Attorneys for a real estate company have sued the U.S. Postal Service in San Diego federal court, alleging the agency has failed to either vacate its Hillcrest post office or pay fair market rate to continue renting the property after its 50-year lease ended last summer.
The lawsuit, first reported locally by NBC7 San Diego, was filed last week on behalf of Hillcrest Property LLC and seeks nearly $1 million in rent payments and premiums from the Postal Service. The suit also seeks an order mandating that the Postal Service either vacate the property or negotiate a new lease within 60 days.
The lawsuit alleges “flagrant exploitation of (the Postal Service’s) position as a quasi-governmental agency that has received judicial protection from eviction proceedings.”
The Postal Service had not responded to the suit as of Wednesday, and a spokesperson for the agency did not respond to a request for comment on the lawsuit or the real estate dispute.
The property in question is the post office situated between Richmond Street, Cleveland Avenue and Harvey Milk Street just north of University Avenue. The plaintiff describes the 1.03-acre lot as being located in the “highly desirable” Hillcrest neighborhood and in an area zoned for multiple-unit residential properties. The suit alleges the Postal Service has “benefited for more than 50 years occupying the property at significantly under-market rental rates.”
According to the lawsuit and several attached exhibits showing copies of the lease agreement and several lease amendments, the Postal Service signed a 50-year lease agreement for the property in 1972.
In 2011, ownership of the property was transferred to the current landlord, a trio of family trusts forming a limited liability company registered in Alaska. The manager of that LLC did not respond Wednesday to a request for comment, nor did the attorneys representing the plaintiff.
Last July, the lease agreement ended, and that’s about when the lawsuit alleges that trouble began. Just before the lease was to expire, the Postal Service sent a letter informing the landlord that the agency planned to trigger a clause in the lease and purchase the property, offering $3.8 million.
The landlord’s lawsuit called that offer absurd and said the Postal Service’s appraisal “grossly undervalued” the property by nearly $7 million. An appraiser hired by the landlord assessed the property at $10.7 million.
The lawsuit alleges that the appraiser used by the Postal Service was not a San Diego local and was “uncertified and unqualified.” As the landlord and Postal Service went back and forth about a potential purchase price after the lease agreement ended, the Postal Service allegedly informed the landlord that it would remain on the property as a holdover tenant while paying a rent amount based on its own appraiser’s lower assessment.
According to the suit, the landlord responded that the Postal Service owed $759,781 for the year, or about $63,315 per month. When the Postal Service instead paid a rental amount based on the lower property assessment, the landlord did not deposit the check, according to the suit.
A year later, the lawsuit is seeking the nearly $760,000 in rent that the landlord company says it’s owed for the fair market yearly value of the property, plus a 30-percent premium that would raise the payment to nearly $988,000. The lawsuit alleges the landlord is entitled to that premium because “defendant’s refusal to negotiate a new lease has placed plaintiff in a precarious position — at the whim of USPS, with no way to know if it should be searching for a new tenant or if defendant will negotiate a new lease at the fair market rate.”
In arguing that their client is due the full rent amount plus the premium, the attorneys for the landlord cited a 2019 case in which the Postal Service Board of Contract Appeals ruled against the Postal Service and for a similarly situated landlord in Michigan.
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