REAL ESTATE LAW

FALL 2009

Speedy Stop Food Stores, Ltd. v. Reid Road Mun. Util. Dist., 282 S.W.3d 652 (Tex. App.Houston [14^th Dist.] 2009, pet. filed)

Condemnation – Property Owner Rule on Valuation: Reid Road Municipal Utility District began a condemnation action for acquiring a waterline easement over a 2.0661 acre tract of land owned by Speedy Stop Food Stores, Ltd. Commissioners were appointed to determine the appropriate amount of compensation for the taking. The District offered the affidavit of David Ambrose, a state-certified appraiser. Ambrose calculated the damages of Speedy Stop to be $9,342. In response, Speedy Stop offered the affidavit of Carlton LeBeff, the vice-president of the general partner of Speedy Stop. LeBeff had been in charge of all real estate acquisitions for Speedy Stop for several years, he had the responsibility for dealing with all easement issues for Speedy Stop and he was involved with the acquisition of the convenience store on the very property where the current easement issue was involved. Through the affidavit, LeBeff testified that he was familiar with the fair market value of the property and that there was a $62,000 difference in fair market value of the property immediately before and immediately after the easement. LeBeff was not an expert witness, was not a realtor and was not a licensed real estate appraiser. However, his affidavit was offered by Speedy Stop under the rule that a property owner, while not qualified to testify to the market value of other property, may testify with respect to the market value of his own property. The District Court held that the Property Owner Rule did not apply to corporate entities and excluded the LeBeff affidavit. Speedy Stop was awarded $9,342 in damages with $1 being paid directly to Speedy Stop and the remaining $9,341 being paid to the registry of the court.

Held: The Court of Appeals reversed the trial court holding and held that the Property Owner Rule applied to corporate entities just as it applied to natural person. The court stated that there was no reason why a corporate officer who was familiar with the market value of corporate property was less reliable than natural persons who are familiar with the market value of their property. The court concluded it made sense to apply the rule to all property owners.

Note: The Texas Supreme Court has not addressed this issue and there is no case law out of the 14^th Court of Appeals. However, the application of the Property Owner Rule as to corporate entities was not uniformly applied across the state or across the country. The Waco and Corpus Christi courts have held that the rule applied to corporate entities. The Fort Worth court had held that it did not. Courts in Arizona, Colorado, Kansas, Tennessee and Washington have applied the Property Owner Rule to corporate land owners, but Hawaii and Nebraska have not. Finally, in Florida, Maryland, Massachusetts, Minnesota and Oregon have allowed the Property Owner Rule to apply to corporate owners when the representatives of the corporate owner demonstrate knowledge of the property in question as a result of their work for the corporate entity.

Tiger Truck, LLC v. Bruce’s Pulp and Paper, 282 S.W.3d 176 (Tex. App.Beaumont 2009)

A Cancelled Without Penalty Contract Provision: Tiger Truck and Bruce’s Pulp and Paper entered into a contract for Tiger Truck to purchase real property from Bruce’s. The contract included a provision that Tiger Truck deposit $50,000 in earnest money that would serve as the sole measure of damages in the event of a breach. It also allowed Tiger Truck to terminate the contract and retain the earnest money if Tiger Truck was unable to meet certain due diligence items within sixty days. The due diligence deadline was April 23, 2007 and the closing date was to be May 23, 2007. The contract also included a “time is of the essence” clause. The contract did not place a time limit on the exercise of the buyer’s right to terminate the contract for failure to complete the due diligence review items within the due diligence period. Tiger Truck did not complete the due diligence items by April 23, but did not notify Bruce’s Pulp that they would not proceed with the purchase until June 2007. The seller sued for damages and the trial court awarded $313,500 in damages plus attorney’s fees. The trial court found that “there was no valid reason for the defendant to terminate the contract.” Tiger Truck appealed. Held: The Court of Appeals reversed and rendered judgment for Tiger Truck. In the absence of fraud, a contract that authorized cancellation without penalty will be enforced as written. The court concluded that the passage of sixty days from the date the contract was signed was the first date on which Tiger Truck could exercise its right to terminate but it was not the last date on which it could do so. Tiger Truck was still continuing its due diligence after the sixty day mark and did not receive additional reports about some potential environmental issues until mid-May. At that time, additional environmental studies had to be performed as follow-up. After concluding Tiger Truck would never be comfortable with the condition of the property, a letter was sent to terminate the contract. The buyer validly terminated the contract, did not waive its right to do so, and therefore the proper action was to return the $50,000 in earnest money.

Southwestern Bell Tel., L.P. v. Harris Cty. Toll Road Auth., 282 S.W.3d 59 (Tex. 2009)

Utilities Forced to Relocate from a Public Rights-Of-Way: Southwestern Bell (SBC) maintained underground lines in a public right-of-way along Westpark Road in Harris County. When the Harris County Toll Road Authority and Harris County began construction on the Westpark Tollway in 2001, they required SBC to relocate its facilities in the right-of-way along Westpark Road. SBC moved as requested and then billed the county. Harris County refused to pay. The Texas Supreme Court ultimately had to determine whether Harris County had to pay for SBC’s relocation expenses as a taking under the Constitution. Held: The Supreme Court held that whatever property interest SBC had in the public right-of-way where its facilities were located, that right did not rise to the level of something compensable as a taking. The interest SBC held was subordinate to that of the public right-of-way and therefore did not require any compensation. The Court cited to a U.S. Supreme Court decision involving a takings claim brought by a gas company when the company was forced to relocate its pipes to accommodate improvements to the City’s drainage system. A utility forced to relocate from a public right-of-way must do so at its own expense. The Supreme Court had previously held that “in the absence of assumption by the state of part of the expense, it is clear that [utility companies] could be required to remove at their own expense any installations owned by them and located in public rights of way whenever such relocation is made necessary by highway improvements.” Even though the facilities are property for purposes of taxation and they are property for purposes of a takings claim, the facilities inconvenienced the public and must be moved without compensation pursuant to the original grant of the property interest held by SBC.