SR-080988-6LCA:RMM:moxs156/hpw
City Council Meeting 8-9-88
STAFF REPORT
AUG 9 1988
Santa Monica, California
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T0: Mayor and City Council
FROM: City Staff
SUBJECT: Recommendation to Authorize Execution of
Modification to Lease Agreement Between City
of Santa Monica and Supermarine of Santa Monica
to Incorporate Lender Requirements
INTRODUCTION
On May 1, 1986, the City entered into a Lease Agreement
with Supermarine of Santa Monica ("Lessee") pertaining to
development of certain property located at the Santa Monica
Airport ("Premises") for purposes of construction, operation and
maintenance of a full service aviation fixed base operation
("FBO").
Lessee has secured a construction loan commitment from
Wells Fargo Bank which is contingent upon certain Lender required
revisions and clarifications to the Lease Agreement. Such
revisions and clarifications will necessitate a written
modification to the Lease Agreement.
Section 8.13 of the Lease Agreement expressly allows for
amendments to incorporate reasonable requirements of a
responsible lending institution acceptable to Lessor for
construction loan financing of the Leasehold Improvements.
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AUG y 1988
Such section also requires the City, as Lessor to use its
best efforts to cooperate with Lessee and its lender to satisfy
the loan financing requirements of Lessee's lender.
Wells Fargo Bank, as Lessee's lender ("Lender") has
presented its desired Lease Agreement revisions to City Staff for
review, and such revisions have been determined to constitute
reasonable requirements which may be effected by a Lease
Modification.
PROPOSED REVISIONS TO LEASE AGREEMENT
The revisions required by Lender primarily involve
protections of Lender's interests as a mortgagee. It is standard
practice for lending institutions to require such provisions in
order to secure their financial investments. The significant
proposed revisions are summarized as follows:
1. Lender requires sufficient notice and time to allow it
to cure any monetary breach or default by Lessee.
2. Lender seeks to protect its rights in the event either
Lender or a City-approved assignee of Lender succeeds to Lessee's
interest in the Lease, so that the Lease will continue in full
force and effect provided that Lessee's obligations are fully
satisfied by Lender or the approved assignee.
3. Addition of a standard quiet possession/non-disturbance
provision to protect Lessee's rights so long as Lessee is not in
default under the Lease Agreement.
4. Addition of a provision clarifying that Lender's
liability for Lessee's obligations is limited unless and until
Lender acquires Lessee's rights by foreclosure, and that upon
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City's approval of an assignment or transfer by Lender of such
acquired rights, Lender shall have no further liability for the
Lease obligations.
5. Addition of a provision clarifying the priority of
Lender's mortgage interest as a lien on the Leasehold Estate,
superior to all other liens or encumbrances except those which
may be imposed by the United States government.
6. A revision increasing the cost threshold from $5,000.00
to $10,000.00 for leasehold improvements for which the City may,
at its discretion, require performance and payment bands.
7. Addition of a provision allowing non-structural
decorating improvements without prior City approval if such
improvements are consistent with the permitted uses and
activities under the Lease or do not exceed a cost threshold of
$10,000.00.
8. Revisions extending application of Article 18
provisions pertaining to assignment, transfer and subleasing to a
lender succeeding to Lessee's position. A lender would be
required to provide the same evidence as Lessee on qualifications
of any proposed transferee, provided that a proposed transferee
would be deemed to satisfy the required qualifications under the
Lease Agreement if such transferee has a financial worth not less
than Lessee's as of the Completion Date of the Improvements and
has qualifications and experience in the operation of a fixed
base operation at least equal to that of Lessee.
9. A revision to the provision requiring a sublessee to
make sublease or other payments directly to Lessor (on Lessor's
written notice of default), to entitle the Lender to receive such
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sublease payments so long as the Lender proceeds diligently to
cure any breach or default which may have resulted in Lender's
succession to Lessee's interest.
10. Deletion of the provision which allows the City to
terminate the Lease in the event of damage or destruction of 50~
or more of the Airport Common Areas. Lender emphasized that
Lessee's Improvements and business operations would not
necessarily be impacted by such damage or destruction to the
Common Areas.
11. Addition of a provision requiring 30 days notice of any
proposed amendment be provided to Lender.
FISCAL/BUDGET IMPACT
There are no direct fiscal/budget impacts resulting from the
actions required by this report.
RECOMMENDATION
Accordingly, City Staff recommends that the City Council
take the following action:
1. Authorize the City Manager or his designee to execute a
Modification to the Lease Agreement incorporating the Lender
required revisions discussed above.
PREPARED BY: Hank Dittmar, Airport Director
Robert M. Myers, City Attorney
Linda A. Moxon, Deputy City Attorney
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Reference Contract
No. 4671 (CCS).