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