Decades-Old Lease Haunts Property Owner in Eminent Domain Case

Following a recent decision from the N.J. Appellate Division, the long-running eminent domain saga between Pemberton Township and property owners, Rocco and Antonia Berardi (the “Berardis”), may have finally concluded. See Twp. of Pemberton v. Berardi (Berardi I), 378 N.J. Super. 430 (App. Div. 2005); Berardi v. Twp. of Pemberton (Berardi II), No. A-1973-11 (App. Div. July 25, 2013). This appeal involved a series of motions filed by the parties prior to the case being submitted to binding arbitration.

Background

The case concerns the taking of the Browns Mills Shopping Center and an adjacent vacant lot, both purchased by the Berardis in 1988 for $2.475 million. The shopping center’s anchor tenant, ACME Markets, was locked into a long-term lease dating back to 1962. ACME’s contract rent under the lease was $0.77 per square foot. Other tenants paid higher rates, and some units remained vacant over time. In 1994, Pemberton Township designated the property as an “area in need of redevelopment.” However, it wasn’t until 2018—24 years later—that the Township formally initiated eminent domain proceedings to acquire the property. The trial court granted the Township’s request, and, upon the consent of the parties, the matter proceeded to binding arbitration to determine the “just compensation” owed.

Arbitration

The arbitrator valued the shopping center and vacant lot at $2,947,216—below the $4.845 million sought by the Berardis. The arbitrator used a blended approach, factoring in both evidence of market rent and the 1962 ACME lease, and applied a capitalization rate to determine value. The furniture, fixtures, and equipment on the property (“FF&E”) were valued at $163,035, far less than the $616,635 suggested by the Berardis’ expert.

Key Legal Issues on Appeal

The appeal focused on three distinct trial court orders:

1. Valuation Date: The trial court set the valuation date as January 27, 1994—the date the Township declared the property “blighted”. The Township argued for a 2018 valuation, claiming the 24-year gap created an unfair windfall for the Berardis. However, the Appellate Division affirmed the 1994 date, citing the Eminent Domain Act’s clear language that mandates valuation as of the “earliest” of several events, including the declaration of blight.
2. Admissibility of 1962 ACME Lease: The Berardis sought to bar the Township’s expert from considering the ACME lease in his valuation. The trial court denied the motion and allowed the expert to factor in the lease’s impact on market value. The Appellate Division upheld this decision, emphasizing that a willing buyer in 1994 would have considered the lease terms when determining the property’s value because the lease was not terminated until 1999.
3. Expert Testimony on FF&E: The Township challenged the Berardis’ expert’s valuation of furniture, fixtures, and equipment (FF&E), arguing it was a net opinion lacking factual support. The trial court disagreed and found the expert’s methodology and sources credible. The Appellate Division affirmed, noting that the arbitrator ultimately awarded a significantly reduced amount for FF&E, which, in the Court’s view, reflected a balanced consideration of the evidence. To the extent that the Township disputed the inclusion of certain items in the expert’s analysis, the Court noted that the Township was free to challenge the basis for the opinion during cross-examination.

Legal Takeaways

The Court’s opinion offers several important lessons for anyone involved in an eminent domain case:

– The Valuation Date Matters: It is important to know the relevant statutory and substantive law used to determine the date of value that will control the determination of “just compensation.” For example, in many cases, the operative date of value will be the date that the government’s condemnation complaint was filed. In other cases, like the Berardi case, the relevant date may be much earlier, depending on the procedural posture and the government’s conduct.

– Lease Agreements Are Relevant: Even outdated or below-market leases can significantly impact property valuation. Courts and arbitrators are likely to consider such agreements if they were in effect on the applicable valuation date.

– Expert Testimony Must Be Grounded: While experts play a crucial role in eminent domain litigation, their opinions must be supported by data, methodology, and industry standards. Courts act as “gatekeepers,” but ultimately should defer to arbitrators and juries regarding an expert’s credibility.

One of the easiest ways for a property owner to begin the fight against eminent domain is to retain experienced counsel as early as possible. For over 55 years, McKirdy, Riskin, Olson & DellaPelle, P.C. has concentrated its practice in this special area of the law and has earned a reputation for persistently defending its clients’ constitutionally-recognized property rights. If you are confronted with the threat of eminent domain, please feel free to contact us for a free consultation.