COLUMBUS, Ohio (CN) – A company that sublets a prime downtown office building for 150 times more than it pays for it must comply with the lease’s “gold clause,” the property owners claim in court.
The grandchildren of original landlord Philip Lang sued Commonwealth Investments Ltd. and Duquesne Properties on Wednesday in Federal Court.
They lease a downtown Columbus office building to Commonwealth, which in turn rents to other tenants for more than $900,000 a year – far more than the $6,000 it has been paying the plaintiffs, according to the complaint.
Lead plaintiff Henry S. Baynard Jr. claims that Lang entered into a 99-year lease agreement in 1919, when yearly rent was $6,000. Knowing that the price of renting the building would increase over time, they included a “gold clause” in the lease that ties rent to the value of gold, the complaint states.
Congress made gold clauses unenforceable in 1933, but the lifting of the gold standard in 1971 meant the ban on gold clauses was lifted too. In 1977, Congress said that gold clause obligations issued on or after 1971 could be enforced.
Commonwealth’s predecessor became lessee by assignment in 1990, and the plaintiffs say that is when the gold clause became enforceable again.
Commonwealth and the plaintiffs renewed the lease in 2013 for another 99 years, constituting another gold clause obligation, according to the complaint.
But Commonwealth has refused to comply with the gold clause, Lang’s grandchildren say.
“In 1919, the value of gold was $20.67 per ounce; today, gold is valued at more than $1,200 per ounce,” the complaint states. “Commonwealth Investments, however, has continuously failed to comply with this obligation, and instead has paid only the face amount of rent – $6,000 per year – sometimes even refusing to pay that amount in a timely manner.”
Based on the change in gold value, Commonwealth should be paying $340,000 in rent per year, according to the complaint.
“Commonwealth Investments thus is and has been reaping an enormous windfall by charging tenants of the Commerce Building rents that reflect the fair market value of real property in 2014 but paying lessors rent that reflects the value of its real property in 1919,” the plaintiffs say.
The plaintiffs seek lost rent that Commonwealth should have been paying and declaratory judgment that it must comply with the gold clause in the future.
They are represented by Peter Patterson of Cooper & Kirk in Washington, D.C.
Patterson told Courthouse News that he thinks a jury would find that Commonwealth paying $340,000 per year is fair considering what the plaintiffs believe the space rents for.
“They’re paying rent at the same price it was 100 years ago,” he said, adding that Commonwealth should pay according to the lease’s original price mechanism, in this case the gold cause.
Commonwealth did not immediately return a request for comment.
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