Report Template

Report to/Rapport au :

Corporate Services and Economic Development Committee

Comité des services organisationnels et du développement économique

12 February 2004 / le 12 février 2004

Submitted by/Soumis par : Kent Kirkpatrick, General Manager/Directeur général,

Corporate Services/Services généraux

Contact Person/Personne ressource : Douglas McCaslin, Manager, Real Estate Services

Real Property Asset Management/Gestion des actifs et des biens immobiliers

(613) 580-2424 x 22595, douglas.mccaslin@ottawa.ca

Ref N°: ACS2004-CRS-RPR-0020

SUBJECT:	CARP AIRPORT - BUSINESS PLAN

OBJET :	AÉROPORT DE CARP – PLAN D’ACTIVITÉS

REPORT RECOMMENDATIONS

That the Corporate Services and Economic Development Committee recommend Council:

1. Not approve the Business Plan for the Carp Airport, as submitted by West Capital Developments (WCD) on 31 October 2003, for the reasons set out in this report, and instead, direct staff to finalize negotiations with West Capital Developments with respect to an Option Agreement to purchase the Carp Airport property based on modifications, as necessary, to the Business Plan and on conditions that will:

a. ensure the proposed development will be compatible with the City’s planning policies, and compatible with the Community Plans for the Carp Village and Carp Road Corridor;

b. require WCD to fully fund all approval and development costs associated with implementing the modified Business Plan;

c. eliminate any financial risk for the City; and

d. ensure that the existing airport operations and tenancies will not be adversely affected should the WCD Business Plan not be fully implemented for whatever reason.

2. Direct staff to bring forward a report with recommendations regarding an Option Agreement with WCD for consideration by the Corporate Services and Economic Development Committee and Council in April 2004;

3. Direct staff to bring forward a report with respect to the long and short-term arrangements with the Carp Airport Authority for operating and managing the airport, should the Option Agreement with WCD not proceed or should the WCD Business Plan not be fully implemented for whatever reason, for consideration by the Corporate Services and Economic Development Committee and Council in April 2004.

RECOMMANDATIONS DU RAPPORT

Que le Comité des services organisationnels et du développement économique recommande au Conseil municipal :

1. de ne pas approuver le plan d’activités de l’aéroport de Carp, tel que présenté par West Capital Developments (WCD), le 31 octobre 2003, pour les raisons indiquées dans le présent rapport, mais, à la place, de demander au personnel de conclure les négociations avec WCD quant à une convention d’option d’achat de la propriété de l’aéroport de Carp, en fonction de modifications apportées au besoin au plan d’activités et des conditions suivantes :

a. s’assurer que le développement proposé est compatible avec les politiques de planification de la Ville, ainsi qu’avec les plans pour le village de Carp et le corridor du chemin Carp;

b. exiger de WCD qu’elle assume la totalité des coûts d’approbation et de mise en valeur liés à la mise en œuvre du plan d’activités révisé;

c. éliminer tout risque financier pour la Ville;

d. s’assurer que les activités et locations actuelles de l’aéroport ne seront pas touchées dans l’éventualité d’une mise en œuvre incomplète, pour quelque raison que ce soit, du plan d’activités de WCD;

2. de demander au personnel de produire un rapport comprenant des recommandations au Comité des services organisationnels et du développement économique et au Conseil municipal pour l’examen d’une convention d’option avec WCD, en avril 2004;

3. de demander au personnel de produire un rapport faisant état des dispositions à court et à long termes prises avec l’administration de l’aéroport de Carp pour l’exploitation et la gestion de l’aéroport dans l’éventualité du refus de la convention d’option avec WCD ou d’une mise en œuvre incomplète, pour quelque raison que ce soit, du plan d’activités de WCD, afin que le Comité des services organisationnels et du développement économique ainsi que le Conseil municipal l’examinent en avril 2004.

BACKGROUND

The Carp Airport Authority (a non-profit Corporation) has operated the airport based on annual leases from the City of Ottawa. The last annual lease expired on 31 December 2003 and the Airport Authority’s tenancy is now on a month-to-month basis.

A Board of Directors, consisting of seven members (all volunteers), is responsible for the operation of the airport. Following amalgamation, the new City of Ottawa now appoints four members of the Board, with the remaining members elected or appointed by users, residents and local businesses. A General Manager (now a contract employee of the City of Ottawa) is responsible for the day-to-day operations of the airport.

The Airport Authority has a number of subtenants who have built facilities on land leased from the Authority. These subtenants pay rent based on a formula related to the area of land leased and an annual cost adjustment is applied. They also pay an annual Airport Maintenance Charge, which is also shared amongst the subtenants based on pro-rated areas. However, only 75% of the maintenance costs have traditionally been recovered under a formula that was established during the era that Transport Canada owned and operated the airport.

As a result, the airport has operated with annual operating deficits that have required the City to subsidize the operations since the acquisition from Transport Canada with a direct grant each year. While the grant amount has been reduced $20,000 in recent years, the City still provides a significant amount of in-kind services including, the supply of vehicles, repairs to equipment, etc. and also covers the cost of the airport manager position.

In 2003 the cost to the City in support of the Carp Airport operations totaled approximately $100,000. The City also spent approximately another $50,000 in capital improvements. Based on the Airport Authority’s draft budget for 2004, the total cost to the City with respect to the airport's operations will be at least $75,000, not including an allowance for major maintenance/minor capital items.

Since the Airport Manager is a contract employee of the City; the City appoints the majority of the members to the Airport Authority's Board; and the City has been underwriting the cost of operating and maintaining the airport, the Carp Airport Authority is operating more as an agent of the City rather than as a tenant.

In order to move the airport towards independency and self-sufficiency, the City issued a Request for Expressions of Interest in 2002 with respect to the future planning, development, operation and ownership of the airport. This resulted in four (4) responses but only two (2) comprehensive responses were received, those being from the Carp Airport Authority (CAA) and West Capital Developments (WCD).

The proposal from the CAA was based on the City continuing to own the airport and to support any operating losses and provide services in-kind until such time that the airport becomes self-sufficient. The proposal also called for the City to fund the development of the Airport Master Plan and then for the City to make a long-term commitment to the Authority in order for them to embark on the self-sufficiency plan.

WCD provided the only response that set out a comprehensive project to own, manage and develop the Carp Airport as a private sector corporation. The WCD indicated they would undertake all the necessary planning studies technical/investigations at its expense to develop a Master Plan, Servicing Plan, Marketing Plan and Investment Plan.

WCD indicated a willingness to make a large capital investment to improve and expand the existing infrastructure including extending the runway, provision of water and waste water treatment for the project area and adding additional roads.

Specific areas of operation and development the Expressions Of Interest (EOI) from WCD included:

The Airport,
An Aviation Business Park,
A Residential Fly-In Community, and
Communal Servicing.

At the time the EOI’s were submitted, the City had also received a request by First Air to have its lease extended for a 10-year term with a further 10-year option. First Air was prepared to accept a condition, that the Carp Airport might not be operated as an airport after 14 March 2007, provided that, if it is not operated as an airport after 14 March 2007, they are permitted to terminate the lease on a period of two (2) months notice.

First Air also understood that they would be required to reach agreement with the head lessee of the airport as to the contribution to be made by First Air towards the operating costs of Carp Airport and for paying a market rent for the extended term.

It was also considered equitable to extend the same opportunity for a 10 year lease under the same terms to all other existing sub-tenants at the airport whose tenancies were in good standings under the terms of their specific leases.

In addition, the Airport Authority had requested approval from the City to construct a 20 bay T-Hangar. In order to allow the Airport Authority to keep moving forward to self sufficiency, while waiting to see if WCD would be able to develop a viable business plan that meets the City’s requirements, it was agreed to permit the construction of the 20 bay hangar and provide a loan guarantee. This approval/guarantee was to be subject to the confirmation that at least 15 bays would be sold or rented and the loan guarantee would be no greater than $200,000 for a loan with an amortization period no greater than 20 years.

On 14 May 2003, City Council approved recommendations in a report regarding the results of the EOI process as follows:

Delegate Authority to the General Manager of Corporate Services to negotiate and execute an agreement with West Capital Developments (1514947 Ontario Inc.) for the preparation of a Business Plan regarding the planning, development, operation, and ownership of the Carp Airport as outlined in the report;

Continue, after 31 December 2003, the current head lease arrangement with the West Carleton Airport Authority on a month-to-month basis until West Capital Developments has either refused to enter into the agreement or until the City upon receipt of the Business Plan can make a final decision;

The City consent to any lease extensions for the existing land leases made by the West Carleton Airport Authority for its existing sub-tenants at the airport as outlined in the report;

Approve, subject to the criteria outlined in the report, a loan guarantee not to exceed $200,000 for the West Carleton Airport Authority in support of the construction of a 20-bay hangar on the Carp Airport Property.

Essentially the above approvals allowed WCD to proceed with developing its Business Plan while still allowing the Airport Authority to move towards independency and self-sufficiency should the City not proceed to approve the WCD Business Plan.

A Business Plan Agreement, dated August 2003, was executed based on the Council authority of 14 May 2003 and the specific conditions approved by Council were attached as Schedule 'C' to the agreement and are attached as Annex 'A' to this report. WCD completed its Business Plan and delivered it, under confidential cover, to the City on 31 October 2003. Staff from Corporate Services, Development Services, and Transportation Utilities and Public Works have subsequently reviewed the plan.

The Carp Airport Authority has sold 17 units and leased 3 in the 20 bay T-Hangar. The hangar is now constructed and fully occupied.

Negotiations for the First Air Lease extension have been completed and the agreement is ready for execution by the parties to it. Draft agreements have been prepared for the other subtenants using the First Air lease as model and taking into account the specifics of each individual tenancy.

DISCUSSION

The West Capital Developments Business Plan, as submitted on 31 October 2003, is more ambitious than the concept plan submitted with it EOI and, as a result, will require amendments to the City's Official Plan and Zoning By-law to implement.

Zoning/OP amendments are not consistent with the conditions approved by City Council on 14 May 2003 as set out in Schedule 'C' of the Business Plan Agreement between the City & WCD. WCD is aware that its Business Plan does not fully comply but have indicated, in writing, that the Land Use and Airport Master Plans cannot be modified to comply without jeopardizing the financial viability of the project.

At the same time, the City's review of WCD's Business Plan indicates that the WCD vision for a fully contained aviation community would appear to have significant economic development potential and benefit for the City, Carp Village, the Carp Road Corridor, and the General Aviation Community. As a result, staff and WCD representatives have been negotiating the possibility of an Option Agreement that would allow WCD to go ahead with the development provided that the conditions of the agreement will:

a) ensure the proposed development will be compatible with the City's planning policies, and compatible with the Community Plans for the Carp Village and Carp Road Corridor;

b) require WCD to fully fund all approval and development costs associated with implementing the modified Business Plan;

c) eliminate any financial risk for the City; and

d) ensure that the existing airport operations and tenancies will not be adversely affected should the modified WCD Business Plan not be fully implemented for whatever reason.

The negotiations are now to the point that WCD has indicated its acceptance of 23 specific conditions for an option agreement, as set out in Appendix 'B' to this report, that would satisfy the intent of the above conditions (a) to (d).

Before finalizing the negotiations with WCD, there needs to be significant further consultation between WCD and the City’s Development Services Department to identify the specific extent of modifications to the WCD Business Plan and also the extent of any environmental assessment, servicing and planning approvals required to implement the modified plan. This will then provide the basis for any necessary changes to the project schedule and funding requirements in order to allow WCD to verify, and amend if necessary, its financial proforma for the development before entering into an option agreement. Both the City & WCD need to be satisfied as to the financial viability of the proposed development before action is taken to implement a modified Business Plan.

If Council approves Recommendations # 2 & 3 of this report, and subsequently approves the terms of an option agreement in April 2004, WCD has agreed that it will provide the City, at the time of executing the Option Agreement, with a certified cheque for $50,000 and a Letter of Credit for an additional $100,000 to underwrite any operating deficit of the Airport during the first third of 2004, as well as the option term, as compensation for the option being granted by the City.

WCD believes this action, coupled with the significant financial investment in the business plan to date, clearly indicates WCD’s willingness to proceed with a modified Business Plan and assist the City in the operation and maintenance of the airport as contemplated in conditions 22 & 23 of the proposed option agreement as set out in Annex 'B' of this report.

As was the case during the Business Plan stage, staff is also working towards implementing arrangements that will still provide for operational changes and development at the Airport to allow the airport operations to move towards independency and self-sufficiency if for any reason the WCD Business Plan does not proceed or is not fully implemented. Therefore, staff is also discussing these arrangements with the Carp Airport Authority concurrently with the negotiations with WCD for a modified Business Plan and Option Agreement.

These arrangements call for the City to have more direct control of the day-to-day operations of the airport in the short-term until Council decides the final direction for the long-term. This will allow the City to take advantage of WCD's agreement to underwrite the operating and maintenance costs for the airport during the option period if Council ultimately approves executing an option agreement with WCD.

In the meantime, the Business Plan Agreement with WCD requires that City Council consider the WCD Business Plan by no later than the end of February 2004. Recommendation # 1 deals with this technical requirement and, therefore, eliminates any financial obligation to WCD with respect to the preparation of the Business Plan while still allowing a modified Business Plan to be negotiated based on an option agreement process.

Recommendations # 2 & 3 reflect the intended outcome of the negotiations with WCD and the concurrent discussions with the Carp Airport Authority.

ENVIRONMENTAL IMPLICATIONS

The development planning for the Carp Airport property will evaluate and address all environmental related issues associated with developing the Carp Airport lands.

RURAL IMPLICATIONS

The recommendations in this report are based on ensuring that any proposed development supports the relevant Official Plan policies for the rural area and the objectives of the rural community including protecting and adding to the employment base in this location.

CONSULTATION

The recommendations in this report are based on a review of the WCD Business Plan by staff of the Corporate Services, Development Services and Transportation, Utilities and Public Works Departments and the resulting negotiations with WCD and discussions with the Carp Airport Authority. The Ward Councillor has been briefed on the status of these negotiations and discussions.

WCD has confirmed in writing that the proposed conditions for an Option Agreement as set out in Annex ‘B’ are acceptable to WCD. WCD has also notified the City, in writing, as follows:

“In regards to the three points you asked me to confirm in writing, here is our response:

1) The City may now release any or all information contained in the Business Plan Summary document.

2) At this time, WCD cannot amend its submitted Business Plan to eliminate the need to provide facilities for the airport property development on the adjacent agricultural resource lands nor reduce the extent of the residential fly-in community portion to conform to existing provisions in the City's Zoning By-law. In the case of the adjacent agricultural lands, the small incursion onto these lands is required to facilitate the runway extension to 6000 feet. This allows capturing the broadest possible slice of the General Aviation business, which in turn services expected demand and reduces costs for everyone on the airport.

In the case of the density requirement, our experience and research has revealed a strong demand for this type of housing and a critical mass is needed to guarantee an aviation community is formed where people can live work and play. There is only one airport in the region capable of supporting this unique community and hence demand must be properly addressed. The scope of the residential development also provides adequate funds to cover infrastructure improvements that have risen substantially from initial rough estimates in our EOI.

3) WCD acknowledges that the City continues to provide the existing tenants with lease extension agreements as approved by Council on May 14, 2003 and WCD agrees that the lease extensions for Helicopter Transport and First Air can include expansion from the apron to the access road of these properties. The proposed MCFA area for the Airport will include this expansion area.”

FINANCIAL IMPLICATIONS

Approval of the recommendations in this report will allow staff to finalize negotiations with WCD with respect to an option agreement that, if approved by Council in April 2004, would result in WCD underwriting any operating deficit for the airport in 2004 and the first third of 2005 to a total amount of $150,000. Should WCD subsequently be successful in meeting the terms and conditions of the option agreement and complete the purchase, they will then invest over $52M in upgrades to the airport and servicing for the property over a 10 year period.

SUPPORTING DOCUMENTATION

Annex 'A' - Schedule 'C' of Business Plan Agreement.

Annex 'B' - The Proposed Conditions of Option Agreement with WCD

DISPOSITION

Corporate Services and Development Services Departments will carry out further negotiations with WCD with respect to the extent of modifications to the Business Plan, approval requirements, and the terms and conditions of the option agreement and report back to CSEDC and Council in April 2004.

ANNEX A

Schedule 'C' of Business Plan Agreement with West Capital Developments

Council Approved Objectives, Requirements, Conditions

It is acknowledged by both parties that the Council of the City of Ottawa has a main objective, in agreeing to the creation and implementation of a Business Plan for the Carp Airport, which is to increase the economic activity and employment base at this location.

Submission of a Business Plan by West Capital Developments shall also be subject to further objectives, requirements, and conditions as follows:

The Business Plan is to be completed and forwarded to the City by 1 November 2003 unless the City, in its sole discretion, grants an extension;

The Plan shall include a Master Plan, a Servicing Plan, a Marketing Plan, and an Investment Plan, as outlined in Schedule “C”, outlining the viability of the project and demonstrating compliance with the requirements and the objectives set out in the Council approval of 14 May 2003 and, specifically, West Capital Developments specifically agrees to:

commit to operating the airport at defined levels of service with appropriate maintenance standards;
commit to specific capital improvements over time which will benefit the majority of the tenants at the airport;
comply with the relevant City regulations and official plan policies;
support the City’s efforts to recover the capital and operating investment already made in the Carp Airport;
comply with the terms and conditions of the Transport Canada agreement with the City;
protect the existing jobs and tenancies at the airport over a reasonable period of time;
evaluate and address all environmental related issues associated with developing the Carp Airport lands; and
ensure that any proposed development supports the relevant official plan policies for the rural area and the objectives of the rural community including protecting and adding to the employment base in this location.

The Business Plan shall provide for the acquisition of the airport lands at market value, to be established by appraisal criteria and process for which mutual agreement has been reached;

West Capital Developments agrees to take over any buy-out provision related to the unamortized portion of improvements which have been guaranteed by the City;

West Capital Developments agrees to provide an operating budget which provides for the rental payments from the existing land leases to accrue towards the operating costs until such time as these rental payments are no longer needed to support the operating costs;

West Capital agrees to City approval of the operating budget for the airport under any proposed Municipal Capital Facility Agreement;

West Capital Developments accepts that the land leases for existing sub-tenants may be extended for 10 years prior to the transfer of the property;

West Capital Developments accepts the Airport Authority as tenant with respect to any facilities owned and operated by the Authority including any T hangars on the same basis as other existing land leases;

West Capital Developments provide a governance arrangement that affords existing tenants and Airport Authority Board members the opportunity to participate in decisions affecting the airport facilities covered by under any Municipal Capital Facilities agreement.

West Capital Developments commits to paying all costs of developing its business plan and any future capital and operating costs with respect to the project and provides financial information to the satisfaction of the General Manager of Corporate Services that it has the financial ability to do so;

The business plan and any subsequent proposed agreements for the transfer of the airport property will be subject to further City Council approval; and

Should West Capital decide not to proceed with its business plan, it will provide the City with copies of all studies and reports undertaken as part of the process at no cost to the City.

ANNEX B

PROPOSED OPTION AGREEMENT CONDITIONS

West Capital Developments agrees that it will, entirely at its cost, make application for and undertake all work required to obtain all necessary approvals [Environmental Assessments (EA's), Official Plan (OP), Zoning, Site Plan, Transport Canada, Nav Canada etc.] for the development and that all approvals must be received by 1 May 2005 as a condition for closing the sale of the Airport property by the City.

Should the category of any EA process require the City to be the lead, the cost of the EA will be borne by West Capital Developments.

West Capital Developments agrees to apply for OP & Zoning amendments for the adjacent agricultural resource lands, currently under a purchase option by West Capital Developments, only to the extent necessary to permit limited use of these lands for the specific airport purposes within the areas set out in the current West Capital Developments Land Use and Airport Master Plans or as may be further agreed to by the City during the approval process (e.g. zoning may restrict airport uses on these lands in accordance with a Schedule to the Zoning By-law).

West Capital Developments agrees to apply for a zoning amendment that will maintain the “accessory” use provision for all residential dwelling units on the Airport property notwithstanding the intensity of development that may ultimately be permitted by amendments with respect to lot frontage, area and definition of accessory dwelling unit to accommodate communal hangar lots (single & multiple units).

West Capital Developments agrees to apply to develop the accessory residential dwellings as a common elements condominium (freehold lots with a condominium established for common elements).

West Capital Developments agrees that it will ensure that each accessory residential lot is required to have either provision for a hangar on the same site or have a condominium interest in a communal facility (share of capital cost, operating cost, taxes etc.) as defined by a zoning amendment for accessory dwelling units.

West Capital Developments agrees to ensure that the ownership and operating arrangements established by West Capital Developments for the airport will provide for the each lot on the airport to pay a proportionate share of the annual airport operation and maintenance costs as established from annual budgets approved by the City.

West Capital Developments agrees that all residential lot deeds will have restrictive covenants with respect to restricting the residential use to the accessory use associated with ownership/operating responsibilities regarding the airside elements.

West Capital Developments acknowledges that the City will not transfer the Rural Residential (RR) designated part of the property to West Capital Developments unless this part is rezoned Airport Industrial (MA) to be compatible with the zoning designation for the rest of the airport or West Capital Developments agrees to restrictive covenants with respect to the use and development of this part of the property.

West Capital Developments agrees to apply for only one access/egress on Diamondview Road except where otherwise required by the City during the planning and development approvals process.

West Capital Developments agrees to negotiate and enter into a Municipal Capital Facility Agreement (MCFA) with the City by 30 April 2005, for the continuance of a municipal general aviation airport facility within a defined area on the Airport property, based on amending agreements negotiated by the City with Transport Canada & Nav Canada for the airport and West Capital Developments reaching agreement with City on criteria for ensuring continued cost effective airport operations to a mutually agreed standard.

West Capital Developments acknowledges that the City, as approved by City Council on 14 May 2003, will continue to provide Lease Extensions for the existing sub-tenants of the Carp Airport Authority (CAA) who wish to remain at the Airport. West Capital Developments further acknowledges that the Lease Extension Agreements may provide for expansion of these tenancies where deemed appropriate by the City and West Capital Developments and, in that case, West Capital Developments agrees that the specific areas now leased and any proposed expansion areas will be included in the area defined for the MCFA.

West Capital Developments agrees that the lease revenue, for the existing sub-tenants located within the area defined for the MCFA, will continue to be allocated to the operational/maintenance accounts for the municipal airport facility and that this will be reflected in the MCFA with the City.

West Capital Developments agrees that the MCFA area will include the portions of the Airport property needed to provide the runways, taxiways, clearways and operational/maintenance facilities for the airport (tax exempt portion of MCFA) and also the portions of the Airport property currently leased to the sub-tenants of the CAA together with any expansion areas provided under Lease extension agreements for these tenancies. West Capital Developments further agrees to obtain the City’s approval and amend the MCFA for any new development within the MCFA where the development requirements necessitate that the specific location be excluded from the defined area for the MCFA.

West Capital Developments agrees that the perimeter of the whole airport property will be fenced with access points secured, from time to time, as required by airport operations and any capital, maintenance, and operating costs for the fencing/security will be assumed by West Capital Developments as part of its airport development/operations.

West Capital Developments acknowledges that all existing infrastructure capacity at Carp Village is currently reserved for Carp Village and West Capital Developments agrees that all development/servicing (internal/external) costs for development at the airport are to be borne by West Capital Developments with some potential for cost sharing to apply if the timing/funding of upgrades to Carp Village servicing is compatible.

West Capital Developments agrees to construct, at its expense, all roads, water/sewer services for the development on the Airport property and agrees to enter into a MCFA with the City that will provide for the operations, maintenance, and replacement of these services to be treated in like manner to public systems under a subdivision agreement.

West Capital Developments agrees that, in undertaking any real estate or financial transaction for the Carp Airport property, it will not create encumbrances on the MCFA part of the property and it will put in place provisions to ensure existing airport operations and tenants can continue to operate economically (non-disturbance and attornment clauses & airport operating cost limitations) even if West Capital Developments cannot proceed as contemplated because of market/business events including bankruptcy at any stage of development and these requirements will be conditions in the MCFA with the City.

West Capital Developments agrees that it will bear all costs for the relocation, as dictated by the requirements of the West Capital Developments Airport Master Plan, of any existing facilities to the extent required under the provisions of the airport tenant lease extensions (i.e. until 14 march 2007) approved by the City and the agreement with Nav Canada and that the area defined for the MCFA will be changed where necessary to accommodate these relocations.

West Capital Developments agrees that it will construct the improvements to the runway outlined in the West Capital Developments Business Plan as part of the first phase of its development.

West Capital Developments agrees to assist the City in operating the airport from 1 May 2004 to 30 April 2005 subject to the City terminating the existing Head Lease with the Carp Airport Authority and obtaining any Transport Canada approvals or consents necessary to have the airport operating certificate transferred to the City and the City subsequently entering into an Airport Management Agreement with West Capital Developments on terms similar to those set out for the operation and management of the airport under the existing Head Lease with the Airport Authority and an operating budget established by the City for the Airport.

West Capital Developments agrees to pay to the City $50,000 by certified cheque at the time of executing the Option Agreement and also agrees to underwrite any operating cost deficit of the Airport from 1 May 2004 to 30 April 2005 to a cap of an additional $100,000, which is to be secured by letter of credit or similar financial guarantee in a form satisfactory to the General Manager of Corporate Services, as compensation for the City extending the option to purchase. West Capital Developments agrees that all option costs will be non-refundable in the event that it is unable to meet the terms and conditions of the option agreement or it fails to complete the purchase of the Airport property and that the City may in those circumstances draw on the letter of credit to the full extent of the $100,000 cap provided that the total cost to West Capital Developments for the option does not exceed $150,000. In the event West Capital Developments closes the transaction, all option costs will be credited towards the purchase price for the Airport property.

West Capital Developments agrees, upon its satisfactory compliance with all terms and conditions set out in the Option Agreement, that it will purchase and pay the fair market value of the developable lands as established by the existing, updated as may be necessary, and at least one additional independent appraisal subject to the approval, of the extent and value of these lands, by Transport Canada as required under the terms of the existing agreements between the City and Transport Canada, and also subject to City Council subsequently declaring these lands surplus to municipal needs and approving the sale to West Capital Developments as part of the MCFA for the airport.