Wednesday, September 11, 2013

One Sided Contract Leaves Indianapolis Taxpayers on the Hook Despite Closing of Regional Operations Center

Public Safety Director Troy Riggs today announced the closing of the Regional Operations Center because of fire code violations.  The IBJ reports:
.. Riggs removed about 150 police and homeland security employees from the 76,000-square-foot center Monday because city fire and building inspectors deemed the building unsafe.

The police officers and Homeland Security officials who worked in the center at the former Eastgate Consumer Mall on the city's east side are setting up shop in other locations across the city.

... Earlier Tuesday, Riggs said the problems include a faulty basement sprinkler system and firewall.

He said he learned about those problems from Department of Code Enforcement and Fire Department officials about 1 p.m. Monday and decided an hour later to evacuate.

"I'm the director of public safety, and I cannot have people in a building that may be unsafe in the event of a fire," he said.

Rent payments were due starting in January, but instead the city has deposited the $59,000 per month in an escrow account until the Public Safety Department could resolve its disagreement with landlord Lifeline Data Centers.
The property which is located at 401 N. Shadeland Avenue is owned by 401-Public Safety, LLC, which is wholly owned by Live Wire Technologies, LLC.   Live Wire's managing member is Alex Carroll.  Marvin Slomowitz and Rich Banta are the other owners of Live Wire.

A review of the of the 25 year lease costing taxpayers over $18 million reveals it is so one-sided as to leave the City with no contractual recourse against the Landlord.  Here are the highlighs, er the lowlights of the contract: 
(Note:  Above link will take you to a sign-in page.  If you hit "Guest Sign In" that will then take you directly to the contract.)
AS IS CONDITION:  City agrees to accept the property "as is" and cannot object to the condition of the property after January 1, 2013.  Landlord expressly disclaims any warranty regarding the condition of the property or its suitability for the purposes sought by the City.  All risks regarding the condition of the property are to be borne by the City.  (Section 1.) 

LEASE TERM:  Although the lease is dated May 20, 2011, the lease actually runs from January 1, 2013 to December 31, 2037.   (Section 3.)

RENT:  Monthly rent is $57,083.33 for the first 120 months and $63,333.33 for the final 180 months of the lease. (Section 4(a).)

RENTING OTHER SPACE:  City agrees that if it breaks the lease it shall not purchase or lease property to be used for the same purpose as the leased property for 365 days.  (Section 4(g).)

CITY MAY NOT CHALLENGE CONTRACT:  City agrees that it will remain obligated under the lease and will not take any action, including a lawsuit, to terminate or rescind the contract.  (Section 5(b).)

CITY IS RESPONSIBLE FOR ENSURING PROPERTY MEETS LEGAL REQUIREMENTS:  At the City's "sole expense" it is responsible for ensuring the property conforms with all statutes, regulations, ordinances, etc.  Any structural changes made necessary by legal requirements (such as fire codes) are the sole responsibility of the City.  The City shall be responsible for any environmental problems caused by the property, including asbestos, hazardous waste, unlawful discharge of pollution from the property, etc. (Section 6(b).)

MAINTENANCE AND REPAIR:  City waives any right to require Landlord to maintain, repair or rebuild any party of the premises.  (Section 9.)

EVENTS OF DEFAULT:   Eight events of default are listed.  All apply to the City and none apply to the Landlord.  (Section 18.)

LANDLORD'S RIGHT TO TERMINATE:  Upon giving 15 day notice, Landlord can terminate the contract.  The City has to leave no later than 15 days from the notice and if it fails to do so the Landlord can reenter the premises and remove, without court order, all persons and personal property from the premises.  The Landlord does not have to provide a reason for terminating the lease.   In the event of the Landlord exercising its right to terminate the lease within 15 days, the City shall owe all past due rent and future rent, minus rents Landlord might receive from a replacement tenant.  The City shall also pay all costs Landlord incurs in reletting the property, including costs to remodel the property as well as the expenses of attorneys, architects and other professionals.  (Section 18(b)(ii-iv).)

ATTORNEY'S FEES:  In the event of default, the City shall be responsible for paying the Landlord's attorney's fees.  The City does not have a right to seek attorney's fees under the contract should it sue (which it expressly is forbidden from doing) and win.  (Section 19(c).)
SIGNATURE PAGE:  Alex Carroll signed for the Landlord while Public Safety Director Frank Straub signed for the City.  There is a line "APPROVED AS TO FORM AND LEGALITY" which is where the attorney is supposed to sign.  Assistant Corporation Counsel Mark A. Mertz crossed out that line and wrote "Signature not required" and signed his name next to that note.  There is a line for the City Controller Jeffrey L. Spaulding to sign that is labeled "APPROVED FOR AVAILABILITY OR FUNDING."  That also is crossed out.  In the signature line for Spaulding there is written the statement:  "per counsel-signature not required."   It appears that some city officials might have been troubled about affixing their signature to the one-sided contract.


Had Enough Indy? said...

Check out the signature page - p 21.

Two folks declined to sign - I've seen a few contracts and never saw that.

One is Mark Mertz - Asst. Corp. Counsel - who signs that his signature is not required as to the form and legality.

The other is Jeff Spaulding - City Controller - whos signs that his signature is not required as to availability of funds to pay the lease.


Had Enough Indy? said...

Sorry - I see that you caught that.

Jon said...

So tell me why the city has attorneys if contracts like this exist. What idiots downtown sign off on a contract that can only be terminated by the lessor? Why have corporate counsel if the city doesn't use them.
This contract and the parking meter contract are just more examples of the ineptitude of our local government.

Paul K. Ogden said...

HEI, I added that information later.

Jon, what they do is they put very young, inexperienced attorneys in leadership positions at City Legal. Chris Cotterill and Jonathan Mayes did not have the experience for the positions they held. Young, inexperienced attorneys are more open to manipulation by those who are more experienced.

Downtown Indy said...

Beautiful. Terrific.

Jon said...

Paul, I'm not bothered by the fact that the city uses young inexperienced lawyers but rather that no one in city government is overseeing their work. The lead corporate counsel should at the very least sign off on contracts including changes and deletions as required. The City Council, the City Controller and the Mayor all need to approve contracts.
Absent contract reviews and requisite approvals the city is just rearranging deck chairs on the Titanic. At some point in time, someone in this town needs to be fiscally responsible.

Paul K. Ogden said...

Jon, the problem is not that they use inexperienced attorneys, but they put them in key leadership positions. Jonathan Mayes was named as head of the litigation section when he only had two years experience. Chris Cotteril was made head of City Legal with only 5 years legal experience and little, if any, litigation experience.

Flogger said...

I maybe a cynic, but it may simply be that rather than being out foxed City Attorneys, knew what they were signing to begin with, i.e., one sided lease agreement.

Unigov said...

"What idiots downtown sign off on a contract that can only be terminated by the lessor?"

Hypothetically, someone who was paid off.

Regardless of the BS language, a contract to do something illegal (murder someone, rent out space that is unsafe) is unenforceable.

I've been through Eastgate and back when this deal was being put together, the place was a joke. Crackheads living there. People doing target practice at the old store signs. Giant holes in the ceiling. The city staff had to have had blindfolds on when they looked at it. Or hypothetically someone induced to look the other way.

The Lifeline project received a huge tax abatement.

Alex Carroll is a jerk btw.

William said...

How in the blazes can this kind of lack of control and oversight happen let alone be legal. My blood pressure is up massively this morning reading this.

Lets just let outside private developers raid the city coffers for their own gain and make some friends in powerful positions.

This makes me wish even more, that we had recall elections here in Indiana. I would be out there leading the charge to get that done.