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12 - Amendment to Lease with Newport Harbor Post No. 291 of the American Legion for Use of the Real Property and Tidelands Located at 215 15th Street
Q SEW Pp�T CITY OF z NEWPORT BEACH c�<,FORN'P City Council Staff Report November 12, 2024 Agenda Item No. 12 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Seimone Jurjis, Assistant City Manager/Community Development Director - 949-644-3232, sjurjis@newportbeachca.gov PREPARED BY: Lauren Wooding Whitlinger, Real Property Administrator - 949-644- 3236, Iwooding@newportbeachca.gov TITLE: Amendment No. One to Lease with Newport Harbor Post No. 291 of the American Legion for Use of the Real Property and Tidelands Located at 215 15th Street ABSTRACT: Since 1940, the City of Newport Beach has leased the site located at 215 15' Street, Newport Beach (Property) to Newport Harbor Post No. 291 of the American Legion (Legion), a non-profit corporation dedicated to serving active duty and honorably discharged active -duty veterans of the United States Armed Forces. The most recent lease agreement between the City and the Legion was executed in 2002 (Lease). For the City Council's consideration is an Amendment No. One to Lease (Amendment) (Attachment A), requested by the Legion to resolve an audit dispute by streamlining the calculation of rent for the Property and updating other terms of the Lease to conform to the City's current standards. RECOMMENDATIONS: a) Find this project is exempt from the California Environmental Quality Act (CEQA) pursuant to Section 15301 (Existing facilities), and Section 15302 (Replacement or Reconstruction) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because this project has no potential to have a significant effect on the environment; and b) Authorize the City Manager and City Clerk to execute Amendment No. One to Lease Between the City of Newport Beach and Newport Harbor Post No. 291 of the American Legion for use of City Property, the uplands and adjacent tidelands located at 215 15th Street, in a form substantially similar to the amendment attached to the staff report. DISCUSSION: The City -owned Property known as the American Legion Post is located at 215 15th Street, on the harbor side of the Balboa Peninsula adjacent to the City's Marina Park Community Center. The lease area contains approximately 56,652 square feet or 1.30 acres of dry land and approximately 40,683 square feet or 0.93 acres of water area in the harbor as shown on the map on the next page. 12-1 Amendment No. One to Lease with Newport Harbor Post No. 291 of the American Legion for Use of the Real Property and Tidelands Located at 215 15t' Street November 12, 2024 Page 2 Blue — Lease Premises Lease and Rent Histo i' W L 'vi, The local branch of the American Legion, Post 291, was established in Newport Beach in 1934. It has leased the Property from the City since 1940, and constructed the clubhouse with a bar, restrooms, event hall, meeting rooms, and an outdoor patio, and the docks, dry storage area, marina restrooms and showers, and parking lot. Under the current Lease (Attachment B), executed in 2002, the initial 25-year term expires in 2028 and can be extended by the Legion for an additional 25 years through 2053. 12-2 Amendment No. One to Lease with Newport Harbor Post No. 291 of the American Legion for Use of the Real Property and Tidelands Located at 215 15t' Street November 12, 2024 Page 3 The Lease provides for the Legion to use the Property to maintain a legion hall with ancillary food and drink service areas, a sandy beach, a commercial marina consisting of 49 slips with 34 dock lockers, dry boat storage and lockers consisting of 47 spaces and 43 dinghy racks, and a parking lot consisting of 26 spaces. The lease premises must also be available for use as a community and recreation center by the City and local community or civic organizations. The Legion is further required to maintain its membership as a chartered American Legion, with a minimum membership of 1,200 persons. The City is responsible for maintenance of the vertical bulkheads serving the Property. The Legion is responsible, at its sole cost and expense, to maintain all other improvements and equipment at the Property. For its use of the Property, under the current Lease and historic leases, the Legion has not been required to pay rent for its use of the legion hall or the food and beverage areas by its members. Use and operation of the other ancillary portions of the Property, however, like the marina (40%), boat storage (50%), and parking lot (100%) has been permitted in exchange for percentage rent to be paid to the City. Under the current Lease, the Legion was further permitted to rent the hall to third parties for non -Legion activities and private events in exchange for payment of percentage rent of 20% to the City. The Lease requires a payment of base rent to the City each month, which is currently set at $13,478.05. To the extent percentage rent exceeds the base rent paid in a calendar year, the Legion pays the City the difference. Total rent paid to the City for calendar year 2023 was $155,582.46. Lease Compliance Audit As part of a routine review of lease revenues for all tenants, the City engaged with the accounting firm Davis Farr LLP in 2019 to conduct a tenant lease compliance audit for the American Legion for calendar years 2016-2018. The audit report (Attachment C) found that the Legion had underpaid rent by $223,796. This total includes the following discrepancies: Underreported Revenue and Unpaid Percentage Rent Calendar Year Incorrect Reported Revenue 2016 ($78,234) 2017 ($78,305) 2018 ($66,218) 12-3 Amendment No. One to Lease with Newport Harbor Post No. 291 of the American Legion for Use of the Real Property and Tidelands Located at 215 15t' Street November 12, 2024 Page 4 In addition, the March 2018 base rent payment was overstated by $1,039. The audit revealed that the underpayment in percentage rent stemmed from unreported revenue generated through catering and other services related to hall rentals. According to the Lease terms, such income should have been reported to the City as part of "gross sales." The City informed the Legion of these findings in December 2020. However, the Legion disputed the City's interpretation of the Lease and conducted its own audit, which reflected an overpayment of $220 for the same period. Beginning in 2021, City staff, with guidance from a City Council working group, and Legion representatives met several times to negotiate a resolution. A key outcome of these negotiations is an amendment to the Lease, increasing the base rent from $13,478 to $18,000 per month and removing the requirement for percentage rent based on gross sales. This new structure simplifies the rent terms and helps prevent future discrepancies related to revenue reporting. Maior Amendments to the Lease The proposed terms of the Amendment are summarized below: 1. After the effective date of the Amendment, the Legion shall no longer pay percentage rent. The Legion is also relieved from the obligation to pay the $223,796 in outstanding rent, as identified by the City's tenant compliance audit. 2. Rent shall be set at $18,000 per month, or $216,000 per year, as of the first day of the first month after the Effective Date. 3. Base rent shall increase every five years by the greater of 10% or 75% of the cumulative amount of change in the Consumer Price Index for the previous five-year period. 4. For any work or construction to the Property that exceeds a cost of $50,000, the Legion shall provide performance bonds and labor and materials payment bonds to the City, for an amount equal to 100% of the project costs. 5. A new section was added to prohibit noise and nuisance at the Property related to amplified sound, and the Legion will be required to comply with the City's municipal code. 6. The types and amounts of insurance coverage required under the Lease were updated to the City's current standards, and the Legion shall continue to provide certificates of insurance to the satisfaction of the City's risk manager, naming the City as additional insured. The Amendment has been reviewed by the City Attorney's Office and has been approved as to form. The Legion has reviewed and approved the terms of the Amendment. 12-4 Amendment No. One to Lease with Newport Harbor Post No. 291 of the American Legion for Use of the Real Property and Tidelands Located at 215 15th Street November 12, 2024 Page 5 FISCAL IMPACT: Revenues collected pursuant to the proposed Amendment, $216,000 in annual rent, will continue to be posted to the Tidelands Fund Real Property accounts in the Community Development Department, 100-10050505-551015. ENVIRONMENTAL REVIEW: Staff recommends the City Council find this project is exempt from the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378), of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because this approval does not authorize a specific project or project scope and therefore has no potential to have a significant effect on the environment. NOTICING: The agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council considers the item). ATTACHMENTS: Attachment A — Amendment No. One to Lease Attachment B — Original Lease Attachment C — Audit Report Dated March 2, 2020 12-5 Attachment A Amendment No. One to Lease 12-6 AMENDMENT NO. ONE TO LEASE BETWEEN THE CITY OF NEWPORT BEACH AND NEWPORT HARBOR POST NO. 291 OF THE AMERICAN LEGION THIS AMENDMENT NO. ONE TO THE LEASE ("Amendment No. One") is made and entered into as of this day of , 2024 ("Effective Date"), by and between the CITY OF NEWPORT BEACH, a California municipal corporation and charter city ("City" or "Lessor"), and NEWPORT HARBOR POST NO. 291 OF THE AMERICAN LEGION, a California non-profit mutual benefit corporation ("Lessee"). City and Lessee are sometimes individually referred to herein as "Party" and collectively as the "Parties." RECITALS A. On December 6, 2002, City and Lessee entered into that certain Lease ("Existing Lease") regarding that certain property owned by the City consisting of tidelands and uplands that is generally located at 215 15th Street, Newport Beach, California 92663, consisting of portions of Assessor's Parcel Numbers 047-222-11 and 047-222-12, and containing approximately 97,335 square feet ("Premises"). Except as otherwise provided herein, all capitalized terms herein have the meanings set forth in the Existing Lease. The Existing Lease as modified by this Amendment No. One is collectively referred to herein as the "Lease." B. Davis Farr LLP conducted an independent audit of Lessee's compliance with the Existing Lease and issued a report dated March 2, 2020 ("Report") finding that Lessee owed $223,796 in underpaid Percentage Rent for the years 2016 through 2018. Lessee disputes the findings of the Report and City's interpretation of Lessee's rent obligations. C. As consideration for the Parties resolving the dispute, the Parties desire to enter into this Amendment No. One to, among other things, (i) eliminate the Percentage Rent required to be paid under the Lease, (ii) increase the Base Rent required to be paid under the Lease, (iii) address the respective maintenance and repair obligations of the Parties, (iv) require Lessee to maintain construction bonds in connection with future alterations to the Premises; (v) modify the insurance requirements of Lessee under the Lease; and (vi) require Lessee to comply with noise and nuisance obligations of the City. NOW, THEREFORE, it is mutually agreed by and between the undersigned Parties as follows: 1. RENT (a) Notwithstanding Sections 4.2, 4.4 and 4.5 of the Existing Lease, rental payments for Lessee's lease of the Premises shall no longer include Percentage Rent after the Effective Date of this Amendment No. 1. Lessee is also hereby fully relieved from the obligation to pay the amount of $223,796.00 in outstanding and unpaid Rent as determined by the Report and City waives its right to collect payment of such amount of 12- 7 Percentage Rent for the periods prior to calendar year 2024 beyond what has been paid by Lessee. The parties expressly agree that this paragraph as to the Percentage Rent obligations shall not be construed as a forgiveness of debt by the City. (b) The Lease provisions pertaining to the calculation and periodic adjustment of Base Rent as well as the place for the payment of rent are hereby amended with Sections 4.1 and 4.3 of the Lease are hereby deleted and amended in their entirety to read as follows: "4.1 Base Rent. (a) Base Rent. Lessee shall pay Base Rent to City in the sum of Two Hundred Sixteen Thousand Dollars and 00/100 ($216,000.00) per year beginning on the first day of the first month after the Effective Date of Amendment No. One. Base Rent shall be paid in equal monthly installments of Eighteen Thousand Dollars and 00/100 ($18,000.00). Base Rent for each full month shall be due on the first day of that month ("Rent Due Date") and late on the tenth (10th) day of the month. Base Rent for any partial month shall be prorated in accordance with the actual number of days in that month." (b) Periodic Adjustment. After the end of every fifth Lease Year, the Base Rent shall increase by ten percent (10%) or seventy five percent (75%) of the percentage increase in the Consumer Price Index (Los Angeles — Long Beach — Anaheim (1982-84 = 100) All Urban Consumers) for the previous five (5) Lease Years, whichever is greater. The calculation of the Periodic Adjustment shall be made within ninety (90) days after the end of every fifth Lease Year and the increase in Base Rent shall be effective and paid to the City as of the first Rent Due Date after calculation of the Periodic adjustment and each month thereafter until Base Rent is increased pursuant to the next Periodic Adjustment." "4.3 Place for Payment of Rent. All Rent that becomes due and payable under this Lease shall be paid to City in person or by United States mail at the Cashier's Office located at 100 Civic Center Drive, Newport Beach, California 92658-8915, or electronically at www.newportbeachca.gov, or at any other place or places that City may designate by written notice to Lessee." Amendment No. One to Lease Page 2 12-8 2. BONDS A new Section 9.8 is hereby added to the Existing Lease as follows: 9.8.1 For any work or construction that falls under Section 9 and that exceeds a cost of Fifty Thousand Dollars and 00/100 ($50,000), Lessee shall obtain, provide, and maintain at its own expense during the term of the work or construction both of the following: (a) a Faithful Performance Bond in the amount of one hundred percent (100%) of the total amount to be paid by Lessee to its contractor as set forth in their contract, in the form attached as Exhibit E and incorporated herein by reference; and (b) a Labor and Materials Payment Bond in the amount of one hundred percent (100%) of the total amount to be paid by Lessee to its contractor as set forth in their contract, in the form attached as Exhibit F and incorporated herein by reference. Said bonds may be obtained by the contractor performing the work and are necessary for City to complete any incomplete work or construction on the Premises. In lieu of the foregoing bonds, Lessee may also provide the City with a letter of credit and/or cash in the amount of the proposed work as security for the completion of the proposed work. 9.8.2 The Faithful Performance Bond and Labor and Materials Payment Bond shall be issued by an insurance organization or surety (a) currently authorized by the Insurance Commissioner to transact business of insurance in the State of California, (b) listed as an acceptable surety in the latest revision of the Federal Register Circular 570, and (c) assigned a Policyholders' Rating A- (or higher) and Financial Size Category Class VII (or larger) in accordance with the latest edition of Best's Key Rating Guide: Property - Casualty. 9.8.3 Prior to the commencement of any work or construction, Lessee shall provide City with the Faithful Performance Bond and Labor and Materials Payment Bond, along with a certified copy of the "Certificate of Authority" of the Insurer or Surety issued by the Insurance Commissioner, which authorizes the Insurer Amendment No. One to Lease Page 3 12-9 or Surety to transact surety insurance in the State of California." 3. REPAIRS AND MAINTENANCE OF PREMISES (a) Section 10.1 of the Existing Lease is amended to modify Lessee's response time obligation to a 24-hour period in the case of emergencies and to add that the City's billing invoices are subject to interest. Accordingly, Section 10.1 of the Existing Lease is hereby deleted in its entirety and replaced with the following: "10.1. Maintenance and Repair by Lessee and City. Lessee agrees that it will maintain the Premises in Good Condition. City shall be responsible solely for the maintenance of the vertical bulkheads serving the Premises excluding damage or deterioration caused to any bulkhead by Lessee or Lessee's operations for which Lessee shall be responsible. Lessee shall also, at its sole cost and expense, at all times during the Term, maintain all other improvements and equipment on the Premises including entrances and exits, plate glass, roofs, doors, exterior and interior painted areas, HVAC equipment, electrical circuits and switchgear, utility supply lines, plumbing and other fixtures, equipment, interior walls, ceilings and floors, piers, concrete foundations, fencing, gates, asphalt areas, slips, floats and ramps, in Good Condition, order, and repair. City may perform Maintenance or repairs in the event Lessee fails to commence and diligently pursue to completion, the required Maintenance or repairs within fifteen (15) days after receipt after written notice to Lessee to do so unless the disrepair or lack of maintenance constitutes an emergency posing an imminent threat of death or injuries to persons and/or an imminent threat of material damage to property in the City's sole determination, in which case Lessee shall perform and diligently pursue to completion within 24 hours of the notice. The cost of any Maintenance or repairs by the City pursuant to this Section shall be payable upon billing by City as additional Rent with the Lessee's next monthly Rent payment, which shall bear interest at the rate of ten percent (10%) per annum on the unpaid balance, from the due date until paid." (b) Section 10.2 of the Existing Lease is amended to add the word "entry" to the end of the last sentence. Accordingly, Section 10.2 of the Existing Lease is hereby deleted in its entirety and replaced with the following: 10.2 Entry by City. City may enter upon and inspect the Premises at any reasonable time for Maintenance or other purposes. In case of emergency, City or its Authorized Amendment No. One to Lease Page 4 12-10 Representatives may enter the Premises by the master key if Lessee is not present to open and permit an entry. During entry, City shall exercise reasonable care relative to the Premises and to Lessee's Property. Any entry to the Premises by City shall not be construed as a forcible or unlawful entry." 4. WASTE, NUISANCE, AND AMPLIFIED SOUND Section 19 (Waste or Nuisance) of the Existing Lease is amended to add a new Section 19.2: "19.2 Amplified Sound. Lessee shall not commit or permit the commission of any noise or nuisance on the Premises and shall comply with any and all noise and nuisance requirements as defined by any applicable federal, state and local laws and regulations, including but not limited to Newport Beach Municipal Code Chapter 10.28, et seq." 5. INSURANCE Sections 12.3 through and including Section 12.9 (Insurance) of the Existing Lease are deleted in their entirety and replaced with the document entitled "Insurance Requirements" attached hereto and incorporated herein by this reference as Exhibit G. 6. INTEGRATED CONTRACT Except as expressly modified herein, all other provisions, terms, and covenants set forth in the Existing Lease shall remain in full force and effect. In the event of a conflict between any term, provision, or condition of this Amendment No. One and any term, provision, or condition of the Existing Lease related to elimination of Percentage Rent, the Base Rent required to be paid under the Lease, maintenance obligations of the Parties, Lessee's obligation to maintain construction bonds in connection with future alterations to the Premises; Lessee's insurance obligations required in Exhibit E and Lessee's obligation to comply with comply with noise and nuisance, the terms, provisions, or conditions of this Amendment No. One will control. [SIGNATURES ON NEXT PAGE] Amendment No. One to Lease Page 5 12-11 IN WITNESS WHEREOF, the parties have caused this Amendment No. One to be executed on the dates written below. APPROVED AS TO FORM: LESSOR: CITY OF NEWPORT BEACH, CITY ATTORNEY'S OFFICE a California municipal corporation and charter city Date: ID Date: By: By: Aaron C. Harp �o ssl��. Grace K. Leung City Atto ney City Manager ATTEST: Date: M LESSEE: NEWPORT HARBOR POST NO. 291 OF THE AMERICAN LEGION, a California non-profit mutual benefit corporation Date: Bv: Leilani I. Brown Brian Fleming, Jr., City Clerk Post Commander Date: Bv: Robert Wine, Chief Financial Officer [END OF SIGNATURES] Attachments Exhibit E — Faithful Performance Bond Exhibit F — Labor and Materials Payment Bond Exhibit G — Insurance Requirements Amendment No. One to Lease Page 6 12-12 IN WITNESS WHEREOF, the parties have caused this Amendment No. One to be executed on the dates written below. APPROVED AS TO FORM: LESSOR: CITY OF NEWPORT BEACH, CITY ATTORNEY'S OFFICE a California municipal corporation and charter city Date: D Date: By: By: Aaron C. Harp to Grace K. Leung City Atto ney City Manager ATTEST: LESSEE: NEWPORT HARBOR POST Date: NO. 291 OF THE AMERICAN LEGION, a California non-profit mutual benefit corporation M Date: 1 d /?_L1 /z0?_9 Leilani I. Brown Brian Fleming, Jr., City Clerk Post Commander Date: 0/2 �z Z2 By: Robert Wine, Chief Financial Officer [END OF SIGNATURES] Attachments Exhibit E — Faithful Performance Bond Exhibit F — Labor and Materials Payment Bond Exhibit G — Insurance Requirements Amendment No. One to Lease Page 6 12-13 Exhibit E BOND NO. FAITHFUL PERFORMANCE BOND The premium charges on this Bond is $ , being at the rate of $ thousand of the Contract price. WHEREAS, NEWPORT HARBOR POST NO. 291 OF THE AMERICAN LEGION ("Obligee"), as lessee of the City of Newport Beach, State of California, has awarded to [Contractor] ("Principal") a contract for: ("Contract"). WHEREAS, Principal has executed or is about to execute the Contract and the terms thereof require the furnishing of a Bond for the faithful performance of the Contract. NOW, THEREFORE, we, the Principal, and , duly authorized to transact business under the laws of the State of California as surety ("Surety"), are held and firmly bound unto Obligee, in the sum of Dollars and _/100 ($ ) lawful money of the United States of America, said sum being equal to 100% of the estimated amount of the Contract, to be paid to Obligee, its successors, and assigns; for which payment well and truly to be made, we bind ourselves, our heirs, executors and administrators, successors, or assigns, jointly and severally, firmly by these present. THE CONDITION OF THIS OBLIGATION IS SUCH, that if the Principal, or the Principal's heirs, executors, administrators, successors, or assigns, fail to abide by, and well and truly keep and perform any or all the Work, covenants, conditions, and agreements in the Contract and any alteration thereof made as therein provided on its part, to be kept and performed at the time and in the manner therein specified, and in all respects according to its true intent and meaning, or fails to indemnify, defend, and save harmless Obligee, its officers, employees and agents, as therein stipulated, then, Surety will faithfully perform the same, in an amount not exceeding the sum specified in this Bond; otherwise this obligation shall become null and void. As a part of the obligation secured hereby, and in addition to the face amount specified in this Performance Bond, there shall be included costs and reasonable expenses and fees, including reasonable attorneys fees, incurred by Obligee, only in the event Obligee is required to bring an action in law or equity against Surety to enforce the obligations of this Bond. Amendment No. One to Lease Page E-1 12-14 Surety, for value received, stipulates and agrees that no change, extension of time, alterations or additions to the terms of the Contract or to the Work to be performed thereunder shall in any way affect its obligations on this Bond, and it does hereby waive notice of any such change, extension of time, alterations or additions of the Contract or to the Work or to the specifications. This Faithful Performance Bond shall be extended and maintained by the Principal in full force and effect for one (1) year following the date of formal acceptance of the Work by Lessee and City. In the event that the Principal executed this bond as an individual, it is agreed that the death of any such Principal shall not exonerate the Surety from its obligations under this Bond. IN WITNESS WHEREOF, this instrument has been duly executed by the Principal and Surety above named, on the day of ,20 Name of Contractor (Principal) Name of Surety Address of Surety Telephone Authorized Signature/Title Authorized Agent Signature Print Name and Title NOTARY ACKNOWLEDGMENTS OF CONTRACTOR AND SURETY MUST BE ATTACHED Amendment No. One to Lease Page E-2 12-15 ACKNOWLEDGMENT A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document. State of California County of } ss. On 20 before me, Notary Public, personally appeared who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signatures(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Signature (seal) ACKNOWLEDGMENT A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document. State of California County of I ss. On 20 before me, Notary Public, personally appeared , who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signatures(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Signature (seal) Amendment No. One to Lease Page E-3 12-16 Exhibit F BOND NO. LABOR AND MATERIALS PAYMENT BOND WHEREAS, NEWPORT HARBOR POST NO. 291 OF THE AMERICAN LEGION ("Obligee"), as lessee of the City of Newport Beach, State of California, has awarded to [Contractor] ("Principal") a contract for: ("Contract"). WHEREAS, Principal has executed or is about to execute the Contract and the terms thereof require the furnishing of a bond, providing that if Principal or any of Principal's subcontractors, shall fail to pay for any materials, provisions, or other supplies used in, upon, for, or about the performance of the Work agreed to be done, or for any work or labor done thereon of any kind, the Surety on this bond will pay the same to the extent hereinafter set forth. NOW, THEREFORE, We the undersigned Principal, and, duly authorized to transact business under the laws of the State of California, as surety, ("Surety") are held and firmly bound unto Obligee, in the sum of Dollars and _/100 ($ ) lawful money of the United States of America, said sum being equal to 100% of the estimated amount payable by Obligee under the terms of the Contract; for which payment well and truly to be made, we bind ourselves, our heirs, executors and administrators, successors, or assigns, jointly and severally, firmly by these present. THE CONDITION OF THIS OBLIGATION IS SUCH, that if the Principal or the Principal's subcontractors, fail to pay for any materials, provisions, or other supplies, implements or machinery used in, upon, for, or about the performance of the Work contracted to be done, or for any other work or labor thereon of any kind, or for amounts due under the Unemployment Insurance Code with respect to such work or labor, or for any amounts required to be deducted, withheld and paid over to the Employment Development Department from the wages of employees of the Principal and subcontractors pursuant to Section 13020 of the Unemployment Insurance Code with respect to such work and labor, then the Surety will pay for the same, in an amount not exceeding the sum specified in this Bond, and also, in case suit is brought to enforce the obligations of this Bond, a reasonable attorneys' fee, to be fixed by the Court as required by the provisions of Section 9554 of the Civil Code of the State of California. The Bond shall inure to the benefit of any and all persons, companies, and corporations entitled to file claims under Section 9100 of the California Civil Code so as to give a right of action to them or their assigns in any suit brought upon this Bond, as Amendment No. One to Lease Page F-1 12-17 required by and in accordance with the provisions of Sections 9500 et seq. of the Civil Code of the State of California. And Surety, for value received, hereby stipulates and agrees that no change, extension of time, alterations or additions to the terms of the Contract or to the Work to be performed thereunder shall in any wise affect its obligations on this Bond, and it does hereby waive notice of any such change, extension of time, alterations or additions to the terms of the Contract or to the Work or to the specifications. In the event that any principal above named executed this Bond as an individual, it is agreed that the death of any such principal shall not exonerate the Surety from its obligations under this Bond. IN WITNESS WHEREOF, this instrument has been duly executed by the above - named Principal and Surety, on the day of , 20 Name of Contractor (Principal) Name of Surety Address of Surety Telephone Authorized Signature/Title Authorized Agent Signature Print Name and Title NOTARY ACKNOWLEDGMENTS OF CONTRACTOR AND SURETY MUST BE ATTACHED Amendment No. One to Lease Page F-2 12-18 20 before me, Notary Public, personally appeared who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signatures(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Signature ACKNOWLEDGMENT A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document. State of California County of } ss. On ACKNOWLEDGMENT A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document. State of California County of } ss. On (seal) 20 before me, Notary Public, personally appeared , who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signatures(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Signature (seal) Amendment No. One to Lease Page F-3 12-19 Exhibit G INSURANCE REQUIREMENTS Without limiting the Lessee's indemnification of Lessor, Lessee shall procure and maintain in full force and effect at its own expense during the term of this Agreement, policies of insurance of the type and amounts described below and, in a form satisfactory to Lessor. Lessor reserves the right to modify these requirements, including limits, based on the nature of the risk, prior experience, insurer, coverage, passage of time, or other special circumstances. If the existing policies do not meet the insurance requirements set forth herein, Lessee agrees to amend, supplement, or endorse the policies to do so. 1. Minimum Scope and Limit of Insurance. A. Workers' Compensation Insurance with statutory limits and Employer's Liability Insurance with a limit of at least one million dollars ($1,000,000) each accident for bodily injury and each employee for disease. U.S. Longshoremen's and Harbor Workers' Act (USL&H) shall be required for employees performing services covered by said Act. Lessee shall submit to Lessor, along with a certificate of insurance, a waiver of subrogation endorsement in favor of the Lessee, City of Newport Beach, its City Council, boards and commissions, officers, agents, volunteers, employees. B. Commercial General Liability/Marine General Liability at least as broad as Insurance Services Office "occurrence" form CG 00 01 covering land and waterborne exposures including but not limited to coverage for bodily injury and property damage, products and completed operations, liquor liability, contractual liability, personal and advertising injury, marina operators legal liability, independent contractors, and defense costs excess of limit, in an amount not less than five million dollars ($5,000,000) per occurrence and five million dollars ($5,000,000) general aggregate. Lessee shall procure, maintain, and submit to Lessor evidence of Products - Completed Operations coverage for a period of three (3) years from the time the Agreement is terminated. Lessee shall submit to Lessor, along with a certificate of insurance, additional coverage as stated in Section 2. Endorsements. C. Automobile Liability Insurance with coverage at least as broad as Insurance Services Office Form CA 00 01 covering any auto (Code 1), or if Lessee Amendment No. One to Lease Page G-1 12-20 has no owned autos, coverage for hired autos (Code 8) and non -owned autos (Code 9) with limit no less than one million dollars ($1,000,000) each accident for bodily injury and property damage. Lessee shall submit to Lessor, along with a certificate of insurance, additional coverage as stated in Section 2. Endorsements. D. Watercraft Liability including Protection and Indemnity with minimum limits of five million dollars ($5,000,000) each occurrence and in the aggregate, Jones Act for employees performing services under said Act, and Water Pollution Liability. Water Pollution Liability shall be provided for both sudden and accidental and gradual and continuous pollution events with limits no less than five million dollars ($5,000,000) each loss and in the aggregate. The policy shall not exclude any hazardous materials for which there is exposure. Lessee shall submit to Lessor, along with a certificate of insurance, additional coverage as stated in Section 2. Endorsements. E. Property Insurance coverage shall be maintained on a special form coverage replacement cost basis with building and business income, excluding coverage for earthquake and flood, and including docks and piers with no coinsurance clause. Lessee shall be solely responsible for the payment of any deductible. Business Interruption insurance shall provide for monthly rent payable to Lessor for at least twelve (12) months if the premises are destroyed, unusable or inaccessible. Lessee shall submit to Lessor, along with a certificate of insurance, additional coverage as stated in Section 2. Endorsements. F. Builder's Risk Insurance during construction, alteration or any improvements on Premises, Lessee shall maintain Builder's Risk insurance with no coinsurance clause to cover "All Risk" of physical loss including coverage for loss or damage from collapse and all property stored off -site or in transit. The value insured shall cover 100% of the completed contract cost and include Boiler & Machinery and soft costs and shall be maintained until full acceptance of completed work. Lessee shall be solely responsible for the payment of any deductible. G. Contractors Pollution Legal Liability or Pollution Legal Liability insurance including onsite and offsite coverage for bodily injury (including death and mental anguish), property damage, non -owned disposal site liability, defense costs, cleanup costs, and pollution conditions that arise from or in connection with the transportation (including loading and unloading) by or on behalf of Lessee, of any waste or waste materials off or away from the project site. Coverage shall be provided for both sudden and accidental Amendment No. One to Lease Page G-2 12-21 and gradual and continuous pollution events with limits no less than five million dollars ($5,000,000) each loss and in the aggregate. The policy shall not exclude any hazardous materials for which there is exposure. Lessee shall submit to Lessor, along with a certificate of insurance, additional coverage as stated in Section 2. Endorsements. H. Crime Bond in an amount not less than five hundred thousand dollars ($500,000) with coverage including, but not limited to theft, forgery, alteration, computer fraud and funds transfer fraud. Lessee shall submit to Lessor, along with a certificate of insurance, additional coverage as stated in Section 2. Endorsements. I. Garagekeepers Liability shall be required if Lessee is providing valet services, with minimum limits of one million dollars ($1,000,000) each loss. J. Excess/Umbrella Liability Insurance shall be "following form" of the underlying policy coverage, terms, conditions, and provisions and shall meet all the insurance requirements stated in this Agreement, including, but not limited to the additional insured, primary & non-contributory and waiver of subrogation insurance requirements stated herein. No insurance policies or self-insurance maintained by the Lessor, whether primary, reinsurance or excess, and which also apply to a loss covered hereunder, shall be called upon to contribute to a loss until Lessee's primary and excess/umbrella liability policies are exhausted. Lessor requires and shall be entitled to Lessee's broader coverage and/or the higher limits if Lessee maintains broader coverage and/or higher limits than the minimums shown above. Any available insurance proceeds excess of the specified minimum limits of insurance and coverage shall be available to the Lessor. No representation is made that the minimum insurance requirements of this Agreement are sufficient to cover the obligations of Lessee under this Agreement. 2. Endorsements. Policies shall not comply if they include any limiting provision or endorsement contrary to this Agreement, including but not limited to restricting coverage to the sole liability of Lessee or excluding contractual liability. Policies shall contain or be endorsed to contain the following provisions. A. Additional Insured. The Lessor, City of Newport Beach, its City Council, boards and commissions, officers, agents, volunteers, and employees shall be covered as additional insureds with regard to liability and defense of suits or claims arising out of the activities, work or operations performed by or on behalf of the Lessee including materials, parts or equipment furnished in connection with such work or operations on all liability policies, except professional liability. Additional insured endorsements shall be at least as broad as ISO Form(s) CG 20 10 11 85; or both CG 20 10 or CG 20 26, and CG 20 37. Amendment No. One to Lease Page G-3 12-22 B. Primary and Non -Contributory. All liability policies shall be primary to and will not seek contribution from any other insurance whether primary, excess, umbrella, or contingent insurance, including deductible, or self-insurance available to the Lessor, City of Newport Beach, its City Council, boards and commissions, officers, agents, volunteers, and employees for all liability policies. The primary endorsements shall be at least as broad as ISO CG 20 01 04 13. C. Waiver of Subrogation. All insurance policies shall contain or be endorsed to waive subrogation against Lessor, City of Newport Beach, its City Council, boards and commissions, officers, agents, volunteers, and employees. Lessee hereby waives its own right of recovery against Lessor and shall require similar written express waivers from each of its consultants, contractors, or subcontractors. This provision applies regardless of whether the City has received a waiver of subrogation endorsement from the insurer. D. Loss Payee. Losses payable under the Property and Builder's Risk Insurance policies shall be paid to the Lessor as its interests may appear. 3. Additional Agreements Between the Parties. A. General Obligations. In the event Lessor determines that (i) the Lessee's activities on the Premises creates an increased or decreased risk of loss to the Lessor, (ii) greater insurance coverage is required due to the passage of time, or (iii) changes in the industry require different coverage be obtained, Lessee agrees that the minimum types and limits of any insurance policy required to be obtained by Lessee or Lessee's consultants, contractors, or subcontractors, may be changed accordingly upon receipt of written notice from Lessor. With respect to changes in insurance requirements that are available from Lessee's then -existing insurance carrier, Lessee shall deposit certificates and endorsements evidencing acceptable insurance policies with Lessor incorporating such changes within thirty (30) calendar days of receipt of such notice. With respect to changes in insurance requirements that are not available from Lessee's then existing insurance carrier, Lessee shall deposit certificates evidencing acceptable insurance policies with Lessor, incorporating such changes, within ninety (90) calendar days of receipt of such notice. B. Use of Premises. Lessee agrees not to use the Premises in any manner, even if use is for purposes stated herein, that will result in the cancellation of any insurance coverage for the Premises or adjoining property. Lessee further agrees not to keep on the Premises or permit to be kept, used, or sold thereon, anything prohibited by any insurance policy covering the Premises. Lessee shall, at its sole expense, comply with all reasonable requirements for maintaining the required insurance coverage on the Premises. Lessee shall have 15 days after receipt of written notice from Lessor to comply with the requirements under this Section 3.B. Amendment No. One to Lease Page G-4 12-23 C. Evidence of Insurance. All policies, endorsements, certificates, and/or binders shall be subject to approval by the Lessor as to form and content. These requirements are subject to amendment or waiver only if approved in writing by the Lessor. The Lessor reserves the right to request complete, certified copies of all required insurance policies, including endorsements required by these specifications, at any time. The certificates and endorsements for each insurance policy shall be signed by a person authorized by that insurer to bind coverage on its behalf. At least fifteen (15) days prior to the expiration of any such policy, evidence of insurance showing that such insurance coverage has been renewed or extended shall be filed with the Lessor. If such coverage is cancelled or reduced, Lessee shall, within ten (10) days after receipt of written notice of such cancellation or reduction of coverage, file with the Lessor evidence of insurance showing that the required insurance has been reinstated or has been provided through another insurance company or companies. D. Acceptability of Insurers. Each such policy shall be from a company or companies with a current A.M. Best's rating of no less than A-: VII and authorized to do business in the State of California, or otherwise allowed to place insurance through surplus line brokers under applicable provisions of the California Insurance Code or any federal law or otherwise approved by the Lessor's Risk Manager. E. Notice of Cancellation. All insurance policies shall contain or be endorsed to provide that the insurance required by this Agreement shall not be suspended, voided, canceled, or reduced in coverage or in limits until thirty (30) days written notice has been served upon the Lessor, except ten (10) days for non-payment of premium. It is Lessee's obligation to ensure that provisions for such notice have been established. F. Self -Insured Retentions. Self -insured retentions (SIR's) must be declared to and approved by Lessor; provided that any SIR's or deductible amounts that are not greater than $10,000 shall not require Lessor's approval. Lessor may require Lessee to purchase coverage with a lower retention or provide proof of ability to pay losses and related investigations, claim administration, and defense expenses within the SIR. The policy language shall provide, or be endorsed to provide, that the SIR may be satisfied by either the named insured or Lessor. Self -insured retentions shall be the sole responsibility of Lessee, or subcontractor who procured such insurance. Lessor may deduct from any amounts otherwise due Lessee to fund the SIR. The policy must also provide that defense costs, including the allocated loss adjustment expenses, will satisfy the SIR. G. Contractual Liability. The policy shall cover liability assumed under an insured contract, including the tort liability of another assumed in a business Amendment No. One to Lease Page G-5 12-24 contract, with no endorsement or modification limiting the scope of coverage for liability assumed under contract. H. Reporting Requirements. Lessee shall give Lessor prompt and timely notice of any claim made or suit arising out of or resulting from Lessee or Lessee's agents, representatives, consultants, contractors, or subcontractors' performance under this Agreement. Contractors and Subcontractors. Lessee shall be responsible for causing consultants, contractors and/or subcontractors to purchase the same types and limits of insurance in compliance with the terms of this Agreement, including adding the City as an additional insured, providing primary and non-contributory coverage and waiver of subrogation to the subcontractor's policies, and meeting the following requirements: Commercial General Liability/Marine Liability Endorsements. For Commercial General Liability/Marine General Liability coverages, contractors, consultants and/or subcontractors shall provide coverage with a format at least as broad as provided by Insurance Services Office form CG 20 38 04 13. Unless written approval is granted by Lessor, contractors and/or subcontractors shall also provide an additional insured endorsement at least as broad as ISO Form CG 40 12 19. 2. Completed Operations. Lessee shall require and verify that Lessee's construction contractors and subcontractors maintain commercial general liability insurance, including products -completed operations, for a period of at least five (5) years from the time that all work is completed. 3. Design Professionals. Lessee shall require that Lessee's consultants, contractors and/or subcontractors providing any design, engineering, surveying, or architectural services for the Premises maintain professional liability insurance that covers the services to be performed, in the minimum amount of two million dollars ($2,000,000) each claim and four million dollars ($4,000,000) in the aggregate. Any policy inception date, continuity date, or retroactive date and all subsequent insurance shall coincide or be effective on the first Agreement for Lease of Premises. Lessee shall require that Lessee's consultants, contractors and/or subcontractors agree to maintain continuous coverage through a period of no less than five (5) years after completion of the services performed. 4. Failure to Maintain Insurance. If Lessee or Lessee's consultants, contractors or subcontractors fail or refuse to maintain insurance as required in this Agreement, or fail to provide proof of insurance, Amendment No. One to Lease Page G-6 12-25 Lessor has the right to further notice to Lessee, available remedies. declare this Agreement in default without and Lessor shall be entitled to exercise all Amendment No. One to Lease Page G-7 12-26 Attachment B Lease 12-27 w LEASE BETWEEN' THE CITY OF NEWPORT BEACH Ali\'l D THE AMERICAN LEGION NEVi1VORT HARBOR POST 291 12-28 LEASE THIS LEASE between the CITY OF NEWPORT BEACH, a Charter City (City) and NEWPORT HARBOR POST NO. 291 OF THE AMERICAN LEGION, a California corporation (Lessee) is effective on the 6th'day of December 2002 ("Effective Date") and is made with reference -to the following: IC73alftr_\W19 A. City is the owner of a parcel consisting of tidelands and/or uplands that is generally located at 151h Street and West Bay in the City Newport Beach (Premises). The Premises is depicted on Exhibit A, is legally described in Exhibit B and the "Adjoining Property" is depicted and described on and in Exhibits C and D. B. Lessee has continuously occupied the Premises pursuant to a Lease dated March 10, 1975 that has been amended on two occasions to extend the term to March 2002 (Original Lease). C. Lessee is currently in possession of the Premises and has constructed improvements on the Premises including a marina, legion hall, parking area, dry boat storage facilities and lockers. D. Lessee is a non-profit public benefit corporation with approximately 2051 members as of the Effective Date including many Newport Beach residents. American Legion Membership is available to all persons who served in any branch of the armed forces of the United States. The marina and dry boat storage facilities are currently available only to "members of Lessee but the legion hall is rented to. members of the -public on a "first come first served 'basis" for weddings, parties and special occasions. E. On November 3, 1992, a majority of the electors of the City of Newport Beach approved Measure M. Measure M authorizes the Newport Beach City Council to lease tidelands and waterfront property consistent with the provisions of State law. F. The City has entered into an agreement with Sutherland-Talla Hospitality (STH) pursuant 'to which STH has been given the exclusive right to apply for and seek approval of all permits and approvals necessary to construct a hotel (Hotel Project) on City owned property that is adjacent to the Premises (Adjoining Property). This agreement between the City and STH also obligates City, assuming STH obtains all required permits and approvals, to negotiate, in good faith, with STH in an effort to agree on the terms and conditions of a long term ground lease for some or all of the Adjoining Property. G. State Lands Commission (Commission) approval of this Lease is not required. Commission staff has determined that this Lease conforms to the statutes and constitutional provisions relevant to the City administration and use of tide and submerged lands. H. The City Council of the City of Newport Beach has determined that this Lease is consistent with the Charter of the City of Newport Beach, the -1- 12-29 Newport Beach General Plan, the Land Use Plan of the Local Coastal Program and all ordinances, resolutions, and policies presently in effect. 1. The City Council of the City of Newport Beach has determined that it is in the best interests of the citizens of the City of Newport Beach to grant Lessee a long-term ground lease of the Premises on the terms and conditions specified in this Lease. NOW, THEREFORE, in consideration of the mutual promises and covenants. in this Lease, the Parties agree as follows: 1. DEFINITIONS 1.1 General Definitions. As used in this Lease, the following words and phrases shall have the following meanings: (a) Alteration — means any addition or change to or modification of, the Premises made by Lessee including, without limitation, ftxtur'es. kb) Annual Total Rent — means Base Rent and Percentage Rent for a Lease Year. (c) Authorized Representative — means any officer, agent, employee, or independent contractor retained or employed by either Party and acting within authority given by that Party. (d) City — means the CITY OF NEWPORT BEACH. (e) Damage — means an injury to or death of any Person, or the damage destruction, or loss of Premises caused by another Person's acts or omissions. (f) Damages — means monetary compensation or indemnity that can be recovered in the courts by any Person who has suffered Damage. (g) Day or Days — means calendar day(s), subject to extension for weekends or any day when banks are not open in California if a deadline occurs on any such Day. . (h) Expiration -- means the lapse of the time specified as the Term of this Lease. (i) Good Condition — means the clean, safe, physical condition of the Premises and each portion of the Premises in compliance with all applicable governmental laws and regulations. (j) Hazardous Materials — means any substance the nature of which, whether in terms of quantity, existence, storage,"use, manufacture, disposal or effect, renders the substance and/or the user or the owner of real property affected by the substance, subject to or controlled by federal, state or local -2- 12-30 law, or regulation because (i) the substance is actually or potentially injurious, or a threat, to the public's health or welfare or to the environment; or (ii) because the substance. requires, pursuant to federal, state or local law, remediation, removal, cleanup or other action to bring the substance and/or the Premises into conformance with applicable law. (k) Hold Harmless — means to protect, defend, indemnify and hold harmless the other party (including employees, officers and, agents) from all liability, losses, penalties, Damages, costs, attorney fees or expenses arising out of or related to any Damage to any Person or property. (1) Law — means any judicial decision, statute, constitution, ordinance, resolution, regulation, rule, administrative order, or other requirement of any municipal, county, state, federal, or other government agency or authority having jurisdiction over the Parties and/or the Premises. (m) - Lease Year — means each twelve (12) month period subsequent to the Rent Commencement Date and during the Term. (n) Maintenance or Maintain — means repairs, replacement, maintenance, repainting, and cleaning. (o) Material Default -- means the failure of Lessee to cure a default pursuant to Section 16 on or before the applicable. cure deadline. (p) Person — means one or more natural persons, or legal entities, including, without limitation, partnerships, corporations, trusts, estates, associations, or a combination of natural persons and legal entities. (q) Provision — means any term, covenant, condition, or clause in this Lease that defines, establishes, or limits the performance required or permitted by either Party. (r) Redevelopment with or without "of Adjoin in Pro ert " --- means any study, planning, design, construction or operation of any portion of all or a portion of the City owned property, other than the Premises, bounded by 15" Street, Balboa Boulevard, 191" Street and Newport Bay (including any public facility on or serving the Premises or Adjoining Property) for any purpose or project including the Hotel Project. (sj Rent — means Base Rent, Percentage Rent, late payment penalties, in taxes, and other monetary amounts and charges payable by Lessee under the Provisions of this Lease. (t) Rent Commencement Date -- means the first day of January 2003, s3_ 12-31 {u) Successor — means any assignee, transferee, personal representative, heir, or other Person succeeding lawfully, and pursuant to the provisions of this Lease, to the rights or obligations of either Party. (v) Termination — means the termination of this Lease, for any reason, prior to Expiration. 1.2 "Gross Sales Revenue" The term Gross Sales Revenue means; (a) The entire amount of the actual consideration, paid to Lessee for all sales of merchandise, labor, service and materials and all charges made by or on .behalf of Lessee from or upon the Premises, including orders taken on the Premises and filled elsewhere and sales by any sublessee, or subcontractor in or from the Premises. {b) The gross receipts of all coin -operated; devices that are placed on the Premises by Lessee or pursuant to any rent concession, percentage or other arrangement but excluding revenue collected by a public and/or private utility from telephones. Each sale upon installment or credit shall be treated as a sale for the full price in the month during which the sale is made, irrespective of the time when Lessee receives payment (whether in full or in part) from the customer. Gross Sales Revenue shall not include sales and use taxes, so-called luxury taxes, consumers' excise taxes, and other similar taxes now or in the future imposed on the sale of merchandise or services, provided the taxes are separately stated on the invoice and added to the selling price and collected- from customers. Gross Sales Revenue shall not include the amount of any cash or credit paid by a customer to the extent that a cash or credit refund is given to the customer., Gross Sales'Revenue shall not include uncollectible credit accounts and other bad debts or the proceeds of sale of Lessee's ' personal property, trade fixtures or business equipment. The term gross sales shall not include any gift, donation, bequest or other transfer of property to Lessee for charitable purposes. 1.3 Rules of Construction. The language in this Lease shall be construed simply, according to its fair meaning, and not strictly for or against either City or Lessee: The term "permit" shall be interpreted to include "cause to be permitted or allowed to be permitted." The term "include" or "including" shall be interpreted to comprise the term `."without limitation" and shall not imply any limitation unless otherwise expressly provided. -4- 12-32 2. LEASE OF PREMISES City leases the Premises to Lessee and Lessee leases the Premises from City for the Term and on and subject to the terms and conditions in this Lease. 3. TERM The initial Term of this Lease shall be twenty-five (25) years from the Rent Commencement Date (initial Term) unless earlier terminated. Lessee shall have the option to extend the Term for an -additional twenty-five years (subsequent Term) from the date of expiration of the initial Term if Lessee (a) gives City written notice, at least sixty (.60) days before expiration of the initial Term, of its intention to exercise the option; and (b) Lessee is not in default at the time the written notice is given and is not in default when the initial Term expires. Should Lessee hold over and continue in possession of the Premises after Expiration of the initial Term or the subsequent Term, Lessee's continued occupancy of the Premises shall be considered a month -to -month tenancy subject to termination by either Party upon thirty (30) days prior written notice and subject to all the terms and conditions of this Lease except the provisions of this Section. 4. RENT Lessee shall pay Base Rent (as adjusted periodically pursuant to Section 4.1(b)) to City each month from and after the Rent Commencement Date. Lessee shall also pay Percentage Rent to the City if and to the extent that, during any Lease Year, Percentage Rent exceeds the Base Rent. The following provisions govern the calculation and payment of Base Rent and. Percentage Rent. 4.1 Base Rent. (a) Base Rent. Lessee shall pay Base Rent to City in the sum of ninety-six thousand dollars ($96,000.00) per year beginning on the Rent Commencement Date. Base Rent shall be paid in equal monthly installments of eight thousand dollars ($8,000�. Base Rent for each full month shall be due on the Tenth (10` ) day of that month (Rent Due Date) and late on the Twentieth (20") day of the month. Base Rent for any partial month shall be prorated in accordance with the actual number of days in that month. (b) Periodic Adjustment. After the end of every fifth Lease Year, the Base Rent shall increase by ten percent (10%) or seventy five percent (75%) of the percentage increase in the Consumer Price Index (Los Angeles — Anaheim -- Riverside (1967 = 100) All Urban Consumers) the average Annual Total Rent (the total of Base Rent and Percentage Rent) for the previous five (5) Lease Years, whichever is greater. -The calculation of the Periodic Adjustment shall be made within ninety days after the end of every fifth Lease Year and the increase in Base Rent -5- 12-33 shall -be effective and paid to the City as of the first Rent Due Date after calculation of the Periodic Adjustment and each month thereafter until Base Rent is increased pursuant to the next Periodic Adjustment. 4.2 Percentage Rent. (a) Calculation. Lessee shall also pay Percentage Rent if and to the extent that Percentage Rent exceeds, for any Lease Year, the Base Rent. Percentage Rent shall equal the total of the sums derived from multiplying the annual Gross Sales Revenue from the following Revenue Categories by the corresponding Percentage Rates. REVENUE CATEGORY PERCENTAGE RATE Hall Rental Revenues 20% Marina Revenues 40% Storage Revenues 50% Parking Lot 100% The Gross Sales Revenue used to calculate Percentage Rent shall include the proceeds of business interruption or rental loss insurance to the extent the -proceeds are based on and to compensate for, the loss of any Gross Sales Revenue from which Percentage Rent is calculated. (b) Charges for Goods and Services. Lessee agrees to charge prices for all goods, services and facilities (including boat slip rentals) offered at or provided on or from the Premises that are, taking into consideration when appropriate the relative size, location and condition of the facility, comparable with. prices for similar goods, facilities and services charged at other locations in Newport Beach. Lessee may charge less than amounts charged by similar locations if, in the exercise of Lessee's reasonable business judgment, a lower charge will stimulate revenue increases or is offered in connection with advertising, promotions, discounts to employees, guests or charitable functions. (c) Annual Statement/Payment of Percents a Rent. Lessee .shall, within sixty (60) days following the end of each Lease Year, provide City with a statement, in reasonable detail, of the amount of Lessee's Gross Sales Revenue for each Revenue Category during the preceding Lease Year. The statement shall also calculate the Percentage Rent due for the preceding Lease Year- based on the Gross Sales Revenue in each Revenue Category multiplied by the corresponding Percentage Rates. The statement shall be accompanied by payment of the amount, if any, of the Percentage Rent due for the preceding Lease Year. (d) Failure to Submit. Lessee shall be in default, and City shall have the right, in addition to any other rights or remedies, to -6- . 12-34 conduct an audit at Lessee's expense if Lessee fails to provide City with the annual statement andlor the Percentage Rent as specified in Subsection (c). (e) Termination. City may terminate this Lease upon written notice given at any time within thirty (30) days after receipt of an audit that concludes that the Annual Gross Sales Revenue and/or Percentage Rent is three percent (3%) or more above the amount shown on the Annual Statement and/or Percentage Rent paid to City.- 4.3 Payment Location. Rent shall be payable at the office of the City's Revenue Division at 3300 Newport Boulevard, Newport Beach, California, or at such other place or places as City may from time to time designate by written notice delivered to Lessee. 4.4 Production of Statement, Records and. Audit. Lessee agrees to make available for inspection- by City, or its Authorized Representative, at the Premises a complete and accurate set of books and records of all sales of merchandise and revenue derived from the conduct of business or activity in, at or from the Premises from which Gross Sales Revenue can be determined. Lessee shall also make available, upon City's request, all supporting records, including federal, state and local tax returns. Lessee shall also furnish City's Authorized Representative, upon request, with copies of its quarterly California sales and use ,tax returns filed with the State of California. Lessee shall retain and preserve for at least Three (3) years all records, books, bankbooks or duplicate deposit books and other evidence of Gross Sales Revenue. City and its Authorized Representative shall have the right, upon reasonable notice, during the Term or any Option Term, to inspect and audit Lessee's books and records and to make transcripts to verify the Rent due City.- The audit may be conducted at any reasonable time during normal business hours. Lessee shall cooperate with City in making the inspection and conducting the audit. City shall also be entitled, once during each Lease Year and within Two (2) years after its end, and once within one hundred eighty (180) days after Expiration or Termination of this Lease, to an independent audit of Lessee's books of account, records, cash receipts, and other pertinent data to determine Lessee's Gross Sales Revenue. The audit shall be conducted at City's sole cost and expense by a certified public accountant designated by City. The audit shall be limited to the determination of Gross Sales Revenue and shall be conducted during usual business hours in a manner that minimizes any interference with the conduct of Lessee's regular business operations. If the audit concludes that there is a deficiency in the payment of any Rent, the deficiency shall become doe and payable within twenty (20) days and if there is -an -overpayment, City shall refund the amount of the overpayment within twenty (20) days. City shall bear its costs of the audit unless the audit shows that Lessee understated Gross Sales Revenue by more than three percent (3%), in which case Lessee shall pay the reasonable cost of the audit. City and City's Authorized Representative shall be required to keep confidential to the maximum extent permitted by law any information gained from such .7- 12-35 5 documents, statements, inspections or audits confidential. City and its Authorized Representative shall not disclose financial information received in confidence and pursuant to this Lease except to carry out the purposes of this Lease unless the law requires, as opposed to permits, disclosure. However, City may disclose the results of any audit in connection with any financing arrangements, the sale or transfer of City's interest in the Premises, or pursuant to order of a court or administrative tribunal. 4.5 Lessee's Gross Sales Revenue Audit. In the event of any audit by City in accordance with this Lease, Lessee may contest the results of City's audit by performing a confirming audit within thirty (30) days of receipt of City's audit results and supporting evidence, using an independent public accountant reasonably acceptable to City. if Lessee's audit discloses that City's audit was incorrect by more than three- percent (3%), then City shall pay the cost of Lessee's contesting audit. 4.6 Late Payment Penalty. Rent shall be late if paid on or after the Twentieth (20 ) day of the month due. Late Rent shall be assessed a One (1) time penalty of five percent (5%) of the amount due and shall bear interest at the rate of ten percent (10%) per annum on the unpaid balance (including Rent, late payment penalty and accrued interest) calculated from the date that Rent was due to the date that the balance is fully paid. USE OF PREMISES 5.1 Approved Uses. Lessee shall use the Premises only for the purposes specified in this Section (Approved Uses). Lessee may not use the Premises for any other use except with prior written consent of the City Manager. Lessee may temporarily utilize a portion of the Premises for uses not authorized by this Section upon securing any required permit from City acting in its governmental capacity. Lessee shall be entitled to maintain the following: (a) A Legion Hall of approximately 10,000 square feet and an ancillary food/drink service area. (b) A marina consisting of 49 slips with 34.lockers. (c) Dry boat storage and lockers consisting of 47 spaces and 43 dinghy racks. (d) Parking lot consisting of 26 spaces. 5.2 CitylComm_ unity Use. When Lessee is not using the Premises, the Premises and structures shall be available for use as a community center and recreation instruction facility by the City on a first priority -basis, and by local organized community or civic organizations in accordance with reasonable rules, regulations, fees and scheduling to be established by Lessee with the approval of the City Manager. EN 12-36 5.3 Operation of Premises. Lessee shall operate and manage the Premises in a manner comparable to an organization similar to the American Legion providing similar facilities or services. Lessee shall not use the Premises in any manner that: (a) creates a nuisance; (b) violates any Law; or (c) is not in compliance with all statutes, laws, permits, use restrictions and regulations of City applicable to the Premises, Lessee and/or Lessee's use of the Premises. 5A Advertising Display. Lessee may, at its own expense, place signs in or upon the Premises subject to the prior written consent of the City Manager as to the size, type, design and method of installation. All signage placed by Lessee on, in or about the Premises shall be removed by Lessee upon Termination or Expiration of this Lease and any damage caused by removal shall be repaired at Lessee's expense. Any permanent signage in place as of the Execution Date of this Lease shall be deemed approved by the City: 5.5 Independent Contractor. City shall have no interest in the business of Lessee and no liability for the business operations or diminution/loss of Gross Sales Revenue whether or not caused by City's enforcement of Law. 5.6 Parking. Lessee shall provide a total of 26 off-street parking spaces. The provision of these spaces satisfies the requirements of Title 24 of the Newport Beach Municipal Code. Lessee shall not permit any repair of vehicles on the Premises. 5.7 No Discrimination. Lessee shall allow members of the general public, through a reservation system, to use the Legion Hail for special events on a non-discriminatory basis. Lessee shall not discriminate on the basis of gender, race, religion, or other criteria that violates constitutional or statutory law with respect to the use or occupancy of the Premises. 6. SPECIAL PROVISIONS The provisions of this Section represent special and unique circumstances and consideration related to this Lease and the proposed Redevelopment of all or any portion of the Adjoining. Property. The terms and conditions of this Section are material and the failure to comply shall constitute a material breach on the part of Lessee or, in the case of the charter and minimum membership provisions, cause a forfeiture of this Lease. 6.1 Charter/Membership. City has entered into this Lease based on Lessee's representation that Lessee is a an American Legion Post that is chartered by the American Legion, that Lessee's membership consists of a substantial number of persons and that membership in the American Legion and Newport Harbor Post No. 291 is contingent only upon having served in an active duty capacity in the military forces of the United State. Lessee acknowledges that the minimum membership provisions of this Lease are crucial to the finding by the City Council that this Lease is consistent with City's obligations -9- 12-37 pursuant to statutory, constitutional and decisional law related to the permitted use of tide and submerged lands. Accordingly, Lessee agrees to maintain a minimum membership of one thousand two hundred (1200) natural persons. Lessee shall, within thirty days after the end each Lease Year, provide City with access to a list of all active members so City can confirm compliance with the minimum membership requirement. Lessee agrees to forfeit all of. its rights and interests under this Lease if, at any time during the Term, Lessee fails to satisfy the minimum membership provisions of this Lease or fails to maintain its current affiliation and relationship with the American Legion. 6.2 Cooperation. Lessee shall fully cooperate with City, and City's tenants (other than Lessee), contractors, representatives and assignees (Agents) in the Redevelopment of the Adjoining Property: Lessee's obligation to cooperate with the Redevelopment includes the general and specific requirements Jn this Section. (a) General. Lessee shall allow City andlor its Agents.to take any action, including the right to enter to conduct tests, surveys and studies with respect to the Premises in conjunction with the Redevelopment of Adjoining Property provided the tests, surveys or studies do not unreasonably interfere with Lessee's ability to conduct business on the Premises. Lessee shall allow City and/or its ,Agents to enter onto the Premises subject only to the obligation of City and its .Agents to give Lessee seventy two (72) hours prior written notice and the obligation of the City to, at its sole cost, to commence repair of any Damage to the Premises caused by the City or its Agents, within twenty-four (24) hours after causation. (b) Occupation of Premises. In addition to the general obligation of Lessee to cooperate in Redevelopment, City andlor its Agents shall have the right to occupy any portion of the Premises, except the Legion Hall, Marina and necessary access to each, for: (i) a period of up to 12 consecutive months once during the term of this Lease; and (ii) a total of twenty-four (24) months during the Term. The right of City andlor its Agents to occupy a portion of the Premises is contingent upon City's execution of, and compliance with, an agreement that (i) compensates Lessee for the period of occupation; and (ii) holds Lessee harmless from any claim, loss, damage or liability proximately caused by the occupation. City or its Agents shall, in the course of any occupation of a portion of the Premises, ensure that at least 13 on -site parking spaces remain accessible to Lessee and its invitees. City shall also take all reasonable action to mitigate the impact of any occupation on Lessee such as temporary suspension ,of on street parking charges or the. issuance of short term "no -fee" parking permits to Lessee and/or its invitees. The compensation for occupation shall be calculated on the basis of the average revenue during the six (6) months prior to occupation that was derived from for the use of that portion of the Premises being occupied. For example, if the. -10 - 12-38 occupation is four (4) months and the average month revenue for the preceding six (6) months from that portion of the Premises was one thousand dollars ($1000,00), the compensation would be four thousand dollars ($4,000.00). In the event of an occupation of a portion of the Premises, City may authorize Lessee to conduct its operations from facilities located on the Adjoining Property during the term of the occupation. 6.3 RENOVATION (a) Plans/Permits. Lessee shall, within thirty (30) days after receipt of written notice from City and at Lessee's sole cost and expense, commence preparation of plans for the remodeling and renovation of the structures on the Premises (Renovation). The Renovation shall be designed and constructed in a manner that ensures architectural compatibility with any structures to be constructed on Adjoining Property pursuant to any Redevelopment. The written notice to proceed shall generally specify the architectural criteria for compatibility and Lessee shall submit conceptual designs for the Renovation to the City for approval or modification within sixty (60) days after notice. The conceptual designs shall assume a construction cost of not less than two hundred and fifty thousand dollars ($250,000.00) subject only to a credit in the sum of ten thousand dollars ($10,000) for maintenance performed between the Effective Date and the date of the notice to proceed. City shall approve or conditionally approvo the conceptual designs, taking into consideration the assumed construction costs, within thirty (30) days after submittal. Lessee shall, within sixty days after City approval or conditional approval, prepare -final construction plans and specifications that are consistent with the approval or conditional approval as well as the assumed construction costs and submit the plans to the City for. .issuance of permits. City_ shall waive all fees related to the issuance of permits for the plans. (b) Construction. Lessee shall not be obligated to commence construction of the Renovation until final approval of all necessary permits and City has given Lessee written notice to proceed. The written notice to proceed shall specify the date on which construction is to commence but in no event shall Lessee be required to commence construction less than sixty (60) days after the notice to proceed. Lessee shall commence construction on or before the date specified in the notice to proceed and diligently pursue construction to completion. Lessee shall.' construct the Renovation at Lessee's sole cost and expense. (c) Undergrounding. Lessee shall, in conjunction with the Renovation, underground all utilities on the Premises at Lessee's sole cost and expense, The cost and expense of _� 12-39 undergrounding utilities is exclusive of, and in addition to, the minimum cost of Renovation as specified in this Subsection. (d) Water Main. In the event City undertakes a project to increase the size of, or replace, the water main in Balboa Blvd or 15th Street, City shall install, at its sole cost and expense, a "tee connection" and/or any other facility that will.enable Lessee to improve its fire suppression capacity and/or fire suppression facilities. 6.4 Tidelands Agreement. The State Lands Commission staff contends that a substantial portion of the property bounded by Balboa Blvd., 151h Street, 181h Street and Newport Harbor is tidelands. City and the State Lands Commission may, at some time in the future, consider approval of a boundary line agreement to resolve any dispute relative to the appropriate tidelands boundary. City commits not to approve any boundary line agreement that would materially alter the rights of Lessee pursuant to this Lease. Lessee acknowledges that a boundary line agreement that does not impact its rights pursuant to this Lease would be in Lessee's best interests and agrees to support approval of any such agreement. 7. TAXES, LICENSES AND OTHER OBLIGATIONS 7.1 Payment of Taxes. Lessee acknowledges that this Lease may create a possessory interest subject to taxation. Lessee shall pay, before delinquency, all taxes, assessments, license fees and other charges (Taxes) that are levied or assessed Lessee's interest in this Lease or any fixture, improvement, equipment and other property on the Premises. Lessee shall pay directly to the appropriate taxing authorities all Taxes at least Ten (10) days before delinquency and before any fine, interest or penalty is due or imposed by operation of law. Lessee, shall provide City with a copy of the check used to pay any Taxes with the Rent payment due immediately after Lessee receives with the monthly bank statement the check used to pay the Taxes. Lessee shall not be required'to pay any Taxes based on City's ownership interest in the Premises. 7.2 Payment of Obligations. Lessee shall promptly pay, when due, any and all bills, debts, liabilities and obligations incurred by or charged to Lessee in connection with Lessee's occupation and use of the Premises. However, the provisions of this subsection shall not prevent Lessee from contesting the validity of any lien, claim or demand, provided that in such event, Lessee shall, at its expense, defend itself and City against the same and shall pay and satisfy any adverse judgment that may be rendered before enforcement against City or the Premises. 7.3 Challenge to Taxes.. Lessee shall have the right in good faith, at its sole cost and expense, to contest the amount or legality of any Taxes including the right to apply for reduction. If Lessee contests payment of Taxes, Lessee's failure to pay the Taxes shall not constitute a default as long as Lessee complies with the provisions -12 - 12-40 of this Section. City shall not be required to join in any proceeding or contest brought by Lessee unless the Law requires joinder of the City and in that case City shall join in the proceeding, permit it to be brought in City's name and shall execute any necessary_ or appropriate document necessary so long. as City is not required to bear any cost or liability for payment of Taxes. Lessee shall, on final determination of the proceeding or contest, immediately pay such disputed tax and also discharge any decision or judgment rendered, together with all related costs, charges, interest and penalties and provide City with a copy of Lessee's payment as and when .provided in Section 7.1. Lessee shall Indemnify and Hold Harmless the City and its officers and employees from and against any liability, claim, demand, penalty, cost or expense arising out of or in connection with any contest or proceeding prosecuted by Lessee pursuant to this Section. 7.4 License, Lessee shall maintain in good standing all required licenses and permits required for operation of the business on the Premises, including but not limited to a City Business License. 8. UTILITIES AND REFUSE COLLECTION 8.1 Basic Utilities. Lessee, shall make all arrangements for and pay for all utilities furnished to or used on the Premises, including, gas, electricity, water, telephone service and cable TV. Any repair to utility limes within the Premises is the sole responsibility of Lessee. Lessee bears all risk of interruption, cancellation and/or disruption of utility services, as well as the cost of all utilities Lessee requires for its use of the Premises. 8.2 Refuse Collection. Lessee shall make arrangements for and pay for all refuse collet#ion and Hazardous Materials disposal. Lessee shall keep the Premises free and clean of rubbish and litter and shall deposit accumulated rubbish and litter in containers designated by City. Trash containers shall be kept in an approved enclosed area and shall be emptied on a regular basis. Lessee shall comply with the provisions of the Newport Beach Municipal Code and all other Laws regarding the use, storage and disposal of Hazardous Materials. In no event shall Lessee allow Hazardous Materials related to the Premises to enter, be disposed of into, seep or otherwise be released into any sewer line, soil, storm drain and/or waterway on, under or adjacent to the Premises. 8.3 Undergrounding. Lessee shall fully cooperate in, and support, any effort to underground utilities on and in the vicinity of the Premises such as the formation of any district for the purpose_ of funding or irnplementing a program to underground utilities. Lessee shall, upon formation of any such district, pay all costs and assessments required in conjunction with the undergrounding of utilities. -13- 12-41 9. ALTERATIONS TO THE PREMISES 9.1 Alterations Requirinq Building Permits. Any alteration that requires a building permit from City shall require the written consent of the City Manager. The City Manager's written consent shall not be unreasonably withheld so long as the permit is requested in conjunction with and furtherance of an Approved Use. The provisions of Section 6.2 shalI control with respect to alterations made in conjunction with the Renovations. 9.2 Non -Structural Alterations. Lessee shall have the right to make, at its sole expense, such non-structural changes, alterations, improvements and additions in and to the interior of the buildings, or to the piers, slips, floats and ramps on Premises, and Lessee may install any trade fixtures and equipment as it may deem advisable for the conduct of any Approved Use of the Premises. 9.3 Alterations Costing More than $50,000. Except as otherwise provided in Section 6.2 pertaining to Renovations, Lessee shall not make any Alterations (other than non-structural Alterations costing less than fifty thousand dollars [$50,000.001) to the Premises without the prior written consent of the City Manager which shall not be unreasonably withheld if in conjunction with and in furtherance of any Approved Use. In granting or withholding consent to proposed Alterations by Lessee, the City Manager shall consider the impact of the proposed Alterations on public views adjacent Premises owners, compliance of City codes and the impact of the proposed Alterations on any private or public use of the Adjoining Property. The City Manager may require, as a condition of approval, that Lessee agree to amendments to this Lease, including_ amendments increasing the amount of Rent payable under this Lease if the proposed Alterations would materially increase the floor area or size of the building structures on the Premises. The City Manager may also require Lessee to provide, at Lessee's expense, appropriate engineering and feasibility studies regarding the structural integrity of the Premises, Any damages or destruction to the .structural improvements or Lessee equipment at the Premises shall not reduce or excuse Lessee's obligation to pay Rent in full and on time. 9.4 Quality of Work Performed. All work shall be performed in a good and workmanlike manner, shall substantially comply with the plans and specifications submitted to City and shall comply with all applicable governmental permits and Laws in force at the time permits are issued. 9.5 Payment of Costs. Lessee shall pay all costs related to the construction of any Alterations by Lessee or its agents. Lessee shall use its best efforts to keep the Premises free and clear of all mechanics' liens resulting from construction performed at the direction of Lessee. - All construction improvements shall, upon completion, become part of the Premises, owned by City. However, the provisions of this subsection shall not prevent Lessee from contesting the validity of any lien, claim or demand, provided that in such event, Lessee shall, at its expense, defend itself and City -14. 12-42 against- the same and shall pay any adverse judgment that may be rendered before enforcement against City or the Premises. 9.6 Indemnification. Lessee shall Hold Harmless City and its officers and employees with respect to any Damage or Damages related to any work performed on the Premises by Lessee. City shall promptly provide Lessee with a copy of any claim filed by any third party with respect to work performed by Lessee. City has no obligation to or liability to Lessee incident'to City's approval of Lessee's plans or issuance of permits for any improvements to the Premises. 9.7 Disposition of Alterations at Expiration or Lease Termination. Any Alterations made to the Premises shall remain on, and be surrendered with, the Premises on- Expiration or Termination of this Lease (Excluding Lessee's fixtures, equipment, furniture, movable decorations and the like). However, City may elect not less than thirty (30) days prior to Expiration or Termination of this Lease, to require Lessee to remove, at Lessee's cost, any Alterations that Lessee has made to the Premises, except those Alterations existing as of the date of this Lease or approved by City excluding any Lessee related Hazardous Materials or other clean-up of any environmental contamination which shall remain a Lessee obligation. If City requires removal of Alterations, Lessee shall, at its cost, remove the Alterations and restore the Premises to its condition prior to installation of such Alterations, ordinary wear and tear excepted, before the last day of the Term, or within thirty (30) days after notice is given, whichever is later. Prior to Expiration or within fifteen (15) days after Termination of this Lease, Lessee may remove any movable partitions, machinery, equipment, furniture, and trade fixtures previously installed by and solely paid for by Lessee, provided that Lessee repairs any damage to the Premises caused by removal and the structural integrity of -the foundation and bulkhead areas of the Premises are not adversely impacted. 10. REPAIRS AND MAINTENANCE OF PREMISES, 10.1 Maintenance and Repair by Lessee and City. Lessee agrees that it will maintain the Premises in Good Condition. City shall be responsible solely for the maintenance of the vertical bulkheads serving the Premises excluding damage or deterioration caused to any bulkhead by Lessee or Lessee's operations for which Lessee shall be responsible. Lessee shall also, at its sole cost and expense, at all times during the Term, maintain all other improvements and equipment on the Premises including entrances and exits, plate glass, roofs, doors, exterior and interior painted areas, HVAC equipment, electrical circuits and switchgear, utility supply lines, plumbing and other fixtures, equipment, interior walls, ceilings and floors, piers, concrete foundations, fencing, gates, asphalt areas, slips, floats and ramps, in good order, condition and repair. City may perform Maintenance or repairs in the event Lessee fails to commence required Maintenance or repairs,within fifteen (15) days after receipt of notice to do so. The cost of any Maintenance or repairs by the City pursuant to this Section shall be payable upon _15- 12-43 billing by City as additional Rent with the Lessee's next monthly Rent payment. 10.2 Entry by City. City may enter upon and inspect the Premises at any reasonable time for Maintenance or other purposes. In case of emergency, City or its Authorized Representatives may enter the Premises by the master key if Lessee is not present to open and permit an entry. During entry, City shall exercise reasonable care relative to the Premises and to Lessee's Property. Any entry to the Premises by City shall not be construed as a forcible or unlawfu . e�i 10,3 Acceptance As Is. Lessee is the long-time tenant of the Premises, is fully aware of the condition of the Premises and accepts the condition of the Premises "as is" on the date of this Lease without any City warranty, representation or repair obligation. 11. LIENS Lessee shall use its best efforts to prevent the enforcement against alLor a portion of the Premises of any mechanics', materialman's, contractors' or other liens arising from, or any claims for damages growing out of, any work or repair or alteration (except from the actions of City), and Lessee use its best efforts to pay or cause to be paid the liens and claims before any action is brought to enforce the same against Lessee or the Premises, or shall adequately indemnify City and the Premises by payment bonds acceptable to City and as provided for by Law. However, the provisions of this Section shall not prevent Lessee from contesting the validity of any lien, claim or demand, provided that in such event, Lessee shall, at its expense, defend itself and City against the same and shall pay and satisfy any adverse judgment that may be rendered before enforcement against City or the Premises. 12. INDEMNITY AND EXCULPATION; INSURANCE 12.1 Exculpation of City. Except as otherwise expressly provided in this Lease, City shall not be liable to Lessee for any damage to Lessee or Lessee's Premises (including any boat owned by any Lessee customer) goodwill, increased Lessee operating costs, or loss of business or income by Lessee from any cause other than the gross negligence or intentional or willful acts of City. Except as otherwise expressly provided in this Lease, Lessee releases and also waives all claims against City for Damages arising for any reason other than the gross negligent, intentional or willful acts of City or its Authorized Representatives. City shall not be liable to Lessee for any Damage to the Premises, Lessee's Premises, Lessee's goodwill, �•or Lessee's business income, caused in whole or in part by acts of nature including, without limitation, waves, wind and tidal flows. 12.2 Lessee Release and Hold -Harmless. Lessee releases the City and also agrees to Hold Harmless the City, its elected officials, officers and employees from any and all claims, liability, loss, Damage, or expenses resulting from Lessee's occupation and use of the -16- 12-44 Premises, specifically including, without limitation, any claim, liability, loss, or Damage arising by and Lessee assumes all corresponding risk because of: (a) The death or injury of any Person caused or allegedly caused by the condition of the Premises or an act or omission of Lessee or an agent, contractor, employee, servant, sublessee or concessionaire of Lessee; and (b) Any work performed on the Premises or materials furnished to the Premises at the request of Lessee or any agent or employee of Lessee, with the exception of Maintenance performed by City; and (c) Lessee's failure to perform any provision of this Lease or to comply with any requirement of Law or any requirement imposed on the Premises. by any duly authorized governmental agency or political subdivision. Lessee's obligations pursuant to this Subsection shall not extend to any claim, loss, liability, Damages, costs or fees that are proximately caused by the sole gross negligence, willful misconduct, or unlawful or fraudulent conduct on the part of the City or its officers or employees. 12.3 Insurance Limits. (a) Liability Insurance. Lessee shall, at its own cost and expense, secure and maintain during the entire Term a broad form commercial general liability insurance policy issued by an insurance company reasonably acceptable to City covering the acts and omissions of Lessee, any Lessee employee, agent customer, independent contractor or visitor to the Premises.. The policy shall name City, and its officers, employees and agents as additional insureds and protect, against loss or liability caused by or connected with Lessee's occupation and use of the Premises under this Lease in amounts not less than: combined single limit bodily injury and Premises damage, including productslcompleted operations liability and blanket contractual liability, of two million dollars ($2,000,000.00) per occurrence, subject to increased limits in accordance with Section 12.3(b). (b) City's Ability_ to Increase Amount of Public Liability and Premises Damage Insurance. Not more frequently than once every five (5) years, Lessee shall increase the insurance coverage as reasonably required by City so that at all times, the amount of public liability and Premises damage insurance coverage maintained by Lessee reasonably and fully protects the City. (c) Deductibles. Any deductible amount under each insurance policy shall not exceed seven thousand five hundred dollars ($7,500.00) without the express written consent of the City -17 - 12-45 Manager and Lessee is responsible for payment of such amount in the event of any Damage. 12.4 Fire Insurance on Building and Other Improvements. Lessee at its cost shall maintain on the Buildings and other .improvements that are or become a part of the Premises a policy of standard broad form all-risk fire and extended coverage insurance, with vandalism and malicious mischief endorsements, to the extent of at least full replacement value, with coverage for demolition and compliance with future Building Codes in a form acceptable to the City Manager. The insurance policy shall be issued in the names of City and Lessee, as their interests appear.. The insurance policy shall provide that any proceeds shall be made jointly payable to City and Lessee. 12.5 Determination of Replacement Value. The "full replacement value" of the Buildings and other improvements to be insured under Section 12 shall be determined by the company issuing the insurance policy at the time the policy is initially obtained. Not more frequently than once each .year, either Party shall have the right to notify the other Party that it elects to have the replacement value re- determined by such underwriting insurance company. The re- determination shall be made promptly and in accordance with the rules and practices of the Board of Fire Underwriters, or a like board recognized and generally accepted by the insurance company. Each Party shall be promptly notified of the re -determination by the company, The insurance policy shall be adjusted according to the re -determination. 12.6 Loss of Rent Insurance. Lessee at its cost shall maintain loss of rent insurance (or business interruption insurance) insuring that the Base Rent will be paid to City for a period up to Twelve (12) months if the Premises are destroyed or rendered unusable or inaccessible for commercial purposes by a risk insured under a special form Premises coverage policy including vandalism and malicious mischief endorsements. 12.7 Workers' Compensation. Lessee shall comply with all ❑f the provisions of the Workers' Compensation Insurance and Safety Acts of the State of California and the applicable provisions of Divisions 4 and 5 of the California Labor Code. 12.8 Waiver of Subrogation. The parties release each other, and their respective Authorized Representatives, from any claims for Damage to any Person or to the Premises and to the fixtures, personal Premises, and Alterations of either in or on the Premises that are caused by or result from risks insured against under any insurance policies carried by the parties and in force at the time of any Damage or required to be carried under this Lease. Lessee shall cause each insurance policy :obtained by it to provide that the insurance company waives all rights of recovery by way of subrogation against the City in connection with any Damage covered by any policy of Premises insurance. Neither party shall be liable to the other for any Damage caused by fire or any of the risks insured against under any insurance policy required by this Lease. [f any insurance policy _18 - 12-46 cannot be obtained with a waiver of subrogation, or is obtainable only by the payment of an additional premium charge above that charged by the insurance company issuing policies without a waiver of subrogation, the Party undertaking to obtain the insurance shall notify the other Party of this fact. The other Party shall have a period of twenty (20) days after receiving the notice either to place the insurance with a company that is reasonably satisfactory to the other Party and that will carry the insurance with a waiver of subrogation, or to agree to pay the additional premium. The Party is relieved of the obligation to obtain a waiver of subrogation rights with respect to the particular insurance involved if the insurance cannot be obtained with a waiver of subrogation or the other Party refuses to pay the additional premium. 12.9 Other Insurance Matters. All the insurance required under this Lease shall: (a) Be issued by insurance companies authorized to do business in the State of California, with a minimum Best Insurance Guide or financial rating of A-VII unless otherwise approved in advance by City Risk Manager; (b) Be issued as a primary policy; (c) Be noncontributing with any insurance that may be carried by C ity; (d) Contain an endorsement requiring Thirty (30) days written notice from the insurance company to both Parties before cancellation or material change in the coverage, scope or amount of the policy; and (e) Lessee shall maintain insurance for all boats being repaired or stored of the Premises to protect City from any liability concerning third party property located at the Premises. Each policy, or a certificate of the policy, together with evidence of payment of premiums, shall be deposited with City and on renewal of the policy not less than thirty (30) days before expiration of the term of the policy, Either Party may maintain for its own account any insurance not required under this Lease, but any such policy shall be separate from and non-contributory in the event of loss covered by insurance carried by the Party responsible for said loss as required by this Lease. 13. DAMAGE OR DESTRUCTION OF PREMISES 13.1 Destruction of Premises. If the Premises are totally or partially destroyed, rendering the Premises or any portion totally or partially inaccessible or unusable, Lessee shall restore the Premises, at Lessee's sole cost and effort, to substantially the same condition as immediately prior to such destruction (including all trade fixtures, personal Premises, improvements and Alterations as are installed by Lessee, which shall be replaced by Lessee at its expense, unless -19- 12-47 Lessee elects to terminate this Lease pursuant to this Section. Lessee can elect to terminate this Lease by giving notice of such election to City within sixty (60) days after the date'of the occurrence of any casualty and also proving to the reasonable satisfaction of City that each of these conditions are satisfied: (a) The cost of the restoration exceeds the amount of any available insurance proceeds by at least twice the Total Annual Rent for the most recent two (2) completed Lease Years; (b) At the time of such casualty Lessee maintained all insurance required by this Lease; and (c) No act attributable to Lessee voided insurance coverage otherwise available concerning the Damage or loss. If the Lease is terminated, all insurance proceeds applicable to reconstruction (excluding Lessee's personal in the Premises) shall be assigned by Lessee to City and Lessee shall pay any policy deductible to City. Lessee shall Hold Harmless the City from any expenses, liability or loss regarding damage or loss to boats being repaired or stored by Lessee at the Premises and any other liability or loss incurred by Lessee concerning such casualty and event. 13.2 Replacement of Lessee's Premises. In the event of the damage or destruction of improvements located on the Premises not giving rise to Lessee's option to terminate this Lease under Section 13.1, Lessee shall, at its own expense, replace and repair all Lessee's trade fixtures, equipment, furnishings and inventory as soon as reasonably possible to permit the prompt continuation of Lessee's business at the Premises for the Approved Use. 14. ABATEMENT OF RENT In the event of Damage or destruction of the rremises and this Lease is not terminated, Lessee shall continue to utilize the Premises for the operation of its business for the Approved Use. to the extent it may be practicable and commercially reasonable. Base Rent shall abate in proportion to the area of the Premises that is rendered unusable for the Approved Use. The abatement of Rent shall commence on the date that use of the Premises is impacted and continue for so long as is reasonably required to complete those repairs necessary to restore full use of the Premises and Lessee's re -opening of the Premises. Lessee's obligation to pay Taxes and other monetary obligations pursuant to this Lease shall not be abated or reduced. Rent shall not abate if the Damage or destruction to the Premises is the result of the negligence or willful conduct of Lessee or its employees, officers or agents. Lessee's right to abatement of Base Rent is contingent on payment of insurance proceeds, if any, equal to the amount of Base Rent pursuant to the coverage required by this Lease. -20- 12-48 15. PROHIBITION AGAINST VOLUNTARY ASSIGNMENT, SUBLETTING AND ENCUMBERING 15.1 Prohibition. The Parties acknowledge that City is entering into this Lease in consideration of the unique nature of Lessee and special circumstances pertaining to Lessee's prior history as a tenant. Consequently, Lessee shall not voluntarily delegate, assign or encumber its interest in this Lease or in the Premises, or sublease substantially all or any part of the Premises, or allow any other person or entity (except Lessee's Authorized Representatives) to occupy or use all or any part of the Premises without the prior written consent of City, which may be withheld at the sole discretion of the City. 15.2 Effect of Consent. City's consent to any assignment, encumbrance, or sublease shall not relieve Lessee from its obligations or liabilities under this Lease nor act as a waiver of the requirement that such consent be obtained to any subsequent assignment, encumbrance or sublease. 16. DEFAULT 16.1 Default by Lessee. The occurrence of any one or more of the following events shall constitute a "Material Default" of this Lease by Lessee: (a) The vacating or abandonment of the Premises by Lessee. (b) The failure by Lessee to make any payment of Rent or any other payment required by this Lease, as and when due, when such failure shall continue for a period of Ten (10) days after written notice of default from City to Lessee. (c) The failure of Lessee to observe or perform any of the "material" (meaning costing five thousand dollars ($5,000.00) or more to fully remedy covenants, conditions or provisions of this Lease to be observed or performed by Lessee where the failure continues for a period of thirty (30) days after written notice from City to Lessee; provided, however, that if the nature of Lessee's default is such that more than thirty (30) days are reasonably required for its cure, then Lessee shall not be deemed to be in default if Lessee commences such cure within said thirty (30) day period and then diligently prosecutes the cure to completion. However, no thirty (30) day cure period is allowed for any Lessee caused environmental event involving Hazardous Substances at the Premises or otherwise caused by Lessee or Lessee's agents or customers that is estimated to cost fifteen thousand dollars ($15,000.00), or more, to fully remediate. Immediately following any environmental event, Lessee shall use Lessee's best efforts to fully remediate or prove to the reasonable satisfaction of City that remediation is underway and will be -21- 12-49 completed in ninety (90) days without any risk of further environmental damage to the Premises and/or surrounding area. (d) The making by Lessee of any general arrangement or assignment for the benefit of creditors. (d) Lessee becomes a "debtor" as defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within sixty (60) days). (e) The appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such appointment is not discharged within sixty (60) days. (f) The attachment, execution or the judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within sixty (60) days. 16.2 Remedies. (a) Cumulative Nature of Remedies. If any Material Default by Lessee shall not be cured as required in Section 16.1, City shall have the remedies described in this Subsection, in addition to all -other rights and remedies provided by law or equity, to which City may resort cumulatively or in the alternative. (1) Reentry without Termination. City -may reenter the Premises, and, without terminating this Lease, re -let all or a portion of the Premises. City may execute any leases made under this provision in City's name and shall be entitled to all rents from the use, operation, or occupancy of the Premises. Lessee shall nevertheless pay to City on the dates specified in this Lease the equivalent of all sums required of Lessee under this Lease, plus City's expenses in conjunction with re - letting, less the proceeds of any re -letting or attornment. No act by or on behalf of City under this provision shall constitute' a Termination of this Lease unless City gives Lessee specific notice of Termination. (2) Termination. City may terminate this Lease by giving Lessee notice of Termination. In the event 'City terminates this Lease, City may recover possession of the Premises (which Lessee shall surrender and vacate upon demand) and remove all Persons and Premises. City shall be entitled to recover the following as damages: -22- 12-50 (i) The value of any unpaid Rent or other charges that are unpaid at the time of Termination; (ii) The value of the Rent and other charges that would have accrued after Termination less the amount of Rent and charges the City received or could have received through the exercise of reasonable diligence as of the date of the award; (iii) Any other amount necessary to reasonably compensate City for the detriment proximately caused by Lessee's failure to perform its obligations under this Lease; and (iv) At City's election, -such other amounts in addition to or in lieu of the foregoing as may be permitted from time -to -time by applicable California law. City shall be entitled to interest at the rate of ten percent (19%) per annum on all Rent and other charges from the date due or the date they would have accrued. City shall also be entitled to an award of the costs and expenses incurred by City in maintaining or preserving the Premises after default, preparing the Premises for re -letting, or repairing any damage caused by the act or omission of Lessee. (3) Use of Lessee's Personal Premises. City may use Lessee's personal property and trade fixtures located on the Premises without compensation or liability to Lessee for use or damage. In the alternative City may store the Premises and fixtures at the cost -of Lessee. City shall not operate the Premises in any manner tending to indicate that the Pr�rnises is affiliated with, part of or operated in conjunction with Lessee's business. (b) City's Right to Cure Lessee's Default, Upon continuance of any material default beyond applicable notice and cure periods, City may, but is not obligated to, cure the default at_ Lessee's cost. If City pays any money or performs any act required of, but not paid or performed by, Lessee after notice, the payment and/or the reasonable cost of performance shall be due as additional Rent not later than five (5) days after service of a written demand accompanied by supporting documentation. No such payment or act shall constitute a waiver of default or of any remedy for default or render City liable for any loss or damage resulting from performance. (c) Waiver of Rights. Lessee waives any right of redemption or relief from forfeiture under California Code of Civil Procedure Sections 1174 or 1179, or under any other present or future law, in the event Lessee is evicted or City takes possession of the Premises by reason of any default by Lessee. -23- 12-51 17. CONDEMNATION 17.1 Termination of the Lease. Lessee or the City shall have the right to terminate this Lease as of the date a public agency with lawful authority to condemn obtains possession or title to ten percent (1 Q%), or more of the land area at the Premises, or the condemnation materially affects the conduct of Lessee's business in the Premises, or the Premises will no longer be suitable for the conduct of Lessee's business for the Approved Use, In the event of Termination pursuant to this Subsection, Base Rent shall be prorated to the date of Termination, any unearned Rent shall be refunded to Lessee and Lessee shall have no further obligations under this Lease. Lessee shall not grant a right of entry to any potential condemner without the written consent of City. 17.2 No Termination of Lease, If this Lease is not terminated under Section 17.1, then this Lease shall terminate _as to the portion of the Premises taken upon the date that possession is taken, but this Lease shall continue in force and effect as to the remainder of the Premises. Lessee shall, in the event of a taking of any portion of the Premises, be entitled to a reduction in the Base Rent in reasonable proportion to the area of the Premises taken. 17.3 Allocation of Award. In the event that an award is made for an entire or partial taking of the Premises pursuant to the power of eminent domain, the award or compensation paid shall be as follows: (a) City shall be entitled to that Portion of the award received for the taking of the real property, the value of this leasehold, including all buildings and other improvements to which City is entitled on Expiration or Termination of this Lease, and for severance damages. (b) Lessee shall be entitled to any award that may be made for the taking of or injury to Lessee's business and profits, including any amount attributable to Lessee's personal Premises, fixtures, installations, or improvements in or on the Premises, Lessee's relocation expenses, but excluding any "bonus value" attributable to this Lease. (c) Any interest payable on the total award shall be divided between City and Lessee in the same ratio as the awards are allocated pursuant to this Section. 18. SUBJECT TO STATE LANDS COMMISSION GRANT The Premises are located on property that may, in whole or in part, be subject of a grant from the State of California to the City that is administered by the State Lands Commission. Lessee shall not take any action that would cause the City to be in violation of any provisions of that grant. If the State Lands Commission or the State Legislature terminates or modifies the tidelands grant or any related legislation in a manner that prevents the Premises from being used for any Approved Use, this Lease -24- 12-52 19 20. 21. shall terminate as a result and the Parties shall be released from all liabilities and obligations under this Lease. WASTE OR NUISANCE Lessee shall not commit or permit the commission of any waste on the Premises. Lessee shall not maintain, commit, or permit any nuisance as defined in Section 3479 of the California Civil Code on the Premises. Lessee shall not use or permit the use of the Premises for any unlawful purpose. PRIOR LESSEE USE AND HAZARDOUS MATERIALS The Parties acknowledge that Lessee has been in possession of the Premises pursuant to the provisions of a Lease since at least 1975. Lessee represents and warrants that, to the best of Lessee's knowledge: (i) Lessee's continued use of the Premises does not conflict with applicable Laws; (ii) the Premises is not and has not been operated in violation of any environmental laws, rules or regulations and Lessee's contemplated uses will not cause any such violation; and (iii) the land underlying the Premises is free of any and all Hazardous Materials as of the date of this Lease caused by the Lessee. In the event that the presence of any Hazardous Material caused by Lessee is detected in the land underlying the Premises or the bay or any tidelands' areas adjacent to this Premises at any time during the Term of this Lease and any Option Term all remedial or clean up work shall be immediately performed by Lessee at Lessee's. expense to fully remediate such environmental condition so that the Premises and such affected area(s) are promptly brought into full compliance with all Laws. This clause and this lease does not restrict or limit Lessee's right to lawfully use Hazardous Materials on the Premises, if in strict conformance with all Laws. CITY'S DEFAULTS/LESSEE'S REMEDIES City shall be in Material Default if Lessee gives notice of nonperformance specifying the nature of such default and/or City nonperformance and City either does not cure such noticed item(s) within thirty (30) days or City does not commence such cure performance within said thirty (30) days and then diligently completes said cure to City's reasonable best efforts. In the event of City's Material Default, Lessee may: (a) Upon fifteen (15) days notice to City cure any such default by City and City shall reimburse Lessee the amount of all costs and expenses incurred by Lessee in curing the default, together with interest and expenses at the maximum rate then allowed by law; (b) Terminate this Lease if City's default materially interferes with Lessee's use of the Premises for their intended purpose and City fails to cure such default within fifteen (15) days after a second demand by Lessee in which case Lessee shall have no further or continuing obligations and City shall have no liability to Lessee; or -25- 12-53 22. NOTICES Any notice, demand, request, consent, approval or communication that either Party desires or is required to give shall be in writing and shall be deemed given three (3) days after deposit into the United States registered mail, postage prepaid, by registered or certified mail, return receipt requested or upon delivery if personally served or upon transmission if sent by facsimile. Unless notice of a different address has been given in accordance with this Section, all notices shall be addressed as follows: If to City: CITY OF NEWPORT BEACH Attention: City Manager 3300 Newport Boulevard Newport Beach, CA, 92658 If to Lessee: AMERICAN LEGION POST 291 Attention: Commander 215 East 15' Street Newport Beach, CA, 92660 23. SURRENDER OF PREMISES At the Expiration or earlier Termination of this Lease, Lessee shall surrender to City the possession of the Premises. Lessee shall leave the surrendered Premises, required personal property and fixtures in good and broom -clean condition, reasonable wear and tear excepted. All property that Lessee is not required to surrender, but that Lessee does abandon shall, at City's election, become City's property upon Expiration or Termination. 24. WAIVER The waiver by City or Lessee of any breach of this Lease by the other shall not be deemed to be a waiver of any term, covenant, or condition or any subsequent breach. The acceptance of Rent -y City shall not be deemed a waiver of any breach by Lessee other than the failure to pay the particular rent accepted. 25. PARTIAL INVALIDITY If any term or Provision of this Lease is declared invalid or unenforceable, the remainder of this Lease shall not be affected. 26. GOVERNING LAW This Lease shall be governed by the laws of the State of California. Neither City's execution of this Lease nor any consent or approval given by City in its capacity as City shall affect City's powers and duties as a governmental body. Any consent or approval Lessee is required to obtain from City pursuant to this Lease is in addition to any permits or approvals Lessee is �26- 12-54 required to obtain pursuant to law or ordinance. However, City shall attempt to coordinate its procedures for giving contractual and governmental approvals so that Lessee's requests and applications are not unreasonably denied or delayed. 27. ENTIRE AGREEMENT- MODIFICATION This Lease contains the entire agreement between the -Parties. No verbal agreement or implied covenant shall be held to vary the provisions of this Lease. Each Party has relied on its own inspection of the Premises and examination of this Lease, the counsel of its own attorney or other advisors, and has a complete understanding of the overall warranties, representations, and covenants in this Lease. The failure or refusal of either Party to inspect the Premises, to read this Lease or other documents, or to obtain legal or other advice relevant to this transaction shall not be the basis for later claim that all or part of this Lease is not enforceable or was not understood by a Party when this Lease was signed. No provision of this Lease may be amended or varied. except by an agreement in writing signed by the Parties or their respective Successors. Upon execution of this Lease by both Parties, the previous lease will be terminated and have no further force and effect. 28. TIME OF ESSENCE Time is of the essence with respect to the performance of every Provision of this Lease in which time of performance is a factor. All time deadlines are meant to be strictly construed. A "day" means a calendar day, with extension if a deadline occurs on a weekend or day when banks are not open in California. 29. SUCCESSORS Subject to the Provisions of this Lease on asgignment and subletting, each and all of the covenants and conditions of this Lease shall be binding on and shall inure to the benefit of the heirs, successors, executors, administrators, assigns, and personal representatives of the respective parties. 30. NO BROKERS Each party warrants to and for the benefit of the other than it has .had no dealings with any real estate broker or other agent (attorneys excepted) in connection with the negotiation or making of this Lease, and that no commission, fee or other compensation is owed regarding this Lease by such other Party. -27- 12-55 31. GENDER; NUMBER The neuter gender includes the feminine and masculine, the masculine includes the feminine and neuter, and the feminine includes the neuter, and each includes corporation, partnership, or other legal entity whenever the context requires. The singular number includes the plural whenever the context so requires.. 32. EXHIBITS All exhibits to which reference is made in this Lease are incorporated by reference. Any reference to "this Lease" includes matters incorporated by reference. 33. PROPRIETARY CAPACITY The provisions of this Lease do not, and shall not be construed, to alter or impair the rights and duties of City when acting -in its capacity as a governmental entity. This Lease has been approved and executed by City in its proprietary capacity as the owner/grantee of the Premises. IN WITNESS WHEREOF, the parties have executed this Lease as of the date first written above. 0 ATTEST: LaVonne Harkless, City Cie APP D AS TO FORM: Burnham, City A CITY OF NEWPORT BEACH, a Municipal Corporation oR-r , I x By: / " Tod W. Ridgewa ayor 1 moo¢ CA l,ti F . 1 NEWPORT HARBOR POST NO. 291 OF THE AMERICAN LEGION, a Cali nia Cor o ("Lessee") By. d. . Tarwater its: Commander -28- 12-56 ! 1 fk d f j _cd i , r• _ r:t, �ri �fZI r It ed r kill, i t 4RFttfi� •+ �� `r f. 1 F d 23, p+�%ZU yy� Y fit. BA ) S ._ _ �'r� v"1 y. _ , £• "[ Tf�)f 04 VA RD ' +• ,, '44 # { t c� , • . , � - mow., -, �_-- —� , t�, Lt: � r .� CEAN f: y c 12-57 E �- � X if 1 I s> e g a,� scrivo-I'Jurn That parcel of land in the City of Newport Beach, County of Orange, State of California, being a portion ofTot 4, Section 33, and a portion ol-Lot 4, Section 34, Township 6 South, Range 10 West, Sail Bernardino Meridian, and those r_diacent fillers tidelands, described as follows: Seginnin.g at a point on the northerly prolongation of Uic westerly line of 15" Street, as shown on the map ofTract Number 234, recorded in Book 13, Pages 36 and 37 of N1 iscellancous Vlaps, in the office of the County Recorder of said County, ,said prii71t being 160.00 feet northerly from the nortlicasterly comer oCLot 4, Chock 115 of said Tract; thence Noi-th 13 degrees, 43 minutes, 30 seconds East along said northerly prolongation 109.79 feet to the United States Goveriunent Bulirlicad Line bem cen Station Number 1 IS and Station Number 119. as shown on the map entitled "Harbor Lines iNewpoi-t Bay, Newport Beach, California", dated March 20, 1936, file Number 958. approved by the U.S. Secretary of War on May 2, 1936, a copy of which is on file in the offices of the Coastal Projects Section, Engineering Division, U.S. Mealy Corps of Engineers, Los Angeles Disti-ict, 911 Wilshire Boulevard. Los Angeles, Califorii,ia, 90017-3401; thence North SO degrees. 16 minutes, 30 seconds West along said 131,11khead Line 349,90 feet to the northerly prolongation of the easterly liter, of Lot 13, Block 115 of said Tract, thence Sorrth 9 degrees, 43 minutes, 30 seconds West 249.79 fcct along said northerly profoi:gation of the easterly line of Lot 13 to a line 20.00 feet nortlicrly ofand para11e 1 with the northerly litre of said Block 115; thence South 40 degrees, 16 tZiinutes, 30 seconds Last along said parallel line 203.90 feet; thence Nos fh 9 degrees, 43 minutes, 30 seconds East 140.00 feet; thence South SO degrees, 16 minutes, 30 seconds East 146.00 feet to the point of beginning, RESL`R-VlN1G for street purposes a Strip of land 50 feel wide, lying 25 feet on each side of the l:ollowingy described centerline: iicginnin© at a pouit on the northeasterly prolongation of'said Lut 13 of Tract Number 234, said poitit being 135.00 feet northerly of the northeasterly comer of said Lot 13; thence; South 80 degrees, 16 minutes, 30 seconds East 203.90 fcc.t along a line parallel with said northerly line of-C31ock 115 to a point h Ingo, 146.00 feet westerly of said prolongation oftbe westerly Iine of' I5'r Street. 12-58 12-59 bte-, € " a Dveb;u_" �/�--� P t 0 s7� That parcel of land in the City of Newport Beach. County of Orange, ,State of California, being a portion of Lot 4, Section 33, 'Township 6 South, kange 10 West, San Bernardino lt4eriditui, and Block 117 as shown on the Map of Section B, Newport Reach, recorded in Book 4, Pa e 27 of Miscellaticous 1%9aps, in the office of the County recorder of said County, and Block 116 as shown on the map of Tract Number 234, recorded in Book 13, Pages 36 and37 oflisccllancnc€> Maps, in tile ofjice,of the Cc}trnty Recorder ofsaid C:outtty, and Lots 11, 12, and 13 of Block 1 1 S of said'fract Nu�ibcr 234, and those adjacent filled tidelands, described as follaivs: Beginning at the southeasterly corner of Lot 11, Block 115 of said Tract Number 234, thence North 9 degt•ees, 43 minutes, 30 seconds Fast along the easterly iinc of said Lot I 1 100.00 feet to the northeasterly corner of said Lot 1 1; :hence North 80 degrees, 16 nlinutes, 30 seconds West 20.00 feet along; the northerly line of said Lot 1 1; thence \ori 9 degrees, 43 minutes, 30 seconds Fast 20.00 feet parallel with said easterly Iilrc o1'Lot I1: thence Noah 80 degrees, 16 minutes, 30 seconds West 38.73 feet parallel with the, northerly line of said l-oi 1 I to the northerly prolongation of the castcl ly lime of Lot I') 0l' said Tract Number 234; thence \'orth 9 deorecs, 43 minutes, 3(i seconds Fast 249.79 feet along, said Northerly prolongation to the Urtited states Gover`ruilent Bulkhead Lille btm,een Station Nrumber 118 and Station Number 119, as shown. on the Izaap entitled "Harbor Lines — Newport Bay, rNeNvport Beach, California", dated March 20, 1936, Nile Nurttber 958, approved by the U.S. Secretary of War on May 2, .1936, a copy of which is on file in the offices of* the Coastal Projects 5cction, Engineering Division, U.S, Axmy Corps off ngiticers, Los Angeles District, 911 Wilshire Boulevard, Los Angeles, California, 90017-3401; thence North 80 degrees, 16 minutes, 30 seconds West along said Bulkhead Line 93000 feet to the northerly prolongation of the westerly line of Lot 16 of said Block 117, thence South E) degrees, 43 minutes, 30 seconds West 369.79 feet to the southwesterly corner of said Lot 16; thence South 80 degrees, 16 minutes, 30 seconds East 988.73 feet along tine southerly line of said Block } 17 of Section B and along the southerly line of said Blocks 116 and 115 of'Fract Number 234 to the point of beginning, 12-60 Attachment C Audit Report Dated March 2, 2020 12-61 OlDavisFarr CERTIFIED PUBLIC ACCOUNTANTS Davis Farr LLP 2301 Dupont Drive I Suite 200 1 Irvine, CA 92612 Main: 949.474.2020 1 Fax:949.263.5520 INDEPENDENT ACCOUNTANT'S REPORT ON APPLYING AGREED -UPON PROCEDURES Lauren Wooding Whitlinger Real Property Administrator Community Development Department City of Newport Beach Newport Beach, California We have performed the procedures enumerated below, which were agreed to by the City of Newport Beach ("City"), solely to assist the City in reviewing American Legion Newport Harbor Post 291's ("Lessee") compliance with the American Legion Newport Harbor Post 291 Lease Agreement ("Lease") dated December 6, 2002, for the period January 1, 2016 through December 31, 2018. The Lessee's management is responsible for maintaining their accounting records and other documentation to support the information reported on the Lease Payment Analysis ("Annual Statements"). The sufficiency of these procedures is solely the responsibility of the management of the City. Consequently, we make no representation regarding the sufficiency of the procedures described below either for the purpose for which the report has been requested or for any other purpose. The procedures were performed, and the results of those procedures are as follows: 1. We obtained an understanding of the internal controls over collection and recording of Lessee revenues, including the specific system reports used to generate reporting to the City. We evaluated adjustments made, if any, to the system reports when reporting the information to the City. We compared Gross Sales information reported to the City to Gross Sales information reported quarterly to the State of California, Board of Equalization. Results: The Lessee uses QuickBooks software to record all accounting transactions. The Lessee performs monthly bank reconciliations to ensure the accuracy of revenues recorded in the accounting system. The Lessee records revenue in defined revenue accounts (marina rentals, marina waitlist, dry storage, hall rentals, banquet sales, alcohol sales). The Lessee pays monthly Base Rent, and on an annual basis, the Lessee uses revenue reports to calculate additional Percentage Rent due to the City, if any. No exceptions were noted as a result of our procedures. 2. We reviewed the date payments were remitted to the City for the period January 1, 2016 through December 31, 2018 to determine if they were submitted within the due date specified by the Lease. Results: No exceptions were noted as a result of our procedures. 12-62 3. We traced information from the monthly reports provided to the City to the Lessee's reports supporting the amounts reported. We reconciled the information in these reports to the accounting system reports showing all revenues collected by the Lessee. Results: We noted three exceptions, summarized as follows, further elaborated below and detailed in Attachment A: Exception Under -paid Base Rent Overstated Base Rent Under -paid Percentage Rent Period January -March 2018 March 2018 2016-2018 Total Net Effect On Percentage Rent 1,039 222,757 $ 223,796 Under -paid Base Rent In accordance with the Lease, section 4.1(b), Base Rent increases after the end of every fifth Lease Year and the increase shall be effective and paid to the City as of the first Rent Due Date after the calculation of the Periodic Adjustment goes into effect. Based on the initial Rent Commencement Date we noted the Lease Year runs on a calendar year basis. There was a rent increase that went into effect on January 1, 2018. We reviewed the City's calculation of the Periodic Adjustment to Base Rent and noted the calculation appeared to be performed in accordance with the Lease. We noted the Lessee did not start paying the new Base Rent rate until April 2018. Per inquiry, the Lessee indicated they do not start paying the new Base Rent rate until the City informs them of the new monthly rate. The City informed the Lessee in March 2018. No retroactive payments were made by the Lessee. This is a timing issue; the Base Rent shortage was ultimately reconciled in the Lease Year true -up prepared by the Lessee. However, the short -paid amounts of $1,038.79 per month for January through March 2018 would be subject to 5% late fee and 10% per annum interest totaling $156 and $300, respectively. Overstated Base Rent For March 2018, the Lessee reported paying $11,426.67 for Base Rent on the Annual Statement but they actually paid $10,387.88. This resulted in a Percentage Rent underpayment of $1,038.79 in the Lease Year-end calculation for 2018. Under -paid Percentage Rent In accordance with Lease sections 1.2 and 4.2(a), the Lessee was required to include in their Percentage Rent calculations all Gross Sales from Hall Rental Revenues, Marina Revenues, Storage Revenues and Parking Lot. For Hall Rental Revenues, the Lessee only included the hall rental fee and improperly excluded banquet food revenue, banquet alcohol revenue and other banquet rental revenue. Further, for Marina Revenues, the Lessee only included marina slip rental revenues and improperly excluded marina waitlist revenue. See procedure 5 and Attachment A for additional details. Recommendations: For the next fifth year Base Rent increase, effective January 1, 2023, we recommend the City require the Lessee to pay the new Base Rent rate retroactive to the beginning of the 2023 Lease Year. We recommend the City collect the under -paid Percentage Rent of $1,038.79 from the Lessee for Lease Year 2018 which resulted from overstated total payments made by the Lessee. Going forward, we recommend the City compare all Base Rent payments 2 12-63 actually received from the Lessee to Base Rent payments reported by the Lessee on the Annual Statement to ensure the Lessee's worksheet is properly stated. We recommend the City evaluate the Lessee's under -reporting of revenue and under- payment of Percentage Rent and consider collecting Percentage Rent underpayments, as further described in procedure 5. We noted the Annual Statements provided by the Lessee to the City do not include "reasonable detail" in that they do not show the actual Gross Sales Revenue by category, they only show calculated Percentage Rent by category. In accordance with Lease section 4.2(c) "Annual Statement/Payment of Percentage Rent," the Lessee shall within sixty days following the end of each Lease Year provide the City with a statement, in reasonable detail, of the amount of the Lessee's Gross Sales Revenue for each Revenue Category. The Statement shall also calculate the Percentage Rent due based on Gross Sales Revenue in each category multiplied by the corresponding Percentage Rent Rates prescribed by the Lease. We recommend the City require the Lessee to provide Annual Statements showing the full calculation of Percentage Rent, including Gross Sales for each month for each revenue category. 4. We tested the monthly reports for mathematical accuracy and proper calculation of amounts owed to the City. Results: No exceptions were noted as a result of our procedures. 5. We evaluated the reasonableness of revenues considered exempt from taxable revenue reported to the City. Results: In accordance with Lease sections 1.2 and 4.2(a), the Lessee was required to include in their Percentage Rent calculations all Gross Sales from Hall Rental Revenues, Marina Revenues, Storage Revenues and Parking Lot. However, per review of the Lessee's accounting reports and inquiry of Lessee, for Hall Rental Revenues, the Lessee only included the hall rental fee and improperly excluded banquet food revenue, banquet alcohol revenue and other banquet rental revenue. Further, for Marina Revenues, the Lessee only included marina slip rental revenues and improperly excluded marina waitlist revenue. The following is a recap, by revenue category, of under -reported revenue which resulted in under -paid Percentage Rent for all years in the review period: Revenue by Category Hall Rental Marina 2016 Revenue per Auditor $ 505,910 253,992 Revenue per Lessee 119,714 251,693 Total Revenue Difference 386,196 2.299 Percentage Rent Difference 77,239 920 2017 Revenue per Auditor 533,071 249,986 Revenue per Lessee 148,395 246,936 Total Revenue Difference 384,676 3,050 Percentage Rent Difference 76,935 1,220 3 Storage Parking Lot Total 29,880 - 789,782 29,730 - 401,137 150 - 388,645 75 - 78,234 30,243 - 813,300 29,943 - 425,274 300 - 388,026 150 - 78,305 12-64 Revenue by Category Hall Rental Marina Storage Parking Lot Total 2018 Revenue per Auditor 457,767 248,457 30,421 - 736,645 Revenue per Lessee 134,228 244,682 30,421 - 409,331 Total Revenue Difference 323,540 3,775 - - 327,315 Percentage Rent Difference 64,708 1,510 - - 66,218 Total Percentage Rent Difference, by category $ 218,882 3,650 225 - 222,757 Base Rent payment overstated (March 2018) 1,039 Total Lessee Underpayment, before late fees and interest $ 223,796 5% late fees and 10% per annum interest on unpaid balances, pertaining to the Lessee under -reporting revenue and under -paying Percentage Rent amounts, could be charged by the City. Following is a recap of such fees, where interest is calculated per annum through February 29, 2020: 2016 2017 2018 Total Late fees $ 3,912 3,915 3,311 11,138 Interest 27,327 17,390 7,048 51,765 Total $ 31,239 21,305 10,359 62,903 Recommendations: We recommend the Lessee report all subject revenues, by category, in accordance with the Lease, and calculate Percentage Rent on all-inclusive Gross Revenue figures. Lessee should include all revenues from Hall Rental including banquet food, banquet alcohol, and other banquet rental items. Further, Marina Revenue should include marina waitlist revenue received by the Lessee. We further recommend the City consider collecting under -paid Percentage Rent of $223,796 for January 1, 2016 through December 31, 2018. The City may further consider assessing late fees and interest totaling $62,903 for the unpaid amounts. 6. We reconciled the monthly revenue reports to a sample of daily reports / support. Results: No exceptions were noted as a result of our procedures. 7. We selected a sample of daily reports/support and traced amounts to individual receipts supporting the daily report. Results: No exceptions were noted as a result of our procedures. 8. For any credits or exemptions allowed by the Lease, we verified documentation supporting the exemption. Results: No exceptions were noted as a result of our procedures. 4 12-65 The agreed -upon procedures engagement was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. We were not engaged to, and did not, conduct an examination or review, the objective of which would be the expression of an opinion or conclusion, respectively, on the Summary Annual Rental Reports. Accordingly, we do not express such an opinion or conclusion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. This report is intended solely for the information and use of management of the City of Newport Beach and is not intended to be, and should not be, used by anyone other than those specified parties. X��7 L-A-P Irvine, California March 2, 2020 5 12-66 American Legion Newport Harbor Post 291 Monthly Activity - Auditor Recalculation 2016 - 2018 Schedule A 2016 2017 2018 Total Hall Rental Marina Storage Hall Rental Marina Storage Hall Rental Marina Storage Hall Rental Marina Storage Gross Gross Gross Gross Gross Gross Gross Gross Gross Gross Gross Gross Revenue Revenue Revenue Total Revenue Revenue Revenue Total Revenue Revenue Revenue Total Revenue Revenue Revenue Total January $ 54,124 22,113 2,028 78,265 38,614 22,584 2,534 63,732 40,692 22,187 2,608 65,487 133,430 66,884 7,170 207,484 February 28,920 20,838 2,137 51,895 49,932 21,484 2,534 73,950 22,742 19,720 2,493 44,955 101,594 62,042 7,164 170,800 March 45,510 20,854 2,137 68,501 54,669 21,159 2,534 78,362 28,304 20,425 2,557 51,286 128,483 62,438 7,228 198,149 April 32,188 21,429 2,687 56,304 26,528 21,109 2,551 50,188 25,432 20,600 2,557 48,589 84,148 63,138 7,795 155,081 May 70,993 20,369 2,687 94,049 52,650 21,162 2,595 76,407 29,406 20,500 2,607 52,513 153,049 62,031 7,889 222,969 June 42,780 20,244 2,687 65,711 46,915 21,262 2,408 70,585 57,609 20,400 2,607 80,616 147,304 61,906 7,702 216,912 July 47,304 21,074 2,687 71,065 36,719 20,511 2,408 59,638 35,843 20,400 2,557 58,800 119,866 61,985 7,652 189,503 August 35,838 21,409 2,626 59,873 53,447 19,746 2,472 75,665 39,574 20,775 2,557 62,906 128,859 61,930 7,655 198,444 September 21,853 21,635 2,551 46,039 35,478 19,986 2,558 58,022 40,789 20,875 2,457 64,121 98,120 62,496 7,566 168,182 October 34,555 21,409 2,551 58,515 51,281 20,548 2,558 74,387 36,376 20,925 2,507 59,808 122,212 62,882 7,616 192,710 November 24,113 21,309 2,551 47,973 31,096 20,548 2,508 54,152 20,070 20,875 2,457 43,402 75,279 62,732 7,516 145,527 December 67,732 21,309 2,551 91,592 55,742 19,887 2,583 78,212 80,930 20,775 2,457 104,162 204,404 61,971 7,591 273,966 Subtotal $ 505,910 2 33,992 29,880 7 99,782 5 33,071 2 99,986 30,243 813,300 4 77,767 2 88,457 30,421 7 66,645 1,4 66,748 752,435 90,544 2,3 99,727 Percentage Rent Rate 20% 40% 50% 20% 40% 50% 20% 40% 50% 20% 40% 50% Percentage Rent Recalculated by Auditor $ 101,182 101,597 14,940 217,719 106,614 99,994 15,122 221,730 91,553 99,383 15,211 206,147 299,350 300,974 45,272 645,596 Total Paid by Lessee $ 139,485 143,425 138,890 421,800 Difference - underpaid 88,234 78,305 77,257 2 33,796 Late Fees and Interest $ 31,239 21,305 10,359 22,903 12-67