Okaloosa County BOCC — December 1, 2015 — Memo to BOCC Pier Association Lease 12-1-15 — reading text

TALLAHASSEE FORT LAUDERDALE 1500 Mahan Drive 110 East Broward Boulevard Suite 200 Suite 1700 Tallahassee, Florida 32308 Fort Lauderdale, Florida 33301 (850) 224-4070 Tel (954) 315-3852 Tel (850) 224-4073 Fax TAMPA 2502 Rocky Point Drive Suite 1060 Tampa, Florida 33607 (813) 281-2222 Tel (813) 281-0129 Fax TO: MEMBERS OF THE BOARD OF COUNTY COMMISSIONERS FROM: GREG STEWART, COUNTY ATTORNEY RE: LEASE WITH PIER ASSOCIATES, INC. DATE: DECEMBER 1, 2015 At its November 17th, 2015 meeting, the Board of County Commissioners directed the County Attorney to assemble information concerning the lease with Pier Associates, Inc. This was to include not only the background of the lease itself but also issues relating to the deficiency in maintenance activities and the possibility that additional revenue is due from the Lessee. Below is a summary of that information. LEASE BACKGROUND The lease relating to the Pier was initially entered into on September 23, 1986 between Okaloosa County (the “County”) and Pier Associates, Inc. (the Lessee”). The initial term was for twenty-five years (25) beginning on October 1, 1986. The initial lease contained a schedule of lease payments which began at a rate of $65,500.00 per year and increased for each five year period of the lease term. The lease required that the premises were to be open to the general public and to be used as a fishing pier, bait and tackle shop, restaurant, lounge and snack bar. The lease also required the Lessee to maintain the premises in good repair and in at least as good condition as delivered, with ordinary wear and tear, damage by fire or other casualty excepted. The County and the Lessee entered into a First Amendment to Pier Lease on April 3, 1998. The First Amendment made several changes to the Initial Lease relevant to the Board’s review. Initially, the term of the lease was extended for twenty-five years (25) beginning on April 1, 1998 and granting the Lessee an additional five (5) year option to renew the terms of the lease. The First Amendment also increased the rent schedule for the lease. The current lease rate is $162,984.00 per year which continues until March 31, 2019 and then is increased to $195,581.00 through the end of the term of the lease. The First Amendment also greatly expanded upon the obligations of the Lessee to maintain the premises. In addition to maintaining the leased premises in excellent condition and repair, and in as good or better condition and repair as that in which they were delivered subsequent to reconstruction after Hurricane Opal, ordinary wear and tear, damage by fire or other casualties exception, the Lessee was to also perform the following minimum standards. These include: Lease with Pier Association, Inc. Page | 2 December 1, 2015 o Restrooms shall be cleaned and supplies replenished daily; o Fish cleaning stations shall be cleaned and scrubbed daily; o The entire pier shall be cleaned of all debris or litter daily at a minimum and more frequently if necessary due to high use of the same; o All graffiti or other unauthorized defacement of the pier and buildings shall be removed immediately upon discovery; o The entire site, including the pier structure, all buildings and appurtenances, entrance drive and parking lot, shall be maintained in a neat and clean manner and all litter or trash removed daily; o Lessee shall promptly repair and replace at its own expense, all plumbing, heating, venting, air condition equipment, electrical (to include all wiring, lights in and on the pier, building, parking lot and any other non-structural repairs(s) needed, including signs); o Lessee shall promptly make any needed repairs to entrance drive and parking lot(s), to include resurfacing and re-striping, at its own expense; and o Lessee shall be responsible for maintain all grounds, to include landscaping in an attractive, neat appearance at all times, at its own expense. Finally, the County and the Lessee entered into Amendment Number Two on May 19, 2009 which allowed the County to install a lifeguard tower on the Pier and allow access to power for recharging of equipment. Amendment Number Two does not directly impact any of the current issues before the Board. SUBMERGED LAND LEASE For the construction of the pier, which is owned by the County, a lease must be obtained from the State of Florida for use of submerged state lands. The State of Florida imposes a fee for the State Submerged Land Leases based upon two components. The first is a base fee computed by multiplying the amount of the leased square footage by a base fee rate. The current rate is 15 cents per square foot and it is annually increased by the CPI. The second component is based upon the revenue generated by the use of the State Submerged Land Lease. Initially, the revenue generated fee was more narrowly limited to the rental of marina slips to other. However, in early 2009, the Department of Environmental Protection notified the County that it required the reporting of all revenue generated as a result of the lease and indicated that this occurred with the State Submerged Land Lease renewal in May 2006. The County obtained the gross revenue information from the Lessee for the submittal as to the fees owed for FY 2008- 2009. That resulted in an amount due of $45,610.55 for that year. However, after submitting the required form for FY 2008-2009, the Department requested additional information for FY 2006- Lease with Pier Association, Inc. Page | 3 December 1, 2015 2007 and 2007-2008 which was submitted by the County. In January 2010, the Department sent a supplemental invoice indicating that the County additionally owed for FY 2006-2007, FY 2007-2008 and FY 2009-2010 the amount of $75,306.67. After further discussions with the Department, they adjusted this amount by applying a 30% discount since 90% of the use of the use of the pier was by the general public. A revised invoice was submitted which reflected that the amount owed was $45,701.31for those three years. That amount was paid entirely by the County in April 2010. The County reached out to the Lessee about paying the amounts due on its gross revenues and a response was received on March 22, 2010 from Chris Cadenhead to James Puckett indicating that he did not believe that he was obligated to pay those amounts under the lease. Subsequent discussions were held between Mr. Cadenhead and John Dowd, County Attorney for Okaloosa County, As contained within an email from Mr. Dowd to Mr. Cadenhead dated April 8, 2010, Mr. Cadenhead agreed to begin including 6% to his charges and transmit that amount monthly to the County. This understanding was confirmed in an email from Mr. Cadenhead to Mr. Dowd agreement that he will being adding 6% to the charges to cover the cost assessed by the State but that he protested any amortization of the past amount. However beginning July 1, 2010, Mr. Cadenhead still did not make any payments to the County which prompted a call with Mr. Cadenhead by the Public Works Director, John Hofstad. Mr. Hofstad summarized his call in an April 11, 2011 email to James Curry that Mr. Cadenhead thought that the payments were to begin on July 1, 2011 and that he would make up the difference for the past year, In May 2011, Mr. Cadenhead made his initial payment on behalf of the Lessee. That payment was in the amount of $1,457.36. Thereafter he paid this same amount sporadically over the next few years. However, by repeatedly paying of the same amount, even if he had paid it consistently, would have been inadequate in that it fails to take into account that during this period of time, the lessee’s revenues increased and therefore the amount due to the State of Florida also increased. His last payment was made in November, 2014. He made no further payments after that month. It is important to recognize that the amount being discussed is only that amount charged to the County based upon the Lessees gross revenues and not the amounts paid by the County for the State Submerged Land Lease itself. Currently, the difference between the total amounts assessed by the Department of Environmental Protection on the gross revenue of the Lessee from May, 2006 through December 1, 2015 and the amount paid by the Lessee is $96,882.31. The difference between the amounts assessed by the Department of Environmental Protection on the gross revenue of the Lessee from July 1, 2010 through December 1, 2015 is $51,181.02.