Market House, a city-owned downtown Annapolis landmark, has been leased for another five years by a team that includes Mayor Gavin Buckley’s business partner.

The original lease expired June 30.

The renewal was issued despite an apparent violation: Jody Danek, who operates the Market House, never filed annual financial reports for the building’s businesses and never paid “percentage rent,” which would have been triggered if reports showed gross sales at the restaurant, coffee shop and other vendors topped $1.5 million.

Danek is the mayor’s partner on several other restaurant projects, but not Market House.

The renewal is drawing criticism from area business owners and the mayor’s political opponents because the $8,400-per-month rate is below market value in downtown Annapolis, according to real estate professionals and several business owners interviewed by the Capital Gazette.John Rosso, a principal at Rosso Commercial Real Estate Service in Annapolis, said businesses around Market Space, City Dock and Main Street typically rent for $40-$55 per square foot each year. However, he is aware of a few paying $65-$75 per square foot.

Under the renewal terms, Danek and his partners will pay $18.92.

“That’s a pretty sweet deal,” said Sveinn Storm, who has owned and operated Storm Brothers ice cream since 1976.

Once Market House was leased for $8,000 a month in 2018, Storm successively appealed the tax assessment of his Dock Street building, using the Market House lease to establish a lower comparative value.

In an interview Danek said he never filed financial reports because the city never asked for them until he received “a frantic call” in late June requesting reports that would document sales by the Market House restaurant, Rise Up Coffee and other businesses operating out of the building.

The Capital also requested the reports under Maryland’s Public Information Act.

If gross sales totaled $1.5 million, New Market LLC was supposed to pay 2% of “cumulative gross sales” above that figure to the city.

“I don’t think that we have ever reached [the performance rent threshold], but we are going to check,” Danek said.

The lease states that the, “Tenant shall submit with each payment of performance rent such supporting documentation as the city reasonably shall require to document gross sales by tenant and any subtenants and the computation of the payment. Tenant shall implement procedures reasonably satisfactory to the city to ensure timely and proper recording and accounting of all sales by tenant and subtenants.”

As of Thursday, city representatives said they had not received the financial reports.

Resident Bill Kardash raised the Market House issue at a June 12 City Council meeting and pointed out that the original five-year lease was scheduled to expire June 30.

“I did some research,” Kardash said during the public-comment period. “The Market House is in a jewel of a location,” yet the city charges its tenant “about a third of what surrounding restaurants are paying.”

Kardash, who has been involved with a budget watchdog group called “Annapolitans for A Better Community,” asked whether the lease had been renewed and if Danek had ever submitted financial reports. The city’s Office of Law subsequently released several documents related to Market House, including Danek’s request to renew the lease for five years, effective May 1, 2023, and then extend for another five years, “from May 1, 2028 to April 30, 2033.” The terms of the lease state it can be renewed automatically at the tenant’s request.

The documents also include an amendment to the original lease, signed by Buckley and city attorney Michael Lyles, dated Nov. 15, 2021, that retroactively knocked the rent down to $2,000 a month as an apparent pandemic accommodation, from March 1, 2020-April 30, 2021. From Oct. 1, 2021-Sept 30, 2023, the Market House would pay additional rent of $1,458.33 to partially account for lost rent.

That arrangement was never brought before the City Council, Ward 7 Alderman Rob Savidge said.

Buckley said in an interview he “did not know,” he had signed the lease amendment.

“That is news to me.” the mayor said.

Under pressure from his colleagues on the council, Buckley had recused himself from negotiating and signing the original Market House lease. At the end of that contentious process, former council member Marc Rodriguez signed in Buckley’s stead.

“Over the next 10 years, with this lease, the city could collect up to $1 million in revenue,” Rodriguez said, when the lease was signed in March 2018.

That million never materialized. (Rodriguez left the council after moving to Oregon.)

In addition to receiving the retroactive pandemic discount, New Market House LLC negotiated to pay $0 for the first nine months, then $4,000 a month during the first half of 2019. The full rent of $8,000 per month was supposed to kick in July 2019.

Pandemic rent discounts were fairly common in the commercial real estate world at the height of COVID-19 shutdowns. So were federal Paycheck Protection Program loans. New Market House LLC received $307,189, according to public records, and reported having 203 employees.

Danek acknowledged the staffing number sounds high but said there was significant turnover during the first year of operation, and the 203 employees likely reflected everyone who had been on the payroll up to that point. After trying out several initial concepts in the building, Danek and his partners, Michele Bouchard and John Lyon, settled on using the space as a bar and full-service restaurant that also offers gelato to go and souvenir foods such as Fisher’s Popcorn.

Easton-based Rise Up Coffee has operated a busy espresso bar in Market House since 2019. Billy Goat Pizza joined the lineup more recently but has no formal sublease, Danek said. Pizza is typically available Thursday through Sunday.

New Market House LLC is responsible for most cleaning and upkeep at the century-old building, which Danek described as an “ongoing challenge.” The water fountain and refill station has been blocked off and nonfunctional for more than a year; the women’s restroom currently has only one working sink; and a stall door handle is missing.

Danek said getting help with maintenance is “something we’d like to talk to the city about.” Overall, however, business at Market House is running smoothly.

“I am super excited that Mayor Buckley allowed us to renew the lease,” Danek said.

The network of restaurants that Buckley and Danek co-own includes multiple Lemongrass locations, Tsunami and Metropolitan Kitchen & Lounge.

Buckley withdrew from a partnership that was preparing to bid on Market House when he decided to run for mayor in 2017. He now views Market House as a “cash positive” success story, and vastly improved over the previous tenant, Harvey Blonder, an Annapolis landlord and businessman who has since become embroiled in legal trouble.

Now Market House is “the living room of the city,” the mayor said. “Residents go there now. Before, it was a tourist trap.”

He stops by many mornings and sees everyone from cops to former state lawmakers.

“One of my campaign promises was to fix Market House,” Buckley said. “It is fixed.”