HomeMy WebLinkAboutStaff Report 2405-3109CITY OF PALO ALTO
CITY COUNCIL
Regular Meeting
Monday, August 19, 2024
Council Chambers & Hybrid
5:30 PM
Agenda Item
4.Approval of the 11th Amendment to the Standard Industrial Lease Agreement for 1005 –
1007 Elwell Court
City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Administrative Services
Meeting Date: August 19, 2024
Report #:2405-3109
TITLE
Approval of the 11th Amendment to the Standard Industrial Lease Agreement for 1005 – 1007
Elwell Court
RECOMMENDATION
Staff recommends that the Council approve and authorize the City Manager or their designee
to execute the Amendment No. 11 (Attachment B) to renew the lease for 1005 and 1007 Elwell
Court to provide office space for the City of Palo Alto Utilities Engineering Division. The
Eleventh (11th) Amendment will extend the current lease agreement for an additional three (3)
years with an option to extend the term for an additional three (3) years at market rate.
EXECUTIVE SUMMARY
The City of Palo Alto currently leases from McCandless Limited approximately 16,157 square
feet of space located at 1005 and 1007 Elwell Court, Palo Alto, California. The lease agreement
has been amended several times over the past decade to extend the lease term and modify the
square footage of the premises. The current lease will expire on August 31, 2024, necessitating
an extension to accommodate the continuation of use by the Utilities Engineering staff.
The new Eleventh Amendment will extend the lease term for an additional three (3) years,
commencing September 1, 2024, and terminating on August 31, 2027. The basic rent will be
adjusted annually by three percent (3%), and the landlord will address various maintenance
issues at their cost prior to the commencement of the Eleventh Extended Term.
BACKGROUND
On July 31, 1998, the City entered into a 10-year lease with McCandless Limited for 9,202
square feet of office space at 1007 Elwell Court. The purpose of the lease was to provide space
for the relocation of the Utilities Engineering staff to address the over-crowded conditions in
the Civic Center as described in CMR: 204:98. Since that time, the Council has approved several
amendments to add additional space and to modify the lease to house additional staff including
a citywide training conference room for computer-based training. The Utilities Department has
been using the office space at the premises for its engineering and operation projects.
Attachment A provides a history of the lease and amendments. The lease has been amended
ten times, with the last amendment dated October 20, 2021.
DISCUSSION
Basic Rent
Period Sq. Ft Rate Rent Monthly Rent Annual
FISCAL/RESOURCE IMPACT
STAKEHOLDER ENGAGEMENT
ENVIRONMENTAL REVIEW
ATTACHMENTS
APPROVED BY:
Attachment A: History of Lease Amendments
Agreement*Agreement
Date
Term Square
Feet
Initial
Monthly
Rent
Initial
Annual
Rent
Key Terms
Original
Lease1
7/31/1998 9/1/1998 –
8/31/2008
9,202 $21,624.70 $259,496.40 1007 Elwell;
3% annual
increases
1st
Amendment2
4/1/2003 1003
Elwell:
4/1/2003 –
3/31/2005
14,894 1003
Elwell:
$7,115.00
1003 Elwell:
$85,380.00
Added 5,692
square feet at
1003 Elwell
for 2 years
2nd
Amendment
3/16/2005 1003
Elwell:
4/1/2005 –
9/30/2005
14,894 1003
Elwell:
$7,115.00
1003 Elwell:
$85,380.00
(Annualized)
Extend 1003
Elwell for 6
more months
3rd
Amendment3
10/1/2005 1003
Elwell:
10/1/2005
–
9/30/2006
14,894 1003
Elwell:
$7,328.45
1003 Elwell:
$87,941.40
Extend 1003
Elwell for 1
more year
4th
Amendment4
6/6/2006 1003
Elwell:
10/1/2006
–
8/31/2008
14,894 1003
Elwell:
$7,328.45
1003 Elwell:
$87,941.40
Lease 1003
Elwell for 23
more months
5th
Amendment5
5/17/2007 Term for
entire
space
extended
to
8/31/2013
16,157 $36,348.08;
9/1/2008:
$21,004.10
$436,176.96;
9/1/2008:
$252,049.20
Terminate
possession of
1003 Elwell
and add 6,955
square feet at
1005 Elwell.
Starting
9/1/2008,
reduced to
$1.30 per
1 City Council, July 13, 1998, CMR:307:98: https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=63924
2 City Council, March 10, 2003, CMR:165:03: https://www.cityofpaloalto.org/files/assets/public/v/1/agendas-
minutes-reports/reports/city-manager-reports-cmrs/year-archive/2003/cmr-165-03.pdf
3 City Council, September 19, 2005, CMR:362:05:
https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=76360
4 City Council, June 5, 2006, CMR: 234:06: https://www.cityofpaloalto.org/files/assets/public/v/1/agendas-minutes-
reports/reports/city-manager-reports-cmrs/year-archive/2006/cmr234-06.pdf
5 City Council, May 14, 2007, CMR: 226:07: https://www.cityofpaloalto.org/files/assets/public/v/1/agendas-
minutes-reports/reports/city-manager-reports-cmrs/year-archive/2007/cmr-226-07.pdf
square foot
with annual
$0.05 per
square foot
increases
6th
Amendment
8/30/2013 9/1/2013 –
8/31/2015
16,157 $26,659.05 $319,908.60 City exercises
option to
extend.
Annual 3%
increases
7th
Amendment6
3/23/2015 9/1/2015 –
8/31/2018
16,157 $48,471.00 $581,652.00 Extend term
for 3 years + 3
year option.
2.5% annual
increases.
8th
Amendment
1/12/2018 9/1/2018 –
8/31/2021
16,157 $52,197.00 $626,364.00 Extend term
for 3 years + 3
year option.
2.5% annual
increases
9th
Amendment7
6/24/2021 9/1/2021 –
8/31/2024
16,157 $56,210.46 $674,525.52 Extend term
for 3 years.
$250,000 TIs.
2.5% annual
increases.
10th
Amendment
10/20/2021 9/1/2021 –
8/31/2024
16,157 $56,210.46 $674,525.52 Modify TI
provision.
11th
Amendment
Pending 9/1/2024 –
8/31/2027
16,157 $59,344.19 $712,130.28 Extend term
for 3 years + 3
year option.
*Link to staff report in footnotes if available.
6 City Council, March 23, 2015, ID # 5599: https://www.cityofpaloalto.org/files/assets/public/v/1/agendas-minutes-
reports/reports/city-manager-reports-cmrs/year-archive/2015/5599.pdf
7 City Council, June 21, 2021, ID # 12247: https://www.cityofpaloalto.org/files/assets/public/v/1/agendas-minutes-
reports/reports/city-manager-reports-cmrs/year-archive/2021/id-12247.pdf
MCJE\30288\512180.2 -1-
ELEVENTH AMENDMENT TO STANDARD INDUSTRIAL LEASE
THIS ELEVENTH AMENDMENT TO STANDARD INDUSTRIAL LEASE
(hereinafter “Eleventh Amendment”) is made this ______________ (the “Effective Date”), by
and between McCANDLESS LIMITED, LLC, a California limited liability company
(“Landlord”) and THE CITY OF PALO ALTO, a California municipal corporation (“Tenant”).
This Eleventh Amendment is made with reference to the following facts:
A. Tenant currently leases from Landlord approximately sixteen thousand
one hundred and fifty-seven (16,157) square feet of space located at 1005 and 1007 Elwell
Court, Palo Alto, California (the “Premises”) pursuant to that certain lease dated as of July 31,
1998, that certain Amendment to Standard Industrial Lease dated as of April 1, 2003, that
certain Second Amendment to Standard Industrial Lease dated as of March 16, 2005, that
certain Third Amendment to Standard Industrial Lease dated as of September 20, 2005, that
certain Fourth Amendment to Standard Industrial Lease dated as of June 6, 2006, that certain
Fifth Amendment to Standard Industrial Lease dated as of May 16, 2007, that certain Sixth
Amendment to Standard Industrial Lease dated as of August 30, 2013, that certain Seventh
Amendment to Standard Industrial Lease dated as of March 23, 2015, that certain Eighth
Amendment to Standard Industrial Lease dated as of January 12, 2018, that certain Ninth
Amendment to Standard Industrial Lease dated as of June 24, 2021 and that certain Tenth
Amendment to Standard Industrial Lease dated as of October 20, 2021 (the “Lease”). The
1005 Premises and the 1007 Premises are located in a building commonly known as 1001-1007
Elwell Court, Palo Alto, California (the “Project”).
B. The term expires on August 31, 2024 and Tenant wishes to extend the
term of the Lease by three (3) years.
C. Tenant desires that Landlord, at Landlord’s cost, shall repair or replace the
front door, address parking lot flooding in heavy rain, and service, repair or replace as needed
the HVAC, plumbing and other systems within the Premises so they are in good condition and
repair.
D. Landlord is willing to so amend the Lease subject to the terms and
conditions set forth in this Eleventh Amendment.
ACCORDINGLY, in consideration of the above Recitals and the mutual
covenants and agreements contained herein and other good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree
as follows:
1. Incorporation of Recitals and Exhibits. The above Recitals are true and
accurate and the Recitals are incorporated herein by reference.
MCJE\30288\512180.2 -2-
2. Term. Commencing September 1, 2024, the term of the Lease respecting
the Premises shall be extended for three (3) additional years until August 31, 2027. The period
commencing on the September 1, 2024 and ending on August 31, 2027 shall be referred to herein
as the “Eleventh Extended Term”.
3. Security Deposit. Landlord currently holds a cash security deposit
provided by Tenant in the amount of Seven Thousand One Hundred Fifteen Dollars and 00/100
($7,115.00) and no further deposit shall be required.
4. Basic Rent. Commencing on September 1, 2024, Landlord and Tenant
agree that the monthly basic rent shall be adjusted from Fifty-Seven Thousand Six Hundred and
Fifteen and 72/100 Dollars ($57,615.72) per month to Fifty-Nine Thousand Three Hundred and
Forty-Four and 19/100 Dollars ($59,344.19) per month and shall increase by three percent (3%)
each year as set forth below.
September 1, 2024 – August 31, 2025 $59,344.19
September 1, 2025 – August 31, 2026 $61,124.52
September 1, 2026 – August 31, 2027 $62,958.25
5. Landlord’s Repair Work. Landlord shall, prior to the commencement of
the Eleventh Extended Term and at Landlord’s cost, (i) repair or replace the front door so that it
not only functions properly but also that it functions properly in conjunction with that portion of
Tenant’s security system, (ii) address parking lot flooding in heavy rain by scheduling annual
cleaning of the storm drains prior to each raining season and (iii) employing Landlord’s regular
subcontractors, troubleshoot, service, repair or replace to the extent needed the HVAC, ceiling,
lighting, plumbing and electrical systems within the Premises so they are functional and in good
operating condition and repair at the commencement of the Eleventh Extended Term.
6. Option to Extend Term. Landlord grants to Tenant the option to extend
the term for one period of three (3) years (hereinafter the "Twelfth Extended Term") under all the
provisions of this lease except for the amount of the basic rent. The basic rent for the extended
term shall be adjusted to the market rate for comparable buildings in Palo Alto and the basic rent
as so adjusted shall be adjusted annually by the market basic rent adjustment rate as provided
below, provided that in no event shall the basic rent for the Twelfth Extended Term be less than
the basic rent in effect at the expiration of the Eleventh Extended Term. This option is further
subject to the following terms and conditions.
(a) Tenant must deliver its irrevocable written notice of Tenant's
exercise of this option to Landlord not less than six (6) lease months, nor more than twelve (12)
lease months, prior to the expiration of the Eleventh Extended Term.
(b) The parties shall have thirty (30) days from the date Landlord
receives Tenant's notice of exercise in which to agree on the amount constituting the basic rent.
If Landlord and Tenant agree on the amount of basic rent, they shall immediately execute an
amendment to this lease setting forth the expiration date of the Twelfth Extended Term and the
amount of the basic rent to be paid by Tenant during the Twelfth Extended Term, including the
MCJE\30288\512180.2 -3-
annual adjustment period. If Landlord or Tenant are unable to agree on the amount of basic rent
within such time period, then, at the request of either party, the market rate shall be determined
by appraisal in the following manner: (1) within thirty (30) days of the request for such
appraisal, Landlord and Tenant shall each select a licensed real estate broker with not less than
five (5) years of experience in the business of commercial leasing of property of the same type
and use, and in the same geographic area, as the Premises; (ii) within fifteen days of their
appointment, such two real estate brokers shall select a third real estate broker similarly
qualified; (iii) within thirty (30) days from the appointment of the third broker, the three brokers
so selected shall, acting as a board of arbitrators, then appraise the Premises and determine the
amount of the market rate, basing their determination on using standard procedures and tests
normally employed in making such appraisals and applying the factors included within the
definition of market rate set forth in subparagraph (c) below. The decision of the majority of said
brokers shall be final and binding upon the parties hereto. If a majority of the brokers are unable
to agree on the market rate within the stipulated period of time, the three brokers shall be added
together and their total divided by three; the resulting quotient shall be the market rate. If,
however, the low appraisal and/or the high appraisal are/is more than 15% lower and/or higher
than the middle appraisal, the low appraisal and/or the high appraisal, as the case may be, shall
be disregarded. If only one appraisal is disregarded, the remaining two appraisals shall be added
together and their total divided by two and the resulting quotient shall be the market rate. If both
the low appraisal and the high appraisal are disregarded as stated in this paragraph, the middle
appraisal shall be the market rate. If a party does not appoint a broker within the required time
period, the broker appointed by the other party shall be the sole broker and shall determine the
market rate. If the two brokers appointed by the parties are unable to agree on the third broker,
either of the parties to the lease, by giving ten (10) days' notice to the other party, can apply to
the then county real estate board of the county in which the Premises are located, or to the
presiding judge of the superior court of that county, for the selection of a third broker who meets
the qualifications stated in this paragraph. Each party shall pay the expenses and charges of the
broker appointed by it and the parties shall pay the expenses and charges of the third broker in
equal shares. Basic rent for the first lease year of the Twelfth Extended Term shall be equal to
the greater of the market rate as determined hereunder or basic rent charged for the last lease
year of the prior term. When the basic rent has been so determined, Landlord and Tenant shall
immediately execute an amendment to this lease stating the revised basic rent and adjustment
provision for the Twelfth Extended Term.
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(e) The extension rights herein described are personal to the original
Tenant and may not be exercised by or for the benefit of any assignee or subtenant of the original
Tenant. Tenant shall not assign or otherwise transfer this option or any interest therein and any
attempt to do so shall render this option null and void. Tenant shall have no right to extend this
term beyond the Twelfth Extended Term. If Tenant is in default under this lease at the date of
delivery of Tenant's notice of exercise to Landlord, then such notice shall be of no effect and this
lease shall expire at the end of the Eleventh Extended Term; if Tenant is in default under this
lease at the last day of the Eleventh Extended Term, then Landlord may in its sole discretion
elect to have Tenant's exercise of this option be of no effect, in which case this lease shall expire
at the end of the Eleventh Extended Term.
(f) Tenant shall have no right to exercise the option to renew the term of
this lease (i) during the time commencing from the date Landlord gives to Tenant a notice of
default pursuant to Paragraph 20, above, and continuing until the noncompliance alleged in said
notice of default is cured, or (ii) during the period of time commencing on the day after a
monetary obligation to Landlord is due from Tenant and unpaid (without any necessity for notice
thereof to Tenant) and continuing until the obligation is paid, or (iii) in the event that Landlord
has given to Tenant two (2) or more notices of default under Paragraph 20, above, whether or not
the defaults are cured, during the twenty four (24) month period of time immediately prior to the
time that Tenant attempts to exercise the option to renew the lease, or (iv) if Tenant has
committed any non-curable breach, or is otherwise in default of any of the terms, covenants or
conditions of this lease.
(g) The period of time within which the option to renew must be
exercised shall not be renewed or enlarged by reason of Tenant's inability to exercise the option
because of the provision of Paragraph 6(f), above.
7. Brokers. Each party represents that it has not had any dealings with any
real estate broker, finder or other person with respect to this Eleventh Amendment, and that there
are no leasing commissions to be paid by Landlord or Tenant in connection with this transaction.
Each party hereto shall hold harmless the other party from all damages, loss or liability resulting
from any claims that may be asserted against the other party by any broker, finder or other
person with whom such party has dealt, or purportedly has dealt, in connection with this
transaction.
8. Warranty of Authority: Each signatory to this Eleventh Amendment
represents that he or she possesses full authority to exercise this Eleventh Amendment and to
bind the entity on whose behalf such signatory is signing.
9. Restatement of Other Lease Terms. Except as specifically modified
herein, all other terms, covenants and conditions of the Lease, including Tenant’s obligation to
pay common area charges, shall remain in full force and effect.
10. Capitalized Terms. Except as expressly provided in this Eleventh
Amendment, all capitalized terms used in this Eleventh Amendment shall possess the same
meaning ascribed to that term in the Lease.
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11. Conflicts. In the event of any conflict between the Lease on the one hand
and this Eleventh Amendment on the other, the terms of this Eleventh Amendment shall govern
and control.
12. Counterparts. This Eleventh Amendment may be executed by electronic
document signing service or in identical facsimile or e-mailed .pdf counterparts, each of which
shall be deemed an original and all of which shall constitute one and the same legally binding
instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Ninth
Amendment as of the Effective Date.
LANDLORD:TENANT:
McCANDLESS LIMITED, LLC
a California limited liability company
THE CITY OF PALO ALTO,
a California municipal corporation
By:
Sandra M. Simons or
Jett A. McCandless, Managers
By:
City Manager
Approved as to form:
By:
City Attorney
By:
Director of Utilities
By:
Director of Administrative Services