La Collette Fuel Farm, St. Helier - lease to Shell (UK) Limited and Esso Petroleum Company Limited

LA COLLETTE FUEL FARM, ST. HELIER: LEASE TO SHELL (UK) LIMITED AND ESSO PETROLEUM COMPANY LIMITED

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Lodged au Greffe on 20th November 2001 by the Harbours and Airport Committee

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STATES OF JERSEY

STATES GREFFE

180             2 0 0 1   P . 1 8 0          

Price code: B

PROPOSITION

THE STATES are asked to decide whether they are of opinion -

  (a ) to approve the leasing to Shell (UK) Limited and Esso Petroleum Company Limited of land designated as

letting number LC3 at La Collette, St.  Helier, shown on drawing No.  648/1, providing-

(i ) a to ta  l d eveloped area, including car parking to the front of the site, of 195,195 square feet;

   (ii  ) a n e t  d eveloped area, having deducted an area to maintain storage capacity for strategic purposes, of

169,059 square feet;

(ii i )  a n e x p a nsion area of 24,000 square feet to provide for a safety zone,

   w ith   th e la n d continuing in its present use for the purposes of the storage of fuel oils and associated products

supplied from the oil pipelines connected to the tanker berth; for a period of 20 years with effect from 1st February 1998 at an annual rent of £188,605, representing a rate of £1.10 a square foot for the developed land and a rate of ten per cent thereof for the expansion area, with rent reviews against open market rental value each five years commencing on 1st February 2003, and with each party having the option to terminate the lease at the end of the 7th and 14th years of the lease, subject to one year's prior notice in writing; with the lessee to be responsible for the lessor's legal fees in connection with the transaction;

  (b ) to agree that the public of the Island will be entitled to retake possession of the land if it is considered to be in

the public interest, in which event fair and proper compensation will be paid to the lessee, assessed in accordance with the Compulsory Purchase of Land (Procedure) (Jersey) Law 1961, as amended;

  (c ) to authorise the Attorney General and the Greffier of the States to pass the necessary contracts on behalf of

the public;

  (d ) to authorise the Treasurer of the States to receive the rent as it becomes due. HARBOURS AND AIRPORT COMMITTEE

Note: T he Finance and Economics Committee's comments are to follow.

Report

The negotiations on the final rent review, due 1st February 1998, expanded to consider the pending termination of the lease and was further complicated by the possibility of buildings to be developed within the new reclamation area to the east and south of the fuel farm being incompatible with the storage of fuel oils. Thus the possibility of relocating the Island's fuel storage to a position south of the fuel berth needed to be considered. A second complication came about as regards to the increasing administrative controls and penalties concerning land contaminated by industrial use. A particular problem in view of the fact that the fuel farm was already in existence and that the reclamation site itself may contain contaminates prior to the occupation by the fuel farm. Finally, as a result of commissioning a study by OXERA on local fuel prices, a one-year extension was decided to the present lease until 13th December 2001.

The present lease commenced on 14th December 1979 and allowing for the one-year extension, terminates on 13th December 2001. The current annual rental is £134,630.88 and is based on a rate for the developed area of £0.82 per square foot and a rate of ten per cent of this for the expansion (undeveloped) area. A side agreement allowing Jersey Harbours to use the expansion area means that the rental for the expansion area is currently not chargeable. The rent is subject to annual review against the market every five years and the area of land in question currently leased measures 164,184  square feet and the expansion area measuring 30,603  square feet.

An area of the present lease in the north-east corner has been surrendered in the proposed new lease in order to provide the access road to the new reclamation area, La Collette II. In addition, the "expansion" area will continue in occupation by Jersey Harbours by the waiving of the ten per cent rental for this area. The lessee may reclaim this land upon giving proper notice.

Following negotiations with the lessee, a draft lease has been agreed, subject to States' approval, the main heads of terms are -

LESSOR The Public of the Island of Jersey.

LESSEE Shell  (UK)  Limited  and  Esso  Petroleum  Company

Limited.

DEMISED AREA The demised area shall include those areas shown on

the attached plan drawing No.  648/1, providing a total developed area including car parking to the front of the site of 195,195  square feet and a net developed area, deducting  an  area  of  0.6  acres  in  order  to  maintain storage  capacity  for  strategic  purposes  of 169,059  square feet. In addition, there is an expansion area  of  24,000  square  feet,  which  shall  include  the previous safety zone but less an area to be retained by the Public for the purposes of constructing a new access road to La Collette Phase  II.

LEASE TERM A new 20  year lease is to be granted which will be

backdated from 1st February 1998, to take account of the rent review which is due on the same date, with an option for either party to break the lease at the end of the 7th and 14th years of the term.

COMMENCING The commencing rental as from 1st February 1998 is to RENTAL be £188,605 a year which equates to £1.10 per square

foot for the developed area and a rate of ten per cent thereof  for  the  expansion  area  payable  quarterly  in advance.

RENT REVIEWS The rental shall be reviewed on 1st February 2003 and

five-yearly thereafter to an amount agreed to represent the open market rental value. This is subject to the same discount  arrangements  continuing  for  the  expansion area whilst undeveloped.

Should the expansion land be developed, then the rent for this area of land which will have been incorporated into  the  developed  area  shall  be  increased  to  the prevailing rate per square foot that is being paid for the developed land.

REPAIR The lessee is to put and keep the demised premises in LIABILITIES good  and  substantial  condition  and  is  subject  to

stringent  obligations  in  respect  of  contamination including  the  obligation  to  clean  up  the  site  to  an appropriate standard at the end or sooner determination of the lease (unless the lease is terminated by the Lessor under the emergency' or public interest' provision). The clean-up obligations will include the removal of the lessee's fixtures and fittings unless these are purchased by the States as provided by the lease.

PUBLIC The Public are to retain the right to retake possession of INTEREST the land in the Public Interest. If this was to happen, fair

and  proper  compensation  would  be  assessed  in accordance  with  the  provisions  of  the  Compulsory Purchase of Land (Procedure) (Jersey) Law 1961, as amended.

LEGAL COSTS The lessee is to be responsible for the lessor's legal fees

in preparing the new lease documentation.

OCCUPATION OF The  lessor  currently  occupies  pursuant  to  a  side EXPANSION agreement the expansion land. In return the rental for LAND this  area  of  land  is  foregone  for  the  period  of  the

lessor's occupation of it. Should the lessee require the land back, it may take it back if agreed notice is given to the lessor.

Jersey Harbours and the Property Services Department have been involved in lengthy negotiations concerning this lease and the Committee recommends to the States that the lease should be agreed to assist in securing the Island's fuel and oil supplies.

The financial implications are set out above and there are no implications for the manpower resources of the States.