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Will South Florida City Face 7-Figure Consequences for Terminating Non-Profit’s 100-Year Lease?

Now, the case will go before Palm Beach Circuit Judge John S. Kastrenakes.

By Michael  A. Mora

What You Need to Know

• The lawsuit arises out of Delray Beach’s unilateral termination of a 100-year lease, allegedly without cause.
• An attorney said real estate attorneys cannot rely solely upon the language of the contracts and sometimes must factor in the behavior of each party.

A historic nonprofit in South Florida is facing off against the city of Delray Beach in a contractual dispute that has ignited local pushback and could have implications in the tens of millions of dollars.

Marko Cerenko, a shareholder at Kluger Kaplan in Miami, is representing the Old School Square Center for the Arts Inc. in a lawsuit against Delray Beach and several additional parties in Palm Beach Circuit Court. He said the dispute between the parties escalated on Aug. 10, when the city terminated Old School Square’s lease, allegedly without cause.

“One of the takeaways of this case is that you can’t rely solely on the language of the contractual document,” Cerenko said. “You also have to take into account the events and occurrences, as well as the behavior of the parties, pre and post entering into that agreement.”

Delray Beach’s  director of communications, Gina Carter, declined to comment.

In addition to the city, the defendants are Delray Beach Mayor Shelly Petrolia; City Attorney Lynn Gelin; Old School Square’s former president and CEO Shannon Eadon; and city commissioners Shirley Johnson and Juli Casale, who voted to terminate the lease.

Delray Beach claimed that Old School Square did not provide required financial information, began renovations without having secured proper permits, failed to attract a diverse range of talent in its performances, and violated the terms of its lease. As a result, Delray Beach has sought out bidders until Dec. 17, to take over management of the property.

Old School Square dates to 1989 and is home to several entities, including the Cornell Art Museum, the Crest Theatre, and the expansive east and north lawns, all of which are near the heart of Delray Beach.

The non-profit had a 100-year lease with the city, and the leased property has served as a gathering place for free concerts, such as Jimmy Buffett, and numerous speakers, such as Barbara Bush, Sandra Day O’Connor, and four-time Olympic gold medalist Scott Hamilton.

Cerenko also pointed to an audience survey and attendee economic impact study from the Cultural Council of Palm Beach County. The study found that Old School Square generated over $100 million of annual economic impact derived from cultural art spending in 2016, according to the 62-page complaint.

Cerenko aims to overrule the city’s decision, alleging bad faith, defamation, civil conspiracy and abuse of process by the city.

Now, the case will go before Palm Beach Circuit Judge John S. Kastrenakes.

Miami real estate litigation expert David Winker is not involved in the case, which he said could be a tough one to prove. That’s because although it appears that Delray Beach changed the lease halfway through, the city maintains that it abided by the lease.

But Winker suggested Old School Square might have another aim by filing the legal action.

“A big part of this lawsuit is that the community must rally behind it. One thing that politicians understand is the community saying, ‘If you get rid of this, we’re going to put you out of office,’” Winker said. “Delray Beach is the type of place where that could happen.”