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HomeMy WebLinkAbout09/28/1987 Item #F-2bTO: FROM: SUBJECT: ACTION: (38) City Council F -2 (b) Agenda Item No. ' CITY OF NEWPORT BEACH OFFICE OF THE CITY MANAGER September. 28,.1987 MAYOR AND CITY COUNCIL CITY MANAGER BEACON BAY LEASES BY THE CITY COUNCIL CITY OF NEWPORT BEACH If desired, adopt Resolution approving Agreements to Lease Beacon Bay, Residential Lots A, 17, 31, and 63 to current sublessees. At the Study Session of .September 14, 1987, the Council reviewed a report (copy attached) setting-forth the recommendations of the Budget Committee establishing terms and conditions for the leasing of residential lots to the four sublessees who did not sign the 1981 lease. The attached Resolution serves to implement those recommendations by extending to the current sublessees an offer which expires October 31, 1987. The expiration date of the offer provides sufficient time for the City to act before expiration of the sublease on December 31, 1987, should the sublessees elect not to accept the offer. The recommendation of the Budget Committee is considered fair and reasonable primarily for the reason that terms and conditions are identical to those accepted by the ten (10) individuals who have acquired leaseholds in Beacon Bay since the inception of the 1981 lease. ROBERT L. WYN� RLW:dc Attachments Study Session Agenda Item No. e CITY OF NEWPORT BEACH OFFICE OF THE CITY MANAGER September 14, 1987 TO: MAYOR AND CITY COUNCIL FROM: EXECUTIVE ASSISTANT SUBJECT: BEACON BAY UNSIGNED LEASES ACTION: If desired, direct that a Resolution.be placed on an evening agenda approving lease terms consistent with the recom- mendations of the Budget Committee. BACKGROUND: City owned property known as Beacon Bay (see attached map) is leased to the Beek Brothers for a fifty (50) year period which expires at the end of 1987. The Beek Brothers sub - leased the property to some seventy -two (72j individuals who constructed . homes there. In anticipation of the expiration of the Beek Master Lease, the sub - lessees approached the City in.the late 19708 and, in 1981, the City approved a new twenty -five (25) year lease. beginning in 1981 and ending in 2006. New lease rates were estab- lished based on the value of the property and the advantage enjoyed by the sub- lessees owing to the seven (7) years remaining on the Beek Master Lease. All except four (4) of the sub - lessees entered into the new lease with the City in 1981. The issue at hand relates to the four (4) unsigned sub - lessees who have no lease rights to the property beyond December 31, 1987. The unsigned sub- lessees are entitled to enter with the City the same lease which was signed by the other sixty -eight (68) sub- lessees. However, the lease rates would be substantially higher than those offered in 1981. The 1981 lease (actually an Agree- ment to Lease) provided that the rates would escalate by 1% per month for each month beyond July, 1981, until the lease was signed. This increase was included as an incentive to sub- lessees to sign the new lease with the City.. The rates offered in 1981 and the current rates available to the four (4) unsigned' sub - lessees are shown on rows A and B on the table appearing on the next page. UNSIGNED BEACON BAY LEASES LOT A LOT 17 LOT 31 LOT 63 (Vick) (Schonlaw) (Pratt) (Bilsborough) = A. Annual rent offered in 1981 $ 14,019 $ 8,509 $ 3,570 $ 8,021 B. Annual rent with 1% per month increase to January 1, 1988: $ 65,848 $ 39,522 $ 17,156 $ 37,192 C. Annual rental value of property and improvements. $ 99,000 $ 66,000 $ 30,000 $ 66,000 D. Estimated fair market value of improvements and 18 yr. leasehold $995,000 $650,000 $350,000 $650,000 . E. Annual lease payments at 2.5% of fair market value. $ 24,875 $ 16,250 $ 8,750 $ 16,250 F. "Catch -up Payment" (income including interest denied City since 1981). $110,468 $ 64,442 $ 27,390 $ 60,370 G. Annual cost to finance "catch -up payment" at 108 for 18 years. $ 13,254 $ 7,730 $ 3,570 $ 8,021 H. Budget Committee. Recommendation • Annual Lease Fee (E.) $ 24,875 $ 16,250 $ 8,750 $ 16,250 AND "Catch -up Payment" (F.) $110,468 $ 64,442 $ 27.,390 $ 60,370 OR Annual Lease Fee $ 38,130 $ 23,980 $ 12,037 $ 23,494 (E. plus G.) TO - MAYOR AND CITY COUNCIL - Page 2 The 1% per month "incentive" figure was derived from the then current rate of inflation. While the rate of inflation rose above 1% per month after 1981, in recent years the in- flation rate has been much lower. Had inflation continued at the 1981 . rate, the lease rates now available to the sub- lessees would be very attractive to them and the City would have no recourse but to offer those lease rates to the sub- lessees. However, recognizing that the rates now available are unrelated to current inflation rates or the current.real estate market, staff and the Budget Committee have studied this issue to seek reasonable lease rates. ANALYSIS: Several factors were considered to derive such reasonable rates. First, the City in the absence of a new lease with the unsigned lessees is entitled to take posses- sion of the land and buildings as of January 1, 1988. The rental income available to the City from such action is pre - sented as Row C on the Table. Second, staff calculated the revenue including interest denied to the City by the failure of the unsigned lessees to.enter the lease with the City in 1981. That "catch -up payment" is presented as Row D on the table. Third, staff estimated the current market value.of the improvements and the leasehold for the remaining eighteen (18) years. These estimated appraisals are presented as Row E on the table. Fourth, staff noted that the many new buyers of Beacon Bay leaseholds pay annual lease payments to the City equal to 2#% of the total price paid for the improve - ments and the leasehold. The 2�ig of the estimated appraisals is shown on Row F on the table. Lastly, staff and the Budget Committee met with the unsigned lessees on several occasions and discussed a variety of factors. RECOMMENDATION: Based on their study and analysis, the Budget Committee recommends to the City Council that the 'unsigned lessees be offered a lease which includes rates equivalent to 2'h% of the current market value plus a pay- back.of the amounts lost by the City owing to the failure of the ,four to sign the lease in 1981. These amounts are shown on Rows E and F of the table. Alternatively, the Budget Committee . recommends that if the sub - lessees disagree with the . esti- mated appraisals depicted on Row D, then they are free to pay for formal appraisal conducted by the City to determine the appraised value upon which the 23�,% will be applied. Further- more, to alleviate the problem of financing, the Budget Com- mittee recommends that the sub - lessees be given the option of having the City finance the "catch -up payment" by including the principal and interest costs (at 10 %) in the annual lease payments. This additional sum is shown as Row G on the table. Row H summarizes the recommendation of the Budget Committee. TO - MAYOR AND CITY COUNCIL - Page 3 in the opinion of the Budget Committee and staff, the recommended lease rates equate to those of any new buyer of a leasehold in Beacon Bay. This is believed to be fair to all existing leaseholders and is a reasonable and justifiable offer to the unsigned sub - lessees. Also, the recommendation is enforceable, simple to administer, and requires no amend- ments to the lease documents. KJD:etsENNETII J: tpELINO Attachments •' z ! J \ IL f Vim .1 •�. i� o ...r• 7f� � .r Y I l r•• ori Nu 'i'•' .v _ t ___ r; ,fit YY � ��ii ♦ � � � 1 `col �e � i � .r r r . •s a �f •.7• v tg b i � � � rr / ,A V o r rr. `•` � t. c A ` .s y S . wt 6 9 R t SUBJECT PROPERTY MAP BEACON BAY L m� z \"6. L \L � u • \ i 4 11 AGREEMENT TO LEASE THIS AGREEMENT TO LEASE, made and entered into on the'_ day of , 1987, by and between the CITY OF NEWPORT BEACH, a chartered municipal corporation, hereinafter "City," and hereinafter "Sublessee." RECITALS A. City holds title to and is the owner of certain harbor frontage and tidelands, together with certain uplands abutting thereon known as.. Beacon .,Bay and more particularly described in Exhibit "1" attached hereto and made a part hereof by this reference. B. Carroll B. Beek, Barton Beek, Joseph Allan Beek, Jr., and Seymour Beek jointly hold a Master Lease to said proper- ty dated January 9. 1950, which Master Lease expires on December 31, 1987. . C. The "Westerly Portion" of the Beacon Bay property has been divided into individual lots a nd subleased for residential purposes. D. All of said subleases expire on the same date as the Master Lease, to wit: December 31, 1987. E. City believes it to be in the best interest and welfare of City: (1) that the portion of Beacon Bay which is currently leased for residential purposes remain residential in -I- 0 02 character; and (2) to enter into new agreements to lease with the sublessees under the terms, conditions and for the considera- tion as hereinafter set forth. F. It is the judgment of City that the leasing of the property hereinafter described is consistent with the trust pur- poses imposed upon such portions of the leased land which may constitute tidelands as authorized by Chapter 74, Statutes of 1978. G. It is further, the judgment of City that in entering into this Agreement to Lease in the future, City is acting pur- suant to its proprietary powers. NOW, THEREFORE, IN CONSIDERATION OF 'ME FOREGOING RECITALS AND THE MUTUAL COVENANTS set forth below, City and Sub- lessee hereby agree as follows: 1. City hereby agrees to, lease to Sublessee and Sub- lessee hereby agrees to lease from City the real property described in Exhibit "2" attached hereto and by this reference made a part hereof (hereinafter the "Leased Land ") pursuant to a lease substantially in the form of Lease which is attached hereto marked Exhibit "C" and by this reference made a part hereof, and under the terms and conditions as set forth below. 2. The Base Rental under Paragraph 3 of the Lease, Exhibit "C" attached hereto, shall be the sum described by Alternate , hereby selected.by the Sublessee as described on the Schedule of Fees attached hereto as Exhibit "A." 3. Should any Sublessee not execute this Agreement on or prior to the October 31, 1987, but execute this Agreement -2- A. 0 0 after October 31, 1987, and prior to December 31, 1987, the rentak sum to be used in paragraph 2 hereof and the Base Rental under Paragraph 3 of the Lease, Exhibit "C" attached hereto, shall be the total of the fair market rental value of the land as established by the Appraisal Report prepared by George Hamilton Jones, M.A.I., dated November S, 1980, plus an amount equal to the L.A. - Long Beach Consumer Price Index (C.P.I.) increase, from July 1, 1981 to the date of execution, or 1% per month increase from July 1, 1981, whichever is greater, plus an amount equal to the increase in rental value change due to the reduced lease advantage, as of the date of execution, as set forth in the effective rental value change sheet attached hereto as Exhibit "D", said total rental rate shall be referred to as Adjusted Base Rental. The different Adjusted. Base Rental provided, for in this paragraph is imposed unilaterally by the City, out of what is deemed to be fair and equitable to those Sublessees who choose to enter into this Agreement on its Effective Date. Said difference in Adjusted Base Rentals is in no manner to be considered a penalty but moreover a procedure developed solely by City to pro - vide the incentive to enter into this Agreement of Lease at the earliest date possible. Commencing January 1, 1988 City is under no obligation to enter into this Agreement or a Lease in the form of Exhibit "C" attached hereto 'with any sublessee wh.o has not executed this Agreement and shall be free to deal with respect to the lease of any unleased portions of Beacon. Bay on any terms and conditions it deems fit, either with third parties or prior sublessees. 4. Sublessee may sell, assign, exchange or convey his interest in this Agreement without prior written consent of the City, provided that upon any such transfer the provisions of Section 4 of the Lease Exhibit "C" attached hereto, shall -3- determine the Base Rental to be paid by assignee to City, and further provided that the assignee execute an acceptance of the assignment and an agreement to be bound by all the terms of this Agreement and to make the payments provided for hereunder which Assignment and acceptance shall be delivered to and accepted by City. Upon such assignment and acceptance, Sublessee shall be released of any further obligation and liabilities under this Agreement to Lease. 5. The parties agree to execute the Lease, Exhibit "C" hereto, during the month of December, 1987 and concurrently therewith 'to execute and record a short form memorandum thereof. 6. Time and each of the terms, covenants a nd conditions hereof are expressly made the essence of this Agreement. If Sublessee shall fail to comply with any of the terms, covenants or conditions of this Agreement, including making the payments provided for herein at the time and in the amount herein, required, and shall fail to remedy such default within sixty (60) days and thereafter diligently prosecute the same to completion, or if a Sublessee shall abandon or vacate the Leased Land, City may, at its option and without further demand, terminate this Agreement. Upon- service by City on Sublessee of Not.ice of Termination of this Agreement to Lease, notice being given in the same manner as provided in paragraph 19 of the Lease appended hereto as Exhibit "C" this Agreement to Lease shall be terminated as to Sublessee and City's obligation to enter into the Lease appended hereto as Exhibit "C" is likewise terminated and City is under no obligation whatsoever to enter into said Lease with Sublessee. -4- Should either City or Sublessee be required to employ counsel to enforce the terms, conditions and covenants of this Agreement to Lease, the prevailing party shall recover all reasonable attorney's fees., (and court costs if applicable) incurred therein whether or not court proceedings were commenced. 7. Sublessee agrees,,that he.will hold and save City, its officers, agents and employees harmless from any and all claims or demands of any kind or nature whatsoever arising out of, or incident to, the use and occupancy of the Leased LAnd, and to indemnify City for any cost, liability or expense caused by or arising out of any injury or death of persons or damage to property which may occur upon or about the Leased Land or caused by or arising out of any activities or omission of Sublessee, his agents, employees, licensees, and /or invitees, including, without limitation, injury or death of Sublessee, his agents, employees, licensees and invitees and damage to his property or Sublessee's property; except for any damage or injury of any kind arising out of the negligence of City, its agents or employees. 8. Each and every covenant, condition and a .-reement hereof, in accordance with the context, shall inure to the benefit of City and apply to and bind Sublessee, their respective heirs, legatees, devisees, executors, administrators, successors, assigns, licensees, permittees, or any person who may come into -5- In addition to termination of this Agreement to Leas g City may recover from Sub.lessee all damages incurred by City' by reason of said breach, including, without limitation, any payments due and owing from Sublessee to City and any other costs due and owing from Sublessee to City at the date of termination of this Agreement to Lease. Should either City or Sublessee be required to employ counsel to enforce the terms, conditions and covenants of this Agreement to Lease, the prevailing party shall recover all reasonable attorney's fees., (and court costs if applicable) incurred therein whether or not court proceedings were commenced. 7. Sublessee agrees,,that he.will hold and save City, its officers, agents and employees harmless from any and all claims or demands of any kind or nature whatsoever arising out of, or incident to, the use and occupancy of the Leased LAnd, and to indemnify City for any cost, liability or expense caused by or arising out of any injury or death of persons or damage to property which may occur upon or about the Leased Land or caused by or arising out of any activities or omission of Sublessee, his agents, employees, licensees, and /or invitees, including, without limitation, injury or death of Sublessee, his agents, employees, licensees and invitees and damage to his property or Sublessee's property; except for any damage or injury of any kind arising out of the negligence of City, its agents or employees. 8. Each and every covenant, condition and a .-reement hereof, in accordance with the context, shall inure to the benefit of City and apply to and bind Sublessee, their respective heirs, legatees, devisees, executors, administrators, successors, assigns, licensees, permittees, or any person who may come into -5- possession or occupancy of the Leased Land, or any part thereof in any manner whatsoever. s` IN WITNESS WHEREOF, the parties have caused this Anree- ment to Lease to be executed on the date first above written. ATTEST: City Clerk APPROVED AS TO FORM: City Attorney CITY OF NEWPORT BEACH By Mayor Sub lessee „ 1 . Constant Additional Lot Payment.. and Base Rental A $ 1,104.50 SCHEDULE OF FEES EXHIBIT A 17 P 644.17 2.5% of City approved Alternate 1 appra isa 1 divided by 12 31 Lot Lump Sum Payment and Base Rental A. $ 1101468 $ 2,072.92 17 $ 64,442 $ 1,354.17 31 $ 27,390 $ 729.17 63 $ 60,370 $ 1,354.17 Alternate 2 Constant Additional Lot Base Rental and Payment A $ 2,072.92 $ 1,104.50 17 $ 1,354.17 $ 644.17 31 $ 729.17 $ 297.50 63 $ 1,354.17 $ 668.42 Alternate 3 Lot Lump Sum Payment and Base Rental A $ 110,468 2.5% of City approved ! appraisal divided by 12 17 $ 64,442 2,5% of City appraisal divided by 12 31 $ 27,390 2.5% of City approved appraisal divided by 12 63 $ 60,370 2,5% of City approved appraisal divided by 12 Alternate 4 Constant Additional Lot Payment.. and Base Rental A $ 1,104.50 2.5% of City approved appraisal divided by 12 17 $ 644.17 2.5% of City approved appra isa 1 divided by 12 31 $ 297.50 2.5% of City approved appraisal divided by 12 63 $ 668.42 2.5% of City approved appraisal divided by 12.