Agenda - Council Work Session - 02/05/2013

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CC Work Session 2. 1. Meeting Date: 02/05/2013 Submitted For: Kurt Ulrich By: Bill Goodrich, Administrative Services Title: Consider Bury & Carlson request to terminate Lease Agreement Background: Attached is a December 3, 2012 letter from Larkin Hoffman, attorneys for Bury & Carlson ( "B &C "). It is this letter which has precipitated this case. Bury & Carlson leases property from the City and is asking to terminate the lease 18 months early. In order to enable the Council to better respond to the letter, we are presenting a fairly lengthy background to inform the new City Council members regarding this matter and to refresh previous City Council members as well. See the attached graphic which shows the 19.89 acre site and its location at Jaspar Street and 143rd Avenue (the "Site"). The City purchased the site from B &C in March 2008 for a purchase price of $1,753,500.00 including relocation expenses. See attached 02/26/08 City Council case authorizing the purchase. The purpose of the purchase was for a future public works facility. The terms of the Purchase Agreement included a lease back of the site to B &C for a ten year term. The rent payment is payment by B &C (the "Tenant ") of the site's annual property taxes with a not to exceed amount. The "rent" is really a pass through for property taxes as the City uses the "rent" to pay the taxes. For Example: 2012 total taxes were $44,599.85 on this property (of which per agreement B &G paid $41,674.50) of the $44,599.85 the City received $6,018.70, the County $5,758.59, school district $4,583.83, $2,549.06 other levies and the remainder went to state general tax & fiscal disparities (of which the City is a benefactor). These numbers reflect that the City's share of the total tax collected for the Site in 2012 is approximately 13.5% plus fiscal disparities. The City set up an internal loan in the amount of $719,775 (General fund share of the original $1,753,500 purchase price). We have been levying $44,520 annually in the General Fund with this expenditure to be included in the General Fund Budget through 2028. The portion of taxes and fiscal disparities that the City received from the return on taxes helps to offset some of this annual expenditure. A term of the Lease provides that the Tenant may terminate the Lease early upon 18 months notice to the Landlord (the "City "). The purpose of the December 3, 2012 letter from B &C's attorney is to seek the City's approval to terminate the Lease March 31, 2013, rather than wait for the 18 month term as provided in the Lease. Please note that the effect of the B &C Lease termination will be that the Site will become tax exempt and therefore no property tax revenue received from it. As justification for requesting the early termination, B &C alleges the City is not treating B &C fairly in allowing its competitors to operate similar facilities in the City without obtaining appropriate City zoning approvals. B &C has cited no specific instances of such circumstances and City staff is unaware of any such unfair treatment. Staff in the past has received complaints of similar uses operating without the appropriate Conditional Use Permits. In each circumstance, the proper code enforcement and corrective action was followed, or appropriate permits filed. At this time, Staff believes that all similar uses are operating with the proper permits. Staff therefore does not support B &C's early lease termination request. Observations /Alternatives: