RECOMMENDATION:
Enact an ordinance approving a lease agreement with ConocoPhillips Company for certain premises at George Bush Intercontinental Airport/Houston (IAH).
SPECIFIC EXPLANATION:
ConocoPhillips Company (“Lessee”) has requested to lease unimproved land located at 18632 Chanute Rd. at IAH to develop their new corporate aviation facilities.
The pertinent terms of this lease agreement (“Agreement”) are as follows:
1. Leased Premises and Option Tract:
Approximately 438,400 square feet (approximately 10.064 acres) of unimproved
land located at 18632 Chanute Rd. at IAH.
Within five (5) years of the Effective Date of this Agreement, Lessee shall have the option to add to its Leased Premises all or, subject to Director’s approval, a portion of the five (5) acers of unimproved land directly adjoining the northern boundary of Leased Premises (“Option Tract”). If, at any time during the first five (5) years from the Effective Date of this Agreement, Director receives written notice that a third party is interested in leasing all or any portion of the Option Tract, the Director, prior to giving such third party or any other party the opportunity to lease the Option Tract, shall provide written notice to Lessee regarding such third-party interest, without disclosing the identity of the interested third party, specifying the portion of the Option Tract in which such interest has been expressed. Lessee shall then have the right to either: (1) lease the entire Option Tract (or the portion thereof in which interest has been expressed) by giving written notice to the Director within thirty (30) days after receipt of the Director's notice of third-party interest; or (2) forfeit the option right associated with the Option Tract requested by the third party. If Lessee exercises the option, the rental rate for the Option Tract shall be at the same per square foot rate as the then-current rate for Leased Premises. If Lessee exercises the option, the additional Minimum Capital Investment Requirement for the Option Tract shall be calculated based on the same rate per square foot for the original Lease Premises.
2. Term:
Initial Term shall be thirty (30) years. Lessee may extend the Term for one (1) successive ten (10) year period (“Option Period”).
Lessee may terminate the Agreement for convenience by providing thirty-six months’ advance written notice to the Director but shall in such event forfeit all improvements made to the Leased Premises.
If the Airport determines through its master planning efforts that the Leased Premises are needed for other Airport development, the Director may terminate the Agreement upon thirty-six months' advance written notice, and thereupon City shall reimburse Lessee for an amount equal to the unamortized value of Lessee-made capital improvements under the Agreement, subject to City Council’s appropriation of the funds.
3. Rent:
Based on appraised market value, the initial rent shall be $197,280.00 per year. Rent shall increase 15% every five 5 years thereafter.
The Option Period Rental Rate, beginning in the thirty-first (31st) lease year, shall be in an amount equal to the greater of (1) a 15% increase of the Rental Rate for the last five years of the Agreement; or (2) the new appraised ground rate only, (excluding the value of any Lessee-made improvements) in accordance with the appraisal procedures then in effect for the Airport. In the thirty-sixth (36th) lease year, the Option Period Rental Rate shall increase 15%.
4. Use:
During the term of this Agreement, Lessee shall have the right to use Leased Premises only for its corporate aviation operations.
5. Improvements:
The total minimum capital investment requirement over the term of the Agreement is $15,000,000.00, or $16,000,000.00 if the Option Period is exercised.
6. Maintenance and Utilities:
Lessee shall, at its sole cost and expense, keep the Leased Premises and all improvements thereon, including those made or constructed by Lessee, in a good and sound state of repair. Lessee shall pay for all utilities or services, including hookups, which are furnished, provided or otherwise made available to Lessee by the City or any utility company providing direct service to Lessee.
7. Other:
Lessee shall indemnify and hold the City harmless and shall provide the required insurance in the limits as stated in the Agreement. Lessee shall comply with all federal, state, and local laws and regulations.
Fiscal Note: Revenue for this item was included in the FY2020 Adopted Budget. Therefore, no Fiscal Note is required as stated in the Financial Policies.
Director’s Signature:
_________________________
Mario C. Diaz
Houston Airport System
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Estimated Revenue
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DEPARTMENT
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FY2020
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OUT YEARS
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TOTAL
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Houston Airport System
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$78,912.00
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$13,145,574.34
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$13,224,486.34
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