Plaintiff to continue fight over Park Harvey Apartments in downtown

Journal Record, The (Oklahoma City), Mar 21, 2008 by Marie Price

A federal judge's ruling this week settles only part of the litigation over the Park Harvey Apartments in downtown Oklahoma City, plaintiff's attorney Skip Cunningham said Thursday.

On Monday, in a partial summary judgment action, U.S. District Judge David Russell held that coverting the Park Harvey building into apartments did not breach a 99-year ground lease that called for an office building to be built on the property.

Russell said use of the term "modern office building" in the ground lease did not preclude the plaintiffs from modifying the structure's interior for residential purposes. He said that term was merely descriptive of the type of building to be erected, "but that phrase does not expressly limit the plaintiff's use of the premises."

Cunningham said claims of tortious interference with business relations and intentional interference with prospective economic advantage have yet to be settled or tried.

He said the court has asked for any additional evidence both sides have to offer on the remaining claims, and will decide whether the case should be dismissed or move forward.

"Our claim is that the actions of the defendants, in serving a notice of default, were done intentionally and with the expectation or knowledge that it would interfere with our ability to obtain refinancing or otherwise sell the property," Cunningham said.

Russell's ruling is not new law, the attorney said.

"There is existing Oklahoma law out there, whereby the use of the property is distinguished from the type of property that is to be constructed," Cunningham said. "There is case law that distinguishes those two matters."

Courts have held that each of those issues must be looked at in terms of drafting a lease, he added.

"In this case, there was a structural requirement, but there was no use requirement written in the lease," he said.

Ground-lease situations are fairly common in downtown commercial property situations, said Darren Currin, vice president and research director for OKC Property Research LLC.

He said the Skirvin Hilton is the object of a ground lease, with the city owning the land.

"We see that also quite a bit in retail situations, with maybe restaurants on a pad site of a large shopping center," he said. "They may be on a ground lease where they own the building, but are paying a lease to the owners of the development."

He said the Skirvin and Park Harvey are the two largest ground leases he is aware of in the downtown area.

Park Harvey Apartments LLC, formed by the Gardner-Tanenbaum Group, acquired the building in 2005, spending more than $14 million on renovations.

The 99-year lease with Park Harvey Apartments' predecessor started running in 1955.

In February 2007, the property owners/lease holders served a notice of default on Park Harvey Apartments, contending that the apartment conversion violated the lease.

In their litigation, Park Harvey Apartments attorneys argued that the defendants filed the default notice because they were not content with the payments due under the lease, which are currently $45,000 per year, and are attempting to force the plaintiffs into renegotiating the ground lease terms.

The plaintiffs contend that, as a result of the default notice, they were unable to secure refinancing on a construction loan. As a result, they told the court, they have had to pay $2.5 million in additional interest.

They also said they have been unable to sell a four-building package, including Park Harvey, and have therefore suffered the loss of more than $5 million in profits.

Offers to purchase Park Harvey separately have been withdrawn upon disclosure of the default notice, the court was told.

Park Harvey Apartments LLC also claims that the default letter interfered with its business relationship with its lenders and others, with resulting damages exceeding $5 million.

Attorneys for the defendants were not immediately available for comment.