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Home My WebLink AboutReso 78-19 Interim Lease 2019 62-62W V2.lsRESOLUTION NO. 78-19 RESOLUTION OF THE CITY COUNCIL OF THE CITY OF MORRO BAY, CALIFORNIA APPROVING A FIVE-YEAR INTERIM LEASE AGREEMENT FOR LEASE SITE 62/62W, LOCATED AT 551 EMBARCADERO ROAD, BETWEEN THE CITY OF MORRO BAY AND TODD BASTON AND TAMARA GRAY-BASTON 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, Lease Site 62/62W is currently operating on a one-year extended lease with Dennis and Deborah Krueger, doing business as Kayak Horizons; and WHEREAS, the Kruegers are retiring and the site is reverting from their ownership at the end of September 2019; and WHEREAS, the operators of the Gray's Inn and Gallery at the adjacent lease site 63-64/63W-64W, Todd Baston and Tamara Gray-Baston, are currently processing a redevelopment proposal for Lease Site 62/62W that is not yet ready for City Council consideration; and WHEREAS, the City and the Bastons wish to enter into afive-year Interim Lease Agreement for continued seamless operation of the site while their redevelopment proposal is being processed. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Morro Bay, California, as follows: 1. The attached Interim Lease Agreement for Lease Site 62/62W is hereby approved. 2. The Mayor is hereby authorized to execute said Interim Lease Agreement. PASSED AND ADOPTED by the City Council of the City of Morro Bay at a regular meeting thereof held on the 24th day of September 2019 on the following vote: AYES: NOES: ABSENT: one Headding, Addis, None N ATTEST: c� DANA SWANSON, City Clerk Davis, Heller, McPherson LEASE by and between the CITY-0F MORRO BAY ("CITY") and TODD BASTON AND TAMARA GRAY-BASTON (`'TENANT") TABLE OF CONTENTS -LEASE SITE 62/62W ARTICLE I TERMINATION OF PREVIOUS LEASE AND DESCRIPTION OF SITE..................................2 Section 1.01 Termination ofPr•eviozisLease.............'................................................................._..........._...... 2 Section1.02 .SITE................................................................................................................................................2 Section 1.03 Condition of the SITE 2 ........... ... .... ....... ........... ...................................................................... ......... ARTICLE 2 FIXED TERM 3 .................. .................................................................................. ..;... .................... Section2.01 Term .............. ............... ......._................. .......__._..........._.._....._....................... ................. 3 Section2.02 No Extensions ........................... .... ......... ....................... ........................ ............... I.......I.,... I .... .... 4. 3 Section2.03 Hold Over.... ................ w .......... W .... % W. W.. 4 ...... W ......... w .................... 4w.w .... w.. 4 w ......... w .... w ........ w .......... 3 ARTICLE3 RENT ............... ........................... ................... .......... ..... ............... .._...._...._._..._.... .... ............. .4 Section3.01 Minimum Rent . ..... ........... .... ..... ........... .......... ...... ............... ............ ................ .................. ... ......... 4 Section 3.02 Annual CPJAdiustment to Minimum Rent..........................................................4.......................... 4 Section3.03 Reserved ....._.. _.... ... ... ... ........._.......................................................................................... 4 Section 3.04 Percentage Rental... ... 4 ....... 4 ... 4 ........... 4 ....... 4 ..................... 4 ............. .... 44..4 ............... 4 .... 4................ 4 Section3.05 Penalty and Interest.....................................................................................................................4 6 ARTICLE 4 USE OF SITE ;....... 7 ...................................... ............................... .............. ......................................... Section4.01 Permitted Use.........................................................................................................................4.... 7 Section4.02 Unauthori_edIlse... ................ .... .............. ......... .............. ....... .................. ................. ............... .7 Section 4.03 Operation ofBnsiness- Hours of Operation.....................................................6..I%....I.4.I.......I....... 7 Section4.04 Competition ... ..... ...................... ................._........_.._.._.............................................................. 8 Section4.05 Tidelands Trust .......... ..................__...... ........... ........... ....................... ................ ....... .... .......... ... .. 8 Section4.06 Compliance with Law ...................... ................................................... ......_._...._...........--,._.... 8 Section 4.07 Waste or Nuisance .... ------- .--- ...._... .......... .... ........................................__...._........._......A.4....._ _. 8 ARTICLE 5 CONSTRUCTION, REPAIRS AND ALTERATION...._...._ .... .._._._....... ...... ..._..... ................ 9 Section 5.01 Construction Approval.............................................................................................................:.... 9 Section.i.02 Construetion Bond.........................................................................................................................9 Section 5.03 Mechanics' Liens........................................................................................................................... 9 Section 5.04 Ownership of Improvemenis........................._............................................................................... 10 ARTICLE 6 HYPOTHECATION OF LEASE..... . . . . . . . . . . 11 ARTICLE 7 REPAIRS, MAINTENANCE AND RESTORATION ..........__.. Section 7.01 Maintenance by TENANT......................................................... Section 7.02 Dock and Gan gwav.................................................................... Section 7.03 Requirements of Governmental Agencies ................................... Section 7.04 Failure to Repair....................................................................... Section 7.05 TEVA_VT'.S Duty to Restore SITE ............................................... Section 7.06 Inspection by CITY :...... ........... ...... .................. .........._...... ......... Section 7.07 Option to Terminate Lease /or Destruction ....._ .......................... Section 7.08 Application oflnsurance Proceeds. .... ........ ARTICLE 8 INDEMNITY AND INSURANCE. ..... ...... ............ ...... Section 8.01 Indenmity Akreenlent................................................................ Section 8.02 Liabilitv Insurance.................................................................... Section 8.03 Worker's Compensation............................................................. Section 8.04 Fire and Casualty Insurance...................................................... Section 8.05 Specific Perils to he Insztred....................................................... Section 8.06 Deposit oflnsurance with CITY .................................................. Section 8.07 Notice of Cancellation oflnsurance.........._.............................. Section 8.08 No Subro ap tion.......................................................................... A RTICI F 9 TAYRS ANTI TITTT TTTF.Q Section 9.01 TENANT to Pay Taxes........................................................... Section 9.02 TENANT to Pav License and Permit Fees ............................. Section 9.03 Utilities..._ ......... ................................... ...... ..........._....._...... ARTICLE 10 CONDEMNATION............................................................. Section 10.01 Total Condemnation............................................................ Section 10.02 Condemnation Award.... ...... .............. ........ ........................ 4.4 Section 10.03 Termination for Partial Taking ............................................ Section 10.04 Rent Abatement for Partial Taking ........................................ Section 10.05 Convevance in Lieu ofEminent Domain..... 4........................ ARTICLE 11 ASSIGNMENT AND SUBLEASING .............. ........... 6....... !F� 01181.0024/580849.1 Section 11.01 NoAssignnzent WithozztClTY's Consent..............................................:............:................................................ 19 Section11.02 Reserved................................................................................................................................... 19 Section 11.03 Application for:4ssiQnnrent............................................................................................................19 Section 11.04 Probate Transfer orAssiPtztnent................................................................................................ 19 Section 11.05 No Sub -lease Without CITY's Consent..............................:........................................................ 19 Section 11.06 Term ofSzrb-lease....................................................................................................................... 19 Section 11.07 Sub -Tenant Subiect to Lease Ternas............................................................................................20 Section 11.08 Consent Form Aereement........................................................................................................... 20 Section 11.09 TENANT Remains Liable........................................................................................................... 20 Section I1.10 Exception for Boat slips eVlotels.................................................................................................20 ARTICLE 12 DEFAULT AND TERMIN"ATION.................................................................................................. 21 Section Section 12.01 12.02 Abandonment by TENANT......................................................................................................... Termination for Breach by TENANT in All Cases Ezcept Failure to Pav Rent ........................... 21 21 Section 12.03 Termination for Failzrre to Pav Rent.......................................................................................... 21 Section 12.04 Beneficiary May Cza•e Default...................................................................................................................... 21 Section12.05 Reserved 21 .................................................................................................................................... Section 12.06 Damages for Breach........................................................._..................................................... _.21 Section 12.07 Czrmzrlative Remedies................................................................................................................. 22 Section12.08 Waiver o Breach........................................................................................................................22 Section 12.09 Surrender of the SITE..................:.:...:...............................................:...................... _.............. 22 ARTICLE 13 MISCELLANEOUS......._........................_............................._.........._......_........................._.......23 Section13.01 Reserved...................:..................................................................................................................... 23 Section13.02 Notices...................................:................................................................................................... 23 Section 13.03 GovernineLaw.................:..........................:......................................._._............_..._....__.._...23 Section 13.04 Binding on Heirs and Strccessors..................................................................................................23 Section 13.05 Partial Im�alidity........................................................................................................................23 Section 13.06 Sole and On1tA�z�eement.......................................................................................................... 23 Section13.07 tilodificariorz..................................................................................................................................24 Section13.08 Time of Essence..............__............_........................................................................................ 24 Section 13.09 rVlemorcrndum of Lease RecordinQ...._............................._....................................................... 24 Section 13.10 Joint and Several Liabilitv......................................................................................................... 24 Section 13.11 Termination for Reasons Related to Redevelopment of the Site ........................................ 24 ovsi.aoza/ssosa9.i 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 Todd Baston and Tamara Gray-Baston, a married couple, as sole proprietors, herein called TENANT. WITNESSETH. WHEREAS, the State of California granted certain tide and submerged lands located within the CITY limits of CITY to the County of San Luis Obispo and to its successors, being Chapter 1076, Statutes of 1947, as amended by Chapter 413, Statutes of 1955, Chapter 1874, Statutes of 1957, and Chapter 70, Statutes of 1960, first extraordinary session; which Statutes may be amended from time to time by the Legislature of the State of California; all of which Statutes are expressly recognized and agreed to be in full force and effect by the parties hereto; and WHEREAS, the parties hereto recognize and agree that on July 17, 1964, the CITY, Lessor herein, succeeded to all of the right, title and interest of the County of San Luis Obispo in and to all of the tide and submerged lands conveyed to said County by the State of California pursuant to the above - mentioned acts; and WHEREAS, judgment has been entered on October 14, 1968, in the case of City of Morro Bay, Plaintiff, versus County of San Luis Obispo, and State of California, Defendants, by the Superior Court of the State of California in and for the County of San Luis Obispo, 430417, adjudging and decreeing, among other things, that the title to said tide and submerged lands so conveyed by the State of California to the County of San Luis Obispo in trust, as set forth above, passed automatically to CITY upon the date of its incorporation as a city on the 17th day of July, 1964; and WHEREAS, TENANT accepts this Lease with full knowledge there is no warranty of title in and to the SITE (described below) by CITY to TENANT; and WHEREAS, in order to develop and improve the Morro Bay Harbor, and to assist in carrying out the provisions of the tideland grant as aforesaid, and in order to provide facilities for the accommodation of those using Morro Bay Harbor, CITY leases to TENANT the wn described property upon the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the rent to be paid thereunder and of the provisions, covenants and conditions herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ousr.00za/ssasae.r z Article I TERMINATION OF PREVIOUS LEASE AND DESCRIPTION OF SITE Section 1.01 Termination of Previous Lease CITY and TENANT hereby mutually agree the previous carried -over lease for Lease Site 62/62W between the CITY and Dennis and Deborah Krueger, originally commencing July 1, 1995, is terminated effective September 30, 2019. Section 1.02 SITE Upon and subject to the provisions, covenants and conditions hereof, CITY hereby leases and demises to TENANT, and TENANT hereby leases and takes from CITY, the SITE, which is the real property and improvements thereon known as Lease Site 62/62W including a 15' westerly extension of Lease Site 62/62W in the City of Morro Bay, County of San Luis Obispo, State of California. The SITE is described and outlined in yellow on the attached Exhibit A, which is incorporated by this reference as though fully set forth herein. The SITE, excluding the 1546ot westerly extension of Lease Site 62/62W, is delineated on Parcel Map of the 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. As used herein, the term "SITE" shall mean and include the site described above, all existing improvements on the SITE and all improvements placed thereon by the TENANT pursuant to this Lease. Section 1.03 Condition of the SITE Except as otherwise specifically provided for in this Lease, the SITE shall be conveyed to TENANT in an "as is" condition. It shall be the sole responsibility of TENANT, at TENANT'S sole expense, to investigate and determine the conditions of the SITE, the condition of the existing improvements on the SITE and the suitability of such conditions for the business to be conducted by TENANT. TENANT and CITY mutually acknowledge this Lease is for an interim term and CITY desires the SITE to be redeveloped in the near future by TENANT or others. Therefore, if any maintenance or repair beyond the scope of normal wear and tear (Extraordinary Maintenance and Repair) becomes necessary, as reasonably determined by CITY, then CITY and TENANT shall in good faith negotiate a mutually -agreeable method and financing for the Extraordinary Maintenance and Repair. 01181.0024/580849.1 3 Article 2 FIXED TERM Section 2.01 Term The term of this Lease shall be a period of five (5) years, commencing October 1, 2019 (the C o m m e n c e m e n t Date) , and terminating without notice on September 30, 2024, unless sooner terminated as herein provided, or by operation of law. Section 2.02 No Extensions The term of this Lease shall not be extended nor shall this Lease be renewed. Requests for continued use of the SITE shall be treated as an application for a new lease and shall require appropriate application to the CITY with all required supporting information and documents, CITY Council approval and the execution of a new CITY lease, containing the then most current provisions, covenants, conditions and rent schedules. Section 2.03 Hold Over If TENANT does not relinquish actual physical possession of the SITE after the expiration of the term of this Lease, or if otherwise terminated, with the consent of the CITY, express or implied, then such holding over (in the absence of a written 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 twice one -twelfth (1/12) of the total minimum and percentage rental for the preceding twelve (12) months (equal to 1/6 annual rent per month), and otherwise subject to each and every provision, covenant and condition of this Lease. TENANT shall indemnify, defend and hold harmless CITY from any and all loss or liability, including, but not limited to, claims of succeeding tenants, resulting from TENANT'S failure to surrender possession of the SITE upon expiration of this Lease, or upon termination of this Lease for any other reason. ousr.aoza/saoaae.l !3 Article 3 RENT Section 3.01 Minimum Rent TENANT agrees to pay to CITY in addition to the additional sums specified in Section 3.04, a minimum guaranteed annual rental for the use and occupancy of the SITE of Thirteen Thousand Dollars ($13,000.00) per year payable in advance in monthly installments on the first day of each month, starting with the first full month after the Commencement Date. If the Commencement Date is other than the first day of a month, the monthly rent for that month shall be on a pro -rated basis. Those amounts shall be paid to CITY in lawful money of the United States of America, without offset or deduction, at the Harbor Office, located at 1275 Embarcadero, Morro Bay, California, or at such other place or places CITY may from time -to -time designate by written notice delivered to TENANT. Section 3.02 Annual CPI Adjustment to Minimum Rent The parties agree on July 1, 2020 and each July 1 thereafter, except as provided for in Section 3.03, the minimum guaranteed annual rental shall be increased or decreased in direct proportion to any upward or downward movement from the Consumer Price Index for January 1, 2019, which is hereby agreed to be 269.468. The Consumer Price Index referred to herein is the Consumer Price Index (all items indexes, all urban consumers) for Los Angeles —Long Beach —Anaheim, California, compiled and published by the United States Department of Labor, Bureau of Labor Statistics, 1982-84 Base Year — 100 (hereafter called Index). The percentage adjustment for any given year shall be based upon the average monthly index for twelve months ending December 31 st. The minimum annual rental shall be adjusted once each year on July 1, and will remain in effect as adjusted through June 30 of the following year, at which time it will be readjusted. (Byway of illustration only, if the Index was 110 on January L. 1986 and the average monthly Index from January 1986 through December 1986 equals 136 then the percentage increase is 4.62%. Therefore the minimum guarantee annual rental then being paid by TENANT would be increased by 4.62% commencing July 1, 1987 and continuing at that rate until June 30, 1988.) If the United States Department of Labor, Bureau of Labor Statistics shall ceases to compile and make public the Index as now constituted and issued, then another index as reasonably determined by CITY, shall be used for the purpose of adjusting the minimum rental for the SITE. Section 3.03 Reserved Section 3.04 Percentage Rental A. In addition to the minimum guaranteed annual rental specified hereinabove TENANT agrees to pay to CITY at the time and in the manner hereinafter specified, as rent for the use and occupancy of the SITE an additional sum equal to five (5) percent of TENANT's gross sales, as defined below, from retail and non -slip rental sales and ten (10) percent of gross sales, as defined below, from slip rentals and all other sales and activities related to the SITE, less the amount of the minimum guaranteed annual rental paid pursuant to Sections 3.01 and 3.02, above. B. The term "Pross sales" as used herein, shall (subject to the exception and authorized deductions as hereinafter set forth), mean the total selling price and the total gross amount received by TENANT from all rentals, merchandise sold and services rendered in, on or from the SITE by TENANT, their 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 to customer's property made in or upon said SITE; the gross amount received by TENANT for merchandise sold pursuant to orders received in the SITE, though filled elsewhere; and the gross amount received by TENANT from 01181.0024/580849.1 any and all other sources of income derived from the business or businesses conducted upon the SITE. C. Notwithstanding the provisions of Subsection 3.04 A., above, 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 rental has been paid under this Lease to CITY. (1) Credits and refunds made to customers for merchandise returned or exchanged; and (2) Any sales or excise taxes otherwise includable in "gross sales" as defined in this Article because a part of the total selling price of merchandise or services rendered in, from, or on the SITE where TENANT must account for and remit the taxes to the government entity or entities by which they are imposed. (3) Any discount fees paid by TENANT to a financial institution for the use of that institution's credit card service. (4) Sales on credit for which TENANT is unable to collect payment; provided, however, that deduction may not exceed 2% of TENANT's total gross sales. D. TENANT shall keep or cause to be kept full, complete, and accurate records, and books of account in accordance with accepted accounting practices showing the total amount of gross sales, as defined herein, made each calendar month in, on or from the SITE. TENANT shall keep said records and books of account within San Luis Obispo County and shall notify CITY in advance of their location at all times. Furthermore, TENANT shall at the time of sale and in the presence of the customer cause the full selling price of each piece of merchandise, each rental received and each service rendered in, on or from the SITE to be recorded in a cash register or cash registers that have cumulative totals and are sealed in accordance with standard commercial practices. Said records, books of account and cash register tapes, including any sales tax reports that 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 reports of sales for confidential internal use of the CITY in determining gross sales for TENANT. TENANT consents and authorizes CITY to request such information directly from the State Board of Equalization or other state agency with which sales tax information is filed. 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 (as defined herein) of each department, sub- lessee, licensee and concession operating in, on or from the SITE for the previous twelve (12) calendar months, ending June 30, just concluded, and the authorized deductions, if any, therefrom; and with it TENANT shall pay to CITY the amount of the additional rental which is due to CITY as shown thereby. If TENANT shall at any time cause an audit of sales of TENANT's business to be made by a public accountant, then TENANT shall furnish CITY with a copy of said audit without cost or expense to CITY. CITY may, once in any calendar year, cause an audit of the business of TENANT to be made by a public accountant of CITY's own selection. TENANT shall, upon receiving written notice of CITY's desires for such an audit deliver and make available all such books, records and cash register tapes to the public or certified public accountant selected by CITY. Furthermore, TENANT shall promptly on demand reimburse CITY for the full cost and expense of said audit, should the audit disclose that the questioned Statement or statements understated gross sales by five percent (5%) or more but less than ten percent (10%). TENANT shall also irmnediately pay the additional rental with interest, therein shown to be payable by TENANT to CITY. Otherwise the cost of such audit shall be paid by CITY. In the event an audit or other review of records 01181.0024/580849.1 discloses the amounts reported as gross sales was understated by TENANT by ten percent (10%) or more, CITY shall not only be entitled to recovery from TENANT all costs of audit and review, but shall also be entitled to recovery from TENANT a penalty equal to two times the percentage of gross sales rent due pursuant to this Lease on such unreported amounts. F. CITY shall be entitled at any time within five years after the receipt of any such additional rental payment, to question the sufficiency of the amount thereof and/or the accuracy of the statement or statements furnished by TENANT to justify the same. For the purpose of enabling CITY to check the accuracy of any such statement or statements, TENANT shall for said period of five (5) years after submission to CITY of any such statement keep all of TENANT's records, including sales tax returns, all cash register tapes and other data which in any way bear upon or are required to establish in detail TENANT's gross sales of merchandise and services and any authorized deductions therefrom as shown by any such statements and shall upon request make the same available to CITY for examination. Section 3.05 Penalty and Interest A. 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 often percent (10%) of the amount of the rent in addition to the rent. B. In addition to the penalty, TENANT- shall pay interest at the rate of one percent (1%) per month or fraction thereof or the maximum amount permitted by law as of the date this Lease is signed, whichever is greater, 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. 01181.0024/580849.1 7 Article 4 USE Ur SITE Section 4.01 Permitted Uses The SITE shall, during the term of this Lease, be used for the purpose of operating and conducting thereon and therein the following: retail and rental sales, office and transient occupancy (hotel); provided such uses are in compliance with CITY'S planning and zoning regulations, berthing of vessels of size appropriate to the SITE and for uses normally incident to and directly allied to such purposes and for no other purposes. Section 4.02 Unauthorized Use TENANT agrees to allow only those uses authorized in Section 4.01 above and that any unauthorized use thereof shall constitute a breach of this Lease and shall, at the option of CITY terminate this Lease. In the event the SITE is used for uses other than those specifically authorized, then in addition to all other remedies allowed by law or authorized elsewhere in this Lease, CITY shall be entitled to receive from TENANT and TENANT shall be required to pay to CITY an additional rent calculated as a percentage of the "gross sales" as defined herein, accountable to such unauthorized use, which is equal to twice what such percentage would have been had such use been authorized in advance. Said additional rent shall be retroactive to the commencement of such unauthorized use and shall continue until the unauthorized use is abated. The parties agree and understand that the collection and acceptance by CITY of this additional rent, shall not, in any way be deemed a waiver nor estoppel of CITY's right to require abatement of the unauthorized use or at CITY's option to pursue any other remedies -available at law or equity. Section 4.03 Operation of Business -Hours of Operation Failure to actively and diligently conduct at least' one of the retail sales or hotel businesses authorized herein, constitutes a breach of this Lease and shall, at the option of CITY terminate this Lease. A. TENANT shall during the term of this L ease conduct business of the nature specified in Section 4.01 of this Lease on the SITE in an efficient and diligent manner and keep the SITE open for the conduct of business continuously and without interruption forat least six hours each day of the year except one day each week and legal holidays. This provision shall not apply if the SITE shall be closed and the business of TENANT is temporarily shut down for a period not to exceed fourteen (14) calendar days in any calendar year to make minor or major repairs, maintenance or other construction deemed necessary by TENANT. Further this provision shall not apply if the SITE shall be closed and the business of TENANT is temporarily shut down as authorized or required by the CITY or on account of strikes, walkouts, or causes beyond the control of TENANT or for not over three (3) days out of respect to the memory of either TENANT, an employee of TENANT or close relative of TENANT or one of TENANT'S employees. B. TENANT shall operate TENANT'S business on the SITE with due diligence and efficiency and in like manner as comparable businesses in CITY or coastal area are operated, so as to produce all of the gross sales and gross receipts from services which may be produced from TENANT's business; and TENANT at all times shall carry on the SITE, a stock or merchandise of such size, character, and quality as is reasonable, designed to produce the maximum return to TENANT, when sales of goods and merchandise are a permitted use of this Lease. Section 4.04 Competition During the term of this Lease, TENANT shall not directly nor indirectly engage in any similar or competing business within a radius. of five (5) miles from the location of the SITE; provided, however, that TENANT may, with prior written approval from CITY, own or operate more than one business, whether or 01181.0024/580849.1 !3 not competing and similar along the Embarcadero upon any CITY lease sites. The purpose of this Section is to prevent and prohibit TENANT from reducing revenue to CITY by diverting business from TENANT'S operations on the SITE to another similar business owned by TENANT within the CITY, but not upon a CITY ]ease site for which CITY is paid rent based on gross sales. Section 4.04 Competition During the term of this Lease, TENANT shall not directly nor indirectly engage in any similar or competing business within a radius of five (5) miles from the location of the SITE, 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 their lease site operation to another similar business owned by TENANT within the CITY but not upon a CITY lease site from which CITY is paid a rent based on gross sales. Section 4.05 Tidelands Trust TENANT shall use and occupy the SITE in complete compliance with the Tidelands Trust purposes under which the SITE or any portion thereof are held by CITY pursuant to the grants from the State of Califomia as set forth above. Section 4.06 Compliance with Law TENANT shall, at TENANT'S sole cost and expense, comply with all of the requirements of all local, municipal, county, state and federal authorities now in force, or which may hereafter be in force, pertaining to the SITE, and shall faithfully observe in the use of the SITE all local, municipal and county ordinances and state and federal statutes, rules and regulations now in force or which may hereafter be in force. The judgmentof any court of competent jurisdiction, or the admission of TENANT in any action or proceeding involving TENANT, whether CITY be a party thereto or not, TENANT has violated any ordinance, statute, rule or regulation in the use of the SITE shall be conclusive of that fact as between CITY and TENANT. CITY, upon three -days' written notice, may terminate this Lease is TENANT fails to comply with this section. Section 4.07 Waste or Nuisance TENANT shall not commit or permit the commission by others of any waste on the SITE; TENANT shall not maintain, commit, or permit the maintenance or commission of any nuisance as defined by law on the SITE; and TENANT shall not use or permit the use of the SITE for any unlawful purpose. CITY, upon three -days' written notice, may terminate this Lease is TENANT fails to comply with this section. ousi.00za/ssosae.r Article 5 CONSTRUCTION, REPAIRS AND ALTERATION Section 5.01 Construction Approval TENANT shall not make or permit any other person to make any alterations or structural additions or structural modifications to the SITE or to any structure thereon or facility appurtenant thereto if the cost thereof shall exceed Ten Thousand Dollars ($10,000), without the written consent of CITY first had and obtained as follows: Prior to the commencement of any phase of future construction, TENANT shall submit to CITY' S Community Development Department for approval and recommendation to the CITY COUNCIL, a development and improvement plan for the leased SITE, which shall provide for the full and complete development of the SITE, showing all facilities, structures, landscaping or other improvements to be constructed or installed on each portion of the SITE or facilities appurtenant thereto, and shall include a detailed estimate of the cpst of construction, and installation of such improvements and a detailed schedule showing the proposed commencement and completion date of each phase of the development and improvement. Where required by the Morro Bay Municipal Code, California Coastal Act, Corps of Engineers or any other agency having authority over the proposed project, Conditional Use Permits, Concept Plans, Precise Plans, Coastal Development Plans, and any other required plans or permits shall be applied for and/or approved prior to any construction, alteration or repairs. Section 5.02 Construction Bond Prior to the commencement of any construction the cost of which is greater than the amount of $10,000, 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 SITE. That estimate must be submitted to the CITY ENGINEER for approval. TENANT shall file with the CITY CLERK a faithful performance bond, in a form and issued by a corporate surety company satisfactory to CITY, in an amount equal to one hundred percent (100%) of the final detailed cost estimate, securing the faithful performance of TENANT or his contractor in the completion of said construction. TENANT shall also file with the CITY CLERK a labor and materials bond, in a form and issued by a corporate surety company satisfactory to CITY, in an amount equal to fifty percent (50%) of the final detailed cost estimate, securing the payment of all claims for the performance of labor or services on, or the furnishing of materials for, the performance of the construction. In lieu of the above referenced bonds, TENANT may post cash deposits in similar amounts or may make other mutually satisfactory arrangements to guarantee the completion of construction projects. In the event the contractor performing the work for the improvements provides bonds to guarantee that work is satisfactorily preformed, those bonds may name CITY as additional indemnitee to comply with these requirements. Section 5.03 Mechanics' Liens At all times during the term of this Lease, TENANT shall keep the SITE and all buildings and improvements now or hereafter located on the SITE free and clear of all liens and claims of liens for labor, services, materials, supplies, or equipment performed on or furnished to the SITE. TENANT further agrees to at all times, save and hold harmless CITY and indemnify it against all claims for labor or materials in connection with any improvement, repairs, or alterations on the SITE, and the cost of defending against such claims, including reasonable attorney's fees. If TENANT fails to pay and discharge or cause the SITE to be released from such liens or claim of liens within ten (10) days after the filing of such lien or levy, then TENANT shall upon written 01181.0024/580849.1 10 notification be required to immediately deposit with CITY a bod 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 principal and by a company or corporation, licensed by the Insurance Commissioner of the State of Californiato 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. Section 5.04 Ownership of Improvements All existing improvements and structures on the SITE shall, during the term of this Lease, be and remain the property of TENANT; provided, however, that TENANT shall have no right to waste, destroy, demolish or remove the improvements; and provided, further, that TENANT's rights and powers with respect to the improvements are subject to the terms and limitations of this Lease. At the termination of this Lease, the structures and improvements on the SITE shall revert to, the ownership of CITY subject to the following: A. At the expiration or sooner termination of this Lease, TENANT shall remove all TENANT's personal and/or business property and leave the SITE in a "broom -clean" condition. Upon termination of this Lease, whether by expiration of the term or otherwise, all improvements, structures, personal and business property remaining on the SITE shall; without compensation to TENANT, become CITY's property, free and clear of all claims to or against them by TENANT or any third party. B. TENANT shall defend, hold harmless and indemnify CITY against all liability and loss arising from any such claims to said improvements or structures by TENANT or any third party, or from CITY's exercise of the rights conferred by this Section. oiiai.00za/ssosae.i 11 Article 6 HYPOTHECATION OF LEASE CITY shall not be responsible for notifying any lien, encumbrance or security interest holder in the SITE of any default in the performance of this Lease by TENANT, unless the lien, encumbrance. or security interest holder shall have previously been approved by CITY, as required by Article 11 hereof and has kept CITY notified of any changes in the terms of such lien, encumbrance or security interest including filing with the City Clerk a copy of same. ousi.00za/saoaae.r 12 Article 7 REPAIRS, MAINTENANCE AND RESTORATION Section 7.01 Maintenance by TENANT At all times during the term of this Lease, TENANT shall, at TENANT'S own cost and expense, keep and maintain the SITE and all improvements now or hereafter on the SITE 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 of this Lease the whole of the SITE as well as any improvements, landscaping, or facilities thereon in a clean, sanitary, neat, safe, tidy, orderly and attractive condition. CITY may, at the sole option of CITY, clean, repair or clear the SITE, at TENANT'S cost and expense, in the event TENANT fails to clean, repair or clear the SITE in accordance with this Section to the satisfaction of CITY after fifteen (15) days written notice to TENANT from CITY of CITY's intent to exercise this option. Section 7.02 Dock and Gangway At all times during the term of this Lease, TENANT shall at TENANT'S own cost and expense repair and maintain, as necessary, the dock and gangway improvements, located in the water portion of the SITE. Further, TENANT shall at TENANT'S own cost and expense conduct maintenance surveys at reasonable intervals to locate and determine needed repairs. Section 7:03 Requirements of Governmental Agencies At all times during the term of this Lease, TENANT, at TENANT'S own cost and expense, shall: (1) Make all alterations, additions, or repairs to the SITE or the improvements or facilities on the SITE required by any valid law, ordinance, statute, order, or regulation now or hereafter made or issued by CITY in its governmental capacity or any federal, state, county or other governmental agency or entity; (2) Observe and comply with all valid laws, ordinances, statutes, orders, and regulations now or hereafter made or issued respecting the SITE or the improvements or facilities located thereon; (3) Obtain all required permits pursuant to the Morro Bay Municipal Code or State law prior to the instigation of any repair or maintenance activity. (4) Indemnify, defend and hold harmless CITY from any and all liability, loss, damages, fines, penalties, claims and actions resulting from TENANT'S failure to comply with and perform the requirements of this Section. Section 7.04 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 SITE until such repairs are completed and accomplished and the SITE rendered safe for public use, as determined by the BUILDING OFFICIAL or FIRE MARSHAL. Failure by CITY to enforce any of the provisions of this Article shall not constitute a waiver of any of these provisions and CITY may at any time enforce all of the provisions of this Article, requiring all necessary repairs, rebuilding or replacement. Section 7.05 TENANT'S Duty to Restore SITE If at any time during the term of this Lease, any buildings or improvements now or hereafter on the SITE are destroyed in whole or in part by fire, theft, the elements, or any other cause not the sole fault of 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 building, buildings, improvement, or improvements according to the original plan thereof or according to such modified plans therefore as orr81.0024/580849.1 13 shall be approved in writing by CITY The work of repair and restoration shall be commenced by TENANT within one hundred eighty (180) days after the damage or destruction occurs and shall be completed with due diligence not longer than one (1) year after the work is commenced. In all other respects, the work of repair and restoration shall be done in accordance with the requirements for construction work on the SITE set forth in Article 5 of this Lease. Section 7.06 Inspection by CITY TENANT shall permit CITY or CITY's agents, representatives, or employees to enter the SITE at all reasonable times for the purpose of inspecting the SITE 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 SITE under this Lease or to perform CITY's duties under this Lease. Section 7.07 Option to Terminate Lease for Destruction Notwithstanding the provision of Section 7.05 of this Lease, TENANT shall have the option of terminating this Lease for destruction on the last calendar day of any month by giving CITY at least thirty -days' prior written notice of TENANT'S intent to do so and by removing, at TENANT'S own cost and expense, to the satisfaction of CITY, -all debris and remains of the damaged improvements from the SITE if any buildings or improvements now or hereafter on the SITE are so damaged or destroyed by fire, theft, the elements, or any cause not the fault to TENANT or CITY during the last year of the term of this Lease that cannot be repaired and restored as required by Section 7.05 of this Lease at a cost not exceeding fifteen (15) percent of the cost of replacing all buildings and improvements if totally destroyed then, immediately preceding the calamity damaging or destroying the damaged or destroyed buildings or improvements, located on the SITE. Section 7.08 Application of Insurance Proceeds Any and all'fire or other insurance proceeds that become payable at any time during the term of this Lease because of damage to or destruction of any buildings or improvements on the SITE shall be paid to TENANT and solely applied by TENANT toward the cost of repairing and restoring the damaged or destroyed buildings or improvements in the manner required by Section 7.05 of this Lease; provided, however, that should TENANT exercise the option given TENANT by Section 7.07 of this Lease to terminate this Lease because of damage to or destruction of buildings or improvements on the SITE, then, in that event, any and all fire or other insurance proceeds that become payable because of such damage or destruction: (1) Shall be applied first to the TENANT'S exact documented costs for clearing the damageA or destroyed improvements to the satisfaction of CITY. (2) Shall. be applied next toward the reduction of the unpaid principal balance of the obligation secured and discharging the SITE from any then outstanding encumbrance or encumbrances incurred by TENANT and approved by CITY pursuant to Article 6 and Article 11 of this Lease; and (3) Then the balance of the proceeds, if any, shall be paid to CITY to compensate CITY, at least in part, for the loss to its ownership interest in the damaged or destroyed buildings or improvements. ousi.00za/ssosae.i 14 Article 6 INDEMNITY AND INSURANCE Section 8.01 Indemnity Agreement TENANT shall indemnify, defend and hold harmless CITY and each of its officials, employees, agents and volunteers from any and all liability, claims, loss, damages, or expenses resulting from TENANT'S occupation and use of the SITE, specifically including, without limitation, any liability, claim, loss, damage, or expense arising by reason of: (1) The death or injury of any person, including TENANT or any person who is an employee or agent of TENANT, or by reason of the damage to or destruction of any property, including property owned by TENANT or by any person who is an employee or agent of TENANT, from any cause whatever while such person or property is in or on the SITE or in any way connected with the SITE or with any of the improvements or personal property on the SITE; (2) The death or injury of any person, including TENANT or any person who is an employee or agent of TENANT, or by reason of the damage to or destruction of any property, including property owned by TENANT or any person who is an employee or agent of TENANT, caused or allegedly caused by either (a) the condition of the SITE or some building or improvement on the SITE, or (b) some act or omission on the SITE of TENANT or any person in, on, or about the SITE with or without the permission and consent of TENANT; (3) Any work performed on the SITE or materials furnished to the SITE at the instance or request of TENANT or any person or entity acting for or on behalf of TENANT. (4) TENANT'S failure to perform any provision of this Lease or to comply with any requirement of law or any requirement imposed on TENANT or the SITE by any duly authorized governmental agency or political subdivision. Section 8.02 Liability Insurance TENANT shall at TENANT'S own cost and expense, secure promptly after the execution of this Lease and maintain during the entire team of this Lease a broad form comprehensive coverage policy or policies of comprehensive general public liability, TENANT'S business automobile coverage and property damage insurance, each with the combined single limit of not less than $1,000,000.00 issued by an insurance company acceptable to CITY and authorized to issue liability insurance in California, and which shall list CITY as the named primary additional insured, without offset to CITY'S policies as respects all operations of TENANT. Any deductibles or self -insured retentions must be declared to and approved by CITY. The terms of said policies may be for such period as shall be designated by TENANT; provided however, that within two (2) months prior to the expiration date of such insurance terms, TENANT shall procure other policies of said insurance to ensure during the time between the execution of this Lease and the commencement of the lease term, and throughout the entire lease term or any renewal thereof, or until the sooner termination hereof, CITY, its officials, employees, agents and volunteers shall always be added as named primary additional insured under the policies of comprehensive general liability, business automobile coverage, and property damage insurance, in accordance with the foregoing. CITY may at any time require TENANT to increase the minimum coverage limits for insurance required by this Lease, but every such increase shall be reasonable under the circumstances and in no event shall such increases more than double in any ten-year period, except as required in Section 8.04. Section 8.03 Worker's Compensation TENANT shall maintain at TENANT'S own expense and keep in full force and effect during the term of this Lease, Worker's Compensation Insurance as provided by law. Said insurance shall contain a waiver provision of subrogation rights against CITY. 01181.0024/580849.1 15 Section 8.04 Fire and Casualty Insurance TENANT shall, at TENANT'S own cost and expense, at all times during the term of this Lease keep all buildings, improvements, and other structures on the SITE, as well as any and all additions thereto, insured for at least ninety (90) percent of their full insurable value by insurance companies authorized to issue such insurance in California against loss or destruction by fire and the perils commonly covered under the standard and special form endorsement to fire insurance policies in CITY. Any loss payable under such insurance shall be payable to TENANT, CITY, and any lender under an encumbrance incurred by TENANT and approved by CITY pursuant to Article 6 as their interests may appear. Any proceeds received because of a loss covered by such insurance shall be used and applied in the manner required by Section 7.08 of this Lease. Section 8.05 Specific Perils to be Insured Notwithstanding anything to the contrary contained in Section 8.04 of this Lease, the insurance required by Section 8.04 shall, whether or not included in the standard extended coverage endorsement mentioned in Section 8.04, insure all buildings, improvements, and other structures on the SITE, as well as any and all additions thereto, against loss or destruction by water damage, windstorm, cyclone, tornado, hail, explosion, riot, riot attending a strike, civil commotion; malicious mischief, vandalism, aircraft, fire. smoke damage, and sprinkler leakage. Furthermore, the insurance required by Section 8.04 of this Lease during the construction of said building project described in Article 5 shall have course of construction, vandalism, and malicious mischief clauses attached insuring said project during its construction and all materials delivered to the site of said building project for their full insurable value. Section 8.06 Deposit of Insurance with CITY TENANT shall within ten (10) days after the execution of this Lease and promptly thereafter when any such policy is replaced, rewritten, or renewed, deliver to CITY a true and correct copy of an insurance binder and within 45 days deliver to CITY a true and correct copy of endorsement to each insurance policy required by this Article 8 and a certificate executed by the insurance company or companies or their authorized agent evidencing such policy or policies. Section 8.07 Notice of Cancellation of Insurance Each insurance policy required by this Article shall contain a provision stating it cannot be canceled for any reason nor can the coverage or limits be reduced, unless ten -days' prior written notice of the cancellation or reduction is given to CITY in the manner required by this Lease for service of notices on CITY by TENANT. Section 8.08 No Subrogation 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. TENANT hereby waives any right of recovery against CITY for each such claim, expense, liability, or business interruption. TENANT agrees that if TENANT fails to acquire such insurance TENANT shall not have a claim against CITY for loss of fixtures or inventory or business interruption. ousi.00za/ssosae.i 16 Article 9 TAXES ANU UTILITIES Section 9.01 TENANT to Pav Taxes TENANT shall pay, before delinquency, all taxes and assessments levied upon or assessed to TENANT on the SITE 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 SITE. TENANT shall also pay before delinquency all possessory interest taxes applicable to the SITE. Section 9.02 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 of TENANT upon the SITE. Section 9.03 Utilities TENANT shall pay, or cause to be paid, and hold harmless CITY from all charges for the furnishing of gas, water, electricity, telephone service, and for other public utilities to the SITE during the term of this Lease and for the removal of garbage and rubbish from the SITE during the term of this Lease. 01181.0024/580849.1 17 Article 10 CONDEMNATION Section 10.01 Total Condemnation If title and possession to all of the SITE is 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 actual physical possession of the SITE is taken from TENANT, and both CITY and TENANT shall thereafter be released from all obligations including rent which shall be prorated to the date of termination, except those specified in Section 10.02 of this agreement Section 10.02 Condemnation Award Any compensation or damages awarded or payable because of the taking of all or any portion of the SITE by eminent domain shall be allocated between CITY and TENANT as follows: A. All compensation or damages awarded or payable for the taking by eminent domain of any land that is part of the SITE 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 SITE through or under TENANT. B. 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. C. All compensation or damages awarded or payable because of any improvements constructed or located on the portion of the SITE taken by eminent domain where only a portion of the SITE is taken by eminent domain and TENANT is not entitled to or does not terminate this Lease shall be applied in the manner specified in Section 10.04 toward the replacement of such improvements with equivalent new improvements on the remaining portions of the SITE. D. All compensation or damages awarded or payable because of any improvements constructed or located on the portion of the SITE taken by eminent domain where this Lease is terminated because of the taking by eminent domain, whether all or only a portion of the SITE is taken by eminent domain, shall be allocated between CITY and TENANT as follows: 1. That percentage of the compensation or damages awarded or payable because of the improvements that equals the percentage of the full term of this Lease that has, at the time of the taking, not expired shall belong to and be the sole property of TENANT. 2. That percentage of the compensation or damages awarded or payable because of the improvements that equals the percentage of the full term of this Lease that has, at the time of the taking, expired shall belong to and be the sole property of CITY. 3. The term "time of the taking" as used in this subparagraph shall mean 12:01 a.m. on the date title, or the date actual physical possession of the portion of the SITE on which the improvements are located is taken by the agency or entity exercising the eminent domain power, whichever shall first occur. E. Any severance damages awarded or payable because only a portion of the SITE is taken by eminent domain shall be: 1. The sole and separate property of TENANT during the first five (5) years of the term of this Lease; 2. Equally divided, except to the extent needed to replace any improvements taken by eminent domain with equivalent improvements on the remaining portion of the SITE where TENANT cannot or does not terminate this Lease, between CITY and TENANT during the sixth (6th) to nineteenth (19th) ou81.0024/580849.1 �3 years of the term of this Lease; and 3. The sole and separate property of CITY during the last five (5) years of the term of this Lease. Section 10.03 Termination for Partial Taking If, during the term of this Lease, title and possession of only a portion of the SITE is 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 Lease by serving written notice of termination on CITY within ninety (90) days after TENANT has been deprived of actual physical possession of the portion of the SITE 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 sub -leases and sub -tenancies in or on the SITE or any portion of said SITE created by TENANT under this lease shall also terminate and the SITE shall be delivered to CITY free and dear of all such sub -leases and sub -tenancies; provided, however, that CITY may, at CITY's option, by mailing written notice to a sub -tenant allow any sub- tenant to attorn to CITY and continue his or her occupancy on the SITE 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, except those specified in Section 10.02 of this Lease. Section 10.04 Rent Abatement for Partial Taking If, during the term of this Lease, title and possession of only a portion of the SITE i s 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 SITE 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 the value of the portion of the SITE taken by eminent domain bears to the full value of the SITE at that time; provided, however, that TENANT shall replace any improvements or facilities with equivalent new facilities on the remaining portion of the SITE and do all other acts at TENANT'S own cost and expense required by the eminent domain taking to make the remaining portion of the SITE fit for the use specified in this Lease. Section 10.05 Conveyance in Lieu of Eminent Domain A voluntary conveyance by CITY, with the consent of TENANT, of title to all or a portion of SITE to a public or quasi -public agency or entity in lieu of and under threat by such agency or entity to take the SITE or a portion thereof by eminent domain proceedings shall be considered a taking of title to all or such portion of the SITE under the power of eminent domain subject to the provisions of this Article. 01181.0024/580849.1 19 Article 11 ASSIGNMENT AND SUBLEASING Section 11.01 No Assignment Without CITY's Consent Except as provided in Section 11.02 of this Lease, TENANT shall not assign, mortgage, pledge, encumber or otherwise transfer this Lease, any right or interest in this Lease, or any right or interest in the SITE or any of the improvements that may now or hereafter be constructed or installed on the SITE without the express written consent of CITY evidenced by resolution of City Council 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 or transfer shall not be deemed to be a consent to any subsequent assignment or transfer of this Lease by TENANT. CITY shall not unreasonably nor arbitrarily - withhold approval to the assignment or transfer of this lease to an assignee or transferee who is financially reliable and qualified to conduct one or more of the permitted used for which this lease was granted. It is mutually agreed the personal qualifications of the persons named herein as TENANT is a part of the consideration for granting of this Lease and TENANT does hereby agree to maintain active control and supervision of the use or uses conducted on the SITE. Section 11.02 Reserved Section 11.03 Application for Assignment A condition of an assignment or transfer of this Lease or any portion thereof shall be TENANT shall file with CITY an application to assign or transfer this Lease prepared by the prospective assignee or transferee. Concurrently with filing the application, TENANT shall pay a fee, to be determined by CITY, in cash or certified or cashier's check to enable CITY adequately to investigate the proposed assignee or transferee's qualifications as a permitted assignee or transferee. CITY shall not be required to account for the use of the sum paid. If the proposed assignee or transferee's net worth on the date of assignment is not sufficient to reasonably guarantee successful operation of the SITE, then CITY may require TENANT to guarantee such assignee's obligations hereunder for such period as CITY determines. 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 11.04 Probate Transfer or Assignment Nothing herein contained will prevent the transfer of this Lease by will, or by operation of law under the intestacy provisions of the California Code as it may from time to time be amended. Probate sale of the leasehold interest will not be permitted without the consent of the CITY, evidenced by resolution of City Council, first had and obtained. Section 11.05 No Sub -lease Without CITY's Consent TENANT shall not sub -lease the whole nor any part of the SITE, or suffer any other person (the agents .and employees of TENANT excepted) to occupy or use the SITE, or any portion thereof, without the written consent of CITY evidenced by prior written approval of the Harbor Director first had and obtained. A consent to .one subletting, occupation, or use by another person shall not be deemed to be a consent to any subsequent subletting, occupation, or use by another person. Any such subletting without CITY's written consent shall be void, and shall at CITY's option, terminate this Lease. City shall not unreasonably nor arbitrarily withhold consent to one who is qualified and financially reliable. Section 11.06 Term of Sub -Lease In no event shall the term of any sub -lease extend beyond the term of this master lease. Termination of this Lease prior to the expiration of this Lease term shall also terminate any and all sub -leases; provided, however, that CITY may, at CITY's option by mailing written notice to a sub -tenant, allow any sub -tenant ov ar.00za/saosae.i 20 to attorn to CITY and continue his or her occupancy on the SITE as a TENANT of CITY. Section 11.07 Sub -Tenant Subject to Lease Terms Any and all sub -leases shall be expressly made subject to all the provisions, covenants, and conditions of this Lease. A breach of the terms of this Lease by a sub tenant shall constitute a breach on the part of TENANT and shall subject both the sub -tenant and TENANT to all the remedies provided to CITY herein and by law. Failure to report and pay the agreed percentage of gross sales as provided herein by any sub -tenant shall constitute a breach of this Lease. TENANT hereby agrees to and does guarantee payment of such percentage rentals due by a sub -tenant under the terms of this Lease. Section 11.08 Consent Form Agreement Prior to any consent by CITY to any sub -lease hereof, TENANT shall cause to be executed between TENANT and any sub -lessee an agreement making the CITY a third -party beneficiary, in a form acceptable to CITY, whereby the sub -tenant agrees to be bound by all of the provisions, covenants and conditions of this Lease. Further, it is agreed by TENANT any default by the sub -lessee of any of the terms, covenants and conditions of this Lease shall be deemed to be violations by TENANT of this L ease and all remedies of CITY for such violation, including termination of this Lease, shall immediately be enforceable by CITY against TENANT. Further, it is agreed TENANT must apply any and all moneys received from any sub -tenant first to the payment of obligations of the sub -tenant to CITY. Section 11.09 TENANT Remains Liable Prior to approval by CITY to any sub -lease hereof; TENANT shall agree to be primarily and jointly and severally liable to CITY for all obligations due CITY by any sub -tenant, including the payment of rents, and TENANT shall agree CITY may proceed directly against TENANT for any obligation owing CITY by the sub -tenant. Section 11.10 Exception for Boat Slips, Motels 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 SITE. ouar.00za/ssosae.i zs Article 12 DEFAULT AND TERMINATION Section 12.01 Abandonment by TENANT If TENANT breaches this Lease and abandons the SITE prior to the natural expiration of the term of this Lease, then CITY may continue this Lease in effect by not terminating TENANT'S right to possession of the SITE, 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. Section 12.02 Termination for Breach by TENANT in All Cases Except Failure to Pay Rent All provisions, covenants and conditions contained in this Lease are declared to be conditions of this Lease and to the term hereby demised to TENANT. If TENANT defaults in the performance of any covenant, condition, or provision contained in this Lease and the default not be cured within thirty (30) days after written notice of the default is served on TENANT by CITY, then CITY may terminate this lease immediately, and that in the event of such termination, TENANT shall thereupon forthwith remove from the SITE and shall have no further right or claim thereto and CITY shall immediately thereupon have the right to re-enter and take possession of the SITE subject to appropriate legal process. Section 12.03 Termination for Failure to PaV Rent If any default be made in the payment of rental as herein provided and such default shall not be cured within three (3) days after written notice thereof, then CITY shall have the option to immediately terminate this Lease; and that in the event of such termination, TENANT shall have no further right or claim thereto and TENANT shall thereupon forthwith remove from the SITE and CITY shall immediately thereupon have the right to re-enter and take possession of the SITE subject to appropriate legal process. Section 12.04 Beneficiary May Cure Default , CITY shall afford the beneficiary of any security instrument in the SITE the right to cure any default by TENANT of the covenants, conditions, or agreements hereof, within Lite period here inabove mentioned after written notice thereof, which said period shall be computed from the date said notice is mailed by the CITY to said beneficiary, by certified mail; provided, however, that said beneficiary has filed with the CITY CLERK a copy of said security instrument.. Section 12.05 Reserved Section 12.06 Damages for Breach If TENANT defaults in the performance of any covenant, condition or provision contained in this Lease and the default be incurable or not be cured within the time period set forth hereinabove, then CITY may terminate this Lease and: A Bring an action to recover from TENANT: (1) The worth at the time of award of the unpaid rent which had been earned at the time of termination of the lease; (2) The worth at the time of award of the amount by which the unpaid rent which would have been earned after termination of the lease until the time of award exceeds the amount of rental loss that TENANT proves could have been reasonably avoided; (3) The worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of rental loss that TENANT proves could be reasonably avoided; and (4) Any other amount necessary to compensate CITY for all detriment proximately caused by TENANT'S failure to perform his obligations under this Lease; and ousr.aoza/ssosae.i zz B. Bring an action, in addition to or in lieu of the action described in subparagraph (1) of this section, to re-enter and regain possession of the SITE in the manner provided by the laws of unlawful detainer of the State of California then in effect. Section 12.07 Cumulative Remedies The remedies given to CITY in the Article shall not be exclusive but shall be cumulative with and in addition to all remedies now or hereafter allowed by law -and elsewhere provided in this Lease. Section 12.08 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. Section 12.09 Surrender of the SITE On expiration or sooner termination of this Lease, TENANT shall surrender the SITE, all. improvements in or on the SITE, and all facilities in any way appertaining to the SITE, to CITY in as good, safe, and clean condition as practicable, reasonable wear and tear excepted. oliai.00zn/saosae.i Article 13 MISCELLANEOUS Section 13.01 Reserved Section 13.02 Notices Any and all notice or demands by or from CITY to TENANT, or TENANT to CITY, shall be in writing. They shall be served either personally, or by registered or certified mail. Any notice or demand to CITY may be addressed or given to the CITY CLERK at CITY'S City Hall, Any notice or demand to CITY may be given to: with a copy to: Harbor Director 1275 Embarcadero Morro Bay, CA 93442 City Manager of the City of Morro Bay City Hall 595 Harbor Street Morro Bay, CA 93442 Any notice or demand to TENANT may be given at: Todd Baston &Tamara Gray-Baston Grays Inn and Gallery 561 Embarcadero Morro Bay, CA 93442 Such addresses may be changed by written noticeby either party to the other party. Section 13.03 Governing Law 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 or holding concerning this lease arises. Section 13.04 Binding on Heirs and Successors Subject to the provisions herein relating to assignment and subletting each and all of the provisions, conditions, and covenants herein contained shall be binding upon and inure to the benefit of the heirs, executors, administrators, successors, and permitted assigns of any and all of the parties hereto; and all of the parties hereto shall bejointly and severally liable hereunder. Section 13.05 Partial Invalidity If any provision of this Lease i s 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 13.06 Sole and Only Agreement This instrument constitutes the sole and only agreement between CITY and TENANT respecting the SITE, the leasing of the SITE to TENANT, or the provisions, conditions and covenants herein specified, and correctly sets forth the obligation of CITY and TENANT to each other as of its date. Any agreements or representations respecting the SITE, this Lease to TENANT by CITY, or any other matter discussed in this Lease not expressly set forth in this instrument are null and void. No modification, amendment, or alteration of this Lease shall be valid unless it is in writing and signed by both parties. ou81.0024/580849.1 24 Section 13.0, Modification This Lease shall not be modified except pursuant to a written amendment executed by the MAYOR or CITY MANAGER and CITY CLERK pursuant to prior CITY COUNCIL approval. Notwithstanding CITY COUNCIL approval, no amendment shall become effective until such amendment is in fact executed by the MAYOR or CITY MANAGER and CITY CLERK. TENANT understands this Lease may not be modified by oral statements by any person representing CITY including the MAYOR, CITY MANAGER and CITY CLERK. TENANT specifically agrees not to rely on oral statements, purported oral waivers, or purposed 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 CITY COUNCIL action and a subsequent written amendment signed by the MAYOR or CITY MANAGER and CITY CLERK. Section 13.08 Time of Essence Time is expressly declared to be the essence of this Lease. Section 13.09 Memorandum of Lease for Recording Neither party, CITY or TENANT, shall record this Lease without the written consent of the other. However, CITY and TENANT shall, at the request of either at any time during the term of this Lease, execute a memorandum or "short form" of this Lease for purposes of, and in a form suitable for, being recorded. The memorandum or "Short foam" of this Lease shall describe the parties, CITY and TENANT, set forth a description of the SITE, specify the term of this Lease, and shall incorporate this Lease by reference. Section 13.10 Joint and Several Liability Each of the individuals defined as TENANT are jointly and severally liable for all the obligations of TENANT pursuant to this Lease. Section 13.11 Termination. for Reasons Related to Redevelopment of the Site A. If CITY and TENANT agree to enter into a new lease for operations based on TENANT'S proposed site redevelopment project, then this Lease shall be automatically terminated without notice. B. If the continuing site business operations anticipated by CITY and TENANT to be conducted on the SITE fail for any reason, as determined by the HARBOR DIRECTOR, then HARBOR DIRECTOR may terminate this Lease with ten -days' written notice. C. If the CITY COUNCIL reasonably determines a different use of or tenant for the SITE would be more beneficial to the community, then CITY COUNCIL may terminate this Lease upon sixty -days' written notice after making that determination at a public meeting. ouar.00za/saosae.r 25 EXECUTED on Obispo County, California. CITY OF MORRO BAY By: John Headding, Mayor ATTEST: Dana Swanson, City Clerk APPROVED AS TO FORM: Chris Neumeyer, City Attorney TENANT By: Todd Baston By: Tamara Gray -Briton San Luis 01181.0024/580549.1 •aao' Bd. 94 t W45 h�. `1 I Z C. o 1 O 1�0404r ezw, 3 4if9' �' l t NJ 89. Zz` �I j 1 { Ih$ 1� 1 . /.' 1 EXHIBIT A, W N Z_ 1 }1 tl a z' (`G, mpg E A m U m Y SITEI I N,: L. 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