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Sigma Chi fraternity loses $32 million house after Stanford ends lease

The fraternity's alumni corporation - Alpha Omega Housing Corporation - accuses Stanford of grabbing property without proper compensation.
File photo of Stanford University.

Stanford University has ended an 86-year ground lease on its campus with Alpha Omega Housing Corporation (AOHC), the alumni corporation that provides housing to the Sigma Chi fraternity. This has, allegedly, resulted in the university grabbing their property worth $32 million without just compensation.

The corporation invested $32 million in private funds to build and maintain the 14,000-square-foot row house, which is located at 550 Lasuen Mall. To relocate, the corporation would need to raise $35 million, they said.

The university allegedly made the announcement a few days before the lease was to end - on Aug. 31 - after making 41 annual lease extensions, the corporation said.

The lease termination comes after a long struggle, between the corporation and the university, over the property. In 2019, the corporation filed a lawsuit against Stanford when the university first sought to evict the Sigma Chi chapter.

The lawsuit claimed that Stanford, which had a shortage of undergraduate housing, was seeking to take over the property and that it was violating its lease agreement with the corporation. A judge, in 2020, found that the corporation had not unlawfully retained the property, which Stanford had claimed in a countersuit.

The Sigma Chi House is the last privately-owned fraternity house on the campus, which once had about two dozen such properties, according to the corporation.

Sigma Chi House at Stanford University has lost its lease. . Courtesy of Alpha Omega Housing Corporation.

Sigma Chi first came to Stanford in 1891 and was one of two or three fraternal organizations initially chartered by the university, the corporation said in its 2019 lawsuit.

The university's governing of ground leases and fraternities to build housing on campus dates back to Jane Lathrop Stanford and amendments to the founding documents made in 1897 and 1899, the corporation said. The corporation raised funds to build the existing row house in 1939.

As with other ground leases, Stanford owns the property beneath the structures. It grants long-term leases of the land to entities, companies (such as Stanford Research Park) or individuals (such as professors and their families). But generally, those entities and homeowners have the right to sell their structures, though they don't possess the land beneath the buildings, the corporation noted.

A long association winds down

Stanford's potential acquisition of the house occurred after the 1989 Loma Prieta Earthquake. The university required the corporation to seismically upgrade the building, which would cost $600,000. Stanford said if the corporation couldn't afford the upgrades, Stanford would be required to use its funds, but it would also expect the transfer of the property to the university if it outlayed the cash. The corporation instead raised $4 million in private funding, according to their 2019 court briefing.

The corporation entered into a new ground lease agreement with Stanford in 1976, which, they said, stated: “Stanford declares its intention to allow the Agreement to be renewed indefinitely as long as both the (House Corporation) and the House remain active at Stanford University.”

"Active" would come to be the operative word in future troubles for Sigma Chi.

In May 2018, the Sigma Chi chapter was suspended after an investigation following the alleged drugging of seven members of the rowing team by a non-Stanford affiliate during a house party.

Stanford removed university recognition of the Sigma Chi chapter for a minimum of three years after finding that its members violated university party planning, and alcohol-and-controlled-substances policies while on probation due to earlier violations, according to the university.

Suspension meant members weren't allowed to act as a chapter, recruit members, hold meetings, or take other actions as a group, and 550 Lasuen was no longer operated as a chapter house, Stanford said in an Aug. 23 statement explaining its decision to not renew the lease. From the university's perspective, the suspension resulted in Sigma Chi no longer being validly engaged as an active group.

"At the time that Stanford gave notice that the lease would not be renewed, there was no Sigma Chi chapter at Stanford and 550 Lasuen no longer was used as a residence intended primarily for active Sigma Chi members. After the suspension, 550 Lasuen was operated as a coed residence out of the Stanford housing allocation process, with an operational agreement between Stanford and AOHC governing each academic year, including the 2022-23 academic year," the university said in its Aug. 23 statement.

The alumni, however, also said the move to use Sigma Chi's current suspension as an excuse to no longer lease the property to the organization is a sleight of hand. In 1965 and 1966, the national Sigma Chi organization suspended the Stanford chapter for a year after they pledged their first Black member (Kenneth Washington). The Stanford chapter was also suspended by Sigma Chi International, the fraternity's parent organization.

Stanford didn't terminate the lease then, nor during the next nine years when the local chapter voluntarily stayed out of the national organization while they fought to resolve the issues of racism. Stanford supported the chapter's position at the time.

Lawsuits galore, and some history

The corporation sued; the university then filed an unlawful detainer in Santa Clara County Superior Court. A judge found that the corporation had not illegally detained the residence, however, according to 2020 court documents.

Both sides signed a settlement agreement in March 2021, Stanford said, although details are not publicly available on the court's website.

Stanford maintains that the settlement agreement allows the university to end the lease agreement as of Aug. 31 without compensating the corporation.

"That Settlement Agreement, negotiated by AOHC, stated that the lease would end on August 31, 2023. The Agreement allowed AOHC to petition for renewal, but nothing in the Agreement obligated Stanford to authorize such renewal. In fact, it stated that 'nothing in this Settlement Agreement shall obligate Landlord to agree to any request for an extension, renewal, new lease or other agreement of any kind,'" Stanford said in its statement.

Stanford said the settlement agreement signed by the corporation also doesn't require that Stanford provide another house. The agreement states that unless the ground lease is extended, the corporation agrees that it will "unconditionally vacate the Premises and surrender the Premises to Landlord in its entirety, in good condition and free of any personal property of Tenant, as of or prior to the Termination Date,” the university said.

"The settlement agreement, which Alpha Omega Housing Corporation agreed to and signed, expressly provided that the premises are returned to Stanford on the termination date “without any payment for same due to Tenant from Landlord,” a Stanford spokeswoman clarified.

The corporation also agreed not to challenge the termination date or the requirement that it vacate the premises by that date "on any basis or in any forum if the Ground Lease has not been extended by Landlord in writing,” the university said.

The university said it provides housing to 10 fraternities and sororities. Recognized Greek organizations can apply for on-campus housing on a four-year cycle.

"Stanford has been seeking to ensure equity and fairness in the allocation of Greek housing, so that all Greek organizations can apply for the chance to be housed. The 550 Lasuen house is the only Stanford undergraduate residence overseen by a non-University entity. Stanford currently has 24 recognized Greek organizations on campus, many of which are interested in housing. The process Stanford has developed in recent years for allocating Greek housing seeks to improve equity and fairness, allowing other deserving fraternities and sororities to apply for the opportunity to be housed on campus," the university said.

The undergraduate housing system is much larger, more complex, and more diverse than it was at the time when Sigma Chi initially occupied the 550 Lasuen house, Stanford said.

"Serving the needs and interests of our students today requires flexibility in the uses and assignments of the physical facilities on campus. An ongoing lease to a non-University entity limits this flexibility in responding to the needs and interests of our student body," the university said.

The Sigma Chi chapter could potentially gain a chance to have on-campus housing in the future, the university said. The chapter is expected to regain its status in November and would be reinstated at Stanford. Sigma Chi could apply for on-campus housing, but it isn't guaranteed.

There was another wrinkle that might have cinched Stanford's decision, the corporation claims.

In early August 2023, the corporation applied for the Stanford Sigma Chi House to be added to the United States National Register of Historic Places for its role in the Civil Rights movement and the contributions it made in the fight for racial equity.

The California Historic Resources Commission voted 5-0 on Aug. 4, over Stanford’s opposition, to forward the nomination to the federal government. Three weeks later, outgoing Provost Persis Drell notified the corporation that the ground lease would not be renewed, they said.

Until Aug. 3, only the Stanford Barn, built by university founders Leland and Jane Stanford, and the University President’s house, which was built by and for former U.S. President Herbert Hoover, had been forwarded for inclusion in the National Register, according to the corporation. 

Stanford acknowledged that the fraternity's contribution to the Civil Rights Movement was important but didn't think it merited designating the house historic.


About the Author: Sue Dremann

Sue Dremann is a veteran journalist who joined the Palo Alto Weekly in 2001. She is a breaking news and general assignment reporter who also covers the regional environmental, health and crime beats.
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