The Lansburgh Theatre. (Courtesy Shakespeare Theatre Company)

Washington’s Shakespeare Theatre Company basked in Broadway limelight last summer when it received the Regional Theater Tony Award. What does an internationally acclaimed classical troupe do for an encore?

How about filing a lawsuit to avoid eviction?

On June 12, 2012, two days after winning the Tony, the STC began legal proceedings against its longtime landlords in the Lansburgh Building. The case was publicized as a spat over rent: The troupe had been paying $70,000 annually for its 450-seat facility, and suddenly the Lansburgh officials were demanding $480,000.

Yet the case, which remains unsettled after a year of court proceedings and negotiations, is not a simple financial dispute. Instead, the Shakespeare Theatre continues to wrangle with Graham Gund, the owner-developer of the upscale Lansburgh apartment complex on Seventh and E streets NW — a reversal from 20 years ago when Gund and the arts group were ballyhooed partners.

That match between the commercial developer and the growing nonprofit theater company was brokered by the Pennsylvania Avenue Development Corp. From the late 1970s through the 1990s, new restaurants, residences and retail were sparked by visionary PADC, which was given wide powers by Congress in 1972.

Pivotal to the urban resurgence in Penn Quarter, by all accounts, was the STC’s risky but triumphant 1991 move from the Folger Shakespeare Library into the new Lansburgh complex at Seventh and E. That arrangement required the developer to reserve a portion of the new upscale apartment complex as a “community arts space.”

A conspicuous PADC goal was “to stimulate arts uses,” recalls longtime Woolly Mammoth Theatre Company Artistic Director Howard Shalwitz, “which makes total sense in terms of urban development.”

Cut, then, to 2013. Shalwitz describes the STC-Lansburgh case “a big deal,” one that raises an unsettling question: “What makes it possible for that subsidy [from the developers] to stay intact?”

Like the STC, Woolly now performs on a stage created by PADC initiatives. Unlike the STC, Woolly has had happy news this year: the purchase, in May, of the 265-seat facility it has occupied since 2005, a basement space beneath a new apartment complex on the last remaining PADC parcel. The price is undisclosed, but Woolly Managing Director Jeffrey Herrmann has described it as “insanely generous.”

What happened at the Lansburgh? Did the STC’s widely applauded PADC deal expire? When public agencies work with commercial developers to carve out city space for nonprofit arts groups, are the agreements built to last?

The classical STC and the new-plays troupe Woolly are pillars of Washington culture, and leaders on the nation’s theater scene. Their contrasting adventures in real estate offer a high-stakes lesson not just in major arts management but in sustained urban planning.

“People don’t remember that this was still frontier downtown,” says Richard Hauser, who chaired PADC from 1986 until the agency wound down and was absorbed by the General Services Administration in 1998. “The Shakespeare was nervous to come [to the Lansburgh]. To have them move to that site was like a stamp of approval and legitimacy.”

“That was very important for setting the stage for what Seventh Street has become,” says John Fondersmith, who retired from the District’s Office of Planning in 2005.

Creating an artsy new downtown was not the PADC mission when Congress chartered the organization in 1972. Its aim was to fix up what was then bemoaned as America’s decayed Main Street. The irregular boundary stretched across Pennsylvania from Third to 15th streets, with E Street as a loose northern border.

Armed with money and eminent domain, PADC drew up requests for proposals setting guidelines for development. The priorities were broad — offices, hotels, places to live and shop — but the phrase “community arts” was always in the plan. By 1992, The Post reported that “$1.4 billion of private money had been invested, 23 buildings constructed or reconstructed.”

Shalwitz, who co-founded Woolly in 1979, was part of several early 1980s panels studying how to stimulate an arts infrastructure in Washington.

“It was responding to this dialogue that was in the air,” Shalwitz recalls, “about how, before everything gets snapped up, do we create some arts spaces downtown?”

A second problem showed up only later. Shalwitz puts it this way: “How do the promises that get made in the proposal phase, when the developer is using the arts as way to get the project — how do those promises get backed up over time, when all the market forces will be giving the developer incentives to back out in any way they can?”

Max Berry, an early PADC chairman, appointed by President Jimmy Carter in 1980, said he thought PADC leases for offices, residences, etc., would revert away from the developers and back to the government after 99 years. Berry, speaking from his home in Nantucket, Mass., says he was “distressed” when those leases were eventually sold to developers.

Should PADC have hard-wired similarly forward-thinking arrangements of 50 or 99 years for nonprofit arts groups, providing long-term stability against the vagaries of commercial pricing?

“I’d say yes to that,” Berry replies.

The arts blueprint was noble but fuzzy, especially after the matchmaking was done (a phenomenon that Shalwitz terms “carrot but no stick”). In the late 1970s, PADC saved the National Theatre by selecting a proposal that preserved the historic venue. In the 1980s, dozens of small artists and organizations — performers, painters and sculptors, gallery owners — jockeyed for position in Penn Quarter, hoping to be included in one renovation or another.

The boulevard is littered with the broken dreams of groups that envisioned more warrens for artists. For a time, PADC put a lot of hope in the air.

It turns out that three theaters are PADC’s most enduring arts legacy: the STC, Woolly and the National Theatre.

The National enjoys a benevolent arrangement with Quadrangle Development Corp., which won the PADC bid for the large hotel and office space in 1978. The National’s management hasn’t exactly kept the historic stage humming, and the long periods between productions — a pattern that will change this season — suggest that Quadrangle has not pressured the theater to generate income. (Quadrangle officials did not reply to numerous requests for comment. Tom Lee, the National’s executive director, recently described the rent as “manageable.”)

Through the 1980s and late into the 1990s, Woolly Mammoth performed in a 140-seat hole-in-the-wall off 14th Street NW. The troupe then spent several itinerant years performing in a hodgepodge of venues — Theater J, the Kennedy Center — before moving into the new space at Seventh and D NW.

The company raised more than $9 million to build out the raw space, creating a courtyard-style theater. Woolly obtained a favorable lease, agreeing to pay $1 a year for 30 years. The chance to buy the facility cheaply was an unexpected surprise.

Woolly seized its opportunities but also cautiously navigated the hazards of a public policy that was hopeful enough to get arts groups in the door but not hard-nosed enough to keep them there. Or so it seems around the corner with the Shakespeare Theatre, where the sunny, pioneering feeling from 1991 is now clouded by ill will.

The STC-Lansburgh terms turned public last year in open court. PADC required Gunwyn, Gund’s company, to maintain the arts space for 20 years, and to support the then-undetermined arts organization’s occupancy with $1 million for maintenance spread over 14 years, paid at $70,000 a year.

Those were the stipulations as the STC moved in and quickly became a powerhouse classical company. When that $1 million fund eventually expired, the STC — which currently operates with a budget more than $17 million, and which in 2007 expanded into its own new 774-seat Sidney Harman Hall around the corner, at Sixth and F streets NW — began to pick up that $70,000 annual maintenance tab.

At some point, the tenant-landlord relationship became fractious.

In 2007 the STC requested a 50-year lease. That was denied by Lansburgh Theatre Inc., the nonprofit “supporting organization” created in 1991 for the benefit of the STC; the STC is the charitable “supported organization.”

The LTI board consists of three people. One member comes from the theater; the other two are supposed to be neutral. But the theater charges that they are puppets for Gund and his company, Gunwyn.

During hearings, both sides have impugned the other’s motives. The theater claims that the developers wanted to commercialize the community arts space. Gunwyn lawyers counter that the “charitable” STC was using its cushy Lansburgh deal to underwrite operations at its bigger Harman Hall.

The parties have quarreled over how much maintenance is required (nearly $7 million worth, says Gunwyn), and how soon it needs to be done (now, the landlords suggest). Gunwyn lawyers argued that the lease expired because no extension had been agreed to. Judge John Ramsey Johnson replied that the “supporting/supported organization” relationship is not supposed to work like a commercial lease. He added, “You guys know how to ask [the STC] for more money.” He also characterized the hike to $480,000 as “not gentle.”

Gunwyn lawyers stated that even without the STC, the Lansburgh space would be kept “open to the community.” Subsequent testimony cast doubt on that, however, as LTI board member Kenneth Krozy — a Gund employee who has been managing the current renovations of the upscale Lansburgh apartments — embarked on a sudden and confused hunt for potential occupants.

The Gunwyn side stated that the partnership was not meant to be “forever.” The judge replied, “I know you don’t like that.”

Last October, the District of Columbia Attorney General’s Office filed a brief in support of the STC. Earlier this summer, as settlement talks faltered and a full trial seemed more likely, the STC retained lawyer Abbe Lowell, a longtime board member of the theater, well known as the House Democrats’ lawyer as the Clinton-Lewinsky scandal headed toward impeachment.

Last year the theater company won an injunction that allows it to occupy the PADC-created performance space — the one where the STC consolidated its reputation as one of the top classical theaters in the land — until further court order, or until a settlement is reached. Negotiations continue, and whispers are that the talks are going well.

Another status hearing is scheduled for Friday.