When officials announced earlier this month that the state had approved $9 million to replace the deteriorating Capitol Square building that houses the Wisconsin Veterans Museum, the building’s owners said the state had left out an important detail: The building is not for sale.

The property’s four owners claim the state lost its option to purchase the building because it defaulted on a rent payment last fall.

Instead, the owners say they are moving forward with plans to replace the building itself with a 12-story, 97-apartment building after the lease with the state expires at the end of 2025. If the state wants to keep the veterans museum where it is today, it can use the first few floors, they say.

“The museum can either rent or buy the box in which it will be housed. The museum will then occupy the first three floors and have its own entrance,” Greg Rice, CEO of Executive Management Inc., the company that manages the property, said in a statement last week.

The Wisconsin Department of Veterans Affairs wants to demolish the existing building at the corner of 22 and 30 W. Mifflin St. and build an impressive new museum on the site. A preliminary, five-story, $140 million design released over a year ago would allow the museum to showcase far more than the 3% of its collection on display today.

The Department of Veterans Affairs has leased space in the building for more than three decades. In 2005, the Department of Administration, on behalf of the Department of Veterans Affairs, entered into a lease amendment with the then-owner that gave the state the option to purchase the building, according to filings with the State Building Commission, which voted to purchase it Aug. 7.

Under the terms of that amendment, which the DOA provided to the Wisconsin State Journal, the state has the right to buy the building at least six months before the lease expires, as long as it is “not in default.” The amendment also describes a process for determining a fair purchase price that includes up to three appraisals.

The state estimate was $9.1 million.

But the property owners – Madison Real Estate Properties, Madison East Shopping Center LLP, 30 West Mifflin LLC and Mainsail Development LLC – claim the purchase option was voided when the state fell behind on rent in November and December of last year and the owners declared the state in default.

Letters sent by the DOA to property owners indicate that the state failed to pay the November rent on time because the check request was “not fully processed” by its internal payment system.

The state sent the check on November 7. At the same time, it also sent the December rent “to show its goodwill,” as Sanjay Olson, an administrator at the agency, explained in one of the letters.

A day later, on November 8, the DOA received a “notice of vacancy” from the property owners stating that the state was in arrears with the lease and demanding that the state vacate the property.

The state received its November and December rent checks back uncashed from the owners on November 21. In a letter dated November 29, Olson informed the owners that the state would resend both checks before the December rent deadline of December 1. That payment was ultimately accepted.

Terrence Wall, president and CEO of development firm T. Wall Enterprises, who owns a stake in the Veterans Museum property through his company 30 West Mifflin LLC, said the checks were returned because the owners had already declared the state insolvent.

The property owners are now waiting for the lease to expire before proceeding with the new development, Wall said.

The owners “have no intention of selling the property, especially not for $9 million, and have specifically communicated this to the state and the Department of Veterans Affairs,” their statement said.

The state’s announcement that it had approved the purchase of the building was “premature and an attempt to seize the property without adequate compensation,” it said.

The state claims that it paid the overdue rent in such a timely manner that the lease cannot be legally terminated.

“The fact that you have chosen to repay these payments does not change the fact that these leases are currently in good standing,” Olson said in the Nov. 29 letter.

“We plan to exercise the purchase option for the future construction of a new Wisconsin Veterans Museum,” DOA spokeswoman Tatyana Warrick said in an email to the State Journal last week.

The agency “denies all allegations made by the landlord that there were any breaches of the leases,” Warrick said, “and we further believe that the landlord has no legal basis to terminate these leases at this time.”