07. Golf Course LeaseAgenda -January 27, 1997
AGENDA ITEM 7 - GOLF COURSE LEASE,
BACKGROUND/CONSIDERATION: As you know, this issue has been a long
term - ongoing item. I have had several discussions with the KGA
representatives. These discussions have resulted in several
proposals being submitted, reviewed, and rejected from both sides.
However, by persistence, Mr. Dunfee and I have arrived at a
proposed lease that we both feel comfortable in presenting to our
respected governing boards.
I have enclosed a draft copy of the lease for your review and an
example of the three-year rolling average for revenue history. (If
the draft is acceptable, we will clean it up for a final approval
f...- at the Council Meeting.)
This lease proposal has been formulated by three City Managers and
the City Attorney. When I started, a format was already presented
to the KGA representatives with several items already agreed upon.
Therefore, many of these items were not "negotiable" from the time
I began the discussion. However, we were able to impact the
following major items:
1. Reduced term of lease from 25 years to 20 years;
2. Continue the existing definition of Gross Receipts;
3. Rent basis based upon a minimum payment of $13,000
with an escalation clause to 2% from $750,001 to
$850,000 to a maximum rate of 2.5% for gross
receipts above $850,001.
Added a 3 year "rolling average" for the basis of
Agenda -January 27, 1997
the rent calculation. This is desirable for both
parties to protect us from large annual
fluctuations. This will maintain some control over
peak or extremely low income years.
4. Eliminated the City responsibility for capital
improvement obligations in the event the lease is
terminated.
5. Maintained reporting requirements for improvements
less the $25,000 and the appr of the Council
for improvements beyond $25,000.
6. Added City's ability to audit the financial records
of KGA at our costs.
7. Added City's ability to increase liability
insurance requirements if State raises
liability statutes.
8. Continued current fire insurance as City's
responsibility.
9. Deleted five year dispute resolution clauses.
Disputes will be settled through negotiation
when/if they arise.
This is not the "bottom line" that was desired by the City.
However, it also is not the "bottom line" that was sought by the
KGA.
I believe this draft lease is equitable for both parties. Upon
review of the KGA income stream, the existing lease proposals, the
revenue trend, and the need for improvements at Buffalo Hill, I
Agenda -January 27, 1997
believe this is the type of lease that protects the City, increases
our revenue stream, allows KGA to be profitable, allows us to share
in the good years, protects both parties` long term goals;
encourages improvements to the course to increase playability,
increase clientele for the Golf Course, and expand exposure for the
community.
RECOMMENDATION: I recommend the lease be approved. The KGA
prefers that the language be changed to have an effective 13t
payment under this lease in June, 1996. I believe, based upon the
length of negotiations and original interest, that the first
payment should be due June, 1997.
The KGA lease committee has reviewed the lease and has agreed to
these terms.
ACTION REQUIRED: A MOTION to approve this item is required with a
2/3 majority vote (6). This will require a vote of the public at
the general election in November, 1997 to formally ratify the lease
agreement.
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,
W I T N E S 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.
The total area consists of approximately 240 acres.
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2. TERM: TO HAVE AND TO HOLD the above rented premises
during the full term of twe y_(2.01 year-s, which term shall begin
upon the date of 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.
3. GROSS RFCFT=: For purposes 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),
membership fees (season passes), the sale of green fee punch cards
and other green fees. All other receipts shall not be defined as
gross receipts under the provisions of this lease and shall be and
remain the sole income of LESSEE. The —definition of u 3ro"
4. RENT: LESSEE shall pay to LESSOR, as rent, a sum to be
determined annually as herein provided, payable for the preceding
year, on or before the 30th day of June, commencing with June 30,
1997 and continuing on the 30th day of June throughout the term of
this Lease.
j:\wp\golf.lse 2
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Said rent payment shall be mailed or delivered to LESSOR at
the Kalispell City Hall. All prior rents due by LESSEE to LESSOR
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 up-=
shall supersede any and all Leases between the Kalispell Golf
Association and the City of Kalispell.
5. USE _OF__LEA SED 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.
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
j:\wp\golf.Ise 3
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
terminate and LESSEE shall not in any way be responsible for any
future rent payments, and-L all
ebli:at' 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. LESSEE
i
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shall report to LESSOR annually on alterations and improvements
costing less than $25,000.00.
8. 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
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 OPERATTON: All costs of operation including the
cost or 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
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responsibility of LESSEE.
11. USE OF CLUBHOUSE_EY LESSOR: Although LESSEE shall have
the exclusive use and supervision of all buildings on said premises
including that structure known as the clubhouse, it is agreed that
LESSOR shall be entitled to use of the clubhouse 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 (season
passes), green fees punch cards and other green fees shall be
presented by LESSEE to LESSOR prior to the first day of April of
each year of this Lease. The schedule for such fees for the 1997
golfing season is attached hereto as Exhibit "D", 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 (10t) without prior approval of such
an increase from LESSOR. LESSOR shall not unreasonably
withhold its approval of any proposed Fee Schedule for which its
approval may be required under this Lease.
13. T.Rg9EE'S FINANC18 REPORTS: Annually, on or before the
first day of November, in conjunction with the payment of the
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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. Tie Association1s
. .• . . -. .r. IF
14. LESAFE I 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. In the event the
Montana legislature increases the limitations on government
liability for damages in tort LESSEE agrees to increase its
liability coverage appropriately. 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
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LESSEE's possession, use, maintenance, improvement or occupancy of
said property.
15. EIRE INSURANCE: During the full term of this lease,
LESSOR shall maintain its own fire insurance adequate to cover
replacement costs on the improvements on said premises. LESSEE
sh�� p-ay--t-he—ar�ua-�em�n--cv-s t—o-f--sum-h—f�-s=�rence—wh:E�h—ca-s-t
dsarGd—i-n—Seetion 4, hez eo-f . 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, toward rebuilding or repairing the
damaged premises, or toward 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
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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
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's 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. NOT =: 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,
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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
Drawer 1997
Kalispell, Montana 59903-1997
18. EXISTING IYEAfiE : It is mutually understood and agreed
between the parties hereto that no actions taken or not taken by
either party in the negotiation or execution of this agreement
shall constitute a waiver of any rights that either party may now
have or hereafter have relating to or arising out of the existing
Lease between the City of Kalispell and the Kalispell Golf
Association dated July 1, 1988; and, and each party specifically
reserves the right to present any claim or defense to any claim
relating to or arising out of said Lease.
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EXHIBIT "C"
Formula for Calculating Annual Lease Payments
1. In determining lease payments the parties shall utilize a
rolling average of "Gross Receipts" over the previous three
years in calculating the lease payment for a particular year.
2. A minimum base lease payment $13,000 shall be payable so long
as the rolling average of "Gross Receipts" as defined under §
3 of the Agreement do not exceed $750,000.00.
3. In the event the rolling average of "Gross Receipts" exceed
$750,000.00 but do not exceed $850,000.00, the Lease Payment
shall be two percent (2%s) of said "Gross Receipts".
4. In the event the rolling average of "Gross Receipts" exceed
$850,000.00 the Lease Payment shall be two and one-half
percent (2%k)of said "Gross Receipts".
Example:
Rolling Average Level 1
Gross Revenue Base Lease
Level 2
2%
Level 3
2.5W
$0-750,000 $13,000
$775,000
$15,500
$800,000
$16,000
$825,000
$16,500
$850,000
$17,000
$875,000
$21,875
$900,000
$22,500
$925,000
$23,125
$950,000
$23,750
$975,000
$24,375
$1,000,000+
$25,000+
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EXAMPLE OF ROLLING AVERAGE
Revenue History:
G.F.
DUES
RANGE
TOTAL
THREE YEAR
ROLLING AVG
1996
$356,500
$317,000
$17,000
$690,500
$741,251
1995
$368,480
$366,600
$21,151
$756,231
$799,522
1994
$368,074
$384,700
$24,248
$777,022
$860,682
1993
$443,586
$394,700
$27,028
$865,3134
1992
$538,742
$369,800
$31,168
$939,710