Real Property & Environmental Law Alert : New Jersey, New York, Pennsylvania & Delaware Lawyers & Attorneys for Real Estate Development & Environmental Law

Kearny moved forward with the condemnation of the tenant’s leasehold interest. The trial court found the condemnation to be valid, among other issues. The Appellate Division affirmed the trial court’s decision, but remanded to the trial court for a finding of what just compensation was due to the tenant.

On remand, the trial analyzed the Condemnation Clause in the tenant’s lease, which stated in relevant part:

If the Complex of which the Premises are a part, or any portion thereof, shall be taken under eminent domain or condemnation proceedings, or if suit or other action shall be instituted for the taking or condemnation, or if in lieu of any formal condemnation proceedings or actions, Landlord shall sell and convey the Premises of any portion thereof, to the governmental or other public authority, agency, body or public utility, seeking to take said land or any portion thereof, then this lease, at the option of the Landlord, shall terminate, and the term hereof shall end as of such date as Landlord shall fix by notice in writing; and Tenant shall have no claim or be entitled to any portion of any amount which may be awarded as damages or paid as the result of such condemnation proceedings or paid as the purchase price for such option, sale or conveyance in lieu of formal condemnation proceedings.

The trial court concluded that the condemnation of the leasehold interest triggered the Condemnation Clause, which terminated the lease and dictated that the tenant was not entitled to any compensation. The Appellate Division affirmed. On appeal to the Supreme Court, the tenant argued that it had been deprived of its property interest without due process of law and just compensation.

As initial matters, the Court confirmed that (1) the tenant was not entitled to notice of the initial designation of the property as in need of redevelopment; and (2) leasehold interests can be condemned “separate and apart from, and without condemnation of, the fee simple.” With those rulings as the backdrop, the Court tackled whether the condemnation process was proper and whether the tenant was entitled to compensation under the lease.

The Court noted that “where a fee simple is being condemned, negotiations will take place with the fee owner alone,” but found that “it is obvious that where the fee is not at issue, the holder of the interest that is actually at stake is the party with whom negotiations must take place.” Because, among other things, the landlord failed to undertake the required appraisals and to make an appropriate offer of just compensation, the negotiations were fatally flawed and violated the bona fide negotiation requirements set forth in N.J.S.A. 20:3-6.

The failure to enter into bona fide negotiations was sufficient to invalidate the condemnation; however, the Court also evaluated whether the Condemnation Clause of the lease relieved the landlord and the Town from having to compensate the tenant. The Court determined that because the clause could work a forfeiture on the tenant, it should be strictly construed. Thus, “unless the clause [was] crystal clear, forfeiture should not occur.”

The Court interpreted the Condemnation Clause as depriving only the tenant of compensation upon condemnation of the fee. Because Kearny was only seeking to condemn the leasehold interest, the Court determined that the tenant was entitled to compensation.

Justice LaVecchia, joined by Justice Rivera-Soto and Judge Stern (t/a), filed a dissenting opinion, stating that the majority took an “unduly narrow interpretation” of the Condemnation Clause of the lease and that no portion of the fee was required to be condemned for the Clause to result in a forfeiture of tenant’s interest. In short, whether a condemnation touched a physical portion of the fee or a portion of any property interest in the fee (e.g., a leasehold interest), it triggered the Condemnation Clause. The parties negotiated the lease in an arms length transaction, and, therefore, should have known the terms to which they were agreeing.

Furthermore, the dissenting justices thought that the majority had elevated form over substance in this case. Both sides acknowledged that if Kearny had condemned the entire fee and then conveyed it back to the landlord, the lease would have been terminated, and the tenant would not have been entitled to compensation.

There are several items to take away from this case. First, leasehold interests undoubtedly can be condemned separate and apart from fee interests. Second, when the fee interest is not being condemned, a condemning authority must follow all of the statutory requirements for bona fide negotiations with the impacted tenant. Finally, tenants and landlords should review their existing condemnation clauses, with a focus on the nuances of the clause, which could determine whether a tenant receives a condemnation award or not.

Michael Miceli is an Director in the Gibbons Real Property & Environmental Department. Jennifer P. Smith, an Associate in the Gibbons Real Property & Environmental Department, co-authored this post.

Not a Public Trust Case, But a Public Ownership Case

The Court introduced its analysis with a discussion of the public trust doctrine -- an ancient doctrine with roots in Roman law under which the State holds title to tidally flowed lands in trust for the people -- but rested its decision on the basis of familiar common-law concepts. Beginning with the principle that the State “owns in fee simple all lands that are flowed by the tide up to the high-water line or mark” -- with the littoral owner holding title to the land upland of the mean high water mark -- the Court was called on to decide who owned the new dry land that now sat where the State-owned tidally flowed land used to be.

The Appellate Division had ruled against the Lius on public policy grounds, concluding that the Lius should not reap the benefit of the government-funded beach replenishment program. The Supreme Court took a different tack, and applied the traditional common-law doctrines of accretion and avulsion, which go back just as far as the public trust doctrine.

Of Accretion, Avulsion, and Moving Lines

Accretion adds sand or other deposits to the shoreline gradually and imperceptibly, such that the change is apparent only after a long period of time. (Erosion is the opposite of accretion.) In contrast, avulsion is the sudden and perceptible addition or loss of land. The distinction between those processes has important legal ramifications. Under the common law, the oceanfront owner takes title to dry land added by accretion, and loses (to the State) title over land that becomes tidally flowed due to erosion. That is, with accretion or erosion, when the mean high water mark moves, the dividing line between public and private property moves with it.

The common-law rule for avulsion is entirely different. Where an avulsion produces a sudden gain or loss of dry land, the original demarcation line between public and private property does not shift; the “old” mean high water mark remains the dividing line.

The Supreme Court agreed with the Law Division’s finding that the rapid change in the Lius’ shoreline over a two-week period constituted an avulsion. Therefore, the Court concluded, the two acres of new dry land that was created by the beach replenishment project already belonged to the State. The Lius’ property ended at the “old” high water mark, even though the new high water mark was 225 feet away, and the Lius were not entitled to compensation for land they never owned.

 What’s a Beachfront Owner to Do?

The Lius had claimed that accretion, not avulsion had created the new dry land, but could not make that showing. Although the law usually presumes accretion rather than avulsion, that presumption is overcome where the evidence sufficiently shows an avulsion. With the presumption gone, it was up to the Lius, as the parties in the best position to know how and when the shoreline had changed, to bear the burden of proving that the change was the result of accretion.

The case breaks no new legal ground, but does send a strong message to owners of beachfront property about the need to monitor changes in the shoreline. What could the Lius have done -- and what can other beachfront owners do -- to demonstrate the gains of dry land are the result of accretion rather than avulsion? (Conversely, how could the owner show the loss of dry land was due to avulsion rather than erosion?) Frequent surveys and photographic documentation seem to be prudent steps. The law will deem the property owner to be the person in the best position to know what happened. It is up to the owner to collect the information that might be needed later.

Paul M. Hauge is an Associate in the Gibbons Real Property and Environmental Department. Jennifer P. Smith, an Associate in the Gibbons Real Property and Environmental Department, assisted in the preparation of this post.

A Question of Timing: The New Jersey Supreme Court Decision in Klumpp

The story of Klumpp begins in 1962, when a massive storm destroyed Edward and Nancy Klumpp’s Avalon beach house. As part of a State-authorized shore restoration project, Avalon constructed a dune on the Klumpps’ property and constructed fences that limited access to the property. Over the next four decades, the borough maintained, and acted as if, the Klumpps still owned the parcel.

That changed after the Klumpps sued the borough in 2004. During the course of the litigation, the borough claimed that it had gained title to the property, either through adverse possession, via a taking in 1962, or via a taking resulting its adoption of development restrictions in the ensuing years. The borough also asserted that due to the Klumpps’ failure to take any legal action for so long, their claims were time-barred. The trial court found that the borough had indeed taken the property, both in 1962 and later via a re-zoning ordinance, but because the Klumpps had never sought compensation, it did not have to determine what limitations period would apply to such a claim. The Appellate Division affirmed.

The Supreme Court held that the applicable time frame for commencing an inverse condemnation claim is the six-year period set forth in N.J.S.A. 2A:14-1. While some states use the limitations period for adverse possession claims, the court concluded that such a limitations period, which in New Jersey is generally 30 years, is inappropriate for claims of government takings, where public uses are implicated, because it would allow an excessively long period of uncertainty regarding property ownership. The holding, however, is limited to those cases where the government “provides adequate notice through physical or regulatory action” that it is taking the property. In the Klumpp’s case, that clearly did not happen; while a physical taking certainly occurred no later than 1965 (there was thus no need for the court to consider whether a regulatory taking has taken place later), the borough’s behavior following the taking made it unjust to apply the six-year limitations period to bar the Klumpp’s claim here. “Although a physical invasion and physical taking of real property by a governmental entity ought to be notice sufficient to awaken property owners to act to protect their interest in receiving compensation for the taking,” said the court, “government also should provide some other form of notice to affected property owners before, and surely after, a physical taking.” At a minimum, the government cannot deny that it has taken the property, and then turn around years later and assert that the statute of limitations has run.

Can a Court Decision “Take” Property?: The U.S. Supreme Court’s Decision(s) in Stop the Beach Renourishment

Stop the Beach Renourishment is notable not for what it holds -- that a taking did not occur when the Florida Supreme Court held that a state statute did not deprive beachfront landowners of littoral rights -- but for what a four-Justice plurality recognized for the first time in the court’s history: the possibility of a “judicial taking.” Writing for the plurality (which included Chief Justice Roberts and Justices Alito and Thomas), Justice Scalia declared that for purposes of the Takings Clause, what matters is that the State is taking property, regardless of which branch is doing the taking: “[T]he particular state actor is irrelevant.” Thus, he wrote, “[i]f a legislature or a court declares that what was once an established right of property no longer exists, it has taken that property, no less than if the State had physically appropriated it or destroyed its value by regulation.” (emphasis in original)

The case arose in 2003, when a Florida city and county sought permits to restore an eroded beach by adding sand seaward of the mean high-water line. Under Florida law, the mean high-water line separates owned by the beachfront owner from land owned by the State. Beachfront owners have certain rights, including the right to receive automatic title to gradual accretions to their property. When new land appears suddenly, however, in a process called avulsion, the boundary between privately owned and State-owned land does not shift, and the State, rather than the beachfront owner, receives any future accretions on the seaward side of the new land.

Under the governing Florida statute, when sand is added to a beach, a new and permanent “erosion control line” is established and takes the place of the mean high-water line as the private/State land boundary. After the new boundary line is recorded, the common-law accretion rule no longer applies, and when new land is added by accretion seaward of the new line, it belongs to the State, not the beachfront owner.

A group of beachfront owners challenged the proposed beach restoration project. An intermediate state appellate court held that the project would eliminate important littoral rights held by the owners, including the right to receive accretions to their property, and thus constitute a taking unless the governmental permit applicants could show that they owned or had a property interest in the upland property. It remanded to the state agency for such a showing, and also asked the Florida Supreme Court (via a certified question) to rule whether, on its face, the state statute unconstitutionally deprived beachfront owners of littoral rights without just compensation. The Florida Supreme Court answered that the statute did not effect a taking, and quashed the remand. The U.S. Supreme Court granted certiorari last year.

All eight Justices who considered the case (Justice Stevens did not participate) agreed that no taking had occurred as a result of the Florida Supreme Court’s decision. On the important legal question, however, no position could command a majority. Justice Breyer (joined by Justice Ginsburg) expressed concerns over opening the federal courts to many cases that would require federal judges to decide thorny questions of state law. Justice Kennedy (joined by Justice Sotomayor) wrote that it was not necessary to decide whether a “judicial taking” was possible, and pointed to the Due Process Clause as the appropriate constitutional source of limitations on a state court’s ability to redefine property rights. In his plurality opinion, Justice Scalia swept aside both sets of concerns, criticizing Justice Breyer for claiming to decide that a taking had not occurred while declining to formulate a standard to guide that decision, and criticizing Justice Kennedy for offering a novel interpretation of the Due Process Clause to limit state courts when the Takings Clause explicitly and directly addresses the problem at hand.

In offering a judgment but no holding, Stop the Beach Renourishment raises many questions without clearly answering any. What is clear is that four Justices are willing to entertain claims of “judicial takings” and would be willing to find such a taking -- and reverse the holding of the state supreme court whose decision caused the taking -- in the appropriate case. The precise contours of the appropriate case, and the factual and legal circumstances that might attract a fifth vote, are still a mystery.

Looking Ahead: Be Alert!

Landowners in New Jersey have another reason to stay informed about government actions that may affect their property. The six-year statute of limitations for taking claims established by Klumpp will act to bar the claim of an insufficiently vigilant landowner. Nor should landowners take too much solace in the result in Klumpp, which depended upon the unusually misleading actions of the borough government. Notice of the government’s action sufficient to start the six-year clock running will vary with the circumstances, and may not be in the form of a personal letter.

Stop the Beach Renourishment puts another potential tool in the hands of landowners -- and their attorneys -- when they suspect that government action has caused a decrease in the value of their property. Land-use attorneys, in particular, should be on the lookout for that set of circumstances that might give rise to a “judicial taking.”

*Photo courtesy of US Army Corps of Engineers.

Paul M. Hauge is an Associate in the Gibbons Real Property and Environmental Department.