On appeal from the Superior Court, Law Division
King, Ashbey and Skillman. The opinion of the court was delivered by Ashbey, J.A.D.
[236 NJSuper Page 29] This is an appeal concerning compensable interests in a condemnation case. Respecting the issue which we regard as justiciable, the allocation right of a lessee whose lease contains an option to purchase the land, we affirm substantially for the
reasons expressed by Judge Milberg in his opinion reported at 210 N.J. Super. 236. We leave for another day the question of standing to participate in the condemnation proceedings, evidence to be there proffered, and the valuation in condemnation of an unexercised option held by a lessee.
On August 21, 1985, the State filed a declaration of taking against defendant Jan-Mar Corporation (Jan-Mar), the real property owner, Mobil Oil Corporation (Mobil), a lessee of part of the property, and Philip Pesano, a sub-lessee of Mobil's lease. The condemned property included Mobil's corner lot (gas station) and Jan-Mar's surrounding unimproved land not subject to the lease. The gas station comprised approximately two-fifths of the total property condemned. Pesano was operating the gas station. Mobil's August 2, 1955 lease ran for fifteen years at $385 per month with three five-year options to renew at $300 per month. At the time of the taking Mobil was operating under its final renewal, and the lease was due to expire on October 31, 1986. Mobil also had an option to purchase the gas station property outright for $60,000 during the term of the lease (unexercised at condemnation) and the right to purchase the property at any price offered by another buyer. The lease specifically reserved to Mobil in condemnation all "rights granted by law." Mobil owned all of the improvements which it had placed on the leased land.*fn1
Judge Milberg held that a lessee of condemned land is entitled to compensation and to participate in the condemnation proceedings, not just to participate in the allocation proceeding pursuant to R. 4:73-9(b). He ruled that Mobil could submit evidence as to the value of its total leasehold estate in the condemnation. 210 N.J. Super. at 245. The judge further relied on out-of-state authority in holding that Mobil's option (because it was incorporated in the lease) was a compensable
interest in real property, although New Jersey law might be construed to hold otherwise. Id. at 244. The judge went on to hold that Mobil would not be entitled to recover the value of both the lease and the option, and its recovery would be limited to the amount of the award attributable to the leased portion of the premises less the option purchase price, less the rent reserved for the remainder of the lease term. Id. at 246.
In accord with this opinion, Judge Milberg denied Mobil's application to dismiss the State's complaint, denied Mobil's application for discovery on the issue of negotiations between the State and Jan-Mar, but granted Mobil's motion to participate in the condemnation proceedings and to proffer non-cumulative proofs respecting the value of Mobil's unexercised option to purchase the leased premises as well as the value of Mobil's remaining lease.
Following this ruling Judge Milberg appointed an appraiser to determine the relative value of Mobil's leased premises. The appraiser valued the leased portion at a total of $156,200, and Jan-Mar's unleased portion at $73,600, a total of $229,800 for all interests.
The parties negotiated and in July 1987, Mobil moved for an order declaring the total amount of compensation to be $251,000. The resulting December 3, 1987 order (consented to by Mobil, Jan-Mar and the State) said:
Ordered that of the $251,000.00 agreed upon just compensation, Mobil shall be allocated $95,500.00 and Jan-Mar shall be allocated the balance of $155,500.00 This allocation takes into account all adjustments between said parties for rent and the option price, in accordance with the valuation method set forth in the decision of the Honorable Alvin Y. Milberg, A.J.S.C., dated September 11, 1985 . . .
Ordered that Jan-Mar, Inc. reserves its right to appeal the entirety of the decision of the Honorable Alvin Y. Milberg, A.J.S.C., dated September 11, 1987, in connection with Mobil's participation in the condemnation proceedings and/or the valuation of Mobil's interest in the condemnation award, and such other and further issues contained in the decision as Jan-Mar may choose to contest, with the exception of those ...