Agenda - Council Work Session - 07/26/2011

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CC Work Session 2. 3. Meeting Date: 07/26/2011 By: Diana Lund, Finance Title: Consider Lease Terms for Dennis Sharp for Properties at 6701 and 6745 Hwy 10. Background: The city purchased, with RALF funds, the properties at 6701 and 6745 Highway 10 in 2006. Since that date, the city has leased the cold storage portions of these properties to Dennis Sharp companies. Starting in 2008 the city required that the leases be amended to collect a base rent plus each property's pro -rata share of property taxes. Mr. Sharps current leases are through July 31, 2011. The rents paid by Mr. Sharp the last couple of years are as such: 6701 Highway 10: Thru July 31, 2010: $3,266/mo Thru July 31, 2011: $2,983.50/mo 6745 Highway 10: Thru July 31, 2010: $1,886/mo Thru July 31, 2011: $1,820 /mo Mr. Sharp presented his rental concerns to city council at the June 14, 2011 worksession and staff was directed to negotiate with Mr. Sharp. Staff had sent to Mr. Sharp on June 23 the following proposal: 6701 Hwy 10: $1.86 /sq ft or $2,845.80 /month (Reduces lease rate from current $1.95 /sq foot) 6745 Hwy 10: $1.97 /sq ft or $1,820.00 /month (Holds the current lease rate constant) Staff met with Mr. Sharp on June 28 to discuss proposal and Mr. Sharp countered with a $1.45 /sq ft on each property. Mr. Sharp's proposal would calculate as such: 6701 Hwy 10: $2,218.50 /month or $26,622 annually 6745 Hwy 10: $1,336.42 /month or $16,037 annually The City's proposal and Mr. Sharp's proposal listed above was brought to the July 12, 2011 Work session. Staff was once again directed to determine a rental rate that would cover the city costs associated with the two properties, while bringing the lease rates closer to Mr. Sharp's proposal overall. City staff met on Thursday, July 14 and presented the following proposal to Mr. Sharp: 6701 Hwy 10: $1.21 /sq ft or $1851.33 /month (Reduces lease rate from current $1.95 /sq foot) 6745 Hwy 10: $1.97 /sq ft or $1,820.00 /month (Holds the current lease rate constant) The total rent generated on the two properties would be $44,004 annually, which is more in line with Mr. Sharp's proposal of $42,669 and which would allow for a 10% maintenance to be set aside for major repairs and for an increase in property taxes and insurance in 2012. On July 18, 2011, Mr. Sharp agreed to the rental terms stated above. Mr. Sharp would also like to address the installation of a fence, which he would like the city to purchase with rental funds. Mr. Sharp was told that the fence