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FINANCE AND GOVERNAN CE COMMITTEE                                                     Agenda Item 5.5
REPORT

                                                                                           11 May 2006

MELBOURNE AQUARIUM – EXTENSION TO LEASE AND
OTHER MATTERS


Division       Design & Culture


Presenter      Bob Rosen, Manager Works Program


Purpose

1.   To:

     1.1.   update Councillors on progress on the process to redevelop parts of the former fishmarket
            site that were subject to the Melbourne (Flinders Street Land) Act 2003; and

     1.2.   obtain Council’s approval:

            1.2.1.       to amend the Melbourne Aquarium lease by expanding the Melbourne Aquarium
                         leased area;

            1.2.2.       to assign the Melbourne Aquarium lease from Melbourne Underwater World Pty
                         Ltd (MUW) to MFS L&L Management Ltd, in its capacity as trustee of the
                         Oceanis Australian Trust (MFSL&L); and

            1.2.3.       for MFSL&L to grant a sub-lease of the Melbourne Aquarium lease back to
                         MUW.


Recommendation from Management

2.   That the Finance and Governance Committee recommend Council:

     2.1.   pursuant to the Melbourne Lands (Yarra River North Bank) Act 1997 and subject to the
            consent of the responsible Minister, approve the amendment of the lease of the Melbourne
            Aquarium dated 13 November 1997 (“Lease”) between Council and MUW to increase the
            area leased for the purposes of an expansion to the Melbourne Aquarium;

     2.2.   note that:

            2.2.1.       MFS Living and Leisure Ltd proposes to purchase all the shares in Oceanis
                         Holdings Ltd, of which MUW is a wholly-owned subsidiary; and

            2.2.2.       MFSL&L is a wholly-owned subsidiary of MFS Living and Leisure Ltd;

     2.3.   subject to the consent of the responsible Minister, consent to:

            2.3.1.       the assignment of the Lease arising from by MFS Living and Leisure Ltd’s
                         purchase of the shares in Oceanis Holdings Ltd, which will result in MFSL&L
                         becoming the tenant under the Lease; and

            2.3.2.       MFSL&L sub-leasing the Melbourne Aquarium back to MUW for it to continue the
                         day-to-day operations of the Melbourne Aquarium.
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     2.4.   by instrument of delegation sealed by the Council under section 98(1) Local Government Act
            1989 (“the Act”) delegate to the Chief Executive, or the persons from time to time acting in
            that position, the authority to execute a deed of amendment of the Lease, provide such
            consents as are necessary to enable the assignment of the Lease and the sub-leasing to
            MUW in accordance with this Management report and to do all things incidental and ancillary
            to the same; and

     2.5.   under section 98(3) of the Act, authorise the instrument of delegation to the Chief Executive
            Officer, or the person from time to time acting in that position, to empower him or her to
            delegate any power, duty or function delegated to him or her under the paragraph above, to a
            member of Council staff.


Key Issues

3.   In November 2003, the Council and the State Government agreed to a process to develop the
     former fishmarket site (“Site”), which included an expansion of the Melbourne Aquarium. The
     State Government committed to the removal of the Flinders Street Overpass at a time required for
     construction works at the Site to commence.

4.   In a report to the Finance and Corporate Performance Committee in May 2005 Councillors were
     informed of the impending proclamation of the Melbourne (Flinders Street Land) Act 2003 and of
     a number of legal processes that needed to be taken prior to the development of the Site.

5.   Since the May 2005 report and as foreshadowed in that report:

     5.1.   the Melbourne (Flinders Street Land) Act 2003 has been proclaimed;

     5.2.   the relevant State Authorities have granted licences to the Council to continue to occupy the
            areas of the Site earmarked for development including the public car park and car impound
            on the Site, pending redevelopment (anticipated in March 2007);

     5.3.   the Melbourne Lands (Yarra River North Bank) (Amendment) Act 2005 has been passed
            by Parliament to permit the increase in the land leased by the Council to the operator of the
            Melbourne Aquarium;

     5.4.   the Council has been appointed Committee of Management of the extra parcels of Crown
            land to be included in the expanded Lease;

     5.5.   Oceanis Holdings Ltd unconditionally agreed with the State Government to undertake the
            proposed extension of the Melbourne Aquarium;

     5.6.   the State Government procured the removal of the Flinders Street Overpass; and

     5.7.   the terms of an assignment of the Lease to expand the leased area have been negotiated and
            agreed at officer level.

6.   Pursuant to the Melbourne Lands (Yarra River North Bank) Act 1997 the Crown land comprising
     the present site of the Aquarium is leased by the Council as Committee of Management to MUW
     for a maximum term of 99 years from 13 November 1997.




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7.    The current lease is at an annual rental of $1.00. The extended lease will also remain at an annual
      rental of $1.00. It should be noted that the extended lease area falls within land that formed part of
      the redevelopment of the Former Fishmarket site, for which the State Government accepted a lump
      sum offer for both freehold and leasehold land on the two sites. The offer included an assessed
      commercial lease premium for the component of the site for the Aquarium extension. All of the
      proceeds from the sale of the Former Fishmarket site including land for the Aquarium extension
      have been utilised by the State Government for the removal of the Flinders Street overpass and
      associated works.

8.    MUW is a wholly-owned subsidiary of Oceanis Holdings Ltd. MFS Living and Leisure Ltd has
      entered into an acquisition agreement to purchase all the shares of Oceanis Holdings Ltd. As a
      result of the acquisition and resulting operational restructuring, the acquiring body proposes the
      Lease be assigned to MFSL&L and then sub-leased back to MUW to continue day-to-day
      operation of the Melbourne Aquarium.

9.    MFS Living and Leisure Ltd is a publicly-listed company and is expected to have a total asset value
      in excess of $250 million, when the assets of Oceanis Holdings Ltd are combined with the existing
      assets of the Hotham and Falls Creek ski resorts.

10.   Oceanis Holdings Limited, on behalf of MUW, has written to the Council seeking its consent as
      landlord under the Lease to:

      10.1. the change in control of MUW arising from the acquisition of the Oceanis Holdings Ltd by
            MFS Living and Leisure Ltd;

      10.2. the assignment of the Lease to MFSL&L; and

      10.3. immediately following the assignment of the Lease, the granting by MFSL&L of a sub-lease
            to MUW.

11.   Under the Lease, the consent of the Council and the Minister is required to any assignment and/or
      sublease which consent cannot be unreasonably withheld.

12.   The assignment and sublease is not expected to impact on the day-to-day operation of the
      Melbourne Aquarium but rather provides the Melbourne Aquarium will additional capital to facilitate
      the proposed extension and redevelopment.

Time Frame

13.   The Council approval is required to enable the purchase of the shares in Oceanis Holdings Ltd by
      MFS Living and Leisure Ltd to be completed on or before 30 June 2006.

Relation to Council Policy

14.   The arrangements discussed in the report are part of the implementation of the overall development
      of the Site that was approved by Council in 2003 and the State Government’s associated removal of
      the Flinders Street Overpass.

Consultation

15.   Council has consulted extensively with the State on this issue.




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Government Relations

16.     The Memorandum of Understanding details the relationship between Council and the State
        Government in the delivery of the project. Council has been represented on the Project Control
        Group as well as the Design Development and Planning Sub-Committee, which made a strong
        contribution to the final outcome of the preferred developer’s design and in particular, the design for
        the proposed extension of the Melbourne Aquarium, which is expected to commence construction
        within the next three (3) to four (4) months. The relationship with the State in respect of the project
        has been satisfactory and all obligations have been honoured by both parties.

Finance

17.     The current lease is at an annual rental of $1.00. The extended lease will also remain at an annual
        rental of $1.00.

Legal

18.     Legal advice has and will continue to be provided on all aspects of the redevelopment process
        including the amendment of the Lease and the assignment process. The report accurately identifies
        the relevant legal issues.

Sustainability

19.     The extension to the Melbourne Aquarium is part of the overall redevelopment of the former
        Fishmarket Site and associated Removal of the Flinders Street Overpass. Council and the Victorian
        Government have signed an MOU to facilitate an urban rejuvenation project for the Flinders Street
        West Precinct.

Background

20.     The development of the Site is joint initia tive of Council and the State Government and included the
        removal of the Flinders Street Overpass.

21.     The Melbourne (Flinders Street Land) Act 2003 was legislated by the State Government to
        facilitate the redevelopment of the Former Fishmarket Site and land adjacent to the Melbourne
        Aquarium. These lands had previously been reserved for municipal purposes, under the Melbourne
        (Flinders Street) Act 1958.

22.     A Development Agreement has been entered into between the State Government and the Oceanis /
        Far East Consortium in October 2003. Council is prudently not a party to the Development
        Agreement. Since that time, the Consortium has worked diligently to secure a tenant for the
        proposed mixed-use, commercial and retail development, which it must achieve by March 2007, or
        the Development Agreement lapses and the Consortium’s development rights revoked. A planning
        permit for the Consortium’s development was issued in December 2004, with a revised permit
        issued in February 2006 for the extension to the Melbourne Aquarium.

23.     Under the terms of the Development Agreement, ownership of the parts of the Site earmarked for
        development does not pass to the Consortium until they can demonstrate that they have a viable
        development project. To satisfy this condition, the Consortium must demonstrate to the State
        Government that its project is viable, which will necessitate confirmation that it has obtained a
        tenancy commitment, entered in to a construction contract with a reputable construction company
        and sourced adequate financing from a major financial institution.

24.     Title to the Site does not pass until the Consortium has demonstrated project viability. The
        Consortium is unable to ‘land bank’ the Site.



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                                            Page 5 of 6
                                                                                     Agenda Item 5.5
                                                                   Finance and Governance Committee
                                                                                        11 May 2006



FINANCE ATTACHMENT



MELBOURNE AQUARIUM – EXTENSTION TO LEASE AND OTHER MATTERS



The current lease is at an annual rental of $1.00. The extended lease will also remain at an annual
rental of $1.00.




Joe Groher
Manager Financial Services
                                         Page 6 of 6
                                                                                   Agenda Item 5.5
                                                                 Finance and Governance Committee
                                                                                      11 May 2006



LEGAL ATTACHMENT



MELBOURNE AQUARIUM – EXTENSTION TO LEASE AND OTHER MATTERS



Legal advice has and will continue to be provided on all aspects of the redevelopment process
including the amendment of the Lease and the assignment process. The report accurately identifies
the relevant legal issues.

Pursuant to clauses 12.2 of the Lease, MUW requires the consent of the Council and the Minister to
both the assignment of the Lease and the subletting of the leased premises which consents must not
be unreasonably withheld. Clause 12.5 of the Lease provides that any substantial change in the
control of MUW constitutes an assignment.




Kim Wood
Manager Legal Services

				
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