HomeMy WebLinkAbout2012-12-11 e-packetREGULAR MEETING
n
o
OVERSIGHT BOARD FOR THE
c� a SUCCESSOR AGENCY TO THE CITY OF
SOUTH SAN FRANCISCO
REDEVELOPMENT AGENCY
P.O. Box 711 (City Hall, 400 Grand Avenue)
South San Francisco, California 94083
CITY HALL
LARGE CONFERENCE ROOM, TOP FLOOR
400 GRAND AVENUE
TUESDAY, DECEMBER 11, 2012
2:00 P.M.
PEOPLE OF SAN MATEO COUNTY
You are invited to offer your suggestions. In order that you may know our method of conducting
Board business, we proceed as follows:
The regular meetings of the South San Francisco Oversight Board for the Successor Agency to the
City of South San Francisco Redevelopment Agency are held on the second Tuesday of each month
at 2:00 p.m. in the in the Large Conference Room, Top Floor at City Hall, 400 Grand Avenue, South
San Francisco, California.
In accordance with California Government Code Section 54957.5, any writing or document that is a
public record, relates to an open session agenda item, and is distributed less than 72 hours prior to a
regular meeting will be made available for public inspection in the City Clerk's Office located at City
Hall. If, however, the document or writing is not distributed until the regular meeting to which it
relates, then the document or writing will be made available to the public at the location of the
meeting, as listed on this agenda. The address of City Hall is 400 Grand Avenue, South San
Francisco, California 94080.
In compliance with Americans with Disabilities Act, if you need special assistance to participate in
this meeting, please contact the South San Francisco City Clerk's Office at (650) 877 -8518.
Notification 48 hours in advance of the meeting will enable the City to make reasonable
arrangements to ensure accessibility to this meeting.
Chairperson:
Neil Cullen
Selected by:
Largest Special District of the type in H &R
Code Section 34188
Vice Chair:
Selected by:
Denise Porterfield San Mateo County Superintendent of Schools
Deputy Superintendent, Fiscal and Operational Services
San Mateo County Office of Education
Board Members:
Mark Addiego
Councilmember, City of South San Francisco
Alternate: Barry Nagel
City Manager, City of South San Francisco
Gerry Beaudin
Principal Planner, City of South San Francisco
Barbara Christensen
Director of Community /Government Relations,
San Mateo County Community College District
Reyna Farrales
Deputy County Manager, San Mateo County
Paul Scannell
Counsel
Michael Roush as alternate for Craig Labadie
Selected bv:
Mayor of the City of South San Francisco
Mayor of the City of South San Francisco
Chancellor of California Community College
San Mateo County Board of Supervisors
San Mateo County Board of Supervisors
(Public Member)
Advisory:
Marty Van Duyn — Assistant City Manager, City of South San Francisco
Jim Steele — Finance Director, City of South San Francisco
Steve Mattas — City Attorney, City of South San Francisco
Krista Martinelli — City Clerk, City of South San Francisco
Armando Sanchez — Redevelopment Consultant, City of South San Francisco
CALL TO ORDER
ROLL CALL
PLEDGE OF ALLEGIANCE
AGENDA REVIEW
OVERSIGHT BOARD REGULAR MEETING DECEMBER 11, 2012
AGENDA PAGE2
PUBLIC COMMENTS
Comments from members of the public on items not on this meeting agenda. The Chair may set time
limit for speakers. Since these topics are non - agenda items, the Board may briefly respond to
statements made or questions posed as allowed by the Brown Act (Government Code Section
54954.2). However, the Board may refer items to staff for attention, or have a matter placed on a
future agenda for a more comprehensive action report.
MATTERS FOR CONSIDERATION
1. Motion to approve the Minutes of the Regular Meeting of November 13, 2412.
2. Discussion item on Proposition 1A implications of County Controller's
methodology for allocating Redevelopment Property Tax Trust Fund (RPTTF)
Proceeds.
3. a) Discussion of the State of California Department of Finance (DOF) response
to the Chairman of the Oversight Board's letter requesting guidance on
unfunded pension and retirement health liabilities (unfunded liabilities) being
an enforceable obligation of the Successor Agency (SA) of the South San
Francisco Redevelopment Agency (RDA).
b) Possible Oversight Board (OB) direction to staff on developing a request to
include unfunded liabilities on a subsequent Recognized Obligations Payment
Schedule (ROPS).
4. Discussion and direction related to Reorganization of the Oversight Board.
5. Closed Session:
Real Property Negotiations
(Pursuant to Government Code Section 54956.8)
Related to: I Chestnut Avenue
Negotiating Parties: Oversight Board and Successor Agency for the former
South San Francisco Redevelopment Agency and Red Cart Market Inc., dba
Pet Club Stores.
Agency Negotiator: Marty VanDuyn.
Red Cart Market Inc., dba Pet Club Stores Negotiator: Vic Catanzaro.
6. Resolution approving the Lease between the South San Francisco Successor
Agency and Pet Club for the property located at One Chestnut Avenue in
South San Francisco.
7. Future Agenda Items.
a) Property Disposition Plan.
OVERSIGHT BOARD REGULAR MEETING DECEMBER 11, 2612
AGENDA PAGES
8. Closed Session:
Conference with Legal Counsel - Existing Litigation
(Pursuant to Government Code 549569(a))
Metwally v. South San Francisco Successor Agency.
ADJOURNMENT
OVERSIGHT BOARD RFG[JI AR MEETING DECEMBER 11, 2012
AGENDA PAGF 4
REGULAR MEETING
0
MINUTES
OVERSIGHT BOARD FOR THE
`��roRsA SUCCESSOR AGENCY TO THE CITY OF
SOUTH SAN FRANCISCO
REDEVELOPMENT AGENCY
P.O. Box 711 (City Hall, 400 Grand Avenue)
South San Francisco, California 94083
CITY HALL
LARGE CONFERENCE ROOM, TOP FLOOR
400 GRAND AVENUE
TUESDAY, OCTOBER 13, 2012
2:00 P.M.
CALL TO ORDER Time: 2:02 p.m.
ROLL CALL
PLEDGE OF ALLEGIANCE
AGENDA REVIEW
None.
PUBLIC COMMENTS
QU
Present: Boardmembers Addiego, Beaudin,
Christensen, Farrales and Scannell, Vice
Chairperson Porterfield and Chairperson
Cullen.
Absent: None.
Led by Vice Chairperson Porterfield.
Comments from members of the public on items not on this meeting agenda. The Chair may set time
limit for speakers. Since these topics are non - agenda items, the Board may briefly respond to
statements made or questions posed as allowed by the Brown Act (Government Code Section
54954.2). However, the Board may refer items to staff for attention, or have a matter placed on a
future agenda for a more comprehensive action report.
None.
MATTERS FOR CONSIDERATION
Motion to approve the respective Minutes of the Regular Meeting of October
9, 2012 and Special Meeting of October 19, 2012.
Motion — Boardmember Scannell/Second— Boardmember Addiego: to approve the Minutes of the
Regular Meeting of October 9, 2012. Approved by the following voice vote: AYES: Boardmembers
Addiego, Beaudin, Christensen and Scannell, Vice Chairperson Porterfield and Chairperson Cullen.
NOES: None. ABSTAIN: Boardmember Farrales. ABSENT: None.
Motion — Boardmember Scannell/Second— Boardmember Addiego: to approve the Minutes of the
Special Meeting of October 19, 2012. Approved by the following voice vote: AYES:
Boardmembers Addiego, Beaudin, Christensen and Scannell, and Chairperson Cullen. NOES: None.
ABSTAIN: Boardmember Farrales and Vice Chairperson Porterfield. ABSENT: None.
2. , Discussion pertinent to scheduling a ,Special Meeting in January 2013 for
approval of the Due Diligence Review (DDR)- Non- Housing Funds after such
DDR is presented for Board review and public comment at the Regular
Meeting of January 8, 2013.
Boardmembers tentatively scheduled a Special Meeting for January 15, 2013 at 2:00 p,m. for
approval of the Due Diligence Review (DDR)- Non - Housing Funds after such DDR is presented for
Board review and public comment at the Regular Meeting of January 8, 2013.
3. Authorize Oversight Board Chairman to send letter to the State of California
Department of Finance ( "DOF ") requesting guidance about unfunded pension
and retiree health liabilities being enforceable obligations of the Successor
Agency of a Redevelopment Agency.
Chairperson Cullen advised Boardmembers he had drafted the proposed letter seeking the DOF's
position on the enforceable obligation status of unfunded pension and retiree health liabilities
associated with City employees who served the RDA is some capacity but were not technically
employed by the RDA. He noted that recent legislation had addressed this issue with respect to
terminations of RDA employees, but did not address the specific issue confronting the South San
Francisco Successor Agency and Oversight Board. He suggested the taxing entities would benefit
from an affirmative answer as to whether this is an enforceable obligation so that funding
methodologies might be considered.
Boardmember Addiego requested that the Successor Agency and not the City be identified in the
second paragraph of the letter. Boardmembers agreed.
In response to Boardmember Scannell's question regarding the nexus between the City employee
positions listed and RDA service, Counsel Labadie advised that Chairperson Cullen's proposed letter
only addressed the threshold legal question as to whether the Successor Agency would be entitled to
reimbursement. If the DOF's position is that such obligations are enforceable, then it would be up to
the Oversight Board to make the factual determination as to which employee obligations /amounts to
OVERSIGHT BOARD REGULAR MEETING NOVEMBER 13, 2012
MINUTES PAGE 2
include.
Boardmember Beaudin stated his preference for Option B in the memorandum which would involve
the Oversight Board taking the up -front position that these are enforceable obligations as opposed to
first requesting the opinion of DOF. He questioned whether other Oversight Boards had already
taken this position.
Counsel Labadie advised some Oversight Boards had approved similar obligations subject to review
by DOF. He noted that the Board would be spared calculations pertinent to the potential obligations
if DOF's position was that such obligations were unenforceable.
Motion — Boardmember Scannell/Second— Boardmember Christensen: to authorize the Oversight
Board Chairman to send a letter to the DOF requesting guidance about unfunded pension and retiree
health liabilities being enforceable obligations of the Successor Agency of a Redevelopment Agency
as modified with respect to identification of the Successor Agency as opposed to the City in
paragraph two (2). Approved by the following voice vote: AYES: Boardmembers Addiego,
Christensen, Farrales and Scannell, Vice Chairperson Porterfield and Chairperson Cullen. NOES:
Boardmember Beaudin. ABSTAIN: None. ABSENT: None
4. Future Agenda Items.
a. Report on any determination by the State of California Department
of Finance on unfunded pension and liabilities being an enforceable
obligation of the Successor Agency of a Redevelopment Agency
At Boardmember Christensen's request, the Board agreed to place an item pertaining to RPTTF tax
distribution methodology and implications for Prop IA on the December 11, 2012 Regular Meeting
Agenda
ADJOURNMENT
Motion— Boardmember Beaudin/Second— Boardmember Scannell: to adjourn the meeting.
Unanimously approved by voice vote.
Pursuant to the above motion, Chairperson Cullen adjourned the meeting at 2:29 p.m.
Submitted:
's J. M elli, Cl rk
City o an Francisco
OVERSIGHT BOARD REGULAR MEETING
MINUTES
Approved:
Neil Cullen, Chairperson
Oversight Board for the Successor Agency to the
City of South San Francisco Redevelopment
Agency
NOVEMBER 13, 2012
PAGE 3
DATE:
TO:
FROM:
Redevelopment Successor Agency Oversight Board
Staff Report
December 11, 2012
Members of the Oversight Board
Jim Steele, Finance Director
SUBJECT: DISCUSSION ITEM ON PROPOSITION IA IMPLICATIONS OF COUNTY
CONTROLLER'S METHODOLOGY FOR ALLOCATING REDEVELOPMENT
PROPERTY TAX TRUST FUND (RPTTF) PROCEEDS
The following attachments are being transmitted from Boardperson Christensen regarding the
implications for how the State Department of Finance interpretation of paying taxing entities through the
Redevelopment Property Tax Trust Fund (RPTTF) process may be in violation of Proposition IA's
constitutional provisions of not altering the way property taxes are allocated without a 213 vote of the
Legislature.
By: CA4�L
Jim S e le
Finan Director
Attachments:
Marry Van Duyn
Assistant City Manager aairector of
Economic and Community Development
I. Background information on the issue prepared by Boardperson Christensen
II. Fiscal Consultant analysis of the impacts to San Mateo County taxing entities
III. Pre -AB 1484 white paper from League of California Cities on the proper way to allocate
RPTTF funds
PI
I. Consideration of joining a coalition to seek legal advice on the constitutionality
of the calculation method County Auditor /Controller is using
to determine taxing entities' share of the RPTTTF
Background:
In November 2004, the voters of California approved Proposition 1A, an amendment to the
California state constitution intended to restore predictability and stability to local government
budgets. The measure, among other things, prohibits the Legislature from altering the share of
property tax revenues that cities, county and special districts are entitled to under the ordinary pro
rata share of property taxes allocated under the Revenue and Tax Code, commonly known as an
AB8 share. It did allow such shifting of revenues only if the Legislature declared an emergency and
approved the measure authorizing the tax shift with 2/3 approval in each house.
As explained in detail in the attached paper, the method the Department of Finance has advised
counties to use in calculating payments appears to be a violation of Prop 1A. The Legislative
Analyst's Office and the California State Association of County Auditors have both questioned the
methodology being used by the Department of Finance.
Initially, AB 26 required the County Auditors to use the funds in the RPTTF first to pay the
enforceable obligations of the former RDA and the Administrative Cost Allowance for the
Successor Agency. Next, the Auditor was to apply each taxing entities' AB8 percentage share to the
funds remaining in the RPTTF. If a taxing entity had a pass through that exceeded the amount
under the AB 8 calculation, the pass through was to be capped at the AB8 share amount. If a taxing
entity had a pass through agreement that was less than its calculated AB8 share, additional funds
were to be allocated to the taxing entity so that the revenues received equaled the AB8 share. This
initial methodology was revenue neutral to all taxing entities, and would have been consistent with
Proposition 1A.
After AB 1484 was passed, however, the Department of Finance has taken the position that this
distribution method onl y applies to distribution of funds "such as the proceeds from asset sales" and
that pass through payments must be honored with no reductions. If pass through payments are
honored without regard to the AB8 share, the result is that some taxing entities are receiving
than their AB8 share and others are receiving less than their share, which appears to be a tax shift
and /or an alteration of taxing entities' share of property taxes contrary to Prop 1A
Countywide, the total tax shift is $5AM to the County and this amount is being taken away from
cities, schools and other taxing entities. Specifically, in South San Francisco, the shift is $2.3M and
the major losers in this calculation are the SSF Unified School District ($1,415,930) the City of SSF
($612,143), the College District ($141,072) , the Colma Creek Flood Control Project ($57,252), and
the County Office of Education ($42,809). (See attached Countywide and SSF analysis prepared by
Don Fraser).
The College District is proposing that a coalition be formed in the County to jointly approach our
local legislators to seek an Attorney General's opinion on the constitutionality of the current method
of calculations. This coalition could include school districts, oversight boards, successor agencies
and other taxing entities.
P2
Action: Discuss the Prop 1A issue and decide whether to seek out other interested taxing entities to
jointly seek legal advice on the constitutionality of the calculation method being used to calculate
taxing entities share of RP=. The Board could, for example, designate a Boardperson and a staff
person to seek input from other taxing entities and report back to legal counsel and the Board.
Attachment 2
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South San Francisco Successor Agency
IMPACT FROM NOT APPLYING THE SECTION 34188 "HAIRCUT"
Fraser Associates Residual Impact
SSF 10/25/2012
May
June
Impact
Impact
Total
Entities with Gains From Pass Through
GENERAL COUNTY TAX
1,850,134
475,827
2,325,961
WILLOW GARDENS PKS -PKWYS MNT
588
0
588
Total
1,850,722
475,827
2,326,549
Entities with Losses
GENERAL COUNTY TAX
0
0
CITY OF SOUTH SAN FRANCISCO
(493,249)
(118,895)
(612,143)
SO SAN FRAN UNIFIED GENL PUR
(1,164,089)
(287,841)
(1,451,930)
SM JR COLLEGE GEN PUR
(99,906)
(41,166)
(141,072)
COLMA CR FLOOD CONTROL ZONE
(6,825)
(1,706)
(8,531)
COLMA CR FLOOD CONT SUB ZN 3
(2,960)
(710)
(3,670)
COLMA CR FLOOD CONT SUB ZN 2
(32,387)
(8,204)
(40,591)
COLMA CR FLOOD CONT SUB ZN 1
(2,801)
(660)
(3,460)
WILLOW GARDENS PKS -PKWYS MNT
0
(250)
(250)
BAY AREA AIR QUALITY MANAGEMENT
(6,515)
(1,584)
(8,099)
COUNTY HARBOR DISTRICT
(11,111)
(2,694)
(13,805)
RESOURCE CONSERVATION DISTRICT
(151)
(35)
(187)
COUNTY EDUCATION TAX
(30,728)
(12,081)
(42,809)
Total
(1,850,722)
(475,827)
(2,326,549)
Fraser Associates Residual Impact
SSF 10/25/2012
P5
Attachment 3
Prepared by the League
prior to the passage of 1484
LLEAGUE 1400 K Street, Suite 400 • Sacramento, California 95814
OF CALIFORNIA Phone: 916.658.8200 Fax: 916.658.8240
C IT I ES www.cacities.org
Administration of Passthrough Payments from the
Redevelopment Property Tax Trust Fund under ABx1 26
GENERAL DISCLAIMER: This document represents an attempt to interpret the
requirements of AB x1 26 as modified by the California Supreme Court in California
Redevelopment Association v. Matosantos. This document does not constitute legal
advice. Given the significant ambiguities, conflicts, and murkiness of AB x1 26, it is
important to consult with legal counsel regarding any issues discussed in this
document. The statements in this document reflect the consensus or
recommendation of the subgroup that drafted this document in consultation with
the members of the entire Working Group. No statement in this document should be
attributed to any individual member of the subgroup or the Working Group. This
document represents an analysis as of the date set forth in the footer below. This
document will be updated as needed to reflect legislative changes and revised
analyses. If you have questions or comments regarding this document, please direct
them to Patrick Whitnell, General Counsel for the League of California Cities, at
pwhitnell(@cacities.org.
The Post - Redevelopment Working Group ( "Working Group ") of the League of
California Cities (the "League ") provides this Statement of Position (referred to
herein as the "white paper" or "position paper") to (1) explain the Working Group's
position concerning the disbursements from the Redevelopment Property Tax Trust
Fund ( "RPTTF ") to pay for statutory and contractual passthrough payments as set
forth in ABx1 26, and (2) assert that all California cities must receive the full
property tax allocation assigned to them as required by State constitutional and
statutory law.
The elimination of redevelopment has substantially reduced the revenues
available to California cities for important projects designed to produce jobs,
economic development, affordable housing, and valued infrastructure. While the
revenue losses compromise the ability of cities to achieve these important goals, a
portion of the lost revenue should be returned to cities in the form of increased
property tax revenues.
1
v. 1.0 (play 7, 2012)
P6
In this regard, the Working Group supports the distribution methodology
from the RPTTF for passthrough payments under ABxl 26 that has been identified
by both the Legislative Analyst Office ( "LAO ") in Unwinding Redevelopment,' and the
California State Association of County Auditors ( "Auditor's Association ") through its
Accounting Standards Committee, in Draft Uniform Guidelines for the
Implementation of Assembly Bill No, 26.2 The LAO and Auditor's Association, along
with the Working Group, read ABxl 26 so as to require property tax distributions
for each taxing entity to equal the property tax share assigned to that entity under
the ordinary pro -rata share of property tax revenues allocated under applicable
provisions in the Revenue and Taxation Code, commonly referred to as an "AB 8"
share, and referred to herein as the "AB 8 Tax Share Reading,"
Under the AB 8 Tax Share Reading, passthrough payments to taxing agencies
are adjusted so the overall property taxes paid to each taxing agency matches the
ratios set by law under AB 8 allocations. The Working Group supports the AB 8 Tax
Share Reading because it achieves a result that not only complies with the plain
language of ABxl 26, but also conforms to the requirements of Article X111, Section
25.5(a)(3) of the California Constitution, added by Proposition lA in 2004, which
requires 2/3 approval by both houses of the Legislature to enact a law that
reallocates ad valorem property tax revenues among local taxing entities.
The LAO appears to agree that the constitutionally sound interpretation of
ABx1 26 requires the implementation of the AB 8 Tax Share Reading, Nevertheless,
it appears that the California Department of Finance ( "DOF ") takes a contrary and, in
the Working Group's opinion, unsupported reading of ABxl 26 with respect to
passthrough payment provisions. Specifically, DOF's contrary reading appears in
Answer 4 to Additional Frequently Asked Questions 2 -29 -2012, posted on DOF's
website ( "FAQ Reading "), which contends that passthrough payments are not
subject to adjustment under Health and Safety Code section 34188.3
As more specifically explained in this white paper, and the reports from the
LAO and Auditor's Association cited herein, the Working Group asserts that the FAQ
Reading from DOF should be rejected because it misreads the plain language of
ABxl 26, conflicts with the California Constitution, and is mathematically
unworkable.
I. THE AB 8 TAX SHARE READING FOLLOWS THE LANGUAGE OF ABxl 26
AND SATISFIES THE STATE CONSTITUTION
i See, pages 19 and 20 of the LAO report,
2 See, pages 23 and 24 of the Auditor's Association report.
3 See DOF Website link:
http:: / /www.dof.ca.gov /assembly bills 2627 /documents /RDA „New FAQs 2 -2 FxhibitS.pdf,.
2
v. 1.0 (May 7, 2012)
P7
Pursuant to ABx1 26, the former tax increment of each dissolved
redevelopment agency is deposited into the RPTTF. Distributions are made from
the RPTTF based on the property tax share of each taxing entity (i.e., the AB 8
share), as described in the first sentence of Health and Safety Code section 34188:4
"[A]11 distributions of property tax revenues ... to each taxing
entity shall be in an amount proportionate to its share of property
tax revenues in the tax rate area in that fiscal year...."
(Emphasis added.) The AB 8 share payable to each taxing entity is taken from the
net amount in the RPTTF after payment of enforceable obligations and the
administrative allowance ( "Net RPTTF Balance "):
"For distributions from the Redevelopment Property Tax Trust
Fund, the share of each taxing entity shall be applied to the
amount of property tax available in the Redevelopment Property
Tax Trust Fund after deducting the amount of any distributions
under paragraphs (2) 5 and (3) s of subdivision (a) of Section
34183."
(Section 34188(a)(1) [emphasis added].)
These quoted provisions describe a "Standard Distribution Rule" through
which each taxing entity takes its AB 8 share of the Net RPTTF Balance. By
referencing "each taxing entity" in these provisions, the Legislature signaled its
intention that the provisions would apply equally to taxing entities with and without
passthrough obligations.
Furthermore, Section 34188(a)(2) describes how to implement the Standard
Distribution Rule "for each taxing entity that receives passthrough payments."
Paragraph (2) places a ceiling on the amount that is payable as a passthrough
pursuant to Section 34183(a)(1):
"For each taxing entity that receives passthrough payments, that
agency shall receive the amount of any passthrough payments
identified under paragraph (1) of subdivision (a) of Section 34183,
in an amount not to exceed the amount that it would receive
pursuant to this section in the absence of a passthrough
agreement."
(Section 34188(a)(2) [emphasis added].)
4 Unless otherwise indicated, all statutory references are to the California Health and Safety Code,
S Amounts payable toward enforceable obligations based on an approved Recognized obligation
Payment Schedule.
6 Amounts payable toward the administrative cost allowance.
3
v. 1.0 (May 7, 2012)
P8
While such taxing entities can continue to receive passthrough payments, the
payment is capped according to the Standard Distribution Rule (i.e., the entity's AB 8
share of the Net RPTTF Balance). However, the entity will receive a supplemental
payment from the RPTTF when the amount of its passthrough is less than the
amount that would be payable under the Standard Distribution Rule:
"However, to the extent that the passthrough payments received
by the taxing entity are less than the amount that the taxing entity
would receive pursuant to this section in the absence of a
passthrough agreement, the taxing entity shall receive an
additional payment that is equivalent to the difference between
those amounts."
(Section 34188(a)(2),)
In this manner, Section 34188(a) (2) assures that taxing entities with
passthroughs receive payments from the Net RPTTF Balance equal to their AB 8
share by augmenting the passthrough payments or, when needed, adjusting the
payments downward. Moreover, the AB 8 share paid to each taxing entity (with or
without a passthrough) should total 100% of the Net RPTTF Balance,
Not only does AB 8 Tax Share Reading match the language in ABx1 26, this
interpretation allows ABx1 26 to withstand constitutional scrutiny under Article
XIII, Section 25.5(a)(3). As noted in the LAO report, ABx1 26 was adopted only by a
simple majority from both houses of the Legislature. ABx1 26 did not receive a 2/3
majority from each house of the Legislature, which is required constitutionally for
the State to reallocate property tax revenues in a manner that would alter their
ordinary AB 8 share. As such, the AB 8 Tax Share Reading is the only means to
constitutionally implement passthrough payment provisions in ABx1 26.
It is in this regard that any priority given to passthrough payments provided
for in Section 34183 — even if to recognize those situations in which a taxing entity
may have pledged proceeds from passthrough payments to repay that taxing
entity's indebtedness obligations — must yield to Section 34188 and the AB 8 Tax
Share Reading. Article XIII, section 25.5 (a) (3). It trumps any intent by the
Legislature to preserve some sort of priority for passthrough payments in ABx1 26,
and therefore mandates the AB 8 Tax Share Reading.?
7 The Working Group is aware that taxing entities may have issued debt that pledged as
security for repayment of that debt passthrough payments that, had the Legislature not dissolved
redevelopment agencies with the enactment of ABx1 26, would have been disbursed from the
redevelopment agencies to the taxing entities to cover costs related to redevelopment in
accordance with applicable statutory or contractual passthrough provisions. To the extent that
application of Section 34188 would produce a reduction in the amount of passthrough payments
such that insufficient funds would be available to meet debt service on this indebtedness, a holder
4
v. 1.0 (May 7, 2012)
P9
II. DOF'S FAQ READING CONFLICTS WITH THE PLAIN LANGUAGE OF ABx1
26 AND WOULD PRODUCE UNCONSTITUTIONAL RESULTS
The FAQ Reading, found in Additional Frequently Asked Questions 2-29-2012,
conflicts with the plain language of ABx1 26, violates Article X1I1, Section 2S.5(a)(3),
and it is mathematically impossible to implement. As such, it should be rejected.
According to the FAQ Reading, Section 34188(a)(2) does not cap the amount
of property taxes payable to a taxing entity as a passthrough pursuant to Section
34183(a)(1). Rather, the DOF posits that Section 34188(a)(2) applies only to "the
distribution of other money, such as the proceeds from asset sales." Yet, the
introductory sentence of Section 34188 indicates that its rules apply to "all
distributions of property tax revenues and other moneys pursuant to this part."
(Part 1.85, added by ABx1 26, consists of Sections 34170 - 34191). In the Working
Group's opinion, the FAQ Reading is wrong. By its terms, Section 34188 applies to
"all distributions of property tax," covered by "this part," which, therefore, includes
passthrough payments described in Section 34183(a)(1).
Moreover, Section 34188(a)(2) caps the "amount of any passthrough
payments" made to a taxing entity to "an amount not to exceed the amount it would
receive pursuant to this section in the absence of a passthrough." The FAQ Reading
appears to render meaningless the language in ABx1 26 concerning this distribution
cap.
Additionally, the FAQ Reading appears to advocate the distribution of
property taxes comprised of former tax increment so that some taxing entities
(those with passthrough payments) would receive distributions of property tax
exceeding their AB 8 shares, while others (those without passthrough payments)
would receive distributions falling below their AB 8 shares. If this situation were to
result, then ABx1 26 violates Article XIII, Section 25.5(a)(3) of the California
Constitution, because the Legislature would have reallocated the distribution of
property taxes without obtaining the requisite 2/3 vote approval from each house of
the Legislature,
Finally, the FAQ Reading is mathematically unworkable. Section 34188(a)(1)
provides that "each taxing entity shall" receive a distribution, based on its tax share,
drawn from the "Redevelopment Property Tax Trust Fund after deducting the
amount of any distributions under paragraphs (2) and (3) of subdivision (a) of
Section 34183." The described deductions do not include passthrough payments
that are governed by Section 34183(a)(1). Of course, it is impossible (as would
occur under the FAQ Reading) to first remove a slice from the RPTTF "pie"
of such debt may need to negotiate or seek a remedy as appropriate to obtain timely payment
from the taxing entity that issued the debt.
5
v. 1.0 (May 7, 2012)
consisting of passthrough payments, and then to distribute the pie once again to
"each taxing entity" as though the passthrough slice still remained in place.
III. CONCLUSION
For the reasons discussed above, the Working Group agrees with the LAO
and Auditor's Association, and their respective reports cited in this white paper, that
the AB 8 Tax Share Reading implements the plain language of ABxl 26, satisfies the
California Constitution with respect to the passthrough provisions in ABx126, and
uses a methodology that properly distributes property taxes from RPTTF to the
taxing entities.
6
v. 1.0 (May 7, 2 012)
P10
December 11, 2012
TO: Members of the Oversight Board
FROM: Neil Cullen, Chairman of the Oversight Board
SUBJECT:
a) Discussion of the State of California Department of Finance (DOF) response to
the Chairman of the Oversight Board's letter requesting guidance on unfunded
pension and retirement health liabilities (unfunded liabilities) being an
enforceable obligation of the Successor Agency (SA) of a South San Francisco
Redevelopment Agency (RDA).
b) Possible Oversight Board (OB) direction to staff on developing a request to
include unfunded liabilities on a subsequent Recognized Obligations Payment
Schedule (ROPS).
RECOMMENDATION
After discussing the DOF's response to the Chairman's letter, consider the parameters to
be used by staff in preparing a request to include unfunded liabilities on a subsequent
ROPS.
BACKGROUND
The OB deferred including payment for unfunded liabilities in past ROPS pending an
opinion from DOF because of the legal uncertainty regarding whether AB 1 x 2b allowed
reimbursement for unfunded liabilities associated with city employees who performed
services for the former RDA, as compared to direct RDA employees.
The OB authorized the Chairman to send a letter to DOF requesting clarification on
including unfunded liabilities in future ROPS, and DOF responded via Mr. Steve
Szalay's letter to the Chairman. (Letters attached).
DISCUSSION
Mr. Szalay opined that in most cases unfunded liabilities would be considered by DOF to
be enforceable obligations, regardless of whether the employees were employed by the
RDA or were city employees performing work for the RDA. However, before making a
final determination on South San Francisco's ROPS, DOF will:
a) Review the Memorandum of Understandings (MOU's) that covered the
employees; and
b) Determine if the charges were reasonable based on:
1) The unfunded liability being proportionate to the percentage of
work the employee dedicated to the RDA; and
2) the tasks performed by the employees that had their salaries paid
all or in part with RDA funds.
Jim Steele's memo of April 13, 2012, provided the OB with a summary of positions and
wages charged based on the City's payroll system for 2011, and estimated costs for 2009
and 2010 as Jim explained that the City's payroll system was not set up to track the
number of hours worked per position until 2011; and the explanation of line 71 of the
draft ROPS gave the method used to calculate an amount based on Ca1PERS reports of
unfunded pension obligations (copies attached)
However, the information provided does not appear to meet DOF's criteria, and the
assumption is that DOF would reject an unfunded liabilities claim if presented based on
the information currently available to the OB.
There appears to be at least two approaches for determining what unfunded liabilities
should be included in the ROPS:
1) Staff develops and brings to the OB their methodology for determining the
unfunded liabilities based on the DOF letter, and then the OB reviews, comments
and possibly modifies before approving, an unfunded liability line item on the
ROPS.
2) The OB discusses the contents of DOF's letter, provides direction to staff, and
then staff develops and brings the unfunded liability methodology to the OB for
its consideration.
The latter option appears to provide the best use of staff time, as there is significant work
to be done by staff given the number of different MOU's that may cover the employees
listed in Jim's April memo, and then providing the information about the tasks that the
employees were doing on behalf of the RDA.
It may take the OB more than one meeting to discuss and come to a consensus on
direction to staff. However, beginning this discussion now allows more time to reach a
consensus. The next ROPS is due in March 2013 and the complexity of the issue may
delay including an unfunded liability line item in this ROPS.
FISCAL IMPACT
There is no fiscal impact by discussing DOF's letter. There will be a fiscal impact in terms of
staff time charged to develop a methodology to be used and to calculate an appropriate payment
to the SA for past unfunded liabilities, and to the other taxing agencies that receives funding
from the Redevelopment Property Tax Trust Fund ( RPTTF) as a payment to the SA for unfunded
liabilities will reduce the amount available in the RPTFF that is used to make payments to the
other taxing agencies.
Counsel for the Oversi ht Board has reviewed this report.
Neil R. Cullen
Chairman- South San Francisco Redevelopmen uccessor Agency Oversight Board
Enclosures:
1. Letter to DOF, dated November 13, 2012
2. Letter from DOF, dated November 20, 2012
3. Jim Steele's memo of April 13, 2012 & Line 71 explanation
November 13, 2012
Mr. Steve Szalay
Local Government Unit
Department of Finance
915 L Street
Sacramento, CA 95814.3706
RE: Request for Direction from the Department of Finance Regarding the Inclusion of Past
Unfunded Pension and Benefit Liabilities as Part of the South San Francisco Recognized
Obligations Payment Schedule
Dear Mr. Szalay:
I am the current chairman of the Oversight Board (OB) to the Successor Agency of the former
South San Francisco Redevelopment Agency (RDA) and am writing on behalf of the OB to
request your assistance in clarifying the Department of Finance's (DOF) position on including
past unfunded pension and benefit liabilities as part of a Recognized Obligations Payment
Schedule (ROPS).
The Successor Agency (SA) has requested that an item be included in its ROPS to reimburse the
City for unfunded CalPERS pension and retiree health benefit costs associated with staff time
charged in the past to the SSFRDA by City employees. The Successor Agency's argument is that
City employees should be considered as employees of the RDA within the meaning of applicable
statutes; and therefore unfunded pension and benefit costs associated with staff that provided
services to the RDA prior to its dissolution should be considered enforceable obligations.
The OB deferred including payment for such costs in past ROPS because of the legal uncertainty
regarding whether AB 1 x 26 allowed reimbursement for unfunded liabilities associated with City
employees who performed services for the former RDA, as compared to direct RDA employees.
AB Ix 26 defined the term "enforceable obligation" for former redevelopment agencies to
include: "legally enforceable payments required in connection with the agencies' employees,
including, but not limited to, pension payments, pension obligation debt service, unemployment
payments, or other obligations conferred through a collective bargaining agreement." (Health &
Safety Code Section 34171(d)(1)(C).) Other provisions in AB1x 26 also referenced employees
of former redevelopment agencies without clearly stating whether or not these references were
intended to apply to City employees who were assigned to provide services to a redevelopment
agency and whose time was charged to the agency, or just direct agency employees. (See Health
& Safety Code Section 34179(a)(7) and Section 34190.) Earlier this year, the Department of
Finance posted information on its website regarding this issue, but did not provide clear guidance
regarding the question whether unfunded liabilities associated with city employees who
supported former redevelopment agencies can be treated as enforceable obligations.
AB 1484, enacted in June 2012, added language to Health & Safety Code Section
34171(d)(1)(C) that modified the definition of "enforceable obligation" to include "costs to fulfill
collective bargaining agreements for layoffs or terminations of city employees who performed
work directly on behalf of the former redevelopment agency." However, this language seems to
cover only those employees whose services were no longer needed following the agency's
dissolution. Section 34179(a)(7) also was amended to expressly recognize a distinction between
employees of the former redevelopment agency and city employees who performed
administrative duties for the former redevelopment agency, in the context of qualifications for
the employee representatives appointed to oversight boards. However, these statutory changes
did not unambiguously address the situation presented in South San Francisco, where City
employees supported the RDA and typically had a portion of their salaries funded by RDA
revenues, but were also doing regular city business.
My understanding is that the DOF may review all actions of the oversight boards and then has 40
days to approve, reject, or modify these actions. Our OB has several options to consider:
a) wait for a decision by the DOF on the inclusion of unfunded obligations in another
successor agency's ROPS that may or may not be similar to South San Francisco's
situation;
b) make a determination to include or exclude past unfunded obligations in a ROPS and
wait for DOF's review or the SA's appeal if the OB's action is contrary to their position;
or
c) request DOF's direction "upfront" and then proceed accordingly.
Requesting direction "upfront" appears to the OB to be the most appropriate option as past
comments by the DOF lead the OB to believe that you are looking for statewide consistency.
In closing, I believe both the South San Francisco OB and the City's Successor Agency have
worked cooperatively in meeting the intent of the legislation that dissolved redevelopment
agencies statewide. I believe that requesting DOF direction regarding the issues presented in this
letter is the most appropriate course of action to facilitate an expeditious wind -down of the
affairs of this Redevelopment Agency for the benefit of all the affected local taxing entities.
Thank you in advance for considering my request and look forward to any direction that you can
provide the Oversight Board.
Very truly yours,
Nei R. Callen
Chairman Oversight Board of the Successor Agency to the South San Francisco Redevelopment
Agency
EST 4A.
Q'
W 1111 n
4 17
* DEPARTMENT OF
F I N A N C E
November 20, 2012
Mr. Neil Cullen, Chairman
South San Francisco Oversight Board
P.O. Box 711
South San Francisco, CA 94083
Dear Mr. Cullen:
EDMUND G. BROWN JR, • GOVERNOR
91 5 L STREET ■ SACRAMENTO CA ■ 95B 1 4-3706 ■ WWW.00F.CA.GOV
This letter is in response to the Oversight Board's request for clarification on the Department of
Finance's (Finace) position regarding the inclusion of past unfunded pension and benefit
liabilities in the Recognized Obligation Payment Schedule (ROPS).
As Finance understands the situation, the Successor Agency (SA) of the former South San
Francisco Redevelopment Agency (RDA) requested to include an issue in the ROPS to
reimburse the City of South San Francisco for the unfunded pension and retiree health costs
associated with staff time that had previously been charged to the RDA by city employees.
Finance expects that in most cases unfunded costs for pensions and other employee benefits
will be determined to be enforceable obligations, regardless of whether the employees were
employed by the RDA or were city employees performing work for the RDA. However, the
specific requirements of Memorandums of Understanding or other contractual agreements
related to the employees in question will have to be reviewed before a final determination can
be made.
Specifically, in regards to the South San Francisco SA's intent to include the alleged unfunded
pension and retiree health costs in the ROPS, Finance does not yet have an official position. If
such costs are included on ROPS 4, Finance will examine whether the repayment is
reasonable. In particular, we will examine whether the repayments are proportionate to the
percentage of rrrork time that the impacted employees dedicated to the former RDA, as well as
the tasks performed by the employees while their salaries were being funded by the former
RDA.
Should you have any further questions please direct your inquiries to Justyn Howard, Assistant
Program Budget Manager, at (916) 445 -1546.
Sincerely,
STEV S ALAY
Local overnme onsultant
cc: Ms. Krista Martinelli, City Clerk, South San Francisco
CITY OF SOUTH SAN FRANCISW
FINANCE DEPA.RTmENT
Memo
To: Honorable Oversight Board to the South San Francisco Successor Agency
From: Jim Steele, Finance Director
Date: April 13, 2012
Re: Employee Charges to SSF RDA, 2009 -2011
Attached for the Board's information are the full -time equivalent (FTE) employee
charges to the former South San Francisco Redevelopment Agency (RDA) over the last
three years. These lists were generated through the City's payroll system, and show each
employee's department, position title, wage amount, and number of hours charged
directly to the RDA. Employee names have been omitted for this exercise, but can be
supplied upon request.
Please note the following:
1) For the 2011 calendar year, the hours shown are the actual numbers as reported by
the payroll system;
2) During calendar years 2010 and 2009, the payroll system was not set up to track
the number of hours worked by position: for those years the FTE numbers are
estimates, derived by using the percentage of FTE's to total wages in 2011.
Department
Position
age
Hours
Amount
Charged
CITY CLERK
DEPUTY CITY CLERK
51,596.42
1,800
CITY CLERK
MISC HOURLY - CITY CLERK
226.40
8
ECD ADMIN
ASST CITY MANAGER
79,464.60
786
ECD ADMIN
ECONOMIC & COMMUNITY DEVELOPMENT COORDINATOR
114,691.20
2,080
ECD ADMIN
MANAGEMENT ANALYST 1
8,067.93
234
ECD ADMIN
MISC ECD -ADM
6,787.50
272
ECD CDBG
MANAGER OF HOUSING & REDEVEL
36,146.41
549
ECD CDBG
MISC HOURLY - PD COPPS
1,408.00
152
ECD PLANNING
PRINCIPAL PLANNER
37,670.69
717
ECD REDEVELPMNT MISC HOURLY - REDEV
2,600.00
104
ECD REDEVELPMNT MISC HOURLY - REDEV
1,558.00
82
FIN ACCTG
ACCOUNTANT I
73,715.20
2,080
FIN ACCTG
DATA BUSINESS SYSTEMS SPECIALIST
63,362.98
2,072
FIN ADMIN
DIRECTOR OF FINANCE
7,012.00
72
FIN BUDGET
SENIOR FINANCIAL ANALYST
22,680.01
480
IT
INFORMATION SYSTEMS ADMINISTRATOR
116,646.40
2,168
LIB LEARNING CTR
LITERACY PROGRAM MANAGER
12,182.04
274
LIB LEARNING CTR
LITERACY SERVICES COORDINATOR
38,315.98
1,104
PD PATROL
POLICE OFFICER
12,796.08
258
PD PATROL
POLICE OFFICER
89,507.94
1,884
PD PATROL
POLICE OFFICER
99,437.67
2,172
PW ELECTRICAL
ELECTRICAL TECHNICIAN
143.48
4
PW ELECTRICAL
ELECTRICAL TECHNICIAN
83.31
3
PW ELECTRICAL
LEAD ELECTRICAL TECHNICIAN
142.83
3
PW ELECTRICAL
MISC HOURLY - PW SIGNALS
504.90
11
PW ENGINEERING
ADMINISTRATIVE ASSISTANT I
517.23
19
PW ENGINEERING
CITY ENGINEER
1,663.68
24
PW ENGINEERING
ENGINEERING TECHNICIAN
1,750.90
52
PW ENGINEERING
OFFICE SPECIALIST
981.12
37
PW ENGINEERING
PUBLIC WORKS INSPECTOR
38,749.31
818
PW ENGINEERING
SR CIVIL ENGINEER
5,417.70
84
PW ENGINEERING
SR CIVIL ENGINEER
2,658.60
42
PW SEWER MAINT
PUBLIC WORKS MAINT WORKER
206.56
8
PW STREETS
EQUIPMENT OPERATOR
812,05
24
PW STREETS
PUBLIC WORKS MAINT WORKER
26,838.62
1,228
PW STREETS
PUBLIC WORKS MAINT WORKER
28,308.70
1,295
PW STREETS
PUBLIC WORKS MAINT WORKER
666.91
24
PW STREETS
PUBLIC WORKS MAINT WORKER
2,328.52
92
PW STREETS
SR PUBLIC WORKS MAINT WORKER
258.20
16
PW STREETS
SR PUBLIC WORKS MAINT WORKER
232.24
8
PW STREETS
SWEEPER OPERATOR
81.18
3
REC BLDG MAINT
BLDG MAINT CRAFTSWORKER
32.17
1
REC BLDG MAINT
BLDG MAINT CRAFTSWORKER
263.79
8
REC BLDG MAINT
BLDG MAINT CUSTODIAN
651.96
36
REC BLDG MAINT
BLDG MAINT CUSTODIAN
78.51
4
REC PARKS
MISCELLANEOUS HOURLY
620.16
19
REC PARKS
PARK MAINT WORKER
258.20
10
REC PARKS
PARK MAINT WORKER
52,812.47
1,948
REC PARKS
PARK MAINT WORKER
207.00
12
REC PARKS
PARK MAINT WORKER
81.33
3
Totals
2011
1,043,225.08
25,181
Wages
Mrs.
Est. FTE
12.11
Avg. $
86,173.19
per FTE
Department
Position
Jage
Amount
CITY CLERK
ASSISTANT CITY CLERK
10,308.00
CITY CLERK
DEPUTY CITY CLERK
53,145.15
ECD ADMIN
ADMINISTRATIVE ASSISTANT II
4,681.80
ECD ADMIN
ASST CITY MANAGER
70,611.35
ECD ADMIN
ECONOMIC & COMMUNITY DEVELOPMENT COORDINATOR
109,764.40
ECD ANIP
ANIP CONSTRUCTION MANAGER
6,738.96
ECD CDBG
MANAGER OF HOUSING & REDEVEL
22,636.20
ECD CDBG
MISC HOURLY - PD COPPS
528.00
ECD PARKING
PARKING METER COLLECTOR - REPAIR WRKR
554.81
ECD PLANNING
PRINCIPAL PLANNER
30,492.31
ECD REDEVELPMNT
MISC HOURLY - REDEV
2,888.00
FIN ACCTG
ACCOUNTANT I
72,987.24
FIN ACCTG
DATA BUSINESS SYSTEMS SPECIALIST
56,348.97
FIN BUDGET
SENIOR FINANCIAL ANALYST
93,415.24
IT
CONSULTANT
353.84
IT
INFORMATION SYSTEMS ADMINISTRATOR
115,512.80
LIB LEARNING CTR
LITERACY PROGRAM MANAGER
8,458.88
LIB LEARNING CTR
LITERACY SERVICES COORDINATOR
38,121.50
PD CMTY RELATION
MISC HOURLY - PD COPPS
256.00
PD CMTY RELATION
POLICE CORPORAL
8,195.17
PD PATROL
POLICE OFFICER
107,125.81
PD PATROL
POLICE OFFICER
81,147.47
PW ELECTRICAL
SR PUBLIC WORKS MAINT WORKER
1,163.27
PW ENGINEERING
ADMINISTRATIVE ASSISTANT I
1,422.87
PW ENGINEERING
ASSOC CIVIL ENGINEER
4,302.71
PW ENGINEERING
ASSOC CIVIL ENGINEER
2,917,68
PW ENGINEERING
ASST ENGINEER
400.95
PW ENGINEERING
CITY ENGINEER
10,512.16
PW ENGINEERING
ENGINEERING TECHNICIAN
3,858.43
PW ENGINEERING
MISC HOURLY - ENGINEERING
448.00
PW ENGINEERING
OFFICE SPECIALIST
2,715.83
PW ENGINEERING
PUBLIC WORKS INSPECTOR
64.53
PW ENGINEERING
PUBLIC WORKS INSPECTOR
41,495.79
PW ENGINEERING
SR CIVIL ENGINEER
11,071.85
PW ENGINEERING
SR CIVIL ENGINEER
25,377.86
PW SEWER MAINT
LEAD PUBLIC WORKS MAINT WORK
258.54
PW STREETS
EQUIPMENT OPERATOR
169.18
PW STREETS
PUBLIC WORKS MAINT WORKER
25,376.89
PW STREETS
PUBLIC WORKS MAINT WORKER
25,250.20
PW STREETS
PUBLIC WORKS MAINT WORKER
555.17
PW STREETS
PUBLIC WORKS MAINT WORKER
2,665.61
PW STREETS
SR PUBLIC WORKS MAINT WORKER
232.24
PW STREETS
SWEEPER OPERATOR
38.66
REC BLDG MAINT
BLDG MAINT CRAFTSWORKER
157.70
REC BLDG MAINT
PUBLIC WORKS SUPERVISOR
64.64
REC PARKS
LEAD PARK MAINT WORKER
195.82
REC PARKS
MISCELLANEOUS HOURLY
111.59
REC PARKS
PARK MAINT WORKER
52,487.54
REC PARKS
SR PARK MAINT WORKER
216.88
REC PARKS
SR PARK MAINT WORKER
335.66
Totals
2010
1,108,140.15
Est. FTE
12.86
Department
CITY CLERK
CM CLERK
ECD ADMIN
ECD ADMIN
ECD ADMIN
ECD CDBG
ECD CDBG
ECD PLANNING
ECD REDEVELPMNT
FIN ACCTG
FIN ACCTG
FIN ADMIN
FIN BUDGET
IT
IT
LIB LEARNING CTR
LIB LEARNING CTR
PD CMTY RELATION
PD CMTY RELATION
PD PATROL
PD PATROL
PW ELECTRICAL
PW ELECTRICAL
PW ELECTRICAL
PW ELECTRICAL
PW ELECTRICAL
PW ELECTRICAL
PW ELECTRICAL
PW ENGINEERING
PW ENGINEERING
PW ENGINEERING
PW ENGINEERING
PW ENGINEERING
PW ENGINEERING
PW ENGINEERING
PW ENGINEERING
PW ENGINEERING
PW ENGINEERING
PW ENGINEERING
PW SEWER MAINT
PW SEWER MAINT
PW SEWER MAINT
PW SEWER MAINT
PW SEWER MAINT
PW SEWER STORM
PW STREETS
PW STREETS
PW STREETS
PW STREETS
PW STREETS
PW STREETS
PW STREETS
PW STREETS
PW STREETS
PW STREETS
PW STREETS
REC BLDG MAINT
REC BLDG MAINT
REC BLDG MAINT
REC PARKS
REC PARKS
REC PARKS
REC PARKS
REC SENIORS
REC SENIORS
Position
DEPUTY CITY CLERK
MISC HOURLY - CITY CLERK
ADMINISTRATIVE ASSISTANT II
ASST CITY MANAGER
ECONOMIC & COMMUNITY DEVELOPMENT COORDINATOR
MANAGER OF HOUSING & REDEVEL
MISC.HOURLY - PD COPPS
PRINCIPAL PLANNER
MISC HOURLY - REDEV
ACCOUNTANTI
DATA BUSINESS SYSTEMS SPECIALIST
DIRECTOR OF FINANCE
SENIOR FINANCIAL ANALYST
CONSULTANT
INFORMATION SYSTEMS ADMINISTRATOR
LITERACY PROGRAM MANAGER
LITERACY SERVICES COORDINATOR
MISC HOURLY - PD COPPS
POLICE CORPORAL
POLICE OFFICER
POLICE OFFICER
ELECTRICAL TECHNICIAN
ELECTRICAL TECHNICIAN
LEAD ELECTRICAL TECHNICIAN
LEAD PUBLIC WORKS MAINT WORK
MISC HOURLY - PW SIGNALS
SR ELECTRICAL TECHNICIAN
SR PUBLIC WORKS MAINT WORKER
ADMINISTRATIVE ASSISTANT I
ASSOC CIVIL ENGINEER
ASSOC CIVIL ENGINEER
ASST ENGINEER
CITY ENGINEER
ENGINEERING TECHNICIAN
OFFICE SPECIALIST
PUBLIC WORKS INSPECTOR
PUBLIC WORKS INSPECTOR
SR CIVIL ENGINEER
SR CIVIL ENGINEER
LEAD PUBLIC WORKS MAINT WORK
LEAD PUBLIC WORKS MAINT WORK
PUBLIC WORKS MAINT WORKER
PUBLIC WORKS MAINT WORKER
PUBLIC WORKS MAINT WORKER
PUBLIC WORKS MAINT WORKER
EQUIPMENT OPERATOR
EQUIPMENT OPERATOR
LEAD PUBLIC WORKS MAINT WORK
PUBLIC WORKS MAINT WORKER
PUBLIC WORKS MAINT WORKER
PUBLIC WORKS MAINT WORKER
PUBLIC WORKS MAINT WORKER
PUBLIC WORKS MAINT WORKER
SR PUBLIC WORKS MAINT WORKER
SR PUBLIC WORKS MAINT WORKER
SWEEPER OPERATOR
BLDG MAINT CRAFTSWORKER
BLDG MAINT CRAFTSWORKER
SR BLDG MAINT CUSTODIAN
MISC HOURLY - PARKS
PARK MAINT WORKER
PARK MAINT WORKER
PARK MAINT WORKER
REC LEADER. III
REC LEADER III
Wage
Amount
36,018.21
8,793.32
34,694.28
75,894.18
106,566.88
48,727.48
1,024.00
35,084.44
4,256.00
58,634.45
44,725.20
1,782.84
88,735.20
14,056.28
96,782.40
12,551.04
34,302.24
2,176.00
92,754.97
37,710.67
47,078.13
928.00
2,826,18
1,432.92
2,304.03
90.00
1,217.71
1,921.67
6,778.73
8,461.88
10,536.32
4,054.05
18,354.60
13,569.34
3,042.54
989.46
26,174.64
12,980.28
37,434.24
604.11
4,480.06
1,193.40
1,505.55
7,511.03
3,880.10
1,492.60
11,573.49
2,144.03
24,456.28
27,665.77
3,623.52
663.33
8,093.55
7,197.46
5,123.79
1,961.10
114.44
64.03
24.21
1,120.00
4,316.60
17,542.60
4,316.60
834,80
51.52
Totals 2009 1,176,998.97
Est. FTE
13.66
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V
' Redevelopment Successor Agency Oversight Board
Staff Report
DATE: December 11, 2012
TO: Members of the Oversight Board
FROM: Marty Van Duyn, Assistant City Manager
SUBJECT: APPROVAL OF A LEASE AGREEMENT ALLOWING RED CARPET
MARKET INC., DBA PET CLUB STORES TO USE 1 CHESTNUT
AVENUE FOR A RETAIL STORE
RECOMMENDATION
It is recommended that the Oversight Board adopt a Resolution to approve a Lease Agreement
with Red Carpet Market Inc., dba Pet Club Stores to use the building, and the surface parking
area, at 1 Chestnut Avenue for a retail store.
BACKGROUND
Red Carpet Market Inc., dba Pet Club Stores ( "Pet Club ") is requesting that the Sucssessor Agency
and the Oversight Board approve a Lease Agreement to use the building, and the surface parking lot
at 1 Chestnut Avenue as a retail store.
During the May 2012 meeting of the Oversight Board, the realtor representing the Pet Club at the
Westborough Plaza requested that the Board consider leasing the building at 1 Chestnut Avenue to
his client. The Pet Club has decided to not extend its current lease at Westborough Plaza and would
like to continue to do business in South San Francisco. The property at 1 Chestnut Avenue is 1.68 -
acres and includes a 27,792 - square feet building with approximately 110 parking spaces. The
building has been used as an auto dealership since the 1970s. During the late 1990s, the building was
renovated. However, the building does not comply with current building codes, such as the American
Disability Act (ADA) standards. On June 12, the Oversight Board approved the lease criteria to
accept bids from potential retailers for a short-term, three -year lease, which would include "no first
right, of refusal" and a "termination" clause. Following the 30 -day open bid advertisement period
ending on August 19, Successor Agency staff received one bid, from the Pet Club, to lease the
property as a retail store. Agency staff reviewed the proposal for consistency with the approved lease
criteria and prepared a counter proposal. On October 3, 2012, the Pet Club's submitted an
amendment to the proposal, which was presented to Oversight Board in October (see attachment 3).
Subsequent to Boards review of the amended proposal and staff's counter proposal, Agency staff and
the Pet Club negotiated a Lease Agreement.
DISCUSSION
Successor Agency staff and the representative for the Pet Club have negotiated a Lease Agreement
Staff Report
Subject: Lease Agreement with Pet Club at 1 Chestnut Avenue
Page 2
that complies with the approved lease criteria and is consistent with the terms of the proposal
presented to the Successor Agency and Oversight Board in October 2012. The key components of the
Agreement include the following:
• A three -year lease term with the possibility of a single one -year extension. If the tenant elects
to extend the Lease, the tenant shall not receive any set up allowance.
• The tenant shall receive a set up allowance up to $500,000 to undertake the necessary tenant
improvements. The tenant shall show evidence of completing setup work as a condition of
receiving credit.
• The Lease Agreement includes a "Work Plan" that specifies that the tenant shall apply for all
required permits and outlines how the allowance will be applied to the rent.
• The tenant shall vacate the site at the end of the lease term.
• The tenant would not receive relocation credits or have a right of first refusal.
• The Tenant would be responsible for utilities and maintenance in the building and on the site
(The City would be responsible for underground utilities between the building and the street
connection).
• The City will deliver building in "as is" condition (HVAC, water and sewer shall be in
working order).
• The Successor Agency has the right sell the property during the lease term.
• The Lease Agreement may be terminated prior to the end of the lease term if the tenant fails
to comply with the provisions of the Agreement.
Rent Structure
Successor Agency
The proposed Lease Agreement would be presented to the Successor Agency during the public
meeting on December 10, 2012. Staff will report the Successor Agency discussion and
recommendation during the Oversight Board meeting.
Lease Agreement
Proposed
$37,519 /month, based on a rental rate of $1.35 per square feet in a 27,792 sf.
Lease Area and
Building
Gross Rent
$450,228 /year
$1,350,684/ 3-years
Set Up
$500,000 or $13,889 /month over 36 months for the initial Lease term. Tenant
Allowance
shall show evidence of completing set up work prior to occupancy as a condition
of receiving credit. The allowance will apply only to actual costs for tenant
improvement work undertaken prior to occupancy. The tenant will not receive an
allowance for the one-year lease extension.
Net Rent
$23,630 /month
$283,560 /year
$850,680/3 -years
Successor Agency
The proposed Lease Agreement would be presented to the Successor Agency during the public
meeting on December 10, 2012. Staff will report the Successor Agency discussion and
recommendation during the Oversight Board meeting.
Staff Report
Subject: Lease Agreement with Pet Club at 1 Chestnut Avenue
Page 3
CONCLUSION
Following an official 30 -day open bid period in July and August 2012, the Successor Agency and the
Oversight Board received a proposal from the Pet Club to lease the property at 1 Chestnut Avenue for
a retail use. Successor Agency evaluated the Pet Club's proposal to determine if it meets the leasing
criteria listed above and, following the Oversight Board's direction, negotiated a Lease Agreement
with the Pet Club's representative. It is recommended that the Oversight Board adopt a Resolution
approving the proposed lease for the property at 1 Chestnut Avenue.
By: pp roved:
° -.
Marty Van Duyn Barry M. Nagel
Assistant City Manager an irector City Manager
Attachments:
1. Resolution
2. Lease Agreement, with Exhibits
3. Proposal from Victor M. Catanzaro, October 3, 2012
4. Letter from Victor M. Catanzaro, October 9, 2012
RESOLUTION NO.
OVERSIGHT BOARD FOR THE SUCCESSOR AGENCY TO THE
REDEVELOPMENT AGENCY OF THE CITY OF SOUTH SAN FRANCISCO
RESOLUTION APPROVING A LEASE AGREEMENT WITH
RED CART MARKET INC. DBA PET CLUB STORES, A
CALIFORNIA CORPORATION, FOR 1 CHESTNUT AVENUE
IN SOUTH SAN FRANCISCO
WHEREAS, on May 2, 2011, the City of South San Francisco ( "City ") acquired
that certain real property located at 1 Chestnut Avenue in South San Francisco, California
( "Property ") from the Redevelopment Agency of the City of South San Francisco
( "Agency "). Pursuant to Health and Safety Code Section 34167.5, the State Controller
may deem such transfer to have been unauthorized, resulting instead to a transfer to the
Successor Agency by operation of law. In any event, the City will likely convey the
Property to the Successor Agency if necessary; and
WHEREAS, pursuant to City Council Resolution No. 08 -2012, adopted January
25, 2012, the City affirmed its agreement to serve as the Successor Agency to the
Agency, pursuant to Health and Safety Code Section 34173; and
WHEREAS, pursuant to City Council Resolution No. -2012, adopted
2012, in accordance with Health and Safety Code Section 34173(g), as
added by Assembly Bill 1484, the City established the Successor Agency as an entity
separate and distinct from the City; and
WHEREAS, on October 10, 2012, Pet Club submitted a letter to the Successor
Agency and the Oversight Board requesting that the Successor Agency and the Oversight
Board approve a Lease Agreement for the entire building and site at 1 Chestnut Avenue
for a retail use; and
WHEREAS, during two closed session meetings with the Successor Agency and
the Oversight Board in October and November 2012, City staff presented the proposal
and received authorization to negotiate a Lease Agreement with the Pet Club; and
WHEREAS, Staff and Pet Club's representative have negotiated a Lease
Agreement that is consistent with the Successor Agency and Oversight Boards direction;
and
WHEREAS, the Successor Agency has adopted a Resolution approving the
Lease Agreement and authorizing its execution, and recommending that the Oversight
Board approve the Lease Agreement; and
WHEREAS, the Oversight Board has considered the terms of the proposed Lease
Agreement, which is for a term of three years, with a one -year option for extension, at a
duly- noticed public meeting; and
WHEREAS, Health and Safety Code Section 34179(e) requires that all actions
taken by the Oversight Board shall be adopted by resolution.
NOW, THEREFORE, the Oversight Board does hereby resolve as follows:
1. The Recitals set forth above are true and correct, and are incorporated
herein by reference.
2. The Lease Agreement between the Successor Agency and Red Cart
Market Inc., dba Pet Club Stores for 1 Chestnut Avenue, in the form on
file with the City Clerk, is hereby approved.
3. Staff is directed to transmit this Resolution and the Lease Agreement, and
related information to the State Department of Finance in accordance with
Assembly Bill xl 26, as modified by Assembly Bill 1484.
I hereby certify that the foregoing Resolution was regularly introduced and
adopted by the Oversight Board for the Successor Agency to the Redevelopment Agency
of the City of South San Francisco at a meeting held on the day of
December, 2012 by the following vote:
AYES:
NOES:
ABSTAIN:
ABSENT:
ATTEST:
2012932.1
City Clerk
LEASE AGREEMENT
(One Chestnut Avenue)
This Lease Agreement ( "Lease ") is entered into effective as of ,
2012 (the "Effective Date ") by and between the SUCCESSOR AGENCY TO THE
REDEVELOPMENT AGENCY OF THE CITY OF SOUTH SAN FRANCISCO, a
public entity, ( "Landlord" or "Agency "), and RED CART MARKET INC. dba PET
CLUB STORES, a California Corporation ( "Tenant "). Landlord and Tenant are
hereinafter referred to collectively as the "Parties."
ARTICLE I
BASIC LEASE PROVISIONS
1.1 Landlord's mailing address: City of South San Francisco, P.O. Box 711, South
San Francisco, CA 94083
1.2 Landlord's contact: Barry M. Nagel, Executive Director. Telephone: (650)
877 -8500.
1.3 Tenant's address: Pet Club, 3535 Hollis Street, Emeryville, CA 94608,
Telephone: (510) 595 -8120
with copy to:
Wall Street Properties, Commercial Real Estate, 922 S.
Claremont Street, San Mateo, CA 94402, Telephone: (650)
401 -8500
1.4 Tenant's contact: Tom Lee
1.5 Premises address: 1 Chestnut Avenue, South San Francisco, CA 94080.
1.6 Premises Square Footage and Location:
Rentable Square Footage: 27,792 square feet
Usable Square Footage: 27,792 square feet
Premises are depicted in Exhibit A.
1.7 Commencement Date: , 2013 190 days after execution
by both Parties following City /Successor Agency approval and Successor Agency
Oversight Board ( "Oversight Board ") adoption of a resolution], plus (a) expiration of the
statutory review period for the California Department of Finance ( "DOF ") pursuant to
I Chestnut Avenue, South San Francisco, Ca 1 December 7, 2012
Health and Safety Code Section 34181 (h); or (b) expiration of the statutory review
period pursuant to Health and Safety Code Section 34181 (f), if so extended by DOF; or
(c) the date upon which DOF issues written approval of the Oversight Board action.
Issuance of building permits shall also be a condition of Commencement. Tenant shall
cause a complete building permit application together with required supporting
documents and architectural plans to be submitted to the City building division within ten
(10) business days from Oversight Board approval of the Lease.
1.8 Term: Thirty-six (36) months.
1.9 Expiration Date:
2016
1.10 Option(s) to Extend Term: One (1) option to extend the Term for a period of
twelve (12) months. See Section 3.5.
1.11 Base Rent:
Period Monthly Annual
Base Rent Base Rent
First Year
(months 1 -12) $37,519.00 $450,228.00
Second Year $37,519.00 $450,228.00
(months 13 -24)
Third Year $37,519.00 $450,228.00
(months 25 -36)
Base Rent Per
Rentable Square Foot
$1.35
$1.35
$1.35
1.12 Security Deposit: Upon execution hereof Tenant shall deposit with
Landlord the sum of $37,519.00, as security for the full and faithful
performance of each and every term, provision, covenant and condition
of this Lease, as set forth in Section 4.6.
1.13 Permitted Uses: Retail store with veterinarian, clinic, pet grooming and
washing, and pet adoption services, only in accordance with Applicable Laws.
1.14 Parking: Tenant may use up to one hundred forty-one (141) parking spaces in
Landlord's surface parking lot on an unreserved basis.
1.15 Tenant Improvement Allowance: Five Hundred Thousand Dollars
($500,000.00) amortized over the three -year term or Thirteen Thousand Eight
Hundred Eighty -Nine Dollars ($13,889.00) per month. The'annual net rental will
be will be Two Hundred Eighty -Three Thousand Five Hundred Sixty Dollars
($283,560.00) and the monthly Net Rent will be Twenty -Three Thousand Six
Hundred and Thirty Dollars ($23,630.00). Net Rent over the thirty-six (36)
month term will be Eight Hundred Fifty Thousand Six Hundred Eighty Dollars
1 Chestnut Avenue, South San Francisco, Ca 2 December 7, 2012
($850,680). The Tenant Improvement Allowance is further described in Section
17.2 and Exhibit B to this Lease.
1.16 Net Rent:
Period Monthly TI Net Rent
Base Rent Allowance
First Year $37,519.00 ($13,889.00) $23,630.00
(months 1 - 12)
Second Year $37,519.00 ($13,889.00) $23,630.00
(months 13 - 24)
Third Year $37,519.00 ($13,889.00) $23,630.00
(months 25 - 36)
ARTICLE II
DEFINITIONS
Definitions. As used in this Lease, the following terms shall have the definitions set forth
below. Additional terms are defined in the remainder of the Lease.
2.1 "Additional Rent" means any and all sums other than Base Rent which
Tenant is or becomes obligated to pay to Landlord under this Lease (whether or not
specifically called "Additional Rent" in this Lease).
2.2 "Affiliate of Tenant" means any entity that controls, is controlled by, or
is under common control with Tenant. "Control" means the direct or indirect ownership
of more than fifty percent (50 %) of the voting securities of an entity or possession of the
right to vote more than fifty percent (50 %) of the voting interest in the ordinary direction
of the entity's affairs.
2.3 "Alterations" means any alterations, decorations, modifications, additions
or improvements made in, on, about, under or contiguous to the Premises by or for the
benefit of Tenant (other than the Tenant Improvements) including but not limited to,
telecommunications and/or data cabling, lighting, HVAC and electrical fixtures, pipes
and conduits, partitions, cabinetwork and carpeting.
2.4 "Applicable Laws" is defined in Section 5.3.
2.5 "Base Rent" means for each Lease Year the monthly amount payable per
rentable square foot of the Premises set forth in Section 1.11.
1 Chestnut Avenue, South San Francisco, Ca -3 December 7, 2012
2.6 `Building" means the building located at One Chestnut Avenue, South
San Francisco, California.
2.7 "Claims" is defined in Section 6.3.
2.8 "Commencement Date" is the date set forth in Section 1.7.
2.9 "Common Area" means all areas and facilities located on the Land
excepting therefrom the Building. The Common Area includes, but is not limited to,
parking areas, access and perimeter roads, sidewalks, landscaped areas and similar areas
and facilities.
2.10 "Environmental Laws" is defined in Section 6.6.
2.11 "Hazardous Material" is defined in Section 6.5.
2.12 "Indemnitees" is defined in Section 6.3.
2.13 "Net Rent" means for each Lease Year the monthly amount payable per
rentable square foot of the Premises as Base Rent, after application of the monthly Tenant
Improvement Allowance set forth in Section 1.16.
2.14 "Premises" means the premises shown on Exhibit A consisting of 27,792
square feet of rentable space in the Building.
2.15 "Real Property" means collectively, (i) the Building; (ii) the parcel of
real property on which the Building is situated (the "Land "); and (iii) the other
improvements on the Land, including, without limitation, a parking lot, driveways,
lighting and landscaping.
2.16 "Real Property Taxes" is defined in Section 4.5.
2.17 "Rent" means Base Rent and Additional Rent, collectively.
2.18 "Tenant Improvements" means those certain improvements to be
constructed on the Premises as provided in Section 17.2 and Exhibit B.
2.19 "Tenant Parties" is defined in Section 6.1.
2.20 "Term" means the term of this Lease as set forth in Section 1.8 as such
may be extended pursuant to the terms hereof.
ARTICLE III
1 Chestnut Avenue, South San Francisco, Ca 4 December 7, 2012
PREMISES AND TERM
3.1 Lease of Premises, Subject to and upon the terms and conditions set forth
herein, Landlord hereby leases the Real Property to Tenant and Tenant hereby leases the
Real Property from Landlord. A portion of the Real Property includes the Premises
which consist of the Building commonly known as One Chestnut Avenue which is
depicted in the diagram attached hereto as Exhibit A. Tenant acknowledges that Landlord
has made no representation or warranty regarding the condition of the Premises, the
Building or the Real Property except as specifically stated in this Lease.
As used in this Lease, the term "Rentable Square Footage" means the net
rentable area measured according to standards similar to the standards published by the
Building Owners and Managers Association International, Publication ANSI Z65.1 -1996,
as amended from time to time. The Parties agree that the Rentable Square Footage of the
Premises is 27,792 square feet and the Usable Square Footage, of the Premises is also
27,792 square feet. Tenant and Landlord hereby stipulate and agree that same are
correct, notwithstanding any minor variations in measurement or other minor variations
that may have been incurred in the calculation thereof. If the Building is ever
demolished, altered, remodeled, renovated, expanded or otherwise changed in such a
manner as to alter the amount of space contained therein, then the Rentable Square
Footage of the Building shall be adjusted and recalculated by using the foregoing method
of determining Rentable Square Footage, but such recalculation shall not increase the
rental hereunder. The Rentable Square Footage of the Building is stipulated for all
purposes to be 27,792 square feet.
3.2 Term and Commencement. The Term of this Lease shall commence on
the Commencement Date, and unless sooner terminated as provided herein, the Term
shall be for the period set forth in Section 1.8 as the same may be extended in accordance
with any option to extend the Term granted herein.
3.3 Delay in Delivery of Premises. If Landlord fails to deliver possession of
the Real Property to Tenant on or before the Commencement Date, Landlord shall not be
subject to any liability for its failure to do so. This failure shall not affect the validity of
this Lease or the obligations of Tenant hereunder, but the Lease Term shall commence on
the date upon which Landlord delivers possession of the Real Property to Tenant.
3.4 Early Access. Tenant shall not occupy the Real Property prior to the
Commencement Date except with the express prior written consent of Landlord.
Provided that (i) the Lease has been executed by Tenant and Landlord; (ii) Tenant has
provided to Landlord certificates of insurance for all insurance that Tenant is required to
maintain under this Lease, the Security Deposit, and the amount of first month's Rent;
and (iii) such access does not interfere with the work of Landlord, including without
limitation, as applicable, any work of Landlord pursuant to Exhibit B, or any work of
another tenant; Tenant shall be permitted to access to the Real Property commencing
upon full execution of this Lease, and thus prior to the Commencement Date, for the
purpose of installing Tenant's designated trade fixtures and other necessary
improvements and to conduct such work as may be necessary to obtain necessary
1 Chestnut Avenue, South San Francisco, Ca 5 December 7, 2012
permits. Such early access shall not be for the purpose of operating Tenant's business on
the Real Property. Prior to the Commencement Date, all of the terms and provisions of
this Lease shall apply to Tenant's use of the Real Property except for the requirement for
the payment of Rent beyond that provided for in this Section 3.4, and Tenant shall abide
by all of such terms and provisions. Notwithstanding the foregoing, Tenant
acknowledges that in no event shall early access be available until this Lease has been
approved by Resolution of the Oversight Board , and the time for review of such
Oversight Board action by the California Department of Finance ( "DOF ") has expired
without challenge from or disapproval by DOF or alternatively the Lease is approved by
DOF before expiration of the DOF review period, whichever is the earlier to occur.
3.5 Option to Extend Term. Landlord grants Tenant one option to extend
the Lease Term ( "Extension Option ") for a period of twelve (12) months ( "Extension
Term "), subject to the conditions set forth in this Section 3.5. Tenant shall have no other
right to extend the Term beyond the Extension Term.
3.5.1 Extension Option Conditions. The Extension Option may be
exercised with respect to all or any portion of the Real Property subject to this Lease at
the time of exercise only by written notice delivered by Tenant to Landlord no later than
six (6) months prior to the expiration of the initial Term, and only if as of the date of
delivery of the notice, Tenant is not in default under this Lease. The Extension Option
may be exercised only by the originally named Tenant or by an assignee or sublessee
approved pursuant to Article X and only if the originally named Tenant or such approved
assignee or. sublessee is not in default under the Lease at the time of delivery of notice of
exercise and occupies the entire Premises as of the date it exercises the Extension Option.
If Tenant or such approved assignee or sublessee properly exercises the Extension Option
and is not in default at the end of the initial Lease Term, the Term shall be extended for
the Extension Term. The failure to exercise the Extension Option in accordance with this
Section shall constitute an election to terminate this Lease at the end of the initial Term,
and Landlord's acceptance of any Rent subsequent to the expiration of such Term shall
not constitute a waiver by Landlord of the requirement of timely exercise of the
Extension Option by delivery of notice pursuant to this Section.
3.5.2 Extension Term Rent. The Rent payable by Tenant at the
commencement of and during the Extension Term shall be equal to the Fair Market
Rental Value, and if the Parties cannot reach agreement within sixty (60) days of the
notice of election to extend as provided in Section 3.5.1, the Fair Market Renal Value
shall be established in the manner set forth in Section 3.5.3, below For purposes of this
Section, "Fair Market Rental Value" shall be the amount that a willing, comparable,
new (i.e., non - renewal), non - equity tenant would pay, and that a willing landlord of a
comparable space in the vicinity of the Building would accept at arms' length.
Appropriate consideration shall be given to: (i) the annual rental rate per rentable square
foot; (ii) the definition of rentable square feet for purposes of comparing the rate; (iii)
location and quality of the Building; (iv) the financial condition (e.g., creditworthiness)
of Tenant; (v) escalation (including type, base year and stop) and abatement provisions (if
any) reflecting free rent and/or no rent during the period of construction; (vi) brokerage
I Chestnut Avenue, South San Francisco, Ca 6 December 7, 2012
commissions, if any, (vii) length of the lease term; (viii) size of the Premises; (ix)
building standard work letter and/or tenant improvement allowance, if any; provided,
however, the Fair Market Rental Value shall not include any tenant improvements or any
alterations made by Tenant at Tenant's expense; (x) condition of space; (xi) lease
takeover / assumptions; (xiii) moving expenses and other concessions (if any); (xii)
extent of services to be provided; (xiii) distinctions between "gross" and "net" leases;
(xiv) base year figures or expense stops (if any) for escalation purposes for both operating
costs and ad valorem / real estate taxes; (xv) the time the particular rental rate under
consideration becomes or is to become effective; (xvi) applicable caps (if any) on the
amount of real estate taxes and assessments passed through to tenants; and (xvii) other
generally applicable conditions of tenancy for the space in question.
3.5.3 Arbitration. If Landlord and Tenant are not able to agree on the
Fair Market Rental Value of the Premises within sixty (60) days following the date upon
which Tenant delivers notice of exercise of the Extension Option (the "Agreement
Deadline "), the Fair Market Rental Value will be determined by "baseball arbitration" in
accordance with this Section 3.5.3. Landlord and Tenant shall each make a separate
determination of Fair Market Rental Value and notify the other Parry within fifteen (15)
days following after the Agreement Deadline. If either Parry fails to make a
determination of the Fair Market Rental Value within the fifteen (15) day period, that
failure shall be conclusively deemed to be that Party's approval of the Fair Market Rental
Value submitted within such period by the other Party. If both Parties timely make
determinations of Fair Market Rental Value, such determinations shall be submitted to an
arbitrator. The determination of the arbitrator shall be limited to the sole issue of
determining which of the Party's determinations is closest to the actual Fair Market
Rental Value as determined by the arbitrator, taking into consideration the requirements
of Section 3.5.2. The arbitrator must be a licensed real estate broker who has been active
in the leasing of commercial properties in the South San Francisco area over the
immediately prior five -year period. If the Parties are unable to agree upon an arbitrator,
then each Party shall appoint one arbitrator within fifteen (15) days following the
Agreement Deadline and shall notify the other Party of such appointment. Within ten
(10) days following the appointment of the second arbitrator, the two arbitrators so
selected shall agree upon and appoint a third arbitrator who shall have the qualifications
specified in this paragraph and shall notify the Parties of such appointment. Within thirty
(30) days following the appointment of the third arbitrator, the three arbitrators shall
decide whether to use Landlord's or Tenant's determination of Fair Market Rental Value
and shall notify the Parties of their decision. The decision of the majority of the
arbitrators shall be binding. If either Party fails to appoint an arbitrator within fifteen
(15) days following the Agreement Deadline, then the arbitrator timely appointed shall
reach a decision and shall notify Landlord and Tenant of such decision within thirty (30)
days after such arbitrator's appointment. The decision of such arbitrator or arbitrators, as
applicable, shall be binding on Landlord and Tenant. The cost of the arbitration shall be
paid by the losing Parry.
3.5.4 Amendment to Lease. If Tenant timely exercises the Extension
Option, Landlord and Tenant shall, within fifteen (15) days after the Extension Term rent
7 Chestnut Avenue, South San Francisco, Ca 7 December 7, 2012
is determined, execute an amendment to this Lease extending the Term on the terms and
conditions of Rent as set forth in Section 3.5.
3.6 No Representations. Tenant acknowledges that neither Landlord nor any
of Landlord's agents has made any representation or warranty as to the suitability or
fitness of the Premises for the conduct of Tenant's business, and that neither Landlord
nor any of Landlord's agents has agreed to undertake any alterations or additions or to
construct any tenant improvements to the Premises except as expressly provided in this
Lease.
3.7 AS -IS Lease. Notwithstanding that Tenant Improvements will be made
pursuant to this Lease, Tenant acknowledges and agrees that by executing this Lease
Tenant shall be deemed to have approved of all characteristics and conditions of the
Premises, the Building and the Real Property, following its own independent
investigation and due diligence, and that Tenant is leasing and accepting same in its
present condition, "AS IS" WHERE IS AND WITH ALL FAULTS, and no present or
latent defect or deficiency in any legal or physical condition thereof, whether or not
known or discovered, shall affect the rights of either Landlord or Tenant hereunder, nor
shall Rent be reduced as a consequence thereof. Without limiting the foregoing,
Landlord shall, prior to the Commencement Date, ensure that the Building's mechanical
equipment, plumbing and roof are in working order. Except as expressly provided herein,
Landlord shall have no further obligation to make the Building ready for Tenant.
Without limiting the foregoing, Landlord and Tenant acknowledge that Landlord shall
have no obligation to remove or pay for the removal of flooring and mastic.
Notwithstanding the provisions of this Section 3.7, the Parties acknowledge and agree
that Tenant shall have no liability for Hazardous Substances, if any, which exist and are
present on the Real Property as of the Effective Date of the Lease; provided, however,
that Tenant shall have the duty of establishing the date of any release of Hazardous
Substances for which it claims no responsibility.
3.8 No Right of First Refusal. Nothing contained herein, including without
limitation the provisions of Section 3.5 regarding Tenant's conditional option to extend
the Term hereof, is or shall be deemed to constitute a right of first refusal to purchase the
Property from Landlord or to require Landlord to sell the Property to Tenant, or any other
preemptive right in favor of Tenant.
ARTICLE IV
RENT, OPERATING EXPENSES, TAXES AND SECURITY DEPOSIT
4.1 Monthly Rent. From and after the Commencement Date, Tenant shall
pay to Landlord for each calendar month of the Term, the monthly Base Rent set forth in
Section 1.11' as the same may be adjusted upon Tenant's exercise of the Extension
Option as provided in Section 3.5.2. Each monthly installment of Base Rent shall be due
and payable to Landlord in lawful money of the United States, in advance, on the first
(1st) day of each calendar month during the Term, subject to the provisions of Sections
I Chestnut Avenue, South San Francisco, Ca R December 7, 2012
1.15 and 17.2, without abatement, deduction, claim or offset, and without prior notice,
invoice or demand, at Landlord's address set forth in Section 1.1 or such other place as
Landlord may designate from time to .time. Tenant's payment of Base Rent for the first
month of the Term shall be delivered to Landlord concurrently with Tenant's execution
of this Lease.
4.2 Prorations. Monthly installments for any fractional calendar month at the
beginning or end of the Term shall be prorated based on the number of days in such
month.
4.3 Additional Rent; Triple Net Lease. All Additional Rent, including
without limitation, all of Tenant's required payments pursuant to this Article IV, shall be
due and payable to Landlord in lawful money of the United States subject to the
provisions of Sections 1.15 and 17.2, without abatement, deduction, claim or offset
within twenty (20) days of receipt of Landlord's invoice or statement for same (or if this
Lease provides another time for the payment of certain items of Additional Rent, then at
such other time) at Landlord's address set forth in Section 1.1 or such other place as
Landlord may designate from time to time. This is a triple net lease to Landlord. Tenant
agrees to pay, without abatement, deduction, claim or offset, all costs and expenses
relating to the Premises or any part thereof, of any kind or nature whatsoever. Such costs
and expenses shall include, without limitation, all amounts attributable to, . paid or
incurred in connection with the operation, repair, restoration, maintenance and
management of the Premises; property taxes (subject to limitation of real estate taxes
contained in Section 4.5.3, below) and payments in lieu thereof; rent taxes; gross receipt
taxes (whether assessed against Landlord or assessed against Tenant and collected by
Landlord, or both); water and sewer charges; insurance premiums (excluding flood and
earthquake); utilities; refuse disposal; lighting (including outside lighting); fire- detection
systems including monitoring, maintenance and repair; security; janitorial services; labor;
air conditioning and heating; maintenance and repair costs and service contracts; costs of
licenses, permits and inspections; and all other costs and expenses paid or incurred with
respect to the Premises or part thereof.
4.4 Late Charge. Tenant acknowledges that the late payment of Rent will
cause Landlord to incur administrative costs and other damages, the exact amount of
which would be impracticable or extremely difficult to ascertain. Landlord and Tenant
agree that if Landlord does not receive any such payment within ten 10 calendar days
after such payment is due, Tenant shall pay to Landlord as Additional Rent an amount
equal to five percent (5 %) of the overdue amount as a late charge for each month or
partial month that such amount remains unpaid. The Parties acknowledge that this late
charge represents a fair and reasonable estimate of the costs that Landlord will incur by
reason of the late payment by Tenant. Acceptance of any late Rent and late charge
therefore shall not prevent Landlord from exercising any of the other rights and remedies
available to Landlord for any other Event of Default under this Lease.
4.5 Taxes. The term "Real Property Taxes" means any form of tax,
assessment, charge, license, fee, penalty (if a result of Tenant's delinquency), real
1 Chestnut Avenue, South San Francisco, Ca 9 December 7, 2012
property or other tax (other than Landlord's net income, estate, succession, inheritance, or
franchise taxes), now or hereafter imposed with respect to the Building, the Real Property
or any part thereof (including any Alterations by any authority having the direct or
indirect power to tax, or by any city, county, state or federal government or any
improvement district or other district or division thereof, whether such tax or any portion
thereof (i) is determined by the area of the Building, the Real Property, or any part
thereof, or (ii) is levied or assessed in lieu of, in substitution for, or in addition to,
existing or additional taxes with respect to the Building, the Real Property or any part
thereof whether or not now customary or within the contemplation of Landlord or Tenant.
Tenant and Landlord intend that all Real Property Taxes, including without limitation all
new and increased assessments, taxes, possessory interest taxes charged or levied in place
of real property taxes, fees, levies, and charges and all similar assessments, taxes, fees,
levies and charges shall be included within the definition of "Real Property Taxes" for
purposes of this Lease.
4.5.1 Apportionment of Taxes. If the Building is assessed as part of a
larger parcel, then Landlord shall equitably apportion the Real Property Taxes and
reasonably determine the Real Property Taxes attributable to the Building. If other
buildings exist on the assessed parcel, the Real Property Taxes apportioned to the
Building shall be based upon the ratio of the square footage of the Building to the square
footage of all buildings on the assessed parcel. Landlord's reasonable determination of
such apportionment shall be conclusive.
4.5.2 Tax on Improvements. Notwithstanding anything to the contrary
set forth in this Lease, Tenant shall pay (subject to real estate tax limitation as provided in
Section 4.5.3, below) prior to delinquency any and all taxes, fees and charges which are
levied or assessed against Landlord or Tenant: (a) upon Tenant's equipment, furniture,
fixtures, improvements and other personal property located in the Premises, (b) by virtue
of any alterations or leasehold improvements made to the Premises by Tenant, and (c)
upon this transaction or any document to which Tenant is a parry creating or transferring
an interest or an estate in the Premises. If any such tax, fee or charge is paid by Landlord,
Tenant shall reimburse Landlord for Landlord's payment upon demand.
4.5.3 Real Property Tax Limitation. Notwithstanding the provisions
of Section 4.5 Tenant's increase of real property tax shall be governed by a maximum
adjustment of three percent (3.00°/x) per annum of the Real Estate Tax due for fiscal year
2012/2013 assessed against the Real Property. Notwithstanding the foregoing, Tenant
shall pay all taxes assessed which result from water usage or sewer charge assessment
and assessment against Tenant's Improvements described in Section 17.2 and Exhibit B.
Property ownership transfers shall be governed by the same limitation on increases of
Tenant's obligation to pay Real Property Taxes as stated above.
4.6 Security Deposit. If Tenant fails to pay Rent, or otherwise defaults
under the Lease, Landlord may use, apply or retain all or any portion of said
Security Deposit for the payment of any amount due Landlord or to reimburse
1 Cheatnut Avenue, South San Francisco, Ca 10 December 7, 2012
or compensate Landlord for any liability, expense, loss or damage which
Landlord may suffer or incur by reason thereof. If Landlord uses or applies all
or any portion of the Security Deposit, Tenant shall within ten (10) days after
written request therefore, deposit monies with Landlord sufficient to restore said
Security Deposit to the full amount required by this Lease. Landlord shall not
be required to keep the Security Deposit separate from its general accounts.
Within fourteen (14) days after the expiration or termination of this
Lease, if Landlord elects to apply the Security Deposit only to unpaid Rent, and
otherwise within thirty (30) days after the Premises have been vacated pursuant
to Article XIV, Landlord shall return that portion of the Security Deposit not
used or applied by Landlord. No part of the Security Deposit shall be
considered to be held in trust, to bear interest or to be prepayment for any
monies to be paid by Tenant under this Lease. Tenant shall have no right to
apply the Security Deposit, or any portion thereof, to the last month rent due
under this Lease.
If Landlord disposes of its interest in the Premises and the Real Property,
Landlord may deliver or credit the Security Deposit to Landlord's successor in interest to
the Premises and Real Property, and thereupon Landlord shall be relieved of further
responsibility with respect to the Security Deposit.
ARTICLE V
USE OF PREMISES
5.1 Permitted Use; Entitlements. The Premises shall be used solely for the
purposes set forth in Section 1.13 and for no other purpose without the written consent of
Landlord, which may be granted or withheld in Landlord's sole discretion. Tenant shall
not do or suffer or permit anything to be done in or about the Premises, the Building or
the Real Property, nor bring or keep anything therein that would in any way subject
Landlord to any liability, increase the premium rate of or affect any fire, casualty, rent or
other insurance relating to the Real Property or any of the contents of the Building, or
cause a cancellation of, or give rise to any defense by the insurer to any claim under, or
conflict with, any policies for such insurance. If any act or omission of Tenant results in
any such increase in premium rates, Tenant shall pay to Landlord upon demand the
amount of such increase.
Tenant shall bear sole responsibility for obtaining and securing all
required permits and other entitlements, pursuant to Applicable Laws, prior to
commencing occupancy of the Premises unless Landlord and Tenant agree otherwise in
writing, and as approved by the Oversight Board.
5.2 Si na e. Tenant shall obtain the prior written approval of the Landlord,
which approval may be withheld in Landlord's sole discretion, before placing any sign or
symbol on doors or windows or elsewhere in or about the Premises so as to be visible
I Chestnut Avenue, South San Francisco, Ca 1 I December 2012
from the public areas or exterior of the Building, or upon any other part of the Building or
Real Property, including building directories. Any signs or symbols which have been
placed without Landlord's written approval may be removed by Landlord. Upon
expiration or termination of this Lease, all signs installed by Tenant shall be removed and
any damage resulting therefrom shall be promptly repaired by Tenant, or such removal
and repair may be done by Landlord and the cost charged to Tenant as Rent. Tenant shall
be provided signage as a part of the Building directory.
Tenant is hereby granted the right to place and maintain in place during the Term
of this Lease Tenant's name on the exterior of the Building with lighting. The design of
the signage and the lighting shall be subject to Landlord's written approval. Landlord
shall determine in its reasonable discretion the position, location and configuration of
Tenant's name on the Building. All signs or lettering shall conform in all respects to the
sign and/or lettering criteria reasonably established by Landlord. All signage shall
comply with regulations promulgated by the City of South San Francisco. The cost of
Building signage shall be counted toward the Tenant Improvement Allowance.
5.3 Compliance with Laws. Tenant shall procure and maintain all
governmental approvals, licenses and permits required for the proper and lawful conduct
of Tenant's permitted use of the Premises. Tenant shall throughout the Term comply with
and shall not use the Premises, the Building or the Real Property, or suffer or permit
anything to be done in or about the same which would in any way conflict with, any of
the following (collectively "Applicable. Laws "): (i) the provisions of all recorded
covenants, conditions and restrictions applicable to the Building or the Real Property, or
(ii) any federal, state, county, local or other governmental agency rules, regulations,
statutes, ordinances, orders, standards, requirements or laws now in force or hereafter
enacted, promulgated or issued which are applicable to the Real Property, Premises, the
Building, or the use or occupancy thereof, including without limitation building, zoning,
and fire codes and regulations.
ARTICLE VI
ENVIRONMENTAL MATTERS
6.1 Use of Hazardous Materials. Tenant shall not cause or permit any
Hazardous Material to be generated, brought onto, used, stored, or disposed of in or about
the Premises, the Building or the Real Property by Tenant or Tenant's agents, employees,
contractors, subtenants or invitees (collectively "Tenant Parties "), except for limited
quantities of standard office and janitorial supplies. At Tenant's sole cost and expense,
Tenant shall use, store and dispose of all such Hazardous Materials in strict compliance
with all Environmental Laws, and shall in all other respects comply with all
Environmental Laws.
6.2 Notice of Release or Investigation. If during the Lease Term (including
any extensions), Tenant becomes aware of (a) any actual or threatened release of any
Hazardous Material on, under, or about the Premises, the Building or the Real Property,
1 Chestnut Avenue, South San Francisco, Ca 12 December 7, 2012
or (b) any inquiry, investigation, proceeding, or claim by any government agency or other
person regarding the presence of Hazardous Material on, under, or about the Premises,
the Building, or the Real Property, Tenant shall give Landlord written notice of the
release or investigation within five (5) days after learning of it and shall simultaneously
furnish to Landlord copies of any claims, notices of violation, reports, or other writings
received by Tenant that concern the release or investigation.
6.3 Indemnification. Tenant shall defend (with counsel acceptable to
Landlord), indemnify and hold harmless Landlord and Landlord's elected and appointed
officers, officials, employees, agents and representatives (collectively, "Indemnitees ")
from and against any and all liabilities, losses, damages, fines, deficiencies, penalties,
claims, demands, suits, actions, causes of action, legal or administrative proceedings,
judgments, costs and expenses (including without limitation reasonable attorneys' fees
and expenses, court costs, expert witness fees and post judgment collection costs) (all of
the foregoing, collectively "Claims ") resulting or arising from or in connection with any
release of any Hazardous Material in or about the Premises, the Building or the Real
Property by Tenant, or Tenant's agents, assignees, sublessees, contractors, or invitees, or
any other violation of any Environmental Law by Tenant, or Tenant's agents, assignees,
sublessees, contractors, or invitees. This indemnification includes: (i) losses attributable
to diminution in the value of the Premises or the Building, (ii) loss or restriction of use of
rentable space in the Building, (iii) adverse effect on the marketing of any space in the
Building; and (iv) all other liabilities, obligations, penalties, fines, claims, actions
(including remedial or enforcement actions of any kind and administrative or judicial
proceedings, orders, or judgments), damages (including consequential and punitive
damages), and costs (including attorney, consultant, and expert fees and expenses)
resulting from the Tenant Parties release or violation. The indemnity provided in this
Section shall not extend to Claims to the extent the same are caused by the gross
negligence or willful misconduct of Indemnitees. The provisions of this Section shall
survive the expiration or termination of this Lease.
6.3.1 Landlord's Representations and Warranties. Landlord
represents and warrants that Landlord has received no notice, warning, notice of
violation, administrative complaint, judicial complaint, or other written notice alleging
that the Building or the Real Property are in violation of any Environmental Laws
(defined below) or informing Landlord that the Building or the Real Property is subject to
investigation or inquiry concerning Hazardous Materials, nor is Landlord aware of any
such violation. In addition, to the best knowledge of Landlord, there is no pending or
threatened litigation, administrative proceeding, or other legal or governmental action
with respect to the Building or the Real Property in connection with the presence of
Hazardous Materials in, on or under the Building or the Real Property. Whenever used in
this Agreement, the phrase "to the best knowledge of Landlord" shall mean the actual
knowledge of Landlord's Superintendent of Parks and Facilities and Public Works
Supervisor, Building Maintenance. Without limiting the foregoing, Landlord and Tenant
acknowledge that Landlord shall have no obligation to remove or pay for the removal of
flooring and mastic. If, however; Hazardous Substances other than flooring and mastic
are determined to be present on the Real Property as of the Effective Date of the Lease,
1 Chestnut Avenue, South San Francisco, Ca 13 December 7, 2012
and remedial action is required in relation to the particular Hazardous Substances because
a federal, state, or local government agency is requiring such remedial action, then
Tenant shall have no responsibility for the cost of any required or necessary repair,
cleanup or detoxification or decontamination of any of the Premises, or the preparation
and implementation of any closure, remedial action or other required plans in connection
therewith (collectively, "Remediation "); provided, however, that Tenant shall provide
without charge to Landlord or the applicable party or parties, unfettered access to the
Real Property and the Premises for purposes of such Remediation..
6.4 Remediation Obligations. If the presence of any Hazardous Material
brought onto the Premises or the Building by Tenant or Tenant's employees, agents,
contractors, or invitees results in contamination of the Building, Tenant shall promptly
take all necessary actions to remove or remediate such Hazardous Materials, whether or
not they are present at concentrations exceeding state or federal maximum concentration
or action levels, or any governmental agency has issued a cleanup order, at Tenant's sole
expense, to return the Premises and the Building to the condition that existed before the
introduction of such Hazardous Material. Tenant shall first obtain Landlord's approval of
the . proposed removal or remedial action. This provision does not limit the
indemnification obligation set forth in Section 6.3.
6.5 Definition of Hazardous Material. As used in this Lease, the term
"Hazardous Material" means any hazardous or toxic substance, material, or waste at
any concentration that is or becomes regulated by the United States, the State of
California, or any government authority having jurisdiction over the Building. Hazardous
Material includes: (a) any "hazardous substance," as that term is defined in the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
(CERCLA) (42 United States Code sections 9601 - 9675); (b) "hazardous waste," as that
term is defimed in the Resource Conservation and Recovery Act of 1976 (RCRA) (42
United States Code sections 6901- 6992k); (c) any pollutant, contaminant, or hazardous,
dangerous, or toxic chemical, material, or substance, within the meaning of any other
applicable federal, state, or local law, regulation, ordinance, or requirement (including
consent decrees and administrative orders imposing liability or standards of conduct
concerning any hazardous, dangerous, or toxic waste, substance, or material, now or
hereafter in effect); (d) petroleum products; (e) radioactive material, including any
source, special nuclear, or byproduct material as defined in 42 United States Code
sections 2011- 2297g -4; (f) asbestos in any form or condition; and (g) polychlorinated
biphenyls (PCBs) and substances or compounds containing PCBs.
6.6 Definition of Environmental Laws. As used in this Lease, the term
"Environmental Laws" means all federal, state and local laws, ordinances, regulations,
rules orders and directives pertaining to Hazardous Materials, including without
limitation, the laws, statutes, and regulations cited in the preceding Section 6.5, as any of
the foregoing may be amended from time to time.
6.7 Environmental Reports. Landlord shall provide to Tenant copies of all
studies, reports and investigations concerning the environmental condition of the
I Chestnut Avenue, South San Francisco, Ca 14 December 7, 2012
Building and the Real Property which were prepared within the past five years and which
are in Landlord's possession.
ARTICLE VII
UTILITIES AND SERVICES
7.1. Utility Services. Tenant shall contract and pay for all utility services
( "Utility Services "), including, without limitation, the following: (i) electricity for
Building lighting and power suitable for Use of the Premises as provided in Section 1. 13,
above including but not limited to ordinary retail store and veterinary service purposes;
(ii) air conditioning and heating; and (iii) water for drinking, lavatory and veterinary
service purposes.
7.2 Maintenance Services and Repairs. Tenant shall be responsible for all
interior and exterior maintenance of the Premises, the Building and the Real Property
(collectively, "Maintenance Services "), including, without limitation: (i) maintenance
of all exterior areas of the Building and the Real Property, including without limitation,
lighting and landscaping; (ii) cleaning, painting, maintenance and repair of the Building
exterior, (iii) maintenance and repair of the Building mechanical, electrical, HVAC and
plumbing equipment and systems (excepting below grade plumbing from the street
connection to the building exterior wall foundation) and the Building structural
components including the roof, foundation, floors and non -load bearing walls (excepting
therefrom damage caused by natural disaster not including fire. or an insured peril and
damage to structural components existing as of the commencement date), (iv)
maintenance of all areas of the Building and the Real Property including parking lots,
walkways, driveways, fences, utility systems, fire sprinklers, corridors, restrooms,
windows; (v) supply of public area lamp replacement, (vi) provision of exterior window
washing with reasonable frequency, but in no event less than two (2) times per year; and
(vii) provision of janitorial services to the common areas ( "Janitorial Services ").
Without limiting the foregoing, Tenant shall be responsible for janitorial service to the
Premises and interior window cleaning.
Tenant shall, at all times during the Term of this Lease and any extension thereof, at
Tenant's sole expense, keep the Premises (including all Tenant Improvements,
Alterations, fixtures and furnishings) in good order, repair and condition. Subject to
Landlord's prior approval and within any reasonable period specified by Landlord,
Tenant shall, at Tenant's sole expense, promptly and adequately repair all damage to the
Premises and replace or repair all damaged or broken fixtures and other leasehold
improvements. If Tenant fails to maintain or keep the Premises in good repair or if such
failure results in a nuisance or health or safety risk, at Landlord's option, Landlord may
perform any such required maintenance and repairs and within ten days after receipt of
Landlord's invoice therefor, Tenant shall pay Landlord's costs incurred in connection
with such repairs, plus a percentage of such costs sufficient to reimburse Landlord for all
overhead, general conditions, fees and other costs and expenses in connection therewith.
Landlord's reimbursement for overhead, general conditions, fees and costs shall be a
I Chestnut Avenue, South San Francisco, Ca 15 December 7, 2012
percentage of costs incurred by Landlord pursuant to this Section 7.2 which said
percentage shall be fixed at ten percent (10.00 %) of the costs of repair or maintenance incurred
by Landlord.
7.3 Waiver. Tenant hereby waives the provisions of Sections 1941 and 1942
of the California Civil Code and any other present or future law permitting repairs by a
tenant at the expense of a landlord or termination of a lease by reason of the condition of
the leased premises.
7.4 Compliance with Applicable Laws. Landlord and Tenant shall each
comply with (and shall cause their respective employees, agents and contractors to
comply with) all Applicable Laws, including without limitation all Environmental Laws,
whenever either Party undertakes any work of construction, alteration or improvement in
the Premises or the Building,
ARTICLE VIII
ALTERATIONS AND ADDITIONS
8.1 Alterations and Improvements. Tenant may not make any
improvements, alterations, additions or changes to the Premises ( "Alterations ") without
the prior written approval of Landlord, which approval shall not be unreasonably
withheld or delayed. Any such Alterations shall be done at Tenant's expense, in a good
and workmanlike manner conforming in quality and design with the Premises existing as
of the Commencement Date, by a licensed contractor reasonably approved by Landlord,
in conformity with plans and specifications reviewed and approved by Landlord, and in
compliance with all Applicable Laws. Tenant shall obtain all necessary governmental
approvals and permits for such Alterations. Tenant shall give Landlord not less than ten
(10) business days' notice prior to the commencement of construction so that Landlord
may post a notice of nonresponsibility on the Premises. Notwithstanding any other
provisions in this Lease, unless Landlord otherwise agrees in writing, Tenant shall
remove, prior to expiration of the Term and at Tenant's sole cost and expense, any and all
wires, cables and related telecommunications devices installed by or on behalf of Tenant,
and Landlord may at its option by written notice to Tenant, require that Tenant, upon the
expiration or sooner termination of this Lease, at Tenant's expense, remove any or all
other Alterations and return the Premises to its condition as of the Commencement Date,
normal wear and tear excepted; provided, however, Tenant shall have no obligation to
remove the initial Tenant Improvements constructed pursuant to Exhibit B hereto upon
expiration of the Term of this Lease. Notwithstanding the improvements and alternations
pursuant to those described in Exhibit B. Tenant shall not make any Alterations that: (i)
affect the exterior of the Building, (ii) affect any of the structural portions of the
Building, including without limitation, the roof, (iii) diminish the value of the Premises,
(iv) result in an increase in the demand for utilities or services that Landlord is required to
provide, (v) cause an increase in the premiums for hazard or liability insurance carried by
Landlord, or (vi) overload the floor load capacity or unduly burden the plumbing,
heating, ventilation, air conditioning, electrical or other basic systems that serve the
Building. Upon completion of any Alteration, Tenant shall (a) cause a timely notice of
I Chestnut Avenue, South San Francisco, Ca 16 December ', 2012
completion to be recorded in the official records of San Mateo County in accordance with
Civil Code Section 3093 or any successor statute, and (b) deliver to Landlord evidence of
full payment and unconditional final waivers of all liens for labor, services, or materials.
8.2 Liens. Tenant shall not permit any mechanics', materialmen's or other liens,
to be filed against the Building or the Real Property or against Tenant's leasehold interest
in the Premises. Landlord has the right at all times to post and keep posted on the
Premises any notice that it considers necessary for protection from such liens. If Tenant
fails to cause the release of record of any lien(s) filed against the Premises or Tenant's
leasehold estate therein, by payment or posting of a proper bond within ten (10) days
from the date of the lien filing(s), then Landlord may, at Tenant's expense, cause such
lien(s) to be released by any means Landlord deems proper, including but not limited to
payment of or defense against the claim giving rise to the lien(s). All sums reasonably
disbursed, deposited or incurred by Landlord in connection with the release of the lien(s),
including but not limited to all costs, expenses and attorney's fees, shall be due and
payable by Tenant to Landlord as Additional Rent on demand by Landlord.
ARTICLE IX
INSURANCE AND INDEMNITY
9.1 Indemnity. To the fullest extent permitted by law, Tenant shall defend
(with counsel reasonably acceptable to Landlord), indemnify and hold Indemnitees
harmless from and against any and all Claims arising out of or relating directly or
indirectly to this Lease or the Premises (including without limitation, Claims for or
relating to loss of or damage to property, injury or death of any person or animal),
including any Claim arising from or in connection with or in any way attributable to: (i)
the use or occupancy, or manner of use or occupancy of the Premises, the Building or the
Real Property by Tenant or the Tenant Parties, (ii) any act, error, omission or negligence
of Tenant Parties or any invitee, guest or licensee of Tenant in, on or about the Real
Property, (iii) any Alterations, (iv) construction of the Tenant Improvements (as defined
in Section 1.15 and Section 17.2 ), (v) Tenant's work performed pursuant to Exhibit B
hereto, (vi) work performed pursuant to Section 7.2 above, and (vii) any activity, work,
or thing done, omitted, permitted, allowed or suffered by Tenant or Tenant Parties in, at,
or about the Premises, the Building or the Real Property, except to the extent caused by
the gross negligence or willful conduct of Landlord. The provisions of this section shall
not be construed or interpreted as in any way restricting, limiting or modifying Tenant's
insurance obligations under this Lease. Tenant's compliance with the insurance
requirements set forth in this Lease shall not in any way restrict, limit or modify Tenant's
indemnification obligations hereunder. The provisions of this section shall survive the
expiration or earlier termination of this Lease.
9.2 Tenant's Insurance. Tenant shall, at its sole expense, procure and
maintain throughout the Term (plus such earlier and later periods as Tenant may be in
occupancy of the Premises) all of the following:
1 Chestnut Avenue, South San Francisco, Ca 17 December 2012
(a) Commercial general liability insurance including contractual
liability coverage, written on an "occurrence" policy form, covering bodily injury,
property damage and personal injury arising out of or relating (directly or indirectly) to
Tenant's operations, conduct, assumed liabilities, or use or occupancy of the Premises,
the Building or the Real Property naming the Indemnitees as additional insureds, with
minimum coverage in the amount of Two Million Dollars ($2,000,000) per occurrence
combined single limit for bodily injury and property damage and Five Million Dollars
($5,000,000) in the aggregate;
(b) Property insurance protecting Tenant against loss or damage by
fire and such other risks as are insurable under then available standard forms of "all risk"
insurance policies, covering Tenant's personal property and trade fixtures in or about the
Premises or the Real Property, and any improvements and/or Alterations in the Premises,
in an amount not less than one hundred percent (100 %) of their actual replacement cost
or highest insurable value;
(c) Workers' compensation insurance in at least the statutory amounts;
and
(d) If Tenant operates owned, leased or non -owned vehicles on the
Real Property, comprehensive automobile liability insurance with a minimum coverage
of one million dollars ($1,000,000) per occurrence, combined single limit.
The foregoing policies shall protect Tenant as named insured, and
Landlord and the other Indemnitees as additional insureds, and if subject to deductibles
shall provide for deductible amounts not in excess of those approved in advance in
writing by Landlord in its reasonable discretion. Landlord reserves the right to increase
the foregoing amount of required liability coverage from time to time (but not more often
than once each calendar year) to adequately protect Indemnitees and to require that
Tenant cause any of its contractors, vendors or other parties conducting construction,
demolition or improvement or remodeling activities or any sub - tenant or sub - lessee in or
about the Premises to obtain and maintain insurance as determined by Landlord and as to
which the Indemnitees shall be additional insureds.
9.3 Excess Coverage Liability Policy. Nothing in this Article IX shall
prevent Tenant from obtaining insurance of the kind and in the amounts provided for
under this Section under an excess coverage liability insurance policy covering other
properties as well as the Premises; provided, however, that any such policy of excess
coverage liability insurance (i) shall specify those amounts of the total insurance
allocated to the Premises, which amounts shall not be less than the amounts required by
Section 9.2, (ii) such amounts so specified shall be sufficient to prevent any one of the
insureds from becoming a co- insurer within the terms of the applicable policy, and (iii)
shall, as to the Premises, otherwise comply with the requirements of this Article as to
endorsements and coverage.
I Chestnut Avenue, South San Francisco, Ca 19 December 7, 2012
9.3.1 Self- Insurance. Any insurance required to be maintained by the
Tenant pursuant to this Lease may be maintained under a plan of self - insurance through a
wholly -owned subsidiary of Tenant's parent company which specializes in providing
such coverage for Tenant's parent company and its subsidiaries, provided that Tenant's
parent company's net worth exceeds One Hundred Million Dollars ($100,000,000).
Tenant agrees that if Tenant elects to self - insure, Landlord shall have the same benefits
and protections as if Tenant carried insurance with a third -party insurance company
satisfying the requirements of this Lease (including without limitation, waive of
subrogation provisions).
9.4. Policy Form. Each insurance policy required pursuant to Section 9.2
shall be issued by an insurance company licensed in the State of California and with a
general policyholders' rating of "A +" or better and a financial size ranking of "Class
VIII" or higher in the most recent edition of Best's Insurance Guide. Each insurance
policy, other than Tenant's workers' compensation insurance, shall (i) provide that it may
not be cancelled or allowed to lapse unless thirty (30) days' prior written notice to
Landlord is first given; (ii) provide that no act or omission of Tenant shall affect or limit
the obligations of the insurer with respect to any other insured; (iii) include all waiver of
subrogation rights endorsement necessary to effect the provisions of Section 9.6; and (iv)
provide that the policy and the coverage provided shall be primary, that Landlord,
although an additional insured, shall nevertheless be entitled to recovery under such
policy for any damage to Landlord or the other Indemnitees by reason of acts or omission
of Tenant, and that any coverage carried by Landlord shall be noncontributory with
respect to policies carried by Tenant. A certificate evidencing each insurance policy shall
be delivered to Landlord by Tenant on or before the Commencement Date, and thereafter
Tenant shall deliver to Landlord renewal policies or certificates at least thirty (30) days
prior to the expiration dates of expiring policies. If Tenant fails to procure such insurance
or to deliver such certificates to Landlord, and such failure continues five (5) business
days after notice thereof from Landlord to Tenant, Landlord may, at its option, procure
the same for Tenant's account, and the cost thereof shall be paid to Landlord by Tenant
upon demand.
9.5 Insurance of Tenant's Contractors and Agents. In addition to any other
insurance requirements, Tenant expressly agrees that none of its agents, contractors,
workmen, mechanics, suppliers or invitees performing construction or repair work in the
Premises shall commence such work unless and until each of them shall furnish Landlord
with satisfactory evidence of insurance coverage, financial responsibility and appropriate
written conditional releases of mechanic's or materialmen's lien claims, in advance of
contracted work, as necessary.
9.6 Waiver of Subrogation. Tenant and Landlord shall cause the insurance
companies issuing their' respective property (first party) insurance to waive any
subrogation rights that those companies may have against Tenant or Landlord,
respectively, as long as the insurance is not invalidated by the waiver. If the waivers of
subrogation are contained in their respective insurance policies, Landlord and Tenant
waive any right that either may have against the other on account of any loss or damage
1 Chestnut Avenue, South San Francisco, Ca 19 December 7, 2012
to their respective property to the extent that the loss or damage is insured under their
respective insurance policies.
9.7 Landlord's Insurance. Landlord shall maintain throughout the Term
liability and property damage insurance comparable to or exceeding the coverage and
amounts of insurance carried by reasonably prudent landlords of comparable buildings
and workers' compensation coverage as required by law. If Landlord so chooses,
Landlord may maintain "Loss of Rents" insurance, insuring that the Rent will be paid in a
timely manner to Landlord for a period of at least twelve (12) months if the Premises or
the Building or any portion thereof are destroyed or rendered unusable or inaccessible by
any cause insured against under this Lease.
ARTICLE X
ASSIGNMENT AND SUBLETTING
10.1 Landlord's Consent Required. Tenant shall not directly or indirectly,
voluntarily or involuntarily, by operation of law or otherwise, assign, mortgage, pledge,
encumber or otherwise transfer this Lease, or permit all or any part of the Premises to be
subleased or used or occupied for any purpose by anyone other than Tenant without the
prior written consent of Landlord, which consent shall not be unreasonably withheld,
delayed or conditioned. Any assignment or sublease without Landlord's prior written
consent shall, at Landlord's option, be void and shall constitute an Event of Default
entitling Landlord to terminate this Lease and to exercise all other remedies available to
Landlord under this Lease and at law. Notwithstanding anything to the contrary
contained herein, Tenant shall be permitted to assign this Lease and to sublet the
Premises in whole or in part to any Affiliate of Tenant without Landlord consent
( "Permitted Transfer ").
10.2 Basis for Withholding Consent. Landlord agrees that it will not
unreasonably withhold, delay or condition its consent to Tenant's assigning this Lease or
subletting the Premises. In addition to other reasonable bases, Tenant hereby agrees that
Landlord shall be deemed to be reasonable in withholding its consent if. (i) there exists
an Event of Default (as defined in Section 16.1) at the time of request for consent or on
the effective date of such subletting or assigning; (ii) the proposed subtenant or assignee
seeks to use any portion of the Premises for a use not consistent with other uses in the
Building, or is financially incapable of assuming the obligations of this Lease; (iii) the
assignment or subletting would materially increase the operating costs for the Building;
(iv) the assignment or subletting may conflict with the terms of any easement, covenant,
condition or restriction or other agreement affecting the Real Property; or (vi) the
assignment or sublease would involve a change in use from that expressly permitted
under this Lease.
Tenant shall submit to Landlord the name of a proposed assignee or subtenant, the
terms of the proposed assignment or subletting, the nature of the proposed subtenant's or
I Chestnut Avenue, South San Francisco, Ca 20 December: , 2012
assignee's business, and such information as to the assignee's or subtenant's financial
responsibility and general reputation as Landlord may reasonably require.
10.3 No Release of Obligations. The consent by Landlord to an assignment or
subletting hereunder shall not relieve Tenant or any assignee or subtenant from the
requirement of obtaining Landlord's express prior written consent to any other or further
assignment or subletting. No subtenant may assign its sublease, or further sublet its
subleased premises, without Landlord's prior written consent, which consent may be
withheld in Landlord's sole discretion. Neither an assignment or subletting nor the
collection of rent by Landlord from any person other than Tenant shall be deemed a
waiver of any of the provisions of this Article or release Tenant from its obligations to
comply with this Lease, and Tenant shall remain fully and primarily liable for all of
Tenant's obligations under this Lease.
10.4 Permitted Assignment to Affiliates. Provided that no Event of Default,
or event which with the passage of time or the giving of notice would constitute an Event
of Default, exists under this Lease, Tenant may, without Landlord's consent, assign or
sublet all or a portion of this Lease or the Premises to an Affiliate of Tenant or to any
non - affiliated entity with which Tenant merges or which purchases substantially all of the
assets of Tenant, if (i) Tenant notifies Landlord at least fifteen (15) days prior to such
assignment or sublease; and (ii) the transferee assumes and agrees in a writing reasonably
acceptable to Landlord to perform Tenant's obligations under this Lease and to observe
all terms and conditions of this Lease.
10.5 Administrative Costs of Assignment Transaction. In connection with
any request by Tenant for approval of an assignment or sublease other than a Permitted
Transfer, Tenant shall pay Landlord's then standard reasonable processing fee, any taxes
or other charges imposed upon Landlord or the Real Property as a result of such
assignment or sublease, and shall reimburse Landlord for all reasonable costs, including
the reasonable fees of attorneys consulted by Landlord in connection with such
assignment or sublease, whether or not such proposed assignment or sublease is
consented to by Landlord.
ARTICLE XI
DAMAGE AND DESTRUCTION
11.1 Repair and Restoration; Termination Rights. If all or part of the
Premises is damaged by fire or other casualty, or if the Building is so damaged that
access to or use and occupancy of the Premises is materially impaired, within forty -five
(45) days of the date of the damage, Landlord shall notify Tenant of the estimated time,
in Landlord's reasonable judgment, required for repair or restoration ( "Repair Period ").
If the estimated time is one hundred eighty (180) days or less, Landlord shall proceed
promptly and diligently to repair or restore the Premises or the portion of the Building
necessary for Tenant's occupancy, and this Lease shall remain in effect, except that for
I Chestnut Avenue, South San Francisco, Ca 21 December 7, 2012
the time unusable, Tenant shall receive a Rent abatement for that part of the Premises
rendered unusable in the conduct of Tenant's business.
If the estimated time for repair or restoration is in excess of one hundred eighty
(180) days from the date of the casualty, either Party, at its option exercised by written
notice to other Parry within sixty (60) days after the date of the casualty, may terminate
this Lease as of the date specified by Landlord in the notice, which date shall be not less
than twenty -five (25) nor more than forty -five (45) days after the date such notice is
given, and this Lease shall terminate on the date specified in the notice. In the event that
neither Party elects to terminate this Lease, Landlord shall commence to timely repair the
damage, in which case this Lease shall continue in full force and effect.
In either case if Landlord fails to repair the damage by the date that is forty -five
(45) days after the end of the Repair Period, then Tenant may give notice to Landlord,
within ten (10) business days after the end of the Repair Period terminating this Lease as
of the date specified in Tenant's notice, which date shall not be earlier than thirty (30)
days after the date of Tenant's termination notice; provided however, if Landlord repairs
the damage for which it is responsible within thirty (30) days after receipt of Tenant's
termination notice, Landlord may elect to nullify Tenant's termination notice (and
thereupon this Lease shall continue in full force and effect) by Landlord's notice of such
repair and election given to Tenant on or prior to the expiration of such thirty (30) -day
period.
11.2 Damage Near End of Term. Notwithstanding anything to the contrary
set forth in this Article, if the Premises or the Building are damaged during the last
twelve (12) months of the Term, Landlord and Tenant shall each have the option to
terminate this Lease by giving written notice to the other of the exercise of that option
within thirty (30) days after the damage or destruction, and this Lease shall terminate as
of the date specified in such notice, which shall be not before the date of such notice nor
more than thirty (30) days after the date of such notice.
11.3 Rent Apportionment. If Landlord or Tenant elects to terminate this Lease
under this Article XI, Tenant shall pay Rent, prorated on a per diem basis and paid up to
the date of the casualty. If the Premises are wholly untenantable and this Lease is not
terminated, Rent shall abate on a per diem basis from the date of the casualty until the
Premises are ready for occupancy by Tenant. If part of the Premises are untenantable,
Rent shall be prorated on a per diem basis and abated in proportion to the portion of the
Premises which is unusable until the damaged part is ready for Tenant's occupancy.
Notwithstanding the foregoing, if any damage was caused by the gross negligence or
willful misconduct of Tenant, its employees or agents, then, in such event, Tenant agrees
that Rent shall not abate or be diminished.
11.4 Waiver of Statutory Provisions. The provisions of this Lease, including
those in this Article XI, constitute an express agreement between Landlord and Tenant
that applies in the event of any damage to the Premises, Building, or Real Property.
Tenant therefore, fully waives the provisions of any statute or regulation, including
1 Chestnut Avenue, South San Francisco, Ca 22 December 7, 2012
California Civil Code sections 1932(2) and 1933(4), relating to any rights or obligations
concerning any such casualty.
ARTICLE XII
CONDEMNATION
12.1 Total Taking - Termination. If title to the Premises or so much thereof
is taken through the exercise of any government power (by legal proceedings or
otherwise) by any public or quasi - public authority or by any other party having the right
of eminent domain, or by a voluntary sale or transfer either under threat of exercise of
eminent domain or while legal proceedings for eminent domain are pending so that
reconstruction of the Premises will not result in the Premises being reasonably suitable
for Tenant's continued occupancy for the uses and purposes permitted by this Lease, this
Lease shall terminate as of the date possession of the Premises or part thereof is so taken.
12.2 Partial Taking. If any part of the Premises is taken through the exercise
of eminent domain (or is voluntarily conveyed under the threat thereof) and the
remaining part is reasonably suitable for Tenant's continued occupancy for the uses and
purposes permitted by this Lease, this Lease shall as to the part so taken terminate as of
the date that possession of such part of the Premises is taken and the Rent shall be
reduced in the same proportion that the floor area of the portion of the Premises taken
(less any addition thereto by reason of any reconstruction) bears to the original floor area
of the Premises as reasonably determined by Landlord or Landlord's architect. Landlord
shall, at its own cost and expense, make all necessary repairs or alterations to the
Premises so as to make the portion of the Premises not taken a complete unit.
12.3 No Apportionment of Award. All condemnation awards and similar
payments shall be paid and belong to Landlord, except for any amounts awarded or paid
specifically to Tenant for leasehold improvements, removal and reinstallation of Tenant's
trade fixtures and personal property, Tenant's moving costs and Tenant's goodwill. It is
expressly understood and agreed by Tenant that except as otherwise stated in this section,
Landlord shall be entitled to the entire award for any partial or total taking.
12.4 Temporary Taking. No temporary taking of the Premises (which shall
mean a taking of all or any part of the Premises for one hundred eighty (180) days or less)
shall terminate this Lease or give Tenant any right to any abatement of Rent. Any award
made to Tenant by reason of such temporary taking shall belong entirely to Tenant, and
Landlord shall not be entitled to share therein.
ARTICLE XIII
SUBORDINATION AND ESTOPPEL
I Chestnut Avenue, South San Francisco, Ca 23 December 7, 2012
13.1 Estoppel Certificate. From time to time and within fifteen (15) days after
request by Landlord, Tenant shall execute and deliver a certificate to any proposed lender
or purchaser, or to Landlord, certifying, with any appropriate exceptions, (a) that this
Lease is in full force and effect without modification except as noted, (b) the amount, if
any, of prepaid rent and deposits paid by Tenant to Landlord (and not returned to
Tenant), (c) the nature and kind of concessions, rental or otherwise, if any, which Tenant
has received or is entitled to receive, (d) that, to Tenant's kno,%vledge, Landlord has
performed all of its obligations due to be performed under this Lease and that there are no
defenses, counterclaims, deductions or offsets outstanding or other excuses for Tenant's
performance under this Lease as of such date, and (e) any other fact reasonably requested
by Landlord or such proposed lender or purchaser.
13.2 Subordination and Attornment. Tenant agrees that this Lease is subject
and subordinate to (i) the lien of any mortgage, deed of trust or other encumbrance of the
Building or the Real Property, (ii) all present and future ground or underlying leases of
the Building or Real Property now or hereafter in force against the Building or Real
Property, and (iii) all renewals, extensions, modifications, consolidations, and
replacements of the items described in clauses (i) and (ii), provided that the mortgagee or
beneficiary thereunder agrees that so long as no Event of Default exists, (a) Tenant's
possession of the Premises and rights and privileges under this Lease shall not be
diminished or interfered with by such mortgagee or beneficiary during the term of this
Lease or any extensions or renewals hereof, and (b) such mortgagee or beneficiary or
lessor will not join Tenant as party for the purpose of terminating or otherwise affecting
Tenant's interest in this Lease in any action of foreclosure or other proceeding to enforce
any rights arising out of any default under any mortgage or deed of trust.
13.3 Subordination Agreement. The subordination described in this Article
XIII is self - operative, and no further instrument of subordination shall be required to
make it effective. To confirm this subordination, however, Tenant shall, within fifteen
(15) days after Landlord's request, execute any further instruments or assurances in
recordable form that Landlord reasonably considers necessary to evidence or confirm the
subordination of this Lease to any such encumbrances or underlying leases, provided that
that any such instrument provides that the mortgagee or the beneficiary agrees that so
long as no Event of Default exists, (a) Tenant's possession of the Premises and rights and
privileges under this Lease shall not be diminished or interfered with by such mortgagee
or beneficiary during the term of this Lease or any extensions or renewals hereof, and (b)
such mortgagee or beneficiary will not join Tenant as a party for the purpose of
terminating or otherwise affecting Tenant's interest in this Lease in any action of
foreclosure or other proceeding to enforce any rights arising out of any default under any
mortgage or deed of trust. Tenant shall have no obligation to execute any instrument
subordinating its rights hereunder to the lien of any mortgage or deed of trust unless such
instrument contains the foregoing conditions. Tenant's failure to execute and deliver
such instrument(s) shall constitute a default under this Lease.
13.4 Attornment. Tenant covenants and agrees to attorn to the transferee of
Landlord's interest in the Real Property or the Building by foreclosure, deed in lieu of
1 Chestnut Avenue, South San Francisco, Ca 24 December,, 2012
foreclosure, exercise of any remedy provided in any encumbrance or underlying lease
affecting the Building or the Real Property, or operation of law (without any deductions
or setoffs), if requested to do so by the transferee, and to recognize the transferee as the
lessor under this Lease. The transferee shall not be liable for any acts, omissions, or
defaults of Landlord that occurred before the sale or conveyance other than acts,
omissions or defaults that are continuing upon transferee's acquisition of the Real
Property and transferee fails to cure the same after receiving notice thereof.
13.5 Notice of Default; Right to Cure. Tenant agrees to give written notice of
any default by Landlord to the holder of any encumbrance or underlying lease affecting
the Building or the Real Property, provided that.Tenant has received written notice of the
name and address of such encumbrance holder or lessor. Tenant agrees that, before it
exercises any rights or remedies under the Lease, the lienholder or lessor shall have the
right, but not the obligation, to cure the default within the same time, if any, given to
Landlord to cure the default, plus an additional thirty (30) days. Tenant agrees that this
cure period shall be extended by the time (not to exceed an additional sixty (60) days)
necessary for the lienholder to begin foreclosure proceedings and to obtain possession of
the Building or Real Property, as applicable.
13.6 Nondisturbance. Landlord agrees to use commercially reasonable efforts
to obtain from the holder of any existing and future indebtedness secured by the Building,
a subordination, nondisturbance and attornment agreement which provides that in the
event of foreclosure or transfer in lieu of foreclosure, so long as no default by Tenant has
occurred under this Lease and remains uncured beyond any applicable cure period (i)
Tenant shall not be named or joined in any proceeding that may be instituted to foreclose
or enforce the mortgage unless such joinder is legally required to perfect such
proceeding, and (ii) Tenant's possession and use of the Premises in accordance with the
provisions of the Lease shall not be affected or disturbed by reason of the subordination
to or any modification of or default under the mortgage.
ARTICLE XIV
SURRENDER OF PREMISES; HOLDING OVER
14.1 Surrender of Premises. On expiration of this Lease, Tenant shall
surrender the Premises in the same condition as when the Term commenced, ordinary
wear and tear excepted. Except for furniture, equipment and trade fixtures (other than
those which are affixed to the Premises so that they cannot be removed without material
damage to the Premises) all alterations, additions or improvements, whether temporary or
permanent in character, made in or upon the Premises, either by Landlord or Tenant, shall
be Landlord's property and at the expiration or earlier termination of the Lease shall
remain on the Premises without compensation to Tenant; provided that, upon reasonable
written request of Landlord, Tenant shall, at its expense and without delay, remove any
alterations, additions or improvements (including, without limitation, all
telecommunications equipment and cabling, and all alterations and improvements made
by Tenant after the Commencement Date) made to the Premises by Tenant and
I Chestnut Avenue, South San Francisco, Ca 25 December 7, 2012
designated by Landlord to be removed, and shall repair any damage to the Premises or
the Building caused by such removal. Notwithstanding the foregoing, Tenant shall have
no obligation to remove the initial Tenant Improvements constructed pursuant to Sections
1.15 and 17.2 and Exhibit B hereto upon expiration of the Term of this Lease. If Tenant
fails to complete any removal required by this section or to repair the Premises, Landlord
may complete such removal and repair, and Tenant shall reimburse Landlord therefor. If
Tenant fails to remove such property as required under this Lease, Landlord may dispose
of such property in its sole discretion without any liability to Tenant, and further may
charge the cost of any such disposition to Tenant.
14.2 Hold Over Tenancy. If Tenant remains in possession of the Premises
after the expiration or earlier termination of this Lease with Landlord's written consent,
Tenant shall be deemed, at Landlord's option, to occupy the Premises as a tenant from
month -to- month. During such tenancy (and prior to any termination by Landlord),
Tenant agrees to pay Landlord, monthly in advance, an amount equal to: (a) during the
first ninety (90) days of such tenancy One Hundred Twenty Five Percent (125 %) of all
Base Rent which would become due during the last month of the Term, together with all
other amounts payable by Tenant to Landlord under this Lease, and (b) for any period
following the first ninety (90) days of such tenancy, One Hundred Fifty Percent (150 %)
of all Base Rent which would become due during the last month of the Term, together
with all other amounts payable by Tenant to Landlord under this Lease. Except as
provided in the preceding sentence, such month -to -month tenancy shall be on the same
terms and conditions of this Lease except that any renewal options, expansion options,
rights of first refusal or any other rights or options pertaining to additional space in the
Building contained in this Lease shall be deemed to be terminated and shall be
inapplicable thereto. Landlord's acceptance of Tent after such holding over with
Landlord's written consent shall not result in any other tenancy or in a renewal of the
initial term of this Lease.
If Tenant remains in possession of the Premises after the expiration or earlier
termination of this Lease without Landlord's written consent, Tenant's continued
possession shall be on the basis of a tenancy at sufferance and Tenant shall pay monthly
Rent during the holdover period in an amount equal to two hundred percent (200 %) of all
Base Rent which would become due the last month of the Term, together with all other
amounts payable by Tenant to Landlord.
14.3 No Relocation Benefits. Tenant acknowledges that pursuant to the
California Uniform Relocation Act, Government Code Section 7260, et seq.
( "Relocation Act "), a commercial tenant that is displaced as a result of a public project
may be entitled to certain relocation benefits, including advisory assistance, actual and
reasonable moving expenses, and reasonable and necessary reestablishment expenses
(collectively, "Relocation Benefits "). Tenant hereby knowingly and voluntarily forever
waives, discharges and releases any potential claims to Relocation Benefits under the
Relocation Act arising out of the termination, expiration, or non - renewal of this Lease,
and further voluntarily and knowingly forever waives, releases and discharges Landlord,
its related entities and its officers, employees, agents and volunteers from any and all
1 Chestnut Avenue, South San Francisco, Ca 26 December 7, 2012
rights, demands, liabilities, claims, obligations or causes of action in law or equity of
whatever kind or nature, whether known or unknown, and whether now existing or
hereafter arising, which arise from or relate in any manner to the future expiration,
termination, or non - renewal of this Lease, including but not limited to any claims for
Relocation Benefits under the Relocation Act and any applicable federal law. This
indemnification shall survive the expiration, termination or non - renewal of this Lease.
Tenant is aware of and familiar with the provisions of California Civil Code
Section 1542 which provide:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER
FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN
BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER
SETTLEMENT WITH THE DEBTOR.
Tenant hereby waives and relinquishes all eights and benefits which it may have
under California Civil Code Section 1542.
Tenant's Initials
ARTICLE XV
LANDLORD'S RESERVED RIGHTS.
15.1 Rights Reserved to Landlord. Without notice and without liability to
Tenant, and without effecting an eviction or disturbance of Tenant's use or possession,
Landlord shall have the right to (i) grant utility easements or other easements in, or
subdivide or make other changes in the legal status of the Land, the Building or the Real
Property as Landlord shall deem appropriate in its sole discretion, provided such changes
do not substantially interfere with Tenant's use of the Premises for the Permitted Use; (ii)
enter the Premises at reasonable times and with reasonable advance notice (and at any
time in the event of an emergency), to inspect (including inspections by prospective
lenders for or buyers of the Real Property), or repair the Premises or the Building and to
perform any acts related to the safety, protection, reletting, sale or improvement of the
Premises or the Building; (iii) install and maintain "For Sale" signs on and in the
Building and the Real Property and "For Lease" signs during the last one hundred eighty
(180) days of the initial lease term, or alternatively the last one hundred eighty (180) days
of the exercised option period; and (iv) make such rules and regulations as, in the
reasonable judgment of Landlord, may be needed from time to time for the safety of the
tenants, the care and cleanliness of the Premises, the Building and the Real Property and
the preservation of good order therein. Landlord shall at all times retain a key with which
to unlock all of the doors in the Premises, except Tenant's vaults and safes. If an
I Chestnut Avenue, South San Francisco, Ca 27 December 7, 2012
emergency necessitates immediate access to the Premises, Landlord may use whatever
force is necessary to enter the Premises and any such entry to the Premises shall not
constitute a forcible or unlawful entry into the Premises, a detainer of the Premises or an
eviction of Tenant from the Premises or any portion thereof.
shall:
ARTICLE XVI
DEFAULT AND REMEDIES
16.1 Tenant's Default. It shall be an "Event of Default" hereunder if Tenant
(a) fail to pay when due any monthly installment of Rent (or, if applicable
under this Lease, Operating Expenses), or fail to pay any other amount owed by
Tenant to Landlord under this Lease as and when due and such failure continues
for five (5) days following written notice thereof to Tenant by Landlord;
(b) fail to provide any certificate, instrument or assurance as required
pursuant to Article IX if the failure continues for five (5) days after written notice
of the failure from Landlord to Tenant;
(c) make a general assignment for the benefit of its creditors or file a
petition for bankruptcy or other reorganization, liquidation, dissolution or similar
relief;
(d) have a proceeding filed against Tenant seeking any relief mentioned in
(c) above which is not discharged within sixty (60) days thereafter;
(e) have a trustee, receiver or liquidator appointed for Tenant or a
substantial part of its property;
(f) abandon the Premises for more than three (3) consecutive months;
(g) assign this Lease or sublease any portion of the Premises in violation
of Article X; or
(h) fail to comply with any other provision of this Lease in the manner
required hereunder and such failure continues for thirty (30) days after written
notice thereof to Tenant by Landlord (or if the noncompliance cannot by its nature
be cured within the thirty (30) -day period, if Tenant fails to commence to cure
such noncompliance within the thirty (30) -day period and thereafter diligently
prosecute such cure to completion).
16.2 Remedies on Default. Upon the occurrence of an Event of Default,
Landlord shall have the right to pursue any one or more of the following remedies in
I Chestnut Avenue, South San Francisco, Ca 29 December 7, 2012
addition to any other remedies now or later available to Landlord at law or in equity.
These remedies are not exclusive but instead are cumulative.
(a) Continue Lease. Landlord may continue this Lease in full force and
effect. In such case, so long as Landlord does not terminate Tenant's right to
possession, the Lease will continue in effect and Landlord shall have the right to
collect Rent when due, and may undertake efforts to relet the Premises, or any
part of them, to third parties for Tenant's account. Tenant shall be liable to
Landlord for all reasonable costs Landlord incurs in reletting the Premises
including, without limitation, broker's commissions, expenses of remodeling the
Premises required by the reletting, and like costs. Reletting can be for a period
shorter or longer than the remaining term of this Lease. Tenant shall pay to
Landlord the Rent due under this Lease on the date the Rent is due, less the Rent
Landlord receives from any reletting. No act by Landlord allowed by this section
shall terminate this Lease unless Landlord terminates Tenant's right to possession.
After an Event of Default and for as long as Landlord does not terminate Tenant's
right to possession of the Premises, if Tenant obtains Landlord's consent, Tenant
shall have the right to assign or sublet its interest in this Lease, but Tenant shall
not be released from liability.
(b) Terminate Lease. Landlord may terminate the Lease and Tenant's
right to possession of the Premises at any time following an Event of Default. No
act by Landlord other than giving written notice to Tenant shall terminate this
Lease. Acts of maintenance, efforts to relet the Premises or the appointment of a
receiver on Landlord's initiative to protect Landlord's interest under this Lease
shall not constitute a termination of Tenant's right to possession. On termination,
Landlord shall have the right to recover from Tenant all of the following:
(i) The worth, at the time of the award, of any unpaid Rent that had
been earned at the time of termination of this Lease;
(ii) The worth, at the time of the award, of the amount by which
the unpaid Rent that would have been earned after the date of termination
of this Lease until the time of the award exceeds the amount of the unpaid
Rent that Tenant proves could have been reasonably avoided;
(iii) The worth, at the time of the award, of the amount by which
the unpaid Rent for the balance of the Term after the time of the award
exceeds the amount of unpaid Rent that Tenant proves could have been
reasonably avoided;
(iv) Any other amount necessary to compensate Landlord for all
detriment proximately caused by Tenant's failure to perform obligations
under this Lease, including, without limitation, brokerage commissions,
advertising expenses, expenses of remodeling the Premises for a new
tenant, and any special concessions made to obtain a new tenant; and
I Chestnut Avenue, South San Francisco, Ca 29 December 7, 2012
(v) Any other amounts, in addition to or in lieu of those listed
above that may be permitted by law.
"The worth, at the time of the award" as used in clauses (i) and (ii) of this
Paragraph (b), is to be computed by allowing interest at the maximum rate
allowed by law at that time, or if there is no such maximum, at a rate of ten
percent (10 %) per annum. "The worth, at the time of the award," as referred to in
clause (iii) of this Paragraph (b) is to be computed by discounting the amount at
the discount rate of the Federal Reserve Bank of San Francisco at the time of the
award plus one percent (1 %).
(c) Receiver. Landlord shall have the right to have a receiver appointed to
collect Rent. Neither the filing of a petition for the appointment of a receiver nor
the appointment itself shall constitute an election by Landlord to terminate this
Lease.
16.3 Landlord's Default. Landlord's failure to perform any of its obligations
under this Lease shall constitute a Landlord Event of Default hereunder if the failure
continues for thirty (30) days after written notice of the failure from Tenant to Landlord.
If the required performance cannot be completed within thirty (30) days, Landlord's
failure to perform shall not constitute a Landlord Event of Default if Landlord undertakes
to cure the failure within such thirty (30) -day period and diligently and continuously
attempts to complete the cure as soon as reasonably possible. Tenant waives any right to
terminate this Lease and to vacate the Premises upon Landlord's default under this Lease.
Tenant's sole remedy on Landlord's default is an action for damages or injunctive or
declaratory relief.
ARTICLE XVII
TENANT IMPROVEMENTS; PARKING
17.1 Parking. Landlord hereby grants to Tenant an exclusive license and right
to use the parking area located on the Real Property for vehicular parking, such exclusive
license to be appurtenant to Tenant's leasehold estate created by this Lease. Tenant may
use up to one hundred forty -one (141) parking spaces in Landlord's surface parking lot.
There shall be no overnight parking of any vehicles, and vehicles which have been
parked in violation of the terms hereof may be towed away at the owner's expense.
Tenant shall not permit or allow any vehicles that belong to or are controlled by Tenant
or Tenant's employees, suppliers, shippers, customers or invitees to be loaded, unloaded,
or parked in areas other than those designated by Landlord for such activities.
17.2 Tenant Improvements; Tenant Improvement Allowance. Landlord shall
provide a Tenant Improvement Allowance in the amount of Five Hundred Thousand
Dollars ($500,000) as a Rent credit over the three -year Term. The Rent credit shall be
1 Chestnut Avenue, South San Francisco, Ca _30 December 7, 2012
deducted from the scheduled monthly Base Rent at a rate of Thirteen Thousand Eight
Hundred Eighty Nine Dollars ($13,889) per month. This allowance shall be used to
construct the Tenant Improvements as described in Exhibit B. The obligations of
Landlord and Tenant, with respect to the Tenant Improvements, including without
limitation Tenant's obligation to pay for such work and provide third -party invoices and
written evidence of Tenant's payment therefor, are set forth in the '% ork Letter attached
hereto as Exhibit B.
ARTICLE XVIII
MISCELLANEOUS
18.1 No Waiver. No receipt and retention by Landlord of any payment
tendered by Tenant in connection with this Lease shall constitute an accord and
satisfaction, or a compromise or other settlement, notwithstanding any accompanying
statement, instruction or other assertion to the contrary unless Landlord expressly agrees
to an accord and satisfaction, or a compromise or other settlement, in a separate writing
duly executed by Landlord. Landlord will be entitled to treat any such payments as being
received on account of any item or items of Rent, interest, expense or damage due in
connection herewith, in such amounts and in such order as Landlord may determine at its
sole option. Failure of either Parry to exercise any right in one or more instance shall not
be construed as a waiver of the right to strict performance or as an amendment to or
modification of this Lease. Any waiver of any condition or provision set forth in this
Lease shall not be deemed a waiver of any subsequent breach of such condition or
provision or of any other condition or provision, nor shall any such waiver be deemed a
continuing waiver.
18.2 Severabilit_y. The Parties intend this Lease to be legally valid and
enforceable in accordance with all of its terms to the fullest extent permitted by law. If
an arbitrator or a court of competent jurisdiction holds any provision hereof to be invalid
or unenforceable in whole or in part for any reason, the validity and enforceability of the
remaining clauses, or portions of them, shall not be affected unless an essential purpose
of this Lease would be defeated by loss of the invalid or unenforceable provision.
18.3 Governing Law; Construction. This Lease shall be construed according
to the laws of the State of California without regard to principles of conflict of laws. The
parties acknowledge that this Lease is the product of negotiation and compromise on the
part of both parties, and agree that the provisions hereof shall be construed in accordance
with their fair meaning and not in accordance with any rule providing for interpretation
against the party who causes the uncertainty to exist or against the drafter. The captions
used for the Sections and Articles of this Lease have been inserted for convenience only
and shall not be used to alter or interpret the content of this Lease.
18.4 Binding Effect; Survival. The covenants, conditions, warranties and
agreements contained in this Lease shall be binding upon and inure to the benefit of the
parties and their respective successors and permitted assigns. The representations and
I Chestnut Avenue, South San Francisco, Ca 11 December 7, 2012
warranties of Landlord and Tenant and the indemnification obligations of Landlord and
Tenant set forth herein shall survive the expiration or termination of this Lease as shall all
other provisions hereof which are intended to survive such expiration or termination.
18.5 Time. Time is of the essence of each provision of this Lease.
18.6 Entire Agreement; Amendments. This Lease and Exhibits A and B
attached hereto and incorporated herein by this reference, constitutes the final, complete,
and exclusive statement of the terms of the agreement between Landlord and Tenant
pertaining to the lease of Real Property, the Premises and space in the Building and
supersedes all prior and contemporaneous understandings or agreements of the parties.
This Lease may not be amended or modified except in a writing signed by both parties.
18.7 Notices. All notices delivered pursuant to this Lease shall be in writing
and delivered to Landlord or Tenant at the applicable addresses designated in Sections
1.1 and 1.3 or to such other address as may hereafter be designated by either Party by
written notice delivered to the other Party in accordance with this Section. Such notices
shall be effective upon receipt or refusal of delivery. Such notices shall be sent by (i)
United States mail, certified mail with return receipt requested, or (ii) overnight delivery
service.
18.8 Force Ma_jeure. Except as otherwise provided in this Lease, the time for
performance of an obligation other than the payment of money under this Lease shall be
extended for the period during which a Party is prevented from performing due to
Unavoidable Delay. "Unavoidable delay" shall mean any and all delay beyond the
applicable Party's reasonable control, including without limitation, delays caused by the
other Party; governmental restrictions, regulations, controls, preemptions or delays;
orders of civil, military or naval authorities; strikes, labor disputes, lock -outs, shortages
of labor or materials or reasonable substitutes therefore; Acts of God; fire, earthquake,
floods, explosions or other casualties; extreme weather conditions or other actions of the
elements; enemy action, civil commotion, riot or insurrection.
18.9 Attorneys' Fees; Prejudgment Interest. If the services of an attorney are
required by either Party to secure the performance hereof or otherwise upon the breach or
default of the other Party, or if any judicial remedy is necessary to enforce or interpret
any provision of this Lease, or if the services of an attorney are required upon the
bankruptcy of a Party to this Lease to compel or object to assumption or rejection of this
Lease, seek relief from the automatic stay or object to an action to recover a preference or
fraudulent transfer, the prevailing Party shall be entitled to reasonable attorneys' fees,
costs, expert witnesses fees, post judgment collection costs, and other expenses, in
addition to any other relief to which such Party may be entitled. Any award of damages
following judicial remedy as a result of the breach of this Lease or any of its provisions
shall include an award of prejudgment interest from the date of the breach at the
maximum amount of interest allowed by law.
I Chestnut Avenue, South San Francisco, Ca 32 December;-, 2012
18.10 Authority. Each Party warrants and represents that it has full authority to
enter into this Lease, that this Lease constitutes a binding obligation of such Party, and
that the individual(s) signing on behalf of such Party are duly authorized to bind such
Party hereto. In that regard, Landlord represents that title to the Real Property was
previously conveyed from the Redevelopment Agency of the City of South San
Francisco, a public body, corporate and politic, to the City of San Francisco, a municipal
corporation, prior to the dissolution of the Redevelopment Agency effective February 1,
2012. By operation of law, real property held by the former Redevelopment Agency is or
will be transferred to the Agency as successor in interest. The governing bodies of the
Agency and the City agree to take such actions as may be necessary to approve, affirm or
ratify this Lease.
18.11 Landlord Approvals. Whenever the consent or approval of Landlord is
required hereunder, such consent or approval may be granted or withheld by the Agency
Executive Director /City Manager or his or her designee, unless the Agency Executive
Director /City Manager determines in his or her discretion that such matter shall be
referred to the Agency /City governing board(s) for consideration.
18.12 Counterparts. This Lease may be executed in counterparts, each of which
shall constitute an original, and all of which together shall constitute one and the same
instrument. The signature page of any counterpart may be detached therefrom without
impairing the legal effect of the signature(s) thereon provided such signature page is
attached to any other counterpart identical thereto except having additional signature
pages executed by any other Party. This Lease shall take .effect when signed by all
Parties hereto and all Parties have written notice of the signature of all the remaining
Parties. The Parties agree that a signed copy of this Lease transmitted by one Party to the
other Party by facsimile transmission shall be binding upon the sending Party to the same
extent as if it had delivered a signed original of the Lease.
18.13 Brokers. Tenant and Landlord each represent and warrant to the other
that except as stated in this Section, no broker or agent is entitled to a broker's
commission or finder's fee in connection with the execution of this Lease or the
consummation of the transaction contemplated hereby, and each Party agrees to defend
and indemnify the other Party against any loss, expense or liability incurred by the other
Party as a result of a breach of such representation and warrant. The provisions of this
Section shall survive the expiration or earlier termination of the Lease and the Landlord
shall have no liability therefor. Without limiting the foregoing, Tenant's obligation to
defend and indemnify shall include defense and indemnification of Landlord with respect
to any claims, charges, finder's fees, commissions, costs or other liabilities claimed by
Victor M. Catanzaro and/or Wall Street Properties in connection with the execution of
this Lease or the consummation of the transaction contemplated hereby. The terms of this
Section shall survive the expiration of the earlier termination of this Lease.
18.14 Submission of Lease. Submission of this document for examination or
signature by the Parties does not constitute an option or offer to lease the Premises on the
terms in this document or a reservation of the Premises in favor of tenant. This document
I Chestnut Avenue, South San Francisco, Ca -3-1 December ?. 2012
is not effective as a lease or otherwise until executed and delivered by both Landlord and
Tenant.
18.15 Non - Agency. It is not the intention of Landlord or Tenant to create
hereby a relationship of principal and agent, and under no circumstances shall Tenant be
considered the agent of Landlord, it being the sole purpose and intent of the Parties to
create a relationship if landlord and tenant.
18.16 No Merger. The voluntary or other surrender of this Lease by Tenant or
a mutual cancellation thereof, or a termination by Landlord, shall not work a merger, and
shall at the option of Landlord terminate all or any existing subtenancies or may at the
option of Landlord, operate as an assignment to Landlord of any or all such subtenancies.
NOW THEREFORE, Landlord and Tenant have executed this Lease as of the date first
written above.
TENANT
LANDLORD
RED CART MARKET INC dba PET SUCCESSOR AGENCY TO THE
CLUB STORES, a California corporation REDEVELOPMENT AGENCY OF THE
M.
Print Name: Tom Lee
Title: Secretary
CITY OF SOUTH SAN FRANCISCO, a
public entity
Lo
Barry M. Nagel
Its: Executive Director
Attest:
Krista J. Martinelli, Secretary
Approved as to Form:
Steven T. Mattas, General Counsel
I Chestnut Avenue, South San Francisco, Ca 34 December 7, 2012
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EXHIETT B
WORK LETTER
This Work Letter ( "Work Letter ") shall be deemed a part of, and is hereby
incorporated into that certain Lease (the "Lease "), dated as of by and
between the Successor Agency to the Redevelopment Agency of the City of South San
Francisco, a public entity, ( "Landlord "), and Red Cart Market Inc. dba Pet Club Stores,
a California corporation ( "Tenant "). Capitalized terms used but not defined herein shall
have the meanings assigned thereto in the Lease.
1. Plans.
(a) Space Plan. John C. Lee, Tenant's designated space planner and architect
and/or Space Planner's sub - contractors, engineers or consultants, collectively ( "Space
Planner "), has prepared and delivered to Landlord a space plan for the Real Property and
the Premises showing the location of all partitions and doors and the lay -out of the
Premises, and a plan for all Tenant Improvements described in Section 17.2 of the
Lease).
Landlord shall timely review and approve the space plan for the Premises.
(b) Compliance With Laws. Tenant shall cause the construction of the
Tenant Improvements to be completed in accordance with all Applicable Laws.
(c) Construction Plans. The Tenant shall comply with the Planning
Division criteria for a "Complete Application," identified on the Planning Application.
Incomplete applications will not be accepted. If the Planning Division requires additional
information, the application process will be delayed. The completed application shall be
processed according to the established hearing schedule, which has been determined for
the entire calendar year of 2013. Within thirty (30) days after approval of the City's
planning entitlement, Tenant shall deliver a completed building permit application,
included completed plan sets and payment of the fees, to the City Building Division.
Tenant shall comply with the application criteria listed on the Department of Economic
and Community Development, Building Division Plan Submittal Requirements,
Residential and Commercial Projects. The foregoing process shall continue until the
Construction Plans are approved by the City and the Landlord.
Construction Plans shall be in accordance with Section 1.7, above which states;
"90 days after execution by both Parties following City /Successor Agency approval and
Successor Agency Oversight Board ( "Oversight Board ") adoption of a resolution, plus (a)
expiration of the statutory review period for the California Department of Finance
( "DOF ") pursuant to Health and Safety Code Section 34181 (h); or (b) expiration of the
statutory review period pursuant to Health and Safety Code Section 34181 (f), if so
extended by DOF; or (c) the date upon which DOF issues written approval of the
1 Chestnut Avenue, South San Francisco, Ca 2 November 2 i, 2012
Oversight Board action. Issuance of City entitlements and building permits shall also be a
condition of Commencement. Tenant shall cause a complete City permit application
together with required site plan, floor plan, elevation drawings, grading and drainage
plans, landscaping plan, signage and lighting plans, and other pertinent exhibits and
payment of the fees be submitted to the City Planning Division within ten (10) business
days from Oversight Board approval of the Lease."
(d) Change Orders. Tenant may request changes in the final Construction
Plans and drawings consisting of non - structural additions, deletions, value engineering
items or other revisions to the Tenant Improvements and extensions of the progress
schedule, which such changes shall be subject to Landlord's prior written approval, which
approval Landlord shall not unreasonably withhold or delayed for non - structural interior
changes reasonably requested by Tenant. Within five business (5) days following
Tenant's change request, Landlord shall approve or disapprove such change request, and
if approved, the Parties will evidence agreement to such changes by signing change orders
(each a "Change Order "). Following Landlord's written approval of a Change Order,
Tenant shall diligently prosecute the changes in accordance with the requirements of that
Change Order.
3. Construction and Costs of Tenant Improvements:
(a) Construction Obligation and Construction Allowance. Promptly
following Landlord's approval of the Construction Plans, Tenant shall construct the
Tenant Improvements in a. good and workmanlike manner in accordance with the
Construction Plans and all Applicable Laws, using Tenant's designated personnel and a
contractor or contractors reasonably approved in writing by Landlord before the
commencement of construction (such contractor or contractors are collectively referred to
herein as "Tenant's Contractor ", whether one or more). The cost of the construction of
the Tenant Improvements, including the cost of preparing the Space Plan and the
Construction Plans, shall be at Tenant's expense; provided, however, subject to the
limitations set forth in this Section, Landlord shall reimburse Tenant for costs actually
incurred by Tenant in constructing the foregoing upon submission of invoices and lien
waivers reasonably requested by Landlord. Landlord's obligation to reimburse Tenant for
Tenant Improvements shall not exceed a total of Thirteen Thousand Eight Hundred
Eighty Nine Dollars ($13,889) per month during the Lease Term of thirty-six (36) months
(the "Construction Allowance "). In the event the cost of the Tenant Improvements
exceeds the Construction Allowance, such overage shall be borne exclusively by Tenant.
Landlord makes no representation or warranty whatsoever as to the total cost of the
Tenant Improvements, and Tenant acknowledges that the cost of the Tenant
Improvements may exceed the Construction Allowance. The cost of the Tenant
Improvements shall include all architectural, space planning and engineering fees, costs of
compliance with Applicable Law and any and all licensing or permit fees and the cost of
Tenant's designated personnel to secure and prepare the Real Property for Tenant's Use
and Occupancy. The Construction Allowance shall be used solely for: (i) the sum paid to
Tenant's Contractor for construction of the Tenant Improvements (the "Contract Sum ");
(ii) the payment of architectural, design, consultant, space planning, and/or engineering
1 Chestnut Avenue, South San Francisco, Ca 3 November 27, 2012
fees; (iii) the payment of any and all costs of Tenant's designated employees and/or
independent contractors to secure and prepare the Real Property for Tenant's use and
occupancy; (iv) the payment of any and all costs associated with Tenant's acquisition of
any and all necessary or convenient fixtures in or about the Real Property (whether
temporary or permanent); and/or (v) the payment of any and all licensing or permit fees
related to the Tenant Improvements (collectively, the "Permitted Costs ").
(b) Payment. Subject to the following requirements, Landlord shall make
progress payments to Tenant as Tenant's Contractor completes the Tenant Improvements
in accordance with the Construction Plans. Requests for such disbursements shall be
made on the AIA application for payment and such disbursements shall be made no more
often than once per thirty (30) days.
(Landlord shall make disbursements to Tenant up to the amount of the Construction
Allowance provided all of the following conditions shall have been met according to
Landlord's reasonable satisfaction: (1) Landlord shall have received executed lien
releases for all work completed as of the date of payment; (2) Landlord shall have
received copies of third -party invoices for Tenant Improvements completed and written
evidence reasonably satisfactory to Landlord of Tenant's payment of same; and (3) all
work completed as of the date of payment shall have been, in Landlord's judgment,
completed in a good and workmanlike manner following inspection by Landlord of such
work. Tenant shall notify Landlord fifteen (15) days prior to the anticipated date of
substantial completion of the Tenant Improvements, at which time Landlord and Tenant
shall arrange for Landlord's inspection thereof. Following such inspection Landlord shall
have the option to cause an additional punch list to be prepared ( "Landlord's Punch
List ") setting forth those items that are not completed and/or that Landlord desires to be
corrected. Tenant shall cause Tenant's Contractor to complete and/or remedy the items
set forth in Landlord's Punch list within thirty (30) days after the delivery of Landlord's
Punch List.
(c) Excess Costs. If the total Permitted Costs for the Tenant Improvements or
exceeds the Construction Allowance, then Tenant, at its sole cost and expense, shall pay
all such excess costs ( "Excess Costs ") to the appropriate party and contractor(s).
Landlord makes no representation or warranty whatsoever as to the total costs of the
Tenant Improvements and Tenant acknowledges that the costs thereof may exceed the
Construction Allowance.
(d) Liens Arising from Excess Costs. Tenant agrees to keep the Premises
and the Building free from liens arising out of any construction performed by Tenant
pursuant to this Work Letter or the Lease. In the event that any such lien is filed, Tenant
shall immediately cause the same to be released of record, and if within fifteen (15) days
following such filing Tenant fails to cause the same to be released of record by payment
or posting of a proper bond, Landlord shall have, in addition to all other remedies
provided herein, in the Lease, or under law, the right, but not the obligation, to cause the
same to be released by such means as it in its sole discretion deems proper, including
payment of or defense against the claim giving rise to such lien. All sums paid by
I Chestnut Avenue, South San Francisco, Ca 4 November 2°, 2012
Landlord in connection therewith shall constitute Rent under the Lease and a demand
obligation of Tenant to Landlord, and such obligation shall bear interest at the rate of ten
percent (10 %) per annum from the date of payment by Landlord until the date paid by
Tenant.
5. Insurance. On or before the commencement of construction of the Tenant
Improvements, Tenant, at Tenant's sole cost and expense, shall obtain and thereafter
maintain, all insurance required by Section 9.2 of the Lease, in the form required
pursuant to the Lease. In addition to such insurance, Tenant's Contractor, at its sole cost
and expense (and not as a Permitted Cost unless part of the Contract Sum), shall obtain
and maintain commercial general liability insurance coverage, builder's risk insurance,
and workmen's compensation insurance, all in amounts and with companies and on
forms as Landlord may consider reasonable or appropriate for its protection. Such
liability insurance shall name the Indemnitees as additional insureds, and the builder's
risk insurance shall name Tenant, Landlord and Landlord's mortgagee (if any) as loss
payee. Tenant shall deliver to Landlord evidence of such insurance, including duplicate
copies of such insurance policies if requested by Landlord, prior to the commencement of
construction of the Tenant Improvements.
6. Indemnity. Tenant does hereby assume all risk of loss or damage to its
machinery, equipment, fixtures, and other personal property and agrees to indemnify,
defend (with counsel reasonably acceptable to Landlord), and hold the Indemnitees
harmless from all Claims relating to loss or damage to such property, and all Claims
relating to or arising from any injury to the property of Landlord, and any death or
personal injury to any person or persons arising out of Tenant's and/or Tenant's
Contractor's construction work in or about the Premises or the Building (except to the
extent arising from the gross negligence or willful misconduct of Landlord or its agents).
7. Construction Representatives. Landlord's and Tenant's representatives
for coordination of construction and approval of plans, improvement inspections,
progress payments (Construction Allowance), and change orders will be as follows,
provided that either Party may change their respective representative upon three (3) days'
written notice to the other:
Landlord's Representative: Michael Lappen
400 Grand Avenue
South San Francisco, Ca 94080
Tenant's Representative
mike.lappen @ssf.net
John C. Lee Architects
711 San Miguel Lane
Foster City, Ca 94404
archjcl @gmail.com
tel. 650- 829 -6690
tel. 650- 345 -6663
1 Chestnut Avenue, South San Francisco, Ca 5 November 27, 2012
8. "As Built" Plans. Within thirty (30) days after completion of the Tenant
Improvements, Tenant shall deliver to Landlord two (2) copies of "as built" drawings and
plans therefor, together with a CAD disk containing electronic versions of such drawings
and plans.
a
Consent as to General Contractor. Landlord hereby consents to
_ as the general contractor for the construction of the Tenant Improvements.
NOW THEREFORE, Landlord and Tenant have executed this Work Letter as of
the date first written above.
TENANT
LANDLORD
RED CART MARKETING INC, dba PET SUCCESSOR AGENCY TO THE
CLUB STORES, a California corporation REDEVELOPMENT AGENCY OF THE
CITY OF SOUTH SAN FRANCISCO, a
public entity
Print Name: Tom Lee
Title: Secretary
2011044.1
UA
Barry M. Nagel
Its: Executive Director
Attest:
Krista J. Martinelli, Secretary
Approved as to Form:
Steven T. Mattas, General Counsel
1 Chestnut Avenue, South San Francisco, Ca 6 November 27, 2012
October 3, 2012
City of South San Francisco, et al
c/o Michael Lappen
Economic Development Department
400 Grand Avenue
South San Francisco, Ca 94080
re: Amended lease proposal - Pet Club
Chestnut Avenue, South San Francisco, Ca
Dear Michael,
• r 17.L!rJ IJTR L' 1
PROPERTIES
Commercial Real Estate
via email delivery
mike.lappen@ss£ net
In reply to the lease proposal submitted by Pet Club on August 17, 2012 the City provided a response on
September 26, 2012. Pet Club reviewed the City Proposal and unless addressed below the deal points of the
9/26 /12City letter are acceptable to Pet CIub and are incorporated herein.
In review, Pet Club commenced business in South San Francisco in 1997 and in the most recent year ending
(2011) generated sales tax in excess of $544,000 to the State. The City directly realized approximately $65,400
or $5,450 per month from the sales tax revenue which should be considered as additional rent payable by Pet
Club. The base rent offered is $35,890.00 monthly (before TI / Set Up Allowance), a blended base rental rate of
$1.35 / sf/mo ($16.25 annually) NNN, but as previously mentioned rent for the upper mezzanine space should be
either disregarded altogether or reduced significantly, or both. Assuming little or no value to the mezzanine
space the effective rent for the ground level space is approximately $1.67 /sf/mo ($20.00) the higher rent range
of retail space.
It should be noted that with the sales tax revenue ($5,450/mo), the effective base rent is approximately
$41,430.00 monthly to the City and/or beneficiary agencies. A lease with Pet Club will generate approximately
$808,012.00 (544,000 + [35,890- 13,889= 22,00W2= $264,0121 = 808,012) annually ($67,334 monthly)
payable to the State, City and beneficiary agencies or $2,424,036 over the three (3) year term,
In consideration of the foregoing and other matters discussed to date we submit the following for consideration
and reflected in the Lease Agreement;
BASE RENT: The base rental rate shall be $35,890.00 per month payable for the lease period beginning at
rent commencement (subject to Tenant Improvement / Set -up Allowance, below) and
continuing each month for thirty -six (36) months.
TENANT EIPROVEMENT / SET UP AND FIXTURIZE ALLOWANCE: The Tenant Improvement / Set
Up and Fixturize Allowance (TI Allowance) shall be $500,000 in the form of rent credit.
The rent credit shall be deducted from the scheduled monthly rent at a rate of $13,889.00
per month. (500,000 / 36 = 13,889/mo).
COMMENCEMENT: Occupancy Commencement: The earlier of; (a) Ninety (90) days from full
execution of the Lease Agreement following City Council Approval, or (b) forty-six (46)
days from OSB resolution, whichever is the earlier to occur, but not later than December
31, 2012.
922 S. Claremont Street, San Mateo, CA 94402 telephone (650) 401 -8500 facsimile (650) 401 -8510
City of South San Francisco, et al
c% Michael Lappen
re: Amended lease proposal - Pet Club
1 Chestnut Avenue.
October 3, 2012
page 2 of 4
Rent Commencement: Rent shall commence Ninety (90) days from issuance of
city building permits. Tenant shall make application for building permits; (i) within
forty -five (45) days of approval of the OSB by resolution, or (ii) within thirty (30) days
after City Council execution of the lease, whichever is the later to occur.
ENTITLEMENT & PERMITS / EARLY POSSESSION: Provided Tenant has deposited with Landlord
the security deposit and the first month rent together with evidence of Insurance, and
provided such early occupancy does not interfere with Landlord's work or current tenant's
(PG&E occupancy), Tenant shall be granted occupancy concurrent with lease execution for
purposes of installing Tenant's designated trade fixtures and other necessary improvements
and time for tenant to prepare improvement plans and obtain necessary permits.
Notwithstanding the foregoing early possession will not occur before the OSB & DOF
approves the lease which is anticipated to be no more than 45 days following OSB approval
by resolution.
iSIT: Upon execution of the lease Tenant shall pay to Landlord a security deposit in
the amount of THIRTY FIVE THOUSAND EIGHT HUNDRED NINETY ($35,890.00)
Dollars.
RENEWAL OPTION: Landlord shall inform Tenant in writing when the Property is offered for sale
and when the Property is sold.
LANDLORD'S WARRANTEE: Landlord represents to Tenant that no known hazardous substances or
conditions presently exist on, in or under the premises and further warrants the Premises is
not the generator or producer of any known hazardous substances nor contributed to or
contaminated any adjoining property and further warrants that in the event any such
hazardous substance or condition is discovered by Tenant after the date of occupancy that
Landlord will correct such condition in a timely manner at the sole cost and expense of
Landlord.
CONDITION OF PROPERTY: In addition, the premises shall be delivered to Tenant with electrical in
good working order and the roof in a water tight condition.
SIGNS: Tenant shall have the right to install a sixty (60) foot channel letter "Pet Club" sign at the
location designated by Tenant.
Please contact me to discuss any issue raised in this proposal or other issues you feel might need to be
addressed. Your consideration and acceptance of this amended offer to lease the Property is appreciated. I look
forward to working with you to conclude this element of our transaction.
You can reach me at telephone 650 -401 -8500 or 650 -520 -5559.
Very truly yours,
all Stree perties
Victor M. Catanzaro
DRE 00531029 President
922 S. Claremont Street, San Mateo, CA 94402 telephone (650) 401 -8500 facsimile (650) 401 -8510
October 9, 2012
City of South San Francisco
c/o Michael Lappen
Economic Development Department
400 Grand Avenue
South San Francisco, Ca 94080
re: lease — amended proposal - Pet Club - comparables
1 Chestnut Avenue, South San Francisco, Ca
Dear Michael,
WAIL STREET
PROPERTIES
Commercial Real Estate
via email delivery
mike.lappen @ssfnet
Last week I presented many rent comparables and other supporting documentation to you and
Armando in comparison to 1 Chestnut. The information was obtained from Kidder Mathews Real
Estate, CBRE Real Estate, Metrovation Brokerage and The Bembe Company, all independent
sources, to supplement my email correspondence with Don Krieger of Terranomics of September
27, 2012. Both Don Krieger and Christine Firstenberg (Metrovation) conclude it very unlikely a
major tenant would lease retail space of 20,000sf or more for less than 10 years and tenants leasing
over 20,000sf normally require options to extend the initial 10 year period. Both Don and Christine
state it is quite common for the Landlord to deliver the property in a clean shell (vanilla shell) and
provide a tenant improvement allowance.
The tenant improvement allowance provided by landlord (landlord pay in advance of occupancy or
credit tenant) cited in the Kidder/Mathews 14 property comparables is between $28.28 to $30.00
per square foot leased, or full "Turnkey" improvements. Turnkey being space improved by and at
the expense of the landlord to tenant specifications before delivery of the property to tenant.
The majority lease period of the 14 comparables is 10 years, a couple with 20 or 25 year periods.
The comparables do not reflect options, but it is most typical for retail leases of this size (20,000sf
or more) to include not less than two (2) five (5) year options to extend the lease. Of the 14 IK/M
comparables 9 are listed at $1.58 /sf/m, or less, only two of the nine are at $1.58, the other seven (7)
are at $1.50 /sf/m or less and the majority include @ $30.00 /sf tenant improvement allowance or full
turnkey tenant specified improvements.
Similar to the K/M comparables, the minimum initial lease term stated in the CBRE comparables is
ten (l 0) years. This minimal lease period is affirmed by Don Krieger and Christine Firstenberg. The
Berube Company offers 470 Noor Ave, SSF, a 22,000sf space at the asking rate of $2.00 /sf/m, term
of 5 years, plus options but it is unlikely major tenants would lease the space for less than 10 years.
The 470 Noor Ave landlord will deliver the space in a clean vanilla shell at occupancy, provide
tenant improvement allowance and allow tenant time to install tenant improvements and fixtures.
Email correspondence with Mike Berube discusses tenant improvement allowance and a longer
lease period, both requirements for anchor tenants. The Noor property is in close proximity to easy
freeway access (HWY 380) and Tanforan, a regional shopping center.
922 so. Claremont sttwt, San Mateo, CA 94402 -1834 telephone 650.401.8500 facsimile 650.401.8510
City of South San Francisco October 9, 2012
c/o Michael Lappen page 2 of 2
re: lease — amended proposal - Pet Club - comparables
1 Chestnut Avenue, South San Francisco, Ca
We include with this letter;
1. Email correspondence with Don Krieger of Terranomics — 9- 27 -12. (separate delivery)
2. Letter from Christine Firstenberg of Metrovation- 10 -1 -12.
3. Kidder Mathews —14 comparables — 4 pages — 10 -2 -12.
4. Email from James Gaglione — Kidder Mathews — re: comp #10 & #12 — 10 -5 -12.
5. Email from James Gaglione — Bidder Mathews — re: Dollar Tree — 9- 28 -12.
6. CBRE — 5 comparables — 5 pages.
7. The Berube Company — 470 Noor Ave. comparable w/ email 10 -4 -12.
The documentation previously submitted or accompanying this letter is provided on behalf of Pet
Club and with the understanding that all individual writings are privileged and should only be
distributed to necessary parties and unless stated otherwise are to remain confidential.
The Pet Club offers base rent of $35,890.00 monthly (before T1 / Set Up Allowance), a blended base rental
rate of $1.35 /sf/mo ($16.25 annually) NNN. Assuming little or no value to the mezzanine space the effective
rent for the ground level space is approximately $1.67 /sf /mo ($20.00 annually) the higher rent range of retail
space. Additionally, approximately $65,400 or $5,450 per month from the sales tax revenue should be
considered as additional rent payable by Pet Club, adjusting the effective rent to $41,340.00 1month
($1.56 /sf/mo on entire building area or $1.92/sf/mo on ground floor only space).
As stated in Pet Club's proposal, a lease with Pet Club will generate approximately $808,012.00 (544,000 +
[35,890- 13,889 = 22,001x12= $264,012] = 808,012) annually ($67,334 monthly) payable to the State, City
and beneficiary agencies or $2,424,036 over the three (3) year term.
The Pet Club lease proposal of 10 -3 -12 for 1 Chestnut offers a higher rent, nominal tenant
improvement allowance (paid by tenant not landlord, but recaptured) and a short lease (3 years), a
combined proposal that is more favorable than most of the comparable properties and easily
supported by the documentation provided. Upon review we trust you will conclude the rent and
other considerations offered by Pet Club are more than fair and equitable for 1 Chestnut.
Please call to discuss should you have questions with the foregoing or any attachment. You can
reach me at telephone 650 -401 -8500 or 650 -520 -5559
DRE 00531029
Cc: Mr. Tom Lee, Pet Club
Very truly yours,
Wall
Victor M. Catanzaro
President
922 So. Claremont Street, San Mateo, CA 94402 -1834 telephone 650.401.8500 facsimile 650.401.8510