RESPONSIBLE OFFICER: MANAGER SPECIAL PROPERTY PROJECTS STEPHEN CULLEN
1. Council Report 9 June 2015 (5 pages)
ORDINARY MEETING OF COUNCIL 9 MAY 2017
ORDINARY MEETING OF COUNCIL 09 JUNE, 2015
ITEM-6 HILLS DISTRICT BASKETBALL ASSOCIATION INC - PROPOSED CONTRACT AND LEASE
DOC INFO
THEME: Vibrant Communities
OUTCOME: 5 A connected and supported community with access to a range of services and facilities that contribute to health and wellbeing.
STRATEGY: 4.1 Manage and maintain a diverse range of safe, accessible and sustainable open spaces and provide recreation, sporting and leisure activities and facilities.
MEETING DATE: 9 JUNE 2015 COUNCIL MEETING
GROUP: STRATEGIC PLANNING
AUTHOR: MANAGER – INFRASTRUCTURE PLANNING ANDREW KING
RESPONSIBLE OFFICER: GROUP MANAGER – STRATEGIC PLANNING MICHAEL EDGAR
EXECUTIVE SUMMARY
In 2013 The Hills Basketball Association (HBA) approached Council requesting support for the expansion of the existing four court complex at Fred Caterson Reserve to six courts including a 500 seat grandstand, new offices and car parking.
Council considered this matter on 12 August 2014 and resolved to support the Association subject to conditions.
A Project Steering Group, Chaired by the Group Manager – Strategic Planning, has been working with HBA to ensure all necessary procurement and legal requirements are satisfied in keeping with Council’s requirements. This included a review of the tendering process; a review of the best tender by Council’s appointed Quantity Surveyor, Altus Page Kirkland, and numerous meetings with HBA and their architect. It has now progressed to the point where it is recommended to Council that the project proceed.
This report recommends approval by Council of the lease / deed documents required for the commencement of the project.
REPORT
At its meeting of 12 August 2014, Council resolved in part:
1. “A project appraisal be prepared and forwarded to the Chief Executive, Office of Local Government, in accordance with the Local Government Act prior to any agreement being set in place.
2. The HBA agree that Council staff and processes be used in partnership with HBA for the procurement, project management and delivery of the project.
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3. Council commit a maximum of $3,250,000 with repayment of the principle being incorporated with interest into the new 20 year lease based on Option 2 above at an interest rate of 5.72% per annum. [Option 2: To limit the HBA commitments to a fixed amount and charge a lease fee of $275,000 (over and above the lease fee for the land) per annum irrespective of what the interest rates are over the 20 year period.
This is equivalent to paying at an average interest rate of 5.72% over 20 years.
(5.72% is our average investment rate over the last 10 years)].
4. Funding of external works (being a car park, landscaping and electrical substation) to be included in the loan amount.
5. A new 20-year lease term be negotiated that includes, but not limited to:- 6. A continuation of the existing subsidised rental of $ 10 per annum;
7. A sinking fund for planned maintenance and renewal of assets be prepared and agreed by both parties;
8. Unless Council has entered into a new lease, operation and control of the assets return to Council at the end of the lease term with all planned maintenance being completed.
9. Establishment of a project control group for the project made up of representatives for HBA and Council to manage all aspects of the project.
10. Council’s Internal Auditor be appointed as a probity adviser.
11. The Association be requested to appoint the General Manager or his delegate to the Board of the Hills Basketball Association.”
Capital Expenditure Review
A Capital Expenditure Review was prepared and forwarded to the Office of Local Government (OLG) in accordance with the requirements of the Capital Expenditure Guidelines. As the project expenditure is below $10M the concurrence of the OLG is not required.
Development Consent and Construction Certification
HBA has obtained development consent for the project. To ensure an appropriate level of governance, construction certification will be undertaken by Council and the relevant document has been approved by the General Manager. There are no further project approvals required. The project is now ready for construction.
Leases
HBA’s current lease expires on 31st December 2015 which will occur part way through the construction of the extensions. Council’s lawyers have advised that there is no option for the lease to continue on a month by month basis as it was a twenty one (21) year lease and extensions are not permitted pursuant to the relevant provisions of the Local Government Act 1993.
To overcome this situation, it was recommended that a short term lease be introduced to allow for the construction and completion of the extensions, prior to entering into the long term lease, and deed for remuneration for payment of the loan which coincides with the lease term.
Accordingly the following agreements are proposed:
• Agreement to Lease – this lease addresses all matters relevant to the construction of the extensions as agreed that includes works program and contract documents, and draw down on the loan facility. It also binds both parties to enter into a long term lease, and the Lessor contributes to the costs of the Lessee’s works to the maximum sum of $3,250,000.
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• Short Term 6 month lease – this lease will cover the period of construction and extended period of occupation after the expiry of the current lease which is 31 December 2015. The short term lease period will commence 1 January 2016 and expire 30 June 2016. The terms of lease will be the same as the expiring lease and the rental proposed is $10 per annum.
• Lease – the long term lease will commence after the expiry of the Short term lease for a period of 20 years.
Terms of Lease
Commencement Date 1 July 2016 Termination Date 30 June 2036
Term 20 years
Rent $10 per annum
Rental increase CPI or
other Not applicable
Rental Reviews Nil
Premises Part Folio identifier 28/610074 being indoor basketball stadium premises including kiosk, at Fred Caterson Reserve, Castle Hill
Outgoings Lessee responsible for all outgoings
Maintenance & repairs Lessee responsible for all maintenance and repairs Public Liability Insurance $20 Million
• Remuneration Deed – this deed outlines the arrangements for the loan, terms of repayment and early release. HBA has agreed that repayments will commence 1 July 2016 regardless to the construction being finalised
The first two agreements will drop away upon completion of the extensions and commencement of the 20 year Lease.
Early Pay-out Option
HBA have requested an option to pay-out the loan early, should this circumstance arise.
The repayment schedule is based on annual commitments (paid monthly) that will remain unless a formal lump-sum-payment is made with prior notice in writing. It is reasonable that should this occur that HBA not be required to pay interest after the payout.
Renewal Clause
HBA realise that Council is under no obligation to renew the lease at the end of the 20 year period. They are however concerned that, should Council be of a mind not to renew their tenure, that 40 years of commitment and work by the Association would be in jeopardy. They have requested that Council insert a clause into the lease that commencing in Year 15, HBA seek further tenure and negotiations be undertaken in good faith for the continuation of basketball activities at the current location which should not be unreasonably withheld.
Delegate on the HBA Board
The Council resolution of 12 August 2014 included:
“11. The Association be requested to appoint the General Manager or his delegate to the Board of the Hills Basketball Association”
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The Association advises that their constitution limits the available spaces upon the Committee of Management, and to place a delegate from Council would reduce the active membership of the Committee. The concern is not about having to change the Committee of Management, but rather that a Council delegate will not be interested in the general matters of the Committee in the operation and running of basketball activities.
It is proposed that “the Hills Shire Council General Manager, or his delegate, be invited to attend two HBA Committee of Management meetings per year as an observer, specifically when the budget is considered and when the annual accounts are signed off.”
This request is considered reasonable in that a Council delegate would not be interested in the operational matters of the HBA. There are controls that can be imposed to ensure that Council maintains an interest in the activities of the HBA during the construction period, and in the longer term of the lease.
It is proposed that on commencement of the 20 year lease that the HBA be required to furnish to Council an independently audited Annual Financial Statement within 3 months after the end of each financial year.
The General Manger be authorised to create a governance structure during the construction period to ensure that the project is properly managed with regular Project Control Group meetings that includes Council officer/s, and no drawdowns on loan payments be permitted unless all progress claims are reviewed by, and Payment Certificates are issued by Council’s appointed Quantity Surveyor.
Council will carry Principal Builders Insurance for the project to ensure that should any problems with the builder or project occur that prevent completion of the extensions, then Council will have full control of all matters associated with the project and any insurance claims. The estimated cost for this insurance through Council’s Broker is $8,406 inclusive of GST.
IMPACTS Financial
In accordance with the previous Council resolution dated 12 August 2014:
1. Council commit a maximum of $3,250,000 with repayment of the principle being incorporated with interest into the new 20 year lease;
2. Funding of external works being a car park, landscaping and electrical substation to be included in the loan amount;
3. A continuation of the existing rental of $10 per annum;
4. A sinking fund for planned maintenance and renewal of assets be prepared and agreed by both parties.
The cost of principal builders insurance of $8,406 and the appointment of various consultants including the Quantity Surveyor estimated to be $20,000 have not been budgeted for the FY 15/16.
These costs will be reflected in a future budget review.
The Hills Future - Community Strategic Plan
This project enhances the provision of community facilities used to deliver services to the community.
RECOMMENDATION
1. The four components of the agreements with the Hills Basketball Association being the Agreement to Lease, Short Term Lease, Lease, and Remuneration Deed be authorised for execution under Seal.
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2. Hills Basketball Association be instructed to permit the General Manager, or his delegate, attendance at the Committee of Management as an observer, particularly when the annual budget is determined and the annual accounts are signed off.
3. The General Manager be authorised to create a governance structure during the construction period to ensure that the project is properly managed.
ATTACHMENTS Nil.
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