P.R. Supreme Court Alert: Landmark Ruling Allows Inverse Condemnation Claim When Government Refuses to Vacate Property After Lease Expired

P.R. Supreme Court Alert: Landmark Ruling Allows Inverse Condemnation Claim When Government Refuses to Vacate Property After Lease Expired

In Ortiz Zayas v. ELA, a landlord leased an office to the P.R. Department of Justice. After the lease expired, the landowner demanded that the DOJ vacate the property.

The DOJ did not vacate the property until thirty-one months after the landlord’s demand. Eventually, the landlord filed an inverse condemnation claim against the Commonwealth of Puerto Rico. The landlord alleged that the Commonwealth, through the DOJ, deprived the landlord from using its property for thirty-one months without paying just compensation.

The Commonwealth sought dismissal of the claim, arguing that it was incompatible with government contracting requirements and with principles of sound public administration.

Specifically, it argued that public funds could not be disbursed for the payment of rent during a time for which there was no valid contract in place. The Supreme Court of Puerto Rico ruled in favor of the landlord. The landlord’s diligent demand that the DOJ vacate the property, and the DOJ’s failure to comply, was decisive for the Court in finding a taking of property for which just compensation was required.

In this sense, this case is distinguishable from Vicar Builders v. ELA, where the landlord did not demand that the government vacate the property, and instead argued that an implicit renewal (tácita reconducción) occurred.

For this reason, the Court warned that a landlord’s acquiescence or tolerance of the government’s occupation of a property will not give rise to a taking. Once a lease expires, the landlord must diligently demand that the government vacate the property. The Court further explained that, even if the government refuses, a landlord must promptly vindicate his or her rights in court.

This case is important because the Court finally addressed directly the conflict that may arise between the Commonwealth’s government contracting requirements and the takings clause of the U.S. and P.R. constitutions. As expected, and notwithstanding the constitutional mandate of sound management of public funds, to the extent that P.R. government contracting requirements conflict with the takings clause, the latter will prevail.

It will be interesting to see if this case prompts the Court to address whether a takings claim could also arise if the Commonwealth requires a contractor to render services or deliver goods without a valid contract in place from which the contractor can be paid.