Dept. of Transp. v. M & T Ent.

Decision Date12 September 2008
Docket NumberNo. 4435.,4435.
Citation667 S.E.2d 7
PartiesSOUTH CAROLINA DEPARTMENT OF TRANSPORTATION, Defendant, v. M & T ENTERPRISES OF MT. PLEASANT, LLC., Wells Fargo Bank of Minnesota, N.A., Assignee, and Walgreen Company, Lessee, Plaintiffs, Of whom Walgreen Company is Appellant, and M & T Enterprises of Mt. Pleasant, LLC., is Respondent.
CourtSouth Carolina Court of Appeals

PIEPER, J.:

This appeal involves a dispute between a landlord and tenant over the division of a compensation award from a partial taking of leased property by condemnation. Walgreen Company (Tenant) appeals the master-in-equity's decision to give the entire $100,000 award to M & T Enterprises of Mt. Pleasant, LLC (Landlord). Since we may affirm for any reason in the record, we affirm as modified.

FACTS

In 2001, Tenant entered into a lease (Lease) with MD/CP-Mount Pleasant, LLC (MD/CP). The Lease clause titled "Delivery of Possession" provided Landlord would complete construction of the building and deliver exclusive possession to Tenant in April 2002, or as soon thereafter as possible, but no later than January 2003. The Lease was for seventy-five years, but Tenant had the option of terminating it early at specified times. The leased premises specifically included "the [b]uilding, real estate and other improvements to be constructed thereon. ..." In August 2004, Landlord was assigned MD/CP's interest under the Lease. Tenant was in possession of the property before the filing of a condemnation notice on October 29, 2004.

Article 4 (Condemnation Disclosure) in the Lease stated, "Landlord, after due inquiry, warrants and represents to Tenant that, other than the condemnation of a strip of land approximately five (5) feet wide along Hwy. 21, Landlord has no knowledge of any pending or threatened condemnation actions which will affect the Leased Premises."1 The Lease also contained a site plan depicting an area labeled "20' Future R/W Per Town" abutting Highway 17. Additionally, the Lease contained a section on condemnation (Condemnation Clause), which was divided into two parts, 32(a) and 32(b). Section 32(a) of the Condemnation Clause provided in part:

If prior to Landlord's delivery of possession of the Leased Premises to Tenant in accordance with Article 4, any portion of the Leased Premises or the Driveway shall be taken by reason of condemnation or under eminent domain proceedings, or if as a result of such a condemnation, eminent domain proceeding or of modifications to adjacent public roadways, any curb-cut providing access to the Leased Premises will be closed, then Tenant may terminate this Lease at Tenant's option, to be exercised by notice to Landlord within sixty (60) days of such event, if in the opinion of Tenant, reasonably exercised, the remainder of the Leased Premises and/or access points thereto are or shall no longer be suitable for Tenant's business.

Section 32(b) provided in part:

If subsequent to Landlord's delivery of possession of the Leased Premises to Tenant in accordance with Article 4, a portion of the Leased Premises and/or the Driveway shall be taken under eminent domain or by reason of condemnation and if in the opinion of Tenant, reasonably exercised, the remainder of the Leased Premises and/or Driveway is/are no longer suitable for Tenant's business, this Lease, at Tenant's option, to be exercised by notice to Landlord within sixty (60) days of such taking shall terminate; any unearned rents paid or credited in advance shall be refunded to Tenant. If this Lease is not so terminated, Landlord forthwith and with due diligence, shall restore the Leased Premises and/or Driveway to a proper and usable condition. Until so restored, fixed rent shall abate to the extent that Tenant shall not be able to conduct business, and thereafter, fixed rent for the remaining portion of the term shall be proportionately reduced.

Tenant shall be entitled to the award in connection with any condemnation insofar as the same represents compensation for or damage to Tenant's fixtures, equipment, non-permanent leasehold improvements and other property of Tenant, moving expenses as well as the loss of leasehold estate (i.e. the unexpired balance of the lease term immediately prior to such taking); Landlord shall be entitled to the award insofar as same represents compensation for or damage to the fee remainder (including damage to the Building structure, and other permanent leasehold improvements made at the expense of Landlord under Article 5 hereof).

On October 29, 2004, the South Carolina Department of Transportation (SCDOT) filed a condemnation notice. The notice involved a strip of land along Highway 17 varying in width from one to fourteen feet for a length of approximately three hundred feet, totaling 4,245 square feet of land. Prior to the condemnation, the leased premises encompassed 100,493 square feet or 2.31 acres. Tenant did not terminate the Lease after the taking and continued paying $31,083.33 in monthly rent as provided by the Lease. Tenant, Landlord, and SCDOT agreed to a condemnation award of $100,000. Tenant and Landlord did not agree on the division of the award, and their dispute was referred to the master-in-equity.2

At the hearing before the master-in-equity, Tenant's expert witness testified that Tenant was entitled to a rent reduction of $491.07 per month under the Condemnation Clause.3 First, the expert used the 2004 report generated by SCDOT's appraiser as a baseline to determine the fair market value of the property itself (not the leasehold) before and after the taking; he concurred with both the difference in value to the property in fee and the acreage differential caused by the taking. Using the income approach, he then appraised Tenant's interest in the award at $81,400, resulting from the reduction in rent over the life of the Lease. The expert witness arrived at this figure by determining the land in the Lease was 37.4% of the total value of the property. He determined the taken land was 4.22% of the total land. Next, because the taking only involved land and not the building, the expert determined that it represented 1.58% of the total value of the property. Accordingly, 1.58% of the monthly rent Tenant paid of $31,083.33 amounted to $491.07 per month. The expert then calculated the present value of the monthly reduction over the life of the lease and determined the value as either $91,200 or $81,400, depending upon the capitalization rate he applied. The expert ultimately selected the $81,400 value.

The master-in-equity relied upon the contract between the parties and found that Tenant "has offered absolutely no evidence that the leasehold estate today is worth less than the leasehold estate that it held" on the date the Lease was either executed or delivered. The master-in-equity further stated that Tenant is "only entitled to the difference between what they pay in rent and what the property could be leased for." As additional sustaining grounds, the master-in-equity found: (1) that the leased premises "excluded the first 20-feet of the subject premises as a future right of way and within which the condemnation actually occurred"; and (2) that, for purposes of the Lease, the condemnation action commenced when Landlord notified Tenant of the threatened condemnation in Article 4 of the Lease, which occurred prior to Tenant's possession. Thus, the only alternative under the terms of the Lease would have been to terminate the Lease. Since the master-in-equity determined that Tenant did not prove damages to the leasehold interest, he awarded the full $100,000 to Landlord. This appeal followed.

ISSUES

Tenant raises the following issues on appeal:

I. Whether the trial court erred in applying the common law standard to measure a tenant's portion of a condemnation award instead of applying the condemnation provisions of the lease;

II. Whether the trial court erred in ignoring the terms of a rent reduction condemnation clause in a condemnation allocation proceeding;

III. Whether a condemnation clause is controlling between a tenant and its landlord in an allocation dispute under the South Carolina Eminent Domain Procedures Act;

IV. Whether the trial court erred in determining that a clause giving notice of a possible condemnation affected Tenant's possible right to a proportionate rent reduction under the lease's condemnation clause;

V. Whether the trial court erred in holding, as a matter of law, that the lease excluded an area described as a future right of way;

VI. Whether the trial court erred in holding, as a matter of law, that Tenant's only remedy in the event of a partial condemnation was termination of the lease;

VII. Whether the trial court erred in finding that the condemnation action commenced prior to Tenant's possession of the property; and

VIII. Whether award of the entire amount of the condemnation settlement to landlord M & T is inequitable?

STANDARD OF REVIEW

A proceeding to allocate any condemnation funds is by statute a proceeding in equity. S.C.Code Ann. § 28-2-460 (2007). In an equitable proceeding, we may find facts in accordance with our own view of the preponderance of the evidence. See Murrells Inlet Corp. v. Ward, 378 S.C. 225, 231, 662 S.E.2d 452, 455 (Ct.App.2008); see also Friarsgate, Inc. v. First Fed. Sav. & Loan Ass'n of South Carolina, 317 S.C. 452, 456, 454 S.E.2d 901, 904 (Ct.App.1995). However, our broad scope of review does not require this court to disregard the findings of the trial judge who saw and heard the witnesses and was in a better position to judge their credibility. Sloan v. Greenville County, 356 S.C. 531, 546, 590 S.E.2d 338, 346 (Ct.App. 2003).

Moreover, a case with both legal and equitable issues presents a divided scope of review. Thus, "a legal question in an equity case receives review as in law."...

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