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Foreign leases raise questions: overseas' governments need special handling as tenants.

Court decisions over the last few years have re-affirmed the "inviolability" of foreign governments as tenants, raising new concerns to their reliability and desirability. While there are various treaty provisions, the 1961 Vienna Convention directs attention to the issue of mission premises and has been referred to in at least one court decision.

The Vienna Convention's article 22 states: "The premises of the mission shall be inviolable. The agents of the receiving State may not enter them, except with the consent of the head of the mission."

Additionally, it discusses the host state's "special duty" to protect the premises from "any intrusion or damage" and to "prevent any disturbance of the peace of the mission or impairment of its dignity." The premises are also, it declares, immune from "search, requisition, attachment or execution."

Unfortunately, building owners have lost out when governments either failed to make timely rent payments or had their offices shut by the good 'ole USA, and court decisions over the last few years have gone against the owners.

Recent action by the New York State legislature to repudiate the lease at 315 Park Avenue South and instead, play musical offices with state leases, has brought this trend even closer to home.

The city, meanwhile, is an effort to be user-friendly, is actually considering a change to two of its leases that would extend the current across-the-board option of a two-year termination clause to ten years.

USA Padlocks Offices

In the most recent Federal decision, the consulate of Yugoslavia and other offices, including those of a bank, were closed off by the Federal government in a move to pressure the country over the Serbian/Bosnian split. While that conflict continues, the owners of the building were left with a physical "taking," except that the Federal Circuit Court ruled it was not.

The courts did agree, however, that the leaseholds were property under the Fifth Amendment and therefore could be the proper subject of a takings claim, said attorney Robert J. Ward, the Richards & O'Neil partner that represented the owner, 767 Third Avenue Associates, a partnership consisting of the Kaufman family and JMB Realty and managed by Sage Realty, the Kaufman family's management company.

Ward said the courts held that any owner that rents to a foreign consulate, mission or embassy has to expect the Federal government can, at any time and for any reason, throw them out - and so the owner could not possibly have a reasonable investment-backed expectation in the leases.

While the Yugoslavian offices in the premises at 767 Third Avenue, at the corner of 48th Street, were sealed by the government, the court reasoned that since no armed guards were placed there, the U.S. government's actions did not amount to a physical taking, a decision Ward calls "ridiculous."

The Federal government asked Yugoslavia to move, which they did, Ward claimed, but then the Federal agents locked the offices and displayed a sign threatening severe criminal and financial penalties should anyone enter. No rent was paid during that time.

When the owners sued and alleged a physical taking, the Feds pulled off the signage. It is harder to prove a regulatory taking, Ward said, but the court said it wasn't even a physical taking for the three months the signs were up.

"In a 'takings' claim," explained Ward, "you have to show a reasonable investment-back expectation. The court said by virtue of foreign policy power, you have no such expectation,"

Zaire Non-Payment

A few years ago, Ward handled a case against the Permanent Mission of Zaire to the United Nations when it stopped paying rent to the same building and refused to move out. The owners obtained a money judgement against Zaire, but could not collect under the Foreign Sovereign Immunities Act (FSIA).

In that case, Ward then tried to evict Zaire and Judge Leonard B. Sand in the Southern District granted a warrant of eviction. Here again, the Federal Government intervened, but this time as amicus curiae, or "friend of the court."

But Judge Sand refused to withdraw his warrant, so the U.S. government took the case to the Second Circuit and that three - judge panel subsequently reversed his decision, with Circuit Judge Richard J. Cardamone writing, " upsetting existing treaty relationships, American diplomats abroad may well be denied lawful protection of their lives and property... That possibility weighs so heavily on the scales of justice that it militates against enforcement of the landlord's right to obtain possession of its property for rental arrears."

Scoffed Ward, "That court accepted the federal government's argument that Judge Sand's holding would result in risk to Americans abroad, which is an overly alarmist position, to say the least."

Judge Cardamone also wrote, "Enforcement of an owner's common law right to obtain possession of its premises upon the tenant's non-payment of rent may not override an established rule of international law."

Zaire paid some of its rent after the State Department threatened to deport two Zairian officials and their families. After the Circuit Court declined to evict them from their offices, however, the Kaufmans were left with a non-paying tenant.

But during the course of the trial they learned the owner had some old-fashioned 'self-help' remedies. So they contacted the State Department and worked out an agreement as to what remedies they could use.

"They agreed we could shut off the water, the power and the air conditioning and we didn't give them any cleaning services," Ward said, adding that the owners refused to shut off the elevator for life-safety reasons. They literally cut the wires outside the premises in January, but nonetheless it took seven months to get the diplomats to vacate.

"The country was in such turmoil that they must have felt an office with no heat or lights in New York City was better than what they faced at home," Ward said.

Can't Evict Missions

Ward is concerned about other property owners failing to be aware of these issues when contemplating a rental to a foreign government.

"If one of these tenants is delinquent in rent," Ward noted, "the federal government prevents the property owner from evicting that tenant, but, on the other hand, the federal government can expel any such tenant at any time and for any reason, including no reason.

"We've seen the worst of both sides," Ward continued. "In one instance we had Zaire running up $500,000 in back rent and in the other case we had tenants that wanted to stay and were paying and the Federal government through them out."

When the Kaufmans, upset by the two decisions, decided not to rent to any more foreign governments, they added that fact to the building information materials. "It's pretty scary," Ward said. "You have contracts and people don't abide because they hide behind sovereign immunity." So when they declined to renew a lease to yet another country, Ward continued, "that Ambassador said they would not move out and may pay at the old rent without a new lease, or following the example of Zaire, may not pay any rent at all." The Kaufmans have since worked out an amicable arrangement with the country, Ward said.
COPYRIGHT 1995 Hagedorn Publication
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Copyright 1995, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
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Author:Weiss, Lois
Publication:Real Estate Weekly
Date:Jul 26, 1995
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Next Article:Owners and lawyers react to recent embassy decisions.

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