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Audit: D.C. fails to collect nearly $400K in rent at Eastern Market

Wednesday - 7/30/2014, 4:46pm  ET

D.C. officials failed to collect nearly $400,000 in rent from merchants operating in Eastern Market’s South Hall for fiscal 2011 and most of fiscal 2012, according to a D.C. Auditor's report detailing what appears to be widespread financial mismanagement at the historic fresh foods market on Capitol Hill.

The $386,498 deficiency is a result of the fact that most of the leases for merchant stalls in the South Hall expired in 2008 and have yet to be renegotiated. Under the old leases’ holdover provisions, tenants would be required to pay double rents until new leases were signed, according to the report[PDF].

But those double rents were not collected by Department of General Services officials during the audit period, Oct. 1, 2010, to June 30, 2012.

“According to DGS, the holdover provisions were not enforced because DGS believed that the holdover terms were unrealistic,” the audit found.

DGS officials attempted to increase the merchants’ rents through lease negotiations, but South Hall merchants did not agree to terms put forth, DGS told auditors. Eastern Market was closed for most of 2007 and all of 2008 after a fire severely damaged the building.

Base rents for merchants in the South Hall range from $716 to $2,883 per month, which still reflect the amounts in the leases that expired in 2008. The audit does recommend new leases that “accurately reflect market rents,” according to the report.

The report does not recommend collecting the back rent from merchants at the holdover rate, although it does recommend collecting approximately $3,500 in late fees that were not paid by merchants during the audit period.

The rents for the South Hall merchants — many of whom have been at Eastern Market for decades — could be changing soon, however. In its response to the audit report, DGS stated that it “agrees that new lease agreements with all South Hall vendors are necessary and agrees to use best efforts to execute agreements with all vendors …”

What the rental rates will be remains to be seen, however. DGS said in its response to the audit that “it is not clear that sales volume for Eastern Market South Hall merchants can support market rents.” DGS will conduct an appraisal by the end of 2014 that determine market rent for the spaces, the agency stated.

The rent issue is just one of several identified in the auditor’s report. DGS could not provide records of events held in the market’s North Hall — an empty event venue available for private rentals — during FY 2011, for example.

In addition, DGS was not able to provide financial records showing the amounts paid by vendors at the weekend farmers markets and outdoor arts markets, according to the report. The report recommended standard contracts for all North Hall rentals and that DGS reconcile its deposits on a monthly basis with the Office of Finance and Revenue Management — both of these have already been implemented, according to DGS.

We've reached out to DGS for comment and will be following up with Eastern Market merchants to hear their side of the story. Stay tuned.

© 2014 American City Business Journals, Inc.