1912 'Gold Coin' Lease Payment Term is Enforceable, 6th Circuit Rules
A 1912 lease provision that requires payment in gold coin is enforceable, a federal appellate panel held yesterday, even though the U.S. withdrew the gold coin from circulation in 1933 and the building owner, for decades after that, didn’t attempt to enforce the payment term.
Because the price of gold has shot up since 1912, a lower court must now determine what the 35,000 gold coins that the lease calls for in annual rent is worth in U.S. dollars, under the ruling by the 6th U.S. Circuit Court of Appeals, reports the Associated Press.
The lessee of the landmark building in Cleveland, Ohio, S&R Playhouse Realty Co., had been paying $35,000 annually since assuming the lease in 1982. That amounts to about 17 cents a square foot, says attorney David Thompson of Cooper & Kirk in Washington, D.C., which is representing the building owner, 216 Jamaica Avenue LLC. “We are delighted that the windfall that the tenants have been enjoying is going to be eliminated and this will get back to a market-based rent.”
Applying the gold coin rent payment requirement, the tenant will probably have to pay about $8 per square foot, he says.
The gold coin requirement had apparently been long forgotten until 216 Jamaica Avenue bought the building in 2006. It tried to enforce the payment provision, and sued when the tenant balked.
Although it was, for many years, illegal under federal law for individuals to own gold, federal law enacted in the mid-1970s repealed that ban and specifically provided that parties could contract for payment in gold, starting in 1977. Meanwhile, in a 1982 lease assignment, S&R agreed to take on all of the original obligations of the 1912 lease, the 6th Circuit points out in its written opinion (PDF).
While the 99-year lease expires in 2011, the payment issue apparently implicates a substantial sum of money, because the lessee has a right to renew for another 99-year term, according to the opinion.
Additional coverage:
AmLaw Daily: “Gold Rush: Thompson Hine on Losing End in Landlord/Tenant Case”
Updated at 1 p.m., central time, to add link to AmLaw Daily post.
