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HomeMy WebLinkAbout11 RENTAL AGREEMENT 15171 DEL AMOENDA REPORT Agenda Item 11 A G Reviewed: City Manager Finance Director MEETING DATE: NOVEMBER 15, 2011 TO: WILLIAM A. HUSTON, INTERIM CITY MANAGER FROM: CHRISTINE SHINGLETON, ASSISTANT CITY MANAGER SUBJECT: RENTAL AGREEMENT BETWEEN THE CITY OF TUSTIN AND NATIONAL OFFICE LIQUIDATORS FOR A PORTION OF THE BUILDING LOCATED AT 15171 DEL AMO AVENUE SUMMARY Approval is requested for amonth-to-month Rental Agreement between the City and National Office Liquidators, Inc. (Tenant), for aCity-owned property located at 15171 Del Amo Avenue. RECOMMENDATION It is recommended that the City Council authorize the Assistant City Manager to execute the attached month-to-month Rental Agreement with National Office Liquidators, Inc. and support the finding that the month-to-month Rental Agreement is at market value and no further policy directions, as outlined in Tustin City Code Section 7960(B), are required. FISCAL IMPACT The Rental Agreement requires the Tenant pay rent in an amount of $4,900 on a month- to-month term fora 14,000 square foot portion of the subject building. The property is being marketed "as is" on a short term or month-to-month basis and the rental rate is competitive within the market area with rents for similar properties offering limited lease terms. Under the terms of a month-to-month Rental Agreement, rent proceeds available to the City General Fund will be $4,900 per month, minus the initial broker commission of $2,450 which is divided between the City's listing agent and the tenant's agent. The City has also terminated the property management services previously provided at 15171 Del Amo Avenue at a savings of $500 per month. BACKGROUND The City owns property at 15171 Del Amo Avenue, as part of a larger acquisition associated with the new construction of an on-ramp and an off-ramp providing access to and from State Agenda Report Rental Agreement November 15, 2011 Page 2 Route 55 to Newport Avenue and Edinger Avenue. While the building was occupied and rented when the City obtained possession of the property, it has subsequently been vacated. Rather than demolishing the building and associated parking improvements at a cost to the City, it was determined that rental of the premises in the existing condition would provide interim rental revenue until such time as the City develops a comprehensive strategy for marketing the property, market conditions warrant new development, and the City is able to obtain an adequate financial return for its original acquisition expenses. In January 2011, the City entered into a brokerage agreement with Lee & Associates to seek tenants for the building as a light industrial use, distribution use, or warehouse use (the legal non-conforming uses currently authorized on the property). On March 15, 2011, the City Council authorized the Assistant City Manager to execute a Rental Agreement with National Office Liquidators (NOL) to rent approximately one-third of the building or 28,000 square feet of the existing 85,000 square foot building. The lease became effective June 1, 2011 and the base term is 18 months. The negotiated rent rate is $.35 per square foot ($9,800 per month) and the premises are rented on a triple-net basis, meaning the Tenant pays all real estate taxes, insurance, maintenance, repairs, utilities and other items associated with tenancy. NOL has submitted a proposal to rent approximately 14,000 square feet of space directly adjacent to its current space under the terms of a month-to-month Rental Agreement. The negotiated rent rate is proposed at $.35 per square foot ($4,900 per month) and the premises would be rented on a triple-net basis. In order to create a 14,000 square foot area, the Tenant will be responsible for installing a chain link fence down the middle of the 28,000 square foot mid-section of the building. The Tenant will also be responsible for any additional capital expenses, including tenant improvements and repairs to the facility, and will accept the property in its "AS-IS WHERE-IS" condition. Tustin City Code (TCC) Section 7960, as enacted by Ordinance No. 1389, outlines the process City and Redevelopment Agency staff must follow for the approval, extension or modification of any existing City or Redevelopment Agency real property lease for less than market value. In the event a lease is less than market value, then staff must seek policy direction from the City Council as outlined in TCC Section 7960(B). Staff, in working with Lee & Associates, has reviewed comparables to confirm current asking rates for dead storage type spaces are in the same market range as the Del Amo building and the proposed Rental Agreement is not for less than market value. Four properties are currently advertised at a gross rental range of 38 to 59 cents per square foot. The proposed rental rate for the Del Amo building is 35 cents per square foot net. Net is typically 5 to 10 cents a square foot less than a gross rental rate. The 35 cents square foot rental rate is, therefore, a fair comparable since the City does not cover any Agenda Report Rental Agreement November 15, 2011 Page 3 tenant expenses. Additionally, the Del Amo building is leased on an "as is" basis only and is limited to a month to month term, with no guarantee to the tenant of a longer term occupancy (as normal rental rates are usually based on a three to five year initial term). In view of the fact that the City is keeping the transactions shorter and leasing the subject building only on an "as is" basis, staff and Lee & Associates have determined and concur that the proposed rental rate is at market value. As a result, the proposed month-to-month Rental Agreement does not trigger further actions as outlined in TCC Section 7960(8). The City, under the proposed Agreement, shall reserve the right to terminate the month-to- month tenancy by giving the Tenant a written thirty (30) day Notice of Termination. Upon execution of the Agreement, the Tenant shall be required to pay a security deposit the equivalent to one month's rent and the first month's rent. Should you have any questions, staff will be available to respond. Christine A. Shinglet Assistant City Manager Attachment: Rental Agreement Attachment Month to Month Rental Agreement MONTH TO MONTH RENTAL AGREEMENT BETWEEN THE CITY OF TUSTIN AND NATIONAL OFFICE LIQUIDATORS 1. PARTIES: The parties to this month-to-month Rental Agreement are the City of Tustin, a municipal corporation ("City"), and National Office Liquidators, LLC, an Arizona limited liability company ("Tenant"). 2. RECITALS: This Rental Agreement is made with reference to the following facts: (a) The City owns the property commonly known as 15171 Del Amo Avenue, Tustin, CA 92780 ("Subject Property") for a planned redevelopment project (the "Project"). (b) Since Tenant chooses to occupy a portion of the Subject Property as a new tenant, Tenant understands it will not be eligible for relocation payments or assistance under the California Relocation Assistance and Real Property Acquisition Guidelines, Title 25, California Code of Regulations, Chapter 6, Section 6000 et seq. (the "Guidelines"). (c) Tenant has a desire to rent an approximate 14,000 square feet portion of the Subject Property and occupy a portion of the Subject Premises for the purpose of distribution and/or warehousing use only. Any other use of the Premises will constitute a breach of this contract and may result in an eviction. (d) By this Rental Agreement, the parties intend to establish alandlord/tenant relationship between themselves and to specify the rights and duties of the respective parties with reference to the Premises. 3. PREMISES: City does hereby rent to Tenant and Tenant hereby rents from City that a portion of certain real property situated in the City of Tustin, County of Orange, State of California, commonly known as 15171 Del Amo Avenue. The portion of the Subject Property to be rented includes an approximately 14,000 square foot portion of the building located at 15171 Del Amo, and to have a common right to utilize the adjacent parking lot on the Subject Property, as such portion of the buildings as shown on Exhibit "A" and as is collectively referred to as the "Premises" 4. TERM: The term of this Rental Agreement shall be month-to-month, commencing on 2011 (hereinafter "Commencement Date"). The City may terminate the tenancy or modify the terms of this Rental Agreement by giving a thirty (30) days notice to Tenant. Tenant agrees to vacate the Premises upon receiving a 30 days notice from the City to terminate at any time. 5. RENT: For Purposes of this Rental Agreement, Base Rent and Cost Reimbursements are hereinafter collectively referred to as Rent. 5.1 Base Rent. Tenant shall pay the City the monthly sum of Four Thousand Nine Hundred and no dollars ($4,900) payable in advance, commencing on the Commencement Date and each subsequent month during the term of this Rental Agreement. If the Commencement Date is other than the first day of a calendar month, the rent payable hereunder shall be prorated by the City on the basis of a thirty (30) day month. Make checks payable to: The City of Tustin. 5.2 Cost Reimbursements. All sums payable by Tenant to City under this Rental Agreement not otherwise required for Base Rent shall be deemed a Cost Reimbursement ("Cost Reimbursement"), including any special costs incurred by City, which are specifically attributable to an action (or inaction) of Tenant including without limitation Tenant's failure to provide the protection and maintenance services required by Section 6 herein. The City will notify the Tenant of such costs on a monthly basis and Tenant will be obligated to pay City within thirty (30) calendar days of the date of an invoice for such costs. 5.3 Place of Payment. All payments due and owing shall be made by Tenant, delivered to: City of Tustin, 300 Centennial Way, Tustin, CA 92780, Attn: Assistant City Manager - 15171 Del Amo Avenue. 5.4 Late Charge. If payment of or any part thereof to be made by Tenant to City become overdue for a period in excess of ten (10) calendar days, a late charge equal to ten (10) percent of such overdue amount shall be paid by Tenant for purposes of defraying the expense incidental to handling such delinquent payment. Pursuant to California law, if Tenant passes a check on insufficient funds, Tenant will be liable to the City for the amount of the check plus a service charge of $55.00 for the first check passed on insufficient funds, and $55.00 for each subsequent check passed on insufficient funds. City may require future payments to be in a form other than a personal check in the event of a returned check, at City's sole discretion. 5.5 No City Responsibilities. The Tenant hereby acknowledges and agrees that this Rental Agreement is intended to be a month to month rental agreement, as such City is not responsible for any costs, charges, expenses, outlays or any nature whatsoever arising from or relating to the Premises, or the use or occupancy thereof, of the contents thereof or the business carried on therein, and that Tenant shall pay all charges, impositions, costs and expenses of every nature and kind related to the Premises, including costs of maintenance and repair of the Premises, all costs of insuring the Premises, and all taxes and assessments attributable to the Premises and which might be associated with the possessory interest of said Rental Agreement and personal property of the Tenant. 5.6 Security Deposit. Tenant shall provide a security deposit to City of $4,900 prior to occupying said premises which shall be refundable upon termination of the Rental Agreement provided that the Premises is returned to the City upon termination in the condition in which it was first received. No part of this deposit is to be considered an advance payment of rent, including last month's rent, nor is it to be used or refunded prior to the leased premises being permanently and totally vacated by the Tenant. 6. PROTECTION, MAINTENANCE, AND REPAIRS: City will not make any modifications, alterations, improvements or repairs to the Premises of any nature whatsoever and the Premises is rented to Tenant in an As-Is, Where Is, With ALL Faults basis, in its present state and condition with all faults. Tenant acknowledges that the City has made no representations or warranties of any kind whatsoever, either express or implied in connection with any matters with respect to the Premises, or any portion thereof. Tenant shall be allowed no credit by the City for costs of any repair work performed or ordered by Tenant to the Premises. Tenant shall, at Tenant's own expense, maintain and repair the Premises in good order and condition as the same were on commencement date. The degree of such maintenance and repair to be furnished by Tenant shall be that which is sufficient to maintain weather tightness, structural stability, protection from fire hazards, elimination of safety and health hazards which may arise during the term of this Rental Agreement. The City, upon due notice, may inspect the Premises to insure performance of the maintenance required. Further, Tenant shall be responsible for the repair and maintenance of all interior utility systems and those exterior utility systems, distribution lines, connections and equipment which support the Premises. 6.1. Security and Fire Protection. Tenant shall provide for all security and safety within the Premises. 7. ALTERATIONS: In order to occupy the portion of the building at the Subject Property identified as the Premises as shown on Exhibit "A" (a 14,000 square feet portion of a 28,000 square foot mid-section of the Subject Property), the Tenant will demise the 28,000 square foot by installing a chain link fence. The Tenant will work with the City on obtaining the proper building division approvals and in the actual location of the divising chain link fence. Beyond demising the current mid-section portion of the building to create the Premises to be leased by the Tenant, Tenant shall make no alterations or additions in or to the Premises, nor contract for any alterations or additions without written approval of the City. 8. WAIVERS: 8.1 Waiver of Claims. Neither the City of Tustin or the Tustin Community Redevelopment Agency ("Agency") nor any of their officers, agents, representatives and employees will be liable and Tenant waives all claims for damage to persons or property sustained by Tenant or any occupant of the Premises resulting from the Premises or any part of it, becoming out of repair, resulting from any accident in or about the Premises or resulting directly or indirectly from any act or neglect of Tenant, occupant or of any other person including Tenant's agents and employees. All property belonging to Tenant or any occupant of the Premises will be there at the risk of Tenant or such other person only and City will not be liable for damages, theft or misappropriation. 8.2 Relocation and Compensation waivers. Tenant by signing this Rental Agreement is waiving any and all rights of any kind or amount for relocation benefits including but not limited to any such or similar rights prescribed by any state, federal or local law and/or regulation and waiving any and all rights to just compensation under U.S. and California 3 constitutions, and agreeing and acknowledging that they waive any rights to payments for Loss of Goodwill. 8.3 No Waivers. The failure or omission of City to terminate this tenancy for any violation of any of its terms, conditions or covenants, shall not be deemed to be a consent by City to such violation and shall not bar, stop or prevent City from terminating this Agreement thereafter, either for such or for any subsequent violation of any such term condition or covenant. The acceptance of rent under this Agreement shall not be or be construed to be a waiver of any breach of any term covenant or condition of this Agreement. Nothing contained in this Agreement shall be construed as limiting City from performing all acts required by City in connection with the relocation of occupants of the Premises, or taking such steps as it may deem necessary to remove occupants of the Premises at any time. 9. CLEANLINESS AND WASTE: Tenant will keep the Premises and the walks/alley adjacent to it at all times in a neat, clean and sanitary condition, free from waste or debris and will neither commit nor permit any waste or nuisance on the Premises nor store materials hazardous to health or safety. Debris, trash, and other used materials shall be promptly removed from the Premises and the Premises shall be kept reasonably clean and free of unused materials at all times. At termination, the Premises shall be left without containers, tenant's equipment, and other undesirable materials, and in an acceptably clean condition. 10. VACATION OF PREMISES: Tenant will give the City immediate notice of his/her intention to move or vacate the Premises, and on that vacation agrees to leave same in good condition, clear of all debris, hazardous materials and personal property. 1 1. DAMAGE TO PREMISES: Any damage to the Premises in excess of above ordinary and normal usage may be charged to the Tenant. 12. NUISANCE AND WASTE: Tenant shall not commit, suffer or permit any nuisance or waste in or about the Premises, and shall not permit the use of the Premises for any illegal or immoral purpose. Tenant further agrees to comply with all State and Federal laws and local ordinances concerning the Premises and the use of the Premises. 13. INSPECTION BY AGENCY: City by and through its employees or agents, shall have the right to enter upon the Premises at all reasonable times during the term of this tenancy for the purpose of inspecting the same, making such repairs as City may deem desirable, and conducting any investigation, study or remediation activity the City may deem desirable upon providing Tenant with reasonable advance notice, whenever practicable. 14. PERSONAL PROPERTY LEFT ON PREMISES: City shall have the right, WITHOUT NOTICE, to sell, destroy or otherwise dispose of any personal property left on the Premises by Tenant after he/she has vacated or abandoned the Premises, or when this tenancy has been terminated, or when Tenant may be evicted from the Premises. 15. DEFAULT AND TERMINATION UPON DEFAULT: 15.1 Events of Default. The following events shall constitute events of default under this rental agreement: (a) A default by Tenant in payment when due of any rent or other sum payable under this Agreement and the continuation of this default for five (5) or more days after notice of the default by the City. (b) A default by Tenant in the performance of any of the terms, covenants, or conditions of the Agreement, other than a default by Tenant in the rent payment, and the continuation of the default beyond fifteen (15) days after notice by City, or if the default is curable and would require more than fifteen days, then such reasonable time to cure as authorized by the City. (c) The bankruptcy or insolvency of Tenant. (d) The appointment of a receiver for a substantial part of Tenant's assets. (e) Tenant's abandonment of the Premises. (f) The levy upon this Rental Agreement by attachment or execution and the failure to have the attachment or execution vacated within thirty (30) days. 15.2 Termination Upon Default. On the occurrence of any event of default by Tenant, City may, in addition to any other rights and remedies given here or by law, terminate this Rental Agreement and exercise remedies relating to it without further notice or demand in accordance with the following provisions: (a) So long as the event of default remains uncured, City shall have the right to give notice of termination to Tenant, and on the date specified in the termination notice, this Rental Agreement shall terminate. (b) If this Rental Agreement is terminated, City may, by judicial process, reenter the Premises, remove all persons and property, and repossess and enjoy the Premises, all without prejudice to other remedies that City may have because of Tenant's default or the termination. (c) If this Rental Agreement is terminated, City shall have all of the rights and remedies of a landlord provided by Civil Code section 1951.2, in addition to any other rights and remedies City may have. If any rent shall be due or unpaid, or if default shall be made in any of the provisions otherwise contained in this Rental Agreement on the part of Tenant to be observed and performed, City 5 may exercise any and all remedies provided by law or equity by reason of such default, including deduction of any relocation assistance benefits and/or the right at City's option of terminating this tenancy. Each and all of the remedies of City shall be construed as cumulative and no one of them as exclusive of the other or as exclusive of any remedy provided by law or equity. 16. UTILITIES AND TAXES: Tenant will pay for electric utilities as charged. 17. DAMAGE BY FIRE: In the event the Premises are destroyed or so damaged by fire or other casualty or act of God, then this Rental Agreement shall terminate, and any advance or unearned rent that may have at such time been paid will be refunded to the Tenant on a pro rata basis. 18. ASSIGNMENT AND SUBLETTING: Tenant shall not assign this tenancy in whole or in part, nor sublet the Premises or any portion of the Premises. In the event of a breach of this condition, City shall have the power to immediately declare this Rental Agreement terminated and will then be entitled to immediate possession of the Premises. 19. INSURANCE AND INDEMNITY: 19.1 Insurance. Tenant shall provide and maintain in full force and effect at its own expense during the Term of this Rental Agreement the following insurance covering its operations and the Premises under this Rental Agreement. Such insurance shall be provided with insurers licensed to do business in the State of California, with a rating of at least A VII, according to the latest Best's Key Rating Guide or A-X (if offered by a surplus line carrier that is non-admitted). Evidence of such insurance shall be delivered to City prior to the Commencement Date, including provision of certificates of insurance and required insurer endorsements. Insurance endorsements (or a copy of the policy, if applicable) shall be provided as evidence of meeting the requirements of this Section. If self-insured for workers compensation, Tenant shall submit to the Lessee a copy of its certification of self-insurance issued by the Department of Industrial Relations. The Insurers shall specifically identify this Rental Agreement and shall contain express conditions. Such insurance, shall include an endorsement that coverages are to be primary to and not contributing with any other insurance maintained by City, and an endorsement shall name the City, and their respective officers, officials, employees, agents and contractors as additional named insured (except for workers' compensation insurance) and by an endorsement provide that all losses shall be payable notwithstanding any act or failure to act or negligence of City, or any other person. All insurance shall be maintained on an occurrence basis. Insurer or Insurer's agent and Tenant shall give the City thirty (30) days advance written notice of any written material modification or termination of any insurance required under the provisions of this Rental Agreement. Failure of Tenant to provide such notice shall be deemed a material breach of this Rental Agreement. 19.1.1 Comprehensive General Liability Insurance. Comprehensive general liability and property damage insurance covering the rented Premises, contractual, broad form property damage, and bodily injury or death, with a combined single limit of not less than $1,000,000 per occurrence with respect to personal injury or death, and $1,000,000 per occurrence with respect to property damage. The general liability policy is to contain, or be endorsed to contain, the following provisions: (1) The City and their respective officers, officials, employees, agents and contractors are to be covered as additional named insureds as respects: liability arising out of use of the Premises. The coverage shall contain no special limitations on the scope of protection afforded to the City, its officers, officials, employees, agents or contractors. (2) The Tenant's insurance coverage shall be primary insurance as respects the City, and their respective officers, officials, employees and contractors. Any insurance or self-insurance maintained by the City shall be in excess of the Tenant's insurance and shall not contribute with it. (3) Any failure to comply with reporting or other provisions of the policies including breaches of warranties shall not affect coverage provided to the City, its officers, officials, employees, agents, or contractors. (4) Coverage shall state that the Tenant's insurance shall apply separately to each additional insured against whom claim is made or suit is brought, except with respect to the limits of the insurer's liability. (5) Each insurance policy shall include an endorsement that the Insurer waives any right of subrogation against the City which may arise by reason of any activities of Tenant, City or payments under a policy. 19.1.2 Workers Compensation Insurance. Workers compensation insurance shall be in an amount and form meeting all applicable requirements of the California Labor Code, covering all persons providing services by or on behalf of Lessee and all risks to such persons. The worker's compensation is to contain, or be endorsed to contain, a waiver of subrogation against the City. 19.2 Indemnity. Notwithstanding anything to the contrary hereinabove contained, and irrespective of any insurance carried by Tenant, Tenant shall defend, with counsel acceptable to City, indemnify, protect, and save harmless City and their respective officers, officials, employees, agents and contractors from, and shall pay all costs, expenses and reasonable attorney fees for all trial and appellate levels and post judgment proceedings in connection with and from any and all demands, claims, actions, proceedings, suits, losses, liens, costs, judgments, damages or liabilities of any kind and nature whatsoever, including expenses incurred in defending against legal actions, for death or injury to persons or damage to property and for civil fines and penalties arising , or for any violation or alleged violation of local, state or federal law or regulation at the Premises, or for any breach of this Rental Agreement growing out of , or in connection, or in any manner predicated upon the use of, occupancy of and/or operations carried on upon the Premises by Tenant, its officers, officials, employees, agents, servants, guests, invitees, or contractors. 20. NOTICES. Any notice shall be personally delivered or placed in a sealed envelope postage paid, addressed to the person on whom it is to be served with return receipt requested and deposited in the United States Mail. Personal service shall be deemed complete upon 7 delivery and service by mail shall be deemed complete upon receipt as reflected by the return receipt. The address to be used for any notice served by mail shall be as follows: Tenant National Office Liquidators, LLC. 1502 E. Hadley Street, Suite #150 Phoenix, AZ 85034 City Assistant City Manager City of Tustin 300 Centennial Way Tustin, CA 92780 Attention: Christine Shingleton 21. REFUND OF RENT: In the event Tenant vacates the Premises and terminates this tenancy before expiration of the rental term for which rent has been paid, City shall refund the pro rata portion of such rent which is unearned at the time of vacancy. 22. ANTI-DISCRIMINATION: Tenants agrees that this rental Agreement is made and accepted on and subject to the following conditions: That there will be no discrimination against or segregation of any person or group of persons, on account of race, color, sex, age, handicap, marital status, religion, national origin or ancestry in the use, occupancy, tenure or enjoyment of the Premises, nor will Tenant or any person claiming under or through it establish or permit any practice or practices of discrimination or segregation with reference to the Premises. 23. ATTORNEY FEES: If as a result of a breach or default under this Rental Agreement, City uses an attorney to secure compliance with Agreement provisions to recover damages, to terminate this Agreement, or to evict Tenant, Tenant shall reimburse City, on demand, for all reasonable attorney fees and expenses incurred by City. 24. KEYS: Tenant agrees on vacating the Premises that Tenant will deliver all keys to the Premises in the Tenant's possession to the City relocation office at the address stated in paragraph 5, and on failure to deliver the keys, Tenant agrees that rent for the Premises will continue to be paid to the City until such time as the keys are delivered. 25. TIME OF ESSENCE: Time is of the essence in this Rental Agreement and all of its provisions. 26. ENTIRE AGREEMENT: It is understood that there are no oral agreements between the parties affecting this Rental Agreement and this Rental Agreement supersedes and cancels any and all previous negotiations and understanding, if any, between the parties and none will be used to interpret or construe this Agreement. )signature page follows) TUSTIN Approved as to Form David Kendig City Attorney "CITY" Christine A. Shingleton Assistant City Manager Date: National Office Liquidators, LLC, an Arizona limited liability company "TENANT" By: Name: Title: By: Name: Title: Date: < Note two corporate signatories authorized to sign by resolution should sign> 9 EXHIBIT "A" 15171 Del Amo Avenue, Tustin Under the month-to-month Rental Agreement, National Office Liquidators (NOL) will occupy 14,000 sq. ft. of the 28,000 sq. ft. mid-section of the building, as shown in the exhibit. The number of parking spaces for the subject unit is not to exceed 14. Tenant will utilize spaces in front of Subject Unit in a manner that does not interfere with the operations of adjoining tenants.