Gainesville must continue paying for a bond used to buy the old Hall County jail on Main Street, but the income it expected to receive from the tenant of the facility will dry up in 2015. And the 14-year lease agreement between the city and the Corrections Corp. of America shows there is no penalty to the CCA for pulling out of the facility early.
The private prison has operated at the 622 Main St. building since 2009, originally through an agreement with Hall County and U.S. Immigrations and Customs Enforcement.
Re-named the North Georgia Detention Center, the facility largely holds those detained for immigration violations.
In October 2012, Gainesville financed the purchase of the facility from Hall County for $7.2 million. The bond has a 2.5 percent interest rate.
The CCA entered into a lease agreement with Gainesville with yearly rent payments through 2026 in the amount of $1 million the first year and $825,000 in subsequent years.
Danny Dunagan, mayor at the time of the purchase, said those payments would more than cover the expense of the purchase and CCA could not get out of the agreement unless ICE decided not to use the property anymore.
CCA cited a continued vacancy problem in its Dec. 2 announcement that the company was shuttering operations at the building.
CCA representative Tommy Alsup told the Gainesville City Council in August that the 502-bed facility was housing 189 inmates, hurting the prison’s bottom line.
City Attorney Bubba Palmour said he didn’t have the lease in front of him but did not recall any terms subjecting the CCA to a financial penalty for terminating the lease early.
“I don’t recall — like I said I don’t have it in front me — I don’t recall a penalty in this lease other than they would have to pay whatever they were obligated to pay in the time they had the building,” he said.
The lease reads: “(The) Tenant shall have the right to terminate the Lease at any time, for any reason or no reason, by giving the Landlord at least ninety (90) days’ prior written notice of such termination.”
Palmour said any lease agreement is a negotiation for both parties.
“Of course there’s negations that go on, certainly, about the terms and provisions in the lease,” Palmour said. “Any lease is whatever you agree to do. Some leases have a penalty for leaving early, some don’t.”
“Everything was discussed out in the open. We had a lease. The lease was terminated,” he added.
Cale Rogers, a Gainesville real estate attorney, said terms of commercial lease agreements vary widely.
“It’s pretty much whatever the parties negotiate, especially in a commercial setting,” Rogers said. “There’s nothing that’s really commonplace or standard.”
Although, he said, “very few” commercial leases don’t explicitly address possible termination consequences, which are by default minimal.
“If the lease is silent, then once the lessee — or tenant — vacates the property, the landlord has no other remedy against them,” he said, citing state law. “Once they leave the property, whether they breach the lease or not, then generally Georgia law provides that the landlord has no damages because they have the property back.”
“If they have the property, they can lease it to somebody else, and so there’s no damages,” he added.
A penalty could be in the form of rent until the landlord leases the property or some set dollar amount, he said.
“It’s typically written in as some sort of liquidated damages clause, which says something to the effect of — if the lessee breaches the lease, then they’re still responsible for x-number of dollars,” he said.
Barring the facility is occupied soon by new tenants, the city will have to tackle how to make up for the lost revenue. The CCA said it will make a rent payment for 2014, which gives officials some time to mull their options.
“The payment CCA is making in January will be applied to our bond payment due in the fall of 2014,” City Manager Kip Padgett said. “We will have to look at other revenue options for the bond payment beginning in the fall of 2015.”
Padgett said the city is open to all options.
One possibility is leasing the facility back to the county, which is now considering the detention center as a potential home for the Hall County Correctional Institute. The Hall County Board of Commissioners is temporarily shelving a proposal to build a new $3 to $4 million facility next door to the aging Barber Road building in order to consider the soon-to-be-vacant Main Street building.
The feasibility of that arrangement has yet to be explored, Padgett said.
“The county does not yet know if that facility and its layout is suitable for its needs,” Padgett said.
County officials will be touring the building in the near future, he said.