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HomeMy WebLinkAbout18 - Balboa Yacht Basin Office LeaseITEM #18 Harbor Resources Division Memorandum ��LIFOKNlr Date: August 9, 2001 To: Members of the City Council From: Tony Melum, Division of Harbor Resources Subject: August 14, 2001, City Council Meeting Agenda Item #18 Lease Agreement for Balboa Yacht Basin Office Lease with Heritage Yacht Sales, Inc. We recommend amending the fair market rental recommendation identified in the first paragraph on Page 2 of Agenda Item #18's staff report. The initial recommendation for a fair market rental cost of $1,450 per month ($2.50 /square feet x 580 square feet) was based on the assumption that the proposed revised lease would be a full service gross lease. Full service gross typically assumes that the lessor (City) shall pay such things as utilities, property taxes, janitorial services and interior maintenance. But building the new office gave the City the opportunity to individually meter the electricity and additionally, as a result of a new standard lease format, the lessee is now responsible for those items listed above. The proposed new lease with Heritage Yacht Sales would therefore be more properly characterized as a modified net lease. Of the properties listed on Exhibit B in the Staff Report, the only one that is a modified net lease is Lido Yacht Anchorage. This property, managed by BellPort, is essentially a larger version of the Balboa Yacht Basin site in that it is situated in a residential area, one of the major tenants is a shipyard, with public vessel berths surrounding the site and other tenants consisting of offices, garages and a small restaurant. The cost per square foot at this location is $1.85 /sf for a modified net lease. If the approximate costs of possessory interest tax ($1,075 per year), utilities ($600 per year), and janitorial ($3,000 per year) were added to the Lido Yacht Anchorage modified net lease rate, the annual rate for Heritage Yacht Sales would be approximately $17,551 or $1,462 /month ($2.52/sf). This essentially reflects the original rate recommendation in the staff report. As a result of the above, we recommend that City Council adopt the proposed lease with Heritage Yacht Sales but with a fair market rent reflecting what is charged at Lido Yacht Anchorage ($1.85 a square foot). Under the proposed modified net lease, Heritage would pay $12,876.00 or $1,073 per month. ITEM 18 TO: Members of the Newport Beach City Council FROM: Tony Melum, Division of Harbor Resources SUBJECT: Lease Agreement for Balboa Yacht Basin Office Lease with Heritage Yacht Sales, Inc. RECOMMENDED ACTION: Authorize the Mayor to execute the proposed lease with Heritage Yacht Sales, Inc., on behalf of the City of Newport beach. BACKGROUND: Effective, July 1, 2000, the Marine Environmental Division of the Fire and Marine Department was placed under the City Manager's Office and renamed the Harbor Resources Division. As part of that reorganization, the City Manager proposed that that the Division relocate from its location at the Newport Pier to the Balboa Yacht Basin. The Balboa Yacht Basin is City owned harbor frontage and tidelands together with abutting upland property (EXHIBIT A). This property consists of 171 -slip commercial marina, 44 storage garages, three apartments, a cafe and a marine hardware store and shipyard and a yacht brokerage office. We planned that Harbor Resources would take over the yacht brokerage office from Heritage Yacht Sales, Inc. and they would vacant the premises. Their lease had expired in July of 2000 and they were currently a month to month tenant. The City Council, however, felt it was important to preserve this type of business at this site and in that regard, staff was authorized to remodel three rental garages into a small (580 square feet) office. That work has been completed and Harbor Yacht Sales, Inc. is prepared to move in once the above lease has been signed. City Council Policy, F -7A, requires as follows: "A. Whenever a lease, management contract, concession, sale or similar action regarding income property is considered by the City, an analysis shall be conducted to determine the maximum or open market value of the property. This analysis shall be conducted using appraisals or other techniques to determine the highest and best use of the property and the highest value of the property." Newport Beach City Council Page 2 The fair market rental for the previous lease was established by appraisal in 1996 (copy attached), at $1,350.00 full service gross per month for the 780 square foot office space ($1.73 per square foot). Using the same group of bay front rentals that were compared in 1996, staff recommends the current fair market rental for the new 580 square foot office to be $1,450.00 ($2.50 per square foot). The costs per square foot in 1996 for the above properties and their cost now in 2001 are compared in the attached Exhibit B. The property that most closely compares to the Balboa Yacht Basin was the Lido Yacht Anchorage. The proposed lease term is for 5 years with one option to extend the term of the lease for one 5 year period. Rent is subject to CPI adjustment every two years commencing in August 2003. Newport Beach City Council EXHIBIT A w C n. n n Ie 1K0 wy C 14 h y 0 1` I = , 0 T n �. m d ro I. o APPRAISAL REPORT 829 HARBOR ISLAND DRIVE NEWPORT BEACH, CALIFORNIA BAYSIDE MARINE SALES OFFICE BALBOA YACHT BASIN Date of Report: Submitted to: April 19, 1996 Ms. Peggy Ducey Assistant to the City Manager 3330 Newport Boulevard Newport Beach, CA 92663 -3884 Date of Value: Submitted by: April 15, 1996 Richard A. Fuller, MAI Fuller & Associates 567 San Nicolas Suite 203 Newport Beach, CA 92660 FULLER & ASSOCIATES Real Estate Appraisers and Counselors Richard A. Fuller, MAI 567 San Nicolas Drive, Suite 203 Telephone 714 - 644 -4040 Newport Beach, CA 92660 Facsimile 714 -644 -4065 April 19, 1996 Ms. Peggy Ducey Assistant to the City Manager 3330 Newport Boulevard Newport Beach, CA 92663 -3884 Re: Appraisal of 829 Harbor Island Drive. Newport Beach California Bayside Marine Sales Office Balboa Yacht Basin Dear Ms. Ducey: In accordance with your verbal authorization, I have made an examination of the above - referenced property for the purpose of estimating the fair market rental value, as of April 15, 1996. As a result of this investigation and an analysis of matters pertinent to the property's value, I have concluded that the fair market rental value thereof, as of said date, was $1,350/mo. on a Full Service Gross basis. FAIR - MARKET RENTAL VALUEIMONTH ONE THOUSAND THREE HUNDRED AND FIFTY DOLLARS (Full Service Gross) APPRAISAL Limited appraisal report as defined by USPAP. REPORT FORM Restricted appraisal report as defined by USPAP. r- 829 Harbor Island Drive Newport Beach, California Fair Market Rental Value REAL ESTATE IDENTIFICATION REAL PROPERTY INTEREST PURPOSE AND INTENDED USE The purpose of this appraisal is to express an opinion of the fair market rental value of that property located at 829 Harbor Island Drive, City of Newport Beach, County of Orange, State of California. The use of this appraisal is to establish a basis for the fair market rental value. DEFINITION OF MARKET RENT (Fair Market Rental Value) The rental income that a property would most probably command in the open market; indicated by the current rents paid and asked for comparable space as of the date of the appraisal. Source: The Dictionary of Real Estate Appraisal, Third Edition: The Appraisal Institute. EFFECTIVE APPRAISAL DATE The effective appraisal date for this appraisement is April 15, 1996. REPORT DATE The date of report is April 19, 1996. COLLECTION CONFIRMATION, AND REPORTING OF DATA Notwithstanding the USPAP provisions for a limited appraisal and a restricted report, the scope of this assignment has been to physically inspect the subject property; complete a market data study of the comparable market data; analyze the physical characteristics of .. the subject property; compare the market data to the subject property; and form an opinion as to the fair market rental value of the subject property. 96 6 2 Fuller & Associates tD LIMITING CONDITIONS This appraisal has been based upon the following limiting conditions: 1) That I assume no responsibility for matters legal in character, nor do I render any opinion as to the title which is assumed to be good. All existing liens, and encumbrances, securing payment of money, have been disregarded, and the property is appraised as though free and clear under responsible ownership and competent management. 2) That information obtained for use in this appraisal is believed to be true and correct to the best of my ability, however, no responsibility is assumed for errors or omissions, or for information not disclosed which might otherwise affect the valuation estimate. 3) That disclosure of the contents of this appraisal report is governed by the Code of Professional Ethics and the Standards of Professional Practice of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice (USPAP). 4) That, neither all, nor any part, of the contents of this report (especially any conclusions as to value, the identity of the appraisers, or the firm with which he is connected, or any reference to the Appraisal Institute, or the MAI designation) shall be disseminated to the public through advertising media, public relations, news media, sales media, or any other public means of communication without prior written consent and approval of the undersigned. 5) That no warranty is made as to the seismic stability of the subject site. 6) That the appraiser, by reason of this appraisal, is not required to give testimony, or attendance in court with reference to the property appraised, unless arrangements have been previously made thereof. 7) That the submission of this report constitutes completion of the services authorized. It is submitted upon the condition that the client will provide the appraiser customary compensation relating to any subsequent required depositions, conferences, additional preparation, or testimony. 8) That, by specific instructions of the client, this report was not prepared for litigation purposes. If this matter is adjudicated in any manner, the appraiser reserves the right to prepare a comprehensive narrative report, at an additional cost, and to further verify the data upon which this estimate of value is based. 96-6 3 Fuller & Associates f l 9) That as no current title report was available for review, it is assumed that there are no easements or conditions of title that would effect the use of the subject property in accordance with its highest and best use. 10) That maps and exhibits set out in this report are for illustration purposes only and are to assist the reader in visualizing the property. No survey of the property has been made, and no liability is assumed in connection with such matters. 11) That, although the structure was inspected, and no evidence of termites, dry rot, wet rot, or other infestations were observed, no guarantee of same is implied here and this appraisal is subject to an inspection by a licensed pest control inspector. 12) That unless otherwise stated in this report, the existence of hazardous substances, including without limitation asbestos, urea formaldehyde, foam insulation, polychlorinated biphenyls, petroleum leakage, or agricultural chemicals, which may or may not be present on the property, or other environmental conditions, were not called to the attention of nor did the appraiser become aware of such during the appraiser's inspection. The value estimated is predicated on the assumption that there is no such condition on or in the property or in such proximity thereto that it would cause a loss in value. No responsibility is assumed for any such conditions, nor for any expertise or engineering knowledge required to discover them. 13) That no valuation has been made of furniture or other personal property, which existed within the subject property, as of the date of value. 14) That, as requested by the client, and defined by USPAP, this is a limited appraisal, wherein the departure provision has been invoked and the conclusions have been presented in a restricted appraisal format. :7 96-6 4 Fuller & Associates t1 APPRAISAL PROCEDURES The appraisal procedure utilized the sales comparison approach which was based upon the following rentals of bayfront office space: SUBJECT 28th St. Marina Lido Marina Village Mariners Mile The Crows Nest L'arsons Shipyard Mariners Mile Marine Center Bayside Square 2600 Newport Blvd. 2800 La Fayette 3400 Via Oporto 3101 Coast Hwy. 2751 -2801 Coast Hwy 2711 -2729 Coast Hwy 2431 Coast Hwy. 1111 Bayside Dr. VALUE CONCLUSION $1,350 /Month Full Service Gross RENT /SQ.FT. $1.50 FSG $1.50 FSG $1.75 -$2.25 FSG $1.75 FSG $1.75 -$2.25 FSG $2.10 -$2.45 + Janitorial $1.60 FSG $2.00 -$2.20 FSG ONE THOUSAND THREE HUNDRED AND FIFTY DOLLARS (Full Service Gross) SUPPORTING FILE A supporting file has been prepared which includes all market data, factual data, reasoning, computations, descriptions, analyses, and discussions, from which, in part, the valuation conclusion was derived. HIGHEST AND BEST USE Continued marine oriented office use. VALUATION APPROACHES As the purpose of this appraisal is to estimate the fair market rental value of the subject property, the cost and capitalization approaches were not applicable. Major emphasis was given to the market data approach, wherein rentals of similar bayfront office space was compared to the subject property. 96-6 5 Fuller & Associates I USE RESTRICTION As requested by the client, this appraisal is a limited appraisal as defined by USPAP in that the following departure provisions was invoked: The size of the subject office space is reported by the client to be 781 sq.ft. and is assumed to be correct. As requested by the client, this appraisal report is a restricted appraisal report as defined by USPAP which limits the reliance on the report to the client and considers anyone else using the report as an unintended user. All market data, factual data, reasoning, computations, descriptions, analyses, and discussions, from which, in part, the valuation conclusion was derived, will be retained within my file. nitted, Richard A. Fuller, MAI RAF:bly 96 -6 Fuller & Associates I U x0011717- ..R . �r ti •. ,wi,' ll /TY mA O ' 7 All iL`LVT -P, III �� QPiNa YQCNr Jf ._... oasr►at..�aieva a�mrv�a .__ . _ _ .... 6Cd L C' 1 � "•�C � PUBLIC WORKS DEPARTMCWr Appmoveo AMOIA14 YCCV7' S.44&.9 L Ed 9E NrWc woiticf a�ccro� ,BPD" tie. M. = Tam Gr7'Y oF�yEryaa.?r g�'oCf•� c���•►MO IMAP/RI- 55/7 -G it EXHIBIT B Subject Property Address 1996 Rent/ Per S . Ft. 2001 Rent/ Per S . Ft. 28th St. Marina 2600 Newport Blvd. $1.50 FSG $2 -$2.50 FSG Lido Marina Village 3400 Via Oporto $1.75 -$2.25 FSG $2.50 -$4.00 FSG Mariner's Mile 3101 Coast Hwy. $1.75 FSG $2.50 -$3.00 FSG Crow's Nest 2751 Coast Hwy. $1.75 -$2.25 FSG $2.50 -$2.75 FSG Larson Shipyard 2711 Coast Hwy. $2.10 -$2.45 FSG $2.60 FSG Mariner's Mile 2431 Coast Hwy. $1.60 FSG $2.70 FSG Bayside Square 1111 Bayside Dr. $2.00 -$2.20 FSG $2.35 FSG Lido Yacht Anchorage 201 Shipyard Way N/A $1.85 -$2.50 FSG — Full Service Gross 12 LEASE AGREEMENT HERITAGE YACHT SALES, INC. THIS LEASE is made and effective as of the 1 st day of August, 2001 ( "Effective Date "), by and between the CITY OF NEWPORT BEACH, a Municipal Corporation ( "City ") and HERITAGE YACHT SALES, 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 a commercial building in the Balboa Yacht Basin is currently being used by Tenant for a yacht sales office, ('Premises "). Tenant is occupying approximately 780 square feet of space pursuant to a Lease dated July 9, 1996. B. Tenant and City desire to enter into a new Lease to allow Tenant to continue to operate a yacht sales business in new premises in an adjacent building at the Balboa Yacht Basin upon revised terms and conditions as provided in this Agreement. C. Rent has been determined based upon a comparison and analysis of similar bay front office space within the City of Newport Beach. D. The uses to be made of the property subject to this Lease 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. -1- 15 E. 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) Authorized Representative — any officer, agent, employee, or independent contractor retained or employed by either Party, acting within authority given by that Party. (c) Mity —the CITY OF NEWPORT BEACH. (d) 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. (e) Damages — monetary compensation or indemnity that can be recovered in the courts by any Person who has suffered Damage. -2- 1 H (f) 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. (g) 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. (h) 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. (i) 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 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 any areas impacted into conformance with applicable law. (j) Hold Harmless — to protect, defend, indemnify and hold harmless the other party (including the employees, agents and other potentially liable parties) from all liability, losses, penalties, Damage, costs, attorney fees, expenses, causes of action, claims, -3- 1 5 or judgments arising out of or related to any Damage to any Person or property. (k) 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. (1) Lease Year —means each calendar year of the term. (For illustration, Lease Year one (1) is from January 1, 2001 to December 31, 2001.) (m) Maintenance or Maintain — repairs replacement, maintenance, repainting, and cleaning. (n) Material Default — means the failure of Tenant to cure a default under Section 16, below, by the applicable Tenant cure deadline which cure reasonably exceeds Five Thousand Dollars ($5,000.00). (o) 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. (p) Premises — those portions of the Balboa Yacht Basin designated on Exhibit "A" encompassing the yacht sales office to be located at 829 Harbor Island Drive, including all structures and -4- 1 � improvements located within the Premises, comprised as of the date of this Lease as approximately 580 square feet of office area. (q) Provision — any term, covenant, condition, or clause in this Lease that defines, establishes, or limits the performance required or permitted by either Party. (r) Rent —Rent, late payment penalties, interest, taxes, and other similar monetary amounts and charges payable by Tenant under the Provisions of this Lease. (s) Rent Commencement Date — the Rent Commencement Date (and the Effective Date) shall be August 1, 2001. (t) 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. (u) Tenant — HERITAGE YACHTS SALES, INC., a California corporation, and any approved Successor. (V) 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 -5- 3.1 Base Term. The "Base Term" of this Lease shall be Five (5) years from the Effective Date and shall expired on July 31, 2006 unless extended as provided in 3.2 below or 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 one additional term of Five (5) years (the "Option Term ") commencing on Expiration of the Base Term. Tenant may exercise the extension option by giving City written notice of its intention to do so on or before February 1, 2006. If exercised, the Option Term shall expire on July 31, 2011. 3.3 Terms of Lease. The 'Term" is defined as the Base Term and, if exercised, the Option Term. 3.4 Hold Over. Should Tenant hold over and continue in possession of the Premises after Expiration of the Base Term or the Option Term, Tenant's continued occupancy of the Premises shall be considered a month -to -month tenancy subject to termination by either Party upon Thirty (30) days advance notice and also to all the terms and conditions of this Lease, except the provisions of Sections 3.1 and 3.2. 4. RENT 4.1 LESSEE agrees to pay LESSOR for the use and occupancy of the premises the sum of $17,400.00 per year payable in monthly installments of $1,450.00 in advance on or before the first day of the each month. 4.2 Any payment due from LESSEE to LESSOR under the provisions of this Lease which is not paid within seven (7) days of the date due shall be subject to a late charge of $70.00 plus interest on the amount due at the rate of ten percent (10 %) per -6- 1 F annum from the date due and payable by the terms of this Lease until the same shall be paid. All late charges and interest payments hereunder, shall, as incurred, become rent due under this Lease. All payments shall be paid in lawful money of the United States. 4.3 Periodic Rental adjustment: Rent shall be increased, effective August 1, 2003, August 1, 2005 during the Base Term and August 2, 2007 and August 1, 2009 during the Option Term, if exercised, based on the percentage change in the cost of doing business as measured by the U.S. Department of Labor, Bureau of Labor Statistics, Consumer Price Index, for all urban consumers for the Los Angeles, Long Beach, Anaheim areas, all items (1967 =100) for the preceding twenty -four (24) months. 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 yacht sales brokerage office; and (b) Tenant may not use the Premises for any other use except with prior written consent of the City. 5.2 Operation of Premises. Tenant shall operate and manage the Premises in a manner comparable to other high quality businesses providing similar yacht sales brokerage. 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 statute, 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. -7- � 11 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 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. 5.5 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. 5.6 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, conditioned on the condition that such event occurs once during the Term. -8- 5.7 Parking. Tenant shall have non - exclusive right, in common with other Lessees and Tenants of Lessor, to the use of parking area(s) in the Balboa Yacht Basin which Lessor may from time to time designate for patron and employee parking. 6. TAXES, LICENSES AND OTHER OBLIGATIONS 6.1 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 personal 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. 6.2 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. 6.3 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 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 be Tenant shall be concluded (meaning that such Taxes shall be fully paid or cancelled by the Tax Authority) by Tenant within Eighteen (18) months of starting such action, or end of the Term, if earlier. 6.4 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. 7. UTILITIES AND REFUSE COLLECTION 7.1 Basic Utilities. Tenant shall make all arrangements for and pay for all utilities furnished to or used on the Premises, including, without limitation, electricity, telephone service, cable TV and janitorial service. Tenant bears all risk of interruption, cancellation and /or disruption of utility services, as well as the cost of all utilities Tenant requires for its use of the Premises. 8. ALTERATIONS TO THE PREMISES (a) Alterations Reauirinq 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, and Tenant may install therein such trade 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 -11- Z 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 specifications submitted to City and shall comply with all applicable govemmental 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 _12_ 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. 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 -13- and bulkhead areas of the Premises are not thereby worsened by such Tenant removal. 9. REPAIRS AND MAINTENANCE OF PREMISES 9.1 Maintenance and Repair by Tenant. Tenant agrees that it will maintain the Premises in Good Condition. 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 as additional Rent upon billing by City 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: _14_ (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: (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 -15- 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 reconstruction shall be as nearly like the original materials as may then be reasonably procured. 9.2 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. 10. 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 and provide any additional Tenant insurance required by this Lease. 11. INDEMNITY AND EXCULPATION: INSURANCE -16- 11.1 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 goodwill, increased Tenant operating costs, or loss of business or income by Tenant from any cause other than the 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. 11.2 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 -17- (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. 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. 11.3 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 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 One Million Dollars ($1,000,000.00) 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 Propert y Damage Insurance. Not more frequently than once during the Option Term, Tenant shall increase the insurance coverage as reasonably required by City so that at all times, the amount of public liability 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. 11.4 Fire Insurance on Building and Other Improvements. Tenant at its cost shall maintain 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, for contents of the Premises with coverage for demolition and compliance in a form acceptable to the City's Risk Manager. 11.5 Loss of Rent Insurance. Tenant at its cost shall maintain loss of rent insurance (or business interruption insurance) insuring that the 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. J I -19- 11.6 Workers' Compensation. Tenant shall comply with all of the provisions of the Workers' Compensation Insurance and Safety Acts of the State of California, the applicable provisions of Divisions 4 and 5 of the California Labor Code. 11.7 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. 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 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. -20- shall: 11.8 Other Insurance Matters. All the insurance required under this Lease (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 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. 12. DAMAGE OR DESTRUCTION OF PREMISES 12.1 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 -21- trade fixtures, personal property, improvements and Alterations as are installed by Tenant, which shall be replaced by Tenant at its expense), unless Tenant elects to terminate this Lease under the conditions of this Section 13.1. Tenant can elect to terminate this Lease, without any liability from the City, 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 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) 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; (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. 12.2 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, 3� 1 -22- furniture and inventory as soon as reasonably possible to permit the prompt continuation of Tenant's business at the Premises for the Approved Use. 12.3 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: (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; (b) 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 55 -23- 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; or (c) City has no liability to Tenant concerning such casualty or City election to repair or not repair except solely arising under Section 12.1. above. 13. 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 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. Jp -24- 14. PROHIBITION AGAINST VOLUNTARY ASSIGNMENT, SUBLETTING AND ENCUMBERING 14.1 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 experience comparable to Tenant; (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. 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 D7 -25- 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. 14.2 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, 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); J L� -26- (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. 14.4 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. DEFAULT 15.1 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 -27- 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 any such environmental event Tenant shall use Tenant's best efforts to fully remediate or prove to City reasonable satisfaction 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). W:1 (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. 15.2 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 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 I;, -29- 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; (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 -30- (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 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 -31- 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. 16. CONDEMNATION 16.1 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. -32- 16.2 No Termination of Lease. If this Lease is not terminated under Section 16.1, 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. 16.3 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: (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. -33- (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. 17. 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. 18. WASTE OR NUISANCE 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. 19. NO CONFLICTS OF USE, 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 Premises are free of i� �1 -34- any and all Hazardous Materials as of the date of this Lease. In the event that the presence of any Hazardous Material caused by Tenant is detected within the Premises or 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. 20. CITY'S DEFAULTS/TENANT'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 and City does not cure within Thirty (30) days or City commences performance within said Thirty (30) days diligently completes said performance. 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 -35- 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. 21. NOTICES Any notice, demand, request, consent, approval or communication that either Party desires or is required to give shall be in writing and shall be deemed given Three (3) days after deposit into the United States registered mail, postage prepaid, by registered or certified mail, return receipt requested or upon delivery if personally served or upon transmission if sent by facsimile. Unless notice of a different address has been given in accordance with this Section, all notices shall be addressed as follows: If to City: CITY OF NEWPORT BEACH Attention: City Manager 3300 Newport Boulevard Newport Beach, CA, 92658 Facsimile: 949 - 644 -3020 If to Tenant: HERITAGE YACHT SALES, INC. 829 Harbor Island Drive Newport Beach, CA, 92660 22. 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 -36- 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. 23. 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. 24. PARTIAL INVALIDITY If any term or Provision of this Lease is declared invalid or unenforceable, the remainder of this Lease shall not be affected. 25. 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. 26. 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 -37- 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 is 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. 27. TIME OF ESSENCE Time is of the essence with respect to the performance of every Provision of this Lease in which time of performance is a factor. All time deadlines are meant to be strictly construed. A "day" means a calendar day, with extension if a deadline occurs on a weekend or day when banks are not open in California. 28. 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. 29. 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. M 30. 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. 31. 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. 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 0 Garold B. Adams, Mayor HERITAGE YACHT SALES, INC. A California Corporation ('Tenant') By: Its: By: Its: -39-