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HomeMy WebLinkAbout17 - Shipyard-Retail Store at Balboa Yacht BasinITEM 17 TO: Members of the Newport Beach City Council FROM: Tony Melum, Division of Harbor Resources SUBJECT: Lease Agreement for ShipyarWRetail Store at Balboa Yacht Basin (with Basin Marine, Inc.) RECOMMENDATION. Authorize the Mayor to execute the proposed lease with Basin Marine, Inc. on behalf of the City of Newport Beach. BACKGROUND: The City owns certain harbor frontage and tidelands together with abutting upland property, commonly known as the Balboa Yacht Basin (BYB), located at 829 Harbor Island Drive (Exhibit A). This property consists of a 171 -slip commercial marina, 44 storage garages, 3 apartments, a yacht brokerage facility, a cafe and a marine hardware store and shipyard. Prior to 1981, the entire property was under lease to a master lessee. In July of 1981 the master lessee assigned their interest to the City and the City took over management of the property. As part of that management, the City undertook a major redevelopment of the property, which included rebuilding the marina and refurbishing the marine hardware and shipyard facility. Also as part of that development the City entered into a long -term lease with Basin Marine, Inc., for operation of the marine hardware store and shipyard on site. That 25 -year lease began in July of 1985 and is due to end on June 30, 2010. Fair market rental value for the 1985 lease was developed by an appraisal done in 1984. The lease itself contained a provision that, besides periodic rental adjustments during the course of the lease, the property would be periodically re- appraised to evaluate the fair market value of the lease premises and, if need be, further adjust rental rates. These appraisals assume that the primary use of the property is restricted to that of a boat repair facility for the sale of new and used boats, marine equipment and marine hardware. The most recent reappraisal was conducted in August of 1997 and at that time the rental rate was adjusted to its current level (Exhibit B). In July of 2000, Dave New, the president of Basin Marine, contacted the City and asked for a new lease. Their existing lease had approximately 10 years more to run. Mr. New Newport Beach City Council requested the new lease to assist him in procuring financing for approximately $300,000 in improvements at the site. These improvements will include: • A paint spraying structure that will allow them to paint at the facility and remain in compliance with Air Quality Management District regulations ($180,000); • Replacement of an existing crane which has worn out ($80,000); and • Other site repairs of an ongoing nature (which are lessee's responsibility) and necessary now that the lease facility is 15 years old ($40,000). City Council Policy F -7 directs the City, whenever a lease is considered, to conduct an analysis to determine the maximum or open market value of the property. This analysis must be conducted using appraisals or other techniques to determine the highest value and best use of the property. George Hamilton Jones conducted this appraisal on October 4, 2000 (Exhibit C). This appraisal assumes the same basic terms as the existing lease, except for new minimum rental amounts and the extension of the lease term. It also includes an opinion on any additional consideration, which indicated by the market for the extension of the existing lease, would be; 1) City to receive 5% of gross sales price if leasehold is sold, and 2) Lessee to pay all administrative costs associated with extension. As mentioned above, the current lease has approximately 10 years to run -- the proposed new lease is for a 15- year term, with two five -year options. The net effect would be to increase Basin Marine's tenancy at the Basin from 2010 to 2025. The proposed new lease's monthly rent is a percentage rent with a guaranteed monthly minimum. Amounts for each (minimum and percentage rents) were established based on a land lease rental survey of boatyards in 10 other harbors from Ventura to San Diego (see Exhibit D). That data indicated that minimum rent should be a percentage of three prior year's average of total rent paid. The percentages ranged from 67% to 80 %; the applicable period ranged from one year to five years. The most recent data was 75% of the average annual total rent for the past three years. Using 75% applied to an annual average of Basin Marine, Inc.'s total rent for the previous three years, minimum rent was established at $63,642, ($5303. per month). Exhibit E compares the original lease rent and lease term with the most recently adjusted rent and term and the proposed new rent and term. As stated above Basin Marine Inc. has been a tenant of the City since 1981 and the premises, under other leases, has been operated by the lessee's family essentially since 1939. There is a value to the City and to the BYB tenants in maintaining the "heritage' of Basin Marine at the Basin. This lease originally came before the City Council on March 27, 2001. At that meeting it was continued for further staff review with participation by Council Member Ridgeway and Heffernan. Specifically items to be reviewed in the proposed lease were base rent, percentage rent and periodic review of both. Several meetings were held to address Newport Beach City Council 2 these issues and the refinements of those issues have been incorporated in the attached lease. The proposed lease has been reviewed and approved as to form by the City Attorney. Newport Beach City Council 3 (NORTH .50 C N t k I � c r ^ � g r C AI �-o v r EXHIBIT A b.t ri'. ,vr...eire BpY.a¢c z E A � w A y a 0 e° 0 n' m m r 0 0 1 .. LI EXHIBIT B GEOROB HAa021,T61-1 JOIlID9. INC. APPRAISAL CONSULTANTS CEOKCB HAMTrW IObMS, MN 717 LIDO PARK DRIVE, SURE D 5rL MR D. DRALL, MM NEWPORT BEACH, CALIFORNIA 92663 KENT HARVEY, MN . August 20, 1.997 TELEPHONE (n4W36733 Mr. Tony Melum Deputy Chief Marine Environmental Division Newport Beach Fire and Marine Department City of Newport Beach P. O. Box 1768 Newport Beach, CA 92658 -8915 Re: Basin Marine, Inc. Market Rent Appraisal Dear Mr. Melum: FAX 17196736921 In accordance with your request and authorization dated July 11, 1997, we have examined Basin Marine Boat Yard, located at 829 Harbor Island Drive East, Newport Beach, and considered the terms and conditions of the land and water lease which currently applies to the property, for the purpose of formulating and expressing our opinion of the fair market rental value of the site (land and water only) as described in the existing lease. In addition, we have also estimated the fair market rental value of the site if enlarged by 9,100 square feet, as proposed. Our opinion is premised on the representation that adequate offsite parking will be provided. Fair market rental value is comprised of a combination of guaranteed minimum rent and percentage rent. After investigation of the property and matters pertinent to its valuation, we have formed the opinion that fair market rental value for the land and water, is as follows: Fair Market Rental Value Conclusion: Guaranteed Minimum Rental: Existing Site (37,432 s.f. effective): $51,200 per year Proposed Enlarged Site (46,442 s.f. effective): $71,600 per year Nit% Tony Melum August 20. 1997 Page -2- Percentage Rental: ]) Ship yard/boatrepair (labor, service and materials): 4% of gross 2) Outside labor: 10% of net income 3) Equipment and hardware sales, exclusive of internal sales to boat repair business: 5% of gross It is assumed that future adjustments in the minimum rent will be made as specified in Section 3(b) of the subject lease, which is every four years based on changes in the consumer price index (CPI). Your attention is directed to the following report which sets forth premises and limiting conditions, descriptions, exhibits, factual data, discussions, computations, and analyses which farm, in part, the basis of our value conclusions. Respectfully submitted, Corg - Jones, MAI (State Ce d General Real Estate Appraiser No. AG005632) iV /L t• 'Kea t Harve AI (ate Certifie General J£ Estate Appraiser No. AG006753) / Mr. Tony Melum Deputy Chief Marine Environmental Division Newport Beach Fire and Marine Department City of Newport Beach P. O. Box 1768 Newport Beach, CA 92658 -8915 Re: Dear Mr. Melum: TEIEFHOM (949),,aW33 FACSIMRR (949) 673-6944 )onainc@pecbellx Lease Extension - Basin Marine Market Rent Appraisal In accordance with your request and authorization, we have examined Basin Marine Boat Yard, located at 829 Harbor Island Drive East, Newport Beach. We have considered the terms and conditions of the existing land and water lease and the proposed extension of lease term, for the purpose of formulating and expressing our opinion of the fair market rental value of the site (including store building) as described in the existing lease. We have formed an opinion of the additional consideration, if any, which is indicated by the market for the extension of the lease term. You have advised us that the new lease has not yet been drafted and for purposes of this appraisal we are to consider that the new lease will be essentially the same as the existing lease, except for the lease term. It is a premise of this report that the city will continue to allow offsite parking in lieu of the 14 on -site parking spaces specified in the existing lease. The current lease term will expire in 10 years. The term of the proposed extended lease will be 15 years with two options to extend the term for five years each. Therefore,'the effective increase in the lease term beyond the existing term, assuming exercise of both options, is 15 years. Fair market rental value is comprised of a Combination of guaranteed minimum rent and percentage rent. After investigation. of the property and matters pertinent to its valuation, we have formed the opinion that fair market rental value for the land and water, is as set out On the following page: Exhibit C GEORGE HAXMTON JONES. INO. APPRAISAL CONSULTANTS CAORCEHAMD.TONIONES,MAI' 7I7IID0FARRDR1T,=D SNART D: DYVAtI, MN NEWPORT- EEACH, CALIFORNIA 94663 Rft7rHARVEI',MN , Octobei4, 2000 Mr. Tony Melum Deputy Chief Marine Environmental Division Newport Beach Fire and Marine Department City of Newport Beach P. O. Box 1768 Newport Beach, CA 92658 -8915 Re: Dear Mr. Melum: TEIEFHOM (949),,aW33 FACSIMRR (949) 673-6944 )onainc@pecbellx Lease Extension - Basin Marine Market Rent Appraisal In accordance with your request and authorization, we have examined Basin Marine Boat Yard, located at 829 Harbor Island Drive East, Newport Beach. We have considered the terms and conditions of the existing land and water lease and the proposed extension of lease term, for the purpose of formulating and expressing our opinion of the fair market rental value of the site (including store building) as described in the existing lease. We have formed an opinion of the additional consideration, if any, which is indicated by the market for the extension of the lease term. You have advised us that the new lease has not yet been drafted and for purposes of this appraisal we are to consider that the new lease will be essentially the same as the existing lease, except for the lease term. It is a premise of this report that the city will continue to allow offsite parking in lieu of the 14 on -site parking spaces specified in the existing lease. The current lease term will expire in 10 years. The term of the proposed extended lease will be 15 years with two options to extend the term for five years each. Therefore,'the effective increase in the lease term beyond the existing term, assuming exercise of both options, is 15 years. Fair market rental value is comprised of a Combination of guaranteed minimum rent and percentage rent. After investigation. of the property and matters pertinent to its valuation, we have formed the opinion that fair market rental value for the land and water, is as set out On the following page: Mr. Tony Wurn October.4,2000 Page -2- . Fair Market Rental Value Conclusion: Guaranteed Minimum- Rental: $63,642 per year Payable in installments.of $5,303 per month To be adjusted every three years to 75% of the average annual total rent.for the prior, three years Percentage Rental:, 1) Shipyard/boat repair (labor, service'and materials): 4% of gross receipts 2) Outside labor: 10% of net income 3) Equipment and hardware sales, exclusive of internal sales to boat. repair business: 5% of gross receipts Additional Consideration For Extension: City to receive 5% of gross sales price if leasehold is sold. Lessee to pay all administrative costs associated with extension. Your attention is directed to the following summary appraisal report which sets forth premises and limiting conditions, descriptions, exhibits, factual data, discussion, computations, and analyses which form, in part, the basis of our value conclusions. Respectfully su Georg ton Jones, MAI Harve , (StateArertified General Real Estate State Certifi d General tate Appraiser No. AG005632) Appraiser No. AGM0675 Exhibit D _I .v,Y� � Ventwa'i tiYl'.}8,`�t: e•. �' %fit t� I 5.0°d+_: v ., `... Baxdmtelder lea es.partieschose (805)fidZjg53� AnitaLagthiea +" yeaiSV� ,,';4 ptd X F. Y '. ; : tto- d6usrztilastBddAStmehtdazes at, 1992. . , CtiannEl ISiedds Aartio[ r+ •- . 33 .'i . , . }I . S 0'6:% . kW k*. Two yeitlt with different: (SOSp382 306Y 3esgeMexalfe '...`; iains .119iul hlepatts,@ 1.5 %oh Yard #I, Auacapa Mamii. . Muni del Rey °:..,•, ': 3$S`%{{io� ; . 4Q16., 3..';. :..-20,0ia' Mbjtj�e6d deal ;was Par: 53Yamahe.. . (310) 305A520.'.Ken'Fgremen . 5 S 2A z . 'AWW i.1997, includes materials. Parcel miteriels;G T% Outside labor 5�iaaimr on outside service . YiirgHarbar(RWbmi :Beach)"'..` .759Qi:ptiCi x''4.096' '' 9,,. .'` 5.0'%.: Biwdth recent arbitration. Formerly (31D) 31$- 0631 ", -7im ?AllGp - • 3year'a�%g:',:.:! `' '2'.09HVS.5bkgfsubleaseincome . Port ofLns.Angeles._' 10% return 33 %.:• "':.:'3t0%'L, 10.0%. Reduced mimmum50% during recession ( 310) 732- 3862,.4ar41 iSmalewi¢' on-$151u1 and after navy move out of Long Beach. 5,800 slips in various kasefiolds° and$5 w `° 1,200 sGpsin Cabrillo Marina _ City'of I:otrgSaac(i. none - .;.6:0% 66ue Newestdata involves master lease with (310) 421- 9431;Vdce'Abe Boat yard on fixed $ sublease. No City leases V5 of land" &.water percentages.. req'ts for Cerritos B abia Marina.. HuntingtottHarbor'SumvtAqua4c .:,75 %prior ..' .,Sfl %, 5:0&, 5,0% ' Le= expires 'in 1999. Extension (714)'834- 410,1$keHenson 3yearavg. ,' - .- _ signed: 12I94, requires rebuilding County of Orange, Dept of HB&P -' ... marina and •bases rent on 80% of net cash flow, after debt service; % used as ' n mmum. All "do it yourself' boat work. Dana Point 75 %prior 40 %.- , 4':0'% "''.' .7.0'% Mau"jeases 1971 and 1975. (714) 8344716 Barry Permenter . 5 year avg. Adjustment dates in 1996. no change County'of Orange, Dept of HB&P Mission Bay (City ofSan:Diego) : 67'R,-g0% 4.096 -� 4.0% 10.0% Recent We of Quivira Basin Marine, no 1(619)23&6020 Mary Lou Groad S year -avg. '^ t change in percentage rent at sale. Pon of San Diego 75 %prior _. ''5A% 10.0% Boatyard rents are not ed on (619) 6866291 Dan Strum year then '" percentage, but 9% of fee value. Most level 10 yrs. iecentwas 9 %x $151s.f. for upland and 9% x $3;75 for water (25% of land value) _I Exhibit E Lease Comparisons Lease Premises Term Rent Original Lease 37,432 square feet at 25 years - Minimum: $33,000 per year March 1985 829 Harbor Island to June 2010 Percentage: Drive — 4 %of lessee's gross receipts from labor, service and materials, plus 10% of Lessee's net income from outside labor, plus 5% of Lessee's gross on hardware sales, exclusive of internal sales. Current Lease same same Minimum: $51,200 per year A reappraisal Percentage: directed by the Same as above March 1985 Lease in Febmanj 1998 15 years + 2 five Proposed same year options. Minimum: $63,642 per year Lease Potentially Percentage: March 2001 terminates 2026. Same as above i0 LEASE AGREEMENT BALBOA YACHT BASIN BASIN MARINE, INC. THIS LEASE is made and effective as of the 1 st day of January 2001 ( "Effective Date'), by and between the CITY OF NEWPORT BEACH, a Municipal Corporation ( "City ") and BASIN MARINE, INC., a California Corporation ( "Tenant "). RECITALS A. City is owner of certain harbor frontage and tidelands, together with certain abutting upland property known as "Balboa Yacht Basin" located on Harbor Island Drive in the City of Newport Beach, County of Orange in the State of California. A portion of the area of the Balboa Yacht Basin is currently being used by Tenant for a shipyard /boat repair facility with a marine hardware store, ( "Premises') and is described in Exhibit "A ". Tenant is occupying the Premises pursuant to a Lease dated March 5, 1985, which will expire on June 30, 2010 ( "Old Lease'). B. Under the Old Lease terms Tenant agreed to improve and repair the shipyard and boat repair facilities on the Premises under terms and conditions that would allow Tenant an opportunity to recover funds contributed to the redevelopment of the site. The improvements have been completed and Tenant desires a new lease with extended term to replace the Old Lease. C. Landlord with Tenant's concurrence has obtained a recent appraisal (the October 4, 2000 appraisal by George Jones, MAI) of the fair market value rental based upon current conditions. The Base Rent and Percentage Rent described below is based upon such appraisal. D. Tenant and City desire to terminate the Old Lease and enter into a new Lease of the Premises to allow Tenant to continue to operate shipyard /boat repair facilities for an extended term upon revised terms and conditions as provided in this Agreement. E. The uses to be made of the Premises are consistent with provisions of the Local Coastal Plan and General Plan of the City of Newport Beach, and the terms and conditions in this Lease are consistent with the provisions of the City Charter and the ordinances of the City of Newport Beach. F. The uses to be made of the property subject to this Lease are consistent with provisions of the Tideland Grant pursuant to which the City obtained title to the property. AGREEMENT NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, City and Tenant agree as follows: 1. DEFINITIONS 1.1 General Definitions. As used in this Lease, the following words and phrases shall have the following meanings: (a) Alteration — any addition or change to or modification of, the Premises made by Tenant including, without limitation, fixtures. (b) Annual Total Rent —Base Rent and Percentage Rent for a Lease Year. -2- I2 (c) Authorized Representative — any officer, agent, employee, or independent contractor retained or employed by either Party, acting within authority given by that Party. (d) C — the CITY OF NEWPORT BEACH. (e) Damage — an injury to or death of any Person, or the damage destruction, or loss of property caused by another Person's acts or omissions. (f) Damages — monetary compensation or indemnity that can be recovered in the courts by any Person who has suffered Damage. (g) Days — means calendar days, subject to extension for any weekend or day when banks are not open in California if a deadline occurs on any such Day. (h) Expiration — the lapse of the time specified as the Term of this Lease, including any extension of the Term resulting from the exercise of an option to extend. (i) Good Condition — the clean, safe, physical condition of the Premises and each portion of the Premises in compliance with all applicable governmental laws and regulations. (j) Hazardous Materials — shall mean any substance whose nature and /or quantity of existence, storage, use, manufacture, disposal or effect, renders such substance and /or the user thereof and /or the owner of real property affected thereby, subject to or controlled by federal, state or local law, or regulation because such substance is '3 -3- actually or potentially injurious or a threat to public health or welfare or to the environment; or because such substance under federal, state or local law requires remediation, removal, cleanup or other action to bring such substance in any areas impacted into conformance with applicable law. (k) Hold Harmless — to protect, defend, indemnify and hold harmless the other party (including that party's employees and, agents) from all liability, losses, penalties, Damage, costs, attorney fees, expenses, causes of action, claims, or judgments arising out of or related to any Damage to any Person or property. (1) Law — any judicial decision, statute, constitution, ordinance, resolution, regulation, rule, administrative order, or other requirement of any municipal, county, state, federal, or other government agency or authority having jurisdiction over the Parties and /or the Premises. (m) Lease Year —means each calendar year of the term. (For illustration, Lease Year one (1) is from January 1, 2001 to December 31, 2001.) (n) Maintenance or Maintain — repairs replacement, maintenance, repainting, and cleaning. (o) Material Default — means the failure of Tenant to cure a default under Section 16, below, by the applicable Tenant cure deadline ME which cure reasonably exceeds Five Thousand Dollars ($5,000.00). (p) Person — one or more natural persons, or legal entities, including, without limitation, partnerships, corporations, trusts, estates, associations, or a combination of natural persons and legal entities. (q) Premises — those portions of the Balboa Yacht Basin designated on Exhibit "A" encompassing the marine hardware store and boat repair yard, including all structures and improvements located within the Premises. (r) Provision — any term, covenant, condition, or clause in this Lease that defines, establishes, or limits the performance required or permitted by either Party. (s) Rent — Base Rent, Percentage Rent, late payment penalties, interest, taxes, and other similar monetary amounts and charges payable by Tenant under the Provisions of this Lease. (t) Rent Commencement Date — the Rent Commencement Date (and the Effective Date) shall be January 1, 2001. (u) Successor — assignee, transferee, personal representative, heir, or other Person succeeding lawfully, and pursuant to the provisions of this Lease, to the rights or obligations of either Party. (v) Tenant — BASIN MARINE, INC., a California corporation, and any approved Successor. -5- ,r I J (w) Termination — the termination of this Lease, for any reason, prior to Expiration. 2. LEASE OF PREMISES City leases the Premises to Tenant and Tenant leases the Premises from City for the Term and on the conditions contained in this Lease. 3. TERM 3.1 Base Term. The "Base Term" of this Lease shall be Fifteen (15) years from the Effective Date unless sooner terminated in accordance with the other provisions of this Lease. 3.2 Option to Extend. Provided Tenant is not then in Material Default, both at the time of Tenant notice of exercise and also at the start of such Option Term, Tenant may extend the term of this Lease for two additional successive terms of Five (5) years (the "Option Term" or "Option Terms ") the first commencing on Expiration of the Base Term and the second commencing on Expiration of the first Option Term (which assumes Tenant has exercised the first option). Tenant may exercise each extension option by giving City written notice of its intention to do so at least Six (6) months prior to Expiration of the Base Term or the first Option Term, as applicable. 3.3 Terms of Lease. The "Term" is defined as the Base Term and each Option Term(s). 3.4 Hold Over. Should Tenant hold over and continue in possession of the Premises after Expiration of the Term or any Option Term, Tenant's continued occupancy of the Premises shall be considered a month -to -month tenancy subject to: (a) termination by either Party upon Thirty (30) days advance written notice; and (b) to ad also to all the terms and conditions of this Lease, except the provisions of Sections 3.1 and 3.2. 4. RENT From and after the Rent Commencement Date, each month Tenant shall pay to City Base Rent, as adjusted periodically pursuant to Section 4.1(b) below, plus Percentage Rent. Base Rent and Percentage Rent are together part of the defined term "Rent." 4.1 Base Rent. (a) Base Rent. Tenant shall pay Base Rent to City in the sum of Sixty Three Thousand Six Hundred Forty Two Dollars ($63,642.00) per year. Base Rent shall be paid in equal monthly installments of Five Thousand Three Hundred and Three Dollars ($5,303.00). Base Rent for each full month shall be due on the Tenth (10' ") day of that month and late on the Twentieth (20'") day of such month. Base Rent for any partial month shall be prorated in accordance with the actual number of days in that month. Any unpaid Base Rent due for Lease Year 2001 will be paid within thirty (30) days of Lease execution. (b) Periodic Adjustment. At the end of every Third (3rd) Lease Year (i.e. the start of Lease Year Four (4) (January, 2004) Seven (7), Ten (10), Thirteen (13), etc.) the Annual Base Rent shall be adjusted to the greater of either: (i) Seventy Five Percent (75 %) of the average Reconciled Annual Total Rent for such just ended } �l -7- Three (3) Lease Years; or (ii) the Annual Base Rent for the just concluded Lease Year (i.e. Base Rent for Lease Year Three (3), Six (6), Nine (9), Twelve (12), etc.). (For illustration, assume for the periodic Base Rent adjustment for Lease Year Four (4), the Base Rent for Lease Year Three (3) was Sixty Three Thousand Six Hundred Forty Two Dollars ($63,642.00) and the Reconciled Total Annual Rent for Lease Years One (1), Two (2) and Three (3) was Sixty Eight Thousand Dollars ($68,000.00), Eighty Five Thousand Dollars ($85,000.00) and Seventy Eight Thousand Dollars ($78,000.00), respectively, then the adjusted Base Rent for Lease Year Four (4) would remain at Sixty Three Thousand Six Hundred Forty Two Dollars ($63,642.00) calculated as follows: Sixty Eight Thousand Dollars ($68,000.00), Eighty Five Thousand Dollars ($85,000.00) and Seventy Eight Thousand Dollars ($78,000.00) equals Two Hundred Thirty One Thousand Dollars ($231,000.00), divided by Three (3) equals Seventy Seven Thousand Dollars ($77,000.00), times Seventy Five Percent (75 %) equals Fifty Seven Thousand Seven Hundred Fifty Dollars ($57,750.00), which is less than Sixty Three Thousand Six Hundred Forty Two Dollars ($63,642.00).) 4.2 Percentage Rent. (a) In addition to the Base Rent, during the term of this Lease, Tenant shall pay to City each month„ a Percentage Rent calculated by `6 IQ multiplying the Gross Sales Percentage Rates by the Gross Sales (as defined in Section 4.4) for each of the following sales categories attributable to the Premises during each Lease Year to the extent that such Percentage Rent exceeds the Base Rent due for such month: Gross Sales Percentage Rates: 1. Shipyard /boat repair (labor, service and materials) ....... 4% of Gross Sales 2. Outside labor and materials ......... 10% of gross commissions and fees received by Tenant 3. Equipment and hardware sales, exclusive of internal sales to boat repair business .....................5% of Gross Sales. (b) Percentage Rent shall be_ paid for the preceding month with Tenant's monthly Base Rent payment, under Section 4.1(a), above. With each monthly Rent payment Tenant shall furnish to City a statement, in writing, signed and certified by Tenant to be correct (a "Monthly Sales Statement "), showing the total Gross Sales during the preceding calendar month, the applicable percentage for each category, the Percentage Rent for each category, Total Gross Sales plus Percentage Rent, Base Rent payable for such prior month, amount of any Percentage Rent due and resulting Total Rent due for such month. (For illustration of the above categories, percentages and calculation of percentage rent; attached as I i -9- Exhibit "B" is Tenants monthly Rent and Statement for May, 2000). (c) Prior to January 31st of each Lease Year, Tenant shall furnish City a statement of Tenants monthly and Annual Gross Sales made during the previous Lease Year, or any partial Lease Year (if applicable) with each category of sales calculated using the Gross Sales Percentage Rates under Section 4.2(a), above, including any authorized deductions, the Base Rent and percentage Rent paid per category and total for each month and for such entire Lease Year and Base Rent paid by Tenant during such same Lease Year ( "Annual Sales Statement'). The Annual Sales Statement shall be signed and certified as correct by Tenant, or if Tenant is a corporation, by an authorized officer of Tenant. If the Annual Sales Statement shows that during the previous Lease Year Tenant paid less Percentage Rent than obligated under the terms of this Lease, Tenant shall pay to City within Thirty (30) days the amount of any additional Percentage Rent that is payable to City. If the Annual Sales Statement shows that during the previous Lease Year Tenant paid more Percentage Rent than it was obligated to pay under the terms of this Lease, the amount of this overpayment shall be applied to the next monthly installment or installments of Base Rent due or, if the overpayment was in the last year of the Term, or Option Term(s), City shall refund to Tenant the full amount of this -10- overpayment within Thirty (30) days of City's receipt of the statement. The net resulting reconciled Annual Total Rent for a Lease Year is defined as the "Reconciled Annual Total Rent ". (For illustration, attached as Exhibit "C" is Tenants Annual Sales Statement for Lease Year 2000, in which the Reconciled Annual Total Rent was ($101,048.17), total Rent paid was $108,170.05, and total credit to Tenant was $7,121.88). (d) If Tenant fails to provide to City any Monthly Sales Statement or Annual Sales Statement at the time and in the manner specified in this Lease, this failure shall constitute a default under this Lease and City shall have the right, in addition to any other rights or remedies it may have under this Lease, to conduct an audit and Tenant shall immediately reimburse City for the cost of the audit on written demand by City. If any Monthly Sales Statement or Annual Sales Statement is found to be more than Three Percent (3 %) less than the amount of Tenant's Gross Sales shown by this audit, the understatement shall be deemed willful and City may terminate this Lease upon written notice given at any time within Thirty (30) days after receipt of the audit by City. 4.3 Payment Location. Rent shall be payable at the office of the City's Revenue Division at 3300 Newport Boulevard, Newport Beach, California, or at such other place or places as City may from time to time designate by written notice delivered to Tenant. -11- 4.4 Gross Sales. (a) The term "Gross Sales" means: (1) The entire amount of the actual sales price, whether wholesale or retail, and whether wholly or partly for cash, on credit or in exchange for any other product, commodity, service, commercial paper or forbearance, of all sales of merchandise, labor, service and materials and all charges made by or on behalf of Tenant from or upon the Premises; (2) Orders taken in or from the Premises, even if the orders are filled elsewhere, and sales by any subtenant, or subcontractor in or from the Premises; (3) All sales originating at the Premises shall be considered as made and completed therein, even though bookkeeping and collection of the account may be transferred to another place, and even though actual filling of the sale or service order and actual delivery of the merchandise may be made from a place other than the Premises. (4) Gross receipts of all coin - operated devices that are placed on the Premises by Tenant or pursuant to any rent concession, percentage or other arrangement (but excluding revenue from one drink vending machine for employees and telephones that are collected by a public and /or private utility). -12- J � (5) Each sale upon installment or credit shall be treated as a sale for the full price in the month during which such sale shall be made, irrespective of the time when Tenant shall receive payment (whether in full or partial) from its customers. (b) Exclusions from Gross Sales. Gross Sales shall not include, or if included there shall be deducted (but only to the extent they have been included), the following: (1) Sales and use taxes, so- called luxury taxes, consumers' excise taxes, and other similar taxes now or in the future imposed on the sale of merchandise or services, but only if such taxes are separately stated on the invoice and added to the selling price and collected from customers. (2) The amount of returns to shippers or manufacturers. (3) The amount of any cash or credit refund made upon any sale where the merchandise sold or some portion is returned by the purchaser. (4) Sums and credits received in the settlement of claims for loss of or damage to merchandise. (5) Cash refunds made to customers in the ordinary course of business. (6) Value Added Taxes ( "VAT ") or other taxes added to the selling price of products and other similar taxes now or -13- hereafter imposed upon the sale of merchandise or services, whether such taxes are added to, or included in the selling price. (7) Uncollectible credit accounts and other bad debts, not to exceed Two Percent (2 %) of Gross Sales. (8) The proceeds of sale of Tenant's personal property, trade fixtures or business equipment. (c) Statements of Gross Sales. Tenant shall furnish to City statements of Tenant's Gross Sales in accordance with Section 4.2(b) and 4.2(c), above. Each statement shall be signed and certified to be true, complete and correct by an Authorized Representative of Tenant. (d) Sales and Charges. All sales and charges shall be recorded by one of the following means: (1) cash registers that display the amount of the transaction certifying the amount recorded. The register shall be equipped with devices that log in daily sales totals, and record on tapes the transaction numbers and sales details. At the end of each day the tape will record the total sales for that day; (2) or sales invoices. (e) Production of Statement, Records and Audit. Tenant agrees to make available for inspection by City, or its Authorized Representative, at the Premises a complete and accurate set of books and records of all sales of merchandise and revenue derived -14- '- from the conduct of business or activity in, at or from the Premises from which Gross Sales can be determined. Tenant shall also make available, upon City's request, all supporting records, including federal, state and local tax returns. Tenant shall also furnish City's Authorized Representative, upon request, copies of its quarterly California sales and use tax returns filed with the State of California. Tenant shall retain and preserve for at least Three (3) years all records, books, bankbooks or duplicate deposit books and other evidence of Gross Sales. City and its Authorized Representative shall have the right, upon reasonable notice, during the Term or any Option Term, to inspect and audit Tenant's books and records and to make transcripts to verify the Rent due City. The audit may be conducted at any reasonable time during normal business hours. Tenant shall cooperate with City in making the inspection and conducting the audit. City shall also be entitled, once during each Lease Year and within Two (2) years after its end, and once within One Hundred Eighty (180) days after Expiration or Termination of this Lease, to an independent audit of Tenant's books of account, records, cash receipts, and other pertinent data to determine Tenant's Gross Sales. The audit shall be conducted at City's sole cost and expense by a certified public accountant designated by City. The audit shall be limited to the determination of Gross Sales and shall be conducted during usual -15 business hours in a manner that minimizes any interference with the conduct of Tenant's regular business operations. If the audit concludes that there is a deficiency in the payment of any Rent, the deficiency shall become due and payable within Twenty (20) days and if there is an overpayment, City shall refund the amount of the overpayment within Twenty (20) days. City shall bear its costs of the audit unless the audit shows that Tenant understated Gross Sales by more than Three Percent (3 %), in which case Tenant shall pay all City's reasonable costs of the audit. City and City's Authorized Representative shall be required to keep any information gained from such documents, statements, inspections or audits confidential to the maximum extent permitted by law. City and its Authorized Representative shall not disclose financial information received in confidence and pursuant to this Lease except to carry out the purposes of this Lease unless disclosure is required (rather than permitted) by law. However, City may disclose the results of any audit in connection with any financing arrangements, the sale or transfer of City's interest in the Premises, or pursuant to order of a court or administrative tribunal. (f) Tenant's Gross Sales Audit. In the event of any audit by City in accordance with this Lease, Tenant may contest the results of City's audit by performing a confirming audit within Thirty (30) days of receipt of City's audit results and supporting evidence, using an •.r :.p -16- independent public accountant reasonably acceptable to City. If Tenant's audit discloses that City's audit was incorrect by more than Three Percent (3 %), then City shall pay the cost of Tenant's contesting audit. (g) Acceptance. The acceptance by City of any money paid to City by Tenant as Percentage Rent for the Premises, as shown by any statement furnished by Tenant, shall not be construed as an admission of the accuracy of said statement, or of the sufficiency of the amount of the Percentage Rent payment. 4.5 Late Payment Penalty. Rent shall be late if paid on or after the Twentieth (20 ") day of the month due. Late Rent shall be assessed a One (1) time penalty of Ten Percent (10 %) of the amount due and shall bear interest at the rate of Ten Percent (10 %) per annum on the unpaid balance calculated from the date such Rent was due to the date that such Rent, late payment penalty and such interest is fully paid. 5. BUSINESS PURPOSES AND USE OF PREMISES 5.1 "Approved Use'. The Premises are to be used by Tenant: (a) For the principal operation of a shipyard /boat repair facility; and (b) At Tenants option, also to sell new or used boats and /or marine equipment and hardware, so long as such uses are incidental to the principal use in Section 5(a) above. (c) Tenant may not use the Premises for any other use except with prior written consent of the City. -17- 5.2 Operation of Premises. Tenant shall operate and manage the Premises in a manner comparable to other high quality businesses providing similar shipyard /boat repair services. Tenant shall not use or permit the use of the Premises in any manner that: (a) creates a nuisance; (b) violates any Law; or (c) is not in compliance with all statutes, laws, permits, use restrictions and regulations of City applicable to the Premises, Tenant and /or Tenant's use of the Premises. Tenant assumes the risk of and shall cause all its workman, customers and independent contractors to also comply with all laws regarding their activities at the Premises. 5.3 Sales Restrictions. Tenant shall not display, sell or store merchandise outside the defined exterior walls and permanent doorways of said Premises, and no sale by auction in, upon or from said Premises, whether said auction be voluntary, involuntary, pursuant to any assignment for benefit of creditors or pursuant to any bankruptcy or other solvency proceedings, shall be conducted except such auctions that may be conducted by officers of a court with respect to any vessels in custody of Tenant. 5.4 Continuous Operation. Weather permitting, Tenant shall at a minimum keep the Premises in operation and open to the public for business during normal business hours, Monday — Friday 8:00 A.M. — 4:30 P.M. Tenant may close the Premises on federal and state holidays and during periods of remodeling, reconstruction, inventory and emergencies (including substantially inclement weather) or to comply with laws, but such closure shall not: (a) Excuse Tenant's payment of Base Rent; -18- L 7> (b) Be for a period of more than Four (4) months during any Three (3) Lease Year segment of the Term, with the exception of major repairs or reconstruction exceeding Two Hundred Fifty Thousand Dollars ($250,000.00), when the closure period will be increased to Eight (8) months. 5.5 Advertising Display. Tenant may, at its own expense, place signs in or upon the Premises subject to the prior written consent of the City Manager as to the size, type, design and method of installation. All signage placed by Tenant on, in or about the Premises shall remain the property of Tenant and shall be removed by Tenant upon Termination or Expiration of this Lease at Tenant's expense; and any damage caused by removal shall be repaired at Tenant's expense. The permanent signage in place as of the Execution Date of this Lease shall be deemed approved by the City and the City Manager as to graphic design and sign placement. 5.6 Independent Contractor. City shall have no interest in the business of Tenant, and no liability for the business operations or Gross Sales of Tenant, whether or not caused by City's enforcement of City laws and regulations which apply to the Premises and /or Tenant. 5.7 No Distress Sales. No auction, fire, bankruptcy, "going out of business" or other distress sales of any nature may be conducted on the Premises without the prior written consent of the City Manager, which will not be unreasonably withheld, on the condition that such event occurs once during the Term. 5.8 Parking. Tenant shall provide a total of Four (4) parking spaces on -site which satisfy Newport Beach Municipal Code requirements. The required parking shall be provided in an area that is visible to Tenant's customers and shall be available for parking at all times. Tenant's employees shall park in City's adjacent marina parking lot located in the northwest corner of such lot, nearest the Beacon Bay development, and shall not exceed 15spaces (no repair, overnight storage or parking of Tenant customer or employee vehicles is permitted, in such adjacent parking area). 6. SERVICES FOR CITY Tenant, in addition to the obligation to pay Rent, shall perform the other terms and conditions of this Lease and shall, at Tenant's sole expense, also do the following: (a) Haul out and re- launch, each Lease Year, up to Four (4) of the vessels owned and maintained by the City, of a size capable of being handled by Tenant's equipment provided, however, all such Four (4) City vessels shall be hauled out no more than Two (2) vessels at a time.; (b) Transport the vessels to an area on the Premises suitable for the purposes of repairs or maintenance; (c) Allow each such vessel to remain on the Premises for a period of Two (2) weeks immediately after haul -out; and (d) Permit access to the vessels by employees or representatives of City for the purpose of repairs and maintenance, which shall be performed by City at no cost or liability to Tenant. City shall give Tenant Thirty (30) days' written notice prior to the date on which the vessels are to be hauled -out and City shall waive such Tenant obligation each year unless such City notice is given during such Lease Year. 7. TAXES, LICENSES AND OTHER OBLIGATIONS -20- JW, 7.1 Payment of Taxes. Tenant acknowledges that this Lease may create a possessory interest subject to property taxation and that Tenant shall pay property taxes levied on such interest. Tenant shall pay, before delinquency, all taxes, assessments, license fees and other charges (Taxes) that are levied or assessed against Tenant's leasehold interest in the Premises, any Tenant fixture, improvement, equipment and other Tenant property (including any such property of any customer of Tenant) installed or located on the Premises from time to time. Tenant shall pay directly to the appropriate taxing authorities all such taxes at least Ten (10) days before delinquency and before any fine, interest or penalty is due or imposed by operation of law and furnish to the City with Tenant's next Rent installment a copy of Tenant's payment check and the Tax bill thereby paid. Tenant shall not be required to pay any real property taxes or assessments based upon City's ownership interest in the Premises. 7.2 Payment of Obligations. Tenant shall promptly pay, when due, any and all bills, debts, liabilities and obligations incurred by or charged to Tenant in connection with Tenant's occupation and use of the Premises. 7.3 Challenge to Taxes. Tenant shall have the right in good faith, at its sole cost and expense, to contest the amount or legality of any Taxes including the right to apply for reduction. If Tenant seeks a reduction or contests such Taxes, Tenant's failure to pay the Taxes shall not constitute a default as long as Tenant complies with the provisions of this Section. City shall not be required to join in any proceeding or contest brought by Tenant unless the provisions of any Law require that the proceeding or contest be brought by or in the name of City or any owner of the Premises. In that _21_ case, City shall join in the proceeding or contest or permit it to be brought in City's name and City shall execute any instrument or document necessary or advisable in connection with the proceeding or contest as long as City is not required to bear any cost nor be liable for payment of such Taxes. If requested Tenant, on final determination of the proceeding or contest, shall immediately pay such disputed tax and also discharge any decision or judgment rendered, together with all related costs, charges, interest and penalties and provide City with a copy of Tenant's payment and the underlying bill for such Taxes being paid with Tenant's next Rent payment. Tenant shall indemnify and Hold Harmless the City and its officers and employees from and against any liability, claim, demand, penalty, cost or expense arising out of or in connection with any contest by Tenant pursuant to this Section. Any such contest of Taxes by Tenant shall be concluded (meaning that such Taxes shall be fully paid or cancelled by the Tax Authority) by Tenant, using Tenant's reasonable best efforts, within Eighteen (18) months of starting such action, or end of the Term, if earlier. 7.4 License. Tenant shall maintain in good standing all required licenses and permits required for operation of the business on the Premises, including but not limited to a City Business License. 8. UTILITIES AND REFUSE COLLECTION (a) Basic Utilities. Tenant shall make all arrangements for and pay for all utilities furnished to or used on the Premises, including, without limitation, gas, electricity, water, telephone service, cable N and janitorial service. Any repair to utility lines within the Premises is the sole responsibility of Tenant. Tenant bears all risk of interruption, cancellation and /or -22- disruption of utility services, as well as the cost of all utilities Tenant requires for its use of the Premises. (b) Refuse Collection. Tenant shall make arrangements for and pay for all weekly refuse collection and also Hazardous Materials disposal at least monthly (or more frequently if required by law). Tenant shall keep the Premises free and clean of rubbish and litter and shall deposit accumulated rubbish and litter in containers designated by City. Trash containers shall be kept in an approved enclosed area. Tenant shall comply with the provisions of the Newport Beach Municipal Code and all other Laws regarding the use, storage and disposal of Hazardous Materials. In no event shall Tenant allow Hazardous Materials related to the Premises to enter, be disposed of into, seep or otherwise be released into any sewer line, storm drain and /or adjacent bay waterway to the Premises. 9. ALTERATIONS TO THE PREMISES (a) Alterations Requiring Building Permits. Any alteration that requires a building permit from City shall require the written consent of the City Manager which shall not be unreasonably withheld so long as Tenant's Approved Use is not thereby being changed. (b) Non - Structural Alterations. Tenant shall have the right to make, at its sole expense, such non - structural changes, alterations, improvements and additions in and to the interior of the buildings, or to the piers, slips, floats and ramps on Premises, and Tenant may install therein such trade -23- fixtures and equipment as it may deem advisable for the conduct of its business for the Approved Use of the Premises. (c) Alterations Costing More than $50,000. Tenant shall not make any Alterations (other than non - structural Alterations costing less than Fifty Thousand Dollars [$50,000.00]) to the Premises without the prior written consent of the City Manager which shall not be unreasonably withheld if the Approved Use is not thereby changed. In granting or withholding consent to proposed Alterations by Tenant, the City Manager shall consider the impact of the proposed Alterations on public views adjacent property owners, compliance of City codes and the impact of the proposed Alterations on space available for public use of the Balboa Yacht Basin. The City Manager may require, as a condition of approval, that Tenant agree to amendments to this Lease, including amendments increasing the amount of Rent payable under this Lease if the proposed Alterations would materially increase the floor area or size of the building structures on the Premises. The City Manager may also require Tenant to provide, at Tenant's expense, appropriate engineering and feasibility studies regarding the structural integrity of the Premises. Any damages or destruction to the structural improvements or Tenant equipment at the Premises shall not reduce or excuse Tenant's obligation to pay Rent in full and on time. (d) Quality of Work Performed. All work shall be performed in a good and workmanlike manner, shall substantially comply with the plans and 1, t -24- 1 specifications submitted to City and shall comply with all applicable governmental permits and Laws in force at the time permits are issued. (e) Payment of Costs. Tenant shall pay all costs related to the construction of any Alterations by Tenant or its agents. Tenant shall keep the Premises free and clear of all mechanics' liens resulting from construction performed at the direction of Tenant. All construction improvements shall, upon completion, become part of the Premises, owned by City. (f) Indemnification. Tenant shall Hold Harmless City and its officers and employees with respect to any Damage or Damages related to any work performed on the Premises by Tenant. City shall promptly provide Tenant with a copy of any claim filed by any third party with respect to work performed by Tenant. City has no obligation to or liability to Tenant incident to City's approval of Tenant's plans or issuance of permits for any improvements to the Premises. (g) Disposition of Alterations at Expiration or Lease Termination. Any Alterations made to the Premises shall remain on, and be surrendered with, the Premises on Expiration or Termination of this Lease (Excluding Tenant's fixtures, equipment, furniture, movable decorations and the like). However, City may elect not less than Thirty (30) days prior to Expiration or Termination of this Lease, to require Tenant to remove, at Tenant's cost, any Alterations that Tenant has made to the Premises, except those Alterations existing as of the date of this Lease or approved by City excluding any Tenant related Hazardous Materials or other clean -up of -25- any environmental contamination which shall remain a Tenant obligation. If City requires removal of Alterations, Tenant shall, at its cost, remove the Alterations and restore the Premises to its condition prior to installation of such Alterations, ordinary wear and tear excepted, before the last day of the Term, or within Thirty (30) days after notice is given, whichever is later. Prior to Expiration or within Fifteen (15) days after Termination of this Lease, Tenant may remove any movable partitions, machinery, equipment, furniture, and trade fixtures previously installed by and solely paid for by Tenant, provided that Tenant repairs any damage to the Premises caused by removal and the structural future of the foundation and bulkhead areas of the Premises are not thereby worsened by such Tenant removal. 10. REPAIRS AND MAINTENANCE OF PREMISES 10.1 Maintenance and Repair by Tenant and City. Tenant agrees that it will maintain the Premises in Good Condition. City shall be responsible solely for the maintenance of the vertical bulkheads serving the Premises excluding damage or deterioration caused to any bulkhead by Tenant or Tenant's operations for which Tenant shall be responsible. Tenant shall also, at its sole cost and expense, at all times during the term hereof, maintain all other improvements and all Tenant equipment at the Premises and every portion thereof including, but not limited to, store fronts, entrances and exits, plate glass, roofs, doors, exterior and interior painted areas, HVAC equipment, electrical circuits and switchgear, and utility supply lines, plumbing and other fixtures, equipment, interior walls, ceilings and floors, piers, concrete foundations, -;r -26- fencing, gates, asphalt areas, slips, floats and ramps, in good order, condition and repair, and Tenant shall comply with all Laws, applicable thereto. City may perform Maintenance or repairs in the event Tenant fails to commence required Maintenance or repairs within Fifteen (15) days after receipt of notice to do so. The cost of any Maintenance or repairs by the City pursuant to this Subsection shall be payable upon billing by City as additional Rent with the Tenant's next monthly Rent payment. (a) Entry by City. City and its Authorized Representatives may enter upon and inspect the Premises at any reasonable time for Maintenance or other purposes. In case of emergency, City or its Authorized Representatives may enter the Premises by the master key if Tenant is not present to open and permit an entry. During entry City and its Authorized Representatives shall exercise reasonable care relative to the Premises and to Tenant's property. Any entry to the Premises by City shall not be construed as a forcible or unlawful entry into, or a detainer of, the Premises, or an eviction of Tenant from the Premises or any portion thereof. (b) Additional Covenants of City Regarding Maintenance Obligations. In addition to other provisions of this Lease: (1) Written Notice, Interference with Business Operations, and Additional Improvements. City shall, at the earliest time reasonably possible given the circumstances that may then exist, provide Tenant with prior written notice of its intent to: -27- (i) perform any Maintenance, repair or remodeling of the Balboa Yacht Basin which may reasonably be expected to adversely affect, by interference with access, visibility, availability of utilities or otherwise, Tenant's business operations at the Premises or any portion; or (ii) except in the case of an emergency, enter upon the Premises for any of the purposes set forth in this Lease. City agrees not to construct any additional improvements at the Balboa Yacht Basin that relate to any commercial enterprise which might conflict or compete with Tenant's business operations on the Premises so long as Tenant operates the Premises for the Approved Use. (2) Due Diligence by City Regarding Repairs. Whenever City elects or is obligated to repair or restore the Premises or any portion of the Balboa Yacht Basin, City shall proceed, at City's cost and with due diligence to repair or rebuild the same, including any additions or improvements made by City or by Tenant with City's consent, in accordance with the same plan and design as existed immediately before such City repairs and in accordance with all applicable Laws subject to force majeure and inability to use same materials by the City. The materials used in said repair or I M reconstruction shall be as nearly like the original materials as may then be reasonably procured. 10.2 Tenant is the long -time operator of the Premises, fully aware of the condition of the Premises. Therefore, Tenant accepts the condition of the Premises as of the date of this Lease without any current City warranty, representation or repair obligation. 11. LIENS Tenant shall not permit to be enforced against said Premises, or any part thereof, any mechanics', materialman's, contractors' or other liens arising from, or any claims for damages growing out of, any work or repair or alteration (except from the actions of City), and Tenant shall pay or cause to be paid said liens and claims before any action is brought to enforce the same against Tenant or the Premises, or shall adequately indemnify City and the Premises by payment bonds acceptable to City and as provided for by Law. Tenant agrees to Hold Harmless City and the Premises free and harmless from all liability for any and all such liens and claims and all costs and expenses in connection therewith. Tenant shall give City notice in writing before commencing construction of any kind on the Premises exceeding $2,500.00 and provide any additional Tenant insurance required by this Lease. 12. INDEMNITY AND EXCULPATION; INSURANCE 12.1 Exculpation of City. Except as otherwise expressly provided in this Lease, City shall not be liable to Tenant for any damage to Tenant or Tenant's property (including any boat owned by any Tenant customer) goodwill, increased Tenant operating costs, or loss of business or income by Tenant from any cause other than the -29- gross negligent, intentional or willful acts of City or its Authorized Representatives. Except as otherwise expressly provided in this Lease, Tenant releases and also waives all claims against City for Damages arising for any reason other than the gross negligent, intentional or willful acts of City or its Authorized Representatives. City shall not be liable to Tenant for any Damage to the Premises, Tenant's property, Tenant's goodwill, or Tenant's business income, caused in whole or in part by acts of nature including, without limitation, waves, wind and tidal flows. 12.2 Tenant Release and Hold- Harmless. Tenant releases the City and also agrees to Hold Harmless the City, its elected officials, officers and employees from any and all claims, liability, loss, Damage, or expenses resulting from Tenant's occupation and use of the Premises, specifically including, without limitation, any claim, liability, loss, or Damage arising by and Tenant assumes all corresponding risk because of: (a) The death or injury of any Person caused or allegedly caused by the condition of the Premises or an act or omission of Tenant or an agent, contractor, employee, servant, sublessee or concessionaire of Tenant; and (b) Any work performed on the Premises or materials furnished to the Premises at the request of Tenant or any agent or employee of Tenant, with the exception of Maintenance performed by City; and (c) Tenant's failure to perform any provision of this Lease or to comply with any requirement of Law or any requirement imposed on the Premises by any duly authorized governmental agency or political subdivision. "1 V -30- Tenant's obligations pursuant to this Subsection shall not extend to any claim, loss, liability, Damages, costs or fees that are proximately caused by the sole gross negligence, willful misconduct, or unlawful or fraudulent conduct on the part of the City or its officers or employees. 12.3 Insurance Limits. (a) Liability Insurance. Tenant shall, at its own cost and expense, secure and maintain during the entire Term a broad form commercial general liability insurance policy issued by an insurance company reasonably acceptable to City covering the acts and omissions of Tenant, any Tenant employee, agent customer, independent contractor or visitor to the Premises. The policy shall name City, and its officers, employees and agents as additional insureds and protect, against loss or liability caused by or connected with Tenant's occupation and use of the Premises under this Lease in amounts not less than: combined single limit bodily injury and property damage, including products /completed operations liability and blanket contractual liability, of Two Million Dollars ($2,000,000.00) per occurrence, subject to increased limits in accordance with Section 12.3(b) below. (b) City's Ability to Increase Amount of Public Liability and Property Damage Insurance. Not more frequently than once every Five (5) years, Tenant shall increase the insurance coverage as reasonably required by City so that at all times, the amount of public liability t II -31- and property damage insurance coverage maintained by Tenant reasonably and fully protects the City. (c) Deductibles. Any deductible amount under each insurance policy shall not exceed Seven Thousand Five Hundred Dollars ($7,500.00), and Tenant is responsible for payment of such amount in the event of loss. 12.4 Fire Insurance on Building and Other Improvements. Tenant at its cost shall maintain on the Buildings and other improvements that are or become a part of the Premises a policy of standard broad form all -risk fire and extended coverage insurance, with vandalism and malicious mischief endorsements, to the extent of at least full replacement value, with coverage for demolition and compliance with future Building Codes in a form acceptable to the City's Risk Manager. The insurance policy shall be issued in the names of City and Tenant, as their interests appear. The insurance policy shall provide that any proceeds shall be made payable to City and Tenant jointly. 12.5 Determination of Replacement Value. The "full replacement value" of the Buildings and other improvements to be insured under Section 12 shall be determined by the company issuing the insurance policy at the time the policy is initially obtained. Not more frequently than once each year, either Party shall have the right to notify the other Party that it elects to have the replacement value re- determined by such underwriting insurance company. The re- determination shall be made promptly and in accordance with the rules and practices of the Board of Fire Underwriters, or a like board recognized and generally accepted by the insurance company. Each Party shall -32- H " be promptly notified of the re- determination by the company. The insurance policy shall be adjusted according to the re- determination. 12.6 Loss of Rent Insurance. Tenant at its cost shall maintain loss of rent insurance (or business interruption insurance) insuring that the Base Rent will be paid to City for a period up to Twelve (12) months if the Premises are destroyed or rendered unusable or inaccessible for commercial purposes by a risk insured under a special form property coverage policy including vandalism and malicious mischief endorsements. 12.7 Workers' Compensation. Tenant shall comply with all of the provisions of the Workers' Compensation Insurance and Safety Acts of the State of California and the applicable provisions of Divisions 4 and 5 of the California Labor Code. 12.8 Waiver of Subrogation. The parties release each other, and their respective Authorized Representatives, from any claims for Damage to any Person or to the Premises and to the fixtures, personal property, and Alterations of either in or on the Premises that are caused by or result from risks insured against under any insurance policies carried by the parties and in force at the time of any Damage or required to be carried under this Lease. Tenant shall cause each insurance policy obtained by it to provide that the insurance company waives all rights of recovery by way of subrogation against the City in connection with any Damage covered by any policy of property insurance. Neither party shall be liable to the other for any Damage caused by fire or any of the risks insured against under any insurance policy required by this Lease. If any insurance policy cannot be obtained with a waiver of subrogation, or is obtainable only by the payment of an additional premium charge above that -33- charged by the insurance company issuing policies without a waiver of subrogation, the Party undertaking to obtain the insurance shall notify the other Party of this fact. The other Party shall have a period of Twenty (20) days after receiving the notice either to place the insurance with a company that is reasonably satisfactory to the other Party and that will carry the insurance with a waiver of subrogation, or to agree to pay the additional premium. The Party is relieved of the obligation to obtain a waiver of subrogation rights with respect to the particular insurance involved if the insurance cannot be obtained with a waiver of subrogation or the other Party refuses to pay the additional premium. 12.9 Other Insurance Matters. All the insurance required under this Lease shall: (a) Be issued by insurance companies authorized to do business in the State of California, with a minimum Best Insurance Guide or financial rating of A -VII unless otherwise approved in advance by City Risk Manager; (b) Be issued as a primary policy; (c) Be noncontributing with any insurance that may be carried by City; (d) Contain an endorsement requiring Thirty (30) days written notice from the insurance company to both Parties before cancellation or material change in the coverage, scope or amount of the policy; and -34- (e) Tenant shall maintain insurance for all boats being repaired or stored at the Premises to thereby protect City from any liability concerning such third party property located at the Premises. Each policy, or a certificate of the policy, together with evidence of payment of premiums, shall be deposited with City and on renewal of the policy not less than Thirty (30) days before expiration of the term of the policy. Either Party may maintain for its own account any insurance not required under this Lease, but any such policy shall be separate from and non - contributory in the event of loss covered by insurance carried by the Party responsible for said loss as required by this Lease. 13. DAMAGE OR DESTRUCTION OF PREMISES 13.1 Destruction of Premises. If the Premises are totally or partially destroyed, rendering the Premises or any portion thereof totally or partially inaccessible or unusable, Tenant shall restore the Premises, at Tenant's sole cost and effort, to substantially the same condition as immediately prior to such destruction (including all trade fixtures, personal property, improvements and Alterations as are installed by Tenant, which shall be replaced by Tenant at its expense, unless Tenant elects toterminate this Lease under the conditions of this Section 13.1. Tenant can elect to terminate this Lease by giving notice of such election to City within Sixty (60) days after the date of the occurrence of any casualty and also proving to the reasonable satisfaction of City that each of these conditions are satisfied: (a) the cost of the restoration exceeds the amount of any available insurance proceeds by at least twice the Total Annual Rent for the most recent Two (2) completed Lease Years; (b) at the time of such casualty Tenant maintained all insurance required by this Lease; and (c) -35- HJ no act attributable to Tenant voided insurance coverage otherwise available concerning said loss. If the Lease is so terminated: (x) all insurance proceeds applicable to reconstruction (excluding Tenant's personal property therein) shall assigned by Tenant to Landlord; (y) Tenant shall pay any policy deductible to City; and (z) quitclaim title to the Premises to City, as conditions of such termination. Notwithstanding such Lease termination, Tenant shall Hold Harmless the City from any expenses, liability or loss regarding damage or loss to boats being repaired or stored by Tenant at the Premises and any other liability or loss incurred by Tenant concerning such casualty and event. 13.2 Replacement of Tenant's Property. In the event of the damage or destruction of improvements located on the Premises not giving rise to Tenant's option to terminate this Lease under Section 13.1, above, Tenant shall, at its own expense, replace and repair all Tenant's trade fixtures, equipment, machinery, furnishings, furniture and inventory as soon as reasonably possible to permit the prompt continuation of Tenant's business at the Premises for the Approved Use. 13.3 Destruction of Balboa Yacht Basin. In the event that all or a portion of the Balboa Yacht Basin or access to the Balboa Yacht Basin in areas to be maintained by the City either under this Lease or because City owns such other areas, is damaged, deteriorates or destroyed by fire or any other casualty not attributable to Tenant nor covered by Tenant insurance and as a result the Premises or a material portion of the Premises becomes inaccessible or commercially unusable for the Approved Use, and the Damage or destruction cannot reasonably be repaired within Twelve (12) months after the date of the casualty, City shall have the right, by notice to Tenant within Sixty (60) days of such casualty, to either: If16 -36- (a) Terminate this Lease by giving to Tenant written notice (which notice shall be given, if at all, within Thirty (30) days following the date of the casualty), in which case this Lease shall be terminated Thirty (30) days following such City notice; or (b) Within Thirty (30) days of such casualty confirm City's intention to repair such damage as soon as reasonably possible at City's expense, in which event this Lease shall continue in full force and effect; however, Rent shall be abated in accordance with the procedures set forth in Section 14, below. Tenant may terminate this Lease by giving City written notice at any time prior to the commencement of repairs if City agrees to repair the Balboa Yacht Basin pursuant to this Section 13.3(b) and City fails to commence repairs within One Hundred Twenty (120) days after giving Tenant written notice of its intention to repair. In such event, this Lease shall terminate as of the date of notice from Tenant to City, and City shall have no further liability to Tenant under this Lease. 13.3 City Liability After Casualty City has no liability to Tenant concerning such casualty or City election to repair or not repair except solely arising under Section 13.1, above. 14. ABATEMENT OF RENT In the event of Damage or destruction of the Premises or Damage to the Balboa Yacht Basin that impacts the Premises and this Lease is not terminated, Tenant shall continue to utilize the Premises for the operation of its business for the Approved Use -37- I to the extent it may be practicable and commercially reasonable. Base Rent shall abate in proportion to the area of the Premises that is rendered unusable for the Approved Use. The abatement of Rent shall commence on the date that use of the Premises is impacted and continue until the completion of those repairs necessary to restore full use of the Premises and Tenant's re- opening of the Premises. Tenant's obligation to pay Taxes and other monetary obligations pursuant to this Lease shall not be abated or reduced. Rent shall not abate if the Damage or destruction to the Premises is the result of the negligence or willful conduct of Tenant or its employees, officers or agents. Tenant's right to abatement of Base Rent is contingent on payment of insurance proceeds, if any, equal to the amount of Base Rent pursuant to coverage required by Section 12.6, above. 15. PROHIBITION AGAINST VOLUNTARY ASSIGNMENT, SUBLETTING AND ENCUMBERING 15.1 Prohibition of Assignment. The Parties acknowledge that City is entering into this Lease in reliance upon the business experience and abilities of Tenant and its principals to operate the Premises for the Approved Use. Consequently, Tenant shall not voluntarily delegate, assign or encumber its interest in this Lease or in the Premises, or sublease substantially all or any part of the Premises, or allow any other person or entity (except Tenant's Authorized Representatives) to occupy or use all or any part of the Premises without the prior written consent of City, which may be withheld at the sole discretion of the City unless Tenant provides City with evidence reasonably satisfactory to City that the: (a) proposed transferee has financial strength and shipyard /boat repair experience comparable to Tenant so that such proposed -38- �i G assignee will not likely cause the Percentage Rent payable to be less than Percentage Rent paid for the most recent completed Lease Year; (b) the use of the Premises by the proposed transferee is consistent with the terms of this Lease and is for the Approved Use; (c) proposed transferee agrees to assume all current and future Tenant obligations and agrees that the City is not in default of the Lease; and (d) Tenant is not then in Material Default of this Lease. Except as otherwise expressly provided herein, any dissolution, merger, consolidation, reorganization of Tenant, or the sale or other transfer resulting in a transfer of a controlling percentage of the capital stock of Tenant, shall be deemed a voluntary assignment requiring City's consent above except for inter - Family transfer related David L. New. However, the sale or transfer of a controlling percentage of the capital stock of Tenant pursuant to a public offering(s) of equity or debt instruments issued by Tenant, or other transfers of publicly traded capital stock or debt instruments shall not constitute a voluntary assignment and shall not require City's consent or approval if there is no change in the management of Tenant's business and if such successor otherwise maintains the Approved Use and satisfies the prior experience and business expertise tests above and is at least as creditworthy as Tenant at the time this Lease is signed. The phrase "controlling percentage" means the ownership of, or the right to vote, stock possession of at least Fifty Percent (50 %) of the total combined voting power of all classes of Tenant's capital stock issued, outstanding, and entitled to vote for the election of directors, except for ownership of publicly traded shares, warrants or similar equity interests in Tenant traded on a national exchange or over - the - counter markets. 15.2 Additional Consideration for Extension of Lease -39- (a) Lessee to pay all appraisal and administrative costs associated with Lease extension. (b) If after satisfying City's approval rights in this Section 15 Tenant transfers, sells or conveys, all or any portion or interest in this Lease, Tenant shall pay City Five Percent (5 %) of Tenant's gross proceeds of the sale to City upon the day of such transfer and also provide City with a signed copy of the original sale documents and an amendment to this Lease confirming: (i) Tenant's successor's assumption of all current and future Tenant obligations; and (ii) Tenant's continued liability under this Lease, including all obligations of transferee under this Lease. Excluded from such payment obligation is any Inter - Family transfer allowed under Section 15.1 above. 15.3 Exceptions. Notwithstanding the foregoing paragraphs or anything to the contrary contained herein, City's consent shall not be required for a transfer or assignment of any stock or interest by a share holder or member if the Approved Use of the Premises is maintained, Tenant and transferee provide City the Lease amendment described in Section 15.2(b), above, if such transfer is to a spouse, children or grandchildren or an assignment or subletting to an Affiliate, Subsidiary, or Successor of Tenant defined as follows: (a) An "Affiliate" is any corporation or other entity which directly or indirectly controls or is controlled or is under common control with Tenant (for this purpose, "control" shall mean the possession, -40- u directly or indirectly, of the power to direct or cause the direction of the management and policies of such corporation or other entity, whether through the ownership of voting securities or by contract or otherwise); (b) A "Subsidiary' shall mean any corporation or other entity not less than Twenty Five Percent (25 %) of whose outstanding stock shall, at the time, be owned directly or indirectly by Tenant and which is at least as creditworthy as Tenant; and (c) A "Successor" shall mean a corporation or other entity in which or with which Tenant is merged or consolidated, in accordance with applicable statutory provisions for merger or consolidation of corporations or a corporation or other entity acquiring a substantial portion of the property and assets of Tenant. 15.4 Continuing Effect. City's consent to any assignment, encumbrance, or sublease shall not relieve Tenant from its obligations or liabilities under this Lease nor act as a waiver of the requirement that such consent be obtained to any subsequent assignment, encumbrance or sublease. 15.5 Tenant Financing. If Tenant is not then in Material Default, and Tenant gives City Forty Five (45) days advance notice prior to City, then City shall sign a commercial reasonable non - disturbance and attornment agreement from an institutional commercial lender of Tenant's choice, in a form reasonably acceptable to the City Attorney. City's fee and leasehold interest shall be senior to and not security for such Tenant loan. -41- 51 16. DEFAULT 16.1 Default by Tenant. The occurrence of any one or more of the following events shall constitute a "Material Default" of this Lease by Tenant: (a) The vacating or abandonment of the Premises by Tenant. (b) The failure by Tenant to make any payment of Rent or any other payment required by this Lease, as and when due, when such failure shall continue for a period of Ten (10) days after written notice of default from City to Tenant. (c) The failure of Tenant to observe or perform any of the "material" (meaning costing Five Thousand Dollars ($5,000.00) or more to fully remedy covenants, conditions or provisions of this Lease to be observed or performed by Tenant where such failure shall continue for a period of Thirty (30) days after written notice thereof from City to Tenant; provided, however, that if the nature of Tenant's default is such that more than Thirty (30) days are reasonably required for its cure. then Tenant shall not be deemed to be in default if Tenant commences such cure within said Thirty (30) day period and thereafter diligently prosecutes such cure to completion. However, no Thirty (30) day cure period is allowed for any Tenant caused environmental event involving Hazardous Substances at the Premises or otherwise caused by Tenant or Tenant's agents or customers which likely costs Fifteen Thousand Dollars ($15,000.00), or more, to fully remediate. Immediately following -42- 50- any such environmental event Tenant shall use Tenant's best efforts to fully remediate or prove to the reasonable satisfaction of City that remediation is underway and will be completed in Ninety (90) days without any risk of further environmental damage to the Premises and /or surrounding area. (d) The making by Tenant of any general arrangement or assignment for the benefit of creditors. (e) Tenant becomes a "debtor' as defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in the case of a petition filed against Tenant, the same is dismissed within Sixty (60) days). (f) The appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where such appointment is not discharged within Sixty (60) days. (g) The attachment, execution or the judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where such seizure is not discharged within Sixty (60) days. 16.2 Remedies. (a) Cumulative Nature of Remedies. If any Material Default by Tenant shall continue to not be cured after notice and the cure period provided under this Lease, City shall have the remedies described in this Subsection, in addition to all other rights and remedies -43- `i J provided by law or equity, to which City may resort cumulatively or in the alternative. (1) Reentry without Termination. City may reenter the Premises, and, without terminating this Lease, re -let all or a portion of the Premises. City may execute any leases made under this provision in City's name and shall be entitled to all rents from the use, operation, or occupancy of the Premises. Tenant shall nevertheless pay to City on the dates specified in this Lease the equivalent of all sums required of Tenant under this Lease, plus City's expenses in conjunction with re- letting, less the proceeds of any re- letting or attornment. No act by or on behalf of City under this provision shall constitute a Termination of this Lease unless City gives Tenant specific notice of Termination. (2) Termination. City may terminate this Lease by giving Tenant notice of Termination. In the event City terminates this Lease, City may recover possession of the Premises (which Tenant shall surrender and vacate upon demand) and remove all Persons and property. City shall be entitled to recover the following as damages: (i) The value of any unpaid Rent or other charges that are unpaid at the time of Termination; C J Cn (ii) The value of the Rent and other charges that would have accrued after Termination less the amount of Rent and charges the City received or could have received through the exercise of reasonable diligence as of the date of the award; (iii) Any other amount necessary to reasonably compensate City for the detriment proximately caused by Tenant's failure to perform its obligations under this Lease; and (iv) At City's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time -to -time by applicable California law. City shall be entitled to interest at the rate of Ten Percent (10 %) per annum on all Rent and other charges from the date due or the date they would have accrued. City shall also be entitled to an award of the costs and expenses incurred by City in maintaining or preserving the Premises after default, preparing the Premises for re- letting, or repairing any damage caused by the act or omission of Tenant. (3) Use of Tenant's Personal Property. City may use Tenant's personal property and trade fixtures located on the Premises or any of such property and fixtures without compensation or r� � J -45- liability to tenant for use or damage. In the alternative City may store the property and fixtures at the cost of Tenant. City shall not operate the Premises in any manner tending to indicate that the Premises is affiliated with, part of or operated in conjunction with Tenant's business. (b) City's Right to Cure Tenant's Default. Upon continuance of any material default beyond applicable notice and cure periods, City may, but is not obligated to, cure the default at Tenant's cost. If City pays any money or performs any act required of, but not paid or performed by, Tenant after notice, the payment and /or the reasonable cost of performance shall be due as additional Rent not later than Five (5) days after service of a written demand accompanied by supporting documentation. No such payment or act shall constitute a waiver of default or of any remedy for default or render City liable for any loss or damage resulting from performance. (c) Waiver of Rights. Tenant waives any right of redemption or relief from forfeiture under California Code of Civil Procedure Sections 1174 or 1179, or under any other present or future law, in the event Tenant is evicted or City takes possession of the Premises by reason of any default by Tenant. 17. CONDEMNATION CQ J (' 17.1 Termination of the Lease. Tenant or the City shall have the right to terminate this Lease as of the date a public agency with lawful authority to condemn obtains possession or title to Ten Percent (10 %), or more of the land area at the Premises, or the condemnation materially affects the conduct of Tenant's business in the Premises, or the Premises will no longer be suitable for the conduct of Tenant's business for the Approved Use. In the event of Termination pursuant to this Subsection, Base Rent shall be prorated to the date of Termination, any unearned Rent shall be refunded to Tenant and Tenant shall have no further obligations under this Lease. Tenant shall not grant a right of entry to any condemnor without the written consent of City. 17.2 No Termination of Lease. If this Lease is not terminated under Section 17.1, above, then this Lease shall terminate as to the portion of the Premises taken upon the date which possession of said portion is taken, but this Lease shall continue in force and effect as to the remainder of the Premises. Tenant shall. in the event of a taking of any portion of the Premises, be entitled to a reduction in the Base Rent in reasonable proportion to the area of the Premises so taken verses its impact on Tenant's continued operations for the Approved Use. 17.3 Allocation of Award. In the event that an award is made for an entire or partial taking or for damage to the Premises or any interest therein in any action in direct or inverse condemnation or in the event of a taking under the power of eminent domain, the Parties hereto agree that their respective rights to the award or compensation paid shall be as follows: -47- (a) City shall be entitled to that Portion of the award received for the taking of the real property within the Premises, the value of this leasehold, including all buildings and other improvements to which City is entitled on Expiration or Termination of this Lease, and for severance damages. (b) Tenant shall be entitled to any award that may be made for the taking of or injury to Tenant's business and profits, including any amount attributable to Tenant's personal property, fixtures, installations, or improvements in or on the Premises, Tenant's relocation expenses, but excluding any "bonus value" attributable to this Lease. (c) Any interest payable on the total award shall be divided between City and Tenant in the same ratio as are the awards granted to them pursuant to the other provisions of this Section. 18. SUBJECT TO STATE LANDS COMMISSION GRANT The Premises are located on property that is the subject of a grant from the State of California to the City that is administered by the State Lands Commission. Tenant shall not take any action that would cause the City to be in violation of any provisions of that grant. If the State Lands Commission terminates this grant for any reason or prevents the Premises from being used for the Approved Use, this Lease terminates as a result and the Parties shall be released from all liabilities and obligations under this Lease. 19. WASTE OR NUISANCE EV11 Tenant shall not commit or permit the commission of any waste on the Premises. Tenant shall not maintain, commit, or permit any nuisance as defined in Section 3479 of the California Civil Code on the Premises. Tenant shall not use or permit the use of the Premises for any unlawful purpose. 20. PRIOR TENANT USE AND HAZARDOUS MATERIALS The Parties acknowledge that Tenant has been in possession of the Premises pursuant to the provisions of a Lease since September 20, 1973. Tenant represents and warrants that, to the best of Tenant's knowledge: (i) Tenant's continued use of the Premises does not conflict with applicable Laws; (ii) the Premises is not and has not been operated in violation of any environmental laws, rules or regulations and Tenant's contemplated uses will not cause any such violation; and (iii) the land underlying the Premises is free of any and all Hazardous Materials as of the date of this Lease caused by the Tenant. In the event that the presence of any Hazardous Material caused by Tenant is detected in the land underlying the Premises or the bay or any tidelands' areas adjacent to this Premises at any time during the Term of this Lease and any Option Term all remedial or clean up work shall be immediately performed by Tenant at Tenant's expense to fully remediate such environmental condition so that the Premises and such affected area(s) are promptly brought into full compliance with all Laws. This clause and this lease does not restrict or limit Tenant's right to lawfully use Hazardous Materials on the Premises, if in strict conformance with all Laws. 21. CITY'S DEFAULTSITENANT'S REMEDIES City shall be in Material Default if it fails to perform, or commence performance if Tenant gives notice of nonperformance specifying the nature of such default and /or City -49- ✓ nonperformance and City either does not cure such noticed item(s) within Thirty (30) days or City does not commence such cure performance within said Thirty (30) days and then diligently completes said cure to City's reasonable best efforts. In the event of City's Material Default, Tenant may: (a) Upon Fifteen (15) days notice to City cure any such default by City and City shall reimburse Tenant the amount of all costs and expenses incurred by Tenant in curing the default, together with interest and expenses at the maximum rate then allowed by law; (b) Terminate this Lease if City's default materially interferes with Tenant's use of the Premises for their intended purpose and City fails to cure such default within Fifteen (15) days after a second demand by Tenant in which case Tenant shall have no further or continuing obligations and City shall have no liability to Tenant; or (c) Commence an action for specific performance and recover costs and expense, including reasonable attorney fees if Tenant is the prevailing party. 22. NOTICES Any notice, demand, request, consent, approval or communication that either Party desires or is required to give shall be in writing and shall be deemed given Three (3) days after deposit into the United States registered mail, postage prepaid, by registered or certified mail, return receipt requested or upon delivery if personally served or upon transmission if sent by facsimile. Unless notice of a different address -50- has been given in accordance with this Section, all notices shall be addressed as follows: If to City: CITY OF NEWPORT BEACH Attention: City Manager 3300 Newport Boulevard Newport Beach, CA, 92658 Facsimile: 949 - 644 -3020 If to Tenant: BASIN MARINE, INC. Attention: David L. New Harbor Island Drive, #1 Newport Beach, CA, 92660 Facsimile: 949 - 673 -0625 23. SURRENDER OF PREMISES At the Expiration or earlier Termination of this Lease, Tenant shall surrender to City the possession of the Premises. Tenant shall leave the surrendered Premises, required personal property and fixtures in good and broom -clean condition, reasonable wear and tear excepted. All property that Tenant is not required to surrender, but that Tenant does abandon shall, at City's election, become City's property at Expiration or Termination. 24. WAIVER The waiver by City or Tenant of any breach of this Lease by the other shall not be deemed to be a waiver of any term, covenant, or condition or any subsequent breach. The acceptance of Rent by City shall not be deemed a waiver of any breach by Tenant other than the failure to pay the particular rent accepted. 25. PARTIAL INVALIDITY If any term or Provision of this Lease is declared invalid or unenforceable, the remainder of this Lease shall not be affected. (/ -51- 26. GOVERNING LAW This Lease shall be governed by the laws of the State of California. Neither City's execution of this Lease nor any consent or approval given by City in its capacity as landlord shall affect City's powers and duties as a governmental body. Any consent or approval Tenant is required to obtain from City pursuant to this Lease is in addition to any permits or approvals Tenant is required to obtain pursuant to law or ordinance. However, City shall attempt to coordinate its procedures for giving contractual and governmental approvals so that Tenant's requests and applications are not unreasonably denied or delayed. 27. ENTIRE AGREEMENT; MODIFICATION This Lease contains the entire agreement between the Parties. No verbal agreement or implied covenant shall be held to vary the provisions of this Lease. Each Party has relied on its own inspection of the Premises and examination of this Lease, the counsel of its own attorney or other advisors, and has a complete understanding of the overall warranties, representations, and covenants in this Lease. The failure or refusal of either Party to inspect the Premises, to read this Lease or other documents, or to obtain legal or other advice relevant to this transaction shall not be the basis for later claim that all or part of this Lease is not enforceable or was not understood by a Party when this Lease was signed. No provision of this Lease may be amended or varied except by an agreement in writing signed by the Parties or their respective Successors. Upon execution of this Lease by both Parties, the OLD Lease will be terminated and of no further force and effect. 28. TIME OF ESSENCE b(2 -52- Time is of the essence with respect to the performance of every Provision of this Lease in which time of performance is a factor. All time deadlines are meant to be strictly construed. A "day" means a calendar day, with extension if a deadline occurs on a weekend or day when banks are not open in California. 29. SUCCESSORS Subject to the Provisions of this Lease on assignment and subletting, each and all of the covenants and conditions of this Lease shall be binding on and shall inure to the benefit of the heirs, successors, executors, administrators, assigns, and personal representatives of the respective parties. 30. NO BROKERS Each party warrants to and for the benefit of the other than it has had no dealings with any real estate broker or other agent (attorneys excepted) in connection with the negotiation or making of this Lease, and that no commission, fee or other compensation is owed regarding this Lease by such other Party. 31. GENDER: NUMBER The neuter gender includes the feminine and masculine, the masculine includes the feminine and neuter, and the feminine includes the neuter, and each includes corporation, partnership, or other legal entity whenever the context requires. The singular number includes the plural whenever the context so requires. 32. EXHIBITS All exhibits to which reference is made in this Lease are incorporated by reference. Any reference to "this Lease" includes matters incorporated by reference. �r3 -53- IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the date first written above. ATTEST: LaVonne Harkless City Clerk APPROVED AS TO FORM: Robin L. Clauson Assistant City Attorney CITY OF NEWPORT BEACH ("City "), a Municipal Corporation M- Garold B. Adams, Mayor BASIN MARINE, INC. A California Corporation ('Tenant') M David L. New Its: President By: Beatrice E. New Its: Secretary and Treasurer F:\ users\ cat\ shared \da \BalboaYachtBasin \080601 Final.doc LI -54-