HomeMy WebLinkAboutStaff Report 257-10TO:
FROM:
DATE:
REPORT TYPE:
SUBJECT:
BACKGROUND
HONORABLE CITY COUNCIL
CITY MANAGER
JUNE 7,2010
INFORMATIONAL
DEPARTMENT: ADMINISTRATIVE
SERVICES
CMR: 257:10
Termination of Lease at 300 Hamilton Avenue, Suite B, Palo Alto
The purpose of this report is to inform Council of the City's termination ofthc lease for space in
the basement space, Suite B, at 300 Hamilton Avenue. On July 22, 2002, the Council authorized
the City Manager to exercise a lease with 300 Hamilton Associates for 4,655 square feet of
basement space, Suite B, at 300 Hamilton Avenue, (CMR:356:02). The additional space was
necessary to accommodate Information Technology (IT) staff, displaced by the expansion of the
Civic Center eomputer room, and for the financial system up grade projeet. The initial term of
the lease was 2.5 years, with options to renew for an additional 2.5 or 5 years. On May 26, 2004,
the lease was extended for an additional 2.5 year term and on July 1,2007, renewed again for an
additional 5 years, terminating on June 30, 2012.
DISCUSSION
Due to the declining space needed by the upgrade project consultants and IT staff, the 4,655
space at 300 Hamilton is no longer needed. The lease, as in many leases, did not contain an early
termination clause. In light of the current budget situation and an evaluation by staff of the
various space needs throughout the city, we determined the space, although used, could possibly
be given up and ifthe landlord were amenable, the lease terminated. The lease has an additional
24 month term, and with a rental obligation of approximately $19,800 per month, $236,000
annually not including annual rent adjustments, the anticipated savings in rent was substantial.
Staff contacted the landlord over a month ago and has been in negotiations with them to either
sublease the spaee or terminate the lease early. Iuitially, and understandably based on the amount
of current vacancies coupled with the undesirability of basement space, the landlord was opposed
to a lease termination. However, during recent negotiations with a prospective tenant requiring
unique space needs, the landlord agreed to negotiate terms for a lease termination with the City.
Those terms are outlined in the attached lease termination letter dated May 19,2010.
Staff is working on various alternatives for relocation of the IT staff, the most likely scenario
being space at 100511 007 Elwell Court, currently under lease and used exclusively by Utilities
CMR:257:10 Page 1 00
staff. Should all eleven existing IT staff members be relocated to the Elwell Court location, the
cost to move, reconfigure cubicles, and pay rent for the area used will produce substantial
savings over the costs associated with the 300 Hamilton Avenue lease. The lease at 1005/ W07
Elwell Court, approved by Council, began in July 1998 (CMR:204:98), and was needed to
alleviate overcrowded conditions at City Hall. The term for the lease at Elwell Court expires on'
August 31, 2013. Staff will reevaluate space needs for all city staff at that location as the
expiration date approaches,
RESOURCE IMPACT
Under the Termination Agreement for 300 Hamilton, the City would be required to pay rent
through November 30, 2010 in a total amount of $79,000. The FY 2010 rent budget for 300
Hamilton totals $236,000. Tbe total rent savings for seven months worth of payments, equates to
approximately $138,250 Moving costs have not yet been determined so any savings realized
will be slightly redueed by the cost to relocate staff, furniture and equipment. Additionally, most
if not all of the staff will likely be relocated to the Elwell Court location currently occupied by
Utilities engineering staff. The IT budget will pay its share of rent at that location based upon
the area used, which will in tum reduce the rent currently paid by Utilities. Staff estimates the
area will equate to approximately 2,000 square feet, which at the current rental rate of
$L80/square foot/month, equates to $3,600/month. Therefore, total anticipated savings for fiscal
year 2010/11, for the IT department budget, is approximately $99,000.
Anticipated savings in FY 2011112, would equate to the savings difference between what the
lease obligation would have been for the 300 Hamilton lease, estimated to be approximately
$20,000/month ($240,000/year), less the anticipated proportionate share of rent at the Elwell
eourt location of approximately $3,800/month ($45,600/year), for a total savings of $194,400.
Together, the termination of the lease provides for an approximate savings over the next two
fiscal years of approximately $293,400 for the IT department budget and a savings for the
Utilities Fund of $85,200.
POLICY IMPLICATIONS
Termination of a lease does not represent any change to existing City policy.
ENVIRONMENTAL REVIEW
This does not constitute a project under the California Environmental Quality Act.
CMR:257:1O Page 2 of3
PREPARED BY:
MARTHA MILLER
Real Property Manager
DEP ARTMENT HEAD APPROVAL:
Director of Administrative Services
CITY MANAGER APPROVAL:
City Manager
ATTACHMENTS
Attachment A: Termination Letter
CMR:257:IO Page 3 00
Divisions
Administration
650.329.2692
650.323.1741 lax
Budget
650.329.2260
650.323.1741 lax
Infonnation
Technology
650.329.2182
650.617.3109 lax
RealEstate
650.329.2264 .
650.323.1741Iax
Finance
650.329.2182
650.32-'1.1741 lax
Accounting
ATTAC;HMENT A
May 19,2010
Ms. Joyce Yamagewa
Hamilton Management, Inc.
700 Emerson Street
Palo Alto, CA 9430 I
Re: Proposal to terminate lease at 300 Hamilton Avenne
Dear Joyce,
9ty~!f~() A!~()
. Administrative Services Department
This letter shall serve to confi11lJ our agreement to tenninate the lease between 300 Hamilton Associates
and the City of Palo Alto for the premises at 300 Hamilton Avenue, Level B. The terms of the
te11lJination afe as follows:
Termination date to be August 1,2010.
City to pay rents at contract amount, $19,744.04/month, through November 30, 2010, and hereby agrees
there will be no Common Area Maintenance (CAM) reeonciliation payment due or refunded the
following March 2011. The total amount of contract fent payments from August I to November 30,2011
is $78,976.16.
City to surrender entire premises, effective August 1,20 I 0, in broom clean condition, free of all furniture
and personal property.
The tennination is contingent on successful exeeution of a neW lease between 300 Hamilton Associates
and a third party for the premises, no later than June 2,2010.
:~:~ lax Except for Ihe terms in this letter, the City shall have no further obligations under tbe lease, excepting
Purchasing those legal obligations surviving the lease.
650.329.2271
650.329.2468. fax It is understood and agreed that the rights and obligations of the parties are conditional upon the execution
Investments oflhe attached a fonnal Tennination Agreement. If such Agreement is not fully executed, neither party
650.329.2362 1ax shaH have any rights or obligations under either this letter or such Agreement.
650.32:3.8356
~;;~~~ec1~ou are in agrecment with the terms of this lettcr tenninatioll, please sign your acceptance below.
650.617.3122 fax
Parking CitatioJincerely, 650'329'22~sL /l
J es Ke e
ilyMan get
Accepted by: -tf/l-~'4~~L9"<!1-~~1J.'...
Accepted by: ~1"---,·1-fff-'...,c=---,----=-=-+",-
rinted with goy·bl\sed iukl'l 01\ 100% ~ecydcd pllper processed without chlorine
Date: ___ .... __ .
Date: _____ _
P.O. Box 10250
Palo Alto, CA 94303
LEASE TERMINATION AGREEMENT
This Lease Tennination Agreement ("Agreement") is entered into as of May _, 2010
by and between the City of Palo ALto ("Tenant") and 300 Hamilton Associates, a California
limited partnership ("Landlord").
RECITALS
A. Landlord and Tenant entered into an Office Lease Agreement dated July 20, 20 I 0
and a First Amendment to Lease dated June I, 2007 (together, the "Lease") for the premises
located. at 300 Hamilton Avenue, Suite e, Palo Alto, California (the "Premises"), as more
particularly described in the Lease.
B. Tenant desires an early tennination of the Lease, and Landlord is willing to pennit
early tennination on the tenns and conditions of this Agreement.
AGREEMENT
In consideration of their mutual covenants and other valuable consideration, receipt of
which is hereby acknowledged, Tenant and Landlord agree as follows:
1. TERMINATION. The Lease and all rights, obligations and liabilities of Landlord
and Tenant under the Lease, except (l) any which expressly survive tennination, including
without limitation any indemnifications obligations of Tenant arising from events that occur
prior to tennination of the Lease and (2) any obligations which arise from a party's breach of this
Agreement, shall tenninate as of 11:59 P.M., on July 31, 2010 (the ''Tennination Date").
Effective as of the Tennination Date, Tenant sunenders, forfeits and quitclaims any and all
rights, title and interest of Tenant under the Lease and to the Premises, including without
limitation, all options to extend the teml (if any) and all tenant improvements and alterations
which are permitted to remain in Premises, and Landlord releases and discharges Tenant of and
from all agreements, covenants, and obligations of the Lease or Tenant's tenancy thereunder
(excluding the surviving obligations described above), including, without limiting the generality
of the foregoing, any obligation to pay rent, common area charges, and any other similar charges
under the Lease after the Termination Date.
2. SURRENDER Tenant shall surrender possession of the Premises no later than
the Termination Date. Tenant shall remove all of its trade fixtures, personal property, and
equipment at its sole cost and expense and deliver the Premises to Landlord broom clean and in
the condition required under Paragraphs 9 and 10 of the Lease on or before the T ennination
Date. Without limiting the generality of the foregoing, Tenant shall remove all its signage and
repair all damage to the interior and exterior surfaces where Tenant's signage was placed.
3. CONTINUED PERFORMANCE. Tenant and Landlord shall continue to perfonn
all obligations under the Lease through the Tennination Date.
00854.T09311J6209~.1
4. CONSIDERATION FOR TERMINATION. As consideration for this
Agreement, Tenant shall deliver payments on the first day of August, September, October and
November, 2010 in an amount equal to what would have been due as monthly Base Rent and
Additional Rent under the Lease in a total amount of $78,976.16. The Parties agree that there
will be no Common Area Maintenance (CAM) reconciliation payment due by Tenant or
refunded by Landlord following the execution of this Agreement.
5. CONTINGENCY. This Agreement shall be contingent on Landlord entering into
a lease agreement with a third party for the Premises by June 2, 2010, in fonn and terms
acceptable to Landlord, in Landlord's sole discretion. If Landlord fails to enter into an acceptable
lease agreement with a third party for the Premises by June 2, 2010, the Lease shall
automatically revive and be in full force and effect, as if this Agreement were never executed.
6. AUlHORIZATION. Each individual executing this Agreement represents and
warrants that he or she is authorized to bind the party on whose behalf he or she is si gning, and
that all necessary approvals to enter into this Agreement have been obtained.
7. ENTIRE AGREEMENT. This Agreement represents the entire agreement of the
parties with respect to the termination of the Lease, and supersedes any prior or
eontemporaneous agreemenl~, representations, negotiations or correspondence between the
parties and their agents or representatives. This Agreement may not be modified or amended
except in a written Instrument signed by party to be bound thereby.
8. ATTORNEYS' FEES. If any claim or dispute between the parties arises out of
this Agreement or its breach, the prevailing party shall be entitled to recover from the other party
reasonable expenses, attorneys' fees and costs.
In witness whereof, Landlord and Tenant have entered into this Agreement as of the date
first hereinabove written.
LANDLORD
300 Hamilton Associates, a California limited
partnership
. Gates
Trus e of the Amended and Restated Gates
Family Living Tru t dated May 17, 2005,
Gen I Partno
By: P~r<. .-=~~&£~~... ~
e nan, III, Trustee of the
Keenan amily Trust dated December 20,
1988, as amended
General Partner
00854.T09311162099.1 2
TENANT:
CITY OF PALO ALTO, a municipal
corporation
Title: ~C~i~t~y~Ma~n~a~g~e_r ______________ _
ttorney
Property Manager