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74 Guidebook for Developing and Leasing Airport Property airport land resources, and ensure the project complies with regulatory requirements and grant assurances. To help achieve these goals, the sponsor must consider all facets of the development process and be ready to address the following questions in order to determine whether a poten- tial project is a fit for the airport: Planning: Does the project fit within the stated goals listed in the airport visioning documents (Airport Master Plan, Land Use Plan, and Airport Business Plan)? Does the project comply with community land use plans, zoning ordinances, and other appli- cable planning documents? Is the proposed development in compliance with the FAA-approved Airport Layout Plan? Does the proposed use of the property violate any grant assurances? Is the proposed use of the property in compliance with security and environmental regulation? Does this project represent the highest and best use of the property? Is the proposed project in conflict with any current airport agreements such as noncompete or right-of-first-refusal clauses that may be in effect with an existing tenant? If the property is airside, or has airside access, does the proposed use of the property con- form to desired aeronautical uses (airside land being used for aviation purposes, for example)? Stakeholder Involvement: Have all of the potential stakeholders in the project been identified? Have the perspectives, concerns, and resources (potential funding sources, marketing resources, and development expertise, for example) of the stakeholders been identified? Are plans in place to reach out to the identified stakeholders, and are mechanisms such as public meetings, round-table discussions, and focus groups planned to facilitate communi- cations and dialogue? Finance and Funding: What will the project cost in terms of immediate outlay of resources, and what ongoing oper- ational, maintenance, and financing costs are anticipated in the future? Where will the project funding come from, and what entity/stakeholder is responsible for securing the funding? Will the airport sponsor's debt capacity and/or creditworthiness be impacted by financing this project? Does the airport have the ability to issue debt, either through the airport sponsor organiza- tion or through another applicable public-sector entity such as the city, county, or state gov- ernment? Does the project qualify for EDA/EDC grants or bonds (either local, state, or federal)? Will the airport revenue anticipated from the leasing of the property be sufficient to cover debt obligations and recurring operational costs assigned to the sponsor? Will the airport sponsor recognize revenues in line with the valuation estimates or appraised market value of the property? Has a pro forma financial analysis of the project, from the airport sponsor perspective, been conducted that will forecast the project-specific financial implications for the airport? 6.3.2 Lease Agreement Checklist When an airport sponsor plans to enter into a lease agreement, it is imperative that each potential aspect of the agreement, or lease element, be carefully considered. The potential impact on the airport's financial health, regulatory compliance, and future development potential must
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Summary of Best Practices 75 be considered. The following list of questions represents a checklist of considerations that the sponsor must address within the framework of the lease agreement: Are the lessor and lessee clearly identified in the lease document? This element of the lease agreement should include a lessee point-of-contact, a statement requiring updated contact information should that information change during the lease term, and any identification of a dba (doing business as). Are the premises (also referred to as the "property") clearly defined in the lease agreement? This element must detail the land and improvements subject to the lease agreement and will typically consist of an "Exhibit" referred to in the lease document. The premises exhibit should contain a drawing delineating the boundaries of the leased land and a listing of all the pertinent features and improvements subject to the lease agreement. Does the lease agreement stipulate the approved use of premises? For a lease with a business entity, this element should identify if and what type of business and commercial operations may take place at the leasehold. Approved uses should be listed in the Airport Minimum Stan- dards and Rules and Regulations documents, and the lease needs to reference these documents in the use of premises section. Is the length of the lease stated with a clear "commencement date" on which the lease agree- ment will take effect? The lease term element of the lease agreement will also include any extension options, if included in the agreement. Does the lease term violate any local or state statutes regulating the maximum term that may be offered by a public agency? The airport sponsor must ensure that the lease term does not exceed what is allowable by law. Does the lease agreement clearly state the rent due to the lessor, the schedule of payment, acceptable method of payment, and penalties for late payment? Is there an escalation clause that will allow the airport sponsor to adjust the lease rent? The escalation clause within the rent element must clearly state when an adjustment will be made (every 5 years from the commencement date of the lease agreement, for example), and what factors the rent escalation will be based on, such as annualized CPI or appraised value. Is the division of responsibility for leasehold operation and maintenance clearly stated for the lessee and lessor? The operation and maintenance section of the lease should list the specific responsibilities of the lessee for leasehold maintenance and upkeep, and should reference the Airport Minimum Standards document. Is the process for the construction of improvements by the lessee clearly spelled out? The lease agreement should detail the required approval process regarding any repairs, renovations, improvements, and alterations to the leasehold. Since improvements must comply with the Airport Rules and Regulations and Minimum Standards, these documents should be refer- enced in the construction of improvements lease element. Does the lease clearly state how and when ownership of the leasehold improvements will revert to the airport? The reversion clause should state that at the termination of the lease agreement all improvements revert to the ownership of the airport. Termination of the lease is not lim- ited to expiration of the lease term, but may also include the following: · Failure to pay rent, · Violation of Airport Rules and Regulations, · Failure to comply with the Airport Minimum Standards, · Violation of a lease-specific clause within the agreement, · The triggering of a noncompete clause, and · Airport purchase of the leasehold improvements. Are the rights, reservations, and obligations of both the lessor and lessee addressed in the lease agreement? These rights and reservations may vary depending upon the lease type and activity conducted on the property but will typically reference the Airport Rules and Regulations and
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76 Guidebook for Developing and Leasing Airport Property Minimum Standards documents as well as require compliance with any environmental and security regulations that may be applicable. Does the lease agreement allow for the inspection of the premises by the airport sponsor? This right may be deemed necessary by airport management in order to ensure lessee compliance with Airport Rules and Regulations. Are the insurance obligations of the lessee clearly spelled out in the lease agreement? Insur- ance requirements, at a minimum, should outline coverage types and amounts so that the airport is protected from financial liability. If the primary lessee is subleasing all or a por- tion of the property, the lease agreement must stipulate that the sublessee be in compliance with the insurance requirements outlined within the lease. Does the lease agreement include a hold-harmless provision or indemnity clause that will protect the airport sponsor from any legal action, suits, proceedings, claims, damage, loss, or liability resulting from the actions of the lessee? Will the lease agreement allow the primary lessee to sublease all or a portion of the property? If the lessee will have the right to sublease the property, the lease agreement must specify the responsibilities of the lessee in relation to the sublessee. Detailed provisions should be spelled out in the lease agreement and any operating agreement to avoid conflict between the parties in a long-term lease agreement. Does the lease agreement include any potential grant assurance violations relating to lease- term length, economic nondiscrimination, airport sustainability, and the granting of exclusive rights? If there is a potential cause for concern, has the FAA been consulted and approval sought? The airport sponsor checklists provided are by no means intended to represent an exhaustive list of issues that can be expected to arise when an airport sponsor enters into a lease agreement. The list of variables--when dealing with the diverse types of development that occur within the confines of an airport, coupled with a multitude of potential stakeholders and their divergent interests present in each project and lease--will ensure that a single, standard lease agreement and project development approach will never be achieved. Due to the many variables that exist, there is simply no one standard for leasing and/or project development that will fit all scenarios, though the checklists provided will serve as an excellent starting point and can be applied to many scenarios that the airport sponsor might encounter. As with the Guidebook in its entirety, the checklists should serve as the foundation for struc- turing a lease agreement that is beneficial to the airport, the tenant, and the community, while protecting the airport sponsor from financial, regulatory, and legal ramifications of a poorly con- structed lease agreement. The questions asked within the checklist should serve to raise aware- ness of the airport development issues and responsibilities on the part of the airport sponsor. The subjects discussed and addressed were ultimately designed to help guide the airport spon- sor through the many facets of airport project planning, development, and leasing policy.