Rehoboth's $21 million City Hall built on land without a deed

The city of Rehoboth Beach does not have a deed for all the property under which its new $21 million City Hall sits – which could crimp financing of the project.

Construction crews are now completing the 3-acre complex a half a mile off the ocean along Rehoboth Avenue. About 40 employees already occupy the 40,000-square-foot center.

But the federal government is withholding the final $2.2 million payment of an $18 million construction loan until the city can prove unequivocally that it, alone, owns the land. 

The city has petitioned Delaware's Chancery Court to grant it a clean title. And the court has asked anyone who might dispute the city's claim to the land to make their case at a hearing scheduled for Friday in Georgetown.

If nobody shows, officials are confident the issue will quietly disappear. 

The lack of clear title is another hiccup for a project that has been discussed for a decade and is now projected to be nearly $3 million over budget. 

The U.S. Department of Agriculture said it needed assurances there is nothing that would "jeopardize" the intended use of the building before giving the city its final payment, said Kathy E. Beisner, acting director of USDA Rural Development in Delaware and Maryland.

The Chancery Court petition filed by the city in August said federal officials notified city leaders there was a problem in February.

But then-Mayor Sam Cooper said the USDA was aware the city could not prove ownership when it began sending money to Rehoboth.

"You can't go to Georgetown (Sussex County Recorder of Deeds office) and say here is a deed for that property," said Cooper, who until August was mayor for nearly 27 years. "It doesn't exist." 

Yet, given the city’s long history of occupying part of the property, he has no doubts the issue will be resolved by Chancery Court. 

Leonard Tylecki, whose family’s two-story Rehoboth Avenue home stands next door to the new complex, said it was odd that the city didn’t secure a solid title before construction began in the spring of 2016.

"Sure, it's a technicality, but it seems like an important thing for the government to have before they build this," Tylecki said Thursday.

Growing up in the cedar-shake-sided home in the 1960s, he recalled a more modest city headquarters fronted by a field of mulberry trees and a wooden flagpole. 

The area has been used by the city for nearly 80 years, and its lawyer believes that will help win the day in Chancery Court.

"There was no clear ownership, but there was evidence," said Glenn Mandalas, a Dover-based attorney who is Rehoboth City government's solicitor. 

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Mandalas' firm has pored over century-old land records, piecing together what they feel will prove the city's ownership in the absence of a clear deed. 

That evidence goes back to 1891, with the Delaware General Assembly's first blessing of municipal government in Rehoboth. That year, the Legislature incorporated Cape Henlopen City, which 12 years later was renamed to Rehoboth Beach. 

The city's initial charter conveyed all the unsold land within the boundaries of the new city. The land now in question was part of an open space depicted on early maps as "Middle Lawn," which came under the city's control at the time, according to court filings made by the city.

Before the property was used by the city, it housed Rehoboth High School in the early half of the last century. 

Another piece of evidence is a handwritten 1940s agreement between the city and the board of the now-defunct Rehoboth Special School District that states the district shall "forthwith grant and convey" the city pieces of the City Hall land "by way of good and sufficient deed." 

That school district was eventually consolidated into the Cape Henlopen School District, records indicate. 

"No deed of conveyance from the school board to the city accompanies the fully executed and recorded agreement," the Chancery Court petition states.

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The city first retrofitted the existing school for its government use around 1940. In the '60s, a new City Hall was built on the property. That building was partially leveled to make way for the new complex. 

"We've occupied it as a City Hall since the '40s," Mandalas said. 

Mandalas argued the city has operated on the property long enough to argue adverse possession, a legal maneuver where someone can claim ownership of land without a title if that person has been maintaining it for more than two decades. 

He said that tactic is more fitting for a situation where another entity is also laying claim to the land. He doesn't expect that will be the case here. 

The city is using what is called a "petition to quiet title," asking the court to silence any question over the land's ownership. Mandalas expects the court to grant the city's petition and satisfy the city's federal financiers.

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Attorney Daniel McAllister, who is working with Mandalas on the petition, said the matter amounted to a "paperwork issue." 

While city officials may be confident about the court proceedings, City Manager Sharon Lynn said the city would have to dip from its $6 million in rainy day reserves if court proceedings don't go as expected. 

"I really don't anticipate that," Lynn said. "I think we will be all right.”

Recently elected Mayor Paul Kuhns, who took office in September, had not heard about the financing issue when questioned about it this week by The News Journal.

“This is the first I'm hearing about this," Kuhns said.

In 2012, officials celebrated as cost estimates for the plan dropped from $20 million to $13.5 million. Four years later, those estimates were back at $18 million as the city residents voted to move forward with the project. 

Lynn said the old building lacked adequate space and handicap accessibility.

The project included the new city hall building, renovating the attached convention center and new offices for the city's parking and communications staff in a separate structure on the back of the property.  

The new city hall houses several city services including 911 dispatch and the police department. City officials said consolidating government offices previously spread up and down the avenue was a benefit. 

The complex is largely complete. Workers should be done building a parking lot on the east side and finishing underground stormwater infrastructure by mid-December, Lynn said.

City Hall observers have complained that poor planning led to cost overruns that they feel city officials tried to keep quiet. No fewer than 50 mid-construction change orders expanded the cost of the facility.

In all, officials expect it will cost about $21 million. No matter the outcome of the Chancery Court proceedings, officials plan to pull about $1 million from reserves to help cover the overrun. 

"It's largess," said city politics observer and former Commissioner Walter Brittingham, as he ticked off a laundry list of items he felt were planned wrong or not vetted properly. "Many of the (cost overruns) were not even voted on." 

City Hall construction was one hot-button topic in city elections in August. Some say cost overruns are part of the reason Kuhns defeated Cooper for mayor. 

Residents circulated a petition during election season taking aim at Cooper for problems including the rising cost of the City Hall and what they felt was a lack of transparency with how the project has been handled. 

"I don't blame Sam," Tylecki said. "There were five other commissioners that could have done something about it." 

Cooper said criticisms around the cost of the project were a "convenient argument" for his opponents to "milk" during the campaign. He said people should compare the cost to the high prices homes sell for in the city that bills itself as the Nation's Summer Capital. 

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It is no Taj Mahal by any sense, but it is not the cheapest building you can have," Cooper said. "Could you have cut a few million dollars out of it? Possibly. Would you have regretted it later on? Maybe.

“I think we hit a good sweet spot in the middle." 

Contact Xerxes Wilson at (302) 324-2787 or xwilson@delawareonline.com. Follow @Ber_Xerxes on Twitter.