US developer lodges $200m lawsuit against Dubai's GEMS

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(Photo for illustrative purposes only)

(Photo for illustrative purposes only)

A subsidiary of Gems Education, the Dubai-based school operator, is being sued by a New York property developer over alleged breaches of a tenancy contract, according to a report in The National newspaper.

A $200 million lawsuit has been filed by 93-94 Second Development against Gems Menasa Topco, a Cayman Islands subsidiary of Gems, over a lease agreement relating to a 213,000 square foot site between Manhattan’s 92nd and 93rd Streets.

In the statement of facts outlined in court documents, Topco subsidiary Gems NY had agreed to rent the site in March this year for a period of 40 years.

When the land was purchased in 2013 by New York-based real estate company Merchants Hospitality, an affiliate of 93-94 Second Development, the plan was to build a residential condominium tower.

However, this was set aside after Gems NY negotiated a 40-year lease where a 213,000 square feet building would be constructed by the landlord at a cost of $117,150,000.

The initial base rent of $14,750,000 would increase by 2.25 percent each year, making a total cost of $940,846,100 over the term of the lease.

As part of the lease, the selection of an architect for the project was due to be completed by May 5 this year, and failing an agreement of an architect for the project, the lease would automatically terminate.

Handel Architects were selected by both parties, and Gems NY insisted on drafting a lengthy architect agreement from scratch, which led to a delay in signing the architect agreement. Extensions of May 31 and June 16 were agreed, but Gems NY did not sign the agreement.

The lease also set out that Gems NY was to provide a security letter in the amount of $15 million before June 6, which was later amended to a deposit cash security of $7,500,000 before June 9, which would be increased to $15,000,000 within two days of the acquisition date - defined as the date on which the landlord acquired fee title to the property.

The lawsuit outlines that Gems NY CEO Denise Gallucci, in conversations with 93-94 Second Development’s representatives, said they intended to use the failure to sign the architect agreement as a pretext to terminate the lease and seek return of the $7,500,000 that Gems NY had previously posted as security, and issued a termination of the lease on June 17.

The suit also claims that the tenant’s failure to negotiate “continuously and in good faith” on this matter constituted a breach of contract.

Speaking to The National, Gems spokesperson said the allegations are baseless.

“The facts here are very simple: two judges, in just one week, have already rejected arguments based on these baseless allegations, period,” Robert Ward, Partner at Schulte Roth & Zabel, the law firm representing Gems in New York, told The National.

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