HomeMy WebLinkAbout32 - Balboa Bay Club Option Agreement ExtensionCITY OF NEWPORT BEACH
Hearing Date:
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PLANNING DEPARTMENT
Agenda Item No.:
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3300 NEWPORT BOULEVARD
Staff Person:
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NEWPORT BEACH, CA 92658
644 FAX 644
(949) -3200; (949) -3250
REPORT TO THE MAYOR AND CITY COUNCIL
SUBJECT:
Extension of Option Agreement for the Balboa Bay Club
1999
32
Patricia L. Temple
(949) 644 -3228
ACTION: Approve amendment to the Option Agreement, or direct staff to further
discuss the option extension in order to identify appropriate consideration to
be provided the City in exchange for the extension, or to identify additional
performance milestones for incorporation into the option agreement and
ground lease.
On June 24, 1996 the City Council approved the Balboa Bay Club Option and Lease Agreements.
Within these documents were specific performance obligations of the Balboa Bay Club regarding
the submittal of a development plan, as follows:
Option term: 5 years
Submittal of Concept Plan: By June 30, 1997
Submittal of Design Development Plans: By August 31, 1998
Final Plans, Permits and
Commencement of Construction: By June 30, 2001
The original Concept Plan was approved by the City on July 25, 1994. It was resubmitted in June of
1997, and approved shortly thereafter. The Design Development Plans (a more detailed set of
drawings) were submitted as required by August 31, 1998. In the intervening time, the Balboa Bay
Club retained a new architectural firm, and some parts of the project were redesigned to meet the
City's quality requirements set forth in the Option Agreement.
In working with the Balboa Bay Club's new architect, a discrepancy was discovered in the plans
originally approved by the City Council. Specifically, the building size calculations shown on the
plans were actually the net floor area of the building, and not the gross floor area staff believed it to
be. This is an important error, since the zoning adopted for the property established a gross floor
area limit of 189,000 sq. ft. based on the calculations on the plans. The actual gross floor area of the
original plans was 214,000 sq. ft.
As the Balboa Bay Club's new architect worked to refine the project design to meet the City's
desire for a "first class" hotel, an increase in the size of the service support areas of the building and
the athletic facility was recommended. With these increases, the overall gross floor area of the
project is now proposed at 235,000 sq. ft.
Because of the combined effect of the miscalculation of floor area of the original approval, and
the floor area increase of the revised plan, amendments to the zoning document (PC Text), Use
Permit and the Coastal Development Permit were required. Staff retained an environmental
consulting firm to review the project changes to make sure that the original EIR was adequate for
the revised project in September of 1998. Due to the staff's high workload, this review did take
longer than anticipated, but applications were finally Fled by the Balboa Bay Club in late March,
1999, and approved by the City Council in July of 1999. The Balboa Bay Club is currently
processing its amended Coastal Development Permit.
The time frames established in the option agreement did not anticipate a need to revise the
project's entitlements. They were devised to make sure the Balboa Bay Club redeveloped the
property in a timely fashion. The extra 9 months it took to complete the environmental review
and public hearing process has resulted in the BBC's request to extend the option agreement by
one year.
The Balboa Bay Club is currently exploring financing options for the development (see attached
letter). They are still working to have the construction start by the City's desired time frame of June
30, 2001. However, they are concerned that this horizon may prevent some obstacles to financing
the project. Therefore, they have requested a one year extension to June 30, 2002.
The requested option extension is relatively modest in nature, one year. However, some form of
additional consideration should accompany the extension of the option. This could be a monetary
consideration, or the imposition of other option or lease agreement requirements. In this case, the
City Council could give direction to staff as to the type and magnitude of the consideration to be
required, or staff could commence discussions with the Balboa Bay Club to identify a consideration
acceptable to all. The City Council could also choose to identify a special community benefit
project consistent with the tidelands limitations to apply any monetary consideration given.
The purpose of the timing requirements of the option agreement was to make sure the project was
completed in a timely manner. Therefore, the Council may wish to include additional milestones in
the option agreement amendment. These could be specific time frames for submittal of the final
plans, or additional evidence of financing.
Submitted by: Prepared by:
SHARON Z. WOOD PATRICIA L. TEMPLE
Assistant City Ma ager Planning Director
Attachments: 1. Letter from International Bay Clubs, Incorporateddated August 31,1999
2. Letter from PacPro dated November 5, 1999
3. Option Agreement Amendment .
4. Option and Lease Agreement Executive Summary
Balboa Bay Club Option Agreement
December 13,1999
Page 2.
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CITY OF NEWPORT BEACH
OFFICE OF THE CITY ATTORNEY
December 2, 1999
TO: Homer Bludau; Sharon Wood; Patricia Temple
FROM: Robert H. Burnham
RE: Balboa Bay Club Option
Extension Request
You have asked if the Option Agreement between the City and the Balboa Bay Club
(BBC) may be amended without any specific consideration flowing to the City. The
extension requested by BBC is, in my opinion, a material modification to the Option
Agreement because, if it is granted, the benefits to the City of the Option Agreement and
the new Lease could be deferred up to one year. The consideration to BBC is, obviously,
an additional year to do what is necessary to satisfy the conditions to exercise of the
Option. The BBC request does not, to my knowledge, contemplate any monetary or
other specific consideration to the City.
0 LEGAL ANALYSIS
I have discussed the legal issues with Lowell Martindale and the following summarizes
the law relative to the need for consideration to modify written contracts:
1. As a general rule, a material modification to any agreement is valid only if
supported by consideration;
2. Consideration is often presumed if the modification is in writing;
3. A court is more likely to find adequate consideration where the modification is in
writing.
4. In this case, a court might rule that the consideration to the City in granting the
extension is the increase in the likelihood that BBC will be able to satisfy the
conditions to the exercise of the Option Agreement and proceed to redevelop the
site (which will benefit the City).
While a court might find consideration based on the argument described above, I strongly
recommend that, for the protection of the City and BBC, the City Council require some
commitment from BBC in exchange for approval of the extension. The following are
some of the "consideration" options available to the City Council.
1. Require BBC to pay a specific sum now with corresponding (or even greater) rent
credits when the project is complete. This option allows BBC to fully recover the
cost of the option when they redevelop the site and could be a barometer of BBC's
intent and ability to move forward with the redevelopment;
2. Require BBC to pay a specific sum now that is based on the loss of rental income
to the City assuming a one -year delay in redevelopment.
3. Revise the current lease to increase consideration to the City in the interim
(between now and date option is exercised);
4. Revise the current lease to require BBC to pay into a sinking fund that the City
could access as necessary to maintain the premises during the remaining term of
the lease.
I have contacted State Lands Commission staff (the property is tidelands) and they have
no formal position on whether the City should require specific consideration. However,
they would clearly prefer some consideration since the benefits of redevelopment to the
State Lands Commission (!0% of enhanced revenue) would also be delayed if the
extension is approved.
(ROBERT H. BURNHAM
City Attorney
2
. FIRST AMENDMENT TO OPTION AGREEMENT FOR THE LEASE OF REAL
PROPERTY
THIS FIRST AMENDMENT OF THE OPTION AGREEMENT FOR THE LEASE OF
REAL PROPERTY (Amendment) is made on , _, by and between
THE CITY OF NEWPORT BEACH, a charter city and municipal corporation ( Optionor),
and BBC PROPERTY, INC., a New York Corporation ( Optionee).
RECITALS
A. Optionor is the grantee of that certain parcel of real property located in the
City of Newport Beach, County of Orange, State of California, as more
particularly described on Exhibit A attached hereto (the "Premises "),
pursuant to the provisions of the Beacon Bay Bill (Chapter 74 of the Statutes
of 1978).
B. Optionee is currently occupying and in possession of the Premises pursuant
to that certain Lease between Landlord, as lessor, and Tenant, as lessee,
dated May 13, 1986 (the "Existing Lease "). The Premises are operated as a
multi -use hotel and club facility by International Bay Clubs, Inc., an Affiliate of
Tenant, operating under the name "Balboa Bay Club."
• C. Optionor and Optionee entered into an OPTION AGREEMENT FOR THE
LEASE OF REAL PROPERTY (Option) on June 30,1996;
D. Optionor and Optionee wish to extend the term of the Option due to delays
in processing plans and entitlement that were unforeseen by the Parties when
the Option was approved.
E. Optionee is not in default under the Option or the Existing Lease as of the
date of this Amendment.
E. 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 extend the term of
the Option.
NOW, THEREFORE, in consideration of the mutual covenants contained herein and
other good and valuable consideration, the receipt of which is hereby acknowledged,
the parties agree as follows:
SECTION 1. EXTENSION OF TERM
Section 3 of the Option is amended to read as follows:
L1
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" Optionee may exercise the Option at any time prior to 5:00 p.m. California time .
on the sixth (6"') anniversary of the date hereof (the "Option Term "); provided, however,
that Optionee shall have no right to exercise the Option at any time Optionee is in
material default hereunder or under the Existing Lease, and, in the event of any such
default arising after the exercise of the Option but prior to the execution of the New
Lease by all parties thereto, such prior exercise by Optionee of the Option shall be
deemed null and void and of no force or effect ab initio unless Optionee shall have
cured such default within any applicable cure period but in to event later than the date
the New Lease would otherwise become effective.
SECTION 2 ONLY MODIFICATION
The provisions of SECTION 1 of this Amendment represent the only modification to the
terms and conditions of the Option and the remaining provisions of the Option shall
remain in full force and effect as stated in the Option.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first written above.
Attest:
City Clerk
Approved as to Form:
City Attorney
OPTIONOR: .
CITY OF NEWPORT BEACH,
a municipal corporation
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OPTIONEE:
Mayor
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. BBC PROPERTY, INC.,
a New York Corporation
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DAVID C. WOOTEN
PRESIDENT
November 5, 1999
Mr. Homer Bludeau, City Manager
City of Newport Beach
3300 Newport Boulevard
Newport Beach, California 92663
Dear Homer:
The Design Development Plan for the redevelopment of The Balboa Bay Club ( "The BBC') was
submitted to the City at the end of August, 1998, but was not approved by the City Council until .
its meeting on July 26, 1999. Therefore, almost a year elapsed from the submittal of the Plan
until its approval by the City Council.
The Option Agreement for the Lease of Real Property ('Option Agreement "), dated June 30,
1996, between the City of Newport Beach and The BBC provided that The BBC was required
to start construction on the redevelopment project within five years, or by June 30, 2001. In the
interim, The BBC was required to submit a Conceptual Plan not later than June 30, 1997 and a
Design Development Plan not later than one year following approval of the Conceptual Plan.
The Conceptual Plan was submitted in June, 1997 and approved by the City three months later.
During the following year, the Design Development Plan was prepared and was submitted to the
City for approval on August 30, 1998. During the nearly one -year time frame required by the
City to approve the Design Development Plan, work on The BBC redevelopment project has been
on hold.
Because of the delay in approval of the Design Development Plan, as well as the time required
by the California Coastal Commission for their review and approval, The Balboa Bay Club
hereby requests an extension of one year to the Option Term as defined in paragraph 3 of the
Option Agreement. We expect that construction of The BBC redevelopment project can be
started prior to the end of the original Option Term. However, considering the time required for
City and Coastal Commission approval of the Design Development Plan and the resulting delays
in the project schedule, we do not want to be faced with a June 30, 2001 deadline for the start
of construction. .
1221 WEST COAST HIGHWAY, NEWPORT BEACH, CALIFORNIA 92663 • TELEPHONE (949) 645 -5000 • FAX (949) 646.7010
• Mr. Homer Bludeau
November 5, 1999
Page Two
If you agree, I hope that our request for the one -year extension of the Option Term can be
approved by the City Council within the next few weeks. In the meantime, if you have any
questions or need additional information, please do not hesitate to give me a call.
Yours very truly,
David C. Wooten
DCW /hc
c: Jerry Johnson
William J. Popejoy
Beverly Ray
•
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November 5, 1999
Mr. Homer Bludau
City Manager
City of Newport Beach
3300 Newport Boulevard
Newport Beach, CA 92663
Dear Mr. Bludau:
I have been assisting the BBC management on financial matters for several years. As a former
banker, I have been requested to review, from a lender's perspective, the feasibility of securing
construction financing for the planned new BBC facilities.
After reviewing the planned new development, it is my opinion that construction financing can be
obtained based on the merits of the project.
The one concern lenders may have is the availability of a "take out" loan to payoff the construction
loan. For a project of this magnitude, construction lenders will be keenly interested in the method of
repayment for their loan once construction is completed. In this instance, the most likely method of
repayment would be from the proceeds of a "take out" (20 - 30 year) amortizing mortgage loan.
Therein is the possible problem. If for some reason construction did not begin by June 30, 2001, the
lease on the land may not be extended, and in the absence of such extension, no "take out" loan
would be available. Therefore, the lender must be assured of two conditions before extending a
construction loan - i.e. (i) construction will start on or before June 30, 2001, and (ii) a "take out" loan
is firmly committed to the project.
I've worked with the BBC management enough to know they are committed to begin construction
before the June 30, 2001 date. Yet for events beyond their control such may not be possible. It's my
opinion that construction financing will be much more attainable if the June 30, 2001 deadline could
be extended by one year to June 30, 2002.
•
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This extension would not be sought to delay actual development, rather it would help the
construction lender be comfortable with the timetable and the certainty of their loan being repaid
when due.
•
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. Mr. Homer Bludau
Page 2 of 2
The above represents my opinion. This review, while I have tried to be thorough, is offered to help
the City of Newport Beach and the BBC proceed smoothly forward with the much needed
development.
Also, I have not, nor do I wish to be, compensated by the BBC or anyone else for my review and
opinion on this matter.
Respectfully,
William J. Popejoy�
cc: Beverly Ray
David C. Wooten
enclosure
0
FIRST AMENDMENT TO OPTION AGREEMENT FOR THE LEASE OF REAL •
PROPERTY
THIS FIRST AMENDMENT OF THE OPTION AGREEMENT FOR THE LEASE OF
REAL PROPERTY (Amendment) is made on , by and between
THE CITY OF NEWPORT BEACH, a charter city and municipal corporation ( Optionor),
and BBC PROPERTY, INC., a New York Corporation ( Optionee).
RECITALS
A. Optionor is the grantee of that certain parcel of real property located in the
City of Newport Beach, County of Orange, State of California, as more
particularly described on Exhibit A attached hereto (the "Premises "),
pursuant to the provisions of the Beacon Bay Bill (Chapter 74 of the Statutes
of 1978).
B. Optionee is currently occupying and in possession of the Premises pursuant
to that certain Lease between Landlord, as lessor, and Tenant, as lessee,
dated May 13, 1986 (the "Existing Lease "). The Premises are operated as a
multi -use hotel and club facility by International Bay Clubs, Inc., an Affiliate of
Tenant, operating under the name "Balboa Bay Club."
C. Optionor and Optionee entered into an OPTION AGREEMENT FOR THE
LEASE OF REAL PROPERTY (Option) on June 30,1996;
D. Optionor and Optionee wish to extend the term of the Option due to delays
in processing plans and entitlement that were unforeseen by the Parties when
the Option was approved.
E. Optionee is not in default under the Option or the Existing Lease as of the
date of this Amendment.
E. 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 extend the term of
the Option.
NOW, THEREFORE, in consideration of the mutual covenants contained herein and
other good and valuable consideration, the receipt of which is hereby acknowledged,
the parties agree as follows:
SECTION 1. EXTENSION OF TERM
Section 3 of the Option is amended to read as follows:
ID
" Optionee may exercise the Option at any time prior to 5:00 p.m. California time
on the sixth (6th) anniversary of the date hereof (the "Option Term "); provided, however,
that Optionee shall have no right to exercise the Option at any time Optionee is in
material default hereunder or under the Existing Lease, and, in the event of any such
default arising after the exercise of the Option but prior to the execution of the New
Lease by all parties thereto, such prior exercise by Optionee of the Option shall be
deemed null and void and of no force or effect ab initio unless Optionee shall have
cured such default within any applicable cure period but in to event later than the date
the New Lease would otherwise become effective.
SECTION 2 ONLY MODIFICATION
The provisions of SECTION 1 of this Amendment represent the only modification to the
terms and conditions of the Option and the remaining provisions of the Option shall
remain in full force and effect as stated in the Option.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first written above.
Attest:
City Clerk
Approved as to Form:
City Attorney
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OPTIONOR:
CITY OF NEWPORT BEACH,
a municipal corporation
OPTIONEE:
Mayor
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BBC PROPERTY, INC.,
a New York Corporation
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Its:
Its:
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13-- 1-2,
i EXECUTIVE SUMMARY
OF
LEASE AND OPTION AGREEMENT
BETWEEN
THE CITY OF NEWPORT BEACH AND THE BALBOA BAY CLUB
On June 24th the City Council will consider a new Ground Lease and an Option
Agreement between the City and BBC, Property Inc. The two documents are
very lengthy and have undergone extensive discussion between the parties
over the last eighteen months. The major provisions of the two documents
include:
OPTION AGREEMENT
• The current twenty -five (25) year lease between the City and BBC
terminates in 2011. The proposed Option Agreement grants BBC the
exclusive right and option to lease the premises pursuant to the terms of
the proposed new Ground Lease.
• BBC may exercise the option at any time prior to the fifth anniversary of
the Option Agreement.
• In consideration for the Option Agreement, BBC agrees to pay City
$250,000, plus interest accrued at 8% between the Option Agreement
approval and the date it is exercised, if it is exercised.
• The Option Agreement may be exercised only after BBC has:
completed all processing for permits from all governmental entities
for the renovation and reconstruction of the premises
obtained the City's approval as Landlord of the Concept Plans,
Design Development Plans, and Final Plans for the renovation
- provided evidence to the City that sufficient financing is available
to complete the renovation
obtained and paid for a building permit to commence construction
• The timetable in the Option Agreement requires BBC to submit the
Conceptual Plan by June 30, 1997, Design Development Plans within
• one year of Conceptual Plan approval, and Final Plans and
Specifications prior to the expiration of the Option.
i
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• The Option Agreement may not be assigned without the City's approval
and unless assignee meets certain net worth and experience tests.
• If BBC sells, transfers, conveys or assigns within twenty -four months of
completion of the entire project (including the Option period), then the
City participates in 20% of the net proceeds after deductions for project
costs and a 15% profit.
GROUND LEASE AGREEMENT
• The term of the new Ground Lease is fifty (50) years commencing upon
the completion of the steps necessary to exercise the option to lease the
property (see Option Agreement summary below).
• Commencement of construction of the new improvements must
commence within ninety (90) days of the new lease and must be
completed within three years.
• BBC agrees to renovate and maintain the hotel in a first class condition i
and agrees to keep all the other facilities in a condition equal to other
quality facilities in the area.
• The Rent is the greater of $1,125,000 ( "Base Rent ") or the "Percentage
Rent" as reflected below in the various categories:
PERCENTAGE
CATEGORY RENT
Dues Revenues
6%
Apartment Revenues
16.5%
Marina Revenues
31%
Storage Revenues
20%
Charter Commission Revenues
20%
Charter Revenues
6%
Room Revenues
5%
Beverage Revenues
5%
Food Revenues
3 %
Retail Revenues
5%
Miscellaneous Revenues
10% i
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• Base Rent is adjusted after the first eight years, and every five years
thereafter, based upon the prior five years total rent, with base rent then
adjusted to 75% of the total rent.
• During a thirty (30) month period upon the commencement of the lease,
the City agrees to payment of 50% of the Base Rent to ease the financial
burden during the construction period.
• BBC may not transfer, assign or sell the leasehold interest without the
City's consent and the future owner meets certain criteria including net
worth tests and experience standards.
• If BBC does sell, convey, transfer or assign the leasehold, then the City
shares 20% in the net proceeds after certain deductions for costs and
profit.
• The agreement provides for a capital replacement reserve which is
intended to assure the City that the facility will be maintained in a first
class condition over the life of the lease.
' The agreement contains numerous other provisions which are normally
provided between a landlord and tenant in a Ground Lease including:
regular audits of records, requirements for qualified managers,
insurance, indemnification, default, rights of access, and termination.
f•
15
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`' Z43At, CITY OF NEWPORT BEACH
AGENDA ITEM NO. 32
TO: HONORABLE MAYOR AND CITY COUNCIL
FROM: Homer L. Bludau, City Manager
DATE: December 13, 1999
RE: BBC AGREEMENT EXTENSION
Attached for your information are Pages 1 -5 of the Option Agreement for the Lease of
Real Property, which covers the value of the Option. Also attached are Pages 18 -23
from the Ground Lease to show revenue payments to the City once the project is up and
operating.
This information may be helpful in your dealing with the "consideration" issue.
City Hall . 3300 Newport Boulevard . Post Office Box 1768 9 Newport Beach, California 92659 -1768
OPTION AGREEMENT FOR THE LEASE OF REAL PROPERTY
by and between
THE CITY OF NEWPORT BEACH
and
BBC PROPERTY, INC.
As of June 30, 1996
E
•
OPTION AGREEMENT FOR THE LEASE OF REAL PROPERTY
THIS OPTION AGREEMENT FOR THE LEASE OF REAL PROPERTY (this "Agreement ")
Is made as of June 30, 1996, by and between THE CITY OF NEWPORT BEACH, a charter
city and municipal corporation ( "Optlonor "), and BBC PROPERTY, INC., a New York
corporation ("Optionee").
RECITALS
A. Optlonor Is the grantee of that certain parcel of real property located In the City of
Newport Beach, County of Orange. State of California, as more particularly described
on Exhibit A attached hereto (the "Premises "), pursuant to the provisions of the
Beacon Bay Bill (Chapter 74 of the Statutes of 1978).
B. Optionee, as successor In Interest to Balboa Bay Club, Inc., Is currently occupying
and In possession of the Premises pursuant to that certain Lease between Optionor,
as lessor, and Balboa Bay Club, Inc., as lessee, dated May 13, 1986 (the "Existing
Lease ").
C. On November 3, 1992, a majority of the electors of the City of Newport Beach
approved Measure M which authorized the City Council of the City of Newport Beach
to lease tidelands and waterfront property consistent with the provisions of State law.
D. The California State Lands Commission has reviewed the form of this Agreement, and
the New Lease attached hereto, and determined that such Instruments are In
conformance with the provisions of relevant statutes, rules and regulations and have
approved such Instruments.
E. The City Council of the City of Newport Beach has determined that this Agreement,
and the New Lease attached hereto, are consistent with the Charter of the City of
Newport Beach, and Its General Plan and Zoning Ordinances applicable thereto, and
of all other applicable State and local laws. Including, without limitation, the Land
Use Plan of the Local Coastal Program.
F. 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 maintain the use and
character of the Premises for the general uses permitted thereon by the General Plan
and Zoning Ordinances of the City applicable thereto, and to enter Into the New Lease
under the terms and conditions set forth therein.
G. Optlonor and Optionee each desires to enter Into an option agreement whereby
Optlonor will grant to Optionee an option to terminate the Existing Lease
nBI- 215179.V16 1 MUM
concurrently with the entering Into by the parties of the New Lease for the Premises
as more particularly set forth hereinafter.
NOW, THEREFORE, with reference to the foregoing recitals, and In consideration of the
mutual covenants and agreements contained herein, and other good and valuable
consideration the receipt of which Is hereby acknowledged, the parties hereto agree as
follows:
AGREEMENT
1. Grant of Option. Optionor hereby grants to Optionee an exclusive right and option
(the "Option ") to lease the Premises for the rent and upon the terms and conditions
set forth In the Ground Lease attached hereto as Exhibit B and Incorporated herein
by this reference (the "New Lease ").
2. Option Consideration. In consideration for the Option, and notwithstanding the
provisions of Section 5.b of the Existing Lease, It shall be a condition precedent to
the exercise by Optionee of the Option (and the obligation of Optlonor to execute the
New Lease) that Lessee shall pay to Lessor, concurrently with and as a condition
precedent to the exercise of the Option, the sum of Two Hundred Fifty Thousand
Dollars ($250,000), with Interest on such sum at eight percent (8%) per annum from
the date hereof to the date of such payment. In further consideration of the Option,
Optlonee has further agreed herein to undertake certain design and planning work
In connection with the Project (as defined In the New Lease), at Its sole cost and
expense, In the manner and at the times set forth herein.
3. Option Term. Optlonee may exercise the Option at any time prior to 5:00 p.m.
California time on the Ufth (5'h) anniversary of the date hereof (the "Option Term ");
provided, however, that Optlonee shall have no right to exercise the Option at any
time Optionee Is In material default hereunder or under the Existing Lease, and, In
the event of any such default arlsing after the exercise of the Option but prior to
execution of the New Lease by all parties thereto, such prior exercise by Optlonee of
the Option shall be deemed null and vold and of no force or effect ab Initio unless
Optlonee shall have cured such default within any applicable cure period but In no
event later than the date the New Lease would otherwise become effective.
4. Conditions Precedent to the Exercise of Option. As a condition precedent to
the exercise of the Option by Optlonee, Optlonee shall, at Its sole cost and expense,
(1) complete the processing for and obtain any and all permits, licenses and
entitlements from any governmental or quasi - governmental agency or authority
having jurisdiction over the renovation and reconstruction of the Improvements
located on the Premises; as contemplated by this Agreement and the New Lease,
Including Issuance of a Coastal Development Permit from the California Coastal
Commission, (11) obtain the approval of Optionor to the Conceptual Plan, Design
Development Plans, and Final Plans (as set forth In Sections 8, T and 8 hereinafter),
(III) provide evidence reasonably satisfactory to Optlonor that Optionee W the
Nsl•215179.vle 2 ovilm
financial resources available to It and/or has arranged and entered Into a financing
commitment from an Institutional lender for financing the construction and
renovation of the Project In accordance with the Final Plans, and (Iv) have obtained
and paid for building permits for construction of the Improvements In accordance
with the Final Plans approved by Optionor.
5. Cooperation of Optlonor. Optfonor shall cooperate with Optlonee In Optlonee's
reasonable efforts to obtain all required permits and approvals, and shall execute
such applications and other undertakings reasonably required in Its capacity as the
owner of the Premises to enable Optionee to file for and obtain all permits, licenses,
variances, permissions and consents necessary to construct the Project and
otherwise to perform Its activities under this Agreement: provided, however, that
nothing herein shall imply any obligation Inconsistent with or result In any diminution
of Optlonor's legislative, quasi - legislative or administrative rights, obligations and
prerogatives as a municipal public agency, Including, without limitation, Optlonors
rights, obligations and prerogatives In connection with reviewing and approving or
disapproving any application for any license, permit or entitlement for the
development, construction or use of the Premises.
6. Conceptual Plan. Not later than the later June 30, 1997, Optlonee shall prepare,
or cause to be prepared, and shall submit to Optlonor for Its review and approval, a
proposed conceptual plan for the design, construction, furnishing and equipping of
the Project (the "Conceptual Plan "). All elements of the Conceptual Plan shall be
prepared In writing by an experienced, reputable and licensed architectural firm and
shall Include those elements typically Included In such types of plans and as required
by applicable ordinances and regulations of the City of Newport Beach, but In all
events shall Include the following: (f) the general configuration, size and relationship
of the Project and all amenities relating thereto, Including all parking (surface and
structured), restaurants, lounges, banquet rooms and similar public assembly areas,
all guest support, health, exercise, recreational and sports facilities; (II) conceptual
elevations and representational sections for all Improvements, features and elements
to be constructed on the Property; (ill) a general description of the various elements,
functions and layout of the Improvements (interior and exterior); (Iv) a site plan of
the Premises showing all Improvements to be constructed thereon and showing the
relation of all said Improvements to the adjacent properties and showing the
circulation and access plans; (v) schematic drawings of the Project; and (vl) outline
specifications for all exterior lighting and landscaping on the Premises. Optlonor's
right to approve the Conceptual Plan shall be limited to assuring that the proposed
Improvements are of first class quality and consist of the type and quality required
by this Agreement and the New Lease, and Optionor shall not have any right to
disapprove any component of the Conceptual Plan which would have the effect of
changing the plan previously approved by the City In connection with the zoning of the
Premises. It Is not Intended by the Optlonor's review and approval rights under this
• Agreement that Optionor will Impose esthetic judgments on Optionee unless such
design criteria proposed by Optionee shall, In the reasonable judgment of Opttonor,
result In Improvements which are Inconsistent with the standards required by this
nnI -21 s»e vIe 3 owl tm
Agreement and the New Lease. Any disapproval by Optionor must specify with
reasonable particularity the portion or portions disapproved and Optionor's
suggestions of alternatives It would approve. On or before three (3) months following
Its submission by Optionee to Optionor for approval, Optionor and Optionee shall
have agreed upon the Conceptual Plan. The proposed conceptual plan shall be
deemed approved If Optlonor does not disapprove all or specific portions of the
proposed conceptual plan within thirty (30) days following receipt thereof from
Optionee. If Optionee shall fail to submit a proposed conceptual plan to Optlonor no
later than June 30, 1997, Optionor may by written notice to Optlonee, terminate this
Agreement and any right of Optionee to enter into the New Lease shall thereafter be
of no force or effect. If, by three (3) months following submission of the proposed
conceptual plan to Optlonor for Its approval, the parties are unable to agree upon the
Conceptual Plan, or the proposed Conceptual Plan Is not deemed approved as
aforementioned, either party may by written notice to the other party terminate this
Agreement. In such event, this Agreement shall thereafter be of no force or effect,
and any right of Optionee to enter Into the New Lease shall thereafter be of no force
or effect, without affecting the continuation of the Existing Lease.
7. Design Development Plans. Not later than one year following approval of the
Conceptual Plan by Optlonor, Optionee shall prepare, or cause to be prepared,
proposed design development plans, containing all of the elements typically contained
In such plans and as required by applicable ordinances and regulations of the City of •
Newport Beach, and shall within such time period submit said proposed design
development plans to Optionor for its review and approval. The "Design Development
Plans" shall Include: (1) a site plan (scale V equals 40') Indicating the Items provided
for In the Conceptual Plan and showing In addition thereto principle utilities, setback
lines, general drainage plans Including the capacities of storm draln and sewer lateral
lines: (II) a proposed lighting and circulation system for both vehicular and pedestrian
travel; (111) principal building plans, sections and elevations (minimum scale 1/8'
equals 1'), study models and prospective sketches Indicating all exterior architectural
Information and all Interior architectural Information relating to the principal hotel
lobby, designs for lighting and signing the principal hotel lobby and all exteriors
of Improvements to be constructed on the Premises: and (v) construction schedules
showing the principal stages, phases and durations of construction. On or before
three (3) months following Optlonee's submission of same to Optlonor, the parties
shall have agreed upon the Design Development Plans for the Project. The proposed
Design Development Plans shall be deemed approved If Optionor does not disapprove
all or specific portions of the proposed Design Development Plans within thirty (30)
days following submission thereof to Optionor by Optionee. Optionor shall not
withhold Its approval of the design development plans submitted by Optionee If and
to the extent that such design development plans conform In all material respects
with, and are a logical extension of, the Conceptual Plan approved by Optlonor. If
Optionor reasonably believes that the proposed Design Development Plans submitted
by Optionee do not so conform, Optlonor shall advise Optlonee In writing of any .
questions or objections which Optlonor has with respect thereto. Optionor shall set
forth Its comments, suggestions and objections to the proposed Design Development
NBI- 215179NM 4 On
L�
Plans with reasonable specificity In order to permit Optionee to address such
concerns. If Optionee shall fall to submit proposed design development plans to
Optlonor by the date which Is one year following approval of the Conceptual Plan by
Optionor, Optionor may by written notice to Optionee, terminate this Agreement and
any right of Optionee to enter Into the New Lease. If Optionee does submit the
proposed Design Development Plans to Optlonor by such date, and within three (3)
months following such submission, the parties are unable to agree upon the Design
Development Plans, or the proposed Design Development Plans are not deemed
approved as aforementioned, either party may submit the matter to arbitration as
provided in Section 29 for resolution. All dates for compliance by Optionee with Its
obligations under this Agreement shall be extended by the number of days necessary
to resolve such dispute, but only with regard to such obligations of Optionee the
performance of which are reasonably delayed as a result of such dispute.
8. Final Plans and Specifications.
(a) Optionee shall submit to Optionor, for Optlonor's review and approval, final
and full plans and specifications (the "Final Plans ") for the Project, Including
architectural, landscaping, structural, heating and ventilation systems,
utilities, sections and detailed designs for lighting and signing of the exterior
of the Project, all of which shall conform In all material respects to the
Conceptual Plan and the Design Development Plans approved by Optlonor.
Optlonor's right of approval with respect to the Final Plans shall include the
same Items subject to Optionoes approval with respect to the Conceptual Plan
and the Design Development Plans. Optionor shall advise Optionee In writing
of any questions or objections which Optlonor has If Optionor reasonably be-
lieves that the Final Plans do not so conform In all material respects and shall
state Its objections with reasonable specificity. in such event, unless Optionee
disputes Optionor's disapproval and submits such matter to arbitration as
hereinafter provided. Optionee shall make subsequent submissions of Final
Plans to order to comply with such questions or objections Optlonor may have.
Landlord shall be deemed to have approved the Final Plans If Landlord falls
either to give its written approval or state In writing Its questions or objections
to any Final Plans submitted by Optionee within forty -five (45) days after the
date of said submission. If within ninety (90) days following submission of the
Final Plans to Optionor for review and approval, the parties are unable to
agree upon the Final Plans, or the Final Plans are not deemed approved as
aforementioned, the matter may be submitted to arbitration by either party as
provided in Section 29 for resolution. All dates for compliance by Optionee
with Its obligations under this Agreement shall be extended by the number of
days necessary to resolve such dispute, but only with regard to such ob-
ligations of Optionee the performance of which are reasonably delayed as a
result of such dispute.
(b) Optionee acknowledges that the approvals by Optlonor required In this Section
8 are separate and distinct from any review, approval, permitting or licensing
NBt- 215178.V19 0 09nim
required by the City In Its municipal capacity, such as demolition, grading and
building permits. The Issuance by the City of any such approval, permit or
license shall not constitute approval of any matter requiring the consent or
approval of Optionor under this Agreement.
9. Building Permits. Optionee shall apply for and thereafter diligently prosecute to
Issuance or denial, at Its sole cost and expense, the procurement of all necessary
building permits from the City as well as any other governmental entity having
jurisdiction over the Premises for the construction of the Project In accordance with
the Final Plans which have been approved by Optionor to the extent such approval
Is required by the terms of this Agreement. In that regard, should the City or any
other governmental entity having jurisdiction over the Premises require that Optlonee
modify a portion of the approved Final Plans, Optlonee shall be required to consult
with Landlord and, If compliance with governmental requirements may be achieved
In more than one manner or fashion and the manner or fashion of Optionee's pro-
posed compliance shall not be consistent In all material respects with the Conceptual
Plan and the Design Development Plans, to obtain Optlonor's prior written approval
of the manner or fashion of Optionee's proposed compliance, which approval shall not
be unreasonably withheld or delayed. Any dispute between the parties regarding
Optlonor's approval (or the need for such approval) of the manner or fashion of
Optionee's proposed compliance shall be submitted to arbitration In accordance with
Section 29; provided, however, that the agreement to arbitrate disputes shall apply
solely to approvals required by Optionor pursuant to this Agreement, and shall not
apply to any determination by the City In Its municipal capacity In connection with the
Issuance of permits or licenses, Including any matter concerning compliance with any
ordinance, resolution, condition of approval, law or regulation applicable to the
construction, operation or maintenance of the Project. All dates for compliance by
Optlonee with its obligations under this Agreement shall be extended by the number
of days necessary to resolve such dispute, but only with regard to such obligations of
Optlonee the performance of which are reasonably delayed as a result of such
dispute.
10. Delivery of Plane. In the event of expiration or termination of this Agreement for
any reason other than default by Optionor, Optlonee shall deliver to Optionor a copy
of all plans and specifications for the Project, Including the Conceptual Plan, Design
Development Plans and Final Plans, and all components thereof, and Optionor shall
have the right to use such plans and specifications In any manner It determines In
connection with the development of the Premises, subject only to the contractual
rights and limitations Imposed by the unrelated third party originators of such plans
and specifications.
11. Exercise of the Option.
(a) Provided that the conditions precedent set forth In Sections 3, and 6 through .
8 are satisfied. Optionee may exercise the Option by.
NB1- =179MG 6 owl im
(1) delivering to Optionor written notice of such exercise prior to the
expiration of the Option Term; and
(11) delivering to an escrow established by the parties with First American
Title insurance Company In Santa Ana. California (the "Escrow"), two
(2) executed and. with respect to the Memorandum of Ground Lease.
acknowledged originals of the New Lease and the Memorandum of
Ground Lease; and
(W) delivering to the Escrow a certified check or other Immediately
available funds in the amount of Two Hundred Fifty Thousand Dollars
($250.000), plus interest thereon at eight percent (8%) per annum
from the date hereof to the date of such payment. in payment of the
sum required by Section 2.
(b) Within five (5) days of Its receipt of the notice described In Section I I(a).
Optionor shall deliver to escrow two (2) executed and. with respect to the
Memorandum of Ground Lease. acknowledged originals of the New Lease and
the Memorandum of Ground Lease.
(c) Upon receipt of the Instruments referred to In Sections I I (a)(II) and 11(b).
escrow holder Is Instructed to deliver executed counterparts to the parties.
deliver to Optionor the funds set forth In Section I I (a)(111). and record the
Memorandum of Ground Lease In the Official Records of the County of Orange.
(d) The parties shall execute such further Instructions as the escrow holder shall
reasonably require. Optlonee shall bear all costs of title Insurance which
Optionee elects to purchase In connection with this Option or the New Lease.
All other fees and charges of the escrow shall be paid by the parties In
accordance with customary practice In Orange County.
12. State of Title. The parties acknowledge that Optionee has obtained a commitment
for title Insurance under Order No. 963807 from First American Title Insurance dated
May 24. 1996 (the 'Title Report") showing the state of title to the Premises.
Optlonee hereby approves all exceptions to title shown in said Title Report (the
"Permitted Exceptions "), and the parties acknowledge and agree that leasehold
title to the Premises granted pursuant to the New Lease shall be subject to the
Permitted Exceptions. It shall be a condition precedent to Optlonee's obligations
under this Agreement that the title company is able and willing to Issue a leasehold
policy of title Insurance In favor of Optlonee (and any Institutional lender providing
financing for the construction and renovation of the Project in accordance with the
Final Plans) In form and substance satisfactory to Optlonee. In the event such
condition precedent Is not satisfied or waived by Optlonee prior to consummation of
the transaction as contemplated in Section 11(c), this Agreement may be terminated
by Optionee upon written notice to Optionor and the parties shall have no further
liability or obligation thereunder.
NB1.215179.vte 7 0anim
ARTICLE V
RENT
5.1 Rent. Subject to the limitations of Section 5.3 below, commencing upon the
Commencement Date, Tenant shall pay to Landlord the greater of (1) annual rent
In the sum of One Million One Hundred Twenty -Five Thousand Dollars
($1,125,000) (the "Base Rent ") as adjusted pursuant to Section 5.4 below, or
(11) the percentage rent set forth In Section 5.2 (the "Percentage Rent "). Base
Rent and Percentage Rent are hereinafter referred to as "Rent."
5.2 Percentage Rent. Percentage Rent shall equal the total of the percentages set
forth below of the corresponding categories of Gross Revenues on an annual basis
from each transaction, sale or activity of Tenant on or from the Premises:
CATEGORY
PERCENTAGE RENT
Dues Revenues
6%
Apartment Revenues
16.5%
Marina Revenues
31%
Storage Revenues
20%
Charter Commission Revenues
20%
Charter Revenues
6%
Room Revenues
5%
Beverage Revenues
5%
Food Revenues
3%
Retail Revenues
5%
Miscellaneous Revenues
10%
To the extent that Gross Revenues Include proceeds of business interruption or
rental loss Insurance which are based upon or In compensation for Percentage
Rent payable under this Lease, the Percentage Rent owed for any of the foregoing
activities for which such proceeds of business Interruption or rental loss Insurance
were received during the period affected by such Insurance claim shall be the •
greater of (1) the amount of such proceeds of business Interruption or rental loss
NOI- 21613CV23 18 OW11M
Insurance relating to Percentage Rent payable to Landlord hereunder, or (11) the
amount of Percentage Rent calculated as set forth above after deduction from
Gross Revenues of the amount of such proceeds of business interruption or rental
loss Insurance relating to Percentage Rent.
5.3 Base Rent During Construction. Notwithstanding Section 5.1 above, from
and after the Commencement Date until the earlier of (1) thirty (30) months
following the Commencement Date, or (11) such time as certificates of occupancy
have been Issued with respect to the renovation of the hotel portion of the Project
as contemplated In this Lease, the Base Rent payable hereunder shall be limited
to Forty -Six Thousand Eight Hundred Thirty -Three and 34/100 Dollars
($46,833.34) per month; provided, however. Tenant shall remain obligated to pay
Percentage Rent to the extent it exceeds such Base Rent during such period.
5.4 Periodic Adjustments of Base Rent. Upon the first day of the ninety- seventh
(97th) month following the Commencement Date, and the first day of every sixty -
one months thereafter (respectively, an "Adjustment Date "). Base Rent shall be
Increased or decreased, as the case may be, to a sum equal to seventy -five percent
(75%) of the average annual total of Rent payable during the Immediately
preceding five (5) years. Following receipt of the report of Gross Revenues and
Percentage Rent for the year Immediately preceding an Adjustment Date, Landlord
shall calculate the adjustment In Base Rent, If any, and shall notify Tenant In
writing of such adjustment. Subject to Tenant's right to contest, In good faith,
Landlord's calculation of the adjustment to Base Rent, any such adjustment shall
be effective as of the relevant Adjustment Date, and Tenant shall pay any accrued
and unpaid Base Rent from the Adjustment Date to the date of receipt of
Landlord's notice of adjustment In Base Rent no later than fifteen (15) days
following receipt of Landlord's notice of adjustment In Base Rent.
5.5 Fair Market Adjustment of Base Rent. Upon the twenty -sixth (26th)
anniversary of the Commencement Date (the "Market Adjustment Date "). the Base
Rent shall be Increased or decreased, as the case may be. based upon the
determination of the fair market rental value of the Premises In the manner set
forth In Section 19.19. For purposes of appraising the fair market rental value of
the Premises, the appraisers shall determine such value including payment of
minimum rent and percentage rent In excess thereof In the categorles set forth in
Section 5.2 above. The Base Rent shall be adjusted to equal seventy -five percent
(75%) of the full fair market rental value of the Premises as so determined. In the
event the adjusted Base Rent determined pursuant. to this Section 5.5 Is one
hundred twenty percent (120%) or more of the average annual Base Rent payable
during the five (5) Fiscal Years preceding the Market Adjustment Date, the amount
by which the new Base Rent exceeds one hundred twenty percent (120%) or more
of the average annual Base Rent payable during the five (5) Fiscal Years preceding
. the Market Adjustment Date shall be added to Base Rent at the rate of twenty -five
Ns+- 2I5134.Y23 19 W1 I=
percent (25%) thereof per year In the ensuing four (4) Fiscal Years. For example,
If the amount by which the new Base Rent exceeds one hundred twenty percent
(120%) or more of the average annual Base Rent payable during the preceding five
(5) Fiscal Years Is $4.000. then Base Rent shall be Increased by $1.000 in each
of the ensuing four (4) Fiscal Years. Landlord and Tenant agree to use the
appraisal methodology utilized by Landlord's appraisal conducted by William
Hansen & Associates. dated November 4. 1994. In the computation of the market
rent upon the commencement of this Lease.
5.6 Payment of Rent. Base Rent shall be payable on the first (1st) day of each
Accounting Period during the Term; provided, however, to the extent that
Percentage Rent for such Accounting Period exceeds the Base Rent paid during
such Accounting Period, the differential shall be payable in arrears concurrent
with the next installment of Base Rent. Any installment of Rent payable during any
Accounting Period shall equal the greater of (1) Percentage Rent computed from
the commencement of that particular Fiscal Year to the end of the Accounting
Period for which such Rent Is due, or (1I) the Base Rent due from the
commencement of that particular Fiscal Year to the end of the Accounting Period
for which such Rent Is due, in each instance less the aggregate amount of any Rent
previously paid to Landlord during such Fiscal Year.
5.7 Charges for Goods and Services. Tenant agrees to charge prices for all
goods, services and facilities (including boat slip rentals) offered at or provided on
or from the Premises comparable with prices for such goods and services charged
at other private clubs In Southern California; provided, however, (1) that for
purposes hereof, the rent charged for slips in the marina shall be adjusted, where
necessary, to eliminate any discounts or reduced fees and charges at such clubs
based upon payment of membership fees or other comparable arrangements, and
(II) nothing herein shall limit or Impair Tenant's ability to charge less than such
amounts if, in the exercise of Tenant's reasonable business judgment, such lesser
amounts will stimulate revenue Increases or In connection with advertising,
promotions, discounts to employees, guests or charitable functions.
5.8 Reconciliation of Annual Rent. Within thirty (30) days following receipt by
Landlord of the annual statement set forth in Section 5.10(b). the Percentage Rent
due for such Fiscal Year shall be determined. subject to audit as set forth In
Section 5.10(e), and the amount of Rent paid or payable for such Fiscal Year shall
be adjusted accordingly. Landlord shall credit the amount of any Rent received
from Tenant pursuant to Section 5.6 which Is In excess of the amount of Rent
determined to have been due and payable for such Fiscal Year, such excess to the
Installments of Rent next following. Tenant shall pay, within live (5) days following
such determination. but In no event later than one hundred and sixty (160) days
following the end of such Fiscal Year, the full amount of Rent determined to have
been due and payable for such Fiscal Year.
Het- 215136.vn 20 ow11M
01
5.9 Place for Payment of Rentals. All payments of Rent shall be made In lawful
money of the United States of America and shall be paid to Landlord at Landlord's
address as set forth in Section 19.6 or to such other parties and/or to such other
address as Landlord may from time to time designate In writing to Tenant.
5.10 Records and Reports of Sales.
(a) Quarterly Statement. Tenant shall provide to Landlord a statement
setting forth in reasonable detail the amount of Tenant's Gross Revenues
(including a breakdown among the categories set forth In Section 5.2
above) for the Immediately preceding Accounting Period within twenty (20)
days following the end of each Accounting Period.
(b) Annual Statement. Tenant shall provide to Landlord a statement setting
forth in reasonable detail the amount of Tenant's Gross Revenues for the
preceding Fiscal Year within one hundred twenty (120) days following the
end of each Fiscal Year.
(c) Payment of Percentage Rent. Tenant shall accompany the statement
of Gross Revenues for each Accounting Period and the Fiscal Year with a
payment of the amount by which Percentage Rent exceeds the Base Rent
paid during such Accounting Period calculated In accordance with Section
5.2 of this Lease.
(d) Books and Records. Tenant shall prepare and keep full, complete,
accurate and proper books, records and accounts of all business conducted
by Tenant or Its Affiliates from the Premises, In accordance with generally
accepted accounting principles consistently applied, which shall Include
equipment to record all sales at the time of the transaction. Tenant shall
keep at the Premises records of Tenant's Gross Revenues for a period of
not less than three (3) years after the expiration of the Fiscal Year to which
such records relate and upon request shall furnish Landlord true and
accurate statements thereof. Within one hundred twenty (120) days
following the close of each Fiscal Year, Tenant shall deliver to Landlord an
audited statement prepared by a nationally recognized Independent firm of
certified public accountants showing In reasonable detail, on a Fiscal Year
basis, the amount of Tenant's Gross Revenues (including a breakdown
among the categories set forth In Section 5.2 above) for the Immediately
preceding Fiscal Year.
(e) Audit Rights. Landlord shall have the right upon two (2) days prior
notice to Tenant and during normal business hours, but not more often than
N81d1513&V= 21 Oil11A5
one (1) time during each Fiscal Year of the Term, to audit the Tenant's
statements of Gross Revenues, and supporting records and data. Within
ten (10) days of receipt of such audit, Tenant shall pay Landlord the
additional Rent found to be due plus Interest thereon at the Lease Interest
Rate If the audit discloses an understatement of annual Gross Revenues.
However, If the audit discloses Rent has been overpaid by Tenant, the
excess shall be applied to any amounts then due from Tenant to Landlord,
and the balance. If any, shall be credited against Base Rent thereafter due
from Tenant. Tenant shall pay for the reasonable cost of Landlord's audit
If Landlord's audit discloses a total underpayment of Rent for any Fiscal
Year which Is In excess of five percent (5%). Landlord shall have the right
to receive a copy of the results of any audit conducted at the request of
Tenant of Tenant's statements of Gross Revenues during the Term.
Promptly following the completion of any such audit, Tenant shall deliver,
or cause to be delivered, to Landlord a copy of the result of such audit
regardless of whether Landlord shall have made a demand therefor.
(f) Annual Forecast of Operations. On or before May 1 of each year
during the Term, Tenant shall provide Landlord, for informational purposes,
with a forecast for the ensuing Fiscal Year of the amount of (1) Gross
Revenues expected to be received by Tenant, and (11) Percentage Rental
expected to be payable hereunder (by categories of Percentage Rental). On
or before September 30 of each year during the Term. Tenant shall provide
Landlord with a forecast for the ensuing twelve (12) month period of
budgeted capital Improvements, replacements, repairs and maintenance
that Tenant anticipates expending during such twelve (12) month period to
maintain the Project In a manner consistent with the original quality of the
Project upon completion of construction In accordance with the Final Plans
as required by Section 6.3.
5.11 Additional Rent. Tenant agrees to pay, as rental for the Leased Premises,
within ten (10) days of Landlord's demand therefor, unless a different time for
payment Is expressly provided herein, all other amounts Tenant Is obligated to pay
Landlord under the provisions of this Lease In addition to Rent ( "Additional
Rent ").
5.12 No Abatement or Reduction in Rent. Except as expressly provided to the
contrary elsewhere in this Lease. Tenant shall not be entitled to any abatement,
set -off or reduction in Rent or Additional Rent hereunder.
5.13 No Partnership Created. Landlord and Tenant shall In no event be construed
or held to be partners, co- owners, joint venturers or associates of one another In
the conduct of Tenant's business on the. Premises, or In Its ownership of the
ee1- 2151Xv23 22 milm
• Project. The relationship between Landlord and Tenant Is and at all times shall
remain that of lessor and lessee for all purposes.
5.14 Net Lease. The Rent set forth In this Article V herein Is based upon the
assumption that Landlord will not have to pay any expenses or Incur any liabilities
of any kind In any way relating to, or In connection with, the Premises during the
Term except for refunds, interest, credits or other payments herein specifically set
forth. Accordingly. Tenant will promptly pay all costs of every kind and description
relating to or arising out of the Premises during the Term.
ARTICLE VI
TENANT'S OBLIGATION WITH RESPECT TO MAINTAINING PREMISES
6.1 Repairs and Maintenance. Tenant shall at all times during the Term keep In
good order, condition and repair the entire Premises and all Improvements and
buildings located thereon. Including the structural and non- structural portions of
the Project. the entrances, the windows, partitions, doors, lighting and plumbing
fixtures, heating, ventilation and air conditioning systems, the grounds and all
landscaping, the paving and other hardscape surfaces, and all fixtures, equipment
and appurtenances relating to the Premises and/or the Project, subject to
reasonable wear and tear, fire and other casualty, consistent with the continued
operation of a project of the type, size and quality of the Project.
6.2 Taxes and Assessments.
(a) Except as otherwise expressly permitted elsewhere In this Lease, during
the Term, Tenant shall pay prior to delinquency the amount of all taxes and
assessments levied against, or on account of, the Premises: provided,
however, that, If by law any such tax or assessment is payable or may at
the option of taxpayer be paid In Installments, Tenant may pay the same,
together with any accrued Interest payable on the unpaid balance of such
tax or assessment, In installments as the same become due and before any
fine, penalty, interest or cost may be added thereto for the nonpayment of
any such Installment and interest. Taxes and assessments shall be
prorated for the final year of the Term (or earlier termination) based upon
the number of days during such final year that this Lease is in effect.
Notwithstanding the foregoing, In no event shall Tenant be liable for
Increases In taxes or assessment, If any, attributable to a "change in
ownership" of Landlord's Interest In the Premises.
(b) Tenant shall pay, before delinquency, all taxes and assessments levied
against, or on account of, all fixtures, equipment and personal property
located in or upon the Premises and/or the Project.
N81.21513ON" 23 _ Wilm
0 0
! AA,�R m CITY OF NEWPORT BEACH
0
AGENDA ITEM NO. 32
TO: HONORABLE MAYOR AND CITY COUNCIL
FROM: Homer L. Bludau, City Manager
DATE: December 13, 1999
RE: BBC AGREEMENT EXTENSION
Attached for your information are Pages 1-5 of the Option Agreement for the Lease of
Real Property, which covers the value of the Option. Also attached are Pages 18-23
from the Ground Lease to show revenue payments to the City once the project is up and
operating.
This information may be helpful in your dealing with the "consideration" issue.
City Hall • 3300 Newport Boulevard • Post Office Box 1768 • Newport Beach, California 92659-1768
0
0
OPTION AGREEMENT FOR THE LEASE OF REAL PROPERTY
by and between
THE CITY OF NEWPORT BEACH
and
BBC PROPERTY, EVC.
As of dune 30, 1996
I*
E
•
OPTION AGREEMENT FOR THE LEASE OF REAL PROPERTY
THIS OPTION AGREEMENT FOR THE LEASE OF REAL PROPERTY (this "Agreement")
is made as of Jane 30, 1996, by and between THE CITY OF NEWPORT BEACH, a charter
city and municipal corporation ("Optionor"), and BBC PROPERTY, INC., a New York
corporation ("Optionee").
1:1XQVVK
A. Optionor is the grantee of that certain parcel of real property located in the City of
Newport Beach, County of Orange, State of California, as more particularly described
on Exhibit A attached hereto (the "Premises"), pursuant to the provisions of the
Beacon Bay Bill (Chapter 74 of the Statutes of 1978).
B. Optlonee, as successor In Interest to Balboa Bay Club. Inc., Is currently occupying
and In possession of the Premises pursuant to that certain Lease between Optionor,
as lessor, and Balboa Bay Club, Inc., as lessee, dated May 13, 1986 (the "Existing
Lease").
C. On November 3, 1992, a majority of the electors of the City of Newport Beach
approved Measure M which authorized the City Council of the City of Newport Beach
to lease tidelands and waterhont property consistent with the provisions of State law.
D. The California State Lands Commission has reviewed the form of this Agreement, and
the New Lease attached hereto, and determined that such instruments are In
conformance with the provisions of relevant statutes. rules and regulations and have
approved such Instruments.
E. The City Council of the City of Newport Beach has determined that this Agreement,
and the New Lease attached hereto, are consistent with the Charter of the City of
Newport Beach, and Its General Plan and Zoning Ordinances applicable thereto, and
of all other applicable State and local laws, including, without limitatlon, the Land
Use Plan of the Local Coastal Program.
F. 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 maintain the use and
character of the Premises for the general uses permitted thereon by the General Plan
and Zoning Ordinances of the City applicable thereto, and to enter Into the New Lease
under the terms and conditions set forth therein.
G. Optionor and Optlonee each desires to enter Into an option agreement whereby
Optionor will grant to Optionee an option to terminate the Existing Lease
NBI-21SIU IG I MUM
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concurrently with the entering into by the parties of the New Lease for the Premises
as more particularly set forth hereinafter.
NOW, THEREFORE, with reference to the foregoing recitals, and In consideration of the
mutual covenants and agreements contained herein, and other good and valuable
consideration the receipt of which Is hereby acknowledged, the parties hereto agree as
follows:
AGREEMENT
1. Grant of Option. Optlonor hereby grants to Optlonee an exclusive right and option
(the "Option") to lease the Premises for the rent and upon the terms and conditions
set forth in the Ground Lease attached hereto as Exhibit B and Incorporated herein
by this reference (the "New Lease").
2. Option Consideration. In consideration for the Option, and notwlthstanding the
provisions of Section 5.b of the Existing Lease, it shall be a condition precedent to
the exercise by Optlonee of the Option (and the obligation of Optionor to execute the
New Lease) that Lessee shall pay to Lessor, concurrently with and as a condition
precedent to the exercise of the Option, the sum of Two Hundred Fifty Thousand
Dollars ($250,000), with Interest on such sum at eight percent (8%) per annum from
the date hereof to the date of such payment. In further consideration of the Option.
Optionee has further agreed herein to undertake certain design and planning work
in connection with the Project (as defined in the New Lease), at its sole cost and
expense, In the manner and at the times set forth herein.
3. Option Term. Optionee may exercise the Option at any time prior to 5:00 p.m.
California time on the filth (5t°) anniversary of the date hereof (the "Option Term");
provided, however, that Optionee shall have no right to exercise the Option at any
time Optlonee Is In material default hereunder or under the Existing Lease, and, In
the event of any such default arising after the exercise of the Option but prior to
execution of the New Lease by all parties thereto, such prior exercise by Optlonee of
the Option shall be deemed null and void and of no force or effect ab mitto unless
Optlonee shall have cured such default within any applicable cure period but In no
event later than the date the New Lease would otherwise become effective.
4. Conditions Precedent to the Exercise of Option. As a condition precedent to
the exercise of the Option by Optionee, Optlonee shall, at Its sole cost and expense,
(1) complete the processing for and obtain any and all permits, Ucenses and
entitlements from any governmental or quasi -governmental agency or authority
having jurisdiction over the renovation and reconstruction of the Improvements
located on the Premises; as contemplated by this Agreement and the New Lease,
Including Issuance of a Coastal Development Permit from the California Coastal •
Commission, (Iq obtain the approval of Optionor to the Conceptual Plan, Design
Development Plans, and Final Plans (as set forth in Sections 6, 7 and 8 hereinafter),
(111) provide evidence reasonably satisfactory to Optionor that Optionee h`as the
NB1.216176.V16 2 MAIM
• financial resources available to It and/or has arranged and entered Into a financing
commitment from an institutional lender for financing the construction and
renovation of the Project In accordance with the Final Plans, and (Iv) have obtained
and paid for building permits for construction of the Improvements in accordance
with the Final Plans approved by Optionor.
5. Cooperation of Optionor. Optionor shall cooperate with Optlonee In Optlonee's
reasonable efforts to obtain all required permits and approvals, and shall execute
such applications and other undertakings reasonably required in its capacity as the
owner of the Premises to enable Optlonee to file for and obtain all permits, licenses,
variances, permissions and consents necessary to construct the Project and
otherwise to perform its activities under this Agreement; provided, however, that
nothing herein shall Imply any obligation Inconsistent with or result in any diminution
of Optionor's legislative, quasl-legislative or administrative rights, obligations and
prerogatives as a municipal public agency, Including, without limitation, Optionor's
rights, obligations and prerogatives In connection with reviewing and approving or
disapproving any application for any license, permit or entitlement for the
development, construction or use of the Premises.
6. Conceptual Plan. Not later than the later June 30, 1997, Optionee shall prepare,
or cause to be prepared, and shall submit to Optionor for Its review and approval, a
proposed conceptual plan for the design, construction, furnishing and equipping of
the Project (the "Conceptual Plan"). All elements of the Conceptual Plan shall be
prepared In writing by an experienced, reputable and licensed architectural firm and
shall Include those elements typically Included In such types of plans and as required
by applicable ordinances and regulations of the City of Newport Beach, but in all
events shall Include the following: (1) the general configuration, size and relationship
of the Project and all amenitles relating thereto, Including all parking (surface and
structured), restaurants, lounges, banquet rooms and similar public assembly areas,
all guest support, health, exercise, recreational and sports facilities; (11) conceptual
elevations and representational sections for all Improvements, features and elements
to be constructed on the Property.. (i11) a general description of the various elements,
functions and layout of the Improvements (Interior and exterior); (Iv) a site plan of
the Premises showing all improvements to be constructed thereon and showing the
relation of all said Improvements to the adjacent properties and showing the
circulation and access plans; (v) schematic drawings of the Project; and (A) outline
specifications for all exterior lighting and landscaping on the Premises. Optlonor's
right to approve the Conceptual Plan shall be limited to assuring that the proposed
Improvements are of first class quality and consist of the type and quality required
by this Agreement and the New Lease, and Optionor shall not have any right to
disapprove any component of the Conceptual Plan which would have the effect of
changing the plan previously approved by the City In connection with the zoning of the
Premises. It Is not Intended by the Optionor's review and approval rights under this
. Agreement that Optionor will Impose esthetic judgments on Optionee unless such
design criteria proposed by Optionee shall, In the reasonable judgment of Optlonor,
result In Improvements which are inconsistent with the standards required by this
N81.215179918 3 Oen tm
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Agreement and the New Lease. Any disapproval by Optionor must specify with ,
reasonable particularity the portion or portions disapproved and Optlonor's
suggestions of alternatives It would approve. On or before three (3) months following
Its submission by Optlonee to Optlonor for approval, Optlonor and Optlonee shall
have agreed upon the Conceptual Plan. The proposed conceptual plan shall be
deemed approved if Optionor does not disapprove all or specific portions of the
proposed conceptual plan within thirty (30) days following receipt thereof from
Opdonee. If Optlonee shall fall to submit a proposed conceptual plan to Optionor no
later than June 30,1997, Optionor may by written notice to Optionee, terminate this
Agreement and any right of Optionee to enter into the New Lease shall thereafter be
of no force or effect. If, by three (3) months following submission of the proposed
conceptual plan to Optionor for Its approval, the parties are unable to agree upon the
Conceptual Plan, or the proposed Conceptual Plan is not deemed approved as
aforementioned, either party may by written notice to the other party terminate this
Agreement. In such event, this Agreement shall thereafter be of no force or effect,
and any right of Opdonee to enter Into the New Lease shall thereafter be of no force
or effect, without affecting the continuation of the Existing Lease.
7. Design Development Plans, Not later than one year following approval of the
Conceptual Plan by Optlonor, Optionee shall prepare, or cause to be prepared,
proposed design development plans, containing all of the elements typically contained
In such plans and as required by applicable ordinances and regulations of the City of
Newport Beach, and shall within such time period submit said proposed design
development plans to Optionor for Its review and approval. The "Design Development
Plans" shall Include: (1) a site plan (scale 1' equals 40) indicating the Items provided
for In the Conceptual Plan and showing In addition thereto principle utilities. setback
lines, general drainage plans Including the capacities of storm drain and sewer lateral
lines; (11) a proposed lighting and circulation system for both vehicular and pedestrian
travel; (111) principal building plans, sections and elevations (minimum scale 1/8"
equals 1'), study models and prospective sketches indicating all exterior architectural
Information and all interior architectural information relating to the principal hotel
lobby; (iv) designs for lighting and signing the principal hotel lobby and all exteriors
of improvements to be constructed on the Premises; and (v) construction schedules
showing the principal stages, phases and durations of construction. On or before
three (3) months following Optlonee's submission of same to Optionor, the parties
shall have agreed upon the Design Development Plans for the Project. The proposed
Design Development Plans shall be deemed approved If Optionor does not disapprove
all or specific portions of the proposed Design Development Plans within thirty (30)
days following submission thereof to Optionor by Optlonee. Optionor shall not
withhold Its approval of the design development plans submitted by Optionee If and
to the extent that such design development plans conform In all material respects
with, and are a logical extension of, the Conceptual Plan approved by Optionor. if
Optionor reasonably believes that the proposed Design Development Plans submitted
by Optlonee do not so conform, Optionor shall advise Optionee In writing of any
questions or objections which Optionor has with respect thereto. Optionor shall set
forth Its comments, suggestions and objections to the proposed Design Development
N51.215179At8 4 oenvas
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Plans with reasonable specificity In order to permit Optionee to address such
concerns. If Optlonee shall fail to submit proposed design development plans to
Optlonor by the date which Is one year following approval of the Conceptual Plan by
Optionor, Optionor may by written notice to Optlonee, terminate this Agreement and
any right of Optionee to enter Into the New Lease. If Optlonee does submit the
proposed Design Development Plans to Optionor by such date, and within three (3)
months following such submission, the parties are unable to agree upon the Design
Development Plans, or the proposed Design Development Plans are not deemed
approved as aforementioned, either party may submit the matter to arbitration as
provided In Section 29 for resolution. All dates for compliance by Optionee with Its
obligations under this Agreement shall be extended by the number of days necessary
to resolve such dispute, but only with regard to such obligations of Optionee the
performance of which are reasonably delayed as a result of such dispute.
8. Final Plans and Specifications.
(a) Optionee shall submit to Optionor, for Optlonor's review and approval, final
and full plans and specifications (the "Final Plans") for the Project, including
architectural, landscaping, structural, heating and ventilation systems,
utilities, sections and detailed designs for lighting and signing of the exterior
of the Project, all of which shall conform In all material respects to the
Conceptual Plan and the Design Development Plans approved by Optionor.
Optlonor's right of approval with respect to the Final Plans shall Include the
same Items subject to Optionor's approval With respect to the Conceptual Plan
and the Design Development Plans. Optionor shall advise Optlonee In writing
of any questions or objections which Optlonor has If Optionor reasonably be-
lieves that the Final Plans do not so conform in all material respects and shall
state Its objections with reasonable specificity. In such event, unless Optionee
disputes Optionor's disapproval and submits such matter to arbitration as
hereinafter provided, Optlonee shall make subsequent submissions of Final
Plans In order to comply with such questions or objections Optionor may have.
Landlord shall be deemed to have approved the Final Plans If Landlord fails
elther to give its written approval or state in writing Its questions or objections
to any Final Plans submitted by Optlonee within forty-five (45) days after the
date of said submission. If within ninety (90) days following submisslon of the
Final Plans to Optionor for review and approval, the parties are unable to
agree upon the Final Plans, or the Final Plans are not deemed approved as
aforementioned, the matter may be submitted to arbitration by either party as
provided in Section 29 for resolution. All dates for compliance by Optionee
with Its obligations under this Agreement shall be extended by the number of
days necessary to resolve such dispute, but only with regard to such ob-
ligatlons of Optlonee the performance of which are reasonably delayed as a
result of such dispute.
(b) Optionee acknowledges that the approvals by Optionor required In this Section
8 are separate and distinct from any review, approval, permitting or licensing
NeI-2151MV16 5 0en1e
required by the City in Its municipal capacity, such as demolition, grading and
building permits. The Issuance by the City of any such approval, permit or
license shall not constitute approval of any matter requiring the consent or
approval of Optionor under this Agreement.
8. Building Permlts. Optionee shall apply for and thereafter diligently prosecute to
Issuance or denial, at Its sole cost and expense, the procurement of all necessary
building permits from the City as well as any other governmental entity having
Jurisdiction over the Premises for the construction of the Project In accordance with
the Final Plans which have been approved by Optlonor to the extent such approval
1s required by the terms of this Agreement. In that regard, should the City or any
other governmental entity having jurisdiction over the Premises require that Optlonee
modify a portion of the approved Final Plans, Optionee shall be required to consult
with Landlord and, if compliance with governmental requirements may be achieved
In more than one manner or fashion and the manner or fashion of Optlonee's pro-
posed compliance shall not be consistent In all material respects with the Conceptual
Plan and the Design Development Plans, to obtain Optionor's prior written approval
of the manner or fashion of Optionee's proposed compliance, which approval shall not
be unreasonably withheld or delayed. Any dispute between the parties regarding
Optionor's approval (or the need for such approval) of the manner or fashion of
Optlonee's proposed compliance shall be submitted to arbitration In accordance with
Section 29; provided, however, that the agreement to arbitrate disputes shall apply
solely to approvals required by Optlonor pursuant to this Agreement, and shall not
apply to any determination by the City in its municipal capacity in connection with the
Issuance of permits or licenses, including any matter concerning compliance with any
ordinance, resolution, condition of approval, law or regulation applicable to the
construction, operation or maintenance of the Project. All dates for compliance by
Optionee with Its obligations under this Agreement shall be extended by the number
of days necessary to resolve such dispute, but only with regard to such obligations of
Optionee the performance of which are reasonably delayed as a result of such
dispute.
10. Delivery of Plans. In the event of expiration or termination of this Agreement for
any reason other than default by Optlonor. Optionee shall deliver to Optionor a copy
of all plans and specifications for the Project, including the Conceptual Plan, Design
Development Plans and Final Plans, and all components thereof, and Optionor shall
have the right to use such plans and specifications In any manner it determines In
connection with the development of the Premises, subject only to the contractual
rights and limitations Imposed by the unrelated third party originators of such plans
and specifications.
11. Exercise of the Option.
(a) Provided that the conditions precedent set forth In Sections 3, and 6 through
S are satisfied, Optionee may exercise the Option by,
M-2151UNIB 6 anim
(1) delivering to Optionor written notice of such exercise prior to the
expiration of the Option Term; and
(11) delivering to an escrow established by the parties with First American
Title Insurance Company in Santa Ana, California (the "Escrow"), two
(2) executed and, with respect to the Memorandum of Ground Lease,
acknowledged originals of the New Lease and the Memorandum of
Ground Lease; and
(W) delivering to the Escrow a certified check or other Immediately
available funds In the amount of Two Hundred Fifty Thousand Dollars
($250,000), plus Interest thereon at eight percent (8%) per annum
from the date hereof to the date of such payment, in payment of the
sum required by Section 2.
(b) Within five (5) days of Its receipt of the notice described In Section 11(a),
Optionor shall deliver to escrow two (2) executed and, with respect to the
Memorandum of Ground Lease, acknowledged originals of the New Lease and
the Memorandum of Ground Lease.
(c) Upon receipt of the Instruments referred to in Sections 11(a)(11) and 11(b),
escrow holder is Instructed to deliver executed counterparts to the parties,
deliver to Optionor the funds set forth in Section 11(a)(111). and record the
Memorandum of Ground Lease In the Official Records of the County of Orange.
(d) The parties shall execute such further instructions as the escrow holder shall
reasonably require. Optionee shall bear all costs of title Insurance which
Optlonee elects to purchase In connection with this Option or the New Lease.
All other fees and charges of the escrow shall be paid by the parties In
accordance with customary practice In Orange County.
12. State of Title. The parties acknowledge that Optlonee has obtained a commitment
for title Insurance under Order No. 963807 from First American Title Insurance dated
May 24, 1996 (the 711le Report') showing the state of title to the Premises.
Optionee hereby approves all exceptions to title shown In said Title Report (the
"Permitted Exceptions"), and the parties acknowledge and agree that leasehold
title to the Premises granted pursuant to the New Lease shall be subject to the
Permitted Exceptions. It shall be a condition precedent to Optionee's obligations
under this Agreement that the title company Is able and willing to Issue a leasehold
policy of title Insurance In favor of Optionee (and any Institutional lender providing
financing for the construction and renovation of the Project In accordance with the
Final Plans) In form and substance satisfactory to Optlonee. In the event such
condition precedent is not satisfied or waived by Optionee prior to consummation of
the transaction as contemplated In Section 11(c), this Agreement may be terminated
by Optionee upon written notice to Optlonor and the parties shall have no further
liability or obligation thereunder.
NB, -215179.V18 7 0MIM
OF
ARTICLE V
RENT
5.1 Rent. Subject to the limitations of Section 5.3 below, commencing upon the
Commencement Date. Tenant shall pay to Landlord the greater of (1) annual rent
In the sum of One Million One Hundred Twenty -Five Thousand Dollars
($1,125.000) (the "Base Rent") as adjusted pursuant to Section 5.4 below, or
(I1) the percentage rent set forth in Section 5.2 (the "Percentage Rent"). Base
Rent and Percentage Rent are hereinafter referred to as "Rent."
5.2 Percentage Rent. Percentage Rent shall equal the total of the percentages set
forth below of the corresponding categories of Gross Revenues on an annual basis
from each transaction, sale or activity of Tenant on or from the Premises:
CATEGORY
PERCENTAGE RENT
Dues Revenues
6%
Apartment Revenues
16.5%
Marina Revenues
31%
Storage Revenues
20%
Charter Commission Revenues
20%
Charter Revenues
6%
Room Revenues
5%
Beverage Revenues
5%
Food Revenues
3%
Retail Revenues
5%
Miscellaneous Revenues
10%
To the extent that Gross Revenues Include proceeds of business Interruption or
rental loss insurance which are based upon or In compensation for Percentage
Rent payable under this Lease, the Percentage Rent owed for any of the foregoing
activities for which such proceeds of business interruption or rental loss insurance
were received during the period affected by such insurance claim shall be the
greater of (1) the amount of such proceeds of business Interruption or rental loss
N61-216MWS 18 MIM
Insurance relating to Percentage Rent payable to Landlord hereunder, or (11) the
amount of Percentage Rent calculated as set forth above after deduction from
Gross Revenues of the amount of such proceeds of business Interruption or rental
loss insurance relating to Percentage Rent.
5.3 Base Rent During Construction. Notwithstanding Section 5.1 above, from
and after the Commencement Date until the earlier of (1) thirty (30) months
following the Commencement Date, or (11) such time as certlflcates of occupancy
have been issued with respect to the renovation of the hotel portion of the Project
as contemplated In this Lease, the Base Rent payable hereunder shall be limited
to Forty -Six Thousand Eight Hundred Thirty -Three and 34/100 Dollars
($46,833.34) per month: provided, however, Tenant shall remain obligated to pay
Percentage Rent to the extent It exceeds such Base Rent during such period.
5.4 Periodic Adjustments of Base Rent. Upon the first day of the ninety-seventh
(971) month following the Commencement Date, and the first day of every sixty-
one months thereafter (respectively, an "Adjustment Date"), Base Rent shall be
Increased or decreased, as the case may be, to a sum equal to seventy-five percent
(75%) of the average annual total of Rent payable during the immediately
preceding five (5) years. Following receipt of the report of Gross Revenues and
Percentage Rent for the year Immediately preceding an Adjustment Date, Landlord
shall calculate the adjustment In Base Rent, If any, and shall notify Tenant in
writing of such adjustment. Subject to Tenant's right to contest, in good faith,
Landlord's calculation of the adjustment to Base Rent, any such adjustment shall
be effective as of the relevant Adjustment Date, and Tenant shall pay any accrued
and unpaid Base Rent from the Adjustment Date to the date of receipt of
Landlord's notice of adjustment in Base Rent no later than fifteen (15) days
following receipt of Landlord's notice of adjustment in Base Rent.
5.5 Fair Market Adjustment of Base Rent. Upon the twenty-sixth (26th)
anniversary of the Commencement Date (the "Market Adjustment Date"), the Base
Rent shall be increased or decreased, as the case may be, based upon the
determination of the fair market rental value of the Premises In the manner set
forth In Section 19.19. For purposes of appraising the fair market rental value of
the Premises, the appraisers shall determine such value Including payment of
minimum rent and percentage rent In excess thereof In the categories set forth in
Section 5.2 above. The Base Rent shall be adjusted to equal seventy-five percent
(75%) of the full fair market rental value of the Premises as so determined In the
event the adjusted Base Rent determined pursuant to this Section 5.5 Is one
hundred twenty percent (120%) or more of the average annual Base Rent payable
during the five (5) Fiscal Years preceding the Market Adjustment Date, the amount
by which the new Base Rent exceeds one hundred twenty percent (120%) or more
of the average annual Base Rent payable during the five (5) Fiscal Years preceding
the Market Adjustment Date shall be added to Base Rent at the rate of twenty-Bve
Ns+d7513ON23 19 oWIM
percent (25%) thereof per year in the ensuing four (4) Fiscal Years. For example,
If the amount by which the new Base Rent exceeds one hundred twenty percent
(120%) or more of the average annual Base Rent payable during the preceding five
(5) Fiscal Years Is $4,000, then Base Rent shall be increased by $1,000 in each
of the ensuing four (4) Fiscal Years. Landlord and Tenant agree to use the
appraisal methodology utilized by Landlord's appraisal conducted by William
Hansen & Associates, dated November 4, 1994, In the computation of the market
rent upon the commencement of this Lease.
5.6 Payment of Rent. Base Rent shall be payable on the first (I at) day of each
Accounting Period during the Term; provided, however, to the extent that
Percentage Rent for such Accounting Period exceeds the Base Rent paid during
such Accounting Period, the differential shall be payable In arrears concurrent
with the next Installment of Base Rent. Any Installment of Rent payable during any
Accounting Period shall equal the greater of (1) Percentage Rent computed from
the commencement of that particular Fiscal Year to the end of the Accounting
Period for which such Rent is due, or (11) the Base Rent due from the
commencement of that particular Fiscal Year to the end of the Accounting Period
for which such Rent is due, in each Instance less the aggregate amount of any Rent
previously paid to Landlord during such Fiscal Year.
5.7 Charges for Goods and Services. Tenant agrees to charge prices for all
goods, services and facilities (including boat slip rentals) offered at or provided on
or from the Premises comparable with prices for such goods and services charged
at other private clubs in Southern California; provided, however. (1) that for
purposes hereof, the rent charged for slips In the marina shall be adjusted, where
necessary, to eliminate any discounts or reduced fees and charges at such clubs
based upon payment of membership fees or other comparable arrangements, and
(11) nothing herein shall limit or impair Tenant's ability to charge less than such
amounts if, In the exercise of Tenant's reasonable business Judgment, such lesser
amounts will stimulate revenue Increases or In connection with advertising,
promotions, discounts to employees, guests or charitable functions.
5.8 Reconciliation of Annual Rent. Within thirty (30) days following receipt by
Landlord of the annual statement set forth in Section 5.10(b), the Percentage Rent
due for such Fiscal Year shall be determined, subject to audit as set forth In
Section 5.10(e), and the amount of Rent paid or payable for such Fiscal Year shall
be adjusted accordingly. Landlord shall credit the amount of any Rent received
from Tenant pursuant to Section 5.6 which is in excess of the amount of Rent
determined to have been due and payable for such Fiscal Year, such excess to the
Installments of Rent next following. Tenant shall pay, within five (5) days following
such determination, but In no event later than one hundred and sixty (160) days
following the end of such Fiscal Year, the full amount of Rent determined to have
been due and payable for such Fiscal Year.
N61-2 OIXV29 20 09111M
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5.9 Place for Payment of Rentals. All payments of Rent shall be made In lawful
money of the United States of America and shall be paid to Landlord at Landlord's
address as set forth in Section 19.6 or to such other parties and/or to such other
address as Landlord may from time to time designate In writing to Tenant.
5.10 Records and Reports of Sales.
(a) Quarterly Statement. Tenant shall provide to Landlord a statement
setting forth In reasonable detail the amount of Tenant's Gross Revenues
(including a breakdown among the categories set forth In Section 5.2
above) for the Immediately preceding Accounting Period within twenty (20)
days following the end of each Accounting Period.
(b) Annual Statement. Tenant shall provide to Landlord a statement setting
forth in reasonable detail the amount of Tenant's Gross Revenues for the
preceding Fiscal Year within one hundred twenty (120) days following the
end of each Fiscal Year.
(c) Payment of Percentage Rent. Tenant shall accompany the statement
of Gross Revenues for each Accounting Period and the Fiscal Year with a
payment of the amount by which Percentage Rent exceeds the Base Rent
paid during such Accounting Period calculated in accordance with Section
5.2 of this Lease.
(d) Books and Records. Tenant shall prepare and keep full, complete,
accurate and proper books, records and accounts of all business conducted
by Tenant or its Affiliates from the Premises, In accordance with generally
accepted accounting principles consistently applied, which shall Include
equipment to record all sales at the time of the transaction. Tenant shall
keep at the Premises records of Tenant's Gross Revenues for a period of
not less than three (3) years after the expiration of the Fiscal Year to which
such records relate and upon request shall furnish Landlord true and
accurate statements thereof. Within one hundred twenty (120) days
following the close of each Fiscal Year, Tenant shall deliver to Landlord an
audited statement prepared by a nationally recognized Independent firm of
certified public accountants showing In reasonable detail, on a Fiscal Year
basis, the amount of Tenant's Gross Revenues (including a breakdown
among the categories set forth in Section 5.2 above) for the immediately
preceding Fiscal Year.
(e) Audit Rights. Landlord shall have the right upon two (2) days prior
notice to Tenant and during normal business hours, but not more often than
Ne1.21513&vsa 21 OW11 e
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one (1) time during each Fiscal Year of the Term, to audit the Tenant's
statements of Gross Revenues, and supporting records and data. Within
ten (10) days of receipt of such audit, Tenant shall pay Landlord the
additional Rent found to be due plus Interest thereon at the Lease Interest
Rate If the audit discloses an understatement of annual Gross Revenues.
However, if the audit discloses Rent has been overpaid by Tenant, the
excess shall be applied to any amounts then due from Tenant to Landlord,
and the balance, If any, shall be credited against Base Rent thereafter due
from Tenant. Tenant shall pay for the reasonable cost of Landlord's audit
If Landlord's audit discloses a total underpayment of Rent for any Fiscal
Year which Is in excess of five percent (5%). Landlord shall have the right
to receive a copy of the results of any audit conducted at the request of
Tenant of Tenant's statements of Gross Revenues during the Term.
Promptly following the completion of any such audit, Tenant shall deliver,
or cause to be delivered, to Landlord a copy of the result of such audit
regardless of whether Landlord shall have made a demand therefor.
(f) Annual Forecast of Operations. On or before May 1 of each year
during the Term, Tenant shall provide Landlord, for informational purposes,
with a forecast for the ensuing Fiscal Year of the amount of (i) Gross
Revenues expected to be received by Tenant, and (11) Percentage Rental
expected to be payable hereunder (by categories of Percentage Rental). On
or before September 30 of each year during the Term. Tenant shall provide
Landlord with a forecast for the ensuing twelve (12) month period of
budgeted capital improvements, replacements, repairs and maintenance
that Tenant anticipates expending during such twelve (12) month period to
maintain the Project In a manner consistent with the original quality of the
Project upon completion of construction In accordance with the Flaw Plans
as required by Section 6.3.
5.11 Additional Rent. Tenant agrees to pay, as rental for the Leased Premtsm,
within ten (10) days of Landlord's demand therefor, unless a different time for
payment is expressly provided herein, all other amounts Tenant is obligated to pay
Landlord under the provisions of this Lease in addition to Rent ("Additional
Rent").
5.12 No Abatement or Reduction In Rent. Except as expressly provided to the
contrary elsewhere In this Lease. Tenant shall not be entitled to any abatement,
set-off or reduction in Rent or Additional Rent hereunder.
5.113 No Partnership Created. Landlord and Tenant shall in no event be construed
or held to be partners, co-owners, joint venturers or associates of one another in
the conduct of Tenant's business on the. Premises, or In Its ownership of the •
NBt-216136.Vn 22 MI"
Project. The relationship between Landlord and Tenant is and at all times shall
remain that of lessor and lessee for all purposes.
5.14 Net Lease. The Rent set forth In this Article V herein Is based upon the
assumption that Landlord will not have to pay any expenses or Incur any liabilities
of any kind In any way relating to, or in connection with, the Premises during the
Term except for refunds, Interest, credits or other payments herein specifically set
forth. Accordingly, Tenant will promptly pay all costs of every kind and description
relating to or arising out of the Premises during the Term.
ARTICLE VI
TENANT'S OBLIGATION WITH RESPECT TO MAINTAINING PREMISES
6.1 Repairs and Maintenance. Tenant shall at all times during the Term keep In
good order, condition and repair the entire Premises and all Improvements and
buildings located thereon, including the structural and non-structural portions of
the Project, the entrances, the windows, partitions, doors, lighting and plumbing
fixtures, heating, ventilation and air conditioning systems, the grounds and all
landscaping, the paving and other hardscape surfaces, and all fixtures, equipment
and appurtenances relating to the Premises and/or the Project, subject to
reasonable wear and tear, fire and other casualty, consistent with the continued
• operation of a project of the type, size and quality of the Project.
6.2 Taxes and Assessments.
(a) Except as otherwise expressly permitted elsewhere In this Lease, during
the Term, Tenant shall pay prior to delinquency the amount of all taxes and
assessments levied against, or on account of, the Premises; provided,
however, that, If by law any such tax or assessment is payable or may at
the option of taxpayer be paid In Installments, Tenant may pay the same,
together with any accrued interest payable on the unpaid balance of such
tax or assessment, In Installments as the same become due and before any
fine, penalty, interest or cost may be added thereto for the nonpayment of
any such installment and Interest. Taxes and assessments shall be
prorated for the final year of the Term (or earlier termination) based upon
the number of days during such final year that this Lease is In effect.
Notwithstanding the foregoing, In no event shall Tenant be liable for
Increases In taxes or assessment, if any, attributable to a "change In
ownership" of Landlord's Interest in the Premises.
(b) Tenant shall pay, before delinquency, all taxes and assessments levied
against, or on account of, all fixtures, equipment and personal property
located In or upon the Premises and/or the Project.
ee,-21506.= 23 OW11M