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HomeMy WebLinkAboutReso 68-17 New Lease Agreement 885 EmbarcaderoRESOLUTION NO. 68-17 RESOLUTION OF THE CITY COUNCIL OF THE CITY OF MORRO BAY, CALIFORNIA APPROVING A NEW LEASE AGREEMENT FOR LEASE SITE 90/90W, LOCATED AT 885 EMBARCADERO THE CITY COUNCIL City of Morro Bay, California WHEREAS, the City of Morro Bay is the lessor of certain properties on the Morro Bay Waterfront described as City Tidelands leases and properties; and WHEREAS, Josef Steinmann ("Tenant") has been the lessee of Lease Site 90/90W (the 'Lease Site") since 2001; and WHEREAS, Tenant is in escrow for sale of the Lease Site to the tenant of Lease Site 89/89W ("New Tenant"); and WHEREAS, City and New Tenant wish to resolve issues over a failing portion of the seawall on Lease Site 89/89W; and because of the integrated nature of the seawall and revetment improvements to be completed on Lease Site 89189W (the "Boatyard"), pursuant to the new Lease Agreement for the Boatyard, as amended by Amendment #1, and because some of the improvements on the Lease Site to be completed pursuant to the Lease Agreement being approved by this Resolution and encroach into the Lease Site 89/89W, a combined project is warranted; and WHEREAS, New Tenant is proposing substantial repair, maintenance and renovation/remodel improvements on the Lease Site; and WHEREAS, City and New Tenant wish to enter into the Lease Agreement for the Lease Site to take into account the proposed improvements and integration with the improvement rehabilitation project on Lease Site 89/89W. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Morro Bay, California, as follows: 1. The attached new Lease Agreement for Lease Site 90/90W is hereby approved. 2. The Mayor is hereby authorized to execute the new Lease Agreement. PASSED AND ADOPTED by the City Council of the City of Morro Bay at a regular meeting thereof held on the 12th day of December, 2017 on the following vote: AYES: Irons, Davis, Headding, Makowetski, McPherson NOES: None ABSENT: None ABSTAIN: None Ja�(ie L. Irons, Mayor TEST: Dana Swanson, City Clerk 01181.0024/431400.1 LEASE This LEASE is made and entered into by and between the CITY OF MORRO BAY, a municipal corporation of the State of California herein called CITY and BOATYARD, LLC, a California limited liability company herein called TENANT.) (CITY and TENANT are sometimes referred to herein separately as Party and collectively as Parties.) WHEREAS, CITY currently leases to Josef Steinmann (Steinmann) a site ("Premises") in the City of Morro Bay, County of San Luis Obispo, State of California, described as Lease Site 90/90W and delineated on Parcel Map of CITY of Morro Bay No. 68-30, which map was recorded on October 10, 1968, in Book 3, Page 10 of Parcel Maps in the Office of the County Recorder, San Luis Obispo County, California (Map). A copy of the Map is attached hereto as Exhibit A and made a part hereof by reference. The lease between CITY and Steinmann is hereinafter referred to as the "Steinmann Lease"; WHEREAS, at TENANT'S request, Steinmann, as the current master tenant of the Premises, authori zed CITY and TENANT to negotiate a new lease for the Premises pursuant to which TENANT would be the master lessee and CITY the master lessor and the Steinmann Lease would be terminated; WHEREAS, TENANT desires to lease from CITY and CITY desires to lease to TENANT the Premises and CITY and TENANT have mutually agreed to enter into this lease agreement ("this Lease" or "this Lease Agreement); WHEREAS, TENANT currently leases from CITY Lease Site 89/89W, which abuts the Premises, pursuant to that cert ain Assignment and Assumption of Lease Agreement dated January 11, 2006; WHEREAS, on or about October 11, 2016, CITY and TENANT have entered into that certain new Master Lease Agreement for Lease Site 89/89W, as amended ("New MLA for Lease Site 89/89W") for a term of 45 years that, pursuant to Section 1.03 of the New MLA for Lease Site 89/89W, commences on the first day of the complete calendar year following TENANT'S receipt of all the permits, as defined in Section 13.03 of the New MLA for Lease Site 89/89W; 01181.0024/413989.13 � A� WHEREAS, as part of TENANT'S due diligence investigation of the Premises, Pasquini Engineering, Inc. conducted an inspection of the deck and other improvements on the Premises and prepared a report dated July 3, 2017, which calls into question the integrity of certain existing improvements on the Premises; WHEREAS, TENANT proposed more than Three Hundred Seventy-five Thousand Dollars ($375,000.00) shall be spent on the hard and soft costs on the docks and other improvements on the Premises, as set forth and depicted in the "Site Plan," attached hereto and made a part hereof as Exhibit B (collectively, the "Rehabilitation Project"), in exchange for this Lease Agreement in order to assist with the financing of the Rehabilitation Project, NOW, THEREFORE, pursuant to all of the conditions set forth in this Lease, and in consideration of the covenants to be performed by the Part ies and the rental to be paid by TENANT to CITY, CITY leases to TENANT, and TENANT leases from CITY, the Premises. Article 1 FIXED TERM Section 1.01 Incorporation of Above Recitals. The above "Whereas" clauses are true and correct and are incorporated herein as part of this Lease by this reference. Notwithstanding any other provision of this Lease, if this Lease is terminated pursuant to Section 1.04, below, then nothing in this Lease shall be considered an admission or used by either Party or any party in any litigation that may arise related in any way to the Lease Site 89/89W premises,,the seawall/revetment failure on Lease Site 89/89W or the Premises. Section 1.02 General Reasons for Certain Provisions of this Lease Agreement. The part ies understand and agree some of the provisions of this Lease Agreement vary from CITY'S typical master lease agreements for the Tidelands properties held in trust and controlled by CITY. CITY is willing to agree to those varied provisions because of the (i) integrated nature of the seawall and revetment improvements to be completed on the Premises and pursuant to the New MLA for Lease Site 89/89W, (ii) some of the improvements on the Premises encroach into Lease Site 89/89W, (iii) a subtenant of Lease Site 89/89W needs access to the dock on the Premises where that subtenant docks its commercial boat for the business it conducts on Lease Site 89/89W and (iv) the business office of a subtenant of the Premises is located on Lease Site 89/89W pursuant to a sublease with TENANT and it is likely office space for a subtenant on the Premises will continue to be located on Lease Site 89/89W. xj 01181.0024/413989.13 -2- � ,�� Section 1.03 Termination of Steinmann Lease. As a material condition of this Lease and concurrently with the effective date of this Lease Agreement, as described in Section 1.05, below, CITY and the tenant of the Steinmann Lease and each of that tenant's subtenants/renters shall execute a document, substantially similar to Exhibit E, terminating the Steinmann Lease and any sublease/rental agreement related to the Steinmann Lease (the 'Termination Document' ). Because TENANT is not following CITY'S typical process of having the Steinmann Lease, which is still effective, assigned to it and assuming the obligations of the Steinmann Lease to become a City tenant of Lease Site 90/90W, a material condition to the close of escrow for the transaction between TENANT and the tenant of the Steinmann Lease related to TENANT'S purchase of the that tenant's business interests related to Lease Site 90/90W is for the fully executed Termination Document to be deposited, into that escrow before its closure. Section 1.04 Lease Contingency. TENANT shall have the right to give CITY written notice of termination of this Lease and this Lease shall be void and of no force or effect if, (i) TENANT exercises the contingency in Section 1.02 of the New MLA for Lease Site 89/89W, as amended; or (ii) TENANT is not able to obtain all Permits (as defined in Section 13.02 F., below) without any materi al design and/or structural change for the Rehabilitation Project on or before October 31, 2018; or (iii) the Permits and the construction of the repairs and improvements for the Rehabilitation Project cannot be obtained and completed concurrently with the portion of the Rehabilitation Project for Lease Site 89/89W related to the repair of the seawall/revetment for Lease Site 89/89W without any material design and/or structural change for the Rehabilitation Project or (iv) TENANT does not close the escrow for the purchase of the Otter Rock Cafe with the current subtenant on Lease Site 90/90W. The parties acknowledge time is of the essence in obtaining all Permits for the Premises because TENANT has already submitted a "complete application" to the California Coastal Commission for the Rehabilitation Project on Lease Site 89/89W. Section 1.05 Effective Date and Term. The effective date of this Lease Agreement shall be the date it has been signed on behalf of CITY, as long as it has also been signed on behalf of TENANT. The term of this Lease shall be a period of forty-seven (4 7) years (the "Term commencing on the first day of the complete calendar month one hundred eight (180) days following TENANT'S receipt of all of the 6'Permits," as defined in Section 13.03 A. of the New MLA for Lease Site 89/89W and for all "Permits," as defined in Section 13.02 F. of this Lease (the "Commencement Date"). Notwithstanding the foregoing, TENANT shall have the right to terminate this Lease beginning on the thirtieth (30th) year of the Lease by delivering written notice of termination to CITY at 01181.0024/4 1 3 9 89.13 -3 - least 12 months prior to the termination date in TENANT'S written notice. Unless sooner terminated as herein provided, the Term shall terminate without notice on the forty-seventh (47th) annual anniversary after the Commencement Date. Within 5 days after the Commencement Date, the parties agree to sign a Commencement/Termination Date Memo, substantially similar to Exhibit C, attached hereto. Section 1.06 No Extensions. The Term shall not be extended nor shall this Lease be renewed without a mutually agreeable amendment signed by the Parties. Section 1.07 Hold Over. If TENANT holds the demised Premises after the expiration of the Term with the consent of CITY, express or implied, then such holding over (in the absence of a writt en agreement between CITY and TENANT with respect thereto) shall be deemed to create a tenancy from month-to-month, terminable on thirty -days' written notice from either party to the other, at a monthly rental equal to one hundred fifty percent (150%) of the average total Rent per month for the twelve (12) months immediately preceding the expiration of the Lease, and otherwise subject to each and every term, covenant and condition of this Lease. Article 2 RENT Section 2.01 Annual Minimum Rent. TENANT agrees to pay to CITY a minimum guaranteed annual rental for the use and occupancy of the Premises, in an initial amount of $35,000.00 per year (the "Minimum Rent"), payable in advance in equal semiannual installments on January 1 and July 1 each year during the term of the Lease. If the Commencement Date is other than January 1 or July 1, then TENANT shall pay, on the Commencement Date, then the proport ionate amount of the Minimum Rent payable for the period from the Commencement Date until the next payment date A January 1 or July 1, as the case may be. If the term of the Lease expires on a date other than December 31 or June 30, then TENANT'S final installment of Minimum Rent shall be proportionate to the time remaining in the term. All Rent, including the Minimum Rent and the Percentage Rent, shall be paid in lawful money of the United States of America, without offset or deduction and shall be paid to CITY at City Hall located at 595 Harbor Street, Morro Bay, California, or at such other place or places CITY may from time to time designate by writt en notice delivered to TENANT. 01181.0024/4]3989.13 -4- Notwithstanding the foregoing and in consideration of the reasons set forth in Section 1.02, above, CITY agrees TENANT shall not be required to pay any Minimum Rent or Percentage Rent (defined below) for the 180 -day period commencing on the Commencement Date. Section 2.02 CPI Adjustment to Annual Minimum Rent. The Parties agree, as of every July 1 following the Commencement Date (each, a "CPI Adjustment Date"), except as outlined in Section 2.03 hereof, the annual Minimum Rent shall be adjusted in direct proportion to any upward or downward movement in the then current Consumer Price Index from the Consumer Price Index applicable on the Commencement Date (Base Index), but, in consideration of the reasons set forth in Section 1.02, above, that increase or decrease shall not exceed 1.0% in any one year; provided, that the parties agree, if. (1) the CPI increases or decreases over 6%, then the maximum CPI increase or decrease shall be 1.0%, his half of the increase or decrease over 6%. As an illustration only, if the CPI increase is 8%, then the new CPI rent calculation would be one half of the difference between 604 and 80/., or 104 , added to the maximum 1.0% for a new 2:0% CPI. The percentage adjustment for any given year shall be based on the monthly average Index for the calendar year immediately preceding the CPI Adjustment Date as compared with the Base Index. The Consumer Price Index referred to herein is the Consumer Price Index (all items indexes, all urban consumers) for Los Angeles - Anaheim - Riverside, California, compiled and published by the United States Department of Labor, Bureau of Labor Statistics, 1982-84 Base Year= 100 (the "Index"); and (2) the United States Department of Labor, Bureau of Labor Statistics, shall cease to compile and make public the Index as now constituted and issued, but shall substitute another index in its place, then said substituted index shall be used for the purpose of adjusting the Minimum Rent for the Premises. If the Index is changed so that the base year differs from that in effect on the Lease Commencement Date, then the Index shall be converted in accordance with the conversion factor published by the United States Department of Labor, Bureau of Labor Statistics. Section 2.03 Calculation of New Minimum Rent. At the end of the initial five years and of each five-year (5 -year) period thereafter, a new Minimum Rent shall be calculated for the following five-year (5 -year) period (each, a "Subsequent Rental Period") as follows: A. The Minimum Rent shall be subject to adjustment by appraisal as of the fifth anniversary of the Commencement Date and every five years thereafter (each, an "Appraisal 01181.0024/413989.13 -s- Adjustment Date"). CITY, at its own cost and expense, shall retain an independent qualified appraiser for determination of the fair market value of the Premises, as vacant and available for development to its highest and best use. Not more than nine months prior to each Appraisal Adjustment Date, CITY shall provide written notice to TENANT of the pending appraisal and the appraiser selected by CITY to determine the fair market value of the Premises, excluding fixtures and improvements unless such are expressly included in the description of the leasehold hereinabove. If TENANT does not reject CITY'S appraiser in writing and within thirty (30) days after CITY'S notice of its determination, then the Minimum Rent for the Subsequent Rental Period shall be in the amount determined by CITY as outlined in this Section 2.03. If TENANT rejects CITY'S appraiser within thirty (30) days following CITY'S notice to TENANT, then within fifteen days after such thirty-day (30-day) period, each party, at its own cost, shall select an independent professionally designated appraiser who is a member of the American Institute of Real Estate Appraisers, or the Society of Real Estate Appraisers with a designation of MAI (Member of American Institute), SRPA (Senior Real Estate Analysis), to appraise the fair market value of the Premises. CITY may rely on its original appraisal, or select a new appraiser, at its cost. If a Party does not appoint an appraiser within fifteen days after the other Party has given notice of the name of its appraiser, then the single appraiser appointed shall be the sole appraiser. Each appraiser shall conduct an independent appraisal within thirty days after appointment. If the Parties are unable to agree on the Minimum Rent for the Subsequent Rental Period within thirty (30) days after receiving the appraisal(s), then each Party shall select one member of a three-member committee. The two so selected members shall select the third member, and that committee shall by majority vote select one or the other of the appraisals. The Minimum Rent determined on the basis of the selected appraisal shall be final and binding and all costs associated with the three-member committee shall be paid equally by CITY and TENANT. B. In the event the appraisal process is not concluded on or before the Appraisal Adjustment Date, the Minimum Rent shall be adjusted retroactively to such Appraisal Adjustment Date as set out herein below when said appraisal process is completed. Co The total Rent payable, including both the Minimum Rent and the Percentage Rent for each year within the applicable previous five-year (5-year) period, shall be averaged to produce the average annual total Rent payable for such previous period. D. In consideration of the reasons set forth in Section 1.02, above, the new Minimum Rent for the five-year period commencing on each Appraisal Adjustment Date shall be the greater amount of sixty-five percent (65%) of the average of the total yearly Rent payable during the previous five-year (5-year) period (as set out in paragraph C. above) or four percent (4.0%) of the fair market value of the Premises (as established in paragraph A. above) for the twenty (20) years following the Commencement Date and then that will increase to the greater amount 01181.0024/413989.13 -6- YZ, �� of sixty-five percent (65%) of the average of the total yearly Rent payable during the previous five-year (5 -year) period (as set out in Paragraph C. above), or six percent (6%) of the fair market value of the Premises (as established in Paragraph A. above) for the remainder of the Term. The new Minimum Rent shall be divided by two to determine the semiannual payments and shall be paid by TENANT to CITY on the first of each January and July thereafter. That new Minimum Rent shall be adjusted each following year in proportion to any increase in the Consumer Price UO set out in Section 2.02 of this Lease. The base index shall be adjusted upon each Calculation of new Minimum Rent as set out in this section so that the Base index for CPI adjustment shall be the Consumer Price Index for January 1 of the year of the calculation of new Minimum Rent. Section 2.04 Percentage Rent. A. In addition to the Minimum Rent, in consideration of the reasons set forth in Section 1.02, above, commencing on the Commencement Date and continuing until the twentieth (20th) annual anniversary of the Commence Date TENANT agrees to pay to CITY at the time and in the manner hereinafter specified, as additional Rent for the use and occupancy of the Premises, a sum equal to three percent (3%) of TENANT'S Gross Sales, hereinafter defined, less the amount of the Minimum Rent payable pursuant to this Lease (the "Percentage Rent"). Thereafter, for the remainder of the Term, the Percentage Rent applicable and due will be five percent (5%) of TENANT'S Gross Sales less the amount of Minimum Rent payable for the fiscal year pursuant to this lease. For an illustration only, if we assume the Minimum Rent payable by TENANT is $47,000 and TENANT'S total yearly Gross Sales are $1,900,000, then the Percentage Rent payable by TENANT to CITY would be $10,000 calculated as follows: $57,000 (3% of $1,900,000) less $47,000 (Minimum Rent already payable by TENANT). B. The term "Gross Sales," as used herein, shall mean (subject to the exceptions and authorized deductions as hereinafter set forth), the total selling pri ce and the total gross amount received by TENANT fr om all rentals, merchandise sold and services rendered in, on or from the Premises by TENANT, its sublessees, licensees, or concessionaires, both for cash and on credit including, but not limited to, rentals of dockage space, leasing and servicing operations and ticket sales, and if on credit whether or not payment be actually made therefore, all charges for services, alterations or repairs made in or upon the Premises; the gross amount received by TENANT for merchandise sold, full -filled and paid for from business entirely conducted/transacted at Premises, either in person or through the Intern 01181.0024/413989.13 et or other media; and the gross amount received by TENANT from any and all other sources of income derived from the business conducted upon the Premises. C. Notwithstanding the other provisions of Section 2.04, the term "Gross Sales" shall not include the following items, and such items may be deducted from Gross Sales to the extent they have been included therein or have been included in a prior computation of Gross Sales or for which a Percentage Rent has been paid under this Lease to CITY: (1) Credits and refunds made to customers for merchandise returned or exchanged; (2) Any sales or excise taxes otherwise includable in Gross Sales as defined in this Section because such taxes are part of the total selling price of merchandise or services rendered in, from, or on the Premises, where TENANT must account for and remit the taxes to the government entity or entities by which they are imposed; and (3) With respect to credit card sales, fees retained or withheld by the issuer and/or merchant bank pursuant to TENANT'S credit card acceptance agreement, and (4) Rental payments to TENANT from sublessees whose total gross sales are included in gross sales computations. D. TENANT shall keep or cause to be kept full, complete, and accurate records, and books of account in accordance with accepted accounting and commercial practices showing the total amount of Gross Sales, as defined herein, made each calendar month in, on or from the Premises. Furthermore, TENANT shall at the time of sale and in the presence of the customer cause the full selling pri ce of each piece of merchandise, each rental received and each service rendered in, on or from the Premises to be recorded in a cash register or cash registers that have cumulative totals and are recorded in accordance with standard commercial practices. The records, books of account and cash register tapes, including any sales tax reports TENANT may be required to furnish any government or governmental agency shall at all reasonable times be open to the inspection of CITY, CITY'S auditor, or other authorized representative or agent of CITY. TENANT consents to the release of sales tax information to CITY and on demand will furnish to CITY a copy of the sales tax reports, quarterly reports and any audit report s of sales for confidential internal use of CITY in determining Gross Sales for TENANT in, on or from the Premises. E. By July 31 of each year, TENANT shall furnish CITY with a statement, to be certified by TENANT, as current, true and accurate, which shall set forth the Gross Sales of each department, sublessee, licensee and concession operating in, on or from the Premises for the previous twelve (12) calendar months, ending June 30, just concluded, and the authorized deductions, if any, therefrom ("Statement" or "Statements"); and with it TENANT shall pay to CITY the amount of the Percentage Rent which is due to CITY as shown thereby. 01181.0024/413989.13 'g' F. Except as provided in this subsection F., CITY shall be entitled at any time within five years after the receipt of any such Percentage Rent payment, to question the sufficiency of the amount thereof and the accuracy of any Statement or Statements furnished by TENANT to justify the same. For the purpose of enabling CITY to check the accuracy of any Statement or Statements, TENANT shall for said period of five years after submission to CITY of any Statement or Statements keep all of TENANT'S records commercially necessary to establish in detail TENANT'S Gross Sales and any authorized deductions therefrom, as shown by any Statement or Statements, and shall upon request make the same available to CITY for examination for periodic auditing purposes. Except as provided in this subsection F, although it is the policy of CITY to audit Tidelands Trust tenants once every approximate five years, CITY may, once in any twelve-month period, cause an audit of the business of TENANT to be made by a public accountant of CITY'S own selection. Notwithstanding the foregoing provisions of this Section 2.04 and in consideration of the reasons set forth in Section 1.02, above, CITY agrees not to conduct any audit of TENANT for any reason for a period of five years after the Commencement Date, unless CITY'S City Manager has substantial evidence to believe TENANT'S annual Gross Sales reporting during that period is not accurate. TENANT shall, upon receiving wri tten notice of CITY'S desire for such an audit deliver and make available any and all sales tax reports TENANT and each subtenant has filed with the California Franchise Tax Board for the peri od being audited. If any or all of the sales tax reporting are not timely provided or are not reasonably adequate for auditing purposes, then TENANT shall deliver and make available all commercially necessary records to the public or certified public accountant selected by CITY. In addition, for any and all business transactions made by or on behalf of TENANT or any subtenant at the Premises not subject to sales taxes, all commercially necessary records shall be made available for auditing purposes. In the event any audit or other review of records discloses that the amounts reported as Gross Sales was understated by TENANT by ten percent or more, CITY shall be entitled to recover from TENANT a penalty equal to one and one-half (1.5) times the Percentage Rent due pursuant to this Lease on such unreported amounts. Whenever any audit discloses Gross Sales were understated by any amount, TENANT shall immediately pay the additional Percentage Rent therein shown to be payable by TENANT to CITY, together with interest at the Default Rate thereon, fr om the date the Percentage Rent was payable until the date paid. 01181.0024/413989.13 -9- Section 2.05 Reimbursements. If TENANT fails to perform any term or covenant of this Lease, then CITY may, but is not obligated to, perform such term or covenant, and TENANT shall reimburse CITY therefore as additional Rent hereunder. As an illustration and not as a limitation, if TENANT fails to procure the insurance required by this Lease, then CITY may, but is not obligated to, obtain such insurance, with the cost of the premiums being due to CITY upon demand as additional Rent. Section 2.06 Penalty and Interest. (1) If any Rent is not received within ten days following the date on which the Rent first became due, then TENANT shall pay a late penalty of ten percent of the amount of the Rent in addition to the Rent. (2) In addition to the penalty, TENANT shall pay interest at the rate of one percent per month or fraction thereof or the maximum amount permitted by law as of the date this Lease is signed, whichever is greater (the "Default Rate"), on the amount of the Rent, exclusive of the penalty, from the date on which Rent first became delinquent until paid. The term "Rent" includes any sums advanced by CITY and any unpaid amounts due from TENANT to CITY. SectionSemi-Annual Credit. In partial consideration of completion of the Rehabilitation Project, CITY agrees to credit against each semi-annual payment due by TENANT to CITY pursuant to this Lease Twelve Thousand Five Hundred Dollars ($12,500.00) for twenty consecutive semi-annual payments due to CITY, commencing with the first full semi-annual payment due after the Commencement ate; provided, that if the semi-annual Minimum Rent payable is less. than an applicable semi D - annual credit. that excess credit shall not be refunded or carried over as a credit for any subsequent semi-annual payment. Article 3 USE OF PREMISES Section 3.01 Permitted Uses. The Premises shall, during the Term, be used for the purpose of operating and conducting thereon and therein the uses permitted by and in compliance with (i) Conditional Use Permit Number CUP 1692 Precise, CUP 1693 minor mod by PC, CUP16-92 major mod, and CUP 28- 02, Coastal Development Permits (CDP) CDP 3-93-17, and CDP 3-93-017-A2 (when issued), and (ii), if issued, any new CUP or CDP number(s) or Minor Use Permits or amendment to any or all of those approvals, after a request from TENANT for the new CUPS, CDPs, 01181.0024/413989.13 -10- Minor Use Permits or amendments, and for no other purpose (collectively, the "Entitlements"). The Parties agree and acknowledge all the terms and conditions contained in this Lease shall be deemed to be materially consistent with the Conditions of Approval as set Forth in the Entitlements. On the Commencement Date, the Entitlements include the following permitted uses: restaurant dining room, take-out service, and bar service of food and beverage including alcoholic beverages, gift and retail sales, and rental of dock space. In addition, the Following uses are allowed, pursuant to issuance of one or more Minor Use Permits, as applicable: wine tasting, outside barbecue, live and recorded entertainment and music, wholesale and retail seafood processing and sales, use of dock space for loading or unloading seafood or mariculture products, boat excursion ticket sales, tour boat(s) up to 38 seats and boat rental and berthing. Upon receipt of a complete application and payment of processing fees for necessary Minor Use Permit(s), CITY'S Community Development Director shall, in good faith, review the application with the goal of finding a way, within the provisions of the applicable law, to approve the Minor Use Permit(s). The Parties also agree nothing in this Lease limits TENANT'S legal ability to seek a revision to any land use entitlement to add or delete any uses to be allowed on the Premises. Section 3.02 Unauthorized Use. TENANT agrees to allow only those uses authorized in Section 3.01 hereinabove and any unauthorized use thereof shall constitute a breach of this Lease and shall, at the option of CITY, terminate this Lease. Section 3.03 Operation of Business -Hours of Operation. TENANT'S failure, in good faith, to actively and diligently conduct, or TENANT' S failure, in good faith, to actively and diligently pursue TENANT'S subtenants to actively and diligently conduct the business authorized herein, constitutes a breach of this Lease and shall, at the option of CITY, terminate this Lease, after all applicable notice periods and cure periods have expired pursuant to this Lease. TENANT shall during the Term conduct business of the nature specified in Section 3.01 of this Lease on the Premises in an efficient and diligent manner and keep the Premises open for the conduct of business continuously and without interruption for at least six hours each day of the year except one day each week and legal holidays. This provision shall not apply if the Premises shall be closed and the business of TENANT is temporarily shut down for a period not to exceed fourteen calendar days in any calendar year to make necessary repairs, maintenance or other construction deemed necessary by TENANT and/or for any longer period as reasonably necessary to complete the Rehabilitation Project. This provision shall not apply if the Premises shall be closed and the business of TENANT is 01181.0024/413989.13 -11- temporarily shut down as authorized or required by CITY'S City Manager or on account of strikes, walkouts, or causes beyond the control of TENANT or for the death or illness of an officer, member or employee of TENANT, any subtenant, or officer, member of employee of any subtenant. Section 3.04 Competition. During the Term, TENANT shall not directly nor indirectly acquire or establish any similar or competing business within a radius of five (5) miles from the location of the Premises; provided, however, that TENANT may, with prior written approval from CITY, own or operate more than one business, whether or not competing and similar along the Embarcadero upon CITY lease sites. The purpose of this section is to prevent and prohibit TENANT from reducing revenue to CITY by diverting business from the operation at the Premises to another similar business owned by TENANT within CITY but not upon a CITY lease site from which CITY is paid rent based on Gross Sales. Section 3.05 Hazardous Materials. (1) TENANT shall not transport, use, store, maintain, generate, dispose, release, treat or discharge any "Hazardous Material" (as defined below) upon or about the Premises (such activities being hereafter referred to as "Hazardous Materials Activities"), nor permit TENANT'S employees, agents, or contractors to engage in Hazardous Materials Activities upon or about the Premises, except as allowed by applicable law. The term "Hazardous Material" for purposes hereof shall mean any chemical, substance, material or waste or component thereof which is now or hereafter listed, defined or regulated as a hazardous or toxic chemical, substance, material or waste or component thereof by any federal, state or local governing or regulatory body having jurisdiction, or which would trigger any employee or community "right -to -know" requirements adopted by any such body. All Hazardous Materials Activities at the Premises shall be conducted strictly in accordance with all applicable laws and regulations. If TENANT shall transport any hazardous waste from the Premises, such transportation shall be done only by a contractor duly licensed to haul hazardous waste and shall use only a duly licensed disposal site approved by TENANT'S liability insurer. (2) TENANT shall promptly notify CITY o£ (i) any enforcement, cleanup or other regulatory action taken or threatened by any governmental or regulatory authority with respect to the presence of any Hazardous Material on the Premises or the migration thereof from or to otrier property, (ii) any demands or claims made or threatened by any party against TENANT or the Premises relating to any loss or injury resulting from any Hazardous Material on or from the Premises, and (iii) any matters where TENANT is required by applicable law to give a notice to 01181.0024/413989.13 any governmental or regulatory authority respecting any Hazardous Material on the Premises. CITY shall have the right (but not the obligation) to inspect the Premises, to take such remedial action on the Premises, as CITY may deem appropriate, and to join and participate, as a party, in any legal proceedings or actions affecting the Premises initiated in connection with any environmental, health or safety law. (3) If any Hazardous Material is released, discharged or disposed of by TENANT or its employees, agents or contractors, on or about the Premises in violation of the foregoing provisions, then TENANT shall immediately notify CITY. CITY may elect either to take such remedial action as CITY deems appropriate, in which event TENANT shall reimburse CITY for all costs thereof within ten days after demand, or direct TENANT to perform such remediation. If CITY directs TENANT to perform the remediation, then TENANT shall immediately take such remedial action, as CITY shall direct. TENANT shall, properly and in compliance with applicable laws clean up and remove the Hazardous Material from the Premises and any other affected property at TENANT'S expense. If CITY directs TENANT to perform remediation hereunder and if TENANT fails to comply with CITY'S direction given pursuant to this Section within five (5) days after written notice by CITY, or such shorter time as may be required by applicable law or in order to minimize any hazard to persons or property, then CITY may (but shall not be obligated to) arrange for such compliance directly or as TENANT'S agent through contractors or other parties selected by CITY at TENANT'S expense (without limiting CITY'S other remedies under this Lease or applicable law). (4) Notwithstanding anything contained in this Section 3.05, TENANT and all subtenants of the Premises shall have the right to use oil, gas, diesel, and other Hazardous Material, but only in connection with motorized water craft at or near the docks on the Premises, as an integral part of the approved use of the Premises. Section 3.06 Tidelands Trust. TENANT shall use and occupy the Premises in strict compliance with the Tidelands Trust purposes under which the Premises or any portion thereof are held by CITY pursuant to the grants from the State of California as set forth in this Lease. Section 3.07 Compliance with Law. TENANT shall, at no cost to CITY, comply with all of the requirements of all local, municiFal, county, state and federal authorities now in force, or which may hereafter be in force, pertaining to the Premises, and shall faithfully observe in the use of the Premises all local, municipal, county, state and federal statutes, laws, rules, regulations and orders now in force or 01181.0024/413989.13 13 V V� which may hereafter be in force, including, but not limited to, payment of prevailing wages as required by law (collectively, "Legal Requirements"); provided, that TENANT shall not be required to comply with any Legal Requirement imposed by CITY that would substantially deprive TENANT of a material benefit under this Lease, unless the Legal Requirements have been imposed or required by a county, state or federal authority or to preserve public health and safety and the latter are applied to similar businesses within CITY'S jurisdiction. The judgment of any court of competent jurisdiction, or the admission of TENANT in any action or proceeding against TENANT, whether CITY be a party thereto or not, TENANT has violated any of the Legal Requirements in the use of the Premises shall be conclusive of that fact as between CITY and TENANT. Section 3.08 Waste or Nuisance. TENANT shall not commit or permit the commission by others of any waste on the Premises; TENANT shall not maintain, commit, or permit the maintenance or commission of any nuisance as defined by law on the Premises; and TENANT shall not use or permit the use of the Premises for any unlawful purpose. Section 3.09 Use by CITY. (1) Subject to TENANT'S rights hereunder to possession of the Premises, CITY may grant licenses to, or otherwise authorize, other persons and entities permitt ing uses of the Morro Bay Harbor, so long as no license or other interest over or to the Premises is conveyed, granted, or otherwise transferred for any commercial purpose, except for a public right-of-way to the docks and bay waters or that may otherwise be reasonably approved by TENANTS; provided, that the Parties understand the following applies to this and all Tidelands Trust lands pursuant to the Tidelands Trust Grant: There is hereby reserved, however, in the people of the State of California the absolute right to fish in the waters of said harbor with the ri ght of convenient access to said waters over said lands for said purposes. (2) CITY also retains and reserves for itself, its successors and assigns, all oil, gas, petroleum and other mineral or hydrocarbon substances in and under the lands leased hereby together with right to prospect and extract all such substances. Article 4 CONSTRUCTION, ALTERATION AND REPAIRS Section 4.01 Construction A pproval. (1) TENANT shall not make or permit any other person to make any alterations or structural additions or structural modifications to the Premises or to any structure thereon or 01181.0024/4] 3989.13 Facility appurtenant thereto if the cost thereof shall exceed Ten Thousand Dollars, without the prior written consent of CITY. The consent to be obtained pursuant to this Section 4.01(1) shall be requested from the Harbor Director, or CITY'S designee, for CITY. If the Harbor Director or any future successor to the duties of CITY'S Harbor Director, or CITY'S designee, gives such consent to proceed, then it is understood such consent is given by CITY only in its capacity as the landlord under this Lease and not as the permit -issuing authority. TENANT remains obligated to obtain any needed building permits and comply with all applicable planning processes. Once the Permits are issued for the Rehabilitation Project, CITY will be deemed to have provided written consent for that project. (2) Where required by the MBMC, California Coastal Act, Corps of Engineers or any other state or federal agency having authority over the proposed project, then all Conditional Use Permits, Concept Plans, Precise Plans, Coastal Development Plans, and any other required plans or permits shall be applied for and approved prior to any construction, alteration or repairs. Section 4.02 Construction Bond. (1) Prior to the commencement of any construction the cost of which is greater than the amount of One Hundred Thousand Dollars, TENANT shall file with the City Clerk a final detailed Civil Engineer's, Registered Architect's or Licensed and Bonded General Contractor's estimate of the cost of construction and installation of improvements on the Premises. The estimate must be submitted to CITY'S City Engineer for approval. TENANT shall file with CITY'S City Clerk a faithful performance bond, in a form and issued by a corporate surety company satisfactory to CITY, in an amount satisfactory to CITY, but not in excess of one hundred percent of the final detailed cost estimate, securing the faithful performance of TENANT or its contractor in the completion of said construction. (2) TENANT shall also file with CITY'S City Clerk a labor and materi als bond, in a form and issued by a corporate surety company satisfactory to CITY, in an amount satisfactory to CITY but not in excess of one hundred percent (100%) of the final detailed cost estimate, securing the payment of all claims for the performance of labor or services on, or the furnishing A materials for, the performance of the construction. (3) In lieu of the above referenced bonds, TENANT must: (i) demonstrate, to CITY'S reasonable satisfaction, TENANT'S reasonable financial liquidity of uncommitted and totally accessible assets equal to Three Hundred Seventy-five Thousand Dollars ($375,000.00), (ii) post cash deposits equal to 100% of the soft and hard actual construction costs, or (iii) make other mutually agreeable arrangements to guarantee the completion of construction projects. In 01181.0024/413989.13 -15- the event the contractor bonds the construction, CITY may be named as additional indemnitee to comply with these requirements. Section 4.03 Mechanics' Liens. At all times during the Term, TENANT shall keep the Premises and all buildings, installations and other improvements now or hereafter located on the Premises free and clear of all liens and claims of liens for labor, services, materials, supplies, or equipment performed on or furnished to the Premises. TENANT further agrees to at all times, save CITY free and harmless and indemnify CITY against all claims for labor or materials in connection with any improvement, repairs, or alterations on the Premises, and the cost of defending against such claims, including reasonable attorneys' fees. If TENANT fails to pay and discharge or cause the Premises to be released from such liens or claim of liens within ten days after the filing of such lien or levy, TENANT shall upon written notification be required to immediately deposit with CITY a bond conditioned for payment in full of all claims on which said lien or levy has been filed. Such bond shall be acknowledged by TENANT as pri ncipal and by a company or corporation, licensed by the Insurance Commissioner of the State of California to transact the business of a fidelity and surety insurance company as surety. The beneficiary of any security instrument which instrument is on record with CITY, shall have the right to file such a bond on behalf of TENANT. CITY shall have ri ght to post and keep posted on the Premises notices of non -responsibility and any other notices that may be provided by law or which CITY may deem proper for the protection of CITY and the Premises from such liens. TENANT shall give CITY notice at least twenty days prior to commencement of any work on the Premises to afford CITY the opportunity to post such notices. SectionOwnership of Improvements. The Part ies agree CITY has the option and right to require TENANT to remove all buildings, structures, installations, improvements of any kind or other property belonging to or placed upon the Premises by TENANT at the termination of this Lease, however occurring, providing CITY gives notice, in writing, no later than one hundred eighty (180) days prior to the termination of the Lease, of its decision to require the improvements be removed. The Parties agree if CITY exercises its option, then at the termination of this Lease, however occurring, TENANT shall have one hundred twenty (120) days thereafter to remove all buildings, structures, facilities, installations, improvements and other property belonging to TENANT from the Premises, except the seawall/revetment, structural piers, pilings and posts, bulkheads, retaining walls, underground utilities and/or sewer and water lines, docks and dock improvements that are attached to piers, pilings, and posts, and/or the permanent foundations to 01181.0024/413989.13 any improvements. If CITY exercises such option and TENANT fails to remove all such improvements and other property within sixty days after the termination of this Lease, then CITY shall have the right to have any or all such improvements and other property removed at the expense of TENANT. If CITY does not exercise its option to remove (or require the removal )f) the improvements and other property, then title to such improvements and other property shall vest in CITY and TENANT shall not remove same. Article 5 LEASEHOLD MORTGAGES Tenant shall not mortgage, securitize or hypothecate the leasehold interest in whole or any part without the prior written approval of CITY, as evidenced by a resolution of CITY'S City Council. Notwithstanding the forgoing, CITY shall not unreasonably withhold, condition, or delay consent for TENANT to secure any mortgage against the Premises for up to seventy-five percent (75%) of the then current fair market value of the leasehold interest in the Premises, as long as the proceeds from such mortgage are used for improvements to the Premises or to reduce the interest applicable to then existing debt secured by the leasehold interest in the Premises. Article 6 REPAIRS, MAINTENANCE AND RESTORATION Section 6.01 Maintenance by TENANT. At all times during the Term and subject to the percentage limitation set forth in Section 6.07, TENANT shall, at TENANT'S own cost and expense, keep and maintain all improvements now or hereafter on the Premises in good order and repair and in a safe and clean condition. Furthermore, TENANT shall, at TENANT'S own cost and expense, maintain at all times during the Term the whole of the Premises in a clean, sanitary, neat and orderly condition. CITY may, at the sole option of CITY, clean and clear the Premises, at TENANT'S cost and expense, in the event TENANT fails to clean and clear the Premises in accordance with this Section to the satisfaction of CITY after fifteen -days' written notice to TENANT fr om CITY of CITY'S intent to exercise this option. Section 6.02 Seawalls and Revetment. At all times duri ng the Term and subject to the percentage limitations set forth in Section 6.07, TENANT shall at TENANT'S own cost and expense repair, maintain, replace and rebuild as necessary, the improvements, pilings, bulkheads, seawalls, revetment, piers, posts and any structures or other improvements located in the water portion of the Premises. Further, TENANT shall at TENANT'S own cost and expense conduct maintenance surveys at reasonable 01181.0024/413989.13 intervals to locate and determine needed repairs. The parties agree and understand, if TENANT takes benefit of the percentage limitations set forth in Section 6.07, then CITY has no obligation to TENANT or TENANT'S subtenants, assignees or successors4n4nterest to repair, maintain replace or rebuild the improvements, pilings, bulkheads, seawalls, revetment, piers, posts and any structures or other improvements located in the water portion of the Premises. Section 6.03 Legal Requirements. At all times during the Term and subject to the percentage limitations set forth in Section 6.07, TENANT, at no cost to CITY, shall: (1) Make all alterations, additions, or repairs to the Premises or the improvements or facilities on the Premises required by any Legal Requirements (as defined in Section 3.07 above) now or hereafter made or issued; (2) Observe and comply with all Legal Requirements now or hereafter made or issued respecting the Premises or the improvements or facilities located thereon; and (3) Obtain all required permits pursuant to the MBMC or State law prior to the initiation of any repair or maintenance activity. Section 6.04 Failure to Repair. In the event failure to repair results in a hazardous or unsafe condition, CITY shall have the right and option, but not the obligation, to close and prohibit access to the unsafe portion of the Premises until such repairs are completed and accomplished and the Premises rendered safe for public use. In addition, if TENANT fails to repair any hazardous or unsafe condition within ten business days after written notice thereof from CITY, then CITY shall have the right, but not the obligation, to perform such repair at TENANT'S expense and TENANT shall reimburse CITY for any such repair undertaken by CITY, promptly upon CITY'S demand, as additional Rent subject to the percentage limitations set forth in Section 6.07 below. Failure by CITY to enforce any of the provisions of this Article shall not constitute a waiver of any of the provisions of this Article and CITY may at any time enforce all of the provisions of this Article. Section 6.05 Inspection by CITY. Except in the event of an emergency, CITY or CITY'S agents, representatives, or employees may enter the Premises, upon at least 48 -hours' prior written notice, at all reasonable times for the purpose of inspecting the Premises to determine whether TENANT is complying with the terms of this Lease and for the purpose of doing other lawful acts that may be necessary to protect CITY'S interest in the Premises under this Lease or to perform CITY'S duties under this Lease. 01181.0024/413989.13 Section 6.06 TENANT'S Duty to Restore Premises. (1) Except as provided in Section 6.07 below, if, at any time during this Lease, any improvements now or hereafter on the Premises are destroyed in whole or in part by the elements, or any other cause not the fault of TENANT or CITY, then this Lease shall continue in full force and effect and TENANT, at TENANT'S own cost and expense, shall repair and restore the damaged or destroyed improvement(s) according to the original plan thereof or according to such modified plans therefore as shall be approved in writing by CITY (the "Repair and Restoration"). TENANT shall pursue, with all due diligence and dispatch, obtaining the permitting required from all applicable public agencies for the Repair and Restoration (the "Repair Permits"), shall commence the Repair and Restoration within thirty (30) days after entitlement to issuance of the Repair Permits and shall use reasonable efforts to complete the Repair and Restoration not later than three hundred sixty five (365) days after the work is commenced, unless the Parties mutually agree, in writing, to an extension. In all other respects, the Repair and Restoration shall be done in accordance with the requirements for construction work on the Premises, set forth in Article 4 of this Lease. Subject to Section 6.07, any failure by TENANT either to commence or to complete the Repair and Restoration as required by this Section 6.06 shall be a material default under this Lease. (2) Any and all insurance proceeds that become payable at any time during the Term because of damage to or destruction of any improvements on the Premises shall be paid to TENANT and applied by TENANT toward the cost of repairing and restoring the damaged or destroyed improvements in the manner required by this Section 6.06, or, if this Lease is terminated, then applied as provided in Section 6.07. Except as set forth in Section 6.08 below, TENANT'S obligation to restore pursuant to this Section shall exist whether or not funds are available from insurance proceeds. Section 6.07 Termination of Lease for Extraordinary Repairs. Notwithstanding the provisions of this Art icle, in consideration of the reasons set forth in Section 1.02, above, TENANT shall have the option of terminating this Lease as provided in this Section 6.07 if: any improvements now or hereafter on the Premises are so damaged or destroyed by the elements or any cause not the fault of TENANT, that they cannot be repaired and restored as required by Section 6.06 of this Lease at a cost of ten percent (10%) or less than the fair market value of all the improvements on the Premises immediately prior to the damage or destruction. It is further agreed by the Parties: (1) TENANT may exercise its ri ght to terminate pursuant to this Section 6.07 by providing written notice to CITY within one hundred eighty (180) days following damage or 01181.0024/413989.13 -I�- destruction as described herein. Such termination shall be effective on the last day of the calendar month following the month in which TENANT provides its notice. If TENANT exercises TENANT'S option under this Section 6.07, then TENANT shall have no obligation to CITY or subtenants, assignees or successors4n4nterest to repair, maintain replace or rebuild any of the improvements, pilings, bulkheads, retaining walls, any underground utilities and/or sewer and water lines, seawalls, revetment, piers, posts, docks, dock structures, and any other structures or improvements located on the Premises. (2) If TENANT does not exercise the above option and fails to commence or complete repair and restoration as required by Section 6.06, then CITY shall have all rights and remedies with respect to TENANT'S default, including, but not limited, to termination of this Lease pursuant to Article 11. (3) If this Lease is terminated as a result of damage or destruction, then any insurance proceeds received with respect to the improvements shall be applied or distributed in the following order: Lease, then debris, then then (a) first, to each lender whose loan is secured by the leasehold interest in this (b) to the demolition of the improvements and removal of all demolition (c) to any accrued and unpaid Rent as of the effective date of the termination, (d) the remaining proceeds, if any, to TENANT. Section 6.08 Destruction Due to Risk Not Covered by Insurance. Notwithstanding anything to the contrary in this Article of this Lease, TENANT shall have the right to terminate this Lease at any time if the improvements on the Premises are damaged or destroyed by a casualty for which TENANT is not required under this Lease to carry insurance and the cost to repair or restore such improvements exceeds ten percent (10%) of the fair market value of all the improvements on the Premises immediately pri or to the damage or destruction. 01181.0024/413989.13 '20' Article 7 INDEMNITY, RELEASE AND INSURANCE Section 7.01 Indemnity Agreement. TENANT shall defend, indemnify and hold harmless CITY, and the property of CITY (including the Premises and any improvements now or hereafter on the Premises), and each of CITY'S officers, officials, employees and volunteers from any and all liability, claims, loss, damages, and expenses, including reasonable attorney's fees and litigation expenses, arising from any act or omission of TENANT or any of its officers, agents, representatives, subtenants, employees, contractors, subcontractors, invitees or anyone for whom TENANT may be liable related to this Lease; provided, that the obligation to indemnify and hold harmless shall only be to the extent Damages are caused by TENANT or any of its officers, agents, representatives, subtenants, employees, contractors, subcontractors, invitees or anyone for whom TENANT may be liable. Section 7.02 Liability Insurance. During the Term, TENANT shall maintain at its cost Commercial General Liability insurance with coverages at least as broad as ISO Forms labeled "City of Morro Bay Insurance requirements for Lessees", Certificate of Insurance —City of Morro Bay", and "Additional Insureds —Managers or Lessors of Premises" attached hereto as Exhibit D and made a part hereof as may be updated or changed from time to time at the sole discretion of CITY, insuring against claims for bodily injury (including death), property damage, contractual liability, personal injury and advertising injury occurring on the Premises or from operations located in any part of the Premises. Such insurance shall afford protection in amounts no less than One Million Dollars per occurrence for bodily injury, personal injury and property damage; provided, that if insurance with a general aggregate limit is used, either the general aggregate limit shall apply separately to the Premises or the general aggregate limit shall be twice the occurrence limit stated in this Section. All liability insurance carried by TENANT hereunder shall name CITY, its officers, officials, employees and volunteers as additional insureds, and shall be primary insurance with respect to such additional insureds. All coverages for subtenants shall comply with all requirements of this Article 7. Section 7.03 Worker's Compensation. TENANT shall maintain at TENANT'S own expense and keep in full force and effect during the Term, Worker's Compensation Insurance as provided by law. Said insurance shall contain a waiver of subrogation rights against CITY. TENANT shall also maintain employer's 01181.0024/413989.13 -21- liability insurance with minimum coverage of One Million Dollars per accident for bodily injury or disease. Section 7.04 Property Insurance. TENANT shall, at its cost, at all times during the Term keep all improvements and other structures on the Premises, as well as any and all additions, improvements and betterments thereto, insured for one hundred percent of their full replacement cost with no co-insurance provision against loss or destruction by the perils covered by "all risk" (excluding earthquake) property damage insurance policies. Notwithstanding the foregoing, TENANT shall, as soon as possible, meet the obligations of this Section 7.04 with regard to the insurance for the seawall/revetment; provided, that CITY shall not hold TENANT in breach or default of this Lease if TENANT is unable to procure such insurance prior to or within sixty days after Completion of the Rehabilitation Project. Section 7.05 Additional Coverage. TENANT shall also maintain, at its expense, the insurance described in this Section 7.05. (1) If TENANT has (or is required by any Legal Requirement to have) a liquor license and is selling or distributing alcoholic beverages on the Premises, then TENANT shall maintain liquor liability coverage in appropriate amounts. TENANT shall require any subtenant who has (or is required by any Legal Requirement to have) a liquor license and who is selling or distri buting alcoholic beverages on the Premises, to maintain such coverage. (2) TENANT shall maintain "all ri sk" (excluding earthquake) property damage insurance covering TENANT'S personal propert y located at the Premises, in amounts not less than the full replacement value of such personal property. CITY shall have no interest in the proceeds of such insurance. Section 7.06 General Requirements. Except as specifically provided to the contrary, all the insurance required pursuant to this Article Seven shall be subject to the requirements of this Section 7.06. (1) Maintenance of proper insurance coverage is a materi al element of this Lease and failure to maintain or renew coverage or to provide evidence of coverage and/or renewal maybe treated by CITY as a material breach of contract. TENANT shall forward CITY specifications and forms to TENANT'S insurance agent for compliance. 01181.0024/413989.13 -22- (2) CITY may at any time require TENANT to increase the minimum coverage limits for insurance required by this Lease, but not more than by ten percent over any ten-year period and every such increase shall be reasonable under the circumstances. (3) All policies shall be issued by insurance companies authorized to issue such insurance in California, with an A.M. Best's rating of no less than A:VII. (4) Any deductibles or self-insured retentions greater than $25,000, which amount shall be adjusted annually by the increase/decrease in the CPI, must be declared to and approved by CITY. (5) Each insurance policy required by this Lease shall be endorsed to state that coverage shall not be cancelled or reduced, except after thirty -days' prior written notice by certified mail, return receipt requested, has been given to CITY. (6) TENANT shall furnish CITY with certificates and any endorsements effecting the coverage required by this Lease. The endorsements shall be on forms reasonably approved by CITY or on other than forms reasonably approved by CITY, provided those endorsements or policies conform to the requirements of this Lease. All certificates and endorsements are to be received and approved by CITY before use of the Premises, and promptly following any renewal or replacement. CITY reserves the right at any time to require complete, certified copies of all required insurance policies, including endorsements effecting the coverage required by these specifications. (7) TENANT'S insurance coverage shall be primary insurance as respects CITY, its officers, officials, employees, and volunteers. Any insurance or self-insurance maintained by CITY, its officers, officials, employees, or volunteers shall be excess of TENANT'S insurance and shall not contribute with it. Section 7.07 No Subrogation. TENANT agrees in the event of loss due to any of the perils for which it has agreed to provide insurance, TENANT shall look solely to its insurance for recovery. TENANT hereby grants to CITY, on behalf of any insurer providing insurance to either TENANT or CITY with respect to TENANT'S occupancy of the Premises, a waiver of any rights to subrogation which any such insurer of said TENANT may acquire against CITY by virtue of the payment of any loss under such insurance. Each insurance policy required under this Lease including those insuring TENANT against claims, expense, or liability for injury to persons or property shall provide that the insurer shall not acquire by subrogation any right to recovery which TENANT has expressly waived in writing prior to the occurrence of the loss. 01181.0024/413989.13 Section 7.08 TENANT'S Waiver. TENANT hereby waives any right of recovery against CITY for each claim, expense, liability, or business interruption, or other loss, except where caused by CITY'S gross negligence or willful misconduct. TENANT agrees, to the extent TENANT fails to acquire insurance, TENANT shall not have any claim against CITY for any loss that results from a risk or peril that would have been included in such insurance. Section 7.09 Insurance Not a Limit. The insurance requirements of this Article 7 are independent of, and do not limit or I TENANT'S indemnification and other obligations pursuant to this Lease. Article 8 TAXES AND FEES Section 8.01 TENANT to Pav Taxes. TENANT shall pay, before delinquency, all taxes and assessments levied upon or assessed to TENANT on the Premises by reason of this Lease or of any equipment, appliances, improvement, or other development of any nature whatsoever, erected, installed, or maintained by TENANT or by reason of the business or other activity of TENANT upon or in connection with the Premises. TENANT shall pay all possessory interest taxes applicable to the Premises. Section 8.02 TENANT to Pav License and Permit Fees. TENANT shall pay any fees imposed by law for licenses or permits for any business or activities including construction by TENANT upon the Premises, subject to Article 13, below. SectionUtilities. TENANT shall pay, or cause to be paid, and hold CITY and the property of CITY, including the Premises, free and harmless from all charges for the furnishing of gas, water, electricity, telephone service, and for other public utilities to the Premises during the Term and for the removal of garbage and rubbish from the Premises during the Term. Article 9 CONDEMNATION Section 9.01 Total Condemnation. If title and possession to all of the Premises is permanently taken for any public or quasi - public use under any statute, or by the right of eminent domain, then this Lease shall terminate on the date that possession of the Premises is taken, and both CITY and TENANT shall 01181.0 024/4 1 3 9 8 9.13 -24- thereafter be released from all obligations, including Rent, all of which shall be prorated to the date of termination, except those specified in Section 9.02 of this Lease. Section 9.02 Condemnation Award. In consideration of the reasons set forth in Section 1.02, above, any compensation or damages awarded or payable because of the permanent taking of all or any portion of the Premises by eminent domain shall be allocated between CITY and TENANT as follows: (1) All compensation or damages awarded or payable for the taking by eminent domain of any land or water area that is part of the Premises shall be paid to and be the sole property of CITY free and clear of any claim of TENANT or any person claiming rights to the Premises through or under TENANT. (2) All compensation or damages awarded or payable which is specifically attributed by the taking party to the "good will" of TENANT'S business shall be paid to and be the sole property of TENANT and not any of TENANT'S subtenants. (3) All compensation or damages awarded or payable because of any improvements constructed and located on the portion of the Premises taken by eminent domain where only a portion of the Premises is taken by eminent domain, and TENANT is not entitled to or does not terminate this Lease, shall be applied toward the replacement of such improvements with equivalent new improvements on the remaining port ions of the Premises. (4) All compensation or damages awarded or payable because of any improvements constructed and located on the portion of the Premises taken by eminent domain where this Lease is terminated because of the taking by eminent domain, whether all or only a portion of the Premises is taken by eminent domain, shall be allocated to TENANT and not any of TENANT'S subtenants. (5) The term "time of taking" as used in this Section shall mean 12:01 a.m. of the date that the agency or entity exercising the eminent domain power, takes title, or the date that it takes physical possession of the portion of the Premises, whichever shall first occur. (6) Any severance damages awarded or payable because only a port ion of the Premises is taken by eminent domain shall be the sole and separate property of TENANT. Section 9.03 Termination for Part ial Taking. If, during the Term, title and possession of only a portion of the Premises be taken for any public or quasi -public use under any statute, or by right of eminent domain, then TENANT may, at TENANT'S option, terminate this use 01181.0024/413989.13 by serving written notice of termination on 257 CITY within ninety days after TENANT has been deprived of actual physical possession of the portion of the Premises taken for such public use. This Lease shall terminate on the first day of the calendar month following the calendar month in which the notice of termination described in this section is served on CITY. On termination of this Lease pursuant to this Article, all subleases and subtenancies in or on the Premises or any portion of the Premises created by TENANT under this Lease shall also terminate and the Premises shall be delivered to CITY free ' and clear of all such subleases and subtenancies, provided, however, that CITY may, at CITYS option, mail written notice to a subtenant allow any subtenant to attorn to CITY and continue such subtenant's occupancy on the Premises as a TENANT of CITY. On termination of this Lease pursuant to this section, however, both CITY and TENANT shall be released from all obligations under this Lease, except those specified in Section 9.02 of this Lease. Section 9.04 Rent Abatement for Partial Taking. If, during the Term, title and possession of only a portion of the Premises is taken under the power of eminent domain by any public or quasi -public agency or entity and TENANT does not terminate this Lease, then this Lease shall terminate as to the portion of the Premises taken under eminent domain on the date actual physical possession of the portion taken by eminent domain is taken by the agency or entity exercising the eminent domain power. Furthermore, the Rent payable under this Lease shall, as of that time be reduced in the same proportion of the Premises taken by eminent domain bears to the full value of the Premises at that time. Section 9.05 Conveyance in Lieu of Eminent i)omain. A voluntary conveyance by CITY, with the consent of TENANT, of title to all or a portion of the Premises to a public or quasi -public agency or entity in lieu of and under threat by such agency or entity to take the same by eminent domain proceedings shall be considered a taking of title to all or such portion of the Premises under the power of eminent domain subject to the provisions of this Article. Section 9.06 Temporary Taking. If the possession of the Premises or any portion thereof should be taken under the power of eminent domain by any public or quasi -public agency or entity for a limited period not extending beyond the Term, then this Lease shall not terminate (except as provided in this Section 9.06) and TENANT shall continue to perform all its obligations hereunder, except only to the extent that TENANT is prevented from performing such obligations by reason of such taking. TENANT shall be entitled to receive the entire amount of compensation or damages awarded because of such temporary taking. In consideration of completion of the reasons set 01181.0024/413989.13 forth in Section 1.02, above, if a temporary taking extends for more than thirty-six months, then TENANT shall have the right to terminate this Lease, and TENANT shall be entitled to receive the compensation and damages awarded because of such temporary taking. Article 10 ASSIGNMENT AND SUBLEASING Section 10.01 No Assiqnment Without CITY'S Consent. Except as provided in this Article 10, TENANT shall not assign or otherwise transfer this Lease, any right or interest in this Lease, or any right or interest in the Premises or any of the improvements that may now or hereafter be constructed or installed on the Premises without the express written consent of CITY evidenced by resolution first had and obtained. Any assignment or transfer by TENANT without the prior written consent of CITY, whether it be voluntary or involuntary, by operation of law or otherwise, is void and shall, at the option of CITY, terminate this Lease. A consent by CITY to one assignment shall not be deemed to be a consent to any subsequent assignment of this Lease by TENANT. CITY shall not unreasonably nor arbitrarily withhold its approval to the assignment or transfer of this Lease to an assignee who is financially reliable and qualified to conduct the business for which this Lease was granted. It is mutually agreed TENANT'S qualifications are a part of the consideration for granting of this Lease and said party does hereby agree to maintain active control and supervision of the operation conducted on the Premises. Section 10.02 Preapproved Assignments. Notwithstanding Sections 10.01 and 10.03, each assignment by TENANT to a trust or an entity in which Clifford Branch, Lynette Branch, James Edmund Smith, Beverly Elder Smith or any of their heirs and beneficiaries have complete control over the trust or entity is deemed preapproved upon written notice from TENANT of such assignment and the assignees' written agreement to assume all rights and obligations of TENANT pursuant to this Lease and no application fee, transfer fee or other fee shall be due by TENANT to CITY for that assignment. Section 10.03 Application for Assignment. For other than any assignment described in Section 10.02, a condition of an assignment shall be TENANT shall file with CITY an application to assign the leasehold prepared by the prospective assignee. Concurrently with filing the application, TENANT shall pay a reasonable Fee associated with the cost of processing said application, in cash or certified or cashier's check to enable CITY adequately to investigate the proposed assignee's qualifications as a permitted assignee. CITY shall not be required to account for the use of the sum paid. If the proposed assignee's net worth on the date of assignment is not sufficient to reasonably guarantee OR 01181.0024/413989.13 successful operation of the Premises in compliance with all applicable CITY, County, State and federal requirements, then CITY may withhold approval of the assignment or condition it upon TENANT'S guarantee of such assignee's obligations hereunder for such period as CITY deems advisable. Net worth shall mean the amount by which the total of all assets shall exceed the total of all liabilities as determined in accordance with general accepted accounting principles as approved by CITY'S auditor, or other authorized representative or agent. Section 10.04 No Sublease Without CITY'S Consent. TENANT shall not sublease the whole nor any part of the Premises, or license, permit, or otherwise allow any other person (the employees of TENANT excepted) to occupy or use the Premises, or any portion thereof, without the prior written consent of CITY'S Harbor Director, or any future successor to the duties of CITY'S Harbor Director. A consent to one subletting, occupation, licensing or use shall not be deemed to be a consent to any subsequent subletting, occupation, licensing or use by another person. Any sublease or license without CITY'S written consent shall be void, and shall at CITY'S option, terminate this Lease. CITY shall not unreasonably nor arbitrarily withhold its consent to sublet to one who is qualified and financially reliable and will operate a business permitted pursuant to this Lease, all as reasonably determined by CITY, provided, that if the sublease is not approved by CITY within ten business days after CITY'S receipt of a completed request for approval from CITY, then the sublease shall be deemed disapproved. Notwithstanding any provisions herein to the contrary, the terms "assignment," "subletting," "occupation," or "use," shall not be construed or interpreted to mean or include the temporary, short term renting or leasing of boat slips, motel, hotel, or apartment accommodations on the Premises. Section 10.05 Subtenant Subject to Lease Terms. Any and all subleases shall be expressly made subject to all the terms, covenants, and conditions of this Lease. In no event shall the term of any sublease extend beyond the Term. Subject to Section 10.08, termination of this Lease prior to the expiration of this Lease term shall also terminate any and all subleases. A breach of the terms of this Lease by a subtenant shall constitute a breach on the part of TENANT and shall subject both the subtenant and TENANT to all the remedies provided to CITY herein and by law. Failure by any subtenant to report Gross Sales or to pay Percentage Rent due from subtenant shall constitute a breach of this lease. TENANT hereby agrees to and does guarantee payment of such Percentage Rent due by a subtenant under the terms of this lease. 01181.0024/413989.13 '28' Section 10.06 Consent Form Agreement. Prior to any consent by CITY to any sublease hereof, TENANT shall cause to be executed between TENANT and any subtenant an agreement making CITY a third party beneficiary, whereby the subtenant agrees to be bound by all of the terms, covenants and conditions of this Lease. Further, it is agreed by TENANT that any default by the subtenant of My of the terms, covenants and conons of this Lease shall be deemed to be violations by TENANT of this Lease and that all remedies of CITY for such violation, including termination A this Lease, shall immediately be enforceable by CITY against TENANT. TENANT shall apply any and all monies received from any subtenant first to the payment of obligations of the subtenant to CITY. Section 10.07 TENANT Remains Liable. Prior to approval by CITY to any sublease hereof, TENANT shall agree to be primarily and jointly and severally liable to CITY for all obligations due CITY by any subtenant, including the payment of rents, and TENANT shall agree CITY may proceed directly against TENANT for any obligation owing CITY by the subtenant. Section 10.08 Nondisturbance. On the terms set forth below, CITY may enter into agreements with subtenants providing that in the event of any termination of this Lease pri or to the expiration date, CITY will not terminate or otherwise disturb the rights of the subtenant under such sublease, but will instead honor such sublease as if such agreement had been entered into directly between Landlord and such subtenant, conditioned upon such subtenant's agreement to attorn to Landlord and full performance of all obligations under the sublease in question ("Non -Disturbance Agreement"). CITY agrees to execute a Non -Disturbance Agreement in connection with a particular sublease provided that Tenant provides CITY with a copy of the sublease, and the Non -Disturbance Agreement is customary in form and substance and otherwise reasonably acceptable to CITY. Article 11 DEFAULT AND TERMINATION Section 11.01 Abandonment by TENANT. If TENANT breaches this Lease and abandons all or any part of the Premises prior to the scheduled expiration of the Term, then CITY may continue this Lease in effect by not terminating TENANT'S right to possession of the Premises, in which event CITY shall be entitled to enforce all CITY'S rights and remedies under this Lease including the right to recover the Rent specified in this Lease as it becomes due under this Lease. 01181.0024/413989.13 -29- Section 11 n02 Termination for Breach by TENANT. All covenants and agreements contained in this Lease are declared to be conditions to this Lease and to the term hereby demised to TENANT. If TENANT fails to perform any covenant, condition, or agreement contained in this Lease, except for payment of any Rent or other monetary amount due, and such failure is not cured within sixty (60) days after written notice thereof is served on TENANT, then CITY may commence legal and equitable actions to terminate this Lease immediately. Section 11.03 Termination for Failure to Pay Rent. If any payment of Rent is not made as herein provided and such failure to pay is not cured within thirty days after written notice thereof is served on the TENANT, then CITY shall have the option to commence legal and equitable actions to immediately terminate this Lease. Section 11.04 Lender May Cure Default. CITY shall afford the Lender under any Leasehold Encumbrance of record with CITY the right to cure any default by TENANT of the covenants, conditions, or agreements hereof, as provided in Article 5 of this Lease. Section 11.05 Damages for Breach. If TENANT defaults in the performance of any covenant, condition or agreement contained in this Lease and the default is incurable or cannot be cured within the time period set forth in this Article above, unless TENANT commences to cure within such time period, continues to diligently cure without interruption until cured and the cure is completed as soon as reasonably practicable, then CITY may commence legal and equitable action to terminate this Lease. Section 11.06 Cumulative Remedies. The remedies available to CITY in this Article shall not be exclusive but shall be cumulative with and in addition to all remedies now or hereafter allowed by law or elsewhere provided in this Lease. Section 11.07 Waiver of Breach. The waiver by CITY of any breach by TENANT of any of the provisions of this Lease shall not constitute a continuing waiver or a waiver of any subsequent breach by TENANT either of the same or a different provision of this Lease. 01181.0024/413989.13 '30' Section 11 .08 Surrender of Premises. On expiration or sooner termination of this Lease, TENANT shall surrender the Premises, and, subject to Section 4.04, all improvements in or on the Premises, and all facilities in any way appertaining to the Premises, to CITY in a broom clean condition, reasonable wear and tear excepted. Notwithstanding anything contained in the Lease to the contrary, CITY acknowledges and agrees all the improvements located on the Premises, including, but not limited to, those certain improvements constructed by TENANT pursuant to the Rehabilitation Project, are subject to reasonable wear and tear normally experienced by structures constructed and located on or about water and in coastal areas. Article 12 MISCELLANEOUS Section 12.01 Notices. Any and all notices or demands by or from CITY to TENANT, or TENANT to CITY, shall be in writing. They shall be served either personally or by Fed -Ex, UPS, or other similar national carrier if signed and acknowledged by the Party representative set forth below. Any notice or demand to CITY may be given to: with a copy to: Harbor Director City of Morro Bay 1275 Embarcadero Morro Bay, California 93442 City Manager City of Morro Bay 595 Harbor Street Morro Bay, CA 93442 Any notice or demand to TENANT maybe given at: with copy o£ 01181.0024/413989.13 Cliff Branch, Lynette Branch or Tyler Jenkins 755 Santa Rosa Street, Suite 310 San Luis Obispo, CA 93401 Paul B. Parker, Esq. Parker &Sander 755 Santa Rosa Street, Suite 300 San Luis Obispo, CA 93401 Such addresses maybe changed by writt en notice by either party to the other party. Section 12.02 Governing Law and Jurisdiction. This Lease, and all matters relating to this Lease, shall be governed by the laws of the State of California in force at the time any need for interpretation of this Lease or any decision concerning this Lease arises. CITY and TENANT consent to exclusive personal and subject matter jurisdiction in the Superior Court of San Luis Obispo County, and each Parry waives any claim such court is not a convenient forum. Each Party hereby specifically waives the provisions of California Code of Civil Procedure Section 394, and any successor statute thereto. Section 12.03 Binding on Successors. Subject to the provisions herein relating to assignment and subletting each and all of the terms, conditions, and agreements herein contained shall be binding upon and inure to the benefit of the successors and assigns of any and all of the parties hereto; and all of the parties hereto shall be jointly and severally liable hereunder. Section 12.04 Partial Invalidity. If any provision of this Lease is held by a court of competent jurisdiction to be either invalid, void, or unenforceable, then the remaining provisions of this Lease shall remain in full force and effect unimpaired by the holding. Section 12.05 Sole and Only Agreement. This Lease, including all exhibits incorporated by reference, constitutes the sole and only agreement between CITY and TENANT respecting the Premises and the leasing of the Premises to TENANT. Any other agreements or representations respecting the Premises and their leasing to TENANT by CITY, which are not expressly set forth in this Lease, are null and void. The terms herein specified, as amended, correctly set forth the obligations of CITY and TENANT as of the effective date. No modification, amendment, or alteration of this Lease shall be valid unless it is in writing and signed by both parties. Section 12.06 Modification. This Lease shall not be modified, except pursuant to a written agreement executed by the Mayor and City Clerk, pursuant to prior approval by CITY'S City Council. TENANT understands this Lease may not be modified by oral statements by any person representing A CITY. TENANT specifically agrees not to rely on oral statements, purporteoral waivers, or purported oral modifications and agrees not to rely upon purported written modifications unless they meet the requirements of this paragraph and are approved in writing pursuant to formal action of CITY'S City Council and a subsequent written modification signed by the Mayor and 01181.0024/413989.13 City Clerk. If the title of any person authorized to act for CITY under this Lease shall be changed during the Term, then the person who succeeds to substantially the same responsibilities with respect to CITY shall have the authority to act for CITY under this Lease. Section 12.07 Time of Essence. Time is expressly declared to be the essence of this Lease. Section 12.08 Memorandum of Lease for Recording. CITY and TENANT shall, at the request of either at any time during the Term, execute a memorandum or "short form" of this Lease, which shall describe the parties, set forth a description of the leased premises, specify the Term, and incorporate this Lease by reference. Article 13 SPECIAL PROVISIONS PECULIAR TO THE PREMISES Section 13.01 Rehabilitation Prosect. Pursuant to the terms and conditions of this Lease, TENANT shall complete the Rehabilitation Project as set forth and depicted in the Site Plan att ached hereto as Exhibit B, which includes the following: A. Repair or replace the roof on the building located on the Premises as necessary; B. Repair the deck as required; C. Replace the existing dock and pilings as required; D. Paint the exterior of the building on the Premises; and E. Renovate the interi or of the building on the Premises as necessary. In addition, subject to TENANT paying all necessary fees and obtaining all necessary permits form CITY and all other required governmental agencies, as required, CITY also consents and acknowledges TENANT shall have the right to remove the existing water -wheel Fountain located near the front entrance to the current Otter Rock Cafe restaurant on the Premises at any time duri ng the term of the Lease. CITY shall not unreasonably condition or delay any permits or consents necessary to remove the water wheel and shall assist TENANT with obtaining any other permits required from other governmental agencies, not including payment A any fees required for those permits. The Part ies acknowledge and agree to each of the following: i. TENANT is only obligated to perform the repairs and improvements that are part of the Rehabilitation Project. 01181.0024/413989.13 -33- ii. In the event of any discrepancy or contradiction between this Lease and the Site Plan, the Parties agree the Site Plan shall control and be determinative, but not to the extent prohibited by law. iii. Within seven days after the execution of this Lease, CITY will provide to TENANT a set of plans for the existing Otter Rock Cafe building on Lease Site 90/90W. iv. For purposes of this Lease, "complete application" shall mean submission to the applicable governmental agency a satisfactory completed application form for the Rehabilitation Project, as then currently approved by all applicable governmental agencies, as required by that governmental agency, along with the payment of the fees required by that governmental agency. v. CITY shall process and grant, if legally possible, a request from TENANT to waive any requirement TENANT comply with Sections 1803.2 through 1803.6, J 104.3 and J 104.4 of the 2016 California Building Code. vi. All license fees, permit fees, plan check fees, and any and all other fees and costs for the Rehabilitation Project charged or imposed, solely on behalf of CITY, by CITY to TENANT shall not exceed the amount CITY is permitted to impose pursuant to Article XIIIC of the California Constitution and are generally applicable to similar projects. vii. Notwithstanding anything contained in Section 3.07 to the contrary, if ADA improvements are required by CITY or another governmental agency or by law, then CITY will agree to reduce each Minimum Rent payment equally over a five-year period in a total amount equal to one-half of the documented costs of up to $30,000 to TENANT for required ADA improvements to the two restrooms.. Section 13.02 Schedule for Rehabilitation Project. Unless TENANT has delivered to CITY notice of termination on this Lease pursuant to Section 1.03, A. On or before December 31, 2017, TENANT shall submit, to the CITY, a complete application, consistent with the Rehabilitation Project, for, as applicable, approval of a Minor Amendment to Existing Permit (Administrative), Amendment to Existing Permit (Planning Commission) to Conditional Use Permit # [whatever the appropriate CUP is for 90/90W to be amended], or a Concept Plan and Precise Plan if administrative or Planning Commission approval is not legally allowed. Be Provided CITY is legally authorized to do so based on the plans submitted by TENANT pursuant to A., above, on or before one hundred twenty (120) days after TENANT'S 01181.0024/413989.13 -34- �* submission of the complete application to the CITY, for the Rehabilitation Project, CITY shall provide TENANT, as applicable, with the approval of a Minor Amendment to Existing Permit (Administrative), Amendment to Existing Permit (Planning Commission) to Conditional Use Permit # [whatever the appropriate CUP is for 90/90W to be amended], or a Concept Plan and Precise Plan if administrative or Planning Commission approval is not legally allowed. C. If the Coastal Commission requires TENANT to obtain approval from the Coastal Commission for the Rehabilitation Project, then, within sixty W7 after receipt of approval from CITY, as applicable, of a Minor Amendment to Existing Permit (Administrative), Amendment to Existing Permit (Planning Commission) to Conditional Use Permit # [whatever the appropriate CUP is for 90/90W to be amended], or a Concept Plan and Precise Plan if administrative or Planning Commission approval is not legally allowed, TENANT shall file a complete application for review and approval of the Rehabilitation Project with the Coastal Commission. Within sixty (60) days after receipt of all approvals of the Rehabilitation Project from the Coastal Commission, as evidenced by a "Notice of Intent Issue a Permit" and a final Coastal Development Permit, if that approval is required, TENANT shall file complete applications for all necessary land use approvals for the Rehabilitation Project from all other applicable governmental agencies, including, but not limited to, the Army Corps of Engineers and the Central Coast Regional Water Quality Control Board, where required. D. If the Coastal Commission does not require approval of the Rehabilitation Project, then within sixty (60) days after receipt fr om CITY, as applicable, of a Minor Amendment to Existing Permit (Administrative), Amendment to Existing Permit (Planning Commission) to Conditional Use Permit # [whatever the appropriate CUP is for 90/90W to be amended], or a Concept Plan and Precise Plan if administrative or Planning Commission approval is not legally allowed, then TENANT shall file complete applications for all necessary permits, permissions and certifications for the Rehabilitation Project from all other applicable governmental agencies, including, but not limited to, the Army Corps of Engineers and the Central Coast Regional Water Quality Control Board, E. Within forty-five (45) days after receipt of all necessary land use approvals from CITY and all the governmental agencies listed above, as required, TENANT shall file with CITY'S Community Development Department all necessary complete construction plans for CITY to issue valid building and other construction related permits for the Rehabilitation Project. F. Pursuant to the terms and conditions of this Lease, TENANT shall obtain from CITY and any and all other applicable governmental agencies, including but not limited to, the Coastal Commission, the Army Corps of Engineers, and the Central Coast Regional Water 01181.0024/413989.13 Quality Control Board, any and all permits and approvals necessary for the Rehabilitation Project, if any (the "Permits"). G. Within one hundred fifty (150) days after receipt of the Permits, unless TENANT is delayed through no fault of TENANT, TENANT shall have commenced the Rehabilitation Project and expended at least $50,000 in actual hard construction costs for the Rehabilitation Project (the "Project Commencement"). H. Within one hundred eighty days (180) after the Project Commencement, TENANT shall cause the completion of the Project. For the purpose of this Lease, completion shall mean when the Rehabilitation Project is entitled to receive final inspection approval from CITY, if necessary, and all other applicable government agencies, if necessary, (the "Completion"). Notwithstanding the foregoing, CITY'S final inspection and approval of the Rehabilitation Project shall not be unreasonably withheld, conditioned or delayed and in no event shall such final inspection by CITY be more than ten business days after TENANT'S written request. Section 13.03 Site Integrations. A. The Parties agree a tenant on Lease Site 89/89W may be allowed to sublease dock -space on the Premises for docking and operation of that sublessee's commercial boat for the business that sublessee conducts. If such a sublease exists, then TENANT shall allow the customers. employees and invitees of that business reasonable ingress and egress the Premises to access that dock and boat. B. TENANT and CITY, as lessee and lessor of Lease Site 89/8917 , shall allow TENANT to sublease to a sublessor on the Premises, office space on Lease Site 89/89W directly needed for the operation of a business conducted on the Premises by that sublessee. TENANT and CITY, as lessor and lessee of Lease Site 89/89W, agree to amend 89/89W Lease to provide for that office space use of the Premises, as may be needed. Section 13.04 Sale of Premises. Subject to the assignment and assumption provisions contained in this Lease, CITY acknowledges and agrees TENANT shall have the option to assign, sell, or otherwise transfer (i) TENANT's entire interest in the Premises (i.e., both Lease Site 90 and Lease Site 90W) to the same person/entity that owns Lease Site 89/89W, or (ii) TENANT's interest in Lease Site 90 and Lease Site 90W separately, so long as Lease Site 90W remains under the same ownership as the ownership of either Lease Site 89/89W or with Lease Site 90. 01181.0024/4 ] 3989.13 EXECUTED on the dates noted below at Morro Bay or San Luis Obispo, San Luis Obispo County, California. CITY OF MORRO BAY Irons, Mayor Date: �2 , 2017 ATTEST: (Pana Swanson, City Clerk APPROVED AS TO FORM: City Attorney BOATYARD, LLC, a California limited liability By: Cliff Branch, Manager Date: ) , 2017 01181.0024/413989. ] 3 -37- EXHIBIT A COPY OF PARCEL MAP 01181.0024/4]3989.13 DRAFT See Sh cei B aF /3 e, n D o z � r m D S°G o o < m m tj Z m N I D 0 z o D r T See Sh cei B aF /3 e, EXHIBIT B SITE PLAN - REHABILITATION PROJECT (Otter Rock 10 Pages) (Immediately following this page) 01181.0024/4 ] 3989.13 ■ �� v o Dv, � rt m m � �` � �_ � � � � � � 0 � °' II � 0 0_ �o � a O o t0 w � � O n � D .o Q � � � � N m X z n m r O O r D Z �s��a swa Baan a'aomf.aaaa- N�'m`Dgaom_�mm _a_i�;3=a'a'� oFnm'm�; na%. �.m oaN;-� c F000mc jr'�a3 =8 sy ommam� e="�e� =m �2-�a�„'oaao_ ��.�'� -=Fsg Om�-1 mFamc o � o � P a N n o lD N = n < � fD __ � `� � n ~ � o�D� w C n 4Q 1 �. � � �� v o Dv, � rt m m � �` � �_ � � � � � � 0 � °' II � 0 0_ �o � a O o t0 w � � O n � D .o Q � � � � N m X z n m r O O r D Z �s��a swa Baan a'aomf.aaaa- N�'m`Dgaom_�mm _a_i�;3=a'a'� oFnm'm�; na%. �.m oaN;-� c F000mc jr'�a3 =8 sy ommam� e="�e� =m �2-�a�„'oaao_ ��.�'� -=Fsg Om�-1 mFamc o � o � P n o D c N = � Z ° S O `� � _ o�D� w � w o �� v o Dv, � rt m m � �` � �_ � � � � � � 0 � °' II � 0 0_ �o � a O o t0 w � � O n � D .o Q � � � � N m X z n m r O O r D Z �s��a swa Baan a'aomf.aaaa- N�'m`Dgaom_�mm _a_i�;3=a'a'� oFnm'm�; na%. �.m oaN;-� c F000mc jr'�a3 =8 sy ommam� e="�e� =m �2-�a�„'oaao_ ��.�'� -=Fsg Om�-1 mFamc WATERER NT � � m D n -� m N � vNi D n So,_5�� � ""� FIELD VERIFY 1 CZi =____�__===� Imp====_ _==== 0 TI lu In I� lu In � ul In lu ww � � Id III pl III III pl y O N Ip = N Z III i�� III � .+ � IAI �_3��� __3�fA dC N C� - _m O n � O C v % ' = „ �-` __ 04 �= v ^ O � d .m.. 3 .--------- 0 o v I � � I o � a o a � � x Z 3 � I O � � ° � I < P �. 0 O. � � a I m H K h ♦ I 0 70 � m m m -- X o,�. ami � 2 i o = s w �o�� � 3 o m e m �_____ '-I 3 m o '` `° o 0 1 m ro � � 3 1 to o v � �° o � m a 1 m � •'v m a' <' - --- m 'o D m x� m L � °' 3 n [' A Z —� 1 '� a 1 m m 3� a � � Cl 1 D o m D =I '� �----- �' o (1 7a Z m T = � �vl m � ----- D_ I^� v a Z "'I < ,� I O m � I Z F N I .� I { O� j v OT v 1 Qo.� o-� I Z A � ry � m I �v Inv N]� N N I O 0 3 � 3 a� p T I 1 a N x 0 0 ry F� � n 1 � s3A m3� o-�e a auoi I O o ° '�° o m � __� �- 0 3 j� � m 3 i, � �I I I c ��` _� �I I ♦ r I jy I �� Imo_ _ __1__� G O� x Sc i< A� c m I m9 a m m -i In vl In <: d .... 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A®' Mw Rmcam 0 0 EXHIBIT C COMMENCEMENT/TERMINATION DATE MEMO [CITY LETTERHEAD] The Parties have signed that certain Lease Agreement, dated DRAFT 20_, (the "Lease"). Pursuant to Section 1.02 of the Lease the Parties agreed to sign a memo, substantially similar to this memo, within 5 days after the Commencement Date as defined in the Lease. The Commencement Date of the Lease is 201 The Lease terminates as of 205_, unless terminated earlier as provided in the Lease. CITY OF MORRO BAY f or Dated: 0]18].0024/4 1 3 9 8 9.13 BOATYARD, LLC By: Clifford Branch, Manager Dated: EXHIBIT D CITY OF MORRO BAY 595 Harbor L. Morro Bay, CA 93442 (805) 772-6200 FAX (805) 772-7329 INSURANCE REQUIREMENTS FOR TENANT (NO AUTO RISKS) TENANT shall procure and maintain for the duration of the contract insurance against claims for injuries to persons or damages to property which may arise from or in connection with TENANT'S operation and use of the leased premises. The cost of such insurance shall be borne by TENANT. Minimum Scope oflnsurance Coverage shall be at least as broad as: 1. Insurance Services Office Commercial General Liability coverage (occurrence form CG 0001). 2. Workers' Compensation insurance as required by the State of California and Employer's Liability Insurance (for lessees with employees). 3. Property insurance against all risks of loss to any tenant improvements or betterments. Minimum Limits of Insurance Lessee shall maintain limits no less than: 1. General Liability: 2. Employer's Liability: 3. Property Insurance: 01181.0024/413989.13 $1,000,000 per occurrence for bodily injury, personal injury and property damage. If Commercial General Liability Insurance or other form with a general aggregate limit is used, either the general aggregate limit shall apply separately to this project/location or the general aggregate limit shall be twice the required occurrence limit. $1,000,000 per accident for bodily injury or disease. Full replacement cost with no coinsurance penalty provision. City of Morro Bay Insurance Requirements for TENANT Deductibles and Self-insured Retentions Any deductibles or self-insured retentions must be declared to and approved by CITY. At the option of CITY, either: the insurer shall reduce or eliminate such deductibles or self-insured retentions as respects CITY, its officers, officials, employees and volunteers; or TENANT shall provide a financial guarantee satisfactory to CITY guaranteeing payment of losses and related investigations, claim administration and defense expenses. Other Insurance Provisions The general liability policy is to contain, or be endorsed to contain, the following provisions: 1. CITY, its officers, officials, employees, and volunteers are to be covered as insureds with respect to liability arising out of ownership, maintenance or use of that part of the premises leased to Tenant. 2. TENANT'S insurance coverage shall be primary insurance as respects CITY, its officers, officials, employees, and volunteers. Any insurance or self-insurance maintained by CITY, its officers, officials, employees, or volunteers shall be excess of TENANT'S insurance and shall not contribute with it. 3. Each insurance policy required by this clause shall be endorsed to state that coverage shall not be canceled, except after thirty (30) days' prior written notice by certified mail, return receipt requested, has been given to the City. Acceptability of Insurers Insurance is to be placed with insurers with a current A.M. Best's rating of no less than A:VII. Verification of Coverage TENANT shall furnish CITY with original certificates and amendatory endorsements effecting coverage required by this clause. The endorsements should be on forms provided by CITY or on other than CITY'S forms, provided those endorsements or policies conform to the requirements. All certificates and endorsements are to be received and approved by CITY before use of the Premises, unless expressly stated otherwise in the Lease. CITY reserves the right to require complete, certified copies of all required insurance policies, including endorsements effecting the coverage required by these specifications at any time. 01181.0024/413989.13 Exhibit D Page 2 of 4 City of Morro Bay Insurance Requirements for TENANT Sub -lessee TENANT shall include all sub -lessees as insureds under its policies or shall furnish separate certificates and endorsements for each sub -lessee. All coverages for sub -lessees shall be subject to all of the requirements stated herein. 01181.0024/413989.13 Exhibit D Page 3 of 4 City of Morro Bay Insurance Requirements for TENANT Reproduction of Insurance Services Office, Inc. Form INSURER: ISO Form CG 20 I 1 11 85 (Modified) POLICY NUMBER: Commercial General Liability ENDORSEMENT NUMBER: THIS ENDORSEMENT CHANGES THE POLICY, PLEASE READ IT CAREFULLY. ADDITIONAL INSURED -- MANAGERS OR LESSORS OF PREMISES This endorsement modifies insurance provided under the following: COMMERCIAL GENERAL LIABILITY COVERAGE PART, SCHEDULE 1. Designation of Premises (Part Leased to You): 2. Name of Person or Organization (Additional Insured): City of Morro Bay 3. Additional Premium: (If no entry appears above, the information required to complete this endorsement All be shown in the Declarations as applicable to this endorsement.) WHO IS AN INSURED (Section II) is amended to include as an insured the person or organization shown in the Schedule, but only with respect to liability arising out of the ownership, maintenance or use of that part of the premises leased to you and shown in the Schedule and subject to the following additional exclusions: This insurance does not apply to: 1. Any "occurrence" which takes place after you cease to be a tenant in that premises. 2. Structural alterations, new construction or demolition operations performed by or on behalf of the person or organization shown in the schedule. Modifications to ISO form CG 20 11 11 85: 1. The Insured scheduled above includes the Insured's elected or appointed officers, officials, employees and volunteers. 2. This insurance shall be primary as respects the Insured shown in the schedule above, or if excess, shall stand in an unbroken chain of coverage excess of the Named Insured's scheduled underlying primary coverage. In either event, any other insurance maintained by the Insured scheduled above shall be in excess of this insurance and shall not be called upon to contribute with it. 3. The insurance afforded by this policy shall not be canceled except after thirty days prior written notice by certified mail return receipt requested has been given to the City. Signature -Authorized Representative Address 01181.0024/413989.13 Exhibit D Page 4 of 4 EXHIBIT E FORM OF TERMINATION OF STEINMANN LEASE (Immediately following this page) 01181.0024/413989.13 Page 1 of 1 TERMINATION OF LEASE THIS TERMINATION OF LEASE, dated , 20179 is entered into by and among the CITY OF MORRO BAY, a municipal corporation ("City"), Josef Steinmann, as an individual ("Tenant"), Jaime Parker, doing business as Otter Rock Cafe, ("Subtenant") and Lost Isle Adventures, LLC, a California limited liability company ("Renter"). 1. City Cl" Tenant entered into an unrecorded lease (the "Lease"), as of June 221 1993, pursuant to which City leases to Tenant and Tenant leases from City all of the following premises (hereinafter the "Premises") in the City of Morro Bay, County of San Luis Obispo, State of California, described as Lease : on Parcel Map of CITY of Morro Bay No. 68-30, which n������ •ober 10, 1968, in Book 3, Page 10 of Parcel Maps in c,4. eA. � Recorder, San Luis Obispo County, California (Map). 2. Subtenant subleases a portion of the I authorized bY City, , pursuant to that certain sublease, dated __ a ieration of r-- the Otter Rock Cafe (the "Sublease"). 3. Renter rents docks from Tenant as part of the operation of a business located at Lease Site 89/89W, pursuant to that certain rental agreement between Renter and Tenant (the "Dock Rental Agreement"). 4. Pursuant to the Lease, Tenant operates a hat shop on the Premises. 5. Subject to Paragraph 13., below, Tenant and Subtenant do hereby terminate the Sublease and City approves of that termination. 6. Subject to Paragraph 13., below, Renter and Tenant do hereby terminate the Dock Rental Agreement and City approves that termination. 7. Subject to Paragraph 13., below, City and Tenant do hereby terminate the Lease. 8. Subject to Paragraph 13„ below, For valuable consideration, the receipt and adequacy of which are hereby acknowledged, City, Tenant, Subtenant and Renter hereby release and forever discharge each other and each's elected or appointed public officials, officers, employees and agents, including, but not limited to, each of their 01181.0024/416422.6 1 of 4 associates, predecessors, successors, heirs, assignees, agents, directors, officers, employees, representatives, elected or appointed public officials, attorneys, and all persons acting by, through, under or in concert with them, or any of them ("Releasees"), of and from any and all manner of action or actions, cause or causes of action, in law or in equity, suits, debts, liens, contracts, agreements, promises, liability, claims, demands, damages, loss, cost or expenses, of any nature whatsoever, known or unknown, fixed or contingent (hereinafter called "Claims"), which City and Tenant, Subtenant and Renter, jointly and separately, now have or may hereafter have against Releasees, or any of them, by reason of any matter, cause, or thing whatsoever from the beginning of time to the date hereof including, without limiting the generality of the foregoing, any Claims constituting, arising out of, based upon, or relating to the Lease, Sublease or Dock Rental Agreement, as well as any matters, causes, or things whatsoever that were, or have been, could in any way have been, alleged or may be related to the Lease, Sublease and Dock Rental Agreement, or that could be alleged as arising from the Lease, Sublease or Dock Rental Agreement or any other cause. 9. Subject to Paragraph 13„ below, City Tenant, Subtenant and Renter acknowledge each may hereafter discover facts different from or in addition to those they now know or believe to be true with respect to the claims, demands, causes of action, obligations, damages, and liabilities of any nature whatsoever that are the subject of the Release set forth in Paragraph 8 of this Termination of Lease, and expressly agree to assume the risk of the possible discovery of additional or different facts, and Tenant, Subtenant and Renter agree this Termination of Lease shall be and remain effective in all respects regardless of such additional or different facts. 10. Subject to Paragraph 13„ below, the Release set forth above in Paragraph 8 of this Termination of Lease is a release of ALL claims, demands, causes of action, obligations, damages, and liabilities of any nature whatsoever that are described in the Release and is intended to encompass all known and unknown, foreseen and unforeseen claims, which Tenant, Subtenant or Renter may have as a direct or an indirect result of or directly or indirectly arising from the Lease, Sublease or Dock Rental Agreement or any other cause. 01181.0024/416422.6 2 Of 4 11. Subject to Paragraph 13„ below, further, City, Tenant, Subtenant and Renter expressly agree to waive and relinquish all rights and benefits they may have against Releasees under Paragraph 8 of this Termination of Lease based on Section 1542 of the Civil Code of the State of California which reads as follows: §1542. A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor. Initials of City Initials of Tenant Initials of Subtenant Initials of Renter Initials of Renter 12. City, Tenant, Subtenant and Renter represent none of them have any complaints or charges against any of Releasees with any local, state or federal agency or court; and if any such agency or court assumes jurisdiction of any complaint or charge against the Releasees or any of their predecessors, successors, heirs, assigns, employees, shareholders, officers, directors, agents, attorneys, subsidiaries, divisions or affiliated corporations or organizations, whether previously or hereafter affiliated in any manner, on behalf of City, Tenant, Subtenant or Renter, whenever filed, Tenant, Subtenant or Renter will request such agency or court to withdraw and dismiss the matter fort hwith. 13. The effective date of the terminations described in Paragraphs 5., 6., and 7., above are the same date as the closure of the escrow opened between Tenant and Boatyard, LLC, with escrow numbers and (the "October Escrows"), by which Boatyard, LLC, is purchasing Tenant's business and ABC licenses; provided, that such closure occurs before October 31, 2018 (the "Effective Date of the Terminations"). 14. Except for Paragraphs 5., 6., 7. 8,., 9., 10., and 11., the effective date of this Termination of Lease is the date it is signed on behalf of City. 15. Tenant and City acknowledge and agree a new master lease between Tenant and Boatyard. LLC will also be effective on the same day this Termination of Lease is effective, but Boatyard LLC's typical operations and maintenance obligations of the Premises as a tenant do not commence until the closure of the October Escrows. Based on the foregoing and until the Effective Date of the Terminations, Tenant, 01181.0024/416422.6 3 of 4 Subtenant and Renter shall, until that closure and as applicable to each, continue to perform all the obligations of maintenance and operations of the Lease, Sublease and Rental Agreement. Executed at Morro Bay, California, as of the date first written above. TENANT Josef Steinmann Dated: , 2017 SUBTENANT Jaime Parker. dba Otter Rock Cafe Dated: , 2017 01181.0024/416422.6 "CITY" By Jacrj-ie L. Irons, Mayor Dated: 12 1 , 2017 RENTER By: Dane Jacob, Member Dated: .2017 By: James Sfregola, CEO Dated: 2017