COA continues terms of justice center lease in Floyd County

Although the city of New Albany argued holdover tenants should not be given “another bite at the apple,” the Indiana Court of Appeals affirmed its original ruling that continued occupancy of the criminal justice center maintains the terms and conditions of the lease even after the agreement as expired.

The southern Indiana city raised its holdover arguments in a petition for a rehearing in City of New Albany v. Board of Commissioners of the County of Floyd, New Albany Floyd County Indiana Building Authority, 18A-MI-1627.

A dispute arose between the parties over the criminal justice center. In 1992, the county entered into 15-year lease with the building authority, allowing the county to lease the center while the city sublet space from the county. The lease included a provision that allowed the county to request the title of the property at the conclusion of the agreement.

Ten years after the lease expired, the county demanded the title but the building authority refused. The Court of Appeals, in a May 22 decision, ruled the building authority lacks the statutory authority to agree to such a provision.

However, the appellate panel unanimously agreed the county could still exercise its purchase option contained in the 1992 lease. Because the county continued to occupy the justice center and pay its share of the operational costs under the terms of the lease long after it had expired, the county could still acquire title by buying it from the building authority.

The city asked for a rehearing on that ruling. In part, the city argued the language in the lease limits the purchase option only to the time prior to the expiration of the agreement.

“Holdover tenancy is not intended to give lessees another bite at the apple,” the city asserted in its petition for rehearing. “It is designed to promote stability in tenancies. The policy that purchase options do not survive expiration is consistent with this interest.”

The Court of Appeals granted the rehearing but did not change its original ruling.

Citing Penmanta Corp. V. Hollis, 520 N.E. 2d 120, 122 (Ind. Ct. App. 1988) and Houston v. Booher, 647 N.E.2d 16, 19 (Ind. Ct. App. 1995), the appellate panel found the purchase option in the original lease carries over into the holdover tenancy along with all the other terms and conditions in the original lease.

“As in Houston, we continue to agree with Judge (Patrick) Sullivan’s concurring opinion in Penmanta Corp., in which he stated that ‘[i]f terms and conditions of an original lease (other than the duration of the tenancy) are to be excluded form a holdover relationship, that determination should come from the General Assembly or the Indiana Supreme Court.’”

The city of New Albany petitioned for a rehearing for the court to review the sole issue of whether Floyd County may exercise the purchase option as a holdover tenant.

In its original opinion, the appellate court was unanimous in finding the county could still exercise the purchase option even though the lease had expired in September 2008. However, the county continued to occupy and pay its share of the operational costs for nearly a decade.

“Because the County held over beyond the expiration of the 1992 Lease, both the Building Authority and the County have continued the tenancy under the terms of the 1992 Lease which includes the purchase option,” Judge Cale Bradford wrote.