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5. Golf Negotiating Process BriefingP.O. Box 1116 KaliVep, Montana SM1 Phone (406) 7W-4545 January 18, 1996 Bruce Williams City Manager City of Kalispell P.O. Box 1997 Kalispell, Mt. 59903-1997 Dear Bruce, Your proposed changes to KGA's lease offer of January 8, 1996, were presented to a special meeting of the Kalispell Golf Association Board of Directors on January 17, 1996. The KGA Board, by unanimous vote, has declined to accept the proposed changes. Several Board members expressed disappointment in your decision not to forward our January 8, 1996, lease proposal to the City Council for consideration. I am again requesting that the KGA lease proposal of January 8, 1996, be referred to the City Council, with or without your recommendation, for action by the Council. I am prepared to provide the Council with the financial information supporting our lease proposal and the KGA Board's decision on the changes that you requested in your letter of January 11. Representatives of the KGA will be available to appear before the Council, at Work Session, to answer any questions that members of the Council may have concerning our lease proposal. I certainly hope that you will reconsider and permit the presentation of our lease proposal to the City Council for their consideration. Sincerely, Stephen C. Dun ee Operations Manger Incorporated 1892 Telephone (406) 758-7700 FAX (406) 758-7758 Post Office Box 1997 Kalispell, Montana Zip 59903-1997 January 11, 1996 Mr. Steve Dunfee, Manager Buffalo Hill Golf Club post office Box 1116 Kalispell, MT 59901 Dear Steve: Thank you for submitting a revised proposed lease agreement of January 8, 1996. As you know, my last lease proposal to you of December 13, 1995 more closely represents the City council's position concerning the economics of the lease. I regret to inform you that your proposal of January 8, 1996 does not come close enough to meeting the City Council's minimum requirements for a new negotiated lease. However, in the spirit of cooperation and a last attempt at getting a lease that more closely meets their requirements, I would propose the following changes to your January 8, 1996 proposal: 1) Increase the rent in section (4) for the first five years to 3.5% of gross receipts as defined (green fees, membership and driving range); 2) provide adequate fire insurance to cover replacement on the improvements, such cost shall not be a credit to annual rental obligation; 3) Section (12) Golf Course Fees, add the language at the end of the paragraph "City Council reserves the right to adopt or amend the proposed membership fees and green fees", and modify the language in the second paragraph to read "Lessee, at its discretion, may from year to year, during the term of this lease, decrease its schedule of Fees, then in effect, up to 10% one time without prior approval of such a decrease from the City." All other items contained in your proposal of January 8, 1996 would remain unchanged. As it stands now, your proposal for a new negotiated lease falls short of meeting the City Council's minimum requirements and therefore I will not forward it on to them for consideration. However, when the K.G.A. board agrees to the above referenced changes, I will be more than happy to not Douglas Rauthe Mayor Bruce Williams City Manager City Council Members: Gary W. Nystul Ward I Cliff Collins Ward I Norbert F. Donahue Ward 11 Dale Haarr Ward II Jim Atkinson Ward III Lauren Granmo Ward III Pamela B. Kennedy Ward IV M. Duane Larson Ward IV only take the proposal to the council, but also recommend it's ratification. Until then, I feel I have not fulfilled my obligations to the City Council with regard to negotiating a new lease. I look forward to a timely response to my proposal as our goal was to have this process completed this month. Sincerely, Bruce Williams City Manager BW/ksk p.c.: Mayor Rauthe City Council Glen Neier AMR P.O. Box 1116 Montana 6MI Phone (406) 7W-4545 City of Kalispell Mr. Bruce Williams P.O. Box 1997 Kalispell, MT 59903 Dear Bruce, Jan. 8, 1996 The Kalispell Golf Association Board of Directors have carefully reviewed your counter lease proposal dated 12-13-95. After considerable discussion of recent and projected economics in the Flathead Valley, the Board of Directors propose the attached lease agreement for your consideration. Upon completion of your review, we respectfully request the lease agreement be submitted to the City Council. In spite of the declining economics in the Flathead Valley and weak financial results over the past three years at Buffalo Hill Golf Course, the Board of Directors have remained committed to negotiating a higher lease payment to the City of Kalispell. In addition, the KGA Board has also generously increased the cap on the negotiable five year incremental increase. This agreement provides a substantial increase in unincumbered lease revenue over the next 20 years to the City of Kalispell. In addition to this increase, the Kalispell Golf Association is committed to continued investment of financial resources in the long term future of Buffalo Hill Golf Course and its facilities. We ask that this agreement be placed on the city council work - session agenda as soon as possible so that the necessary follow up procedures may begin. Accordingly, could you please advise me of the worksession date so that proper arrangements can be made for KGA representatives to attend. We will be available for any questions the council may have. Thank you for your consideration Bruce, we look forward to your response. Sincerely, r4 �/'�G Stephen C. D�fee Operations Manager LEASE THIS LEASE, made and entered into as of the , by and between the City of Kalispell, Montana, a Municipal Corporation, hereinafter referred to as LESSOR, and the Kalispell Golf Association, a Montana Corporation, hereinafter referred to as LESSEE, N I T N E S E T H: For and in consideration of the mutual covenants and promises hereinafter set forth, the Parties hereto agree as follows: 1. PROPERTY: LESSOR hereby leases to LESSEE and LESSEE hereby leases and hires from LESSOR those certain premises and all appurtenances thereto situated in Kalispell, Flathead County, Montana, as follows: All of that property owned by LESSOR and commonly known, referred to, and utilized as the Kalispell City Golf Course. Attached as Exhibit "A" is a map with the subject premises outlined. Attached is Exhibit "B" which identifies the boundary and fence line between the golf course and the north portion of the old Lawrence Park. 2. TERM: TO HAVE AND TO HOLD the above rented premises during the full term of twenty (20) years, which term shall begin upon the date of the approval of this lease as required by section 7-8-4201 (2) (b) MCA, and shall terminate upon the expiration of said full twenty year term, unless terminated sooner as hereinafter provided. 1 3. GROSS RECEIPTS: For purpose of this Lease, "Gross Receipts" shall be defined as all gross receipts obtained by LESSEE from the operation of the driving range (golf ball rentals) , the sale of season passes and daily green fees. All other receipts shall not be defined as "Gross Receipts" under the provisions of this Lease and shall remain the sole income of LESSEE. The definition of "Gross Receipts", as specified herein, shall be subject to renegotiation under Paragraph No. 18 of this Lease. 4. RENT: LESSEE shall pay to LESSOR, as rent, a sum to be determined annually as herein provided, payable in arrears, on or before the 30th day of June, commencing with June 30, and continuing on the 30th day of June throughout the term of this Lease. The full term of this Lease shall be divided into four (4) equal five year segments. The rent for the first five year period shall be two percent (2.00%) of the Gross Receipts, as defined above. At the end of that first five year period, and at the end of each subsequent five year period, the Parties shall review the financial situation of LESSEE for the purpose of determining the amount of rent to be paid for the next five year period. It is agreed that in no event shall the amount of rent be raised or lowered for any subsequent five year period by more than one-half of one percent (0.596) of said Gross Receipts. Once raised or lowered, that rent will apply for the next five year period. Said rent payment shall be mailed or delivered to LESSOR at the Kalispell City Hall. All prior rents due by LESSEE to LESSOR K, under that certain Lease, dated July 1, 1988, are hereby deemed and agreed to be paid in full, and let it be known and agreed that this Lease, dated , supersedes any and all Leases between the Kalispell Golf Association and the City of Kalispell. 5. USE OF LEASED PREMISES: LESSEE shall use the leased premises for the primary purpose of operating a municipal golf course; however, LESSEE shall also encourage members of the general public to utilize said premises for such other purposes as cross- country skiing, sledding and jogging, subject however, to reasonable rules and regulations regarding the conduct of such activities as may be promulgated from time to time by LESSEE. LESSEE agrees to observe all Federal, State, and municipal laws and regulations, including those related to human and equal rights, and in particular Bureau of Outdoor Recreation regulations. 6. MAINTENANCE AND REPAIR OF PREMISES: LESSEE agrees to maintain the above described premises in as good a condition as the same are in at this time, or as good as they may be put by LESSOR during the term hereof in case of a casualty loss causing repair or reconstruction by LESSOR; and to return said property to LESSOR at the expiration of said Lease in said condition, reasonable wear and tear and damage by the elements alone excepted. In the event LESSEE refuses or neglects to keep the above mentioned premises in such order and condition hereinabove mentioned, LESSOR shall have, after first giving ninety (90) days written notice to repair, the right to declare this Lease null and void and of no further force and effect. In this case the annual payments of rent shall c terminate and LESSEE shall not in any way be responsible for any future rent payments; and LESSOR in taking over the premises shall assume and be responsible for all outstanding capital improvement obligations then existing. LESSEE agrees to maintain and keep in repair all water lines and pumps on said golf course, and to attend to the shutting off of the water supply and draining of all pipe lines in the fall, and to turn the water in to said system in the spring. 7. ALTERATIONS AND IMPROVEMENTS: LESSEE shall not make any alterations or improvements to the premises or the appurtenances located thereon in excess of Twenty Five Thousand Dollars ($25,000.00) at any one time without having first received approval from the LESSOR of the intended alteration or improvement; which said approval shall not be unreasonably withheld by Lessor. B. UTILITIES: During the entire term of this Lease, LESSEE shall pay when due for required utilities serving the leased premises, including but not limited to, electrical, gas, telephone, water, sewer, and garbage services. LESSEE shall also be entitled to continue use of LESSOR's appropriated water right of the Stillwater River adjacent to the golf course premises without charge. LESSEE, in using the water from the Stillwater River under said water rights, shall operate and maintain the system and pump for such purposes. 9. PERSONAL PROPERTY AND FIXTURES: All personal property hereinbefore or hereinafter obtained in connection with the operation and maintenance of the Kalispell City Golf Course shall 4 be the property of LESSEE; provided however, -that all fixtures that have been or may be installed on the premises and attached thereto have or will become part of the premises and are the property of LESSOR. 10. COST OF OPERATION: All costs of operation, including the cost of providing supplies, equipment, tools, labor, and other such items and the entire cost of maintaining and operating the golf course, the club house and other appurtenances shall be the sole responsibility of LESSEE. 11. USE OF CLUBHOUSE BY LESSOR: Although LESSEE shall have the exclusive use and supervision of all buildings of said premises including that structure known as the club house, it is agreed that LESSOR shall be entitled to use of the club house at any convenient time to LESSEE upon adequate notice with LESSOR reimbursing LESSEE for all actual expenses incurred by LESSEE for the reason of any such use by LESSOR. 12. GOLF COURSE FEES: A schedule of membership fees and daily green fees shall be presented by Lessee to Lessor prior to the first day of April of each year of this Lease. The schedule of such fees proposed for the 1996 golfing season is attached hereto as Exhibit "C", and by this reference made a part hereof. LESSEE, at its discretion, may from year to year, during the term of this Lease, increase or decrease its Schedule of Fees, then in effect, up to ten percent (10%a) without prior approval of such an increase from Lessor. LESSOR shall not unreasonably 5 withhold its approval of any proposed Fee Schedule for which its approval may be required under this Lease. All fees other than those included on Exhibit "C" shall be established at LESSEE's sole discretion. 13. LESSEE'S FINANCIAL REPORTS: Annually, on or before the 30th day of June, in conjunction with the payment of the annual rent, LESSEE shall present to LESSOR for review, a copy of LESSEE's annual financial report completed in accordance with generally accepted accounting principles. 14. LESSEE'S LIABILITY INSURANCE: LESSEE shall obtain and keep in full force and effect during the term of this Lease, full general liability insurance in the amount of One Million, Five Hundred Thousand Dollars ($1,500,000.00) with a company licensed to do business in the State of Montana; and said policy of insurance shall name LESSOR as additional named insured. LESSOR shall be furnished with a certificate that such insurance is in force and the same shall provide for reasonable notification to LESSOR prior to the same being canceled. LESSEE agrees to hold LESSOR harmless from any and all liability of any nature, whatsoever, arising from or out of LESSEE's possession, use, maintenance, improvement, or occupancy of the property herein described; LESSEE further agrees to defend, at LESSEE'S expense, any action brought against LESSOR arising out of LESSEE's possession, use, maintenance, improvement, or occupancy of said property. 15. FIRE INSURANCE: During the full term of this Lease, LESSOR shall maintain its own fire insurance adequate to cover 2 replacement costs on the improvements of said premises. LESSEE shall pay the annual premium cost of such insurance which cost shall be credited to LESSEE'S annual rental obligation as determined in Section 4, hereof. Should the premises during the term of this Lease suffer damages which are covered by said fire insurance policy, LESSOR agrees to utilize all insurance reimbursements therefore, towards rebuilding or repairing the damaged premises, or towards providing adequate replacement facilities. The contents of buildings and fixtures located on the premises shall be insured by LESSEE and shall be in such amounts as to assure replacement. The Parties mutually agree as to waiver of subrogation rights each with the other. 16. DEFAULT AND BANKRUPTCY: In the event that: (a) LESSEE shall default in the payment of any installment of rent or other sum herein specified and such default shall continue for thirty (30) days after written notice thereof, or (b) LESSEE shall default in the observance or performance of any other of LESSEE's covenants, agreements, or obligations hereunder and such default shall not be corrected within ninety (90) days after written notice thereof; or (c) LESSEE shall be declared bankrupt or insolvent according to law, or, if any assignment shall be made of LESSEE's property for the benefit of creditors; LESSOR shall have the right thereafter, when such default 7 continues, to re-enter and take complete possession of the leased premises, according to law, and to declare the term of this Lease ended, and to remove LESSEE Is effects, without prejudice. In doing so no additional rent payments may be collected from LESSEE; however, if LESSEE shall default, after reasonable notice thereof, in observance or performance of any conditions or covenants on LESSEE's part to be observed or performed by virtue of any of the provisions in any article of this Lease, LESSOR, without being under any obligation to do so and without thereby waiving such default, may remedy such default for the account and at the expense of LESSEE. 17. NOTICE: No notice from LESSOR to LESSEE relating to the leased premises or the occupancy thereof, shall be deemed duly served unless personally served upon or mailed to LESSEE, registered or certified mail, return receipt requested, postage prepaid, and addressed to LESSEE at its address as follows: Manager, Kalispell City Golf Course Post Office Box 1116 Kalispell, Montana 59903 Any notice from LESSEE to LESSOR relating to the leased premises or the occupancy thereof, shall be deemed duly served, if personally served upon or if mailed to LESSOR by registered or certified mail, return receipt requested, postage prepaid, and addressed to LESSOR at the address as follows: Mayor City of Kalispell Eta Drawer 199'7 Kalispell, Montana 59903-1997 18. DIVE YEAR DISPUTE RESOLUTION: It is hereby agreed that either Party may, upon written notice given to the other ninety (90) days prior to the end of the fifth year, tenth year and fifteenth year of this Lease specify in writing that there are matters contained in the Lease (other than the percentage of Gross Receipts and the length of term provided herein) which because of a sense of urgency and import require discussion and possible renegotiation. It is further agreed that any such discussions and renegotiations shall take place and be concluded within sixty (60 days from the date of the notice; otherwise they shall be arbitrated within the last thirty (30) day period of the notice (in other words, thirty days prior to end of the Lease year involved). Arbitration shall involve three arbitrators with one being chosen by each of the Parties and the two of those arbitrators selecting a third. Results of the arbitration shall be binding and have the effect of a District Court judgment as though rendered by a District Court Judge in Flathead County, Montana. 19. EXISTING LEASE: It is mutually understood and agreed between the parties hereto that the existing Lease between the City of Kalispell and the Kalispell Golf Association dated July 1, 1988, shall remain binding upon the parties pursuant to its terms and provisions and in full force and effect through the remainder of the term of that agreement unless superseded and replaced by this 4 lease upon approval by the electors of the City of Kalispell as described herein. 20. TIME OF ESSENCE AND BINDING EFFECT: It is mutually agreed by and between the Parties hereto that the time of payment shall be an essential part of this Lease Agreement, and that all of the covenants and agreements herein contained shall extend to and be binding upon the Parties hereto, and their successors and assigns. IN WITNESS WHEREOF, the Parties have executed this Lease as of the date first above written. ATTEST: CITY OF KALISPELL Clerk -Treasurer Mayor ATTEST: KALISPELL GOLF ASSOCIATION Association Secretary President 10 SCHEDULE OF FEES 1996 Golfing Season The following schedule of fees shall be applicable for the 1996 golfing season: Season - Adult Members $325.00 Season - Full Time College Student $150.00 Season - Junior (through high school) $100.00 Daily - Green Fees (Chamionship Eighteen) $ 28.00 Daily - Green Fees (9 holes; Cameron Nine) $ 13.00 Exhibit "C"