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April is the first month that some tenants in the former Naval Training Center are supposed to add hundreds of dollars to their rent checks due to a tax snafu that came to light in February.
At least one of those groups isn’t paying.
“I’ve paid our April rent but refused to pay the extra amount added for the property tax issue,” said Jan Giacinti, CEO of Kids Included Together, a nonprofit training and education organization working to provide learning opportunities for kids with and without disabilities.
“I’m not going to be paying the increase because I don’t believe it’s our responsibility to bail out NTC for their errors,” she said on Friday.
Giacinti’s group rents space from the NTC Foundation, which ran into tax trouble when it created for-profit companies to qualify for funding to fix up the historic buildings, triggering unexpected taxes. The foundation convinced the city in February to cover $1.25 million in back taxes and penalties. But going forward, the foundation has promised to pay the bills starting next year. So it told some tenants to add hundreds of dollars a month to their rent payments, starting in April.
The foundation told Giacinti’s group to come up with an extra $550 starting this month — about one-quarter of its previous monthly rent.
How could they do that?
The original leases don’t mention paying property taxes.
Some groups like Giacinti’s have renewed or signed new leases recently that do include a mention of “future taxes.” Giacinti said the foundation failed to notify her that the lease was changing when she renewed her lease last year.
“We assumed it was the same lease we signed before, which is obviously a bad assumption,” she said. “But I would’ve thought they would’ve sat down with us to tell us the status of the issue. There was no good-faith conversation whatsoever.”
NTC Foundation Executive Director Alan Ziter said on Thursday he didn’t recall having conversations with the tenants specifically about the new mention of the potential tax payments. But when those renewals came up, the foundation was hopeful the county wouldn’t go through with charging them the tax payments.
“They felt like we should’ve said something. At the time, we were under the impression with the county that this could be resolved,” he said.
The foundation didn’t know until December, and didn’t inform their tenants until February, that they really would have to pay the more than $1 million in back taxes, penalties and fees, Ziter said.
“I don’t how each individual tenant reviewed their lease renewal,” he said. “I would’ve pulled out my old lease and compared page by page.”
Jason Hughes, a local commercial real estate broker who represents tenants in leasing space, said he thought it was “outright wrong” for the foundation not to draw a lot of attention to the way the lease was changing to shift the risk to the tenant if any new taxes were levied on the properties.
“That’s horrible. That’s an awful thing to do,” he said. “It’s really just bad form for a landlord to sneak something like that in.”
But, he said, the arts and nonprofit groups should take their contracts with any landlord very seriously, and make sure they have an advisor review it.
“This is a legally binding document,” he said. “Shame on the landlord for sneaking this in, but at the end of the day, these businesses should not be making huge commitments without proper representation.”
Meanwhile, the foundation has hit a dead end on its hopes to get state law changed this year to exempt its buildings from property taxes. And talks with the county assessor have yet to yield any relief. Ziter said it’s looking for donors to cover the extra rent costs for the nonprofit tenants who find the additional costs burdensome. He said that help would apply to groups on a case-by-case basis.
The NTC Foundation hopes to create San Diego’s next Balboa Park, a hub of arts and culture. The tax mess threatens could price out the very organizations former Navy buildings were rehabilitated to house.
As of a month ago, there are 38 tenant groups in the NTC spaces. I don’t know how many of them have signed new or renewed leases with that tax mention.
Giacinti said the tax issue took up more than an hour of the NTC tenants’ monthly meeting on Thursday. “There were a lot of groups around that table that were not the least bit happy,” she said.