PHILADELPHIA—The city of Philadelphia has decided that its local Boy Scouts chapter must pay fair-market rent of $200,000 a year for its city-owned headquarters because it refuses to permit gay Scouts.

The organization’s Cradle of Liberty Council, which currently pays $1 a year in rent, must pay the increased amount to remain in its downtown building past May 31, Fairmount Park Commission president Robert N.C. Nix said Oct. 17.

City officials say they cannot legally rent taxpayer-owned property for a nominal sum to a private organization that discriminates. The city owns the land on which the council’s 1928 Beaux Arts building sits.

The Philadelphia council adopted a nondiscrimination policy in 2003 but was ordered to revoke it by the National Council, which said local chapters cannot deviate from national rules barring participation by anyone who is openly gay.