Oread group willing to comply with some city demands, asks for meeting ‘immediately’

The Oread hotel, 1200 Oread Ave, is pictured on Jan. 22, 2016.

In their latest correspondence with the city of Lawrence, developers of The Oread hotel communicated on Tuesday that — while they’re not legally obligated to do so — they are willing to compromise with city officials in an attempt to resolve a months-long tax dispute.

Oread Inn, the group behind The Oread hotel development, requested an immediate meeting with city officials and said in the letter that the group would consider complying with some of the city’s demands. It’s unclear, though, whether Oread Inn is willing to comply with the city’s key demand: to pay back the nearly $500,000 in disputed tax rebates.

Oread Inn said it’s willing to work with the city “in the interest of a global settlement of this dispute and moving forward under the agreement,” states the letter, written by Oread Inn’s attorney, Roger Walter.

The development group suggested a mediator be involved in a meeting between it and the city. The letter states the group would be willing to submit the dispute to an independent auditor and have that auditor’s findings be binding on both Oread Inn and the city.

Interim City Manager Diane Stoddard said in an email Wednesday that the city received Oread Inn’s letter late Tuesday and “we are considering the meeting request at this point.”

The new correspondence from Oread Inn came five days after it and the city exchanged notices that the other had defaulted on the redevelopment agreement that has so far brought Oread Inn $3 million in city reimbursements. If the agreement were to stand, it would generate up to $8 million more for the development group.

The future of the agreement was thrown into question after a city-ordered audit alleged in December that Oread Inn, through a wholesale company at the hotel, was inflating sales within a special taxing district at 1200 Oread Ave. to increase the amount the city was required to rebate back to developers.

Lawrence businessman Thomas Fritzel leads Oread Inn and is the registered agent of Oread Wholesale, the wholesale business at the center of the argument.

In its notice of default to Oread Inn on Feb. 11, the city said if the group did not comply with its various demands within 30 days, the city could terminate the agreement. In a rebuttal sent just hours later, Oread Inn also accused the city of defaulting on the agreement. The group said if city officials didn’t pay developers the sales and property taxes the city had withheld during this investigation, developers would pursue legal action to force the city to comply.

In those notices, the city called Oread Inn’s arguments “legally and equitably wanting,” and Oread Inn called the city “aggressive” and its process “flawed and improper.”

Default letter not valid

Oread Inn further contended in its letter sent Tuesday that the city’s notice of default was not legally valid.

“Your notice of default does not adequately comply…” the letter states. “Accordingly, the 30-day period to cure any default has not been triggered and that period in which to remedy any perceived breach or default has not begun to run.”

The letter goes on to say the city did not explicitly name the actions that would put Oread Inn in default of the agreement.

The development groups wants the city to “provide a clear, itemized list of all actions, occurrences or events which it alleges constitute an event of default” and a “clear statement” of what Oread Inn could do to remedy the issues.

In the city’s notice of default to Oread Inn on Feb. 5, Stoddard said the development group defaulted on a section of the agreement that requires mutual assistance in carrying out the agreement and its intent.

The letter listed demands Oread Inn had not complied with, which included agreeing to amend the redevelopment pact to allow the city better access for audits; handing over financial documents Oread Wholesale used to prepare sales tax returns; and paying for the city’s audit of Oread Wholesale.

Oread Inn has contended since the demands were made that the city did not have the authority to make them.

In its letter Tuesday, Oread Inn echoed that sentiment.

“The city cannot unilaterally seek to require action beyond the express terms of the agreement, and then claim default for failure to take the requested action,” the letter states. “That cannot be a default under the agreement.”


But, the letter stated, Oread Inn is willing to consider complying with some of the city’s demands in order to put the dispute to rest.

Paying the nearly $500,000 an audit found Oread Inn owed to the city is not one of the demands with which the development group has said it will comply. The group paid the amount Dec. 31 “under protest,” but, in its notice of default to the city last week, demanded that the city pay back the amount.

Oread Inn said it would consider paying for the city’s audit of Oread Wholesale.

In mid-January, the city used money from the tax increment financing fund — the fund used to reimburse the developers — to pay Allen, Gibbs & Houlik L.C., the company that audited Oread Wholesale. As of Dec. 5, that total had reached approximately $27,500. In response to that action, Oread Inn sent a letter Jan. 18 accusing the city of violating Kansas law by using that money.

Oread Inn also said Tuesday it was “willing to discuss complying” with two other demands it has previously fought: agreeing to amend the redevelopment agreement to allow the city better access for audits, as well as giving written assurance to the city that it will fully cooperate in any future audits or reviews.

In response to the city’s demand to obtain and hand over sales tax records from Oread Wholesale, developers maintained that they did not have the legal right to require its tenants, including Oread Wholesale, to give Oread Inn that information.

The letter states that Oread Wholesale, however, would consider giving its sales tax returns and any documents used to prepare its original sales tax returns to an independent auditor “for a thorough and comprehensive review.”

Warehouse question

Oread Inn’s letter also included more information about whether there was a warehouse located at 1200 Oread Ave.

The city’s letter of default to Oread Inn stated that Oread Wholesale has admitted to having a warehouse at The Oread hotel, which the city said was a violation of the agreement. A warehouse is listed under the redevelopment agreement as a restricted land use there.

City Attorney Toni Wheeler sent a letter to Fritzel in November, telling him to cease and desist his warehouse operation in the special taxing district. After an explanation from Fritzel that it wasn’t a warehousing operation, the city did not pursue the cease-and-desist. In its default notice to Oread Inn, the city stated that a letter sent Jan. 27 from Oread Wholesale again admitted to operating a warehouse in the district.

In Oread Inn’s letter Tuesday, it again argued that it was “factually inaccurate” that a warehouse existed at 1200 Oread Ave. A warehouse is used for storing property for third parties and charging a fee for the service, the letter states, and Oread Wholesale stores only its own retail product, which it then sells to its affiliated companies.

“This relieves the affiliated customer of the need and expense for itself to store inventory,” the letter states. “This does not equate to operating a warehouse.”

City officials have not responded to Oread Inn’s letter of default sent Feb. 5. In addition to demanding the city pay back the $500,000 Oread Inn paid “under protest,” the notice ordered the city to pay the reimbursements it withheld from Oread Inn since it halted payments June 9; that it reimburse $158,245 Oread Inn paid in property taxes in 2015 and that the city assure, in writing, that it will keep monthly sales tax returns from the group confidential.