Marina, city in rent dispute
One evening in late April, Andy McKinley came to the City Council with a request. He asked them to hold off on plans to raise the rent for Grand Marina, where he is general manager, by nearly 400 percent.
McKinley’s appearance before the council marked one of the most recent turns in a year-long dispute between the marina and the city, which notified the marina in May 2009 that it intended to increase its annual rent from $28,232.67 to $136,100.
“We cannot pay this extortionary rent increase,” McKinley told the council on April 21. “I can only appeal to the council to grant suspension of this increase until we can work out terms of a new lease.”
City officials wouldn’t comment because they said the matter is pending litigation.
“All I can really tell you is, there’s a dispute,” the city’s economic development director, Leslie Little, said.
Grand Marina has operated from its home at the foot of Grand Street since 1989. The marina, which has more than 400 berths and a full-service marine center, holds two leases with the city to operate on state-owned tidelands that the city is in charge of managing. The leases are for 25 years, with an option for a 25-year extension that the marina exercised.
The marina’s owners have made a raft of improvements during their stay there, building concrete docks and bathrooms and upgrading the harbormaster’s building, which offers a commanding view of the estuary. And McKinley said it’s those upgrades that the city is seeking to base a rent increase on.
The city is arguing that state tax code allows them to charge rent based on not only the land Grand Marina is leasing, but also the improvements they have made. In a May 2009 letter, a property manager for PM Realty, which provides real estate services for the city, wrote that the city had miscalculated Grand Marina’s rent for decades by failing to include the improvements and that they planned fix their error by raising the rent.
But McKinley disputed that interpretation of state law regarding what’s called “possessory interest,” saying it contradicts the intent of the tidelands leases.
“It would have undermined the very purpose of the lease – to provide an incentive to improve and develop the tidelands,” McKinley told The Island.
Section 107(a) of the state’s revenue and taxation code, which is at the heart of the dispute, defines possessory interest as “Possession of, claim to, or right to the possession of land or improvements that is independent, durable, and exclusive of rights held by others in the property, except when coupled with ownership of the land or improvements in the same person.”
McKinley said the marina has tried to work with the city, offering to sign a new lease that would give the city a share of the marina’s revenues. The marina’s owners also asked that the city to approve a new lease, so the marina can qualify for loans to finance additional improvements. But negotiations stalled.
And McKinley said the marina has worked to ensure they’ve been a good partner to the city, paying more than $57,000 in back rent when the city discovered a prior failure to increase the marina’s rent as scheduled even though the city’s legal right to collect some of it had expired.
“We went above and beyond what we were required to do, because we thought it was fair,” McKinley said.
The city told McKinley in mid-April that he needed to accept the increase in rent and pay it starting this year – or face a lawsuit from the city demanding more than a quarter century’s back rent, which could total millions of dollars, he said.
McKinley asked the city to hold off on that until it puts new leasing guidelines in place that were due in February but have yet to be developed. He is still hopeful something can be worked out.
“We want to be good partners,” McKinley said.