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The city’s 101 Ash St. landlord is accusing the city of violating multiple requirements of its lease, including notifying its landlord of renovations made to the building that likely triggered county asbestos violations.
101 Ash LLC, the entity that representatives of middle-man seller Cisterra Development created to facilitate a lease-to-own deal with the city, last month filed a notice of claim against the city for its failure to pay the nearly $535,000 rent it owes each month.
Along with a Sept. 23 notice considered a precursor to a lawsuit, La Jolla attorney Michael H. Riney sent a letter alleging a series of other breaches. City Attorney Mara Elliott’s office disputed them this week.
Riney alleged that the city did not seek Cisterra’s consent to alter the building with renovations exceeding $2 million. And he said the city did not provide invoices for work funded by a $5 million tenant improvement allowance from the developer. Finally Riney alleged the city did not maintain a contract with an outside company to manage the property.
That part is true: The City Council last month voted not to renew its agreement with property manager CBRE to continue to oversee 101 Ash St.
Riney also demanded that the city provide notice of incidents involving exposure or presence of asbestos and details on related legal claims.
In the process, Riney pointed to a clause in the lease requiring that the city cover its landlord’s legal bills, noting that the mandate would also apply to suits tied to violations of environmental laws that might have occurred along with the asbestos issues that climaxed with the city’s evacuating hundreds of workers in January.
“Landlord has already incurred expenses associated with tenant’s default as described above and intends to tender to tenant claims for reimbursement of those expenses in the future and expressly reserves the right to continue to do so and to further enforce its rights,” Riney wrote.
A spokeswoman for Elliott, who last week got City Council approval to sue the city’s landlord and investors in the 101 Ash lease, disputed Riney’s allegations without addressing them specifically.
“The city disagrees with Mr. Riney’s characterization of this transaction and the allegations made in his letter and has sought court intervention,” spokeswoman Hilary Nemchik wrote in an email to Voice of San Diego. “The city remains open to discussing potential solutions that protect the city’s interests.”
Riney and Craig Gustafson, a spokesman for Mayor Kevin Faulconer, both declined to comment on the allegations.
Maria Severson, one of a handful of attorneys who filed an August lawsuit that paved the way for the city to stop making lease payments, told VOSD that constitutional issues with the 101 Ash lease could render any requirements that Riney cited in his letter void.
Severson and other lawyers including her law partner, former City Attorney Mike Aguirre, have argued the 101 Ash lease violates a clause in the California Constitution barring municipalities from taking on debt or liability without a benefit in the year that debt was incurred. They believe the lease violates that requirement because the city has long been unable to use the building.
“If the agreement itself violates the constitutional debt limit law, then you can’t enforce an unconstitutional agreement,” Severson said.
Faulconer last month directed the city to halt 101 Ash rent payments due to the building’s inability to house city employees years after the initial deal, a decision that followed an August demand letter from Severson and Aguirre citing the constitutional debt limit issue.
Maryland-based CGA Servicing LLC, acting on behalf of the trustee for investors, also fired back against the city last month with its own notice of claim over the city’s failure to make its September 101 Ash rent payment.
While it’s unclear whether investors are in talks with the city about potential options, Riney acknowledged in a Wednesday court hearing on Aguirre and Severson’s suit that he is discussing possible resolutions with the city.
At Severson’s request, the judge granted the attorneys who filed the suit until mid-January to formally serve other parties and continue talks.
Attorney Dick Semerdjian, who the city hired to assist with 101 Ash litigation, joked with Superior Court Judge Joel R. Wohlfeil that he had been speaking with Riney more often than his wife recently.
“There’s been great dialogue between myself and Mr. Riney,” said Semerdjian.
Semerdjian is also helping to represent the city in the lawsuit it filed Friday against 101 Ash LLC and Wilmington Trust, which represents 101 Ash investors, seeking to get a court ruling that it does not have to make lease payments so long as city employees cannot safely work in the building. The Friday suit came in the wake of a City Council-approved agreement with Severson, Aguirre and other attorneys that the city would not make 101 Ash rent payments until it can use the building.