Utah Department of Transportation v. Kmart Corp.

October 3, 2018

Utah Supreme Court

September 25, 2018

2018 UT 54 (Click for text of opinion)

In this case, the Utah Supreme Court held that a tenant has no protectable property right entitling it to an award for just compensation when its lease terminates upon a condemnation.

The Utah Department of Transportation (“UDOT”) condemned an access to a shopping center where Kmart leased space. Kmart’s lease contained a termination clause terminating the lease if the condemnation materially impaired the access to the premises leased by Kmart. UDOT brought a motion for partial summary judgement against Kmart arguing that Kmart did not have any property interest requiring compensation because of the termination clause. The district court found that the condemnation materially impaired the access to the premises leased by Kmart, thereby triggering the termination clause, but still awarded Kmart a $1.4 million condemnation award.

On appeal, the Utah Supreme Court overruled the district court and held that Kmart had no protectable property interest requiring the payment of just compensation when the condemnation triggered the termination of its lease. In arriving at its decision, the Court noted that this conclusion 1) is consistent with general eminent domain principles because compensation is only awarded to a claimant with a current protectable property interest in the condemned property and a lease termination clause ends that property interest; 2) is consistent with general contract principles that allow parties to agree on mutually agreeable terms, including how to apportion future risk in case of a condemnation; and 3) is not inconsistent with the Court’s decision in UDOT v. FPA West Point, LLC because the applicability of the aggregate-of-interests approach to valuation has no impact on whether any property owner has a protectable property right in the first place.