to a leasehold was condemned for purposes of extending a city street. The remainder of the premises leased was tenantable. The court held that the tenant would continue to be liable for the full amount of rent and could not claim an eviction against the landlord. The case established the rule in Illinois that the tenant is not entitled to an abatement or apportionment of the rent where only a part of the land is taken by eminent domain proceedings and that he is entitled to just compensation for the damages to the leasehold. See Yellow Cab Co. v. Stafford Smith Co., 320 Ill. 294, 296, 150 N.E. 670, 43 A.L.R. 1173; Leonard v. Auto Car Sales & Svs. Co., 325 Ill.App. 375, 60 N.E.2d 457. In recognition of this rule in the instant case the lessee offered to waive all right to the award if the lessor would permit a proportionate abatement in rent. The lessor refused any abatement. Thus, the tenant remains liable for the full rent on all the leased premises despite the fact that a portion thereof has been taken for public use. The tenant argues that where the rent continues unabated as to the premises taken and the fee is subject to a long-term 'bonus' lease, the landlord is entitled to no compensation for his reversionary interest in the land taken and that under the undisputed facts the tenant is entitled to all the award. The landlord points out that the parties to leases may validly contract as to how awards in condemnation cases shall be apportioned between the landlord and the tenant, citing United States v. Advertising Checking Bureau, Inc., 7 Cir., 204 F.2d 770 and City of St. Louis v. Senter Commission, 233 Mo.App. 804, 108 S.W.2d 1070. The landlord insists that in the lease in the instant case the parties expressly contracted that any condemnation awards or judgments shall be divided fairly and equitably between the fee simple and the leasehold estate and that a fair and equitable division of the awards sustains the judgment or entitles the landlord to a larger portion. The landlord says that the authorities cited by the tenant are inapplicable to the factual situation in the case at bar.

The lease is a non-abatable 99-year lease which, on the condemnation date, June 1, 1960, had approximately 95 years to run. Rent on the entire tract, including the part taken, will continue to be payable at the full amount under the lease, of $8,000...