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HomeMy WebLinkAbout10- Galley Cafe AgreementCITY OF NEWPORT BEACH ��,FORN City Council Staff Report Agenda Item No.. 10 December 10, 2013' TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Community Development Department Kimberly Brandt, AICP, Director 949- 644 -3226, kbrandt @neWportbeachca.gov PREPARED BY: Seimone Judis, PE, CBO, Chief Building Official Lauren W,00ding, Real Property,Administrator APPROVED: c �-C )LA v � U TITLE: Ten -Year Lease Agreement between the City of Newport Beach and The Galley Cafe located at 829 Harbor Island Drive ABSTRACT: The Galley Cafe has operated at the City -owned Balboa Yacht Basin at 829 Harbor Island Drive since 1957. The current lease agreement will expire on December 31, 2013, and the operators seek a new `lease with an initial term of 10 years with two (2) five -year options. RECOMMENDATIONS: 1. Approve The Galley Cafe to continue as the food services operator in the restaurant premises at the Balboa Yacht Basin; 2. Approve a waiver of`City Council Policy F -7 based on the findings contained in this staff report; and 3. Authorize the City Manager to execute a new Lease Agreement in substantially the same form as the attached document (Attachment CC 1) with The Galley Cafe. REVENUE ACCOUNT: The revenue for the restaurant premises and three garages would continue to be split _between the General Fund account (2365 -5428) and the Tidelands Fund account (2370 - 5428), with the incremental increase in base rent being allocated to the Tidelands Harbor Fund. 1 Lease Agreement with The Galley Cafe December 10, 2013 Page 2 DISCUSSION: Background The Balboa Yacht Basin (BYB) located at 829 Harbor Island Drive was built in Newport Harbor in 1950 on filled state tide and submerged lands and City -owned uplands. The tidelands were granted to the City in a trust to administer and oversee via the "Beacon Bay Bill." The BYB includes a 172 -slip marina, three residential apartments, 38 storage garages, a yacht brokerage office, marine store and boatyard, public restrooms, offices occupied by the City's Harbor Resources Division, associated parking, and a restaurant space occupied by The Galley Cafe. The Galley Cafe (Tenant) has operated at the BYB since 1957. The restaurant premises includes 1,439 square feet of restaurant space and two adjacent garages (approximately 200 square feet each) used for storage space. The tenant also leases a third storage garage at the BYB, under a separate garage rental agreement. The current agreement will expire on December 31, 2013 (Attachment CC 2), and the tenant is requesting a new lease term to continue their restaurant operation. Staff considered soliciting proposals from other tenants to operate the restaurant, but upon discussion with several community stakeholders it was clear to staff that The Galley Cafe is a beloved and iconic fixture at the BYB and in Newport Beach as a whole. Therefore, staff did not conduct an open bid process because staff believes that the following findings, as required by City Council Policy F -7, Income Property (Attachment CC 3), can be made: 1. Converting the property to another use or changing the manager, concessionaire or lessee of the property would result in excessive vacancy, relocation or severance costs, which would outweigh other financial benefits. Soliciting alternate tenants is a time - consuming process that would likely result in months of vacancy and lost revenue as well as the potential for additional tenant improvement costs for the City. 2. The current tenant provides an essential or unique service to the community that might not otherwise be provided should an alternate tenant be selected to operate the facility. The Galley Cafe is an iconic restaurant and is beloved by generations of Newport Beach residents and visitors alike. It is an authentic family-run diner that draws a crowd every day of the week and is especially well - liked by the boating community given its accessible harbor location. The current annual rental rate is the greater of percentage rent of 6% of gross sales or base rent ($33,000 per year) for the restaurant premises and two garages. In addition, the tenant pays for use of a third garage ($4,030.20 per year). Rent would continue to be calculated as the greater of percentage rent at 6% of gross sales or base rent. Base Rent, under the terms of the proposed agreement, would increase by $14,329.80 in Year 1 to $51,360 and will escalate at 2% per year with an additional 10% increase at 2 Lease Agreement with The Galley Cafe December 10, 2013 Page 3 Year 11 and an additional 5% increase. at year sixteen, so the. total increase in the Base Rent is 15% over each five -year period. An appraisal of market conditions confirmed the proposed rental rates (shown below in more detail) are consistent with fair market value. The Galley Cafe owners possess the qualifications and experience necessary to continue to operate the restaurant at the Balboa Yacht Basin. It is staff's recommendation to allow, the tenant to continue to operate at the location and sign a new ten -year lease per the below listed terms, with materially the same conditions as the existing lease. Summary of Proposed Agreement The proposed terms of the Lease Agreement are summarized below: 1. The term of the agreement will be'for ten years with two (2) five =year extension options, unless terminated as provided by the agreement; 2. Rent shall be set at. the greater of Base Rent or Percentage Rent as detailed in the following chart. Initial Term (Years 1 -10) .-Z Percentage Rent" Base Rent" Year 1 6 % $51,360.00 Year 2 6% $52,387.20 Year 3 6% $53,434.94 Year 4 6% $54,503.64 Year 5 6% $55,593.72 Year 6 6% $56,705.59 Year 7 6 % $57,839,.70 Year 8 6% $58,996.50 Year 9 6% $60,176.43 Year 10 6% $61,379.95 .-Z Lease Agreement with The Galley Cafe December 10, 2013 Page 4 Option Term (Years 11 -151 Option Term (Years 16 -201 Percenta e Rent Base Rent " Year 11 6% $67,923.60 Year 12 6% $69,282.07 Year 13 6% $70,667.71 Year 14 6% $72,081.07 Year 15 6% $73,522.69 Option Term (Years 16 -201 `Monthly rent, percentage of gross sales. "Upon each successive anniversary of the Effective Date of the agreement, the Base Rent shall be increased two percent (2 %), with an additional ten percent (10 %) increase at year eleven. and an additional five percent (5 %) increase at year sixteen, to true -up the annual Base Rent percentage increase of three percent (3 %) per year for a total of fifteen percent (15 %) over each five year period. 3. Rent calculations include payment for the restaurant premises and three garages. 4. Hours of Operation shall be daily between 7:00 a.m. and 7:00 p.m., with up to six closure days per year (three holidays and three tenant selected days). 5. Insurance and Indemnity provisions updated to current standards, all other lease terms are consistent with the previous lease and the City's standard terms. This agreement has been reviewed by the City Attorney's office and has been approved as to form. N Percenta e Rent" Base Rent " Year 16 6% $78,112.14 Year 17 6% $79,674.38 Year 18 6% $81,267.87 Year 19 6% $82,893.23 Year 20 6% $84,551.09 `Monthly rent, percentage of gross sales. "Upon each successive anniversary of the Effective Date of the agreement, the Base Rent shall be increased two percent (2 %), with an additional ten percent (10 %) increase at year eleven. and an additional five percent (5 %) increase at year sixteen, to true -up the annual Base Rent percentage increase of three percent (3 %) per year for a total of fifteen percent (15 %) over each five year period. 3. Rent calculations include payment for the restaurant premises and three garages. 4. Hours of Operation shall be daily between 7:00 a.m. and 7:00 p.m., with up to six closure days per year (three holidays and three tenant selected days). 5. Insurance and Indemnity provisions updated to current standards, all other lease terms are consistent with the previous lease and the City's standard terms. This agreement has been reviewed by the City Attorney's office and has been approved as to form. N Lease Agreement with The Galley Cafe December 10, 2013 Page 5 This action is not subject to the California Environmental Quality Act ( "CEQA ") pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. NOTICING: The agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council considers the item). Attachments: CC 1 — Proposed Lease Agreement CC 2 — Current Lease Agreement, executed 02/08/1988 CC 3 — City Council Policy F -7 — Income Property 4�1 Proposed Lease Agreement 7 2 BALBOA YACHT BASIN LEASE AGREEMENT BETWEEN THE CITY OF NEWPORT BEACH AND GALLEY CAFE, INC. This Balboa Yacht Basin Lease Agreement ( "Agreement ") is made and entered into as of the1st day of January, 2014 ( "Effective Date "), by and between the City of Newport Beach, a California municipal corporation and charter city ( "City "), and Galley Cafe, Inc., a California corporation (operating as Galley Cafe) ( "Tenant "). RECITALS A. The Balboa Yacht Basin located at 829 Harbor Island Drive, Newport Beach, California includes a public marina, public restrooms, shipyard, parking lot, garage buildings used for storage, and buildings with residential apartments, offices and a restaurant ( "Property'). The Property includes an approximately one thousand three hundred fifty (1,350) square foot restaurant facility, and three (3) garage spaces of approximately two hundred (200) square feet each, all of which are depicted on Exhibit "A" and incorporated herein by this reference ( "Premises "). B. Tenant has operated at the Premises since the 1950's, and most recently under a lease with the City of Newport Beach dated February 8, 1988, which expires on December 31, 2013. C. Tenant and City desire to enter into this Agreement to allow Tenant to continue to operate a concession business intended to provide food, drink, and catering services to the Balboa Yacht Basin tenants, visitors, staff and the general public ( "Concession "). D. Pursuant to City Council Policy F -7, City sought the assistance of an appraiser to determine the fair market value rent for the Premises and determined that an open bid process is not required because converting the Premises to another use or changing the Tenant would result in excessive vacancy, relocation or severance costs, which would outweigh other financial benefits. IT711 NOW, THEREFORE, in consideration of the mutual covenants herein contained, City and Tenant hereby agree as follows: 1. DEFINITIONS 1.1 General Definitions. As used in this Agreement, the following words and phrases shall have the following meanings: (a) Alteration — any improvements, additions, alterations, changes, or modifications of the Premises made by Tenant, its employees, agents, and contractors including, but not limited to, fixtures and signage. (b) Authorized City Representative — the City Manager or his /her designee (c) Common Area — the areas within the Property which are available for non- exclusive use by City, Tenant, the public, and other tenants and /or users. (d) Expiration — the lapse of the time specified as the Term of this Agreement, including any extension of the Term resulting from the exercise of an option to extend. (e) Good Condition — neat and broom -clean and in substantially the same condition as of the Effective Date (reasonable wear and tear excepted), and is equivalent to similar phrases referring to physical adequacy in appearance and for use. (f) 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 hereto or the Premises. (g) Maintenance or Maintain — repairs, replacement, maintenance, repainting, and cleaning. (h) Person — one (1) or more natural persons, or legal entities, including, without limitation, partnerships, corporations, trusts, estates, associations, or a combination of natural persons and legal entities. (i) Provision — any term, covenant, condition, or clause in this Agreement that defines, establishes, or limits the performance required or permitted by either party. Q) Rent — includes Base Rent, Percentage Rent, taxes, and other similar charges payable by Tenant under the provisions of this Agreement. (k) Rent Commencement — date Tenant begins paying Rent, commencing upon the Effective Date. (1) Successor - -- assignee, transferee, personal representative, heir, or other Person succeeding lawfully, and pursuant to the provisions of this Agreement, to the rights or obligations of either party. (m) Termination — the termination of this Agreement, for any reason, prior to Expiration. 1.2 Other Definitions. — The following additional terms are defined in the following sections of this Agreement: (a) Base Rent §4.2(a) Galley Cafe, Inc. Page 2 i0 (b) Concession Recitals, §C (c) Gross Sales §4.5 (d) Hazardous Materials §16 (e) Indemnified Parties §10.1 (f) Option Term(s) §3.2 (g) Percentage Rent §4.2(b) (h) Property Recitals, §A (i) Premises Recitals, §A Q) Term §3.1 City finds it to be in the public interest and consistent with public facility uses to grant an exclusive right to operate a Concession at the Property. Therefore, pursuant to the terms and conditions set forth herein, City hereby grants to Tenant the exclusive right, privilege and concession to conduct a business at the Premises engaged in selling such items as those described in Section 5.1, Business Purposes. Tenant has occupied the Premises since the 1950s and is familiar with its condition. Thus, Tenant agrees to accept the Premises in an "as is" condition as tendered by City. Tenant agrees that no representations with respect to the condition or improvements of the Premises have been made by City except as specifically set forth in this Agreement. 3. TERM 31 Term of Agreement. The Term of this Agreement shall be ten (10) years from the Effective Date and expiring on midnight on December 31, 2023, unless terminated sooner as provided in Section 14, or extended as provided in Section 3.2. 3.2 Option to Extend. Provided Tenant is not then in default beyond applicable notice and cure periods, and upon approval of the City, Tenant may extend the term of this Agreement for two (2) additional successive terms of five (5) years (the "Option Term" or "Option Terms') the first commencing on Expiration of the initial Term and the second commencing on Expiration of the first Option Term, on the same terms and conditions as contained in this Agreement. Tenant must exercise each option by giving City written notice of its intention to extend the Term at least six (6) months prior to Expiration of the initial Term or the expiration of the first Option Term, as the case may be. 3.3 Hold Over. Should Tenant, with City's consent, hold over and continue in possession of the Premises after Expiration of the Term or any Option Term, Tenant's Galley Cafe, Inc. Page 3 11 continued occupancy of the Premises shall be considered a month -to -month tenancy subject to all the terms and conditions of this Agreement, except the provisions of Sections 3.1 and 3.2. 3.4 Redevelopment of Property. Should City redevelop the Property or Premises during the term of the Lease, or any extensions thereof, which will materially interfere with Tenant's ability to occupy the Premises, City shall provide Tenant with at least one hundred eighty (180) calendar days prior written notice of termination of this Agreement. City will make all best efforts to include space for Tenant to continue to operate the Concession at Property, however, the City cannot guarantee that space will be available. 4.2 Restaurant Facility. Tenant shall pay the greater of Base Rent or Percentage Rent. (a) Base Rent. Tenant shall commence payment of Base Rent upon the Effective Date, The Base Rent, which includes the use of three (3) garages, depicted on Exhibit "A," shall be established at Fifty -One Thousand Three Hundred Sixty Dollars and 00/100 Cents ($51,360.00) per year. Base Rent shall be paid, in advance, in equal monthly installments on the first day of each month (e.g., Four Thousand Two Hundred Eighty and 00/100 Cents ($4,280.00) per month). Base Rent for any partial month shall be prorated in accordance with the actual number of days in that month and shall be due on the first day of that month that falls within the Term. Annually, upon each successive anniversary date of the Effective Date, the Base Rent shall be increased in accordance with the following schedule: Initial Term (Years 1 -10) Galley Cafe, Inc. Page 4 12 Base Rent** Year 1 $51,360.00 Year 2 $52,387.20 Year 3 $53,434.94 Year 4 $54,503.64 Year 5 $55,593.72 Galley Cafe, Inc. Page 4 12 Year 6 $56,705.59 Year 11 Year 12 Year 7 $57,839.70 $70,667.71 Year 8 Year 9 $58,996.50 $60,176.43 Year 15 Year 10 $61,379.95 Option Term Years 11 -15 Option Term Years 16 -20 Base Rent ** Year 11 Year 12 $67,923.60 $69,282.07 Year 13 $70,667.71 Year 14 $72,081.07 Year 15 $73,522.69 Option Term Years 16 -20 (b) Percentage Rent. "Percentage Rent" shall be determined each calendar month and shall be calculated by multiplying the percentage, as indicated by the table below, by the total Gross Sales (as defined in Section 4.5) made in, upon, or from the Premises and/or otherwise attributable to catering from the Premises for the calendar month. For each month that Percentage Rent exceeds Base Rent, Tenant shall pay to City the Percentage Rent less the Base Rent paid to the City for that month. Galley Cafe, Inc. Page 5 IS Base Rent ** Year 16 Year 17 $78,112.14 $79,674.38 Year 18 $81,267.87 Year 19 $82,893.23 Year 20 $84,551.09 (b) Percentage Rent. "Percentage Rent" shall be determined each calendar month and shall be calculated by multiplying the percentage, as indicated by the table below, by the total Gross Sales (as defined in Section 4.5) made in, upon, or from the Premises and/or otherwise attributable to catering from the Premises for the calendar month. For each month that Percentage Rent exceeds Base Rent, Tenant shall pay to City the Percentage Rent less the Base Rent paid to the City for that month. Galley Cafe, Inc. Page 5 IS Percentage Rent of Gross Sales from on- site Premises sales Year 1 6 %. Year 2 6% Year 6% Year 4 6% Year 5 6% Year 6 6 % Year 7 6 % Year 8 6% Year 9 6 % Year 10 6% Percentage Rent of Gross Sales from on -site Premises sales shall be six percent (6 %) for each year of the Option Term beginning on the eleventh (11 ") anniversary date. (c) Accounting and Payment. Within, twenty -five (25) calendar days after the end of each calendar month for the term hereof, as may be extended as provided herein, commencing with the twenty -fifth (25th')' day of the month. following the Effective Date, and ending with the twenty -fifth (25th) day of the month next succeeding the last month of the term, as may be extended as provided herein, Tenant shall furnish to City a statement in writing, certified by Tenant to be correct, showing the total Gross Sales made in, upon, or from and/or otherwise attributable to the Premises or any catering during the preceding calendar month (or fractional month at the beginning of the term if the Effective Date is other than the first day of a month). The Percentage Rent payment to City, less the Base Rent already paid to the City for that month; shall be due and payable with the next installment of Base Rent (for example, the Percentage Rent statement for the month of January is due on February 251h, and the Percentage Rent payment for the month of January is due on March 15'). 4.3 Revenue from. Premises Use in Film, Television, and /or Advertising. Tenant may allow the Premises to 'be used for commercial film, television production; advertising production, or other commercial media vehicle only upon written approval from the City, which approval shall not be unreasonably withheld, conditioned or delayed, and in compliance with the Newport Beach Municipal Code. Fifty percent (50 %) of all monetary revenue received by Tenant as compensation or other payment for the use of the Premises in a, film, television production, advertising production; or other commercial media vehicle shall be paid to City. The payment of revenue pursuant to this Section shall occur not less than thirty (30) calendar day_ s after Tenant receives this compensation or other payment. 4.4 PaVment Location. All payments of Rent shall be made in lawful money of the United States .of America and shall be paid to City in person or by United States' Galley Cafe, Inc. Page 6 14 mail, or overnight mail service, at the Cashier's Office located at 100 Civic Center Drive, P.O. Box 1768, Newport Beach, California, 92658, or to such other address as City may from time to time designate in writing to Tenant. If requested by City, Tenant shall make payments electronically (at www.newportbeachca.gov) or by wire transfer (at Tenant's cost). Tenant assumes all risk of loss and responsibility for late charges and delinquency rates if payments are not timely received by City regardless of the method of transmittal. 4.5 Gross Sales. (a) The term "Gross Sales" means: (1) all money, cash receipts, assets, property or other things of value, including but not limited to gross charges, sales, rentals, fees and commissions made or earned by Tenant and /or any assignees, licensees, permittees or Tenants thereof, whether collected or accrued from any business, use or occupation, or any combination thereof, originating, transacted or performed in whole or in part, on the Premises, including but not limited to rentals, the rendering or supplying of services and the sale of goods, wares or merchandise, whether wholesale or retail, whether for cash or credit, or otherwise, and including the value of all consideration other than money received for any of the foregoing, without, except as expressly provided in Section 4.6(b), deduction from gross receipts for any overhead or cost or expense of operations, such as, but without limitation to salaries, wages, costs of goods, interest, debt amortization, credit, collection costs, discount from credit card operations, insurance and taxes. Each installment or credit sale shall be treated as a sale for the full price in the month during which such sale is made, irrespective of whether or when Tenant receives payment therefore. Gross Sales shall include any amount allowed upon any "trade in," the full retail price of any merchandise delivered or redeemed for trading stamps or coupons and all deposits not refunded to purchasers; (2) Orders taken by Tenant in or from the Premises, even if the orders are filled elsewhere, and sales by any sub - Tenant in or from the Premises; (3) 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 telephones that are collected by a public and/or private utility); and (4) Rentals of any equipment, furniture, goods, wares or merchandise. (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, gross receipts taxes, and other similar taxes now or in the future imposed on the sale of merchandise or services, but only if such taxes are added to the selling Galley Cafe, Inc. E -15 price and collected from customers, and separately stated on customer sales check or invoices; (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. 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; (4) Sales of trade fixtures or personal property to be replaced by Tenant that are not considered stock in trade; (5) Sums and credits received in the settlement of claims for loss of or damage to merchandise; (6) Meals provided for officers or employees without charge; (7) Meals, goods or products provided for promotional or publicity purposes without charge; (8) Cash refunds made to customers in the ordinary course of business; (9) Value added taxes ( "VAT') or other taxes added to the selling price of products and other similar taxes now or hereafter imposed upon the sale of merchandise or services, whether such taxes are added to, or included in the selling price; (10) Discounted sales to employees of Tenant, not to exceed two percent (2 %) of the monthly Gross Sales; (11) Uncollectible credit accounts and other bad debts, not to exceed two percent (2 %) of the monthly Gross Sales. (12) Amounts paid to charge card or credit card issuers; and (13) Tips or gratuities paid directly to employees by customers. (c) Annual Statements of Gross Sales. Within sixty (60) calendar days after the end of each calendar year during the Term hereof, as may be extended as provided herein, Tenant shall furnish to City a statement in writing, certified by Tenant and a Certified Public Accountant to be correct, showing the total Gross Sales made in, upon, or from and /or otherwise attributable to the Premises during the preceding calendar year (or fractional year at the beginning of the term if the Effective Date is other than the first day of the year). Galley Cafe, Inc. Page 8 161 (d) Sales and Charges. Within one hundred twenty (120) calendar days of the Effective Date of this Agreement, Tenant shall install equipment on the Premises to allow all sales and charges to be recorded by means of 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, including a separate line item for daily sales tax. At the end of each day the tape will record the total sales for that day. (e) Production of Statement Records and Audit. Tenant shall keep at the Premises (and shall require any permitted subtenant to keep at the Premises), or at such other location (provided City is provided the address of the other location), full, complete and proper books, records and accounts of its daily Gross Sales, both for cash and on credit, at any time operated in the Premises. Upon five (5) calendar days prior written notice, Tenant agrees to make available for inspection by City at the Premises, a complete and accurate set of books and records of all sales of goods, wares, and merchandise and revenue derived 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 written request, all supporting records. Upon five (5) calendar days prior written notice, Tenant shall also furnish City 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 shall have the right, upon reasonable notice, during the Term and within one hundred eighty (180) calendar days after expiration or termination of this Agreement to inspect and complete an audit of Tenant's books and records and to make transcripts to verify the Rent due to the City. Upon five (5) calendar days prior written notice, 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. The audit shall be limited to the determination of Gross Sales and shall be conducted during usual 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) calendar days and if there is an overpayment, City shall refund the amount of the overpayment within twenty (20) calendar days. City shall bear its costs of the audit unless the audit shows that Tenant understated Gross Sales by more than two percent (2 %), in which case Tenant shall pay all City's reasonable costs of the audit. City shall not disclose financial information received in confidence and pursuant to this Agreement except to carry out the purposes of this Agreement unless disclosure is required (rather than permitted) by law. However, City may disclose the results of any audit in connection with any financing arrangements, pursuant to applicable law, the sale or transfer of City's interest in the Premises, pursuant to order of a court or administrative tribunal, or to collect any outstanding Rent. (f) Tenant's Gross Sales Audit. In the event of any audit by City in accordance with this Agreement, Tenant may contest the results of City's audit by performing a confirming audit, at Tenant's expense, within ninety (90) calendar days of Galley Cafe, Inc. Page 9 17 receipt of City's audit results and supporting evidence, using an independent Certified Public Accountant reasonably acceptable to City. (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. 4.6 Late Payment. Tenant hereby acknowledges that the late payment of Rent or other sums due hereunder will cause City to incur costs not contemplated by this Agreement, the exact amount of which is extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges. Accordingly, any payment of any sum to be paid by Tenant not paid within five (5) calendar days of its due date shall be subject to a ten percent (10 %) late charge. City and Tenant agree that this late charge represents a reasonable estimate of such costs and expenses and is fair compensation to City for its loss suffered by such late payment by Tenant. 4.7 Interest on Unpaid Sums. Unpaid sums due to either City or Tenant under this Agreement shall bear interest at the rate of ten percent (10 %) per annum on the unpaid balance, including but not limited to late payment penalties, from the date due until paid. 4.8 Additional Rent. Any provision in this Agreement that requires Tenant to pay additional amounts classified as "additional Rent" shall be paid within ten (10) calendar days of City's written demand therefore (unless a different time for payment is expressly provided in this Agreement). Additional Rent does not reduce or offset Tenant's obligations to pay Rent. 5.1 Business Purposes. The Premises are to be used by Tenant for the operation of a Concession. Alcoholic beverages may be sold /provided by Tenant in accordance with the necessary permits and licenses. The Tenant shall be responsible for obtaining all required permits and licenses for the provision of alcoholic beverages, including, but not limited to, Alcoholic Beverage Control license(s). 5.2 Operation of Premises. Tenant shall operate and manage the Premises in a manner comparable to other high quality businesses providing similar food and services. Deliveries shall be made and completed only between 7:00 a.m. and 6:00 p.m. on non - holiday weekdays. 5.3 Prohibited Uses. Tenant shall not sell or permit to be kept, used, displayed or sold in or about the Premises: (a) pornographic or sexually explicit books, magazines, literature, films or other printed material, sexual paraphernalia, or other material which would be considered lewd, obscene or licentious; (b) any article which may be prohibited by standard forms of fire insurance policies; or (c) any alcoholic beverages unless in accordance with the necessary permits and approvals. Vending machines, gaming machines or video or arcade games shall not be used or installed on Galley Cafe, Inc. Page 10 12 the Premises unless expressly permitted by this Agreement. Tenant shall not use or permit the use of the Premises in any manner that: (a) creates a nuisance: or (b) violates any Law. Tenant shall not offer entertainment or broadcast music or entertainment through exterior speakers or other form of transmission without the written approval of City. In this event, Tenant shall obtain all required City permits and approvals. 5.4 Food Packaging and Debris. Tenant shall use food packaging consistent with good environmental practices, including prohibiting polystyrene (also known as Styrofoam) from the Premises, minimizing the use of PVC plastics (especially plastic bags for carrying food), and providing both trash receptacles and places for customers to dispose of recyclable products. 5.5 Reserved. 5.6 Reserved. 5.7 Operation. Tenant shall keep the Premises in operation and open to the public for business on a daily basis, between the hours of 7:00 a.m. and 7:00 p.m. (a) Tenant may only close on the following days: New Years' Day, Thanksgiving Day, Christmas Day Tenant's Employee Appreciation Day, and upon ten (10) calendar days prior written notice to City, two (2) other Tenant selected days per year. (b) Tenant may close the Concession during periods of remodeling, reconstruction, inventory and /or emergencies or to comply with Laws with prior written approval from the City. 5.8 Food Preparation. Tenant shall, at Tenant's own expense, install any additional equipment required to prepare foods, which may be necessary to operate Tenant's business. Tenant shall ensure that additional equipment is installed properly pursuant to the manufacturer's specifications, does not exceed the electrical or other utility loads designated for the Premises, and is in compliance with all applicable local and state building codes and health department regulations. 5.9 Advertising Display. Tenant may, at its own expense, place signs in or upon the Premises subject to the prior written consent of the City as to the size, type, number, design and method of installation and in compliance with the City's sign code regulations and the deed restrictions applicable to the Premises, provided any illuminated signs placed on the Premises shall only be lit between the hours of 7:00 a.m. and 7:00 p.m. 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 Agreement at Tenant's expense; and any damage caused by removal shall be repaired at Tenant's expense. 5.10 Personnel. Tenant shall be responsible for hiring the necessary personnel to conduct the daily operation of Concession. Tenant shall comply with all applicable Galley Cafe, Inc. Page 11 1 federal, state, and local Laws related to minimum wage, social security, nondiscrimination, ADA, unemployment compensation, and workers' compensation. If required by the City, Tenant's employees shall wear an identification badge. (a) Independent Contractor. It is understood that Tenant is an independent contractor and not an agent or employee of City. The manner and means of operating the Concession are under the control of Tenant, except to the extent they are limited by statute, rule or regulation and /or the expressed terms of this Agreement. No civil service status or other right of employment shall accrue to Tenant's employees. Nothing in this Agreement shall be deemed to constitute approval for Tenant or any of Tenant's employees or agents, to be the agents or employees of City. Tenant shall have the responsibility for and control over the means of operating the Concession, provided that Tenant is in compliance with the terms of this Agreement. City acknowledges that is has no interest in the business of Tenant. 5.11 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 or his/her designee. 5.12 Parking for Employees. City grants a non - exclusive right to parking areas showing on Exhibit "A ". City reserves the right to assign parking in the future, but agrees that any such assignment of parking shall not materially diminish access to the Premises. 5.13 Tenant shall comply with the Balboa Yacht Basin Rules and Regulations attached hereto as Exhibit "B" and incorporated herein by reference. 6. TAXES, LICENSES AND OTHER OBLIGATIONS 6.1 Payment of Taxes. Tenant shall pay directly to the appropriate taxing authorities all taxes applicable to this Agreement, fixtures and Tenant's personal property on the Premises, that are levied or assessed against Tenant during the Term. Taxes shall be paid before delinquency and before any fine, interest or penalty is due or imposed by operation of law. Tenant shall, upon request, promptly furnish to the City satisfactory evidence of payment. City hereby gives notice to Tenant, pursuant to Revenue and Tax Code Section 107.6 that this Agreement may create a possessory interest that is the subject of property taxes levied on such interest, the payment of which taxes shall be the sole obligation of Tenant. Tenant shall advise in writing any subtenant, licensee, concessionaire or third party using the Premises of the requirements of Section 107.6. Tenant shall pay, before delinquency all taxes, assessments, license fees and other charges ( "Taxes ") that are levied or assessed against Tenant's interest in the Premises or any personal property installed on the Premises. 6.2 Payment of Obligations. Tenant shall promptly pay, when due, any and all bills, debts, liabilities and obligations incurred by Tenant in connection with Tenant's occupation and use of the Premises. Galley Cafe, Inc. Page 12 20 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 on or attributable to this Agreement, the Premises, Tenant's personal property, or Tenant's occupation and use of the Premises, 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. In that case, City shall join in the proceeding or contest or permit it to be brought in City's name as long as City is not required to bear any cost. If requested by Tenant, City shall execute any instrument or document necessary or advisable in connection with the proceeding or contest. Tenant, on final determination of the proceeding or contest, shall immediately pay or discharge any decision or judgment rendered, together with all related costs, charges, interest and penalties. Tenant shall indemnify, defend and hold harmless the City, its council members, boards, commissions, committees, office'rs, employees, Authorized City Representatives, agents and volunteers ( "Indemnified Parties ") 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. 6.4 No Rent Offset. Any payments under this Section 6 shall not reduce or offset Rent payments. City has no liability for such payments. 7. UTILITIES. 7.1 Tenant shall be responsible for payment of all utilities furnished to or used on the Premises exclusively by Tenant, or Tenant's pro rata share of all utilities furnished to or used by Tenant on the Property, including, without limitation, gas, electricity, sewer, water, refuse collection, telephone service, and cable TV. 7.2 Refuse collection shall occur between 7:00 a.m. and 6:00 p.m. on non - holiday weekdays. 7.3 Tenant shall be responsible for all costs associated with the cleaning and maintenance of the grease trap on the Premises. The City shall designate and contract with an approved vendor and bill Tenant for the services as additional Rent. 7.4 Tenant shall be responsible for the maintenance, repair and /or replacement of utility lines within and exclusively serving the Premises, or Tenant's pro rata share of utility lines serving Tenant on the Property, as depicted on Exhibit "A ". 8.1 Tenant Improvements. Tenant acknowledges that City has delivered the Premises with the improvements shown on Exhibit "A ". Subject to compliance with all applicable laws, Tenant may make interior non - structural improvements totaling less than Twenty -Five Thousand Dollars and 00/100 Cents ($25,000.00) to the Premises annually, without the prior consent of the City Manager. Subject to compliance with all applicable laws, all other improvements by the Tenant must be submitted for review of Galley Cafe, Inc. Page 13 21 improvement plans and permitting, and construction shall be subject to the prior written approval of the City Manager or his /her designee. Tenant improvements shall be performed between 7:00 a.m. and 6:00 p.m. on non - holiday weekdays. Any contractors hired by Tenant shall be fully licensed and bonded. Tenant's contractors and any subcontractors shall obtain insurance in an amount and form to be approved by City's Risk Manager, including workers compensation insurance as required by law, general liability, automobile liability and builder's risk insurance covering improvements to be constructed, all pursuant to standard industry custom and practice. City shall be named as an additional insured on the contractor's and any subcontractor's policies. 8.2 Permits. Unless restricted by law, Tenant shall obtain, and be responsible for the costs for all building permits, health department permits and other required permits prior to commencement of Tenant improvements and operations. 8.3 Quality of Work Performed. All alterations, maintenance and other work shall be performed in a good and workmanlike manner, shall comply with the plans and specifications submitted to City, and shall comply with all applicable governmental permit requirements and Laws in force at the time permits are issued. 8.4 Payment of Costs. Tenant shall pay all costs related to the construction of the improvements and any alterations by Tenant or its agents. 8.5 Liens Prohibited: Tenant shall not permit to be imposed, recorded or enforced against the Premises, any portion thereof or any structure or Improvement thereon, any mechanics, materialmen's, contractors or other liens arising from, or any claims for damages growing out of, any work or repair, construction or alteration of improvements on the Premises. 8.5.1 Release /Removal of Liens: In the event any lien or stop notice is imposed or recorded on the Premises, or an Improvement permanently affixed to the Premises, during the Term, Tenant shall pay or cause to be paid all such liens, claims or demands before any action is brought to enforce the same against the Premises or the Improvement. Notwithstanding the foregoing, if Tenant legitimately contests the validity of such lien, claim or demand, then Tenant shall, at its expense, defend against such lien, claim or demand provided that it provide City the indemnity in this Agreement and provided Tenant shall pay and satisfy any adverse judgment that may be rendered before any enforcement against City or the Premises. 8.6 Disposition of Alterations at Expiration or Agreement Termination. Any alterations made to the Premises shall remain on, and be surrendered with, the Premises on expiration or termination of this Agreement (excluding Tenant's fixtures, equipment, furniture, and moveable decorations). Prior to expiration or within fifteen (15) calendar days after termination of this Agreement, Tenant may remove any moveable partitions, rnachinery, equipment, furniture, and trade fixtures previously installed by Tenant, provided that Tenant repairs any damage to the Premises caused by removal and restore the Premises to Good Condition. Galley Cafe, Inc. Page 14 22 9.1 Maintenance and Repair by Tenant and City. Tenant agrees that it will keep the non - structural portions of Premises in good condition. City may perform maintenance or repairs in the event Tenant fails to commence required maintenance or repairs within the time provided by City in the written notice requesting such maintenance or repair. The cost of any maintenance or repairs by the City pursuant to this Section shall be payable as additional Rent. All furnishings, equipment, facilities, improvements, alterations, attachments and appurtenances provided by City or installed by Tenant, and required for Concession operations, including all kitchen equipment and interior furnishings, including items under warranty, shall be maintained in good condition and repair by Tenant at its cost. City may perform required cleaning and charge the costs to Tenant if the Tenant fails to perform said cleaning within the time provided by City in the written notice requesting the cleaning and continue to maintain the area as required by this Agreement. 9.2 Entry by City. Upon twenty -four (24) hours prior written notice to Tenant, City and its authorized City representative(s) may enter upon and inspect the Premises during normal business hours for any lawful purpose. In case of emergency, City or its authorized City representative(s) may, without prior notice, enter the Premises by whatever force reasonably necessary if Tenant is not present to open and permit an entry. Any entry to the Premises by City under this Agreement 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. Any damage caused to the Premises pursuant to this Section 9.2 by the City shall be repaired or replaced by the City at the City's sole expense. 10. INDEMNITY AND EXCULPATION; INSURANCE 10.1 Hold - Harmless Clause. Tenant agrees to indemnify, defend and hold harmless the City, its City Council, Boards, Commissions, Committees, officers, agents, volunteers, and employees (collectively, the "Indemnified Parties ") from and against any and all claims (including, without limitation, claims for bodily injury, death or damage to property), demands, obligations, damages, actions, causes of action, suits, losses, judgments, fines, penalties, liabilities, costs and expenses (including, without limitation, attorney's fees, disbursements and court costs) of every kind and nature whatsoever (individually, a "Claim "; collectively, "Claims "), which may arise from or in any manner relate (directly or indirectly) to Tenant's, Tenant's employees, contractor, subcontractor, agents, guests, invitees, subtenant's possession, occupation or use of the Premises, specifically including, without limitation, any claim, liability, loss, or Damage arising by reason of: (a) The death or injury of any Person or damage to personal property caused or allegedly caused by the condition of the Premises or an act or omission of Tenant or an agent, contractor, subcontractor, supplier, employee, servant, or sublessee of Tenant; Galley Cafe, Inc. Page 15 2s (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 /or (c) Tenant's failure to perform any provision of this Agreement 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 proximately caused by the negligence, willful misconduct, or unlawful or fraudulent conduct on the part of the Indemnified Parties. This indemnity shall apply to all claims and liability regardless of whether any insurance policies are applicable. 10.2 Exculpation of City. Except as otherwise expressly provided in this Agreement, City shall not be liable to Tenant for any damage to Tenant or Tenant's property from any cause other than the sole negligence, intentional or willful acts of the Indemnified Parties. Except as otherwise expressly provided in this Agreement, Tenant waives all claims against the Indemnified Parties arising for any reason other than the sole negligence, intentional or willful acts of the Indemnified Parties. 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. 10.3 Insurance. In addition to insurance required of Tenant to be obtained, provided, and maintained during the construction of the improvements, and without limiting Tenant's indemnification of City, Tenant shall obtain, provide and maintain at its own expense during the term of this Agreement, a policy or policies of liability insurance of the type and amounts described below and in a form satisfactory to City. (a) Certificates of Insurance. Tenant shall provide certificates of insurance with original endorsements to City as evidence of the insurance coverage required herein. Insurance certificates must be approved (which approval shall not be unreasonably withheld, conditioned or delayed) by City's Risk Manager prior to execution of this Agreement by the City. Current certification of insurance shall be kept on file with City at all times during the term of this Agreement. (b) Signature. A person authorized by the insurer to bind coverage on its behalf shall sign certification of all required policies. (c) Acceptable Insurers. All insurance policies shall be issued by an insurance company currently authorized by the Insurance Commissioner to transact business of insurance in the State of California, with an assigned policyholders' Rating of A- (or higher) and Financial Size Category Class VII (or larger) in accordance with the latest edition of Best's Key Rating Guide, unless otherwise approved by the City's Risk Manager. (d) Coverage Requirements. Galley Cafe, Inc. Page 16 24 (1) Workers' Compensation Coverage, Tenant shall maintain Workers' Compensation Insurance at statutory limits and Employer's Liability Insurance at. One Million. Dollars and 00/100 '($1,000;000.00) for his or her employees in accordance with the taws of the State of California•. Any notice of cancellation or non - renewal of all Workers' Compensation policies must be received by City at least thirty (30) calendar days (ten (10) calendar days written notice of non- payment of premium) prior to such change. The insurer shall agree to waive all rights of subrogation against City, its officers, agents, employees and volunteers for all losses that relate in any way to this Agreement. (2) General Liability Coverage. Tenant shall maintain commercial general liability insurance in an amount not less than Two Million Dollars and 00/100 ($2,000,000.00) per occurrence for bodily injury, personal injury, and property damage, including without limitation, contractual liability. If commercial general liability insurance or other form with a general aggregate limit is used, either the general aggregate limit shall apply separately to the work to be performed under this Agreement, or the general aggregate limit shall be at least twice the required occurrence limit. (3) Products Liability Coverage. Tenant shall maintain products liability insurance covering bodily injury and property damage for all activities of the Tenant arising out of or in connection with products or services sold by the Tenant under this Agreement, in an amount not less than Two Million. Dollars and 00/100 ($2,000,000.00) combined single limit for each occurrence. (4) Automobile Liability Coverage. Tenant shall maintain automobile insurance covering bodily injury and property damage for all activities of the Tenant arising out of or in connection with the services to be performed under this Agreement, including coverage for any owned, hired, non -owned or rented vehicles, in an amount not less than One Million Dollars and 001100 ($1,000;000'.00) combined single limit for each occurrence. (5) Fire and Extended Coverage. Tenant shall maintain fire' and extended coverage insurance, together with insurance against vandalism, theft and Malicious mischief, on the improvements and fixtures, alterations, trade fixtures, signs; equipment, personal property and inventory on or upon the Premises from loss or damage in an amount not less than One Million Dollars and 00 /100 ($1,000,000.00) per occurrence, (6) Tenant shall maintain loss of rent insurance insuring that the Rent will be paid to City for a period up to six (6) 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. (7) Liquor Liability Coverage, Tenant shall maintain liquor liability insurance in an amount not less than Two Million Dollars and 00/100 Galley Cafe, Inc. Page 17 ?5 ($2,000,000.00) per occurrence for bodily injury, personal injury, and property damage. Tenant shall obtain a liquor liability insurance policy that covers all alcohol sold or distributed under this Agreement. The policy shall specifically include assault and battery coverage as well as coverage for Tenant's employees and patrons. (e) Endorsements. Each insurance policy shall be endorsed with the following specific language: (1) The City, its elected or appointed officers, officials, employees, agents and volunteers, and the State of California, its elected or appointed officers, officials, employees, agents and volunteers, are to be covered as additional insureds, with respect to liability arising out of work performed by or on behalf of the Tenant. (2) This policy shall be considered primary insurance as respects to City, its elected or appointed officers, officials, employees, agents and volunteers as respects to all claims, losses, or liability arising directly or indirectly from the Tenant's operations or services provided to City. Any insurance maintained by City, including any self- insured retention City may have, shall be considered excess insurance only and not contributory with the insurance provided hereunder. (3) This insurance shall act for each insured and additional insured as though a separate policy had been written for each, except with respect to the limits of liability of the insuring company. (4) The insurer waives all rights of subrogation against City, its elected or appointed officers, officials, employees, agents and volunteers. (5) Any failure to comply with reporting provisions of the policies shall not affect coverage provided to City, its elected or appointed officers, officials, employees, agents or volunteers. (6) The insurance provided by this policy shall not be suspended, voided, canceled, or reduced in coverage or in limits, by either party except after thirty (30) calendar days (ten (10) calendar days written notice of non - payment of premium) written notice has been received by City. (f) Timely Notice of Claims. Tenant shall give City prompt and timely notice of claim made or suit instituted arising out of or resulting from Tenant's performance under this Agreement. (g) Additional Insurance. Tenant shall also procure and maintain, at its own cost and expense, any additional kinds of insurance, which in its own judgment may be necessary for its proper protection and prosecution of the work. Galley Cafe, Inc. Page 18 2C2 11. DAMAGE OR DESTRUCTION OF PROPERTY /PREMISES 11.1 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 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). Alternatively, Tenant may elect to terminate this Agreement by giving notice of such election to City within sixty (60) calendar days after the date of the occurrence of any casualty if the cost of the restoration exceeds the amount of any available insurance proceeds, if the damage has been caused by an uninsured casualty or event, or if Tenant reasonably estimates that repairs of the Premises will take more than six (6) months. Upon such termination, insurance proceeds applicable to reconstruction of the Property (excluding Tenant's personal property therein) shall be paid to City and Tenant shall have no further liability or obligations under this Agreement. 11.2 Replacement of Tenant's Property. In the event of damage or destruction of improvements located on the Premises not giving rise to Tenant's option to terminate this Agreement, 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. 11.3 Destruction of Property. In the event that all or a portion of the Property is damaged, and the Premises or a material portion becomes inaccessible or commercially unusable, and the damage or destruction cannot reasonably be repaired within twelve (12) months after the date of the casualty, City shall have the right to either: (a) Terminate this Agreement by giving to Tenant written notice (which notice shall be given, if at all, within thirty (30) calendar days following the date of the casualty), in which case this Agreement shall be terminated thirty (30) calendar days following the date of the casualty; or (b) Give Tenant written notice of City's intention to repair such damage as soon as reasonably possible at City's expense, in which event this Agreement shall continue in full force and effect; however, Rent shall be abated in accordance with the procedures set forth in Section 12. Tenant may terminate this Agreement by giving City written notice at any time prior to the commencement of repairs if City agrees to repair the Property pursuant to this Section and fails to commence repairs within one hundred twenty (120) calendar days after giving Tenant written notice of its intention to repair. In such event, this Agreement shall terminate as of the date of notice from Tenant to City, and City shall have no liability under this Agreement. Galley Cafe, Inc. Page 19 27 12. ABATEMENT OF RENT General Rule. In the event of damage or destruction of the Premises or Damage to the Property that impacts the Premises and this Agreement is not terminated, Tenant shall continue to utilize the Premises for the operation of its business to the extent it may be practicable and commercially reasonable. Rent shall abate only in proportion to the area of the Premises that is rendered unusable. 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 pursuant to this Agreement 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 Rent is contingent on payment of insurance proceeds, if any, equal to the amount of Rent pursuant to coverage required by Section 10.3(d)(6). 13. PROHIBITION AGAINST VOLUNTARY ASSIGNMENT, SUBLETTING AND ENCUMBERING 13.1 Prohibition of Assignment. City and Tenant acknowledge that City is entering into this Agreement in reliance upon the experience and abilities of Tenant. Consequently, Tenant shall not voluntarily assign or encumber its interest in this Agreement or in the Premises, or assign substantially all or any part of the Premises, or allow any other person or entity to occupy or use all or any part of the Premises without the prior written consent of City, which shall not be unreasonably withheld. Any assignment or transfer made without the City's written consent is null and void. City's consent to any assignment or other transfer is subject to Tenant providing City with evidence reasonably satisfactory to City that the proposed transferee has financial strength and restaurant or food service experience comparable to Tenant and the use of the Premises by the proposed transferee is consistent with the terms of this Agreement. 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; provided, however, that 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. 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. 13.2 Exceptions. Notwithstanding the foregoing paragraphs or anything to the contrary contained herein, City's consent shall not be required for an assignment or subletting to an Affiliate, Subsidiary, or Successor of Tenant. For purposes hereof, an "Affiliate ", a "Subsidiary", and a "Successor" of Tenant are defined as follows: Galley Cafe, Inc. Page 20 2A (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 purposes of this Section, "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); (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. 13.3 Continuing Effect. City's consent to any assignment or encumbrance shall not relieve Tenant from its obligations or liabilities under this Agreement nor act as a waiver of the requirement that such consent be obtained to any subsequent assignment or encumbrance. 14. DEFAULT 14.1 Default by Tenant. The occurrence of any one (1) or more of the following events shall constitute a default and material breach of this Agreement by Tenant: (a) The vacating or abandonment of the Premises by Tenant for a period of thirty (30) successive calendar days, without the prior permission of the City Manager or his /her designee, excluding closures during periods of casualty, condemnation or permitted closures set forth in this Agreement; (b) The failure by Tenant to make any payment of Rent or any other payment required by this Agreement, as and when due, when such failure shall continue for a period of ten (10) calendar days after written notice of default from City to Tenant; (c) Except as specified in Subsection 14.1(b), the failure of Tenant to observe or perform any of the material covenants, conditions or provisions of this Agreement to be observed or performed by Tenant where such failure shall continue for a period of thirty (30) calendar 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) calendar 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) calendar day period and thereafter diligently prosecutes such cure to completion; (d) The making by Tenant of any general arrangement or assignment for the benefit of creditors; Galley Cafe, Inc. Page 21 'tj (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) calendar 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 Agreement, where such appointment is not discharged within sixty (60) calendar days; and (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 Agreement, where such seizure is not discharged within sixty (60) calendar days. 14.2 Remedies. (a) Cumulative Nature of Remedies. If any default by Tenant shall continue without cure beyond the time permitted under this Agreement, City shall have the remedies described in this Section in addition to all other rights and remedies provided by law or equity, to which City may resort cumulatively or in the alternative. (1) Re -entry without Termination. City may re -enter the Premises, and, without terminating this Agreement, re -let all or a portion of the Premises. City may execute any agreements 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 Agreement the equivalent of all sums required of Tenant under this Agreement, plus City's expenses in conjunction with re- letting, less the proceeds of any re- letting or atonement. No act by or on behalf of City under this provision shall constitute a termination of this Agreement unless City gives Tenant specific written notice of termination. (2) City may terminate this Agreement by giving Tenant written notice of termination with a specified termination date. In the event City terminates this Agreement, 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; (A) The value of any unpaid Rent or other charges that are unpaid at the time of termination; (B) 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; (C) Any other amount necessary to reasonably compensate City for the detriment proximately caused by Tenant's failure to perform its obligations under this Agreement; and Galley Cafe, Inc. Page 22 so (D) 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 an act or omission of Tenant. (3) Use of Tenant's Personal Property. In the event Tenant is in default past applicable notice and cure periods, 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 Concession in any manner tending to indicate that the Concession is affiliated with, part of or operated in conjunction with Tenant's business. City shall not operate, or allow any other person or entity to operate under the same or similar trade name as the Tenant. (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 ten (10) calendar days after service of a written demand accompanied by supporting documentation upon Tenant. 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. 15. 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. 16. NO CONFLICTS OF USE, HAZARDOUS MATERIALS. From the Effective Date and throughout the Term, Tenant shall not use, occupy or permit any portion of the Premises to be used or occupied in violation of any law. City represents and warrants that, to the best of City's knowledge, (1) Tenant's use of the Premises does not conflict with applicable Laws, and City knows of no reason why Tenant would be unable to obtain all required permits, licenses and approvals from the appropriate governmental authorities; (ii) the Premises is not in violation of any applicable Law, rules or regulations and Tenant's contemplated uses will not cause any such violation; and (iii) the Premises is free of any and all Hazardous Materials as of the date of this Agreement. In the event that the presence of any Hazardous Materials not caused by Tenant or its guests, invitees, contractors, agents, subcontractors is detected Galley Cafe, Inc. Page 23 Sz at the Premises at any time during the Term of this Agreement and any Option Term all remedial work shall be performed by City at City's expense. Tenant's obligation to open (or re -open, as the case may be) shall be delayed until the remedial work is completed if the remedial work is performed prior to Tenant opening for business. Tenant's obligation to pay Rent shall be abated in direct proportion to the extent Tenant is unable to conduct its business upon the Premises as a result of any remedial work that is performed subsequent to Tenant opening for business. Tenant shall have the right (but not the obligation) to terminate this Agreement, upon thirty (30) calendar days advance written notice to City in the event that Hazardous Materials are detected at the Premises and the presence or the remediation materially affects Tenant's ability to conduct its business at the Premises. "Hazardous Materials" shall mean any oil, flammable explosives, asbestos, urea formaldehyde, radioactive materials or waste, or other hazardous, toxic, contaminated or polluting materials, substances or wastes, including, without limitation, any "hazardous substances ", "hazardous wastes ", "hazardous materials" or "toxic substances" under applicable federal, state and local laws, ordinances and regulations. 17. CITY'S DEFAULTS/TENANT'S REMEDIES. 17.1 City shall be in default if it fails to perform, or commence performance if the obligation requires more than ten (10) calendar days to complete, any material obligation within ten (10) calendar days after receipt of written notice by Tenant to City specifying the nature of such default. City shall also be in default if it commences performance within ten (10) calendar days but fails to diligently complete performance. In the event of City's default, Tenant may: (a) Upon thirty (30) calendar days written notice to City, cure any such default, and City shall reimburse Tenant the amount of all reasonable costs and expenses incurred by Tenant in curing the default, together with interest and expenses at the maximum rate then allowed by law; or (b) Terminate this Agreement if City's default materially interferes with Tenant's use of the Premises for its intended purpose and City fails to cure such default within thirty (30) calendar days after a second written demand by Tenant. 18.1 If this Agreement is assigned to any person or entity pursuant to the provisions of the Bankruptcy Code, 11 U.S.C. Sections 101 et seq. or any similar or successor statute ( "Bankruptcy Code'), any and all monies or other consideration payable or otherwise to be delivered in connection with such assignment shall be paid or delivered to City, shall be and remain the exclusive property of City and shall not constitute property of Tenant or of the estate of Tenant within the meaning of the Bankruptcy Code. Any and all monies or other consideration constituting City's property under this Section not paid or delivered to City shall be held in trust for the benefit of City and be promptly paid or delivered to City. Galley Cafe, Inc. Page 24 21 2) 18.2 Any person or entity to which this Agreement is assigned pursuant to the provisions of the Bankruptcy Code shall be deemed without further act or deed to have assumed all of the obligations arising under this Agreement on and after the date of such assignment, including the obligation to operate the business which Tenant is required to operate under this Agreement. 19. 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) calendar days after deposit into the United States registered mail, postage prepaid, by registered or certified mail, return receipt requested. Unless notice of a different address has been given in accordance with this Section, all notices shall be addressed as follows: If to City, to: City of Newport Beach Attn: Real Property Administrator 100 Civic Center Drive P.O. Box 1768 Newport Beach, CA 92658 If to Tenant, to: Galley Cafe, Inc. 829 Harbor Island Drive Newport Beach, CA 92660 20. SURRENDER OF PREMISES At the expiration or earlier termination of this Agreement, Tenant shall surrender to City the possession of the Premises. Tenant shall leave the surrendered Premises, required personal property, equipment and fixtures, in good and broom -clean condition, reasonable wear and tear excepted. All property that Tenant is not required tosurrender, but that Tenant does abandon shall, at City's election, become City's property at expiration or termination. City shall owe no compensation to Tenant for any personal property, equipment or fixtures left at the Premises by Tenant more than fifteen (15) calendar days after the expiration or termination of this Agreement. 21. COMPLIANCE WITH ALL LAWS Tenant shall at its own cost and expense comply with all statutes, ordinances, regulations and requirements of all governmental entities, including federal, state, county or municipal, whether now in force or hereinafter enacted. In addition, all work prepared by Tenant shall conform to applicable City, county, state and federal laws, rules, regulations and permit requirements and be subject to approval of the City Manager or his /her designee. Galley Cafe, Inc. Page 25 33 22. WAIVERS The waiver by either party of any breach or violation of any term, covenant or condition of this Agreement, or of any ordinance, law or regulation, shall not be deemed to be a waiver of any other term, covenant, condition, ordinance, law or regulation, or of any subsequent breach or violation of the same or other term, covenant, condition, ordinance, law or regulation. The subsequent acceptance by either party of any fee, performance, or other consideration which may become due or owing under this Agreement, shall not be deemed to be a waiver of any preceding breach or violation by the other party of any term, condition, covenant of this Agreement or any applicable law, ordinance or regulation. 23. SEVERABILITY If any term or portion of this Agreement is held to be invalid, illegal, or otherwise unenforceable by a court of competent jurisdiction, the remaining provisions of this Agreement shall continue in full force and effect. This Agreement shall be construed in accordance with the laws of the State of California in effect at the time of the execution of this Agreement. Any action brought relating to this Agreement shall be adjudicated in a court of competent jurisdiction in the County of Orange. 25. ENTIRE AGREEMENT; AMENDMENTS 25.1 The terms and conditions of this Agreement, all exhibits attached, and all documents expressly incorporated by reference, represent the entire agreement of the parties with respect to the subject matter of this Agreement. 25.2 This Agreement shall supersede any and all prior agreements, oral or written, regarding the subject matter between Tenant and City. 25.3 No other agreement, promise or statement, written or oral, relating to the subject matter of this Agreement, shall be valid or binding, except by way of a written amendment to this Agreement. 25.4 The terms and conditions of this Agreement shall not be altered or modified except by a written amendment to this Agreement signed by Tenant and the City Manager or his /her designee. 25.5 If any conflicts arise between the terms and conditions of this Agreement, and the terms and conditions of the attached exhibits or the documents expressly incorporated by reference, the terms and conditions of this Agreement shall control. Galley Cafe, Inc. Page 26 25.6 Any obligation of the parties relating to monies owed, as well as those provisions relating to limitations on liability and actions, shall survive termination or expiration of this Agreement. 25.7 Each party has relied on its own inspection of the Premises and examination of this Agreement, the counsel of its own advisors, and the warranties, representations, and covenants in this Agreement. The failure or refusal of either party to inspect the Premises, to read this Agreement or other documents, or to obtain legal or other advice relevant to this transaction constitutes a waiver of any objection, contention, or claim that might have been based on such reading, inspection, or advice. 26. TIME IS OF THE ESSENCE Time is of the essence for this Agreement. 27. SUCCESSORS Subject to the provisions of this Agreement on assignment and subletting, each and all of the covenants and conditions of this Agreement shall be binding on and shall inure to the benefit of the heirs, successors, executors, administrators, assigns, and personal representatives of the respective parties. The terms of this Agreement shall be construed in accordance with the meaning of the language used and shall not be construed for or against either party by reason of the authorship of this Agreement or any other rule of construction which might otherwise apply. 29. TABLE OF CONTENTS; HEADINGS The table of contents of this Agreement and the captions of the various sections of this Agreement are for convenience and ease of reference only and do not define, limit, augment, or describe the scope, content, or intent of this Agreement. K1 � 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 Agreement are incorporated by reference. Any reference to "this Agreement' includes matters incorporated by reference. Galley Cafe, Inc. Page 27 15 32. CITY BUSINESS LICENSE Tenant shall obtain and maintain during the duration of this Agreement, a City business license as required by the Newport Beach Municipal Code. 33. NO ATTORNEYS' FEES The prevailing party in any action brought to enforce the terms and conditions of this Agreement, or arising out of the performance of this Agreement, shall not be entitled to recover its attorneys' fees. 34. NONDISCRIMINATION Tenant, for itself and its successors, agrees that in the performance under this Agreement, Tenant shall not discriminate against any person because of the marital status or ancestry of that person or any characteristic listed or defined in Section 11135 of the Government Code. 35. MEMORANDUM OF LEASE AGREEMENT A Memorandum of Lease Agreement, in a form and content similar to that contained in Exhibit "C" shall be recorded by the parties promptly upon execution of this Agreement. Upon execution by both parties, the Memorandum of Lease Agreement shall be recorded against the Premises in the office of the Orange County Clerk- Recorder, as required by Government Code Section 37393. • r r City (both as a lessor and as the City of Newport Beach) and Tenant do not intend, by any provision of this Agreement, to create in any third party, any benefit or right owed by one party, under the terms and conditions of this Agreement, to the other pa rty. 37. CALIFORNIA LABOR LAWS It shall be the obligation of Tenant to comply with all laws, including, but not limited to, State of California labor laws, rules and regulations and the parties agree that the City shall not be liable for any violation by Tenant (or Tenant's agent, sublesse or any party affiliated with Tenant) thereof. Tenant acknowledges that City would not enter into this Agreement if it were to be liable for damages (including, but not limited to, actual damages, economic damages, consequential damages, lost profits, loss of rents or other revenues, loss of business opportunity, loss of goodwill or loss of use) under, or relating to, this Galley Cafe, Inc. Page 28 3(,�, Agreement or any of the matters referred to in this Agreement, including, without limitation, any and all plans, permits, licenses or regulatory approvals, and CEQA documents. Accordingly, Tenant covenants and agrees on behalf of itself and its successors and assigns, not to sue City (either in its capacity as lessor in this Agreement or in its capacity as the City of Newport Beach) for damages (including, but not limited to, actual damages, economic damages, consequential damages, lost profits, loss of rents or other revenues, loss of business opportunity, loss of goodwill or loss of use) or monetary relief for any breach of this Agreement by City or for any dispute, controversy, or issue between City and Tenant arising out of or connected with this Agreement or any of the matters referred to in this Agreement, including, without limitation, any and all plans, permits, licenses or regulatory approvals, CEQA documents, or any future amendments or enactments thereto, the parties agreeing that declaratory relief, injunctive relief, mandate and specific performance shall be Tenant's sole and exclusive] udicial remedies. 39. GOVERNMENT CLAIMS ACT Tenant and City agree that in addition to any claims filing or notice requirements in this Agreement, Tenant shall file any claim that Tenant may have against City in strict conformance with the Government Claims Act (Government Code sections 900 et seq.), or any successor statute. [Signature page follows] Galley Cafe, Inc. Page 29 37 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the dates written below. APPROVED AS TO FORM: THE CITY A TORNEY'S OFFICE Date: By: Aaron C. Her City Attorney ATTEST: Date: By: Leilani I. Brown City Clerk CITY OF NEWPORT BEACH, a California municipal corporation Date: By: David Kiff City Manager TENANT: Date: Brian White Title: Date: By: Sherri White Title: [End of Signatures] Galley Cafe, Inc. Page 30 32 EXHIBIT "A" Premises' Depiction Galley Cafe, Inc. Page A -1 59 Q 0.0111 IOW -AMN `N F \ �a r � •vx.w • r� Jf �- /ialIMY J Q0 •Q . 4 -•� CQyyr � , SAN J°ApU1N Ie��� 1Lc 8� r tea. 0 v NewpOrl Beach Disclaimer: Every reasonable effort has been made to assure the accuracy of the data provided, however, The City of GI$ Newport Beach and its employees and agents disclaim any and all responsibility from or relating to any results obtained in its use. �i,E�'ooiry, 0 4,456 8,912 R...> a i Imagery: 2009 -2011 photos provided by Eagle Feet Imaging wiw.eagleaedal,com 1122013 40 EXHIBIT A -2 41 EXHIBIT A -3 42 EXHIBIT A -4 43 EXHIBIT A -5 M, Kv Galley Cafe, Inc. Page B -1 45 BALBOA YACHT BASIN 829 Harbor Island Drive Newport Beach, CA 92660 (949) 673 -0360 Rules and Regulations When a boat enters the Balboa Yacht Basin ( "BYB "), it immediately comes under the jurisdiction of BYB and shall be berthed only where ordered and maneuvered as directed. Vessels may be relocated within BYB at City's discretion. The City ordinances, rules and regulations, summarized herein and as amended from time to time, and all other regulations established by regulatory bodies having jurisdiction at BYB, shall form a part of all Slip Rental Agreements as though printed thereon. The Balboa Yacht Basin is owned by the City of Newport Beach ( "City') and managed by Basin Marine Inc., located onsite at 829 Harbor Island Drive. There is no warranty of any kind as to the condition of the floats, walks, gangways, ramps or mooring gear, nor shall City be responsible therefore, or for injuries to persons or property occurring thereon or for any other reason, whether herein specifically stated or not. No Vessel may be moored at the BYB unless a current Slip Rental .Agreement or Temporary Slip Rental Agreement (collectively, the "Agreements ") is in effect between Vessel Owner and City. All defined terms herein shall have the same meaning as in the Agreements. 2. Only the Vessel described in the Agreements and registered to Vessel Owner may occupy the assigned Slip. Only one boat is permitted to occupy a slip at any one time, unless otherwise approved by the Marina Manager. 3. Use of boats moored at BYB for unauthorized commercial purposes is prohibited. 4. No major repairs or complete overhauls shall be made on boats in BYB. Extent of the permitted repairs shall be at the discretion of the City. Disc sanding and spray painting are strictly forbidden. 5. Supplies, materials, accessories or gear of all kinds shall not be stored within BYB except. in approved lockers. No additional locker boxes shall be placed on the docks by Vessel Owner. Maximum weight in lockers shall not exceed 70 pounds. 6. City reserves the right to inspect all boats to determine if they are properly identified and equipped for safe operation in accordance with Coast Guard and other applicable regulations. No Vessel Owner shall throw, discharge, pump or deposit from any boat or float any refuse, oil, spirits, flammable liquid, or other polluting matter into BYB. All such matter shall be deposited in appropriately marked containers within BYB. Pagel of 4 4 0 8. Use of boat toilets not equipped with storage devices approved by the state or local health departments is not permitted within BYB. City reserves the right to inspect all boats for installation and proper operation of such devices and holding tanks. 9. Unnecessary operation of engines in berths is not permitted. No excessive noise is allowed. Halyards should be tied away from masts. 10. Except for entering or leaving slips, marine engines, power generating equipment or other noise making machinery shall not be operated between the hours of 5:00 P.M. and 9:00 A.M. Engines may not be operated in gear while boats are secured to dock. 11, Water or power lines shall not cross main walks. 12. All boats shall be moored by Vessel Owner in a safe manner, on cleats, with strong and adequate lines. 13. The speed limit within BYB shall be dead slow, or wakeless speed, whichever is slower. 14. Fishing from the slips is not allowed. No cleaning of fish is permitted in BYB. 15. There shall be no laundering or drying of wearing apparel on the docks or on the dock or rigging of a boat in BYB. 16. Restrooms will remain locked at all times. All keys must be returned to the Marina Manager office upon termination of the Agreement. If not returned, the Key Deposit will be retained by the City. Keys must not be duplicated. 17. Vessel Owner shall notify the Marina Manager when they expect Vessel to be away from the Slip for any period in excess of thirty (30) days. Vessel Owner shall not sublet or otherwise grant others the use of the Slip. During any absence of the Vessel, City may use the Slip for any purpose without credit or compensation to Vessel Owner. 18. For security reasons, no dinghy, sabot, float or other similar boat shall be permitted to cruise up and down the fairways. All such boats must be kept on Vessel. The use of another slip at any time, for ANY non - emergency reason is not permitted. 19. The maximum distance by which any boat (including all projections such as transom platforms, booms, gait tanks, bowsprits, etc.) may extend beyond the end of the berth may not be more than ten percent (10 %) of the length of the Slip beyond the end of the Slip. No part of the Vessel shall at any time extend over any portion of any dock at BYB. No part of any boat shall extend over the main walkway, 20. All equipment and electrical connections made by Vessel Owner must be approved by the Marina Manager. 21. No fueling or transferring of fuel from docks shall be permitted at any time. 22. Vessel Owner shall be responsible for any oil, paint, or other materials spilled, dripped or otherwise applied to the concrete fingers or walks adjacent to the boat slip. Page 2 of 4 4 23. Boat boarding steps shall be a maximum of one -half (1/2) the width of the finger and shall be of lightweight, open construction. No storage will be allowed under the boarding steps. 24. No dinghies, masts, bicycles, hibachis, etc. shall be stored on the docks. Items left or stored on the docks will be confiscated. 25. Trash containers are provided. Vessel Owners shall not place their own trash containers on the docks. 26. No cleats, dock wheels or other accessories shall be installed by Vessel Owner. The dockmaster should be contacted if additional accessories are necessary. 2.7. Any paint, varnish, etc. spilled on the docks or lockers shall be cleaned up immediately. If the spill cannot be removed by Vessel Owner, he should contact the Marina Manager for assistance. 28. Vessel Owner is encouraged to inform the Marina Manager of any leaks or other malfunctions with water or electricity, etc., so that they may be corrected as soon as possible. 29. ANIMALS SHALL BE LEASHED AT ALL TIMES. Should the size or temperament of a pet disturb others or should the pet commit any nuisance on the property of BYB, such animal shall be removed from BYB by Vessel Owner. 30. Children under twelve (12) years of age are not permitted on docks without the immediate presence of a parent or other responsible adult. 31. Disorderly or discourteous conduct by Vessel Owner or guests that might injure a person, cause damage to property or harm the reputation of BYB shall be cause for termination of the Vessel Owner's Agreement. 32. Vessel Owner shall park vehicles in areas designated for Basin parking. Parking areas shall not be used for storage of trailers without City's consent. 33. Vessel Owners are advised that it will be unlawful for any unauthorized person to solicit business or to offer goods, wares, merchandise or services for sale on the premises of BYB without the consent of the City. 34. "For Sale" or other unauthorized advertising signs are prohibited in BYB 35. City is not responsible for any losses or damage to boats at BYB. Each Vessel Owner is responsible for damage which he and /or his boat may cause to other boats or improvements in BYB. 36. No swimming is permitted in BYB waters. 37. The City will not provide space for the storage of dinghies or miscellaneous Vessel Owner equipment on Basin property. Page 3 of 4 4 2 38. Hydro -lift hoists will not be allowed in BYB. 39. The Marina Manager may ascertain that strangers aboard yachts are authorized by Vessel Owner to be aboard. 40. Riding of skateboards, bicycles or motorcycles on the docks is not permitted. Slip Fees specified in the Agreement are determined by the size of the slip space or vessel size and permitted overhang. Rent is due in advance, payable by the first of the month. Electricity is charged for the previous month's use. Vessel is subject to impound if the account is delinquent. Vessel Owner will be liable for any cost of impounding and collection of account. These rules and regulations are subject to change upon five day's notice. Dave New Balboa Yacht Basin Manager Dave 1(@BasinMarine.com (949) 673 -0360 Revised February 4, 2013 Page 4 of 4 4J Exhibit "C" Galley Cafe, Inc. Page C -1 50 RECORDING REQUESTED AND WHEN RECORDED RETURN TO: Office of the City Clerk City of Newport Beach 100 Civic Center Drive PO Box 1768 Newport Beach, CA 92658 [Exempt from Recordation Fee - Govt. Code §§ 6103 & 27383] This Memorandum of Lease Agreement ( "Memorandum ") is dated January 1, 2014 , and is made between City of Newport Beach, a California municipal corporation and charter city (or "City") and Galley Cafe, Inc., a California corporation (operating as Galley Cafe) ( "Tenant "), concerning the Premises described in Exhibit "A ", attached hereto and by this reference made a part hereof. For good and adequate consideration, City leases the Premises to Tenant, and Tenant leases the Premises from City, for the term and on the provisions contained in the Agreement dated December _, 2013, including without limitation provisions prohibiting assignment, subleasing, and encumbering said leasehold without the express written consent of City in each instance, all as more specifically set forth in said Agreement, which said Agreement is incorporated in this Memorandum by this reference. The Agreement's term is ten (10) years, beginning January 1, 2014„ and ending December 31, 2024, unless extended by the parties. This Memorandum is not a complete summary of the Agreement. Provisions in this Memorandum shall not be used in interpreting the Agreement's provisions. In the event of conflict between this Memorandum and other parts of the Agreement, the other parts shall control. Execution hereof constitutes execution of the Agreement itself. [Signatures on the next page] 11- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the dates written below. APPROVED AS TO FORM: THE CITY ATT NEY'S OFFICE Date:, 1 Z By: a t Aaron C. Harp City Attorney ATTEST: Leilani I. Brown City Clerk CITY OF NEWPORT BEACH, a California municipal corporation By: David Kiff City Manager TENANT: Date: Brian White By: Sherri White [End of Signatures] Galley Caf6, Inc. Page _..1 52 NOTARY ACKNOWLEDGMENT State of California ) County of ORANGE ) On before me, , Notary Public, personally appeared DAVE KIFF, who proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity(ies), and that by his signature on the instrument the person, or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal Signature NOTARY ACKNOWLEDGMENT State of California ) County of ORANGE ) On before me, , Notary Public, personally appeared who proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that s /he executed the same in his /her authorized capacity(ies), and that by his /her signature on the instrument the person, or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal Signature 5� F ° °.. n .w 9 (d Current Lease Agreement, executed 02/08/1988 JJ 50 LEASE BETWEEN THE CITY OF NEWPORT BEACH AND EDWARD HOFFMAN FLACK AND MYRTLE ELIZABETH FLACH, TRUSTEES OF THE FLACH FAMILY TRUST, U /T /A DATED 10/18182, DOING BUSINESS AS THE GALLEY C -2L,f3 '57 INDEX ARTICLE PAGE I. LEASED PREMISES 1 2. TERM 2 3. RENTAL 2 4. TAXES 7 5. USE OF PREMISES 8 6. ALTERATIONS 9 (a) Less.or's Approval 9 (b) Repairs by Lessee 10 (c) No Eviction 11 7. REPAIRS 11 8. UTILITIESS 13 9. LIABILITY INSURANCE 13 A. Liability Insurance 14 B. Workers' Compensation 14 C. Property Insurance 14 D. Subrogation Waiver 15 E. Failure to.Secure 15 F. Additional Insured 15 10. RECONSTRUCTION 16 11. RIGHT OF ENTRY 18 12. SIGNS 19 13. SALES RESTRICTIONS 19 14. ASSIGNMENTS AND SUBLETTING 20 15. BANKRUPTCY- INSOLVENCY 22 16. BOLD HARMLESS 22 17. LIENS 24 18. LESSOR PAYING CLAIMS 25 19. DEFAULTS 26 20. TERMINATION 27 21. ATTORNEY'S FEES 27 22. REMOVAL 27 23. PAYMENTS AND NOTICES 28 24. EMINENT DOMAIN 29 (a) Definition of Terms 29 (b) Total Taking 30 (c) Partial Taking 30 (d) Allocation of Award 30 (e) Effect of Termination 31 (f) Voluntary Sales 31 25. BOLDING OVER 31 26. ACCEPTANCE OF PREMISES BY LESSEE 32 27. SCOPE OF THE AGREEMENT 32 28. AMENDMENT OF LEASE 32 29. CONSTRUCTION AND EFFECT 32 S2 a LEASE THIS LEASE, executed this n ;z /, day of 1981_, by and between the CITY OF NEWPORT BEACH,` a municipal corporation, hereinafter referred to as "LESSOR", EDWARD HOFFMAN FLACH and MYRTLE ELIZABETH FLACH, TRUSTEES OF THE FLACH FAMILY TRUST, U /T /A DATED 10/18/82, DOING BUSINESS AS THE GALLEY, hereinafter referred to as "LESSEE ". 1. LEASED PREMISES: In consideration of the rent herein specified to be paid and the covenants and conditions to be observed and performed by LESSEE, LESSOR does hereby lease to LESSEE that certain space (hereinafter referred to as the "said Premises ") delineated in red on the attached Exhibit "A ", with dimensions as shown thereon, known as the Galley Cafe, located at 829 Harbor Island Drive, in the City of Newport Beach, County of Orange, State of California, said building being a part of the development known as "Balboa Yacht Basin," and two (2) garage spaces of approximately two hundred (200) square feet each together with the non - exclusive right, in common with other LESSEES and tenants of LESSOR, to the use of any parking area(s) in the Balboa Yacht Basin which LESSOR may from time to time designate for patron and employee parking. _I_ 2. TERM: The initial term of this Lease shall be for a period of ten (10) years, commencing on the first day of January, 1988, . ( "Commencement Bate ") and ending on the 31st day of December, 1998, subject, however, to earlier termination as hereinafter provided. LESSEE may, at his option, extend the term of this Lease to three (3) additional periods of five (5) years each provided that LESSEE notifies the LESSOR in writing of his election to extend at least six (6) months prior to expiration of the term of this Lease ( "Extended Term ") and execute a Modification of this Lease to increase the rent during the Extended Term to the current fair market rent. LESSOR, at its sole discretion, will determine the current fair market rent. No.thwithstanding anything to the contrary herein, if LESSEE is in default of their obligation under this Lease on the date the Notice to Extend is given or the date the Extended Term is to commence, the Extended Term shall not commence and this Lease shall expire at the end of the last term in effect. 3. RENTAL: (a) Minimum Rent: LESSEE agrees to pay to LESSOR as rental for the use and occupancy of the said Premises the sum of seventeen thousand five hundred dollars ($17,500) per year W ." 00 payable in monthly Installments in advance on or before the first day of each month according to the following schedule: January $ 1,308.33 February $ 1,308.33 March $ 1,308.33 April $ 1,608.33 May $ 1,608.33 June $ 1,608.33 July $ 1,608.33 August $ 1,608.33 September $ 1,608.33 October $ 1,308.33 November $ 1,308.33 December $ 1,308.33 Total: $17,500.00 The yearly rent and monthly payment shall be adjusted during the Initial Term on the fifth (5th) year following the Commencement Date. The adjusted minimum yearly rent shall be set as the sum equal to seventy -five percent (75 %) of the average of the prior three (3) years of the total rent (Minimum Rent and Percentage Rental) paid to LESSOR under Paragraph 3 of this Lease. In no event shall the adjusted minimum rent be set at an amount less than $17,500.00. (b) Percentage Rental: In addition to the minimum guaranteed rental hereinabove provided, LESSEE shall pay to LESSOR at the time and in the manner herein specified a percentage rental of six percent (6 %) of the amount of all Gross Sales made in, upon or from said Premises during each calendar -3- 01 year of the term hereof, less the aggregate amount of the minimum guaranteed rental previously paid by LESSEE during said calendar year. Within thirty (30) days after the end of each calendar month of the term hereof LESSEE shall furnish to LESSOR a statement in writing, certified by LESSEE to be correct, showing the total gross sales made in, upon or from said Premises during the preceding calendar month, and on the first day of that calendar month next succeeding, LESSEE shall pay to LESSOR the percentage rent due. Within twenty (20) days after the end of each calendar year of the term hereof, LESSEE shall furnish to LESSOR a statement in writing, certified by LESSEE to be correct, showing the total gross sales by months made in, upon or from said Premises during the preceding calendar year. At that time any adjustment necessary shall be made between LESSOR and LESSEE, so that the percentage rental, although payable monthly, shall be computed on an annual basis. Any overpayment by LESSEE upon such adjustment shall be credited by LESSOR on the monthly installments of the minimum guaranteed rental falling due thereafter, and with respect to the last month of the term of the Lease if there is any overpayment LESSOR shall promptly reimburse -4- 0::?, the same to LESSEE, and any underpayment by LESSEE shall be paid to LESSOR with the installment of minimum guaranteed rental next falling due after notice of such underpayment to LESSEE. (c) Gross Sales: The term "gross sales" of the LESSEE as used in this Lease is defined to be the gross selling price of all merchandise, or services sold in or from the Premises by the LESSEE, its subtenants, licensees and concessionaires, whether for cash or on credit and whether made by store personnel or by vending machines, excluding therefrom the followings (i) The selling price of all merchandise returned by customers and accepted for full credit or the amount of discounts and allowances made thereon; (ii) Goods returned to sources or transferred to another store or warehouse owned by or affiliated with LESSEE; (iii) Sums and credits received in the settlement of claims for loss of or damage to merchandise; (iv) The price allowed on all merchandise traded in by customers for credit or the amount of credit for discounts and allowances made in lieu of acceptance thereof; (v) Cash refunds made to customers in the ordinary course of business, but this exclusion shall not include any amount paid or payable for trading stamps; (vi) Receipts from public telephones, stamp machines or public toilet locks; -5- &3 (vii) Sales taxes, luxury taxes, consumers' excise taxes, gross receipts taxes and other similar taxes now or hereafter Imposed upon the sale of merchandise or services, but only if collected separately from the selling price of merchandise or services and collected from customers. 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. (d) LESSEE shall keep and maintain and shall cause each of its sublessees and concessionaires, if any, to keep and maintain on the Premises full, complete and accurate books, records and accounts of all daily gross sales, both for cash and on credit. LESSOR and its agents and employees shall have the right at any and all times during regular business hours to examine and inspect all of said books, records and accounts, Including all sales tax reports and Federal and State Income Tax Returns pertaining to that business conducted in, upon or from said Premises, for the purpose of investigating and verifying the accuracy of any statement of gross sales hereinabove provided for in Subparagraph (c). If such inspection shall disclose a liability for rent to the extent of two percent (2 %) or more of 04 gross sales theretofore computed and reported by LESSEE, LESSEE shall promptly pay to LESSOR the cost of such inspection and the amount of any deficiency in rent. Any information gained by LESSOR from such statements or inspection shall be confidential and shall not be disclosed except to carry out the purposes hereof, providing, however, the LESSOR shall be permitted to divulge such information in connection with any financing arrangements or sale or exchange of said Premises by LESSOR. (e) Any payment due from LESSEE to LESSOR under the provisions of this Lease which shall not be paid when due shall be subject to a late charge at the rate of ten percent (10%) per annum from the date due and payable by the terms of this Lease until the same shall be paid. All payments hereunder shall be paid in lawful money of the United States. 4. TAXES: (a) LESSOR shall pay and discharge all taxes, general and special assessments which during the term of this Lease may be levied upon or assessed against the said Premises and all interest therein and all improvements and other property thereon. (b) During the term hereof LESSEE shall pay prior to delinquency all taxes assessed against and levied upon fixtures, furnishings, equipment and all other personal property of LESSEE contained in said Premises, and when possible LESSEE shall cause said fixtures, furnishings, equipment and other personal property _q_ C- 5 to be assessed and billed separately from the real property of LESSOR. In the event any or all of the LESSEE'S fixtures, furnishings, equipment and other personal property shall be assessed and taxed with the LESSOR'S real property, the LESSEE shall pay to LESSOR its share of such taxes within ten (14) days after delivery to LESSEE by LESSOR of a statement in writing setting forth the amount of such taxes applicable to LESSEE's property. 5. USE OF PREMISES: (a) During the term hereof LESSEE shall use and occupy said Premises for the operation of a restaurant business and for no other use or purpose, except by and with the prior written consent of LESSOR. (b) No use shall be made or permitted of said Premises or any part thereof, nor any acts done which shall constitute a nuisance or unreasonable annoyance to other LESSEES in the Balboa Yacht Basin or which shall violate, make inoperative or increase the existing rate of any insurance policy held by or for the benefit of LESSOR. LESSEE shall not sell, or suffer or permit to be kept, used or sold in, upon or about said Premises, any gasoline, distillate or other petroleum or nuclear product, or any substance or material of an explosive, inflammable or radiological nature which may be prohibited by any insurance policy held by or for the benefit of LESSOR, or which may IM 00 endanger any part of the Balboa Yacht Basin or its occupants, business patrons or invitees, without the written consent of LESSOR, and all insurance companies carrying public liability, rental income, fire, extended coverage, plate glass or other casualty insurance pursuant to any provision hereof. (c) LESSEE shall not commit or suffer to be committed any waste upon said Premises, or any nuisance or act or thing which may disturb the quiet enjoyment of any other LESSEE, concessionaire, licensee or occupant in the Balboa Yacht Basin. (d) LESSEE shall at all times comply with all governmental rules, regulations, ordinances, statutes and laws now in force or which may hereafter be in force pertaining to said Premises and to LESSEE's use thereof, and a finding of guilty by a competent court for any violation thereof shall be conclusively deemed a default under this Subparagraph (d). (e) Occupancy of said Premises after the date of commencement of the term hereof shall constitute the acceptance by LESSEE of the safety and good order and condition thereof. 6. ALTERATIONS: (a) Lessor's Approval. No repairs, alterations, changes or additions shall be made to said Premises without LESSEES prior written consent and LESSOR'S approval of the plans _g_ 07 and specifications therefor. All such work which may be done within said Premises by LESSEE shall be done pursuant to LESSOR'S directions. LESSOR agrees to physically connect one (1) of the garage spaces with the restaurant structure subject to securing all appropriate permits and licenses and in accordance with approval of the Newport Beach Building Department. (b) ReEairs by Lessee, LESSEE shall keep all of said Premises in such repair, order and condition as the same are in on the commencement of the Lease Term or may be put in by subsequent changes, alterations, additions and repairs during the Lease Term, except such damages as shall be due to reasonable use and wear and /or damage by fire or unavoidable casualty. LESSEE shall make such repairs as are required of LESSEE under the foregoing sentence in and about said Premises necessary to preserve said Premises in such repair, order and condition; provided, however, that LESSOR may elect to make any such repairs at the expense of LESSEE, which expense shall be due and payable upon demand therefor by LESSOR and thereupon become a charge under this Lease. Notwithstanding the foregoing, LESSOR shall make, at its expense, all repairs to said Premises occasioned by the act or neglect of LESSOR, its agents or employees. All repairs shall be of the quality and class equal to the original work. LESSEE expressly waives all right to make repairs at CUM r2 LESSOR'S expense under the provision of Sections 1041 and 1042 of the Civil Code of the State of California. Any alterations, improvements, changes or repairs to said Premises shall become the property of LESSOR and shall remain upon and be surrendered with said Premises subject to any rights of removal contained in this Lease. LESSEE shall, at the expiration of earlier termination of this Lease, surrender said premises to LESSOR In as good condition and repair as reasonable and proper use thereof will permit. W No Eviction. Except as otherwise provided in Paragraph 10, there shall be no allowance to LESSEE for dimunition of rental value and no claim by LESSEE for eviction from said Premises by reasons of inconvenience, annoyance or injury to LESSEE arising from any repairs, alterations, replacements or improvements made to said Premises. LESSOR shall not be liable to LESSEE for failure to make repairs to said Premises occasioned by the act or neglect of LESSOR or its employees unless LESSOR has received from LESSEE written notice of the need for such repairs and has failed to commence and diligently complete such repairs within a reasonable time thereafter. 7, REPAIRS: LESSOR agrees, at its sole cost and expense, to keep and maintain in good order, condition and repair the foundations, roof, exterior walls and structural portions of the -11- 0J building in which said Premises are located. LESSOR reserves the right at any time and from time to time without the same constituting an actual or constructive eviction and without incurring any liability to LESSEE therefor or otherwise affecting LESSEE'S obligations under this Lease, to make such changes, alterations, additions, improvements, repairs or replacements in or to the building (including said Premises if required so to do by any law or regulation) and the fixtures and equipment thereof, as well as in or to the street entrances, halls, passages, and stairways thereof, or after .reasonable notice, to change the name, number and designation by which the building is commonly known, as LESSOR may deem necessary or desirable, and to change the arrangement or location of entrances or passageways, doors and doorways and corridors, provided, however, that there be no unreasonable obstruction of the right of access to, or unreasonable interference with the use and enjoyment of, said Premises by LESSEE. Nothing contained in this Paragraph shall be deemed to relieve LESSEE of any duty, obligation or liability of LESSEE with respect to making any repair, replacement or improvement or complying with any law, order or requirement of any government or other authority and nothing contained in this Paragraph shall be deemed or construed to impose upon LESSOR any -12- 70 obligation, responsibility or liability whatsoever, for the care, supervision or repair of the building or any part thereof other than as otherwise provided In this Lease. 8. UTILITIES: LESSEE shall pay for all water, gas, heat, light, power and trash removal services and shall provide minimal interior maintenance service. 9. LIABILITY INSURANCE. Prior to the Commencement Date of this Lease, LESSEE shall furnish the LESSOR with certificates showing the type, amount, class of operations covered, effective dates and dates of expiration of insurance policies. Such certificates, which do not limit LESSEES' indemnification, shall also contain substantially the following statement: "The Insurance covered by this certificate will not be cancelled or materially altered, except after thirty (30) days' written notice has been received by the LESSOR." It is agreed that LESSEE shall maintain in force at all time during the performance of this Lease all appropriate policies of insurance, and that said policies shall be secured from a good and responsible company or companies, acceptable to LESSOR, doing insurance business in the State of California. -13- 71 LESSEES shall maintain the following insurance coverage: A. Liability Insurance. The general liability coverage shall provide the following minimum limits: Bodily Injury $250,000 each person $500,000 each occurrence $500,000 aggregate Property Damage $100,000 each occurrence $250,000 aggregate A combined single limit policy with aggregate limits in the m amount of one million dollars ($1,000,000) will be considered equivalent to the required minimum limits. All said coverage to include liability for occurrences on the Premises. B. Workers' Compensation. All employees of the LESSEE must be included under such policy in an amount and with coverage to meet all requirements of the Labor Code of the State of California. C. Property Insurance. LESSEE shall obtain and keep in force during the term of this Lease a policy of policies of insurance covering loss or damage to the Premises, and covering loss or damage to LESSEE'S fixtures, equipment, improvements and personal property ( "personal property ") in the amount of at least eighty percent (80 %) of the full replacement value thereof, as the same may exist from time to time, against all perils included within the classification of fire, extended coverage, vandalism and malicious mischief. -14- 72 Each year during the term of this Lease, LESSEE shall provide LESSOR with appropriate amended insurance endorsement which reflects eighty percent (80 %) of the current replacement value of the Premises and the full replacement value of LESSEE °S personal property. Said insurance under this Subsection C shall provide for payment of all structural loss or structural damage to the Premises directly to LESSOR and all other payments directly to LESSEE. D. Subrogation Waiver. LESSEE hereby waives any and all rights of recovery against LESSOR, or against the employees, agents and representatives of LESSOR, for loss of or damage to LESSEE or its property or the property of others under its control, where such loss or damage is insured against under any insurance policy, whether or not required by this Lease, in force at the time of such loss or damage. E. Failure to Secure. If LESSEE at anytime during the term hereof, should fail to secure or maintain the foregoing insurance, LESSOR shall, after two (2) days' notice, be permitted to obtain such insurance in the LESSEE'S name or as an agent of the LESSEE and shall be compensated by the LESSEE for the costs of the insurance premiums. LESSEE shall pay LESSOR interest on paid insurance premiums at the maximum rate permitted by law computed from the date written notice is received that the premiums have been paid. -15- �s F. Additional Insured. LESSOR, its City Council, boards and commissions, officers, agents, servants, and employees shall be named as an additional insured under the policies of insurance required by this Lease. The naming of an additional insured shall not affect any recovery to which such additional insured would be entitled under this policy if not named as such additional insured; and an additional insured named herein shall not be held liable for any premium or expense of any nature on this policy or any extension thereof. 10. RECONSTRUCTION: (a) In the event the building in which the said Premises are located is damaged by fire, or perils covered by extended coverage insurance, the LESSOR shall: (1) In the event of total destruction, within a period of ninety (90) days thereafter, commence repair, reconstruction and restoration of said building and prosecute the same diligently to completion in which event this Lease shall continue in full force and effect; or within said ninety (90) day period elect not to so repair, reconstruct or restore said building, in which event this Lease shall cease and terminate. In either event, LESSOR shall give the LESSEE written notice of its intention within said ninety (90) day period. -16- 74 (2) In the event of a partial destruction of the building to an extent not exceeding twenty -five percent (25 %) of the full insurable value thereof and if the damage thereto is such that the building may be repaired, reconstructed or restored within a period of ninety (90) days from the date of the happening of such casualty, the LESSOR shall continence and proceed diligently with the work of repair, reconstruction and restoration and the Lease shall continue in full force and effect; or if such work of repair, reconstruction and restoration is such as to require a period longer than ninety (90) days or exceed twenty -five percent (25 %) of the full insurable value thereof, the LESSOR may either elect to so repair, reconstruct and restore and the Lease shall continue in full force and effect or said 'LESSOR may elect not to repair, reconstruct or restore and the Lease shall in such event terminate. Under any of the conditions of this subparagraph provided, the LESSOR shall give written notice to the LESSEE of its intention within the period of ninety (90) days. (3) In the event that a partial or total destruction (as described In (1) and (2) above) of the building takes place during the term hereof, either the LESSOR or LESSEE, at its option, may elect to terminate this Lease upon written notice within thirty (30) days after such destruction. -17- 75 (b) In the event of repair, reconstruction and restoration as herein provided, the rental provided to be paid under Paragraph 3 hereof shall be abated proportionately in the ratio which the LESSEE'S use of the Premises is impaired during the period of such repair, reconstruction or restoration. The LESSEE shall continue the operation of Its business on the Premises during any such period to the extent reasonably practicable from the standpoint of prudent business management. The LESSEE shall not be entitled to any compensation or damages for loss in the use of the whole or any part of the Premises and /or any inconvenience or annoyance occasioned by any such damage, repair, reconstruction or restoration. 11. RIGHT OF ENTRY; LESSEE shall permit LESSOR and its agents to enter upon said Premises at all reasonable times for the purpose of inspecting the same and for the purpose of posting any notice deemed necessary by LESSOR for the protection of its interest, and for malting any repairs or alterations provided for in this Lease. During the last ninety (90) days of the term hereof and at any time after notice of termination of this Lease has been given as provided in this Lease, LESSOR may place and maintain on said Premises customary "For Sale" and /or "For Lease" signs and may, at all reasonable times, enter said Premises for the purpose of displaying said Premises to prospective lessees. -18- LESSOR or its agents may, during the progress of any work on the Premises, keep and store upon the Premises all necessary materials, tools and equipment and LESSOR shall not in any such event be liable for inconvenience, annoyance, disturbance, loss of business or other damage to LESSEE and the obligations of LESSEE under this Lease shall not be affected. 12. SIGNS: LESSEE shall not erect or maintain or permit to be erected or maintained any sign, marquee or awning on said Premises without the prior written consent of LESSOR. LESSOR shall have the right to approve the type and size, location and color of all signs which LESSEE desires to use or place in or upon said Premises, The LESSEE shall affix and maintain upon the glass panes and supports of the show windows and within twelve (12) inches of any windows or upon the exterior walls of the building only such signs, advertising placards, names, insignia, trademarks and descriptive material as shall have first received the written approval of the LESSOR as to size, type, color, location, copy, nature and display qualities. 13. SALES RESTRICTIONS: Excepting normal sales of moored boats, LESSEE 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 _19_ 7Y assignment for benefit of creditors or pursuant to any bankruptcy or other insolvency proceedings, shall be conducted. 14. ASSIGNMENTS AND SUBLETTING: (a) LESSEE may transfer or assign this Lease, or any right or interest hereunder, or sublet the Leased Premises or any part thereof, after first obtaining the prior written consent and approval of LESSOR. However, assignment of this Lease to Edward H. Flach, Jr. shall be allowed unconditionally without consent of LESSOR upon transfer of LESSEE'S business interest to Edward H. Flach, Jr. Such consent will not be unreasonably withheld. LESSOR hereby reserves the right to condition any such approval upon LESSOR'S determination that the assignee or sublessee is (i) as financially responsible as LESSEE and (ii) has demonstrated an ability and willingness to pay or to operate a similar business generating a sales volume sufficient to pay the yearly rent and make the monthly payments as defined in Paragraph 3. No transfer or assignment, whether voluntary or involuntary, by operation of law, under legal process or proceedings, by receivership, in bankruptcy, or otherwise, and no subletting, shall be valid or effective without such prior written consent and approval. Should LESSEE attempt to make or suffer to be made any such transfer, assignment or subletting, except as aforesaid, or should any of LESSEE'S rights under this Lease be sold or otherwise transferred by or under court order or legal process or otherwise, or should LESSEE be _20_ 72 adjudged insolvent or bankrupt, then and in any of the foregoing events LESSOR may, at its option, terminate this Lease forthwith by written notice thereof to LESSEE. Should LESSOR consent to any such transfer, assignment or subletting, such consent shall not constitute a waiver of any of the restrictions of this paragraph and the same shall apply to each successive transfer, assignment or subletting hereunder, if any. (b) if the LESSEE hereunder is a corporation, an unincorporated association, or a partnership, the transfer, assignment or hypothecation of any stock or interest in such corporation, association or partnership in the aggregate in excess of twenty -five percent (25 %) shall be deemed an assignment within the meaning and provisions of this Paragraph; provided, however, a transfer or assignment or any such stock or interest by a shareholder or member to his spouse, children or grandchildren is excepted from the foregoing provision. (c) It the LESSOR consents to an assignment or transfer by LESSEE of all or a portion of LESSEE'S interest under this Lease, LESSEE shall pay, or cause to be paid, a transfer fee of one hundred dollars ($100); provided, however, that such transfer fee shall not be payable upon LESSOR'S consent to a transfer or assignment of LESSEE'S interest hereunder as security for a loan. -21° 79 15. BANKRUPTCY - INSOLVENCY: The LESSEE agrees that in the event all or substantially all of the LESSEE's assets are placed in the hands of a receiver or trustee, and such receivership or trusteeship continues for a period of thirty (30) days, or should the LESSEE make an assignment for the benefit of creditors or be adjudicated a bankrupt, or should the LESSEE institute any proceedings under the Bankruptcy Act or under any amendment thereof which may hereafter be enacted, or under any other act relating to the subject of bankruptcy wherein the LESSEE seeks to be adjudicated a bankrupt, or to be discharged of its debts, or to effect a plan of liquidation, composition or reorganization, or should any involuntary proceeding be filed against the LESSEE under any such bankruptcy laws and the LESSEE consent .thereto or acquiesce therein by pleading or default, then this Lease or any interest in and to the said Premises shall not become an asset in any of such proceedings and, in any such event and in addition to any and all rights or remedies of the LESSOR hereunder or by law provided, it shall be lawful for the LESSOR to declare the term hereof ended and to re -enter the said Premises and take possession thereof and remove all persons therefrom, and the LESSEE shall have no further claim thereon or hereunder. 16. HOLD HARMLESS: LESSEE shall indemnify and hold harmless LESSOR, its City Council, boards and commissions, officers, agents, servants and employees from and against any and all _22- 20 actions, causes of action, obligations, costs, damages, losses, cIalms, liabilities and demands of any nature whatsoever, including reasonable attorneys' fees, regardless of the merit or outcome of any such claim or suit, arising from or in any manner connected to the use or possession of the Premises by LESSEE conducted pursuant to this Lease. LESSEE shall indemnify and hold harmless LESSOR, its City Council, boards and commissions, officers, agents, servants and employees from and against any and all actions, causes of action, obligations, costs, damages, losses, claims, liabilities and demands of any nature whatsoever, including reasonable attorneys' fees, accruing or resulting to any and all persons, firms, or corporations furnishing or supplying work, services, materials, equipment or supplies in connection with services, materials, equipment or supplies in connection with services or work conducted or performed pursuant to this Lease by LESSEE and arising out of such activities or work, and from any and all claims and losses whatsoever, including reasonable attorneys' fees, accruing or resulting to any person, firm or corporation for damage, injury or death arising out of LESSEE'S use and possession of the Premises. Without limiting the generality of the foregoing, LESSEE hereby agrees that the LESSOR, its City Council, boards and commissions, officers, agents, servants and employees, shall not _a3_ 21 be liable for injury to LESSEE'S business or any loss of income therefrom or for damage to the goods, wares, merchandise, improvements or other property of LESSEE, LESSEE'S employees, invitees, customers, or any other person in or about the Premises, nor shall LESSOR, Its City Council, boards and commissions, officers, agents, servants and employees be liable for injury to the person of LESSEE, LESSEE'S employees, agents or contractors, whether such damage or injury Is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, crime, or from any other cause, whether the said damage or injury results of the building of which the Premises are a part, or from other sources or places and regardless of whether the cause of such damage or injury or the means of repairing the same is inaccessible to LESSEE. LESSOR, its City Council, boards and commissions, officers, agents, servants and employees shall not be liable for any damages arising from or any act or neglect of any other LESSEE, if any, of the building in which the Premises are located. 17. LIENSt LESSEE shall not permit to be enforced against said Premises, or any part thereof, any mechanics', materialmen's, contractors' or other liens arising from, or any claims for damages growing out of, any work of repair or -24- 22 alteration as herein authorized or otherwise arising (except from the actions of LESSOR), and LESSEE shall pay or cause to be paid all of said liens and claims before any action is brought to enforce the same against LESSOR or said Premises; and LESSEE agrees to indemnify and hold LESSOR and said Premises free and harmless from all liability for any and all such liens and claims and all costs and expenses in connection therewith. LESSEE shall give LESSOR no Iess than twenty (20) days' prior notice in writing before commencing construction of any kind on the Premises so that LESSOR may post notices of non - responsibility. 18. LESSOR PAYING CLAIMS: Should LESSEE fail to pay and discharge, when dine and payable, any tax or assessment, or any premium or other charge in connection with any insurance policy or policies which LESSEE is obligated to pay, or any lien or claim for labor or material employed or used in, or any claim for damages arising out of the repair, alterations, maintenance and use of said Premises, as provided in this Lease, after ten (10) days' written notice from LESSOR, then LESSOR may, at its option, and without waiving or releasing LESSEE from any of LESSEE's obligations hereunder, pay any such tax, assessment, lien, claim, insurance premium or charge, or settle or discharge any, action therefor or satisfy any judgment thereon. All costs, expenses and other sums, incurred or paid by LESSOR in connection therewith, together with interest at the rate of ten percent -2s- 2_s (10 %) per annum on such costs, expenses and sums from the date incurred or paid by LESSOR, shall be deemed to be additional rent hereunder and shall be paid by LESSEE with and at the same time as the next installment of rent hereunder, and any default therein shall constitute a breach of the covenants and conditions of this Lease. 19. DEFAULTS: The occurrence of any one (1) or more of the following events shall constitute a material default and breach of this Lease by LESSEE. A. The vacating or abandonment of the Premises by LESSEE. S. The failure by LESSEE to make any payment of rent required to be made by LESSEE hereunder, as and when due, where such failure shall continue for a period of three (3) business days after written notice thereof from LESSOR to LESSEE. C. Except as specified in Subsection B, the failure by LESSEE to observe or perform any of the covenants, conditions or provisions of this Lease to be observed or performed by LESSEE where such failure shall continue for a period of ten (10) days after written notice hereon from LESSOR to LESSEE; provided, however, that if the nature of LESSEE'S default is such that more than ten (10) days are reasonable required for its cure, then LESSEE shall not be deemed to be in default if LESSEE commenced -2&- 24 actions, causes of action, obligations., costs, damages, losses, claims, liabilities and demands of any nature whatsoever, including reasonable attorneys' fees, regardless of the merit or outcome of any such claim or suit, arising from or in any manner connected to the use or possession of the Premises by LESSEE conducted pursuant to this Lease. LESSEE shall indemnify and hold harmless LESSOR, its City Council, boards and commissions, officers, agents, servants and employees from and against any and all actions, causes of action, obligations, costs, damages, losses, claims, liabilities and demands of any nature whatsoever, including reasonable attorneys' fees, accruing or resulting to any and all persons, firms, or corporations furnishing or supplying work, services, materials, equipment or supplies in connection with services, materials, equipment or supplies in connection with services or work conducted or performed pursuant to this Lease by LESSEE and arising out of such activities or work, and from any and all claims and losses whatsoever, including reasonable attorneys' fees, accruing or resulting to any person, firm or corporation for damage, injury or death arising out of LESSEE'S use and possession of the Premises. Without limiting the generality of the foregoing, LESSEE hereby agrees that the LESSOR, its City Council, boards and commissions, officers, agents, servants and employees, shall not _2g_ RJ be liable for injury to LESSEE'S business or any loss of income therefrom or for damage to the goods, wares, merchandise, improvements or other property of LESSEE, LESSEE'S employees, invitees, customers, or any other person in or about the Premises, nor shall LESSOR, its City Council, boards and commissions, officers, agents, servants and employees be liable for injury to the person of LESSEE, LESSEE'S employees, agents or contractors, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, crime, or from any other cause, whether the said damage or injury results of the building of which the Premises are a part, or from other sources or places and regardless of whether the cause of such damage or injury or the means of repairing the same is inaccessible to LESSEE. LESSOR, its City Council, boards and commissions, officers, agents, servants and employees shall not be liable for any damages arising from or any act or neglect of any other LESSEE, if any, of the building in which the Promises are located. 17. LIENS: LESSEE shall not permit to be enforced against said Premises, or any part thereof, any mechanics', materialmen's, contractors' or other liens arising from, or any claims for damages growing out of, any work of repair or -24- R0 alteration as herein authorized or otherwise arising (except from the actions of LESSOR), and LESSEE shall pay or cause to be paid all of said liens and claims before any action is brought to enforce the same against LESSOR or said Premises; and LESSEE agrees to indemnify and hold LESSOR and said Premises free and harmless from all liability for any and all such liens and claims and all costs and expenses in connection therewith. LESSEE shall give LESSOR no less than twenty (20) days' prior notice in writing before commencing construction of any kind on the Premises so that LESSOR may post notices of non-responsibility. 18. LESSOR PAYING CLAIMS- Should LESSEE fail to pay and discharge, when due and payable, any tax or assessment, or any premium or other charge in connection with any insurance policy or policies which LESSEE is obligated to pay, or any lien or claim for labor or material employed or used in, or any claim for damages arising out of the repair, alterations, maintenance and use of said Premises, as provided in this Lease, after ten (10) days` written notice from LESSOR, then LESSOR may, at its option, and without waiving or releasing LESSEE from any of LESSEE's obligations hereunder, pay any such tax, assessment, lien, claim, insurance premium or charge, or settle or discharge any action therefor or satisfy any judgment thereon. All costs, expenses and other sums, incurred or paid by LESSOR in connection therewith, together with interest at the rate of ten percent dl610 2 (10 %) per annum on such costs, expenses and sums from the date incurred or paid by LESSOR, shall be deemed to be additional rent hereunder and shall be paid by LESSEE with and at the same time as the next installment of rent hereunder, and any default therein shall constitute a breach of the covenants and conditions of this Lease. 19. DEFAULTS: The occurrence of any one (1) or more of the following events shall constitute a material default and breach of this Lease by LESSEE.. A. The vacating or abandonment of the Premises by LESSEE. B. The failure by LESSEE to make any payment of rent required to be made by LESSEE hereunder, as and when due, where such failure shall continue for a period of three (3) business days after written notice thereof from LESSOR to LESSEE. C. Except as specified in Subsection B, the failure by LESSEE to observe or perform any of the covenants, conditions or provisions of this Lease to be observed or performed by LESSEE where such failure shall continue for a period of ten (10) days after written notice hereon from LESSOR to LESSEE; provided, however, that if the nature of LESSEE'S default is such that more than ten (10) days are reasonable required for its cure, then LESSEE shall not be deemed to be in default if LESSEE commenced -26- 22 such cure within said ten (10) day period and thereafter diligently prosecutes such cure to completion. 20. TERMINATION: LESSEE shall have the option to terminate this Lease upon adjustment of the yearly rent and monthly payment under Section 3a of this Lease by giving sixty (60) days' prior written notice to LESSOR as provided herein. Upon termination of this Lease, LESSEE shall pay to LESSOR that portion of the rent that is due and unpaid prior to the effective date of termination. 21. ATTORNEY'S FEES: LESSEE shall pay to LESSOR such amounts for resonable attorney's fees incurred by LESSOR in connection with LESSEE'S breach or default under this Lease. In addition, In the event that any action shall be instituted by either o.f the parties hereto for the enforcement of any of its rights or remedies in and under this Lease, the party in whose favor judgment shall be rendered therein shall be entitled to recover from the other party all costs incurred by said prevailing party In said action, including reasonable attorney's fees to be fixed by the court therein. 22. REMOVAL: Upon the expiration of the term of this Lease, or upon any earlier termination of this Lease, LESSEE shall quit and surrender possession of the said Premises to LESSOR in the .same condition as upon delivery of possession to LESSEE hereunder, reasonable wear and tear and damage by fire, acts of -27- U God, the elements and unavoidable casualty excepted. Before surrendering possession of said Premises as aforesaid, LESSEE shall without expense to LESSOR, remove or cause to be removed from said Premises all signs, furnishings, equipment, trade fixtures, merchandise and other personal property installed or placed therein, and all debris and rubbish, and LESSEE shall repair all damage to said Premises resulting from such removal. If LESSEE fails to remove any of its signs, furnishings, equipment; trade fixtures, merchandise or other personal property within ten (10) days after the expiration or termination of this Lease, then LESSEE may, at its sole option (a) treat LESSEE as a holdover in which event the provisions of Paragraph 24 shall apply; or (b) deem any or all of such items abandoned and the sole property of LESSOR; or (c) remove any or all of such items and dispose of same in any manner or store same for LESSEE, in which event the expense of such disposition or storage shall be borne by LESSEE and shall be immediately due and payble. 23. PAYMENTS AND NOTICES, All rents and other sums payable by LESSEE to LESSOR hereunder shall be paid to LESSOR at its business office at CITY OF NEWPORT BEACH, FINANCE DEPARTMENT, 3300 NEWPORT BOULEVARD, P.O. BOX 1768 NEWPORT BEACH, CALIFORNIA, 92658 -8915, or at such other place as LESSOR may hereafter designate in writing. ST-M 90 Any notice to be given or other document to be delivered by either party to the other hereunder may be delivered in person to an officer of LESSOR or to LESSEE or any officer of LESSEE, if a corporation, or may be deposited in the united States mail in Orange County, State of California, duly registered or certified, postage prepaid, and addressed to LESSOR at its said business office and to LESSEE at the addresses designated below. Either party hereto may from time to time, by written notice to the other, served in the manner herein provided, designate a different address. If any notice or other document is sent by mail, as aforesaid, the same shall be deemed served or delivered twenty -four (24) hours after the mailing thereof. If more :than one (1) lessee is named under this Lease, service of any notice upon any one of said lessees shall be deemed as service upon all of said lessees. Address of LESSEE: THE GALLEY, 829 HARBOR ISLAND DRIVE, NEWPORT BEACH, CALIFORNIA 92662. 24. EMINENT DOMAIN: (.a) Definition of Terms: The term "total taking" as used in this Paragraph means the taking of the entire Premises under the power of eminent domain or a taking of so much of said Premises as to prevent or substantially impair the conduct of LESSEE's business therein. The term "partial taking" means the M M taking of a portion only of said Premises which does not constitute a total taking as above defined. (b) Total Taking: If during the term hereof there shall be a total taking by public authority under the power of eminent domain, then the leasehold estate of LESSEE in and to said Premises shall cease and terminate as of the date actual physical possession thereof shall be so taken. (c) Partial Taking: If during said term there shall be a partial taking of said Premises, this Lease shall terminate as to the portion of said Premises taken upon the date upon which actual possession of sa.id portion of said Premises Is taken pursuant to said eminent domain proceedings, but said Lease shall continue in force and effect as to the remainder of said Premises. The yearly rent and monthly payment by LESSEE for the balance of said term shall be abated in the ratio that the square footage of floor area of said Premises taken bears to the total floor area of said Premises at the time of such taking. (d) Allocation of Award: A11 compensation and damages awarded for the taking of said Premises or any portion or portions thereof, shall, except as otherwise herein provided, belong to and be the sole property of LESSOR. LESSEE shall be entitled to any award based upon value of its leasehold hereunder and LESSEE shall be entitled to any award that may be made for the taking of or injury to on account of any cost or loss LESSEE _30_ 92 may sustain in the removal of LESSEE's fixtures, equipment and furnishings. (e) Effect of Terminations if this Lease is terminated, in whole or in part, pursuant to any of the provisions of this Paragraph, all rentals and other charges payable by LESSEE to LESSOR hereunder and attributable to the Premises taken, shall be paid up to the date upon which actual physical possession shall be taken by the condemnor, and the parties shall thereupon be released from all further liability in relation thereto. (f) Voluntary Sales: A voluntary sale by LESSOR to any public body or agency having the power of eminent domain, either under threat of condemnation or while condemnation proceedings are pending, shall be deemed to be a taking under the power of eminent domain for the purposes of this Paragraph. 25. HOLDING OVER: This Lease shall terminate and become null and void without further notice upon the expiration of the term herein specified, and any holding over by LESSEE after such expiration shall not constitute a renewal hereof or give LESSEE any rights under this Lease, except as otherwise herein provided, LESSOR and LESSEE understand and agree that this Lease cannot be renewed, extended or in any manner modified except in writing signed by both parties hereto; provided, however, that nothing in this Paragraph shall be construed to alter or impair the -31- /S provisions of Paragraph 21 hereof. If LESSEE shall hold over for any period after the expiration of said term, LESSOR may, at its option, exercised by written notice to LESSEE, treat LESSEE as a tenant from month -to -month commencing on the first day following the expiration of this Lease and subject to the terms and conditions herein contained except that the monthly payments, which shall be payable in advance, shall be one hundred fifty percent (150 %) of said monthly payments applicable at the date of expiration. If LESSEE fails to surrender the Premises upon the expiration of this Lease despite demand to do so by LESSOR, LESSEE shall Indemnify and hold LESSOR harmless from all loss or liability, including without limitation, any claims made by any succeeding LESSEE founded on or resulting from such failure to surrender. 26. ACCEPTANCE OF PREMISES BY LESSEE: By taking possession of the said Premises, LESSEE accepts the improvements in the condition in which they may then be, and waives any right or claim against LESSOR arising out of the condition of the said Premises, including the improvements thereon, the appurtenances thereto, and the equipment thereof. 27. SCOPE OF THE AGREEMENT: This Lease is and shall be considered to be the only agreement between the parties hereto. All negotiations and oral agreements acceptable to both parties are included herein. _32_ 94 28. AMENDMENT OF LEASE: No amendment or other ratification of this Lease shall be effective unless in a writing signed by all parties to this Lease. 29. CONSTRUCTION AND EFFECT: Time is of the essence of this Lease. The Paragraph headings herei.n are used only for the purpose of convenience and shall not be deemed to contain or limit the subject matter of the Paragraphs hereof, nor to be considered in the construction thereof. Each and all of the obligations, convenants, conditions and restrictions of this Lease shall insure to the benefit of and be binding upon and enforceable against, as the case may require, the successors and assigns of LESSOR, and subject to the restrictions of Paragraph 14 hereof, any authorized assignee, transferee, sublessee and other successor in interest of LESSEE. In this Lease the neuter gender includes the feminine and masculine and the singular number includes the plural wherever the context so requires. If more than one LESSEE is named above, the obligation of each of such LESSEES hereunder shall be and is joint and several. -33- 9J IN WITNESS WHEREOF, each of the parties hereto has caused this Lease to be executed on the day and year first above written. .APPROVED AS TO FORM: eN .k (�- 1 C-M ATTORNEY ®R 0101 -.34- LESSOR: Cl a EW LESSEE: EDWARD HOFFMAN FLACH and MYRTLE ELIZABETH FLACH., TRUSTEES OF THE FLACH FAMILY TRUST, U/T /A DATED 10/18182, DOING BUSINESS AS THE C4LLEY EDWARD gqHO F FLACH, TRUSTEE e-4 rYX .--d MYPgLE ELI7. ETH FLACH, TRUSTEE 90 tr .. �T \/ MA f! co O s 1 1 i I I `L 11 �d I I I 7 1' j f 41 4 /mod 1 �j I GGL LEY CGFE/ I ffQ6BOd'YdCirr ed&11v I I �� ►� m FaPO4-f GM No. _ Y /E'• Cl TY OF' /VG- -W.470.P7' 49edCH ! DRAMNo POO-e/A/ -J 516 - L 3S 9� 92 r> City Council Policy F -7 — Income Property 9.9 100 E -7 INCOME PROPERTY The City owns and manages an extensive and valuable assortment of property including streets, parks, beaches, public buildings and service facilities. The Citv also owns and operates a yacht basin, a mobile home park, a luxury residential development and various other income properties. Most of the income property is tidelands, filled tidelands or waterfront. Unencumbered fee value of income property is estimated at upwards of one hundred million dollars, and income typically contributes ten percent of all City revenues. As owner /manager of property, the City is the steward of a public trust, and state law requires the City to maximize its returns on state - managed property or be subject to a charge of making a gift of public funds. Nevertheless, the City Council recognizes the importance of this property not only as a revenue generator, but also as a means to provide otherwise unfeasible uses and facilities to benefit the community. In managing its property, the City will continually evaluate the potential of all City owned property to produce revenue. This may include leasing unused land., renting vacant space, and establishing concessions in recreation areas or other ,similar techniques. 'The City Council will evaluate the appropriateness of establishing new income properties using sound business principles and after receiving input from neighbors and users. The policy of the City Council is that income property be managed in accordance with the following: 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. B. All negotiations regarding the lease, management contract, concession, sale or similar action regarding income property shall include review of an appraisal or analysis of the use being considered for the property conducted by a reputable and independent professional appraiser, real estate consultant or business consultant. C. The City shall seek, whenever practical and financially advantageous, to operate or manage all property and facilities directly with City staff or contractors. D. In all negotiations regarding the lease, management contract, concession, sale or similar action regarding a non- residential income property, the City shall seek I 1D1 F -7 revenue equivalent to the open market value of the highest and best use; and, whenever possible the City shall conduct an open bid or proposal process to insure the highest financial return. E. Whenever less than the open market or appraised value is received or when an open bid process is not conducted, the City shall make specific findings setting forth the reasons thereof. Such findings may include but need not be limited to the following: 1. The City is prevented by tideland grants, Coastal Commission guidelines or other restrictions from selling the property or converting it to another use. 2. Redevelopment of the property would require excessive time, resources and costs which would outweigh other financial benefits. 3. Converting the property to another use or changing the manager, concessionaire or lessee of the property would result in excessive vacancy, relocation or severance costs, which would outweigh other financial benefits. 4. Converting residential property to another use or opening residential leases to competitive bid would create recompensable liabilities and other inequities for long -terra residents. 5. The property provides an essential or unique service to the community that might not otherwise be provided were full market value of the property be required. 6. The property serves to promote other goals of the City such as affordable housing, preservation of open space or marine related services. F. Generally, lengths of leases, management contracts, concessions or similar agreements will be limited to the minimum necessary to meet market standards and will contain appropriate reappraisal and inflation protection provisions. Also, all agreements shall contain provisions to assure complete audits periodically through their terms. G. All negotiations regarding the lease, management contract, concession, sale or similar action regarding income property shall be conducted by the City Manager or his /her designee under the direction of any appropriate City committees. Ff. To provide an accurate accounting of actual net revenues generated by the City's income property, all costs and charges directly attributable to the management of 2 102 F -7 a specific income property shall be debited against the gross revenues collected on that property in the fiscal year the costs are incurred. Costs and charges include property repairs and maintenance, property appraisals, and consultant fees, as authorized by the City Council, City Manager or by this Income Property Policy. I. The City Manager or his /her designee is authorized to sign a lease, management contract, concession or similar agreement or any amendment thereto, on behalf of the City. Notwithstanding the foregoing, the City Manager or his /her designee, or a City Council member, may refer any lease, management contract, concession or similar agreement or any amendment thereto, to the City Council . for its consideration and /or action. Adopted - July 27,1992 Amended - Jan uary 24, 1994 Amended - February 27,1995 Amended - February 24,1997 Amended -May 26,1998 Amended - August 11, 2009 Amended - May 14, 2013 Formerly F -24 3 iO3