DEL MAR — Disagreement continues about lease terms between The Winston School, a private nonprofit school located on Shores Park property, and the institution’s landlord — the City of Del Mar.
The simmering dispute boiled over when the city terminated renegotiation talks, which had begun in 2018, in a June 2 statement posted online. Winston’s response accused certain city councilors of making “inaccurate and defamatory statements,” among other misdeeds.
“The city’s relationship with Winston is as a landlord,” said Councilman Dwight Worden, who coauthored the city’s June 2 statement with Councilwoman Sherryl Parks, in a June 16 interview. He lauded Winston, but said it should “honor the lease commitments [it] made.”
Winston thinks it was strong-armed by the city into unfair lease terms in the first place, only after being used for capital fundraising. The school has long expected to renegotiate, but faces the city’s “bureaucratic obstructionism,” Winston’s Head of School Dena Harris told The Coast News in a June 15 interview.
The Coast News obtained numerous original source documents related to the matter, which we’ve hyperlinked throughout the online version of this article.
In 2005, the Del Mar Union School District, then-owner of the Shores property — of which Winston occupies the northwest corner — deemed the land surplus and sought to unload it.
In 2006, Winston and the city signed a memorandum of understanding (MOU), in this case a formal pre-lease agreement. Winston would fundraise to help the city buy the property, in exchange for “a long-term [55-year] lease in order to continue the operation of its school.”
The city, as sole property owner, would count the school’s contribution as prepaid rent. Winston would redevelop its buildings during the lease period. When the lease expired, the school’s buildings would “be removed and the grounds restored to a graded lot.”
However, without expounding details, the MOU envisioned opening “good faith negotiations for a new lease” upon the “complete development and replacement of [Winston’s] buildings.”
In 2008, Winston raised $3 million toward the property’s $8.5 million purchase price. The school provided “our 501(c)(3) tax-exempt IRS designation, and also the financial mechanism (our brokerage account) to hold and steward these tax-deductible donated funds,” according to Winston’s October 2018 lease revision proposal. The school took those actions with the understanding that the city would provide “a long-term home” for the school on “fiscally viable” terms, Harris said.
The school’s fundraising efforts would help “preserve the site for … educational purposes for future generations,” according to Winston’s marketing materials from that time. This was widely understood to mean “the site’s perpetual use as The Winston School,” according to the aforementioned lease revision proposal.
“I donated … with the clear intention to purchase land for a sustainable partnership and to build a permanent school site,” wrote Louise Ukleja, a Long Beach donor, in a 2019 letter.
The city said it would furnish Winston a draft lease in May 2008, prior to the July 1 commencement date, according to an email from then City Attorney Tamara Smith.
But the property purchase deal closed before the parties actually hammered out a final contract.
“Winston did not even receive the first draft of the lease until after close of escrow,” Winston’s attorney Miguel Smith said in a Nov. 25, 2008 memo to the city. “The current draft lease is a radical departure from the terms of the MOU.”
Winston disagreed with, for example, the draft lease’s definition of the school’s premises and the method of calculating inflationary rent increases.
Winston did sign a lease in 2008, but wrangling continued. The 55-year lease presently in force wasn’t entered into until 2010, retroactive to 2008 and extending through 2063.
The current lease outlines how the school must redevelop its buildings and eventually convey its interests to the city. And while it doesn’t specifically envision negotiating a new lease, the lease states it’s “entered into as contemplated by the [2006 MOU],” which did articulate such an intent.
Winston and the city signed a new MOU in 2017, shortly after Winston hired Harris. While “not a final commitment by either party,” this new MOU contemplated “a long-term restructuring of the [lease].” The memorandum also indicated “each party is committed to, in good faith, exploring options with the goal of a better overall end product for the community and the school.”
Harris considered a formal renegotiation period to have begun.
In 2018, she asked the city to reduce Winston’s annual rent, after the prepayment expired, from $255,000 — eventually rising to $700,000 or more, factoring in inflationary increases — to $1. Harris also requested to extend the lease from 55 years to 99 years, plus two 25-year renewal options.
“It is only by amending the lease … that Winston can successfully proceed with the redevelopment of its campus,” according to Winston’s Oct. 29, 2018 lease revision proposal. Otherwise, “onerous” rent obligations would preclude Winston’s financing the rebuild in a financially sustainable way.
In a counterproposal, the city denied Harris’ requests, saying they’d amount to “a [cumulative] transfer of $10 million or more” — an unlawful “gift of public funds” to a private entity.
Moreover, “giving up that revenue stream [from Winston’s rent] would impede achieving other planned city priorities and is unacceptable.”
Instead, the city offered to waive Winston’s redevelopment requirement — estimating $20 million in savings for the school — and extend the lease to 80 years. Or, the school could redevelop as planned, but reduce its rent by including in the rebuild certain concessions to city interests, such as three or so affordable housing units or public parking.
Winston disagreed with the city’s rationale and in turn rejected the counterproposal. Whitney Hodges, Winston’s attorney, asserted in a letter that public money constitutes a “gift” only if it “does not fulfill a public purpose.” On the contrary, Winston’s “direct and tangible benefit to the students is, decidedly, a public benefit.”
Harris points to the city’s deal with the Del Mar Foundation, a 501(c)(3) that pays no rent to occupy a city building adjacent to Winston. Though the Foundation, which runs music and other community programs, pays utilities and maintenance and has financed building improvements.
Worden thinks it’s an unfair comparison, saying in a June 20 email that the Foundation’s deal, unlike a lease, guarantees no “long-term occupancy and other tenant rights.” Additionally, Worden said “there is a core difference between providing support for Del Mar nonprofits that provide services that are part of the city’s mission, and providing support for a private school, because education is not part of the city’s mission. … The city relationship with [the Foundation] is more like its relationship to the Del Mar library,” which also occupies a city building rent-free.
Harris thinks calling Winston a private school is misleading— the school is a private nonprofit but receives funds from public schools that “farm out” special needs students.
While it budgets in two-year increments, the city projects long-term revenues and expenses, such as capital projects and bond interest payments. Starting 2023, when Winston’s prepaid rent runs out, the city’s latest 10-year financial forecast puts annual discretionary revenues at $20 million or more.
Throughout the forecast period, Winston’s rent would account for between 1 and 4% of city revenues, depending on how one estimates inflationary rent increases. Though the city’s revenue forecast doesn’t yet include reductions due to COVID-19, which to date have been far more substantial for Del Mar than other North County cities.
“The city gave notice that the negotiation period had ended,” a statement released following the council’s discussion of Winston’s lease during its June 1 closed session meeting. “Winston primarily serves out of town children and school operations are not a part of the city’s mission. … [Winston] insisted on a substantial rent reduction without any factual basis.”
“[Worden and Parks’ statement] was neither voted on nor approved by the city council in a noticed public meeting,” according to Winston’s June 10 rebuttal. “The decision to terminate the negotiations … during the time of a declared pandemic … is a clear violation of the lease terms,” as the lease names “epidemic” as one reason for extending redevelopment deadlines.