Memorandum

City of Lawrence

Legal Department

TO:	David L. Corliss, City Manager
FROM:	Toni R. Wheeler, Director of the Legal Department

DATE:	November 17, 2010
RE:	Proposed Ground Lease with Bowersock Mills and Power Company for a hydroelectric powerhouse on City property located on the north side of the Kansas River.

On July 6, 2010, the City Commission approved Ordinance No. 8529, Special Use Permit (SUP-3-4-10), for the construction of a hydroelectric powerhouse on the north bank of the Kansas River by the Bowersock Mills and Power Company (“Bowersock”). One of the terms of the special use permit is the approval of a lease agreement with the City for the use of city-owned property.

The City and Bowersock have a long history of cooperation. The City has leased real property to Bowersock for its use in the operation of the existing hydroelectric power plant located on the south bank of the Kansas River. The City and Bowersock are also parties to an Agreement addressing the Bowersock Dam and its operation and maintenance. These agreements have been modified and extended with City Commission approval through the years.

There are two documents for the City Commission’s consideration. The first document is a new agreement that leases City property to Bowersock for its construction of the power plant on the north bank of the river in accordance with SUP-3-4-10. The second agreement clarifies the legal description of the real estate on the south bank of the river that is the subject of earlier agreements. It also expands the leased premises to include the area known as Bowersock Park as well as land immediately west of the park. A brief summary of each agreement follows.

GROUND LEASE FOR NORTH HYDROELECTRIC POWERHOUSE

Term. The term of the lease begins upon execution and expires on April 5, 2077. This lease is coterminous with the existing agreements between the City and Bowersock for the use of City property on the south side of the river. If however, Bowersock is unable to secure financing for the project and does not obtain a building permit within 18 months after the execution of the agreement, the lease may be terminated by the City. There is an option to extend the lease for an additional 20-year term.

Rent and Taxes. The lease rate is $10.00 per year for the term of the lease. Bowersock will be responsible for all taxes that accrue against the leased property as a result of the lease or the use of the leased premises.

Use of Premises. Bowersock shall use the City property only for the construction, operation and maintenance of a hydroelectric powerhouse on the north bank of the Kansas River in accordance with Special Use permit No. SUP-3-4-10. If Bowersock uses the leased premises for other uses without the City’s consent, the City has the authority to cancel the lease subject to a mortgagee’s right to correct the matter.

Levee Protection. There are a number of provisions that require Bowersock to comply with the laws and regulations designed to protect the levee. Bowersock agrees to seek and obtain the necessary permits and approvals for construction and operation from the U.S. Army Corps of Engineers and related entities. Bowersock further agrees to be bound to regulations now in place and those enacted after the execution of the Lease related to the levee, as well as other laws and regulations applicable to the leased premises. Bowersock is also required to prevent erosion or failure of the levee on the leased premises and will indemnify and hold harmless the City for erosion or levee failure that is attributed to Bowersock.

Access. Access is granted to the leased premises through City roads and land but the City is not required to provide access to the site on property that the city does not own or control. The City agrees it will not dispose of any of its property or vacate any easements or rights-of way that destroys Bowersock’s reasonable access to the leased premises.

Assignment. Bowersock may assign, transfer or sublet the leased premises or improvements to the leased premises during the term of the lease as long as the assignee, transferee or subleasee is subject to the terms of the lease.

Mortgage Rights. The lease permits Bowersock to mortgage its interest in the improvements and the lease. Bowersock, however, is expressly prohibited from mortgaging or pledging the City’s fee simple title to the leased premises. These provisions are necessary for Bowersock to obtain the financing necessary for the project. If Bowersock defaults on the lease the mortgagee shall have the right to perform under the terms of the lease and remedy any default.

Insurance and Liability. To address liability and insurance concerns, Bowersock assumes all risks and expenses for the lease premises and indemnifies and holds the City harmless for the use and occupancy of the lease premises excluding the City’s own negligence or wrongdoing. Bowersock is required to provide comprehensive commercial general liability insurance, workers compensation insurance, fire, damage, and “builders risk” insurance for the duration of the lease.

Costs and Expenses. Bowersock is solely responsible for the cost and expense of constructing and maintaining the hydroelectric powerhouse including the cost of utilities and services to the site. The City is not obligated to make any improvements to the site and Bowersock is responsible for the leased premises upon execution of the lease. Bowersock is also responsible for the repairs and maintenance of the leased premises.

The lease contains additional standard lease provisions pertaining to default, notice, and governing law, among others.

EXISTING POWER PLANT AGREEMENT

This agreement clarifies the legal description of the real estate on the south bank of the river that is the subject of earlier agreements. The agreement also authorizes Bowersock to mortgage its interest in the improvements and the lease for the property on the south side of river. Finally, it expands the leased premises to include the area known as Bowersock Park as well as land immediately west of the park.

Bowersock Park. As part of this Agreement, Bowersock will have the right to use and control the additional land, including Bowersock Park and the land west of it. Currently, Bowersock’s south cable tower sits on part of the property. As part of the lease agreement, Bowersock will assume all maintenance of the added land, will pay any property taxes assessed against it, and will indemnify and hold the City harmless from claims arising from damage or injury in or on the land caused by Bowersock’s acts, omissions and negligence. A photograph of the park and maps of the additional land are attached. Parks and Recreation staff report Bowersock Park it is not widely used by members of the public. Its location is not conducive to high use. It is surrounded on the north by the power plant and on the south by railroad tracks.

Action Requested: Authorize the City Manager to execute the Ground Lease with the Bowersock Mills and Power Company for City property located on the north side of the Kansas River immediately east of the Kansas River Bridge for the construction of a hydroelectric powerhouse in accordance with Special Use Permit SUP-3-4-10, if appropriate. Authorize the City Manager to execute the BMPC South Agreement concerning the lease of City property on the south bank of the Kansas River to Bowersock Mills and Power Company, if appropriate.