Board members on the Georgia Charter Educational Foundation, responsible for governing and funding Cherokee Charter Academy, unanimously approved the 20-year lease agreement during a meeting Wednesday, with a base rent of $1.16 million a year, according to the final lease document.
The rent expense went up 59.9 percent, from $726,000 in fiscal 2014, to $1.16 million for fiscal 2015, and GCEF member and Cherokee Charter Local Governing Councilman Danny Dukes said the rise in rent costs for the building was anticipated.
“The increase was from a below market lease rate to a market lease rate of $12 per foot,” Dukes explained. “This facility was in foreclosure when we moved in. The owner was looking for cash flow out of the property. They have now sold the property, pending a closing, and the new buyer/investor was seeking market rent.”
Council members planned for the increase in rent, Dukes said, and the expense was included in the proposed budget for the 2015 fiscal year.
Local Governing Councilman Sean Jerguson said the school had been expecting the higher rent expense since the governing board received a deal on the rent in previous years.
“The lease, prior to now, was below fair market value in order to get the school established and move forward,” Jerguson said. “This is now a 20-year lease, so it’s long term.”
Jerguson explained the new lease has a base rent cost, but the rent could go up or down in future years, depending on “inflationary factors” tied to the Consumer Price Index.
“The board took very great care in doing due diligence to find out what the fair market value was of other similar property in the area,” Jerguson said. “It was a well-negotiated lease, looking at the long term benefit on behalf of the students.”
Dukes explained the fair market rent value was agreed to after the board researched similar lease circumstances.
“We did due diligence and identified three to five properties, non-retail with triple net leases, like our proposed lease,” he said. “We determined that the agreed upon price was at or just below the median.”
Dukes added some maintenance costs were negotiated into the lease, to be shared by the GECF and the landlord.
For example, the heating, ventilation and air conditioning system repair costs are to be shared during the next five years, the lease shows.
The GECF signed the lease with landlord Red Apple at Cherokee Charter Academy, a Florida-based for-profit arm of Charter Schools USA — the company that manages Cherokee Charter Academy.