What started as unanimously approved news that Health and Human Services would be combining two branches, ended with an unfinished, back and forth debate about how to sever a lease agreement with the landlord of one of the branch’s former buildings.
At the Tuesday Del Norte County Board of Supervisors meeting, DHHS Director Heather Snow brought a proposal to integrate divisions Alcohol and Other Drugs (AOD) with Mental Health to become Behavioral Health, starting Jan. 1.
Snow said DHHS staff have been discussing the merger over the last year and 19 of 20 small counties have a Behavioral Health branch. She said the merger would increase support for the AOD program.
“We’re going to become drug-certified, hopefully in the next year,” Snow said. “That’s a requirement from the state and we need the extra administrative support that the Mental Health side has already.”
Snow said it’s an ideal time to integrate and no staffing changes will take place until after the merger takes place at the K Street location.
With no board or public comment, the resolution was approved unanimously.
A release from Snow the following day publicly announced the merger.
“The Behavioral Health Branch will remain under the umbrella of the Del Norte County Department of Health and Human Services and we will be operating out of our existing office at 455 K Street,” it read. “You may continue to contact the same staff you have been working with. Services at the Adult Service Center are not impacted by this change. Our referral process remains the same and we do not anticipate changes to the existing group calendar or treatment schedule.”
Snow said she is optimistic the change would be positive for all and will allow better support of clients who deal with substance and mental health issues.
Two minus one
As one location will house the new branch, another, located at 1269 2nd St. will be vacated.
“AOD will return possession of the premises on or prior to Jan. 31, 2019,” said staff reports. “AOD shall pay a lease termination fee in the sum of $162,899.32”
The proposal to terminate the lease agreement was included on the supervisor’s consent agenda and was pulled by Supervisor Roger Gitlin for discussion. Gitlin said he did not agree with paying out state money to terminate the lease, as it would amount to a bonus for property owner Matthew Fearing.
“He can re-rent his property as of Jan 1, 2019 and there’s no compromise,” Gitlin said, “... because it wasn’t in the lease agreement. I have some trouble signing off on an amount of that amount when it’s got $290,000 to go, and we’re going to settle it for $162,899 and some change. I’m a little troubled by that.”
Gitlin said with other state costs going up, he would rather negotiate a better arrangement with the property owner.
“Although there is a payout, I’m told the industry standard is to pay out 50 percent of the remaining lease for commercial properties,” Snow said, admitting her knowledge is limited. Snow said that despite the payout, DHHS would save about $60,000 per year.
“I’m told that because of the substantial buildout that was required, the note for that will be satisfied with this plus only about $10,000 so the landlord is really not profiting on this and DHHS is saving every year.”
Snow said she originally thought the lack of a termination clause in the lease was an oversight, but upon hearing of an industry standard, determined the terms would have been the same as what was presented to the board.
Gitlin asked for the amount of costs put into the building, and asked what would happen to the state money if Fearing rents out the commercial property in the next couple months.
“I think he would have every right to rent his property after we break the lease,” Snow replied. “I don’t think we’re entitled to a better deal than this, without him having done something wrong, this is the term we have to an agreement with and it’s the industry standard.”
Calling the agreement “the best case scenario,” Snow said no other county agencies would have been able to make use of the space in order to keep the lease.
Gitlin said he was troubled by the idea that Fearing could get a huge state payout and then be able to lease the building out to a new tenant at the same time.
“I think there should be additional discussions, and I’m not sure it would come to a court action, but it could,” Gitlin said, “and then, maybe there would be an additional settlement, which would save the state and, ergo, Del Norte County, quite a bit of money.”
Supervisor Bob Berkowitz questioned why the county would authorize a lease payout when the lease had no termination clauses. County Counsel Liz Cable explained the lease was signed in 2016, and has a termination clause specific to the landlord’s duty to keep up with lease terms.
“I can tell you that there are commercial leases that we are working on and the best case scenario in a lot of those are 50 percent of the remainder,” Cable said. The payout amount, according to Cable, seems to be the industry standard in a strong economy, but in a weak economy when the landlord may not be able to re-rent the property, the payout would be closer to 100 percent of the lease remainder. She said if the county simply refused to pay the remainder of the lease, Fearing would most likely take the county to court.
“Nobody’s going to let us out in 90 days, or a year’s notice or whatever, because they can’t make business decisions based on that, like you would do in a regular services contract,” Cable said, after noting that each lease contract is different and needed to be negotiated individually.
When Berkowitz suggested renegotiating the lease, Snow said Fearing would not likely be willing to do so, and that he has been to court on such matters before.
“He is aware that this is the industry standard, he’s applied this across his commercial leases, he has been to court for it before and in those cases, the tenant paid the balance of the lease,” she said.
“There is no standard,” Berkowitz said. “You may be convinced there’s a standard, but there is no standard. Each lease stands on its own, so forget industry standard. It’s what this lease says, what his obligation is, and what you can best negotiate. Hey, if he doesn’t renegotiate, you say, ‘Fine, we’re not going to pay you anything.’ You can do that because that’s in the terms of the lease.”
Supervisor Lori Cowan said she was initially alarmed at the payout cost, but in the end, the county would save money. Addressing Berkowitz, she said she did not see the point of forcing a tenant to sue the county for nonpayment.
“This is not a debt, this is a contract,”Berkowitz said.
“And there’s money tied to a contract that we are obligated to...” Cable said.
“We’re not obligated to do anything,” Berkowitz retorted.
Gitlin noted the payout would come from public funds.
“These are public monies,” he said, pointing at Snow. “It’s not your money, Heather. It’s not my money. It’s our money. These are public funds, $163,000 of public funds because we have abrogated a lease. Matthew Fearing hasn’t done anything wrong, that’s not the case here, County Counsel (Cable). Things have changed. I’m trying to get clarity on what happens when Mr. Fearing re-leases his very valuable building .. at $3,078.30 a month. What happens? He has this, and he has a big payout from the state of our money. Now I don’t think that’s quite fair.”
Gitlin asked for a conversation with Fearing, saying he should not be “rewarded with this kind of payout of our public money.”
County CAO Jay Sarina interjected, suggesting the item be tabled until county counsel could have that discussion with Fearing, who was not at the meeting. Snow said she had asked him to attend, but Fearing had other obligations.
Chair Chris Howard tabled the discussion.
Supervisors meet again on Jan. 8.