CH-UH Board of Education votes to authorize lease proposal for Millikin School

The former Millikin School. Photo by Chris Hanson.
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In a unanimous vote on Aug. 7, members of the Cleveland Heights-University Heights Board of Education voted 5–0 to authorize the execution of a non-binding proposal for the lease of the Severance Millikin School to the City of Cleveland Heights for subleasing to Mosdos Ohr Hatorah, the Orthodox Jewish school.

The three-party lease agreement proposal was signed by Mosdos representatives on July 31, and next requires the approval of the City of Cleveland Heights, as the third party. It was drafted by Alan Rapoport, attorney for Mosdos, and by the district’s legal team, from the firm Squire Sanders.

“This arrangement allows us to avoid the requirement for a district “right of termination” clause, which is required according to Ohio case law but was unacceptable to Mosdos since they would be asked to make permanent improvement investments to the building,” said Steve Shergalis, director of administrative services for the district. A termination clause would allow the district to take back the property without notice, if it needed the property.

Both Shergalis and Rapoport spoke to the board prior to the vote, and stressed that what the board would vote on was not the lease, but instead a non-binding lease proposal.

Shergalis said, “This sets forth the terms under which we would move forward to craft the lease.”

“This is not a lease,” said Rapoport. “It’s what we’d call a letter of intent. It justifies us spending more time in fleshing out a lease.”

The proposed lease agreement terms are for an initial 30-year lease at $1 per year, and then two consecutive 10-year lease options, at “fair market rent.” The proposal stipulates that Mosdos will make at least $1.5 million in permanent improvements to the school within the first 18 months ($500,000 in the first six months, $500,000 in the first 12 months, and another $500,000 within 18 months following the start of the lease). Mosdos would be responsible for all taxes, maintenance, insurance and utilities.

The area being leased would not include the Severance stables. They would be retained by the school district.

The lease proposal requires Mosdos to show that it has the initial $500,000 available. The final lease would include details on how Mosdos plans to raise the additional $1 million required by the agreement.

“The 30-year term coincides with the useful-life improvements we expect Mosdos to put into the building,” explained Shergalis. “Mosdos will commit to a minimum of $1.5 million in improvements. They would take over the building entirely, including taxes, assessment, repairs and insurance, so [that would be] a significant cost savings to us.”

Ron Register, school board member, asked about provisions in the lease between Cleveland Heights and Mosdos. Kal Zucker, another board member, asked if there had been any communications from the city.

Shergalis said that he could not “speak about the details of what would be in the cooperative agreement with the city at this point. Those would be details we would work out.” He noted, “It’s important to recognize Mayor Kelley for signaling interest on the part of the city and a possible way of moving forward.”

Cleveland Heights Mayor Edward Kelley was at the meeting, but had to leave prior to the Millikin discussion and vote. Rapoport commented, “I’ve been in regular contact with Mayor Kelley about this. At this point, I’m not sure what discussion Cleveland Heights City Council has had. Kelley’s position has always been he didn’t want to get involved until the board and Mosdos had come to an agreement.”

Both Shergalis and Rapoport said that John Gibbon, Cleveland Heights law director, had a copy of the lease proposal and was reviewing it.

Rapoport said, “When the lease is actually drafted, the city will be involved.” He added that Mosdos would also require a conditional use permit from the city, as well as building permits and would have to work with the city on other processes involved with developing a property.

Rapoport reminded the board that Mosdos was interested in purchasing the Millikin school but had said it would “keep an open mind.” Citing the two 2012 appraisals of the Millikin property that were independently obtained by the district and Mosdos, Rapoport said, “Both appraisals agreed that the ‘highest and best use’ of the property was as a school.” He added, “If this proceeds to a final lease, Mosdos would be making a minimum investment of $1.5 million. The highest appraisal was about $700,000.”

Rapoport pointed out that one advantage to leasing would be that “this allows Mosdos to immediately invest in repairs to the building.”

Ron Register asked for a sense of a timeline for negotiating a lease, and Rapoport replied, “We’ve already had extensive preliminary discussions. I would guess it could be done within a couple months, but don’t hold me to it.”

Rapoport cautioned, “Negotiating a lease is much more difficult than negotiating a sale.”

Immediately prior to the vote, Eric Coble, board member, said, “I want to extend thanks to all parties in trying to find a solution that will benefit the community.”