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Kurr
Penny Hoarding Member
576 Posts |
 Posted - 08/29/2008 : 09:22:52
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http://blog.cleveland.com/business/2008/08/goldbased_lease_could_cause_mi.html
A piece of downtown land isn't worth its weight in gold -- but it is worth 1,693.28 ounces, the amount set in a gold-based lease signed 96 years ago.
That's what a three-judge panel in Cincinnati indicated Wednesday, in a ruling that could lead to a million-dollar rent hike for Forest City Enterprises of Cleveland.
Since 1982, the real estate giant has leased land beneath part of the Halle Building, a former Euclid Avenue department store of which Forest City is the majority owner. The ground-lease continues a contract signed in 1912, when the Halle brothers inked a 99-year deal to rent the property and expand their store on top of it.
The lease contained a "gold clause," a feature of real estate contracts that allowed a landlord to base his rental rate on the price of gold. The clauses were once a common way of accounting for inflation and protecting landowners in long-term deals.
For more than two decades, a Forest City entity called S&R Playhouse Realty Co. paid $35,000 a year to rent the land, based on the price of gold in 1912. But in 2006, a New York investor snapped up the land and demanded more rent.
Forest City and the new landowner, an investor named Stuart Venner, have been arguing in court ever since about whether the gold clause is enforceable.
Wednesday, the 6th U.S. Circuit Court of Appeals in Cincinnati ruled that, yes, the clause still applies.
That means Venner, who bought the land for $845,000, could recoup his purchase price in just three quarterly rent payments, at current gold prices.
And if Forest City doesn't find another convincing defense against the clause, the company could see its annual rent jump from $35,000 to more than $1.4 million, based on the current price of gold.
Forest City officials declined to comment Thursday, and an attorney representing the company did not return a call. An attorney with the Cooper & Kirk law firm, which represents Venner, described Wednesday's court decision as a victory.
"My client is delighted, and we're flying our victory-or-death flag out of our building," said David Thompson, a managing partner in Washington, D.C. "Their remaining defenses are frivolous."
It's possible that previous landowners and tenants alike thought the gold clause was dead.
In 1912, when the Halle brothers leased the lot to the west of their department store from the Realty Investment Co., rents based on gold were common. They agreed to pay annual rent starting at $10,000 and escalating to a hefty $35,000 a year -- the cost, in 1912, of barely more than 1,693 ounces of gold.
Gold clauses prevailed until 1933. That's when President Franklin Roosevelt briefly threw out the gold standard and Congress decided Americans should pay contracts in dollars, not ounces. The land lease under the Halle Building went forward at a flat $35,000 annual rent, even as the price of gold began to climb.
In 1977, when Congress decided to allow gold clauses in new contracts, rent for the Cleveland land stayed the same. And in 1982, when Forest City's S&R entity took over the lease, the rate didn't change.
But in 2006, when Venner bought the land, things changed. Venner knew about the unenforced gold clause. His attorneys argued that by taking over the Halle brothers' lease, Forest City was signing a new contract while agreeing to the original terms, including the gold clause. Venner, under the business name 216 Jamaica Avenue LLC, filed a breach-of-contract lawsuit against S&R in spring 2006.
A lower court said the gold clause was out. But the appeals court overturned that decision and returned the case to federal court in Cleveland to consider any other arguments and determine how much rent Forest City could owe.
Unless Forest City gives in, the legal wrangling could go on for years. Thompson said that wouldn't hurt his client, who hopes to receive rent going back to 2006 -- based on the price of gold when the case is settled.
If gold prices keep rising, Venner might stand to gain.
"We think they're like Sean Connery in 'The Untouchables,' " Thompson said of Forest City's position in the case. "They're dying and holding on for life by the tip of their fingernails."
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Always willing to trade copper for pm's
A number of people are educated beyond, sometimes way beyond, their intelligence. - Tenbears
My Ebay items: http://tinyurl.com/5pqkho |
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pencilvanian
1000+ Penny Miser Member
2034 Posts |
Posted - 08/29/2008 : 14:51:25
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If this ruling stands, if it isn't overturned by the US Supreme Court (and the Supreme Court allows rulings to stand by default by Not hearing cases brought to them) then this will be more evidence for gold bugs that gold is superior to FRNs.
One detail to consider-
Sometimes one District Court rules one way and another District Court rules another way, meaning a ruling is legal in one federal court district while illegal in another. We will have to wait and see how this all plays out. |
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TenBears
Penny Hoarding Member
873 Posts |
Posted - 08/29/2008 : 15:10:50
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quote:
Originally posted by pencilvanian
If this ruling stands, if it isn't overturned by the US Supreme Court (and the Supreme Court allows rulings to stand by default by Not hearing cases brought to them) then this will be more evidence for gold bugs that gold is superior to FRNs.
One detail to consider-
Sometimes one District Court rules one way and another District Court rules another way, meaning a ruling is legal in one federal court district while illegal in another. We will have to wait and see how this all plays out.
I wonder if I can get paid in gold. :) |
"Rich," the Old Man said dreamily, "is not baying after what you can't have. Rich is having the time to do what you want to do. Rich is a little whiskey to drink and some food to eat and a roof over your head and a fish pole and a boat and a gun and a dollar for a box of shells. Rich is not owing any money to anybody, and not spending what you haven't got." Robert Ruark
there are too wild Indians...
there are too wild Indians...
there are too wild Indians...-----still taunted
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kavajava
Penny Collector Member
USA
487 Posts |
Posted - 08/30/2008 : 12:24:14
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| Yeah--I saw that this morning on another site--interesting--but I am not sure the landlord is as much of a gold bug as he was looking for market rate rent--this is just the route he took to find it....but, it is a good result for those who think (know that legally and constitutionally) that gold is money and FRNs are not. |
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Gold-based lease could cause million-dollar rent h
