This condemnation action presents a novel question of law to the court: To what extent, if any, may a tenant who holds an option to purchase the leased premises participate in condemnation proceedings involving the taking of the owner's property? The answer to this question will determine whether the tenant may appear before condemnation commissioners, with a right of appeal to the trial court, or is relegated to participation only in the allocation proceedings under R. 4:73-9(b).
On August 13, 1985, the State commenced the instant condemnation action for the purpose of acquiring certain property, totaling 0.540 acre, for the use of the Department of Transportation and, more particularly, New Jersey Transit Corporation.
The subject property is located at the southwesterly corner of Morris and Third Avenues in the City of Long Branch, County of Monmouth, and is known as Lot 1B, Block 188, on the tax map of the City of Long Branch. It is further designated as Parcel 197 on the "New Jersey Transit Corporation General Property Parcel Map, North Jersey Coast Line".
On August 27, 1985, the State filed a declaration of taking asserting that it had duly exercised its power of eminent domain and was entitled to possession of the subject premises. Thereupon, the State deposited into court the sum of $215,000, the amount of compensation offered for the parcel.
At the time of the taking, the record owner of the premises was Jan-Mar, Inc. (hereinafter referred to as "Jan-Mar"), a corporation of the State of New Jersey. Mobil Oil Corporation (hereinafter "Mobil"), a New York Corporation, occupied a portion of the premises as a tenant of Jan-Mar by virtue of a lease dated August 2, 1955, and amended in 1956. Mobil operated a gasoline station on its leasehold portion of the premises.
The original term of the lease, as amended, ran for 15 years, commencing November 1, 1956, and ending October 3, 1971; the original rental obligation was $385 per month. Paragraph 6 of the lease granted Mobil options for three successive renewals, each renewal period to run five years. Each option was duly exercised and, up to the time of the taking, Mobil was paying a reduced monthly rent of $300 under the lease as extended.
Paragraph 7 of the lease granted Mobil an option to purchase the leasehold premises for the sum of $60,000. As of the date of the State's taking, this option remained unexercised. It is upon this option, however, that Mobil bases the rights it asserts herein.
On November 8, 1985, counsel for the State, Jan-Mar, and Mobil appeared before the court upon the State's application for an appointment of commissioners. Also before the court at that time were two motions made on behalf of Mobil: one was for an Order permitting Mobil to participate in the condemnation proceedings "in the same manner as any owner of property"; the other was for an Order dismissing the complaint in condemnation for failure of the State to provide Mobil with a copy of the appraisal upon which the offered compensation was based.
Following a review of the briefs submitted, and after oral argument was heard on the respective applications, the Court reserved decision pending supplemental briefing by counsel. Hence, this decision.
Fundamental to Mobil's asserted standing in these proceedings is the notion that its option to purchase the leasehold premises, coupled with the leasehold interest itself, entitles it to more than an allocation hearing under R. 4:73-9(b) following an ultimate award to Jan-Mar.
The State and Jan-Mar contend that, under the Supreme Court's holding in State v. New Jersey Zinc Co., 40 N.J. 560 (1963), Mobil lacks standing to participate in the condemnation proceedings. In New Jersey Zinc, the Court held that an option does not create an interest in land and, unless the option is exercised, the optionee has no standing to intervene in a condemnation proceeding or to share in an award. New Jersey Zinc, 40 N.J. at 576-577.
Although the holding in New Jersey Zinc has stood firm for over 20 years, Mobil seizes upon the separate opinion of Judge Conford (P.J.A.D., temporarily assigned) in State v. Bakers Basin Realty Co., 74 N.J. 103 (1977), as being supportive of its asserted right of standing herein. In Bakers Basin, the Court affirmed, per curiam, a judgment of the Appellate Division which held that certain instruments, though containing provision only for nominal liquidated damages as the sole remedy of the sellers in case of breach by the purchaser, constituted contracts of sale rather than options and, therefore, gave the purchaser sufficient interest in the property to challenge the condemnation or participate in an award. Bakers Basin, 74 N.J. at 104-105 aff'g. 138 N.J. Super. 33 (App.Div.1975). In agreeing that the instruments were contracts of sale rather than options, the Court found it "unnecessary . . . to reconsider [its] earlier holding in State v. New Jersey Zinc Co. " Id. at 105.
However, Judge Conford, concurring in part and dissenting in part, called for the overruling of New Jersey Zinc. He urged the Court to dispense with the "fine-spun distinction" between contracts and options and to adopt the view of the California Supreme Court to the effect that sound land-development policy requires that realty optionees be accorded standing in condemnation proceedings. Id. at ...