Agenda - Council Work Session - 12/12/2017

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CC Work Session 2. 1. Meeting Date: 12/12/2017 Information Title: 6745 Highway 10 Lease Renewal Request Purpose/Background: BACKGROUND The City purchased 6745 Highway 10 in 2006. Since then, the City has attempted to lease the property back to the private sector. In 2011, City negotiated a 5-year lease agreement with Independent Auto for use of 6745. The original lease term began February 2012, and is set to expire in March of 2018. Attached is the original lease agreement (reference map on last page). The original lease agreement provides a 3-year renewal/ option -period for the tenant, at the identical rent rate currently being paid (i.e. no increase in rent for 3-years). The original lease agreement also contains several provisions that allow the City to not renew the lease. Independent Auto is seeking to renew the lease for an additional 3-year term, at the rate outlined in the original lease agreement (i.e. the same rent rate they are paying now). City staff would like to discuss alternatives for proceeding with this lease agreement. Included in this case are three alternatives. Based on feedback from the City Council in worksession, staff will bring back formal a formal case in January. Independent Auto and Premier Commercial Realty were invited to attend the Council worksession. OBSERVATIONS Staff, Independent Auto, Premier Commercial Realty, and the City Attorney believe inconsistencies and ambiguity exists within the original lease agreement language. Said inconsistencies are resulting mixed expectations for the landlord and tenant, and have created several issues with administering this lease agreement. As a result, if the lease were to be renewed, City staff would strongly recommend the original lease agreement be completely redrafted. The original lease agreement for 6745 was drafted/ approved previous to the City having a formal policy for leasing City -owned land or a template lease agreement (2011). At that time, lease agreements were drafted on a case -by -case basis. Since 2011, the City has adopted a template lease agreement and lease policy. 6745 Highway 10 is not a high -quality building/ property, and is in poor/ fair condition. Property maintenance issues are an ongoing problem. Premier Commercial recently did a survey of the building/ property to see what maintenance items were outstanding (fall 2017). Premier came up with estimations totaling well over $100,000 of property maintenance needs now, or in the foreseeable future (next 1-5 years). Several life/ safety improvements were identified by the City's Building Official and Fire Marshal. Staff immediately addressed/ completed all life/ safety improvements (to keep up with City Code). Remaining/ additional maintenance items identified for the next 1-5 years included: asphalt replacement/ patching, replace/ repair concrete aprons creating flooding issues, repair/ replace sidewalk, repair decaying siding, paint/ pressure wash exterior, pit area repair and maintenance/ paint, ongoing electrical conduit repairs, garage door repairs, roof repairs. See attached. Examples of items that need to be addressed within a new lease agreement: (1) Building/ property maintenance issues. The new lease agreement will clearly define who is responsible for what maintenance. The lease currently has conflicting language. This is resulting in growing frustration from all parties involved with this lease