SR-02-13-1979-11DCA RLR:SSS :mc
Council Mtg. 0: 3 -79 San Monica, California
PD
F F 8 1 3 99 79
TO: Mayor and City Council
FROM: City Attorney
SUBJECT: Modification of Biphase Energy Systems Airport Lease
Introduction
This report transmits a recommendation that the City
Council authorize the City Manager to execute a modification
of the Biphase Energy Systems Airport Lease to provide for
a rent abatement in an amount equal to the cost of a sprinkler
system to be installed in the premises by Biphase. The report
also transmits a recommendation that the Council reject a clause
regarding the consequences of destruction or damage of the
leased property, proposed as an amendment to the lease by Biphase.
Background;
on'' December '12, 1978, the City Council authorized the
City Manager to enter into a lease with Biphase Energy Systems
for a portion of the former Army Reserve facility located at
the Santa Monica Airport. This lease has been executed on
behalf of the City by Acting Manager John Jalili; it has not
been executed by Biphase. The lease provides for monthly rental
of sixty -six hundred dollars ($6,600) commencing on January 1, 1979.
FEB 1 � 1979
CA RLK:SSS:mc Sant Monica, California
Council Mtg. 0! 3 -79
Biphase is not in possession of the premises.
occupancy is expected to begin March 1, 1979.
Section 9 of the lease provides in part that:
"Biphase shall not call upon City
to make any improvements or repairs
to premises, but agrees to accept
the premises in the condition as
will exist after certain repair and
clean -up work now in progress by
City is completed."
The Fire Department has informed Biphase that
the building is not safe for occupancy until a sprinkler sys-
tem is installed. Biphase contends that the City should install
or pay for the installation of this sprinkler system, notwith-
standing Section 9, because the City has an obligation to
make the premises fit for occupancy. This contension is fairly
disputable.
Biphase obtained an initial estimate for installing
the sprinkler system of thirteen thousand three hundred dollars
($13,300), and offered to have this work done in exchange for
an abatement of two (2) months' rent, or $13,200. The City
staff has obtained a preliminary estimate of installation cost
of ten thousand dollars ($10,000), and believes that it can have
installation done considerably cheaper than the estimate suggested
by Biphase. Discussions between the attorney for Biphase and
the City Attorney's office have led to an agreement in principle
that Biphase should perform and pay for the necessary installation
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Council Mtg. 0,f 13 -79 Sant Monica, California
of the sprinkler system, that the City should cooperate with
Biphase in the securing of the lowest possible contract price,
have the right to approve the contract or that will perform the
work, and that rent abatement be given to Biphase on a dollar
for dollar basis-in order to resolve the contract dispute and
secure Biphases' signature on the lease document.
The Research Cotrell Corporation, the parent corpora-
tion of Biphase, has proposed that the City add to the lease
a clause:
DESTRUCTION OR DAMAGE. If the
demised premises are damaged or des-
troyed by fire or any other cause:
A. If restoration is possible
within thirty (30) days of such fire
or destruction, the lessor agrees to
make such restoration and repairs with
reasonable diligence and to allow
lessee an abatement of rent for such
time the premises are in untenantable.
Lessee shall not be entitled to an abate-
ment if such fire or destruction was the
fault of Lessee or its employee or agent.
B. If restoration is not possible
within thirty (30) days, then Lessor and
Lessee at their option may terminate this
Lease. Total destruction of the building
in which premises is located will auto-
matically terminate the lease.
This clause is common in complex commercial leases.
It is not, however, contained in the City's other Airport
Leases, including the lease to the Douglas Museum for the
other portion of the premises in question
Under California contract law, where the sole object
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Council Mtg. 0' .3 -79 Sar. Monica, California
of a contract cannot possibly be carried out, as where a leased
building is totally destroyed, the contract is void. Partial
destruction ordinarily excuses preformance on a pro rata basis.
The parties to the contract are free to make any special pro-
visions for adjustments of rights in the event of impossibility
arising from any cause. The City is under no common law obligation
to restore destroyed premises.
For the sake of consistency among City contracts,
and because of the flexibility of California common law in
dealing with unforeseen contingencies, staff recommends that
the City Council reject the proposed amendment.
Alternative Solutions
The Council may take any of the following actions:
1) Authorize the City Manager to accept an abatement
of rent in an amount equal to the cost of the installation
of an adequate sprinkler system in the leased premises, on
condition that the City has the right of approval of the contractor
and of the work done.
2) Authorize the City Manager to modify the lease
as provided in paragraph 1, and in addition to execute a modifica-
tion of the lease to incorporate the proposed clause relating
to destruction or damage of the premises.
3) Stand on the contract as written, and reject
any modification thereof.
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Council Mtg. 02 3 -79
Recommendation
Santa ! iica, California
For the reasons stated in the body of this report,
the City Attorney recommends that the City Council adopt alter-
native number 1, and authorize the City Manager to abate
the rent in an amount equal to the cost of the installation
of a sprinkler system, and reject the proposed lease amendment
relating to destruction or damage of the premises.
Prepared By: Richard L. Knickerbocker, City Attorney
Stephen Shane Stark, Assistant City Attorney
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