World Trade Center lease dispute goes to trial in Baltimore

Daily Record, The (Baltimore), Jun 24, 2008 by Andy Rosen

The law firm Gebhardt & Smith LLP will not be able to claim that its lease was illegal to defend itself in a two-year-old lawsuit with the Maryland Port Administration, a city judge decided Monday

The bench trial in Baltimore City Circuit Court focuses on $317,500 in rent surcharges that the firm allegedly did not pay when it leased office space at the World Trade Center.

The firm had been a tenant there since the building opened in 1977, but it is challenging rent overcharges within the past decade. Gebhardt & Smith claims the state fraudulently inflated operating costs to boost revenue during tight fiscal times, an accusation the state denies, arguing that each cost is justified by the terms of the law firm's lease.

As the trial opened Monday, Judge M. Brooke Murdock ruled that the firm had waived its right to challenge the legality of its lease after being a tenant in the building for nearly three decades. The trial is likely to last at least into next week.

The focus of the legal battle now will likely be on the firm's claims that the MPA did not follow the lease's procedures when calculating and charging the firm for its share of the building's operating costs.

The firm had challenged the MPA's legal authority to lease the state-owned office building to non-maritime tenants. The World Trade Center was originally built for port-related businesses, though the MPA says it has no preference as to the types of businesses that lease there.

"It is an attempt to get out of this lease after they had been there for 30 years and were well aware of the mix between maritime and non-maritime [tenants]," said MPA attorney Philip P. Whaling.

Senior Partner Lawrence J. Gebhardt said his firm, which was once the largest tenant at the World Trade Center but has since moved, was hit by charges that rose dramatically over five years.

"This is a case about a landlord that wants more than it is entitled to under its lease," Gebhardt said.

Commercial tenants commonly pay extra operating costs, such as utility bills and building maintenance charges, which are not covered by their rent. Gebhardt & Smith had paid them before, but said they rose markedly after 2001. As of April 2007, including interest, the state claims Gebhardt & Smith owed more than $400,000.

Gebhardt said the firm paid some of the expenses. Still, he argued that the MPA should have brought in an outside accounting firm to calculate the operating expenses.

Gebhardt & Smith claims that it is in the MPA's financial interest to include management and administration costs as operating costs, making the building look more profitable. That is why the firm says it insists on independently audited cost statements.

The firm believes that this was a condition of its lease, and the MPA's failure to do it creates a conflict of interest. The firm also complains that it did not get advance estimates of the operating costs as it was supposed to.