Peerless Park v. Dennis

• Decision Date: 27 February 2001
• Citation: 42 S.W.3d 814
• Parties: (Mo.App. E.D. 2001) City of Peerless Park, Missouri, Plaintiff/Appellant/Cross-Respondent v. William E. Dennis, Defendant, and Central Holding Corporation, Defendant/Respondent/Cross-Appellant. ED77974 and 78010 0
• Court: Missouri Court of Appeals

42 S.W.3d 814 (Mo.App. E.D. 2001)

City of Peerless Park, Missouri, Plaintiff/Appellant/Cross-Respondent v. William E. Dennis, Defendant, and Central Holding Corporation, Defendant/Respondent/Cross-Appellant.

ED77974 and 78010

Missouri Court of Appeals Eastern District

02/27/2001

Appeal From: Circuit Court of St. Louis County, Hon. Barbara W. Wallace, Judge

Counsel for Appellant: Stanley J. Wallach and Jerome Wallach

Counsel for Respondent: Charles A. Seigel, III and Michael A. Wolff

Opinion Summary: The City of Peerless Park appeals a judgment apportioning the proceeds of a condemnation award for a parcel of land owned by William E. Dennis and leased to Central Holding Corporation (CHC). Dennis and the City settled their claim for Dennis's portion of the award, and Dennis assigned his rights and interests in this matter to the City.

Division One holds: The trial court properly found an unexercised option to purchase land contained in a lease is a compensable property interest in a condemnation action. The trial court erred, however, in its apportionment of the proceeds of the condemnation. The value of the option is the commissioners' award minus the sale price provided for by the parties in the lease on the day of condemnation, which is the day the condemnor pays the commissioners' award into the registry of the court.

Robert G. Dowd, Jr., Presiding Judge

The City of Peerless Park (the City) appeals from a judgment apportioning the proceeds of a condemnation award for a parcel of land owned by William E. Dennis (Dennis) and leased to Central Holding Corporation (CHC). Dennis and the City settled their claim for Dennis's portion of the award and Dennis assigned his rights and interests in this matter to the City. The City contends the trial court erred in (1) awarding CHC a portion of the condemnation award based on CHC's unexercised option to purchase the land because that option to purchase is not a property interest, (2) admitting opinion testimony of the value of the option because the opinion was not reasonably reliable, and (3) calculating the compensation because the trial court should have deducted the rent owed for the remaining years of the lease and should have discounted for risk and entrepreneurial profit. CHC cross-appeals contending the trial court erred in (1) calculating the compensation because a discount rate should not have been applied, and (2) failing to award CHC the rental bonus value. We affirm in part and reverse and remand in part.

This appeal is a result of a condemnation proceeding instituted by the City to remedy blight and encourage redevelopment in the area. The affected parcel is 1.5 acres located in a floodplain near the intersection of I-44 and Highway 141. Dennis leased the property to CHC under a ten-year lease dated August 3, 1992. CHC used the lot as seasonal parking for a haunted house.

The lease contained an Option to Purchase and Right of First Refusal. The option provision states in pertinent part:

Tenant shall have the pre-emptive right during the term of this Lease to purchase said premises. The sale price shall be One Hundred Twenty Thousand Dollars ($120,000.00) if purchased within the first twelve months of this lease. The sale price shall escalate at the rate of 5% annually thereafter, throughout the term of this lease. Tenant shall give Landlord sixty (60) days written notice in advance of Tenant's intent to purchase. . .

Pursuant to the condemnation proceedings, Commissioners were appointed to determine the value of the property, and on July 22, 1998, they assessed the damages for the taking at $250,000. The City paid that amount into the registry of the court. Dennis and CHC each moved for distribution of the funds. The trial court conducted a hearing, heard evidence, and divided the assessed damages among the parties. The trial court awarded Dennis $209,429.05 and awarded CHC $40,570.95. Each party was also awarded the interest accrued on those amounts since the money had been deposited into the registry of the court. This appeal follows.

This court will affirm a judgment in a court-tried case unless there is no substantial evidence to support it, it is against the weight of the evidence, or it erroneously declares or applies the law. Murphy v. Carron, 536 S.W.2d 30, 32 (Mo. banc 1976).

In its first point, the City argues the trial court erred in awarding CHC a portion of the condemnation proceedings based on CHC's unexercised option to purchase the land because that option to purchase is not a property interest. CHC argues the option to purchase the property is a valuable property right which if taken by eminent domain is compensable under Missouri Law. We agree with CHC.

The claim to compensation for condemnation is predicated on the Fifth and Fourteenth Amendments to the United States Constitution and Article I, Sections 10 and 26 of the Missouri Constitution of 1945. The Fifth Amendment guarantees that no person shall be deprived of property without due process of law, nor shall private property be taken for public use without just compensation. Under the Fourteenth Amendment, these protections apply to actions taken by the states. Bi-State Development Agency of Missouri-Illinois Metropolitan Dist. v. Nikodem, 859 S.W.2d 775, 778 (Mo. App. E.D. 1993). Likewise, Article I, Section 10 of the Missouri Constitution provides that "no person shall be deprived of life, liberty or property without due process of law," and Article I, Section 26 requires that "private property shall not be taken for public use without just compensation."

The issue of whether an option to purchase property is a property right and is, therefore, compensable when the leased property is condemned is a question of first impression in Missouri. Our courts have established that not every person who can properly be designated a lessee is entitled to damages upon the taking of his interest in condemnation. Bi-State, 859 S.W.2d at 779. For example, one remaining in possession after a lease has expired by its own terms has no constitutional right to compensation despite evidence of mutual satisfaction by landlord and tenant supporting an expectation of renewal. Id. Likewise, one failing to execute a renewal of a lease on the terms specified therein prior to the expiration of the original term has no compensable interest in a condemnation award. Id.

A compensable interest in condemnation has been described as "[t]he interest held, the property for which compensation must be rendered, though not necessarily the corporeal thing itself, must consist of some definite right of domination in and over the physical thing, such as the right of use, or exclusion, or disposition." Millhouse v. Drainage Dist. No. 48 of Dunklin County, 304 S.W.2d 54, 58 (Mo. App. 1957). A mere contractual relationship is not sufficient in itself. Id.

Both parties, in making their arguments, rely on Land Clearance for Redevelopment Corp. v. Doernhoefer, 389 S.W.2d 780 (Mo. 1965). In that case, the lease at issue contained an option to renew the lease. Id. at 783. The court found the holder of an option to renew a lease has an interest in the land. Id. The right of renewal constitutes a part of the tenant's interest in the land, and forms a substantial and integral part of the agreement. Id. The tenant in that case was awarded a bonus value for the remainder of the term of the original lease and for the term of the new lease under the option. Id.

CHC argues this principle should be extended to options to purchase contained in a lease agreement. The City argues the court in Doernhoefer purposefully made a distinction between an unexercised option to purchase and unexercised option to renew a lease and thus, contends Doernhoefer should not be applied in this case. The court in Doernhoefer stated:

Lessors object that lessee did not exercise its option to renew, citing cases which hold that a lessee with an unexercised option to purchase is not entitled to compensation upon condemnation of the leased premises. Without approving or disapproving and assuming for the purpose of the argument that those cases were correctly decided, they are not analogous. The holder of an unexercised option to renew a lease, having an interest in the land, is in a different position from that of the holder of an option to purchase who has no interest in the land before the exercise of the option.

Doernhoefer, 389 S.W.2d at 786 (emphasis added). We note the Doernhoefer court distinguishes these two situations in this dicta, but it does not explain the distinction or give any authority for the distinction. The parties do not cite and this court was unable to find any Missouri cases the Doernhoefer court obscurely referenced.

The City argues the reason for the difference in treatment of the option to purchase and the option to renew the lease are the different estates in land that are held. The City contends an option to renew a lease is a continuation of the estate already vested and should therefore be considered a vested property right. They also argue the option to purchase is an unaccepted offer to obtain an entirely different estate. We find this argument unpersuasive. An option to renew grants the privilege of creating a new tenancy upon the expiration of the original term. State ex rel. State Highway Commission v. Demarco, 445 S.W.2d 379, 385 (Mo. App. 1969) (emphasis added). Based on this logic, an option to purchase and an option to renew both create new estates and new property rights.

We do not find the Doernhoefer distinction between options to purchase and options to renew authoritative or persuasive under these facts. There are several factors courts consider when determining if a lessee has a compensable interest in the condemnation award. The Doernhoefer court considered as a factor that the option was a part of the lease, part of the estate granted, and as much a part of the lease as any other element...