Federal court upholds gold clause for determining commercial building's rent

Judge: Building Owner Can Charge Rent Based on Gold Prices

By Andrew Welsh-Huggins 
Associated Press
via Washington Post
Saturday, April 23, 2016

COLUMBUS, Ohio -- A downtown office building is worth its weight in gold, according to a federal judge who upheld a nearly century-old lease that tied rent to the current price of the metal.

Last month's ruling means rent paid by the company leasing the Commerce Building from a group of five property owners could jump from $6,000 annually to more than $300,000.

At issue is a so-called "gold clause" included in the original 1919 lease. The provision, common at the time, linked rent to the price of gold to account for inflation, similar to today’s consumer price index.

"This really is a vindication of property rights," said Washington, D.C.-based attorney Peter Patterson, who represents the five owners.

In 1919 the value of gold was $20.67 per ounce, compared to more than $1,200 per ounce today. The property owners have been charging a yearly rent of $6,000 since that original lease, which was assumed by Commonwealth Investments in 1990.

That deal, Patterson argued in a 2014 lawsuit, has resulted in a windfall for the group, since their more than 40 tenants are charged $900,000 annually.

In 1933, in the midst of the Depression, the gold clauses were prohibited as part of efforts to reform the monetary system, which also included a ban on private ownership of gold from 1934 until 1973.

A 1977 law once again permitted gold clauses in new leasing agreements. That set up debates over interpretations of agreements when new parties entered them and whether an original clause could still be enforced. ...

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