East Lansing in Legal Fight Over Downtown Property Lease Payments
For 40 years, the group that leases the land that hosts the Marriott Hotel, an office building and parking garage in downtown East Lansing has paid just $10 per year for the property.
The city agreed to the minuscule 40-year land lease agreement to encourage development downtown and have the parking garage constructed. The $10 agreement expired in March of this year, and city officials have long viewed a new lease agreement as a low-hanging boost to the city budget. However, documents East Lansing Info viewed at Veteran’s Memorial Circuit Court in Lansing show a new land lease for the property is the subject of litigation – with more than half a million dollars of annual income for the city coming into question.
A complaint filed by University Place Associates Condominium Association, which leases the land from the city, requests that a judge determine the amount of rent that is to be paid on the land.
The city has filed a counterclaim, accusing University Place of fraud, unjust enrichment, breach of contract and several other infractions, seeking attorney fees, a ruling on the lease contract and damages.
The original agreement allows for University Place to sign up to four 10-year extensions on the land lease. The annual amount to be paid under the extensions is 12% of the value of the land. The city and University Place disagree about the evaluation of that land’s value.
There were three different assessments of the land value done, according to the documents. University Place had an assessment done in March of 2019 that valued the land $3.1 million. Months earlier, the city had an assessment done that valued the land at $4.11 million.
With the wide disparity between assessments, a third assessment was done and a methodology to establish the land’s value was established – city attorneys say University Place participated in this process.
The third assessment, completed later in 2019, valued the property at $4.5 million. Under the agreement the city says both parties participated in, the land value would be calculated by averaging of the third assessment and the assessment of closest value to it. This would place the value of the land at about $4.35 million and annual rent payments at just over $520,000.
However, University Place attorneys say that when the Marriott hotel was refinanced in 2016, the city entered an estoppel agreement that required it to receive permission from the hotel’s lender, Huntington National Bank, to amend the lease agreement. Attorneys for University Place say the property valuation methodology were an amendment to the lease, and the city never obtained this permission, making the land valuation invalid.
The city accuses University Place of acting to deliberately to “string [it] along” for years, disputing an appraisal process it participated in and misleading the city, going as far as arguing University Place’s actions “evidence a malicious intent.”
Court filings say University Place did not pay a security deposit on the land and has not made a lease payment since the initial agreement ended March 10. A filing by University Place says it offered to put damages the city claims it owes in escrow until litigation is finished.
A filing by the city says East Lansing has not explored alternate tenants for the site.
It’s unclear how long litigation will last, but the city’s proposed budget for the next fiscal year, which starts in July, does anticipate a financial hit. That budget proposal shows $380,000 in income for the lease, noting the amount is based on a “reduced rate” due to ongoing negotiations.
Documents show a hearing for the litigation is scheduled for June 3.
The city declined to comment for this story, citing ongoing litigation. An attorney for University Place did not respond to an email from ELi.