Jersey City Pays $333K to Escape Lease at 201 Cornelison Avenue
When Jersey City was forced to vacate the offices it leases at 201 Cornelison Avenue in December after a burst pipe flooded the facilities, it was believed to be a temporary but necessary measure. But as it turns out, city officials say it was a blessing in disguise, as it allowed the city to break an expensive lease with the building’s owner.
The city housed administration offices for the Department of Health and Human Services in the building for decades, and used to own the building when the Jersey City Medical Center was still on site (the facility is now part of the Beacon complex). In 2005, the city conveyed the title to the Jersey City Redevelopment Agency (JCRA), which in turn conveyed it to Roxy Urban Renewal Company, the current owner.
At first, “Roxy allowed the city to remain in occupancy free of charge,” according to an April 6 memo written by first assistant corporation counsel Joanne Monahan. “However, in 2009, Roxy insisted that the city either vacate the property or pay fair market rent.”
The city did the latter, signing a five year lease for nearly $50,000 per month. The lease agreement only allowed for an early termination of the lease if the owner was given 12 months advance notice.
So when Roxy deemed the property “not fit for occupancy” on December 29, the day after the pipe burst, the city immediately gave notice that it would terminate the least on December 31, 2011 and moved its offices to the MLK Hub and to 1 Journal Square.
”Under the lease, the city is required to pay rent as soon as the space is repaired and habitable (which the owner said he could do by March),” city spokesperson Jennifer Morrill says. “This means that even with the early termination notice, at a minimum the city would have been required to pay rent for nine months rent, or $433,000. The city, however, advised the owner that it would not return in the hope of gaining some additional rent reduction since the owner could then rehabilitate the building for a new tenant.”
And so the City Council last week approved a $333,952 settlement to cut its losses and end the lease immediately.
“It’s obvious that not a lot of due diligence was done when we signed the new lease,” Ward A councilman Michael Sottolano said before voting to approve the settlement. “It cost us money, but in the long run we’re saving a lot of money. This resolution settles everything and all the claims of problems going back and forth.”
The problems include a dispute over the flood’s cause, and who would be held responsible for damage to the building and the property.
“The flood damage was extensive since water poured through the building for nearly a day before the water shut off valve was located and closed,” Morrill says. “If it was determined that the city was at fault, the city would be liable to the landlord for the damages in addition to the rent.”
To make matters worse for the city, it was alleged that “additional damage was done to the building by those hired by the city to move its furniture and remove the window air conditioners,” which would open the city open to liability for those damages.
There was also reported vandalism to the property, which Morrill says happened after the building’s abandonment after the flooding, about which “the city will await an internal report and will take disciplinary action against any responsible employees, if appropriate.”
The settlement with Roxy takes the city off the hook for just about all of the developer’s claims, with the exception being an investigation into conditions at the property currently being undertaken by the federal Occupational Safety & Health Administration (OSHA).
“Given the city’s exposure for rent, flood damages, moving damages and vandalism, and the long-term rent savings, the settlement was fair and reasonable and in the city’s best interests,” Morrill says.
The lone no vote on Wednesday came from Ward E councilman Steven Fulop.
“[The] flooding was caused by the developer, so I’m not sure why we’re paying when they caused damage that forced us to move,” he said.
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