Lagiss v. Contra Costa County
| Decision Date | 06 December 1963 |
| Citation | 35 Cal.Rptr. 450,223 Cal.App.2d 77 |
| Parties | Anthony G. LAGISS, Plaintiff and Appellant, v. COUNTY OF CONTRA COSTA, a politieal subdivision, et al., Defendants and Respondents. Civ. 21083. |
| Court | California Court of Appeals Court of Appeals |
Cushing, Cullinan, Hancock & Rothert, by Harlow P. Rothert, San Francisco, for appellant.
John A. Nejedly, Dist. Atty. of County of Contra Costa, by George W. McClure, Chief Civil Deputy Dist. Atty. of County of Contra Costa, Martinez, for respondents.
This is an appeal by plaintiff taxpayer from a judgment in favor of defendants 1 after the sustaining of a demurrer to the amended complaint 2 and from the order sustaining said demurrer. 3
The question on appeal is whether the amended complaint states a cause of action. Implicit in the question is the determination of the validity of a lease entered into between the County and the Board of Retirement, the specific inquiry being directed to whether said lease is in violation of Article XI, section 18, of the California Constitution. 4
The complaint, as amended, alleges that in the year 1959 the Board of Supervisors determined that two additional floors should be added to the existing Administration Building and that a 12-story annex thereto should be constructed; that the land upon which the present Administration Building is located and upon which the proposed annex will be constructed is owned by the County, and the existing Administration Building is owned by the Retirement Association and is subject to a 'Lease Agreement With Options to Purchase' made and executed by the Board of Retirement and the County on November 12, 1952; that in 1961 the Board of Retirement determined to invest funds of the Retirement Association in the construction of said addition and annex; and that pursuant to resolutions of the respective Boards a 'Lease with Option to Purchase Administration Building Addition' was executed and entered into on September 26, 1961, by and between the Board of Retirement, as lessor, and the County, as lessee. (A copy of said lease is attached to, incorporated in the complaint, and marked Exhibit A.) 5
The lease recites that it is entered into between the Board of Retirement, thereinafter called the Lessor-Board, and the County, thereinafter called the Lessee-County. After providing that it supersedes the previous agreement made on November 12, 1952, and after reciting the need for such additional construction, the willingness of the Lessor-Board to make such construction as an investment for itself, and its offer to lease the whole structure to the Lessee-County at its fair market value, the lease provides substantially as follows: that the Lessee-County grants the permission and use of the described land to the Lessor-Board, and the latter agrees to construct said additions referred to therein as the "Building," pursuant to certain plans and specifications at a cost not to exceed $3,000,000 plus $210,000 in architect fees; that the Lessor-Board leases to the Lessee-County the remodelled building with the addition described in the plans and specifications for a term of 25 years beginning on the first day of the second calendar month after the completion of said addition and remodelling; that after the lease has run for a sufficient period to conform with the requirements of Government Code section 31604, 6 either party may terminate the lease upon giving to the other a 24-month written notice; that the monthly rental is $21,590 for the first 130 months of the lease and $17,538 per month for the remaining 170 months; that the rental payments are to be recalculated as of the date of the beginning of the lease after the Lessor-Board's exact total costs and the unamortized value of the lease dated November 12, 1952, have been determined; that the recalculated rent shall be sufficient to return the total investment plus interest at the rate of 5 percent of the total cost of the work and 3.5 percent upon the unamortized value of the previous lease dated November 12, 1952; that as part of the rent, the Lessee-County agrees to pay an additional amount equivalent to the ad valorem taxes, ad valorem and specific lien special assessments, and the insurance premiums on specified insurance coverage on the building against fire, theft, general liability and property damage; that the Lessee-County agrees to pay the costs of construction as might be in excess of the legal limitation of investment in real property by the Lessor-Board, and that such payments shall not be included in the Lessor-Board's total investment for the purpose of recalculation of rental payments; that title to the site shall remain in the Lessee-County unless the Lessor-Board exercises its option to purchase the same as in said lease provided; that title to the building and all the structural additions shall remain in the Lessor-Board unless the Lessee-County exercises its option to purchase the same as in said lease provided; 7 that during such times as the Lessee-County is in possession of the building all maintenance and repair shall be the responsibility of the Lessee-County; that each month's rental payment is due only so long as the building is available for use, and if it becomes untenantable, rentals shall cease; that in the event of condemnation by a superior public use, the Lessor-Board is to receive the entire award for the building and the Lessee-County is to receive the entire award for the site; that in consideration of the sum of $1.00 the Lessor-Board grants to the Lessee-County an option to purchase the building after giving the Lessor-Board 12 months' written notice, and tendering within said period the purchase price therefor; that said purchase price shall be the amount opposite the calendar year in which the option is exercised, as shown by a schedule designating such payments (these payments are set at $3,489,338 in 1965 and decline in set amounts from year to year until the year 1989, when said price is the sum of $1.00); and that the Lessee-County grants to the Lessor-Board the exclusive option to purchase or lease the site only in the event that the option to purchase the building has not been exercised by the Lessee-County as provided in the lease, the option price being the then fair market value of the site.
The said lease contains two amendments, subsequently entered into by the parties, providing for the payment by the Lessor-Board of architect fees in the sum of $227,500 and providing for a maximum cost for the construction work in the sum of $3,350,000.
The amended complaint alleges further: that the building has an estimated reasonable life expectancy in excess of 50 years; that under said lease, the County has incurred an indebtedness and liability in an aggregate sum greater than the total of $3,000,000 plus the unamortized value of the prior lease dated November 12, 1952; that the aggregate indebtedness and liability incurred pursuant to said lease will exceed the income and revenue of the County provided for the fiscal year 1961-62; that the indebtedness and liability incurred by the County pursuant to said lease, which exceeds the amount permitted by Article XI, section 18, of the California Constitution, has not been approved by two-thirds of the electors, as therein provided; that an election was held in Contra Costa County on November 4, 1958; that at that time the voters turned down a proposed $1,000,000 bond issue which was to be used for the building in question; and that said lease is null and void because it is contrary to the provisions of the California Constitution aforesaid.
It is further alleged in the amended complaint that: the fair rental value of the building is, and will be, substantially less than the amount of monthly rental provided in said lease; that the scheduled option prices provided for in said lease are, and will be, substantially less than the fair market value of the building in each respective year; that the entering into and execution of said lease, and the amendments thereto, 'was not done in good faith but was done as a subterfuge to enable the County of Contra Costa to purchase and acquire' said building and the additions thereto 'in the form of, and under the guise of, a purported lease with option to purchase, by the payment of monthly amounts of purported rent for a period of approximately 26 years'; and that in making and entering into said lease and the amendments thereto the Board of Supervisors and the Board of Retirement abused their discretion, exceeded the powers given them by law, and violated Article XI, section 18, of the California Constitution.
The amended complaint also alleges, in the alternative, that if it be deemed that the aggregate sums due and payable pursuant to said lease are not a present indebtedness of the County, then the lease is void because it fails to comply with the requirements of section 31604 of the Government Code providing that in any lease-purchase contract the County must agree to make payments sufficient to return to the Retirement Association a total sum of not less than its investment plus interest.
A further allegation is made in the amended complaint that both the lease and section 31601 of the Government Code, 8 pursuant to which the approval of the investment was made, are viod because of the antagonistic and conflicting duties imposed on the Board of Supervisors in that it is subject to the trust of obtaining for the Retirement Association the highest possible interest rate consistent with the safety of invested funds, while its trust on behalf of the County is to acquire public improvements at the lowest possible cost and interest rate. Attached to the amended complaint is an exhibit purporting to be an appraisal pursuant to section 31603 of the Government Code as to whether the fair rental value is sufficient to return to the Board...
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