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HomeMy WebLinkAbout[09b] Lease Agreement ISD 742 11 Council Agenda Item 9b MEETING DATE: October 3, 2016 AGENDA ITEM: Community Center SUBMITTED BY: Administration BOARD/COMMISSION/COMMITTEE RECOMMENDATION: None PREVIOUS COUNCIL ACTION: In June 2015 the City and School District entered into a Purchase and Lease Agreement for the property located at 124 Is`Ave SE. The Agreement allowed ISD 742 to remain in the facility through July 1, 2017 at which time they anticipated to move the early childhood program into a new facility. The City Council discussed a proposed draft of a lease extension on September 19 and directed staff to re- negotiate the terms. BACKGROUND INFORMATION: Since the last meeting there has been discussion on the lease and terms that were included. With regard to the Tax Abatement, it has been removed from the lease extension; however there is one point of clarification. While the School district contributed at a 50% level, they will not be receiving any benefit from that property during the entire length of the abatement. The method for determining levy is extremely different than that of a City. To help facilitate the process, the City requested that Ehlers prepare an analysis illustrating the impact if IDS participates in Tax Abatement. The illustration revealed that there is no impact to the district they do not lose money in the process but they do not gain either. This is opposite of the City, the levy equation is simple and based on valuation. The City is anticipated to gain approximately S 28,000 to S 35,000 by participating at 75%. It is for this reason that the School considered participating in abatement as a consideration. None the less, I have removed it from the lease agreement. With regard to payments. When the City assumed the lease for Little Saints, we kept the structure the same. The current lease is not a triple net lease. A triple net lease is a lease agreement that designates the lessee, which is the tenant, as being solely responsible for all the costs relating to the asset being leased, in addition to the rent fee applied under the lease. The structure of this type of lease requires the lessee to pay the net amount for three types of costs, including net real estate taxes on the leased asset, net building insurance and net common area maintenance. The City is taxed on the leased portion of the building and payed S 13,000 in real estate tax and we are responsible for any maintenance and repairs need for the leased space. The City will receive approximately S 42,000 in 2016 for rent. LSA pays for their own janitorial service. The rent was set to cover the expenses. Under the current lease agreement, the City is responsible for up to S 15,000 in maintenance/janitorial fees, the real estate taxes and lawn/parking lot snow removal. The District has completed the sidewalk snow removal. I verified with Jeff Johnson, Stearns County Assessor's Office that if the City leases the property and collects rent, even nominal rent, and the district is not in full control of the entire property, the area is subject to real estate taxes. Below are considerations in the lease extension and charging rent: • The School District does have the ability to find a different location for the Early Childhood Program and the facility would then be the responsibility of the City. At this time we would bear the full cost of utilities, maintenance,janitorial and snow removal. For utilities this would add approximately S 30,000, added maintenance costs to include janitorial. We would have full control of the facility and could rent parts out,but uncertain as to what if any income would be received. • The current lease with have with LSA is for a five year period and if an agreement is secured from the District whereby rent is collected, the City has the potential to incur additional costs that will exceed rent collected,particularly property taxes. • An alternative to charging rent is to leave the utilities at the expense of the District and relieving the City of the S 15,000 costs. This would be true savings to the City. One of the major items for negotiation was the additional space for Little Saints so they could continue to grow. The District released two room so that LSA could expand their program. In addition, the District in coordination with LSA have agreed to shared use of the Gym which is acceptable to both parties. The new agreement has increased considerably the amount of time LSA can use the facility. The change of space also increases the amount of rent paid by LSA to the City by approximately S 600 per month. In addition, the District has decreased the number of Saturdays the gym is used so that it could be available to the public for rent or if the City wanted to host an open gym day. With regard to use of the building and potential conversion or building, the following is a temporary schedule illustrating that the City most likely not be ready to start remodeling or construction until early 2018. Concept Design work with HMA (3 to 5 months) Sept 2016 to January 2017. Council approves concept January/February 2017 HMA designs project Beginning February/March 2017 Council approves Bid Documents September 2017 Bid Documents Nov/Dec 2017 Bids are received February/March 2018 Mobilization of contractor May 2018 BUDGET/FISCAL IMPACT: ATTACHMENTS: Request for Council Action Draft Lease Agreement REQUESTED COUNCIL ACTION: Provide direction or authorize execution of the Lease Agreement with or without changes. AMENDMENT TO THE REAL ESTATE PURCHASE AGREEMENT BETWEEN INDEPENDENT SCHOOL DISTRICT#742 AND THE CITY OF ST.JOSEPH THIS AMENDMENT TO THE REAL ESTATE PURCHASE AGREEMENT (hereinafter referred to as the "Agreement") and made and entered into this day of , 2016,by and between Independent School District 9742 hereinafter referred to as the "Tenant" and the City of St. Joseph hereinafter referred to as the "Landlord". RECITALS WHEREAS, the Tenant was the owner of the real property located at 124 Is`Ave SE, known as Colts Academy, hereinafter referred to as the "Facility"; and WHEREAS, the Tenant and the Landlord entered into a Purchase Agreement on June 15, 2015 which included a Commercial Lease attached as Exhibit B (the Commercial Lease hereinafter referred to as the "Lease Agreement") The Lease Agreement identified the term and conditions of the facility and rights of the Tenant; and WHEREAS, the Tenant has leased the property at no cost to allow ISD 9742 Early Childhood Program to remain at the Facility until the new Early Childhood Center was constructed or July 2017, whichever came first; and WHEREAS, funding for the new Early Childhood Center was part of the referendum posed to voters in ISD 9742. As the referendum was not successful, ISD 9742 has expressed a desire to remain at the Facility for an additional 12 months; and WHEREAS, the Landlord and the Tenant desire to amend sections 2, 3, 6, 22. and 20 of the Lease Agreement, and Exhibit C of the Real Estate Purchase Agreement(Exhibit C hereinafter referred to as the "Building Map")with the express understanding and agreement that all other provisions of the Lease Agreement and Purchase Agreement shall remain in full force and effect. NOW THEREFORE, in consideration of the premises and the mutual obligations of the parties hereto, each of them does hereby covenant and agree with the others as follows: 1. Section 2.0 in the Lease Agreement shall be amended in its entirety as follows: TERM. This lease will commence on September 1, 2015 (the "Commencement Date") and shall continue thereafter until whichever of the following events occurs first: July 1, 2018 (the "Termination Date"); the date on which the Early Childhood Education Programs cease to use the property; or, the Lease is otherwise terminated or extended as provided for within the Lease Agreement. All of the Lease Agreements terms and conditions and the terms and conditions of this Amendment shall continue to be in full force and effect from and after the date of this Amendment. 3. Section 6.0 in the Agreement shall be amended in its entirety as follows: UTILITIES AND SERVICES. Effective July 1, 2017 the tenant shall be responsible for the total cost for natural gas and electricity. The Landlord will bill the Tenant quarterly for 50% of the refuse charges. The Landlord shall be responsible for snow removal and lawn care at its sole cost and the cost for softer salt. The tenant will be responsible for required inspections and follow through. 4. Section 22.20 in the Agreement shall be amended in its entirety as follows: SHARED USE OF GYM. During the term of the Lease, the Tenant will share the use of the gymnasium and kitchen with Little Saints Academy(LSA). The Tenant and LSA will mutually establish a schedule that works for both parties. In the event that scheduling becomes problematic, the City Administrator, along with a representative from the District will meet with both parties to establish the schedule. 5. Exhibit C, the Building Map shall be amended to provide additional space for LSA to expand their business. The revised Exhibit C identifies the addition of rooms 151B and 151A along with the adjoining hall space as transferred space to LSA. 6. The Tenant and the Landlord agree that all other terms, conditions and requirements set forth in the Lease Agreement, and the Purchase Agreement, dated June 15, 2014, shall remain in full force and effect. 7. This Amendment and the Lease Agreement between the Tenant and the Landlord constitute the entire agreement between the parties on the use of the building. There are no understandings, agreements or representations, oral or written, beyond those specified in this Amendment and the Lease Agreement. 8. This Amendment shall be binding upon the parties, their heirs, successors and/or assigns. IN WITNESS WHEREOF, the Landlord has caused this Amendment to be duly executed in its name and behalf and the Tenant has caused this Amendment to be duly executed in its name and behalf on or as of the date first written above. ATTEST CITY OF ST JOSEPH By By Judy Weyrens, Administrator Rick Schultz, Mayor INDPENDENT DISTRICT 742 By STATE OF MINNESOTA ) ) ss COUNTY OF STEARNS ) This instrument was acknowledged before me on 2016 by Rick Schultz and Judy Weyrens, the Mayor and Administrator respectively, of the City of St. Joseph, a Minnesota municipal corporation, on behalf of said City. NOTARIAL STAMP OR SEAL (OR OTHER TTLE OR RANK) SIGNATURE OF NOTARY PUBLIC OR OTHER OFFICAL STATE OF MINNESOTA ) ss COUNTY OF STEARNS ) This instrument was acknowledged before me on 2016 by , of Independent School District 742, a public corporation under the laws of Minnesota. NOTARIAL STAMP OR SEAL (OR OTHER TTLE OR RANK) SIGNATURE OF NOTARY PUBLIC OR OTHER OFFICAL This page intentionally left blank