HomeMy WebLinkAbout2020-10-06; City Council; ; Second Amendment to the Retail Lease Agreement with House Martel, LLC to Defer Rent for up to Nine Months for the Café in the Carlsbad City Library because of the PandemiCA Review __AF____
Meeting Date Oct. 6, 2020
To: Mayor and City Council
From: Scott Chadwick, City Manager
Staff Contact: Curtis M. Jackson, Real Estate Manager
curtis.jackson@carlsbadca.gov, 760-434-2836
Subject Second Amendment to the Retail Lease Agreement with House Martel,
LLC to Defer Rent for up to Nine Months for the Café in the Carlsbad City
Library because of the Pandemic
Recommended Action
Adopt a resolution approving the second amendment to the retail lease agreement with House
Martel, LLC to defer rent for as long as nine months for the Chapters Café at the Carlsbad City
Library on Dove Lane because of the pandemic and authorizing the city manager to execute the
amendment.
Executive Summary
On May 12, 2020, the City Council approved guidelines for considering city lease deferral
requests filed because of the COVID-19 pandemic and approved a request from Chapters Café,
located adjacent to the Dove Library, to defer rent owed on its lease with the city for up to six
months. The rent deferral that was requested by Chapters Café and approved by the City
Council required an associated lease amendment to be brought back to City Council for
approval.
This second amendment with Chapters Café would allow rent deferral for up to nine months,
from May 1, 2020 to Jan. 31, 2021. Staff is recommending a nine-month extension instead of a
six-month extension because the City Library has not yet fully reopened to the public.
Discussion
Chapters Café requested temporary forgiveness of rent payments March 19, 2020, citing
financial hardships because of the COVID-19 pandemic and its public health restrictions, which
resulted in the closure of the Dove Library and the café.
On April 21, 2020, at the recommendation of the City Council’s Ad Hoc City Council Economic
Revitalization Subcommittee, the City Council approved the Economic Recovery and
Revitalization Initiative, which included several measures to support pandemic-related
economic response, recovery and revitalization, including city lessee rent relief. (Resolution No.
2020-068). On May 12, 2020, the City Council approved guidelines for considering city lease
rent deferral requests. (Exhibit 3). The guidelines require the City Manager to analyze tenants
independently and balance a list of enumerated factors, including the tenant’s maintenance of
the leasehold in good condition, payment history, compliance with lease terms, long-term
viability, the remaining term of the lease, and evidence showing that the tenant’s need for a
deferral was caused by the COVID-19 pandemic state of emergency. Rent deferral requests
beyond six months are evaluated under the same guidelines.
Oct. 6, 2020 Item #4 Page 1 of 14
On May 12, 2020, the City Council also authorized the City Manager to negotiate and return to
the council with a lease amendment for Chapters Café deferring its rent payments for up to six
months. On Sept. 14, 2020, Chapters Café formally requested to extend the rent deferral period
an additional three months (Exhibit 2), for a rent deferral period totaling nine months (May 1,
2020 to Jan. 31, 2021). Staff is recommending that the City Council approve a nine-month rent
deferral because the six-month rent deferral would expire on Oct. 31, 2020 and the City Library
was completely closed from March 16, 2020, until Sept. 29, 2020, when the library partially
opened, and the café relies upon library patrons for its source of income. This request is
consistent with the City Council adopted guidelines (Exhibit 3) and is based on the ongoing
impacts of COVID-19, which include the initial closure and subsequent reduced patronage of
the library since March 16, 2020.
Chapters Café has 31 months remaining on its lease agreement and was timely in rent
payments until it and the library were closed because of the pandemic. Chapters Café has
maintained their leasehold in good condition, satisfying all terms of the lease up until the
forced closure of their establishment.
Beginning the week of September 21,2020, Chapters Café’s operators began a soft-opening of
the café, making its services available to city staff working at the library and library patrons
using the limited services currently offered at the library. They have also started the process of
creating an online-ordering option. Chapters Café anticipates fully opening to the public when
there will be more library foot traffic.
Staff is recommending that the City Council give authority to the city manager to execute this
second amendment to the retail lease agreement with Chapters Café to defer rent for up to
nine months, from May 1, 2020 to Jan. 31, 2021.
Fiscal Analysis
Chapters Café pays $1,230.75 per month under its lease. A deferral of its rent payments for up
to nine-months would total $11,076.75. If the full amount of deferred rent is not repaid by the
end of the initial lease term – there are 31 months remaining – a 3% compounding interest
charge will be applied to the balance of the amount due.
Next Steps
With the council’s approval. Chapters Café and city staff will implement the terms of the
amended agreement.
Environmental Evaluation (CEQA)
The proposed action is exempt from the California Environmental Quality Act under CEQA
guidelines 15301 – Existing Facilities. Section 15301 exempts the leasing of property involving
negligible or no expansion of use beyond that existing at the time of the agency’s
determination.
Exhibits
1. City Council Resolution
2. House Martel, LLC deferral extension request letter
3. City Council Resolution No. 2020-083
Oct. 6, 2020 Item #4 Page 2 of 14
RESOLUTION NO. 2020-198
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD,
CALIFORNIA, APPROVING A SECOND AMENDMENT TO THE RETAIL
LEASE AGREEMENT WITH HOUSE MARTEL, LLC TO DEFER RENT FOR
UP TO NINE MONTHS DUE TO COVID-19 AND AUTHORIZING THE
CITY MANAGER TO EXECUTE THE SECOND AMENDMENT FOR THE
CHAPTERS CAFÉ LOCATED WITHIN THE CARLSBAD CITY LIBRARY AT
1775 DOVE LANE.
WHEREAS, on Aug. 2, 2018, the city and House Martel, LLC (Chapters Café), entered into
that certain Lease Agreement (Agreement) for the property located at 1775 Dove Lane, Carlsbad,
California (Premises) consisting of approximately 750 square feet of commercial building space
located within the Carlsbad City Library (Resolution No. 2018-136); and
WEREAS, on Jan. 29, 2020, the city and Chapters Café entered into Amendment No. 1 to
the Lease, extending the required business opening date ninety-days, from 180 days to 270 days
from the August 2, 2018 (Resolution No. 2019-010); and
WHEREAS, as a result of the COVID-19 pandemic, many city lease tenants are
experiencing a decline in their businesses or have been required to temporarily close their
businesses, in whole or in part, to comply with (a) executive orders, including California Executive
Order N-33-20, (b) public health orders from the County of San Diego Public Health Officer, and
(c) all other applicable orders and directives associated with COVID-19 (Safety Declarations); and
WHEREAS, On March 19, 2020, Chapters Café requested temporary forgiveness of rent
payments due to financial hardships as a result of COVID-19 Safety Declarations, including the full
closure of the Dove Library and the associated café; and
WHEREAS, as a result of the COVID-19 pandemic, on April 7, 2020, the City Council
created the Ad Hoc City Council Economic Revitalization Subcommittee (Subcommittee) with the
Oct. 6, 2020 Item #4 Page 3 of 14
goal of identifying options for economic revitalization due to the COVID-19 emergency for
consideration by the full City Council; and
WHEREAS, based on recommendations from the Subcommittee, on April 21, 2020, the
City Council approved the Economic Recovery and Revitalization Initiative (ERRI). The ERRI
included several measures to support COVID-19 economic response, recovery and revitalization,
one of which includes city lessee relief (Resolution No. 2020-068); and
WHEREAS, on May 12, 2020, the City Council approved the guidelines for considering city
lease rent deferral requests, and approved a city lease rent deferral request for Chapters Café to
defer rent for up to six months (Resolution No. 2020-083); and
WHEREAS, the City Council adopted guidelines provided guidance on rent deferral
requests beyond six-months, with such requests to be evaluated by the city manager for
recommendation and presentation to the City Council for its review and consideration; and
WHERAS, Chapter Café is now requesting to extend the rent deferral period an additional
three months, for a rent deferral period totaling nine months (May 1, 2020 to Jan. 31, 2021)
because Chapters Café relies upon library patrons as their source of income and Dove Library has
not yet fully reopened to the public; and
WHEREAS, the City Council accepts and adopts the City Manager's determination that
the rent deferral relief requested is consistent with the guidelines adopted pursuant to
Resolution No. 2020-083; and
WHERAS, this request is based on the ongoing impacts of COVID-19, which include the
initial closure and subsequent reduced patronage of the Dove Library since March 16, 2020; and
Oct. 6, 2020 Item #4 Page 4 of 14
WHEREAS, Chapters Café has 31 months remaining on their lease agreement, has
maintained their leasehold in good condition, has been timely with their rent up until their
closure due to COVID-19 and the closure of the Dove Library, and have satisfied all other terms of
the lease agreement; and
WHEREAS, the Second Amendment will provide immediate relief to Chapters Cafe by
deferring rent payments for up to nine-months (May 1, 2020 to Jan. 31, 2021), with the balance
of the deferred rent to be paid back over the balance of the remaining term of the lease
agreement; and
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Carlsbad, California,
as follows:
1. The above recitations are true and correct.
2. That the City Manager is hereby authorized to execute this Second Amendment to the
Retail Lease Agreement with Chapters Cafe, attached hereto as Attachment A, and to do so in
full compliance with the terms and conditions expressed in the Agreement and to the
satisfaction of the City Attorney.
Oct. 6, 2020 Item #4 Page 5 of 14
1.F•-161Ft.14\„,,,
PASSED, APPROVED AND ADOPTED at a Regular Meeting of the City Council of the City of
Carlsbad on the 6th day of October, 2020, by the following vote to wit:
AYES: Hall, Blackburn, Bhat-Patel, Schumacher.
NAYS: None.
ABSENT: None.
MATT HALL, Mayor
ATTEST:
PY\Actv???p
BARBARA ENGLESON, City Clerk
(SEAL)
Oct. 6, 2020 Item #4 Page 6 of 14
AMENDMENT NO. 2 TO RETAIL LEASE AGREEMENT
This Amendment No. 2 to Retail Lease Agreement ("Amendment") is entered into as of
2020, by and between the CITY OF CARLSBAD, a California
municipal corporation (Landlord') and House Martel, LLC, a California limited liability company
(Tenant') and shall be effective and binding upon the parties as of the date of its execution by
both parties.
RECITALS
WHEREAS, Landlord and Tenant are parties to a Retail Lease Agreement entered into as
of August 2, 2018 ("Lease") for Premises located at the Carlsbad City Library at 1775 Dove Lane,
California, CA 92011.
WEREAS, on Jan. 29, 2020, the Landlord and Tenant entered into Amendment No. 1 to
the Lease, extending the business opening date ninety-days, from 180 days to 270 days from
August 2, 2018; and
WHEREAS, due to the financial impact that the current Coronavirus (COVID-19)
pandemic has had on Tenant, Tenant has requested that its obligation under the Article 1 of the
Lease to pay Base Rent be deferred, and Landlord has agreed to allow such deferral, subject to
the specific terms and conditions set forth in this Amendment.
WHEREAS, all capitalized terms used in this Amendment, unless otherwise specified,
shall have the same meaning as the capitalized terms used in the Lease.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of which are
expressly acknowledged, Landlord and Tenant agree as follows:
RE EMENT
1. Deferred Rent. Notwithstanding the provisions in Article 1 of the Lease, Tenant
may defer payment of Base Rent for the period commencing May 1, 2020 and continuing through
January 31, 2021 (nine months), in the aggregate amount of $11,076.75 ("Deferred Rent"). The
Deferred Rent will not be subject to interest or late charges or cause an event of default under
Article 17 of the Lease, provided:
1.1. Commencing November 1, 2020, Tenant resumes paying Base Rent; and
1.2. Commencing February 1, 2021, Tenant repays the Deferred Rent in 31
consecutive monthly installments of $357.31 over the balance of the remaining initial Lease Term,
which expires on July 31, 2023.
2. Failure to Comply. If Tenant fails to timely comply with Paragraph 1 of this
Amendment, then (i) any unpaid Deferred Rent will become immediately due and payable and
subject to 3% interest compounded monthly; and (ii) Landlord will have the right to pursue any
available remedies under the Lease and/or applicable law.
3. Tenant Certification. By execution of this Amendment, Tenant certifies that
Landlord has not defaulted in the performance of its obligations under the Lease and Tenant has
no claim, defense, excuse or offset with respect to the Lease as it relates to COVID-19, or
otherwise. Tenant further acknowledges and agrees that prior to executing this Amendment,
Tenant has had an opportunity to discuss this Amendment with its legal counsel, tax professionals
and financial advisors.
4. Confirmation. Except as modified by this Amendment, all provisions of the Lease
shall remain in full force and effect. In the event of an irreconcilable conflict between the terms of
the Lease and the terms of this Amendment, the terms in this Amendment shall control.
Page 1 of 2
Oct. 6, 2020 Item #4 Page 7 of 14
LANDLORD: TENANT:
CITY OF CA
a California al corporation
HOUSE MARTEL, LLC
a California limited liability company
By:
By:
anager Name: C2'3 191nr4:1
BY:
ssistant City Attorney
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first
written above.
Title:
Dated: (454612:1) Dated: 6:4
APPROVED AS TO FORM:
Celia A. Brewer
City Attorney
Page 2 of 2
Oct. 6, 2020 Item #4 Page 8 of 14
Exhibit 2
09/14/2020
Curtis Jackson
Real Estate Manager
City of Carlsbad
Curtis,
I'd like to request an additional 3 month extension on the rent deferment for Chapters Cafe. The Dove
Library is not yet fully operational therefore the foot traffic needed to do business is greatly diminished.
I'm currently working on getting online ordering set up to help with sales but this will require hard internet
wiring and as far as I know, that hasn't been approved by library administration yet. Any additional time
available to me to get this straightened out would be greatly appreciated.
Thank you,
Lisa Martel - owner
Chapters Cafe
Oct. 6, 2020 Item #4 Page 9 of 14
RESOLUTION NO. 2020-083
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD,
CALIFORNIA, APPROVING GUIDELINES FOR CONSIDERING CITY
LEASE RENT DEFERRAL REQUESTS AND APPROVING A CITY LEASE
RENT DEFERRAL REQUEST FOR CHAPTERS CAFE
WHEREAS, as a result of the COVID-19 pandemic, many city lease tenants are
experiencing a decline in their businesses or have been required to temporarily close their
businesses, in whole or in part, to comply with (a) executive orders, including California Executive
Order N-33-20, (b) public health orders from the County of San Diego Public Health Officer,
including prohibiting gatherings of 10 or more people and strongly discouraging non-essential
gatherings of any size, and (c) all other applicable orders and directives associated with COVID-
19;and
WHEREAS, as a result of the COVID-19 pandemic, on April 7, 2020, the City Council
created the Ad Hoc City Council Economic Revitalization Subcommittee with the goal of
identifying options for economic revitalization due to the COVID-19 emergency for consideration
by the full City Council; and
WHEREAS, based on recommendations from the Subcommittee, on April 21, 2020, the
City Council approved the Economic Recovery and Revitalization Initiative, or ERRI. The ERRI
included several measures to support COVID-19 economic response, recovery and revitalization,
one of which includes city lessee relief (Resolution No. 2020-068); and
WHEREAS, pursuant to the ERRI, staff is recommending that the City Council consider
and approve a set of guidelines for considering all city lease rent deferral requests; and
WHEREAS, the proposed guidelines in Attachment A are to be utilized by the city
manager in considering and making recommendations to the City Council on all city lease rent
deferral requests; and
Exhibit 3
Oct. 6, 2020 Item #4 Page 10 of 14
WHEREAS, the guidelines attempt to balance the need for immediate assistance for city
tenants, most of whom are struggling with reduced business and closures, with the needs of the
city in meeting its fiduciary and legal duties; and
WHEREAS, the proposed program provides immediate relief to qualifying city tenants by
deferring rent payments for up to a six-month period; and
WHEREAS, all rent deferral recommendations from the city manager would need to be
approved by the City Council and any rent deferrals granted would require an associated lease
amendment or rent deferral agreement that would need to be approved by the City Council; and
WHEREAS, the city manager recommends that Chapters Cafe be granted temporary
deferral of rent payments for up to six months to be paid back over the balance of the remaining
initial lease term, with no interest or late charges, unless the full amount of rent deferral is not
repaid by the end of the initial lease term, in which case a 3% compounding interest charge
would be applied to the balance of the amount due; and
NOW, THEREFORE, ,BE IT RESOLVED by the City Council of the City of Carlsbad, California,
as follows:
1. The above recitations are true and correct.
2. The City Council approves the guidelines in Attachment A for considering city lease rent
deferral requests.
3. The City Council authorizes the city manager to negotiate and return to the City Council
with a lease amendment or rent deferral agreement for approval that grants Chapters Cafe a
temporary deferral of rent payments for up to six months to be paid back over the balance of
the remaining initial lease term, with no interest or late charges, unless the full amount of rent
Oct. 6, 2020 Item #4 Page 11 of 14
deferral is not repaid by the end of the initial lease term, in which case a 3% compounding
interest charge would be applied to the balance of the amount due.
PASSED, APPROVED AND ADOPTED at a Regular Meeting ofthe City Council of the City of
Carlsbad on the 12th day of May 2020, by the following vote to wit:
AYES:
NAYS:
ABSENT:
Hall, Blackburn, Bhat-Patel, Schumacher.
None.
None.
MATT HALL, Mayor
ATTEST:
Oct. 6, 2020 Item #4 Page 12 of 14
Attachment A
GUIDELINES FOR CONSIDERING CITY LEASE RENT DEFERRAL REQUESTS
The guidelines attempt to balance the need for immediate assistance for city tenants with the
needs of the city in meeting its fiduciary and legal duties. The guidelines are to be utilized by the
city manager in considering and making recommendations on all city lease rent deferral requests.
All rent deferral recommendations from the city manager would need to be reviewed and
approved by the City Council. All rent deferral requests granted would require an associated
lease amendment or rent deferral agreement that would need to be approved by the City
Council.
Minimum Conditions Applicable to All Tenants Seeking Rent Deferral
The city manager will analyze tenants independently and balance the following factors on a case-
by-case basis in determining whether a recommendation to the City Council for rent deferral
relief is appropriate:
(1) The tenant is in good standing with the city and is expected to remain a tenant in good
standing throughout the term of the lease deferral period. The criteria to determine
whether a tenant is in "good standing" are: (i) maintenance of the leasehold in good
condition, free of deferred maintenance; (ii) prompt payment history prior to
March 4, 2020; (iii) compliance with the non-rent provisions of the current lease,
including use provisions, insurance requirements, and regulatory permitting
requirements; and (iv) maintenance of accurate financial records that are accessible
to the city.
(2) The tenant provides evidence demonstrating the need for the rent deferral was
caused by the COVID-19 pandemic state of emergency. The evidence may include
documents showing the tenant's business was closed or its business operations were
modified because of COVID-19 public health orders and the closure or modification
resulted in a significant decrease in gross revenues.
(3) The long-term viability of the tenant's business.
(4) The remaining term on the tenant's lease agreement.
(5) Whether the tenant has applied for and received funds from a state or federal aid
program for which the tenant qualifies (tena.nts who have applied for state or federal
assistance are eligible, but may not also apply to the city for rent deferral to cover
costs for which they have already received state or federal assistance).
After considering the above factors, the city manager may recommend to the City Council
approval of one of the following methods of rent relief:
(1) Temporary deferral of rent payments for up to a six-month period to be paid back over a
twelve-month period beginning in January of the next calendar year with no interest or
late charges. If the full amount of rent deferral is not repaid within 12 months, a three
Oct. 6, 2020 Item #4 Page 13 of 14
Attachment A
percent (3%) compounding interest charge will be applied to the balance of the amount
due.
(2) Temporary reduction in rent payments below the rent payment amounts specified in the
lease for up to a six-month period fo be paid back over a twelve-month period beginning
in January of the next calendar year with no interest or late charges. If the full amount of
rent deferral is not repaid within 12 months, a three percent (3%) compounding interest
charge will be applied to the balance of the amount due.
(3) Temporary deferral of rent payments for up to a six-month period to be paid back over
the balance of the remaining initial lease term with no interest or late charges. If the
full amount of rent deferral is not repaid by the end of the initial lease term, a three
percent (3%) compounding interest charge will be applied to the balance of the amount
due.
Rent deferral requests beyond 6 months, or from tenants who have already received a temporary
rent reduction, will be evaluated by the city manager under these guidelines and a
recommendation will be presented to the City Council for its review and consideration.
Oct. 6, 2020 Item #4 Page 14 of 14