HomeMy WebLinkAbout2004-09-13 City Council (2)City of Palo Alto
C ty Manager’s Report
TO:
FROM:
HONORABLE CITY COUNCIL g
CITY MANAGER DEPARTMENT: ADMINISTRATIVE
SERVICES
DATE:
SUBJECT:
SEPTEMBER 13, 2004 CMR: 411:04
AWARD OF OPTION TO LEASE TO JSRFIT, L.L.C., D.B.A. FORM
FITNESS HEALTH CENTER AT LOT S/L SITE NON-PARKING
AREA, 445 BRYANT STREET
RECOMMENDATION
Staff recommends that Council authorize the Mayor to execute the attached option to
lease with JSRFIT, L.L.C., d.b.a. Form Fitness Health Center, for a 7,410 square foot
space in the non-parking portion of the Lot S/L site, 445 Bryant Street.
BACKGROUND
On March 19, 2001, Council approved a new University Avenue Off-Street Parking
Assessment District to provide funding to design and build two new parking structures on
Lots R (High/Alma South Garage) and S/L (Bryant/Florence Garage). In addition to
building a parking structure on the Lot S/L site, Council approved construction of a non-
parking area that would be an extension of the parking garage. Costs for building the non-
parking extension were to be paid from Certificates of Participation (COP) backed by the
City’s General Fund. Initial plans for this area were for a downtown teen center, with the
remaining space to be’ used for rental and other commercial purposes. Rent from
commercial users was to be used to offset the City’s debt service costs for constructing
the non-parking area.
On May 14, 2001, as a result of receipt of the Youth Master Plan study and a student
survey indicating teens would prefer having more programs, activities and special events
to a new downt6wn teen center, Council approved a staff proposal endorsed by the Youth
Council to allocate 75. percent of net revenues derived from renting the entire non-
parking area to funding youth and teen activities. Council also approved a Barker Hotel
parking assessment subsidy. On December 10 and December 17, 2001, Council reviewed
and approved the financing for construction of the non-parking area on the Lot S/L site.
Construction of the non-parking area was completed in February 2004, and staff began
advertising the space for lease in early April 2004. Proposals were received until June 9,
CMR:411:04 Page 1 of 5
2004, by which time six written proposals were submitted. In accordance with Policy
and Procedures Policy 1-11 (Leased Use of City Land/Facilities), notices of a public
hearing before the Council to consider awarding an option to lease were published in
local newspapers and mailed to tenants and property owners within 300 feet of the
property. On July 19, 2004, the Council held the public hearing and considered the staff
recommendation to grant an option to lease for a restaurant use for the property
(CMR:350:04). Council rejected staff’ s recommendation and directed staff to return with
an option to lease for the Form Fitness Health Center (Form Fitness).
DISCUSSION
The non-parking area space for lease totals 7,410 square feet, consisting of two 3,705
foot floors of open bare space ready for a tenant to build to suit. The zoning allows for
ground floor retail and second floor office or retail. During the design process, Council
specified the uses that would be permitted under the Ground Floor Combining District
(GF) which were: 1) eating and drinking; 2) personal services; 3) retail services; and 4)
travel agencies:
As discussed in the May 10, 2004 City Manager’s Report to Council (CMR:253:04), the
non-parking area of the Lot SiL garage was constructed for less than the budgeted cost,
leaving $1 million remaining in bond proceeds. Some of these remaining funds will be
used to pay for shell improvements, such as the heating and air-conditioning system
(HVAC) and sprinkler system, in order to assure the equipment installed will be
dependable and the easiest for the City to maintain. The City will be responsible for
maintaining the outside of the building, the roof, the HVAC, sprinkler system and
elevator. The tenant will be responsible for all other maintenance, taxes, assessments, and
insurance.
Form Fitness Proposal
Form Fitness proposes a 10-year lease for the entire 7,410 square feet of space, with a
$10 per square foot City allowance for improvements and an initial rent of $1.85 per
square foot, increasing to $3.95 by the 10th
$2,803,203 over the 10-year
~ear, resulting in a total income to the City of
term. By the 7 year of the lease term, the rent will be $3.75
per square foot, enough to cover the annual debt service payment for the COPs.
Attachment A shows the proposed rent for each year of the lease, the total projected lease
income and the total contribution to tenant improvements.
As described in its proposal, Form Fitness would like to occupy the property for a full
service health and fitness center. The ground floor will include a reception area; a pro-
shop selling workout related products; showers; lockers; one group exercise room for
classes such as indoor cycling, aerobics, and yoga; and an area for providing child care
while parents work out. The second floor facing Bryant will be dedicated to a second
group exercise room with cardio machines such as treadmills and stair masters. The
CMR:411:04 Page 2 of 5
second floor facing Lytton will include a weight room plus additional rest rooms and an
office. In partnership with the Albert L. Schultz Jewish Community Center (JCC), Form
Fitness will offer group classes including kickboxing, circuit training, indoor cycling,
yoga and dance. It will also provide programs for school age children such as kids’
kickboxing, self-defense, bike safety, "Mommy and Me" classes and a cycling team for
young teenagers. Additional details of its program, including other public service benefits
to be provided by Form Fitness are described in its attached proposal (Attachment A).
Among these are discounts and special programs for teens and seniors; youth and senior
outreach programs in partnership with the Palo Alto Recreation Department and
Avenidas; creating a partnership with Palo Alto Community Child Care (PACCC) so that
Form Fitness members may utilize the services offered by PACCC; supporting the fitness
needs of the Jewish Community Center and its members; in partnership with the
Community Breast Health Project, providing nutritional and healthy lifestyle seminars for
cancer patients and post treatment survivors; and holding an annual fundraising event
with the proceeds going towards teen programs in the City.
Form Fitness has been operating at another location in downtown Palo Alto since January
2003. It currently has 9 employees and 450 members. Form Fitness has provided
financial statements for the current operation. The business shows operating losses for
both 2003 and 2004; however, as the business has grown, the losses for 2004 are
significantly less than for in 2003. Form Fitness has recently formed a Limited Liability
Company. (LLC) consisting of three people, including the founder and manager of the
current Form Fitness operation. All three have executive experience in business and two
have significant experience in the management and operation of fitness centers. The five-
year pro-forma for the proposed operation shows operating losses for the first 2 years of
operations; however, the LLC has provided staff with evidence of sufficient financial
security to cover the entire amount projected to be needed for the first 5 years of
operations. During the option period and prior to execution of the lease, Form Fitness
will be required to provide evidence of sufficient financial security to complete its share
of the tenant improvements.
Total tenant improvements and equipment costs for Form’ Fitness are estimated at
$800,000. The City will contribute up to $10 per square foot ($74,100) for items such as
the HVAC, sprinkler system, grease trap, electrical upgrade and ADA compliant
restrooms. In addition, the City will pay $15,000 to $20,000 to seal a stairwell opening in
the second floor. Form Fitness will be responsible for all costs above $10 per square
foot.
Option to Lease
Staff has negotiated the attached option to lease with Form Fitness. Terms of the option
and lease are summarized in Attachment B. Under the option agreement (Attachment C),
Form Fitness is granted a nine-month period to satisfy the specified conditions prior to
CMR:411:04 Page 3 of 5
exercising the option and entering into the lease. The major conditions the optionee must
satisfy:
°
°
Pay the option purchase price ($5,000).
Receive approval of its improvement plans from the Architectural Review
Board and receive approvals from the City Engineer and Chief Building
Official of the construction drawings, including the construction contract form
and proposed construction schedule.
Receive approval of any and all permits required to implement the proposed
use and improvements.
Satisfy the Director of Administrative Services that optionee has sufficient
finances or financial commitments to implement the project as approved by the.
City and furnish the Director of Administrative Services with evidence that
sufficient financial security will be available to construct the project.
Submit to the Real Property Manager a security deposit as required by the
Lease.
Once the option conditions are met, the lease will be executed by both parties without
returning to Council. The 10-year term of the lease will begin upon execution of the
lease; however, payment of rent will not begin until construction of tenant improvements
is completed and the occupancy permit is issued, which is estimated to be three months
from execution of the lease. Prior to construction, the tenant must provide satisfactory
evidence, such as a completion bond or performance bond, assuring that sufficient funds
will be available to complete the approved construction. All improvements will become
the property of the City upon termination of the lease. Should the tenant exercise its
option to extend the term of the lease, market rent for the new term will be determined by
agreement between the City and tenant or, if agreement cannot be reached, through the
appointment of a mutually acceptable broker to establish the new rental value. In no
event will the new adjusted market rent be less than the rent paid for the previous year,
and any increase is subject to a maximum of 10 percent.
RESOURCE IMPACT
The City’s cost for structural improvements will be $74,100, plus $15,000 to $201000 to
seal a stairwell opening in the second floor, to be paid from the $1 million remaining in
bond proceeds from the construction of the non-parking area of the Lot S/L garage. Staff
is in the process of evaluating whether to use remaining COP proceeds to retire
certificates or offset annual debt service.
Total rental income to the City over the 10-year term of the proposed lease will be
$2,803,203. For the first six years of the lease, the rental income will be used to partially
offset the $320,000 annual debt service payment on the taxable COPs used to construct
the non-parking space on Lot SiL. Starting with the seventh year of the lease, the rental
income will be adequate to pay the COP annual debt service, with any excess rental
CMR:411:04 Page 4 of 5
income to be used to partially offset the Barker Hotel parking assessment; and, for youth
and teen services.
POLICY IMPLICATIONS
The proposed option to lease does not represent any changes to existing City policy.
ENVIRONMENTAL REVIEW
An Environmental Impact Report for the parking structures, including the non-parking
area, was prepared as part of the zoning application and was certified by Council on
December 20, 2000, by adoption of Resolution No. 7917. During the option period, the
optionee will be required t0 fully comply with all provisions of CEQA as they may apply
to improvement plans.
ATTACHMENTS
Attachment A:
Attachment B:
Attachment C:
PREPARED BY:
DEPARTMENT HEAD APPROVAL:
Form Fitness Proposal
Summary of Option to Lease
Option and Lease
WILLIAM W. FELLMAN
Manager, Real Property
CITY MANAGER APPROVAL:
E
Assistant City Manager
cc:JSRFIT, LLC
CMR:411:04 Page 5 of 5
ATTACHMENT A
Bill Felknan
Real Estate Prope~y Manager
City of Palo Alto
650-329-2472
_0~ Forest Avenue
Palo Alto. CA 94301
650-322-3676
Aug. 2, 2004
Re: 425 Bryant Street
Palo Alto, CA. 94301
Dear Mr. Fell_man:
As per my conversation~. I offer the foilowing Proposed Use of Space for the propewy
located on the comer of Lytton and Bryant, 425 Bryant.
FORM Fitness and Albert L. Schultz Jewish Community Center proposes to occupy the
space at 425 Bryant. FOPd~ wishes to occupy this site ~T~mediate~, for use as a full
~,,l~e ~eo~& an, center. FOPd~ proposes a ! 0-year ~ease for the space,--~+~"
option for a 10-year renewal. We would like to occupy the entire building. A reception
area~ pro shop, showers, lockers, child care, and one group exercise room will occupy the
~ound floor. The second floor facing Bryant wilt be dedicated to group exercise room
#2, cardio machines such as tzeadmills and stair masters. The second floor facing L?~on
wilI be dedicated to weight room p]us additionaI rest rooms and an office. We are
iooking to. become a permanent part of this community. Please see attachment for a
digkai floor plan.
in partnership with the Albert L, Schukz Jewish Community Center (JCC) we would iike
to offer the commmuni~ a fiA! servS"_ce health and fitness center, complete with chiId care,
showers, pro shop and weights. Group classes MII include kickboxing, circuit trai~.ning,
indoor cycling, yoga and dance. FORM, in partnership with the JCC, will also provide
programs for school age children such as kids kickboxing, self defense, bike safety,
Mommy and Me classes and a cycling team for young teenagers. Bo~ Form and the JCC
are already working with the pff~iic and private schoois ~ Palo Alto and it is our intent to
continue to expand our health and weilness se~ices and offer alternatives to standard
physicai educations programs.
Philosophy
Our phiiosophy is simple. FORM is a place of suppo~ hope and a center where our
members can be part of an athletic community. We enable our members te take
ownership of their health and fitness and .with our suppo_~ and ~w.fida_nce every client cam
"discover the athlete within". At FORM we betieve your FOP~_M is the foundation on
whidn you build your life. If one has a weak FORM (foundation) one wi!! spend a
tffetime seeking contentment and happiness. Invest in your health and you wili enjoy tile
to the fu!test, it was a~ atbJete whose passior_ in life is to heir,, others succ~d in fheir
quest for health and fitness that created FORM. This passion far exceeds the fancy
exterior of other gyms that view their clients as merely a revenue source and nothing
more. Self-respect and self-worth do not come from a fancy environment; they come
from within by pushing yourself to do more. Like no other gym, FORM is a place of
support, a piace of hope, and most of al! a community center where our members can be
part of a family. We enable our members to take ownership of their health and make a
change for the better. Our group environment wilt help our members overcome their
doubts and FOPdvl a solid foundation.
Public sere, ic!! Benefits
FORM is committed to help in making our community a better piace for all.
i~ds and Teens
Youth Programs: As pau of this community we hope to do.our part in helping change
and shape the fives of the youth. As stated in our philosophy, self respect and self worth
come from pushing your self to do more". We hope to expand our program offering to
kids of all backgrounds; Program such as group kickboxing, cycling team, and running
programs. Furthermore, we hope to help re-shape the PE programs in the Palo Alto
schooi district. By integrating our youth programs with the PE programs in the Paio AJto
school disu’ic~ we can heip motivate kids to discover an athletic lifestyie that can go
beyond their time in school and into their everyday lives. With FORlvf as the base
(communi~7 center), most kids wili now be able to make good use of their time after
schoo! and in ti~e summer months to help better their fitness. On March i9tu we held our
first mother Daughter setf defense seminar. This FREE seminar provided young teenage
girls the oppormui~- to learn self defense, fiarthermore, the interactive as.tre~ct of this
seminar allowed for Mothers and daughters to engage in an activity as a family.
These events play a vital role in bringing the community together. And to Form, this is a
vital part of our Philosophy and culture. With a full service facility- we are confidant that
we "~I be able to br:mg together more of the community to help make Palo .Mtoa better
place us all.
FORlv~ currently offers Student discounts. With our new location we will expand
this offering for al! teens and students of our community, these discounts will be
on both initiation and monthly m~-nnberships.
Since this space formerly was occupied by the Teenage Center, to show our
appreciation, FORM wil! hold an aunua! fimdraising evem with the proceeds
going towards Teenage center. These events will consist of a 10 mile run!walk on
Canada Road ~ Woodside, 50 mile (Tour de Teens} bike ride in Portola Valley,
and or, Indoor cyeting day where members wilI be sponsored for the number of
minutes in an indoor Cycling class (a ~eat workout).
FOPdv~ is m cu.~ent talks with City of Palo Aito Recreation Department t,~Bobby
Ross) to establish partnerships as part. of our youth outreach programs. Together
we m~e wor’king to create programs to help the Teenage center and teenagers of
our community.
FORM is also in talks with the Palo Alto Community Child Care (Margo Dutton,
Executive Director), to create a parmership so that our members can utilize the
services offered by PACCC..4Jso to further market PACCC to the rest of the
community. This is part of our ongoing quest to help local non-profit
organizations such as PACCC.
FOPdvI has already established a program that wilt allow local students m earn
physical education credits by participating in our cycling, kickboxing, and weight
h’aining classes. We hope to expand this program to students throughout the Palo
~Jto Unified School District, so that both the schools and the youth of our
community may benefit from our offering.
Mother & dau~dater self defense seminar for the residents of Palo Alto. Teenage
girls between the ages of 11-17.
Bike safeqz seminars for "kids under i~3 ~ the PAUSD. Members of FORM Fitness
racing team will visit local schools throughout the year to provide this service,
and ultimately promote the sport of Cycling and a healthy lifestyle.
FORM Fitness already sponsors a loca! Elite Cycling team and will look to grow.
this team with the addition of Kids, teenagers, and women. This will be the First
!rids cycling team in the bay area and we hope to set an example for surrounding
cities. It is o~ goal in the years to come to hold a kids and Jr’s. Cycling race in
Downtowr~ Palo Alto (with support and approvaI from the City).
FORM has and Mll continue to offer financial assistance to children, young teens,
and families who otherwise could not afford a gym.
As part. of our outreach program, we pro~ide Teen group idckboxing ciasses for
students of Summit Prep. This program provides al! students at Summit Prep to
participate in group ~ckbordng. Low income families are being supported by
FORM and Summit Prep.. so to help cover the reduced cost of joining a class.
FORM will sponsor Community services such as Park clean up win all the. teens
and youth that we support. This is a value to both the community and our youth.
FORM wil! also offer free Tai Chi and Yoga ir~ the park on the comer of Lytton
and Bryant. Through out different times of the year on Sundays (free for the
communi ).
Senior Citizens
® FO~2vi wilI offer the seniors of our community a reduced rate on both
initiation and monthly memberships
~ FORM in pa~-~nership with Avenigms will provide members of Aven~das a~
additional discount on top of our s ~tandard Senior Citizen discount along with
custom workout pro~am. These programs will grant the members of
Avenidas access to FORM Fitness and all of our amenities.
Loca]~ outreach program
FORM will continue to suppo~ the fitness needs of the JCC and its members.
FOPdVi in parmership with the Community Breast Health Project will provide
nutritional and healthy hfestyle seminars for women ~no have just been
diagnosed with Cancer and post treatment survivors. Community Breast Project
is a smal! non-profit organization in downtox, m which provides FREE services to
the residents of Palo Alto. It is an honor for us to be doing our part in helping
iocal community base organi~tions such as CBH~ to get more reeognitio~ and
to do our part, in re-shaping the 1Nes of those touched by cancer and informing
other women in our communiVy.
FO~¢I is proud to provide FREE training and continuing education on healthy
eating and exercise to all staff and volunteers of Community- Breast Health
Project.
Continue our donations to support local charities such as Kara foundation of Palo
Alto, and other non-profit organizations.
Continue wor!dng wi~ ioeaI sehoots such as PAUSD, Stanford Universi~~ to name
a few with donations and se~ices.
in 2003 we held blood drives with the Blood Centers of the Pacific at which time
we were able to fill capacity and generate 75 pints per event. We oft%red a free
week membership to donors. We hope to make this a permanent evem running
throuo~nou~ the year.
FOPd~ will offer a corporate discount for all employees of companies in
downtowr~. This wi!1 enable all companies, profit or non-profit, to take advantage
of our offering at a discounted rate. Companies such as 1DEO,
communication, The City- of Palo Alto Inc., to name a few. Tnis is a ~eat
incentive for companies looking to relocate their offices to choose downtown Palo
Alto. By having a piethora of restaurants, state of the art gym and other services
in downtown, more businesses are likely to choose dowmovoa vs. an?~vhere eise
along the Per-~nsula.
Since its inception in May Of 2003, FOPdVl has succeeded beyond even our expectations
and we wil! be bringing the same leve! of energy and commitment to the new site.
It is our intent to create a special environment as we strengthen the Paio Alto comrnunity
tahrouNt outstanding health and wellness pro~ams.
5
6
7
Proposed price per square foot for the first 10 years
Year I Per sqft Per m~. [ Per year
I1.85
2.00
.5
.5
3 2.50
4
t2.753.00
3.50
3.75
3.85
9 .~..,5
$13,708.00
$t4,820.00
$i7,413.00
$18,525.00
$20,378.00
$22,230.00
$25,935.00
$27,788.00
$28,529.00
$29,270.00
$29,270.00
I$17i,!7i.00
$208,962.00
$222,3oo.o01
$244,530.00
$266,760.00~ ~$,11,z20.00
$333,450.00
$342,342.00
Lz3..oo$35 .~ z
535!,234.00!
As part of our agreem~-nat FOPdvI would like the following;
I) ~ae City will waive al! rent during the build out phase.
2) Tiae City will cover $1tL0~ per sqft in TI’ s.
3) FORM wil! cover the hole and the city will pax, the cost.
[ $2,8113,203.0~
Sincereiy,
ATTACHMENT B
SUMMARY OF OPTION TO LEASE
between the City of Palo Alto and the JSRFIT, L.L.C., d.b.a. Form Fitness Health Center
for the building located at 445 Bryant Street, Palo Alto
Conditions of the Option
Prior to exercising its option to lease the property, JSRFIT, L.L.C. must satisfy the following
conditions:
1.Pay the option purchase price ($5,000).
Submit schematic plans for the project within three (3) months of the commencement
of the option.
Receive approval of its development plans from the Architectural ReTiew Board and
receive approvals from the City Engineer and Chief Building Official of construction
drawings, including the construction contract form and proposed construction
schedule.
Receive approval of any land use permits or approvals required to implement the
project and development plans.
Provide evidence to the Real Property Manager that any and all permits from any
agencies having pre-construction jurisdiction over the proposed development have
been authorized and are available.
Satisfy the Director of Administrative Services that the Optionee has sufficient
finances or financial commitments to implement the project as approved by the City
and furnish to the Director of Administrative Services evidence that sufficient
financial security will be available to construct the project.
Submit to the Real Property Manager a security deposit as required by the Lease.
Terms of the Lease
LESSOR:
City of Palo Alto
TENANT:
JSRFIT LLC, a California limited liability Company d.b.a. Form Fitness
PREMISES:
445 Bryant Street, Palo Alto
PURPOSE:
The purpose of the lease is to allow the tenant to develop, operate a full service health and
fitness center and associated and incidental uses according to the terms and conditions of the
lease.
TERM:
The term of the lease is 10 years with two (2) five-year options to renew.
USES:
A.PERMITTED USES: The development, maintenance and operation of a full service
health and fitness center and incidental activities and uses in accordance with and as
permitted by the Palo Alto Municipal Code. Uses acceptable to the City as of the date of
the lease are group exercise classes, full service cardio vascular and weight lifting
workouts, retal shop (selling workout related products, personal training, childcare (for
members during workouts), showers and lockers.
B.OPTIONAL USES: Subject to the prior written approval of the City Manager, the tenant
may sublet a portion of the Premises for other uses.
CONSIDERATION/RENT:
Rental Rate Per ...............
Sq Ft Rent Per Month Rent Per Year
Year .5 $1.85 $13,708.00 $171,171.00
Year .5 $2.00 $14,820.00
Year 2 $2.35 $17,413.00 $208,962.00
Year 3 $2.50 $18,525.00 $222,300.00
Year 4 $2.75 $20,378.00 $244,530.00
Year 5 $3.00 $22,230.00 $266,760.00
Year 6 $3.50 $25,935.00 $311,220.00
Year 7 $3.75 $27,788.00 $333,450.00
Year 8 $3.85 $28,529.00 $342,342.00
Year 9 $3.95 $29,270.00 $351,234.00
Year 10 $3.95 $29,270.00 $351,234.00
In addition, tenant to pay for all improvements over the $10 per square foot contribution by City.
City will also pay to enclose the concrete cut out on the 2nd floor.
SECURITY DEPOSIT:
Tenant to provide City a security deposit equal to one month’s rent ($13,708), to be increased to
$22,230 upon the five year anniversary of the commencement of the Lease
REQUIRED IMPROVEMENTS TO BE MADE BY TENANT:
Required improvements are those improvements which are identified and shown in the plans
approved by the City during the option period.
MAINTENANCE AND REPAIRS:
Tenant shall be responsible for all maintenance and repairs except for the elevator, HVAC and
sprinkler system. Tenant shall pay for annual maintenance inspection contracts for the elevator,
HVAC and sprinkler system.
ASSIGNMENT/SUBLETTING:
Assignment or encumbrance of the lease is prohibited without prior approval of the City.
Subleasing is permitted subject to approval of the City.
TAXES~ ASSESSMENTS AND UTILITIES:
Tenant shall be responsible for all costs for utilities and taxes and assessments for the property.
INSURANCE:
Tenant shall maintain insurance meeting the City’s standard requirements for insurance
protection.
PROJECT : 445 Bryant ATTACHMENT C
OPTION AGREEMENT
This Option Agreement is made this day of , 2004, by
and between the City of Palo Alto, a California municipal
corporation ("CITY"), and JSRFIT, LLC, a California limited
liability Company, d.b.a. Form Fitness("OPTiONEE"
RECITALS
mo
CITY owns property located at 445 Bryant Avenue, in the City
of Palo Alto, Santa Clara County, commonly referred to as the
S/L Parking Lot Building (the "PROPERTY"), more specifically
described and shown in Exhibit C to the Lease attached hereto
as Exhibit I (the "Lease"), which Lease is made a part hereof
by this reference.
CITY advertised the PROPERTY for lease and received a
proposal from OPTIONEE which was selected by the City
Council.
C °OPTIONEE desires to obtain an exclhsive option to lease the
PROPERTY, in accordance with the terms and conditions of this
Option Agreement and the Lease, for the purpose of developing
and operating the PROPERTY for use as a health and fitness
centgr(the "PROJECT").
Do CITY desires to grant an exclusive option to OPTIONEE to
lease the PROPERTY, during which time OPTIONEE shall develop
specific plans, obtain financing, and satisfy other
conditions set forth herein prior to exercising the option
and leasing~and developing PROPERTY, in accordance with this
Option~Agreement and the Lease.
NOW, THEREFORE, in consideration of the premises set forth above,
the parties hereto mutually agree as follows:
I.GRANT OF OPTION
CITY hereby grants to OPTIONEE an exclusive option to lease the
PROPERTY for thepurposes of developing and operating the PROPERTY
for the PROJECT, subject to the terms, covenants and conditions set
forth below and in the Lease.
2.TERM OF OPTION
The term of the option granted hereunder shall be nine (9) months
and shall commence upon execution of this Option Agreement by the
Mayor of CITY.
3.PURCHASE PRICE OF OPTION
The purchase price of the option under this Option Agreement shall
be Five Thousand Dollars ($5,000), due and payable to CITY upon the
execution of this Option Agreement by OPTIONEE. CITY shall retain
the Five Thousand Dollars ($5,000) purchase price even if OPTIONEE
does not ultimately exercise the option to lease in accordance with
the terms of this Option Agreement.
4.CONDITIONS PRECEDENT
The option to lease the PROPERTY under this Option Agreement may
not be exercised by OPTIONEE unless and until each and every
following condition has been satisfied:
A. Purchase Price of Option
OPTIONEE shall have paid the purchase price of the option as
required under Section 3 hereof.
B. Schematic Plans Submittal
OPTIONEE shall have submitted the schematic plans to CITY for
the PROJECT (the "Schematic Plans") within three (3) months
of the commencement of this Option Agreement. The Schematic
Plans shall include schematic floor plans, simple elevations,
a detailed description of all proposed improvements or
modifications (including proposed uses and methods of
operation and a general outline specification which
identifies proposed construction material and methods), and
an estimate of the total construction cost for all proposed
improvements required for the PROJECT:
C. Development Plans Approvals
OPTIONEE shall have submitted to, and shall have received
approval of, the development plans for the PROPERTY ("the
Development. Plans") from CITY’s Architectural Review Board.
The Development Plans shall include the Schematic Plans,
interior plans, structural plans, exterior elevations,
signage, and interior elevations.
2
D. Construction Drawings Approval
OPTIONEE shall have obtained approval of the construction
drawings for the PROJECT (the "Construction Drawings") from
the City Engineer and the Chief Building Official. The
Construction Drawings shall include:
i. Complete architectural and engineering working drawings;
ii. Complete construction specifications;
iii. Complete construction contract form; and
iv. Proposed construction schedule.
E. Permits
OPTIONEE shall have provided to the Real Property Manager
evidence that any and all permits and approvals from any and
all public agencies having pre-construction jurisdiction over
the PROJECT, including but not limited to building permits,
street opening permits and health permits,have been
authorized and are available.
F. Certification to Chief Building Official
OPTIONEE shall have submitted to the Chief Building Official
certification that the plans for any proposed building
construction comply, in all respects, with current building
codes, the federal Americans with Disabilities Act of 1990,
as amended, including any implementing regulations, and
energy conservation requirements as setforth in the
California Code of Regulations, Title 24, for non-residential
construction.
G.Sufficient Finances or Financial Commitments
OPTIONEE shall have satisfied the Director of Administrative
Services that OPTIONEE has sufficient finances or financial
commitments to implement the PROJECT as app£oved by CITY,
including constructing the improvements set forth in the
approved Development Plans and Construction Drawings. In
making a determination that the OPTIONEE has satisfied the
requirements contained in this Condition Precedent,~ the
Director of Administrative Services shall apply a
commercially reasonable standard of review. For construction
of the improvements to the Property, the standard shall be
met if OPTIONEE has assembled sufficient equity capita!
and/or loans to meet OPTIONEE’S construction budget. For
operation of the Project, the standard shall be met if
OPTIONEE provides evidence of ability to pay rent for the
Premises for the first six months of the term of the attached
Lease from sources other than projected income from the
Project.
H. Security Deposit
OPTIONEE, in accordance with Section XIII (TENANT’S ASSURANCE
OF CONSTRUCTION COMPLETION) of the Lease, submitted to the
Real Property Manager a security deposit in accordance with
Section X (SECURITY DEPOSIT) of the attached Lease.. OPTIONEE
shall be entitled to apply the Five Thousand Dollars
($5,000.00) purchase price of the option under this Option
Agreement toward the required security deposit under the
Lease.
J. Hypothecation of the Lease
If OPTIONEE proposes to hypothecate the leasehold as security
for a loan in accordance with Section XX (ASSIGNING,
SUBLETTING & ENCUMBERING) of attached Lease, OPTIONEE shall
have submitted to CITY’s Manager, Real Property, any and all
documents related to such hypothecation and shall pay the
necessary processing fees as set forth in the attached Lease.
5.EXERCISE OF OPTION
If at any time during the term of this Option Agreement OPTIONEE
has satisfied each and every condition precedent set forth in
Section 4 hereof to the satisfaction of CITY, OPTIONEE may exercise
the option to lease PROPERTY by giving the Real Property Manager
written notice of OPTIONEE-’S election to do so, accompanied by two
(2) properly executed copies of the Lease substantially in the form
of Exhibit I hereof. CITY shall execute the Lease within ten (i0)
days of receipt of OPTIONEE’S request to exercise the option in
accordance with this Section.
6.GENERAL CONDITIONS
A. Review by City
OPTIONEE hereby acknowledges that one of the purposes of this
Option Agreement is no afford OPTIONEE and CITY the opportunity
to determine whether or non OPTIONEE is able to meet the
various conditions and obtain the required approvals as set
forth in this Option Agreement to implement the PROJECT.
Several of those conditions involve obtaining review and
approval from officers, employees or agents of CITY. Each of
those reviews shall be conducted in an independent manner and
nothing contained herein shall be deemed to limit the
jurisdiction or authority otherwise possessed by said officers,
4
employees or agents in the conduct of such review. Nothing
contained in this Option Agreement shall be deemed to imply
that said approvals will be forthcoming, and the failure to
issue any such approval or permit by any officer, employee or
agent of CITY shall not be deemed in any manner a breach of
this Option Agreement, nor shall any such denial give raise to
any claim, liability, obligation, or cause of action with
respect to this Option Agreement or the Lease.
B. Other Governmental Approvals
CITY agrees to consent to any lawful and complete application
by OPTIONEE with respect to any permits or approvals related to
activities or improvements approved by CITY in accordance with
this Option Agreement that may be required by any governmental
or other regulatory agencies aside from CITY.
C. Assignment Prohibited
This option has been awarded based on the unique background and
proposal of OPTIONEE. Therefore, this option cannot be sold,
assigned or otherwise transferred without the prior written
consent of CITY. Failure to obtain CITY’s required written
consent shall render said sale, assignment or transfer void.
D. Extension of Option
Upon written request of OPTIONEE stating the reasons
therefore, the City Manager or designee may, at his/her sole
discretion, extend the term of the option under this Option
Agreement. The City Manager or designee may grant an extension
of the term of this option for a reasonable period of time, as
determined by the City Manager or designee, in the event
OPTIONEE is delayed in fulfilling the conditions precedent to
the exercise of the this Option Agreement by reason of any
cause not the’ fault of, or within the control of, OPTIONEE or
its agents or employees.
7.Termination of Option
Subject to Section 6(D) hereof, failure of OPTIONEE to meet the
terms and conditions of this Option Agreement fully and
satisfactorily within the time limits stated under Section 2 hereof
shall absolutely and conclusively terminate OPTIONEE’S rights
hereunder. Execution of the Lease by CITY and OPTIONEE
substantially in the form of Exhibit I hereof shall also constitute
a termination of this Option Agreement.
8.OPTIONEE’S RIGHT TO ENTER AND RELATED
OBLICATION DURING OPTION
INDEMNIFICATION
CITY hereby grants to OPTIONEE, its officers, agents and employees,
during the term of this Option Agreement or any extension thereof,
the right to enter the PROPERTY or any portion thereof at
reasonable times for the purposes of conducting, at OPTIONEE’S own
cost and expense, such engineering investigations as may be
required in connection with the PROJECT. OPTIONEE hereby agrees to
protect, indemnify, defend and hold CITY, its officers, agents and
employees, free and harmless from and against any loss, damages or
liability CITY may incur in connection with, as a result of, or by
reason of any such investigation. Should this Option Agreement be
terminated without execution of the Lease, OPTIONEE agrees to
repair any and all damage caused to the PROPERTY by reason of any
such investigation performed.
9.NOTICES
Any notice, tender, or delivery to be given in accordance with this
Option Agreement by either party to the other shall be given in
accordance with Section XXII (NOTICES) of the Lease.
i0.OPTIONEE’S REPRESENTATIONS AND WARRANTIES
OPTIONEE represents and warrants to CITY that it has not employed
any real estate broker or finder in connection with this Option
Agreement and hereby agrees to hold CITY harmless and free from any
liability in connection with any commission or finder’s fee alleged
to be incurred.
ii.ENTIRE AGREEMENT
This instrument contains the entire agreement between the parties
relating to the option granted under this Option Agreement. Any
oral representations or modifications concerning this instrument
shall be of no force and effect, except in a subsequent
modification, which is made in writing and signed by both parties.
12.RECOVERY OF ATTORNEYS’ FEES
In the event of any controversy, claim or dispute between the
parties hereto, arising out of or relating to this Option Agreement
or the breach thereof, the prevailing party shall be entitled to
recover from the losing party reasonable expenses, including
attorneys’ fees, and other legal costs.
13.BINDING ON SUCCESSORS
This Option Agreement shall bind and inure to the benefit of the
respective heirs, personal representatives, successors and assigns
of the parties hereto, except as may be expressly provided
elsewhere in this Option Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Option
Agreement on the day and year first above written.
CITY:OPTIONEE:
CITY OF PALO ALTO JSRFIT,LLC (d.b.a.Form
Fitness)
By:By:
Mayor
Its:
ATTEST:
By: By:
City Clerk
Its:
APPROVED AS TO FORM:
By:
Asst. City Attorney
RECOMMENDED FOR APPROVAL:
By:
Its:
By:
Asst. City Manager
By:
Director, Administrative
Services Department
By:
Manager, Real Property
Attachments: Exhibit I : Lease
LEASE #
Project: 445 BRYANT
This Lease is made this day of ., 2004, by and between the City of Palo
Alto, a California municipalcorporation ("CITY"), and JSRFIT LLC, a California limited
liability company d.b.a. Form Fitness ("TENANT").
RECITALS
On ,2004, CITY entered into an Option Agreement with TENANT, on file with the
City Clerk as City Contract No ...... (the ,’Option Agreement"). Under the Option
Agreement, TENANT agreed to secure all necessary CITY approvals and permits in order to
exercise the option granted under the Agreement to lease the PREMISES (the "Option"), and
construct the improvements .....
TENANT has satisfied all the conditions set forth in the option Agreement, and now desires
to exercise the Option and lease the PREMISES from CITY.
TENANT has also expressed interest in providing enrichment activities for youth some of
which will be offered at a discount. The proposed youth activities include skills classes in
kick boxing, cycling, and running; mother daughter self-defense seminars, student discounts,
fund raising events, physical education school credits, bike safety programs, outreach
programs and Tai Chi and Yoga in the park.
CITY desires to lease the PREMISES to TENANT, in accordance with the terms and
conditions set forth below.
Now, therefore, in consideration of these covenants, terms and conditions, the parties hereto
mutually agree as follows:
I.PURPOSE
The purpose of this Lease is to allow TENANT to develop and operate a full service health
and fitness center and associated and incidental uses on the PREMISES according to the
terms and conditions of this Lease.
II. PREMISES
Subject to the terms and conditions set forth in this Lease, CITY hereby leases the
PREMISES to TENANT. PREMISES are described as 445 Bryant Street a two story, 7410
square foot building. TENANT hereby leases the PREMISES from CITY for the purpose of
operating a full service health and fitness center. TENANT agrees to comply with the
requirements set forth under Clause III (PERMITTED AND OPTIONAL SERVICES AND
USES) of this Lease.
III. PERMITTED AND OPTIONAL SERVICES AND USES
In furtherance of the purpose stated above the following permitted and optional services and
uses shall be permitted or prohibited on the PREMISES including any additions or
modifications to the Premises approved by CITY
A. Permitted Services and Uses. Throughout the term of this Lease TENANT may
provide the following services, activities and uses on the PREMISES:
Development, maintenance and operation of a full service health and fitness center and
associated and incidental activities and uses commonly associated with a health and fitness
center, subject to prior approval of the City, which approval shall not be unreasonably
withheld, in accordance with and permitted by the Palo Alto Municipal Code including but
not limited to, Title 18 (Zoning). Current zoning for the ground-floor PREMISES permits 1)
eating and drinking services; 2) personal services; 3) retail services; and 4) travel agencies.
Financial services providers are not permitted nor are any conditional uses. (Uses acceptable
to the City as of the date of this LEASE are group exercise classes, full service cardio
vascular and weight lifting workouts, retail shop (selling workout related products, personal
training, childcare (for members use during workouts), showers and lockers.
B. Additional Services and Uses. Subject to the prior written approval of the City
Manager, [which approval shall not be unreasonably withheld subject to the conditions as
set forth in section XX (ASSIGNMENT AND SUBLETTING)] TENANT may also sublet a
portion of the PREMISES for additional services and uses which are compatible with the
permitted services, activities and uses stated above and which are permitted by the Palo Alto
Municipal Code.
C. Prohibited Uses. The above listed required, permitted and optional services,
activities and uses shall be the only services, activities and uses permitted upon or from the
PREMISES.
IV. TERM
The term of this Lease shall be Ten (10) years, commencing on the first day of the month
following the date of execution of the Lease by the Mayor of CITY.
V.EXTENSIONS OF TERM
CITY hereby grants to TENANT the option to extend the term of this Lease for two
additional five-year periods commencing when the prior term expires upon each and all of
the following terms and conditions:
In Order to exercise an option to extend, TENANT must gPce written notice of such election
to CITY and CITY must receive the same at least six months but not more than 12 months
prior to the date that the option period would commence, time being of the essence. If
2
proper notification of the exercise of an option is not given and/or received, such option
shall automatically expire. Options may only be exercised consecutively.
Except for the provisions of this Lease granting an option or options to extend the term, all
of the terms and conditions of this Lease except where specifically modified by this option
shall apply.
TENANT has not received two default notices in the twenty four months proceeding
TENANTS notice to exercise either 5 year option (whether the default described in the
notice has been cured or not).
All rights of TENANT under the provisions of an Option shall terminate and be of no
further force or effect, if after such exercise and during the term of this Lease, (i) TENANT
fails to pay rent for a period of thirty (30) days after such obligation becomes due or (ii)
TENANT fails to cure a default or (iii) CITY gives TENANT three notices late payment
notices.
VI.RENT
As consideration for TENANT’S use of the PREMISES in accordance with the terms and
conditions of this LEASE, TENANT agrees to pay to CITY Rent as set forth in the schedule
below, due and payable in accordance with Clause VIII (RENT PAYMENT
PROCEDURE).
Rental
Rate
Per Sq
Ft Rent Per Month Rent Per Year
Year
Year
Year
Year
Year
Year
Year
Year
Year
Year
Year
.5
.5
2
3
4
5
6
7
8
9
10
$1.85
$2.00
$2.35
$2.50
$2 .’75
$3.00
$3.50
$3.75
$3.85
$3.95
$3.95
$13,708.00
$14,820.00
$17,413.00
$18,525.00
$20,378.00
$22,230.00
$25,935.00
$27,788.00
$28,529.00
$29,270.00
$29,270.00
$171,171,00
$208,962.00
$222,300.00
$244,530.00
$266,760.00
$311,220.00
$333,450’00
$342,342.00
$351,234.00
$351,234.00
VII. EXTENSION RENT
In the event that TENANT chooses to exercise the Extension(s) provided for in Section V
EXTENSION OF TERMS of this Lease, Rent for each additional term shall be calculated as
follows:
As of the first day of each five-year extension term (each, an "Adjustment Date") the
previous years rental shall be adjusted to the "Market Rental Value" of the property as
follows: Within 30 days after the date that the CITY receives from TENANT written notice
electing to extend the term as described in section V, the parties shall attempt to agree upon
what the new Market Rate Rental Value will be from and after the adjustment date. If
agreement cannot be reached, within thirty days, then Market Rental Value will be
determined pursuant to clause (1) or (2) below In no event will the new Market Rate Rental
Value be adjusted to an amount that is less than the rent payable for the year immediately
preceding the Adjustment Date nor adjusted to an amount that is more than a 10% increase
of the rent payable for the year immediately preceding the Adjustment Date.
1. CITY and Tenant shall immediately appoint a mutually acceptable broker to establish the
new Market Rental Value as of the Adjustment Date within the next 30 days. Any
associated costs will be split equally between the Parties, or
2. If CITY and TENANT have been unable to agree on a mutually acceptable broker, then
both CITY and Tenant shall each immediately make a reasonable determination of the
Market Rental Value as of the Adjustment Date and submit such determination, in writing,
to arbitration in accordance with the following provisions:
a) Within fifteen days thereafter, CITY and TENANT shall each select a broker of their
choice to act as an arbitrator. The two arbitrators so appointed shall immediately select a
third mutually acceptable broker to act as a third arbitrator.
b) The three arbitrators shall within thirty days of the appointment of the third arbitrator
reach a decision as to what the actual Market Rate Value for the PREMISIS is; and whether
CITY’S or TENANT’S submitted determination of Market Rental Value is closer thereto.
The decision of a majority of the arbitrators shall be binding on the Parties. The submitted
Market Rental Value shall thereafter be used by the Parties.
c) If either of the Parties fails to appoint an arbitrator within the specified fifteen days, the
arbitrator timely appointed by one of them shall reach a decision on his or her own, and said
decision shall be binding on the Parties.
d) The entire cost of such arbitration shall divided equally among the Parties.
REVISION OF RENT DURING THE YEARS OF THE OPTION PERIODS
The Market Rental Value determined as of the Adjustment Date of an Extension Period shall
be subject to automatic annual adjustments, effective on the anniversary of the Adjustment
Date, in proportion to changes in the Consumer Price Index, All Urban Consumers, (base
years 1982-1984 = 100) for San Francisco-Oakland-San Jose CSMA published by the U.S.
4
Department of Labor, Bureau of Labor Statistics or any replacement index published by said
Bureau (INDEX).
The automatic adjustment shall be effective on each anniversary of the commencement date
of the term of this LEASE and shall be calculated in accordance with the following formula:
X = A (B/C)
Where:(the rental rate adjustment is to become effective)
C =Monthly index for the second calendar month prior to the Adjustment Date
X =Adjusted rental,
A =Rental at the Commencement of the LEASE.
B =INDEX for the second calendar month prior to the month in which that rental rate
adjustment is to become effective (or, if the INDEX is not published for that month, the
INDEX for the third calendar month prior to the month in which or, if the INDEX was not
published for that month, the INDEX for the third calendar month prior to the date of this
LEASE). Provided, however, in no event will the rent following the date on which any
rental rate adjustment is to be effective be less than the rent payable for the year
immediately preceding such date.
VIII.CHARGE FOR UNATHORIZED SERVICES AND USES
TENANT shall pay CITY a sum equal to one hundred percent (100%) of the gross receipts
for any service or use that is not permitted or authorized by Clause III (PERMITTED AND
OPTIONAL SERVICES AND USES) hereof. The existence of such charge or the payment
or receipt of money under this clause, does not constitute an authorization of a particular
service or use and does not constitute a waiver of CITY’S right to terminate such service or
uses.
IX. RENT.PAYMENT PROCEDURE
Payment of Rent. On or before the first day of each month, TENANT shall pay to CITY the
Rent as set forth in Clause VI (RENT) and, in any Extension Period, as determined in
Clause VII (EXTENSION RENT) hereof.
Commencement of Obligation. TENANT’S obligation to pay the Rent shall commence
following execution of this Lease by both parties and upon TENANT’S receipt of the final
occupancy permit issued by the CITY’S Building Department. The monthly rent will be
prorated to coincide with the commencement date.
Place of Payment. Rental payments shall be delivered to the Revenue Collections Division,
250 Hamilton Avenue, PO Box 10250, Palo Alto, CA 94303. The designated place of
payment may be changed at any time by CITY upon ten (10) days’ written notice to
TENANT. Rental payments may be made by check made payable to the City of Palo Alto.
TENANT. assumes all risk of loss if payments are made by mail.
X.SECURITY DEPOSIT .......................................................
A security deposit in the sum of Thirteen Thousand, Seven Hundred and Eight Dollars
($13,708) shall be provided to CITY by TENANT prior to the execution of this Lease by the
Mayor of CITY. CITY shall retain the security deposit throughout the term of this Lease.
TENANT may apply the Five Thousand Dollars ($5,000.00) purchase price of the Option,
and the Two Thousand Dollars ($2,000.00) purchase price of the Option Extension, if any,
to the required security deposit under this Clause X.
TENANT shall increase the security deposit to Twenty Two Thousand Two Hundred Thirty
Dollars ($22,230) upon the five-year anniversary of the commencement of this Lease.
Should this Lease be extended beyond the first ten-year term, the security deposit shall be
adjusted to equal the then current monthly rent on each Adjustment Date (as defined in
Clause VII (EXTENSION RENT)).
The security deposit shall take one of the forms set out below .....
A.Cash.
B. The assignment to CITY of a savings deposit held in a financial institution in Santa
Clara or San Mateo County acceptable to CITY. At a minimum, such assignment shall be
evidenced by the delivery to CITY of the original passbook reflecting the savings deposit
and a written assignment of the deposit to CITY in a form approved by the City Attorney
and the Real Property Manager.
C. A Time Certificate of Deposit from a financial institution in Santa Clara or San
Mateo County wherein the principal sum is made payable to CITY or order. Both the
financial institution and the form of the certificate must be approved by the City Attorney
and the Real Property Manager.
D. A Letter of Credit or other instrument of credit from a financial institution, subject to
regulation by the state or federal government, pledging that funds necessary to secure
performance of the Lease terms, covenants, and conditions, are on deposit and guaranteed
for payment, and agreeing that said funds shall be trust funds securing TENANT’S
performance and that all or any part shall be paid to CITY on order upon demand by CITY.
Both the financial institution(s) and the form of the instrument(s) must be approved by the
City Attomey and the Real Property Manager .......
Regardless of the form in which TENANT elects to make said security deposit, all or any
portion of the principal sum shall be available unconditionally to CITY for correcting any
default or breach of this Lease incurred by CITY as a result of the failure by TENANT, its
successors or assigns, to faithfully perform all of the terms, covenants, and conditions of this
Lease. Should TENANT elect to provide a Time Certificate of Deposit, Letter of Credit, or
other instrument of credit, hereinafter collectively referred to as "INSTRUMENT,’, to fulfill
the security deposit requirements of this Lease, the INSTRUMENT shall contain a provision
whereby the institution issuing the INSTRUMENT agrees to provide CITY with written
notice of its intent not to renew the INSTRUMENT at least thirty (30) days prior to
expiration or termination of the INSTRUMENT. If TENANT has not provided CITY with
an acceptable altemate form of security deposit at least ten (10) days prior to expiration or
termination of the .INSTRUMENT, CITY may demand and obtain from the institution
issuing the INSTRUMENT, the amount secured by the INSTRUMENT as satisfaction of the
security deposit provision of this Lease.
Should TENANT elect to assign the savings deposit to CITY, or provide an alternate
INSTRUMENT, to fulfill the security deposit requirements of this Lease, the assignment, or
issuance of the INSTRUMENT shall have the effect of releasing the depositor or creditor
therein from liability on account of the payment of any or all of the principal sum to CITY
or order upon demand of CITY. The agreement entered into by TENANT with a financial
institution to establish the deposit necessary to permit assignment or issuance of a certificate
as provided above, may allow the payment of interest accruing on account of the deposit to
TENANT, on order.
TENANT shall maintain the required security deposit throughout the Lease term. Failure to
do so shall be deemed a default and may be grounds for immediate termination of this
Lease. The security deposit shall be rebated, reassigned, released, or endorsed to TENANT
on order, as applicable, at the end of the Lease term, provided TENANT has fully and
faithfully performed each and every term, covenant, and condition of this Lease.
XI.INITIAL CONSTRUCTION BY TENANT
A. Minimum Construction and Timing. Commencing upon the execution of this Lease,
TENANT shall in an efficient and workmanlike manner improve the PREMISES, with a
maximum contribution by CITY of $ 74,100, to adequately accommodate those services,
activities and uses required by TENANT. CITY’S contribution of the $ 74,100 shall be paid
in installments upon receipt by CITY of written statements accompanied by copies of
invoices for major building improvements such as the HVAC system, major plumbing,
electrical and structural improvements as itemized below. The development plans prepared
by TENANT and approved by CITY during the Option period under the Option Agreement,
preceding execution of this Lease, shall be a master plan for development of the
PREMISES, and the construction drawings prepared by TENANT and approved by the City
Engineer and the Chief Building Official during the same period shall provide the plans,
specifications, and time schedule for constructing such improvements. The approved
development plans and construction drawings are attached hereto as Exhibit "C" and
incorporated herein by this reference.
The list of Building Improvements includes, but is not limited to:
Design and installation of a code compliant HVAC System
Design and installation of a code compliant Fire Sprinkler System
Design and installation of ADA compliant Restrooms
Design and upgrading of electrical and plumbing systems to accommodate TENANT’S
health and fitness center use
Design and installation of additional electric meters
7
Design and installation of any other improvements that are mutually agreed upon by the
CITY and TENANT.
B. Development Plans and Construction Drawings. All design and construction of the
improvements shall conform to the construction and architectural standards contained in
Exhibit "B" and shall meet all other requirements contained in this Lease.
C. Compliance with ADA. All construction or improvement of the PREMISES shall
comply with the Federal Americans with Disabilities Act of 1990, as amended, including the
Act’s implementing regulations, as amended.
D. Certificate of Inspection. Upon completion of construction of any substantial
improvement to the PREMISES, TENANT shall submit to the Real Property Manager a
Certificate of Inspection, verifying that the construction was completed in conformance with
Title 24 of the California Code of Regulations for non-residential construction.
Separate and apart from the tenant improvement allowance by the CITY, the CITY agrees to
pay for the repairs necessary to fill in the concrete cutout on the second floor of the
premises.
XII.ADDITIONAL CONSTRUCTION AND/OR ALTERATION BY TENANT
No CITY’S Consent. No additional structures, improvements, or facilities shall be
constructed, erected, altered, or made within the PREMISES without the prior
written consent of the City Council if required by CITY procedures or ordinances, or
otherwise by the City Manager, which approval shall not be unreasonably withheld.
B. Strict Compliance with Development Plans and Construction Drawings. Any
additional improvements constructed by TENANT within the PREMISES shall be
constructed in an efficient and workmanlike manner and in strict compliance with detailed
plans and specifications approved by the City Council if required by City of Palo Alto
procedures or ordinances or otherwise by the City Manager, or designee, and applicable City
of Palo Alto codes and ordinances.
C. Certificate of Inspection. Upon completion of construction of any substantial
improvement to the PREMISES, TENANT shall submit to the Real Property Manager a
Certificate of Inspection, verifying that the construction was completed in conformance with
Title 24 of the California Code of Regulations for non-residential construction.
XIII.TENANT’S ASSURANCE OF CONSTRUCTION COMPLETION
Prior to commencement of this Lease and improvement of the PREMISES, or any phase
thereof, TENANT shall furnish the Real Property Manager with satisfactory evidence that
assures CITY that sufficient funds will be available to complete the approved construction.
The amount of such assurance shall be the total estimated construction cost that was
submitted to and approved by CITY in accordance with the Option Agreement. Evidence of
such assurance shall take one of the forms set out below and shall guarantee TENANT’S flail
and faithful performance of all of the terms, covenants, and conditions of this Lease:
A.Completion Bond naming CITY as beneficiary;
Bo Performance and payment bonds, supplied by TENANT’S contractor or contractors,
provided the bonds are issued with both TENANT and CITY named as beneficiaries;
C.Irrevocable letter of credit from a financial institution naming CITY as beneficiary;
Do Deposit of sufficient cash to fund the construction in an account, with CITY and
TENANT joint signatories on the account, to be used as a construction fund. No
funds will be withdrawn other than construction draws as progress payments for
work as completed. Checks will require only one signature, but CITY will be entitled
to review all bank records and monitor all checks written on the account.
E.Any combination of the above."
All bonds and letters of credit must be issued by a company qualified to do business in the
State of California. All bonds and letters of credit shall also be in a form acceptable to the
Director of Administrative Services and City Attorney, and shall insure faithful and full
observance and performance by TENANT of all of the terms, conditions, covenants, and
agreements relating to the construction of improvements in accordance with the
development plans and construction plans approved by CITY as set forth in this Lease.
XIV.DAMAGE TO OR DESTRUCTION OF IMPROVEMENTS
In the event of damage to or destruction of TENANT-constructed or TENANT-improved
improvements located within the PREMISES, or in the event TENANT-constructed or
TENANT- improved improvements located within the PREMISES are declared unsafe or
unfit for use or occupancy by a public entity with the authority to make and enforce such
declaration, TENANT shall, within thirty (30) days, commence and diligently pursue to
completion, the repair, replacement, or reconstruction of improvements necessary to permit
full use and occupancy of the PREMISES for the purposes required by this Lease. Repair,
replacement, or reconstruction of improvements within the PREMISES shall be
accomplished in a manner and according to plans approved by the City Engineer, the Chief
Building Official and the Real Property Manager.
In the event that the TENANT-constructed or TENANT2improved improvements on the
PREMISES be more than seventy-five percent (75%) destroyed or damaged by an insured
loss during the last five (5) years of the Term ofthis Lease, TENANT shall have the option
of rebuilding or repairing such damage or terminating this Lease. TENANT shall notify the
Real Property Manager in writing of its decision within ten (10) days of the occurrence of
such damage or destruction, In the event that TENANT elects to terminate this Lease and
not rebuild or repair such damage, TENANT shall demolish any remaining structures or
portions of structures not desired by CITY and clean up any and all debris and shall pay to
9
CITY a pro,rata portion of.the proceeds of insurance required, in accordance with Clause
XIX(INSURANCE) hereof. The pro-rata portion shall be based on the following formula:
L = P(R/T)
Where:
L =CITY’S portion of insurance proceeds.
P =Total insurance proceeds paid exclusive of demolition and debris removal expenses.
R =Remaining term of the Lease.
T =The total Lease term, including any extensions made in accordance with this Lease.
TENANT’S liability for demolition and cleanup shall be limited to insured losses including
any deductible amount,
XV, AS BUILT PLANS
Upon completion of all the improvements, on the PREMISES, TENANT shall provide .the
Real Property Manager with a complete set of reproducible "as built plans" reflecting the
actual construction within Or upon the PREMISES. TENANT shall also provide the Real
Property Manager with a statement of actual construction costs for all such impro;cemen.ts.
XVI. OWNERSHIP OF IMPROVEMENTS
All improvements constructed, erected or installed upon the PREMISES must be free and
Clear of all liens, claims, or liability for labor or material and shall become the property of
CITY, at its election, upon expiration or earlier termination of this Lease and, upon CITY’S
election, shall remain upon the PREMISES upon termination of this Lease.
Title to all equipment, furniture, furnishings and trade fixtures placed by TENANT upon the
PREMISES shall remain in TENANT, and replacements, substitutions and modifications
thereof may be made by TENANT throughout the term of this Lease. TENANT may
remove such fixtures and furnishings upon termination of this Lease if TENANT is not then
in default under this Lease, provided that TENANT shall repair to the satisfaction of CITY
any damage to the PREMISES and improvements caused by such removal and provided that
usual and customary lighting, plumbing and heating fixtures shall remain upon the
PREMISES upon termination of this Lease ...............
XVII. MAINTENANCE OBLIGATIONS OF CITY AND TENANT
CITY’S and TENANT’S maintenance obligations shall be defined according to the portion
of the Premises being maintained.
1. CITY shall have the obligation to perform any repairs to portions of the PREMISES
constructed by CITY and existing prior to execution of the Option Agreement by TENANT.
TENANT shall have the obligation to perform ordinary maintenance to such portions of the
PREMISES, including exterior window washing and similar tasks.
2, TENANT shall maintain at its sole expense contracts for annual inspection and regular
maintenance of the elevator, HVAC and Fire Sprinkler System and shall provide copies of
10
such contracts and evidence of satisfactory condition to CITY upon request by CITY.
Should TENANT fail to perform any necessary maintenance on these systems, CITY shall
have the option to perform such maintenance and TENANT, within ten (10) days of receipt
of a bill therefore from the Real Property Manager, shall reimburse CITY for the cost of
such repairs, including a fifteen percent (15%) administrative overhead fee. Performance of
such maintenance by CITY shall in no event be construed as a waiver of the duty of
TENANT to make repairs or perform maintenance as provided in this Clause. CITY shall
pay for major repair and/or replacement of the elevator, HVAC and fire sprinkler system.
3. TENANT shall maintain, at its sole expense, all equipment, furnishings and trade fixtures
upon the PREMISES required for the maintenance and operation of TENANT’S business.
In no event shall CITY have any obligation to perform such maintenance.
TENANT agrees that if and when any repairs, alterations, additions or betterments shall be
made by it as required by this paragraph, it shall promptly pay for all labor done or materials
furnished and shall keep the PREMISES free and clear of any lien or encumbrance of any
kind whatsoever.
XVIII. UTILITIES
TENANT shall be solely responsible for and shall pay, prior to delinquency, all charges for
utilities supplied to the PREMISES during the term of this Lease. TENANT shall be solely
responsible for the installation of separate meters for all utilities should they be necessary.
IXX. INSURANCE
TENANT, at its sole expense, shall maintain insurance acceptable to CITY in full force and
effect throughout the term of this Lease.
A. Minimum Scope oflnsurance
Coverage shall be at least as broad as:
1)
2)
3)
4)
Insurance Services Office Commercial General Liability coverage (occurrence form
CG 0001).
Insurance Services Office form number CA 0001 (Ed. 1/87) covering Automobile
Liability, code 1 (any auto) .....
Workers’ Compensation insurance as required by the State of California and
Employer’s Liability Insurance.
Course of Construction insurance form providing coverage for "all risks" of loss.
The policy or policies of insurance maintained by TENANT shall provide the following
minimum limits and coverages:
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POLICY MINIMUM LIMITS OF LIABILITY
WORKERS’
COMPENSATION Statutory
°COMPREHENSIVE
AUTOMOBILE
LIABILITY,
including owned, hired,
and non-owned
automobiles.
Bodily Injury
Property Damage
$1,000,000 ea. person
$1,000,000 ea. occurrence
$1,000,000 ea. occurrence
COMMERCIAL
GENERAL
LIABILITY,
including
products and
completed operations,
broad form contractual,
and personal injury.
Bodily Injury
Property Damage
$1,000,000 ea. person
$1,000,000 ca. occurrence
$1,000,000 aggregate
$1,000,000 ea. occurrence
o FIRE & EXTENDED Not less than one hundred percent (100%) of
COVERAGE. the replacement cost of all insurable improvements within or upon the
PREMISES. Such policies must include water damage and debris cleanup
provisions. Additional fire and extended coverage must be obtained in accordance
with this clause upon completion of construction or installation of any major
insurable improvement under the Project.
5.COURSE OF
CONSTRUCTION
Completed value of the Project.
B. Deductibles and Self-Insured Retentions .....
Any deductibles or’ self-insured retentions must be declared to and apprdved by the CITY.
At the option of the CITY either: the insurer shall reduce or eliminate such deductibles or
self-insured retentions as respects the CITY, its officers, officials, employees and
volunteers; or the TENANT shall procure a bond guaranteeing payment of losses and related
investigations, claim administration and defense expenses.
Insurance shall be in full force and effect commencing on the first day of the term of this
Lease. Each insurance policy required by this Lease shall contain the follov~ing clauses:
1. "Each insurance policy required by this clause shall be endorsed to state that
coverage shall not be suspended, voided, canceled by either party, reduced in
coverage or in limits except after thirty (30) days’ prior written notice by certified
mail, return receipt requested, has been given to the CITY."
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2. "All rights of subrogation are hereby waived against the CITY OF PALO
ALTO and the members of the City Council and elective or appointive officers or
employees, when acting within the scope of their employment or appointment."
3. "The CITY OF PALO ALTO is named as a loss payee on the property and
course of construction insurance policies described above."
4, "The CITY, its officers, officials, employees, agents and volunteers are to be
covered as insureds as respects: liability arising out of activities performed by or on
behalf of the TENANT; products and completed operations of the TENANT;
premises owned, occupied or used by the TENANT; or automobiles owned, leased,
hired or borrowed by the TENANT. The coverage shall contain no special
limitations on the scope of protection afforded to the CITY, its officers, officials,
employees, agents or volunteers."
5. "For any claims related to this Lease, the TENANT’S insurance coverage
shall be primary insurance as respects the CITY, its officers, officials, employees,
agents and volunteers. Any insurance or self-insurance maintained by the CITY, its
officers, officials, employees, agents or volunteers shall be excess of the TENANT’S
insurance and shall not contribute with it."
6. "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 volunteers."
7. "The TENANT’S insurance shall apply separately to each insured against
whom claim is made or suit is brought, except with respect to the limits of the
insurer’s liability."
C. Acceptability of Insurers
Insurance is to be placed with insurers with a current A.M. Best’s rating of no less than
A:VII.
TENANT agrees to deposit with the Real Property Manager, on or before the
commencement date ofthis Lease, certificates of insurance necessary to satisfy CITY that
the insurance provisions of this Lease have been complied with, and to keep such insurance
in effect and the certificates ther.efore on deposit with CITY during the entire term of this
Lease. Should TENANT not provide evidence of such required coverage at least three (3)
days prior to the expiration of any existing insurance coverage, CITY may purchase such
insurance, on behalf of and at the expense of TENANT to provide six months of coverage.
CITY shall retain the right at any time to review the coverage, form, and amount of the
insurance required hereby. If, in the opinion of the Risk Manager, the insurance provisions
in this Lease do not provide adequate protection for CITY and for members of the public
using the PREMISES, the Real Property Manager may require TENANT to obtain insurance
sufficient in coverage~ form, and amount to provide adequate protection as determined by
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the Risk Manager. CITY’S requirements shall be reasonable and shall be designed to assure
protection from and against the kind and extent of risk which exists at the time a change in
insurance is required.
The Real Property Manager shall notify TENANT in writing of changes in the insurance
requirements. If TENANT does not deposit copies of acceptable insurance policies with
CITY incorporating such changes within sixty (60) days of receipt of such notice, or in the
event TENANT fails to maintain in effect any required insurance coverage, TENANT shall
be in default under this Lease without further notice to TENANT. Such failure shall
constitute a material breach and shall be grounds.for immediate termination of this Lease at
the option of CITY.
The procuring of such required policy or policies of insurance shall not be construed to limit
TENANT’S liability hereunder nor to fulfill the indemnification provision and requirements
of this Lease. Notwithstanding the policy or policies of insurance, TENANT shall be
obligated for the full and total amount of any damage, injury, or loss caused by or connected
with this Lease or with use or occupancy of the PREMISES.
XX.ASSIGNMENT, SUBLETTING AND ENCUMBERING
TENANT shall not, either voluntarily or by operation of law, assign, transfer, sublease,
mortgage, pledge, hypothecate or encumber this Lease or any interest herein, or any right or
privilege appurtenant hereto, or allow any other person (the employees, agents and invitees .
of TENANT excepted) to occupy or use the Premises, or any portion thereof, without first
obtaining the written consent of the City Manager, in the City Manager’s sole and absolute
discretion but, which consent shall not be unreasonably withheld if all of the following
conditions are satisfied:
TENANT’S construction of improvements has been substantially completed in accordance
with the terms of this Lease;
TENANT provides to CITY at least 45 days prior to the date of the proposed assignment,
transfer or sublease, evidence that the proposed assignee, transferee or sub-lessee has
sufficient finances Or financial commitments to perform TENANT’S then-remaining
obligations under this LEASE. In evaluating the acceptability of such evidence, the CITY
shall apply a commercially reasonable standard of review, Such standard shall be met if the
proposed assignee, transferee or sub-lessee provides evidence of ability to pay rent for the
Premises for the first six months of the term of the assignment, transfer or sublease.
The proposed assignee, transferee or sub-lessee agrees to operate the Premises for
substantially the same use as theretofore conducted therein, or for a use permitted by this
Lease and otherwise compatible with other uses then operating on the property in which the
Premises are located;
TENANT shall remain fully liable during the unexpired term of this Lease; and
Any such assignment, sublease, or transfer shall be subject to all of the terms, covenants and
conditions of this Lease and the assignee, sub-lessee or transferee shall expressly assume for
14
the benefit of CITY the .obligations of TENANT under this Lease by a document reasonably
satisfactory to CITY.
Consent to one assignment, subletting, occupation or use by any other person shall not be
deemed to be consent to any subsequent assignment, subletting, occupation or use by
another person. Consent to any such assignment or subletting shall in no way relieve
TENANT of any liability under this Lease. Any such assignment or subletting without such
consent shall be void, and shall, at the option of the CITY, constitute a default under this
Lease.
For purposes of this Section, a change in the ownership (voluntary or involuntary, by
operation of law, or otherwise) of 51% or more of an ownership interest of.TENANT shall
be deemed an assignment subject to the provisions hereof.
For purposes of this Section, changes in the relative percentage interests of the existing
owners of he TENANT which does not change the identity of the existing owners shall not
be deemed a change in ownership.
XXI. DEFAULT BY TENANT
A.Default Defined. The occurrence of any of the following events shall constitute a
default by TENANT under this Lease:
1. TENANT’S failure to pay all or any portion of Rent or any other payment due CITY at the
times and in the manner provided in this Lease, if the failure continues for twenty-five (25)
days after notice has been given to TENANT;
2. TENANT’S total abandonment or vacation of the PREMISES for ten (10) days or more,
shall conclusively be deemed an abandonment of the PREMISES.
Violation of the provisions of Section XX (ASSIGNING, SUBLETTING, AND
ENCUMBERING);
3. Failure to provide evidence of insurance coverage throughout the term of this Lease in
accordance with Section IXX (INSURANCE);
4. TENANT’S violation of any other provision of this Lease, if the violation is not cured
within thirty (30) days after written notice of such violation by CITY to TENANT.
However, if the violation cannot reasonably be cured within thirty (30) days, TENANT shall
have a reasonable period of time (as determined by the City Manager) to cure such violation
so long as TENANT commences to cure the default within the thirty-day period and
thereafter diligently and in good faith continues to cure the default.
B. Rights and Remedies of CITY. If TENANT commits a default, as defined in
Subparagraph A. of this Section, CITY shall have the following rights and remedies, which
rights and remedies shall not be exclusive, but which shall be cumulative and in addition to
any and all rights and remedies now or hereafter allowed by law or otherwise specifically
provided in other Sections in this Lease:
15
1. CITY may continue this Lease in full force and effect and not terminate
TENANT’S right to possession ofthe PREMISES, in which event CITY shall have
the right to collect Rent and other payments when due;
2. CITY may terminate this Lease and TENANT’S right to possession of the
PREMISES;
3. CITY may have a receiver appointed to collect rentals and conduct
TENANT’S business;
4. CITY may cure the default for the account and at the expense of TENANT.
If CITY, by reason of an act of default by TENANT, is compelled to pay, or elect to
pay, any sum of money or do any act that will require the payment of any sum of
money, the sum or sums paid by CITY, together with an administrative charge equal
to fifteen percent (15%) of said sum or sums, shall be deemed to be additional Rent
due CITY under this Lease and shall be due immediately from TENANT at the time
the sum is paid, and if repaid at a later date shall bear interest at the rate of 10% per
annum from the date the sum is paid by CITY until CITY is reimbursed by
TENANT;
5. CITY may seek an action or suit in equity to enjoin any acts or things which
may be unlawful or in violation of the fights of CITY;
6. CITY may seek a mandamus or other suit, action or proceeding at law or in
equity to enforce its right against TENANT and any of its officers, agents,
employees, assigns or subtenants, and to compel it to perform and carry out its duties
and obligations under the law and this Lease.
Co Default and Damages
1. CITY and TENANT specifically agree that acts of maintenance or
preservation or efforts to re-let the PREMISES (including the making of alterations and/or
improvements to the PREMISES in connection with any re-letting), and/or the appointment
of a receiver upon initiative of CITY to protect CITY’S interests under this Lease will not
constitute a termination of TENANT’S fight to possession. CITY’S efforts to mitigate the
damages caused by TENANT’S default shall not constitute a waiver of CITY’S right to
recover damages under this Section.
2. Upon a termination of TENANT’S fight to possession, CITY shall have the
fight to recover from TENANT:
A.The worth, at the time of award, of the unpaid rental which had been
earned at the time of termination of this Lease; and
B. The worth, at the time of award, of the amount by which the unpaid
Rent which would have been earned after the date of termination of this
16
Lease until the time of award exceeds the amount of such rental loss that
TENANT proves could have been reasonably avoided; and
C. The worth at the time of award of the amount by which the unpaid
Rent for the balance of the term after the time of award exceeds the amount
of such rental loss that TENANT proves could be reasonably avoided; and
D. Any costs incurred by CITY in connection with re-letting the
PREMISES, court costs and reasonable attorney’s fees.
"The worth, at the time of the award," as used in paragraphs (A) and (B) of this section is to
be computed by allowing interest at the rate of 10% per annum. "The worth, at the time of
the award," as used in paragraph (C) of this section, 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 1%.
Nothing in this Section shall affect CITY’S right to indemnification for liability arising prior
to termination of this Lease for personal injury or property damage pursuant to other
provisions of this Lease.
D. Appointment of Receiver. If a receiver is appointed at the request of CITY in any
action against TENANT to take possession of the PREMISES and/or to collect the Rents or
profits derived therefrom, the receiver may, if it is necessary or convenient in order to
collect such Rents from profits, conduct the business of TENANT then being carried on in
the PREMISES, and may take possession of any personal property belonging to TENANT
and used in the conduct of such business and may be used by the appointed receiver in
conducting such business on behalf of CITY and TENANT. Neither the application for the
appointment of such receiver nor the appointment of such receiver shall be construed as an
election by CITY to terminate this Lease unless a notice of such intention is given to
TENANT. TENANT agrees to indenmify and hold CITY harmless from any liability
arising out of the entry by any such receiver and the taking of possession of the PREMISES
and/or use of personal property.
XXII. NOTICES
All notices, statements, demands, requests, consents, approvals, authorizations, offers,
agreements, appointments or designations hereunder give by either party to the other, shall
be in writing and shall be sufficiently given and served upon the other party if (1) personally
served, (2) sent by United States certified mail, postage, prepaid, (3) sent by express
delivery service, or (4) in the case of a facsimile, if sent to the telephone number(s) set forth
below during normal business hours of the receiving party and followed within 48 hours by
delivery of hard copy of the material sent by facsimile, in accordance with (1), (2) or (3)
above. Personal service shall include, without limitation, service by de!ivery service and
service by facsimile transmission, Delivery of notices prOperly addressed to the CITY, shall
be deemed complete when the notice is physically delivered to the Real Property Manager
or to City Clerk.
17
All notices pursuant to this lease shall be addressed as set forth below or as either party may
subsequently designate by written notice.
TO: CITY TO: TENANT
Real Property Manager
City of Palo Alto
P.O. Box 10250
250 Hamilton Avenue
Palo Alto, CA 94303
FAX: (650) 323-1741
JeffRamona
JSRFIT LLC
203600 Via Santa Teresa
San Jose, CA 95120
(408) 997-3013
with a copy to:with a copy to:
City Clerk
City of Palo Alto
P.O. Box 10250
.Mr. Richard Meyer
2550 5th Avenue, Suite 510
San Diego, Ca. 92103250 Hamilton Avenue
Palo Alto, CA 94303
FAX: (650) 328-3631
And
City Attorney
City of Palo Alto
P.O. Box 10250
250 Hamilton Avenue
Palo Alto CA 94303
FAX: (650) 329-2646
and
Sassan Golafshan
203 Forest Ave.
San Jose, Ca. 94301
and
Michael P. Quinlivan
Kouns, Quinlivan & Severson
50 W. San Fernando Street, Suite 350
San Jose, Ca. 95133
Fax: (408) 292-1257
XXIV. ATTACHMENTS TO LEASE
This Lease includes the following exhibits, which are attached hereto
and by this reference incorporated into this Lease:
Exhibit A - General Conditions
Exhibit B - Acceptable Uses as of Commencement of this Lease
Exhibit C- Development Plans and Construction Drawings
The inclusion of clauses in Exhibit A (GENERAL CONDITIONS) is not in any way
intended to lessen the importance of these clauses, but is merely done to enhance the
organization of various clauses and this Lease.
18
IN WITNESS WHEREOF, the parties have executed this Lease the day and year first above
written.
CITY:TENANT:
CITY OF PALO ALTO JSRFIT, LLC, (d.b.a. Form Fitness)
By. By:
Mayor
Its:
ATTEST:By:
By:
City Clerk Its:
APPROVED AS TO FORM:
By:
Assistant City Attorney
RECOMMENDED FOR APPROVAL:
By:
Asst. City Manager
By:
Director of Administrative Services
19
ALL-PURPOSE ACKNOWLEDGMENT
STATE OF CALIFORNIA )
) SSo
COUNTY OF SANTA CLARA )
On ,20__, before me,
personally appeared
SIGNER(S)
__ personally known to me -or- __ proved to me on the basis of satisfactory evidence to
be the person(s) whose name is/are subscribed to the within instrument and acknowledged to
me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which
the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
NOTARY’S SIGNATURE
20
EXHIBIT A
GENERAL CONDITIONS
1.DEFINITIONS
CITY shall mean the.City Council of the City ofPalo Alto, a municipal corporation.
The City Manager is hereby authorized to take any actions under this Lease on behalf of
CITY except for termination of this Lease.
Clauses in this Lease refer to specific officers or employees of CITY. Should these
positions be eliminated or the title changes, it is understood and agreed that such
references shall be considered to be to the new title for renamed positions or to the
replacement official designated with the responsibilities of any eliminated position. Any
reference to a City officer or employee includes a reference to the officer’s or employee’s
designated representative.
2.AUTHORITY & LIABILITY
Because TENANT is a limited liability company (LLC), each individual signing this
Lease on behalf of TENANT represents and warrants that;
A. (s)he is duly authorized to do so in accordance with an operating agreement
executed by the members of the LLC; and
B.TENANT is a duly qualified LLC in the State of California.
As used in this Lease, the term "TENANT" shall include TENANT, its officers, agents,
employees, sub-lessees, concessionaires, or licensees, or any person acting under contract
with TENANT; however, the definition of TENANT used herein shall not be construed
to authorize or permit any sublease or licenses not authorized or permitted elsewhere in
this Lease.
3.TIME
Time is of the essence of this Lease.
4.SIGNS
TENANT agrees not to construct, maintain, or allow any sign to be placed upon the
PREMISES except as may be approved by CITY. Unapproved signs, banners or the like
may be removed by CITY.
21
5.PERMITS AND LICENSES
TENANT shall be required to obtain any and all permits and/or licenses which may be
required in connection with the operation of, and any approved TENANT construction
upon, the PREMISES as set forth in this Lease.
6.MECHANICS LIENS
TENANT shall at all times indemnify and save CITY harmless from all claims for labor
or materials supplied in connection with construction, repair, alteration, or installation of
structures, improvements, equipment, or facilities within the PREMISES, and from the
cost of defending against such claims, including attorney’s fees. TENANT shall provide
CITY with at least ten (10) days written notice prior to commencement of any work
which could give rise to a mechanics lien or stop notice. CITY reserves the right to enter
upon the PREMISES for the purposes of posting Notices of Non-Responsibility:
In the event a lien is imposed upon the PREMISES as a result of such construction,
repair, alteration, or installation, TENANT shall either:
A.Record a valid Release of Lien; or
B. Deposit sufficient cash with CITY to cover the amount of the claim on the lien in
question and authorize payment to the extent of said deposit to any subsequent judgment
holder that may arise as a matter of public record from litigation with regard to the
lienholder claim; or
C. Procure and record a bond in accordance with Section 3143 of the Civil Code, as
amended, which releases the PREMISES from the claim of the lien from any action
brought to foreclose the lien.
Should TENANT fail to accomplish one of the three optional actions within fifteen (15)
days after the filing of such a lien, the Lease shall be in default and may be subject to
immediate termination.
7.LEASE ORGANIZATION AND RULES OF CONSTRUCTION
Words of the masculine gender shall be deemed and construed to include correlative
words of the feminine and neuter genders. Unless the context otherwise indicates, words
importing the singular number shall include the plural number and vice versa, and words
importing persons shall include corporations and associations, including public bodies, as
well as natural persons.
The terms "hereby", "hereof", "hereto", "herein,’, "hereunder" and any similar terms, as
used in this agreement, refer to this agreement.
All the terms and provisions hereof shall be construed to effectuate the purposes set forth
herein, and to sustain the validity hereof.
22
The titles and headings of the sections of this agreement have been inserted for
convenience of reference only, are not to be considered a part hereof and shall not in any
way modify or restrict any of the terms, of provisions hereof or be considered or given
any effect in construing this agreement or any provision hereof in ascertaining intent, if
any question of intent shall arise.
8.AMENDMENTS
This Lease sets forth all of the agreements and understandings of the parties and any
modifications must be written and properly executed by both parties. The Option
Agreement, entered into on ,2004, by and between TENANT and
CITY, is hereby superseded by this Lease.
9. UNLAWFUL USE
TENANT agrees that no improvements shall be erected, placed upon, operated, nor
maintained within the PREMISES, nor any activity conducted or carried on therein or
therefrom, in violation of the terms of this Lease, or of any regulation, order of law,
statute, or ordinance of a governmental agency having jurisdiction over TENANT’S use
of the PREMISES.
10.NONDISCRIMINATION
TENANT and its employees shall not discriminate against any person because of race,
color, religion, ancestry, age, sex, national origin, disability, sexual preference, housing
status, marital status, familial status, weight or height of such person TENANT shall not
discriminate against any emp!oyee or applicant for employment because of race, color,
religion, ancestry, sex, age, national origin, disability, sexual preference, housing status,
marital status, familial status, weight or height of such person. TENANT covenants that
in all of the activities TENANT conducts or allows to be conducted on the leased
PREMISES, TENANT shall accept and enforce the statements of policy set forth in Palo
Alto Municipal Code Section 9.73.010 regarding human rights and nondiscrimination. If
TENANT is found in violation of the provisions of Palo Alto Municipal Code Section
9.73.010 by a court or administrative body of competent jurisdiction or in violation of the
nondiscrimination pro*ision of the State of California Fair Employment Practices Act or
similar provisions of federal law or executive order in the conduct of its activities under
this Lease by the State of California Fair Employment Practices Commission or the
equivalent federal agency or officer, it shall thereby be found in default under this Lease,
and such default shall constitute a material breach of this Lease. CITY shall then have
the power to cancel or suspend this Lease in whole or in part.
11.INSPECTION
CITY’S employees and agents shall have the right at all reasonable times to inspect the
PREMISES to determine if the provisions of this Lease are being complied with. CITY
shall provide TENANT with reasonable notice prior to any inspection conducted
pursuant to this Lease.
23
12. HOLD HARMLESS
TENANT hereby waives all claims, liability and recourse against CITY including the
right of contribution for loss or damage of or to persons or property arising from, growing
out of or in any way connected with or related to this lease. TENANT herby agrees to
protect, indemnify, hold harmless and defend CITY, its officers, agents, and employees
against any and all claims, liability, demands, damages, cost, expenses or attorneys’ fees
arising out of the operation or maintenance of, or construction on, the PREMISES, or
TENANT’S performance or nonperformance of the terms of this Lease. In the event
CITY is named as co-defendant, TENANT shall notify CITY of such fact and shall
represent CITY in such legal action unless CITY undertakes to represent itself as co-
defendant in such legal action, in which event TENANT shall pay to CITY its litigation
costs, expenses and attorneys’ fees.
City hereby agrees to protect, indemnify, hold harmless and defend TENANT, its
officers, agents, and employees against any and all claims, leas ability, demands,
damages, cost, expenses or attorneys’ fees arising out of CITY’S failure to perform any of
the material terms of this lease. In the event TENANT is names as co-defendant in any
action brought against CITY related to any such failure to perform, CITY shall notify
TENANT of such fact and shall represent TENANT in such legal action.
13.TAXES AND ASSESSMENTS
This Lease may create a possessory interest that is subject to the payment of taxes levied
on such interest. It is understood and agreed that all taxes and assessments (including but
not limited to the possessory interest tax) which become due and payable upon the
PREMISES or upon fixtures, equipment, or other property installed or constructed
thereon, shall be the full responsibility of TENANT and TENANT shall pay the taxes and
assessments prior to delinquency.
14.SUCCESSORS IN INTEREST
Unless otherwise provided in this Lease, the terms; covenants, and conditions contained
herein shall apply to and bind the heirs, successors, executors, administrators, and assigns
of all the parties hereto, all of whom shall be jointly and severally liable hereunder.
15.¯ CIRCUMSTANCES WHICH EXCUSE PERFORMANCE (FORCE MAJEURE)
If either party hereto shall be delayed or prevented from the performance of any act
required hereunder by reason of acts of God, restrictive governmental laws or regulations,
or other cause without fault and beyond the control of the party obligated (financial
inability excepted), performance of such act shall be excused for the period of the delay
and the period for the performance of any such act shall be extended for a period
equivalent to the period of such delay.
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16.PARTIAL INVALIDITY
If any term, covenant, condition, or provision of this Lease is determined to be invalid,
void, or unenforceable, by a court of competent jurisdiction, the remainder of the
provisions hereof shall remain in full force and effect and shall in no way be affected,
impaired, or invalidated thereby.
17.WAIVER OF RIGHTS .............
The failure of CITY or TENANT to insist upon strict performance of any of the terms,
covenants, or conditions of this Lease shall not be deemed a waiver of any right or
remedy that CITY or TENANT may have, and shall not be deemed a waiver of the right
to require strict performance of all the terms, covenants, and conditions of the Lease
thereafter, nor a waiver of any remedy for the subsequent breach or default of any term,
covenant, or condition of the Lease.
18. COSTS OF SUSTAINING AN ACTION FOR BREACH OR DEFAULT
In the event either CITY or TENANT commences legal action against the other claiming
a breach or default of this Lease, the prevailing party in such litigation shall be entitled to
recover from the other cost of sustaining such action, including reasonable attorneys’
fees, as may be fixed by the Court.
19.RESERVATIONS TO CITY
The PREMISES are accepted "as is" and "where is" by TENANT subject to any and all
existing easements, and encumbrances. CITY reserves the right to install, lay, construct,
maintain, repair, and operate such sanitary sewers, drains, storm water sewers, pipelines,
manholes, and connections; water, oil, and gas pipelines; telephone and telegraph power
lines; and the applications and appurtenances necessary or convenient for connection
therewith, in, over, upon, through, across and along the PREMISES or any part thereof,
and to enter the PREMISES for any and all such purposes. CITY also reserves the right
to grant franchises, easements, rights of way, and permits, in, over, upon, through, across,
and along any and all portions of the PREMISES. No right reserved by CITY in this
clause shall be so exercised as to interfere unreasonably with TENANT’S operation
hereunder .........
CITY agrees that rights granted to third parties byreason of this clause shall contain
provisions that the surface of the land shall be restored as nearly as practicable to the
original condition upon the completion of any construction .....
20.HOLDING OVER
In the event TENANT shall continue in possession of the PREMISES after the term of
the Lease, such possession shall not be considered a renewal of this Lease but a tenancy
from month to month and shall be governed by the conditions and covenants contained in
this Lease.
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21.DISPOSITION OF ABANDONED PERSONAL PROPERTY
If TENANT abandons the PREMISES or is dispossessed thereof by process of law or
otherwise, title to any personal property belonging to TENANT and left on the
PREMISES forty-five (45) days after such abandonment or dispossession shall be
deemed to have been transferred to CITY. CITY shall have the right to remove and to
dispose of such property without liability therefor to TENANT or to any person claiming
under TENANT, and shall have no need to account therefor.
22.QUITCLAIM OF TENANT’S INTEREST UPON TERMINATION
Upon termination of this Lease for any reason, including but not limited to termination
because of default by TENANT, TENANT shall, at CITY’S request execute,
acknowledge and deliver to CITY within five (5) days after receipt of written demand
thereof, a good and sufficient deed whereby all rights, title, and interest of TENANT in
the PREMISES, is quitclaimed to CITY. Should TENANT fail or refuse to deliver the
required deed to CITY, CITY may prepare and record a notice reciting the failure of
TENANT to execute, acknowledge and deliver such deed and the notice shall be
conclusive evidence of the termination of this Lease, and of all right of TENANT or
those claiming under TENANT in and to the PREMISES.
23. CITY’S RIGHT TO RE-ENTER
TENANT agrees to yield and peaceably deliver possession of the PREMISES to CITY
on the date of termination of this Lease, whatsoever the reason for such termination.
Upon giving written notice of termination to TENANT, CITY shall have the right to re-
enter and take possession of the PREMISES on the date such termination becomes
effective without further notice of any kind and without institution of regular legal
proceedings. Termination of the Lease and re-entry of the PREMISES by CITY shall in
no way alter or diminish any obligation of TENANT under the Lease terms and shall
constitute an acceptance or surrender.
TENANT waives any and all rights of redemption under any existing or future law or
statute in the event of eviction from or dispossession of the PREMISES for any reason or
in the event CITY re-enters and lawfully re-takes possession of the PREMISES.
24.CONFLICT OF INTEREST
TENANT warrants and covenants that no official or employee of CITY nor any business
entity in which any official or employee of CITY is interested: (1) has been employed or
retained to solicit or aid in the procuring of this Lease; or (2) will be employed in the
performance of this Lease without the divulgence of such fact to CITY. In the event that
CITY determines that the employment of any such official, employee or business entity is
not compatible with such official’s or employee’s duties as an official or employee of
CITY, TENANT upon request of CITY shall immediately terminate such employment.
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Violation of this provision constitutes a serious breach of this Lease and CITY may
terminate this Lease as a result of such violation.
25.EMINENT DOMAIN
In the event the whole or any parts of the PREMISES are condemned by a public entity
in the lawful exercise of its power of eminent domain, this Lease shall cease as to the part
condemned, The date of such termination shall be the effective date of possession of the
whole or part of the PREMISES by the condemning public entity.
If only a part is condemned and the condemnation of that part does not substantially
impair the capacity of the remainder to be used for the purposes required by this Lease,
TENANT shall continue to be bound by the terms, covenants and conditions of this
Lease. However, the then current minimum annual Rent shall be reduced in proportion to
the relationship that the compensation paid by the condemning public entity for the
portion condemned bears to the value of the entire PREMISES as of the date of
possession of the part condemned. If the condemnation of a part of the PREMISES
substantially impairs the capacity of the remainder to be used for the purposes required
by this Lease, TENANT may:
A. Terminate this Lease and thereby be absolved of obligations under this Lease
which have not accrued as of the date of possession by the condemning public
entity; or
B. Continue to occupy the remaining PREMISES and thereby continue to be
bound by the terms, covenants and conditions of this Lease. If TENANT elects to
continue in possession of the remainder of the PREMISES, the then current
annual minimum rental shall be reduced in proportion to the relationship that the
compensation paid by the condemning public entity for the part condemned bears
to the value of the entire leased PREMISES as of the date of possession by the
condemning public entity.
TENANT shall provide CITY with written notice advising CITY of TENANT’S choice
within thirty (30) days of possession of the part condemned by the condemning public
entity.
CITY shall be entitled to and shall receive all compensation related to the condemnation
of all or part of the PREMISES by the exercise of eminent domain, except that TENANT
shall be entitled to that portion of the compensation which represents the value of the
TENANT constructed improvements for the remainder of the Lease term. The amount to
which TENANT shall be entitled shall not exceed the actual cost of improvements
constructed by TENANT reduced in proportion to the relationship of the remaining Lease
term to the original Lease term, using a straight-line approach.
26.POST-ACQUISITION TENANCY
TENANT hereby acknowledges that its occupancy of the PREMISES is subsequent to
construction of the PREMISES by CITY. TENANT further understands and agrees that
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as a post-construction tenant, TENANT is not eligible and furthermore waives all claims
for relocation assistance and benefits under federal, state or local law,
27. SURRENDER OF PREMISES
Upon expiration or termination of this Lease TENANT shall redeliver possession of the
PREMISES to CITY in substantially the same condition that existed upon completion of
all construction and first occupancy by TENANT, reasonable wear and tear, flood,
earthquake and act of war excepted. Upon notice of tenants termination, or upon
expiration of this lease, whichever may occur first, CITY agrees that it shall not post
signs to release the space prior to thirty (30) days of the termination or expiration date.
28. CHANGES IN PRICE INDICES
Clauses contained in this Lease may provide for adjustment based on the Consumer Price
Index, component indices, or other indices. Should these indices be changed, altered or
cease to be published, the following conditions shall apply:
A. If the subject index is changed so that the base year differs from that used as of
the month in which the term commences, the subject index shall be converted in
accordance with the conversion factor published by the publisher of that index;
B. If the subject index is discontinued or revised during the Lease term, such
index shall be replaced by another government index or computation which will
obtain substantially the same result as would be obtained if the subject index had
not been discontinued or revised.
29. HAZARDOUS SUBSTANCES
Definition. As used herein, the term "Hazardous Materials" means any substance or
material which has been determined by any state, federal or local governmental authority
to be capable of posing risk of injury to health, safety, and property, including petroleum
and petroleum products and all of those materials and substances designated as hazardous
or toxic by the U.S. Environmental Protection Agency, the California Water Quality
Control Board, the U.S. Department of Labor, the Califomia Department of Industrial
Relations, the Califomia Department of Health Services, the Califomia Health and
Welfare Agency in connection with the Safe Water and Toxic Enforcement Act of 1986,
the U.S. Department of Transportation, the U.S. Department of Agriculture, the U.S.
Consumer Product Safety Commission, the U.S. Department of Health and Human
Services, the U.S. Food and Drug Administration or any other governmental agency now
or hereafter authorized to regulate materials and substances in the environment. Without
limiting the generality of the foregoing, the term "Hazardous Materials" shall include all
of those materials and substances defined as "toxic materials" in Sections 66680 through
66685 of Title 22 of the California Code of Regulations, Division 4, Chapter 20, as the
same may be amended from time to time.
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TENANT’S USE OF PREMISES. During the term of this Lease, TENANT shall abide
and be bound by all of the following requirements:
A. TENANT shall comply with all laws now or hereafter in effect during the term
of this Lease relating to the use of Hazardous Materials on, under or about the
PREMISES, and TENANT shall not contaminate the PREMISES, or its
subsurfaces, with any Hazardous Materials.
B. TENANT shall restrict its use of Hazardous Materials at the PREMISES to
those kinds of materials that are normally used in constructing the Project.¯Disposal of any Hazardous Materials at the Premises are strictly prohibited.
Storage of such permissible Hazardous Materials is allowed only in accordance
with all applicable laws now or hereafter in effect. All safety and monitoring
features of any storage facilities shall be approved by CITY’S Fire Chief in
accordance with all laws.
C. TENANT shall be solely and fully responsible for the reporting of all
Hazardous Materials releases that occur during the term of this Lease, to the
appropriate public agencies, when such releases are caused by or result from
TENANT’S activities on the PREMISES. TENANT shall immediately inform
CITY of any release of Hazardous Materials, whether or not the release is in
quantities that would otherwise be reportable to a public agency.
D. TENANT shall be solely and fully responsible and liable for such releases at
the Premises, or into CITY’S sewage or storm drainage systems. TENANT shall
take all necessary precautions to prevent any of its Hazardous Materials from
entering into any storm or sewage drain system or from being released on the
Premises. TENANT shall remove releases of its Hazardous Materials in
accordance with all laws. In addition to all other rights and remedies of CITY
hereunder, if the release of Hazardous Materials caused by TENANT is not
removed by TENANT within ninety (90) days after discovery by TENANT,
CITY or any other third party, CITY may pay to have the same removed and
TENANT shall reimburse CITY for such costs within five (5) days of CITY’S
demand for payment.
Notwithstanding Section 12 of this Exhibit A, TENANT shall protect, defend, indenmify
and hold harmless CITY from and against all loss, damage, or liability (including all
foreseeable and unforeseeable consequential damages) and expenses (including, without
limitation, the cost of any cleanup and remediation of Hazardous Materials) which CITY
may sustain as a result of the presence or cleanup of Hazardous Materials on the
PREMISES.
TENANT’S obligations to CITY under this Section 29 shall include TENANT’S
obligation and responsibility to abate or contain any asbestos containing material or lead
paint that may be present in the building on the PREMISES.
TENANT’S obligation under this Clause shall survive the expiration or earlier
termination of this Lease.
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30. ALL COVENANTS ARE CONDITIONS
All provisions of the Lease are expressly made conditions.
31. PARTIES OF INTEREST
Nothing in this agreement, expressed or implied, is intended to, or shall be construed to,
confer upon or to give to any person or party other than CITY and TENANT the
covenants, condition or stipulations hereof. All covenants, stipulations, promises and
agreements in this Lease shall be for the sole and exclusive benefit of CITY and
TENANT.
32. REAL ESTATE BROKERS
Each party represents that it has not had dealings with any real estate broker finder or
other person with respect to this lease in any manner. Each party shall hold harmless the
other party from all damages resulting from any claims that may be asserted against the
other party by any broker, finder or other person with whom the other party has or
purportedly has dealt.
3 3. CHARGE FOR LATE PAYMENT
TENANT acknowledges that late payment of Rent will cause CITY to incur costs not
contemplated by this Lease, the exact amount of which will be extremely difficult to
ascertain. Accordingly, if any payment of Rent is not received by CITY within ten (10)
days after the due date, then, without any requirement for notice to TENANT, TENANT
shall pay to CITY a late charge equal to the greater of(i) six percent (6%) of the amount
of the overdue payment, and (ii) $100.00. The parties agree that such late charge
represents a fair and reasonable estimate of the costs CITY will incur by reason of late
payment by TENANT. Acceptance of the late charge by CITY shall not constitute a
waiver of TENANT’S default with respect to the overdue amount, nor prevent CITY
from exercising any of the other rights and remedies available to CITY.
34.RECORDATION OF LEASE
Neither CITY nor TENANT shall record this Lease; however, a short-form memorandum
of Lease may be recorded at CITY’S request.
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