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Home My WebLink About07 FIRST AMENDMENT TO THE RENTAL AGREEMENT WITH KYA SERVICES LLCAGENDA REPOR MEETING DATE: JULY 3, 2018 TO: JEFFREY C. PARKER, CITY MANAGER FROM: ECONOMIC DEVELOPMENT DEPARTMENT Agenda Item 7 Reviewed: City Manager Finance Director SUBJECT: FIRST AMENDMENT TO THE RENTAL AGREEMENT BETWEEN THE CITY OF TUSTIN AND KYA SERVICES, LLC FOR A PORTION OF THE BUILDING LOCATED AT 15171 DEL AMO AVENUE SUMMARY: Approval is requested to amend the Rental Agreement between the City and Kya Services, LLC (Tenant), for City -owned property located at 15171 Del Amo Avenue. RECOMMENDATION: The City Council authorize the City Manager to execute the First Amendment to the Rental Agreement with Kya Services, LLC in a form substantially consistent with the attachment and support the finding that the Rental Agreement is at market value and no further policy directions, as outlined in Tustin City Code Section 7960(8), are required. FISCAL IMPACT: The current Rental Agreement for 28,000 square feet expires July 31, 2018, with the Tenant paying a monthly rent of $13,367.34. The First Amendment will become effective August 1, 2018, and the monthly rent will increase to $21,000. The term is for two years and the rent will increase in the second year by 4%. Although it is standard business practice for the brokerage fees to be paid upon agreement execution and to be based on the total rent generated during the term of an agreement, fees will be paid annually in order to reflect the option for either party to terminate at any time after the first year. COORELATION TO THE STRATEGIC PLAN: The Rental Agreement with Kya Services, LLC is consistent with the City's value of Fiscal Stewardship. In complying with Tustin City Code Section 7960(B), fact -based financial decisions ensure the City practices sound stewardship of its existing assets. Agenda Report July 3, 2018 Page 2 BACKGROUND: In January 2010, 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 July 21, 2015, the City Council authorized a three-year Rental Agreement with the Tenant for 28,000 square feet of the existing 84,000 square foot building. Effective August 1, 2018, the negotiated rent rate is $.75 per square foot ($21,000 per month) and the premises are rented on a triple -net basis, meaning the Tenant will pay all real estate taxes, insurance, maintenance, repairs, utilities and other items associated with tenancy. Unless the either party provides a six-month termination notice prior to the Agreement's termination, the termination date will be July 31, 2020. Tustin City Code (TCC) Section 7960, as enacted by Ordinance No. 1389, outlines the process City staff must follow for the approval, extension or modification of any existing City 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 buildings in the same market range as the Del Amo building and the proposed First Amendment to the Rental Agreement is not for less than market value. As a result, the proposed First Amendment to the Rental Agreement does not trigger further actions as outlined in TCC Section 7960(B). Staff is available for any questions the City Council may have. John uchanan EDireetor of Economic Development Attachment: First Amendment to the Re Services, LLC Jerry Craig Deputy Directo1.,6f�Eqnq4e/Development ement between the City and Kya FIRST AMENDMENT TO THE RENTAL AGREEMENT BETWEEN THE CITY OF TUSTIN AND KYA SERVICES, LLC First Amendment This FIRST AMENDMENT TO THE RENTAL AGREEMENT (this “”) is First Amendment Date entered into as of July 3, 2018 (the “”) by and between the CITY OF TUSTIN, City a municipal corporation of the State of California (“”), and Kya Services, LLC, a California limited Tenant liability corporation, (“”). City and Tenant are sometimes referred to herein individually as a PartyParties “” and collectively as the “”. RECITALS A. The City and the Tenant entered into that certain Rental Agreement dated as of August 7, 2015, (the “Original Rental Agreement”) pursuant to which, among other things, the City agreed to rent and the Tenant agreed to rent certain portions of the Premises located at 15171 Del Amo Avenue, Tustin CA 92780, for the purpose of storage and warehousing use only. Initially capitalized terms not defined herein shall have the respective meanings assigned to such terms in the Original Rental Agreement; and B. City is the owner of the Premises as more particularly described in Exhibit A of the Original Rental Agreement, incorporated herein and made a part of this First Amendment as though fully set forth; and C. The extension of the Original Rental Agreement by this First Amendment is at market value and does not trigger further actions as outlined in Tustin City Code Section 7960(B); and D. The Term of the Original Rental Agreement was for three years, expiring July 31, 2018; and E. The Parties desire to extend the Term through July 31, 2020 by executing this First Amendment to the Original Rental Agreement. AGREEMENT NOW, THEREFORE , in consideration of the foregoing Recitals and of the promises and mutual covenants incorporated within the Original Rental Agreement, which are incorporated in the operative provisions of this First Amendment by this reference as though set forth in their entirety, the Parties agree as follows: Modification to the Original Rental Agreement. 1. The following sections of the Original Rental Agreement are hereby amended as follows: (a) Section 4 is hereby deleted in its entirety and replaced as follows: “4. TERM: The term of this Rental Agreement shall commence August 7th, 2015, Commencement Date (“”) and shall be in full force through July 31, 2020, unless Termination Date otherwise terminated as provided herein (“”). At any time following the one year anniversary of the Commencement Date, the City or the Tenant may terminate this Rental Agreement, for any reason, by providing six (6) months prior written 1 1321783.1 notice of termination to the other party. Tenant will not receive approval to occupy and may not occupy the Premises until they have provided satisfactory evidence of insurance as required by Section 19. . Tenant agrees to vacate the Premises on or before the Termination Date” (b) Section 5.1 is hereby amended by adding new subsection 5.1.4 to read as follows: “5.1 Base Rent. 5.1.4 Effective August 1, 2018, the Tenant shall pay the City the monthly sum of Twenty One Thousand Dollars ($21,000) for 28,000 square feet of space, payable in advance. In the subsequent year, the rent shall increase 4%. Effective August 1, 2019, the Tenant shall pay the City the monthly sum of Twenty One Thousand Eight Hundred and Forty Dollars ($21,840). If the First Amendment 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. Rental installments shall be paid by giving such payments to the City, directed to the Finance Department, at 300 Centennial Way, Tustin, CA 92780. Checks should be made out to the "City of Tustin". (c) Subsection 6.1.2 is hereby added to read as follows: “6.1.2 Notwithstanding Tenant’s obligations to protect, maintain and repair the Premises as set forth in this Section 6, City shall remain responsible, at its sole cost and expense, to maintain the exterior roof of the Premises No Other Changes. 2. This First Amendment is supplemental to the Original Rental Agreement and is by reference made part of said Original Rental Agreement. All sections of the Original Rental Agreement not specifically amended herein shall remain in full force and effect. In the event of any conflict or inconsistency between the provisions of this First Amendment and any provisions of the Original Rental Agreement, the provisions of this First Amendment shall in all respect govern and control. Unless otherwise specifically defined herein, terms used in this First Amendment shall have the same meaning as ascribed to them in the Original Rental Agreement. The execution and delivery of this First Amendment shall not operate as a waiver of or, except as expressly set forth herein, an amendment of any right, power or remedy of either party in effect prior to the date hereof. Counterparts 3.. This First Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the Parties hereto may execute this First Amendment by signing any such counterpart. <<<<<<<<<<<<SIGNATURE PAGE FOLLOWS>>>>>>>>>>>> 2 1321783.1 IN WITNESS WHEREOF, City has authorized this First Amendment between the City of Tustin and Kya Services, LLC to be executed for and on behalf of the City of Tustin, and Tenant has caused the same to be executed by its duly authorized officer on the date first above written. “CITY” City of Tustin, California Dated: _______________ _____________________________ Jeffrey C. Parker, City Manager ATTEST ______________________________ Erica N. Yasuda City Clerk APPROVED AS TO FORM _______________________________ David E. Kendig City Attorney Kya Services, LLC TENANT “” By: ________________________________ Edwin Jay, President By: ________________________________ Name: __________________________ Title: _____________________________ Date: _____________________________ 3 1321783.1