Consider Request for Lease Amendment; Request of M & W Holding Company, LLC, Wiser Choice Liquor, 14590 Armstrong Boulevard NW

Purpose:  The purpose of this case is to review a request from Wiser Choice Liquor for an amendment to his lease at 14590 Armstrong Boulevard NW, to be changed to a month-to-month lease basis. 

Background:  A lease was entered into, effective March 1, 2013, by and between the City of Ramsey ("Landlord") and M & W Holding Company, LLC ("Tenant").  The lease term is for two years, commencing March 1, 2013 and expiring February 28, 2015.   The lease states that at any time during the term, the landlord may terminate the lease upon 90 days prior written notice to tenant after landlord has approved a new road project for Armstrong Boulevard NW and US Highway 10, requiring the removal of the off-sale liquor store presently on the premises.  The lease also states that at any time during the lease term, the tenant may terminate the lease upon 90 days prior written notice to the landlord upon tenant's receipt of a certificate of occupancy to occupy a newly constructed off-sale liquor store on any real property owned by the City and sold to tenant or tenant's purchase of an existing off-sale liquor store located in Ramsey, where tenant will relocate its off-sale liquor store business presently conducted on the property. 

The tenant(s), Jeff and Deann Wise, have sent a written request, that on February 28, 2014, at the end of the first year of the lease, that it be changed to a month-to-month basis.  Mr. Wise outlines the following reasons for his request:  He understands it is a strong possibility that the Armstrong overpass construction project may start in the second half of 2014; Mr. Wise is working to acquire a piece of property in Ramsey; however, it is a slow process; and he states that he is "in dire straits without being able to purchase a piece of real estate from the City of Ramsey, nor being able to purchase an existing off-sale liquor store located in Ramsey" (as per the lease agreement). 

Attached for Council review is the written request/letter from M & W Holding Company, LLC, Jeff and Deann Wise, as well as the Commercial Lease entered into my M & W Holding Company, LLC. 

 

Under the current lease, the tenant is obligated to pay $3,440 per month in rent, plus taxes.  Current 2014 taxes are $9,619.56 per year ($801.63 per month).  The City needs to notify the County by June 30, 2014 that the property will be going tax-exempt, or it may be liable for full 2015 taxes.

The potential loss of revenue, and payment of taxes, are the two primary issues if the tenant terminates early.  On a month-to-month tenancy, starting February 28, 2014, the tenant could potentially terminate eleven months early with a 30-day notice.  If the tenant served notice to terminate April 1, 2014, for example (worst case), the City would lose eleven months of rent ($37,840), plus would be responsible for nine months of taxes ($7,215).  The total loss would be $45,055.  This assumes that the property would not be needed for the road prior to the lease expiring.

Options for the City include:
1)  Approve amending the lease to allow a month-to-month tenancy as requested by the tenant.
Comments:  This option would give the tenant the most flexibility, but would result in the most revenue loss for the City.

2)  Approve a modified termination provision that would allow a 90-day termination, but eliminate the requirement that the tenant purchase city-owned property, or an existing liquor store in the City.  The tenant would need to be responsible for all current year taxes.
Comments:  This option gives the tenant additional flexibility, but reduces the City rent reduction by two months and provides for the payment of current year taxes.

3)  Keep the lease agreement in place, as is.
Comments:  This option would maximize the potential revenue for the City, but would create the biggest liability for the tenant.

Lease proceeds are deposited in the City's Public Improvement Revolving (PIR) Fund.

Staff recommends approval of  a modified termination provision that would allow a 90-day termination, but eliminate the requirement that the tenant purchase city-owned property, or an existing liquor store in the City. The tenant would need to be responsible for all current year taxes.
 

Motion to direct staff to execute a modified termination provision of the lease, subject to the City Attorney's approval, that would allow a 90-day termination, but eliminate the requirement that the tenant purchase city-owned property or an existing liquor store in the City, and make the tenant responsible for all current year taxes.