Memorandum Cherry Lane Recreation 10-03-1978interoffice
MEMORANDUM
To: Meridian City Council
From: William. F. Nichols
Subject: Golf Course
Date: September 29, 1999
Wm. F. Gigray, III asked me to review the Golf Course
Lease Agreement dated October 3, 1978, the NuPacific Agreement
dated October 3, 1978 and the Memorandum of Understanding dated
December 23, 1977, all related to the Golf Course. I was
specifically asked to review these agreements and make
recommendations regarding any ongoing responsibilities that the
City has under any of these agreements.
Review of Lease
In reviewing the Lease Agreement I noted the following
unusual items or provisions.
Section 4(b) requires that the golf course lessee make specific
provisions for youth programs for "entertainment,
instruction, and social" purposes.
Section 8 requires the lessee to perform all of the city of
Meridian's obligations contained in the city's
agreement with NuPacific.
Section 11 requires the lessee to indemnify the City from any
damages, it mentions insurance, but does not contain
any provisions requiring a specific amount of
insurance.
Section 16 gives the city the ability to review, but not
determine, the amount of greens fees charged by the
course.
Section 15 contains the very unusual lengthy options to renew the
lease. The lessee has exercised its first option to
renew the lease for an additional term of 30 years
thereby extending the lease through the year 2033.
Near the end of that extended term, the City will need
to negotiate with the current lessee, if the lessee
expresses an intent to renew the lease for another ten
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years, and determine what the terms and conditions of
the new lease will be. The current language of the
lease limits negotiation. The only limit that will be
in place when it comes time to renegotiate the lease
near the end of the extended term, will be an
obligation to negotiate in good faith. Therefore, at
that time, terms such as the amount of rent to be paid,
how the course is to be managed, and any other issues
that will be important to the City at that time will be
appropriate for negotiation into the new lease
agreement. The City will not be bound to continue the
lease on the same terms and conditions as the current
lease.
The agreement with NuPacific is an important part of
the current lease arrangement because of the tie-in between the
NuPacific agreement and the current lease. The City's
obligations under this agreement are fairly extensive. For
example, on pages 4 and 5, the City is obligated to maintain and
manage this particular course in a manner typical to municipal
public courses nationwide. It also requires at least an annual
review of operations of the course with the possible requirement
for hiring an outside consultant to advise the City with regard
to these issues. Merely entering into a lease like the one with
Cherry Lane Recreation, Inc., does not excuse the City from
performing according to the terms of the NuPacific agreement.
This is a "nondelegable" provision. The City does not want to
get into a position where it has to hire an outside consultant in
order to satisfy the terms of the Nu Pacific agreement. A few
years ago, the City of Ontario, Oregon, spent a considerable
amount of money hiring professional golf consultants to advise
the City on the operation and maintenance of the Ontario
municipal course.
Page 6 of the NuPacific agreement contains a
requirement that the City provide NuPacific with certified copies
of insurance policies that cover the golf course. If these have
not been provided in the past, it is possible that NuPacific may
be willing to waive this requirement in writing.
The term of the agreement with NuPacific has no
definitive ending date. It specifies that the Agreement
continues in effect as long as NuPacific or any transferee from
NuPacific owns property in the Cherry Lane Village development.
It can be terminated by mutual agreement of the parties, but
otherwise it continues. It is also important to note that this
particular agreement does not contain a standard "successors and
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assigns" clause which would make that particular agreement
binding upon the successors and assigns of either party.
Closely connected to the term of the agreement is the
right on the part of NuPacific to re -purchase the golf course
property from the City for its fair market value as determined by
a bona fide offer from an unrelated third party or a certified
appraisal. This ability to repurchase the golf course property
continues through the term of the agreement and for an additional
15 years after the agreement is terminated.
The default provisions under the Nu Pacific agreement
are very strict. If the City failed to remedy a default after
having been given 30 days written notice, specifying the default,
then NuPacific could demand that the City deed the property back
to NuPacific.
Recommendations
I have several recommendations to make regarding the
golf course lease and the NuPacific Agreement.
1. Lease Monitoring
One department in the City needs to be designated to
monitor the lessee's performance under the lease. That
monitoring should include an ongoing review of youth programs at
the course, an annual review of greens fees, annual verification
of insurance coverage, annual review of golf course management
which would include the condition of the course, utilization, and
financial matters, including capital improvement expenditures,
repairs, and preventive maintenance. Also included would be
marketing and promotions, and even perhaps employment policies.
2. NuPacific Agreement
The City should also designate a department or person
to make contact with NuPacific to determine if an early end to
the agreement can be negotiated. If NuPacific has sold all of
its property within the development, then they typically would
not have any interest in continuing with this agreement since it
would serve no purpose for their company. Negotiating an end to
the agreement would have the advantage of starting the 15 year
repurchase time so that it would run out prior to the time that
the extended lease will expire. More importantly an early
termination of the agreement would cut off the possibility of a
claim for reversion of title to NuPacific on the basis of some
sort of claimed default.
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Conclusion and aoals
The advantage to monitoring the lease and seeking early
termination of the NuPacific agreement are closely tied to the
public purpose of having the golf course in the first place. The
golf course lease provides very little funds to the City, but
does provide citizens of the community with a public golf course
which in turn likely brings additional commerce to businesses in
the community and brings the City additional tax revenue from
increased property values of those homes located near the course.
It is a community asset and certain terms under the lease
agreement give the City the ability to ensure that it continues
to be a community asset.
Since the renewal option has been exercised, and the
lease will expire at the extended term in the year 2033, as
stated before in this memo, the lease will be up for complete
renegotiation including a reasonable rental payment. If for some
reason or another, the current lessee chooses not to renew the
lease in the year 2033 or if a new lease cannot be negotiated,
then the City must be prepared to operate and manage the course
or solicit other qualified lessees to operate the course.
Conducting a program of ongoing monitoring over the next 34 years
will best position the City to be prepared to:
1. Negotiate with the current lessee;
2. Find a new lessee if unable to reach agreement with the
current lessee;
3. Operate the course as a City run enterprise; and
4. Ensure that the course is kept in top notch shape and
does not deteriorate near the end of the extended term.