An arbitration judge has ruled that landlord Shuwa Investments Corp. cannot force its largest tenant at Arco Plaza to help pay for costly fire-safety upgrades to the downtown Los Angeles office-and-retail complex.
Shuwa and Bank of America began arbitration proceedings last year after the bank refused to pay the additional fees--which would amount to $6 million by the time its lease ends in 2004, the bank's attorneys say.
The fees were to be used to offset the $29-million loan Shuwa received from a city bond issue to pay for fire sprinklers and asbestos abatement in the two 51-story towers--items required by a 1988 city ordinance and installed between 1989 and 1993.
The fees were passed along to B of A through a special lease clause stipulating that it pay any escalations in property tax. When the special assessment levied by the city to repay the bond was included on a tax bill, attorneys say Shuwa decided to pass on a large share of that to Bank of America.
Shuwa officials declined comment.
"It was an unbargained-for rent increase," said John Gibson, partner with the law firm Paul, Hastings, Janofsky & Walker, which represented the bank in the arbitration suit. "It gave Shuwa and other landlords the opportunity to volunteer tenants to pay for the cost of complying with the laws."
More than 300 Los Angeles buildings 75 feet or taller were required to add sprinkler systems after a 1988 high-rise blaze that killed one person and injured 40.
Gibson said he does not know how many other Arco Plaza tenants have paid for such capital improvements, although he has been told that other tenants in the 2.2-million-square-foot office complex face the same charge. Lease terms also vary from tenant to tenant.
Bank of America is the largest tenant at Arco Plaza, leasing 362,100 square feet there for its Southern California regional headquarters. It has been in the building since 1986.