This week Santa Clara City Hall fired a new salvo in its ongoing litigation war with the San Francisco 49ers, filing an action alleging the 49ers Stadium Company (StadCo) withheld $2.7 million in Facility Rent — money that is used to pay down the Levi’s Stadium construction debt.
The 49ers haven’t, in fact, withheld any rent and will be paying the rent on schedule, according to Rahul Chandahok, 49ers VP of Public Affairs & Strategic Communications.
The 49ers’ position is that the pre-season cancellation meets the 2013 Stadium Lease criteria for a condition that makes Levi’s Stadium “un-tenantable” — not usable for its intended purpose. Under the contract, the 49ers say they’re entitled to a rent reduction, and advised the City of this in July.
Santa Clara’s legal advisors don’t agree. The City’s position is that the contract terms only refer to a physical condition that prevents use of the stadium.
“The preseason games were not cancelled due to any Applicable Laws, or due to restrictions on seats in or access to the Stadium,” City Manager Deanna Santana wrote to 49ers CFO Scott Sabbatino in August.
“Because the cancellation of the games was due to the NFL’s decision regarding player and personnel safety, and not due to any Applicable Law or regulation relating to access for games or a condition of the Stadium seating, there is no basis to withhold Facility Rent.”
The Stadium Lease describes an un-tenantable condition as “damage or destruction” of the stadium such that football can’t be played there.
If there is “any Untenantable Condition shall exist…the Facility Rent shall be reduced for the period that such condition exists by an amount equal to …(a) 10% of the total Facility Rent for the Lease Year …multiplied by the number of NFL Games that do not occur” as a result.
“The 49ers have provided no documentation that the reason that the preseason games were cancelled was because of an untenantable condition,” Santa Clara City Attorney Brian Doyle said in an email. “The NFL cancelled the games. The 49ers have not provided any documentation that that was not the reason.”
The contract appears to allow that this may not be solely as a result of physical damage: “If such Untenantable Condition is not the result of a Casualty or Condemnation Action and continues for a period longer than three scheduled NFL games, then Tenant may, at its option, in addition to all other available rights and remedies, terminate this Lease.”
After the City Council action on Tuesday, Sept. 8 Chandahok issued a statement, saying, “Mr. Doyle is once again misrepresenting the facts in the service of the City’s ongoing political agenda.
“While the 49ers work to support the region’s economy, Mayor Gillmor continues a pattern of mismanagement that is costing the city critical revenue, hurting small businesses and endangering local jobs,” he continued. “This is just another attempt to scapegoat the 49ers for her incompetence, and her confusion on the terms of the lease that she supported enthusiastically when it suited her political aspirations.”
City Hall responded with an antagonistic “news release,” of their own, stating that the 49ers made “untrue personal attacks against Santa Clara’s Mayor, City Manager, and City Attorney, while mischaracterizing the City’s actions,” and “claiming political games in the media.”
“Their claims are just political theater,” said Chandahok.
The dispute isn’t the first of its kind between the City and the 49ers. In 2016, a similar dispute arose over stadium parking on the golf course.
Under the golf course parking agreement, the 49ers were to reimburse the City for lost revenue directly attributable to the course’s use for stadium parking. The City’s interprets this as meaning the 49ers must cover any diminution of golf course revenue for the entire fiscal year, without qualification, even when it wasn’t used for parking.
As a result of investigating the parking billing, the 49ers are asking for about $1 million in refunds for improper charges by the City. That case is still in court.
Update Sept. 16: 49ers Pay The Rent — Gillmor Takes The Credit
Yesterday, Santa Clara Mayor Lisa Gillmor announced the 49ers did what they said they would: pay the Levi’s Stadium Facilities rent on schedule. Gillmor called the scheduled payment the result of “decisive action” by the Stadium Authority — the City Council — in threatening legal action before the rent was due.
Last week the 49ers said that the payment would be made in full and on schedule, despite the dispute over whether the NFL’s pre-season cancellation due to Covid-19 was an unforeseeable event that prevented playing football.
“I am pleased that the Stadium Authority’s decisive action resulted in the 49ers paying rent for their use of Levi’s® Stadium and not putting these costs on taxpayers,” Gillmor said in a City press release.
Gillmor’s statement is misleading. The Facilities rent is based on the stadium construction debt, and there are no circumstances where the City of Santa Clara would be forced to pay any of it. Further, 2010’s Measure J bars the Council from using City money to pay stadium expenses.
The Facilities rent will drop significantly when the construction debt is paid off in about 30 years, making it unlikely that any of that money will ever flow into the City’s general fund.