Tenant’s lease language meant it did not have standing in condemnation suit

Pizza Hut of America, LLC v. Houston Community College System, 01-17-00101-CV (Tex. App. – Houston [1st Dist.], December 19, 2017).

This is a condemnation suit where the central issue is a tenant’s standing in a condemnation suit and claim for a pro rata share of the award. The First Court of Appeals held the tenant had no standing.

Pizza Hut was a tenant of the Woodridge Plaza Shopping Center when the Houston Community College  System (“HCCS”) condemned the property. As part of the condemnation proceedings, a condemnation award of $427,100 was designated to be paid to all of Woodridge Plaza’s tenants, and Pizza Hut sought $7,100 as its pro rata share.  The trial court concluded, based on language in Pizza Hut’s lease, it had no standing and was not entitled to any of the award. Pizza Hut appealed.

The Pizza Hut lease with the prior owners had a condemnation clause noting “[t]he Condemnation Award shall belong to the Landlord, however, Tenant shall be entitled to the Unamortized Cost of Tenant Improvements, plus Tenant’s relocation expenses as determined by the condemning entity or court of law.”  After condemnation, Pizza Hut continued operating its business at the Woodridge Plaza location—using its established equipment and improvements—at a profit and without interruption of physical impairment by the condemnation. In April 2016, while the condemnation proceedings were still pending, Pizza Hut sold all ninety of its Houston locations, including the Woodridge Plaza location. The sale price included improvements to the Woodridge Plaza location but not the leasehold interest. A lessee generally has standing in condemnation proceedings and is entitled to share in a condemnation award when part of its leasehold interest is lost by condemnation. However, a tenant may waive this right in the lease or elsewhere. By the definition in the lease, Pizza Hutt suffered no impairment. The court rejected Pizza Hutt’s argument that the uncertainty created by the condemnation constituted an impairment. It operated with no change in profit and did not establish the “uncertainty” had any impact on its operation. As a result, it lacked standing to sustain a claim against HCCS.

If you would like to read this opinion click here. Panel consists of Chief Justice Radack
Justice, Justice Keyes and Justice Caughey. Memorandum Opinion by Justice Keyes.