SR-05-05-1977-11BCA RLK:SIS:jak 5 -4 -77 �, �:1� �. �
Santa Monica, California
May 5, 1977
TO: Mayor and City Council
FROM: City Attorney
SUBJECT: Purchase and Lease of Merry -Go -Round
Introduction
This report transmits the attached Agreement for
Purchase of the Merry -Go -Round at the Santa Monica Pier,
together with a Lease of the same to George Gordon Enterprises.
The City Council authorized the purchase of the Merry -Go-
Round and the development of the Lease at its meeting of
February 22, 1977.
Background
The Agreement for the Purchase of the Merry -Go-
Round provides that the City purchases both the Merry -Go-
Round and the Band Organ, together with accessory equipment,
supplies and material for use in the maintenance and operation
of both. The Agreement further calls for the payment of
$20,000 a year for a period of 5 years to George Gordon
Enterprises, a total of $100,000. Funds for the 1977 payment
are provided for and available in the pier revenue accounts in
the budget for the current fiscal year.
The Lease provides for a 120 day term, with automatic
extension periods of 30 days after the expiration of the
initial 120 days. The Lease can be terminated by the City
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after the initial 120 day term by giving the Lessee 30
. days written notice. Other provisions for termination are
similar to those contained in the standard pier lease form.
The Lease provides for the greater of a minimum
monthly rental at $856 per month, comprising the base rental
on the Merry -Go- Rotund structure, or a percentage rental of
12% accumulative gross sales attributable the Merry -Go- Round
and 15 %. accumulative gross sales attributable to all other
activities conducted on the premises, including pinball and
other machines.
The amounts computed as minimum monthly rentals
were computed as follows: Using 1975 as a base year (as was
done with all other pier leases) the annual gross revenue from
the pinball machines was $58,226. The annual gross rental
from the Merry -Go -Round operation at $.40 per ride was $31,795.
To arrive at the minimum monthly rental, 90% of these two gross
amounts was computed and then divided by 12 to arrive at a
monthly gross revenue, which became the projected monthly
gross, on an adjusted basis. Additionally, the projected
monthly gross for the Merry -Go -Round was adjusted because of
the reduction in the fares to be charged. Then, the applicable
percentages (15% for pinball and other operations, 12% for the
Merry -Go- Round) were applied to the projected minimum monthly
gross to arrive at the base minimum.monthly rent.
Based upon established performance, coupled with
an assumption of greater Merry -Go -Round use at a lower fare,
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an annual projected revenue to the City under the attached
Lease is $13,000. This figure was arrived at by applying
the lease percentage figures to. established gross income
figures on an annual basis.
Alternative Solutions
Not applicable.
Recommendation
It is respectfully recommended that the City Council
approve the attached Agreement for Purchase of the Merry-Go-
Round and the attached Lease and authorize the City Manager
to, execute the same and authorize the required purchase payments.
Prepared by-, Richard L. Knickerbocker, City Attorney
Samuel I. Streichman, Assistant City Attorney
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Reference:
Contract No. 2310
(CCS)