When the government takes commercial property through eminent domain in Ohio, it does not just affect the owner. Tenants often have real financial stakes in the property as well.
That raises a key question: when leased property is taken, how is compensation divided?
How does the undivided fee rule come into play?
Under Ohio law, property taken through eminent domain is typically valued as if it were owned by a single property, even when multiple parties have interests in it. This is known as the undivided fee rule. In practical terms, that means:
- The government determines the total fair market value of a property as a whole
- That total fair market value is then awarded to the invested parties in a single figure
- The landlord and tenant then divide that amount based on their respective interests
The government won’t calculate what the landlord gets and what the tenant gets, but lets the parties sort out how the funds must be split.
Who gets what when the money is divided?
The property owner usually gets the largest share of the award. This usually includes the value of the land and buildings, the income potential of the property and the value of their existing leases.
Tenants are not excluded from compensation, however. In Ohio, a commercial tenant may recover compensation for their leasehold interest (if the rent is below market value), certain improvements they made and their relocation expenses. They are not usually entitled to lost business profits, but may qualify for some reestablishment expenses.
Ultimately, the lease between the landlord and tenant controls how compensation is handled. Many leases include condemnation clauses that give the landlord the right to all or most of the award but allow the tenant to pursue a limited, separate claim.
Whether landlord or tenant, facing a condemnation through eminent domain without legal guidance is unwise.
