TO: MAYOR AND CITY COUNCIL MEMBERS, CITY OF CHINO
FROM: FRED GALANTE, CITY ATTORNEY
SUBJECT
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Option to Ground Lease Orange County Flood Control District Property.
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RECOMMENDATION
recommendation
That the City Council Approve the Option Agreement with Orange County Flood Control District and form Ground Lease for a 65-year lease of open space land for recreational and open space uses.
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FISCAL IMPACT
The Option is provided to the City at the option price of $1. If the option is exercised, the ground lease is provided at no cost to the City. Any costs of improving the leased land would have to be separately analyzed depending on the City's desired uses thereon.
CITY OF CHINO MISSION / VISION / VALUES / STRATEGIC ISSUES
The recommendation detailed above further the City's values and strategic issues that serve as key pillars on which identified priorities, goals, and action plans are built, by fostering:
* Positive City Image
* Financial Stability
* Responsible Long-Range Planning
* Public Service Excellence through Internal and External Partnerships
Revenue:
Expenditure:
Transfer In:
Transfer Out:
BACKGROUND
The opportunity to ground lease the eight parcels shown below ("Properties") from Orange County Flood Control District (OCFCD) originated from a condition of approval imposed by the City on the Majestic Chino Heritage (Majestic) project encompassing a 97-acre industrial project located at the southeast corner of Mountain and Bickmore Avenues.
The parcels that account for the Majestic project site were acquired by OCFCD between 2001 and 2011 for flood capacity purposes because, under existing conditions, most of the project site is below the Prado Dam 566-foot flood inundation line, which limits development of habitable structures. Prior to acquisition, the Majestic project site was an operating dairy, which ceased operations between 2013 and 2014. Subsequently, OCFCD identified the property for development and released a request for proposals (RFP) in 2015 for a 65-year ground lease of the property. In 2016, Majestic was awarded the ground lease and submitted applications in 2018 for a General Plan Amendment (GPA), a Zone Change (ZC), two Site Approvals (SA), a Special Conditional Use Permit (SCUP), and a Vesting Tentative Parcel Map (VTPM) to develop the site with two industrial buildings totaling just over two million square feet. The City Council approved the project on June 1, 2021. Over the past few years, Majestic has been working with both the OCFCD and Army Corps to get all necessary permits from the agencies to start construction of the project.
As part of approval of the project, a special condition of approval was applied (Condition of Approval 2.13.1) to the Majestic project that outlined the ability of the City to lease OCFCD Properties from OCFCD for $1 instead of receiving an agriculture mitigation/open space replacement fee from Majestic. Over the last several months, the City and OCFCD have worked to develop an Option Agreement that allows the City to lease the Properties with the types of uses identified in the Ground Lease that would be the operative lease should the City exercise the option to lease the properties. The provisions of final draft agreements are discussed further below.
ISSUES/ANALYSIS
The Option Agreement provides the City the opportunity to exercise the right to lease the Properties at any time within 120 days from the time the parties approve the Option Agreement at the option price of $1. The City is authorized to enter the Properties to inspect them before exercising the option to perform any investigations needed to determine their suitability for the City's proposed use.
If the City exercises the option to some or all of the Properties, the parties would sign the Ground Lease. After months of negotiations between the parties, the Ground Lease is now approved by staff and legal counsel on both sides. The Ground Lease provides the following key terms:
1. Rent: The lease of the Properties would be for $1 per year. Any property expenses, utility or maintenance costs, other than those for flood control purposes not caused by the City, are to be paid by the City. Any revenue the City receives from activities on the Properties that are projected to exceed the City's cost of operating the Properties require OCFCD's prior review and consent and negotiation of a revenue share with OCFCD.
2. Term: The lease would be for an initial term of 65 years, with 3 additional 10-year extension options. The City would need to demonstrate that it has made significant improvements or committed significant planning, development or operation of the leased area before OCFCD will agree to authorize any of the extension options.
3. Condition of property: The City agrees to take possession of the OCFCD Properties "as is" and OCFCD does not make representations as to the condition of the Properties, soil, or its suitability for the City's intended uses. The City, at its cost, must maintain the Premises in good condition during the lease and may not make improvements that could impact the flood control purposes of the Premises.
4. Permitted uses: The City may use the Properties for park and recreational uses that uphold the property's natural, scenic and open space attributes and do not interfere with flood control operations. Permitted uses may also include both passive and active recreational uses such as hiking, biking, picnicking and picnic areas, nature tours, educational programs, and non-motorized recreation as well as ancillary uses that are compatible with the foregoing uses, as approved by OCFCD. Any other uses require OCFCD's review of plans and re-assessment of rent to be paid by the City, which may include entertainment uses, motorized, golfing and sports activities, agricultural uses, City events, theme parks, obstacle courses. Additionally, the lease provides that if the City discontinues its use of the Premises for 1 year, OCFCD may terminate the lease.
5. Liability. The City is responsible for any damages to the Premises or injuries that occur during its use. Additionally, the City must maintain insurance coverage for the City's and OCFCD's benefit in case of any liability, damages or injuries that occur.
The City has no obligation to exercise the option to lease the Premises if, within the 120 day period the Option Agreement is in effect, the City determines in its own discretion that it does not wish to lease the Premises.
Attachments: Option Agreement
Ground Lease Agreement