California Eminent Domain Report

We've completed our analysis of the Galardi case and have some additional thoughts about the decision and its potential larger impact.

The real debate we've been having internally is whether Galardi can be read as signaling a change in the law concerning broadly worded waivers in condemnation clauses.  Many commercial leases contain broad waivers, skewed towards landowners.  Provisions such as "in the event of condemnation, tenant waives all rights to compensation" are not uncommon.  

Until now, even the broadest wavier imaginable has not affected the tenant's right to seek lost goodwill.  Though finding any actual law standing for this proposition is a challenge, to say the least, there seems to be no real dispute in the eminent domain community on this point.  (If you really want a case cite, the closest we can come up with is Chhour v. Community Redevelopment Agency (1996) 46 Cal.App.4th 273, in which a tenant was permitted to pursue a goodwill claim despite the existence of a broad, general waiver.) 

Good reason exists for treating goodwill separate from real estate claims subject to a broad waiver.  Goodwill is a statutory claim that is unique to the business, and has nothing to do with the bundle of sticks that make up the real estate claims.  Moreover, only the owner of a business operating on the property can make a goodwill claim, so in theory, the landlord has no standing to seek lost goodwill.  Thus, while a general waiver can fairly be said to encompass all real estate claims (including the tenant's bonus value), the same cannot be said for goodwill.  

Galardi may change that.  At the very least, it creates a vehicle to argue that a general wavier of the right to compensation effects a waiver of tenant's right to goodwill.  And, since only the owner of a business operating on the property can recover for lost goodwill, courts may also construe such a wavier as an assignment of the tenant's goodwill claim to the landlord, allowing the landlord to sue in the tenant's name, rather than its own.  (Not inferring an assignment would potentially result in a huge windfall to the condemning agency, which would otherwise escape all liability for business goodwill.)  

Until we see a case in which a landlord argues - over the tenant's objection - that it has acquired the tenant's goodwill claim pursuant to a general waiver, it's not clear whether courts will read Galardi so broadly, or whether they will restrict it to franchisee-franchisor situations and/or cases where the lease wavier is coupled with a subsequent, express assignment of the claim (as occurred in Galardi).