Saturday, September 14, 2013

Indianapolis City Leaders Blew Deadline to Object to "As Is" Condition of Regional Operations Center

The Indianapolis Star today published an article on the ill-fated Regional Operations Center.  
On Monday, Straub’s replacement, Troy Riggs, ordered 150 police officers and Indianapolis Homeland Security officials to evacuate the building, citing safety concerns.

Now, the building’s owner says he is owed hundreds of thousands of dollars, and some City-County Council members say the lease agreement was a bad deal.

The lease holds the city responsible for all maintenance and construction costs to meet safety and fire codes. The rent is $57,000 a month for the first 10 years and $63,000 a month for the final 15 years.
...
Building owner Alex Carroll plans to sue the city because he says he has paid nearly $700,000 out of his own pocket for maintenance and construction with the understanding that the city would reimburse him.

“The lease spells out that the city is responsible for ensuring the property complies with all statutes and ordinances and for paying those costs,” Carroll said. “Now that it’s time for the city to step up to its financial responsibilities for maintenance, they are claiming the building is unsafe.”
Here is what is not in the story.  City officials blew the deadline to object to the condition of the building and as a result now have to accept the contract as is.

Although the contract was executed in May of 2011 and wasn't occupied until the following year in time for the Super Bowl, contractual terms were pegged to begin on January 1, 2013.  That is the date that payment of rent was to commence and also it was the deadline for the City to object to the condition of the property.  As of January 1, 2013, the City agreed to accept the property as is and any problems with the property thereafter were the responsibility of the City.

The contract provides as follows:
Section 1:   Lease of Premises; Title and Condition.  (a) in consideration of the rents and covenants herein stipulated to be paid and performed by Tenant and upon the terms and conditions herein specified, Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the premises (the "Premises") consisting of (1) the land described in Schedule A hereto (the "Land") and all buildings and improvements (collectively, the "Improvements") and surrounding parking areas on the Land, and (ii) the respective easements, rights and appurtenances relating to the Land and the Improvements.  The Premises are leased to Tenant in their present condition without representation or warranty by Landlord and subject to the rights of parties in possession, to the existing state of title and to all applicable legal requirements now or hereafter in effect.  Tenant has examined the Premises and title thereto, and has found all of the same satisfactory for all purposes.
The next critical subparagraph is in caps in the contract, a provision the drafter (obviously working for the Landlord) wanted to emphasize:
(b)  LANDLORD SHALL NOT MAKE AN INSPECTION OF THE PREMISES OR OF ANY PROPERTY OR FIXTURE OR OTHER ITEM CONSTITUTION A PORTION THEREOF, AND TENANT EXPRESSLY AGREES TO, NOT LATER THAN THE RENT COMMENCEMENT DATE (AS DEFINED BELOW), ACCEPT AND LEASE THE PREMISES AND EACH PART THEREOF "AS IS" AND "WHERE IS".  LANDLORD SHALL NOT BE DEEMED TO HAVE MADE AND LANDLORD HEREBY DISCLAIMS, ANY WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED OR OTHERWISE WITH RESPECT TO THE SAME OR THE LOCATION, USE, DESCRIPTION, DESIGN, MERCHANTABILITY, FITNESS FOR USE FOR ANY PARTICULAR PURPOSES, CONDITION OR DURABILITY THEREOF, OR, AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, OR, AS TO LANDLORD'S TITLE THERETO OR OWNERSHIP THEREOF OR OTHERWISE.  IT BEING AGREED THAT ALL RISKS INCIDENT IN THE PREMISES OR ANY PROPERTY OR FIXTURE OR OTHER ITEM CONSTITUTING A PORTION THEREOF, WHETHER PATENT OR LATENT, LANDLORD SHALL HAVE NO RESPONSIBILITY OR LIABILITY WITH RESPECT THERETO.  THE PROVISIONS OF THIS SECTION 1(b) HAVE BEEN NEGOTIATED AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY WARRANTIES BY LANDLORD, EXPRESS OR IMPLIED, WITH RESPECT TO THE PREMISES OR ANY PROPERTY OR FIXTURE OR OTHER ITEM CONSTITUTION A PORTION THEREOF, WHETHER ARISING PURSUANT TO THE UNIFORM COMMERCIAL CODE OR ANOTHER LAW NOR OR HEREAFTER IN EFFECT OR OTHERWISE.
The key phrase is the "Rent Commencement Date"  That date, the date on which the City was stuck with the "as is" condition of the property is January 1, 2013 according to Section 3:
Section 3.  Terms.  The Premises are leased for an initial term of twenty-five years beginning on January 1, 2013 and expiring on December 31, 2037 ("the Initial Term")...  Anything set forth in this Lease to the contrary notwithstanding, the obligation of Tenant to pay Rent shall commence on January 1, 2013 (the "Rent Commencement Date") and Lessee shall be obligated to commence and continue to pay Rent regardless of (i) Landlord's failure to commence or complete the construction obligations or punchlist items or to satisfy any of its other obligations under this Lease (ii) whether or not Tenant has accepted possession of the Improvements or any space therein, (iii) the availability of funds sufficient to complete the construction, punchlist items, and other obligation of Landlord under tis [sic] Lease or Developer under the Development Agreement (as such terms are defined below) and Tenant shall have no right to abet or reduce rents or to termit or cancel this Lease or declare a constructive eviction as a result of the vents described in this Section 3 but the Tenant shall have such other rights and remedies as are available to it under applicable law and equity and shall have whatever rights are available to it under the Development Agreement, or (iv) the failure of Landlord's affiliate or any other party to commence or complete construction of the Tenant Improvements (as defined in that certain Development Agreement among Landlord, Lifeline Construction Services, LLC, an affiliate of the Landlord ("Developer"), and the Tenant (the "Development Agreement."
To clarify, it appears that there was supposed to be "Development Agreement" which worked in conjunction with this contract in terms of outlining changes the City wanted made to the property.  However, once January 1, 2013 hit, any obligation the Landlord had to make changes to the property pursuant to the Development Agreement were off the table and the City had to accept the property "as is" and make the monthly payments.  According to the explicit terms of the lease, that is true even if the failure to complete the construction items or punchlist items outlined in the Development Agreement was the fault of the Landlord or the construction company.

On January 15, 2013, WTHR reported:
The City of Indianapolis is withholding its rent money from the owner of the former Eastgate Mall.
13 Investigates first exposed the lease deal and the thousands of dollars being spent daily for a fire watch because of troubling safety violations.

Now, for the first time, the city is allowing our cameras to inspect the construction flaws up close as it takes stop gap actions to cover the building and the lease.

13 Investigates ventured inside the ROC with the Homeland Security Chief, where a punchlist of nearly 100 fixes are required, starting in the hallway connecting IMPD East District and the Regional Operations Center.

There we found cracked walls and uneven surfaces, some of them trip hazards beneath our feet.

"We know a portion of this building used to be a roadway that separated the mall into two halves. They constructed over that road and we're concerned that maybe they didn't do the proper sanding and make it smooth," said Assistant Public Safety Director Valerie Washington.

It's one of several major flaws the city wants the Eastgate Mall owners to repair.

So far the city says it's gotten a chilly reception similar to what we found in the hallway where the heating and air conditioning systems are not working properly. There's poor ventilation building-wide.
"Making sure that there's clean quality air coming in here for the police officers and staff that are here; this is really a big building so making sure the HVAC components are working properly are probably my number one concern," added Washington.
I cannot find online the "Development Agreement" which should have included repair items the City wanted Landlord to make to the property.   It's not clear the City ever entered into a Development Agreement to make the Landlord fix the property.  However, even if one existed, it became irrelevant as of January 1, 2013.    Complaints by the City in the January 15, 2013 WTHR report are two weeks too late.

3 comments:

Society of Socrates said...

Holy Tax Money: It just gets worse on Mayor Ballard watch. Either he has back luck in selecting key personnel, or he is too trusting on those that give him advice.

Flogger said...

I honestly do not buy into the idea the "City" was out foxed by a various points in the contract.

I am not a Real Estate Expert. The tenant should demand via the contract the premises meet local codes or any other special requirements of the tenant. Who will inspect the premises and who is responsible for the cost should be clear. The tenant should be in the drivers seat on these negotiations.

The "City" should never have signed off on such a one sided deal.

IMHO a large part of this was the whole stampede by our City Leadership, and various hangers on to spend what ever it took for the Stupor Bowl. Do not rock the Super Bowl boat.

The mention of the Super Bowl has the same effect on the local politicians as mentioning Terrorism has on the President and Congress. The only questions asked is: How much money do you need? How high do you want me to jump?

Just one more cost to add to the tax payer bill for the Super Bowl.

You might think the Democrats would jump all over this. However, when it comes to Corporate Welfare both Republicans and Democrats are one in the same. Their unofficial motto is Corporate Welfare and Crony Capitalism is good.

Downtown Indy said...

SoS: I suspect that bad advice from the latter is what causes the former.