Adopt Resolution #22-213 Approving Lease Cancellation for 6701 Hwy 10 NW; Case of Potters Church

The purpose of this case is to consider adoption or Resolution #22-213 Approving Lease Cancellation for 6701 Hwy 10 NW.  The City entered into a lease with Potter's House Christian Community Church, Inc. on November 24th, 2020.  The term of the lease is 5 years ending on November 30, 2025.  The Lease has clauses for early termination by either the Landlord (City) or Tenant (Potter's Church).  6701 Hwy 10 was purchased through the RALF program.  All rent received by the tenants pay for the expenses to maintain and pay taxes for the property.  The City does not receive any direct revenue from the leases. 

Over the past 10 months the Tenant has had trouble staying current with the rent, utilities and snowplowing for the Premises.   On  On August 24, 2022 the City sent a Notice of Default via Certified Mail to Potters House Christian Church, Inc.  The City received proof of delivery of Certified Mail on August 31, 2022. The amount past due at the time of the Notice of Default was $12,305.43. On three separate occasions partial payment plans were offered to allow the Church to get current with the rent.  The City has shown a willingness to work with the Tenant to catch up due to hardships shared by the Tenant with the City. However, this pattern has continued and now the Tenant is $14,441.34 in arrears which includes the September 2022 prorated rent amount to September 15th. Staff and the Property Manager believe this amount due has reached a level that warrants specific action that includes removal of the tenant and execution of an agreement that will allow the City to collect the outstanding rents, utilities and snow plow charges.

Rather than be evicted, the Tenant has asked the City to consider a Lease Cancellation.  Staff has worked with Premier Commercial Properties (Property Manager) and the City Attorney to draft an agreement that will cancel the lease and to have the Tenant surrender the Security Deposit to the City to partially pay for the delinquent rent and utilities.  The agreement requires the Tenant to vacate the Premises and remove its possessions on or before September 26, 2022. Most of the possessions of the Tenant had been removed by the time of this memo and the Church is no longer operating out of the space.  The Tenant has communicated to the City that they have no money to pay back rent and utilities and the City Attorney is recommending acceptance of the Cancellation agreement as presented. The agreement is binding and ensures that the City can legally retain the security deposit. 

Staff is asking the City Council to consider the request by the Tenant.

No public notification is required.  The City has provided written notice of the Notice of Default via certified mail to the Tenant on August 24, 2022 and the Tenant has received that notice on August 31, 2022.

As of the date this case was written the tenant is $14,441.34 behind in rent, utilities and snowplowing. The Tenant has been properly noticed and has requested to proceed with the lease cancelation rather than be evicted.  The Cancellation of Lease has not been signed by the Tenant but the Property Manager is in the process of obtaining the necessary signature prior to the September 27, 2022 City council Meeting.  The Tenant has verbally agreed to the Lease Cancellation Agreement but is currently in the hospital.  The Tenant should be out of the hospital on or before September 26, 2022 to sign the Lease Cancellation.   Based on the inconsistency of the payment of rent and the amount in arrears the Property Manager and Staff believe it is time to move on from this tenant and to try to lease the space to another tenant.  There are several alternatives to bring resolution to this matter, they include the following:

1) Adopt Resolution #22-213 Approving Lease Cancellation for 6701 Hwy 10 NW; subject to City Attorney review (Staff Recommendation)
2) Adopt Resolution #22-213 Approving Lease Cancellation for 6701 Hwy 10 NW (with modifications) ; Subject to City Attorney review
3) Adopt Resolution #22-213 Authorizing Eviction of Potter's House Christian Community Church
4) Something Else

Right Of Way Acquisition Loan Fund (RALF).  City costs incurred by this action will be funded through rent received from 6701 Hwy 10 NW.

Staff, the Property Manager and City Attorney recommend a motion to Adopt Resolution #22-213 Approving Lease Cancellation for 6701 Hwy 10 NW (as presented); subject to City Attorney review

Motion to Adopt Resolution #22-213 Approving Lease Cancellation for 6701 Hwy 10 NW (as presented); subject to City Attorney review (Staff Recommendation)