SR-01-24-1978-6OSanta Monica, California, January 16:, 1978
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TO: Mayor and City Council
FROM: City Staff
SUBJECT: Amendment to Boathouse Restaurant Pier Lease JAN 2 4 1978
Background
On September 23, 1976, the Council approved a five (5) year lease with Boathouse
Host, Inc., for the operation of the Boathouse Restaurant on the Pier. The rent
was established at 8% of the overall gross versus an annual minimum rent of
$11,616.
Subsequent to the approval of the lease, the operators were able, by their own
advertising efforts and extended hours to nearly double their annual gross
from $111,000 in 1975, to nearly $220,000 in 1976; and nearly triple their rent
payments from $6,100 to $17,600 per year.
Encouraged by these increases, the Lessee approached the City with plans to
expand the facilities. Although several meetings were held during the plan
review period, no specific agreements were reached regarding an amended lease.
However, it was generally understood that an extended lease period and some
method which would allow the Lessee to recapture a substantial portion of his
capital expense would be 'necessary in order to make the expansion economically
feasible.
Following the City and Coastal Commission plan approvals, the Lessee determined
to proceed with the construction: even in the absence of a specific agreement.
He expressed confidence that a mutually acceptable lease amendment would be
negotiated with the City, and he was anxious to complete the expansion before
J A N 2 4 1978
T0: Mayor and City Council -2- January 16, 1978
the beginning of the summer season.
Subsequent to the completion of the expanded facilities and the original
estimates of potential gross sales were substantiated, the attached amendment
to the original lease was negotiated with the Lessee.
Discussion
The proposed lease amendment adds three (3) five -year options to the original
five -year term. Additionally, the amendment provides a method of rent payment
which guarantees that the City will at least double its rent receipts compared
to the preexpansion condition, and at the same time provides the Lessee with a
strong incentive to further increase his gross sales.
Under the terms of the amended lease, the annual minimum will increase from
$11,616 to $24,000 per year. The Lessee will continue to pay rent at 80 of
gross on the first $220,000 of gross sales, which amount represents the pre -
construction level of sales. He will also pay 4% of gross on annual sales in
excess of $220,000 during the first five years of the amended lease term.
During the second five -year term, the Lessee will pay 8% on the annual gross
which is the average annual gross of the preceeding five -year period, and 4%
of gross for any annual sales in excess of that amount.
During the third and fourth five -year peni °ods the Lessee will pay 8%
of gross on all annual sales.
In order for the Lessee to recapture his investment, which is in excess of
$150,000, he will have to increase his average annual gross to $720,000 during
the first five -year period and nearly $1,000,000 per year during the second
T0: Mayor and City Council -3- January 16, 1978
five -year period. If he is able to achieve the sales figures, the City will
receive four times the rent generated prior to the expansion.
Recommendation
It is recommended that the Council approve the attached amendment to the
lease with Boathouse Host, Inc., and authorize the City Manager to execute
the amendment.
Prepared by: John Hemer
Don Arnett
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