may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (1994).
STATE OF MINNESOTA
IN COURT OF APPEALS
State of Minnesota,
by Hubert H. Humphrey III,
its Attorney General, petitioner,
Paul Sade, et al.,
Lower Court Respondents,
Webb Golden Valley, Inc.,
Filed October 1, 1996
Reversed and Remanded
Hennepin County District Court
File No. CD2094
David D. Meyer, Faye Knowles, Fredrikson & Byron, P.A., 1100 International Centre, 900 Second Ave. S., Minneapolis, MN 55402 (for Appellant)
Hubert H. Humphrey III, Attorney General, Cassandra O. O'Hern, Assistant Attorney General, 525 Park St., Suite 200, St. Paul, MN 55103 (for Respondent)
Considered and decided by Klaphake, Presiding Judge, Davies, Judge, and Peterson, Judge.
Lessee appeals from a trial court judgment dismissing an appeal of a condemnation award. The trial court found that the lessee had years earlier assigned away whatever interest it had and therefore had no property interest at the time of taking. We reverse and remand.
Appellant Webb Golden Valley, Inc. (W.G.V.), as My Pie Pizza, leased space in the shopping center from Capital City Investments (fee owner). The lease ran to 1998, with two five-year renewal options. The lease commenced in 1975, but in 1983, Restaurant Ventures One (Ventures) leased new space surrounding the area W.G.V. leased and, incorporating that area, built an entertainment restaurant complex consisting of Ruppert's Nightclub, The American Cafe, and CocoLezzone Restaurant.
David Webb owned a controlling interest in both Ventures and W.G.V. Testimony indicated that W.G.V. subleased its leasehold to Ventures by an oral month-to-month lease, thus allowing the area's incorporation into the Ventures complex, but preserving its existence as a separate leasehold.
In 1989, the state condemned a portion of the shopping center to construct Interstate Highway 394. The condemnation affected parking and access, thus damaging all parcels in the center. In 1991, the commissioners awarded more than $2.6 million for the taking, without allocating the award among the fee owner and the various lessees. The owner and lessees then appealed to the district court. Ventures was in bankruptcy at the time and its condemnation interest has been pursued by a bankruptcy trustee on behalf of the bankruptcy estate, independent of the interest David Webb asserts through appellant W.G.V. The record on appeal makes it appear that the leasehold interest was not considered in the bankruptcy proceeding.
The state settled with the bankruptcy trustee and all other parties except appellant W.G.V., which continues to claim condemnation damages. In due course, the trial court determined that the alleged oral "sublease" between W.G.V. and Ventures was not a sublease, but an assignment, leaving W.G.V. with no compensable interest.
The trial court concluded alternatively that even if the arrangement were a month-to-month sublease, as Webb claimed, it still divested W.G.V. of any compensable property interest. In so ruling, the trial court relied on the United States Supreme Court's decision in Almota Farmers Elevator & Warehouse Co. v. United States, 409 U.S. 470, 93 S. Ct. 791 (1973).
The trial court found the following facts to support its conclusion that W.G.V.'s claimed sublease to Ventures was "more closely akin to an assignment" of the leasehold: (1) Ventures did not pay rent to W.G.V.; (2) W.G.V. did not claim rental income on its tax returns; (3) the fee owner accepted numerous rent checks drawn exclusively on Ventures' bank accounts; (4) the fee owner believed a self-sufficient restaurant would be unable to survive in the leased space due to the high degree of intra-dependence necessitated by the interlinking of the operations Ventures designed; (5) Ventures was in possession of W.G.V.'s leased space and had made substantial improvements, meaning irreparable injury and prejudice would result if the transfer were characterized as anything other than an assignment; (6) the same individual controlled Ventures and W.G.V.; and (7) the fee owner, in the court's estimation, probably would not have authorized a 30-day month-to-month sublease of W.G.V.'s leased space.
The trial court did not, however, expressly find the essential fact--that the entire lease term had been transferred. The trial court's analysis in that respect overlooks the long-standing rule that an assignment requires a transfer of the entire lease term. If the transferor retains any "portion of the unexpired balance of the term, the transaction is a sublease." Anderson v. Ries, 222 Minn. 408, 414, 24 N.W.2d 717, 721 (1946); see also Kostakes v. Daly, 246 Minn. 312, 315, 75 N.W.2d 191, 193-94 (1956) (If sublessor had retained "but a part of the term, regardless of how small, the legal effect of the transaction would have been a sublease."); Warnert v. MGM Properties, 362 N.W.2d 364, 367 (Minn. App. 1985) (transfer of possessory interest under lease for less than lease's whole term creates subtenancy), review denied (Minn. Apr. 18, 1985).
None of the cases noted above were referred to in the trial court order. But these cases make clear that the trial court, to rule as it did, was required to make a finding that W.G.V. had transferred to Ventures the entire lease term. Absent such a finding, the trial court's legal conclusion that there was an assignment is error.
We believe it to be impossible for us to imply the necessary finding from those made--or from the record--particularly in light of W.G.V.'s current operation of a restaurant on the leasehold--apparently under the 1975 lease, as amended in 1983.
We therefore reverse. We remand for a finding one way or the other on this critical issue and for entry of the proper judgment, or for a new trial, if the trial court deems that appropriate.
Whether, upon condemnation of a leasehold, a lessee with no right of renewal is entitled to receive as compensation the market value of its improvements without regard to the remaining term of its lease, because of the expectancy that the lease would have been renewed.
Id. at 473, 93 S. Ct. at 794 (emphasis added). The Court held that improvements to a leasehold must, in a condemnation action, be valued over their useful life, taking into account an expectation that the lease would be renewed. Id. at 477-78, 93 S. Ct. at 796.
This court has read the Almota holding as applying only to leasehold improvements--not to a lease itself. Naegele Outdoor Advertising of Mpls. v. Lakeville, 532 N.W.2d 249 (Minn. App. 1995), review denied (Minn. July 20, 1995). In Naegele we stated:
[T]he Court in Almota clearly distinguished valuation of an improvement, where the possibility of renewal may be taken into account, and the valuation of the leasehold itself. The mere expectation of the lease's renewal is not a legal right and, thus, not compensable.
Id. at 254 (citations omitted).
In the instant case, the trial court held that, even if Ventures did have a sublease and not an assignment, it had an expectation of renewal, and therefore Ventures alone was entitled to compensation for damage to the leasehold (its sublease), to the exclusion of any award to W.G.V. as sublessor. This is incorrect, for under Naegele a sublessee is not entitled to such compensation for a taking of the leasehold (as opposed to improvements to the leasehold). It is the sublessor who is entitled to compensation for the value lost by condemnation for the period after the sublease expires. Thus, we cannot uphold the trial court's decision on the basis of Almota and, on remand, the trial court may not rely on this alternative theory.
Reversed and remanded.