The following email and formal letter was sent to the county board by Board Member Pat Mattison in hopes of postponing their decision regarding the new lease. There appears to be many unanswered questions. Should the county vote on this issue without the answers?
Mr. Mattison’s email to members of county board:
I strongly believe that we should follow the suggestion of the auditor (Sikich LLP) and consult legal counsel (that deal with these issues day to day) to..."obtain an opinion about the proposed amendments to the lease agreement and the Assignment and Assumption of the lease noted above at 2 c., and also the recommendation..."the County consult legal counsel with respect to the level of due diligence necessary/require prior to agreeing to an assignment." Replacement value of Maple Crest is over $6,000,000, not including the 13 plus acres of property. The county will be agreeing to amending the lease and control to the lender, which is a change from the current lease. The county will also be guaranteeing improvements, which inceases risk, without compensa
12/19/11
To: The Boone County Board, The Kessington Group, The NuCare Group
Re: Maple Crest assignment of of Lease and Amendments due diligence
Purpose: To provide information on the proposed lease assignment of Maple Crest from Maple Crest Care Centre L.L.C. to Diana Squaw Prairie, L.L.C. et al, The mission is to inform the public and the County Board the nature of the change of operation created by the assignments and amendments to the Maple Crest operation.
All parties--the Boone County Board, the general public, the Kessington Group , the NuCare Group et al--need to recognize Boone County and the Maple Crest properties and improvements are not investors, and they should not be treated as such. The current Lease between The Maple Crest Care Center (Kesseinton) and the Boone County Board protects Boone County from any loss and claims by the Lessee of the Home and from any lender on the Lessee. Boone County, the owner, does not participate in the operation, profits or losses, and should not he held accountable for any losses, per the current lease. Those risks should be between the Lessee and the Lender which probably can be accomplished with a performance bond, or insurance policy without any exposure to the County.
According to insurance records on file, replacement cost for Maple Crest is over $6 million, which does not include 13 acres of property. The current operation returns $648,076 (EBITDAR), to the current Lessee with $5,671,111 Revenues and $5,023,035 Expenses. Kessington is currently operating at a profit of which a substantial portion could be pledged towards any loan.
According to our present LEASE ARRANGEMENT (Kessington), Article XVII - Assignmment and Subletting Paragraph 17.1 of our present lease on page 27..."Lessor shall have reasonable time to meet and discuss with the prospective sub-leasee or assignee to conduct due diligence and review operations of the prospective sub leasee or assignee to ensure that it is a like operator with like financial strength."
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n Paragraph 17.1 it also states (page 28) ""As a condition of granting its consent to any sublease or assignment, Lessee shall pay, and Lessee hereby agrees to pay, any and all reasonable out-of-pocket third party costs and expenses of Lessor incurred in connection with such sublease or assignment, including, without limitation, all due diligence costs and attorneys' fees.
According to the ASSIGNMENT AND ASSUMPTION OF LEASE AND CONSENT OF LESSOR Document, Exhibit B, Tenant Subtenant Entity Chart, the existing tenant (Maple Crest Care Centre L.L.C. will assign to Diana Squaw Prairie Road, L.L.C.(new Tenant/FC entity) who sublets to Diana Master Landlord, L.L.C. (FC entity), who Sub-Sublets to Symphony M,L., L.L.C. (Master Tenant/NuCare entity) who Sub-sub-sublets to Symphony Healthcare, L.L.C. (Subtenant/NuCare entity) who Sub-sub-sub-sublets to Symphony__________. L.L.C. (Sub-Subtenant operator/NuCare entity)
***The Assignment is directing Boone County to assign to a new tenant with four (4) Sublets--5 organizations total, of which information is lacking and the implications if there are lease problems has not been explained. Do we need guarantees from them all? There has hardly been time to do due diligence.***
In the Assignment Document under covenants and agreements:
Paragraph 6. Consent of Lessor to Alterations, "Assignee desires to perform, or cause Subtenant to perform, certain capital improvements to the Property, which shall be outlined on a construction schedule to be attached hereto as Exhibit C. There is no Exhibit C schedule and Boone County should have a clear and concise indication of the plans and improvements before signing the assignment. Indications are there could be more than $1 million expended.
Further, in Paragraph 6 it states..."if the Tenant Improvements are required by applicable law or by Assignees lender, then Lessor's consent shall not be required." There is no Exhibit C to approve in advance and apparently, this changes the control of the Maple Crest property from Boone County to the Lender.
Paragraph 12. Conflict. "To the extent that any of the terms, covenants or conditions of this Assignment are inconsistent with any of the terms, covenants or conditions of the Lease, the terms, covenants and conditions of this Assignment shall control." This also changes the control of Maple Crest from Boone County to the lender.
LANDLORD ESTOPPEL CERTIFICATE
a) Under paragraph A., Item 8, page 2 -- explain intent of phrase..."except in favor of Agent in connection with the Loan."
THIRD AMENDMENT TO LEASE AGREEMENT
In RECITALS on page one, 5th paragraph, it states..."a loan to Lessee, or its Affiliate, to be secured, in part, by the liens, assignments, security interests and provisions of a certain Leasehold Mortgage, Assignment of Leases and Rents...puts control to the lender and puts rent payments to county at risk.
In the Agreement on page 2, Paragraph 1. Item (c) it states..."In the event of a default by Lessee under the Lease, Leasehold Mortgagee shall have the right,**BUT NOT THE OBLIGATION, to remedy such default"...It appears, again, the Lender controls the destiny of the Maple Crest property, and not the County, and is not obligated to cure the default.
On page 4,Paragraph 1, Item (i) "Leasehold Mortagagee may enforce its rights under its Leasehold Mortgage and acquire Lessee's interest in the Property in any lawful way and without Lessor's consent, and pending foreclosure of such Leasehold Mortgage, take possession of the Property. Again, the lender takes control of the Maple Crest property.
On page 5, Paragraph 1, Item (p) "Lessor consents to Lessee's grant to Leasehold Mortgagee of (i) a security interest in personal property owned by Lessee and located at the Property...Lessor hereby irrevocably subordinates any lien, security interest or other interest Lessor may have in and to such personal property, such subleases and rents, etc. to the Leasehold Mortgagee. Again, this subordinates Boone County's ownership to the Lender.
On page 6, Paragraph 1, Item (q) "In the event of any casualty to or condemnation of the Property or any portion thereof during the existence of any Leasehold Mortgage, Leasehold Mortgagee shall be entitled to receive all insurance proceeds and or condemnation awards (up to the amount of the indebtedness secured to the Leasehold Mortgagee) otherwise payable to Lessor or Lessee and apply them in accordance with the Leasehold Mortgage
Again, Boone County's interests in Maple Crest are subordinate to the lender.
1. A news story in the Boone County Journal reports a question asking if Boone County would be responsible for any remodeling costs and the reply from answer from the operator at Maple Crest answered..."with the financing, the elements have not yet been finalized."
Question: Is Boone County being asked to participate in any costs?
2. Are there disclosure laws that the Kensington Group should abide by? Disclosure of the intent to assign the lease was not given when the lease was re-negotiated earlier this year and signed in September--this eliminated the County from seeking other interested operators in the market.
There are many unanswered questions, there is information that is not available relative to improvements that we are being asked to approve, and even though there is much work that has been accomplished, I feel we should embrace our Auditor's (SIKICH LLP) consul and consult outside legal counsel to obtain an opinion about the proposed amendments to the lease agreement and the Assignment and Assumption of the Lease--and, the recommendation the County consult legal counsel with respect to the level of due diligence necessary required prior to agreeing to an assignment.
Boone County should explore asking the Lender to explore other ways the new operator can guarantee the loan for improvements without putting the Maple Crest property at risk. Boone Count is not operating the property, receives no benefits from the improvements (increased rents, fees, et al) but is being asked to share the risk. A performance bond might be a remedy, or an insurance policy provided by the Lessee.
Patrick B. Mattison,
BOONE COUNTY BOARD MEMBER DISTRICT
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