Image courtesy of BioMed Realty

A New York developer that owned an Assembly Square commercial property for decades says it was shortchanged by $22 million on the 2018 sale of a life science development site acquired this year by BioMed Realty for nearly $200 million.

Somerville Office Assoc. claims that BioMed and the developer that originally bought the 9-acre property in 2018, Cresset Group, violated the terms of an earnout clause raising the sale price based upon the amount of development approved for the property. BioMed plans a 1.3 million square foot life science project next to Assembly Row.

“The parties designed the earnout provision to share the risk and reward of obtaining project approvals from the Somerville planning board and to bridge the gap between the original $80 million purchase price and the revised purchase price of $65 million,” the complaint submitted by Somerville Office Assoc. LP states.

The Boston Business Journal first reported the filing of the lawsuit in Suffolk Superior Court.

Longtime owner Somerville Office Assoc. began drawing up redevelopment plans for 5-7 Middlesex Ave. in 2014, including a proposed hotel, residential building, and offices.

Somerville Office Assoc. sold the property to Boston-based Cresset Group in January 2018. In March 2020, Cresset filed plans for a 1.2 million-square-foot development known as Xmbly. That translated into a $22.3 million earnout payment, Somerville Office Assoc. claims.

According to terms of the purchase and sale agreement, Cresset Development agreed to pay an additional $30 per square foot for any commercial space in excess of 500,000 square feet approved for the parcel.

Somerville Office Assoc.claims that the new plans located a “substantial portion” of the development on the existing improved sections of the property to avoid paying the earnout payment.

In January, BioMed Realty bought the property for $197 million and recently obtained $240 million in construction financing, the lawsuit states.

BioMed and Cresset Group did not immediately respond to requests for comment.

The lawsuit is at least the second active dispute between major life science developers and previous owners over earnout clauses tied to local lab projects.

Canal Realty Trust, the owners of the former Metropolitan Pipe and Supply Co. at 303 Binney St. in Cambridge, claim that Alexandria Real Estate Equities mischaracterized $37 million of $65 million that it counted as linkage payments associated with gaining approvals for a 370,000-square-foot office-lab project. Alexandria disputes the claim and said the plaintiffs misinterpret the terms of the purchase-and-sales agreement.