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Home My WebLink About11 - Termination of CdM Concession AgreementCITY OF NEWPORT BEACH CITY COUNCIL STAFF REPORT Agenda Item No. 11 November 23, 2010 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Administrative Services Department Evelyn Tseng, Revenue Manager (949) 644 -3153 or ETseng(a)NewportBeachCA.gov SUBJECT: TERMINATION OF CORONA DEL MAR CONCESSION AGREEMENT ISSUE Terminate the Agreement by and between the City of Newport Beach ( "City') and Fuji Grill, Inc., a California corporation ( "Tenant'), dated April 4, 2008, Letter dated September 18, 2008, amending Section 5.15, and Third Amendment to Concession and Lease Agreement, dated March 10, 2009 (collectively, the "Agreement'). Authorize the City Manager to execute a termination agreement based on the terms described within this report. DISCUSSION Background: From November 1991 through September 2005, Kilmer Enterprises managed the Corona del Mar State Beach concession. In September 2005, the concession agreement with Kilmer Enterprises was terminated in order to commence construction of the Corona del Mar Beachgoer Amenities Improvement Project (the "Project'). The Project included 1043 square feet for a concession facility. The Project opened in summer 2006 without a concessionaire. Council Policy F -7 requires the City to "seek 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" in negotiations regarding the lease of non- residential income property. On August 31, 2007, City issued a Request for Proposals for a concessionaire at the Project. In response, the City received six (6) proposals. City staff selected Fuji Grill, Inc., an established business in Newport Beach with franchises throughout Orange County, because it provided the most favorable response based on rent, menu, references and experience. City Council approved the selection, and on April 4, 2008, City entered into a Concession and Lease Agreement with the Tenant. Corona del Mar Concession Agreement Termination November 23, 2010 Page 2 The initial Concession and Lease Agreement required the Tenant to pay the greater of $80,000 /year for Base Rent, adjusted annually by the Consumer Price Index ( "CPI "), or Fifteen Percent (15 %) of Tenant's Gross Sales, to be paid monthly, but calculated on an annual basis. In addition, responding to Tenant's concerns regarding Corona del Mar Parking Lot's daily parking rate's negative impact on its business, City agreed to a Parking Refund Credit Program during the winter season, if an hourly parking rate program was not implemented by September 2, 2008. Tenant could reimburse a customer's bill for the value of their parking fee, and, upon documentary evidence each month, the City would credit that reimbursement amount to Tenant to the following month's rent. City did not implement an hourly rate at the CdM Parking Lot, and Tenant continued to be concerned about its revenues. In response to Tenant's concerns, City, through a series of negotiated lease amendments: 1. September 2008 — in lieu of the Parking Refund Credit Program, agreed to provide sixteen (16) designated parking spaces for Tenant's customers during each winter season throughout the term of the Agreement until an hourly parking program might be implemented; 2. February 2009 — permitted Tenant to enclose the area adjacent to its Premises to use as a patio area; 3. February 2009 — moved its stingray treatment center from the north side of the building to the south for the benefit of Tenant's customers using the patio area; 4. March 2009 — decreased Tenant's Base Rent from $80,000 to $36,000 pursuant to the following revised rent schedule: Year 1 (from May 25, 2008 to May 31, 2009) — no rent Year 2 (June 1, 2009 — May 31, 2010) - $36,000 Year 3 (June 1, 2010 — May 31, 2011) - $47,000 Year 4 (June 1, 2011 — May 31, 2012) - $58,000 Year 5 (June 1, 2012 — May 31, 2013) - $69,000 Year 6 (June 1, 2013 — May 31, 2014) - $82,012 and; 5. Provided Tenant more discretion to determine its own Operating Hours during the winter season. For its part, Tenant invested a great deal of time and money in the concession. Unfortunately, despite Tenant's best efforts and the City's accommodations, Tenant, through a letter from its attorney on September 28, 2010, offered a termination of the Agreement, or a modification of the Base Rent to $2,000 (Percentage Rent would remain the same) and requested the installation of 25 metered parking spaces adjacent to the Concession. Pursuant to the terms of Council Policy F -7, staff recommends that the Agreement be terminated, and a new 30 -day Request for Proposals for the CdM concession be issued immediately. Staff anticipates that an agreement for a new vendor at CdM could be finalized by spring, 2011, well before the busy summer season. Corona del Mar Concession Agreement Termination November 23, 2010 Page 3 Proposed Terms of Termination Aqreement If the Council approves this item, it would also authorize the City Manager to enter into a termination agreement based substantially on the following terms: RENT: Tenant's final Base Rent and Percentage Rent payments have been made, as of October 2010. No further payments are due. FINAL RENT Based on the most recent rent reconciliation report, City shall RECONCILIATION: pay $15,987.88 to Tenant upon the complete execution of the termination agreement. EQUIPMENT: Tenant will leave the equipment described in Exhibit "A" at the Premises, and leave the Premises in good condition. Environmental Review 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. Public Notice: 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). The fees are not subject to any taxing limitation or voter requirement since as recommended they do not exceed the reasonable cost of providing the service and are not intended to be used for general revenue purposes. Fiscal Impact: If the termination agreement is approved, City would lose the $3,916.67/month it would have received in Base Rent until a new tenant is selected. Because of the winter season, historically, no percentage rent payments would have been made. Prepared and Submitted By: Evelyn<jeng Revenue Manager Attachments: Exhibit "A" — Equipment List EQUIPMENT LIST -FUJI GRILL -CDM i 27- Sep -10 # `- DESCRIPTION CITY unit $ - Ext. $ Q $ 1 Cool -air Exhaust hood system with make -up air, fire system, grease filters 1'. 18,468 18,468 18,468 2 Custom made counter top with cabinet for service counter 2 17,650 8,825 17,650 3 Beverage refregerator Counter work top #TS -72 1 4,385 4,385 1 4,385 4 Gas Fryer- Frymaster #GF -14 -SD 1 .:1,050 1,050 1,050 5 Ameican Range Salamander Gas Broiler #ASTM -36 1 1,404 1,404 1 1,404 6 Beverage refregerator - sandwich top #SPE72 -18 with Double Over Shelf 1 2,479 2,479 1 2,479 7 Advance Taboo #ECC -1836 Shelving unit -wire 18x36x74 "(dxwxh ") 8 1,176 147 1,176 8 Advance Tabco #KMS- 11B -305R Utility Table with sink 30x60 "(dxw ") 1'- 11195 1,195 1,195 9 Everest #ESR 3 Reach -In refrigerator, 1 3,039 3,039 1 3,039 10 Everest #ESF 3 Reach -In Freezer, three section 71 cu.ft 9 1 3,529 3,529 1 3,529 11 Duke #E304 Steam Table for hood NEMA 6 -20 1 832 832 1 832 12 Tri -Star Manual Counter top Griddle #TSMG -36 1 833 833 1 833 13 Custom Model Gas Hose #48 5 179 8951 5 895 14 Tri -Star Custom Model #TSRS -36 Radiant Broiler Counter Top 1 1,295 1,295 1 1295 15 ICE- O -Matic #ICE0500HA Cube Style Ice Maker 1 2,656 2,656 1 2656 16 Tri -Star # TSR -6 6 Open Burner with Standard Oven 1 1,049 1049 1 1049 17 Rice Cooker -33 Cups 1 189 189 1 189 18 Prep -Sink 18" Tub 1 289 289 289 19 Custom Model Mop Sink 1 189 189 189 20 Cudtom Model Drop -in Sink (Hand Sink) with Faucet 1 -: 180 180 180 21 3 Compartment -sink with Faucet (*Stock Items) .1- 1,459 1,459 1,459 22 Taylor #754 Soft Serve Freezer for Yogurt 1 9,495 9,495 1 9,495 23 AtlactioGrossfillex seating Chaim #49442002 24 ": 840 35 840 24 Atlactic - Grossfillex Table with base #99851204 12: 828 69 828 25 Wooden Maket Umbrella Pacific Blue Canopy 12 2 148 179 2,148 26 1 Custom Made Awnings by Russ Rinner 21 3,620 1,810 3,6201 1 27 Fuji Grill -Out door Sign 1 1 5,497 5,497 1 5,497 28 Espresso Coffee machine 2 2,299 4,598 2 4,598 29 Espresso Coffee Grinder - Wazzer #0522509- ('Stock Items) 1 0 0 1 0 30 #891614 Chrome plate shelf ('Stock Items) 4 0 0 4 0 31 Grosfilledx 24" sq. -sand Table with Base #013193 4 364 91 364 32 Grosf Iledx 30" Round. -sand Table with Base ##035172 3.' -_ .....303 101 303 33 Angelanio #013392 Wood Base Seating patio Chair 7" 406 58 406 34 W3024 Patio Heater 4 ` 1 1832 458 1,832 Gray cafor; 11060frr to'City,'Yellow'cdo`r: to be rergo 4d by Fuji GrIII hG =: 85 , $ 51,9971 94,172 25 $ 42,175 Note #1: Most items do not include sales tax and freight charges. Note #2: Fuji Grill, Inc. has not verified the accuracy of the equipment prices shown herein and makes no warranty, express or implied, as to their accuracy. Some items were purchased by general contractors, and Fuji Grill, Inc. will not vouch for their accuracy. Note #3: All other unlisted non - fixture items shall be removed by Fuji Grill, Inc., including but not limited to computers, POS systems, security systems, kitchenware, food inventory, and other personal items.