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Lease Gets More
by Ron Davis

A tenant of a Kansas shopping center will get more than $500,000 of a condemnation award paid to the center’s principals.

The shopping center, located in suburban Kansas City, has ceased operations following the condemnation of the property. Local government took that action to pave the way for a proposed redevelopment project, and as compensation agreed to pay the center’s owners $2,200,000 and the company that leased the shopping center $4,300,000.

The tenant, Payless Shoesource, Inc., argued, however, that it is entitled to a share of the $4,300,000. That argument is based on the wording of the Payless lease. It states, in part, that in the event of condemnation of the center property, Payless must receive compensation for “loss of business.” Payless interprets that provision of the lease to mean compensation for lost profits.

In response, the company that leased the shopping center contends that Payless is only entitled to the value of the unexpired lease term. That’s because, the company adds, Kansas law in a condemnation proceeding does not allow for compensation in the form of lost profits.

Payless pointed out, however, that Kansas law does allow compensation if the lease between the owner and tenant specifically addresses the rights of the parties in a condemnation action. And its lease, Payless added, does in fact contain a specific condemnation provision.

Despite the condemnation provision, the company that leased the property continued to argue that in Kansas there is no recourse for lost profits.

A Kansas court sided with Payless and apportioned the tenant $502,991 of the condemnation award.

On appeal, the Kansas Supreme Court, in its ruling, agreed with the Payless position that “Kansas courts have long held that a lease provision governing the rights of the parties is controlling on the general issue of compensation. If the lease itself includes a provision in respect of the rights of the parties in the event of condemnation of the leased premises, such a provision is controlling if applicable to the particular case.”

Added the justices, “Parties are free to contract around eminent domain rules. The lease in this case is simply a negotiated agreement for dividing the condemnation award with Payless. The lease language is clear and should be enforced as agreed upon.”(City of Roeland Park v. Jasan Trust, 2006 WL 1115798 [Kan.])

Decision: April 2006
Published: May 2006



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