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2005-03-15; City Council; 18025; Cassia Heights Affordable Housing Project
HOUSING AND REDEVELOPMENT COMMISSION AND CITY OF CARLSBAD AGENDA BILL AB# 18,025 - TITLE: APPROVAL OF CITY FINANCIAL ASSISTANCE AND MTG. 3r15/05 RELATED DOCUMENTS FOR THE CARLSBAD FAMILY HOUSlNGlCASSlA HEIGHTS AFFORDABLE HOUSING DEPT. H/RED PROJECT. 11 CITY ATT I RECOMMENDED ACTION: That the City Council take the following two actions: 1) ADOPT Resolution No. APPROVING a request to provide financial assistance to El Camino Family Housing Partners, LLC, which includes a loan of $1,454,276 from Community Development Block Grant (CDBG), HOME and Redevelopment Agency Housing Set-Aside Funds and to approve the related loan documents and ground lease for construction of fifty six (56) affordable apartment units on property tocated on the southeast corner of El Camino Real and Cassia Road; and, 2) ADOPT Resolution No.2005-074 APPROVING the Assignment of Real Estate Contract which will allow the City to assume the purchase contract currently held by Affirmed Housing Group to purchase the subject property. That the Housing and Redevelopment Commission adopt Resolution No. 391 AUTHORIZING the Finance Director to appropriate up to a maximum of $94131 6 in Redevelopment Agency Housing Set-Aside Funds and to provide such funding to the City of Carlsbad to assist in the construction financing of the Carlsbad Family Housing/Cassia Heights affordable housing project. 2005-073 ITEM EXPLANATION: AFFORDABLE HOUSING PROJECT DESCRIPTION The project site is a 2.63 acre parcel that is located at the southeast corner of El Camino Real and Cassia Road. The existing Villa Loma and future Manzanita Apartment projects are located across El Camino Real on the northwest and southwest corners of Cassia Road. The project will be developed by El Camino Family Housing Partners, LLC, whose managing member is Affirmed Housing Group (the "Developer"). The proposed 56-unit affordable apartment project consists of four separate two-story buildings with a partial subterranean garage below Building 1. Proposed amenities include a pool area, a 1,648 square foot office and recreation building, and a tot lot. The proposed development includes one, two, and three bedroom units. Of the 56 units, the Developer has proposed to provide 5 units (9% of project) which will be affordable to households earning 30% of the San Diego County Area Median Income (AMI), 6 units (1 1 YO of project) will be affordable to households earning 40% of AMI, 28 units (50% of project) will be affordable to households earning 50% of AMI, and 16 units (28% of project) will be affordable to household6 earning 60% of AMI. There will be one manager unit (2% of project). The Site Development Plan (SDP) for the project was approved by the City Council on August 10, 2004. The Housing Commission reviewed the request for financial assistance at their February 24, 2005 meeting and recommended approval (4-1, Huston - no) to the City Council. FINANCIAL ASSISTANCE FOR THE AFFORDABLE HOUSING PROJECT As part of the project financing, the Developer is requesting that the City provide financial assistance in the total amount of $2,829,276, or $50,523 per unit. Staff is proposing to address the financial assistance request in two forms. First, the proposal is to assist the project through property acquisition with a ground lease back to the Developer. Second, the proposal is to Page 2ofAB# 18.025 provide $1,454,276 in cash assistance to help fund pre-development, off-site improvement and direct construction costs related to the project. In addition to the City’s financial participation, the Developer will use several other sources to finance the affordable development. The financial details of the subject project are provided below. For information purposes, Affirmed Housing entered into a contract with the Bons Charitable Remainder Trust on September 24, 2001 to purchase the subject property for $1,200,000. Due to the time it was taking to complete project design and process the permits for the project, the price was increased to $1,235,000 on December 11, 2003 and then by $5,000 for every month until escrow closes. The current price is $1,310,000. If the City Council agrees to assume the current purchase contract and proceed with acquisition of the property, the final purchase price is estimated to be $1,325,000 to $1,330,000. Staff has indicated a final estimated cost of $1,375,000 to ensure that adequate funding is available to extend the escrow beyond 90 to 120 days if necessary, and to include any related costs such as an updated appraisal, updated preliminary title report and other necessary studiesheports. The developer has estimated land cost of $1,475,000 in their proforma. This price may be required if the City does not proceed with acquisition and the developer must continue the escrow for another year or more until they may obtain funding to complete the acquisition. Based on current market comparables, the current price is reasonable. An updated appraisal will be obtained by the City prior to close of escrow to ensure that the price does not exceed current market values. USES AND SOURCES OF FUNDS The total cost of the Carlsbad Family Housing/Cassia Heights Apartment Project is estimated to be $1 4.1 million, inclusive of the value of the land. The following chart provides a breakdown of the project costs, or uses of funds. Based on a detailed review of the costs, staff has found that the costs are reasonable and the total per unit cost of $252,241 is generally consistent with other affordable multi- family developments within the City, with an adjustment for the increase in construction costs over the past year and the requirement for the project to pay prevailing wages. In the past, the “Developer Fee” has been a specific point for discussion. The proposed developer fee is $1,500,000, which represents 10.6% of total project costs. The fee is considered reasonable by industry standards, and is the maximum amount permitted under the tax credit program regulations. The following chart provides a breakdown of the permanent sources of funds for the proposed development. The primary source of funding for the proposed project is proceeds from the sale of tax credits to an investor who will then be admitted as a member of the Developer. As noted above, the proposal is for the City to purchase the property and then ground lease it back to the Developer as part of the City’s contribution to the project. The total estimated land cost is $1.4 million. It is also proposed that the City provide cash assistance in the amount of $1,454,276. The City’s cash contribution, if approved by the Council, will be provided to the developer in the form of a construction loan to be repaid through future surplus cash generated from project operations. Page 3 of AB # 18,025 Conventional Loan City Land Purchase (anticipated cost) City Loan Tax Credit Investor Equity Deferred Developer Fee Total Sources of Funds Total Amount Per Unit $1,660,000 $29,643 $1,375,000 $24,554 $1,454,276 $25,969 $250,597 $4,475 $9,385,634 $1 67,600 $1 4,125,507 $252,241 The City’s proposed contribution of $50,523 per unit is higher than that which has been previously approved for many similar projects. In general, the City has provided about $1 0,000 per unit for similar projects. However, staff believes that the greater amount of assistance is warranted for two reasons. First, the project is being developed outside of the City’s lnclusionary Housing Program. As a result, there is no Master Developer to provide contributions to the project. Second, because the project will be funded through tax credits as the primary source, the rents will be affordable to households ranging from 30% of the area median income to 60% of the area median income. This is lower than the requirements of the lnclusionary Housing Program and will assist the City in meeting the needs of the lower income households in need of affordable housing. FINANCIAL ASSISTANCE DOCUMENTS As proposed, the City’s cash assistance ($1,454,276) will be provided in the form of a residual receipts loan secured by a note and deed of trust. The outstanding principal and accrued interest on the City loan will be amortized over fifty-five years and repaid from surplus cash in equal annual installments of principal and interest. In the event that there is not adequate cash surplus to repay the City loan, the outstanding balance shall accrue with simple interest at 3% per annum. The terms of the City assistance is the same loan structure that has been used for all of the affordable housing projects assisted in the City to date. In order for the project to receive the $1,454,276 loan, the Developer is required to enter into loan and regulatory agreements with the City of Carlsbad. These agreements and related documents are attached for review. As one of the actions set forth within this report, the City Council is being asked to approve, in substantially the form presented, the Land Disposition and Loan Agreement, Deed of Trust, Promissory Note, Regulatory Agreement and Declaration of Restrictive Covenants, Assignment of Real Estate Contract and Ground Lease. All documents are attached as Exhibits 4 and 5 for review. These documents are explained below: 1. 2. 3. 4. 5. Land Disposition and Loan Agreement states the terms and conditions relating to the City’s loan, and the specific conditions to be satisfied prior to the City’s lease of the land to the Deve I ope r . Regulatory Agreement and Declaration of Restrictive Covenants records the terms of affordability and the operation requirements for the project. The Agreement requires that 49% of the units be affordable to households at 50% or lower of the San Diego County Area Median and 51 YO of the units to be affordable to households at 90% of San Diego County Area Median. Promissory Note is executed by the Developer and expresses their obligation to repay the loan. Deed of Trust is recorded against the property to secure the City’s interest in the subject improvements. Assignment of Real Estate Contract allows the City to assume the purchase contract that developer has on the subject property in order for City to proceed with acquisition of said property. Page 4 of AB # 18,025 6. Ground Lease states the terms and conditions under which the City will lease the subject property to the developer for development of subject affordable housing project. It is important to also note that the City and/or Agency will ultimately be required to subordinate the subject loan documents to the senior lien holder. If approved, the attached resolution authorizes the City Manager and/or Agency Executive Director, or hidher designee, to execute subsequent subordination agreements. The Agency Executive Director may subordinate the Agency loan only after the finding required under Health and Safety Code Section 33334 has been made by the Agency. While the subordination documents will not return to the City Council/Agency for review, Staff will take the necessary steps to insure that the documents provide the City/Agency with adequate notice and cure ability. The subordination documents will be reviewed by, and be subject to final approval by the City Attorney and/or Agency General Counsel. HOUSING COMMISSION RECOMMENDATION ON FINANCIAL ASSISTANCE At their meeting on February 24, 2005, the Housing Commission reviewed the request from the Developer for financial assistance related to the subject affordable housing project. The Commission recommended (4-1, Huston - No) that the City Council approve the construction loan in the amount of $1,454,276 from the CDBG, HOME and Redevelopment Agency Housing Set-Aside Funds. The Commission was not asked to make a recommendation on the property acquisition. The Commission, however, did indicate support for the assistance package to the developer. Commissioner Huston voted against the financial assistance because she felt that that the Developer was not investing adequately into the project. However, the remainder of the Commission felt that the Developer’s investment was adequate and consistent with the financial structure of all other affordable housing projects in Carlsbad. In addition to the financial assistance structure, the Commission also discussed the pool amenity proposed by the Developer. By minute motion, the Commission recommended against inclusion of the pool. They felt that the construction and operation of the pool is too costly and not appropriate for an affordable housing development. The Commission suggested replacement of the pool amenity with a grassy area for children to play and for other resident activities. This action is submitted for CounciVAgency information only. RISK ANALYSIS In its role as a lender to the project, the City/Agency is exposed to three risks inherent to real estate development. These risks generally include 1 ) predevelopment (project does not get to construction); 2) construction (project cannot be completed, cost overruns, contractor problems; and 3) operation (revenues do not cover expenses). Adding to this risk, any City financial assistance will be subordinated to conventional financing. The City/Agency is providing pre-development funding to the Developer. If the project does not get to construction, the City/Agency will have approximately $250,000 invested in the project which will not be repaid. These funds are not required to be repaid if the development does not proceed to construction. If the project is successful, these funds will be repaid as part of the permanent loan from the City/Agency. Construction and operation risks are mitigated by several factors. First, the development team has a strong track record with similar affordable housing projects. They are well-established and understand and are experienced in the affordable housing development business. Second, the presence of other major financial commitments, such as tax credit investment, is key as this means that other stakeholders depend on the success of the project both short and long term, and have completed their own in-depth analysis of the project financing. These other investors will not invest if they do not Page 5 of AB Amount Source $250,000 CDBG Funds $262,760 HOME Funds $941,516 Redevelopment Housing Set- # 18,025 Purpose Pre-Development Off-Site Improvements Construction believe that the project is financially feasible and can be completed and operated in an appropriate manner. Finally, the position of the City and other subordinated financing is a feature that helps attract the other necessary private financing. The City/Agency funding represents approximately 20% of the total funding for the project. The other financing partners have much more at risk and will not provide their financing if the City/Agency does not subordinate its funding. This has been a requirement of all other affordable housing projects financed by the City/Agency to date. As of this date, the City/Agency has experienced no defaults on the loans from any of the affordable housing developers. STAFF RECOMMENDATION Staff recommends that the City Council adopt the attached resolution to authorize financial assistance for the Carlsbad Family Housing/Cassia Heights Affordable Apartment Project. ENVIRONMENTAL REVIEW Planning staff conducted an environmental impact assessment to determine if the project could have a potentially significant effect on the environment pursuant to CEQA Guidelines and the Environmental Protection Ordinance (Title 1 9) of the Carlsbad Municipal Code. No potentially significant environmental impacts were identified. The City Council adopted the Negative Declaration for the subject development project on August 10, 2004. Review under NEPA Guidelines will be completed for the project subsequent to this action by the Counci/Commission but prior to any release of the CDBG and HOME funds for project related costs including property acquisition, pre-development expenses and off -site improvements. FISCAL IMPACT: The financial assistance in the form of a $1,454,276 residual receipts loan will be provided from several sources as noted below. Aside Funds The fiscal impact for acquisition of the subject property will be addressed in a separate agenda bill. The intent at this time, however, is to fund the acquisition through several sources as well including CDBG, State Workforce Housing Grant, and Housing Trust Funds. The balance of funds in the various eligible affordable housing funds are set forth in the chart below. 5 Page 6 of AB # EXHl BITS: 18,025 1. 2. 3. 4. 5. 6. 7. 8. 9. City Council Resolution No. 2005 - 073 , to approve financial assistance for the Carlsbad Family Housing/Cassia Heights Affordable Apartment Project. City Council Resolution No. 2005- 074 to approve the Assignment of Real Estate Contract which will allow the City to assume the purchase agreement currently held by Affirmed Housing Group to purchase the subject property. Housing and Redevelopment Resolution No. , authorizing the Finance Director to appropriate up to a maximum of $941,516 in Redevelopment Agency Housing Set-Aside Funds and to provide loan proceeds to the City of Carlsbad to assist in the construction financing of the Carlsbad Family Housing/Cassia Heights affordable housing project. Loan Documents for financial assistance from the City of Carlsbad, including a Land Disposition and Loan Agreement, Note, Deed of Trust, Regulatory Agreement, and Ground Lease. Assignment of Real Estate Contract, and copy of Real Estate Purchase Contract. Proforma for the Carlsbad Family Housing/Cassia Heights Affordable Apartment Project. Housing Commission Staff Report dated, February 24, 2005. Housing Commission Resolution No. 2005-001 recommending approval of the requested financial assistance for the Carlsbad Family Housing/Cassia Heights Affordable Apartment Project. Vicinity Map. 391 DEPARTMENT CONTACT: Debbie Fountain, (760) 434-281 5; dfoun Qci.carlsbad.ca.us 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CITY COUNCIL RESOLUTION NO. 2005-073 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD, CALIFORNIA, TO APPROVE A REQUEST TO PROVIDE FINANCIAL ASSISTANCE TO EL CAMINO FAMILY HOUSING PARTNERS, LLC WHICH INCLUDES A LOAN OF $1,454,276 FROM COMMUNITY DEVELOPMENT BLOCK GRANT, FUNDS AND TO APPROVE THE RELATED LOAN AND OTHER DOCUMENTS FOR CONSTRUCTION OF FIFTY SIX (56) AFFORDABLE APARTMENT UNITS WITHIN THE SOUTHEAST QUADRANT OF THE CITY OF CARLSBAD. APPLICANT: HOME AND REDEVELOPMENT AGENCY HOUSING SET-ASIDE EL CAMINO FAMILY HOUSING PARTNERS CASE NO: SDP 02-13 WHEREAS, El Camino Family Housing Partners, LLC, has proposed to construct 56 apartment units affordable to lower and moderate income households on El Camino Real at Cassia Street in the Southeast Quadrant of the City of Carlsbad; and WHEREAS, El Camino Family Housing Partners, LLC, has requested that the City of Carlsbad provide financial assistance in the form of a construction loan to assist in the construction of said apartment units; and WHEREAS, on the 24th day of February, 2005, City of Carlsbad Housing Commission did hold a public meeting to consider a request for City financial assistance for the construction of said 56 affordable housing apartment units by the affordable housing developer, El Camino Family Housing Partners, LLC, and subsequently recommended approval of the request for assistance; and I/// /Ill Ill/ /Ill /Ill /Ill 1 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CC Resolution No. 2005-073 Page 2 WHEREAS, on the 15* day of March, 2005, the City Council did hold a public meeting to consider said request for City financial assistance for the construction of said 56 affordable housing apartment units by the affordable housing developer, El Camino Family Housing Partners, LLC; and; WHEREAS, at said public meeting, upon hearing and considering all testimony, if any, of all persons desiring to be heard, said Council considered all factors relating to the application and request for financial assistance: NOW, THEREFORE, BE IT HEREBY RESOLVED by the City Council of the City of Carlsbad, California, as follows: 1. 2. 3. 4. The above recitations are true and correct. The request for City financial assistance is consistent with the goals and objectives of the City of Carlsbad’s Housing Element and Consolidated Plan, and the Carlsbad General Plan. The request for City financial assistance will assist the affordable housing developer to construct a total of 56, one, two and three bedroom affordable apartment units. The project, therefore, has the ability to effectively serve the City’s housing needs and priorities as expressed in the Housing Element and the Consolidated Plan. That the City Council of the City of Carlsbad hereby APPROVES financial assistance to the proposed affordable housing project known as the Carlsbad Family HousinglCassia Heights Affordable Apartment Project in the form of a residual receipts construction and permanent loan in the amount of $1,454,276 from the City of Carlsbad’s Community Development Block Grant, HOME and Redevelopment Agency Housing Set- Aside Funds. 1 6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CC Resolution No. 2005-073 Page 3 5. 6. 7. 8. That the City Council authorizes the City Manager or hisher designee to execute all documents related to provision of the City assistance, including but not limited to a Land Disposition and Loan Agreement, Promissory Note, Deed of Trust, Regulatory Agreement and Declaration of Restrictive Covenants, and Ground Lease in substantially the form presented to the City Council, and subject to review and final approval by the City Attorney. That the City Council authorizes the City Manager or hisher designee to execute subsequent subordination agreement(s) subordinating City/Agency Regulatory Agreement and Deed of Trust to the Deed of Trust for Construction and Permanent Lenders, as required, subject to review and approval by the City Attorney andor Special Legal Counsel. That the City Council accepts $941,516 from the Carlsbad Redevelopment Agency’s Housing Set-Aside Fund to provide proceeds for a portion of the residual receipts construction loan to be provided to El Camino Family Housing Partners, LLC, for the subject affordable housing project. That the expenditure of monies from the Carlsbad Redevelopment Agency’s Housing Set-Aside Fund for the purposes of funding a construction and permanent loan to El Camino Family Housing Partners, LLC, for an affordable housing project containing 56 rental units outside the Redevelopment Project Area(s), in which such funds are generated, are and will be of benefit to the respective Project Area(s) based on the following findings: a. b. C. The Village Redevelopment Area currently consists of a number of restaurants, hotels, time-share projects and small retail operations which depend on and offer employment at low to moderate income wages. The proposed housing project offers affordable housing opportunities with restricted rents affordable to moderate, low and very low income households. These type of restricted rental housing units will be beneficial to the employees working within the Village Redevelopment Area. The South Carlsbad Coastal Redevelopment Area is proposed to have several new restaurants, hotels, time-share projects and small retail operations which will also depend on and offer employment at low to moderate income wages. The proposed housing project will assist in providing affordable housing opportunities for those employees and ultimately benefit the project area by providing an employee pool which is located in close proximity to the project area. The proposed project is located on bus routes and connects to major transportation corridors which will allow direct access to the Village and South Carlsbad Coastal Redevelopment Project Areas. The households residing within the proposed project will be able to take advantage of the public transportation systems which will allow them to work and shop in the Village Redevelopment Area and ultimately in the South Carlsbad Coastal ? 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 e 22 23 24 25 26 27 28 CC Resolution No. 2005-073 Page 4 9. 10. Redevelopment Area as well. This will have a significant impact on the Redevelopment Agency's efforts to revitalize both project areas. That the City Council authorizes the City Manager, or hisher designee, to submit all applicable documents to the U.S Department of Housing and Urban Development and/or County of San Diego to allow for appropriation and release of $250,000 in Community Development Block Grant Funds and $262,760 in HOME Funds to provide proceeds for a portion of the residual receipts construction loan for pre-development and construction related activities for the subject affordable housing project. That the City Council authorizes the Finance Director to appropriate and expend the funds set forth within this approval to provide the proceeds for the $1,454,276 residual receipts construction loan to El Camino Family Housing Partners, LLC, for the subject affordable housing project, and as set forth in the approved loan documents. PASSED, APPROVED, AND ADOPTED at a regular meeting of the City Council of the City of Carlsbad, California, held on the 15th day of March , 2005, by the following vote, to wit: AYES: Council Members Lewis 11, Kulchin, P NOES: None ABSENT: None ABSTAIN: None h- AINE M. WOOD, City Clerk 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CITY COUNCIL RESOLUTION NO. 2005-074 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD, CALIFORNIA, TO APPROVE THE ASSIGNMENT OF REAL ESTATE CONTRACT AGREEMENT FROM AFFIRMED HOUSING GROUP FOR PROPERTY CONSISTING OF APPROXIMATELY 2.63 ACRES AND LOCATED WITHIN THE CITY OF CARLSBAD AT EL CAMINO REAL AND CASSIA STREET, AND MORE SPECIFICALLY IDENTIFIED AS ASSESSOR PARCEL 215-021-06. WHEREAS, Affirmed Housing Group has previously entered into a Purchase Agreement to acquire certain real property located within the City of Carlsbad on El Camino Real at Cassia Street consisting of 2.63 acres, and more specifically described as assessor parcel 215-021-06, with the Bons Charitable Remainder Trust; and WHEREAS, both the Affirmed Housing Group and the City of Carlsbad desire to enter into an agreement to allow Affirmed Housing Group to assign the subject real estate contract to the City of Carlsbad in order for the City of Carlsbad to acquire the property and then ground lease it to El Camino Family Housing Partners, LLC, a wholly controlled affiliate of Affirmed Housing Group, for construction and operation of a 56 unit lower income affordable apartment project. /Ill /Ill /Ill /Ill /Ill /Ill /Ill 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CC Resolution No. 205-074 Page 2 WHEREAS, on the 15h day of March, 2005, the City Council did hold a public meeting to consider said Assignment of Real Estate Purchase Contract to allow for the City of Carlsbad to acquire said property for the construction of said 56 affordable housing apartment units by the affordable housing developer, El Camino Family Housing Partners, LLC; and; WHEREAS, at said public meeting, upon hearing and considering all testimony, if any, of all persons desiring to be heard, said Council considered all factors relating to the approval of said Assignment of Real Estate Purchase Contract: NOW, THEREFORE, BE IT HEREBY 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 hereby approves the Assignment of Real Estate Purchase Contract to allow Affirmed Housing Group to transfer their purchase contract to acquire said property on El Camino Real to the City of Carlsbad. 3. That the City Council authorizes the City Manager or hisher designee to execute said Assignment of Real Estate Purchase Contract and any related documents in substantially the form presented to the City Council, and subject to review and final approval by the City Attorney. PASSED, APPROVED, AND ADOPTED at a regular meeting of the City Council of the City of Carlsbad, California, held on the 15th day of March 2005, by the following vote, to wit: AYES: Council Members Lewis, Hall, Kulchin, Pa NOES: None ABSENT: None ABSTAIN: None ATTEST: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 HOUSING AND REDEVELOPMENT COMMISSION RESOLUTION NO. 391 A RESOLUTION OF THE HOUSING AND REDEVELOPMENT COMMISSION OF THE CITY OF CARLSBAD, CALIFORNIA, TO ASIDE FUNDING IN THE AMOUNT OF $941,516 TO ASSIST IN PROVIDING FINANCIAL ASSISTANCE TO EL CAMINO FAMILY HOUSING PARTNERS FOR CONSTRUCTION OF FIFTY SIX (56) AFFORDABLE APARTMENT UNITS WITHIN THE SOUTHEAST QUADRANT OF THE CITY OF CARLSBAD AND OUTSIDE THE REDEVELOPMENT PROJECT AREA@). APPLICANT: APPROPRIATE REDEVELOPMENT AGENCY HOUSING SET- EL CAMINO FAMILY HOUSING PARTNERS CASE NO: SDP 02-13 WHEREAS, El Camino Family Housing Partners, LLC, has proposed to construct 56 apartment units affordable to lower and moderate income households on El Camino Real at Cassia Street in the Southeast Quadrant of the City of Carlsbad, which is located outside the boundaries of the Redevelopment Plan areas (Village and South Carlsbad Coastal Redevelopment Project Areas); and WHEREAS, El Camino Family Housing Partners, LLC, has requested that the City of Carlsbad provide financial assistance in the form of a construction and permanent loan to assist in the construction of said apartment units; and WHEREAS, the Redevelopment Agency of the City of Carlsbad, hereinafter referred to as “Agency”, is a Community Redevelopment Agency organized and existing under the Community Redevelopment Law, Health and Safety Code Section 33000, etc.seq., hereinafter referred to as the “Act”, and desires to assist in the financing of said project to be developed by El Camino Family Housing Partners, LLC; and WHEREAS, the Agency is authorized to implement the Redevelopment Plan for the Carlsbad Village Redevelopment and South Carlsbad Coastal Redevelopment Project Areas; and 1 13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 HRC Resolution No. 391 Page 2 WHEREAS, Section 33334.2 of the Act requires that not less than twenty percent (20%) of all taxes which are allocated to the Agency for purposes of increasing and improving the community’s supply of low and moderate income housing; and WHEREAS, pursuant to Section 33334.2 of the Act, the Legislature declares its intent that the Low and Moderate Income Housing Set-Aside Fund shall be used to improve and increase the supply of affordable housing within the community; and WHEREAS, to carry out the purposes of increasing and improving the community’s supply of low and moderate income housing, Section 33334.2(e) of the Act states that the Agency may exercise any or all of its powers, including without limitations, acquiring land or building sites, improving land or building sites with onsite or offsite improvements, donating land to private or public persons or entities, constructing buildings or structures, acquiring buildings or structures, providing subsidies to, or for the benefit of, very low income households, lower income households, or persons or families of low and moderate income, or other powers to carry out the purposes of the Act; and WHEREAS, pursuant to Section 33334.2(g) (1) of the Act, the Agency may use said funds outside the project area(s) upon a resolution of the Agency and the Legislative body that the use will be of benefit to the project area(s); and WHEREAS, on the 24th day of February, 2005, City of Carlsbad Housing Commission did hold a public meeting to consider a request for CityIAgency financial assistance for the construction of said 56 affordable housing apartment units by the affordable housing developer, El Camino Family Housing Partners, LLC, and subsequently recommended approval of the request for assistance; and 1111 1111 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 HRC Resolution No. 391 Page 3 WHEREAS, on the 15* day of March, 2005, the City Council and Housing and Redevelopment Commission did hold a joint public meeting to consider said request for City and Agency financial assistance for the construction of said 56 affordable housing apartment units by the affordable housing developer, El Camino Family Housing Partners, LLC; and, WHEREAS, at said public meeting, upon hearing and considering all testimony, if any, of all persons desiring to be heard, said City Council and Housing and Redevelopment Commission considered all factors relating to the application and request for financial assistance; and, WHEREAS, the Housing and Redevelopment Commission approved the appropriation and expenditure of $941,516 from the Low and Moderate Income Housing Set-Aside Fund outside the Redevelopment Project Areas for the purposes of providing loan proceeds to the City of Carlsbad to fund a construction loan for El Camino Family Housing Partners, LLC, to construct 56 units of rental housing for very low, low and moderate income personslfamilies. NOW, THEREFORE, BE IT HEREBY RESOLVED by the Housing and Redevelopment Commission of the City of Carlsbad, California, as follows: 1. The above recitations are true and correct. 2. The request for Agency financial assistance is consistent with the goals and objectives of the City of Carlsbad’ s Housing Element and Consolidated Plan, the Carlsbad General Plan, and the Redevelopment Plans for the Village Area and South Carlsbad Coastal Redevelopment Project Areas. 3. The request for Agency financial assistance will assist the affordable housing developer to construct a total of 56, one, two and three bedroom affordable apartment units. The project, therefore, has the ability to effectively serve the City’s housing needs and priorities as expressed in the Housing Element and the Consolidated Plan as well as meet the housing needs for the Redevelopment Project Areas in the City of Carlsbad. 1 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 HRC Resolution No. 391 Page 4 4. That the expenditure of monies from the Low and Moderate Income Housing Fund for the purposes of funding a construction and permanent loan to El Camino Family Housing Partners, LLC, to an affordable housing project containing 56 rental units outside the Redevelopment Project Area(s), in which such funds are generated, are and will be of benefit to the respective Project Area(s) based on the following findings: a. b. C. The Village Redevelopment Area currently consists of a number of restaurants, hotels, time-share projects and small retail operations which depend on and offer employment at low to moderate income wages. The proposed housing project offers affordable housing opportunities with restricted rents affordable to moderate, low and very low income households. These type of restricted rental housing units will be beneficial to the employees working within the Village Redevelopment Area. The South Carlsbad Coastal Redevelopment Area is proposed to have several new restaurants, hotels, time-share projects and small retail operations which will also depend on and offer employment at low to moderate income wages. The proposed housing project will assist in providing affordable housing opportunities for those employees and ultimately benefit the project area by providing an employee pool which is located in close proximity to the project area. The proposed project is located on bus routes and connects to major transportation corridors which will allow direct access to the Village and South Carlsbad Coastal Redevelopment Project Areas. The households residing within the proposed project will be able to take advantage of the public transportation systems which will allow them to work and shop in the Village Redevelopment Area and ultimately in the South Carlsbad Coastal Redevelopment Area as well. This will have a significant impact on the Redevelopment Agency’s efforts to revitalize the Village Project Area. 5. 6. Ill1 Ill1 Ill1 /Ill Ill1 That the Low and Moderate Income Housing Set-Aside Funds will promote the City of Carlsbad’ s housing goals and satisfies specific requirements of the Community Redevelopment Law to expend a portion of its tax increment to produce affordable housing opportunities for low and moderate income persons. That the expenditure of the subject Low and Moderate Income Housing Set-Aside Funds to assist the City of Carlsbad in providing financial assistance to the subject project in the form of a residual receipts construction loan in the total amount of $1,454,276 is consistent with the Village Redevelopment Area Low and Moderate Income Housing Set-Aside Spending StrategyPlan. 1 16 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 22 24 25 26 27 28 HRC Resolution No. 391 Page 5 7. That the Housing and Redevelopment Commission authorizes the Agency’s Executive Director or hisher designee to execute all documents related to provision of the Agency assistance to the City of Carlsbad to help fund the residual receipts constructiodpermanent loan to El Camino Family Housing Partners, LLC, for development of the subject affordable housing project. 8. That the Housing and Redevelopment Commission authorizes the Agency’s Executive Director or hisher designee to execute subsequent subordination agreement(s) subordinating the City/Agency’ s Regulatory Agreement and Deed of Trust to the Deed of Trust for construction and permanent lenders, as required, subject to review and approval by the Agency’s General Counsel and/or Special Legal Counsel, and subject to the Executive Director’s finding that no other financing that does not require subordination is reasonably available. 9. That the Housing and Redevelopment Commission authorizes the Finance Director to appropriate and expend the funds set forth within this approval by transferring such funds to the City to provide a portion of the proceeds ($941’5 16) for the residual receipts constructiodpermanent loan to El Camino Family Housing Partners, LLC, for the subject affordable housing project, and as set forth in the approved loan documents. PASSED, APPROVED, AND ADOPTED at a regular meeting of the Housing and Redevelopment Commission of the City of Carlsbad, California, held on the 15th day of March ,2005, by the following vote, to wit: AYES: Commissioners Lewis, NOES: None ABSENT: None ABSTAIN: None ATTEST: 1 EXHIBIT 4 FINANCIAL ASSISTANCE DOCUMENTS LAND DISPOSITION AND LOAN AGREEMENT BETWEEN CITY OF CARLSBAD AND EL CAMINO FAMILY HOUSING PARTNERS, LLC FOR EL CAMINO REAL HOUSING DEVELOPMENT Dated as of ,2005 1010\16\2O723 1.4 TABLE OF CONTENTS Paae ARTICLE 1 . DEFINITIONS AND EXHIBITS .............................................................................. 2 .. Section 1.1 Definitions .................................................................................................... 2 Section 1.2 Exhibits ........................................................................................................ 7 ARTICLE 2 . PREDISPOSITION REQUIREMENTS .................................................................... 8 Section 2.1 Section 2.2 Section 2.3 Section 2.4 Section 2.5 Section 2.6 Section 2.7 Section 2.8 Section 2.9 Section 2.10 Conditions Precedent to Conveyance of Property ....................................... 8 Land Use Approvals .................................................................................... 8 Construction Plans ....................................................................................... 8 Financing Plan ............................................................................................. 9 Tax Credit Reservation; Financing ............................................................ 10 Other Governmental Approvals ................................................................. 11 Management Agreement and Procedures .................................................. 11 Construction Contract ................................................................................ 12 Construction Bonds .................................................................................... 12 Insurance .................................................................................................... 13 ARTICLE 3 . LEASE OF PROPERTY .......................................................................................... 13 Section 3.1 Lease .......................................................................................................... 13 Section 3.2 Opening Escrow ......................................................................................... 13 Section 3.3 Closing ....................................................................................................... 13 Section 3.4 Condition of Title ....................................................................................... 14 Section 3.5 Condition of Property ................................................................................ 15 Section 3.6 Costs of Escrow and Closing ..................................................................... 17 ARTICLE 4 . CONSTRUCTION OF IMPROVEMENTS ............................................................ 17 Section 4.1 Section 4.2 Section 4.3 Section 4.4 Section 4.5 Section 4.6 Section 4.7 Section 4.8 Section 4.9 Section 4.10 Section 4.11 Section 4.12 Section 4.13 Section 4.14 Section 4.15 Construction Pursuant to Plans .................................................................. 17 Change in Construction of Improvements ................................................. 17 Commencement of Improvements ............................................................. 18 Completion of the Improvements .............................................................. 18 Equal Opportunity ...................................................................................... 18 Requirement ............................................................................................... 18 Progress Rep0 rt .......................................................................................... 19 Construction Responsibilities .................................................................... 19 Mechanics Liens, Stop Notices, and Notices of Completion ..................... 20 Inspections ................................................................................................. 20 Information ................................................................................................ 20 Records ...................................................................................................... 20 Relocation .................................................................................................. 21 Financial Accounting and Post-Completion AuQts .................................. 21 Financing; Revisions to Plan ..................................................................... 21 Compliance with Applicable Law; Prevailing Wage 1010\16\20723 1.4 1 TABLE OF CONTENTS (Continued) ARTICLE 5 . CITY Section 5.1 Section 5.2 Section 5.3 Section 5.4 Section 5.5 Section 5.6 Section 5.7 Section 5.8 Section 5.9 Section 5.10 LOAN PROVISIONS .................................................................................... 22 City Loan ................................................................................................... 22 Interest ........................................................................................................ 22 Use of City Loan ........................................................................................ 22 Security; Subordination of Regulatory Agreement .................................... 23 Repayment Schedule .................................................................................. 23 Conditions Precedent to Disbursement of City Loan ................................ 24 Reports and Accounting of Residual Receipts ........................................... 25 Developer Fee ............................................................................................ 26 Assumption ................................................................................................ 26 Non-Recourse ........................................................................................... -26 ARTICLE 6 . ONGOING DEVELOPER OBLIGATIONS ........................................................... 27 Section 6.1 Section 6.2 Section 6.3 Section 6.4 Section 6.5 Section 6.6 Section 6.7 Section 6.8 Section 6.9 Section 6.10 Section 6.11 Applicability .............................................................................................. 27 Use ............................................................................................................. 27 Maintenance ............................................................................................... 27 Taxes and Assessments .............................................................................. 28 Mandatory Language in All Subsequent Deeds. Leases and Contracts .................................................................................................... 28 Hazardous Materials .................................................................................. 29 Management Agent; Periodic Reports ....................................................... 31 Approval of Management Policies ............................................................. 32 Insurance Requirements ............................................................................. 32 CDBG and HOME Requirements .............................................................. 34 Audits ......................................................................................................... 33 ARTICLE 7 . ASSIGNMENT AND TRANSFERS ....................................................................... 35 Section 7.1 Definitions .................................................................................................. 35 Section 7.2 Purpose of Restrictions on Transfer ........................................................... 35 Section 7.3 Prohibited Transfers ................................................................................... 36 Section 7.4 Permitted Transfers .................................................................................... 36 Section 7.5 Effectuation of Certain Permitted Transfers .............................................. 37 Section 7.6 Other Transfers with City Consent ........................................................... -37 ARTICLE 8 . DEFAULT AND REMEDIES ................................................................................. 38 ... Section 8.1 Section 8.2 Section 8.3 Section 8.4 Section 8.5 Section 8.6 Section 8.7 General Applicability ................................................................................. 38 No Fault of Parties ..................................................................................... 38 Fault of City ............................................................................................... 38 Fault of Developer ..................................................................................... 39 Right to Cure at Developer's Expense ....................................................... 41 Construction Plans ..................................................................................... 41 Rights of Mortgagees ................................................................................. 41 .. 11 1010\16\207231.4 TABLE OF CONTENTS (Continued) Section 8.8 Section 8.9 Remedies Cumulative ................................................................................ 41 Waiver of Terms and Conditions ............................................................... 42 ARTICLE 9 . SECURITY FINANCING AND RIGHTS OF HOLDERS .................................... 42 Section 9.1 Section 9.2 Section 9.3 Section 9.4 Section 9.5 Section 9.6 Section 9.7 No Encumbrances Except for Development Purposes .............................. 42 Holder Not Obligated to Construct ............................................................ 42 Failure of Holder to Complete Improvements ........................................... 43 Notice of Default and Right to Cure .......................................................... 43 Right of City to Cure .................................................................................. 43 Right of City to Satisfy Other Liens .......................................................... 43 Holder to be Notified. ................................................................................ 44 ARTICLE 10 . GENERAL PROVISIONS .................................................................................... 44 Section 10.1 Notices. Demands and Communications ................................................... 44 Section 10.2 Non-Liability of City Officials. Employees and Agents ........................... 44 Section 10.3 Forced Delay .............................................................................................. 45 Section 10.4 Inspection of Books and Records .............................................................. 45 Section 10.5 Provision Not Merged with Lease ............................................................. 45 Section 10.6 Title of Parts and Sections ......................................................................... 45 Section 10.7 General Indemnification ............................................................................ 45 Section 10.8 Applicable Law .......................................................................................... 46 Section 10.9 No Brokers ................................................................................................. 46 Section 10.10 Severability ................................................................................................ 46 Section 10.11 Venue ......................................................................................................... 46 Section 10.12 Binding Upon Successors .......................................................................... 46 Section 10.13 Parties Not Co-Venturers ........................................................................... 47 Section 10.16 Identity and Authority of Developer .......................................................... 47 Section 10.19 Multiple Originals; Counterparts ............................................................... 49 Section 10.14 Time of the Essence ................................................................................... 47 Section 10.15 Action by the City ...................................................................................... 47 Section 10.17 Complete Understanding of the Parties ..................................................... 49 Section 10.18 Entry by the City ........................................................................................ 49 Exhibit A: Exhibit B: Exhibit C: Exhibit D: Exhibit E: Exhibit F: Exhibit G: Exhibit H: Legal Description of the Property Schedule of Performance Financial Proposal Form of City Ground Lease Form of Regulatory Agreement Form of City Note Form of City Deed of Trust Form of Memorandum of Ground Lease 10 10\16\20723 1.4 iii LAND DISPOSITION AND LOAN AGREEMENT FOR EL CAMINO REAL HOUSING DEVELOPMENT This Land Disposition and Loan Agreement (the "Agreement") is entered into as of ,2005, (the "Effective Date") by and between the City of Carlsbad, a municipal corporation (the "City"), and El Camino Family Housing Partners, LLC, a California limited liability company (the "Developer"), with reference to the following facts, understandings and intentions of the parties: RECJTALS A. These Recitals refer to and utilize certain capitalized terms that are defined in Article 1 of this Agreement. The Parties intend to refer to those definitions in connection with the use of capitalized terms in these Recitals. B. The City Council of the City adopted the Carlsbad Village Redevelopment Plan pursuant to Ordinance No. adopted on (the "Redevelopment Plan"), establishing the Carlsbad Village Redevelopment Project Area (the "Project Area"). The City is responsible for implementing the Redevelopment Plan in the Project Area. The goals for the Redevelopment Plan include alleviation of blighting conditions and the stimulation of economic development and affordable housing activities in the Project Area and the community. C. The City owns, or is in the process of acquiring, the Property which is located outside the Project Area as more particularly described in the attached Exhibit A. The City acquired, or will acquire, the Property with funds from the CDBG Program which the City received from the United States Department of Housing and Urban Development ("HUD") under Title I of the Housing and Community Development Act of 1974, as amended. D. The City and the Developer desire for the Developer to develop the Improvements, consisting of fifty-six (56) units of multi-family housing, on the Property. E. Developer, subject to the terms and conditions of this Agreement. Pursuant to that certain agreement dated funds from the City's Housing Fund to the City to fund a portion of the City Loan. To effectuate this purpose, the City will ground lease the Property to the ,2005 by and between the City and the City, the City assigned F. The Developer intends to finance the costs of development with the City Loan, as well as third party construction and permanent financing. G. The City has determined that the Developer has the necessary expertise, skill and ability to carry out the commitments set forth in this Agreement and that this Agreement is in the best interests, and will materially contribute to the implementation of, the Redevelopment Plan. 1010\16\20723 1.4 1 a3 H. In accordance with Health and Safety Code Section 33334.2(g), the City Board, by resolution , made findings that the expenditure of monies deposited in the City's Housing Fund to fund the City Loan will serve the purposes of Health and Safety Code Section 33334.2, as well as the goals and objectives of the Project Area by improving and increasing the supply of affordable housing in the community , and the City Council, by resolution I. The Developer's construction and operation of the Development are not financially feasible without the City's financial assistance. The City therefore desires to ground lease the Property to the Developer in accordance with the terms set forth in the Ground Lease attached hereto and to provide the Developer with the City Loan to provide construction funding in consideration for the Developer's agreement to construct and operate the Development consistent with this Agreement and the Regulatory Agreement, including (without limitation) the occupancy and affordability restrictions. The amount of the City Loan provided pursuant to this Agreement does not exceed the amount of City's assistance necessary to make the Developer's acquisition of the leasehold interest in the Property and the construction and operation of the Development as restricted by this Agreement financially feasible. J. The City intends to apply the units to be developed pursuant to this Agreement toward satisfaction of the statutorily mandated housing production requirements for the Project Area under Health and Safety Code Section 33413(b)(2). K. Pursuant to the California Environmental Quality Act and its implementing guidelines, the City (in its capacity as "lead agency"), and the City (in its capacity as a "responsible agency") have prepared, reviewed and approved the Negative Declaration for the transactions contemplated by this Agreement (including the development of the Improvements), following a duly noticed public hearing. The Negative Declaration has served as the environmental documentation for the City's and City's consideration and approval of this Agreement and the transactions contemplated by this Agreement. THEREFORE, the City and the Developer agree as follows: ARTICLE 1. DEFINITIONS AND EXHIBITS Section 1.1 Definitions. In addition to the terms defined elsewhere in this Agreement, the following definitions shall apply throughout this Agreement. (a) "Affirmed" means Affirmed Housing Group, a California corporation. (b) "Agreement" means this Land Disposition and Loan Agreement, including the attached Exhibits and all subsequent operating memoranda and amendments to this Agreement. 2 (c) "Annual Operating Expenses" with respect to a particular Fiscal Year shall mean the following costs reasonably and actually incurred for operation and maintenance of the Development to the extent that they are consistent with the annual budget for the Development, approved by the City pursuant to the Regulatory Agreement and with an annual independent audit performed by a certified public accountant, reasonably acceptable to the City, using generally accepted accounting principles: property taxes and assessments imposed on the Development; debt service currently due on a non-optional basis (excluding debt service due from residual receipts or surplus cash of the Development) on loans associated with development of the Development and approved by the City in the Financing Plan pursuant to Section 2.4; property management fees and reimbursements, not to exceed fees and reimbursements which are standard in the industry and pursuant to a management contract approved by the City pursuant to Sections 2.6 and 6.7 of this Agreement; premiums for property damage and liability insurance; utility services not paid for directly by tenants, including water, sewer, and trash collection; maintenance and repair; any annual license or certificate of occupancy fees required for operation of the Development; security services; advertising and marketing; cash deposited into reserves for capital replacements of the Development in an amount not to exceed the amount required in connection with the permanent financing approved by the City pursuant to Section 2.4, or by the City if no other lender or investor requires approvals of such amount; cash deposited into an operating reserve in an amount not to exceed the amount required in connection with the permanent financing approved by the City pursuant to Section 2.4, or by the City if no other lender or investor requires approvals of such amount; payment of any previously unpaid portion of the Developer Fee due (without interest) not exceeding a cumulative amount of the Developer Fee as set forth in Section 5.8; an annual asset management fee in the amount of Five Thousand Dollars ($5,000) (adjusted annually at 3.5% and which shall accrue if not paid); a partnership management fee in the amount of Twenty Five Thousand Dollars ($25,000) (adjusted annually at 3.5% and which shall accrue if not paid) extraordinary operating costs specifically approved in writing by the City as part of the annual budget approval process pursuant to the Regulatory Agreement; payments of deductibles in connection with casualty insurance claims not normally paid from reserves; the amount of uninsured losses actually replaced, repaired or restored, and not normally paid from reserves; and other ordinary and reasonable operating expenses approved in writing by the City and not listed above. Annual Operating Expenses shall not include the following: depreciation, amortization, depletion or other non-cash expenses; any amount expended from a reserve account; and any capital cost with respect to the Development, as determined by the accountant for the Development. (d) "Area Median Income" means the median gross yearly income, adjusted for household size, in the County of San Diego, California, as determined by the California Department of Housing and Community Development. In the event that such income determinations are no longer published, or are not updated for a period of at least eighteen (1 8) months, the City shall provide the Developer with other income determinations which are reasonably similar with respect to methods of calculation to those previously published by the State. (e) "CDBG" means the Community Development Block Grant program of Title I of the Housing and Community Development Act of 1974, as amended. 1010\16\20723 1.4 3 (f) "CDBG Component" means the portion of the City Loan described in Section 5.l(a). (g) "Certificate of Occupancy" means the final certificate of occupancy issued by the City upon the completion of construction of the Improvements. (h) "City" means the City of Carlsbad, California, a municipal corporation. (i) "City Council'' means the City Council of the City of Carlsbad. (j) "City Deed of Trust" means the deed of trust that will encumber the Developer's leasehold interest in the Property to secure repayment of the City Note, substantially in the form attached hereto as Exhibit G. (k) "City Documents" shall mean, collectively, this Agreement, the City Ground Lease, the City Note, the City Deed of Trust, the Regulatory Agreement, and all other documents required to be executed by the Developer in connection with the transaction contemplated by this Agreement. (1) "City Event of Default" has the meaning set forth in Section 8.3. (m) Developer whereby the Developer shall lease the Property from the City, substantially in the form of Exhibit D. "City Ground Lease" means the Ground Lease between the City and the (n) "City Loan" shall mean the loan in the amount of One Million Four Hundred Fifty Four Thousand Two Hundred Seventy Six Dollars ($1,454,276) made from the City to the Developer pursuant to the terms of the Loan Agreement. (0) "City Note" shall mean the promissory note that will evidence the Developer's obligation to repay the City Loan as set forth in the Loan Agreement. (P) "Closing" means the date mutually acceptable to the parties within thirty (30) days following the date on which all conditions precedent to conveyance set forth in Article 2 have been satisfied, but in no event later than the date set forth in the Schedule of Performance. (9) "Construction Plans" means all construction documentation upon which the Developer, and the Developer's several contractors, shall rely in building each and every part of the Improvements (including landscaping, parking, and common areas) and shall include, but not necessarily be limited to, final architectural drawings, landscaping plans and specifications, final elevations, building plans and specifications (also known as "working drawings") and a time schedule for construction. (r) "Conventional Loans" means a construction loan and/or permanent loans from private lending institutions and public lenders, approved by the City in the Financing Plan. (s) "Developer" means El Camino Family Housing Partners, LLC, a California limited liability company. 1010\16\207231.4 4 (t) "Developer Event of Default" has the meaning set forth in Section 8.4. (u) "Developer Fee" means that amount of fee paid to the Developer, or its affiliates in the amount and for the purposes set forth in Section 5.8. (v) "Development" means the Property and the Improvements (w) "Escrow" means the escrow established with the Title Company for the purpose of ground leasing the Property from the City to the Developer. (x) "Financing Plan" means the Developer's plan for financing the acquisition of the leasehold interest in the Property and the development of the Improvements, approved by the City pursuant to Section 2.4. (y) "Fiscal Year" shall mean the Developer's fiscal year which ends on December 31, except as the Developer otherwise notifies the City in writing. (z) "Gross Revenue" with respect to a particular Fiscal Year shall mean all revenue, income, receipts, and other consideration actually received from operation and leasing of the Development. Gross Revenue shall include, but not be limited to: all rents, fees and charges paid by tenants, Section 8 payments or other rental subsidy payments received for the dwelling units, deposits forfeited by tenants, all cancellation fees, price index adjustments and any other rental adjustments to leases or rental agreements; net proceeds from vending and laundry room machines; the proceeds of business interruption or similar insurance and not paid to senior lenders; the proceeds of casualty insurance not used to rebuild the Development and not paid to senior lenders; and condemnation awards for a taking of part or all of the Development for a temporary period not paid to senior lenders. Gross Revenue shall not include tenants' security deposits, loan proceeds, capital contributions or similar advances. (aa) "Hazardous Materials" means any substance, material, or waste which is: (1) defined as a "hazardous waste", "hazardous material," "hazardous substance," "extremely hazardous waste," "restricted hazardous waste," "pollutant" or any other terms comparable to the foregoing terms under any provision of California law or federal law; (2) petroleum; (3) asbestos; (4) polychlorinated biphenyls; (5) radioactive materials; (6) mold; (7) MTBE; or (8) determined by California, federal or local government authority to be capable of posing a risk of injury to health, safety or property. Without limiting the foregoing, Hazardous Materials means and includes any substance or material defined or designated as hazardous or toxic waste, hazardous or toxic material, a hazardous, toxic or radioactive substance, or other similar term, by any Hazardous Materials Laws including any federal, state or local environmental statute, regulation or ordinance presently in effect that may be promulgated in the future, as such as statutes, regulations and ordinances may be amended from time to time. The term "Hazardous Materials" shall not include: (i) construction materials, gardening materials, household products, office supply products or janitorial supply products customarily used in the construction, maintenance, rehabilitation, or management of commercial properties, buildings and grounds, or typically used in household activities, or (ii) certain substances which may contain chemicals listed by the State of California pursuant to California Health & Safety Coded Section 25249.8 et seq., which substances are commonly used 5 1010\16\207231.4 by a significant portion of the population living within the region of the Improvements, including, but not limited to, alcoholic beverages, aspirin, tobacco products, Nutrasweet and saccharine, so long as such materials and substances are stored, used and disposed of in compliance with all applicable Hazardous Materials Laws. (bb) "Hazardous Materials Laws" means all federal, state, and local laws, ordinances, regulations, orders and directives pertaining to Hazardous Materials in, on or under the Development or any portion thereof. (cc) "HOME" means the HOME Investment Partnership Act Program pursuant to the Cranston-Gonzales National Housing Act of 1990, as amended. (dd) "HOME Component'' means the portion of the City Loan described in Section 5.l(b). (ee) "HUD" means the United States Department of Housing and Urban Development . (ff) "Improvements" means the fifty-six (56) affordable housing units to be constructed by the Developer and appurtenant landscaping and improvements. (gg) "Investor" means a reputable equity investor, reasonably acceptable to the City, committed to purchasing a membership interest in the Developer. (hh) "Management Agent" means a management agent retained by the Developer and approved by the City in accordance with the provisions of Sections 2.6 and 6.7 to manage the Development. (ii) "Memorandum of Ground Lease" means the memorandum of the Ground Lease to be recorded against the Property at the Closing. The form of the Memorandum of Ground Lease is attached as Exhibit H. (jj) "Net Proceeds of Permanent Financing" shall mean the portion of the approved Financing Plan funds that are not required to pay the costs of acquisition and development of the Development (including but not limited to the funding of reserves, the payment of deferred Developer Fee and repayment of construction financing). Net Proceeds of Permanent Financing, if any, shall be determined pursuant to the procedure set forth in Section 5.5(c). (kk) "Parties" means the City and the Developer. (11) "Project Area" has the meaning set forth in Recital A. (mm) "Property" means the real property to be redeveloped by the Developer pursuant to this Agreement, which real property is more particularly described in Exhibit A. (nn) "Redevelopment Plan" has the meaning set forth in Recital A. 1010\16W7231.4 6 (00) "Regulatory Agreement" means the Regulatory Agreement and Declaration of Restrictive Covenants that will be recorded against the Developer's leasehold interest of the Property upon execution of the Ground Lease and will restrict the development of the Property to affordable housing, the form of which is attached hereto as Exhibit E. (pp) "Residual Receipts" in a particular Calendar Year shall mean the amount by which Gross Revenue exceeds Annual Operating Expenses. (qq) , "Schedule of Performance" means the summary schedule of actions to be taken by the Parties pursuant to this Agreement to achieve disposition of the leasehold interest in the Property to the Developer and the development of the Improvements. The Schedule of Performance is attached to this Agreement as Exhibit B. (IT) "Security Financing Interest" has the meaning set forth in Section 9.1. (ss) "Tax Credits" means federal low-income housing tax credits established pursuant to Section 42 of the Internal Revenue Code of 1986, as amended. (tt) "Tax Credit Funds" means the proceeds from the sale of membership interest in the Developer to the Investor in the anticipated amount set forth in the Financing Plan, or such other amount as may be approved by the City in an amended Financing Plan. (uu) "Tax Credit Reservation" means a preliminary reservation of Tax Credits from TCAC. (vv) "TCAC" means the California Tax Credit Allocation Committee. (ww) "Term" means the term of this Agreement, which shall commence on the Effective Date and shall continue until the fifty-fifth (55*) anniversary of the date of issuance of the Certificate of Occupancy for the Development. (xx) "Title Company" means the San Diego office of Chicago Title Company, located at 750 B Street #1700, San Diego, California, 92101, unless modified pursuant to Section 3.2. (yy) "Transfer" has the meaning set forth in Section 7.1. (zz) "Unit" means one of the residential units to be constructed on the Property. Section 1.2 Exhibits. The following exhibits are attached to and incorporated in the Agreement: Exhibit A: Legal Description of the Property Exhibit B: Schedule of Performance 1010\16\20723 1.4 7 Exhibit C: Exhibit D: Exhibit E: Exhibit F: Exhibit G: Exhibit H: Section 2.1 Financial Proposal Form of Ground Lease Form of Regulatory Agreement Form of City Note Form of City Deed of Trust Form of Memorandum of Ground Lease ARTICLE 2. PREDISPOSlTION REQUIREMENTS Conditions Precedent to Conveyance of Property. The requirements set forth in this Article are condtions precedent to the City's obligations to lease the Property to the Developer. The City's obligation to lease the Property to the Developer shall be subject to the satisfaction of all such conditions precedent prior to the date or dates set forth in the Schedule of Performance. Section 2.2 Land Use Approvals. Prior to the Effective Date, the City Council approved a general plan amendment, zone change, site development plan, and special use permit for the Development. The Parties acknowledge that as of the Effective Date no other land use permits or approvals are necessary for the construction of the Improvements, other than a building permit. The Developer acknowledges that execution of this Agreement by the City does not constitute approval by the City of any required or additional permits, applications, or allocations, if any, and in no way limits the discretion of the City in the permit allocation and approval process. Section 2.3 Construction Plans. No later than the date set forth in the Schedule of Performance the Developer shall submit its Construction Plans to the City for the City's review and approval. The City shall approve or disapprove the Construction Plans in writing within thirty (30) days following the City's receipt of the complete Construction Plans, which approval shall not be unreasonably denied. If the Construction Plans are disapproved by the City, the City shall deliver a written notice to the Developer setting forth, in reasonable detail, the reasons for such disapproval. The Developer shall have thirty (30) days following the receipt of such notice to submit revised Construction Plans. The provisions of this Section relating to time periods for approval, disapproval, and resubmission of new Construction Plans shall continue to apply until 1010\16\20723 1.4 8 the final Construction Plans have been approved by the City; provided, however, that if City's reasonable approval of the final Construction Plans has not been obtained by the date set forth in the Schedule of Performance the City may terminate this Agreement pursuant to Article 8. The Developer acknowledges that approval of the final Construction Plans by the City does not constitute approval by the City as required for issuance of a building permit. Section 2.4 Financinp Plan. No later than the time set forth in the Schedule of Performance the Developer shall submit for City approval evidence of the availability of the funds necessary to acquire the leasehold interest in the Property and redevelop the Property (the "Financing Plan"). The Financing Plan shall include: (a) An estimated operating proforma for the Development for fifty-five (55) years, which shall show debt service on all loans (including, but not limited to the City Loan); (b) An estimated sources and uses, including a cost breakdown for costs of constructing the Improvements. The sources and uses shall include all assumptions for all debt and equity financing, shall show the timing of uses of each source of financing and shall break down which expenses each source of financing is funding. The sources and uses shall detail the amount of the Developer Fee, if any, which cannot exceed the amount set forth in Section 5.8, and shall provide a proposed schedule of payments of the fees paid to the Developer, if any, based on performance milestones as to be mutually agreed to by the Developer and the City. (c) A description of any joint ventures (including, but not limited to the admission of any additional members to the Developer) or partnerships the Developer proposes to enter into in order to provide funds for construction of the Improvements and acquisition of the Property including copies of the proposed joint venture or partnership agreements; (d) A copy of the commitment or commitments obtained by the Developer for any loans, grants, or other financial assistance (including, but not limited to, a Tax Credit Reservation Letter from TCAC) to assist in financing the construction of the Improvements certified by the Developer to be true and correct copies thereof. The Developer shall submit evidence of its efforts to receive competitive pricing on the Conventional Loans; and (e) A certified financial statement or other financial statement in such form reasonably satisfactory to the City evidencing other sources of capital sufficient to demonstrate that the Developer has adequate funds available and is committing such funds to cover the difference, if any, between costs of development and construction of the Improvements and the amount available to the Developer from external sources. Upon receipt by the City of the proposed Financing Plan, the City shall promptly review the Financing Plan and shall approve or disapprove it within fifteen (15) days after submission if it conforms to the provisions of this Agreement. The City's review of the Financing Plan shall be limited to determining if the contemplated financing will be reasonably available, if the financing contemplated in the Financing Plan would provide sufficient funds to undertake and complete 9 1010\16\20723 1.4 the development and construction of the Improvements and determining if it is consistent with the terms of this Agreement. If the Financing Plan is not approved by the City, the City shall notify the Developer in writing of the reasons therefore. The Developer shall thereafter resubmit a revised Financing Plan to the City for its approval within fifteen (15) days after the City's notification of disapproval. The City will either approve or disapprove the revised Financing Plan within fifteen (15) days after resubmission by the Developer, and if disapproved, this Agreement may be terminated pursuant to Article 8 below. Only upon the approval of the Financing Plan shall this pre-disposition condition be met. The Parties agree that notwithstanding the time requirements set forth in this Section for submission and resubmission to the City by the Developer of a proposed Financing Plan and review and approval of the Financing Plan by the City, the Developer is responsible for assuring that a Financing Plan in approvable form is submitted to the City in a timely manner such that the City may have the time permitted by this Section to review and approve a Financing Plan no later than the date set forth in the Schedule of Performance. Prior to the issuance of the certificate of completion for the Improvements, any material change, modification, revision or alteration of the approved Financing Plan must first be submitted to and approved by the City for conformity to the provisions of this Agreement. If not so approved, the approved Financing Plan shall continue to control. Section 2.5 Tax Credit Reservation; Financing. The Developer intends to utilize Tax Credit Funds to partially finance the Development, which are subject to a competitive application process implemented by TCAC. Receipt by the Developer of a Tax Credit Reservation pursuant to this section shall be a condition precedent to the City's obligation to execute the Ground Lease. To satisfy the requirements of this Section 2.5, the Tax Credit Reservation shall be for an amount sufficient to meet the requirements of the Financing Plan to be approved by the City pursuant to Section 2.4. (a) Tax Credit Funds. The Developer shall submit a timely and complete application for the Tax Credit Reservation to TCAC in the March 2005 round of TCAC preliminary reservations. If the Developer does not receive a Tax Credit Reservation in the March 2005 round, then the Developer shall submit a timely and complete application for the Tax Credit Reservation to TCAC in the July 2005 round of TCAC preliminary reservations. If the Developer does not receive a Tax Credit Reservation in the July 2005 round, then the Developer shall submit a timely and complete application for the Tax Credit Reservation to TCAC in the first round of 2006 TCAC preliminary reservations rounds. If the Developer does not receive a Tax Credit Reservation in the first round of the 2006 round, then the City may either: (i) terminate this Agreement pursuant to Section 8.4, or (ii) confer with the Developer in good faith for a period not to exceed sixty (60) days to determine if the Developer should submit a further application to TCAC in a subsequent preliminary reservation round or if a feasible and mutually acceptable alternate arrangement can be made to finance development of the Improvements. If no agreement is reached by the Parties within such sixty (60)-day period regarding the alternative financing structure for the construction of the Improvements, this 1010\16\20723 1.4 10 Agreement may be terminated in accordance with the provisions of Section 8.4. Any agreement that is reached between the parties regarding an alternative financing plan for the construction of the Improvements shall be memorialized in an implementation agreement to this Agreement. Upon an award of the Tax Credit Reservation from TCAC, the Developer shall exercise diligent good faith efforts to obtain a funding commitment from the Investor for the Tax Credit Funds. Such funding commitment shall be in a form reasonably acceptable to the City. Procurement of the Tax Credit Reservation and an acceptable funding commitment for the Tax Credit Funds shall be a condition precedent to the City's obligation to convey the Property the Developer pursuant to the Ground Lease. (b) Other Approved Financing. As set forth in the Schedule of Performance, in addition to the Tax Credit Funds all other financing necessary to construct the Improvements, as approved by the City in the Financing Plan, shall be closed by the Developer prior to, or simultaneously with, the execution of the Ground Lease by the City. The Developer shall also submit to the City evidence reasonably satisfactory to the City that any conditions to the release or expenditure of funds described in the approved Financing Plan as the sources of funds to pay the costs of constructing the Improvements have been met or will be met upon the execution of the Ground Lease and subject to the Developer's satisfaction of standard disbursement preconditions required to be satisfied on a periodic basis, for constructing the Improvements. Submission by the Developer, and approval by the City, of such evidence of funds availability shall be a condition precedent to the City's obligation to execute the Ground Lease leasing the Property to the Developer. Section 2.6 Other Governmental Approvals. No later than the date set forth in the Schedule of Performance, the Developer shall apply for a building permit allowing for the construction of the Improvements called for in the Construction Plans. After submitting the application for a building permit, the Developer shall diligently pursue and obtain a building permit for the Improvements, and no later than the date set forth in the Schedule of Performance, the Developer shall deliver evidence to the City that the Developer is entitled to issuance of a building permit for the Improvements upon payment of permit fees. Only upon delivery to the City of such evidence in form reasonably satisfactory to the City shall the predisposition condition of this Section 2.6 be deemed met. If such evidence is not delivered within the time set forth in the Schedule of Performance, this Agreement may be terminated pursuant to Article 8. The City shall render all reasonable assistance (at no cost to the City) to the Developer to obtain the building permit. The Developer acknowledges that execution of this Agreement by the City does not constitute approval by the City of any required permits, applications, or allocations, and in no way limits the discretion of the City in the permit allocation and approval process. Section 2.7 Management Agreement and Procedures. No later than the date set forth in the Schedule of Performance the Developer shall submit to the City for approval the name and qualifications of a proposed management agent, a proposed management agreement and written guidelines or procedures for tenant selection, 11 1010\16\207231.4 operation and management of the Development, and implementation of the income certification and reporting requirements of the Regulatory Agreement (collectively, the "Management Documents"). The City shall approve or disapprove the Management Documents in writing within fifteen (15) calendar days following the City's receipt of the complete Management Documents, which approval shall not be unreasonably denied. If the Management Documents are disapproved by the City, the City shall deliver a written notice to the Developer setting forth, in reasonable detail, the reasons for such disapproval. The Developer shall have fifteen (15) calendar days following the receipt of such notice to submit revised Management Documents. The provisions of this Section relating to time periods for approval, disapproval, and resubmission of new Management Documents shall continue to apply until the Management Documents have been approved by the City; provided, however, that if the City's reasonable approval of the Management Documents has not been obtained by the date set forth in the Schedule of Performance the City may terminate this Agreement pursuant to Article 8. City approval of these documents shall be a condition precedent to City executing the Ground Lease leasing the Property to the Developer. Section 2.8 Construction Contract. No later than the date set forth in the Schedule of Performance, the Developer shall submit to the City for its limited approval the proposed construction contract for the Improvements. The City's review and approval shall be limited exclusively to a determination whether (a) the guaranteed maximum construction cost set forth in the construction contract is consistent with the approved Financing Plan; (b) the construction contract is with a contractor approved by the City (which approval shall not be unreasonably withheld); (c) the construction contract contains provisions consistent with Sections 4.3 through 4.6 of this Agreement; (d) the construction contract requires a retention of ten percent (10%) of costs until completion of the Improvements; and (e) the construction contract includes all applicable CDBG and HOME requirements as set forth in Section 6.11 below. The City's approval of the construction contract shall in no way be deemed to constitute approval of or concurrence with any other term or condition of the construction contract. Upon receipt by the City of the proposed construction contract, the City shall promptly review same and approve it within five (5) days if it satisfies the limited criteria set forth above. If the construction contract is not approved by the City, the City shall set forth in writing and notify the Developer of the City's reasons for withholding such approval. The Developer shall thereafter submit a revised construction contract for City approval, which approval shall be granted or denied in five (5) days in accordance with the criteria and procedures set forth above. Any construction contract executed by the Developer for the Improvements shall be in a form approved by the City. Section 2.9 Construction Bonds. No later than the date set forth in the Schedule of Performance, the Developer shall obtain one (1) labor and material bond and one (1) performance bond for construction of the Improvements, each in an amount equal to one hundred percent (100%) of the scheduled cost of construction. Each bond shall name the City as co-obligee and shall be issued by a reputable insurance company licensed to do business in California, reasonably acceptable to the City. The 1010\16\207231.4 12 form of the labor and material bond and the performance bond shall be subject to the City's prior review and written approval, which shall not be unreasonably withheld. Section 2.10 Insurance. The Developer shall furnish to the City evidence of the insurance coverage meeting the requirements of Section 6.9 below, no later than the date set forth in the Schedule of Performance. ARTICLE 3. LEASE OF PROPERTY Section 3.1 Lease. Provided the pre-disposition requirements set forth in Article 2 and the additional closing conditions set forth in Section 3.3 have been satisfied, the City shall lease to the Developer the Property pursuant to the terms, covenants, and conditions of this Agreement and the City Ground Lease. Section 3.2 Opening Escrow. The Parties shall establish the Escrow with the Title Company. The Parties shall execute and deliver all written instructions to the Title Company to accomplish the terms hereof, which instructions shall be consistent with this Agreement. Upon request by the Developer, the Title Company may be changed to a company requested by the Developer, provided (a) the Developer makes the request prior to the opening of escrow, (b) the company is approved by the City, and (c) the Developer shall pay all title insurance and escrow costs of the new title company. Section 3.3 Closing. The Closing shall occur no later than the date set forth in the Schedule of Performance, and only in the event that all conditions precedent to conveyance set forth in Article 2 have been satisfied or waived by the City. In addition to the conditions precedent to execution of the Ground Lease as set forth in Article 2 (including but not limited to the closing of the financing set forth in the approved Financing Plan), the following conditions shall be satisfied prior to or concurrently with, and as conditions of, execution of the Ground Lease: (a) The Developer shall provide the City with a certified copy of a corporate authorizing resolution, approving this Agreement and the Ground Lease and the conditions and covenants set forth in this .Agreement and the Ground Lease. (b) The Developer shall have furnished the City with evidence of the insurance coverage meeting the general insurance requirements set forth in Section 6.9. (c) The Developer shall have executed and delivered to the City Ground Lease, the Memorandum of Ground Lease, the City Note, the City Deed of Trust, and the Regulatory Agreement and any other documents and instruments required to be executed and delivered, all in a form and substance satisfactory to the City. 13 1010\16\207231.4 (d) The Memorandum of Ground Lease, the City Deed of Trust, and the Regulatory Agreement shall have been recorded against the Developer's interest in the Property as a lien subject only to the exceptions authorized by the City. (e) The Developer shall have obtained issuance of a building permit for construction of the Development by paying the required building permit fees. (f) A title insurer reasonably acceptable to the City is unconditionally and irrevocably committed to issuing an ALTA Lender's Policy of insurance insuring the lien priority of the City Deed of Trust in the amount of the City Loan subject only to such liens approved by the City in the Financing Plan as prior to the lien of the City Deed of Trust and such exceptions and exclusions as may be reasonably acceptable to the City and containing such endorsements as the City may reasonably require. (g) There shall exist no condition, event or act which would constitute a breach or default under this Agreement. (h) All representations and warranties of the Developer contained in any part of this Agreement shall be true and correct. Section 3.4 Condition of Title. At the Closing, the Developer shall have insurable leasehold interest to the Property which shall be free and clear of all liens, encumbrances, clouds and conditions, rights of occupancy or possession, except: (a) applicable building and zoning laws and regulations; (b) the provisions of the Redevelopment Plan; (c) the provisions of this Agreement; (d) the provisions of the City Ground Lease; (e) the provisions of the Regulatory Agreement; (f) the City Deed of Trust; (g) any lien for current taxes and assessments or taxes and assessments accruing subsequent to recordation of the Memorandum of the Ground Lease; (h) the liens of any loan approved by the City in the Financing Plan; and (i) conditions, covenants, restrictions or easements currently of record or as otherwise approved by the Developer in its reasonable discretion. 1010\16\20723 1.4 14 Section 3.5 Condition of Property. (a) "AS ISTONVEYANCE. THE DEVELOPER SPECIFICALLY ACKNOWLEDGES AND AGREES THAT THE CITY IS CONVEYING AND THE DEVELOPER IS OBTAINING THE LEASEHOLD INTEREST IN THE PROPERTY ON AN "AS IS WITH ALL FAULTS" BASIS AND THAT THE DEVELOPER IS NOT RELYING ON ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, FROM THE CITY AS TO ANY MATTERS CONCERNING THE PROPERTY, INCLUDING WITHOUT LIMITATION: (A) THE QUALITY, NATURE, ADEQUACY AND PHYSICAL CONDITION OF THE PROPERTY (INCLUDING, WITHOUT LIMITATION, TOPOGRAPHY, CLIMATE, AIR, WATER RIGHTS, WATER, GAS, ELECTRICITY, UTILITY SERVICES, GRADING, DRAINAGE, SEWERS, ACCESS TO PUBLIC ROADS AND RELATED CONDITIONS); (B) THE QUALITY, NATURE, ADEQUACY, AND PHYSICAL CONDITION OF SOILS, GEOLOGY AND GROUNDWATER, (C) THE EXISTENCE, QUALITY, NATURE, ADEQUACY AND PHYSICAL CONDITION OF UTILITIES SERVING THE PROPERTY, (D) THE DEVELOPMENT POTENTIAL OF THE PROPERTY, AND THE PROPERTY'S USE, HABITABILITY, MERCHANTABILITY, OR FITNESS, SUITABILITY, VALUE OR ADEQUACY OF THE PROPERTY FOR ANY PARTICULAR PURPOSE, (E) THE ZONING OR OTHER LEGAL STATUS OF THE PROPERTY OR ANY OTHER PUBLIC OR PRIVATE RESTRICTIONS ON THE USE OF THE PROPERTY, (F) THE COMPLIANCE OF THE PROPERTY OR ITS OPERATION WITH ANY APPLICABLE CODES, LAWS, REGULATIONS, STATUTES, ORDINANCES, COVENANTS, CONDITIONS AND RESTRICTIONS OF OTHER PERSON OR ENTITY, (G) THE PRESENCE OR ABSENCE OF HAZARDOUS MATERIALS ON, UNDER OR ABOUT THE PROPERTY OR THE ADJOINING OR NEIGHBORING PROPERTY, AND (H) THE CONDITION OF TITLE TO THE PROPERTY. THE DEVELOPER AFFIRMS THAT THE DEVELOPER HAS NOT RELIED ON THE SKILL OR JUDGMENT OF THE CITY OR ANY OF ITS RESPECTIVE AGENTS, EMPLOYEES OR CONTRACTORS TO SELECT OR FURNISH THE PROPERTY FOR ANY PARTICULAR PURPOSE, AND THAT THE CITY MAKES NO WARRANTY THAT THE PROPERTY IS FIT FOR ANY PARTICULAR PURPOSE. THE DEVELOPER ACKNOWLEDGES THAT IT SHALL USE ITS INDEPENDENT JUDGMENT AND MAKE ITS OWN DETERMINATION AS TO THE SCOPE AND BREADTH OF ITS DUE DILIGENCE INVESTIGATION WHICH IT SHALL MAKE RELATIVE TO THE PROPERTY AND SHALL RELY UPON ITS OWN INVESTIGATION OF THE PHYSICAL, ENVIRONMENTAL, ECONOMIC AND LEGAL CONDITION OF THE PROPERTY (INCLUDING, WITHOUT LIMITATION, WHETHER THE PROPERTY IS LOCATED IN ANY AREA WHICH IS DESIGNATED AS A SPECIAL FLOOD HAZARD AREA, DAM FAILURE INUNDATION AREA, EARTHQUAKE FAULT ZONE, SEISMIC HAZARD ZONE, HIGH FIRE SEVERITY AREA OR WILDLAND FIRE AREA, BY ANY FEDERAL, STATE OR LOCAL AGENCY). THE DEVELOPER UNDERTAKES AND ASSUMES ALL RISKS ASSOCIATED WITH ALL MATTERS PERTAINING TO THE PROPERTY'S LOCATION IN ANY AREA DESIGNATED AS A SPECIAL FLOOD HAZARD AREA, DAM FAILURE INUNDATION AREA, EARTHQUAKE FAULT ANY GOVERNMENTAL OR QUASI-GOVERNMENTAL ENTITY OR OF ANY 15 1010\16\u)7231.4 ZONE, SEISMIC HAZARD ZONE, HIGH FIRE SEVERITY AREA OR WILDLAND FIRE AREA, BY ANY FEDERAL, STATE OR LOCAL AGENCY. (b) Survival. The terms and conditions of this Section 3.5 shall expressly survive the Closing, shall not merge with the provisions of the City Ground Lease, or any other closing documents and shall be deemed to be incorporated by reference into the City Ground Lease. The City is not liable or bound in any manner by any oral or written statements, representations or information pertaining to the Property furnished by any contractor, agent, employee, servant or other person. The Developer acknowledges that the lease payments pursuant to the City Ground Lease reflect the "as is" nature of this conveyance and any faults, liabilities, defects or other adverse matters that may be associated with the Property. The Developer has fully reviewed the disclaimers and waivers set forth in this Agreement with the Developer's counsel and understands the significance and effect thereof. (c) Acknow1edg;ment. The Developer acknowledges and agrees that (i) to the extent required to be operative, the disclaimers of warranties contained in Section 3.5 hereof are "conspicuous" disclaimers for purposes of all applicable laws and other legal requirements, and (ii) the disclaimers and other agreements set forth in such sections are an integral part of this Agreement, that the lease payments pursuant to the City Ground Lease have been adjusted to reflect the same and that the City would not have agreed to convey the Property to the Developer pursuant to the City Ground Lease without the disclaimers and other agreements set forth in this Section. (d) Developer's Release of the City. The Developer, on behalf of itself and anyone claiming by, through or under the Developer hereby waives its right to recover from and fully and irrevocably releases the City, the City and their council members, board members, employees, officers, directors, representatives, and agents (the "Released Parties") from any and all claims, responsibility and/or liability that the Developer may have or hereafter acquire against any of the Released Parties for any costs, loss, liability, damage, expenses, demand, action or cause of action arising from or related to (i) the condition (including any construction defects, errors, omissions or other conditions, latent or otherwise), valuation, salability or utility of the Property, or its suitability for any purpose whatsoever, (ii) any presence of Hazardous Materials, and (iii) any information furnished by the Released Parties under or in connection with this Agreement . (e) Scope of Release. The release set forth in Section 3.5(d) hereof includes claims of which the Developer is presently unaware or which the Developer does not presently suspect to exist which, if known by the Developer, would materially affect the Developer's release of the Released Parties. The Developer specifically waives the provision of any statute or principle of law that provides otherwise. In this connection and to the extent permitted by law, the Developer agrees, represents and warrants that the Developer realizes and acknowledges that factual matters now unknown to the Developer may have given or may hereafter give rise to causes of action, claims, demands, debts, controversies, damages, costs, losses and expenses which are presently unknown, unanticipated and unsuspected, and the Developer further agrees, represents and warrants that the waivers and releases herein have been negotiated and agreed upon in light of that realization and that the Developer nevertheless hereby intends to release, discharge and acquit the City from any such unknown causes of action, claims, demands, debts, 16 1010\16\207231.4 controversies, damages, costs, losses and expenses. Accordingly, the Developer, on behalf of itself and anyone claiming by, through or under the Developer, hereby assumes the above- mentioned risks and hereby expressly waives any right the Developer and anyone claiming by, through or under the Developer, may have under Section 1542 of the California Civil Code, which reads as follows: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." Developer's Initials: Notwithstanding the foregoing, this release shall not apply to, nor shall the City be released from, the City's actual fraud or misrepresentation. Section 3.6 Costs of Escrow and Closing. Ad valorem taxes, if any, shall be prorated as of the date of the Closing. The Developer shall pay the cost of title insurance, transfer tax, Title Company document preparation, recordation fees and the escrow fees of the Title Company, if any, and any additional costs to close the Escrow. ARTICLE 4. CONSTRUCTION OF IMPROVEMENTS Section 4.1 Construction Pursuant to Plans. Unless modified by operation of Section 4.2, the Improvements shall be constructed substantially in accordance with the Construction Plans and the terms and conditions of the land use permits and approvals and building permits, including any variances granted. Section 4.2 Change in Construction of Improvements. If the Developer desires to make any material change in the Improvements which are not substantially consistent with the Construction Plans, the Developer shall submit the proposed change to the City for its approval. No change which is required for compliance with building codes or other government health and safety regulations shall be deemed material. If the Improvements, as modified by any such proposed change, will conform to the requirements of this Agreement, and the Construction Plans, the City shall approve the change by notifying the Developer in writing. For purposes of Section 4.2, a material change shall mean any change which is expected to substantially alter the external appearance of the Development (including any color change) or which is expected to result in an individual change of the Twenty Five Thousand Dollars ($25,000) or a cumulative change of Fifty Thousand Dollars ($50,000), or more, in the cost of construction of the Improvements. 1010\16\20723 1.4 17 Unless a proposed change is rejected by the City within ten (10) working days, it shall be deemed approved. If rejected within such time period, the previously approved Construction Plans shall continue to remain in full force and effect. If the City rejects a proposed change, it shall provide the Developer with the specific reasons therefore. The approval of changes in the Construction Plans by the City pursuant to this Section shall be in addition to any approvals required to be obtained from the City pursuant to building permit requirements. Approval of changes in the Construction Plans by the City shall not constitute approval by the City and shall in no way limit the City's discretion in approving changes to the Construction Plans. Section 4.3 Commencement of Improvements. The Developer shall commence construction of the Improvements no later than the date set forth in the Schedule of Performance. Section 4.4 Completion of the Improvements. The Developer shall diligently prosecute to completion the construction of the Improvements no later than the date set forth in the Schedule of Performance. Section 4.5 Equal Opportunity. During the construction of the Improvements there shall be no discrimination on the basis of race, color, creed, religion, sex, sexual orientation, marital status, national origin or ancestry in the hiring, firing, promoting or demoting of any person engaged in the construction work. Section 4.6 Compliance with Applicable Law: Prevailing Wage Requirement. (a) The Developer shall cause all construction to be performed in compliance with (a) all applicable laws, ordinances, rules and regulations of federal, state, county or municipal governments or agencies now in force or that may be enacted hereafter, and (b) all directions, rules and regulations of any fire marshal, health officer, building inspector, or other officer of every governmental agency now having or hereafter acquiring jurisdiction. The work shall proceed only after the payment of all applicable fees, procurement of each permit, license, or other authorization that may be required by any governmental agency having jurisdiction, and the Developer shall be responsible to the City for the procurement and maintenance thereof, as may be required of the Developer and all entities engaged in work on the Property. (b) The Developer shall and shall cause the contractor and subcontractors to pay prevailing wages in the construction of the Improvements as those wages are determined pursuant to Labor Code Sections 1720 et seq., and the implementing regulations of the Department of Industrial Relations (the 'IDIR") and comply with the other applicable provisions of Labor Code Sections 1720 et seq., including but not limited to the hiring of apprentices as required by Labor Code Sections 1775 et. seq., and the implementing regulations of the DIR. The Developer shall and shall cause the contractor and subcontractors to keep and retain such records as are necessary to determine if such prevailing wages have been paid as required 18 1010\16\207231.4 pursuant to Labor Code Sections 1720 et seq, and that apprentices have been employed as required by Labor Code Section 1777.5 et seq. Copies of the currently applicable per diem prevailing wages are available from the City. During the construction of the Improvements the Developer shall or shall cause the contractor to post at the Property the applicable prevailing rates of per diem wages. The Developer shall indemnify, hold harmless and defend (with counsel reasonably selected by the City) the City and the City against any claim for damages, compensation, fines, penalties or other amounts arising out of the failure or alleged failure of any person or entity (including Developer, its contractor and subcontractors) to pay prevailing wages as determined pursuant to Labor Code Sections 1720 et seq., to hire apprentices in accordance with Labor Code Sections 1777.5 et seq., and the implementing regulations of the DIR or comply with the other applicable provisions of Labor Code Sections 1720 et seq., and the implementing regulations of the DIR in connection with construction of the Improvements or any other work undertaken or in connection with the Property. In the event that Labor Code Section 1720, et seq., is amended, or otherwise reinterpreted by the DIR, so that the requirements of Labor Code Section 1720, et seq., including but not limited to the payment of prevailing wages and the requirement to employ apprentices in accordance with Labor Codes Sections 1777.5 et seq., are no longer applicable to the construction of the Improvements, then this provision shall be of no further force and effect; provided that the Developer's obligation to indemnify the City as set forth in this Section 4.6 shall remain in effect throughout the Term. Section 4.7 Progress - ReDort. Until such time as the Developer has completed construction of the Improvements, as evidenced by a building permit sign-off by the City building inspector, the Developer shall provide the City with quarterly progress reports regarding the status of the construction of the Development, including a certification that the actual construction costs to date conform to the Financing Plan. Section 4.8 Construction ResDonsibilities. (a) It shall be the responsibility of the Developer to coordinate and schedule the work to be performed so that commencement and completion of construction will take place in accordance with this Agreement. (b) The Developer shall be solely responsible for all aspects of the Developer's conduct in connection with the Development, including (but not limited to) the quality and suitability of the plans and specifications, the supervision of construction work, and the qualifications, financial condition, and performance of all architects, engineers, contractors, subcontractors, suppliers, consultants, and property managers. Any review or inspection undertaken by the City with reference to the Development is solely for the purpose of determining whether the Developer is properly discharging its obligations to the City, and should not be relied upon by the Developer or by any third parties as a warranty or representation by the City as to the quality of the design or construction of the Development. 1010\16\207231.4 19 Section 4.9 Mechanics Liens, Stop Notices, and Notices of Completion. (a) If any claim of lien is filed against the Property or the Improvements or a stop notice affecting the City Loan is served on the City or any other lender or other third party in connection with the Development, then the Developer shall, within thirty (30) days after such filing or service, either pay and fully discharge the lien or stop notice, effect the release of such lien or stop notice by delivering to the City a surety bond from a surety acceptable to the City in sufficient form and amount, or provide the City with other assurance satisfactory to the City that the claim of lien or stop notice will be paid or discharged. (b) If the Developer fails to discharge any lien, encumbrance, charge, or claim in the manner required in this Section or obtain a surety bond, then in addition to any other right or remedy, the City may (but shall be under no obligation to) discharge such lien, encumbrance, charge, or claim at the Developer's expense. Alternatively, the City may require the Developer to immediately deposit with the City the amount necessary to satisfy such lien or claim and any costs, pending resolution thereof. The City may use such deposit to satisfy any claim or lien that is adversely determined against the Developer. (c) The Developer shall file a valid notice of cessation or notice of completion upon cessation of construction of the Development for a continuous period of thirty (30) days or more, and take all other reasonable steps to forestall the assertion of claims of lien against the Property and/or Improvements. The Borrower authorizes the City, but without any obligation, to record any notices of completion or cessation of labor, or any other notice that the City deems necessary or desirable to protect its interest in the Development and Property. Section 4.10 Inspections. The Developer shall permit and facilitate, and shall require its contractors to permit and facilitate, observation and inspection at the Development by the City and by public authorities during reasonable business hours for the purposes of determining compliance with this Agreement . Section 4.11 Information. The Developer shall provide any information reasonably requested by the City in connection with the Development. Section 4.12 Records. (a) The Developer shall maintain complete, accurate, and current records pertaining to the Development for a period of five (5) years after the creation of such records, and shall permit any duly authorized representative of the City to inspect and copy records upon reasonable notice to the Developer. Such records shall include all invoices, receipts, and other documents related to expenditures from the City Loan funds. Records must be kept accurate and current. 1010\16\20723 1.4 20 (b) The City shall notify the Developer of any records it deems insufficient. The Developer shall have thirty (30) calendar days after the receipt of such a notice to correct any deficiency in the records specified by the City in such notice, or if a period longer than thirty (30) days is reasonably necessary to correct the deficiency, then the Developer shall begin to correct the deficiency within thirty (30) days and complete the correction of the deficiency as soon as reasonably possible. Section 4.13 Relocation. If and to the extent that the acquisition of the Property or the construction of the Development result in the permanent or temporary displacement of residential tenants, homeowners, or businesses, then the Developer shall comply with all applicable local, state, and federal statutes and regulations, (including without limitation California Government Code Section 7260 et seq. and accompanying regulations) with respect to relocation planning, advisory assistance, and payment of monetary benefits. The Developer shall be solely responsible for payment of any relocation benefits to any displaced persons and any other obligations associated with complying with such relocation laws. The Developer shall defend (with counsel reasonably acceptable to the City and City), the City and City against any claim for damages, compensation, fines, penalties, relocation payments or other amounts arising out of the failure or alleged failure of any person or entity (including the Developer, City or City) to satisfy relocation obligations related to the development of the Development. This obligation to indemnify shall survive termination of this Agreement. Section 4.14 Financial Accounting and Post-Completion Audits. (a) No later than ninety (90) days following completion of construction of the Development, the Developer shall provide to City a financial accounting of all sources and uses of funds for the Development. No later than one hundred fifty (150) days following completion of construction of the Development, the Developer shall submit an audited financial report showing the sources and uses of all funds utilized for the Development. (b) The Developer shall make available for examination at reasonable intervals and during normal business hours to City all books, accounts, reports, files, and other papers or property with respect to all matters covered by this Agreement, and shall permit City to audit, examine, and make excerpts or transcripts from such records upon reasonable prior notice to the Developer. The City, in its reasonable discretion, may make audits of any records related to the development or operation of the Development or the Developer's compliance with the City Documents. Section 4.15 Financing; Revisions to Plan. As of the Effective Date, the City has approved the Financing Proposal set forth in Exhibit C. In accordance with Section 2.4, the Developer shall obtain the City's approval of the Financing Plan. The Developer shall submit any required amendments to the Financing Plan, including but not limited to and amendments or modifications to the development budget, Investor commitment letter, or the commitment letter from any other lender, to the City for approval within fifteen (1 5) days of the date the Developer receives information indicating that 1010\16\207231.4 21 actual costs of the Development vary or will vary from the line item costs shown on the Financing Plan. Written consent of the City shall be required to amend the Financing Plan. ARTICLE 5. CITY LOAN PROVISIONS Section 5.1 City Loan. The City shall provide the City Loan to the Developer as construction financing in the principal amount of One Million Four Hundred Fifty Four Thousand Two Hundred Seventy Six Dollars ($1,454,276). The Developer's obligation to pay the City Loan shall be evidenced by the City Note. For purposes of this Article 5, the principal amount of the City Loan shall be treated in three separate components: (a) CDBG Component. The CDBG Component consists of Two Hundred Thousand Dollars ($200,000) and shall be used in the manner set forth in Section 5.3(a). (b) HOME Component. The HOME Component consists of Two Hundred Sixty Two Thousand Seventy Hundred Sixty Dollars ($262,760) and shall be used in the manner set forth in Section 5.3(b) (c) City Component. The City Component consists of Nine Hundred Ninety One Thousand Five Hundred Sixteen Dollars ($991,516) and shall be used in the manner set forth in Section 5.3(c). Section 5.2 Interest. Simple interest at three percent (3%) per annum shall accrue on the principal amount of the City Loan except in a Developer Event of Default, whereupon interest shall accrue from and after the date of the Note until paid at the then current rate imposed under California Civil Code Section 3289(b), or any similar or successor provision thereof. Section 5.3 Use of City Loan. The City Loan shall be used for construction financing in accordance with the Financing Plan to be approved by the City. (a) CDBG Component. The CDBG Component shall be used by the Developer, in accordance with all applicable rules and regulations of CDBG, only for eligible predevelopment costs consistent with the Financing Proposal. (b) HOME Component. The HOME Component shall be used by the Developer, in accordance with all applicable rules and regulations of HOME, only for eligible off-site improvement costs consistent with the Financing Proposal. (c) City Component. The City Component shall be used by the Developer, in accordance with all applicable provisions of the California Community Redevelopment Law 22 1010\16\20723 1.4 (Health & Safety Code Section 33,000 et seq.), only for eligible predevelopment and construction costs consistent with the Financing Proposal. Section 5.4 Security; Subordination of Regulatory Agreement. The Developer shall secure its obligation to pay the City Loan, as evidenced by the City Note, by executing the City Deed of Trust, which shall be recorded as a lien against the Developer's leasehold interest in the Property. The City agrees to subordinate the City Deed of Trust and the Regulatory Agreement to the lien(s) of the deed(s) of trust securing the Conventional Loans approved by the City in writing pursuant to the Financing Plan, provided the City is able to make the findings required to be made pursuant to Health and Safety Code Section 33334.14 and provided further the subordination documents are in a form reasonably acceptable to the City and provide the City with reasonably adequate notice and cure rights to enable the City to avoid foreclosure of a senior Conventional Loan. Section 5.5 Repayment Schedule. The City Loan shall be repaid as follows: (a) Term. The City Loan shall have a term that expires on the date fifty-five (55) years after the date of issuance of a Certificate of Occupancy for the Improvements. (b) Payments. Commencing on the May lSt first occurring after the Fiscal Year in which the Improvements are completed pursuant to this Agreement, and on each May lSt thereafter throughout the term of the City Loan, the Developer shall make repayments of the City Loan equal to seventy percent (70%) of the Residual Receipts. The Developer shall provide the City, by each May 1'' following each Fiscal Year, a report showing the actual income and expenditures with respect to the Development for the immediately preceding Fiscal Year, the calculation of Annual Operating Expenses, Gross Revenue, and Residual Receipts and the status of all reserve funds, including without limitation, an annual audited financial statement for the Development prepared by a certified public accountant approved by the City. Payments made shall be credited first against accrued interest and then against outstanding principal. (c) Special Repayments from Net Proceeds of Permanent Financing. The Net Proceeds of Permanent Financing shall be paid one hundred percent (100%) to the City as a special repayment of the City Loan. The amount of the Net Proceeds of Permanent Financing shall be determined by the Developer and submitted to the City for approval on the date the Developer submits the final cost audit for the Development to TCAC. The amount of the Net Proceeds of Permanent Financing shall be calculated using the actual principal amount of the permanent loan made to Developer, provided that Developer provides sufficient evidence that the permanent loan is the maximum principal amount that Developer could secure for the Development applying reasonable underwriting standards. The Developer shall also submit to the City any additional documentation sufficient to verify the amount of the Net Proceeds of Permanent Financing. The City shall reasonably approve or disapprove Developer's determination of the amount of the Net Proceeds of Permanent Financing in writing within thirty (30) days of the receipt of Developer's cost audit and supplemental documentation. If Developer's determination is disapproved by the City, Developer shall re-submit documentation 23 1010\16\20723 1.4 to the City until the City approval is obtained. The City's share of the Net Proceeds of Permanent Financing shall be due the City from the Developer no later than five (5) days following the date Developer receives its final capital contribution from the Investor. (d) Payment in Full. Subject to the provisions of subsection (d) below, all principal and interest, if any, on the City Loan shall, at the option of the City, be due and payable upon the earliest of (i) a Transfer other than a Transfer permitted or approved by the City as provided in Article 7 below; (ii) the occurrence of an Event of Default for which the City exercises its right to cause the City Loan indebtedness to become immediately due and payable; or (iii) the expiration of the Term specified in (a) above. (e) Prepavment. The Developer shall have the right to prepay the City Loan at any time. However, this Agreement and the Regulatory Agreement shall remain in effect for their entire respective terms, regardless of any prepayment or timely payment of the City Loan. Section 5.6 Conditions Precedent to Disbursement of City Loan. The City shall not be obligated to make any disbursements of the City Loan proceeds for costs of the Development unless the conditions precedent set forth in Article 2 have been satisfied and the following conditions precedent are satisfied prior to each such dlsbursement of the City Loan: (a) The City has leased the Property to Developer, the Developer has executed and delivered to the City the Memorandum of Ground Lease, the Ground Lease, the City Note, the City Deed of Trust, and the Regulatory Agreement; and the Memorandum of Ground Lease, the City Deed of Trust and the Regulatory Agreement have been recorded against the Developer's leasehold interest in the Property; (b) There exists no Developer Event of Default nor any act, failure, omission or condition that would constitute a Developer Event of Default under this Agreement; (c) The City has received and approved the general contractor's construction contract that Developer has entered or proposed to enter for construction of the Development as required pursuant to Section 2.8 above; (d) The City has reasonably approved: (i) the copy of the labor and material (payment) bond and (ii) the copy of the performance bond from the Developer for the construction of the Improvements as required pursuant to Section 2.9 above; (e) The Developer has closed all construction financing for the Development and has provided evidence reasonably acceptable to the City that the Developer is prepared to commence construction of the Improvements no later than the date set forth in the Schedule of Performance; and (f) The City has received a written draw request from the Developer, including certification that the condition set forth in Section 5.6(b) continues to be satisfied, and setting forth the proposed uses of funds consistent with the Financing Plan, the amount of funds needed, and, where applicable, a copy of the bill or invoice covering a cost incurred or to be incurred. When a disbursement is requested to pay any contractor in connection with the Improvements, the written request must be accompanied by (i) certification by Developer's 10 10\16\20723 1.4 24 architect reasonably acceptable to the City that the work for which disbursement is requested has been completed (although the City reserves the right to inspect the Development and make an independent evaluation); and (ii) lien releases andor mechanics lien title insurance endorsements reasonably acceptable to the City. Section 5.7 Reports and Accounting; of Residual Receipts. (a) Audited Financial Statement. In connection with the annual repayment of the City Loan, the Developer shall furnish to the City an audited statement duly certified by an independent firm of certified public accountants approved by the City, setting forth in reasonable detail the computation and amount of Residual Receipts during the preceding calendar year. (b) Books and Records. The Developer shall keep and maintain at the Development, or elsewhere with the City's written consent, full, complete and appropriate books, record and accounts relating to the Development, including all such books, records and accounts necessary or prudent to evidence and substantiate in full detail the Developer's calculation of Residual Receipts. Books, records and accounts relating to the Developer's compliance with the terms, provisions, covenants and conditions of this Agreement shall be kept and maintained in accordance with generally accepted accounting principles consistently applied, and shall be consistent with requirements of this Agreement which provide for the calculation of Residual Receipts on a cash basis. All such books, records, and accounts shall be open to and available for inspection by the City, its auditors or other authorized representatives at reasonable intervals during normal business hours on reasonable prior notice to the Developer. Copies of all tax returns and other reports that the Developer may be required to furnish any governmental agency shall at all reasonable times be open for inspection by the City at the place that the books, records and accounts of the Developer are kept. The Developer shall preserve records on which any statement of Residual Receipts is based for a period of not less than five (5) years after such statement is rendered, and for any period during which there is an audit undertaken pursuant to subsection (c) below then pending. (c) City Audits. The receipt by the City of any statement pursuant to subsection (a) above or any payment by the Developer or acceptance by the City of any loan repayment for any period shall not bind the City as to the correctness of such statement or such payment. Within three (3) years after the receipt of any such statement, the City or any designated agent or employee of the City at any time shall be entitled to audit the Residual Receipts and all books, records, and accounts pertaining thereto. Such audit shall be conducted during normal business hours at the principal place of business of the Developer and other places where records are kept. Immediately after the completion of an audit, the City shall deliver a copy of the results of such audit to the Developer. If it shall be determined as a result of such audit that there has been a deficiency in a loan repayment to the City, then such deficiency shall become immediately due and payable with interest at the default rate set forth in section 5.2 above, determined as of and accruing from the date that said payment should have been made. In addition, if the Developer's auditor's statement for any calendar year shall be found to have understated Residual Receipts by more than five percent (5%) and the City is entitled to any additional City Loan repayment as a result of said understatement, then the Developer shall pay, in addition to the interest charges referenced hereinabove, all of the City's reasonable costs and expenses connected with any audit or review of the Developer's accounts and records. 25 1010\16\20723 1.4 Section 5.8 Developer Fee. The amount and the terms of the City Loan, as provided in this Article 5, have been established by taking into account the anticipated costs of development, including a maximum Developer Fee, not to exceed One Million Five Hundred Thousand Dollars ($1,500,000), to be paid for development and construction management services. Two Hundred Fifty Thousand Five Hundred Ninety Seven Dollars ($250,597) of the Developer Fee shall be deferred. An amount not to exceed One Hundred Thousand Dollars ($100,000) of the deferred Developer Fee shall be paid from the Net Proceeds of Permanent Financing, as set forth in Section 5.5(c), if any. The remaining portion of the deferred Developer Fee, not paid from the Net Proceeds of Permanent Financing, shall be paid to the Developer on annual basis over the next ten (10) years following the payment of the Net Proceeds of Permanent Financing until the full Developer Fee in the amount of One Million Five Hundred Thousand Dollars ($1,500,000) has been paid. Except for the Developer Fee, no compensation from any source shall be received by or be payable to the Developer, or any affiliate of the Developer in connection with the provision of development and construction management services for the acquisition and construction of the Development. Section 5.9 Assumption. The City Note shall not be assumable by successors and assigns of the Developer without the prior written consent of the City, which consent shall be granted or denied in the City's sole discretion. Section 5.10 Non-Recourse. Following recordation of the City Deed of Trust, and except as provided below, the Developer shall not have any direct or indirect personal liability for payment of the principal of, or interest on, the City Loan or the performance of the covenants of the Developer under the City Deed of Trust. The sole recourse of the City with respect to the principal of, or interest on, the City Note and defaults by the Developer in the performance of its covenants under the City Deed of Trust shall be to the property described in the City Deed of Trust; provided, however, that nothing contained in the foregoing limitation of liability shall (a) limit or impair the enforcement against all such security for the City Note of all the rights and remedies of the City thereunder, or (b) be deemed in any way to impair the right of the City to assert the unpaid principal amount of the City Note as demand for money within the meaning and intendment of Section 43 1.70 of the California Code of Civil Procedure or any successor provision thereto. The foregoing limitation of liability is intended to apply only to the obligation for the repayment of the principal of, and payment of interest on the City Note and the performance of the Developer's obligations under the City Deed of Trust, except as hereafter set forth; nothing contained herein is intended to relieve the Developer of its waiver of City liability in Section 3.5 and the Developer's obligation to indemnify the City under Sections 4.6,4.13,6.6(b), and 10.7, 10.9 of this Agreement, or liability for (i) fraud or willful misrepresentation; (ii) the failure to pay taxes, assessments or other charges which may create liens on the Developer's interest in the Property that are payable or applicable prior to any foreclosure under the City Deed of Trust (to the full extent of such taxes, assessments or other charges); (iii) the fair market value of any personal property or fixtures removed or disposed of by the Developer other than in accordance with the City Deed of 1010\16\207231.4 26 Trust; and (iv) the misappropriation of any proceeds under any insurance policies or awards resulting from condemnation or the exercise of the power of eminent domain or by reason of damage, loss or destruction to any portion of the Development. ARTICLE 6. ONGOING DEVELOPER OBLIGATIONS Section 6.1 Applicability. The conditions and obligations set forth in this Article 6 shall apply throughout the Term, unless a different period of applicability is specified for a particular condition or obligation. Section 6.2 &. The Developer hereby agrees that, for the entire Term, the Development will be used only for residential use consistent with the Regulatory Agreement. The Regulatory Agreement shall require that a portion of the Units shall be affordable to and occupied by Very Low Income Households as that term is defined in the Regulatory Agreement, or households with such other incomes as mutually acceptable to the Parties. Section 6.3 Maintenance. The Developer agrees, for the entire Term of this Agreement, to maintain all interior and exterior improvements, including landscaping, of the Development in first-class condition, repair and sanitary condition (and, as to landscaping, in a healthy condition) and in accordance with a management plan approved pursuant to Section 2.6 of this Agreement (includmg without limitation any landscape and signage plans), as the same may be amended from time to time, and all applicable laws, rules, ordinances, orders, and regulations of all federal, state, municipal, and other governmental agencies and bodies having or claiming jurisdiction and all their respective departments, bureaus, and officials. The Developer acknowledges the great emphasis the City places on quality maintenance to protect its investment and to provide quality low-income housing for area residents and to ensure that City-assisted affordable housing projects are not allowed to deteriorate due to deficient maintenance. In addition, the Developer shall keep the Development free from all graffiti and any accumulation of debris or waste material. The Developer shall promptly make all repairs and replacements necessary to keep the Development in first-class condition and repair and shall promptly eliminate all graffiti and replace dead and diseased plants and landscaping with comparable approved materials. In the event that the Developer breaches any of the covenants contained in this Section 6.3 and such default continues for a period of ten (10) days after written notice from the City (with respect to graffiti, debris, waste material, and general maintenance) or thirty (30) days after written notice from the City (with respect to landscaping and building improvements), then the City, in addition to whatever other remedy it may have under this Agreement, at law or in equity, 1010\16\20723 1.4 27 shall have the right to enter upon the Development and perform or cause to be performed all such acts and work necessary to cure the default. Pursuant to such right of entry, the City shall be permitted (but is not required) to enter upon the Development and perform all acts and work necessary to protect, maintain and preserve the improvements and landscaped areas of the Property, and to attach a lien on the Developer's interest in the Property, or to assess the Developer's interest in the Property, in the amount of the expenditures arising from such acts and work of protection, maintenance, and preservation by the City and/or costs of such cure. The Developer shall promptly pay to the City, as applicable, the amount of the expenditure arising from such acts and work of protection, maintenance, and preservation by the City and/or costs of such cure, including a fifteen percent (15%) administrative charge. Section 6.4 Taxes and Assessments. The Developer shall pay all real and personal property taxes, assessments and charges and all franchise, income, employment, old age benefit, withholding, sales, and other taxes assessed against it, or payable by it, at such times and in such manner as to prevent any penalty from accruing, or any lien or charge from attaching to the Property or the Developer's leasehold interest in the Property; provided, however, that the Developer shall have the right to contest in good faith any such taxes, assessments, or charges. In the event the Developer exercises its right to contest any tax, assessment, or charge against it, the Developer, on final determination of the proceeding or contest, shall immediately pay or discharge any decision or judgment rendered against it, together with all costs, charges and interest. Section 6.5 Mandatory Language in All Subsequent Deeds, Leases and Contracts. (a) Basic Reauirement. The Developer covenants by and for itself, its successors and assigns that there shall be no discrimination against or segregation of a person or of a group of persons on account of race, color, creed, religion, sex, sexual orientation, marital status, national origin, ancestry or disability in the sale, lease, sublease transfer, use, occupancy, tenure or enjoyment of the Development nor shall the Developer or any person claiming under or through the Developer establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lessees, subtenants, sublessees or vendees in the Development. The foregoing covenant shall run with the land. (b) Provisions In Conveyance Documents. All deeds, leases or contracts made or entered into by Developer, its successors or assigns, as to any portion of the Property shall contain therein the following language: In Deeds: "Grantee herein covenants by and for itself, its successors and assigns that there shall be no discrimination against or segregation of a person or of a group of persons on account of race, color, creed, religion, sex, sexual orientation, marital status, national origin, ancestry or disability in the sale, lease, sublease, transfer, use, occupancy, tenure or enjoyment of the property herein conveyed nor shall the grantee or any person claiming under or through the grantee establish or permit 28 10 10\16\20723 1.4 any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lessees, subtenants, sublessees or vendees in the property herein conveyed. The foregoing covenant shall run with the land." In Leases: "The lessee herein covenants by and for the lessee and lessee's heirs, personal representatives and assigns and all persons claiming under the lessee or through the lessee that this lease is made subject to the condition that there shall be no discrimination against or segregation of any person or of a group of persons on account of race, color, creed, religion, sex, sexual orientation, marital status, national origin, ancestry or disability in the leasing, subleasing, transferring, use, occupancy, tenure or enjoyment of the land herein leased nor shall the lessee or any person claiming under or through the lessee establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lessees, sublessees, subtenants, or vendees in the land herein leased." In Contracts: "There shall be no discrimination against or segregation of any person or group of persons on account of race, color, creed, religion, sex, sexual orientation, marital status, national origin or ancestry or disability in the sale, lease, sublease, transfer, use, occupancy, tenure or enjoyment of the property nor shall the transferee or any person claiming under or through the transferee establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lessees, subtenants, sublessees or vendees of the land." Section 6.6 Hazardous Materials. (a) Covenants. (i) No Hazardous Materials Activities. The Developer hereby represents and warrants to the City that, at all times from and after the Closing, the Developer shall not cause or permit the Property, or the Improvements thereon to be used as a site for the use, generation, manufacture, storage, treatment, release, discharge, disposal, transportation or presence of any Hazardous Materials. (ii) Hazardous Materials Laws. The Developer hereby represents and warrants to the City that, at all times from and after the Closing, the Developer shall comply and cause the Property, and the Improvements thereon to comply with Hazardous Materials Laws, including without limitation, those relating to soil and groundwater conditions. (iii) Notices. The Developer hereby represents and warrants to the City that, at all times from and after the Closing, the Developer shall immediately notify the City in 29 10 10\16\20723 1.4 writing of (i) the discovery of any Hazardous Materials on or under the Property; (ii) any knowledge by the Developer that the Property does not comply with any Hazardous Materials Laws; (iii) any claims or actions pending or threatened against the Developer, the Property, or the Improvements by any governmental entity or agency or any other person or entity relating to Hazardous Materials or pursuant to any Hazardous Materials Laws (collectively "Hazardous Materials Claims"); and (iv) the discovery of any occurrence or condition on any real property adjoining or in the vicinity of the Property, that could cause the Property, or any part thereof to be designated as "border zone property" under the provisions of California Health and Safety Code Sections 25220, et seq., or any regulation adopted in accordance therewith, or to be otherwise subject to any restrictions on the ownership, occupancy, transferability or use of the Development under any Hazardous Materials Laws. The City shall have the right to join and participate in, as a party if it so elects, any legal proceedings or actions initiated in connection with any Hazardous Materials Claims and to have its reasonable attorney's fees in connection therewith paid by the Developer. (iv) Remedial Action. Without the City's prior written consent, which shall not be unreasonably withheld, the Developer shall not take any remedial action in response to the presence of any Hazardous Materials on, under, or about the Development (other than in emergency situations or as required by governmental agencies having jurisdiction), nor enter into any settlement agreement, consent decree, or other compromise in respect to any Hazardous Materials Claims. (b) Indemnity. Without limiting the generality of the indemnification set forth in Section 10.7 below, the Developer hereby agrees to indemnify, protect, hold harmless and defend (by counsel reasonably satisfactory to the City) the City, the City, their board members, council members, officers, and employees from and against any and all claims, losses, damages, liabilities, fines, penalties, charges, administrative and judicial proceedings and orders, judgments, remedial action requirements, enforcement actions of any kind, and all costs and expenses incurred in connection therewith (including, but not limited to, reasonable attorney's fees and expenses), arising directly or indirectly, in whole or in part, out of (1) the failure of the Developer or any other person or entity to comply with any Hazardous Materials Law relating in any way whatsoever to the handling, treatment, presence, removal, storage, decontamination, cleanup, transportation or disposal of Hazardous Materials into, on, under or from the Development on or after the date of conveyance of the Property to the Developer; (2) the presence in, on or under the Development of any Hazardous Materials or any releases or discharges of any Hazardous Materials into, on, under or from the Development to the extent it arises on or after the date of conveyance of the Property to the Developer; or (3) any activity carried on or undertaken on or off the Development, subsequent to the conveyance of the Property to the Developer, and whether by the Developer or any successor in title or any employees, agents, contractors or subcontractors of the Developer or any successor in title, or any third persons at any time occupying or present on the Development, in connection with the handling, treatment, removal, storage, decontamination, cleanup, transport or disposal of any Hazardous Materials at any time located or present on or under the Development. The foregoing indemnity shall further apply to any residual contamination on or under the Development, or affecting any natural resources, and to any contamination of any property or natural resources arising in connection with the generation, use, handling, treatment, storage, transport or disposal lOI0\16\20723 1.4 30 of any such Hazardous Materials, and irrespective of whether any of such activities were or will be undertaken in accordance with Hazardous Materials Laws. The provisions of this subsection shall survive expiration of the Term or other termination of this Agreement, and shall remain in full force and effect. (c) No Limitation. The Developer hereby acknowledges and agrees that the Developer's duties, obligations and liabilities under this Agreement, including, without limitation, under subsection (b) above, are in no way limited or otherwise affected by any information the City may have concerning the Development andor the presence within the Development of any Hazardous Materials, whether the City obtained such information from the Developer or from its own investigations. Section 6.7 Management Agent; Periodic Reports. (a) Management Agent. The Development shall at all times be managed by an experienced Management Agent reasonably acceptable to the City, with demonstrated ability to operate residential facilities like the Development in a manner that will provide decent, safe, and sanitary housing. For any change in the Management Agent, the Developer shall submit for the City's approval the identity of any proposed Management Agent. The Developer shall also submit such additional information about the background, experience and financial condition of any proposed Management Agent as is reasonably necessary for the City to determine whether the proposed Management Agent meets the standard for a qualified Management Agent set forth above. If the proposed Management Agent meets the standard for a qualified Management Agent set forth above, the City shall approve the proposed Management Agent by notifying the Developer in writing. (b) Performance Review. The City reserves the right to conduct a periodic review of the management practices and financial status of the Development within thirty (30) days after each anniversary of the issuance of the Certificate of Occupancy. The purpose of each periodic review will be to enable the City to determine if the Development is being operated and managed in accordance with the requirements and standards of this Agreement. The Developer shall cooperate with the City in such reviews. (c) Books, Records and Reports. For purposes of such periodic reviews, the Developer and the Management Agent shall make available to the City for inspection all books and records with respect to the Development. In addition, the Developer shall provide the City with: (1) by not later than thirty (30) days prior to commencement of each Fiscal Year, the annual budget for the upcoming Fiscal Year; (2) within ninety (90) days following the end of each Fiscal Year, a report showing the actual income and expenditures with respect to the Development for the immediately preceding Fiscal Year and the status of all reserve funds; and (3) within one hundred twenty (120) days following the end of each Fiscal Year, a copy of the Developer's federal income tax filings for the Fiscal Year. (d) Replacement of Management Anent. If, as a result of a periodic review, the City determines in its reasonable judgment that the Development is not being operated and managed in accordance with any of the requirements and standards of this Agreement, the City shall deliver notice to the Developer of its intention to cause replacement of the Management 1010\16\207231.4 31 Agent. Within thirty (30) days of receipt by the Developer of such written notice, City staff and the Developer shall meet in good faith to consider methods for improving the financial and operating status of the Development, including, without limitation, replacement of the Management Agent. If, after such meeting, City staff recommends in writing the replacement of the Management Agent, the Developer shall promptly dismiss the then Management Agent, and shall appoint as the Management Agent a person or entity meeting the standards for a Management Agent set forth in subsection (a) above and approved by the City pursuant to subsection (a) above. Any contract for the operation or management of the Development entered into by the Developer shall provide that the contract can be terminated as set forth above. Failure to remove the Management Agent in accordance with the provisions of this Section shall constitute a Developer Event of Default under this Agreement, and the City may enforce this provision through legal proceedings as specified in Article 8. Section 6.8 Approval of Management Policies. Pursuant to Section 2.6, the City is to review and approve the written management policies for the Development prior to execution of the Ground Lease. The Developer shall submit any changes to the approved written management policies with respect to the Development to the City for its review and approval, and shall amend such policies in any way necessary to ensure that such policies comply with the provisions of this Agreement. The City's approval of the management policies, or amendments thereto, shall not be unreasonably withheld. Section 6.9 Insurance Requirements. (a) Required Coverage. The Developer shall maintain and keep in force, at the Developer's sole cost and expense, the following insurance applicable to the Development: (i) To the extent required by law, Worker's Compensation insurance, including Employer's Liability coverage, with limits not less than required by applicable law. (ii) Comprehensive or Commercial General Liability insurance with limits not less than Two Million Dollars ($2,000,000) each occurrence combined single limit for Bodily Injury and Property Damage, including coverages for Contractual Liability, Personal Injury, Broadform Property Damage, Products and Completed Operations. (iii) Comprehensive Automobile Liability insurance with limits not less than Two Million Dollars ($2,000,000) each occurrence combined single limit for Bodily Injury and Property Damage, including coverages for owned, non-owned and hired vehicles, as applicable; provided, however, that if the Developer does not own or lease vehicles for purposes of this Agreement, then no automobile insurance shall be required and both parties to this Agreement shall initial this provision signifying same. 1010\16W7231.4 32 (iv) Property insurance covering the Development covering all risks of loss, including earthquake (but only if it is commercially affordable at a reasonable price and with a reasonable deductible, in City's reasonable opinion, and if City requests in writing that such coverage be carried) and flood, if the Property is located in a flood zone, for one hundred percent (100%) of the replacement value, with deductible, if any, acceptable to the City, naming the City as a Loss Payee, as its interest may appear. (b) Contractor's Insurance. The Developer shall cause any general contractor or agent workmg on the Development under direct contract with the Developer to maintain insurance of the types and in at least the minimum amounts described in subsections (a)(i), (a)(ii), and (a)(iii) above, and shall require that such insurance shall meet all of the general requirements of subsection (c) below. Subcontractors working on the Development under indirect contract with the Developer shall be required to maintain the insurance described in subsections (a)(i), (a)(ii) and (a)(iii) above; provided that the amount of Commercial General Liability insurance for each subcontractor shall have a limit of not less than One Million Dollars ($1,000,000). Liability and Comprehensive Automobile Liability insurance to be maintained by such contractors and agents pursuant to this subsection shall name as additional insureds the City, the City, their board members, officers, agents, and employees. (c) General Requirements. The required insurance shall be provided under an occurrence form, and the Developer shall maintain such coverage continuously throughout the Term. Should any of the required insurance be provided under a form of coverage provides that claims investigation or legal defense costs be included in such annual aggregate limit, such annual aggregate limit shall be three times the occurrence limits specified above. Upon the execution of the City Ground Lease, in the event of any conflict between this Agreement and the City Ground Lease regarding insurance, the provisions of the City Ground Lease shall control. Comprehensive General Liability, Comprehensive Automobile Liability and Property insurance policies shall be endorsed to name as additional insureds the City and its council members, officers, agents, and employees. All policies and bonds shall be endorsed to provide thirty (30) days prior written notice of cancellation, reduction in coverage, or intent not to renew to the address established for notices to the City pursuant to Section 10.1 below. (d) Certificates of Insurance. Upon the City's request at any time during the term of this Agreement, the Developer shall provide certificates of insurance, in form and with insurers reasonable acceptable to the City, evidencing compliance with the requirements of this Section, and shall provide complete copies of such insurance policies, including a separate endorsement naming the City as additional insured, if requested by the City. Section 6.10 Audits. The Developer shall make available for examination at reasonable intervals and during normal business hours to the City all books, accounts, reports, files, and other papers or property with respect to all matters covered by this Agreement, and shall permit the City to audit, examine, and make excerpts or transcripts from such records. The City may make audits of any conditions relating to this Agreement. 1010\16\207231.4 33 Section 6.1 1 CDBG and HOME Requirements. (a) The Developer shall comply with all applicable laws and regulations governing the use of the CDBG Component as set forth in 24 CFR 570 et seq., and HOME Component as set forth in 24 CFR 92 et seq., including but not limited to the requirements of the Regulatory Agreement. In the event of any conflict between this Agreement and applicable laws and regulations governing the use of the CDBG Component or the HOME Component, the applicable laws and regulations shall govern. (b) The laws and regulations governing the use of the CDBG Component and HOME Component include (but are not limited to) the following: (i) Environmental and Historic Preservation. Section 104(f) of the Housing and Community Residence Act of 1974 and 24 CFR Part 58, which prescribe procedures for compliance with the National Environmental Policy Act of 1969 (42 U.S.C. 4321- 4361), and the additional laws and authorities listed at 24 CFR 58.5. (ii) Applicability of OMB Circulars. The applicable policies, guidelines, and requirements of OMB Circulars Nos. A-87, A-102, Revised, A-1 10 and A-122. (iii) Architectural Barriers. The requirements of the Architectural Barriers Act of 1968 (42 U.S.C. 4151-4157). (iv) Lead-Based Paint. The requirement of the Lad-Based Paint Poisoning Prevention Act, as amended (42 U.S.C. 4821 et seq.) and implementing regulations at 24 CFR Part 35. (v) Relocation. The requirements of the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970. If and to the extent that acquisition and of the Development results in the permanent or temporary displacement of residential tenants, homeowners, or businesses, then Developer shall comply with all applicable local, state, and federal statutes and regulations as set forth in Section 4.13. (vi) Handicap Discrimination. The requirements of Section 504 of the Rehabilitation Act of 1973, and federal regulations issued pursuant thereto, which prohibits discrimination against the handicapped in any federally assisted program, and the applicable requirements of Title I1 andor Title I11 of the Americans with Disabilities Act of 1990 (42 U.S.C. 12131 et seq.). (vii) Training Opportunities. The requirements of Section 3 of the Housing and Urban Development Act of 1968, as amended, 12 U.S.C. 1701, requiring that to the greatest extent feasible opportunities for training and employment be given to lower income residents of the project area and agreements for work in connection with the project be awarded to business concerns which are located in, or owned in substantial part by persons residing in, the areas of the project. Developer agrees to include the following language in all subcontracts executed under this Agreement: 1010\16\207231.4 34 "The work to be performed under this agreement is a project assisted under a program providing direct federal financial assistance from HUD and is subject to the requirements of Section 3 of the Housing and Urban Development Act of 1968, as amended 12 U.S.C. 1701. Section 3 requires that to the greatest extent feasible opportunities for training and employment be given to lower income residents of the project area and agreements for work in connection with the project be awarded to business concerns which are located in, or owned in substantial part by persons residing in, the areas of the project." (viii) Drug Free Workplace. The requirements of the Drug Free Workplace Act of 1988 (P.L. 100-690) and implementing regulations at 24 CFR Part 24. (ix) Davis-Bacon Act. The prevailing wages requirements of the Davis-Bacon Act and implementing regulations, if applicable. (x) HUD Regulations. Any other HUD regulations present or as may be amended, added, or waived in the future pertaining to the CDBG Component. ARTICLE 7. ASSIGNME" AND TRANSFERS Section 7.1 Definitions. As used in this Article, the term "Transfer" means: (a) Any total or partial sale, assignment or conveyance, or any trust or power, or any transfer in any other mode or form, of or with respect to this Agreement or of the Development or any part thereof or any interest therein or any contract or agreement to do any of the same; or (b) Any total or partial sale, assignment or conveyance, or any trust or power, or any transfer in any other mode or form, of or with respect to any ownership interest in Developer or any contract or agreement to do any of the same; or (c) Any merger, consolidation, sale or lease of all or substantially all of the assets of the Developer; or (d) The leasing of part or all of the Property or the Improvements thereon; provided, however, that leasing of the Units included within the Improvements to tenant occupants in accordance with the Regulatory Agreement shall not be deemed a "Transfer" for purposes of this Article. Section 7.2 Purpose of Restrictions on Transfer. This Agreement is entered into solely for the purpose of development and operation of the Development and its subsequent use in accordance with the terms hereof. The Developer 10 10\16\20723 1.4 35 57 recognizes that the qualifications and identity of the Developer are of particular concern to the City, in view of (a) The importance of the Development of the Property to the general welfare of the community; and (b) The land acquisition assistance and other public aids that have been made available by law and by the government for the purpose of making such Development possible; and (c) The reliance by the City upon the unique qualifications and ability of the Developer to serve as the catalyst for development of the Property and upon the continuing interest which the Developer will have in the Property to assure the quality of the use, operation and maintenance deemed critical by the City in the development of the Property; and (d) The fact that a change in ownership or control of the owner of the Property, or of a substantial part thereof, or any other act or transaction involving or resulting in a significant change in ownership or with respect to the identity of the parties in control of the Developer or the degree thereof is for practical purposes a transfer or disposition of the Property; and (e) The fact that the Property is not to be acquired or used for speculation, but only for development and operation by the Developer in accordance with the Agreement; and (f) The importance to the City and the community of the standards of use, operation and maintenance of the Property. (g) The Developer further recognizes that it is because of such qualifications and identity that the City is entering into this Agreement with the Developer and that Transfers are permitted only as provided in this Agreement. Section 7.3 Prohibited Transfers. The limitations on Transfers set forth in this Section shall apply until execution of the City Ground Lease. Except as expressly pemitted in this Agreement, the Developer represents and agrees that the Developer has not made or created, and will not make or create or suffer to be made or created, any Transfer, either voluntarily or by operation of law without the prior written approval of the City. Any Transfer made in contravention of this Section shall be void and shall be deemed to be a default under this Agreement whether or not the Developer knew of or participated in such Transfer. Section 7.4 Permitted Transfers. Notwithstanding the provisions of Section 7.3, the following Transfers shall be permitted and are hereby approved by the City. 1010\16\20723 1.4 36 (a) the approved Financing Plan; and Any Transfer creating a Security Financing Interest permitted pursuant to (b) Any Transfer directly resulting from the foreclosure of a Security Financing Interest or the granting of a deed in lieu of foreclosure of a Security Financing Interest or as otherwise permitted under Article 7. (c) The City hereby approves Transfer of a membership interest in the Developer to the Investor and future transfers of such interest provided that: (i) the Developer's operating agreement provides for capital contributions of the members consistent with Financing Plan and is first approved by the City in its reasonable discretion; (ii) all documents associated with the Tax Credit syndication of the Development are submitted to the City for approval prior to execution, which approval shall not be unreasonably withheld; and (iii) in subsequent transfers the Investor remains liable for all unpaid capital contributions. The Parties agree and acknowledge that Affirmed shall remain the sole managing member of the Developer throughout the Term. The City shall not approve a Transfer of Affirmed's interest in the Developer nor shall the City approve of the admission of any other entity, including but not limited to, a non-profit or tax-exempt entity, as a managing member of the Developer. Any Transfer made in contravention of this Section 7.4 shall be void and shall be deemed to be a default under this Lease, whether or not the Lessee knew of or participated in such Transfer. Section 7.5 Effectuation of Certain Permitted Transfers. No Transfer of this Agreement permitted pursuant to Section 7.5 shall be effective unless, at the time of the Transfer, the person or entity to which such Transfer is made, by an instrument in writing prepared by the City and in form recordable among the land records, shall expressly assume the obligations of the Developer under this Agreement and agree to be subject to the conditions and restrictions to which the Developer is subject arising during this Agreement, to the fullest extent that such obligations are applicable to the particular portion of or interest in the Development conveyed in such Transfer. Anything to the contrary notwithstanding, the holder of a Security Financing Interest whose interest shall have been acquired by, through or under a Security Financing Interest or shall have been derived immediately from any holder thereof shall not be required to give to City such written assumption until such holder or other person is in possession of the Property or entitled to possession thereof pursuant to enforcement of the Security Financing Interest. In the absence of specific written agreement by the City, no such Transfer, assignment or approval by the City shall be deemed to relieve the Developer or any other party from any obligations under this Agreement. Section 7.6 Other Transfers with City Consent. The City may, in its sole discretion, approve in writing other Transfers as requested by the Developer. In connection with such request, there shall be submitted to the City for review all instruments and other legal documents proposed to effect any such Transfer. If a requested Transfer is approved by the City such approval shall be indicated to the Developer in writing. Such approval shall be granted or denied by the City within thirty (30) days of receipt by the City 1010\16\20723 1.4 37 of Developer's request for approval of a Transfer. Upon such approval, if granted, the transferee, by an instrument in writing prepared by the City and in form recordable among the land records, shall expressly assume the obligations of the Developer under this Agreement and agree to be subject to the conditions and restrictions to which the Developer is subject arising during this Agreement, to the fullest extent that such obligations are applicable to the particular portion of or interest in the Development conveyed in such Transfer. ARTICLE 8. DEFAULT AND REMEDIES Section 8.1 General Applicability. The provisions of this Article shall govern the parties' remedies for breach or failure of this Agreement. Section 8.2 No Fault of Parties. The following events constitute a basis for a party to terminate this Agreement without the fault of the other: (a) The Developer, despite good faith and diligent efforts, is unable to satisfy all of the conditions precedent to the City's obligation to execute the City Ground Lease set forth in Article 2 by the dates set forth in the Schedule of Performance; or (b) The City, despite good faith and diligent efforts, is unable to execute the City Ground Lease and lease the Property to the Developer and the Developer is otherwise entitled to the lease of the Property. Upon the happening of any of the above-described events, and at the election of either party, this Agreement may be terminated by written notice to the other party. After termination, the City shall return the Deposit to the Developer and neither party shall have any rights against or liability to the other under this Agreement, except that the waiver and indemnification provisions of Sections 3.5,4.6,4.13,6.6(b), 10.7 and 10.9 shall survive such termination and remain in full force and effect. Section 8.3 Fault of City. Except as to events constituting a basis for termination under Section 8.2, the following events each constitute a City Event of Default and a basis for the Developer to take action against the City: (a) The City, without good cause, fails to lease the Property to the Developer within the time and in the manner set forth in Article 3 and the Developer is otherwise entitled by this Agreement to such conveyance; or (b) The City breaches any other material provision of this Agreement. 1010\16\207231.4 38 Upon the happening of any of the above-described events, the Developer shall first notify the City in writing of its purported breach or failure, giving the City forty-five (45) days from receipt of such notice to cure or, if cure cannot be accomplished within forty-five (45) days, to commence to cure such breach, failure, or act. In the event the City does not then so cure within said forty-five (45) days, or if the breach or failure is of such a nature that it cannot be cured within forty-five (45) days, the City fails to commence to cure within such forty-five (45) days and thereafter diligently complete such cure within a reasonable time thereafter but in no event later than one hundred twenty (120) days, then the Developer shall be afforded all of its rights at law or in equity, by taking all or any of the following remedies: (1) terminating in writing this Agreement (provided, however, that the indemnification provisions of Sections 3.5,4.6,4.14, 6.6(b), 10.7 and 10.9 shall survive such termination) and the City Ground Lease; and (2) prosecuting an action for damages or specific performance. Section 8.4 Fault of Developer. Except as to events constituting a basis for termination under Section 8.2, the following events each constitute a Developer Event of Default and a basis for the City to take action against the Developer: (a) The Developer fails to exercise good faith and diligent efforts to satisfy, within the time set forth in the Schedule of Performance and in the manner set forth in Article 2, one or more of the conditions precedent to the City's obligation to convey the leasehold interest in the Property to the Developer pursuant to the Ground Lease; or (b) The Developer refuses to execute the City Ground Lease within the time periods and under the terms set forth in Article 3; or (c) The Developer constructs or attempts to construct the Improvements in violation of Article 4; or (d) The Developer has not satisfied all preconditions set forth in this Agreement to commencement of construction of the Improvements by the Closing, or fails to commence or complete construction of the Improvements within the times set forth in Article 4, or abandons or suspends construction of the Improvements prior to completion of all construction for a period of sixty (60) days after written notice by the City of such abandonment or suspension; or (e) The Developer fails to comply with any obligation or requirement set forth in Article 5 or Article 6; or (f) A Transfer occurs, either voluntarily or involuntarily, in violation of Article 7; or (g) Any representation or warranty contained in this Agreement or in any application, financial statement, certificate or report submitted to the City in connection with this Agreement proves to have been incorrect in any material and adverse respect when made; or (h) An Event of Default occurs under the City Ground Lease; or 1010\16\207231.4 39 (i) An Event of Default occurs under the City Deed of Trust, the City Note, or the Regulatory Agreement; or (j) A court having jurisdiction shall have made or entered any decree or order (1) adjudging the Developer or Affirmed to be bankrupt or insolvent, (2) approving as properly filed a petition seeking reorganization of the Developer or Affirmed or seeking any arrangement for the Developer or Affirmed under the bankruptcy law or any other applicable debtor's relief law or statute of the United States or any state or other jurisdiction, (3) appointing a receiver, trustee, liquidator, or assignee of the Developer or Affirmed in bankruptcy or insolvency or for any of their properties, or (4) directing the winding up or liquidation of the Developer or Affirmed, if any such decree or order described in clauses (1) to (4), inclusive, shall have continued unstayed or undischarged for a period of ninety (90) days unless a lesser time period is permitted for cure under any other mortgage on the Property, in which event such lesser time period will apply under this subsection (i) as well; or the Developer or Affirmed shall have admitted in writing its inability to pay its debts as they fall due or shall have voluntarily submitted to or filed a petition seeking any decree or order of the nature described in clauses (1) to (4), inclusive; or (k) The Developer or Affirmed shall have assigned its assets for the benefit of its creditors or suffered a sequestration or attachment of or execution on any substantial part of its property, unless the property so assigned, sequestered, attached or executed upon shall have been returned or released within ninety (90) days after such event (unless a lesser time period is permitted for cure under any other mortgage on the Property, in which event such lesser time period shall apply under this subsection (i) as well) or prior to sooner sale pursuant to such sequestration, attachment, or execution; or (1) The Developer or Affirmed shall have been dissolved or shall have voluntarily suspended its business; or (m) document related to any loans, secured by a deed of trust on the Development after the expiration of all applicable cure periods; or There shall occur any default declared by any lender under any loan (n) The Developer breaches any other material provision of this Agreement. Upon the happening of any of the above-described events, the City shall first notify the Developer in writing of its purported breach, failure or act above described, giving the Developer in writing forty-five (45) days from receipt of such notice to cure, or, if cure cannot be accomplished within said forty-five (45) days, to commence to cure such breach, failure, or act. In the event the Developer fails to cure within said forty-five (45) days, or if such breach is of a nature that it cannot be cured within forty-five (45) days, Developer fails to commence to cure within said forty-five (45) days and diligently complete such cure within a reasonable time thereafter but in no event later than one hundred twenty (120) days, then the City shall be afforded all of its rights at law or in equity by taking any or all of the following remedies: (i) Termination of this Agreement and the Ground Lease by written notice to the Developer; provided, however, that the City's remedies pursuant to this Article 8 or 40 1010\16\207231.4 6a any other City Document and the indemnification provisions of Sections 4.6,4.13,6.6(b), 10.7 and 10.9 shall survive such termination. (ii) Prosecuting an action for damages or specific performance; and (iii) Any of the remedies specified in Sections 8.5 and 8.6. (iv) Acceleration of the City Loan. Section 8.5 Right to Cure at Developer's Expense. The City shall have the right to cure any monetary default by the Developer under a loan in connection with the Development. However, if the Developer is in good faith contesting a claim of default under a loan and the City's interest under this Agreement is not imminently threatened by such default, in the City's sole judgment, the City shall not have the right to cure such default. The Developer agrees to reimburse the City for any funds advanced by the City to cure a monetary default by Developer upon demand therefor, together with interest thereon at the lesser of the rate of ten percent (10%) per annum or the maximum rate permitted by law from the date of expendture until the date of reimbursement. Section 8.6 Construction Plans. If this Agreement is terminated pursuant to Section 8.2 or Section 8.4, then the Developer shall promptly deliver to the City, within ten (10) days of such termination, copies of all plans and specifications for the Development, all permits and approvals obtained in connection with the Development, and all applications for permits and approvals not yet obtained but needed in connection with the Development (collectively, the "Section 8.6 Documents"). The delivery of the Section 8.6 Documents shall be accompanied by an assignment, in form reasonably satisfactory to the City, of the Developer's right, title and interest in the Section 8.6 Documents; provided however, that any use of the Section 8.6 Documents by the City or any other person shall be without liability of any kind to the Developer and without any representation or warranty of the Developer or its employees, architects, contractors or other agents as to the quality, validity, or usability of the Section 8.6 Documents. Section 8.7 Rights of Mortgagees. Any rights of the City under this Article shall not defeat, limit or render invalid any Security Financing Interest permitted by this Agreement or any rights provided for in this Agreement for the protection of holders of Security Financing Interests. Section 8.8 Remedies Cumulative. No right, power, or remedy given by the terms of this Agreement is intended to be exclusive of any other right, power, or remedy; and each and every such right, power, or remedy shall be cumulative and in addition to every other right, power, or remedy given by the terms of any such instrument, or by any statute or otherwise. Neither the failure nor any delay to exercise any such rights and remedies shall operate as a waiver thereof, nor shall any single or partial 1010\16\207231.4 41 exercise of any such right or remedy preclude any other or further exercise of such right or remedy, or any other right or remedy. Section 8.9 Waiver of Terms and Conditions. No waiver of any default or breach by the Developer hereunder shall be implied from any omission by the City to take action on account of such default if such default persists or is repeated, and no express waiver shall affect any default other than the default specified in the waiver, and such waiver shall be operative only for the time and to the extent therein stated. Waivers of any covenant, term, or condition contained herein shall not be construed as a waiver of any subsequent breach of the same covenant, term, or condition. The consent or approval by the City to or of any act by the Developer requiring further consent or approval shall not be deemed to waive or render unnecessary the consent or approval to or of any subsequent similar act. The exercise of any right, power, or remedy shall in no event constitute a cure or a waiver of any default under this Agreement, the City Ground Lease or the Regulatory Agreement, nor shall it invalidate any act done pursuant to notice of default, or prejudice the City in the exercise of any right, power, or remedy hereunder or under this Agreement, unless in the exercise of any such right, power, or remedy all obligations of the Developer to City are paid and discharged in full. ARTICLE 9. SECURITY FINANCING AND RIGHTS OF HOLDERS Section 9.1 No Encumbrances Except for Development Purposes. Notwithstanding any other provision of this Agreement, mortgages and deeds of trust, or any other reasonable method of security are permitted to be placed upon the Developer's leasehold interest in the Property but only for the purpose of securing loans approved by the City pursuant to the approved Financing Plan. Mortgages, deeds of trust, or other reasonable security instruments securing loans approved by the City pursuant to the approved Financing Plan are each referred to as a "Security Financing Interest." The words "mortgage" and "deed of trust" as used in this Agreement include all other appropriate modes of financing real estate acquisition, construction, and land development. Section 9.2 Holder Not Obligated to Construct. The holder of any Security Financing Interest authorized by this Agreement is not obligated to construct or complete any improvements or to guarantee such construction or completion; nor shall any covenant or any other provision in the City Ground Lease be construed so to obligate such holder. However, nothing in this Agreement shall be deemed to permit or authorize any such holder to devote the Property or any portion thereof to any uses, or to construct any improvements thereon, other than those uses of improvements provided for or authorized by this Agreement. 1010\16\207231.4 42 Section 9.3 Notice of Default and Right to Cure. Whenever the City pursuant to its rights set forth in Article 8 of this Agreement delivers any notice or demand to the Developer with respect to the commencement, completion, or cessation of the construction of the Improvements, the City shall at the same time deliver to each holder of record of any Security Financing Interest creating a lien upon the Developer's leasehold interest in the Property or any portion thereof, and the Investor, a copy of such notice or demand. Each such holder shall (insofar as the rights of the City are concerned) have the right, but not the obligation, at its option, within ninety (90) days after the receipt of the notice, to cure or remedy or commence to cure or remedy any such default or breach affecting the Property which is subject to the lien of the Security Financing Interest held by such holder and to add the cost thereof to the security interest debt and the lien on its security interest. Nothing contained in this Agreement shall be deemed to permit or authorize such holder to undertake or continue the construction or completion of the Improvements (beyond the extent necessary to conserve or protect such improvements or construction already made) without first having expressly assumed in writing the Developer's obligations to the City relating to such Improvements under this Agreement. The holder in that event must agree to complete, in the manner provided in this Agreement, the Improvements to which the lien or title of such holder relates. Any such holder properly completing such Improvements pursuant to this paragraph shall assume all rights and obligations of Developer under this Agreement and shall be entitled, upon completion and written request made to the City, to a certificate of completion from the City, in a form acceptable by the City. Section 9.4 Failure of Holder to Complete Improvements. In any case where six (6) months after default by the Developer in completion of construction of the Improvements under this Agreement, the holder of record of any Security Financing Interest, having first exercised its option to construct, has not proceeded diligently with construction, the City shall be afforded those rights against such holder it would otherwise have against Developer under this Agreement. Section 9.5 Right of City to Cure. In the event of a default or breach by the Developer of a Security Financing Interest prior to the completion of development, arid the holder has not exercised its option to complete the development called for on the Property, the City may cure the default, prior to the completion of any foreclosure. In such event the City shall be entitled to reimbursement from the Developer of all costs and expenses incurred by the City in curing the default. The City shall also be entitled to a lien upon the Property or any portion thereof to the extent of such costs and disbursements. The City agrees that such lien shall be subordinate to any Security Financing Interest, and the City shall execute from time to time any and all documentation reasonably requested by Developer to effect such subordination. Section 9.6 Right of City to Satisfy Other Liens. After the conveyance of title to the Property or any portion thereof and after the Developer has had a reasonable time to challenge, cure or satisfy any liens or encumbrances on 43 1010\16\20723 1.4 the Property or any portion thereof, the City shall have the right to satisfy any such lien or encumbrances; provided, however, that nothing in this Agreement shall require the Developer to pay or make provision for the payment of any tax, assessment, lien or charge so long as the Developer in good faith shall contest the validity or amount therein and so long as such delay in payment shall not subject the Property or any portion thereof to forfeiture or sale. Section 9.7 Holder to be Notified. The provisions of this Article shall be incorporated into the relevant deed of trust or mortgage evidencing each Security Financing Interest to the extent deemed necessary by, and in form and substance reasonably satisfactorily to the City, or shall be acknowledged by the holder of a Security Financing Interest prior to its coming into any security right or interest in the Property. ARTICLE 10. GENERAL PROVISIONS Section 10.1 Notices, Demands and Communications. Formal notices, demands, and communications between the City and the Developer shall be sufficiently given if and shall not be deemed given unless dispatched by registered or certified mail, postage prepaid, return receipt requested or delivered personally, to the principal office of the City and the Developer as follows: City: City of Carlsbad 2965 Roosevelt Street, Suite B Carlsbad, CA 92008 Attn: City Manager Developer: El Camino Family Housing Partners, LLC c/o Affirmed Housing Group 200 East Washington, Suite 208 Escondido, CA 92025 Attn: Jim Silverwood Such written notices, demands and communications may be sent in the same manner to such other addresses as the affected party may from time to time designate by mail as provided in this Section. Section 10.2 Non-Liability of City Officials, Employees and Agents. No member, official, employee or agent of the City or the City shall be personally liable to the Developer, or any successor in interest, in the event of any default or breach by the City or for any amount which may become due to the Developer or successor or on any obligation under the terms of this Agreement. 1010\16\20723 1.4 44 Section 10.3 Forced Delay. In addition to specific provisions of this Agreement, performance by either party hereunder shall not be deemed to be in default where delays or defaults are due to war; insurrection; strikes; lock-outs; riots; floods; earthquakes; fires; casualties; acts of god; acts of the public enemy; epidemics; quarantine restrictions; freight embargoes; governmental restrictions or priority; litigation (including suits filed by third parties concerning or arising out of this Agreement); weather or soils conditions which, in the opinion of the Developer's contractor, will necessitate delays; inability to secure necessary labor, materials or tools; acts of the other party; acts or failure to act of any public or governmental agency or entity (other than the acts or failure to act of the City); or any other causes (other than Developer's inability to obtain financing for the Improvements) beyond the control or without the fault of the party claiming an extension of time to perform. An extension of time for any cause will be deemed granted if notice by the party claiming such extension is sent to the other within ten (10) days from the date the party seelung the extension first discovered the cause and such extension of time is not rejected in writing by the other party within ten (10) days of receipt of the notice. Times of performance under this Agreement may also be extended in writing by the City and the Developer. In no event shall the cumulative delays exceed one hundred eighty (180) days, unless otherwise agreed to by the Parties in writing. Section 10.4 Inspection of Books and Records. Upon request, the Developer shall permit the City to inspect at reasonable times and on a confidential basis those books, records and all other documents of the Developer necessary to determine the Developer's compliance with the terms of this Agreement. The Developer also has the right at all reasonable times to inspect the books, records and all other documentation of the City pertaining to its obligations under this Agreement. Section 10.5 Provision Not Merged with Lease. None of the provisions of this Agreement are intended to or shall be merged by any City Ground Lease transferring title to any real property which is the subject of this Agreement from City to Developer or any successor in interest, and any such City Ground Lease shall not be deemed to affect or impair the provisions and covenants of this Agreement. Section 10.6 Title of Parts and Sections. Any titles of the articles, sections or subsections of this Agreement are inserted for convenience of reference only and shall be disregarded in construing or interpreting any part of its provision. Section 10.7 General Indemnification. The Developer agrees to indemnify, protect, hold harmless and defend (by counsel reasonably satisfactory to the City) the City, its council members, officers and employees, from all suits, actions, claims, causes of action, costs, demands, judgments and liens arising out of the Developer's performance or non-performance under this Agreement, or any other agreement 45 1010\16W7231.4 executed pursuant to this Agreement, or arising out of acts or omissions of any of the Developer's contractors, subcontractors, or persons claiming under any of the aforesaid, except as directly caused by the City's willful misconduct or gross negligence. The provisions of this section shall survive expiration of the Term or other termination of this Agreement, and shall remain in full force and effect. Section 10.8 Applicable Law. This Agreement shall be interpreted under and pursuant to the laws of the State of California. Section 10.9 No Brokers. Each party represents to the other that it has not had any contact or dealings regarding the Property, or any communication in connection with the subject matter of this transaction, through any real estate broker or other person who can claim a right to a commission or finder's fee except as agreed to in writing by the City and the Developer. If any broker or finder makes a claim for a commission or finder's fee based upon a contact, dealings, or communications, the party through whom the broker or finder makes this claim shall indemnify, defend with counsel of the indemnified part's choice, and hold the indemnified party harmless from all expense, loss, damage and claims, including the indemnified party's attorneys' fees, if necessary, arising out of the broker's or finder's claim. The provisions of this section shall survive expiration of the Term or other termination of this Agreement, and shall remain in full force and effect. Section 10.10 Severability. If any term, provision, covenant or condition of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the provisions shall continue in full force and effect unless the rights and obligations of the parties have been materially altered or abridged by such invalidation, voiding or unenforceability. Section 10.11 Venue In the event any legal action is commenced to interpret or to enforce the terms of this Agreement or to collect damages as a result of any breach thereof, the venue for such action shall be the Superior Court of the County of San Diego. Section 10.12 Binding Upon Successors. This Agreement shall be binding upon and inure to the benefit of the heirs, administrators, executors, successors in interest and assigns of each of the parties hereto except that there shall be no Transfer of any interest by any of the parties hereto except pursuant to the terms of this Agreement. Any reference in this Agreement to a specifically named party shall be deemed to apply to any successor, heir, administrator, executor or assign of such party who has acquired an interest in compliance with the terms of this Agreement, or under law. 10 10\16\20723 1.4 46 The covenants and restrictions set forth in this Agreement shall run with the land, and shall bind all successors in title to the Property. However, on the termination of this Agreement, such covenants and restrictions shall expire. Each and every contract, deed, or other instrument hereafter executed covering or conveying the Property shall be held conclusively to have been executed, delivered, and accepted subject to such covenants and restrictions, regardless of whether such covenants or restrictions are set forth in such contract, deed, or other instrument, unless the City expressly releases the Property from the requirements of this Agreement. Section 10.13 Parties Not Co-Venturers. Nothing in this Agreement is intended to or does establish the parties as partners, co- venturers, or principal and agent with one another. Section 10.14 Time of the Essence. In all matters under this Agreement, the parties agree that time is of the essence. Section 10.15 Action by the City. Except as may be otherwise specifically provided in this Agreement or another City Document, whenever any approval, notice, direction, finding, consent, request, waiver, or other action by the City is required or permitted under this Agreement or another City Document, such action may be given, made, or taken by the City Manager, or by any person who shall have been designated in writing to the Developer by the City Manager, without further approval by thecity Council. Any such action shall be in writing. Section 10.16 Identity and Authority of Developer. The Developer hereby represents and warrants to the City as follows: (a) Organization. The Developer is a duly organized, validly existing California limited liability company, and is in good standing under the laws of the State of California and has the power and authority to own its property and carry on its business as now being conducted. (b) Authority of Developer. The Developer has full power and authority to execute and deliver this Agreement, or to be executed and delivered, pursuant to this Agreement, and to perform and observe the terms and provisions of all of the above. (c) Authority of Persons Executing Documents. This Agreement and all other documents or instruments executed and delivered, or to be executed and delivered, pursuant to this Agreement have been executed and delivered by persons who are duly authorized to execute and deliver the same for and on behalf of Developer, and all actions required under the Developer's organizational documents and applicable governing law for the authorization, execution, delivery and performance of this Agreement and all other documents or instruments executed and delivered, or to be executed and delivered, pursuant to this Agreement, have been duly taken. 1010\16\207231.4 47 (d) Valid Binding Agreements. This Agreement and all other documents or instruments which have been executed and delivered pursuant to or in connection with this Agreement constitute or, if not yet executed or delivered, will when so executed and delivered constitute, legal, valid and binding obligations of the Developer enforceable against it in accordance with their respective terms. (e) No Breach of Law or Agreement. Neither the execution nor delivery of this Agreement or of any other documents or instruments executed and delivered, or to be executed or delivered, pursuant to this Agreement, nor the performance of any provision, condition, covenant or other term hereof or thereof, will conflict with or result in a breach of any statute, rule or regulation, or any judgment, decree or order of any court, board, commission or agency whatsoever binding on the Developer, or any provision of the organizational documents of the Developer, or will conflict with or constitute a breach of or a default under any agreement to which the Developer is a party, or will result in the creation or imposition of any lien upon any assets or property of the Developer, other than liens established pursuant hereto. (f) Comdiance With Laws; Consents and Approvals. The construction of the Improvements will comply with all applicable laws, ordinances, rules and regulations of federal, state and local governments and agencies and with all applicable directions, rules and regulations of the fire marshal, health officer, building inspector and other officers of any such government or agency. (g) Pending Proceedings. - The Developer is not in default under any law or regulation or under any order of any court, board, commission or agency whatsoever, and there are no claims, actions, suits or proceedings pending or, to the knowledge of the Developer, threatened against or affecting the Developer, at law or in equity, before or by any court, board, commission or agency whatsoever which might, if determined adversely to the Developer, materially affect the Developer's ability to develop the Improvements. (h) Title to Property. Upon the recordation of the Memorandum of Ground Lease, the Developer will have good and marketable leasehold title to the Property and there will exist thereon or with respect thereto no mortgage, lien, pledge or other encumbrance of any character whatsoever other than those liens approved by the City, liens for current real property taxes and assessments not yet due and payable, and liens in favor of the City or approved in writing by the City. (i) Financial Statements. The financial statements of the Developer and other financial data and information furnished by the Developer to the City fairly present the information contained therein. As of the date of this Agreement, there has not been any adverse, material change in the financial condition of the Developer from that shown by such financial statements and other data and information. (j) Sufficient Funds. The Developer holds sufficient funds or binding commitments for sufficient funds to obtain the leasehold interest in the Property, and complete the construction of the Improvements in accordance with this Agreement. 1010\16\207231.4 48 Section 10.17 Comdete Understandmn of the Parties. This Agreement is executed in three (3) duplicate originals each of which is deemed to be an original. This Agreement and the attached exhibits constitute the entire understanding and agreement of the parties with respect to the matters set forth in this Agreement. Section 10.18 Entry bv the City. The Developer shall permit the City, through its officers, agents, or employees, at all reasonable times to enter into the Development (a) to inspect the work of construction to determine that the same is in conformity with the requirements of this Agreement, and (b), following completion of construction, to inspect the ongoing operation and management of the Development to determine that the same is in conformance with the requirements of this Agreement. The Developer acknowledges that the City is under no obligation to supervise, inspect, or inform the Developer of the progress of construction, or operations and the Developer shall not rely upon the City therefore. Any inspection by the City during the construction is entirely for its purposes in determining whether the Developer is in compliance with this Agreement and is not for the purpose of determining or informing the Developer of the quality or suitability of construction. The Developer shall rely entirely upon its own supervision and inspection in determining the quality and suitability of the materials and work, and the performance of architects, subcontractors, and material suppliers. Section 10.19 Multiple 0rig;inals; - Counterparts. This Agreement may be executed in multiple originals, each of which is deemed to be an original, and may be signed in counterparts. 1010\16\20723 1.4 49 IN WITNESS WHEREOF, the City and the Developer have executed this Agreement in triplicate on or as of the date first above written. DEVELOPER: EL CAMINO FAMILY HOUSING PARTNERS, LLC, a California limited liability company By: AFFIRMED HOUSING GROUP., a California corporation By : Jim Silverwood President CITY: CITY OF CARLSBAD, a municipal corporation By: Its: APPROVED AS TO FORM: By: Ronald Ball, City Counsel NOTE: Section 3.5 requires the initials of the Developer 1010\16\207231.4 50 EXHIBIT A Legal Description of the Property 1010\16\207231.4 A- 1 EXHIBIT B Schedule of Performance 1010\16\20723 1.4 B-1 Comments to the Carlsbad DDLA Exhibit B - Schedule of Performance 1 Action Date Assignment of Purchase Agreement Concurrent with execution of DDLA 2 Deposit of $10,000 I Not required 6 Other Governmental Approvals I 3 4 5 NLT 150 days following receipt of Tax I Credit reservation Construction Plans - Submission NLT 60 Days after receipt of Tax Credit reservation Construction Plans - Approval 150 days after receipt of Tax Credit reservation Financing Plan - Submission NLT 100 days following receipt of Tax Credit reservation 7 Management Agreement & Procedures I 8 9 NLT 90 days following receipt of Tax Credit reservation Financing Plan - Approved N LT 120 days following receipt of Tax Credit reservation NLT 15 days after submittal Management Agreement and Procedures Approved I1 IO Construction Contract I Performance & Payment Bonds No later than 5 days prior to the Const. Loan Closing NLT 140 days following receipt of Tax Credit reservation. 14 15 Building Permits - Issuance Closing Prior to, or simultaneously with the Const. Loan Closing No later than 150 days after receipt of Tax Credit Reservation 12 Insurance I No later than 5 days prior to the Const. Loan Closing I 16 Commencement of Construction I 13 Evidence of Availability of Funds I No later than 30 days after the Const. Loan Close Prior to, or simultaneously with Const. Loan close I I8 Agency Funding Prior to or simultaneously with Const. Loan Close I 7l~omp1etion of Construction I No later than 18 months following the Close of Const. loan. I 1010\16\207231.4 EXHIBIT C Financial Proposal c- 1 1010\16\207231.4 EXHIBIT D Form of City Ground Lease D- 1 RECORDED AT THE REQUEST OF CHICAGO TITLE COMRUNY SUBDIVISION DEPT. 44301 RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: City Clerk's Office City of Carlsbad Attn: City Clerk 1200 Carlsbad Village Drive Carlsbad, CA 92008 No fee for recording pursuant to Government Code Section 27383 DOC# 2005-0946747 OCT 31 , 2005 4:59 PM OFFICIAL RECORDS SAN f.ilEbO L'OUNTV RECORDER'S OFFICE G R E G 0 Ffi J S M I T H CO 0 N TV R E rn R D E Fl 000 NA FEES. OC. RAGES: 2005-0946747 (SPACE ABOVE THIS LINE FOR RECORDER'S USE) MEMORANDUM OF GROUND LEASE THIS MEMORANDUM OF GROUND LEASE (the "Memorandum") is made as of October , 2005, by and between the City of Carlsbad, a municipal corporation ("Lessor") and El Camino Family Housing Partners, LLC, a California limited liability company ("Lessee") with respect to that certain Ground Lease dated October^/, 2005 (the "Lease"), between Lessor and Lessee. Pursuant to the Lease, Lessor hereby leases to Lessee and Lessee leases from Lessor that certain real property, more particularly described in Exhibit A, attached hereto and incorporated herein, (the "Property") for the term of the Lease. The Lease commenced on the date of the recordation of this Memorandum and shall continue from such date until the expiration of fifty- five (55) years thereafter, or such sooner termination pursuant to the terms of the Lease. This Memorandum shall incorporate herein all of the terms and provisions of the Lease as though fully set forth herein. This Memorandum may be executed in multiple originals, each or which is deemed to be an original, and may be signed in counterparts. This Memorandum is solely for recording purposes and shall not be construed to alter, modify, amend or supplement the Lease of which this is a memorandum. 1010\16\222864.2 44302 IN WITNESS WHEREOF, the parties have caused this Memorandum to be duly executed as of the date first above written. LESSOR:ration Name: RAYMOND R. PATCHETT Its: CITY MANAGER LESSEE:EL CAMINO FAMILY HOUSING PARTNERS, LLC, a California limited liability company By: AFFIRMED HOUSING GROUP., a California corporation, its Manager By: James Silverwood President [SIGNATURES MUST BE NOTARIZED] 1010\16\222864.2 44303 ' IN WITNESS WHEREOF, the parties have caused this Memorandum to be duly executed as of the date first above written. LESSOR:CITY OF CARLSBAD, a municipal corporation By: Name: Its: LESSEE:EL CAMINO FAMILY HOUSING PARTNERS, LLC, a California limited liability company By: AFFIRMED HOUSING GROUP., a California corporation, its Manager By: James Silverwood President [SIGNATURES MUST BE NOTARIZED] 1010\16\222864.2 44304 CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT I I 1 II 1I State of California 'County of On Iss. O}(Q Date / before me,L personally appeared _ KAVlfYT)nil^ Name and Title ofOificer (e.f , "Jane Doe,'Notaiy Public") / C_ PATRICIA L. CRESCENTI Commission * 1358062 Notary Public - California % San D»go County | My Comm. Expires May 24,2006 f Name(s) of Signer(s) ^6? personally known to me D proved to me on the basis of satisfactory evidence to be the person()6) whose name$$ is/ate subscribed to the within instrument and acknowledged to me that he/sheAbey executed the same in his/her/their authorized capacity(teg), and that by his/hefitbeir signature^ on the instrument the person^), or the entity upon behalf of which the acted, executed the instrument. WITNESS my hand and official seat' -X -af > ^ OPTIONAL Though the information below is not required by law, it may prove valuable to persons relying on the document and could prevent fraudulent removal and reattachment of this form to another document. Description of Attached Document Title or Type of Document: jV\PmQv7!UYV-O rr~) QT ^Document Date:.Numberof Pages:~ Signer(s) Other Than Named Above: Capacity(ies) Claimed by Signer Signer's Name: Kfly tVtOrxD \ D Individual D Corporate Officer — Title(s): D Partner — D Limited D General D Attorney-in-Fact D Trustee D Guardian or Conservator CvV RIGHT THUMBPRINT OF SIGNER Top of thumb here Signer Is Representing:^ © 1999 National Notary Association • 9350 De SotoAve., P.O. Box 2402 • Chatsworth, CA 91313-2402 • www.nationalnotary.org Prod. No. 5907 Reorder: Call Toll-Free 1-800-876-6827 44305 STATE OF CALIFORNIA COUNTY OF SAN DIEGO O ) ) ss. ) before me, the undersigned, a Notary Public, personally appeared , personally known to me (or proved to me on. tho baoio of satisfactory evidence) to be the person^ whose namej£) is/are-subscribed to the within instrument, and acknowledged to me that he/abe/they executed the same in his/hcr/thcir- authorized capacity(res), and that by his/hcr/thok signature(s$ on the instrument the person^, or the entity upon behalf of which the person^ acted, executed the instrument. WITNESS my hand and official seal. STATE OF CALIFORNIA COUNTY OF SAN DIEGO ) ) ss. ) GINGER'HITZKE "1- Comm. 11328600 ,iNOTARY PUBLIC.CALIFORNIA Ul San Wego County My Comm. Expires Nov. 5,2005 ' On _, before me, the undersigned, a Notary Public, personally appeared , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument, and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. 1010\16\222864.2 44306 EXHIBIT A Legal Description of the Property 1010\16\222864.2 44307 LEGAL DESCRIPTION ALL THAT PORTION OF FRACTIONAL NORTHEAST QUARTER OF SECTION 23, TOWNSHIP 12 SOUTH, RANGE 4 WEST, SAN BERNARDINO MERIDIAN, IN THE CITY OF CARLSBAD, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO THE OFFICIAL PLAT THEREOF, DESCRIBED AS FOLLOWS: BEGINNING AT THE NORTHEASTERLY CORNER OF THE SOUTH 10 ACRES OF SAID FRACTIONAL NORTHEAST QUARTER OF THE SOUTHWEST QUARTER; THENCE ALONG THE NORTHERLY LINE OF SAID SOUTH 10 ACRES WESTERLY TO AN INTERSECTION WITH THE EASTERLY LINE OF ROAD SURVEY NO. 1800-1, AS DESCRIBED IN A DEED TO THE COUNTY OF SAN DIEGO, RECORDED DECEMBER 18, 1969 AS FILE NO. 230092 OF OFFICIAL RECORDS; THENCE SOUTHERLY ALONG EASTERLY LINE OF SAID ROAD SURVEY NO. 1800-1 TO AN INTERSECTION WITH THE SOUTH LINE OF SAID SOUTH 10 ACRES; THENCE EASTERLY ALONG SAID SOUTH LINE TO THE EAST LINE OF SAID NORTHEAST QUARTER OF THE SOUTHWEST QUARTER; THENCE NORTHERLY ALONG SAID EAST LINE TO THE POINT OF BEGINNING. (APN: 215-020-27) DESCLTR-09/06/94bk GROUND LEASE By and Between THE CITY OF CARLSBAD and EL CAMINO FAMILY HOUSING PARTNERS, LLC 3( , 1010\01\209755.7 TABLE OF CONTENTS ARTICLE 1: DEFINITIONS AND EXHIBITS 1 Section 1.1 Definitions 1 Section 1.2 Exhibits 4 ARTICLE 2: LEASE OF THE PROPERTY; PAYMENT OF RENT; OWNERSHIP OF IMPROVEMENTS 5 Section 2.1 Lease of the Property 5 Section 2.2 Use 5 Section 2.3 Possession 5 Section 2.4 Lease Term 5 Section 2.5 Payment of Rent 5 Section 2.6 Reports and Accounting of Residual Receipts 7 Section 2.7 Title to Improvements; Surrender Upon Termination 8 Section 2.8 Assignment of Lessee's Leasehold Interest; Transfer of the Development 8 Section 2.9 Net-Net-Net Lease 8 ARTICLE 3: DEVELOPMENT OF IMPROVEMENTS 9 Section 3.1 Commencement of Construction 9 Section 3.2 Completion of Construction 9 Section 3.3 Construction Pursuant to Permits and Disposition Agreement 9 Section 3.4 Equal Opportunity 9 Section 3.5 Discharge of Liens 9 Section 3.6 Protection of the City 9 Section 3.7 Permits, Licenses and Easements 10 Section 3.8 Compliance with Applicable Law 10 Section 3.9 Prevailing Wage 10 Section 3.10 The Lessee to Furnish and Equip the Improvements 11 ARTICLE 4: USE AND MAINTENANCE OF THE IMPROVEMENTS 11 Section 4.1 Use of Development 11 Section 4.2 Compliance with the Regulatory Agreement 12 Section 4.3 Maintenance of the Development 12 Section 4.4 Utilities 12 Section 4.5 Taxes and Assessments 13 Section 4.6 Assistance in Making Payments 13 Section 4.7 Hazardous Materials 14 Section 4.8 Non-Discrimination 16 ARTICLE 5: APPROVED LOANS 17 Section 5.1 Loan Obligations 17 Section 5.2 Liens and Encumbrances Against Lessee's Interest in the Leasehold Estate. 17 1010\01\209755.7 TABLE OF CONTENTS (Continued) Section 5.3 Cost of Approved Loans to be Paid by Lessee 20 Section 5.4 Proceeds of Approved Loans 20 Section 5.5 Notice and Right to Cure Defaults Under Approved Loans 20 Section 5.6 Modifications 20 Section 5.7 Estoppel Certificates 20 ARTICLE 6: INSURANCE 20 Section 6.1 Required Insurance Coverage 20 Section 6.2 Insurance Policies and Premiums 21 Section 6.3 Proceeds of Insurance 21 Section 6.4 Indemnification 21 ARTICLE 7: CONDEMNATION, DAMAGE OR DESTRUCTION OF THE IMPROVEMENTS 22 Section 7.1 Condemnation 22 Section 7.2 Administration of Construction Fund in the Event of Condemnation, or Damage or Destruction of Development 23 Section 7.3 Lessee, City, Approved Lenders to be Made Parties in Legal Proceedings.. 24 Section 7.4 Termination 24 ARTICLE 8: ASSIGNMENT AND TRANSFERS 24 Section 8.1 Definitions 24 Section 8.2 Purpose of Restrictions on Transfer 25 Section 8.3 Prohibited Transfers 25 Section 8.4 Permitted Transfers 25 Section 8.5 Procedure for Approval of Certain Transfers 26 Section 8.6 Assignments 26 ARTICLE 9: REPRESENTATIONS AND ASSURANCES 27 Section 9.1 City to Give Peaceful Possession 27 Section 9.2 Lessee Representations 27 Section 9.3 Release of City 28 Section 9.4 Holding Over 28 Section 9.5 No Merger 29 ARTICLE 10: DEFAULTS AND REMEDIES 29 Section 10.1 Events of Default; Remedy for Default by Lessee 29 Section 10.2 Remedy for Default by City 31 ARTICLE 11: MISCELLANEOUS 31 Section 11.1 Instrument Is Entire Agreement 31 1010\01\209755.7 TABLE OF CONTENTS (Continued) Section 11.2 Notices 31 Section 11.3 Non-Liability of Officials, Employees and Agents 32 Section 11.4 Force Majeure 32 Section 11.5 Non-Waiver of Breach 32 Section 11.6 Binding Upon Successors; Covenants to Run With Land 32 Section 11.7 Employment Opportunity 33 Section 11.8 Relationship of Parties 33 Section 11.9 Titles 33 Section 11.10 Severability 33 Section 11.11 Applicable Law 33 Section 11.12 Venue 33 Section 11.13 Approvals 33 Section 11.14 Inspection of Books and Records 34 Section 11.15 Lease Binding on Successors 34 Section 11.16 Counterparts 34 EXHIBIT A Description of the Property EXHIBIT B Insurance Requirements EXHIBIT C Preliminary Title Report EXHIBIT D Rent Payment Schedule 1010\01\209755.7 GROUND LEASE THIS GROUND LEASE (the "Lease") is entered into as of , 2005, by and between The City of Carlsbad, a municipal corporation (the "City"), and El Camino Family Housing Partners, LLC, a California limited liability company (the "Lessee"), with reference to the following facts, purposes, and understandings. RECITALS A. These Recitals refer to and utilize certain capitalized terms that are defined in Article 1 of this Lease. The Parties intend to refer to those definitions in connection with the use of capitalized terms in these Recitals. B. The City owns that certain parcel of real property located in the City of Carlsbad, California, as more particularly described in the attached Exhibit A (the "Property"). C. The Lessee and the City entered into that certain Land Disposition and Loan Agreement dated as of March 16, 2005 (the "Disposition Agreement"), pursuant to which City agreed to lease the Property to Lessee and the Lessee agreed to develop the Property. D. In accordance with the Disposition Agreement and this Lease, the Lessee shall develop and operate on the Property a fifty-six (56) unit housing development affordable to very low income and moderate income households. E. The City desires to lease the Property to the Lessee, and the Lessee desires to lease the Property from the City, for a term specified in this Lease. WITH REFERENCE TO THE FACTS RECITED ABOVE, the City and the Lessee (collectively the "Parties") agree as follows: ARTICLE 1: DEFINITIONS AND EXHIBITS Section 1.1 Definitions. The following terms shall have the following meanings in this Lease: (a) "Affirmed" shall mean Affirmed Housing Group, a California Corporation. (b) "Agency" shall mean the Carlsbad Redevelopment Agency, a public body, corporate and politic, and its successors and assigns. (c) "Approved Lenders" shall mean all of the lenders providing the Approved Loans to the Lessee and their designees, nominees, successors and assigns. 1010\01\209755.7 (d) "Approved Loan Documents" shall mean all documents executed by the Lessee evidencing or securing the Approved Loans. (e) "Approved Loans" shall mean the loans contained in the Financing Plan submitted to the City by the Lessee as required by the Disposition Agreement and approved by the City, or any other loan obtained by the Lessee in connection with and secured by the Development and approved in writing by the City. (f) "Authorized Officers" shall mean, in the case of the City, its City Manager, and in the case of the Lessee, the president of Affirmed, the managing member of the Lessee. As of the date of this Lease, the President of Affirmed is Jim Silverwood. (g) "City" shall mean the City of Carlsbad, California, a municipal corporation, operating through its governing body, the City Council, and its various departments. (h) "City Loan" shall mean the loan of One Million Four Hundred Fifty-Four Thousand Two Hundred Seventy-Six Dollars ($1,454,276) by the City to the Developer pursuant to the Disposition Agreement. (i) "Commencement Date" shall mean the date of the Closing as defined in the Disposition Agreement. (j) "Development" shall mean the Improvements and the Lessee's leasehold interest in the Property. (k) "Development Documents" shall mean all construction documentation prepared by the Lessee or on the Lessee's behalf and approved by the City pursuant to the Disposition Agreement. (1) "Disposition Agreement" shall have the meaning given in Recital C. (m) "Event of Default" shall have the meaning specified in Section 10.1. (n) "Financing Plan" shall mean the Financing Plan approved by the City pursuant to the provisions of the Disposition Agreement. (o) "Foreclosure Transferee" shall mean a transferee who acquires the Lessee's interest in this Lease and the Development through the exercise of remedies (such as foreclosure or a deed in lieu of foreclosure) pursuant to Approved Loan Documents. (p) "Hazardous Materials" shall mean any substance, material, or waste which is: (1) defined as a "hazardous waste", "hazardous material," "hazardous substance," "extremely hazardous waste," "restricted hazardous waste," "pollutant" or any other terms comparable to the foregoing terms under any provision of California law or federal law; (2) petroleum; (3) asbestos; (4) polychlorinated biphenyls; (5) radioactive materials; (6) mold; (7) MTBE; or (8) determined by California, federal or local government authority to be capable of posing a risk of injury to health, safety or property. Without limiting the foregoing, Hazardous Materials means 1010\01\209755.7 and includes any substance or material defined or designated as hazardous or toxic waste, hazardous or toxic material, a hazardous, toxic or radioactive substance, or other similar term, by any Hazardous Materials Laws including any federal, state or local environmental statute, regulation or ordinance presently in effect that may be promulgated in the future, as such as statutes, regulations and ordinances may be amended from time to time. The term "Hazardous Materials" shall not include: (i) construction materials, gardening materials, household products, office supply products or janitorial supply products customarily used in the construction, maintenance, rehabilitation, or management of commercial properties, buildings and grounds, or typically used in household activities, or (ii) certain substances which may contain chemicals listed by the State of California pursuant to California Health & Safety Coded Section 25249.8 et seq., which substances are commonly used by a significant portion of the population living; within the region of the Improvements, including, but not limited to, alcoholic beverages, aspirin, tobacco products, Nutrasweet and saccharine, so long as such materials and substances are stored, used and disposed of in compliance with all applicable Hazardous Materials Laws. (q) "Hazardous Materials Laws" shall mean all federal, state, and local laws, ordinances, regulations, orders and directives pertaining to Hazardous Materials in, on or under the Development or any portion thereof. (r) "Improvements" shall mean the fifty-six (56) housing units and appurtenant improvements to be constructed on the Property by the Lessee. (s) "Investor" shall mean BCP/E1 Camino, LLC, a Delaware limited liability company. (t) "Lease" shall mean this Ground Lease. (u) "Lease Term" shall mean the term of this Lease, which shall commence on the Commencement Date and shall terminate fifty-five (55) years after the Commencement Date. (v) "Lease Year" shall mean a period of twelve (12) full calendar months. The first Lease Year shall begin on the Commencement Date. Each succeeding Lease Year shall commence on the anniversary of the Commencement Date. (w) "Lessee" shall mean El Camino Family Housing Partners, LLC, a California limited liability company, and its permitted successors and assigns. (x) "Median Income" shall mean the median gross yearly income, adjusted for actual household size as specified herein, in the County of San Diego, California as determined by the California Department of Housing and Community Development. (y) "Memorandum of Lease" shall mean the memorandum of ground lease substantially in the form attached to the Disposition Agreement as Exhibit H. 1010\01\209755.7 (z) "Official Records" shall mean the Official Records of San Diego County, California. (aa) "Parties" shall mean the City and the Lessee. (bb) "Party" shall mean any one of the City or Lessee. (cc) "Preliminary Title Report" shall mean that certain title report dated August 10, 2005, issued by Chicago Title Company a copy of which is attached as Exhibit C. (dd) "Property" shall mean the property more particularly described in the attached Exhibit A. (ee) "Regulatory Agreement" shall mean that Regulatory Agreement and Declaration of Restrictive Covenants to be entered into by the City and the Lessee substantially in the form attached to the Disposition Agreement as Exhibit E. (ft) "Rent" shall mean the annual rent payment made to the City by the Lessee in the amount set forth in Exhibit D. and more particularly described in Section 2.5. (gg) "Rent Commencement Date" shall mean the first May 1st immediately following the calendar year in which the certificate of occupancy was issued by the City for the Improvements, or May 1, 2010, whichever is earlier. (hh) "Transfer" is defined in Section 8.1. (ii) "Very Low Income Households" shall mean a household whose income does not exceed the qualifying limits for a very low income household as established and amended from time to time pursuant to Section 8 of the United States Housing Act of 1937, adjusted for assumed household size. Section 1.2 Exhibits. The following exhibits are attached to and made part of this Lease: EXHIBIT A Legal Description of the Property EXHIBIT B Insurance Requirements EXHIBIT C Preliminary Title Report EXHIBIT D Rent Payment Schedule 1010\01\209755.7 ARTICLE 2: LEASE OF THE PROPERTY; PAYMENT OF RENT; OWNERSHIP OF IMPROVEMENTS S ection 2.1 Lease of the Property. (a) The City hereby leases the Property to the Lessee, and the Lessee hereby leases the Property from the City, pursuant to the terms of this Lease. (b) The Parties shall cause the Memorandum of Lease to be recorded against the Property in the Official Records substantially in the form attached to the Disposition Agreement as Exhibit H. (c) The closing costs associated with execution of this Lease and recordation of the Memorandum of Lease including, but not limited to recording charges, county documentary transfer tax, and conveyance taxes (if any) and the cost of the Lessee's title insurance policy shall be borne by the Lessee. Each Party shall bear its own attorneys' fees and costs. Section 2.2 Use. Subject to the provisions of this Lease, the Lessee shall use the Property for the redevelopment thereof and for the construction, development and operation of the Improvements on the Property in accordance with the restrictions and requirements set forth in Article 5 hereof. Section 2.3 Possession. The City agrees to and shall provide possession of the Property to the Lessee immediately following the Commencement Date. To the best of the City's knowledge, the Property is subject only to the encumbrances listed in the Preliminary Title Report and such encumbrances approved by the Parties and recorded concurrently with the Memorandum of Lease. The City shall convey the Property to the Lessee in the physical condition set forth in the Disposition Agreement. Section 2.4 Lease Term. Unless earlier terminated pursuant to the provisions of this Lease, the Lease Term shall be for the period commencing on the Commencement Date and terminating at midnight (12:00 a.m.) on the day immediately preceding the fifty-fifth (55th) anniversary of the Commencement Date. Section 2.5 Payment of Rent. The Lessee shall make annual lease payments to the City under this Lease as follows: (a) Commencing on the first May 1st immediately following the calendar year in which a certificate of occupancy was issued for the Improvements, and continuing through each May 1st thereafter throughout the Lease Term (each such May 1st is referred to as a "Payment Date"), the Lessee shall pay to the City an annual rent payments in the amount set forth for that year in Exhibit D, attached hereto and incorporated herein; provided, however, Rent payments in any year shall be payable only to the extent of the Rental Share of Residual Receipts (as defined below) from the previous calendar year. To the extent that the Rental Share of Residual Receipts, in any calendar year, is less than the Rent due in the subsequent calendar 1010\01\209755.7 year, as set forth in Exhibit D. then the unpaid balance of Rent due shall accrue (without interest) and shall be due and payable on subsequent Payment Dates from the Rental Share of Residual Receipts, until fully paid. Any accrued Rent payments remaining unpaid at the end of the Lease Term shall be paid in full no later than ninety (90) days preceding the end of the Lease Term. The Lessee shall accompany each payment of Rent with an audited financial statement (as described in Section 2.6 below). (b) Special Definitions. The following special definitions shall apply for purposes of this Section 2.5: (i) "Annual Operating Costs" with respect to a particular Lease Year shall mean the following costs reasonably and actually incurred for operation and maintenance of the Development to the extent that they are consistent with the annual budget for the Development, approved by the City pursuant to the Regulatory Agreement, and with an annual independent audit performed by a certified public accountant using generally accepted accounting principles: property taxes and assessments imposed on the Development; debt service currently due on a non-optional basis (excluding debt service due from residual receipts or surplus cash of the Development) on loans associated with development of the Development and approved by the City in the Financing Plan pursuant to Section 2.4 of the Disposition Agreement; property management fees and reimbursements, not to exceed fees and reimbursements which are standard in the industry and pursuant to a management contract approved by the City pursuant to Sections 2.7 and 6.7 of the Disposition Agreement; premiums for property damage and liability insurance; utility services not paid for directly by tenants, including water, sewer, and trash collection; maintenance and repair; any annual license or certificate of occupancy fees required for operation of the Development; security services; advertising and marketing; cash deposited into reserves for capital replacements of the Development in an amount not to exceed the amount required in connection with the permanent financing approved by the City pursuant to Section 2.4 of the Disposition Agreement, or by the City if no other lender or investor requires approvals of such amount; cash deposited into an operating reserve in an amount not to exceed the amount required in connection with the permanent financing approved by the City pursuant to Section 2.4 of the Disposition Agreement, or by the City if no other lender or investor requires approvals of such amount; payment of any previously unpaid portion of the Developer Fee due (without interest) not exceeding a cumulative amount of the Developer Fee as set forth in Section 5.8 of the Disposition Agreement; an annual asset management fee in the amount of Five Thousand Dollars ($5,000) (adjusted annually at 3.5% and which shall accrue if not paid); a partnership management fee in the amount of Twenty Five Thousand Dollars ($25,000) (adjusted annually at 3.5% and which shall accrue if not paid); extraordinary operating costs specifically approved in writing by the City as part of the annual budget approval process pursuant to the Regulatory Agreement; payments of deductibles in connection with casualty insurance claims not normally paid from reserves; the amount of uninsured losses actually replaced, repaired or restored, and not normally paid from reserves; and other ordinary and reasonable operating expenses approved in writing by the City and not listed above. Annual Operating Expenses shall not include the following: Rent paid by the Lessee to the City pursuant to this Agreement, depreciation, amortization, depletion or other non-cash expenses; any amount expended from a reserve account; and any capital cost with respect to the Development, as determined by the accountant for the Development. 1010\01\209755.7 (ii) "Gross Revenue" with respect to a particular Lease Year shall mean all revenue, income, receipts, and other consideration actually received from operation and leasing of the Development. Gross Revenue shall include, but not be limited to: all rents, fees and charges paid by tenants, Section 8 payments or other rental subsidy payments received for the dwelling units, deposits forfeited by tenants, all cancellation fees, price index adjustments and any other rental adjustments to leases or rental agreements; net proceeds from vending and laundry room machines; the proceeds of business interruption or similar insurance and not paid to senior lenders; the proceeds of casualty insurance not used to rebuild the Development and not paid to senior lenders; and condemnation awards for a taking of part or all of the Development for a temporary period not paid to senior lenders. Gross Revenue shall not include tenants' security deposits, loan proceeds, capital contributions or similar advances. (iii) "Residual Receipts" in a particular calendar year means the amount by which Gross Revenue (as defined below) exceeds Annual Operating Costs (as defined below). (iv) "Rental Share of Residual Receipts" shall mean thirty percent (30%) of Residual Receipts. Section 2.6 Reports and Accounting of Residual Receipts. (a) Audited Financial Statement. In connection with the annual payment of Rent, the Lessee shall furnish to the City an audited statement duly certified by an independent firm of certified public accountants previously approved by the City in writing, setting forth in reasonable detail the computation and amount of Residual Receipts during the preceding calendar year. (b) Books and Records. The Lessee shall keep and maintain on the Property, or elsewhere with the City's written consent, full, complete and appropriate books, record and accounts relating to the Development, including all such books, records and accounts necessary or prudent to evidence and substantiate in full detail Lessee's calculation of Residual Receipts. Books, records and accounts relating to Lessee's compliance with the terms, provisions, covenants and conditions of this Agreement shall be kept and maintained in accordance with generally accepted accounting principles consistently applied, and shall be consistent with requirements of this Lease which provide for the calculation of Residual Receipts on a cash basis. All such books, records, and accounts shall be open to and available for inspection by the City, its auditors or other authorized representatives at reasonable intervals during normal business hours upon reasonable notice to the Lessee. Copies of all tax returns and other reports that Lessee may be required to furnish any governmental agency shall at all reasonable times be open for inspection by the City at the place that the books, records and accounts of the Lessee are kept. The Lessee shall preserve records on which any statement of Residual Receipts is based for a period of not less than five (5) years after such statement is rendered, and for any period during which there is an audit undertaken pursuant to subsection (c) below then pending. (c) City Audits. The receipt by the City of any statement pursuant to subsection (a) above or any payment by Lessee or acceptance by the City of Rent for a Lease 1010\01\209755.7 Year shall not bind the City as to the correctness of such statement or such payment. Within three (3) years after the receipt of any such statement, the City or any designated agent or employee of the City at any time shall be entitled to audit the Residual Receipts and all books, records, and accounts pertaining thereto. Such audit shall be conducted during normal business hours at the principal place of business of Lessee and other places where records are kept. Immediately after the completion of an audit, the City shall deliver a copy of the results of such audit to Lessee. If it shall be determined as a result of such audit that there has been a deficiency in a Rent payment to the City, then such deficiency shall become immediately due and payable with interest at the rate often percent (10%) per annum, determined as of and accruing from the date that said payment should have been made. In addition, if Lessee's auditor's statement for any calendar year shall be found to have understated Residual Receipts by more than five percent (5%) and the City is entitled to any additional Rent payments as a result of said understatement, then Lessee shall pay, in addition to the interest charges referenced hereinabove, all of the City's reasonable costs and expenses connected with any audit or review of Lessee's accounts and records. Section 2.7 Title to Improvements: Surrender Upon Termination. The City hereby grants to the Lessee, without warranty (express or implied), any right, title, or interest that the City may have in the improvements located on the Property from time to time prior to the termination of this Lease. The Improvements on the Property during the Lease Term shall be and remain the property of the Lessee; however, the Lessee shall have no right to destroy, demolish or remove the Improvements except as specifically provided for in this Lease or as otherwise approved in writing by the City. When the Lease Term expires, or when the Lease is otherwise terminated under the terms of this Lease the Lessee shall surrender the Property and deliver to the City the Property (including all Improvements thereon) and title to the Improvements shall revert to and vest in the City without cost to the City in their then-existing condition. It is the intent of the Parties that this Lease shall create a constructive notice of severance of the Improvements from the Property without the necessity of a deed from the City to the Lessee after the Improvements have been constructed. The Improvements, when built, shall be and remain real property and shall be owned in fee by the Lessee for the Lease Term. If requested by the City, the Lessee shall execute, at the end of the Lease Term, within ten (10) days of receipt of the City's written request, a confirmatory quitclaim deed of the Improvements to be recorded at the City's option and expense, and any other documents that may be reasonably required by the City or the City's title company to provide the City title to the Property and the Improvements free and clear of all monetary liens and monetary encumbrances not caused or agreed to by the City, but otherwise in their "as-is" condition. Section 2.8 Assignment of Lessee's Leasehold Interest: Transfer of the Development. Subject the provisions of Article 8, the Lessee may not assign its interest in this Lease and sell or transfer the Development without the prior written consent of the City. Section 2.9 Net-Net-Net Lease. This Lease is a net-net-net lease, and Rent and other payments payable to or on behalf of the City shall: (a) be paid without notice or demand and without offset, counterclaim, abatement, suspension, deferment, deduction or defense; and (b) be an absolute net return to the City, free and clear of any expenses, charges or offsets whatsoever. 1010\01\209755.7 ARTICLE 3: DEVELOPMENT OF IMPROVEMENTS Section 3.1 Commencement of Construction. The Lessee shall commence construction of the Improvements no later than the time specified in the Disposition Agreement. Section 3.2 Completion of Construction. The Lessee shall prosecute diligently to completion the construction of the Improvements, and shall complete construction by the time specified in the Disposition Agreement. Section 3.3 Construction Pursuant to Permits and Disposition Agreement. The Improvements shall be constructed in accordance with the Development Documents and the terms and conditions of the City of Carlsbad's land use permits and approvals and building permits. Section 3.4 Equal Opportunity. During the construction of the Improvements there shall be no discrimination on the basis of race, color, creed, religion, sex, sexual orientation, age, disability, marital status, national origin, or ancestry in the hiring, firing, promoting, or demoting of any person engaged in the construction work. Section 3.5 Discharge of Liens. The Lessee shall not create or permit or suffer to be created or to remain, and will discharge, any lien (including, but not limited to, the liens of mechanics, laborers, materialmen, suppliers or vendors for work or materials alleged to be done or furnished in connection with the Property and the Improvements thereon), encumbrances or other charge upon the Property and the Improvements thereon, or any part thereof, or upon the Lessee's leasehold interest therein. The Lessee shall have the right to contest in good faith and by appropriate legal proceedings the validity or amount of any mechanics', laborers', materialmen's, suppliers' or vendors' lien or claimed lien; provided that the Lessee shall utilize all reasonable means (including the posting of adequate security for payment) to protect the Property and any part thereof or the Improvements thereon against foreclosure, and shall indemnify and hold harmless the City from any adverse effects resulting from such lien. Section 3.6 Protection of the City. Nothing in this Lease shall be construed as constituting the consent of the City, expressed or implied, to the performance of any labor or the furnishing of any materials or any specific improvements, alterations of or repairs to the Property or the Improvements thereon, or any part thereof, by any contractor, subcontractor, laborer or materialman, nor as giving the Lessee or any other person any right, power or authority to act as agent of or to contract for, or permit the rendering of, any services or the furnishing of any materials in such manner as would give rise to the filing of mechanics' liens or other claims against the fee interest of the Property or the Improvements thereon. The City shall have the right at all reasonable times to post and keep posted on the Property any notices which the City may deem necessary for the protection of the City and of the Property and the Improvements thereon from mechanics' liens or other claims. In addition, the Lessee shall make, or cause to be made, prompt payment of all monies due and legally owing to all persons doing any work or furnishing any materials or supplies to the Lessee, or any of its respective contractors or subcontractors in connection with the Property and the Improvements thereon. 1010\01\209755.7 Section 3.7 Permits. Licenses and Easements. Within ten (10) days after receipt of written request from the Lessee, the City shall (at no expense to the City) join in any and all applications (consistent with the Disposition Agreement) for permits, licenses or other authorizations required by any governmental or other body claiming jurisdiction in connection with any work that the Lessee may do pursuant to this Lease or the operation of the Development, and shall also join in any grants of easements for public utilities useful or necessary to the proper construction of the Improvements or the operation of the Development. Section 3.8 Compliance with Applicable Law. The Lessee shall cause all work performed in connection with construction of the Development to be performed in compliance with (a) all applicable laws, ordinances, rules and regulations of federal, state, county or municipal governments or agencies now in force or that may be enacted hereafter, and (b) all directions, rules and regulations of any fire marshal, health officer, building inspector, or other officer of every governmental agency now having or hereafter acquiring jurisdiction. The work shall proceed only after procurement of each permit, license, or other authorization that may be required by any governmental agency having jurisdiction, and the Lessee shall be responsible to the City for the procurement and maintenance thereof, as may be required of the Lessee and all entities engaged in work on the Property. Section 3.9 Prevailing Wage. The Lessee shall and shall cause the contractor and subcontractors to pay prevailing wages in the construction of the Improvements as those wages are determined pursuant to Labor Code Sections 1720 et seq., and the implementing regulations of the Department of Industrial Relations (the "DIR"), to employ apprentices as required by Labor Code Section 1777.5 et seq., and comply with the other applicable provisions of Labor Code Sections 1720 et seq., and the implementing regulations of the DIR. The Lessee shall and shall cause the contractor and subcontractors to keep and retain such records as are necessary to determine if such prevailing wages have been paid as required pursuant to Labor Code Sections 1720 et seq., and that apprentices have been employed as required by Labor Code Section 1777.5 et seq. Copies of the currently applicable per diem prevailing wages are available from the City. During the construction of the Improvements, Lessee shall or shall cause the contractor to post at the Property the applicable prevailing rates of per diem wages. Lessee shall indemnify, hold harmless and defend (with counsel reasonably acceptable to the City) the Agency and the City against any claim for damages, compensation, fines, penalties or other amounts arising out of the failure or alleged failure of any person or entity (including the Lessee, its contractor and subcontractors) to pay prevailing wages as determined pursuant to Labor Code Sections 1720 et seq., to employ apprentices as required by Labor Code Section 1777.5 et seq., and the implementing regulations of the DIR or comply with the other applicable provisions of Labor Code Sections 1720 et seq., and the implementing regulations of the DIR in connection with construction of the Improvements or any other work undertaken or in connection with the Property. In the event that Labor Code Section 1720, et seq., is amended, or otherwise reinterpreted by the DIR, so that the requirements of Labor Code Section 1720, et seq., including but not limited to the payment of prevailing wages and the requirement to employ apprentices in accordance with Labor Codes Sections 1777.5 et seq., are no longer applicable to the construction of the Improvements, then this provision shall be of no further force and effect; 1010\01\209755.7 10 provided that the Lessee's obligation to indemnify the City as set forth in this Section 3.9 shall remain in effect throughout the Term. Section 3.10 The Lessee to Furnish and Equip the Improvements. Upon completion of construction of the Improvements, the Lessee covenants and agrees to furnish and equip the Improvements, with all fixtures, furnishings, equipment and other personal property (collectively, the "Personal Property") of a quantity as necessary to operate a first class housing development in accordance with the standards set forth in this Lease and the Regulatory Agreement. The Lessee further agrees to take good care of such Personal Property, to keep the same in good order and condition ordinary wear and tear excepted, and promptly, at the Lessee's own cost and expense, to make all necessary repairs, replacements and renewals thereof. As used in this Lease, the term "Personal Property" includes all such replacements and renewals, and all fixtures, furnishings, equipment and other personal property of the Lessee located in, on or about the Property and the Improvements thereon. Any and all fixtures, furnishings, equipment and other personal property placed in, on or about the Property shall be the Personal Property of the Lessee during the Lease Term. ARTICLE 4: USE AND MAINTENANCE OF THE IMPROVEMENTS Section 4.1 Use of Development. (a) During the Lease Term, the Lessee shall at all times during the Lease Term use and operate the Development in accordance with this Lease, the Disposition Agreement, the Regulatory Agreement, and all requirements of the Approved Loan Documents. Any use of the Property for any other purpose other than the operation of the Improvements in accordance with the Regulatory Agreement or any proposed "Major Additional Improvements" to the Property shall be subject to the City's prior written approval, which may be granted or denied in the City's sole discretion. For the purposes of this Section 4.1 the term "Major Additional Improvements" means any of the following: (1) any new buildings, structures or outdoor facilities other than the Improvements to be located on the Property, (2) any substantial alterations, remodeling or rehabilitation of the Improvements, (3) construction of additional spaces or facilities, or (4) any other alteration, construction, remodeling or reconstruction on the Property with a cost in excess of Twenty-Five Thousand Dollars ($25,000). (b) During the Lease Term, the Lessee shall comply with all applicable and lawful statutes, rules, orders, ordinances, requirements, and regulations of the United States, the State of California, and any other governmental authority having jurisdiction over the Development; however, the Lessee may, in good faith and on reasonable grounds, dispute the applicability or the validity of any charge, complaint, or action taken pursuant to or under color of any statute, rule, order, ordinance, requirement, or regulation, defend against the same, and in good faith diligently conduct any necessary proceedings to prevent and avoid any adverse consequence of the same. The Lessee agrees that any such contest shall be prosecuted to a final conclusion as promptly as reasonably possible. (c) The Lessee shall: 1010\01\209755.7 \ \ (i) use the Development only to provide proper housing facilities and ancillary uses to tenants, and to maintain the character of the Development as required by this Lease, the Regulatory Agreement and any Approved Loan Documents for so long as such agreements remain in effect, and shall not use the Development for any disorderly or unlawful purpose; (ii) use reasonable efforts to prevent any residential tenant from committing or maintaining any nuisance or unlawful conduct on or about the Development; (iii) use reasonable efforts to prevent any residential tenant from violating any of the covenants and conditions of this Lease with respect to the Development; (iv) use reasonable efforts to abate any violation of this Lease by any residential tenant upon notice from the City; (v) subject to any applicable laws of the State of California and the rights of residential tenants in the Development, permit the City and its agents to inspect the Development at any reasonable time during the Lease Term; and (vi) Not commit or suffer to be committed any waste in, on or about the Property. Section 4.2 Compliance with the Regulatory Agreement. The Lessee hereby agrees that, for the term of the Regulatory Agreement, the Development will be used only for residential uses consistent with this Lease and the Regulatory Agreement. A portion of the residential units shall be rented to and occupied by or, if vacant, available for occupancy by Very Low Income Households and other households as set forth in the Regulatory Agreement. Section 4.3 Maintenance of the Development. The Lessee shall cause the Property and the Development to be well maintained and repaired in a condition reasonably acceptable to the City during the Lease Term, including but not limited to cleaning, painting, decorating, plumbing, carpentry, grounds care and such other maintenance and repairs as may be necessary. The Lessee shall perform, or cause to be performed, all maintenance and repairs necessary to maintain the Development in good repair and tenantable condition. The City shall have the right, upon reasonable notice to the Lessee, to enter the Development to make inspections to determine the Lessee's compliance with this Section 4.3. The City shall have additional rights and remedies regarding maintenance as set forth in the Regulatory Agreement. As between the City and the Lessee, all costs incurred in the operation and maintenance of the Improvements shall be paid by the Lessee. Section 4.4 Utilities. The Lessee shall be responsible for the cost of all utilities, including water, heat, gas, electricity, waste removal, sewers, and other utilities or services supplied to the Development, and the Lessee shall pay or cause utility costs to be paid currently and as due. 1010\01\209755.7 12 Section 4.5 Taxes and Assessments. (a) Payment of Taxes and Assessments. The Lessee shall, during the entire Lease Term, at its own cost and expense, pay the public officers charged with their collection, as the same become due and payable and before any fine, penalty, interest, or other charge may be added to them for nonpayment, all real estate taxes, general and special, ordinary and extraordinary, unforeseen as well as foreseen, of any kind and nature, made, assessed, levied, or imposed upon, or due and payable in connection with, or which become a lien upon, the Property, the Improvements, or any part of the Property or Improvements, or upon the Lessee's leasehold interest in the Property pursuant to this Lease, as well as assessments for sidewalks, streets, sewers, water, or any other public improvements and any other improvements or benefits which shall, during the Lease Term, be made, assessed, levied, or imposed upon or become due and payable in connection with, or a lien upon, the Property, the Improvements, or any part of the Property or Improvements, or upon the Lessee's leasehold interest in the Property pursuant to this Lease. During the Lease Term, the Lessee shall not apply for, or obtain, an exemption from real property taxes for the Property, or the Lessee's interest in the Property, pursuant to Revenue and Taxation Code 214(g) or any other applicable local or state regulation. The Lessee acknowledges that, pursuant to Revenue and Taxation Code Section 107.6, the Lessee's leasehold interest in the Property created pursuant to this Lease may be subject to the payment of property taxes levied against the Lessee's leasehold interest and the Lessee shall be responsible for the payment of all such property taxes. (b) Payment of Fees. During the entire Lease Term, the Lessee shall pay, at its own cost and expense, before any fine, penalty, interest, or other charge may be added for nonpayment, all license and permit fees, charges for public utilities, and governmental charges relating to the use or occupancy of the Improvements. (c) Copies of Notices to Lessee. The City shall promptly send to the Lessee copies of any and all notices received by it in respect to any taxes, assessments, charges, or fees for which the Lessee is liable pursuant to this Section 4.5. (d) The City's Right Cure. If the Lessee, in violation of the provisions of this Lease, shall fail to pay and to discharge any taxes, or any other fee, the City may (but shall not be obligated to) pay or discharge such taxes, and the amount paid by the City and the amount of all costs, expenses, interest and penalties connected therewith, including attorneys' fees, together with interest at the set forth in Section 2.6(c) shall be deemed to be and shall, upon demand of the City, be payable by the Lessee as repayment of such advance by the City. Section 4.6 Assistance in Making Payments. The parties acknowledge that Lessee is responsible under this Lease for making various payments to third parties, such as tax and utility payments in accordance with the provisions of this Article 4, In case any person or entity to whom any sum is directly payable by the Lessee under any of the provisions of this Lease (e.g., a tax collector or utility company) shall refuse to accept payment of such sum from the Lessee (due to the fact that the Lessee is not the fee owner of the Property or for any other reason), the Lessee shall thereupon give written notice of such fact to the City and shall pay such sum 1010\01\209755.7 13 directly to City at the address specified in Section 11.1 hereof, and City shall thereupon pay such sum to such person or entity. Section 4.7 Hazardous Materials. (a) Covenants and Agreements. The Lessee hereby covenants and agrees that: (i) The Lessee shall not knowingly permit the Development or the Property or any portion thereof to be a site for the use, generation, treatment, manufacture, storage, disposal or transportation of Hazardous Materials or otherwise knowingly permit the presence of Hazardous Materials in, on or under the Property or the Development in violation of any applicable law; (ii) The Lessee shall keep and maintain the Property and the Development and each portion thereof in compliance with, and shall not cause or permit the Property and the Development or any portion thereof to be in violation of, any Hazardous Materials Laws; (iii) Upon receiving actual knowledge of the same the Lessee shall immediately advise the City in writing of: (A) any and all enforcement, cleanup, removal or other governmental or regulatory actions instituted, completed or threatened against the Lessee or the Development pursuant to any applicable Hazardous Materials Laws; (B) any and all claims made or threatened by any third party against the Lessee or the Development relating to damage, contribution, cost recovery, compensation, loss or injury resulting from any Hazardous Materials (the matters set forth in the foregoing clause (A) and this clause (B) are hereinafter referred to as "Hazardous Materials Claims"); (C) the presence of any Hazardous Materials in, on or under the Property or the Development in such quantities which require reporting to a government agency; or (D) the Lessee's discovery of any occurrence or condition on any real property adjoining or in the vicinity of the Development classified as "borderzone property" under the provisions of California Health and Safety Code, Sections 25220 et seq., or any regulation adopted in accordance therewith, or to be otherwise subject to any restrictions on the ownership, occupancy, transferability or use of the Development under any Hazardous Materials Laws. If the City reasonably determines that the Lessee is not adequately responding to a Hazardous Material Claim, the City shall have the right to join and participate in, as a party if it so elects, any legal proceedings or actions initiated in connection with any such Hazardous Materials Claims and to have its reasonable attorney's fees in connection therewith paid by the Lessee. (iv) Without the City's prior written consent, which shall not be unreasonably withheld or delayed, the Lessee shall not take any remedial action in response to the presence of any Hazardous Materials on, under, or about the Development (other than in emergency situations or as required by governmental agencies having jurisdiction), nor enter into any settlement agreement, consent decree, or other compromise in respect to any Hazardous Materials Claims. 1010\01\209755.7 14 (b) Indemnity. Without limiting the generality of the indemnification set forth in Section 6.4, the Lessee hereby agrees to indemnify, protect, hold harmless and defend (by counsel reasonably satisfactory to the City) the Agency, the City, their board members and councilmember's, officers, and employees from and against any and all claims, losses, damages, liabilities, fines, penalties, charges, administrative and judicial proceedings and orders, judgments, remedial action requirements, enforcement actions of any kind, and all costs and expenses incurred in connection therewith (including, but not limited to, attorney's fees and expenses), arising directly or indirectly, in whole or in part, out of: (1) the failure of the Lessee or any other person or entity, during the Lease Term, to comply with any Hazardous Materials Law relating in any way whatsoever to the handling, treatment, presence, removal, storage, decontamination, cleanup, transportation or disposal of Hazardous Materials into, on, under or from the Development; (2) the presence in, on or under the Property or the Development of any Hazardous Materials or any releases or discharges during the Lease Term of any Hazardous Materials into, on, under or from the Property or the Development; or (3) any activity carried on or undertaken on or off the Property or the Development, during the Lease Term, and whether by the Lessee or any employees, agents, contractors or subcontractors of the Lessee, or any third persons occupying or present on the Property or the Development, in connection with the handling, treatment, removal, storage, decontamination, cleanup, transport or disposal of any Hazardous Materials located or present on or under the Development (collectively "Indemnification Claims"). The foregoing indemnity shall further apply to any residual contamination on or under the Property or the Development, or affecting any natural resources, and to any contamination of any property or natural resources arising in connection with the Indemnification Claims and irrespective of whether any of such activities were or will be undertaken in accordance with Hazardous Materials Laws; provided, however, the foregoing indemnity shall not apply to any Indemnification Claims arising directly or indirectly, in whole or in part, from the City's gross negligence or willful misconduct. This obligation to indemnify, set forth in this Section 4.7(b) shall survive termination of this Lease. (c) No Limitation. The Lessee hereby acknowledges and agrees that the Lessee's duties, obligations and liabilities under this Lease, including, without limitation, under subsection (b) above, are in no way limited or otherwise affected by any information the City may have concerning the Development and/or the presence within the Development of any Hazardous Materials, whether the City obtained such information from the Lessee or from its own investigations. (d) Environmental Work. The Lessee shall be responsible for performing the work of any investigation and remediation that may be required by applicable law on the Property in order to develop the Development. The determination as to whether any such remediation is needed, and as to the scope and methodology thereof, shall be made by mutual agreement of the governmental agency with responsibility for monitoring such remediation and the City and the Lessee. The Lessee shall notify the City promptly upon discovery of any actionable levels of Hazardous Materials, and upon any release thereof, and shall consult with the City in order to establish the extent of remediation to be undertaken and the procedures by which remediation thereof shall take place. The Lessee shall comply with, and shall cause its agents and contractors to comply with, all laws regarding the use, removal, storage, transportation, disposal and remediation of Hazardous Substances. The investigation and 1010\01\209755.7 15 remediation work shall be carried out in accordance with all applicable laws (including Hazardous Materials Laws) and such other procedures and processes as may be described in this Lease. Section 4.8 Non-Discrimination. The Lessee shall not, in the selection or approval of tenants or provision of services or in any other matter relating to the development and operation of the Development, discriminate against any person or group of persons on the grounds of race, color, creed, religion, sex, sexual orientation, marital status, national origin, ancestry, age, or disability. All such deeds, leases or contracts shall contain or be subject to substantially the following nondiscrimination or no segregation clause: (a) In deeds: "The grantee herein, covenants by and for the grantee, the grantee's heirs, executors, administrators and assigns, and all persons claiming under or through them, that there shall be no discrimination against or segregation of any person or group of persons on account of race, color, creed, religion, sex, sexual orientation, age, handicap, martial status, ancestry or national origin in the sale, lease, sublease, transfer, use, occupancy, tenure or enjoyment of the premises herein conveyed, nor shall the grantee, or any person claiming under or through the grantee, establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lessees, subtenants, sublessees or vendees in the premises herein conveyed. The foregoing covenants shall run with the land. (b) In leases: "The lessee herein covenants by and for the lessee, the lessee's heirs, executors, administrators and assigns, and all persons claiming under or through the lessee, and this lease is made and accepted upon and subject to the following conditions. "That there shall be no discrimination against or segregation of any person or group of persons on account of race, color, creed, religion, sex, sexual orientation, age, handicap, marital status, ancestry, or national origin in the leasing, subleasing, transferring, use, occupancy, tenure or enjoyment of the premises herein leased, nor shall the lessee, or any person claiming under or through the lessee, establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lessees, subtenants, sublessees or vendees in the premises herein leased." (c) In contracts: "There shall be no discrimination against or segregation of any person or group of persons on account of race, color, creed, religion, sex, sexual orientation, age, handicap, marital status, ancestry or national origin in the sale, lease, sublease, transfer, use, occupancy, tenure or enjoyment of the premises, nor shall the transferee, or any person claiming under or through the transferee, establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lessees, subtenants, sublessees or vendees of the premises." 1010\01\209755.7 16 ARTICLES: APPROVED LOANS Section 5.1 Loan Obligations. Nothing contained in this Lease shall relieve the Lessee of its obligations and responsibilities under any Approved Loans to operate the Development as set forth in the applicable Approved Loan Documents. Section 5.2 Liens and Encumbrances Against Lessee's Interest in the Leasehold Estate. (a) Lessee shall have the right to encumber the leasehold estate created by this Lease and the Improvements with the lien or liens securing one or more Approved Loans, subject to the City's review and prior approval of the Approved Loan Documents which approval shall not be unreasonably withheld or conditioned. Within fifteen (15) days following receipt of the proposed Approved Loan Documents along with Lessee's written notice requesting approval of such documents, the City shall review and either approve or disapprove the Approved Loan Documents. (b) The Lessee shall have the right, to encumber the City's interest in the Property and the Improvements with a lien of an Approved Loan only upon the prior written approval of the City which may be granted or denied in the City's sole discretion. (c) For as long as there is any lien securing any Approved Loans: (i) The City shall not agree to any mutual termination or accept any surrender of this Lease, nor shall the City consent to any amendment or modification of this Lease, without prior written consent of all Approved Lenders that have an outstanding Approved Loan. Notwithstanding any default by the Lessee under this Lease, the City shall have no right to terminate this Lease unless the City has given all Approved Lenders which have an outstanding Approved Loan and the Investor written notice of such default pursuant to the requirement of Sections 5.2(c)(vi) and 11.2 and the Investor and such Approved Lenders have failed to remedy such default or acquire the Lessee's leasehold estate created by this Lease or commence foreclosure or other appropriate proceedings as set forth in, and within the time specified by, subsection 5.2(c), as applicable. If the City receives competing or conflicting offers to cure any default, then the City shall accept the offers to cure in the following order: first, the Lessee, then each Approved Lender in the relative priority of their respective deeds of trust, and then the Investor. Notwithstanding the foregoing, an Approved Lender shall not be required to obtain possession or commence or continue foreclosure proceedings as a prerequisite to curing a default by the Lessee. (ii) Any Approved Lender which has an outstanding Approved Loan or the Investor shall have the right, but not the obligation, at any time to pay any or all of the Rent due pursuant to the terms of this Lease, and do any other act or thing required of the Lessee 1010\01\209755.7 17 by the terms of this Lease, to prevent termination of this Lease. Each Approved Lender and the Investor shall have thirty (30) days after receipt of notice from the City describing such default to cure the default. All payments so made and all things so done shall be as effective to prevent a termination of this Lease as the same would have been if made and performed by the Lessee instead of by the Approved Lender(s) or the Investor and the costs thereof may be added to the security interest and the lien securing the Approved Loans(s) thereof. (iii) In addition to the cure period provided in paragraph (ii) above, if the default is such that possession of the Development may be reasonably necessary to remedy the default, any Approved Lender which has an outstanding Approved Loan shall have a reasonable time after the expiration of such thirty (30)-day period within which to remedy such default, provided that (A) such Approved Lender has fully cured any default in the payment of any monetary obligations of the Lessee under this Lease within such thirty (30)-day period and shall continue to pay currently such monetary obligations when the same are due, (B) such Approved Lender has acquired the Lessee's leasehold estate hereunder or commenced foreclosure or other appropriate proceedings prior to or within such period, and shall be diligently prosecuting the same; and (C) after gaining possession of the Development, the Approved Lender has cured all non-monetary defaults capable of cure by the Approved Lender and performed all obligations of the Lessee capable of performance by the Approved Lender when the obligations are due. (iv) Any default under this Lease which by its nature cannot be remedied by any Approved Lender shall be deemed to be remedied if (A) within thirty (30) days after receiving written notice from the City describing the default, or prior thereto, any Approved Lender has acquired the Lessee's leasehold estate or commenced foreclosure or other appropriate proceedings, (B) the Approved Lender diligently prosecutes any such proceedings to completion, (C) the Approved Lender has fully cured any default in the payment of any monetary obligations of Lessee hereunder which does not require possession of the Development, and (D) after gaining possession of the Development, the Approved Lender performs all other obligations of Lessee hereunder capable of performance by the Approved Lender when the obligations are due. (v) If Approved Lenders are prohibited, stayed, or enjoined by any bankruptcy, insolvency, or other judicial proceedings involving the Lessee from commencing or prosecuting foreclosure or other appropriate proceedings, then the times specified for commencing or prosecuting such foreclosure or other proceedings shall be extended for the period of such prohibition, so long as the Approved Lender claiming the extension has fully cured any default in the payment of any monetary obligations of Lessee under this Lease, continues to pay currently such monetary obligations when the same fall due, and does not interfere with the City's efforts to seek compliance by the Lessee with any non-monetary obligation under this Lease. (vi) The City shall mail or deliver to any Approved Lenders which have any outstanding Approved Loan and the Investor a duplicate copy of all notices which the City may from time to time give to the Lessee pursuant to this Lease. All notices delivered by the City to any Approved Lenders or the Investor shall also comply with the notice provisions of Section 11.2. 1010\01\209755.7 18 The conveyance of the Lessee's interest in the Development to a Foreclosure Transferee by means of a foreclosure or a deed in lieu of foreclosure shall not be subject to the City's prior consent. In the event Foreclosure Transferee becomes the Lessee under this Lease by means of foreclosure or deed in lieu of foreclosure or pursuant to any new lease obtained under subsection (viii) below, the City shall recognize the Foreclosure Transferee and the Foreclosure Transferee shall be personally liable under this Lease or such new lease only for the period of time that the Foreclosure Transferee remains the lessee. Nothing in this section obligates any Foreclosure Transferee to remedy any default of the Lessee, and any failure of any Approved Lender to complete any such cure after commencing the same shall not give rise to any liability of the Approved Lender to the City. If any Foreclosure Transferee shall acquire the Lessee's interest in the Development, such Foreclosure Transferee shall thereafter have the right to assign or transfer such interest in the Development to an assignee, subject to the consent provisions of Article 8 below. The Foreclosure Transferee shall be released and relieved of any liability under this Lease for acts occurring after the assignment and under any other document entered into in connection herewith upon assignment of all of the Foreclosure Transferee's interest in the Development. (vii) If a Foreclosure Transferee becomes the legal owner of the leasehold estate, and upon written request by the Foreclosure Transferee or its permitted transferee within sixty (60) days after becoming the legal owner of the leasehold estate, the City shall enter into a new lease of the Property with the Foreclosure Transferee or its permitted transferee for the remainder of the Lease Term with the same agreements, covenants, reversionary interests, and conditions (except for any requirements which have been fulfilled by the Lessee prior to termination) as are contained in this Lease and with priority equal to this Lease, so long as the Foreclosure Transferee or its permitted transferee promptly cures any existing defaults by the Lessee susceptible to cure by the Foreclosure Transferee or its permitted transferee. (viii) If this Lease is terminated by a bankruptcy proceeding, foreclosure, or by other operation of law, then the City shall, upon request by an Approved Lender or its permitted transferee, execute a new lease of the Property to the Approved Lender or other transferee, as the case may be, on the same terms and conditions as this Lease, except that the term will commence on the date of the new lease and will continue for the remaining unexpired term of this Lease. If the City receives conflicting requests for a new lease of the Property, then the City shall execute a new lease of the Property with the requesting Approved Lender having the most senior deed of trust. (ix) The City shall cooperate in including in this Lease by suitable amendment from time to time any provision which may reasonably be requested by any proposed leasehold mortgagee for the purpose of implementing the mortgagee-protection provisions contained in this Lease and allowing such leasehold mortgagee reasonable means to protect or preserve the lien of the leasehold mortgage and the value of its security. The City shall execute and deliver (and acknowledge, if necessary, for recording purposes) any agreement 1010\01\209755.7 19 necessary to effect any such amendment, so long as such amendment does not in any way affect the Lease Term or Rent under this Lease or otherwise in any material respect adversely affect any rights of the City under this Lease. Section 5.3 Cost of Approved Loans to be Paid by Lessee. The Lessee shall bear all of the costs and expenses in connection with (a) the preparation and securing of the Approved Loans, (b) the delivery of any instruments and documents and their filing and recording, if required, and (c) all taxes and charges payable in connection with the Approved Loans. Section 5.4 Proceeds of Approved Loans. All Approved Loan proceeds shall be paid to and become the property of the Lessee, and the City shall have no right to receive any such Approved Loan proceeds. Section 5.5 Notice and Right to Cure Defaults Under Approved Loans. Lessee shall include in all Approved Loan Documents that in the event of default by the Lessee under an Approved Loan, notice shall be given to the City at the same time given to the Lessee, and the City shall have the right, but not the obligation, to cure the default with a cure period which extends not less than thirty (30) days beyond the cure period provided to the Lessee under the applicable Approved Loan Document. Any payments made by the City to cure a default shall be treated as Rent due from the Lessee, which shall be paid within thirty (30) days of the date on which the payment was made by the City. Section 5.6 Modifications. If an Approved Lender should, as a condition of providing financing for development of all or a portion of the Development, request any modification of this Lease in order to protect its interests in the Development or this Lease, the City shall consider such request in good faith consistent with the purpose and intent of this Lease and the rights and obligations of the Parties under this Lease. Sections.? Estoppel Certificates. The City and the Lessee agree that at any time and from time to time upon not less than twenty (20) days' prior written notice by the other party, or upon request from the Investor or any Approved Lender or a permitted assignee or other interested party, the City or the Tenant will execute, acknowledge and deliver to the other party or to such other parties a statement in writing certifying (a) that this Lease is unmodified and in full force and effect; (b) the date through which the Rent has been paid; and (c) that, to the knowledge of the certifier (if such be the case), there is no default, set-off, defense or other claim against the City or the Lessee, as applicable, other than those, if any, so specified under the provisions of this Lease. It is intended that any such statement may be relied upon by any persons proposing to acquire the interest of the City, the Lessee or any Approved Lender or the Investor, as the case may be, in this Lease or by any assignee of any Approved Lender. ARTICLE 6: INSURANCE Section 6.1 Required Insurance Coverage. The Lessee shall furnish to the City the type and amounts of insurance specified in Exhibit B. The Agency and the City shall be named as additional insureds on the policies specified in Exhibit B. The Lessee shall insure that all 1010\01\209755.7 20 worker compensation insurance policies carried by the general contractor and subcontractors working on the Development include a waiver of subrogation in favor of the Agency and the City. Section 6.2 Insurance Policies and Premiums. (a) All liability policies required by this Lease or any Approved Loan Document shall comply with the requirements set forth in Exhibit B. (b) Insurance shall be placed with insurers with a current Best Rating of no less than A:VII. Any deductible or self-insured retention shall be disclosed to and approved by the City. (c) The Lessee shall furnish the City with certificates and original endorsements effecting the required coverage promptly upon request. The endorsements shall be signed by persons authorized by the insurer to bind coverage on its behalf. The endorsements shall be on forms provided by the City or as approved by the City. If the Lessee does not keep all required insurance policies in full force and effect, then the City may, in addition to other remedies under this Lease, and upon not less than fifteen (15) days prior written notice and the failure of the Lessee to obtain such insurance within such fifteen (15)-day period, take out the necessary insurance, and the Lessee shall pay the cost of such insurance. (d) Promptly upon the City's request from time to time during the Lease Term, the Lessee shall increase the amount of the insurance policies, or otherwise modify such policies set forth in Exhibit B. Section 6.3 Proceeds of Insurance. (a) For so long as any Approved Loan on the Development is outstanding, the disposition of all commercial property insurance (including builder's risk) proceeds shall be governed by the Approved Loan Documents. If the Improvements are not repaired or rebuilt, all such proceeds shall be applied in a manner consistent with the terms of the Approved Loans, with any conflicts resolved in accordance with the relative priority of their respective deeds trust. (b) If the Lessee fails to agree in writing within thirty (30) days after payment of the proceeds of insurance that such repair or rebuilding is economically feasible and the Improvements as so restored will be economically viable, then within an additional sixty (60) days, Lessee shall commence to demolish and clear the Property of the Improvements, unless otherwise directed by the City, and this Lease shall terminate at the option of the City upon the completion of the clearance of the Property by the Lessee. Section 6.4 Indemnification. The Lessee agrees to indemnify, protect, hold harmless and defend (by counsel reasonably satisfactory to the City) the City, its council members, officers and employees, from all suits, actions, claims, causes of action, costs, demands, judgments and liens arising out of the Lessee's performance or non-performance under this Lease, or any other agreement executed pursuant to this Lease, or arising out of acts or omissions 1010\01\209755.7 21 of any of Lessee's contractors, subcontractors, or persons claiming under any of the aforesaid, except as directly caused by the City 's willful misconduct or gross negligence. The provisions of this section shall survive expiration of the Lease Term or other termination of this Lease, and shall remain in full force and effect. ARTICLE 7: CONDEMNATION, DAMAGE OR DESTRUCTION OF THE IMPROVEMENTS Section 7.1 Condemnation. If the Improvements or the Property or any part thereof is taken or condemned, for any public or quasi-public purpose or use by any competent entity in appropriate proceedings, or by any right of eminent domain, then the City and Lessee shall request that awards and other payments on account of a taking of the Improvements and the Property (less costs, fees and expenses incurred by the City and Lessee in connection with the collection thereof) be divided by the presiding court between loss of value of the fee interest in the Property and loss of value of the Improvements and the leasehold interest in the Property. In any case, subject to the rights of Approved Lenders under the Approved Loan Documents (with any conflicts resolved in accordance with the relative priority of their respective deeds of trust), such awards and payments shall be applied as follows: (a) Net awards and payments received on account of a partial taking of the Improvements, other than a taking for a temporary use not exceeding one (1) year, shall be allocated and paid in the following order of priority: (i) If the Lessee reasonably believes restoration is economically feasible, and unless the Approved Lenders under the Approved Loan Documents require that the proceeds be applied to the outstanding indebtedness under the Approved Loans, first, to pay the cost of restoration of the Improvements, provided that the extent of the Lessee's obligations to restore the Improvements shall be limited to the amount of the net award and payment received by and available to Lessee on account of the taking. In such event, the condemnation proceeds shall be paid into the Construction Fund described in Section 7.2 below, subject to the rights of Approved Lenders to collect and disburse such funds. (ii) Second (or first if (i) the Lessee does not believe that restoration is economically feasible or viable as described above, or (ii) the Approved Lender(s) under the Approved Loan Documents require(s) that such proceeds be applied to the outstanding indebtedness under the Approved Loan(s)) to any Approved Lenders (in the order of their respective lien priority, if there is more than one Approved Lender) in an amount necessary to reduce the outstanding indebtedness under the approved Loan(s) to the extent required by the Approved Lender(s). (iii) The balance, if any, shall be divided between the City and the Lessee in the manner specified in subparagraph (e) below. (b) Net awards and payments received on account of a partial or total taking of only the City's fee interest in the Property or the reversionary interest in the Improvements (that is, a taking of the City's fee interest in the Property or the City's reversionary interest in the 1010\01\209755.7 22 Improvements that has no effect on the value of the Lessee's leasehold interest in the Property or the Lessee's fee interest in the Improvements), including severance damages, shall be paid to the City which amount shall be free and clear of any claims of the Lessee, or any other persons claiming rights to the Property through or under the Lessee. (c) Net awards and payments received on account of a taking for temporary use not exceeding one (1) year and relating to a period during the Lease Term shall be paid to the Lessee; however, if such taking for temporary use has resulted in any damage to or destruction of the Development, then such net awards and payments shall be first applied to pay the cost of restoration if the Lessee determines that restoration is economically feasible. Net awards and payments received on account of a taking for temporary use not exceeding one (1) year and relating to a period beyond the Lease Term shall be paid to the City. (d) Net awards and payments received on account of a total taking of the Development shall be allocated and paid in the following order of priority: (i) First, to any Approved Lenders with then-outstanding Approved Loans secured by the Development (in the order of their respective lien priority, if there is more than one Approved Lender), an amount equal to the unpaid balance secured by their respective Approved Loans up to the total amount of such awards and payments; (ii) The balance, if any, shall be divided between the City and the Lessee in the manner specified in subparagraph (e) below. (e) For purposes of subsections (a)(iii) and (d)(ii) above, proceeds shall be paid in the following manner: first, the Lessee shall receive reimbursement for any funds it has reasonably expended for repair and/or reconstruction of the Development (other than funds received from Approved Lenders). Second, the balance, if any, shall be paid to the Lessee and the City pari passu. The Lessee shall receive the portion of the payment attributable the Improvements, Lessee's leasehold interest, and Lessee's trade fixtures and personal property. The City shall receive the portion of the payment attributable to the City's fee interest in the Property and the City's reversionary interest in the Improvements. (f) The Lessee shall receive any award granted for or allocated to trade fixtures, moving expenses or loss of business. Section 7.2 Administration of Construction Fund in the Event of Condemnation, or Damage or Destruction of Development. If the Approved Loans have been paid in full, and if the Improvements, or any part of it, is to be repaired or reconstructed after damage or destruction or condemnation, then all proceeds collected under any and all policies of insurance referred to in Article 6 above covering such damage or destruction, or all compensation received for such taking by the exercise of the power of eminent domain, shall be paid into a special trust fund to be created and held by the Lessee during such repairing or reconstructing (the "Construction Fund"). Any surplus of such insurance or condemnation proceeds remaining in the Construction Fund after the completion of all payments for such repairing or reconstructing shall be held or applied by the Lessee in a manner consistent with the applicable provision of this Article 7. 1010\01\209755.7 23 Section 7.3 Lessee. City. Approved Lenders to be Made Parties in Legal Proceedings. (a) In the event proceedings shall be instituted (i) for the exercise of the power of eminent domain, or (ii) as a result of any damage to or destruction of the Development, the resulting proceeds shall be paid to the Approved Lenders for application or disbursement in accordance with the Approved Loan Documents (in the order of their respective lien priority, if there is more than one such Approved Lender). The Lessee, City, and, as necessary, any Approved Lender with a then-outstanding Approved Loan shall be made parties to those proceedings, and if not made parties by the petitioning party, shall be brought into the proceedings by appropriate proceedings of the other parties so that adjudication may be made of the damages, if any, to be paid to the Lessee, the City and Approved Lenders as compensation for loss of their rights in the Improvements or the Property, or for damage to or destruction of the Development. Should the City or Lessee receive notice of institution of any proceedings subject to Section 7.1, the Party receiving such notice shall notify the other Party not later than thirty (30) days after receiving such notice. (b) The City and the Lessee shall cooperate and consult with each other in all matters pertaining to the settlement, compromise, arbitration, or adjustment of any and all claims and demands for damages on account of damage to, or destruction of, the Development, or for damages on account of the taking or condemnation of the Improvements or the Property. Section 7.4 Termination. In the event of a total taking or in the event of damage, destruction, or a partial taking, other than a temporary taking of the Development, which the Lessee reasonably determines renders continued operation of the Development infeasible both as a whole and in substantial part, this Lease shall terminate at the option of the City (except if the Lessee is rebuilding the Development in accordance with the terms of this Lease), and in such event any proceeds shall be allocated pursuant to Section 6.3 or Article 7, as appropriate. In the event of a partial taking that does not result in termination pursuant to this Section 7.4, this Lease shall remain in full force and effect as to the portion of the Development remaining. ARTICLE 8: ASSIGNMENT AND TRANSFERS Section 8.1 Definitions. As used in this Article 8. the term "Transfer" means: (a) Any total or partial sale, assignment or conveyance, or any trust or power, or any transfer in any other mode or form, of or with respect to this Lease or of the Property or any part thereof or any interest therein or of the Development constructed thereon, or any contract or agreement to do any of the same; or (b) Any total or partial sale, assignment or conveyance, or any trust or power, or any transfer in any other mode or form, of or with respect to any ownership interest in the Lessee, or any contract or agreement to do any of the same. 1010\01\209755.7 24 Section 8.2 Purpose of Restrictions on Transfer. This Lease is entered into solely for the purpose of development and operation of the Development on the Property and its subsequent use in accordance with the terms of this Lease. The qualifications and identity of the Lessee are of particular concern to the City, in view of: (a) The importance of the redevelopment of the Property to the general welfare of the community; and (b) The fact that a Transfer as defined in Section 8.1 above is for practical purposes a transfer or disposition of the Property. It is because of the qualifications and identity of the Lessee that the City is entering into this Lease with the Lessee and that Transfers are permitted only as provided in this Lease. Section 8.3 Prohibited Transfers. The limitations on Transfers set forth in this Section 8.3 shall apply for the Lease Term. Except as expressly permitted in this Lease, the Lessee represents and agrees that the Lessee has not made or created, and will not make or create or suffer to be made or created, any Transfer, either voluntarily or by operation of law, without the prior approval of the City. The City may approve any such Transfer in its sole discretion. The Parties agree and acknowledge that Affirmed shall remain the sole manager of the Lessee throughout the Lease Term. The City shall not approve a Transfer of Affirmed's interest in the Lessee nor shall the City approve of the admission of any other entity, including but not limited to, a non-profit or tax-exempt entity, as a manager of the Lessee. Any Transfer made in contravention of this Section 8.3 shall be void and shall be deemed to be a default under this Lease, whether or not the Lessee knew of or participated in such Transfer. Section 8.4 Permitted Transfers. Notwithstanding the provisions of Section 8.3, the following Transfers shall be permitted without the prior written consent of the City (subject to satisfaction of the conditions of Section 8.5). (a) Any Transfer creating an Approved Loan. (b) Any Transfer directly resulting from the foreclosure of an Approved Loan or the granting of a deed in lieu of foreclosure of an Approved Loan. (c) The leasing of residential units within the Development in accordance with the Regulatory Agreement. Property. (d) Any Transfer resulting directly from the death of an individual. (e) The granting of easements or permits to facilitate the development of the (f) The City hereby approves a Transfer of a membership interest in the Lessee to the Investor, or to an affiliate of the Investor (provided such affiliate provides documentation reasonably acceptable to the City that the affiliate has sufficient financial 1010\01\209755.7 25 capability to provide the capital contributions set forth in the Financing Plan) and future transfers of such interest provided that: (i) the Lessee's operating agreement provides for capital contributions of the members consistent with Financing Plan and is first approved by the City in its reasonable discretion; (ii) all documents associated with the tax credit syndication of the Development are submitted to the City for approval prior to execution, which approval shall not be unreasonably withheld; and (iii) in subsequent transfers the Investor (or an affiliate of the Investor reasonably acceptable to the City) remains liable for all unpaid capital contributions. The Parties agree and acknowledge that Affirmed shall remain the sole manager of the Lessee throughout the Lease Term. The City shall not approve a Transfer of Affirmed's interest in the Lessee nor shall the City approve of the admission of any other entity, including but not limited to, a non-profit or tax-exempt entity, as a managing member or manager of the Lessee. Section 8.5 Procedure for Approval of Certain Transfers. The City shall in its sole discretion approve or disapprove a request for a Transfer made by the Lessee upon the Lessee's delivery of written notice to the City requesting such approval. Such notice shall be accompanied by evidence regarding the proposed Transfer in reasonably sufficient detail to enable the City to evaluate the proposed Transfer, including, without limitation, transferee financial statements, information regarding prior transferee experience, and information regarding transferee's proposed use and/or development of the Property. Within thirty (30) days after receipt of the Lessee's written notice requesting City approval of a proposed Transfer, the City shall either reasonably approve or disapprove such proposed Transfer, or shall respond in writing by stating what further information, if any, the City reasonably requires in order to determine whether or not to grant the requested approval. Upon receipt of such a response, the Lessee shall promptly furnish to the City such further information as may be reasonably requested. Within ten (10) days after the City's receipt of the Lessee's submittal of the requested further information, the City shall either reasonably approve or disapprove such proposed Transfer. The City's failure to respond within such ten (10)-day period to any such request for approval shall be deemed to be the City's approval thereof. Upon the City granting approval of such proposed Transfer, the person or entity to which such Transfer is made, by an instrument in writing prepared by the City and in form recordable among the land records of the County, shall expressly assume the obligations of the Lessee under this Lease and agree to be subject to the conditions and restrictions to which the Lessee is subject arising during this Lease, to the fullest extent that such obligations are applicable to the particular portion of or interest in the Development conveyed in such Transfer. Section 8.6 Assignments. Any assignment of rights and/or delegation of obligations under this Lease in connection with a Transfer (whether or not City approval is required) shall be in writing executed by the Lessee and the assignee or transferee, with a copy thereof delivered to the City within thirty (30) days after the effective date thereof. Upon assignment or transfer of the Development pursuant to an assumption agreement described in Section 8.5 above, the assignor shall be relieved of liability with respect to any such obligations relating to the Development assumed by the assignee. Notwithstanding the foregoing, unless such assignee specifically assumes the obligations under this Lease with respect to the Development, the assignor will retain such obligations and remain jointly and severally liable for such obligations with such assignee. In the absence of specific written agreement by the City (which the City 1010\01\209755.7 26 may grant or withhold in its sole discretion), no Transfer permitted by this Lease or approved by the City shall be deemed to relieve the transferor from any obligation under this Lease. ARTICLE 9: REPRESENTATIONS AND ASSURANCES Section 9.1 City to Give Peaceful Possession. Lessee shall have, hold, and enjoy, during the Lease Term, peaceful, quiet, and undisputed possession of the Property without hindrance or molestation by or from the City so long as the Lessee is not in default under this Lease following the expiration of all applicable notice and cure periods. Section 9.2 Lessee Representations. The Lessee represents and warrants, as of the Commencement Date, as follows: (a) Organization. The Lessee is a duly organized, validly existing California limited liability company, and is in good standing under the laws of the State of California and has the power and authority to own its property and carry on its business as now being conducted. (b) Authority of Lessee. The Lessee has full power and authority to execute and deliver this Lease, or to be executed and delivered, pursuant to this Lease, and to perform and observe the terms and provisions of all of the above. (c) Authority of Persons Executing Documents. This Lease and all other documents or instruments executed and delivered, or to be executed and delivered, pursuant to this Lease have been executed and delivered by persons who are duly authorized to execute and deliver the same for and on behalf of Lessee, and all actions required under the Lessee's organizational documents and applicable governing law for the authorization, execution, delivery and performance of this Lease and all other documents or instruments executed and delivered, or to be executed and delivered, pursuant to this Lease, have been duly taken. (d) Valid Binding Agreements. This Lease and all other documents or instruments which have been executed and delivered pursuant to or in connection with this Lease constitute or, if not yet executed or delivered, will when so executed and delivered constitute, legal, valid and binding obligations of the Lessee enforceable against it in accordance with their respective terms. (e) No Breach of Law or Agreement. Neither the execution nor delivery of this Lease or of any other documents or instruments executed and delivered, or to be executed or delivered, pursuant to this Lease, nor the performance of any provision, condition, covenant or other term hereof or thereof, will conflict with or result in a breach of any statute, rule or regulation, or any judgment, decree or order of any court, board, commission or agency whatsoever binding on the Lessee, or any provision of the organizational documents of the Lessee, or will conflict with or constitute a breach of or a default under any agreement to which the Lessee is a party, or will result in the creation or imposition of any lien upon any assets or 1010\01\209755.7 27 property of the Lessee, other than liens established pursuant hereto. (f) Compliance With Laws: Consents and Approvals. The construction of the Improvements will comply with all applicable laws, ordinances, rules and regulations of federal, state and local governments and agencies and with all applicable directions, rules and regulations of the fire marshal, health officer, building inspector and other officers of any such government or agency. (g) Pending Proceedings. The Lessee is not in default under any law or regulation or under any order of any court, board, commission or agency whatsoever, and there are no claims, actions, suits or proceedings pending or, to the knowledge of the Lessee, threatened against or affecting the Lessee, at law or in equity, before or by any court, board, commission or agency whatsoever which might, if determined adversely to the Lessee, materially affect the Lessee's ability to develop the Improvements. (h) Title to Property. Upon the recordation of the Memorandum of Lease, the Lessee will have good and marketable leasehold title to the Property and there will exist thereon or with respect thereto no mortgage, lien, pledge or other encumbrance of any character whatsoever other than those liens approved by the City, liens for current real property taxes and assessments not yet due and payable, and liens in favor of the City or approved in writing by the City. (i) Financial Statements. The financial statements of the Lessee and other financial data and information furnished by the Lessee to the City fairly present the information contained therein. As of the date of this Lease, there has not been any adverse, material change in the financial condition of the Lessee from that shown by such financial statements and other data and information. (j) Sufficient Funds. The Lessee holds sufficient funds or binding commitments for sufficient funds to complete the construction of the Improvements in accordance with this Agreement. Section 9.3 Release of City. The City may sell, assign, transfer or convey all or any part of City's interest in the Property, reversionary interest in the Improvements, or this Lease without obtaining the Lessee's consent, as long as the purchaser, assignee, or transferee: (i) expressly assumes all of the obligations of the City under this Lease by a written instrument in a form reasonably satisfactory to Lessee and recordable in the Official Records. In the event of a sale, assignment, transfer or conveyance by the City of the Property or its rights under this Lease, the same shall operate to release the City from any future liability upon any of the covenants or conditions of this Lease, expressed or implied, in favor of the Lessee, and in such event the Lessee shall look solely to the successor in interest of the City. This Lease shall not be affected by any such sale or transfer, and the Lessee agrees to attorn to any such purchaser or assignee. Section 9.4 Holding Over. If the Lessee shall retain possession of the Property or the Improvements thereon or any part thereof without the City's prior written consent following the expiration of the Lease Term or sooner termination of this Lease for any reason, then the Lessee 1010\01\209755.7 28 shall pay to the City the greater of: (i) an amount equal to two hundred percent (200%) of the Rent during the Lease Year prior to such termination or (ii) the fair market rent for the Property as of the date the Lessee retained possession of the Property or the Improvements, or any part thereof without the City's prior written consent following the expiration or sooner termination of this Lease as determined by a licensed real estate appraiser selected by the City in its sole discretion (the "Holdover Rent"). In addition to the Holdover Rent, the Lessee shall pay the City all other payments that would have been due had the Lease not expired or been terminated and had the Rent and other payment terms in effect at the time of the expiration or sooner termination of the Lease remained in effect. These payments shall be applicable to a holding over of any kind by the Lessee. The Lessee shall also indemnify and hold the City harmless from any loss or liability resulting from delay by the Lessee in surrendering the Property, including, without limitation, any claims made by any succeeding lessee founded on such delay. Acceptance of Rent by the City following expiration or termination shall not constitute a renewal of this Lease and nothing contained in this Section 9.4 shall waive the City's right of reentry or any other right. The Lessee shall be only a Lessee at sufferance, whether or not the City accepts any Rent from the Lessee while the Lessee is holding over without the City's written consent. Section 9.5 No Merger. Except upon expiration of the Lease Term or upon termination of this Lease pursuant to an express right of termination set forth herein, there shall be no merger of either this Lease or the Lessee's estate created hereunder with the fee estate of the Property or any part thereof by reason of the fact that the same person may acquire, own or hold, directly or indirectly, (a) this Lease, the Lessee's estate created hereunder or any interest in this Lease or the Lessee's estate (including the Improvements), and (b) the fee estate in the Property or any part thereof or any interest in such fee estate (including the Improvements), unless and until all persons, including any assignee of the City, having an interest in (i) this Lease or the Lessee's estate created hereunder, and (ii) the fee estate in the Property or any part thereof, shall join in a written instrument effecting such merger and shall duly record the same. ARTICLE 10: DEFAULTS AND REMEDIES Section 10.1 Events of Default: Remedy for Default by Lessee. (a) Any one or more of the following events shall constitute an "Event of Default" by the Lessee: (i) Failure to pay Rent, as required pursuant to Section 2.5 of this Lease, or any other payment required hereunder, and continuance of such failure for a period of fifteen (15) days after receipt by the Lessee of written notice specifying the nonpayment; (ii) Failure of the Lessee to observe and perform any other covenant, condition or agreement hereunder on its part to be performed, and (A) continuance of such failure for a period of forty-five (45) days after receipt by the Lessee of written notice specifying the nature of such default, or (B) if by reason of the nature of such default the same cannot be remedied within such forty-five (45) days, the Lessee fails to proceed with reasonable diligence 1010\01\209755.7 29 after receipt of such notice to cure the same, within a reasonable amount of time thereafter but in no event later than one hundred twenty (120) days following the City's initial notice; or (iii) A default by the Lessee under the City Loan, the Disposition Agreement, the Regulatory Agreement, the City Note or the City Deed of Trust which continues beyond the expiration of all applicable notice and cure periods; or (iv) The Lessee's abandonment of the Property for the period of time required for such abandonment to be legally recognized as such under California law; or (v) A general assignment by the Lessee (or Affirmed) for the benefit of creditors; or (vi) The filing of a voluntary petition by the Lessee (or Affirmed), or the filing of an involuntary petition by any of the Lessee's creditors, seeking the rehabilitation, liquidation or reorganization of the Lessee under any law relating to bankruptcy, insolvency or other relief of debtors, provided that in the case of an involuntary petition Lessee (or Affirmed) shall have ninety (90) days to cause such petition to be withdrawn or dismissed; or (vii) The appointment of a receiver or other custodian to take possession of substantially all of the Lessee's (or Affirmed's) assets or of this leasehold, which appointment is not withdrawn or dismissed within sixty (60) days, excluding any receivership initiated by an Approved Lender which shall not constitute an Event of Default; or (viii) The Lessee (or Affirmed) becomes insolvent or declares in writing it is unwilling to pay its debts as they become due; or any court enters a decree or order directing the winding up or liquidation of the Lessee (or Affirmed) or of substantially all of its assets; or the Lessee takes any action toward the dissolution or winding up of its affairs or the cessation or suspension of its use of the Development; or (ix) Attachment, execution or other judicial seizure of substantially all of the Lessee's assets or this leasehold, which is not dismissed, bonded, or stayed within thirty (30) days; or (x) A violation of the Lessee's obligations under any of the Approved Loan Documents (without cure or waiver after expiration of applicable cure periods), including (without limitation) a failure to operate, maintain, and manage the Improvements in accordance with this Lease. (xi) A Transfer occurs, either voluntarily or involuntarily, in violation of Article 8. (b) Whenever any default has occurred and is continuing and upon expiration of any applicable cure periods, and subject to the cure rights of Approved Lenders and the Investor, an Event of Default shall exist, the City may take whatever action at law or in equity as may appear reasonably necessary to enforce performance or observance of this Lease, including 1010\01\209755.7 30 without limitation, termination of this Lease. In the event of an Event of Default, City's remedies shall be cumulative, and no remedy expressly provided for in this section shall be deemed to exclude any other remedy allowed by law. Section 10.2 Remedy for Default by City. If the City defaults under this Lease, then the Lessee shall first notify the City in writing of its purported breach or failure, giving the City forty-five (45) days from receipt of such notice to cure or, if cure cannot be accomplished within forty-five (45) days, to commence to cure such breach, failure, or act. In the event the City does not then so cure within said forty-five (45) days, or if the breach or failure is of such a nature that it cannot be cured within forty-five(45) days, the City fails to commence to cure within such forty-five (45) days and thereafter diligently complete such cure within a reasonable time thereafter but in no event later than one hundred twenty (120) days, then the Developer shall be afforded all of its rights at law or in equity, by taking all or any of the following remedies: (1) terminating in writing this Lease (provided, however, that the indemnification provisions shall survive such termination); and (2) prosecuting an action for damages or specific performance. ARTICLE 11: MISCELLANEOUS Section 11.1 Instrument Is Entire Agreement. This Lease and the Disposition Agreement constitute the entire agreement between the Parties with respect to the matters set forth herein and completely supersede all prior understandings or agreements, both written and oral, between the Parties relating to the lease of the Property. Section 11.2 Notices. All notices hereunder shall be in writing signed by the Authorized Officer(s) and shall be sufficient if sent by United States first class, certified mail, postage prepaid, or express delivery service with a receipt showing the date of delivery, addressed: if to the City: If to Lessee: With a copy to: City of Carlsbad 2965 Roosevelt Street, Suite B Carlsbad, CA 92008 Attn: City Manager El Camino Family Housing Partners, LLC c/o Affirmed Housing Group 200 East Washington Street, Suite 200 Escondido, CA 92025 Attn: President Incorvaia & Associates 445 Marine View Avenue, Suite 295 Del Mar, CA 92014 Attn: Joel Incorvaia 1010\01\209755.7 31 With a copy to: BCCC, Inc. c/o Boston Capital Partners Inc. One Boston Place Boston, MA 02110 Attn: Asset Management Department or any other address as either Party may have furnished to the other in writing pursuant to the requirements of this Section 11.2 as a place for service of notice. Any notice so mailed shall be deemed to have been given on the delivery date or the date that delivery is refused by the addressee, as shown on the return receipt. Section 11.3 Non-Liability of Officials, Employees and Agents. No member, official, employee or agent of the Agency or the City shall be personally liable to the Lessee, or any successor in interest, in the event of a City default. Section 11.4 Force Majeure. Performance by either Party shall not be deemed to be in default where defaults are due to war; insurrection; strikes; lock-outs; riots; floods; earthquakes; fires; casualties; acts of god; acts of the public enemy; epidemics; quarantine restrictions; freight embargoes; lack of transportation; governmental restrictions or priority; litigation (including suits filed by third parties concerning or arising out of this Lease); weather or soils conditions which, in the opinion of the Lessee's contractor, will necessitate delays; inability to secure necessary labor; acts of the other Party; acts or failure to act of any public or governmental agency or entity (other than the acts or failure to act of the City); or any other causes (other than the Lessee's inability to obtain financing for the Development) beyond the control or without the fault of the Party claiming an extension of time to perform. Times of performance under this Lease may also be extended in writing by the City and the Lessee. In no event shall the cumulative delays exceed one hundred eighty (180) days, unless otherwise agreed to in writing by the Parties. Section 11.5 Non-Waiver of Breach. Neither the failure of a Party to insist upon strict performance of any of the covenants and agreements of this Lease nor the failure by the Party to exercise any rights or remedies granted to such Party under the terms of this Lease shall be deemed a waiver or relinquishment (a) of any covenant herein contained or of any of the rights or remedies of the applicable Party, (b) of the right in the future of the applicable Party to insist upon and to enforce, by any appropriate legal remedy a strict compliance with all of the covenants and conditions thereof, or (c) the right of the City to recover possession of the Property upon occurrence of a default and the expiration of applicable notice and cure periods or the expiration of the Lease Term. Section 11.6 Binding Upon Successors; Covenants to Run With Land. This Lease shall be binding upon and inure to the benefit of the heirs, administrators, executors, successors in interest and assigns of each of the Parties; provided, however, that there shall be no transfer of any interest by the Lessee except pursuant to the terms of this Lease. Any reference in this Lease to a specifically named party shall be deemed to apply to any successor, heir, administrator, executor or assign of such party who has acquired an interest in compliance with the terms of this Lease, or under law. 1010\01\209755.7 32 The terms of this Lease shall run with the land and shall bind all successors in title to the Property during the Lease Term, except that the provisions of this Lease that are specified to survive termination of this Lease shall run with the land in perpetuity and remain in full force and effect following such termination. Every contract, deed, or other instrument hereafter executed covering or conveying the Property or the Improvements or any portion thereof shall be held conclusively to have been executed, deliver, and accepted subject to such covenants and restrictions, regardless of whether such covenants or restricts are set forth in such contract, deed or other instrument, unless the City expressly releases the Property, the Improvements, or the applicable portion of the Property, from the requirements of this Lease. Section 11.7 Employment Opportunity. The Lessee and its successors, assigns, contractors and subcontractors shall not discriminate against any employee or applicant for employment in connection with the construction and operation of the Improvements because of race, color, religion, sex, sexual preference, marital status, ancestry or national origin. Each of the following activities shall be conducted in a nondiscriminatory manner: hiring; upgrading; demotion and transfers; recruitment and recruitment advertising; layoff and termination; rate of pay and other forms of compensation; and selection for training including apprenticeship. Section 11.8 Relationship of Parties. Nothing contained in this Lease shall be deemed or construed by the Parties or by any third party to create the relationship of principal or agent; partnership; joint venture; association; or buyer and seller. Neither the computation of any payments and other charges under the terms of this Lease nor any other provisions contained in this Lease, nor any act of the Parties, shall be deemed to create any relationship between the Parties other than the relationship of landlord and tenant. Section 11.9 Titles. Any titles of the sections or subsections of this Lease are inserted for convenience of reference only and shall be disregarded in interpreting any of its provisions. Section 11.10 Severability. If any provision of this Lease or the application of any provision to any person or circumstances shall be invalid or unenforceable to any extent, the remainder of this Lease, or the application of such provision to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected, and each provision of this Lease shall be valid and be enforced to the fullest extent permitted by law. Section 11.11 Applicable Law. This Lease shall be governed by and construed in accordance with the laws of the State of California. Section 11.12 Venue. The Superior Court of the County of San Diego shall be the forum and venue for all litigation arising from this Lease. Section 11.13 Approvals. (a) Whenever this Lease calls for a Party's approval, consent, or waiver, the written approval, consent, or waiver of the Party's Authorized Officer(s) shall constitute the approval, consent, or waiver of the Party, without further authorization required from the Party's 1010\01\209755.7 33 board. The Parties hereby authorize their Authorized Officers to deliver such approvals or consents as are required by this Lease, or to waive requirements under this Lease, on behalf of them. (b) All approvals under this Lease shall be subject to a reasonableness standard, except where a sole discretion standard is specifically provided. Section 11.14 Inspection of Books and Records. The City has the right, at all reasonable times, to inspect and copy, on a confidential basis, subject to the California Public Records Act (California Government Code Section 6251 et seq.), the books, records and all other documentation of the Lessee pertaining to its obligations under this Lease. The Lessee also has the right, at all reasonable times, to inspect and copy the books, records and all other documentation of the City pertaining to its obligations under this Lease. Each Party shall maintain adequate records for a period of at least five (5) years after the end of the operating year in which the records were created. Section 11.15 Lease Binding on Successors. This Lease shall inure to the benefit of, and shall be binding upon, the City, the Lessee, and their respective permitted successors and assigns. Section 11.16 Counterparts. This Lease may be executed in counterparts and multiple originals, each of which shall be an original and all of which shall constitute the same instrument. 1010\01\209755.7 34 BY SIGNING BELOW, the Parties confirm their agreement to the terms of this Lease as of the date first written above. CITY: THE CITY OF CARLSBAD, a municipal corporation By:_ Its: APPROVED AS TO FORM By: Ronald Ball City Attorney By: LESSEE: EL CAMINO FAMILY HOUSING PARTNERS, LLC a California limited liability company By: Affirmed Housing Corporation, a California.Cprporation, its Manager By: Its: 1010\01\209755.7 35 BY SIGNING BELOW, the Parties confirm their agreement to the terms of this Lease as of the date first written above. CITY: THE CITY OF CARLSBAD, a municipal corporation Its: RAYMOND R. PATCHETT. CITY MANAGER APPROVED AS TO FORM By: Ronald Ball City By: LESSEE: EL CAMINO FAMILY HOUSING PARTNERS, LLC a California limited liability company By: Affirmed Housing Corporation, a California Corporation, its Manager By: Its: 1010\01\209755.7 35 EXHIBIT A DESCRIPTION OF THE PROPERTY 1010\01\209755.7 A-l EXHIBIT B INSURANCE REQUIREMENTS (a) Required Coverage. The Lessee shall maintain and keep in force, at the Lessee's sole cost and expense, the following insurance applicable to the Development: (i) To the extent required by law, Worker's Compensation insurance, including Employer's Liability coverage, with limits not less than required by applicable law. (ii) Comprehensive or Commercial General Liability insurance with limits not less than Two Million Dollars ($2,000,000) each occurrence combined single limit for Bodily Injury and Property Damage, including coverages for Contractual Liability, Personal Injury, Broadform Property Damage, Products and Completed Operations. (iii) Comprehensive Automobile Liability insurance with limits not less than Two Million Dollars ($2,000,000) each occurrence combined single limit for Bodily Injury and Property Damage, including coverages for owned, non-owned and hired vehicles, as applicable; provided, however, that if the Lessee does not own or lease vehicles for purposes of this Lease, then no automobile insurance shall be required and both parties to this Lease shall initial this provision signifying same. (iv) Property insurance covering the Development covering all risks of loss, including earthquake (but only if it is commercially affordable at a reasonable price and with a reasonable deductible, in City's reasonable opinion, and if City requests in writing that such coverage be carried) and flood, if the Property is located in a flood zone, for one hundred percent (100%) of the replacement value, with deductible, if any, acceptable to the City, naming the City as a Loss Payee, as its interest may appear. (b) Contractor's Insurance. The Lessee shall cause any general contractor or agent working on the Development under direct contract with the Lessee to maintain insurance of the types and in at least the minimum amounts described in subsections (a)(i), (a)(ii), and (a)(iii) above, and shall require that such insurance shall meet all of the general requirements of subsection (c) below. Subcontractors working on the Development under indirect contract with the Lessee shall be required to maintain the insurance described in subsections (a)(i), (a)(ii) and (a)(iii) above; provided that the amount of Commercial General Liability insurance for each subcontractor shall have a limit of not less than One Million Dollars ($1,000,000). Liability and Comprehensive Automobile Liability insurance to be maintained by such contractors and agents pursuant to this subsection shall name as additional insureds the City, the Agency, their respective council and board members, officers, agents, and employees. (c) General Requirements. The required insurance shall be provided under an occurrence form, and the Lessee shall maintain such coverage continuously throughout the Lease Term. Should any of the required insurance be provided under a form of coverage provides that claims investigation or legal defense costs be included in such annual aggregate limit, such annual aggregate limit shall be three times the occurrence limits specified above. 1010\01\209755.7 fj-1 Comprehensive General Liability, Comprehensive Automobile Liability and Property insurance policies shall be endorsed to name as additional insureds the City, the Agency, and their respective council and board members, officers, agents, and employees. All policies and bonds shall be endorsed to provide (i) thirty (30) days prior written notice of cancellation, reduction in coverage, intent not to renew or any material change in said policies to the address established for notices to the City pursuant to the Lease; (ii) an agreement that such policies are primary and non contributing with any insurance that may be carried by the City; (iii) a provision that no act or omission of the Lessee shall affect or limit the obligation of the insurance carrier to pay the amount of any loss sustained; and (d) a waiver by the insurer of all rights of subrogation against the City and its authorized parties in connection with any loss or damage thereby insured against. (d) Certificates of Insurance. Upon the City's request at any time during the Lease Term, the Developer shall provide certificates of insurance, in form and with insurers reasonable acceptable to the City, evidencing compliance with the requirements of this Exhibit, and shall provide complete copies of such insurance policies, including a separate endorsement naming the City as additional insured, if requested by the City. 1010\01\209755.7 B-2 EXHIBIT C PRELIMINARY TITLE REPORT 1010\01\209755.7 C-l EXHIBIT D RENT PAYMENT SCHEDULE YEAR 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. LEASE PAYMENT $1 $1 $1 $1 $1 $1 $1 $1 $1 $1 $1 $1 $1 $1 $5,492 $13,243 $13,442 $13,600 $13,715 $13,785 $13,805 $13,775 $13,689 $13,545 $13,340 $13,069 $12,730 $12,318 $11,829 $11,259 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. $17,494 $16,748 $15,908 $14,967 $13,920 $12,763 $11,488 $10,091 5,565 $6,904 $5,100 $3,880 $2,845 $1,683 $387 $1 $1 $1 $1 $1 $1 $1 $1 $1 $1 1010\01\209755.7 D-l GROUND LEASE By and Between THE CITY OF CARLSBAD and EL CAMINO FAMILY HOUSING PARTNERS, LLC 3 200- 1010\01\209755.4 -7 TABLE OF CONTENTS ARTICLE 1 : DEFINITIONS AND EXHIBITS .............................................................................. i Section 1.1 Definitions ........................................................................................................ 1 Section 1.2 Exhibits ............................................................................................................. 4 ARTICLE 2: LEASE OF THE PROPERTY; PAYMENT OF RENT; OWNERSHIP OF IMPROVEMENTS ................................................................................ 5 Section 2.1 Lease of the Property ........................................................................................ 5 Section 2.2 Use .................................................................................................................... 5 Section 2.3 Possession ......................................................................................................... 5 Section 2.4 Lease Term ....................................................................................................... 5 Section 2.5 Payment of Rent ............................................................................................... 5 Section 2.6 Reports and Accounting of Residual Receipts ................................................. 7 Section 2.7 Title to Improvements; Surrender Upon Termination ...................................... 8 Section 2.8 Assignment of Lessee's Leasehold Interest; Transfer of the Development ...... 8 Section 2.9 Net-Net-Net Lease ............................................................................................ 8 ARTICLE 3: DEVELOPMENT OF IMPROVEMENTS ............................................................... 8 Section 3.1 Commencement of Construction ...................................................................... 8 Section 3.2 Completion of Construction ............................................................................. 9 Section 3.3 Construction Pursuant to Permits and Disposition Agreement ........................ 9 Section 3.4 Equal Opportunity ............................................................................................ 9 Section 3.5 Discharge of Liens ............................................................................................ 9 Section 3.6 Protection of the City ........................................................................................ 9 Section 3.7 Permits. Licenses and Easements ..................................................................... 9 Section 3.8 Compliance with Applicable Law .................................................................. 10 Section 3.9 Prevailing Wage ............................................................................................. 10 Section 3.10 The Lessee to Furnish and Equip the Improvements .................................... 10 ARTICLE 4: USE AND MAINTENANCE OF THE IMPROVEMENTS ................................... 11 Section 4.1 Use of Development ....................................................................................... 11 Section 4.2 Compliance with the Regulatory Agreement ................................................. 12 Section 4.3 Maintenance of the Development ................................................................... 12 Section 4.4 Utilities ........................................................................................................... 12 Section 4.5 Taxes and Assessments .................................................................................. 12 Section 4.6 Assistance in Making Payments ..................................................................... 13 Section 4.7 Hazardous Materials ....................................................................................... 13 Section 4.8 Non-Discrimination ........................................................................................ 15 ARTICLE 5: APPROVED LOANS .............................................................................................. 16 Section 5.1 Loan Obligations ............................................................................................ 16 Section 5.2 Liens and Encumbrances Against Lessee's Interest in the Leasehold Estate . 16 i 1010W1 W9755.4 TABLE OF CONTENTS (Continued) Section 5.3 Cost of Approved Loans to be Paid by Lessee ............................................... 19 Section 5.4 Proceeds of Approved Loans .......................................................................... 19 Section 5.5 Notice and Right to Cure Defaults Under Approved Loans ........................... 20 Section 5.6 Modifications .................................................................................................. 20 Section 5.7 Estoppel Certificates ....................................................................................... 20 ARTICLE 6: INSURANCE ........................................................................................................... 20 Section 6.1 Required Insurance Coverage ......................................................................... 20 Section 6.2 Insurance Policies and Premiums ................................................................... 20 Section 6.3 Proceeds of Insurance ..................................................................................... 21 Section 6.4 Indemnification ............................................................................................... 21 ARTICLE 7: CONDEMNATION. DAMAGE OR DESTRUCTION OF THE IMPROVEMENTS ............................................................................................................ 22 Section 7.1 Condemnation ................................................................................................. 22 Section 7.2 Administration of Construction Fund in the Event of Condemnation. or Damage or Destruction of Development ........................................................ 23 Section 7.3 Lessee. City. Approved Lenders to be Made Parties in Legal Proceedings ... 23 Section 7.4 Termination .................................................................................................... 24 ARTICLE 8: ASSIGNME" AND TRANSFERS ...................................................................... 24 Section 8.1 Definitions ...................................................................................................... 24 Section 8.2 Purpose of Restrictions on Transfer ............................................................... 24 Section 8.3 Prohibited Transfers ....................................................................................... 25 Section 8.4 Permitted Transfers ......................................................................................... 25 Section 8.5 Procedure for Approval of Certain Transfers ................................................. 25 Section 8.6 Assignments ................................................................................................... 26 ARTICLE 9: REPRESENTATIONS AND ASSURANCES ........................................................ 26 Section 9.1 City to Give Peaceful Possession ................................................................... 26 Section 9.2 Lessee Representations ................................................................................... 26 Section 9.3 Release of City ............................................................................................... 28 Section 9.4 Holding Over .................................................................................................. 28 Section 9.5 No Merger ...................................................................................................... 29 ARTICLE 10: DEFAULTS AND REMEDIES ............................................................................ 29 Section 10.1 Events of Default; Remedy for Default by Lessee ....................................... 29 Section 10.2 Remedy for Default by City .......................................................................... 30 ARTICLE 1 1 : MISCELLANEOUS .............................................................................................. 31 Section 1 1.1 Instrument Is Entire Agreement .................................................................... 31 1010\01\209755.4 .. 11 TABLE OF CONTENTS (Continued) Section 11.2 Notices .......................................................................................................... 31 Section 11.3 Non-Liability of Officials. Employees and Agents ...................................... 31 Section 11.4 Force Majeure ............................................................................................... 31 Section 11.5 Non-Waiver of Breach .................................................................................. 32 Section 11.6 Binding Upon Successors; Covenants to Run With Land ............................... 32 Section 11.7 Employment Opportunity .............................................................................. 32 Section 11.8 Relationship of Parties .................................................................................. 32 Section 11.9 Titles ............................................................................................................. 33 Section 11.10 Severability ................................................................................................ 33 Section 11.1 1 Applicable Law .......................................................................................... 33 Section 11.12 Venue ......................................................................................................... 33 Section 11.13 Approvals ................................................................................................... 33 Section 11.14 Inspection of Books and Records .............................................................. 33 Section 11.15 Lease Binding on Successors ..................................................................... 33 Section 11.16 Counterparts ............................................................................................... 33 EXHIBIT A Description of the Property EXHIBIT B Insurance Requirements EXHIBIT C Preliminary Title Report 1010\01\209755.4 ... 111 ai GROUND LEASE THIS GROUND LEASE (the "Lease") is entered into as of ,2005, by and between The City of Carlsbad, a municipal corporation (the "City"), and El Camino Family Housing Partners, LLC, a California limited liability company (the "Lessee"), with reference to the following facts, purposes, and understandings. RECITALS A. These Recitals refer to and utilize certain capitalized terms that are defined in Article 1 of this Lease. The Parties intend to refer to those definitions in connection with the use of capitalized terms in these Recitals. B. The City owns that certain parcel of real property located at 7 in the City of Carlsbad, California, as more particularly described in the attached Exhibit A (the "Property"). C. The Lessee and the City entered into that certain Land Disposition and Loan Agreement dated as of City agreed to lease the Property to Lessee and the Lessee agreed to develop the Property. , 2005 (the "Disposition Agreement"), pursuant to which D. In accordance with the Disposition Agreement and this Lease, the Lessee shall develop and operate on the Property a fifty-six (56) unit housing development affordable to very low income and moderate income households. E. The City desires to lease the Property to the Lessee, and the Lessee desires to lease the Property from the City, for a term specified in this Lease. WITH REFERENCE TO THE FACTS RECITED ABOVE, the City and the Lessee (collectively the "Parties") agree as follows: ARTICLE 1: DEFINITIONS AND EXHIBITS Section 1.1 Definitions. The following terms shall have the following meanings in this Lease: (a) "Affirmed" shall mean Affirmed Housing Group, a California Corporation. (b) "Agency" shall mean the Carlsbad Redevelopment Agency, a public body, corporate and politic, and its successors and assigns. (c) "Approved Lenders" shall mean all of the lenders providing the Approved Loans to the Lessee and their designees, nominees, successors and assigns. 1 101Ov)l W9755.4 (d) "Approved Loan Documents" shall mean all documents executed by the Lessee evidencing or securing the Approved Loans. (e) "Approved Loans" shall mean the loans contained in the Financing Plan submitted to the City by the Lessee as required by the Disposition Agreement and approved by the City, or any other loan obtained by the Lessee in connection with and secured by the Development and approved in writing by the City. (0 "Authorized Officers" shall mean, in the case of the City, its City Manager, and in the case of the Lessee, the president of Affirmed, the managing member of the Lessee. As of the date of this Lease, the President of Affirmed is Jim Silverwood. (g) "City" shall mean the City of Carlsbad, California, a municipal corporation, operating through its governing body, the City Council, and its various departments. (h) "City Loan" shall mean the loan of One Million Four Hundred Fifty-Four Thousand Two Hundred Seventy-Six Dollars ($1,454,276) by the City to the Developer pursuant to the Disposition Agreement. (i) Tornmencement Date" shall mean the date of the Closing as defined in the Disposition Agreement. (i) "Development" shall mean the Improvements and the Lessee's leasehold interest in the Property. (k) "Development Documents" shall mean all construction documentation prepared by the Lessee or on the Lessee's behalf and approved by the City pursuant to the Disposition Agreement. (1) "Disposition Agreement" shall have the meaning given in Recital C. (m) "Event of Default'' shall have the meaning specified in Section 10.1. (n) "Financing Plan" shall mean the Financing Plan approved by the City pursuant to the provisions of the Disposition Agreement. (0) "Foreclosure Transferee" shall mean a transferee who acquires the Lessee's interest in this Lease and the Development through the exercise of remedies (such as foreclosure or a deed in lieu of foreclosure) pursuant to Approved Loan Documents. (p) "Hazardous Materials" shall mean any substance, material, or waste which is: (1) defined as a "hazardous waste", "hazardous material," "hazardous substance," "extremely hazardous waste," "restricted hazardous waste," "pollutant" or any other terms comparable to the foregoing terms under any provision of California law or federal law; (2) petroleum; (3) asbestos; (4) polychlorinated biphenyls; (5) radioactive materials; (6) mold; (7) MTBE; or (8) determined by California, federal or local government authority to be capable of posing a risk of injury to health, safety or property. Without limiting the foregoing, Hazardous Materials means 1010\01\209755.4 2 and includes any substance or material defined or designated as hazardous or toxic waste, hazardous or toxic material, a hazardous, toxic or radioactive substance, or other similar term, by any Hazardous Materials Laws including any federal, state or local environmental statute, regulation or ordinance presently in effect that may be promulgated in the future, as such as statutes, regulations and ordinances may be amended from time to time. The term "Hazardous Materials" shall not include: (i) construction materials, gardening materials, household products, office supply products or janitorial supply products customarily used in the construction, maintenance, rehabilitation, or management of commercial properties, buildings and grounds, or typically used in household activities, or (ii) certain substances which may contain chemicals listed by the State of California pursuant to California Health & Safety Coded Section 25249.8 et seq., which substances are commonly used by a significant portion of the population living within the region of the Improvements, including, but not limited to, alcoholic beverages, aspirin, tobacco products, Nutrasweet and saccharine, so long as such materials and substances are stored, used and disposed of in compliance with all applicable Hazardous Materials Laws. (9) "Hazardous Materials Laws" shall mean all federal, state, and local laws, ordinances, regulations, orders and directives pertaining to Hazardous Materials in, on or under the Development or any portion thereof. (0 "Improvements" shall mean the fifty-six (56) housing units and appurtenant improvements to be constructed on the Property by the Lessee. (s) "Investor" shall mean ,a (t) "Lease" shall mean this Ground Lease. (u) "Lease Term" shall mean the term of this Lease, which shall commence on the Commencement Date and shall terminate fifty-five (55) years after the Commencement Date. (v) "Lease Year" shall mean a period of twelve (12) full calendar months. The first Lease Year shall begin on the Commencement Date. Each succeeding Lease Year shall commence on the anniversary of the Commencement Date. (w) "Lessee" shall mean El Camino Family Housing Partners, LLC, a California limited liability company, and its permitted successors and assigns. (x) "Median Income'' shall mean the median gross yearly income, adjusted for actual household size as specified herein, in the County of San Diego, California as determined by the California Department of Housing and Community Development. (y) "Memorandum of Lease" shall mean the memorandum of ground lease substantially in the form attached to the Disposition Agreement as Exhibit H. (z) "Official Records" shall mean the Official Records of San Diego County, California. 1010\1)1\209755.4 3 (aa) "Parties" shall mean the City and the Lessee. (bb) "Party" shall mean any one of the City or Lessee. (cc) "Preliminary Title Report" shall mean that certain title report dated issued by Chicago Title Company a copy of which is attached as Exhibit C. (dd) attached Exhibit A. "Property" shall mean the property more particularly described in the (ee) "Redevelopment Plan" shall mean the Carlsbad Village Redevelopment Plan approved and adopted by the City Council of the City of Carlsbad by Ordinance No. on , as it may be amended from time to time. (ff) "Regulatory Agreement" shall mean that Regulatory Agreement and Declaration of Restrictive Covenants to be entered into by the City and the Lessee substantially in the form attached to the Disposition Agreement as Exhibit E. (gg) "Rent" shall mean the annual rent payment made to the City by the Lessee in the amount of thirty percent (30%) of the Residual Receipts as specified in Section 2.5. (hh) "Rent Commencement Date" shall mean the first April lSf immediately following the calendar year in which the certificate of occupancy was issued by the City for the Improvements, or April 1,200-, whichever is earlier. (ii) "Transfer" is defined in Section 8.1. (jj) "Very Low Income Households" shall mean a household whose income does not exceed the qualifying limits for a very low income household as established and amended from time to time pursuant to Section 8 of the United States Housing Act of 1937, adjusted for assumed household size. Section 1.2 Exhibits. The following exhibits are attached to and made part of this Lease: EXHIBIT A Legal Description of the Property EXHIBIT B Insurance Requirements EXHIBIT C Preliminary Title Report 1010\01\209755.4 4 ARTICLE 2: LEASE OF THE PROPERTY; PAYMENT OF RENT; OWNERSHIP OF IMPROVEMENTS Section 2.1 Lease of the Property. (a) The City hereby leases the Property to the Lessee, and the Lessee hereby leases the Property from the City, pursuant to the terms of this Lease. (b) The Paities shall cause the Memorandum of Lease to be recorded against the Property in the Official Records substantially in the form attached to the Disposition Agreement as Exhibit H. (c) The closing costs associated with execution of this Lease and recordation of the Memorandum of Lease including, but not limited to recording charges, county documentary transfer tax, and conveyance taxes (if any) and the cost of the Lessee's title insurance policy shall be borne by the Lessee. Each Party shall bear its own attorneys' fees and costs. Section 2.2 Use. Subject to the provisions of this Lease, the Lessee shall use the Property for the redevelopment thereof and for the construction, development and operation of the Improvements on the Property in accordance with the restrictions and requirements set forth in Article 5 hereof. Section 2.3 Possession. The City agrees to and shall provide possession of the Property to the Lessee immediately following the Commencement Date. To the best of the City's knowledge, the Property is subject only to the encumbrances listed in the Preliminary Title Report and such encumbrances approved by the Parties and recorded concurrently with the Memorandum of Lease. The City shall convey the Property to the Lessee in the physical condition set forth in the Disposition Agreement. Section 2.4 Lease Term. Unless earlier terminated pursuant to the provisions of this Lease, the Lease Term shall be for the period commencing on the Commencement Date and terminating at midnight (12:OO a.m.) on the day immediately preceding the fifty-fifth (55th) anniversary of the Commencement Date. Section 2.5 Payment of Rent. The Lessee shall make annual lease payments to the City under this Lease as follows: (a) Commencing on the first May 1st immediately following the calendar year in which a certificate of occupancy was issued for the Improvements, and continuing through each May 1st thereafter throughout the Lease Term (each such May 1st is referred to as a "Payment Date"), annual rent payments in an amount equal to thirty percent (30%) of Residual Receipts (as defined below) shall be due from the Lessee to the City. The Lessee shall accompany each payment of Residual Receipts with an audited financial statement (as described in Section 2.6 below). Payments shall be made only to the extent that there exists Residual 1010\01\209755.4 5 Receipts resulting from operation of the Development during the preceding calendar year which ended prior to the Payment Date. (b) Special Definitions. The following special definitions shall apply for purposes of this Section 2.4: (i) "Residual Receipts" in a particular calendar year means the amount by which Gross Revenue (as defined below) exceeds Annual Operating Costs (as defined below). (ii) "Gross Revenue" with respect to a particular Lease Year shall mean all revenue, income, receipts, and other consideration actually received from operation and leasing of the Development. Gross Revenue shall include, but not be limited to: all rents, fees and charges paid by tenants, Section 8 payments or other rental subsidy payments received for the dwelling units, deposits forfeited by tenants, all cancellation fees, price index adjustments and any other rental adjustments to leases or rental agreements; net proceeds from vending and laundry room machines; the proceeds of business interruption or similar insurance and not paid to senior lenders; the proceeds of casualty insurance not used to rebuild the Development and not paid to senior lenders; and condemnation awards for a taking of part or all of the Development for a temporary period not paid to senior lenders. Gross Revenue shall not include tenants' security deposits, loan proceeds, capital contributions or similar advances. (iii) "Annual Operating Costs" with respect to a particular Lease Year shall mean the following costs reasonably and actually incurred for operation and maintenance of the Development to the extent that they are consistent with the annual budget for the Development, approved by the City pursuant to the Regulatory Agreement, and with an annual independent audit performed by a certified public accountant using generally accepted accounting principles: property taxes and assessments imposed on the Development; debt service currently due on a non-optional basis (excluding debt service due from residual receipts or surplus cash of the Development) on loans associated with development of the Development and approved by the City in the Financing Plan pursuant to Section 2.4 of the Disposition Agreement; property management fees and reimbursements, not to exceed fees and reimbursements which are standard in the industry and pursuant to a management contract approved by the City pursuant to Sections 2.7 and 6.7 of the Disposition Agreement; premiums for property damage and liability insurance; utility services not paid for directly by tenants, including water, sewer, and trash collection; maintenance and repair; any annual license or certificate of occupancy fees required for operation of the Development; security services; advertising and marketing; cash deposited into reserves for capital replacements of the Development in an amount not to exceed the amount required in connection with the permanent financing approved by the City pursuant to Section 2.4 of the Disposition Agreement, or by the City if no other lender or investor requires approvals of such amount; cash deposited into an operating reserve in an amount not to exceed the amount required in connection with the permanent financing approved by the City pursuant to Section 2.4 of the Disposition Agreement, or by the City if no other lender or investor requires approvals of such amount; payment of any previously unpaid portion of the Developer Fee due (without interest) not exceeding a cumulative amount of the Developer Fee as set forth in Section 5.8 of the Disposition Agreement; an annual asset management fee in the amount of Five Thousand Dollars ($5,000) 6 1010\01\209755.4 (adjusted annually at 3.5% and which shall accrue if not paid); a partnership management fee in the amount of Twenty Five Thousand Dollars ($25,000) (adjusted annually at 3.5% and which shall accrue if not paid); extraordinary operating costs specifically approved in writing by the City as part of the annual budget approval process pursuant to the Regulatory Agreement; payments of deductibles in connection with casualty insurance claims not normally paid from reserves; the amount of uninsured losses actually replaced, repaired or restored, and not normally paid from reserves; and other ordinary and reasonable operating expenses approved in writing by the City and not listed above. Annual Operating Expenses shall not include the following: depreciation, amortization, depletion or other non-cash expenses; any amount expended from a reserve account; and any capital cost with respect to the Development, as determined by the accountant for the Development. Section 2.6 Reports and Accounting of Residual Receipts. (a) Audited Financial Statement. In connection with the annual payment of Rent, the Lessee shall furnish to the City an audited statement duly certified by an independent firm of certified public accountants previously approved by the City in writing, setting forth in reasonable detail the computation and amount of Residual Receipts during the preceding calendar year. (b) Books and Records. The Lessee shall keep and maintain on the Property, or elsewhere with the City's written consent, full, complete and appropriate books, record and accounts relating to the Development, including all such books, records and accounts necessary or prudent to evidence and substantiate in full detail Lessee's calculation of Residual Receipts. Books, records and accounts relating to Lessee's compliance with the terms, provisions, covenants and conditions of this Agreement shall be kept and maintained in accordance with generally accepted accounting principles consistently applied, and shall be consistent with requirements of this Lease which provide for the calculation of Residual Receipts on a cash basis. All such books, records, and accounts shall be open to and available for inspection by the City, its auditors or other authorized representatives at reasonable intervals during normal business hours upon reasonable notice to the Lessee. Copies of all tax returns and other reports that Lessee may be required to furnish any governmental agency shall at all reasonable times be open for inspection by the City at the place that the books, records and accounts of the Lessee are kept. The Lessee shall preserve records on which any statement of Residual Receipts is based for a period of not less than five (5) years after such statement is rendered, and for any period during which there is an audit undertaken pursuant to subsection (c) below then pending. (c) City Audits. The receipt by the City of any statement pursuant to subsection (a) above or any payment by Lessee or acceptance by the City of Rent for a Lease Year shall not bind the City as to the correctness of such statement or such payment. Within three (3) years after the receipt of any such statement, the City or any designated agent or employee of the City at any time shall be entitled to audit the Residual Receipts and all books, records, and accounts pertaining thereto. Such audit shall be conducted during normal business hours at the principal place of business of Lessee and other places where records are kept. Immediately after the completion of an audit, the City shall deliver a copy of the results of such audit to Lessee. If it shall be determined as a result of such audit that there has been a deficiency 10 1 OW 1 Q09755.4 7 in a Rent payment to the City, then such deficiency shall become immediately due and payable with interest at the rate of ten percent (10%) per annum, determined as of and accruing from the date that said payment should have been made. In addition, if Lessee's auditor's statement for any calendar year shall be found to have understated Residual Receipts by more than five percent (5%) and the City is entitled to any additional Rent payments as a result of said understatement, then Lessee shall pay, in addition to the interest charges referenced hereinabove, all of the City's reasonable costs and expenses connected with any audit or review of Lessee's accounts and records. Section 2.7 Title to Improvements; Surrender Upon Termination. The City hereby grants to the Lessee, without warranty (express or implied), any right, title, or interest that the City may have in the improvements located on the Property from time to time prior to the termination of this Lease. The Improvements on the Property during the Lease Term shall be and remain the property of the Lessee; however, the Lessee shall have no right to destroy, demolish or remove the Improvements except as specifically provided for in this Lease or as otherwise approved in writing by the City. When the Lease Term expires, or when the Lease is otherwise terminated under the terms of this Lease the Lessee shall surrender the Property and deliver to the City the Property (including all Improvements thereon) and title to the Improvements shall revert to and vest in the City without cost to the City in their then-existing condition. It is the intent of the Parties that this Lease shall create a constructive notice of severance of the Improvements from the Property without the necessity of a deed from the City to the Lessee after the Improvements have been constructed, The Improvements, when built, shall be and remain real property and shall be owned in fee by the Lessee for the Lease Term. If requested by the City, the Lessee shall execute, at the end of the Lease Term, within ten (10) days of receipt of the City's written request, a confirmatory quitclaim deed of the Improvements to be recorded at the City's option and expense, and any other documents that may be reasonably required by the City or the City's title company to provide the City title to the Property and the Improvements free and clear of all monetary liens and monetary encumbrances not caused or agreed to by the City, but otherwise in their "as-is" condition. Section 2.8 Assignment of Lessee's Leasehold Interest; Transfer of the Development. Subject the provisions of Article 8, the Lessee may not assign its interest in this Lease and sell or transfer the Development without the prior written consent of the City. Section 2.9 Net-Net-Net Lease. This Lease is a net-net-net lease, and Rent and other payments payable to or on behalf of the City shall: (a) be paid without notice or demand and without offset, counterclaim, abatement, suspension, deferment, deduction or defense; and (b) be an absolute net return to the City, free and clear of any expenses, charges or offsets whatsoever. ARTICLE 3: DEVELOPMENT OF IMPROVEMENTS Section 3.1 Commencement of Construction. The Lessee shall commence construction of the Improvements no later than the time specified in the Disposition Agreement. 1010\01\209755.4 8 Section 3.2 Completion of Construction. The Lessee shall prosecute diligently to completion the construction of the Improvements, and shall complete construction by the time specified in the Disposition Agreement. Section 3.3 Construction Pursuant to Permits and Disposition Agreement. The Improvements shall be constructed in accordance with the Development Documents and the terms and conditions of the City of Carlsbads land use permits and approvals and building permits. Section 3.4 Equal Opportunity. During the construction of the Improvements there shall be no discrimination on the basis of race, color, creed, religion, sex, sexual orientation, age, disability, marital status, national origin, or ancestry in the hiring, firing, promoting, or demoting of any person engaged in the construction work. Section 3.5 Discharge of Liens. The Lessee shall not create or permit or suffer to be created or to remain, and will discharge, any lien (including, but not limited to, the liens of mechanics, laborers, materialmen, suppliers or vendors for work or materials alleged to be done or furnished in connection with the Property and the Improvements thereon), encumbrances or other charge upon the Property and the Improvements thereon, or any part thereof, or upon the Lessee's leasehold interest therein. The Lessee shall have the right to contest in good faith and by appropriate legal proceedings the validity or amount of any mechanics', laborers', materialmen's, suppliers' or vendors' lien or claimed lien; provided that the Lessee shall utilize all reasonable means (including the posting of adequate security for payment) to protect the Property and any part thereof or the Improvements thereon against foreclosure, and shall indemnify and hold harmless the City from any adverse effects resulting from such lien. Section 3.6 Protection of the City. Nothing in this Lease shall be construed as constituting the consent of the City, expressed or implied, to the performance of any labor or the furnishing of any materials or any specific improvements, alterations of or repairs to the Property or the Improvements thereon, or any part thereof, by any contractor, subcontractor, laborer or materialman, nor as giving the Lessee or any other person any right, power or authority to act as agent of or to contract for, or permit the rendering of, any services or the furnishing of any materials in such manner as would give rise to the filing of mechanics' liens or other claims against the fee interest of the Property or the Improvements thereon. The City shall have the right at all reasonable times to post and keep posted on the Property any notices which the City may deem necessary for the protection of the City and of the Property and the Improvements thereon from mechanics' liens or other claims. In addition, the Lessee shall make, or cause to be made, prompt payment of all monies due and legally owing to all persons doing any work or furnishing any materials or supplies to the Lessee, or any of its respective contractors or subcontractors in connection with the Property and the Improvements thereon. Section 3.7 Permits, Licenses and Easements. Within ten (10) days after receipt of written request from the Lessee, the City shall (at no expense to the City) join in any and all applications (consistent with the Disposition Agreement) for permits, licenses or other authorizations required by any governmental or other body claiming jurisdiction in connection with any work that the Lessee may do pursuant to this Lease or the operation of the 1010W1 W9755.4 9 Development, and shall also join in any grants of easements for public utilities useful or necessary to the proper construction of the Improvements or the operation of the Development. Section 3.8 Compliance with ADplicable Law. The Lessee shall cause all work performed in connection with construction of the Development to be performed in compliance with (a) all applicable laws, ordinances, rules and regulations of federal, state, county or municipal governments or agencies now in force or that may be enacted hereafter, and (b) all directions, rules and regulations of any fire marshal, health officer, building inspector, or other officer of every governmental agency now having or hereafter acquiring jurisdiction. The work shall proceed only after procurement of each permit, license, or other authorization that may be required by any governmental agency having jurisdiction, and the Lessee shall be responsible to the City for the procurement and maintenance thereof, as may be required of the Lessee and all entities engaged in work on the Property. Section 3.9 Prevailing Wage. The Lessee shall and shall cause the contractor and subcontractors to pay prevailing wages in the construction of the Improvements as those wages are determined pursuant to Labor Code Sections 1720 et seq., and the implementing regulations of the Department of Industrial Relations (the "DIR"), to employ apprentices as required by Labor Code Section 1777.5 et seq., and comply with the other applicable provisions of Labor Code Sections 1720 et seq., and the implementing regulations of the DIR. The Lessee shall and shall cause the contractor and subcontractors to keep and retain such records as are necessary to determine if such prevailing wages have been paid as required pursuant to Labor Code Sections 1720 et seq., and that apprentices have been employed as required by Labor Code Section 1777.5 et seq. Copies of the currently applicable per diem prevailing wages are available from the City. During the construction of the Improvements, Lessee shall or shall cause the contractor to post at the Property the applicable prevailing rates of per diem wages. Lessee shall indemnify, hold harmless and defend (with counsel reasonably acceptable to the City) the Agency and the City against any claim for damages, compensation, fines, penalties or other amounts arising out of the failure or alleged failure of any person or entity (including the Lessee, its contractor and subcontractors) to pay prevailing wages as determined pursuant to Labor Code Sections 1720 et seq., to employ apprentices as required by Labor Code Section 1777.5 et seq., and the implementing regulations of the DIR or comply with the other applicable provisions of Labor Code Sections 1720 et seq., and the implementing regulations of the DIR in connection with construction of the Improvements or any other work undertaken or in connection with the Property. In the event that Labor Code Section 1720, et seq., is amended, or otherwise reinterpreted by the DIR, so that the requirements of Labor Code Section 1720, et seq., including but not limited to the payment of prevailing wages and the requirement to employ apprentices in accordance with Labor Codes Sections 1777.5 et seq., are no longer applicable to the construction of the Improvements, then this provision shall be of no further force and effect; provided that the Lessee's obligation to indemnify the City as set forth in this Section 3.9 shall remain in effect throughout the Term. Section 3.10 The Lessee to Furnish and Equip the Immovements. Upon completion of construction of the Improvements, the Lessee covenants and agrees to furnish and equip the Improvements, with all fixtures, furnishings, equipment and other personal property (collectively, the "Personal Property") of a quantity as necessary to operate a first class housing 10 10 10U 1 Q09755.4 development in accordance with the standards set forth in this Lease and the Regulatory Agreement. The Lessee further agrees to take good care of such Personal Property, to keep the same in good order and condition ordinary wear and tear excepted, and promptly, at the Lessee's own cost and expense, to make all necessary repairs, replacements and renewals thereof. As used in this Lease, the term "Personal Property" includes all such replacements and renewals, and all fixtures, furnishings, equipment and other personal property of the Lessee located in, on or about the Property and the Improvements thereon. Any and all fixtures, furnishings, equipment and other personal property placed in, on or about the Property shall be the Personal Property of the Lessee during the Lease Term. ARTICLE 4: USE AND MAINTENANCE OF THE IMPROVEMENTS Section 4.1 Use of Development. (a) During the Lease Term, the Lessee shall at all times during the Lease Term use and operate the Development in accordance with this Lease, the Disposition Agreement, the Regulatory Agreement, and all requirements of the Approved Loan Documents. Any use of the Property for any other purpose other than the operation of the Improvements in accordance with the Regulatory Agreement or any proposed "Major Additional Improvements" to the Property shall be subject to the City's prior written approval, which may be granted or denied in the City's sole discretion. For the purposes of this Section 4.1 the term "Major Additional Improvementst' means any of the following: (1) any new buildings, structures or outdoor facilities other than the Improvements to be located on the Property, (2) any substantial alterations, remodeling or rehabilitation of the Improvements, (3) construction of additional spaces or facilities, or (4) any other alteration, construction, remodeling or reconstruction on the Property with a cost in excess of Twenty-Five Thousand Dollars ($25,000). (b) During the Lease Term, the Lessee shall comply with all applicable and lawful statutes, rules, orders, ordinances, requirements, and regulations of the United States, the State of California, and any other governmental authority having jurisdiction over the Development; however, the Lessee may, in good faith and on reasonable grounds, dispute the applicability or the validity of any charge, complaint, or action taken pursuant to or under color of any statute, rule, order, ordinance, requirement, or regulation, defend against the same, and in good faith diligently conduct any necessary proceedings to prevent and avoid any adverse consequence of the same. The Lessee agrees that any such contest shall be prosecuted to a final conclusion as promptly as reasonably possible. (c) The Lessee shall: (i) use the Development only to provide proper housing facilities and ancillary uses to tenants, and to maintain the character of the Development as required by this Lease, the Regulatory Agreement and any Approved Loan Documents for so long as such agreements remain in effect, and shall not use the Development for any disorderly or unlawful purpose; 1010W1 W9755.4 11 (ii) use reasonable efforts to prevent any residential tenant from committing or maintaining any nuisance or unlawful conduct on or about the Development; (iii) use reasonable efforts to prevent any residential tenant from violating any of the covenants and conditions of this Lease with respect to the Development; (iv) use reasonable efforts to abate any violation of this Lease by any residential tenant upon notice from the City; (v) subject to any applicable laws of the State of California and the rights of residential tenants in the Development, permit the City and its agents to inspect the Development at any reasonable time during the Lease Term; and (vi) Not commit or suffer to be committed any waste in, on or about the Property. Section 4.2 Compliance with the Regulatory - Am-eement. The Lessee hereby agrees that, for the term of the Regulatory Agreement, the Development will be used only for residential uses consistent with this Lease and the Regulatory Agreement. A portion of the residential units shall be rented to and occupied by or, if vacant, available for occupancy by Very Low Income Households as set forth in the Regulatory Agreement. Section 4.3 Maintenance of the Development. The Lessee shall cause the Property and the Development to be well maintained and repaired in a condition reasonably acceptable to the City during the Lease Term, including but not limited to cleaning, painting, decorating, plumbing, carpentry, grounds care and such other maintenance and repairs as may be necessary. The Lessee shall perform, or cause to be performed, all maintenance and repairs necessary to maintain the Development in good repair and tenantable condition. The City shall have the right, upon reasonable notice to the Lessee, to enter the Development to make inspections to determine the Lessee’s compliance with this Section 4.3. The City shall have additional rights and remedies regarding maintenance as set forth in the Regulatory Agreement. As between the City and the Lessee, all costs incurred in the operation and maintenance of the Improvements shall be paid by the Lessee. Section 4.4 Utilities. The Lessee shall be responsible for the cost of all utilities, including water, heat, gas, electricity, waste removal, sewers, and other utilities or services supplied to the Development, and the Lessee shall pay or cause utility costs to be paid currently and as due. Section 4.5 Taxes and Assessments. (a) Payment of Taxes and Assessments. The Lessee shall, during the entire Lease Term, at its own cost and expense, pay the public officers charged with their collection, as the same become due and payable and before any fine, penalty, interest, or other charge may be added to them for nonpayment, all real estate taxes, general and special, ordinary and extraordinary, unforeseen as well as foreseen, of any kind and nature, made, assessed, levied, or 12 imposed upon, or due and payable in connection with, or which become a lien upon, the Property, the Improvements, or any part of the Property or Improvements, or upon the Lessee's leasehold interest in the Property pursuant to this Lease, as well as assessments for sidewalks, streets, sewers, water, or any other public improvements and any other improvements or benefits which shall, during the Lease Term, be made, assessed, levied, or imposed upon or become due and payable in connection with, or a lien upon, the Property, the Improvements, or any part of the Property or Improvements, or upon the Lessee's leasehold interest in the Property pursuant to this Lease. During the Lease Term, the Lessee shall not apply for, or obtain, an exemption from real property taxes for the Property, or the Lessee's interest in the Property, pursuant to Revenue and Taxation Code 214(g) or any other applicable local or state regulation. The Lessee acknowledges that, pursuant to Health and Safety Code Section 33673, the Property will be assessed for property tax purposes as if privately owned and the Lessee shall be responsible for the payment of all such property taxes. (b) Payment of Fees. During the entire Lease Term, the Lessee shall pay, at its own cost and expense, before any fine, penalty, interest, or other charge may be added for nonpayment, all license and permit fees, charges for public utilities, and governmental charges relating to the use or occupancy of the Improvements. (c) Copies of Notices to Lessee. The City shall promptly send to the Lessee copies of any and all notices received by it in respect to any taxes, assessments, charges, or fees for which the Lessee is liable pursuant to this Section 4.5. (d) The City's Right Cure. If the Lessee, in violation of the provisions of this Lease, shall fail to pay and to discharge any taxes, or any other fee, the City may (but shall not be obligated to) pay or discharge such taxes, and the amount paid by the City and the amount of all costs, expenses, interest and penalties connected therewith, including attorneys' fees, together with interest at the set forth in Section 2.6(c) shall be deemed to be and shall, upon demand of the City, be payable by the Lessee as repayment of such advance by the City. Section 4.6 Assistance in Making Payments. The parties acknowledge that Lessee is responsible under this Lease for making various payments to third parties, such as tax and utility payments in accordance with the provisions of this Article 4. In case any person or entity to whom any sum is directly payable by the Lessee under any of the provisions of this Lease (e.g., a tax collector or utility company) shall refuse to accept payment of such sum from the Lessee (due to the fact that the Lessee is not the fee owner of the Property or for anyeother reason), the Lessee shall thereupon give written notice of such fact to the City and shall pay such sum directly to City at the address specified in Section 11.1 hereof, and City shall thereupon pay such sum to such person or entity. Section 4.7 Hazardous Materials. (a) Covenants and Agreements. The Lessee hereby covenants and agrees that: 1010\01 W9755.4 13 (i) The Lessee shall not knowingly permit the Development or the Property or any portion thereof to be a site for the use, generation, treatment, manufacture, storage, disposal or transportation of Hazardous Materials or otherwise knowingly permit the presence of Hazardous Materials in, on or under the Property or the Development in violation of any applicable law; (ii) The Lessee shall keep and maintain the Property and the Development and each portion thereof in compliance with, and shall not cause or permit the Property and the Development or any portion thereof to be in violation of, any Hazardous Materials Laws; Upon receiving actual knowledge of the same the Lessee shall immediately advise the City in writing of (A) any and all enforcement, cleanup, removal or other governmental or regulatory actions instituted, completed or threatened against the Lessee or the Development pursuant to any applicable Hazardous Materials Laws; (B) any and all claims made or threatened by any third party against the Lessee or the Development relating to damage, contribution, cost recovery, compensation, loss or injury resulting from any Hazardous Materials (the matters set forth in the foregoing clause (A) and this clause (B) are hereinafter referred to as “Hazardous Materials Claims”); (C) the presence of any Hazardous Materials in, on or under the Property or the Development in such quantities which require reporting to a government agency; or (D) the Lessee’s discovery of any occurrence or condition on any real property adjoining or in the vicinity of the Development classified as “borderzone property” under the provisions of California Health and Safety Code, Sections 25220 et seq., or any regulation adopted in accordance therewith, or to be otherwise subject to any restrictions on the ownership, occupancy, transferability or use of the Development under any Hazardous Materials Laws. If the City reasonably determines that the Lessee is not adequately responding to a Hazardous Material Claim, the City shall have the right to join and participate in, as a party if it so elects, any legal proceedings or actions initiated in connection with any such Hazardous Materials Claims and to have its reasonable attorney’s fees in connection therewith paid by the Lessee. (iii) (iv) Without the City’s prior written consent, which shall not be unreasonably withheld or delayed, the Lessee shall not take any remedial action in response to the presence of any Hazardous Materials on, under, or about the Development (other than in emergency situations or as required by governmental agencies having jurisdiction), nor enter into any settlement agreement, consent decree, or other compromise in respect to any Hazardous Materials Claims. (b) Indemnity. Without limiting the generality of the indemnification set forth in Section 6.4, the Lessee hereby agrees to indemnify, protect, hold harmless and defend (by counsel reasonably satisfactory to the City) the Agency, the City, their boardmembers and councilmembers, officers, and employees from and against any and all claims, losses, damages, liabilities, fines, penalties, charges, administrative and judicial proceedings and orders, judgments, remedial action requirements, enforcement actions of any kind, and all costs and expenses incurred in connection therewith (including, but not limited to, attorney’s fees and expenses), arising directly or indirectly, in whole or in part, out of (1) the failure of the Lessee or any other person or entity, during the Lease Term, to comply with any Hazardous Materials 101OW1 W9755.4 14 Law relating in any way whatsoever to the handling, treatment, presence, removal, storage, decontamination, cleanup, transportation or disposal of Hazardous Materials into, on, under or from the Development; (2) the presence in, on or under the Property or the Development of any Hazardous Materials or any releases or discharges during the Lease Term of any Hazardous Materials into, on, under or from the Property or the Development; or (3) any activity carried on or undertaken on or off the Property or the Development, during the Lease Term, and whether by the Lessee or any employees, agents, contractors or subcontractors of the Lessee, or any third persons occupying or present on the Property or the Development, in connection with the handling, treatment, removal, storage, decontamination, cleanup, transport or disposal of any Hazardous Materials located or present on or under the Development (collectively "Indemnification Claims"). The foregoing indemnity shall further apply to any residual contamination on or under the Property or the Development, or affecting any natural resources, and to any contamination of any property or natural resources arising in connection with the Indemnification Claims and irrespective of whether any of such activities were or will be undertaken in accordance with Hazardous Materials Laws; provided, however, the foregoing indemnity shall not apply to any Indemnification Claims arising directly or indirectly, in whole or in part, from the City's gross negligence or willful misconduct. This obligation to indemnify, set forth in this Section 4.7(b) shall survive termination of this Lease. (c) No Limitation. The Lessee hereby acknowledges and agrees that the Lessee's duties, obligations and liabilities under this Lease, including, without limitation, under subsection (b) above, are in no way limited or otherwise affected by any information the City may have concerning the Development and/or the presence within the Development of any Hazardous Materials, whether the City obtained such information from the Lessee or from its own investigations. (d) Environmental Work. The Lessee shall be responsible for performing the work of any investigation and remediation that may be required by applicable law on the Property in order to develop the Development. The determination as to whether any such remediation is needed, and as to the scope and methodology thereof, shall be made by mutual agreement of the governmental agency with responsibility for monitoring such remediation and the City and the Lessee. The Lessee shall notify the City promptly upon discovery of any actionable levels of Hazardous Materials, and upon any release thereof, and shall consult with the City in order to establish the extent of remediation to be undertaken and the procedures by which remediation thereof shall take place. The Lessee shall comply with, and shall cause its agents and contractors to comply with, all laws regarding the use, removal, storage, transportation, disposal and remediation of Hazardous Substances. The investigation and remediation work shall be carried out in accordance with all applicable laws (including Hazardous Materials Laws) and such other procedures and processes as may be described in this Lease. Section 4.8 Non-Discrimination. The Lessee shall not, in the selection or approval of tenants or provision of services or in any other matter relating to the development and operation of the Development, discriminate against any person or group of persons on the grounds of race, color, creed, religion, sex, sexual orientation, marital status, national origin, ancestry, age, or 10 lOUlD09755.4 15 disability. All such deeds, leases or contracts shall contain or be subject to substantially the following nondiscrimination or no segregation clause: (a) In deeds: "The grantee herein, covenants by and for the grantee, the grantee's heirs, executors, administrators and assigns, and all persons claiming under or through them, that there shall be no discrimination against or segregation of any person or group of persons on account of race, color, creed, religion, sex, sexual orientation, age, handicap, martial status, ancestry or national origin in the sale, lease, sublease, transfer, use, occupancy, tenure or enjoyment of the premises herein conveyed, nor shall the grantee, or any person claiming under or through the grantee, establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lessees, subtenants, sublessees or vendees in the premises herein conveyed. The foregoing covenants shall run with the land. (b) In leases: "The lessee herein covenants by and for the lessee, the lessee's heirs, executors, administrators and assigns, and all persons claiming under or through the lessee, and this lease is made and accepted upon and subject to the following conditions. "That there shall be no discrimination against or segregation of any person or group of persons on account of race, color, creed, religion, sex, sexual orientation, age, handicap, marital status, ancestry, or national origin in the leasing, subleasing, transferring, use, occupancy, tenure or enjoyment of the premises herein leased, nor shall the lessee, or any person claiming under or through the lessee, establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lessees, subtenants, sublessees or vendees in the premises herein leased." (c) In contracts: "There shall be no discrimination against or segregation of any person or group of persons on account of race, color, creed, religion, sex, sexual orientation, age, handicap, marital status, ancestry or national origin in the sale, lease, sublease, transfer, use, occupancy, tenure or enjoyment of the premises, nor shall the transferee, or any person claiming under or through the transferee, establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lessees, subtenants, sublessees or vendees of the premises." ARTICLE 5: APPROVED LOANS Section 5.1 Loan Obligations. Nothing contained in this Lease shall relieve the Lessee of its obligations and responsibilities under any Approved Loans to operate the Development as set forth in the applicable Approved Loan Documents. Section 5.2 Liens and Encumbrances Against Lessee's Interest in the Leasehold Estate. (a) Lessee shall have the right to encumber the leasehold estate created by this Lease and the Improvements with the lien or liens securing one or more Approved Loans, subject 1010W1 W9755.4 16 to the City's review and prior approval of the Approved Loan Documents which approval shall not be unreasonably withheld or conditioned. Within thirty (30) days following receipt of the proposed Approved Loan Documents along with Lessee's written notice requesting approval of such documents, the City shall review and either approve or disapprove the Approved Loan Documents. (b) The Lessee shall have the right, to encumber the City's interest in the Property and the Improvements with a lien of an Approved Loan only upon the prior written approval of the City which may be granted or denied in the City's sole discretion. (c) For as long as there is any lien securing any Approved Loans: (i) The City shall not agree to any mutual termination or accept any surrender of this Lease, nor shall the City consent to any amendment or modification of this Lease, without prior written consent of all Approved Lenders that have an outstanding Approved Loan. Notwithstanding any default by the Lessee under this Lease, the City shall have no right to terminate this Lease unless the City has given all Approved Lenders which have an outstanding Approved Loan and the Investor written notice of such default pursuant to the requirement of Sections 5.2(c)(vi) and 11.2 and the Investor and such Approved Lenders have failed to remedy such default or acquire the Lessee's leasehold estate created by this Lease or commence foreclosure or other appropriate proceedings as set forth in, and within the time specified by, subsection 5.2(c), as applicable. If the City receives competing or conflicting offers to cure any default, then the City shall accept the offers to cure in the following order: first, the Lessee, then each Approved Lender in the relative priority of their respective deeds of trust. Notwithstanding the foregoing, an Approved Lender shall not be required to obtain possession or commence or continue foreclosure proceedings as a prerequisite to curing a default by the Lessee. (ii) Any Approved Lender which has an outstanding Approved Loan shall have the right, but not the obligation, at any time to pay any or all of the Rent due pursuant to the terms of this Lease, and do any other act or thing required of the Lessee by the terms of this Lease, to prevent termination of this Lease. Each Approved Lender shall have thirty (30) days after receipt of notice from the City describing such default to cure the default. All payments so made and all things so done shall be as effective to prevent a termination of this Lease as the same would have been if made and performed by the Lessee instead of by the Approved Lender(s) and the costs thereof may be added to the security interest and the lien securing the Approved Loans(s) thereof. (iii) In addition to the cure period provided in paragraph (ii) above, if the default is such that possession of the Development may be reasonably necessary to remedy the default, any Approved Lender which has an outstanding Approved Loan shall have a reasonable time after the expiration of such thirty (30)-day period within which to remedy such 1010\01\209755.4 17 default, provided that (A) such Approved Lender has fully cured any default in the payment of any monetary obligations of the Lessee under this Lease within such thirty (30)-day period and shall continue to pay currently such monetary obligations when the same are due, (B) such Approved Lender has acquired the Lessee's leasehold estate hereunder or commenced foreclosure or other appropriate proceedings prior to or within such period, and shall be diligently prosecuting the same; and (C) after gaining possession of the Development, the Approved Lender has cured all non-monetary defaults capable of cure by the Approved Lender and performed all obligations of the Lessee capable of performance by the Approved Lender when the obligations are due. (iv) Any default under this Lease which by its nature cannot be remedied by any Approved Lender shall be deemed to be remedied if (A) within thirty (30) days after receiving written notice from the City describing the default, or prior thereto, any Approved Lender has acquired the Lessee's leasehold estate or commenced foreclosure or other appropriate proceedings, (B) the Approved Lender diligently prosecutes any such proceedings to completion, (C) the Approved Lender has fully cured any default in the payment of any monetary obligations of Lessee hereunder which does not require possession of the Development, and @) after gaining possession of the Development, the Approved Lender performs all other obligations of Lessee hereunder capable of performance by the Approved Lender when the obligations are due. (v) If Approved Lenders are prohibited, stayed, or enjoined by any bankruptcy, insolvency, or other judicial proceedings involving the Lessee from commencing or prosecuting foreclosure or other appropriate proceedings, then the times specified for commencing or prosecuting such foreclosure or other proceedings shall be extended for the period of such prohibition, so long as the Approved Lender claiming the extension has fully cured any default in the payment of any monetary obligations of Lessee under this Lease, continues to pay currently such monetary obligations when the same fall due, and does not interfere with the City's efforts to seek compliance by the Lessee with any non-monetary obligation under this Lease. (vi) The City shall mail or deliver to any Approved Lenders which have any outstanding Approved Loan a duplicate copy of all notices which the City may from time to time give to the Lessee pursuant to this Lease. All notices delivered by the City to any Approved Lenders shall also comply with the notice provisions of Section 11.2. The conveyance of the Lesseels interest in the Development to a Foreclosure Transferee by means of a foreclosure or a deed in lieu of foreclosure shall not be subject to the City's prior consent. In the event Foreclosure Transferee becomes the Lessee under this Lease by means of foreclosure or deed in lieu of foreclosure or pursuant to any new lease obtained under subsection (viii) below, the City shall recognize the Foreclosure Transferee and the Foreclosure Transferee shall be personally liable under this Lease or such new lease only for the period of time that the Foreclosure Transferee remains the lessee. Nothing in this section obligates any Foreclosure Transferee to remedy any default of the Lessee, and any failure of any Approved Lender to complete any such cure after commencing the same shall not give rise to any liability of the Approved Lender to the City. 1010\01\209755.4 18 If any Foreclosure Transferee shall acquire the Lessee's interest in the Development, such Foreclosure Transferee shall thereafter have the right to assign or transfer such interest in the Development to an assignee, subject to the consent provisions of Article 8 below. The Foreclosure Transferee shall be released and relieved of any liability under this Lease for acts occurring after the assignment and under any other document entered into in connection herewith upon assignment of all of the Foreclosure Transferee's interest in the Development. (vii) If a Foreclosure Transferee becomes the legal owner of the leasehold estate, and upon written request by the Foreclosure Transferee or its permitted transferee within sixty (60) days after becoming the legal owner of the leasehold estate, the City shall enter into a new lease of the Property with the Foreclosure Transferee or its permitted transferee for the remainder of the Lease Term with the same agreements, covenants, reversionary interests, and conditions (except for any requirements which have been fulfilled by the Lessee prior to termination) as are contained in this Lease and with priority equal to this Lease, so long as the Foreclosure Transferee or its permitted transferee promptly cures any existing defaults by the Lessee susceptible to cure by the Foreclosure Transferee or its permitted transferee. (viii) If this Lease is terminated by a bankruptcy proceeding, foreclosure, or by other operation of law, then the City shall, upon request by an Approved Lender or its permitted transferee, execute a new lease of the Property to the Approved Lender or other transferee, as the case may be, on the same terms and conditions as this Lease, except that the term will commence on the date of the new lease and will continue for the remaining unexpired term of this Lease. If the City receives conflicting requests for a new lease of the Property, then the City shall execute a new lease of the Property with the requesting Approved Lender having the most senior deed of trust. (ix) The City shall cooperate in including in this Lease by suitable amendment from time to time any provision which may reasonably be requested by any proposed leasehold mortgagee for the purpose of implementing the mortgagee-protection provisions contained in this Lease and allowing such leasehold mortgagee reasonable means to protect or preserve the lien of the leasehold mortgage and the value of its security. The City shall execute and deliver (and acknowledge, if necessary, for recording purposes) any agreement necessary to effect any such amendment, so long as such amendment does not in any way affect the Lease Term or Rent under this Lease or otherwise in any material respect adversely affect any rights of the City under this Lease. Section 5.3 Cost of Approved Loans to be Paid by Lessee. The Lessee shall bear all of the costs and expenses in connection with (a) the preparation and securing of the Approved Loans, (b) the delivery of any instruments and documents and their filing and recording, if required, and (c) all taxes and charges payable in connection with the Approved Loans. Section 5.4 to and become the property of the Lessee, and the City shall have no right to receive any such Approved Loan proceeds. Proceeds of Approved Loans. All Approved Loan proceeds shall be paid 1010\01U09755.4 19 Section 5.5 Notice and Right to Cure Defaults Under Approved Loans. Lessee shall include in all Approved Loan Documents that in the event of default by the Lessee under an Approved Loan, notice shall be given to the City at the same time given to the Lessee, and the City shall have the right, but not the obligation, to cure the default with a cure period which extends not less than thirty (30) days beyond the cure period provided to the Lessee under the applicable Approved Loan Document. Any payments made by the City to cure a default shall be treated as Rent due from the Lessee, which shall be paid within thirty (30) days of the date on which the payment was made by the City. Section 5.6 Modifications. If an Approved Lender should, as a condition of providing financing for development of all or a portion of the Development, request any modification of this Lease in order to protect its interests in the Development or this Lease, the City shall consider such request in good faith consistent with the purpose and intent of this Lease and the rights and obligations of the Parties under this Lease. Section 5.7 Estoppel Certificates. The City and the Lessee agree that at any time and from time to time upon not less than twenty (20) days' prior written notice by the other party, or upon request from any Approved Lender or a permitted assignee or other interested party, the City or the Tenant will execute, acknowledge and deliver to the other party or to such other parties a statement in writing certifying (a) that this Lease is unmodified and in full force and effect; (b) the date through which the Rent has been paid; and (c) that, to the knowledge of the certifier (if such be the case), there is no default, set-off, defense or other claim against the City or the Lessee, as applicable, other than those, if any, so specified under the provisions of this Lease. It is intended that any such statement may be relied upon by any persons proposing to acquire the interest of the City, the Lessee or any Approved Lender, as the case may be, in this Lease or by any assignee of any Approved Lender. ARTICLE 6: INSURANCE Section 6.1 Required Insurance Coverage. The Lessee shall furnish to the City the type and amounts of insurance specified in Exhibit B. The Agency and the City shall be named as additional insureds on the policies specified in Exhibit B. The Lessee shall insure that all worker compensation insurance policies carried by the general contractor and subcontractors working on the Development include a waiver of subrogation in favor of the Agency and the City. Section 6.2 Insurance Policies and Premiums. (a) All liability policies required by this Lease or any Approved Loan Document shall name the City and its council members, officers, employees, and agents as an additional insured, and shall provide cross liability among insureds, and state that as to claims related to the work performed, the insurance shall be primary as to the additional insureds under this Lease, so that any other policies held by the City shall not contribute to any loss under the insurance. 1010\01\209755.4 20 (b) Insurance shall be placed with insurers with a current Best Rating of no less than A:VII. Any deductible or self-insured retention shall be disclosed to and approved by the City. (c) The Lessee shall furnish the City with certificates and original endorsements effecting the required coverage promptly upon request. The endorsements shall be signed by persons authorized by the insurer to bind coverage on its behalf. The endorsements shall be on forms provided by the City or as approved by the City. If the Lessee does not keep all required insurance policies in full force and effect, then the City may, in addition to other remedies under this Lease, and upon not less than fifteen (15) days prior written notice and the failure of the Lessee to obtain such insurance within such fifteen (15)-day period, take out the necessary insurance, and the Lessee shall pay the cost of such insurance. (d) To the extent obtainable, any policy of insurance shall provide that any change or cancellation of the policy must be made in writing and sent to the Lessee and the City at their respective principal offices at least thirty (30) days before the effective date of change or cancellation. (e) Promptly upon the City's request from time to time during the Lease Term, the Lessee shall increase the amount of the insurance policies, or otherwise modify such policies set forth in Exhibit B. Section 6.3 Proceeds of Insurance. (a) For so long as any Approved Loan on the Development is outstanding, the disposition of all commercial property insurance (including builder's risk) proceeds shall be governed by the Approved Loan Documents. If the Improvements are not repaired or rebuilt, all such proceeds shall be applied in a manner consistent with the terms of the Approved Loans, with any conflicts resolved in accordance with the relative priority of their respective deeds trust. (b) If the Lessee fails to agree in writing within thirty (30) days after payment of the proceeds of insurance that such repair or rebuilding is economically feasible and the Improvements as so restored will be economically viable, then within an additional sixty (60) days, Lessee shall commence to demolish and clear the Property of the Improvements, unless otherwise directed by the City, and this Lease shall terminate at the option of the City upon the completion of the clearance of the Property by the Lessee. Section 6.4 Indemnification. The Lessee agrees to indemnify, protect, hold harmless and defend (by counsel reasonably satisfactory to the City) the City, its council members, officers and employees, from all suits, actions, claims, causes of action, costs, demands, judgments and liens arising out of the Lessee's performance or non-performance under this Lease, or any other agreement executed pursuant to this Lease, or arising out of acts or omissions of any of Lessee's contractors, subcontractors, or persons claiming under any of the aforesaid, except as directly caused by the City 's willful misconduct or gross negligence. The provisions of this section shall survive expiration of the Lease Term or other termination of this Lease, and shall remain in full force and effect. 10 1 OW 1 Q09755.4 21 ARTICLE 7: CONDEMNATION, DAMAGE OR DESTRUCTION OF THE IMPROVEMENTS Section 7.1 Condemnation. If the Improvements or the Property or any part thereof is taken or condemned, for any public or quasi-public purpose or use by any competent entity in appropriate proceedings, or by any right of eminent domain, then the City and Lessee shall request that awards and other payments on account of a taking of the Improvements and the Property (less costs, fees and expenses incurred by the City and Lessee in connection with the collection thereof) be divided by the presiding court between loss of value of the fee interest in the Property and loss of value of the Improvements and the leasehold interest in the Property. In any case, subject to the rights of Approved Lenders under the Approved Loan Documents (with any conflicts resolved in accordance with the relative priority of their respective deeds of trust), such awards and payments shall be applied as follows: (a) Net awards and payments received on account of a partial taking of the Improvements, other than a taking for a temporary use not exceeding one (1) year, shall be allocated and paid in the following order of priority: (i) If the Lessee reasonably believes restoration is economically feasible, and unless the Approved Lenders under the Approved Loan Documents require that the proceeds be applied to the outstanding indebtedness under the Approved Loans, first, to pay the cost of restoration of the Improvements, provided that the extent of the Lessee's obligations to restore the Improvements shall be limited to the amount of the net award and payment received by and available to Lessee on account of the taking. In such event, the condemnation proceeds shall be paid into the Construction Fund described in Section 7.2 below, subject to the rights of Approved Lenders to collect and disburse such funds. (ii) Second (or first if (i) the Lessee does not believe that restoration is economically feasible or viable as described above, or (ii) the Approved Lender(s) under the Approved Loan Documents require(s) that such proceeds be applied to the outstanding indebtedness under the Approved Loan(s)) to any Approved Lenders (in the order of their respective lien priority, if there is more than one Approved Lender) in an amount necessary to reduce the outstanding indebtedness under the approved Loan(s) to the extent required by the Approved Lender(s). (iii) The balance, if any, shall be divided between the City and the Lessee in the manner specified in subparagraph (e) below. (b) Net awards and payments received on account of a partial or total taking of only the City's fee interest in the Property or the reversionary interest in the Improvements (that is, a taking of the City's fee interest in the Property or the City's reversionary interest in the Improvements that has no effect on the value of the Lessee's leasehold interest in the Property or the Lessee's fee interest in the Improvements), including severance damages, shall be paid to the City which amount shall be free and clear of any claims of the Lessee, or any other persons claiming rights to the Property through or under the Lessee. 1010\1)1\209755.4 22 (c) Net awards and payments received on account of a taking for temporary use not exceeding one (1) year and relating to a period during the Lease Term shall be paid to the Lessee; however, if such taking for temporary use has resulted in any damage to or destruction of the Development, then such net awards and payments shall be first applied to pay the cost of restoration if the Lessee determines that restoration is economically feasible. Net awards and payments received on account of a taking for temporary use not exceeding one (1) year and relating to a period beyond the Lease Term shall be paid to the City. (d) Net awards and payments received on account of a total taking of the Development shall be allocated and paid in the following order of priority: (i) First, to any Approved Lenders with then-outstanding Approved Loans secured by the Development (in the order of their respective lien priority, if there is more than one Approved Lender), an amount equal to the unpaid balance secured by their respective Approved Loans up to the total amount of such awards and payments; (ii) The balance, if any, shall be dlvided between the City and the Lessee in the manner specified in subparagraph (e) below. (e) For purposes'of subsections (a)(iii) and (d)(ii) above, proceeds shall be paid in the following manner: first, the Lessee shall receive reimbursement for any funds it has reasonably expended for repair andor reconstruction of the Development (other than funds received from Approved Lenders). Second, the balance, if any, shall be paid to the Lessee and the City pari passu. The Lessee shall receive the portion of the payment attributable the Improvements, Lessee's leasehold interest, and Lessee's trade fixtures and personal property. The City shall receive the portion of the payment attributable to the City's fee interest in the Property and the City's reversionary interest in the Improvements. (f) The Lessee shall receive any award granted for or allocated to trade fixtures, moving expenses or loss of business. Section 7.2 Administration of Construction Fund in the Event of Condemnation, or Damage or Destruction of Develoument. If the Approved Loans have been paid in full, and if the Improvements, or any part of it, is to be repaired or reconstructed after damage or destruction or condemnation, then all proceeds collected under any and all policies of insurance referred to in Article 6 above covering such damage or destruction, or all compensation received for such taking by the exercise of the power of eminent domain, shall be paid into a special trust fund to be created and held by the Lessee during such repairing or reconstructing (the "Construction Fund"). Any surplus of such insurance or condemnation proceeds remaining in the Construction Fund after the completion of all payments for such repairing or reconstructing shall be held or applied by the Lessee in a manner consistent with the applicable provision of this Article 7. Section 7.3 Lessee, Citv, Approved Lenders to be Made Parties in Lena1 Proceedings. (a) In the event proceedings shall be instituted (i) for the exercise of the power of eminent domain, or (ii) as a result of any damage to or destruction of the Development, 1010\01\209755.4 23 the resulting proceeds shall be paid to the Approved Lenders for application or disbursement in accordance with the Approved Loan Documents (in the order of their respective lien priority, if there is more than one such Approved Lender). The Lessee, City, and, as necessary, any Approved Lender with a then-outstanding Approved Loan shall be made parties to those proceedings, and if not made parties by the petitioning party, shall be brought into the proceedings by appropriate proceedings of the other parties so that adjudication may be made of the damages, if any, to be paid to the Lessee, the City and Approved Lenders as compensation for loss of their rights in the Improvements or the Property, or for damage to or destruction of the Development. Should the City or Lessee receive notice of institution of any proceedings subject to Section 7.1, the Party receiving such notice shall notify the other Party not later than thirty (30) days after receiving such notice. (b) The City and the Lessee shall cooperate and consult with each other in all matters pertaining to the settlement, compromise, arbitration, or adjustment of any and all claims and demands for damages on account of damage to, or destruction of, the Development, or for damages on account of the taking or condemnation of the Improvements or the Property. Section 7.4 Termination. In the event of a total taking or in the event of damage, destruction, or a partial taking, other than a temporary taking of the Development, which the Lessee reasonably determines renders continued operation of the Development infeasible both as a whole and in substantial part, this Lease shall terminate at the option of the City (except if the Lessee is rebuilding the Development in accordance with the terms of this Lease), and in such event any proceeds shall be allocated pursuant to Section 6.3 or Article 7, as appropriate. In the event of a partial talung that does not result in termination pursuant to this Section 7.4, this Lease shall remain in full force and effect as to the portion of the Development remaining. ARTICLE 8: ASSIGNMENT AND TRANSFERS Section 8.1 Definitions. As used in this Article 8, the term "Transfer" means: (a) Any total or partial sale, assignment or conveyance, or any trust or power, or any transfer in any other mode or form, of or with respect to this Lease or of the Property or any part thereof or any interest therein or of the Development constructed thereon, or any contract or agreement to do any of the same; or (b) Any total or partial sale, assignment or conveyance, or any trust or power, or any transfer in any other mode or form, of or with respect to any ownership interest in the Lessee, or any contract or agreement to do any of the same. Section 8.2 Purpose of Restrictions on Transfer. This Lease is entered into solely for the purpose of development and operation of the Development on the Property and its subsequent use in accordance with the terms of this Lease. The qualifications and identity of the Lessee are of particular concern to the City, in view of 24 (a) The importance of the redevelopment of the Property to the general welfare of the community; and (b) The fact that a Transfer as defined in Section 8.1 above is for practical purposes a transfer or disposition of the Property. It is because of the qualifications and identity of the Lessee that the City is entering into this Lease with the Lessee and that Transfers are permitted only as provided in this Lease. Section 8.3 Prohibited Transfers. The limitations on Transfers set forth in this Section 8.3 shall apply for the Lease Term. Except as expressly permitted in this Lease, the Lessee represents and agrees that the Lessee has not made or created, and will not make or create or suffer to be made or created, any Transfer, either voluntarily or by operation of law, without the prior approval of the City. The City may approve any such Transfer in its sole discretion. The Parties agree and acknowledge that Affirmed shall remain the sole general partner of the Lessee throughout the Lease Term. The City shall not approve a Transfer of Affirmed's interest in the Lessee nor shall the City approve of the admission of any other entity, including but not limited to, a non-profit or tax-exempt entity, as a general partner of the Lessee. Any Transfer made in contravention of this Section 8.3 shall be void and shall be deemed to be a default under this Lease, whether or not the Lessee knew of or participated in such Transfer. Section 8.4 Permitted Transfers. Notwithstanding the provisions of Section 8.3, the following Transfers shall be permitted without the prior written consent of the City (subject to satisfaction of the conditions of Section 8.5). (a) Any Transfer creating an Approved Loan. (b) Any Transfer directly resulting from the foreclosure of an Approved Loan or the granting of a deed in lieu of foreclosure of an Approved Loan. (c) with the Regulatory Agreement. The leasing of residential units within the Development in accordance (d) Any Transfer resulting directly from the death of an individual. (e) The granting of easements or permits to facilitate the development of the Property. [NOTE: THE DISPOSITION AGREEMENT NOW PROVIDES FOR A TRANSFER OF A MEMBERSHIP INTEREST IN THE LESSEE TO THE INVESTOR. THUS, WE DID SINCE THE AGENCY ANTICIPATES THAT THE INVESTOR WILL BE ADMITTED PRIOR TO EXECUTING THE LEASE] NOT INCLUDE A PRE-APPROVED TRANSFER IN THE LEASE TO THE INVESTOR Section 8.5 Procedure for Approval of Certain Transfers. The City shall in its sole discretion approve or disapprove a request for a Transfer made by the Lessee upon the Lessee's 25 delivery of written notice to the City requesting such approval. Such notice shall be accompanied by evidence regarding the proposed Transfer in reasonably sufficient detail to enable the City to evaluate the proposed Transfer, including, without limitation, transferee financial statements, information regarding prior transferee experience, and information regarding transferee's proposed use and/or development of the Property. Within thirty (30) days after receipt of the Lessee's written notice requesting City approval of a proposed Transfer, the City shall either reasonably approve or disapprove such proposed Transfer, or shall respond in writing by stating what further information, if any, the City reasonably requires in order to determine whether or not to grant the requested approval. Upon receipt of such a response, the Lessee shall promptly furnish to the City such further information as may be reasonably requested. Within ten (10) days after the City's receipt of the Lessee's submittal of the requested further information, the City shall either reasonably approve or disapprove such proposed Transfer. The City's failure to respond within such ten (10)-day period to any such request for approval shall be deemed to be the City's approval thereof. Upon the City granting approval of such proposed Transfer, the person or entity to which such Transfer is made, by an instrument in writing prepared by the City and in form recordable among the land records of the County, shall expressly assume the obligations of the Lessee under this Lease and agree to be subject to the conditions and restrictions to which the Lessee is subject arising during this Lease, to the fullest extent that such obligations are applicable to the particular portion of or interest in the Development conveyed in such Transfer. Section 8.6 Assimments. Any assignment of rights andor delegation of obligations under this Lease in connection with a Transfer (whether or not City approval is required) shall be in writing executed by the Lessee and the assignee or transferee, with a copy thereof delivered to the City within thirty (30) days after the effective date thereof. Upon assignment or transfer of the Development pursuant to an assumption agreement described in Section 8.5 above, the assignor shall be relieved of liability with respect to any such obligations relating to the Development assumed by the assignee. Notwithstanding the foregoing, unless such assignee specifically assumes the obligations under this Lease with respect to the Development, the assignor will retain such obligations and remain jointly and severally liable for such obligations with such assignee. In the absence of specific written agreement by the City (which the City may grant or withhold in its sole discretion), no Transfer permitted by this Lease or approved by the City shall be deemed to relieve the transferor from any obligation under this Lease. ARTICLE 9: REPRESENTATIONS AND ASSURANCES Section 9.1 City to Give Peaceful Possession. Lessee shall have, hold, and enjoy, during the Lease Term, peaceful, quiet, and undisputed possession of the Property without hindrance or molestation by or from the City so long as the Lessee is not in default under this Lease following the expiration of all applicable notice and cure periods. Section 9.2 Lessee Representations. The Lessee represents and warrants, as of the Commencement Date, as follows: 1010\01\209755.4 26 (a) Orpanization. The Lessee is a duly organized, validly existing California limited liability company, and is in good standing under the laws of the State of California and has the power and authority to own its property and carry on its business as now being conducted. (b) Authority of Lessee. The Lessee has full power and authority to execute and deliver this Lease, or to be executed and delivered, pursuant to this Lease, and to perform and observe the terms and provisions of all of the above. (c) Authority of Persons ExecutinP Documents. This Lease and all other documents or instruments executed and delivered, or to be executed and delivered, pursuant to this Lease have been executed and delivered by persons who are duly authorized to execute and deliver the same for and on behalf of Lessee, and all actions required under the Lessee's organizational documents and applicable governing law for the authorization, execution, delivery and performance of this Lease and all other documents or instruments executed and delivered, or to be executed and delivered, pursuant to this Lease, have been duly taken. (d) Valid Binding Agreements. This Lease and all other documents or instruments which have been executed and delivered pursuant to or in connection with this Lease constitute or, if not yet executed or delivered, will when so executed and delivered constitute, legal, valid and binding obligations of the Lessee enforceable against it in accordance with their respective terms. (e) No Breach of Law or Agreement. Neither the execution nor delivery of this Lease or of any other documents or instruments executed and delivered, or to be executed or delivered, pursuant to this Lease, nor the performance of any provision, condition, covenant or other term hereof or thereof, will conflict with or result in a breach of any statute, rule or regulation, or any judgment, decree or order of any court, board, commission or agency whatsoever binding on the Lessee, or any provision of the organizational documents of the Lessee, or will conflict with or constitute a breach of or a default under any agreement to which the Lessee is a party, or will result in the creation or imposition of any lien upon any assets or property of the Lessee, other than liens established pursuant hereto. (f) Compliance With Laws; Consents and ApDrovals. The construction of the Improvements will comply with all applicable laws, ordinances, rules and regulations of federal, state and local governments and agencies and with all applicable directions, rules and regulations of the fire marshal, health officer, building inspector and other officers of any such government or agency. (g) Pending Proceedings. The Lessee is not in default under any law or regulation or under any order of any court, board, commission or agency whatsoever, and there are no claims, actions, suits or proceedings pending or, to the knowledge of the Lessee, threatened against or affecting the Lessee, at law or in equity, before or by any court, board, commission or agency whatsoever which might, if determined adversely to the Lessee, materially affect the Lessee's ability to develop the Improvements. 10 10U 1 Q0975S.4 27 (h) Title to Property. Upon the recordation of the Memorandum of Lease, the Lessee will have good and marketable leasehold title to the Property and there will exist thereon or with respect thereto no mortgage, lien, pledge or other encumbrance of any character whatsoever other than those liens approved by the City, liens for current real property taxes and assessments not yet due and payable, and liens in favor of the City or approved in writing by the City. (i) Financial Statements. The financial statements of the Lessee and other financial data and information furnished by the Lessee to the City fairly present the information contained therein. As of the date of this Lease, there has not been any adverse, material change in the financial condition of the Lessee from that shown by such financial statements and other data and information. (i) Sufficient Funds. The Lessee holds sufficient funds or binding commitments for sufficient funds to complete the construction of the Improvements in accordance with this Agreement. Section 9.3 Release of City. The City may sell, assign, transfer or convey all or any part of City's interest in the Property, reversionary interest in the Improvements, or this Lease without obtaining the Lessee's consent, as long as the purchaser, assignee, or transferee: (i) expressly assumes all of the obligations of the City under this Lease by a written instrument in a form reasonably satisfactory to Lessee and recordable in the Official Records. In the event of a sale, assignment, transfer or conveyance by the City of the Property or its rights under this Lease, the same shall operate to release the City from any future liability upon any of the covenants or conditions of this Lease, expressed or implied, in favor of the Lessee, and in such event the Lessee shall look solely to the successor in interest of the City. This Lease shall not be affected by any such sale or transfer, and the Lessee agrees to attorn to any such purchaser or assignee. Section 9.4 Holding Over. If the Lessee shall retain possession of the Property or the Improvements thereon or any part thereof without the City's prior written consent following the expiration of the Lease Term or sooner termination of this Lease for any reason, then the Lessee shall pay to the City the greater of (i) an amount equal to two hundred percent (200%) of the Rent during the Lease Year prior to such termination or (ii) the fair market rent for the Property as of the date the Lessee retained possession of the Property or the Improvements, or any part thereof without the City's prior written consent following the expiration or sooner termination of this Lease as determined by a licensed real estate appraiser selected by the City in its sole discretion (the "Holdover Rent"). In addition to the Holdover Rent, the Lessee shall pay the City all other payments that would have been due had the Lease not expired or been terminated and had the Rent and other payment terms in effect at the time of the expiration or sooner termination of the Lease remained in effect. These payments shall be applicable to a holding over of any kind by the Lessee. The Lessee shall also indemnify and hold the City harmless from any loss or liability resulting from delay by the Lessee in surrendering the Property, including, without limitation, any claims made by any succeeding lessee founded on such delay. Acceptance of Rent by the City following expiration or termination shall not constitute a renewal of this Lease and nothing contained in this Section 9.4 shall waive the City's right of reentry or any other right. 1010W1W9755.4 28 'i 07 The Lessee shall be only a Lessee at sufferance, whether or not the City accepts any Rent from the Lessee while the Lessee is holding over without the City's written consent. Section 9.5 No Merger. Except upon expiration of the Lease Term or upon termination of this Lease pursuant to an express right of termination set forth herein, there shall be no merger of either this Lease or the Lessee's estate created hereunder with the fee estate of the Property or any part thereof by reason of the fact that the same person may acquire, own or hold, directly or indirectly, (a) this Lease, the Lessee's estate created hereunder or any interest in this Lease or the Lessee's estate (including the Improvements), and (b) the fee estate in the Property or any part thereof or any interest in such fee estate (including the Improvements), unless and until all persons, including any assignee of the City, having an interest in (i) this Lease or the Lessee's estate created hereunder, and (ii) the fee estate in the Property or any part thereof, shall join in a written instrument effecting such merger and shall duly record the same. ARTICLE 10: DEFAULTS AND REMEDIES Section 10.1 Events of Default; Remedy for Default by Lessee. (a) Any one or more of the following events shall constitute an "Event of Default" by the Lessee: (i) Failure to pay Rent, as required pursuant to Section 2.5 of this Lease, or any other payment required hereunder, and continuance of such failure for a period of ten (10) days after receipt by the Lessee of written notice specifying the nonpayment; (ii) Failure of the Lessee to observe and perform any other covenant, condition or agreement hereunder on its part to be performed, and (A) continuance of such failure for a period of forty-five (45) days after receipt by the Lessee of written notice specifying the nature of such default, or (B) if by reason of the nature of such default the same cannot be remedied within such forty-five (45) days, the Lessee fails to proceed with reasonable diligence after receipt of such notice to cure the same, within a reasonable amount of time thereafter but in no event later than one hundred twenty (120) days following the City's initial notice; or (iii) A default by the Lessee under the City Loan, the Disposition Agreement, the Regulatory Agreement, the City Note or the City Deed of Trust which continues beyond the expiration of all applicable notice and cure periods; or (iv) The Lessee's abandonment of the Property for the period of time required for such abandonment to be legally recognized as such under California law; or (v) A general assignment by the Lessee (or Affirmed) for the benefit of creditors; or (vi) The filing of a voluntary petition by the Lessee (or Affirmed), or the filing of an involuntary petition by any of the Lessee's creditors, seeking the rehabilitation, 29 'I !E liquidation or reorganization of the Lessee under any law relating to bankruptcy, insolvency or other relief of debtors, provided that in the case of an involuntary petition Lessee (or Affirmed) shall have ninety (90) days to cause such petition to be withdrawn or dismissed; or (vii) The appointment of a receiver or other custodian to take possession of substantially all of the Lessee's (or Affirmed's) assets or of this leasehold, which appointment is not withdrawn or dismissed within sixty (60) days, excluding any receivership initiated by an Approved Lender which shall not constitute an Event of Default; or (viii) The Lessee (or Affirmed) becomes insolvent or declares in writing it is unwilling to pay its debts as they become due; or any court enters a decree or order directing the winding up or liquidation of the Lessee (or Affirmed) or of substantially all of its assets; or the Lessee takes any action toward the dissolution or winding up of its affairs or the cessation or suspension of its use of the Development; or (ix) Attachment, execution or other judicial seizure of substantially all of the Lessee's assets or this leasehold, which is not dismissed, bonded, or stayed within thirty (30) days; or (x) A violation of the Lessee's obligations under any of the Approved Loan Documents (without cure or waiver after expiration of applicable cure periods), including (without limitation) a failure to operate, maintain, and manage the Improvements in accordance with this Lease. (xi) A Transfer occurs, either voluntarily or involuntarily, in violation of Article 8. (b) Whenever any default has occurred and is continuing and upon expiration of any applicable cure periods, and subject to the cure rights of Approved Lenders, an Event of Default shall exist, the City may take whatever action at law or in equity as may appear reasonably necessary to enforce performance or observance of this Lease, including without limitation, termination of this Lease. In the event of an Event of Default, City's remedies shall be cumulative, and no remedy expressly provided for in this section shall be deemed to exclude any other remedy allowed by law. Section 10.2 Remedy for Default by City. If the City defaults under this Lease, then the Lessee shall first notify the City in writing of its purported breach or failure, giving the City forty-five (45) days from receipt of such notice to cure or, if cure cannot be accomplished within forty-five (45) days, to commence to cure such breach, failure, or act. In the event the City does not then so cure within said forty-five (45) days, or if the breach or failure is of such a nature that it cannot be cured within forty-five(45) days, the City fails to commence to cure within such forty-five (45) days and thereafter diligently complete such cure within a reasonable time thereafter but in no event later than one hundred twenty (120) days, then the Developer shall be afforded all of its rights at law or in equity, by taking all or any of the following remedies: (1) terminating in writing this Lease (provided, however, that the indemnification provisions shall survive such termination); and (2) prosecuting an action for damages or specific performance. 1010W1 W9755.4 30 ARTICLE 11: MISCELLANEOUS Section 11.1 Instrument Is Entire Aaeement. This Lease and the Disposition Agreement constitute the entire agreement between the Parties with respect to the matters set forth herein and completely supersede all prior understandings or agreements, both written and oral, between the Parties relating to the lease of the Property. Section 11.2 Notices. All notices hereunder shall be in writing signed by the Authorized Officer(s) and shall be sufficient if sent by United States first class, certified mail, postage prepaid, or express delivery service with a receipt showing the date of delivery, addressed: if to the City: City of Carlsbad 2965 Roosevelt Street, Suite B Carlsbad, CA 92008 Attn: City Manager If to Lessee: El Camino Family Housing Partners, LLC c/o Affirmed Housing Group 200 East Washington Street, Suite 200 Escondido, CA 92025 Attn: President With a copy to: Incorvaia & Associates 445 Marine View Avenue, Suite 295 Del Mar, CA 92014 Attn: Joel Incorvaia or any other address as either Party may have furnished to the other in writing pursuant to the requirements of this Section 11.2 as a place for service of notice. Any notice so mailed shall be deemed to have been given on the delivery date or the date that delivery is refused by the addressee, as shown on the return receipt. Section 11.3 Non-Liability of Officials, Employees and Agents. No member, official, employee or agent of the Agency or the City shall be personally liable to the Lessee, or any successor in interest, in the event of a City default. Section 11.4 Force Maieure. Performance by either Party shall not be deemed to be in default where defaults are due to war; insurrection; strikes; lock-outs; riots; floods; earthquakes; fires; casualties; acts of god; acts of the public enemy; epidemics; quarantine restrictions; freight embargoes; lack of transportation; governmental restrictions or priority; litigation (including suits filed by third parties concerning or arising out of this Lease); weather or soils conditions which, in the opinion of the Lessee's contractor, will necessitate delays; inability to secure necessary labor; acts of the other Party; acts or failure to act of any public or governmental agency or entity (other than the acts or failure to act of the City); or any other causes (other than the Lessee's inability to obtain financing for the Development) beyond the control or without the 1010\01\209755.4 31 fault of the Party claiming an extension of time to perform. Times of performance under this Lease may also be extended in writing by the City and the Lessee. In no event shall the cumulative delays exceed one hundred eighty (1 SO) days, unless otherwise agreed to in writing by the Parties. Section 11.5 Non-Waiver of Breach. Neither the failure of a Party to insist upon strict performance of any of the covenants and agreements of this Lease nor the failure by the Party to exercise any rights or remedies granted to such Party under the terms of this Lease shall be deemed a waiver or relinquishment (a) of any covenant herein contained or of any of the rights or remedies of the applicable Party, (b) of the right in the future of the applicable Party to insist upon and to enforce, by any appropriate legal remedy a strict compliance with all of the covenants and conditions thereof, or (c) the right of the City to recover possession of the Property upon occurrence of a default and the expiration of applicable notice and cure periods or the expiration of the Lease Term. Section 1 1.6 Binding Upon Successors; Covenants to Run With Land. This Lease shall be binding upon and inure to the benefit of the heirs, administrators, executors, successors in interest and assigns of each of the Parties; provided, however, that there shall be no transfer of any interest by the Lessee except pursuant to the terms of this Lease. Any reference in this Lease to a specifically named party shall be deemed to apply to any successor, heir, admmistrator, executor or assign of such party who has acquired an interest in compliance with the terms of this Lease, or under law. The terms of this Lease shall run with the land and shall bind all successors in title to the Property during the Lease Term, except that the provisions of this Lease that are specified to survive termination of this Lease shall run with the land in perpetuity and remain in full force and effect following such termination. Every contract, deed, or other instrument hereafter executed covering or conveying the Property or the Improvements or any portion thereof shall be held conclusively to have been executed, deliver, and accepted subject to such covenants and restrictions, regardless of whether such covenants or restricts are set forth in such contract, deed or other instrument, unless the City expressly releases the Property, the Improvements, or the applicable portion of the Property, from the requirements of this Lease. Section 11.7 Employment Opportunity. The Lessee and its successors, assigns, contractors and subcontractors shall not discriminate against any employee or applicant for employment in connection with the construction and operation of the Improvements because of race, color, religion, sex, sexual preference, marital status, ancestry or national origin. Each of the following activities shall be conducted in a nondiscriminatory manner: hiring; upgrading; demotion and transfers; recruitment and recruitment advertising; layoff and termination; rate of pay and other forms of compensation; and selection for training including apprenticeship. Section 11.8 Relationship of Parties. Nothing contained in this Lease shall be deemed or construed by the Parties or by any third party to create the relationship of principal or agent; partnership; joint venture; association; or buyer and seller. Neither the computation of any payments and other charges under the terms of this Lease nor any other provisions contained in 10 IOU 1 Q09755.4 32 this Lease, nor any act of the Parties, shall be deemed to create any relationship between the Parties other than the relationship of landlord and tenant. Section 11.9 Titles. Any titles of the sections or subsections of this Lease are inserted for convenience of reference only and shall be disregarded in interpreting any of its provisions. Section 11.10 Severability. If any provision of this Lease or the application of any provision to any person or circumstances shall be invalid or unenforceable to any extent, the remainder of this Lease, or the application of such provision to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected, and each provision of this Lease shall be valid and be enforced to the fullest extent permitted by law. Section 11.1 1 Applicable Law. This Lease shall be governed by and construed in accordance with the laws of the State of California. Section 11.12 Venue. The Superior Court of the County of San Diego shall be the forum and venue for all litigation arising from this Lease. Section 11.13 Approvals. (a) Whenever this Lease calls for a Party's approval, consent, or waiver, the written approval, consent, or waiver of the Party's Authorized Officer(s) shall constitute the approval, consent, or waiver of the Party, without further authorization required from the Party's board. The Parties hereby authorize their Authorized Officers to deliver such approvals or consents as are required by this Lease, or to waive requirements under this Lease, on behalf of them. (b) All approvals under this Lease shall be subject to a reasonableness standard, except where a sole discretion standard is specifically provided. Section 11.14 Inspection of Books and Records. The City has the right, at all reasonable times, to inspect and copy, on a confidential basis, subject to the California Public Records Act (California Government Code Section 6251 et seq.), the books, records and all other documentation of the Lessee pertaining to its obligations under this Lease. The Lessee also has the right, at all reasonable times, to inspect and copy the books, records and all other documentation of the City pertaining to its obligations under this Lease. Each Party shall maintain adequate records for a period of at least five (5) years after the end of the operating year in which the records were created. Section 11.15 Lease Binding on Successors. This Lease shall inure to the benefit of, and shall be binding upon, the City, the Lessee, and their respective permitted successors and assigns. Section 11.16 Counterparts. This Lease may be executed in counterparts and multiple originals, each of which shall be an original and all of which shall constitute the same instrument. 33 ! iy BY SIGNING BELOW, the Parties confirm their agreement to the terms of this Lease as of the date first written above. CITY: THE CITY OF CARLSBAD, a municipal corporation By: Its: APPROVED AS TO FORM By: Ron Ball City Attorney By : LESSEE: EL CAMINO FAMlLY HOUSING PARTNERS, LLC a California limited liability company By: Affirmed Housing Corporation, a California Corporation, its managing member By: Its: 1010\01\209755.4 34 EXHIBIT A DESCRIPTION OF THE PROPERTY 1010\1)1\209755.4 A- 1 101OWl W9755.4 EXHIBIT B INSURANCE REQUIREMENTS B-1 EXHIBIT C PRELIMINARY TITLE REPORT 1010\01\209755.4 c- 1 EXHIBIT E Form of Regulatory Agreement and Declaration of Restrictive Covenants 1010\16\20723 1.4 E- 1 RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: City Clerk's Office City of Carlsbad Attn: City Clerk 1200 Carlsbad Village Drive Carlsbad. CA 92008 No fee for recording pursuant to Government Code Section 27383 REGULATORY AGREEMENT AND DECLARATION OF RESTRICTIVE COVENANTS (El Camino Real) This Regulatory Agreement and Declaration of Restrictive Covenants (the "Agreement") is made and entered into as of the Carlsbad Redevelopment Agency, a public body, corporate and politic (the "Agency"), the City of Carlsbad, a municipal corporation (the "City"), and El Camino Family Housing Partners, LLC, a California limited liability company (the "Developer"). ,2005 (the "Agreement Date"), by and among RECITALS 1. The City and the Developer have entered into a Land Disposition and Loan Agreement (the "Disposition Agreement") under which the City agreed to ground lease to the Developer certain real property in the City of Carlsbad and more particularly described in Exhibit A attached hereto and incorporated herein (the "Property") and to loan up to One Million Four Hundred Fifty Four Thousand Two Hundred Seventy Six Dollars ($1,454,276) (the "City Loan") to the Developer to finance the development of a fifty-six (56)-unit affordable apartment complex on the Property (the "Development"). Capitalized terms used but not defined in this Agreement shall have the meanings set forth in the Disposition Agreement. 2. The City Loan consists of Two Hundred Thousand Dollars ($250,000) of CDBG funds, Two Hundred Sixty Two Thousand Seventy Hundred Sixty Dollars ($262,760) of HOME funds, and Nine Hundred Ninety One Thousand Five Hundred Sixteen Dollars ($941,516) of Agency Housing Fund monies. 3. Pursuant to Health and Safety Code Section 33334.3, the Agency must restrict developments assisted with funds from the Agency's Housing Fund, so that the developments remain affordable to low and moderate income households for the longest feasible time. The Agency intends to restrict twenty-seven (27) of the units in the Development to very low income households. 10 10\16\220427.1 1 4. Pursuant to the regulations governing the use of HOME funds set forth in 24 CFR 92 et seq. (the "HOME Regulations"), the City must restrict developments assisted with HOME funds so that the developments remain affordable to low income households for a certain period of time. The Agency intends to restrict two (2) two bedroom units within the development (the "HOME-Assisted Units"). This Agreement is intended to implement the HOME Regulations as they apply to the HOME-Assisted Units in the Development. 5. Through this Agreement the Agency is imposing occupancy and affordability restrictions on the Development in order to meet replacement housing requirements applicable to the Redevelopment Area pursuant to Health and Safety Code Section 33413(a). 6. The Agency also intends to utilize the Development to obtain affordable housing production credits for the Agency pursuant to Health and Safety Code Section 33413(b)(2)(A) as newly constructed units located outside of the Redevelopment Area and available at affordable housing cost to very low income households and moderate income households. Such units are required to remain affordable to such households for fifty-five (55) years. This Agreement is also intended to implement this requirement. 7. The City has agreed to provide the City Loan to the Developer and to ground lease the Property to the Developer on the condition that the Development be maintained and operated in accordance with Health and Safety Sections 33334.2 et seq., 33413(a) and 3341 3(b)(2)(A), the HOME Regulations, and in accordance with additional restrictions concerning affordability, operation, and maintenance of the Development, as specified in this Agreement, the Ground Lease and the Disposition Agreement. 8. In consideration of receipt of the City Loan, the Developer has further agreed to observe all the terms and conditions set forth below. 9. In order to ensure that the entire Development will be used and operated in accordance with these conditions and restrictions, the Agency the City, and the Developer wish to enter into this Agreement. THEREFORE, the Agency and the Developer hereby agree as follows: ARTICLE 1. DEFINITIONS Section 1.1 Definitions. When used in this Agreement, the following terms shall have the respective meanings assigned to them in this Article 1. (a) (b) "Actual Household Size" shall mean the actual number of persons in the "Adjusted Income" shall mean the total anticipated annual income of all applicable household. persons in a household as calculated in accordance with 24 CFR 92.203(b)( 1) (which incorporates 24 CFR 813). 10 10\16\220427.1 2 (c) "Agency" shall mean the Carlsbad Redevelopment Agency, a public body, corporate and politic. (d) "Agreement" shall mean this Regulatory Agreement and Declaration of Restrictive Covenants. (e) (f) "Agreement Date" shall mean the last date opposite the respective "Assumed Household Size" shall mean the assumed household size under signatures of the Developer, the City, and the Agency on this Agreement. the HOME program for a one-bedroom unit, two-bedroom unit, or three-bedroom unit as applicable. (g) "City" shall mean the City of Carlsbad, a municipal corporation. (h) "City Loan" shall mean the funds loaned to the Developer by the City pursuant to the Disposition Agreement. (i) (i) "Disposition Agreement" shall mean the Land Disposition and Loan "Deed of Trust" shall mean the deed of trust of even date herewith in favor Agreement entered into by and between the City and the Developer, dated of the City on the Developer's lease and interest in the Property which secures repayment of the City Loan and the performance of the Disposition Agreement. (k) "Developer" shall mean El Camino Family Housing Partners, LLC, a California limited liability company, and its permitted successors and assigns. (1) "Development" shall mean the Property and the fifty-six (56) residential units to be constructed on the Property, as well as any additional improvements, and all landscaping, roads and parking spaces existing thereon, as the same may from time to time exist. (m) "Extremely Low Income Household" shall mean a household whose income does not exceed the qualifying limits for extremely low income households as established and amended from time to time by the Secretary of HUD and defined in Section 5.603(b) of Title 24 of the Code of Federal Regulations. (n) "Extremely Low Income Rent" shall mean the maximum allowable rent for an Extremely Low Income Unit pursuant to Section 2.2(a) below. (0) (p) "Extremely Low Income Units" shall mean the Units which, pursuant to "Forty Percent Household" shall mean a household with an Adjusted Section 2.l(a) below, are required to be occupied by Extremely Low Income Households. Income that does not exceed forty percent (40%) of Median Income, adjusted for Actual Household Size. 3 10 10\16\22O427.1 122 (9) "Forty Percent Rent" shall mean the maximum allowable rent for a Forty Percent Unit pursuant to Section 2.2(b) below. (r) "Forty Percent Units" shall mean the Units which, pursuant to Section 2.l(a) below, are required to be occupied by Forty Percent Households. (s) "Ground Lease" shall mean the Ground Lease between the Developer and the City dated ,2005. (t) (u) "HOME" shall mean the HOME Investment Partnership Act Program "HOME-Assisted Units" shall mean the Units designated as HOME- pursuant to the Cranston-Gonzales National Housing Act of 1990, as amended. Assisted by the City. All of the HOME-Assisted Units shall also be Agency-Assisted Units. (v) "HOME Regulations" shall mean the regulations governing the use of Home Investment Partnership Act funds as set forth in 24 CFR 92 et seq. (w) "Housing Fund" shall mean the Agency's Low and Moderate Income Housing Fund. (x) "Low Income Household" shall mean a household with an Adjusted Income that does not exceed the lesser of (1) the qualifying limit for a low income family under the HOME Program as defined in 24 CFR 92.2, or (2) the qualifying limits for lower income households, as established and amended from time to time pursuant to Section 8 of the United States Housing Act of 1937, and as published by the State of California Department of Housing and Community Development. (y) "Median Income" shall mean the median gross yearly income, adjusted for Actual Household Size or Assumed Household Size as specified herein, in the County of San Diego, California, as published from time to time by the United States Department of Housing and Urban Development ("HUD") and the State of California. In the event that such income determinations are no longer published, or are not updated for a period of at least eighteen (18) months, the Agency shall provide the Developer with other income determinations which are reasonably similar with respect to methods of calculation to those previously published by HUD and the State. "Other Income Household" shall mean a household with an Adjusted Income which does not exceed ninety percent (90%) of Median Income, adjusted for Actual Household Size. (z) (aa) "Other Income Units" shall mean the Units which, pursuant to Section 2.l(c) below, are required to be occupied by Other Households. (bb) "Property" shall mean the real property described in Exhibit A attached hereto and incorporated herein. 4 1010\16\220427.1 (cc) "Redevelopment Area" shall mean Carlsbad Village Redevelopment Project Area or South Carlsabad Coastal Redevelopment Area, as may be amended from time to time. OneBedroom (dd) "Rent" shall mean the total of monthly payments by the Tenant of a Unit for the following: use and occupancy of the Unit and land and associated facilities, including parking; any separately charged fees or service charges assessed by the Developer which are required of all Tenants, other than security deposits; an allowance for the cost of an adequate level of service for utilities paid by the Tenant, including garbage collection, sewer, water, electricity, gas and other heating, cooking and refrigeration fuel, but not telephone service or cable TV; and any other interest, taxes, fees or charges for use of the land or associated facilities and assessed by a public or private entity other than the Developer, and paid by the Tenant. Low Income Total 1 2 0 11 14 (ee) (ff) (gg) (hh) "Tenant" shall mean a household legally occupying a Unit pursuant to a "Term" shall mean the term of this Agreement, which shall commence on "Unit(s)" shall mean one (1) or all of the fifty-six (56) rental units to be "Very Low Income Household" shall mean a household with an Adjusted valid lease with the Developer. the Agreement Date and shall continue for fifty-five (55) years. constructed on the Property. Income that does not exceed the lesser of (1) the qualifying limit for very low income families under the HOME program as defined in 24 CFX 92.2, or (2) the qualifying limits for very low income households, as established and amended from time to time pursuant to Section 8 of the United States Housing Act of 1937, and as published by the State of California Department of Housing and Community Development. (ii) "Very Low Income Rent" shall mean the maximum allowable rent for a Very Low Income Unit pursuant to Section 2.2(c) below. (ij) "Very Low Income Units" shall mean any of the Units which, pursuant to section 2.1(a) below, are required to be occupied by Very Low Income Households. ARTICLE 2. AFFORDABILITY AND OCCUPANCY COVENANTS Section 2.1 Occupancy Requirements. The Developer shall regulate the use and occupancy of the Units in the following manner: (a) Units. Fifty-six (56) Units shall be rented to and occupied by or, if vacant, available for occupancy by households as follows: I Extremely I Forty Percent I Very Low I Other 10 10\16\22O427.1 5 TwoBedroom Three Bedroom Total (b) HOME-Assisted Units. Two (2) of the two bedroom Units affordable for very low income households as described in 2.l(a) above have been designated by the City as HOME-Assisted Units. 2 2 7 12 23 2 2 9 5 18 5 6 16 28 55 (+1 Ma9 Section 2.2 Allowable Rent. (a) Extremely Low Income Rent. Subject to Section 2.3 below, the Rent charged to Tenants of the Extremely Low Income Units shall not exceed one-twelfth (1/12th) of thirty percent (30%) of thirty percent (30%) of Median Income, adjusted for Assumed Household Size. (b) Forty Percent Rent. Subject to Section 2.3 below, the Rent charged to Tenants of the Forty Percent Units shall not exceed one-twelfth (1/12th) of thirty percent (30%) of forty percent (40%) of Median Income, adjusted for Assumed Household Size. Very Low Income Rent. Subject to the provisions of Section 2.3 below, the Rent charged to Tenants of the Very Low Income Units shall not exceed one-twelfth (1/12th) of thirty percent (30%) of fifty percent (50%) of Median Income, adjusted for Assumed Household Size. If a Very Low Income Unit is also a HOME-Assisted Unit, the Rent for such unit shall not exceed the lesser of the amount described in the previous sentence or the HOME rent limit published by HUD for Very Low Income Units of the specified bedroom size. Other Income Rent. Subject to the provisions of Section 2.3 below, the Rent charged to Tenants of the Other Income Units shall not exceed one-twelfth (1/12*) of thirty percent (30%) of ninety percent (90%) of Median Income, adjusted for Assumed Household Size. (c) (d) (e) Assumed Household Size. In calculating the allowable Rent for the Units, the following Assumed Household Sizes shall be utilized: provided, however, that household size assumptions provided under the HOME program shall be utilized for the HOME-Assisted Units, and the 1.5 persons per bedroom household size assumption may be utilized for any unit which is also regulated by a low income housing tax credit regulatory agreement. (f) Approval of Rents for Units. Initial rents for all Units shall be approved by the Agency prior to occupancy. All rent increases for all Units shall also be submitted to the Agency for approval not less than thirty (30) days before notice is given to the affected Tenant and shall be imposed only if in compliance with this Agreement. The Agency shall provide the Developer with a schedule of maximum permissible rents for the Units annually. Section 2.3 Increased Income of Tenants. (a) Increase Above Thirty Percent of Median Income. In the event, upon recertification of a Tenant's households income, the Developer determines that a former 1010\16\220427.1 6 I25 Extremely Low Income Household no longer qualifies as an Extremely Low Income Household (but does qualify as a Forty Percent Household), such household's Unit shall be considered a Forty Percent Unit, and, upon expiration of the Tenant's lease, and sixty (60) days' written notice to the Tenant, the Rent may be increased to one-twelfth (1/12fi) of thirty percent (30%) of forty percent (40%) of Median Income, and the Developer shall rent the next available Unit to an Extremely Low Income Household to comply with the requirements of Section 2.1 above. (b) Increase Above Forty Percent of Median Income. In the event, upon recertification of a Tenant's households income, the Developer determines that a former Extremely Low Income Household or a Forty Percent Household has an Adjusted Income that is above the qualifying limit for a Forty Percent Household but the household does qualify as a Very Low Income Household, such household's Unit shall be considered a Very Low Income Household, and, upon expiration of the Tenant's lease, and sixty (60) days' written notice to the Tenant, the Rent may be increased to one-twelfth (1/12") of thirty percent (30%) of fifty percent (50%) of Median Income, and the Developer shall rent the next available Unit to an Extremely Low Income Household or a Forty Percent Household to comply with the requirements of Section 2.1 above. (c) Increased Income Over Very Low Income. In the event, upon recertification of a Tenant's households income, the Developer determines that a former Extremely Low Income Household, Forty Percent Household, or Very Low Income Household has an Adjusted Income that exceeds the qualifying income for a Very Low Income Household, but has an Adjusted Income not exceeding the qualifying limit for a Low Income Household, upon expiration of the Tenant's lease, and sixty (60) days' written notice to the Tenant, the Rent may be increased to one-twelfth (1/12fi) of thirty percent (30%) of sixty percent (60%) of Median Income, and the Owner shall rent the next available Unit to an Extremely Low Income Household, Forty Percent Household, or Very Low Income Household to comply with the requirements of Section 2.1 above. If the Unit is a HOME-Assisted Unit, the Rent shall not exceed the lesser of the Rent described in the previous sentence or the maximum rent published by HUD for a HOME-assisted lower income unit. recertification of a Tenant's income, the Developer determines that a former Extremely Low Income Household, Forty Percent Household, Very Low Income Household, or Lower Income Household has an Adjusted Income that exceeds the qualifying limit for a Lower Income Household but does not exceed ninety percent (90%) of Median Income, adjusted for Actual Household Size, then, upon expiration of the Tenant's lease and sixty (60) days' written notice to the Tenant, such households Unit shall be considered an Other Unit, and the Rent may be increased to one-twelfth ( 1/12'h) of thirty percent (30%) of ninety percent (90%) of Median Income, and the Developer shall rent the next available Unit to an Extremely Low Income Household, Forty Percent Household, or Very Low Income Household to comply with the requirements of Section 2.1 above. If the Unit is a HOME-Assisted Unit, the Rent shall be increased to the lesser of the Rent described in the previous sentence or one-twelfth (1/12th) of thirty percent (30%) of actual Adjusted Income of the Tenant, upon sixty (60) days' written notice to the Tenant. (d) Increased Income Over Low Income. In the event that, following 1010\16\220427.1 7 126 (e) Increased Income over 90% of Median Income. If, upon recertification of a Tenant's income, the Developer determines that a Tenant has an Adjusted Income exceeding ninety percent (90%) of Median Income, adjusted for Actual Household Size, such Tenant shall be permitted to continue to occupy the Unit, and, upon expiration of the Tenant's lease, and sixty (60) days' written notice to the Tenant, the Rent may be increased to one-twelfth ( 1/12'h) of thirty percent (30%) of actual Adjusted Income, and the Unit shall continue to be classified as an Other Unit until the Tenant vacates the Unit at which time the Unit shall be re-rented to an income- eligible household to meet the requirements of Section 2.1. (f) Termination of Occupancv. Upon termination of occupancy of a Unit by a Tenant, such Unit shall be deemed to be continuously occupied by a household of the same income level (e.g., Extremely Low Income Household, Forty Percent House or Very Low Income Household) as the income level of the vacating Tenant, until such Unit is reoccupied, at which time the income character of the Unit (e.g., Extremely Low Income Household, Forty Percent House or Very Low Income Household) shall be redetermined. (8) Tax Credit Rules. the extent the provisions of this Section 2.3, regarding increased income of occupants, conflicts with rent and occupancy requirements applicable to any Units regulated by a low income housing tax credit regulatory agreement, such that the Developer cannot comply with both the tax credit requirements and the requirements of this Section 2.3, the Developer shall so notify the Agency and may comply with the tax credit requirements regarding increased income in lieu of the requirements of this Section 2.3. Section 2.4 Units Available to the Disabled. The Developer shall comply with all requirements of Section 504 of the Rehabilitation Act of 1973 (29 U.S.C. 794) and its implementing regulations (24 CFR 8). The Developer shall ensure that a minimum of three (3) Units in the Development are fully accessible to households with a mobility impaired member and an additional two (2) Units are fully accessible to hearing and/or visually impaired persons. ARTICLE 3. INCOME CERTIFICATION AND REPORTING Section 3.1 Income Certification. The Developer shall obtain, complete and maintain on file, immediately prior to initial occupancy and annually thereafter, income certifications from each Tenant renting any of the Units (excluding the manager's Unit). The Developer shall make a good faith effort to verify that the income provided by an applicant or occupying household in an income certification is accurate by taking one or more of the following steps as a part of the verification process: (1) obtain a pay stub for the most recent pay period; (2) obtain an income tax return for the most recent tax year; (3) conduct a credit agency or similar search; (4) obtain an income verification form from the applicant's current employer; (5) obtain an income verification form from the Social Security Administration and/or the California Department of Social Services if the applicant receives assistance from either of such agencies; or (6) if the applicant is unemployed 127 8 1010\16\220427.1 and has no such tax return, obtain another form of independent verification. Copies of tenant income certifications shall be available to the Agency upon request. Section 3.2 Annual Report to the Agency. The Developer shall submit to the Agency (a) not later than the sixtieth (60*) day after the close of each calendar year, or such other date as may reasonably be requested by the Agency, a statistical report, including income and rent data for all Units covered by this Agreement, setting forth the information called for therein, and (b) within fifteen (15) days after receipt of a written request, any other information or completed forms requested by the Agency in order to comply with reporting requirements of HUD, the State of California, the City, andor the Agency. Section 3.3 Additional Information. The Developer shall provide any additional information reasonably requested by the Agency or the City. The Agency and the City shall have the right to examine and make copies of all books, records or other documents of the Developer which pertain to the Development. Section 3.4 Records. The Developer shall maintain complete, accurate and current records pertaining to the Development, and shall permit any duly authorized representative of the Agency and the City to inspect records, including records pertaining to income and household size of Tenants. All Tenant lists, applications and waiting lists relating to the Development shall at all times be kept separate and identifiable from any other business of the Developer and shall be maintained as required by the Agency, in a reasonable condition for proper audit and subject to examination during business hours by representatives of the Agency and the City. The Developer shall retain copies of all materials obtained or produced with respect to occupancy of the Units for a period of at least five (5) years. Section 3.5 On-site Inspection. The Agency and the City shall have the right to perform an on-site inspection of the Development at least one (1) time per year. The Developer agrees to cooperate in such inspection. If the Agency or the City desires to inspect the interior of the Units, the Agency shall give Developer sufficient notice to allow the Developer to give seventy-two (72) hours notice to residents. Such right to annual inspect the Development shall be addition to the City's right to inspect the Development in accordance with the City's municipal code as may be amended from time to time. ARTICLE 4. OPERATION OF THE DEVELOPMENT Section 4.1 Residential Use. 10 10\16\220427.1 9 The Development shall be operated only for residential use. No part of the Development shall be operated as transient housing. Section 4.2 The Developer shall comply with all the terms and provisions of the Disposition Compliance with Disposition Ameement and Ground Lease. Agreement and Ground Lease. Section 4.3 Taxes and Assessments. The Developer shall pay all real and personal property taxes, assessments and charges and all franchise, income, employment, old age benefit, withholding, sales, and other taxes assessed against it, or payable by it, at such times and in such manner as to prevent any penalty from accruing, or any lien or charge from attaching to the Property; provided, however, that Developer shall have the right to contest in good faith, any such taxes, assessments, or charges. In the event Developer exercises its right to contest any tax, assessment, or charge against it, Developer, on final determination of the proceeding or contest, shall immediately pay or discharge any decision or judgment rendered against it, together with all costs, charges and interest. The Developer shall not apply for a property tax exemption for the Property under any provision of law, including but not limited to Revenue and Taxation Section 214, without the Agency's prior written consent. Section 4.4 Preference to Displacees. The Developer shall give a preference in the rental of any Units to eligible households displaced by activity of the Agency or the City upon receiving a written request of the Agency or the City regarding such displacement. ARTICLE 5. PROPERTY MANAGEMENT AND MAINTENANCE Section 5.1 Management Responsibilities. The Developer is responsible for all management functions with respect to the Development, including without limitation the selection of tenants, certification and recertification of household size and income, evictions, collection of rents and deposits, maintenance, landscaping, routine and extraordinary repairs, replacement of capital items, and security. Neither the City nor the Agency shall have responsibility over management of the Development. The Developer shall retain a professional property management company approved by the Agency in its reasonable discretion to perform its management duties hereunder as set forth below. A resident manager shall also be required. Section 5.2 Management Agent. The Development shall at all times be managed by an experienced management agent reasonably acceptable to the Agency, with demonstrated ability to operate residential facilities like the Development in a manner that will provide decent, safe, and sanitary housing (as approved, the "Management Agent"). The Developer shall submit for the Agency's approval the identity of any proposed Management Agent. The Developer shall also submit such additional information about the background, experience and financial condition of any proposed 1010\16\220427.1 10 Management Agent as is reasonably necessary for the Agency to determine whether the proposed Management Agent meets the standard for a qualified Management Agent set forth above. If the proposed Management Agent meets the standard for a qualified Management Agent set forth above, the Agency shall approve the proposed Management Agent by notifying the Developer in writing. If the proposed Management Agent is disapproved by the Agency, the disapproval shall state with reasonable specificity the basis for disapproval. Thereafter, the Developer shall submit a different proposed Management Agent, and submit such additional information about the background, experience and financial condltion of the proposed Management Agent as is reasonably necessary for the Agency to determine whether the proposed Management Agent meets the standard for a qualified Management Agent set forth above. Only upon the Agency's written approval of the Developer's proposed Management Agent shall constitute the Developer's compliance with this Section. Section 5.3 Periodic Performance Review. The Agency reserves the right to conduct an annual (or more frequently, if deemed necessary by the Agency) review of the management practices and financial status of the Development, including the performance of the Management Agent. The purpose of each periodic review will be to enable the Agency to determine if the Development is being operated and managed in accordance with the requirements and standards of this Agreement. The Developer shall cooperate with the Agency in such reviews. Section 5.4 If, as a result of a periodic review, the Agency determines in its reasonable judgment that Replacement of Management Agent. the Development is not being operated and managed in accordance with any of the material requirements and standards of this Agreement, the Agency shall deliver notice to Developer of its intention to cause replacement of the Management Agent, including the reasons therefor. Within fifteen (15) days of receipt by Developer of such written notice, Agency staff and the Developer shall meet in good faith to consider methods for improving the financial and operating status of the Development, including, without limitation, replacement of the Management Agent. If, after such meeting, Agency staff recommends in writing the replacement of the Management Agent, Developer shall promptly dismiss the then Management Agent, and shall appoint as the Management Agent a person or entity meeting the standards for a Management Agent set forth in Section 5.2 above and approved by the Agency pursuant to Section 5.2 above. Any contract for the operation or management of the Development entered into by Developer shall provide that the contract can be terminated as set forth above. Failure to remove the Management Agent in accordance with the provisions of this Section shall constitute default under this Agreement, and the Agency may enforce this provision through legal proceedings as specified in Section 6.8. Section 5.5 The Developer shall submit its written management policies with respect to the Development to the Agency for its review, and shall amend such policies in any way necessary to ensure that such policies comply with the provisions of this Agreement. Approval of Management Policies. 11 1010\16\220427.1 Section 5.6 ProDerty Maintenance. The Developer agrees, for the entire Tern of this Agreement, to maintain all interior and exterior improvements, including landscaping, on the Property in good condition and repair (and, as to landscaping, in a healthy condition) and in accordance with all applicable laws, rules, ordinances, orders and regulations of all federal, state, county, municipal, and other governmental agencies and bodies having or claiming jurisdiction and all their respective departments, bureaus, and officials. The City and the Agency place prime importance on quality maintenance to protect its investment and to ensure that all Agency and City-assisted affordable housing projects within the City are not allowed to deteriorate due to below-average maintenance. Normal wear and tear of the Development will be acceptable to the City and the Agency assuming the Developer agrees to provide all necessary improvements to assure the Development is maintained in good condition. The Developer shall make all repairs and replacements necessary to keep the improvements in good condition and repair. In the event that the Developer breaches any of the covenants contained in this section and such default continues for a period of ten (10) days after written notice from the City with respect to graffiti, debris, and waste material, or thirty (30) days after written notice with respect to general maintenance, landscaping and building improvements, (and subject to any stricter requirements included in any applicable City ordinance) then the City, in addition to whatever other remedy it may have at law or in equity, shall have the right to enter upon the Property and perform or cause to be performed all such acts and work necessary to cure the default. Pursuant to such right of entry, the City shall be permitted (but is not required) to enter upon the Property and perform all acts and work necessary to protect, maintain, and preserve the improvements and landscaped areas on the Property, and to attach a lien on the Property, or to assess the Property, in the amount of the reasonable expenditures arising from such acts and work of protection, maintenance, and preservation by the City and/or costs of such cure, including an administrative charge equal to fifteen percent (15%) of such expenditures, which amount shall be promptly paid by the Developer to the City upon demand. ARTICLE 6. MISCELLANEOUS Section 6.1 Lease Provisions. The Developer shall use a form of Tenant lease approved by the Agency. The lease shall not contain any provision which is prohibited by 24 CFR Section 92.253(b) as may be amended from time to time. The form of Tenant lease shall also comply with all requirements of this Agreement, the Ground Lease, and the Disposition Agreement, and shall, among other matters: (a) provide for termination of the lease and consent by the Tenant to immediate eviction for failure: (1) to provide any information required under this Agreement or reasonably requested by the Developer to establish or recertify the Tenant's qualification, or the 131 12 1010\16\22O427.1 qualification of the Tenant's household, for occupancy in the Development in accordance with the standards set forth in this Agreement, or (2) to qualify as an Extremely Low Income Household, Forty Percent Household, or Very Low Income Household as a result of any material misrepresentation made by such Tenant with respect to the income computation or certification; and (b) be for an initial term of not less than one (1) year, and provide for no Rent increase during such year. After the initial year of tenancy, the lease may be month to month by mutual agreement of the Developer and the Tenant, however the Rent may not be raised more often than once every twelve (12) months. The Developer will provide each Tenant with at least sixty (60) days' written notice of any increase in Rent applicable to such Tenant, and with such further notice as may be required by Section 2.3 above. (c) any termination of a lease or refusal by the Developer to renew shall be in conformance with 24 CFR 92.253(c) and must be preceded by no less than sixty (60) days written notice to the tenant by the Developer specifying the grounds for the action. Section 6.2 Nondscrimination. All of the Units shall be available for occupancy on a continuous basis to members of the general public who are income eligible. The Developer shall not give preference to any particular class or group of persons in renting or selling the Units, except to the extent that the Units are required to be leased to Extremely Low Income Households, Forty Percent Households, and Very Low Income Households. There shall be no discrimination against or segregation of any person or group of persons, on account of race, color, creed, religion, sex, sexual orientation, marital status, national origin, source of income (e.g., SSI), age, ancestry, or disability, in the leasing, subleasing, transferring, use, occupancy, tenure, or enjoyment of any Unit nor shall the Developer or any person claiming under or through the Developer, establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use, or occupancy, of tenants, lessees, sublessees, subtenants, or vendees of any Unit or in connection with the employment of persons for the construction, operation and management of any Unit. All deeds, leases or contracts made or entered into by Developer as to the Units or the Development or portion thereof, shall contain covenants concerning discrimination as prescribed by the Ground Lease and the Disposition Agreement. Section 6.3 Section 8 Certificate Holders. The Developer will accept as Tenants, on the same basis as all other prospective Tenants, persons who are recipients of federal certificates for rent subsidies pursuant to the existing housing program under Section 8 of the United States Housing Act of 1937, as amended, or its successor. The Developer shall not apply selection criteria to Section 8 certificate or voucher holders that are more burdensome than criteria applied to all other prospective Tenants, nor shall the Developer apply or permit the application of management policies or lease provisions with respect to the Development which have the effect of precluding occupancy of units by such prospective Tenants. 1 010\16\220427.1 13 Section 6.4 Term. The provisions of this Agreement shall apply to the Property for the entire Term. This Agreement shall bind any successor, heir or assign of the Developer, whether a change in interest occurs voluntarily or involuntarily, by operation of law or otherwise, except as expressly released by the Agency. The City makes the City Loan on the condition, and in consideration of, this provision, and would not do so otherwise. Section 6.5 Compliance with Disposition Agreement, Ground Lease and Program Requirements . The Developer's actions with respect to the Property shall at all times be in full conformity with: (i) all requirements of the Disposition Agreement and Ground Lease; (ii) all requirements imposed on projects assisted under the HOME Investment Partnership Program as contained in 42 USC 12701, et seq., 24 CFR Part 92, and other implementing rules and regulations; (iii) all requirements imposed on projects assisted under the CDBG Program as contained in 42 U.S.C. 5301 et seq., 24 CFR Part 570, and other implementing rules and regulations, and (iv) all requirements imposed on projects assisted with the Agency's Housing Fund monies under California Health and Safety Code Section 33334.2 et seq. Section 6.6 Notice of Expiration of Term. At least six (6) months prior to the expiration of the Term the Developer shall provide by first-class mail, postage prepaid, a notice to all Tenants in the Units containing (a) the anticipated date of the expiration of the Term, (b) any anticipated Rent increase upon the expiration of the Term, (c) a statement that a copy of such notice will be sent to the Agency, and (d) a statement that a public hearing may be held by the Agency on the issue and that the Tenant will receive notice of the hearing at least fifteen (15) days in advance of any such hearing. The Developer shall also file a copy of the above-described notice with the Agency. Section 6.7 Covenants to Run With the Land. The City, the Agency and the Developer hereby declare their express intent that the covenants and restrictions set forth in this Agreement shall run with the land, and shall bind all successors in title to the Property, provided, however, that on the expiration of the Term of this Agreement said covenants and restrictions shall expire. Each and every contract, deed or other instrument hereafter executed covering or conveying the Property or any portion thereof, shall be held conclusively to have been executed, delivered and accepted subject to such covenants and restrictions, regardless of whether such covenants or restrictions are set forth in such contract, deed or other instrument, unless the Agency expressly releases such conveyed portion of the Property from the requirements of this Agreement. Section 6.8 Default by the Developer; Enforcement by the Agency or City. If the Developer fails to perform any obligation under this Agreement (including but not limited to the failure to rent the Units as set forth in Section 2. l), and fails to cure the default 133 14 1010\16\22O427.1 within thirty (30) days after the Agency or the City have notified the Developer in writing of the default or, if the default cannot be cured within thirty (30) days, fails to commence to cure within thirty (30) days and thereafter diligently pursue such cure and complete such cure within ninety (90) days, or such longer period as approved by the Agency or the City in writing, the Agency or the City shall have the right to enforce this Agreement by any or all of the following actions, or any other remedy provided by law: (a) Calling the City Loan. The City may declare a default under the Disposition Agreement, and declare the City Loan due and payable and proceed with foreclosure under the Deed of Trust. (b) action at law or in equity to compel the Developer's performance of its obligations under this Agreement, and/or for damages. Action to Compel Performance or for Damages. The City may bring an (c) Remedies Provided Under Disposition Agreement or Ground Lease. The City may exercise any other remedy provided under the Disposition Agreement or Ground Lease. any Developer default, the Developer hereby grants to the Agency and the City the option to lease, from time to time, Units in the Development for a rental of One Dollar ($1.00) per Unit per year for the purpose of subleasing such units to comply with Article 2 of this Agreement. Upon the request of the City or the Agency following such default by the Developer, the Developer hereby agrees to execute such documents as reasonably requested by the City or the Agency, as applicable, including but not limited to, rental agreement(s) in a form prepared by the City, to implement the sublease of the Unit(s). Any rents received by the Agency or the City, as applicable, under any such sublease shall be paid to the Developer after the Agency, or the City, as applicable, has been reimbursed for any expenses incurred in connection with such sublease. (d) Agency - or City Sublease of Units. If and to the extent necessary to correct Section 6.9 Recording and Filing. The Agency, the City and the Developer shall cause this Agreement, and all amendments and supplements to it, to be recorded in the Official Records of the County of San Diego. Section 6.10 Governing Law. This Agreement shall be governed by the laws of the State of California. Section 6.11 Waiver of Requirements. Any of the requirements of this Agreement may be expressly waived by the Agency or the City in writing, but no waiver by the Agency or the City of any requirement of this Agreement shall, or shall be deemed to, extend to or affect any other provision of this Agreement. Section 6.12 Amendments. 10 10\16\220427.1 15 This Agreement may be amended only by a written instrument executed by all the parties hereto or their successors in title, and duly recorded in the real property records of the County of San Diego. Section 6.13 Notices. Any notice requirement set forth herein shall be deemed to be satisfied three (3) days after mailing of the notice first-class United States certified mail, postage prepaid, addressed to the appropriate party as follows: Developer: Agency: City: El Camino Family Housing Partners, LLC c/o Affirmed Housing Group 200 East Washington, Suite 208 Escondido, CA 92025 Attn: Jim Silverwood Carlsbad Redevelopment Agency 2965 Roosevelt St., Suite B Carlsbad, CA 92008 Attn: Executive Director City of Carlsbad 2965 Roosevelt St., Suite B Carlsbad, CA 92008 Attn: City Manager Such addresses may be changed by notice to the other party given in the same manner as provided above. Section 6.14 Severability. If any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining portions of this Agreement shall not in any way be affected or impaired thereby. Section 6.15 Multiple Originals; Counterparts. This Agreement may be executed in multiple originals, each of which is deemed to be an original, and may be signed in counterparts. 16 1010\16\220427.1 IN WITNESS WHEREOF, the Agency, the City and the Developer have executed this Agreement by duly authorized representatives, as of the last date written below. Developer: EL CAMINO FAMILY HOUSING PARTNERS, LLC, a California limited liability company By: AFFIRMED HOUSING GROUP., a California corporation By: Jim Silverwood President Agency: CARLSBAD REDEVELOPMENT AGENCY, a public body corporate and politic By: Its: City: CITY OF CARLSBAD, a municipal corporation By : Its: APPROVED AS TO FORM By Ron Ball, City Attorney By: 1010\16\220427.1 17 EXHIBIT A (Legal Description) The land is situated in the State of California, County of San Diego, City of Carlsbad, and is described as follows: A- 1 101 0\16\220427.1 STATE OF CALIFORNIA 1 COUNTY OF SAN DIEGO 1 ) ss. On the basis of satisfactory evidence) to be the person(s) whose name@) idare subscribed to the within instrument, and acknowledged to me that he/she/they executed the same in hishedtheir authorized capacityties), and that by his/her/their signaturets) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. , before me, the undersigned, a Notary Public, personally appeared , personally known to me (or proved to me on WITNESS my hand and official seal. STATE OF CALIFORNIA ) COUNTY OF SAN DIEGO ) ) ss. On the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument, and acknowledged to me that he/she/they executed the same in hishedtheir authorized capacityties), and that by hishedtheir signature(s) on the instrument the personts), or the entity upon behalf of which the person(s) acted, executed the instrument. , before me, the undersigned, a Notary Public, personally appeared , personally known to me (or proved to me on WITNESS my hand and official seal. 1 1/24/03 1010\16\220427.1 I33 1010\16\207231.4 EXHIBE F Form of City Note F- 1 PROMISSORY NOTE (Carlsbad Family Apartments) $1,454,276 Carlsbad, California ,2005 FOR VALUE RECEIVED, El Camino Family Housing Partners, LLC, a California limited liability company ("Borrower"), promises to pay to the City of Carlsbad, a public body corporate and politic (the "City"), or order, the principal sum of up to One Million Four Hundred Fifty Four Thousand Two Hundred Seventy Six Dollars ($1,454,276), or so much as is disbursed to Borrower, plus interest thereon pursuant to Section 2 below. 1. Borrower's Obligation. This promissory note (the "Note") evidences the Borrower's obligation to pay the City the principal amount of up to One Million Four Hundred Fifty Four Thousand Two Hundred Seventy Six Dollars ($1,454,276) for the fbnds loaned to the Borrower by City to finance the development of the Property pursuant to the Land Disposition and Loan Agreement between the Borrower and the City, dated ,2005 (the "Agreement"). All capitalized terms not otherwise defined in this Note shall have the meanings set forth in the Agreement. 2. Interest. The outstanding principal balance of this Note shall bear simple interest at the rate of three percent (3%) per annum from the date of disbursement until paid; provided, however, if a Default occurs, interest on the principal balance shall begin to accrue, as of the date of Default (following expiration of applicable notice and cure periods), and continuing until such time as the City Loan hnds are repaid in fbll or the Default is cured, at the default rate of the lesser of ten percent (lO?h), compounded annually, or the highest rate permitted by law. 3. Term and Repayment Requirements. The term of this Note shall commence with the date of this Note and shall expire fifty-five (55) years thereafter. This Note shall be due and payable as set forth in Section 5.5 of the Agreement. Repayment of this Note shall be nonrecourse to the Borrower pursuant to Section 5.10 of the Agreement, and subject to the exceptions set forth therein. 4. No Assumption. This Note shall not be assumable by the successors and assigns of Borrower without the prior written consent of the City, or as set forth in Article 7 of the Agreement. 5. Security. This Note is secured by a Deed of Trust with Assignment of Rents and Security Agreement (the "Deed of Trust") of even date herewith, wherein the Borrower is Trustor and the City is the Beneficiary, covering the Borrower's leasehold interest in the Property. 6. Terms of Payment. 1 01 0\16\22 1223.1 (a) All payments due under this Note shall be paid in currency of the United States of America, which at the time of payment is lawfir1 for the payment of public and private debts. (b) All payments on this Note shall be paid to the City at City of Carlsbad ,2965 Roosevelt Street, Suite €3, Carlsbad, CA 92008 or to such other place as the City may from time to time designate in writing. (c) All payments on this Note shall be without expense to the City, and the Borrower agrees to pay all costs and expenses, including re-conveyance fees and reasonable attorney's fees of the City, incurred in connection with the payment of this Note and the release of any security hereof (d) Notwithstanding any other provision of this Note, or any instrument securing the obligations of the Borrower under this Note, if, for any reason whatsoever, the payment of any sums by the Borrower pursuant to the terms of this Note would result in the payment of interest which would exceed the amount that the City may legally charge under the laws of the State of California, then the amount by which payments exceeds the lawhl interest rate shall automatically be deducted from the principal balance owing on this Note, so that in no event shall the Borrower be obligated under the terms of this Note to pay any interest which would exceed the lawhl rate. 7. Default, (a) Any of the following shall constitute an Event of Default under this Note: (i) Any failure to pay, in fbll, any payment required under this Note when due following written notice by City of such failure and thirty (30) days opportunity to cure; (ii) Any failure in the performance by the Borrower of any term, condition, provision or covenant set forth in this Note subject to the notice and cure period set forth in Section 8.4 of the Agreement; and (iii) The occurrence of any Event of Default under the Agreement, the Deed of Trust, the Ground Lease, or the Regulatory Agreement (the "Loan Documents"), or other instrument securing the obligations of the Borrower under this Note or under any other promissory notes hereafter issued by the Borrower to the City pursuant to the Agreement or the Deed of Trust, subject to notice and cure periods, if any, set forth therein. (b) Upon the occurrence of such an Event of Default, the entire unpaid principal balance, together with all interest thereon, and together with all other sums then payable under this Note and the Deed of Trust shall at the option of the City become immediately due and payable upon written notice by the City to the Borrower without fhrther demand. 101 0\16\22 1223.1 2 (c) The failure to exercise the remedy set forth in Subsection 7(b) above or any other remedy provided by law upon the occurrence of one or more of the foregoing events of default shall not constitute a waiver of the right to exercise any remedy at any subsequent time in respect to the same or any other default. The acceptance by City hereof of any payment which is less than the total of all amounts due and payable at the time of such payment shall not constitute a waiver of the right to exercise any of the foregoing remedies or options at that time or at any subsequent time, or nullify any prior exercise of any such remedy or option, without the express consent of the City, except as and to the extent otherwise provided by law. 8. Waivers. (a) The Borrower hereby waives diligence, presentment, protest and demand, and notice of protest, notice of demand, and notice of dishonor of this Note. The Borrower expressly agrees that this Note or any payment hereunder may be extended from time to time, and that the City may accept fbrther security or release any security for this Note, all without in any way affecting the Iiability of the Borrower. (b) No extension of time for payment of this Note or any installment hereof made by agreement by the City with any person now or hereafter liable for payment of this Note shall operate to release, discharge, modi*, change or Sect the original liability of the Borrower under this Note, either in whole or in part. (c) and the Borrower waives any and all rights to offset, deduct or withhold any payments or charges due under this Note for any reason whatsoever. The obligations of the Borrower under this Note shall be absolute 9. Miscellaneous Provisions. (a) All notices to the City or the Borrower shall be given in the manner and at the addresses set forth in the Agreement, or to such addresses as the City and the Borrower may hereinafter designate. (b) The Borrower promises to pay all costs and expenses, including reasonable attorney's fees, incurred by the City in the enforcement of the provision of this Note, regardless of whether suit is filed to seek enforcement. (c) This Note may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought. (d) This Note shall be governed by and construed in accordance with the laws of the State of California. 1010\16\221223.1 3 (e) be strictly construed, time being of the essence. The times for the performance of any obligations hereunder shall (0 This document, together with the Loan Documents, contains the entire agreement between the parties as to the Loan. It may not be modified except upon written consent of the parties. EL CAMINO FAMlLY HOUSING PARTNERS, LLC, a California limited liability company By: AFFIRMED HOUSING GROUP, a California corporation By: Jim Silverwood President 1010\16\221223.1 4 EXHIBIT G Form of City Deed of Trust 10 10\16\20723 1.4 G- 1 RECORDED AT THE REQUEST OF CHICAGO TITLE COMWNY SUBDIVISION DEPT. RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: City Clerk's Office City of Carlsbad Attn: City Clerk 1200 Carlsbad Village Drive Carlsbad, CA 92008 No fee for recording pursuant to Government Code Section 27383 44375 DOC# 2005-0946750liMl Ml Illi i!ii OCT 31, 2005 4:59 PM OFFICIAL RECORDS -AN LMEbO COUNTY RECORDER'S fjFFICE UHtbURY j SMITH. COUNTY RECORDERFf*o: 0.00 WAYS- 3 FMbEb: 21 DA -| 2005-0946750 DEED OF TRUST WITH ASSIGNMENT OF RENTS AND SECURITY AGREEMENT (El Camino Real) THIS DEED OF TRUST WITH ASSIGNMENT OF RENTS AND SECURITY AGREEMENT ("Deed of Trust") is made as of /O-yl , 2005, by and among El Camino Family Housing Partners, LLC, a California limited liability company ("Trustor"), Chicago Title Company, a California corporation ("Trustee"), and the City of Carlsbad, a municipal corporation ("Beneficiary"). FOR GOOD AND VALUABLE CONSIDERATION, including the indebtedness herein recited and the trust herein created, the receipt of which is hereby acknowledged, Trustor hereby irrevocably grants, transfers, conveys and assigns to Trustee, IN TRUST, WITH POWER OF SALE, for the benefit and security of Beneficiary, under and subject to the terms and conditions hereinafter set forth, Trustor's fee interest in the property located in the City of Carlsbad, County of San Diego, State of California, that is described in the attached Exhibit A, incorporated herein by this reference (the "Property"). TOGETHER WITH all interest, estates or other claims, both in law and in equity which Trustor now has or may hereafter acquire in the Property and the rents; TOGETHER WITH all easements, rights-of-way and rights used in connection therewith or as a means of access thereto, including (without limiting the generality of the foregoing) all tenements, hereditaments and appurtenances thereof and thereto; TOGETHER WITH any and all buildings and improvements of every kind and description now or hereafter erected thereon, and all property of the Trustor now or hereafter affixed to or placed upon the Property; TOGETHER WITH all building materials and equipment now or hereafter delivered to said property and intended to be installed therein; TOGETHER WITH all right, title and interest of Trustor, now owned or hereafter acquired, in and to any land lying within the right-of-way of any street, open or proposed, 1010\16\221043.2 1 44376 adjoining the Property, and any and all sidewalks, alleys and strips and areas of land adjacent to or used in connection with the Property; TOGETHER WITH all estate, interest, right, title, other claim or demand, of every nature, in and to such property, including the Property, both in law and in equity, including, but not limited to, all deposits made with or other security given by Trustor to utility companies, the proceeds from any or all of such property, including the Property, claims or demands with respect to the proceeds of insurance in effect with respect thereto, which Trustor now has or may hereafter acquire, any and all awards made for the taking by eminent domain or by any proceeding or purchase in lieu thereof of the whole or any part of such property, including without limitation, any awards resulting from a change of grade of streets and awards for severance damages to the extent Beneficiary has an interest in such awards for taking as provided in Paragraph 4.1 herein; TOGETHER WITH all of Trustor's interest in all articles of personal property or fixtures now or hereafter attached to or used in and about the building or buildings now erected or hereafter to be erected on the Property which are necessary to the complete and comfortable use and occupancy of such building or buildings for the purposes for which they were or are to be erected, including all other goods and chattels and personal property as are ever used or furnished in operating a building, or the activities conducted therein, similar to the one herein described and referred to, and all renewals or replacements thereof or articles in substitution therefor, whether or not the same are, or shall be attached to said building or buildings in any manner; and TOGETHER WITH all of Trustor's interest in all building materials, fixtures, equipment, work in process and other personal property to be incorporated into the Property; all goods, materials, supplies, fixtures, equipment, machinery, furniture and furnishings, signs and other personal property now or hereafter appropriated for use on the Property, whether stored on the Property or elsewhere, and used or to be used in connection with the Property; all rents, issues and profits, and all inventory, accounts, accounts receivable, contract rights, general intangibles, chattel paper, instruments, documents, notes drafts, letters of credit, insurance policies, insurance and condemnation awards and proceeds, trade names, trademarks and service marks arising from or related to the Property and any business conducted thereon by Trustor; all replacements, additions, accessions and proceeds; and all books, records and files relating to any of the foregoing. All of the foregoing, together with the Property, is herein referred to as the "Security." To have and to hold the Security together with acquittances to the Trustee, its successors and assigns forever. FOR THE PURPOSE OF SECURING: (a) Payment of just indebtedness of Trustor to Beneficiary as set forth in the Note (defined in Article 1 below) until paid or cancelled. Said principal and other payments shall be due and payable as provided in the Note. Said Note and all its terms are incorporated herein by reference, and this conveyance shall secure any and all extensions thereof, however evidenced; and 1010\16\221043.2 44377 (b) Payment of any sums advanced by Beneficiary to protect the Security pursuant to the terms and provisions of this Deed of Trust following a breach of Trustor's obligation to advance said sums and the expiration of any applicable cure period, with interest thereon as provided herein; and (c) Performance of every obligation, covenant or agreement of Trustor contained herein and in the Loan Documents (defined in Section 1.2 below). AND TO PROTECT THE SECURITY OF THIS DEED OF TRUST, TRUSTOR COVENANTS AND AGREES: ARTICLE 1 DEFINITIONS In addition to the terms defined elsewhere in this Deed of Trust, the following terms shall have the following meanings in this Deed of Trust: Section 1.1 The term "Loan Agreement" means that certain Land Disposition and Loan Agreement between Trustor and Beneficiary, dated as of March 16, 2005, as amended by that certain First Amendment to Land Disposition and Loan Agreement dated of even date herewith providing for the Beneficiary to loan to the Trustor One Million Four Hundred Fifty Four Thousand Two Hundred Seventy Six Dollars ($1,454,276) for the Development of the Property. Section 1.2 The term "Loan Documents" means this Deed of Trust, the Note, the Loan Agreement, the Regulatory Agreement, and any other debt, loan or security instruments between Trustor and the Beneficiary relating to the Property. Section 1.3 The term "Note" means the promissory note in the principal amount of One Million Four Hundred Fifty Four Thousand Two Hundred Seventy Six Dollars ($1,454,276) dated of even date herewith executed by the Trustor in favor of the Beneficiary, the payment of which is secured by this Deed of Trust. (A copy of the Note is on file with the Beneficiary and terms and provisions of the Note are incorporated herein by reference.). Section 1.4 The term "Principal" means the amount required to be paid under the Note. Section 1.5 The term "Regulatory Agreement" means the regulatory agreement by and between the Beneficiary and the Trustor, dated and recorded in the official Records of San Diego County concurrently herewith. ARTICLE 2 MAINTENANCE AND MODIFICATION OF THE PROPERTY AND SECURITY 1010\16\221043.2 44378 Section 2.1 Maintenance and Modification of the Property by Trustor. The Trustor agrees that at all times prior to full payment of the sum owed under the Note, the Trustor will, at the Trustor's own expense, maintain, preserve and keep the Security or cause the Security to be maintained and preserved in good condition. The Trustor will from time to time make or cause to be made all repairs, replacements and renewals deemed proper and necessary by it. The Beneficiary shall have no responsibility in any of these matters or for the making of improvements or additions to the Security. Trustor agrees to pay fully and discharge (or cause to be paid fully and discharged) all claims for labor done and for material and services furnished in connection with the Security, diligently to file or procure the filing of a valid notice of cessation upon the event of a cessation of labor on the work or construction on the Security for a continuous period of thirty (30) days or more, and to take all other reasonable steps to forestall the assertion of claims of lien against the Security of any part thereof. Trustor irrevocably appoints, designates and authorizes Beneficiary as its agent (said agency being coupled with an interest) with the authority, but without any obligation, to file for record any notices of completion or cessation of labor or any other notice that Beneficiary deems necessary or desirable to protect its interest in and to the Security or the Loan Documents; provided, however, that Beneficiary shall exercise its rights as agent of Trustor only in the event that Trustor shall fail to take, or shall fail to diligently continue to take, those actions as hereinbefore provided. Upon demand by Beneficiary, Trustor shall make or cause to be made such demands or claims as Beneficiary shall specify upon laborers, materialmen, subcontractors or other persons who have furnished or claim to have furnished labor, services or materials in connection with the Security. Nothing herein contained shall require Trustor to pay any claims for labor, materials or services which Trustor in good faith disputes and is diligently contesting provided that Trustor, upon written request of the Beneficiary, shall, within thirty (30) days after the filing of any claim of lien, record in the Office of the Recorder of San Diego County, a surety bond in an amount 1 and 1/2 times the amount of such claim item to protect against a claim of lien. Section 2.2 Granting of Easements. Trustor may not grant easements, licenses, rights-of-way or other rights or privileges in the nature of easements with respect to any property or rights included in the Security except those required or desirable for installation and maintenance of public utilities including, without limitation, water, gas, electricity, sewer, telephone and telegraph, or those required by law and as approved, in writing, by Beneficiary. Section 2.3 Assignment of Rents. As part of the consideration for the indebtedness evidenced by the Note, Trustor hereby absolutely and unconditionally assigns and transfers to Beneficiary all the rents and revenues of the Property including those now due, past due, or to become due by virtue of any lease or other agreement for the occupancy or use of all or any part of the Property, regardless of to whom the rents and revenues of the Property are payable. Trustor hereby authorizes Beneficiary or Beneficiary's agents to collect the aforesaid rents and revenues and hereby directs each tenant of 1010\16\221043.2 44379 the Property to pay such rents to Beneficiary or Beneficiary's agents; provided, however, that prior to written notice given by Beneficiary to Trustor of the breach by Trustor of'any covenant or agreement of Trustor in the Loan Documents, Trustor shall collect and receive all rents and revenues of the Property as trustee for the benefit of Beneficiary and Trustor to apply the rents and revenues so collected to the sums secured by this Deed of Trust with the balance, so long as no such breach has occurred, to the account of Trustor, it being intended by Trustor and Beneficiary that this assignment of rents constitutes an absolute assignment and not an assignment for additional security only. Upon delivery of written notice by Beneficiary to Trustor of the breach by Trustor of any covenant or agreement of Trustor in the Loan Documents, and without the necessity of Beneficiary entering upon and taking and maintaining full control of the Property in person, by agent or by a court-appointed receiver, Beneficiary shall immediately be entitled to possession of all rents and revenues of the Property as specified in this Section 2.3 as the same becomes due and payable, including but not limited to rents then due and unpaid, and all such rents shall immediately upon delivery of such notice be held by Trustor as trustee for the benefit of Beneficiary only; provided, however, that the written notice by Beneficiary to Trustor of the breach by Trustor shall contain a statement that Beneficiary exercises its rights to such rents. Trustor agrees that commencing upon delivery of such written notice of Trustor's breach by Beneficiary to Trustor, each tenant of the Property shall make such rents payable to and pay such rents to Beneficiary or Beneficiary's agents on Beneficiary's written demand to each tenant therefor, delivered to each tenant personally, by mail or by delivering such demand to each rental unit, without any liability on the part of said tenant to inquire further as to the existence of a default by Trustor. Except as previously approved by the Beneficiary as set forth in the Loan Agreement, Trustor hereby covenants that Trustor has not executed any prior assignment of said rents, that Trustor has not performed, and will not perform, any acts or has not executed and will not execute, any instrument which would prevent Beneficiary from exercising its rights under this Section 2.3, and that at the time of execution of this Deed of Trust, there has been no anticipation or prepayment of any of the rents of the Property for more than two (2) months prior to the due dates of such rents. Trustor covenants that Trustor will not hereafter collect or accept payment of any rents of the Property more than two (2) months prior to the due dates of such rents. Trustor further covenant that Trustor will execute and deliver to Beneficiary such further assignments of rents and revenues of the Property as Beneficiary may from time to time request. Upon Trustor's breach of any covenant or agreement of Trustor in the Loan Documents, Beneficiary may in person, by agent or by a court-appointed receiver, regardless of the adequacy of Beneficiary's security, enter upon and take and maintain full control of the Property in order to perform all acts necessary and appropriate for the operation and maintenance thereof including, but not limited to, the execution, cancellation or modification of leases, the collection of all rents and revenues of the Property, the making of repairs to the Property and the execution or termination of contracts providing for the management or maintenance of the Property, all on such terms as are deemed best to protect the security of this Deed of Trust. In the event Beneficiary elects to seek the appointment of a receiver for the Property upon Trustor's breach of any covenant or agreement of Trustor in this Deed of Trust, Trustor hereby expressly consents to the appointment of such receiver. Beneficiary or the receiver shall be entitled to receive a reasonable fee for so managing the Property. 1010\16\221043.2 44380 All rents and revenues collected subsequent to delivery of written notice by Beneficiary to Trustor of the breach by Trustor of any covenant or agreement of Trustor in the Loan Documents shall be applied first to the costs, if any, of taking control of and managing the Property and collecting the rents, including, but not limited to, attorney's fees, receiver's fees, premiums on receiver's bonds, costs of repairs to the Property, premiums on insurance policies, taxes, assessments and other charges on the Property, and the costs of discharging any obligation or liability of Trustor as lessor or landlord of the Property and then to the sums secured by this Deed of Trust. Beneficiary or the receiver shall have access to the books and records used in the operation and maintenance of the Property and shall be liable to account only for those rents actually received. Beneficiary shall not be liable to Trustor, anyone claiming under or through Trustor or anyone having an interest in the Property by reason of anything done or left undone by Beneficiary under this Section 2.3. If the rents of the Property are not sufficient to meet the costs, if any, of taking control of and managing the Property and collecting the rents, any funds expended by Beneficiary for such purposes shall become indebtedness of Trustor to Beneficiary secured by this Deed of Trust pursuant to Section 3.3 hereof. Unless Beneficiary and Trustor agree in writing to other terms of payment, such amounts shall be payable upon notice from Beneficiary to Trustor requesting payment thereof and shall bear interest from the date of disbursement at the rate stated in Section 3.3. Any entering upon and taking and maintaining of control of the Property by Beneficiary or the receiver and any application of rents as provided herein shall not cure or waive any default hereunder or invalidate any other right or remedy of Beneficiary under applicable law or provided herein. This assignment of rents of the Property shall terminate at such time as this Deed of Trust ceases to secure indebtedness held by Beneficiary. The rights of the Beneficiary under this Section 2.3 are subject to the rights of any senior mortgage lender. ARTICLE 3 TAXES AND INSURANCE; ADVANCES Section 3.1 Taxes, Other Governmental Charges and Utility Charges. Trustor shall pay, or cause to be paid, at least fifteen (15) days prior to the date of delinquency, all taxes, assessments, charges and levies imposed by any public authority or utility company which are or may become a lien affecting the Security or any part thereof; provided, however, that Trustor shall not be required to pay and discharge any such tax, assessment, charge or levy so long as (a) the legality thereof shall be promptly and actively contested in good faith and by appropriate proceedings, and (b) Trustor maintains reserves adequate to pay any liabilities contested pursuant to this Section 3.1. With respect to taxes, special assessments or other similar governmental charges, Trustor shall pay such amount in full prior to the attachment of any lien therefor on any part of the Security; provided, however, if such taxes, assessments or charges may be paid in installments, Trustor may pay in such installments. Except as provided in clause (b) of the first sentence of this paragraph, the provisions of this Section 3.1 shall not be construed 1010\16\221043.2 44381 to require that Trustor maintain a reserve account, escrow account, impound account or other similar account for the payment of future taxes, assessments, charges and levies. In the event that Trustor shall fail to pay any of the foregoing items required by this Section to be paid by Trustor, Beneficiary may (but shall be under no obligation to) pay the same, after the Beneficiary has notified the Trustor of such failure to pay and the Trustor fails to fully pay such items within seven (7) business days after receipt of such notice. Any amount so advanced therefor by Beneficiary, together with interest thereon from the date of such advance at the maximum rate permitted by law, shall become an additional obligation of Trustor to the Beneficiary and shall be secured hereby, and Trustor agrees to pay all such amounts. Section 3.2 Provisions Respecting Insurance. Trustor agrees to provide insurance conforming in all respects to that required under the Loan Documents during the course of construction and following completion, and at all times until all amounts secured by this Deed of Trust have been paid and all other obligations secured hereunder fulfilled, and this Deed of Trust reconveyed. All such insurance policies and coverages shall be maintained at Trustor's sole cost and expense. Certificates of insurance for all of the above insurance policies, showing the same to be in full force and effect, shall be delivered to the Beneficiary upon demand therefor at any time prior to the Beneficiary's receipt of the entire Principal and all amounts secured by this Deed of Trust. Section 3.3 Advances. In the event the Trustor shall fail to maintain the full insurance coverage required by this Deed of Trust or shall fail to keep the Security in accordance with the Loan Documents, the Beneficiary, after at least seven (7) days prior notice to Beneficiary, may (but shall be under no obligation to) take out the required policies of insurance and pay the premiums on the same or may make such repairs or replacements as are necessary and provide for payment thereof; and all amounts so advanced therefor by the Beneficiary shall become an additional obligation of the Trustor to the Beneficiary (together with interest as set forth below) and shall be secured hereby, which amounts the Trustor agrees to pay on the demand of the Beneficiary, and if not so paid, shall bear interest from the date of the advance at the lesser of eight percent (8%) per annum or the maximum rate permitted by law. ARTICLE 4 DAMAGE, DESTRUCTION OR CONDEMNATION Section 4.1 Awards and Damages. All judgments, awards of damages, settlements and compensation made in connection with or in lieu of (1) taking of all or any part of or any interest in the Property by or under assertion of the power of eminent domain, (2) any damage to or destruction of the Property or in any part thereof by insured casualty, and (3) any other injury or damage to all or any part of the 1010\16\221043.2 44382 Property ("Funds") are hereby assigned to and shall be paid to the Beneficiary by a check made payable to the Beneficiary. The Beneficiary is authorized and empowered (but not required) to collect and receive any funds and is authorized to apply them in whole or in part upon any indebtedness or obligation secured hereby, in such order and manner as the Beneficiary shall determine at its sole option. The Beneficiary shall be entitled to settle and adjust all claims under insurance policies provided under this Deed of Trust and may deduct and retain from the proceeds of such insurance the amount of all expenses incurred by it in connection with any such settlement or adjustment. All or any part of the amounts so collected and recovered by the Beneficiary may be released to Trustor upon such conditions as the Beneficiary may impose for its disposition, and Beneficiary agrees to release Funds to Trustor to rebuild the Project on the Property provided Trustor demonstrates to Beneficiary that such rebuilding is economically feasible. Application of all or any part of the Funds collected and received by the Beneficiary or the release thereof shall not cure or waive any default under this Deed of Trust. The rights of the Beneficiary under this Section 4.1 are subject to the rights of any senior mortgage lender. ARTICLE 5 AGREEMENTS AFFECTING THE PROPERTY; FURTHER ASSURANCES; PAYMENT OF PRINCIPAL AND INTEREST Section 5.1 Other Agreements Affecting Property. The Trustor shall duly and punctually perform all terms, covenants, conditions and agreements binding upon it under the Loan Documents and any other agreement of any nature whatsoever now or hereafter involving or affecting the Security or any part thereof. Section 5.2 Agreement to Pay Attorneys' Fees and Expenses. In the event of any Event of Default (as defined below) hereunder, and if the Beneficiary should employ attorneys or incur other expenses for the collection of amounts due or the enforcement of performance or observance of an obligation or agreement on the part of the Trustor in this Deed of Trust, the Trustor agrees that it will, on demand therefor, pay to the Beneficiary the reasonable fees of such attorneys and such other reasonable expenses so incurred by the Beneficiary; and any such amounts paid by the Beneficiary shall be added to the indebtedness secured by the lien of this Deed of Trust, and shall bear interest from the date such expenses are incurred at the lesser often percent (10%) per annum or the maximum rate permitted by law. Section 5.3 Payment of the Principal. The Trustor shall pay to the Beneficiary the Principal and any other payments as set forth in the Note in the amounts and by the times set out therein. Section 5.4 Personal Property. To the maximum extent permitted by law, the personal property subject to this Deed of Trust shall be deemed to be fixtures and part of the real property and this Deed of Trust shall 1010\16\221043.2 44383 constitute a fixtures filing under the California Commercial Code. As to any personal property not deemed or permitted to be fixtures, this Deed of Trust shall constitute a security agreement under the California Commercial Code. Section 5.5 Financing Statement. The Trustor shall execute and deliver to the Beneficiary such financing statements pursuant to the appropriate statutes, and any other documents or instruments as are required to convey to the Beneficiary a valid perfected security interest in the Security. The Trustor agrees to perform all acts which the Beneficiary may reasonably request so as to enable the Beneficiary to maintain such valid perfected security interest in the Security in order to secure the payment of the Note in accordance with their terms. The Beneficiary is authorized to file a copy of any such financing statement in any jurisdiction(s) as it shall deem appropriate from time to time in order to protect the security interest established pursuant to this instrument. Section 5.6 Operation of the Security. The Trustor shall operate the Security (and, in case of a transfer of a portion of the Security subject to this Deed of Trust, the transferee shall operate such portion of the Security) in full compliance with the Loan Documents. Section 5.7 Inspection of the Security. At any and all reasonable times upon seventy-two (72) hours' notice, the Beneficiary and its duly authorized agents, attorneys, experts, engineers, accountants and representatives, shall have the right, without payment of charges or fees, to inspect the Security. Section 5.8 Nondiscrimination. The Trustor herein covenants by and for itself, its heirs, executors, administrators, and assigns, and all persons claiming under or through them, that there shall be no discrimination against or segregation of, any person or group of persons on account of race, color, creed, religion, age, sex, sexual orientation, marital status, national origin or ancestry in the sale, lease, sublease, transfer, use, occupancy, tenure or enjoyment of the Security, nor shall the Trustor itself or any person claiming under or through it establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lessees, subtenants, sublessees or vendees in the Security. The foregoing covenants shall run with the land. ARTICLE 6 HAZARDOUS WASTE Trustor shall keep and maintain the Property in compliance with, and shall not cause or permit the Property to be in violation of any federal, state or local laws, ordinances or regulations relating to industrial hygiene or to the environmental conditions on, under or about the Property including, but not limited to, soil and ground water conditions. Trustor shall not use, generate, manufacture, store or dispose of on, under, or about the Property or transport to or from the 1010\16\221043.2 44384 Property any flammable explosives, radioactive materials, hazardous wastes, toxic substances or related materials, including without limitation, any substances defined as or included in the definition of "hazardous substances," hazardous wastes," "hazardous materials," or "toxic substances" under any applicable federal or state laws or regulations (collectively referred to hereinafter as "Hazardous Materials") except such of the foregoing as may be customarily kept and used in and about multifamily residential property. Trustor shall immediately advise Beneficiary in writing if at any time it receives written notice of (i) any and all enforcement, cleanup, removal or other governmental or regulatory actions instituted, completed or threatened against Trustor or the Property pursuant to any applicable federal, state or local laws, ordinances, or regulations relating to any Hazardous Materials, ("Hazardous Materials Law"); (ii) all claims made or threatened by any third party against Trustor or the Property relating to damage, contribution, cost recovery compensation, loss or injury resulting from any Hazardous Materials (the matters set forth in clauses (i) and (ii) above hereinafter referred to a "Hazardous Materials Claims"); and (iii) Trustor's discovery of any occurrence or condition on any real property adjoining or in the vicinity of the Property that could cause the Property or any part thereof to be classified as "border-zone property" under the provision of California Health and Safety Code, Sections 25220 et seq., or any regulation adopted in accordance therewith, or to be otherwise subject to any restrictions on the ownership, occupancy, transferability or use of the Property under any Hazardous Materials Law. Beneficiary shall have the right to join and participate in, as a party if it so elects, any legal proceedings or actions initiated in connection with any Hazardous Materials Claims and to have its reasonable attorneys' fees in connection therewith paid by Trustor. Trustor shall indemnify and hold harmless Beneficiary and its boardmembers, supervisors, directors, officers, employees, agents, successors and assigns from and against any loss, damage, cost, expense or liability directly or indirectly arising out of or attributable to the use, generation, storage, release, threatened release, discharge, disposal, or presence of Hazardous Materials on, under, or about the Property including without limitation: (a) all foreseeable consequential damages; (b) the costs of any required or necessary repair, cleanup or detoxification of the Property and the preparation and implementation of any closure, remedial or other required plans; and (c) all reasonable costs and expenses incurred by Beneficiary in connection with clauses (a) and (b), including but not limited to reasonable attorneys' fees. Without Beneficiary's prior written consent, which shall not be unreasonably withheld, Trustor shall not take any remedial action in response to the presence of any Hazardous Materials on, under or about the Property, nor enter into any settlement agreement, consent decree, or other compromise in respect to any Hazardous Material Claims, which remedial action, settlement, consent decree or compromise might, in Beneficiary's reasonable judgement, impair the value of the Beneficiary's security hereunder; provided, however, that Beneficiary's prior consent shall not be necessary in the event that the presence of Hazardous Materials on, under, or about the Property either poses an immediate threat to the health, safety or welfare of any individual or is of such a nature that an immediate remedial response is necessary and it is not reasonably possible to obtain Beneficiary's consent before taking such action, provided that in such event Trustor shall notify Beneficiary as soon as practicable of any action so taken. Beneficiary agrees not to withhold its consent, where such consent is required hereunder, if either (i) a particular remedial action is ordered by a court of competent jurisdiction, (ii) Trustor 101010\16\221043.2 44385 will or may be subjected to civil or criminal sanctions or penalties if it fails to take a required action; (iii) Trustor establishes to the reasonable satisfaction of Beneficiary that there is no reasonable alternative to such remedial action which would result in less impairment of Beneficiary's security hereunder; or (iv) the action has been agreed to by Beneficiary. The Trustor hereby acknowledges and agrees that (i) this Article is intended as the Beneficiary's written request for information (and the Trustor's response) concerning the environmental condition of the Property as required by California Code of Civil Procedure Section 726.5, and (ii) each representation and warranty in this Deed of Trust or any of the other Loan Documents (together with any indemnity applicable to a breach of any such representation and warranty) with respect to the environmental condition of the property is intended by the Beneficiary and the Trustor to be an "environmental provision" for purposes of California Code of Civil Procedure Section 736. In the event that any portion of the Property is determined to be "environmentally impaired" (as that term is defined in California Code of Civil Procedure Section 726.5(e)(3)) or to be an "affected parcel" (as that term is defined in California Code of Civil Procedure Section 726.5(e)(l)), then, without otherwise limiting or in any way affecting the Beneficiary's or the Trustee's rights and remedies under this Deed of Trust, the Beneficiary may elect to exercise its rights under California Code of Civil Procedure Section 726.5(a) to (1) waive its lien on such environmentally impaired or affected portion of the Property and (2) exercise (a) the rights and remedies of an unsecured creditor, including reduction of its claim against the Trustor to judgment, and (b) any other rights and remedies permitted by law. For purposes of determining the Beneficiary's right to proceed as an unsecured creditor under California Code of Civil Procedure Section 726.5(a), the Trustor shall be deemed to have willfully permitted or acquiesced in a release or threatened release of hazardous materials, within the meaning of California Code of Civil Procedure Section 726.5(d)(l), if the release or threatened release of hazardous materials was knowingly or negligently caused or contributed to by any lessee, occupant, or user of any portion of the Property and the Trustor knew or should have known of the activity by such lessee, occupant, or user which caused or contributed to the release or threatened release. All costs and expenses, including (but not limited to) attorneys' fees, incurred by the Beneficiary in connection with any action commenced under this paragraph, including any action required by California Code of Civil Procedure Section 726.5(b) to determine the degree to which the Property is environmentally impaired, plus interest thereon at the rate specified in the Note until paid, shall be added to the indebtedness secured by this Deed of Trust and shall be due and payable to the Beneficiary upon its demand made at any time following the conclusion of such action. The Trustor is aware that California Civil Code Section 2955.5(a) provides as follows: "No lender shall require a borrower, as a condition of receiving or maintaining a loan secured by real property, to provide hazard insurance coverage against risks to the improvements on that real property in an amount exceeding the replacement value of the improvements on the property." ARTICLE 7 EVENTS OF DEFAULT AND REMEDIES Section 7.1 Events of Default. 111010\16\221043.2 44386 The following shall constitute Events of Default following the expiration of any applicable notice and cure periods: (1) failure to make any payment to be paid by Trustor under the Loan Documents; (2) failure to observe or perform any of Trustor's other covenants, agreements or obligations under the Loan Documents, including, without limitation, the provisions concerning discrimination; or (3) failure to make any payment or perform any of Trustor's other covenants, agreements, or obligations under any other debt instruments or regulatory agreement secured by the Property, which default shall not be cured within the times and in the manner provided therein. Section 7.2 Acceleration of Maturity. If an Event of Default shall have occurred and be continuing, then at the option of the Beneficiary, the amount of any payment related to the Event of Default and the unpaid Principal of the Note shall immediately become due and payable, upon written notice by the Beneficiary to the Trustor (or automatically where so specified in the Loan Documents), and no omission on the part of the Beneficiary to exercise such option when entitled to do so shall be construed as a waiver of such right. Section 7.3 The Beneficiary's Right to Enter and Take Possession. If an Event of Default shall have occurred and be continuing, the Beneficiary may: (a) Either in person or by agent, with or without bringing any action or proceeding, or by a receiver appointed by a court, and without regard to the adequacy of its security, enter upon the Security and take possession thereof (or any part thereof) and of any of the Security, in its own name or in the name of Trustee, and do any acts which it deems necessary or desirable to preserve the value or marketability of the Property, or part thereof or interest therein, increase the income therefrom or protect the security thereof. The entering upon and taking possession of the Security shall not cure or waive any Event of Default or Notice of Default (as defined below) hereunder or invalidate any act done in response to such Default or pursuant to such Notice of Default and, notwithstanding the continuance in possession of the Security, Beneficiary shall be entitled to exercise every right provided for in this Deed of Trust, or by law upon occurrence of any Event of Default, including the right to exercise the power of sale; (b) Commence an action to foreclose this Deed of Trust as a mortgage, appoint a receiver, or specifically enforce any of the covenants hereof; (c) Deliver to Trustee a written declaration of default and demand for sale, and a written notice of default and election to cause Trustor's interest in the Security to be sold ("Notice of Default and Election to Sell"), which notice Trustee or Beneficiary shall cause to be duly filed for record in the Official Records of San Diego County; or (d) Exercise all other rights and remedies provided herein, in the instruments by which the Trustor acquires title to any Security, or in any other document or agreement now or hereafter evidencing, creating or securing all or any portion of the obligations secured hereby, or provided by law. 121010\16\221043.2 44387 Section 7.4 Foreclosure By Power of Sale. Should the Beneficiary elect to foreclose by exercise of the power of sale herein contained, the Beneficiary shall give notice to the Trustee (the "Notice of Sale") and shall deposit with Trustee this Deed of Trust which is secured hereby (and the deposit of which shall be deemed to constitute evidence that the unpaid principal amount of the Note is immediately due and payable), and such receipts and evidence of any expenditures made that are additionally secured hereby as Trustee may require. (a) Upon receipt of such notice from the Beneficiary, Trustee shall cause to be recorded, published and delivered to Trustor such Notice of Default and Election to Sell as then required by law and by this Deed of Trust. Trustee shall, without demand on Trustor, after lapse of such time as may then be required by law and after recordation of such Notice of Default and Election to Sell and after Notice of Sale having been given as required by law, sell the Security, at the time and place of sale fixed by it in said Notice of Sale, whether as a whole or in separate lots or parcels or items as Trustee shall deem expedient and in such order as it may determine unless specified otherwise by the Trustor according to California Civil Code Section 2924g(b), at public auction to the highest bidder, for cash in lawful money of the United States payable at the time of sale. Trustee shall deliver to such purchaser or purchasers thereof its good and sufficient deed or deeds conveying the property so sold, but without any covenant or warranty, express or implied. The recitals in such deed or any matters of facts shall be conclusive proof of the truthfulness thereof. Any person, including, without limitation, Trustor, Trustee or Beneficiary, may purchase at such sale, and Trustor hereby covenants to warrant and defend the title of such purchaser or purchasers. (b) After deducting all reasonable costs, fees and expenses of Trustee, including costs of evidence of title in connection with such sale, Trustee shall apply the proceeds of sale to payment of: (i) the unpaid Principal amount of the Note; (ii) all other amounts owed to Beneficiary under the Loan Documents; (iii) all other sums then secured hereby; and (iv) the remainder, if any, to Trustor. (c) Trustee may postpone sale of all or any portion of the Property by public announcement at such time and place of sale, and from time to time thereafter, and without further notice make such sale at the time fixed by the last postponement, or may, in its discretion, give a new Notice of Sale. Section 7.5 Receiver. If an Event of Default shall have occurred and be continuing, Beneficiary, as a matter of right and without further notice to Trustor or anyone claiming under the Security, and without regard to the then value of the Security or the interest of Trustor therein, shall have the right to apply to any court having jurisdiction to appoint a receiver or receivers of the Security (or a part thereof), and Trustor hereby irrevocably consents to such appointment and waives further notice of any application therefor. Any such receiver or receivers shall have all the usual powers and duties of receivers in like or similar cases, and all the powers and duties of Beneficiary in case of 1010\16\221043.2 44388 entry as provided herein, and shall continue as such and exercise all such powers until the date of confirmation of sale of the Security, unless such receivership is sooner terminated. Section 7.6 Remedies Cumulative. No right, power or remedy conferred upon or reserved to the Beneficiary by this Deed of Trust is intended to be exclusive of any other right, power or remedy, but each and every such right, power and remedy shall be cumulative and concurrent and shall be in addition to any other right, power and remedy given hereunder or now or hereafter existing at law or in equity. Section 7.7 No Waiver. (a) No delay or omission of the Beneficiary to exercise any right, power or remedy accruing upon any Event of Default shall exhaust or impair any such right, power or remedy, or shall be construed to be a waiver of any such Event of Default or acquiescence therein; and every right, power and remedy given by this Deed of Trust to the Beneficiary may be exercised from time to time and as often as may be deemed expeditious by the Beneficiary. Beneficiary 's expressed or implied consent to a breach by Trustor, or a waiver of any obligation of Trustor hereunder shall not be deemed or construed to be a consent to any subsequent breach, or further waiver, of such obligation or of any other obligations of the Trustor hereunder. Failure on the part of the Beneficiary to complain of any act or failure to act or to declare an Event of Default, irrespective of how long such failure continues, shall not constitute a waiver by the Beneficiary of its right hereunder or impair any rights, power or remedies consequent on any Event of Default by the Trustor. (b) If the Beneficiary (i) grants forbearance or an extension of time for the payment of any sums secured hereby, (ii) takes other or additional security or the payment of any sums secured hereby, (iii) waives or does not exercise any right granted in the Loan Documents, (iv) releases any part of the Security from the lien of this Deed of Trust, or otherwise changes any of the terms, covenants, conditions or agreements in the Loan Documents, (v) consents to the granting of any easement or other right affecting the Security, or (iv) makes or consents to any agreement subordinating the lien hereof, any such act or omission shall not release, discharge, modify, change or affect the original liability under this Deed of Trust, or any other obligation of the Trustor or any subsequent purchaser of the Security or any part thereof, or any maker, co- signer, endorser, surety or guarantor (unless expressly released); nor shall any such act or omission preclude the Beneficiary from exercising any right, power or privilege herein granted or intended to be granted in any Event of Default then made or of any subsequent Event of Default, nor, except as otherwise expressly provided in an instrument or instruments executed by the Beneficiary shall the lien of this Deed of Trust be altered thereby. Section 7.8 Suits to Protect the Security. The Beneficiary shall have power to (a) institute and maintain such suits and proceedings as it may deem expedient to prevent any impairment of the Security and the rights of the Beneficiary as may be unlawful or any violation of this Deed of Trust, (b) preserve or protect its interest (as described in this Deed of Trust) in the Security, and (c) restrain the enforcement of or compliance with any legislation or other governmental enactment, rule or order that may be 141010\16\221043.2 44389 unconstitutional or otherwise invalid, if the enforcement for compliance with such enactment, rule or order would impair the Security thereunder or be prejudicial to the interest of the Beneficiary. Section 7.9 Trustee May File Proofs of Claim. In the case of any receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment, composition or other proceedings affecting the Trustor, its creditors or its property, the Trustee, to the extent permitted by law, shall be entitled to file such proofs of claim and other documents as may be necessary or advisable in order to have the claims of the Beneficiary allowed in such proceedings and for any additional amount which may become due and payable by the Trustor hereunder after such date. Section 7.10 Waiver. The Trustor waives presentment, demand for payment, notice of dishonor, notice of protest and nonpayment, protest, notice of interest on interest and late charges, and diligence in taking any action to collect any sums owing under the Note or in proceedings against the Security, in connection with the delivery, acceptance, performance, default, endorsement or guaranty of this Deed of Trust. ARTICLE 8 MISCELLANEOUS S ection 8.1 Amendments. This instrument cannot be waived, changed, discharged or terminated orally, but only by an instrument in writing signed by Beneficiary and Trustor. Section 8.2 Reconveyance by Trustee. Upon written request of Beneficiary stating that all sums secured hereby have been paid or forgiven, and upon surrender of this Deed of Trust to Trustee for cancellation and retention, and upon payment by Trustor of Trustee's reasonable fees, Trustee shall reconvey the Security to Trustor, or to the person or persons legally entitled thereto. Section 8.3 Notices. If at any time after the execution of this Deed of Trust it shall become necessary or convenient for one of the parties hereto to serve any notice, demand or communication upon the other party, such notice, demand or communication shall be in writing and shall be served personally or by depositing the same in the registered United States mail, return receipt requested, postage prepaid and (1) if intended for Beneficiary shall be addressed to: City of Carlsbad 2965 Roosevelt St., Suite B Carlsbad, CA 92008 151010\16\221043.2 44390 Attn: City Manager and (2) if intended for Trustor shall be addressed to: El Camino Family Housing Partners, LLC c/o Affirmed Housing Group 200 East Washington, Suite 208 Escondido, CA 92025 Attn: Jim Silverwood With a copy to: BCCC, Inc. c/o Boston Capital Partners Inc. One Boston Place Boston, MA 02110 Attn: Asset Management Department Any notice, demand or communication shall be deemed given, received, made or communicated on the date personal delivery is effected or, if mailed in the manner herein specified, on the delivery date or date delivery is refused by the addressee, as shown on the return receipt. Either party may change its address at any time by giving written notice of such change to Beneficiary or Trustor as the case may be, in the manner provided herein, at least ten (10) days prior to the date such change is desired to be effective. Section 8.4 Successors and Joint Trustors. Where an obligation is created herein binding upon Trustor, the obligation shall also apply to and bind any transferee or successors in interest. Where the terms of the Deed of Trust have the effect of creating an obligation of the Trustor and a transferee, such obligation shall be deemed to be a joint and several obligation of the Trustor and such transferee. Where Trustor is more than one entity or person, all obligations of Trustor shall be deemed to be a joint and several obligation of each and every entity and person comprising Trustor. Section 8.5 Captions. The captions or headings at the beginning of each Section hereof are for the convenience of the parties and are not a part of this Deed of Trust. Section 8.6 Invalidity of Certain Provisions. Every provision of this Deed of Trust is intended to be severable. In the event any term or provision hereof is declared to be illegal or invalid for any reason whatsoever by a court or other body of competent jurisdiction, such illegality or invalidity shall not affect the balance of the terms and provisions hereof, which terms and provisions shall remain binding and enforceable. If the lien of this Deed of Trust is invalid or unenforceable as to any part of the debt, or if the lien is invalid or unenforceable as to any part of the Security, the unsecured or 161010\16\221043.2 44391 partially secured portion of the debt, and all payments made on the debt, whether voluntary or under foreclosure or other enforcement action or procedure, shall be considered to have been first paid or applied to the full payment of that portion of the debt which is not secured or partially secured by the lien of this Deed of Trust. Section 8.7 Governing Law. This Deed of Trust shall be governed by and construed in accordance with the laws of the State of California. Section 8.8 Gender and Number. In this Deed of Trust the singular shall include the plural and the masculine shall include the feminine and neuter and vice versa, if the context so requires. Section 8.9 Deed of Trust, Mortgage. Any reference in this Deed of Trust to a mortgage shall also refer to a deed of trust and any reference to a deed of trust shall also refer to a mortgage. S ection 8.10 Actions. Trustor agrees to appear in and defend any action or proceeding purporting to affect the Security. Section 8.11 Substitution of Trustee. Beneficiary may from time to time substitute a successor or successors to any Trustee named herein or acting hereunder to execute this Trust. Upon such appointment, and without conveyance to the successor trustee, the latter shall be vested with all title, powers, and duties conferred upon any Trustee herein named or acting hereunder. Each such appointment and substitution shall be made by written instrument executed by Beneficiary, containing reference to this Deed of Trust and its place of record, which, when duly recorded in the proper office of the county or counties in which the Property is situated, shall be conclusive proof of proper appointment of the successor trustee. Section 8.12 Statute of Limitations. The pleading of any statute of limitations as a defense to any and all obligations secured by this Deed of Trust is hereby waived to the full extent permissible by law. Section 8.13 Acceptance by Trustee. Trustee accepts this Trust when this Deed of Trust, duly executed and acknowledged, is made public record as provided by law. Except as otherwise provided by law the Trustee is not obligated to notify any party hereto of pending sale under this Deed of Trust or of any action of proceeding in which Trustor, Beneficiary, or Trustee shall be a party unless brought by Trustee. 1010\16\221043.2 44392 IN WITNESS WHEREOF, Trustor has executed this Deed of Trust as of the day and year first above written. TRUSTOR: EL CAMINO FAMILY HOUSING PARTNERS, LLC, a California limited liability company By: AFFIRMED HOUSING GROUP., a California corporation, its Manager By: _ Jamlbs Silverwood President 18 1010\16\221043.2 44393 STATE OF CALIFORNIA COUNTY OF 5/9-A/ } ) ) ss. tfffzJ<.C personally appeared , personally known to me (or proved to mo on_ nt) to be the person^ whose namej^) is/unsubscribed to the within instrument and acknowledged to me that he/sfee/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature^ on the instrument the person^) or the entity upon behalf of which the person(s^ acted, executed the instrument. WITNESS my hand and official seal GINGER HITZKE Comm. #1328600 NOTARY PUBLIC CALIFORNIA San Diego County My Comm. Expires Nov. 5,2005 1010\16\221043.2 44394 EXHIBIT A (Legal Description) The land is situated in the City of Carlsbad, County of San Diego, State of California, and is described as follows: A-l1010\16\221043.2 44395 EXHIBIT "A" ALL THAT PORTION OF FRACTIONAL NORTHEAST QUARTER OF SECTION 23, TOWNSHIP 12 SOUTH, RANGE 4 WEST, SAN BERNARDINO MERIDIAN, IN THE CITY OF CARLSBAD, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO THE OFFICIAL PLAT THEREOF, DESCRIBED AS FOLLOWS: BEGINNING AT THE NORTHEASTERLY CORNER OF THE SOUTH 10 ACRES OF SAID FRACTIONAL NORTHEAST QUARTER OF THE SOUTHWEST QUARTER; THENCE ALONG THE NORTHERLY LINE OF SAID SOUTH 10 ACRES WESTERLY TO AN INTERSECTION WITH THE EASTERLY LINE OF ROAD SURVEY NO. 1800-1, AS DESCRIBED IN A DEED TO THE COUNTY OF SAN DIEGO, RECORDED DECEMBER 18, 1969 AS FILE NO. 230092 OF OFFICIAL RECORDS; THENCE SOUTHERLY ALONG EASTERLY LINE OF SAID ROAD SURVEY NO. 1800-1 TO AN INTERSECTION WITH THE SOUTH LINE OF SAID SOUTH 10 ACRES; THENCE EASTERLY ALONG SAID SOUTH LINE TO THE EAST LINE OF SAID NORTHEAST QUARTER OF THE SOUTHWEST QUARTER; THENCE NORTHERLY ALONG SAID EAST LINE TO THE POINT OF BEGINNING. (APN: 215-020-27) DESCLTR-09/06/94bK RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: City Clerk's OEce City of Carlsbad Attn: City Clerk 1200 Carlsbad Village Drive Carlsbad, CA 92008 No fee for recording pursuant to Government Code Section 27383 DEED OF TRUST WITH ASSIGNMENT OF RENTS AND SECURITY AGREEMENT (El Camino Real - Carlsbad Family ApartmentdCassia Heights) THIS DEED OF TRUST WITH ASSIGNMENT OF RENTS AND SECURITY AGREEMENT ("Deed of Trust") is made as of Family Housing Partners, LLC, a California limited liability company ("Trustor"), corporation ("Beneficiary"). , 2005, by and among El Camino a California corporation ("Trustee"), and the City of Carlsbad, a municipal FOR GOOD AND VALUABLE CONSIDERATION, including the indebtedness herein recited and the trust herein created, the receipt of which is hereby acknowledged, Trustor hereby irrevocably grants, transfers, conveys and assigns to Trustee, IN TRUST, WITH POWER OF SALE, for the benefit and security of Beneficiary, under and subject to the terms and conditions hereinafter set forth, Trustor's fee interest in the property located in the City of Carlsbad, County of San Diego, State of California, that is described in the attached Exhibit A, incorporated herein by this reference (the "Property"). TOGETHER WITH all interest, estates or other claims, both in law and in equity which Trustor now has or may hereafter acquire in the Property and the rents; TOGETHER WITH all easements, rights-of-way and rights used in connection therewith or as a means of access thereto, including (without limiting the generality of the foregoing) all tenements, hereditaments and appurtenances thereof and thereto; TOGETHER WITH any and all buildings and improvements of every kind and description now or hereafter erected thereon, and all property of the Trustor now or hereafter affixed to or placed upon the Property; TOGETHER WITH all building materials and equipment now or hereafter delivered to said property and intended to be installed therein; TOGETHER WITH all right, title and interest of Trustor, now owned or hereafter acquired, in and to any land lying within the right-of-way of any street, open or proposed, 1 1010\16\221043.1 adjoining the Property, and any and all sidewalks, alleys and strips and areas of land adjacent to or used in connection with the Property; TOGETHER WITH all estate, interest, right, title, other claim or demand, of every nature, in and to such property, including the Property, both in law and in equity, including, but not limited to, all deposits made with or other security given by Trustor to utility companies, the proceeds fiom any or all of such property, including the Property, claims or demands with respect to the proceeds of insurance in effect with respect thereto, which Trustor now has or may hereaRer acquire, any and all awards made for the taking by eminent domain or by any proceeding or purchase in lieu thereof of the whole or any part of such property, including without limitation, any awards resulting fiom a change of grade of streets and awards for severance damages to the extent Beneficiary has an interest in such awards for taking as provided in Paragraph 4.1 herein; TOGETHER WITH all of Trustor's interest in all articles of personal property or fixtures now or hereafter attached to or used in and about the building or buildings now erected or hereafter to be erected on the Property which are necessary to the complete and comfortable use and occupancy of such building or buildings for the purposes for which they were or are to be erected, including all other goods and chattels and personal property as are ever used or firnished in operating a building, or the activities conducted therein, similar to the one herein described and referred to, and all renewals or replacements thereof or articles in substitution therefor, whether or not the same are, or shall be attached to said building or buildings in any manner; and TOGETHER WITH all of Trustor's interest in all building materials, fixtures, equipment, work in process and other personal property to be incorporated into the Property; all goods, materials, supplies, fixtures, equipment, machinery, hrniture and hrnishings, signs and other personal property now or hereafter appropriated for use on the Property, whether stored on the Property or elsewhere, and used or to be used in connection with the Property; all rents, issues and profits, and all inventory, accounts, accounts receivable, contract rights, general intangibles, chattel paper, instruments, documents, notes drafts, letters of credit, insurance policies, insurance and condemnation awards and proceeds, trade names, trademarks and service marks arising fiom or related to the Property and any business conducted thereon by Trustor; all replacements, additions, accessions and proceeds; and all books, records and files relating to any of the foregoing. All of the foregoing, together with the Property, is herein refmed to as the "Security." To have and to hold the Security together with acquittances to the Trustee, its successors and assigns forever. FOR THE PURPOSE OF SECURING: (a) Payment of just indebtedness of Trustor to Beneficiary as set forth in the Note (defined in Article 1 below) until paid or cancelled. Said principal and other payments shall be due and payable as provided in the Note. Said Note and all its terms are incorporated herein by reference, and this conveyance shall secure any and all extensions thereof, however evidenced; and 2 (b) Payment of any sums advanced by Beneficiary to protect the Security pursuant to the terms and provisions of this Deed of Trust following a breach of Trustor's obligation to advance said sums and the expiration of any applicable cure period, with interest thereon as provided herein; and (c) Performance of every obligation, covenant or agreement of Trustor contained herein and in the Loan Documents (defined in Section 1.2 below). AND TO PROTECT THE SECURITY OF THIS DEED OF TRUST, TRUSTOR COVENANTS AND AGREES: ARTICLE 1 DEFINITIONS In addition to the terms defined elsewhere in this Deed of Trust, the following terms shall have the following meanings in this Deed of Trust: Section 1.1 The term "Loan Agreement" means that certain Land Acquisition and Loan Agreement between Trustor and Beneficiary, dated of even date herewith providing for the Beneficiary to loan to the Trustor One Million Four Hundred Fifty Four Thousand Two Hundred Seventy Six Dollars ($1,454,276) for the Development of the Property. Section 1.2 The term "Loan Documents" means this Deed of Trust, the Note, the Loan Agreement, the Regulatory Agreement, and any other debt, loan or security instruments between Trustor and the Beneficiary relating to the Property. Section 1.3 The term "Note" means the promissory note in the principal amount of One Million Four Hundred Fifty Four Thousand Two Hundred Seventy Six Dollars ($ 1,454,276) dated of even date herewith executed by the Trustor in favor of the Beneficiary, the payment of which is secured by this Deed of Trust. (A copy of the Note is on file with the Beneficiary and terms and provisions of the Note are incorporated herein by reference.). Section 1.4 The term "Principal" means the amount required to be paid under the Note. Section 1.5 The term "Regulatory Agreement" means the regulatory agreement by and between the Beneficiary and the Trustor, dated and recorded in the official Records of San Diego County concurrently herewith. ARTICLE 2 MAINTENANCE AND MODIFICATION OF THE PROPERTY AND SECURITY Section 2.1 Maintenance and Modification of the Property by Trustor. 1010\16\221043.1 3 The Trustor agrees that at all times prior to full payment of the sum owed under the Note, the Trustor will, at the Trustor's own expense, maintain, preserve and keep the Security or cause the Security to be maintained and preserved in good condition. The Trustor will from time to time make or cause to be made all repairs, replacements and renewals deemed proper and necessary by it. The Beneficiary shall have no responsibility in any of these matters or for the making of improvements or additions to the Security. Trustor agrees to pay hlly and discharge (or cause to be paid fklly and discharged) all claims for labor done and for material and services fbrnished in connection with the Security, diligently to file or procure the filing of a valid notice of cessation upon the event of a cessation of labor on the work or construction on the Security for a continuous period of thirty (30) days or more, and to take all other reasonable steps to forestall the assertion of claims of lien against the Security of any part thereof Trustor irrevocably appoints, designates and authorizes Beneficiary as its agent (said agency being coupled with an interest) with the authority, but without any obligation, to file for record any notices of completion or cessation of labor or any other notice that Beneficiary deems necessary or desirable to protect its interest in and to the Security or the Loan Documents; provided, however, that Beneficiary shall exercise its rights as agent of Trustor only in the event that Trustor shall fail to take, or shall fail to diligently continue to take, those actions as hereinbefore provided. Upon demand by Beneficiary, Trustor shall make or cause to be made such demands or claims as Beneficiary shall specify upon laborers, materialmen, subcontractors or other persons who have fkrnished or claim to have fkrnished labor, services or materials in connection with the Security. Nothing herein contained shall require Trustor to pay any claims for labor, materials or services which Trustor in good faith disputes and is diligently contesting provided that Trustor, upon written request of the Beneficiary, shall, within thirty (30) days after the filing of any claim of lien, record in the Ofice of the Recorder of San Diego County, a surety bond in an amount 1 and 1/2 times the amount of such claim item to protect against a claim of lien. Section 2.2 Granting of Easements. Trustor may not grant easements, licenses, rights-of-way or other rights or privileges in the nature of easements with respect to any property or rights included in the Security except those required or desirable for installation and maintenance of public utilities including, without limitation, water, gas, electricity, sewer, telephone and telegraph, or those required by law and as approved, in writing, by Beneficiary. Section 2.3 Assignment of Rents. As part of the consideration for the indebtedness evidenced by the Note, Trustor hereby absolutely and unconditionally assigns and transfers to Beneficiary all the rents and revenues of the Property including those now due, past due, or to become due by virtue of any lease or other agreement for the occupancy or use of all or any part of the Property, regardless of to whom the rents and revenues of the Property are payable. Trustor hereby authorizes Beneficiary or Beneficiary's agents to collect the aforesaid rents and revenues and hereby directs each tenant of the Property to pay such rents to Beneficiary or Beneficiary's agents; provided, however, that prior to written notice given by Beneficiary to Trustor of the breach by Trustor of any covenant 10 10\16\22 1043.1 4 or agreement of Trustor in the Loan Documents, Trustor shall collect and receive all rents and revenues of the Property as trustee for the benefit of Beneficiary and Trustor to apply the rents and revenues so collected to the sums secured by this Deed of Trust with the balance, so long as no such breach has occurred, to the account of Trustor, it being intended by Trustor and Beneficiary that this assignment of rents constitutes an absolute assignment and not an assignment for additional security only. Upon delivery of written notice by Beneficiary to Trustor of the breach by Trustor of any covenant or agreement of Trustor in the Loan Documents, and without the necessity of Beneficiary entering upon and taking and maintaining full control of the Property in person, by agent or by a court-appointed receiver, Beneficiary shall immediately be entitled to possession of all rents and revenues of the Property as specified in this Section 2.3 as the same becomes due and payable, including but not limited to rents then due and unpaid, and all such rents shall immediately upon delivery of such notice be held by Trustor as trustee for the benefit of Beneficiary only; provided, however, that the written notice by Beneficiary to Trustor of the breach by Trustor shall contain a statement that Beneficiary exercises its rights to such rents. Trustor agrees that commencing upon delivery of such written notice of Trustor's breach by Beneficiary to Trustor, each tenant of the Property shall make such rents payable to and pay such rents to Beneficiary or Beneficiary's agents on Beneficiary's written demand to each tenant therefor, delivered to each tenant personally, by mail or by delivering such demand to each rental unit, without any liability on the part of said tenant to inquire hrther as to the existence of a default by Trustor. Except as previously approved by the Beneficiary as set forth in the Loan Agreement, Trustor hereby covenants that Trustor has not executed any prior assignment of said rents, that Trustor has not performed, and will not perform, any acts or has not executed and will not execute, any instrument which would prevent Beneficiary &om exercising its rights under this Section 2.3, and that at the time of execution of this Deed of Trust, there has been no anticipation or prepayment of any of the rents of the Property for more than two (2) months prior to the due dates of such rents. Trustor covenants that Trustor will not hereafter collect or accept payment of any rents of the Property more than two (2) months prior to the due dates of such rents. Trustor fbrther covenant that Trustor will execute and deliver to Beneficiary such fbrther assignments of rents and revenues of the Property as Beneficiary may from time to time request. Upon Trustor's breach of any covenant or agreement of Trustor in the Loan Documents, Beneficiary may in person, by agent or by a court-appointed receiver, regardless of the adequacy of Beneficiary's security, enter upon and take and maintain full control of the Property in order to perform all acts necessary and appropriate for the operation and maintenance thereof including, but not limited to, the execution, cancellation or modification of leases, the collection of all rents and revenues of the Property, the making of repairs to the Property and the execution or termination of contracts providing for the management or maintenance of the Property, all on such terms as are deemed best to protect the security of this Deed of Trust. In the event Beneficiary elects to seek the appointment of a receiver for the Property upon Trustor's breach of any covenant or agreement of Trustor in this Deed of Trust, Trustor hereby expressly consents to the appointment of such receiver. Beneficiary or the receiver shall be entitled to receive a reasonable fee for so managing the Property. 5 All rents and revenues collected subsequent to delivery of written notice by Beneficiary to Trustor of the breach by Trustor of any covenant or agreement of Trustor in the Loan Documents shall be applied first to the costs, if any, of taking control of and managing the Property and collecting the rents, including, but not limited to, attorney's fees, receiver's fees, premiums on receiver's bonds, costs of repairs to the Property, premiums on insurance policies, taxes, assessments and other charges on the Property, and the costs of discharging any obligation or liability of Trustor as lessor or landlord of the Property and then to the sums secured by this Deed of Trust. Beneficiary or the receiver shall have access to the books and records used in the operation and maintenance of the Property and shall be liable to account only for those rents actually received. Beneficiary shall not be liable to Trustor, anyone claiming under or through Trustor or anyone having an interest in the Property by reason of anything done or left undone by Beneficiary under this Section 2.3. If the rents of the Property are not sufficient to meet the costs, if any, of taking control of and managing the Property and collecting the rents, any funds expended by Beneficiary for such purposes shall become indebtedness of Trustor to Beneficiary secured by this Deed of Trust pursuant to Section 3.3 hereof Unless Beneficiary and Trustor agree in writing to other terms of payment, such amounts shall be payable upon notice from Beneficiary to Trustor requesting payment thereof and shall bear interest from the date of disbursement at the rate stated in Section 3.3. Any entering upon and taking and maintaining of control of the Property by Beneficiary or the receiver and any application of rents as provided herein shall not cure or waive any default hereunder or invalidate any other right or remedy of Beneficiary under applicable law or provided herein. This assignment of rents of the Property shall terminate at such time as this Deed of Trust ceases to secure indebtedness held by Beneficiary. The rights of the Beneficiary under this Section 2.3 are subject to the rights of any senior mortgage lender. ARTICLE 3 TAXES AND INSURANCE; ADVANCES Section 3.1 Taxes, Other Governmental Charges and Utility Charges. Trustor shall pay, or cause to be paid, at least fifteen (15) days prior to the date of delinquency, all taxes, assessments, charges and levies imposed by any public authority or utility company which are or may become a lien affecting the Security or any part thereof; provided, however, that Trustor shall not be required to pay and discharge any such tax, assessment, charge or levy so long as (a) the legality thereof shall be promptly and actively contested in good faith and by appropriate proceedings, and (b) Trustor maintains reserves adequate to pay any liabilities contested pursuant to this Section 3.1. With respect to taxes, special assessments or other similar governmental charges, Trustor shall pay such amount in full prior to the attachment of any lien therefor on any part of the Security; provided, however, if such taxes, assessments or charges may be paid in installments, Trustor may pay in such installments. Except as provided in clause (b) of the first sentence of this paragraph, the provisions of this Section 3.1 shall not be construed to require that Trustor maintain a reserve account, escrow account, impound account or other similar account for the payment of future taxes, assessments, charges and levies. 6 1010\16\221043.1 In the event that Trustor shall fail to pay any of the foregoing items required by this Section to be paid by Trustor, Beneficiary may (but shall be under no obligation to) pay the same, after the Beneficiary has notified the Trustor of such failure to pay and the Trustor fails to hlly pay such items within seven (7) business days after receipt of such notice. Any amount so advanced therefor by Beneficiary, together with interest thereon from the date of such advance at the maximum rate permitted by law, shall become an additional obligation of Trustor to the Beneficiary and shall be secured hereby, and Trustor agrees to pay all such amounts. Section 3.2 Provisions Respecting Insurance. Trustor agrees to provide insurance conforming in all respects to that required under the Loan Documents during the course of construction and following completion, and at all times until all amounts secured by this Deed of Trust have been paid and all other obligations secured hereunder fulfilled, and this Deed of Trust reconveyed. All such insurance policies and coverages shall be maintained at Trustor's sole cost and expense. Certificates of insurance for all of the above insurance policies, showing the same to be in full force and effect, shall be delivered to the Beneficiary upon demand therefor at any time prior to the Beneficiary's receipt of the entire Principal and all amounts secured by this Deed of Trust. Section 3.3 Advances. In the event the Trustor shall fail to maintain the 111 insurance coverage required by this Deed of Trust or shall fail to keep the Security in accordance with the Loan Documents, the Beneficiary, after at least seven (7) days prior notice to Beneficiary, may (but shall be under no obligation to) take out the required policies of insurance and pay the premiums on the same or may make such repairs or replacements as are necessary and provide for payment thereoc and all amounts so advanced therefor by the Beneficiary shall become an additional obligation of the Trustor to the Beneficiary (together with interest as set forth below) and shall be secured hereby, which amounts the Trustor agrees to pay on the demand of the Beneficiary, and if not so paid, shall bear interest from the date of the advance at the lesser of eight percent (8%) per annum or the maximum rate permitted by law. ARTICLE 4 DAMAGE, DESTRUCTION OR CONDEMNATION Section 4.1 Awards and Damages. AI1 judgments, awards of damages, settlements and compensation made in connection with or in lieu of (1) taking of all or any part of or any interest in the Property by or under assertion of the power of eminent domain, (2) any damage to or destruction of the Property or in any part thereof by insured casualty, and (3) any other injury or damage to all or any part of the Property ("Funds") are hereby assigned to and shall be paid to the Beneficiary by a check made payable to the Beneficiary. The Beneficiary is authorized and empowered (but not required) to collect and receive any funds and is authorized to apply them in whole or in part upon any 7 1010\16\221O43.1 indebtedness or obligation secured hereby, in such order and manner as the Beneficiary shall determine at its sole option. The Beneficiary shall be entitled to settle and adjust all claims under insurance policies provided under this Deed of Trust and may deduct and retain fiom the proceeds of such insurance the amount of all expenses incurred by it in connection with any such settlement or adjustment. All or any part of the amounts so collected and recovered by the Beneficiary may be released to Trustor upon such conditions as the Beneficiary may impose for its disposition, and Beneficiary agrees to release Funds to Trustor to rebuild the Project on the Property provided Trustor demonstrates to Beneficiary that such rebuilding is economically feasible. Application of all or any part of the Funds collected and received by the Beneficiary or the release thereof shall not cure or waive any default under this Deed of Trust. The rights of the Beneficiary under this Section 4.1 are subject to the rights of any senior mortgage lender. ARTICLE 5 AGREEMENTS AFFECTING THE PROPERTY; F'URTI-IER ASSURANCES; PAYMENT OF PRINCIPAL AND INTEREST Section 5.1 Other Agreements Mecting Property. The Trustor shall duly and punctually perform all terms, covenants, conditions and agreements binding upon it under the Loan Documents and any other agreement of any nature whatsoever now or hereafter involving or affecting the Security or any part thereof Section 5.2 Agreement to Pay Attorneys' Fees and Expenses. In the event of any Event of Default (as defined below) hereunder, and if the Beneficiary should employ attorneys or incur other expenses for the collection of amounts due or the enforcement of performance or observance of an obligation or agreement on the part of the Trustor in this Deed of Trust, the Trustor agrees that it will, on demand therefor, pay to the Beneficiary the reasonable fees of such attorneys and such other reasonable expenses so incurred by the Beneficiary; and any such amounts paid by the Beneficiary shall be added to the indebtedness secured by the lien of this Deed of Trust, and shall bear interest fiom the date such expenses are incurred at the lesser of ten percent (10%) per annum or the maximum rate permitted by law. Section 5.3 Payment of the Principal. The Trustor shall pay to the Beneficiary the Principal and any other payments as set forth in the Note in the amounts and by the times set out therein. Section 5.4 Personal Property. To the maximum extent permitted by law, the personal property subject to this Deed of Trust shall be deemed to be fixtures and part of the real property and this Deed of Trust shall constitute a fixtures filing under the California Commercial Code. As to any personal property not deemed or permitted to be fixtures, this Deed of Trust shall constitute a security agreement under the California Commercial Code. 101 0\16\22 1043.1 8 Section 5.5 Financing Statement. The Trustor shall execute and deliver to the Beneficiary such financing statements pursuant to the appropriate statutes, and any other documents or instruments as are required to convey to the Beneficiary a valid perfected security interest in the Security. The Trustor agrees to perform all acts which the Beneficiary may reasonably request so as to enable the Beneficiary to maintain such valid perfected security interest in the Security in order to secure the payment of the Note in accordance with their terms. The Beneficiary is authorized to file a copy of any such financing statement in any jurisdiction(s) as it shall deem appropriate from time to time in order to protect the security interest established pursuant to this instrument. Section 5.6 Operation of the Security. The Trustor shall operate the Security (and, in case of a transfer of a portion of the Security subject to this Deed of Trust, the transferee shall operate such portion of the Security) in full compliance with the Loan Documents. Section 5.7 Inspection of the Security. At any and all reasonable times upon seventy-two (72) hours' notice, the Beneficiary and its duly authorized agents, attorneys, experts, engineers, accountants and representatives, shall have the right, without payment of charges or fees, to inspect the Security. Section 5.8 Nondiscrimination. The Trustor herein covenants by and for itself, its heirs, executors, administrators, and assigns, and all persons claiming under or through them, that there shall be no discrimination against or segregation of, any person or group of persons on account of race, color, creed, religion, age, sex, sexual orientation, marital status, national origin or ancestry in the sale, lease, sublease, transfer, use, occupancy, tenure or enjoyment of the Security, nor shall the Trustor itself or any person claiming under or through it establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lessees, subtenants, sublessees or vendees in the Security. The foregoing covenants shall run with the land. ARTICLE 6 HAZARDOUS WASTE Trustor shall keep and maintain the Property in compliance with, and shall not cause or permit the Property to be in violation of any federal, state or local laws, ordinances or regulations relating to industrial hygiene or to the environmental conditions on, under or about the Property including, but not limited to, soil and ground water conditions. Trustor shall not use, generate, manufacture, store or dispose of on, under, or about the Property or transport to or from the Property any flammable explosives, radioactive materials, hazardous wastes, toxic substances or related materials, including without limitation, any substances defined as or included in the definition of "hazardous substances,'' hazardous wastes," ''hazardous materials," or "toxic 9 substances'' under any applicable federal or state laws or regulations (collectively referred to hereinafter as "Hazardous Materials") except such of the foregoing as may be customarily kept and used in and about multifamily residential property. Trustor shall immediately advise Beneficiary in writing if at any time it receives written notice of (i) any and all enforcement, cleanup, removal or other governmental or regulatory actions instituted, completed or threatened against Trustor or the Property pursuant to any applicable federal, state or local laws, ordinances, or regulations relating to any Hazardous Materials, ("Hazardous Materials Law"); (ii) all claims made or threatened by any third party against Trustor or the Property relating to damage, contribution, cost recovery compensation, loss or injury resulting from any Hazardous Materials (the matters set forth in clauses (i) and (ii) above hereinafter referred to a "Hazardous Materials Claims"); and (iii) Trustor's discovery of any occurrence or condition on any real property adjoining or in the vicinity of the Property that could cause the Property or any part thereof to be classified as "border-zone property" under the provision of California Health and Safety Code, Sections 25220 et seq., or any regulation adopted in accordance therewith, or to be otherwise subject to any restrictions on the ownership, occupancy, transferability or use of the Property under any Hazardous Materials Law. Beneficiary shall have the right to join and participate in, as a party if it so elects, any legal proceedings or actions initiated in connection with any Hazardous Materials Claims and to have its reasonable attorneys' fees in connection therewith paid by Trustor. Trustor shall indemnify and hold harmless Beneficiary and its boardmembers, supervisors, directors, officers, employees, agents, successors and assigns from and against any loss, damage, cost, expense or liability directly or indirectly arising out of or attributable to the use, generation, storage, release, threatened release, discharge, disposal, or presence of Hazardous Materials on, under, or about the Property including without limitation: (a) all foreseeable consequential damages; (b) the costs of any required or necessary repair, cleanup or detoxification of the Property and the preparation and implementation of any closure, remedial or other required plans; and (c) all reasonable costs and expenses incurred by Beneficiary in connection with clauses (a) and (b), including but not limited to reasonable attorneys' fees. Without Beneficiary's prior written consent, which shall not be unreasonably withheld, Trustor shall not take any remedial action in response to the presence of any Hazardous Materials on, under or about the Property, nor enter into any settlement agreement, consent decree, or other compromise in respect to any Hazardous Material Claims, which remedial action, settlement, consent decree or compromise might, in Beneficiary's reasonable judgement, impair the value of the Beneficiary's security hereunder; provided, however, that Beneficiary's prior consent shall not be necessary in the event that the presence of Hazardous Materials on, under, or about the Property either poses an immediate threat to the health, safety or welfare of any individual or is of such a nature that an immediate remedial response is necessary and it is not reasonably possible to obtain Beneficiary's consent before taking such action, provided that in such event Trustor shall notifl Beneficiary as soon as practicable of any action so taken. Beneficiary agrees not to withhold its consent, where such consent is required hereunder, if either (i) a particular remedial action is ordered by a court of competent jurisdiction, (ii) Trustor will or may be subjected to civil or criminal sanctions or penalties if it fails to take a required action; (iii) Trustor establishes to the reasonable satisfaction of Beneficiary that there is no 1010\16\221043.1 10 reasonable alternative to such remedial action which would result in less impairment of Beneficiary's security hereunder; or (iv) the action has been agreed to by Beneficiary. The Trustor hereby acknowledges and agrees that (i) this Article is intended as the Beneficiary's written request for information (and the Trustor's response) concerning the environmental condition of the Property as required by California Code of Civil Procedure Section 726.5, and (ii) each representation and warranty in this Deed of Trust or any of the other Loan Documents (together with any indemnity applicable to a breach of any such representation and warranty) with respect to the environmental condition of the property is intended by the Beneficiary and the Trustor to be an "environmental provision" for purposes of California Code of Civil Procedure Section 736. In the event that any portion of the Property is determined to be "environmentally impaired" (as that term is defined in California Code of Civil Procedure Section 726.5(e)(3)) or to be an "affected parcel" (as that term is defined in California Code of Civil Procedure Section 726S(e)(1)), then, without otherwise limiting or in any way affecting the Beneficiary's or the Trustee's rights and remedies under this Deed of Trust, the Beneficiary may elect to exercise its rights under California Code of Civil Procedure Section 726.5(a) to (1) waive its lien on such environmentally impaired or affected portion of the Property and (2) exercise (a) the rights and remedies of an unsecured creditor, including reduction of its claim against the Trustor to judgment, and (b) any other rights and remedies permitted by law. For purposes of determining the Beneficiary's right to proceed as an unsecured creditor under California Code of Civil Procedure Section 726.5(a), the Trustor shall be deemed to have willfully permitted or acquiesced in a release or threatened release of hazardous materials, within the meaning of California Code of Civil Procedure Section 726S(d)(l), if the release or threatened release of hazardous materials was knowingly or negligently caused or contributed to by any lessee, occupant, or user of any portion of the Property and the Trustor knew or should have known of the activity by such lessee, occupant, or user which caused or contributed to the release or threatened release. All costs and expenses, including (but not limited to) attorneys' fees, incurred by the Beneficiary in connection with any action commenced under this paragraph, including any action required by California Code of Civil Procedure Section 726.5@) to determine the degree to which the Property is environmentally impaired, plus interest thereon at the rate specified in the Note until paid, shall be added to the indebtedness secured by this Deed of Trust and shall be due and payable to the Beneficiary upon its demand made at any time following the conclusion of such action. ARTICLE 7 EVENTS OF DEFAULT AND REMEDIES Section 7.1 Events of Default. The following shall constitute Events of Default following the expiration of any applicable notice and cure periods: (1) failure to make any payment to be paid by Trustor under the Loan Documents; (2) failure to observe or perform any of Trustor's other covenants, agreements or obligations under the Loan Documents, including, without limitation, the provisions concerning discrimination; or (3) failure to make any payment or perform any of 11 1 01 0\16\22 1043.1 Trustor's other covenants, agreements, or obligations under any other debt instruments or regulatory agreement secured by the Property, which default shall not be cured within the times and in the manner provided therein. Section 7.2 Acceleration of Maturity. If an Event of Default shall have occurred and be continuing, then at the option of the Beneficiary, the amount of any payment related to the Event of Default and the unpaid Principal of the Note shall immediately become due and payable, upon written notice by the Beneficiary to the Trustor (or automatically where so specified in the Loan Documents), and no omission on the part of the Beneficiary to exercise such option when entitled to do so shall be construed as a waiver of such right. Section 7.3 The Beneficiary's Right to Enter and Take Possession. If an Event of Default shall have occurred and be continuing, the Beneficiary may: (a) Either in person or by agent, with or without bringing any action or proceeding, or by a receiver appointed by a court, and without regard to the adequacy of its security, enter upon the Security and take possession thereof (or any part thereof) and of any of the Security, in its own name or in the name of Trustee, and do any acts which it deems necessary or desirable to preserve the value or marketability of the Property, or part thereof or interest therein, increase the income therefrom or protect the security thereof The entering upon and taking possession of the Security shall not cure or waive any Event of Default or Notice of Default (as defined below) hereunder or invalidate any act done in response to such Default or pursuant to such Notice of Default and, notwithstanding the continuance in possession of the Security, Beneficiary shall be entitled to exercise every right provided for in this Deed of Trust, or by law upon occurrence of any Event of Default, including the right to exercise the power of sale; (b) Commence an action to foreclose this Deed of Trust as a mortgage, appoint a receiver, or specifically enforce any of the covenants hereof; (c) Deliver to Trustee a written declaration of default and demand for sale, and a written notice of default and election to cause Trustor's interest in the Security to be sold ("Notice of Default and Election to Sell"), which notice Trustee or Beneficiary shall cause to be duly filed for record in the OEcial Records of San Diego County; or Exercise all other rights and remedies provided herein, in the instruments by which the Trustor acquires title to any Security, or in any other document or agreement now or hereafter evidencing, creating or securing all or any portion of the obligations secured hereby, or provided by law. (d) Section 7.4 Foreclosure By Power of Sale. Should the Beneficiary elect to foreclose by exercise of the power of sale herein contained, the Beneficiary shall give notice to the Trustee (the "Notice of Sale") and shall deposit with Trustee this Deed of Trust which is secured hereby (and the deposit of which shall be 12 1010\16\221043.1 deemed to constitute evidence that the unpaid principal amount of the Note is immediately due and payable), and such receipts and evidence of any expenditures made that are additionally secured hereby as Trustee may require. (a) Upon receipt of such notice from the Beneficiary, Trustee shall cause to be recorded, published and delivered to Trustor such Notice of Default and Election to Sell as then required by law and by this Deed of Trust. Trustee shall, without demand on Trustor, after lapse of such time as may then be required by law and after recordation of such Notice of Default and Election to Sell and after Notice of Sale having been given as required by law, sell the Security, at the time and place of sale fixed by it in said Notice of Sale, whether as a whole or in separate lots or parcels or items as Trustee shall deem expedient and in such order as it may determine unless specified otherwise by the Trustor according to California Civil Code Section 2924g(b), at public auction to the highest bidder, for cash in lawful money of the United States payable at the time of sale. Trustee shall deliver to such purchaser or purchasers thereof its good and sufficient deed or deeds conveying the property so sold, but without any covenant or warranty, express or implied. The recitals in such deed or any matters of facts shall be conclusive proof of the truthfblness thereof Any person, including, without limitation, Trustor, Trustee or Beneficiary, may purchase at such sale, and Trustor hereby covenants to warrant and defend the title of such purchaser or purchasers. (b) After deducting all reasonable costs, fees and expenses of Trustee, including costs of evidence of title in connection with such sale, Trustee shall apply the proceeds of sale to payment of (i) the unpaid Principal amount of the Note; (ii) all other amounts owed to Beneficiary under the Loan Documents; (iii) all other sums then secured hereby; and (iv) the remainder, if any, to Trustor. (c) Trustee may postpone sale of all or any portion of the Property by public announcement at such time and place of sale, and fiom time to time thereafter, and without further notice make such sale at the time fixed by the last postponement, or may, in its discretion, give a new Notice of Sale. Section 7.5 Receiver. If an Event of Default shall have occurred and be continuing, Beneficiary, as a matter of right and without hrther notice to Trustor or anyone claiming under the Security, and without regard to the then value of the Security or the interest of Trustor therein, shall have the right to apply to any court having jurisdiction to appoint a receiver or receivers of the Security (or a part thereof), and Trustor hereby irrevocably consents to such appointment and waives fbrther notice of any application therefor. Any such receiver or receivers shall have all the usual powers and duties of receivers in like or similar cases, and all the powers and duties of Beneficiary in case of entry as provided herein, and shall continue as such and exercise all such powers until the date of confirmation of sale of the Security, unless such receivership is sooner terminated. Section 7.6 Remedies Cumulative. No right, power or remedy conferred upon or reserved to the Beneficiary by this Deed of Trust is intended to be exclusive of any other right, power or remedy, but each and every such 1010\16\221043.1 13 157 right, power and remedy shall be cumulative and concurrent and shall be in addition to any other right, power and remedy given hereunder or now or hereafter existing at law or in equity. Section 7.7 No Waiver. (a) No delay or omission of the Beneficiary to exercise any right, power or remedy accruing upon any Event of Default shall exhaust or impair any such right, power or remedy, or shall be construed to be a waiver of any such Event of Default or acquiescence therein; and every right, power and remedy given by this Deed of Trust to the Beneficiary may be exercised from time to time and as often as may be deemed expeditious by the Beneficiary. Beneficiary 's expressed or implied consent to a breach by Trustor, or a waiver of any obligation of Trustor hereunder shall not be deemed or construed to be a consent to any subsequent breach, or hrther waiver, of such obligation or of any other obligations of the Trustor hereunder. Failure on the part of the Beneficiary to complain of any act or failure to act or to declare an Event of Default, irrespective of how long such failure continues, shall not constitute a waiver by the Beneficiary of its right hereunder or impair any rights, power or remedies consequent on any Event of Default by the Trustor. (b) If the Beneficiary (i) grants forbearance or an extension of time for the payment of any sums secured hereby, (ii) takes other or additional security or the payment of any sums secured hereby, (iii) waives or does not exercise any right granted in the Loan Documents, (iv) releases any part of the Security from the lien of this Deed of Trust, or otherwise changes any of the terms, covenants, conditions or agreements in the Loan Documents, (v) consents to the granting of any easement or other right affecting the Security, or fiv) makes or consents to any agreement subordinating the lien hereof, any such act or omission shall not release, discharge, modify, change or affect the original liability under this Deed of Trust, or any other obligation of the Trustor or any subsequent purchaser of the Security or any part thereof, or any maker, co- signer, endorser, surety or guarantor (unless expressly released); nor shall any such act or omission preclude the Beneficiary from exercising any right, power or privilege herein granted or intended to be granted in any Event of Default then made or of any subsequent Event of Default, nor, except as otherwise expressly provided in an instrument or instruments executed by the Beneficiary shall the lien of this Deed of Trust be altered thereby. Section 7.8 Suits to Protect the Security. The Beneficiary shall have power to (a) institute and maintain such suits and proceedings as it may deem expedient to prevent any impairment of the Security and the rights of the Beneficiary as may be unlawkl or any violation of this Deed of Trust, (b) preserve or protect its interest (as described in this Deed of Trust) in the Security, and (c) restrain the enforcement of or compliance with any legislation or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid, if the enforcement for compliance with such enactment, rule or order would impair the Security thereunder or be prejudicial to the interest of the Beneficiary . 14 Section 7.9 Trustee May File Proofs of Claim. In the case of any receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment, composition or other proceedings affecting the Trustor, its creditors or its property, the Beneficiary, to the extent permitted by law, shall be entitled to file such proofs of claim and other documents as may be necessary or advisable in order to have the claims of the Beneficiary allowed in such proceedings and for any additional amount which may become due and payable by the Trustor hereunder after such date. Section 7.10 Waiver. The Trustor waives presentment, demand for payment, notice of dishonor, notice of protest and nonpayment, protest, notice of interest on interest and late charges, and diligence in taking any action to collect any sums owing under the Note or in proceedings against the Security, in connection with the delivery, acceptance, performance, default, endorsement or guaranty of this Deed of Trust. ARTICLE 8 MISCELLANEOUS Section 8.1 Amendments. This instrument cannot be waived, changed, discharged or terminated orally, but only by an instrument in writing signed by Beneficiary and Trustor. Section 8.2 Reconveyance by Trustee. Upon written request of Beneficiary stating that all sums secured hereby have been paid or forgiven, and upon surrender of this Deed of Trust to Trustee for cancellation and retention, and upon payment by Trustor of Trustee’s reasonable fees, Trustee shall reconvey the Security to Trustor, or to the person or persons legally entitled thereto. Section 8.3 Notices. If at any time after the execution of this Deed of Trust it shall become necessary or convenient for one of the parties hereto to serve any notice, demand or communication upon the other party, such notice, demand or communication shall be in writing and shall be served personally or by depositing the same in the registered United States mail, return receipt requested, postage prepaid and (1) if intended for Beneficiary shall be addressed to: City of Carlsbad 2965 Roosevelt St., Suite B Carlsbad, CA 92008 Attn: City Manager 1010\16\22 1043.1 15 and (2) if intended for Trustor shall be addressed to: El Camino Family Housing Partners, LLC c/o Affirmed Housing Group 200 East Washington, Suite 208 Escondido, CA 92025 Attn: Jim Silverwood Any notice, demand or communication shall be deemed given, received, made or communicated on the date personal delivery is effected or, if mailed in the manner herein specified, on the delivery date or date delivery is refbed by the addressee, as shown on the return receipt. Either party may change its address at any time by giving written notice of such change to Beneficiary or Trustor as the case may be, in the manner provided herein, at least ten (10) days prior to the date such change is desired to be effective. Section 8.4 Successors and Joint Trustors. Where an obligation is created herein binding upon Trustor, the obligation shall also apply to and bind any transferee or successors in interest. Where the terms of the Deed of Trust have the effect of creating an obligation of the Trustor and a transferee, such obligation shall be deemed to be a joint and several obligation of the Trustor and such transferee. Where Trustor is more than one entity or person, all obligations of Trustor shall be deemed to be a joint and several obligation of each and every entity and person comprising Trustor. Section 8.5 Captions. The captions or headings at the beginning of each Section hereof are for the convenience of the parties and are not a part of this Deed of Trust. Section 8.6 Invalidity of Certain Provisions. Every provision of this Deed of Trust is intended to be severable. In the event any term or provision hereof is declared to be illegal or invalid for any reason whatsoever by a court or other body of competent jurisdiction, such illegality or invalidity shall not affect the balance of the terms and provisions hereof, which terms and provisions shall remain binding and enforceable. If the lien of this Deed of Trust is invalid or unenforceable as to any part of the debt, or if the lien is invalid or unenforceable as to any part of the Security, the unsecured or partially secured portion of the debt, and all payments made on the debt, whether voluntary or under foreclosure or other enforcement action or procedure, shall be considered to have been first paid or applied to the full payment of that portion of the debt which is not secured or partially secured by the lien of this Deed of Trust. Section 8.7 Governing Law. This Deed of Trust shall be governed by and construed in accordance with the laws of the State of California. 1 0 10\16\22 1043. I 16 Section 8.8 Gender and Number. In this Deed of Trust the singular shall include the plural and the masculine shall include the feminine and neuter and vice versa, if the context so requires. Section 8.9 Deed of Trust, Mortgage. Any reference in this Deed of Trust to a mortgage shall also refer to a deed of trust and any reference to a deed of trust shall also refer to a mortgage. Section 8.10 Actions. Trustor agrees to appear in and defend any action or proceeding purporting to affect the Security. Section 8.1 1 Substitution of Trustee. Beneficiary may fi-om time to time substitute a successor or successors to any Trustee named herein or acting hereunder to execute this Trust. Upon such appointment, and without conveyance to the successor trustee, the latter shall be vested with all title, powers, and duties conferred upon any Trustee herein named or acting hereunder. Each such appointment and substitution shall be made by written instrument executed by Beneficiary, containing reference to this Deed of Trust and its place of record, which, when duly recorded in the proper ofice of the county or counties in which the Property is situated, shall be conclusive proof of proper appointment of the successor trustee. Section 8.12 Statute of Limitations. The pleading of any statute of limitations as a defense to any and all obligations secured by this Deed of Trust is hereby waived to the full extent permissible by law. Section 8.13 Acceptance by Trustee. Trustee accepts this Trust when this Deed of Trust, duly executed and acknowledged, is made public record as provided by law. Except as otherwise provided by law the Trustee is not obligated to notitjr any party hereto of pending sale under this Deed of Trust or of any action of proceeding in which Trustor, Beneficiary, or Trustee shall be a party unless brought by Trustee. 1010\16\221043.1 17 IN WITNESS WHEREOF, Trustor has executed this Deed of Trust as of the day and year first above written. TRUSTOR: EL CAMIN0 FAMILY HOUSING PARTNERS, LLC, a California limited 1iabiIity company By: AFFIRMED HOUSING GROUP., a California corporation By: Jim Silverwood President 18 1010\16\221043,1 STATE OF CALIFORNIA 1 COUNTY OF 1 ) ss. On before me, , personally appeared the basis of satisfactory evidence) to be the person(s) whose name(s) idare subscribed to the within instrument and acknowledged to me that hdshdthey executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s) or the entity upon behalf of which the person(s) acted, executed the instrument. personally known to me (or proved to me on WITNESS my hand and oilicial seal. EXHIBIT A (Legal Description) The land is situated in the City of Carlsbad, County of San Diego, State of California, and is described as follows: A- 1 EXHIBIT H Form of Memorandum of Ground Lease 1010\16\20723 1.4 H- 1 EXHIBIT 5 ASSIGNMENT OF REAL ESTATE CONTRACT ASSIGNMENT OF REAL, ESTATE PURCHASE CONTRACT For valuable consideration, Affirmed Housing Group, a California corporation (“Assignor”), hereby assigns, conveys, and transfers to The City of Carlsbad (“Assignee”), all of Assignor’s right, title, interest, privilege, benefit, obligations and remedies in and to the purchase agreement and escrow between Assignor, on the one hand, as buyer, and Anthony Bons, Dicky Bons, and Anthony Bons and Dicky Bons, as Trustees of the Bons Charitable Remainder Unitrust, U/D/T November 23, 1998, on the other hand, as seller, for the purchase of the real property located in the City of Carlsbad, California and more specifically identified in Exhibit A hereto (the “Property”). AS SIGNOR: AFFIRMED HOUSING GROUP a California corporation By: James Silverwood Its: President ASSIGNEE: THE CITY OF CARLSBAD a municipal corporation By: Its: APPROVED AS TO FORM By: Ron Ball City Attorney By: 1 EXHIBIT A LEGAL DESCRIPTION 2 PURCHASE AGREEMENT AND ESCROW INSTRUCTIONS This Purchase Agreement and Escrow Instructions (the “Agreement”) is made and entered into effective September , 2001, by and between The Bons Charitable Remainder Trust (the “Buyer”). This Agreement is entered into with reference to the recitals set forth below and constitutes (1) a contract for the purchase of real property between Buyer and Seller, and (2) escrow instructions to Chicago Title Company (the “Escrow Holder”), whose consent appears at the end of this Agreement. “Seller”); and AFFIRM 3 D HOUSING GROUP, a California corporation, andor its assigns (the RECITALS (A) Seller is the owner of certain real property located in the City of Carlsbad, County of San Diego, State of California consisting of approximately 2.63 (Assessors Parcel 21 5-024-06) more particularly described in Exhibit “A” attached hereto (the “Property”). For purposes of this Agreement, the Property shall include all common areas, appurtenances, easements, buildings, fixtures, and chattel, if any, associated with the Property. (B) and conditions set forth in this Agreement. Seller wishes to sell and Buyer wishes to buy the Property, for the price and on the terms NOW, THEREFORE, with reference to the foregoing recitals, which are incorporated herein by this reference, and for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Buyer agree as follows: ARTICLE I PURCHASE PRICE 1. I Deposit by Buyer. The purchase price for the Property shall be One million two hundred thousand dollan ($1,200,000) (the “Purchase Price”). The sum of Five thousand dollars ($5,000) will be deposited upon execution of this Agreement with the Escrow Holder, and credited (along with any accrued interest) against the Purchase Price at close of escrow (the “First Deposit”). Escrow Holder will place the Deposit into an interest bearing account, with the interest accruing for the benefit of Buyer, unless Buyer defaults under this Agreement. 1.2 Second Deposit by Buyer. Unless Buyer has exercised its right to terminate the Agreement, at the end of the Feasibility and Inspection Period(as defined below) and no later than one hundred twenty (120) days fiom the date of this Agreement, Buyer will deposit with the Escrow Holder an additional ten thousand dollars ($10.000) (the “Second Deposit”). Unless Buyer has previously elected to terminate this Page 1 of 15 Agreement, Buyer and Seller authorize Escrow Holder to release the First and Second Deposit from escrow to Seller on the following dates: The sum of five thousand dollars ($5,000) shall be released to Seller immediately upon Escrow Holder’s receipt of the Second Deposit; The sum of five thousand dollars ($5,0000) shall be released to Seller two hundred eleven (2 1 1) days from the Date; and The sum of five thousand dollars ($5,000) shall be released to Seller three hundred one (301) days from the Date. Once released to Seller, the First and Second Deposit will be nonrefundable and credited against the Purchase Price unless escrow fails to close due to Seller’s default under the terms of this Agreement, or due to Seller’s inability to cure any title defects as set forth in section 3.l(a) below, or Seller’s inability to resolve any government action affecting the property as set forth in section 5.1A below. 1.3 Third Deposit by Buyer. Unless Buyer has exercised its right to terminate the Agreement, no later than three hundred thirty one (33 1) days from the Date of this Agreement, Buyer shall deposit with Escrow Holder an additional ten thousand dollars ($1 O,OOO)(the “Third Deposit”)(the First, Second and Third Deposit shall collectively be referred to as the “Deposit”). Unless Buyer has previously elected to terminate this Agreement, Buyer and Seller authorize Escrow Holder to release the Third Deposit from escrow to Seller on the following dates: The sum of five thousand ($5,000) shall be released to Seller immediately upon Escrow Holder’s receipt of the Third Deposit; and The sum of five thousand ($5,000) shall be released to Seller three hundred sixty one (361) days from the Date. Once released to Seller, the Third Deposit will be nonrefundable and credited against the Purchase Price unless escrow fails to close due to Seller’s default under the forth in section 3.1 (a) below, or Seller’s inability to resolve any government action affecting the property as 9Pt forth in section 5.1A below. 1.4 Payment of Balance of Purchase Price If Buyer has not already exercised its right to terminate the Agreement, on the Closing Date (as defined in section 2.1 below), Buyer will deposit with Escrow Holder the balance of the Purchase Price, plus sufficient funds to pay for its share of closing costs and prorations as described in section 4.2 below. Any portion of the Deposit not previously released to Seller will be released to Seller by the Escrow Holder at the close of escrow. Page 2 of 15 ARTICLE I1 CLOSING 2.1 Closing Date. Escrow shall close on or before the date ending eighteen ( 18) months from the Date of this Agreement. ARTICLE I11 CONDITIONS TO CLOSING 3.1 Conditions. Precedent to Buyer’s Performance. The close of escrow and consummation of the purchase of the Property is subject to and contingent on the satisfactory performance of all of the following obligations and conditions, any or all of which Buyer may waive in writing: (a) Preliminary Title Report. Upon the opening of escrow, Escrow Holder shall immediately order a copy of a preliminary title report for the Property from Chicago Title Company, and if any, copies of any covenants, conditions, and restrictions affecting the Property. Upon receipt of the preliminary title report, Escrow Holder will forward the report to Buyer, who will have thirty (30) days from receipt to disapprove by written notice provided to Escrow Holder and Seller any liens, encumbrances, covenants, conditions, restrictions, easements or other matters affecting title appearing in the preliminary title report. Buyer’s failure to deliver to Seller and Escrow Holder within such time period Buyer’s written disapproval of any item in the preliminary title report shall be deemed Buyer’s approval of such item. In case of Buyer’s timely disapproval of any such item, Seller shall have a period of thirty (30) days to remove or eliminate any disapproved items, or obtain a title insurance policy, in a form reasonably acceptable to Buyer, insuring over the disapproved item(s). If such disapproved items are not removed or eliminated on or before the expiration of the thirty (30) days, within ten (10) days after expiration of the thirty (30) day period, Buyer, may, in Buyer’s sole discretion, by written notice to Seller and Escrow Holder waive its disapproval of such items or this condition. Such written notice shall constitute Buyer’s approval of such items or conditions. Unless Buyer timely gives written notice waiving its disapproval, this Agreement and all of the rights and obligations of the parties under this Agreement shall be terminated and be of no further force or effect. If Buyer timely gives written disapproval of any matters affecting title, and Seller attempts to cure the defects or matters within thirty (30) days after receiving notice of such disapproval, the Closing Date may be extended by written agreement of both parties, if necessary, to the date Seller either removes or eliminates the disapproved item(s!, or Buyer waives its disapproval. If Buyer disapproves the preliminary title report and does not subsequently waive such disapproval, and Seller, at Seller’s sole and absolute discretion, is unwilling or unable to remove Page 3 of 15 or eliminate any disapproved items prior to the Closing Date, as it may be extended by the parties, this Agreement shall terminate, the parties’ rights and obligations thereunder shall terminate, each party shall be released from its obligations hereunder, and Buyer shall be entitled to a return of the First Deposit. Notwithstanding the foregoing, Seller shall not be obligated to remove any exception to the preliminary title report, or to bring any legal action or proceeding or bear any expense to enable Seller to convey title to the Property in accordance with this Agreement or otherwise make title to the Property marketable or insurable. Buyer’s sole remedy under this section for any uncured defects in title shall be to obtain a ;efund of its Deposit. If the preliminary title report is approved and the transfer of the Property is consummated, Escrow Holder shall, at the Closing Date, cause to be issued to Buyer a CLTA Owner’s Coverage Form Policy of Title Insurance from Chicago Title Company with a liability limit in the amount of the purchase price, insuring that the fee title to the Property vests in Buyer. At Buyer’s election, Buyer may acquire an ALTA Owner’s Coverage Form Policy of Title Insurance for the Property. Buyer shall take title to the Property subject to: (a) general and special taxes and special district levies not due or delinquent, including the lien of supplemental taxes, if any, assessed pursuant to Chapter 498, 1983 Statutes of the State of California; and (b) covenants, conditions, reservations (including exceptions of oil, gas, minerals, hydrocarbons and/or lease without right of surface entry), restrictions, rights of way, and easements for public utilities, districts, water companies, alleys and streets; and (c) other exceptions to title that Buyer has approved. (b) Feasibility Study. Upon execution of this Agreement, if Seller has not already done so, Seller shall provide Buyer with copies of or provide access to the following documents for Buyer’s review to determine their individual and collective impact on the economic feasibility of Buyer acquiring and developing the Property: (1) all soils and other engineering reports regarding the Property; and (2) any environmental investigations or reports prepared for or with respect to the Property, in the care, custody or control of Seller. In addition, Buyer shall also review and consider the impact on the Property of any and all applicable governmental ordinances, rules, and regulations and evaluate the effect of any pending or threatened governmental action pertaining to the Property. Prior to the expiration of the Feasibility and Inspection Period (as defined below), Buyer and its representatives, consultants, engineers, and agents, shall have the right to inspect the Property and to perform a physical inspection of the Property, including reasonable non-intrusive tests, including a geologic and soils study, and a Phase I Environmental Study to determine if the Property and the improvements thereon are affected or contaminated by any hazardous or dangerous wastes or materials. Buyer shall indemnifj, and hold Seller harmless from ail damage, liability, cost, expense, liens, personal injury, property damage, loss or other claim that may arise from or in connection with the entry onto the Property by Buyer, and its agents, consultants, engineers, and other professionals during the Feasibility Period. Buyer shall add Seller as an additional insured on Buyer’s liability insurance policies (which policies shall have liability limits of at least $1,000,000 per occurrence) until such time as escrow closes or this Agreement terminates, The indemnity obligation set forth in the preceding sentence shall survive the termination of this Agreement by either party. Page 4 of 15 Buyer shall have until the close of business on the date ending one hundred twenty ( 120) days from the date of this Agreement, to complete its feasibility investigation regarding the Property (the “Feasibility and Inspection Period”). If Buyer approves its investigation (in its sole discretion) during the Feasibility and Inspection Period, Buyer shall deliver to Seller and Escrow Holder prior to the close of business on the last day of the Feasibility Period written notice of its approval of its investigation and of its election to purchase the Property subject to the satisfaction of the other conditions precedent set forth in this Article 111. If Buyer elects to approve its investigation, the First Deposit will be released to Seller and Buyer shall deposit with Escrow Holder the Second Deposit as set forth in section 1.2 above. In the event Buyer does not deliver to Seller and Escrow Holder such written notice of approval by the end of the Feasibility Period this Agreement shall terminate, each party shall be released from its obligations thereunder, and Buyer shall be entitled to a refund of the Deposit, including all accrued interest. (c) Financing Contingency. Buyer’s obligation to perform is conringent upon Buyer obtaining, prior to the Closing Date, financing in an amount of least one million two hundred thousand dollars ($1,200,000) from a variety of sources including, but not limited to, the California Tax Credit Allocation Committee, California Debt Limit Allocation Committee, County of San Diego and the City of Carlsbad. Seller understands and acknowledges that Buyer intends to develop the Property as low income, affordable rental housing. (d) Zoning Approvals Buyer obtaining approval from city of Carlsbad City Council for multifamily housing at a density that, in the sole discretion of the buyer, is acceptable for the development of the site. If the conditions set forth in sections 3.l(a) through 3,l(d) have not been satisfied by the Closing Date, Buyer, at its sole election, shall have the right to terminate this Agreement. If Buyer elects to terminate the Agreement under this section 3.1, this Agreement shall terminate, the parties’ rights and obligations thereunder shall terminate, each party shall be released from its obligations hereunder, and Buyer shall be entitled to a return of the Deposit, including all accrued interest, except that portion of the Deposit that has already been released to Seller, which shall remain nonrefundable, unless escrow fails to close due to Seller’s default under the terms of this Agreement, or due to Seller’s inability to cure any title defects as set forth in section 3.l(a) below, or Seller’s inability to resolve any governmental action affecting the property as set forth in section 5.1A below. ARTICLE IV ESCROW 4.1 Escrow Period. Upon execution of this Agreement, the parties shall open escrow with the Escrow Holder. Page 5 of 15 The parties shall deposit a fully executed original of this Agreement with Escrow Holder, in order to open an escrow to complete the purchase contemplated pursuant to this Agreement. By such deposit, Escrow Holder is hereby authorized and instructed to act in accordance with the provisions of this Agreement, which shall constitute Escrow Holder’s escrow instructions. Escrow shall be deemed to have been opened on the date that an original of this Agreement is received by Escrow Holder, and upon receipt thereof, Escrow Holder shall advise Buyer and Seller of such date. In addition, Buyer and Seller agree to execute, deliver and be bound by any reasonable or customary supplemental escrow instructions of Escrow Holder or other instruments as may be reasonably required by Escrow Holder in order to consummate the transactions contemplated by this Agreement. If there is any conflict between the terns of this Agreement and Escrow Holder’s supplemental escrow instructions, the terms of this Agreement shall supersede and prevail. 4.2 Proration of Closing Costs, Taxes, and Insurance. Buyer and Seller will each pay one half of Escrow Holder’s fee at the close of esmow, and all other customary closing costs. Seller shall pay for the cost of a CLTA standard policy of title insurance insuring Buyer’s interest in the Property. Any additional cost necessary to acquire an ALTA policy of title insurance for the Property shall be at Buyer’s sole own expense. Real property taxes (pursuant to the County tax assessor’s roll), assessments of record, interest on assessments assumed by Buyer, community facilities district assessments, and insurance premiums on hazard insurance assigned to Buyer shall all be prorated as of the closing date on the basis of a thirty (30) day month. Seller shall pay the cost of all transferhecording fees. Seller shall be responsible for paying any supplemental tax bill related to any event on the Property which preceded close of escrow. Buyer shall be responsible to pay any supplemental tax bill which pertains to the sale of the Property.afier close of escrow: 4.3 Deposits and Deliveries Into Escrow. On or before 3:OO p.m. of the last business day preceding the close of escrow, Seller shall cause to be delivered to Escrow Holder: (1) A grant deed acknowledged and in recordable form conveying the Property to Buyer (the “Deed”), free and clear of all encumbrances and liens, except those consented to or deemed approved by Buyer and set forth in the CLTA title insurance policy to be obtained by Buyer; and (2) all other documents and funds required by Escrow Holder according to this Agreement to carry out and close escrow. On or before 5:OO p.m. of the last business day preceding the close of escrow, Buyer shall cause to be delivered to Escrow Holder (1) the balance of the Purchase Price; and (2) all other documents and funds required by Escrow Holder according to this Agreement to carry out and close escrow. 4.4 Conditions to the Close of Escrow. The close of escrow shall not take place until Buyer and Seller have deposited with Escrow Holder all documents and funds required from them under this Agreement and the full and complete satisfaction and approval of the contingencies and conditions set forth in this Agreement. In addition, Buyer shall have no obligation to close escrow until the following conditions have been satisfied: Page 6 of 15 (i) All representations and warranties by Seller hereunder shall be true and correct as of the Closing Date; and (ii) No moratorium or similar restriction shall have been imposed, approved or enacted, whether or not actually in effect, as of the Closing Date by any governmental authority or private entity with respect to the issuance of certificates of compliance, building permits, gas, electric, sanitary sewer or waterline connections affecting the Property. If any one of the foregoing conditions has not been satisfied as of the Closing Date, Buyer, at its sole election, can terminate this Agreement by giving written notice to Seller and Escrow Holder. If Buyer elects to terminate the Agreement under this section 4.6, this Agreement shall terminate, the parties’ rights and obligations thereunder shall terminate, each party shall be released from its obligations hereunder, and Buyer shall be entitled to a return of the Deposit, including all accrued interest, as its sole remedy. If the escrow fails to close as provided above, Buyer or Seller, provided that party is not in default under the terms of this Agreement, may at any time thereafter give written notice to the Escrow Holder and to the other party of its election to cancel the escrow and return all money and documents in escrow to those depositors who are not in default under the terms of this Agreement. Upon receipt of such written notice of cancellation, Escrow Holder shall deliver a copy of the notice to the other party to this Agreement. That party shall then have ten days from receipt of the notice of cancellation from Escrow Holder to provide written notice to Escrow Holder (and the other party) of its objection to cancellation of the escrow. Unless Escrow Holder receives such timely written objection to the notice of cancellation, it shall be authorized, without any further instructions by the parties, to cancel escrow and return ail money and documents in escrow to their respective depositors. If a timely objection to cancellation is received by Escrow Holder, it shall retain all money and other documents deposited into escrow until it receives further written instructions signed by both Buyer and Seller, or is directed by court order to withdraw or otherwise disburse the funds or documents in Escrow Holder’s possession. If escrow is not closed by the Closing Date or such later date as may be agreed upon by the parties hereto, Escrow Holder shall cause the close of escrow to occur as soon thereafter as possible, unless Escrow Holder has received a written notice from Buyer or Seller to cancel the ‘Escrow. ARTICLE V REPRESENTATIONS AND WARRANTIES 5.1 Representations and Warranties. ’ A. Seller’s Representations and Warranties. Seller represents, warrants and covenants to Buyer that the following representations, warranties and statements are true and correct as of the date of this Agreement, shall be true and correct at the Closing Date, and shall survive the close of’escrow, and the truth and accui v of such representations, warranties and statements constitute a condition precedent to Buyer’s digations Page 7 of 15 under this Agreement. (a) Seller holds title to a fee simple interest in the Property. (b) Seller has the legal power, right and authority to enter into this Agreement and to consummate the transactions contemplated hereby. (c) To Seller's actual knowledge, the Property is not in violation of any federal, state, or local law, ordinance, or regulation relating to industrial hygiene or to the environmental conditions on, under, or about the property, including, but not limited to, soil and groundwater conditions. Seller further warrants and represents that, during the time in which Seller owned the Property, neither Seller nor, to Seller's actual knowledge, any third party has used, generated, manufactured, produced, stored, or disposed of on, under, or about the Property or transported to or from the Property any hazardous materials, including without limitation flammable materials, explosives, asbestos, radioactive materials, hazardous wastes, toxic substances, or related injurious materials, whether injurious by themselves or in combination with other materials. To Seller's actual knowledge, there is no proceeding or inquiry by any governmental authority (including without limitation the Environmental Protection Agency or the California State Department of Health Services) with respect to the presence of such hazardous materials on the Property or their migration from or to other property. For purposes of this agreement, hazardous materials shall include but not be limited to substances defined as "hazardous substances", ''hazardous materials", or "toxic substances" in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (Title 42 United States Code sections 9601 -9675); the Hazardous Materials Transportation Act, as amended (Title 49 United States Code sections 180 1 - 18 19); the Resource Conservation and Recovery Act of 1976, as amended (Title 42 United States Code sections 690 I -6992k); and any substance defined as l'hazardou s waste" in Health and Safety Code section 25 117 or as a "hazardous substance" in Health and Safety Code section 253 16, and in the regulations adopted and publications promulgated under these laws. (d) To Seller's actual knowledge, Seller has received no notice from authorized agents of governmental authorities having jurisdiction over such matters, including the City of Carlsbad or County of San Diego, that any actions, suits or proceedings have been instituted or threatened which would materially affect the Property or the right to develop or utilize the Property, in law or in equity, or before any federal, state, county or municipal governmental department, commission, board, bureau, agency or instrumentality. (e) Seller has received no written notice concerning any violation of any ordinance, rule, law, regulation or other action of any government or any agency, body or subdivision thereof or that any investigation has been commenced or is contemplated respecting such possible violation with respect to the Property. (f) There are no actions, suits, claims, legal proceedings, or any other proceedings affecting the Property, or any portion thereof, at law or in equity, before any court or Page 8 of 15 administrative agency. (g) From the date of this Agreement through the Closing Date, Seller will maintain the Property in good condition and repair and will not knowingly create nor permit the creation of any title exception, such as easements or liens to encumber the Property. If prior to the Closing Date, Seller re6eives actual notice from a government agency or authority or other party of a violation or claimed violation of any of the matters covered by subsections 5.1 (A)(a)-(g) above, Seller shall immediately give notice of same to Buyer. If the notice received by Seller requires corrective work, and the work was not caused by Buyer during the Feasibility and Inspection Period, Seller shall either complete the corrective work prior to the Closing Date at its sole expense, or if Seller is unwilling or unable to complete the corrective work, provide prompt notice of its unwillingness or inability to complete the corrective work to the Buyer. Upon receipt of notice of a violation or claimed violation that Seller will not or cannot correct prior to the Closing Date, Buyer as its sole remedy, shall have the right to give notice to Seller and Escrow Holder of its election to terminate this Agreement, and except for Buyer’s indemnity obligations hereunder, all rights and obligations of the parties under this Agreement shall be terminated and be of no further force and effect, and each party shall be released from th.eir respective obligations under this Agreement. If Buyer so elects to terminate the Agreement, Buyer shall obtain a refund of its Deposit, plus all accrued interest thereon. B. Buyer’s Representations and Warranties. Buyer represents, warrants and covenants to Seller that the following representations, warranties and statements are true and correct as of the date of this Agreement, shall be true and correct as of, and shall survive the close of escrow, and the truth and accuracy of such representations, warranties and statements constitute a condition precedent to Seller’s obligations under this Agreement. (a) Buyer is a corporation duly organized and existing under the laws of the State of California and has duly authorized the execution of this Agreement. ARTICLE VI MISCELLANEOUS 6.1 Broker’s Commission. Seller shall pay a real estate commission of Seventy-two Thousand Dollars ($72,000.00) or Six percent (6%) of the Purchase Price, whichever is greater, as follows: Eighteen Thousand Dollars ($18,000.00), or One and one-halfpercent (1.5%) of the Purchase Price, whichever is greater, to Jim Effinger of Hanson Realty, a Corky McMillan Company, and Fifty-four Thousand Dollars ($54,000.00) or Four and one-halfpercent (4.5%) of the Purchase Price, whichever is greater, to Bill Effinger of One Source GMAC Realty at the close of escrow. Other than Bill Eager, each party represents that it has not engaged a real estate agent or broker in connection with this Agreement. Seller will indemnify and hold the Buyer harmless, from any claim, damage, or liability made as a Page 9 of 15 I77 made as a result of the breach by the Seller of the representations and warranties made in this section. Buyer will indemnify and hold the Seller harmless, from any claim, damage, or liability made as a result of the breach by Buyer of the representations and warranties made in this section. 6.2 Liquidated Damages. IF BUYER FAILS TO COMPLETE THE TRANSACTION SET FORTH IN THIS AGREEMENT DUE TO ITS DEFAULT UNDER ITS TERMS, THE PARTIES AGREE THAT, AS ITS SOLE REMEDY, SELLER SHALL RETAIN ALL OF BUYER’S DEPOSIT AS CONSIDERING ALL THE CIRCUMSTANCES EXISTING ON THE DATE OF THIS AGREEMENT, INCLUDING THE RELATIONSHIP OF THE SUM TO THE RANGE OF HARM TO SELLER THAT REASONABLY COULD BE ANTICIPATED AND THE ANTICIPATION THAT PROOF OF ACTUAL DAMAGES WOULD BE COSTLY OR INCONVENIENT. M PLACING THEIR INITIALS BELOW, EACH PARTY SPECIFICALLY CONFIRMS THE ACCURACY OF THE STATEMENTS MADE ABOVE. RETENTION OF SAID DEPOSIT SHALL NOT LIMIT SELLER’S LEGAL OR EQUITABLE REMEDIES FOR BUYER’S LIQUIDATED DAMAGES, WHICH THE PARTIES AGREE rs A REASONABLE SUM BREACH OF THIS AGREEMENT. P- SELLER INITIALS $g /& BUYERINITIAL 6.3 Default by Seller. 0 If Seller defaults under the terms of this Agreement, Buyer shall be entitled to either terminate this Agreement and obtain a refund of all funds and other items deposited by it with Escrow Holder and/or released to Seller by Escrow Holder (including the Deposit) at which time all rights and obligations of the parties under this Agreement shall terminate and be of no further force or effect, or to initiate a lawsuit in a court of competent jurisdiction, or arbitration proceeding, seeking specific performance of this Agreement. 6.4 Notices. Any notice from one party to another pursuant to this Agreement shall be in writing and delivered personally, by facsimile, or by United States Mail, postage fully prepaid, and addressed to the parties as set forth below. TO BUYER: James Silverwood, President Affirmed Housing Group 200 E. Washington Avenue, Suite 200 Escondido, CA 92025 Phone (760) 738-8401 Fax NO. (760) Page 10 of 15 With a copy to: Joel L. Incorvaia, Esq. Incorvaia & Associates 12626 High Bluff Drive, Suite 325 San Diego, CA 92130 Phone (858) 259-2220 F~xNo. (858) 259-3131 TO SELLER The Bons Charitable Remainder Trust c/o Anthony Bons & Dicky Bons, Trustees Phone( FaxNo. ( 1 With a copy to: Any notice shall be deemed delivered upon personal service, or if mailed on the delivery date or attempted delivery date. If any party changes its address, such change of address shall be communicated to the other parties in the manner set forth in this section. 6.5 Assignment. Buyer shall have the right to assign this Agreement and all of Buyer’s rights thereunder subject to the terms of this Agreement to any company affiliated with or under common ownership with Buyer prior to the Closing Date, but Buyer shall remain liable under this Agreement. Upon such assignment, the assignee will assume all obligations of Buyer and will execute all documents and perform all obligations imposed on Buyer as if the assignee were the original Buyer in this Agreement. Buyer shall not have the right to assign this Agreement to any other person or entity without Seller’s prior written consent, which consent can be withheld in Seller’s reasonable discretion. If Buyer does assign its rights under this Agreement, Buyer’s Deposit shall be immediately released by Escrow Holder to Seller and shall be nonrefundable to Buyer or Buyer’s assignee (unless escrow fails to close due to Seller’s default or failure to comply with the terms and conditions of this Agreement) and will be credited towards the purchase price at the Closing Date. If Buyer assigns its rights under this Agreement, all of Buyer’s rights to the Deposit shall be assigned and transferred to Buyer’s assignee and Buyer shall release any and all rights it has to the Deposit. Page 11 of 15 6.6 Amendment. This Agreement may be amended only by a writing signed by each party hereto. If such a written amendment is entered into, such written amendment shall modify only the provisions of this Agreement specifically modified, and shall be deemed to incorporate by reference, unchanged, all remaining provisions of this Agreement. 6.7 Successors and Assigns. This Agreement is binding upon and shall insure to the benefit of the parties, and their respective successors-in-interest, assigns and transferees. 6.8 Entire Agreement. This Agreement contains the entire agreement of the parties, and supersedes any prior or contemporaneous written or oral agreements, representations and warranties between them with respect to the subject matter of this Agreement. There are no representations, warranties, agreements, arrangements or understandings, oral or written, between the parties relating to the subject matter contained in this Agreement that are not fully expressed in this Agreement. 6.9 ArbitratiodAttorneys’ Fees. Any controversy or claim between the parties that arises out of or relates to this Agreement shall be decided by binding arbitration under the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The provisions of Code of Civil Procedure section 1283.05 shall apply to the arbitration proceeding. If either party takes or commences any actions or proceedings, including litigation or arbitration, against the other by reason of any breach or claimed breach of any provision of or in any way connected with, this Agreement, or seeks a judicial declaration of rights under this Agreement, the party prevailing in such action or proceeding shall be entitled to recover from the other party the prevailing party’s reasonable attorneys’ fees and costs, including, but not limited to, all expert witness fees, other witness fees and associated expenses, whether or not the proceeding or action proceeds to judgment. Buyer may bring an action for specific performance of this Agreement and record a lis pendens without waiving its right to have the action arbitrated under the terms of this Agreement. , 6.10 Construction. - Whenever used in this Agreement, as the context requires, the singular number shall include the plural, the plural number shall include the singular, the masculine gender shall include the feminine and neuter, the feminine gender shall include the masculine and neuter and, the neuter gender shall include the masculine and feminine Page 12 of 15 6.1 1 Headings and Captions. The headings and captions at the beginning of various paragraphs and subparagraphs of this Agreement shall not be construed to be a substantive part of this Agreement and shall not in any way define, limit, expand or affect any provision of this Agreement. 6.12 Further Acts. The parties agree to perform any further acts and sign and deliver any further documents that are reasonably necessary to effectuate the provisions and spirt of this Agreement. 6.13 Counterparts. This Agreement may be signed in two counterparts, each of which shall constitute an original, but all of which shall be one in the same document. 6.14 Governing Law. This Agreement shall be construed under and enforced in accordance with the laws of the State of California. 6.15 Severability. If any term or provision of this Agreement shall for any reason become, or be held by any court of competent jurisdiction to be, illegal, null or void, the remaining terms and provisions of this Agreement shall remain in full force and effect. 6.16 Forum Selection. If any action is brought by Buyer or Seller arising out of or in any way related to any of the terms, covenants or conditions of this Agreement, whether such action is in law or in equity, each party agrees the sole forum for such action shall be a court of competent jurisdiction or arbitration forum within the County of San Diego, State of California. 6.17 Interpretation. Buyer and Seller have agreed to the use of the particular language of the provisions of this Agreement, and any question of doubtful interpretation shall not be resolved by any rule providing for interpretation against the party who causes the uncertainty to exist or against the drafter of this Agreement. Page 13 of 15 IN WITNESS WHEREOF this Agreement is made and entered into as of the date first written above. BUYER AFFIRMED HOUSING GROUP a California cornoration. By:B Jam s ilverwood SELLER By: Its: Trustee ACCEPTANCE BY ESCROW HOLDER The undersigned Escrow Holder agrees to (1) accept the foregoing Agreement; (2) be the escrow agent under the Agreement for the fees agreed upon by Escrow Holder, Buyer, and Seller, and (3) be bound by the Agreement and the performance of its duties as escrow agent; provided, however, Escrow Holder shall have no obligation, liability or responsibility under (a) this Consent, or otherwise, unless and until the Agreement, fully signed by the parties has been delivered to Escrow Holder, or (b) any amendment to the Agreement, unless and until such amendment is accepted by Escrow Holder in writing. Date: By: Chicago Title Company Page 14 of 15 EXHIBIT "A" LEGAL DESCRIPTION OF PROPERTY Page 15 of 15 SECOND AMENDED Dated as of: December 8,2003 at 7:30AM Ord~No.: 13066780-U5O Regarding: 2.63 ACRES CARLSBAD, CA 92008 CHICAGO TITLE COMPANY hereby reports that It Is prepared IO issue, oc cause to be issued, as of the date hereof, a Policy or Policies of Title Insurance describing the land and the estate or Interest therein hereinafter set forth, insuring against loss which may be sustained by reason of any defect, lien or encumbrance not shown or referred to as an Exception in Schedule B or not exduded from coverpge pursuant to the printed Schedules, Conditions and Stipulations ai saki policy forms. The printed Exceptions and Exclusions trom the coverage of said Policy or Pdlcies are set forth in the attached Ilst. Copies ofthe Pdicyfcms are available upon request. #ease reed the 009CBPtlOCIQ Shawn oc refened to In Schalule B and the exceptlono ad duslons set forth In the attmched lla d this repart carehlly. The eroegcbns and o%cIushns are mmnt to provide you wlth ndlce of mdterp whlch are not caved undar the krms of the title insurance pdlcy and should be carefully mldered. It is Important ta noto thmt thh prellndnary repart Is nat a written reprewntetlan ae to the condlth of tMe and may not list dl hl0, d.fecto, and bncumbmnc# dhctlng t0 thB hd. THIS REPORT (AND AM SUPPLEMENTS OR AMENDMENTS HERETO) IS ISSUED SOLELY FOR THE PURPOSE OF FAClUTATiNG THE ISSUANCE OF A POLICY OF TITLE INSURANCE AND NO UABlUTY IS ASSUMED HEREBY. IF IT IS DESIRED THAT LIABILITY BE ASSUMED PRIOR TO THE ISSUANCE OF A POLICY OF TITLE INSURANCE, A BINDER OR COMMITMENT SHOULD BE REQUESTED. The form of policy of Me insurance contemplated by this rem Is: CALIFORNIA LAND TITLE ASSOCIATION STANDARD COVERAGE POLICY vsit us on The web: west~iv~.dt.covn Title Deparlment: CHICAGO TITLE COMPANY 925 "6" STREET SAN DIEGO, ck 92101 (619)544-6233 fax: (619)5446279 TOM VOTEL / KEN CYR TITLE OFFICER Order No: 13066780 U50 SCHEDUIE A Your Rcf: 2. Title to said estate or interest at the date hereof is vested in: ANTHONY BONS AND DICKY BO", husband and wife as community property, AS TO A PORTION; AND ANTHOIW BONS AND DICKY BONS, AS TRUSTEES OF THE BONS CHARITABLE REMAINDER UNITRUST, U/D/T NOVEMBER 23, 1998 AS TO THE REMAINDER 3. The land referred to in this report is Situated in the State of californip, County of SAN DIEGO and is described as follows: ALL THAT PORTION OF FRAcTIOloAzl NORTHEAST QOARTER OF SOUTHWEST QUARTBR OF SECTION 23, TOWNSHIP 12 SOUTH, RANGE 4 WEST, SAN BERNARDINO MERIDIAN, IN THE CITY OF CARLSBAD, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO THE OFFICIAL PLAT THEREOF, DESCRIBED AS FOLLOWS: BEGINNING AT THE NORTHEASTERLY CORNER OF THE SOUTH 10 ACRES OF SAID FRACTIONAL NORTHEAST QUARTXR OF THE SOUTHWGST QUARTgR; T"C3Z ALONG THE NORTHERLY LINE OF SAID SOUTH 10 ACRES WESTERLY "0 AN INTERSECTION WITH THE EASTERLY LINE OF ROAD SURVEY NO. 1800-1, AS DESCRIBED IN A DEED TO THE COUNTY OF SAN DIEGO, RECORDED DECEMBER 18, 1969 AS FILE NO. 230092 OF OFFICIAL RECORDS; THENCE SOUTHERLY ALONG EASTERLY LINE OF SAID ROAD SURVEY NO. 1800-1 TO AN INTERSECTION WITH THE SOUTH LINE OF SAID SOUTH 10 ACRES; THENCE EASTERLY ALONG SAID SOUTH LIHE TO THE EAST LINE OF SAID NORTHEAST QUARTER OF THE SOUTHWEST QUARTER; THEEJCE NORTHERLY ALONG SAID EAST LINE TO THE POINT OF BEGINNING. SCHEDULE B Page 1 Order No: 13066780 U50 Your Ref: At the date hereof exceptions to cwerage in addixion to the printed Ezrceptions and Exclusions in the palicy form designated on the face page of this Report would be. as follows. 1. PROPERTY TAXES, INCLUDING ANY PERSONAL PROPERTY TAXES AND ANY ASSESSMENTS COLLECTED WITH TAXES, FOR THE FISCAL YEAR 2003-2004 1ST INSTALLMENT: $2,469.05 (PAID) 2ND INSTALLMENT: $2,469.05 PENALTY AND COST: $256.91 (DUE AFTER APRIL 10) HOMEOWNERS CODE AREA: 09120 ASSESSMENT NO: 215-021-06 EXEMPTION : $NONE 2. THE LIEN OF SUPPLgMENTAL TAXES, IF ANY, ASSESSED PURSUANT TO THE PROVISIONS OF CHAPTER 3.5 (COMMENCING WITH SECTION 75) OF THE RENENUE AND TAXATION CODE OF THE STATE OF CALIFORNIA. 3. AN EASEMENT FOR THE PURPOSE SHOWN BgLOU AND RXGHTS INCIDENTAL THERETO AS SET FORTH IN A DOCUMENT GRANTED TO: THE COUNTY OF SAN DIEGO PURPOSE : PUBLIC ROAD PURPOSES RECORDED : OCTOBER 18, 1951 IN BOOK 4266, PAGE 582 OF OFFICIAL AFFECTS : THE ROUTE THEREOF AFFEmS A PORTION OF SAID LAND RECORDS AND IS MORE FULLY DESCRIBED W SAID DOCUMENT. GAID lXST"T ADDITIONALLY CmAINS THE PRIVILEGE AND RIGHT TO EXTEND DRAINAGE STRUCTURES AND EXCAVATION AND SLOPES BEYOND THE LIMITS OF THE ABOVE DESCRIBED RIGHT OF WAY WHERE REQUIRED FOR THE CONSTRUCTION AND MAI"ANCE THEREOF. THE EXACT LOCATION AND EXTENT OF SAID EASEMBNT IS NOT DISCLOSED OF RECORD. 4. A WAIVER OF ANY CLAIMS FOR ANY AND ALL DAMAGES TO THE LAND DESCRIBED HgEZEW, BY -ON OF THE LOCATION, CONSTRUCTION, LANDSCAPING, OR MAINTENANCE OF THE HIGHWAY ADJOINING SAID LAND, As CONVEYEX) TO THE COIfiJTy OFFICIAL RECORDS. OF sm DIEGO BY DEED RECORDED OCTOBER la, 1951 nu BOOK 4266, PAGE 582 OB 5. 1NTWT.IOwALLY OnITTED 6. INTENTIONALLY OMITTED 7. INTERTIONALLY OMIrpgD Page 2 Order No: 13066780 1150 Your Ref: 8. THE PRIVILEGE AND RIGHT TO EXTEND DRAINAGE STRUCTURES AND EXCAVATION AND SLOPES BEYOM, THE LIMITS OF ROAD SURVEY NO. 1800-1 WHERE REQUIRED FOR THE CONSTRUCTION AND MAINTENANCE OF SAID ROAD AS CONTAINED I!U THE DEED RECORDED DECEMBER 18, 1969 AS FILE HO. 230092, OFFICIAL RECORDS. 9. A WAm OF ANY CLAIMS FOR ANY AND ALL IlAMAoES TO !lME LAND DESCRIBED HEREIN, BY -ON OF THE LOCATION, CONSTRUCTION, LANDSCAPING, OR MAINTENANCE OF THE HIGHWAY ADJOIXING SAID LAWD, AS CONVEYED TO THE COUNTY OF SAN DIEGO BY DEED RECORDED DECEMBER 18, 1969 AS PILE NO. 230092. 10. AN AGRBEMENT, AM) THE TERMS AND COblDITIONS AS CONTAINED THEREIN DATED : AUGUST 17, 1981 BY AND BETHEEN: ANTHONY BONS, AN INDIVIDUAL AND THE CI OF CARLSBAD RECORDED: SE-ER 1, 1981 AS FILE NO. 81-279911 OF OFFICIAL REOARDING: PA- OF A PUBLIC FACILITIES FEE RECORDS REFERENCE IS MADE TO SAID DOCUMENT FOR FULL PARTICULARS. 11. A DEED OF TRUST TO SECURE AN INDEBTEDNESS IN THE ORIGINAL AMOUNT SHOWN BELOW Axom: $9,919.24 DATED : OCTOBER 25, 1978 TRUSTOR : ANTHONY BONS AM) DICKY BONS, husband and wife TRUSTEE : Sou" CITIES ESCROW COMPANY, a corporation BENEFICIARY: H~Y STLVgR AND EOITH SILVER, husband and wife a8 joint tenants RECORDS RECORDED: NOVEMBER 13, 1978 AS FILE NO. 78-489159, OFFICIAL 12. AN EASEMENT FOR THE PURPOSE SHOW" BELOW AND RIGHTS INCIDENTAL THERETO AS SET FORTH IN A DOCIMENT GRANTED TO: SAW DIEGO GAS h ELECTRIC coMpAzQy PURPOSE : PUBLIC UTILITIES, INGRESS AND EGRESS RECORDED: MARCH 20, 1979 AS FILE NO. 79-114672, OFFICIAL AFFECTS : THE EXACT LOCATION AND EXTENT OF SAID EASEMENT IS NOT RECORDS DISCLOSED OF RECORD. 13. THE FACT SAID LAND LIES WITHIN A "BRIDGE AND THOROUGHFARE DISTRICT NO. 1" ESTABLISHED BY RESOLUTION NO. 8744 BY THE CITY OF CARLSBAD A CERTIFIED COPY OF WHICH WAS RECORDED AUGUST 19, 1986 AS FILE NO. 86-356638. SAID INSTRUMENT, AMONG OTHER THINGS, PROVIDES FUNDS FOR THE CONSTRUCTION OF SCHEDULE B Page 3 (continued) Order No: 13066780 U50 Yout Ref: THE BRIDGE FACILITIES WILL BE GENERATED BY FEES COLLECTED AS BUILDING PERMITS ARE ISSUED MIR DEVELOPMENT WITHIN THE BOUNDARIES OF THE DISTRICT. 14. AN EASEMENT FOR THE PURPOSE SHOWN BeLOFQ AM) RIGHTS INCIDENTAL THERETO AS SET FORTH IN A DOCUMENT GRANTED TO: CITY OF CARLSBAD, A MUNICIPAL CORPORATION PURPOSE : TRAFFIC SIGNAL RECORDED : APRIL 12, 1996 AS FILE NO. 1996-0181733 OF OFFICIAL RECORDS IS MORE mTLLY DESCRIBED IN SAID DOCUMENT. AFFECTS : THE ROUTE THEREOF AFFECTS A PORTION OF SAID LAND AND 15. RIGHTS OF PARTIES IN POSSESSION OF SAID LAND. MATTERS AFFECTING THE RIGHTS OF SAID PARTIES ARE NOT SHOWN HEREIN. END OF SCHEDULE B JP CHlCMO TITE INSURANE COMPANY Fidelitv National Financial G~UD d Commnies' Prhracv Statement July 1,2001 We recognize and respect the privacy expectation of today's consumers and the requirements of applicable federal and state privacy laws. We believe that making you aware of how we use your mn-public personal information ("Personal information'), and to whom t is disclosed, will form the basis for a relationship of trust between us and the public that we serve. This Privacy Statement provides that explanation. We reserve the right to change this Privacy Statement from time to time consistent with applicable privacy laws. In the course of our business, we may collect Personal lnformatlon about you from the following sourcas: * From applications or other forms we receive from you or your authorized representative; * From your transactions with, or from the sewices being performed by, us, our M&tes, or others; * From our internet web sites; * From the public records maintained by governmental entitii that we either obtain directtytrom * From consumer or other reporting agencies. those entities, or from our affiliates or othels; and bur Polkdes Regarding The Proredion Of The ConMenthllty And Secllmy M Your Personal Infomath We maintain physical, electronic and procedural safeguards to protect your Personal Information from unauthorized access or intrusion. We limit access to the Personal Information only to those employees who need such access in connection with providing products or services to you or for other legitimate business purposes Our Policies and Practices Regarding the Sharing of Your Persand Infommtlm We may share your Personal Information with our affiliates, such as insurance companies, agents, and other real estate settlement setvice providers. We may also disclose your Personal Informatbn: * to agents, brokers or representatives to provide you with services you have requested; * to third-party contractors or service providers who provide services or perform marketing or other * to others with whom w8 enter into joint marketing agreements for products or services that we functions on our behalf; and believe you may find of interest. In addition, we will disclose your Personal Information when you direct or give us permission, when we are required by law to do so, or when we suspect fraudulent or criminal activihles. We also may disclose your Personal Information when otherwise permitted by applicable privacy laws such as, for example, when disclosure is needed to enforce our rlghts arislng out of any agreement, transaction or relationship with you. One of the important responsibdities of some of wr affiliated companies is to record documents in the public domain. Such documents may contain your Personal information. Right To Accwe Your Personal tnformatlon And AbUlty To Correct Em Or Request Change Or Deletion Certain states afford you the rigM to access your Personal Information and, under certain circumstances, to find out to whom your Personal Information has been disclosed. Also, certain states afford you the right to request correction, amendment or deletion of your Personal Information. We res- the right, where permitted by law, to charge a reasonable fee to cover the costs incurred in responding to such requssts. All requests must be made in writing to the following address: Privacy Compliance Officer Fidelity National Financial, Inc. 601 RIversMe Drive Jacksonville, FL 32204 Multiple Products or Senic#i: If we provide you with more than one financial mutt or service, you may receive more than one privacy notice from us. We apologize for any imenience this may cause you. . AML JMENT TO ESCROW INSTRUr .ONS TO: CHtCAGO TITLE COMPANY, licensed by the Callfomla Department of Insurance 925 'B' STREET. SAN DIEGO. CA 92101 (61 9)544-6247 Fax (61 9)544-6229 EsCW NO. 213066780 - U46 Escrow Offim JacMe Wondrash Date December 1 1,2003 Property: 2.63 ACRES, CARLSBAD, CAB2008 1. 2. 3. 4. 6. 6. 7. 9. 10. 11. 12 13. 14. 16. 16. 17. 18. 19. 20. 21. p. 23. 24. 25. 28. 27. 28. 23. 31. 52. 33. 34. 36. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 48. 47. 48. 49. 50. 51. !52. 55. 54. 55. !%. 57. 58. 59. 80. 69, a m. PRMOUS INSTRUCTIONS UNDER THE ABOVE REFERENCED ESCROW ARE HEREBY AMENDED AND/OR SUPPLEMENTED IN THE FOLLOWING PARTICULARS ONLY THE PARTIES HAVE AGREED THAT THE PURCHASE PRICE WILL BE INCREASED IN THE AMOUNT OF $3!i,oOa.W WHICH INCLUDES EXTENSIONS OFTHE ESCROW FROM JUNE 2003 THROUGH DECEMBER 2003. THE PARTlES HAVE ALSO AGREED THAT THE TRANSACTION MAY BE EXTENDED MONTH TO MONTH BASED ON THE CONDITION THAT A DEPOSIT OF $S,OOO.UO IS MADE EACH MONTH AND THATTHE PURCHASE PRICE IS INCREASED ACCORDINGLY. ALL MHER TERMS AND CONDITIONS REMAIN UNCHANGED. THE BONS CHARITABLE REMAINDER musr By: BY: AFFIRMED HOUSING GROUP EXHIBIT 6 PROFORMA FOR CARLSBAD FAMILY HOUSING/CASSIA HEIGHTS AFFORDABLE APARTMENT PROJECT 8 d 8 % s EXHIBIT 7 & 8 HOUSING COMMISSION STAFF REPORT DATED FEBRUARY 24,2005 AND COMMISSION RESOLUTION DATE: February 24,2005 SUBJECT: SDP 02-13 - CARLSBAD FAMILY HOUSINGKASSIA HEIGHTS- RECOMMENDATION OF APPROVAL TO THE CITY COUNCIL TO PROVIDE $1,454,276 IN FINANCIAL ASSISTANCE FOR CONSTRUCTION OF FIFTY SIX AFFORDABLE APARTMENT UNITS IN THE SOUTHEAST QUADRANT OF THE CRY. I. RECOMMENDATION That the Housing Commission ADOPT Resolution No. 2005-001, recommending APPROVAL to the City Council to provide $1,454,276 in financial assistance from CDBG, HOME and Redevelopment Agency Housing Set-Aside Funds for construction of fifty six (56) affordable apartment units in the southeast quadrant of the City of Carlsbad. 11. PROJECT BACKGROUND In the fall of 2005, the City Council approved the Carlsbad Family Housing development. It is a fifty six (56) unit housing project which will be affordable to lower income households. This project is unique because it is not being built as a result of a master development inclusionary housing requirement. Affirmed Housing Group, the developer of the project, has pursued the project on its own. The units provided will be above and beyond those anticipated as a result of implementation of the inclusionary housing program in Carlsbad. 111. PROJECT DESCRIPTION The affordable housing apartments will be located on a 2.66 acre parcel that is located at the southeast comer of El Camino Real and Cassia Road. The existing Villa Loma and future Manzanita Apartment projects are located across El Camino Real on the northwest and southwest comers of Cassia Road. SDP 02-13 - CARLSBAD FAMILY HOUSINGKASSIA HEIGIFTS February 24,2005 PAGE 2 The proposed 56-unit affordable apartment project consists of four separate two-story buildings with a partial subterranean garage below Building 1. Propsed amenities include a pool area, a 1,648 square foot office and recreation building, and a tot lot. The proposed development includes 14 one bedroom (25%), 23 two bedroom (41%), 18 three bedroom (32%) units, and one two bedroom manager unit. Of the 56 units, 5 units will be affordable to households earning 30% of the San Diego County Area Median Income (AMI), 6 units (70%) will be affordable to households earning 40% of AMI, 28 units will be affordable to households earning 50% of AMI, and 16 units will be affordable to households at 60% of AMI. IV. DEVELOPMENT TEAM Affirmed Housing Group (AHG) will develop, own, and operate the affordable housing project. AHG, which is based in Escondido, has developed approximately 1140 affordable units throughout California and other states. They have extensive experience in all major areas of residential development. The principal of AHG has over 24 years of experience in the development and construction industry. This is the first affordable housing development in Carlsbad for AHG. However, they are well established within the affordable housing development industry and have worked with several California cities and non-profit organizations to produce quality residential developments. V. FINANCIAL ASSISTANCE A. Cost Reasonableness The developer has provided a detailed development proforma for review by staff and the Housing Commission (See Attachment 2). Since development costs are one of the key variables determining the need for subsidies, it is important that those costs be reasonable. At approximately $14 million, including the cost of the land, the average unit cost of $252,240 is reasonable with consideration of the requirement to pay prevailing wage rates and current costs of construction. B. UndueGain It is important that any financial assistance have the effect of making the units more affordable and not creating undue gain for any party. The Developer will receive a “Developer Fee” of $1,5OO,OOO, or approximately 10.6% of total project costs (including land). The Developer is proposing that they receive 83% of the developer fee ($1,249,403) during the construction of the project. The remainder of the fee, $250,597, would be repaid over the first ten years from income derived from the operation of the project and costs savings or other development sources. The developer fee is fairly consistent with other affordable housing projects in Carlsbad. It is reasonable in light of the project size, affordability and complexity. SDP 02-13 - CAFUSBAD FAMILY HOUSINGKASSIA HEIGHTS FEBRUARY 24,2005 PAGE 3 Conventional Loan Citv Contribution Deferral of a portion of the developer fee is consistent with previous recommendations adopted by the Housing Commission. TOTAL PER UNIT $1,660,000 $29,642 $2.829.276 50.523 C. Subsidy Analysis Deferred Developer Fee Deferred Developer Fee Tax Credit Investor Equity Total Sources The Developer is proposing to finance the project with a conventional loan of approximately $1.6 million and tax credit equity of approximately $9.4 million. The Developer is also requesting a total of $2,829,276 in financial assistance from the City. Staff is proposing to address the financial assistance request in two forms. First, staff is proposing that the City assist the project through property acquisition. This matter will be addressed separately by the City Council. Second, staff is recommending that direct financial assistance be provided to the project in an amount $1,454,276. This direct financial assistance will equate to approximately $25,970 per affordable unit. 150,597 2,689 100,000 1,785 9,385,634 167,600 $14,125,507 $252,241 The $25,970 per unit is larger than what has been previously approved for similar affordable housing projects. In general, the City has provided about $10,000 per unit for similar projects. However, staff believes that the greater amount of assistance is warranted for two reasons. First, the project is being developed outside of the City’s Inclusionary Housing Program. These additional units are greatly needed by the community and will assist in meeting the housing goals for Carlsbad. However, because these units are not developed as part of the Inclusionary Housing Program, Affirmed Housing is not partnered with a Master Developer that can provide additional subsidy to the affordable housing development. Second, the rents will be affordable to households ranging from 30% of the area median income to 60% of the area median income. This is lower than the requirements of the Inclusionary Housing Program and will assist the City in meeting the needs of the very low income households in need of affordable housing. The following is a summary of the sources and uses of funds based on the estimated development costs and the proposed financing structure. The developer’s detailed proforma is attached as Exhibit 2: SUMMARY PROFORMA PERMANENT SOURCES OF FUNDS II SDP 02-13 - CARLSBAD FAMILY HOUSINGKASSIA HEIGIFTS FEBRUARY 24,2005 PAGE 4 D. Form of Assistance City cash assistance will be in the form of a residual receipts loan secured by a note and deed of trust. The loan will begin accruing after the completion of construction of the improvements. The outstanding principal and accrued interest on the City loan will be amortized over fifty-five years and repaid from cash surplus in equal annual installments of principal and interest. In the event that there is not adequate cash surplus to repay the City loan, the outstanding balance shall accrue with simple interest at 3% per annum. The financial assistance will be provided from the City of Carlsbad’s CDBG, HOME and Redevelopment Agency Housing Set-Aside Funds. E. Security The Developer will be required to provide completion bonds to both the City and the permanent lender to insure that construction is completed. F. Risk In its role as a lender to the project, the City is exposed to three risks inherent to real estate development. These risks generally include 1) predevelopment (project does not get to construction, 2) construction (project cannot be completed, cost ovemns, contractor problems), and 3) operation (revenues do not cover expenses). Adding to this risk, any City financial assistance will be subordinated to conventional financing. A number of factors mitigate the risks. First, the development team has a strong track record with similar affordable housing projects. The presence of other major financial commitments, such as a tax credit investment, is also key as this means that other stakeholders depend on the success of the project both short and long term. Finally, the position of City and other subordinated financing is a feature that helps attract the necessary private financing. VI. FINANCIAL ASSISTANCE AGREEMENT With a recommendation from the Housing Commission and approval of the City Council, appropriate documents, including a Financial Assistance Agreement, Regulatory Agreement, Promissory Note and Deed of Trust, will be prepared and executed to set forth the terms of the financial assistance and its repayment. I 97 SDP 02-13 - CARLSBAD FAMILY HOUSINGKASSIA HEIGHTS FEBRUARY 24,2005 PAGE 5 VIII. VI1 SUMMARY AND STAFF RECOMMENDATION It is the role of the Housing Commission to make financial assistance recommendations to the City Council based on several considerations with respect to affordable housing projects. These are: The proposal's effectiveness in serving the City's needs and priorities as expressed in the Housing Element of the General Plan and the Consolidated Plan. The proposal's consistency with the City's affordable housing policies and ordinances as expressed in the Housing Element and Inclusionary Housing Ordinance. The proposal's development and operating feasibility, emphasizing the development team capacity, financing sources and the role of the City in providing financial assistance or incentives. The Carlsbad Family HousingKassia Heights affordable apartment project is proposed by a capable development team that is committed to affordable housing. The financing structure of the project is sound. The proposed City assistance meets the City's three key underwriting goals of a strong borrower, reasonable project costs and a high degree of leveraging. The project quality includes good design and location. City housing goals are supported by the project's unit mix and affordability. It is the Affordable Housing Policy Team's (staff) recommendation that the Housing Commission approve the resolution of support recommending to the City Council that the City provide a total of $1,454,276 in financial cash assistance to the Carlsbad Family HousinglCassia Heights affordable housing development. EXHIBITS 1. Housing Commission Resolution No. 2005-001 2. Proforma 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 HOUSING COMMISSION RESOLUTION NO. 2005-001 THAT THE HOUSING COMMISSION RECOMMEND APPROVAL TO THE ClTY COUNCIL OF $1,454,276 IN FINANCLAL CASH ASSISTANCE ASIDE FUNDS TO AFFIRMED HOUSING GROUP FOR CONSTRUCTION OF FIFTY SIX (56) AFFORDABLE APARTMENT UNITS IN THE SOUTHEAST QUADRANT OF THE CITY OF CARLSBAD ON PROPERTY LOCATED ON EL CAMIN0 REAL AT CASSIA STREET. FROM CDBG, HOME AND REDEVETDPMENT AGENCY HOUSING Sm- APPLICANT: AFFRMED HOUSING GROUP CASE NO: SDP 02- 13 WHEREAS, the Affirmed Housing Group has proposed to construct 56 apartment units affordable to lower income households within the City of Carlsbad and has requested financial assistance from the City of Carlsbad to assist in the financing of said affordable housing project; and, WHEREAS, the request for financial assist to construct said units has been submitted to the City of Carlsbad's Housing Commission for review and consideration; and WHEREAS, said Housing Commission did, on the 24th day of February, 2005, hold a public meeting to consider the request for City financial assistance for the construction of said 56 affordable housing apartment units by the affordable housing developer, Affirmed Housing Group; and WHEREAS, upon hearing and considering all testimony, if any, of all persons desiring to be heard, said Commission considered all factors relating to the proposal to construct said affordable housing units. NOW, THEREFORE, BE IT HEREBY RESOLVED by the Housing Commission of the City of Carlsbad, California, as follows: 1. The above recitations are true and correct. A L 4 - 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 HC RESOLUTION NO. 2005-01 PAGE 2 2. 3. 4. The request for City financial assistance is consistent with the goals‘ and objectives of the City of Carlsbad’s Housing Element, Consolidated Plan, the Inclusionary Housing Ordinance, and the Carlsbad General Plan. The request for City financial assistance will assist the affordable housing developer to construct a total of 56, one, two, and three bedroom affordable apartment units which will be affordable to households ranging from 30% to 60% of area median income for San Diego County. The project, therefore, has the ability to effectively serve the City’s housing needs and priorities as expressed in the Housing Element and the Consolidated Plan. That based on the infomation provided within the Housing Commission Staff Report and testimony presented during the public meeting of the Housing Commission on February 24, 2005, the Housing Commission hereby ADOPTS Resolution No. 2005-01, recommending APPROVAL to the City Council to provide up $1,454,276 in financial cash assistance from the City of Carlsbad‘s CDBG, HOME and Redevelopment Agency Housing Set-Aside Funds to Affirmed Housing Group for the construction of fifty six (56) affordable apartment units within the City of Carlsbad at property located on El Camino Real at Cassia Street within the Southeast Quadrant of the City. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5. That the Housing Commission recommends that the City Manager or his or her designee be authofized by the City Council to prepare and execute all documents related to provision of the City assistance, including but not limited to a Financial Assistance Loan Agreement, Note, Deed of Trust and Regulatory Agreement, subject to review and approval by the City Attorney.. PASSED, APPROVED, AND ADOm at a meeting of the Housing Commission of the City of Carlsbad, California, held on the 24* of February, 2005, by the following vote, to wit: AYES: NOES: ABSENT: ABSTAIN: EDWARD SCARPELLI, CHAIRPERSON CARLSBAD HOUSING COMMISSION DEBORAH K. FOUNTAIN HOUSING AND REDEVELOPMENT DIRECTOR HC RESOLUTION NO. 2005-001 PAGE 3 EXHIBIT 9 VICINITY MAP FOR AFFORDABLE HOUSING PROJECT . EXHIBIT 3 CARLSBAD FAMILY HOUSING GPA 02-05/ZC 02-06/SDP 02-1 3/SUP 02-09 March 15,2005 Total Development Costs Square Foot Costs $14,125,507 $2 18.57sf TO: CITY MANAGER Cost Per Bedroom Type One Bedroom - $196,713 FROM: HOUSING AND REDEVELOPMENT DIRECTOR . $11,135,487 ADDITIONAL INFORMATION ON FINANCIAL ASSISTANCE REQUEST FOR CARLSBAD HOUSINGK’ASSIA HEIGHTS PROJECT Three Bedroom - $265,781 One Bedroom - $155,079 $172.3 lsf During the briefings on the financial assistance request for the Carlsbad Family HousingICassia Heights affordable housing development, there were some Council requests for additional information which is being provided within this correspondence. (excl. land & site work) Housing: Commission Minutes Two Bedroom - $210,735 Three Bedroom- $209,528 At the time the agenda bill was submitted for the noted request, the Housing Commission minutes had not been completed. A draft of the minutes have been completed and is now attached for City Council review. Square Footage Costs for Affordable Units The current total development costs (including land costs) average per unit is estimated at $252,241. Councilmember Hall requested that this information be provided on a per square foot basis. Staff has calculated the per square costs of the units with and without land and site improvements included: I (incl. land & site work) I I Two Bedroom - $267,311 As noted in the staff report on this issue, the per unit cost on this project is consistent with the costs of all similar and recent affordable housing projects. All affordable housing projects now must pay prevailing wage rates if they receive any public assistance. In addition, construction costs have increased substantially over the last couple of years. Therefore, the per unit costs have also increased over the last couple of years. Agreement by ProDerty Owner (Bons) to Allow Assignment of Purchase Contract Staff has received a verbal acknowledgement from the Bons Trust (Anthony Bons) that they agree to allow Affirmed Housing to assign the purchase contract for the subject property to the City of Carlsbad. We have requested a written acknowledgement. We received the written acknowledgement yesterday (3114105). However, it had an error regarding the terms of the assignment. Therefore, we have requested a new letter. As soon as we receive that written acknowledgement, we will forward a copy to the Council for information purposes. We were told that we would have the letter prior to the start of the Council meeting tonight (3/15/05). -quire any add'tional information, please let me know. / DEBBIE FOUNTAIN Minutes of: Time of Meeting: Date of Meeting: Place of Meeting: HOUSING COMMISSION 6:OO P.M. February 24,2005 HOUSING AND REDEVELOPMENT OFFICE CALL TO ORDER Chairperson Scarpelli called the Meeting to order at 6:OO p.m. PLEDGE OF ALLEGIANCE There was not a pledge of allegiance because the Housing and Redevelopment Office did not have a flag. ROLL CALL Present: Commissioners: Renee Huston Dons Ritchie Edward Scarpelli Margaret Schraml Bobbie Smith Staff Present: Housing and Redevelopment Director: Debbie Fountain APPROVAL OF MINUTES Minutes of October 28,2004, were approved as written. VOTE: 3 -0 AYES: 3 -0 NOES: None ABSTAIN: Commissioner Huston did not attend the October 28,2004 meeting COMMENTS FROM THE AUDIENCE ON ITEMS NOT LISTED ON THE AGENDA There was no audience in attendance, who wished to speak at this time. NEW BUSINESS ' Chairperson Scarpelli called the meeting to order. The new business to be discussed is the Carlsbad Family HousindCassia Heights, SDP 02-13, recommendation of approval to the City Council to provide $1,454,276 in financial assistance for construction of fitly-six affordable apartment units in the southeast quadrant of the city. Debbie Fountain, Director of Housing and Redevelopment, will give a presentation. Thls is a financial assistance request that is being reviewed. It is a fifty-six-unit apartment project across from the current Villa Lorna. Manzanita Apartments are on one corner and Villa Lorna is another comer and then th~s project will be on a third comer. The project will be where Cassia Road ends at El Camino Real. Chairperson Scarpelli asked for a clarification. The project has been approved but has the financing package been approved? Ms. Fountain answered no. The financial assistance has not been approved yet. That is why we are in this meeting today. The project, itself, has already received approval. That is normally how it works. We usually get the project HOUSING COMMISSION MINUTES FEBRUARY 24,2005 PAGE 2 of 12 through the process and then there is a request for assistance. This way you will have a better idea what the costs will be. Chairperson Scarpelli asked Ms. Fountain to clarify the parcel of land, the 2.6 acres. Is that the piece just north of sun fresh flowers? Ms. Fountain said that is it, where that building is. Chairperson Scarpelli asked the Commissioners if they were all aware of the location being discussed? Ms. Fountain continued, this project is unique because Affied Housing has brought this as a stand-alone affordable housing project. It is not a result of the inclusionary housing ordinance. It has its own inclusionary requirement, but it wasn’t done as part of a master development. It is not attached to a master developer. They have an option on the land, and they want to move forward on the project. They have submitted a financial assistance request and staff has reviewed it. We are looking at two forms of assistance to the project. We are loolung at property acquisition so we would actually assume the option that Affirmed Housing has on the site and the city would buy the property and then ground lease it back to the project. We will most likely purchase it with CDBG money or monies like that. That item is not actually before you today. The other part of the assistance is before you. That is the cash assistance to the project. In the Agenda Bill we are requesting you to review assistance in the amount of $1,454,276, which would be provided in a form of a loan that would go to Affirmed Housing to be repaid through surplus cash from the project. This would be after they have exhausted their operating expenses. The amount of money left over would be the funding to pay the loan and ultimately make a ground lease payment as well. This type of deal has been before this Commission in terms of the financial assistance. This is a little different because it is higher on the per unit cost then what has been before this Commission. The primary reason is there is not a master developer putting money into the project. Ms. Fountain asked the Commissioners to go to page 3 of the report, which summaries the sources of funding for the project. At the moment, the project is estimated at a total cost of $14,125,000 and the sources of money that are being considered are the tax credit equity, one of the largest sources of money which would be about $9.4 million. Then they will have a conventional loan on the property. They are deferring some of their developer fee to help with the financing, and then the city contribution to the project. The contribution of buying the property and the cash assistance would be equal to about $2.8 million. Tonight we are asking the Housing Commission to decide whether or not you want to support a recommendation to the Council to support this financial assistance to the project. In terms of the cash assistance, it works out to about $25,970 per unit. In the past we have seen on projects, anywhere from about $10,000 to $15,000 a unit. That is provided for comparison purposes. Again, in most of those situations, there has been a master developer that has been part of the contribution to the project. In this particular case, that developer is not there. For this project, we have looked at the fact that this project would be able to serve as a combined project for the southeast and the southwest quadrant like Villa Loma does. So if we came to a point where we no longer have credits in Villa Loma for some of those small projects, we could use these fifty-six so we can recover some of the financial assistance. We don’t have any guarantee that we are going to need these fifty-six units, but that is an option. Typically, the developers that are allowed to buy housing credits are those that have pretty small requirements like two or three units. They might have as much as ten units. If they are requesting to purchase credits of more then ten units, those come to the Housing Commission for recommendation. If they are smaller ones and they are developing in the southwest or the southeast quadrants, they are allowed to buy credits. Ms. Fountain stated that we are getting to the point that Villa Loma is getting much lower. We probably have about twenty-five units of credits left in Villa Loma. HOUSING COMMISSION MINUTES FEBRUARY 24,2005 PAGE 3 of 12 Chairperson Scarpelli asked what the cost is? Ms. Fountain answered they are $43,000 per unit. Chairperson Scarpelli continued that since this is a less subsidized program and it is a higher priced unit, would those credit prices go up? Ms. Fountain said it probably would. At Villa Loma it was based on the amount of subsidy that the City put into the project. Back when we did that, it was about $28,000 a unit. Villa Lorna was unique because we bought the land and we ground leased it back, sdar to what we would be doing in this situation. It was a much larger project though. Ms. Fountain continued there is precedence for this type of assistance because you have it right across the street with Villa Lorna. Typically, what has been seen is that $15,000. We would satisfy that credit purchase price equal to the amount of our money going into it. With the land, we are looking at $50,000 a unit of credit fee. Chairperson Scarpelli reiterated that the direct financial assistance would equate to approximately $25,970 per affordable unit. Then you are saying plus the land? Ms. Fountain answered right. This is just the direct financial cash into the deal. Then if you add the per unit cost of what our cost of purchasing the land would be that add on another $25,000. Commissioner Huston asked what the total amount would be per unit, land and unit. Ms. Fountain said if you look at the last page on the pro forma at the bottom where it says the redevelopment agency contribution per unit that would actually be cityh-edevelopment agency. She pointed out the $50,523 on the last page of the report. Commissioner Huston said then it comes to $50,523 as the subsidy amount? Ms. Fountain said right. So the direct cash assistance is what is in your report because we are not asking you tonight to take action on that property acquisition. That will be handled separately by the Council. She continued with an overview and said Jim Silverwood is here from Affied Housing. He can give the Commission more of an overview of the project. On the second page of the report, there is a description of the project. It does have one, two and three bedroom units. We have broken that down so you can see 25% of the units will be one bedroom, 41% will be two bedroom, and then 32% will be three bedroom. Affied Housing has a range of the rent. They are ranging from being affordable to households at 30% of the area median income up to 60% of the area median income. In terms of affordability and diversity, it is a great project for the city. In the 30 to 50% range, you are actually getting into the very low income and extremely low-income category. Looking again at the last page of the pro forma, it is showing the breakdown. On the right side where it shows the rental income, it presents the breakdown of income levels and the rent structure. If you look at the net rent calculation, you are looking at rent from $361 up to a little over a $1,000. That is good for the city because there is still a great need in those income categories. All of our affordable housing projects have waiting lists. We are consistently getting more requests for affordable housing. Ms. Fountain concluded her presentation. Jim Silverwood will say a few things about the project as well. Then we can discuss and answer any questions you might have on the financial assistance package. HOUSING COMMISSION MINUTES FEBRUARY 24,2005 PAGE 4 of 12 Jim Silverwood, the president of Affied Housing Group, which is based in Escondido, and has been active in San Diego county in affordable housing now for the past ten years. This would be our first project with the City of Carlsbad. To give a little history on this project, we have had the site under control in escrow for almost three years. The only reason it has taken us so long to get to your board and to have it considered, because in the very beginning we did some design work and the fire marshal and a new fire marshal came and we had to redesign the project. Eventually, we worked with staff and worked through all of that. We went to the Planning Commission this past summer and they unanimously approved the project. In the early fall, the City Council also unanimously approved the project because it did have a general plan change and then was rezoned because the site was zoned for a much lower density at the time. We are excited to bring this project forward. One of the things that Ms. Fountain mentioned that would make thls project a little unique compared to the other ones you have seen, is the affordability range. These apartments would start off as low as 30% of the area median income and up to 60% of the area median income. Mr. Silverwood continued that he does have a rental range that would be as low as the net rent for the renters would be as low as, based on this year’s rents so it will be slightly higher next year because of the index for inflation factors, would be as low as $306 for a one bedroom up to the hgh end on a three bedroom at about $900 per month. We think those are very good rents. We think thls is a terrific site. It is close to all the employment centers there. Now there are obviously newer amenities coming to the area such as parks. There is a community building plan and a pool and tot lot within the complex. In regards to the cost, because the project is expensive, in January 1, 2004, over a year ago, the legislature in California passed a new law that allowed for prevailing wages to be paid on all affordable housing projects. .This may or may not be your first prevailing wage project that you have seen, but in this project we will have to pay all commercial prevailing wages. It makes the cost quite a bit higher as you can imagine. Chairperson Scarpelli asked Mr. Silverwood if he had calculated the percentage of increase that will be? Mr. Silverwood answered that it is about 35%. Chairperson Scarpelli reiterated that it would be about an additional 35% in cost? Mr. Silverwood stated that really inflates the cost, but unfortunately, all affordable housing now has to deal with that until such time as we can have that changed by lobbying the legislatures. Right now that is what we have to live with. Mr. Silverwood continued that their company has enjoyed working with the planning staff and with the housing staff. We appreciate the support. I am open to any questions. Commissioner Ritchie asked Mr. Silverwood to discuss the parking. Mr. Silverwood asked if she meant how many spaces? Commissioner Ritchie said yes, how many spaces and where will it be located? Mr. Silverwood said it is on the plan. His company actually did not ask for any variance in parking from the city standards, so it meets all of the City of Carlsbad’s standards of parking. Commissioner Ritchie asked if she read somewhere that some of it is underground? Mr. Silverwood answered yes. In the building that is adjacent to El Camino Real, that runs parallel to El Camino Real, there is a parking garage half submerged, half buried parking garage under that whole building. Chairperson Scarpelli asked where the ingress and egress is? HOUSING COMMISSION MINUTES FEBRUARY 24,2005 PAGE 5 of 12 Mr. Silverwood said it is on the ramp going down from the parking lot. Chairperson Scarpelli stated that he sees it. There is an arrow pointing it out. Commissioner Huston said she knows it has probably been through Planning, but she saw there is a pool in this. Because there really is not a grassy area for the children to play, though there is a tot lot, and given there is a lot of three bedroom units there, I imagine there is going to be children, and liability issues with the pool and the cost of insurance. I wonder why instead of having a grassy area where people could gather and barbeque and sit outside, you opted for a pool? Mr. Silverwood said that is a great question. He said hs company originally asked Planning to have that be a grassy area, but the Planning Department wanted a pool, they wanted the amenities. Commissioner Huston commented that we are also getting the swim complex in that part of the city as well. Can you go back and change that? Mr. Silverwood said it is up to this Commission to make a recommendation to the City Council and the City Council can do whatever they want. Commissioner Huston said it would be cost effective as well in terms of insurance, heating the pool, the maintenance of the pool, and other considerations. Ms. Fountain said it was approved with the amenities that are included so they would probably have to go back and get an amendment for their permit to change it. Commissioner Huston asked if Affied Housing is a non-profit organization? Mr. Silverwood said no, it is not. Commissioner Huston said she read that it is stated that in paying back their loans through the revenues expected with the project. What revenues would that be, the rental income? Mr. Silverwood said yes, except for operating expenses, all of the income from the project after payment of all normal operating expenses, would be paid back to the city. Chairperson Scarpelli asked if that is behind the first trustee holder on the loan? Mr. Silverwood answered yes. Commissioner Huston stated when she was lookmg at the cost of the whole project, the $14,000,000 and then began subtracting the developer fees and various other things such as the tax equity, it really does come out to zero. In terms of leveraging, what does your organization have financially in it? Mr. Silverwood said the tax credit, the true leverage in this project, is that we bring the $9,000,000 plus dollars of equity is through our resources to bring and leverage the city’s money. Commissioner Huston asked if the resources are the tax equity? Chairperson Scarpelli asked Mr. Silverwood to give an explanation of the tax equity. Commissioner Huston asked him to explain what the tax credit investor equity is. HOUSING COMMISSION MINUTES FEBRUARY 24,2005 PAGE 6 of 12 Mr. Silverwood said that to begin with, he does not have the exact figures with hm today. His company has already expended easily in the hundreds of thousands of dollars in predevelopment expenses on this project. To answer your question about tax credit equity, we could actually spend hours talking about because it is very complicated. What happens is that we as a developer in all of the affordable projects apply to the State of California to an agency that allocates or awards these tax credits per project. You have to compete against other projects throughout the state. We then take the tax credits that are awarded to us as the developer, and we turn around and we sell the tax credits, not to individuals but to major fortune one hundred companies, and those companies in turn direct money back to us to help pay for the cost of the project. Commissioner Huston had another question. The deferred developer fee that is in the report, is that fees that would normally be collected by the city? Ms. Fountain answered that it is part of their developer fees. So they are just agreeing to defer that to a future date rather then getting that up front. Chairperson Scarpelli pointed out that in the report there is a 10.6%, or close to that, on developer fee on total cost of the project. Therefore, they are requesting close to 80% on undue gain on page two. The developer will receive a developer fee of $1,500,000, which is approximately 10.6% fee of the total cost including the cost of the land. The developer is proposing to receive 83% of the fee for the amount of the $1,249,000 during the construction of the project and then is deferring the remainder. The remainder of $250,597 would be repaid over the first ten years. Commissioner Huston continued that 83% of that would be up front correct? Mr. Silverwood answered that it is paid to the developer during construction and some of it isn’t paid until after the project is completely occupied and it might be a year after the construction. Commissioner Huston said okay because in here it states 83% during the construction of the project. Mr. Silverwood said that he thinks it just means during the development of the project. The deferred portion is a portion that we are turning back and assisting the City to help finance the project. Because if it wasn’t deferred, it would be paid to us, which would increase the City’s contribution. Chairperson Scarpelli reiterated that the $100,000 is being deferred out of the $1,249,000 or being deferred out of the remainder? Ms. Fountain answered that they are saying that if they were paid the full amount of the developer fee up front, they would be askmg for more assistance Up front from the City. They are willing to wait for that portion of the developer fee and then taking it out of some other source llke other development sources. Commissioner Huston asked if we were talking about the $250,000? Ms. Fountain said right. They are putting themselves at’risk that there is not enough money at the end to pay that, but if there is then they would recover that amount of the deferred fee. Just to add to what Mr. Silverwood is talking about, hs is typical of a lot of the structures and how they work on affordable housing. There are tax credits or there are bonds that issue for financing. There is a percentage of a conventional loan, but it is a very small percentage. Most of the other projects have a master developer that is putting in several million dollars into the project. They do bring their expertise to the table in getting those tax credit dollars and getting as much in the tax credit equity as they can into the project. They have relationships that they have developed to be able to get that like we might get with a private lender. This is another way to bring the equity into it. Chairperson Scarpelli said with most of the Commissioners currently, we probably should have a workshop for them on tax credits. HOUSING COMMISSION MINUTES FEBRUARY 24,2005 PAGE 7 of 12 Ms. Fountain agreed that we should have a workshop as it is confusing. She said the investor is giving equity to this project in exchange for getting a tax credit. Commissioner Huston asked if the money is going into investments while you are waiting for the revenue from it? Ms. Fountain said it is actually the equity that goes to the project. Commissioner Huston continued by asking about the 20% subsidy, right? Ms. Fountain said staff was figuring total when we include the land is about 20%. Commissioner Huston asked about other projects that we have done that have had 20% subsidies? Ms. Fountain answered that we haven’t really done that many that are like this. Usually we are putting in about $10,000 or $15,000 a unit, whch isn’t as substantial, but in this particular case, one of the reasons we decided to structure this as part of it being a land acquisition, is we then have that asset that we have control over. That feels more comfortable to be able to put a little more money into the project. It is a unique project, and it is higher then what you have seen on other projects. It is for the reasons we have already discussed, because we don’t have that master developer contribution so it needs to come from the City or somewhere else, and there really aren’t many other sources for that to come from. Chairperson Scarpelli asked if another other Commissioners had any questions. Commissioner Huston asked where else in San Diego County has Affirmed Housing done affordable projects like this? Mr. Silverwood said they have done projects in the City of San Marcos, Escondido, El Cajon, and the City of San Diego. Chairperson Scarpelli said he would like to make a comment regarding the developer fee since Commissioner Huston did raise that issue. That would be typical. So he is not going to be typical as far as what a developer fee for the amount of responsibility they have in the development of the project and the cost and so on in developing the project. Commissioner Huston said, but the amount they are asking for is in addition to the developer fee? Chairperson Scarpelli said that is just to construct the project. I just wanted to make a comment since that was raised. Our experience would indicate that is typical. I did have some concerns, which I think now have been answered in my own mind is the unit cost per square foot. Also, I had a question regarding land cost, but I guess that is answered by the amount that the City would contribute. So we assume the land is $2.8 million? Ms. Fountain said on the pro forma that is just the total. That is what the cash assistance plus the land. If you look at the land acquisition on the pro forma, it shows about $1.5 or $1.4 million on the land. Chairperson Scarpelli said he would like to bring to the attention of the Commissioners to go to page 2, on the top paragraph, the proposed unit affordable apartment project, and I took those numbers and broke them out. I thmk what is significant for our consideration in our role being that of reviewing for recommendation to the City Council that it meets affordable housing requirements that we are attempting as a Commission to acheve for the City of Carlsbad and its residents. If you look at that carefully, we are talking about five of the units being in the 30% of the area median income, 6 in 40%, but even more significantly, 28 units will be in the 50% of average monthly income. The majority of these fall below the 50% of income level. It is meeting a considerable need that we have when it HOUSING COMMISSION MINUTES FEBRUARY 24,2005 PAGE 8 of 12 deals with people’s income versus the cost of housing. I think that is sigdkant, and I would like to draw that to your attention. Commissioner Huston asked what the area median income now? Ms. Fountain said it is based on a family of four. We just got the new income levels. (The income levels were given to the Commissioners.) Ms. Fountain said it is broken down by households. Chalrperson Scarpelli stated that in the third category of 30% where there will be five units available, we are dealing with income of $20,700. Twenty-eight out of the fifty-six are at the 50% level so again for a family of four, the area median income is $34,500. The other observation that I had on this project is the fact that these units being used in the future doesn’t sound realistic to price the units as to the City’s investment. It will obviously run that way up. Ms. Fountain said the Council can set it at what they want. Right now Villa Loma is $43,000 and it goes up every year. It will depend on if we decide we need to use those, what the Council recommends. Chairperson Scarpelli said he only raised that as an observation as a practical thmg that we may never have to use them. Ms. Fountain answered that is why it is not included in the report as being a way you can recover the money. We are saying it will go into the project as a loan and be repaid through cash surplus. At some point if the credits are sold, then the income will come back into the project. We don’t count on that or guarantee that would happen. Chairperson Scarpelli indicated that if we approve the recommendation to the City Council that this meets the affordable housing element from this Commission’s perspective, does that in any way, negate our opportunity to discuss this on a land purchase lease back versus a straight land purchase. Ms. Fountain asked if he meant anythmg done in this Commission? Chairperson Scarpelli said right. In this particular case, we are talking about purchasing the land and putting the land as the City’s equity into this for return of the equity, and I suspect it is a very low interest on it or no interest? Ms. Fountain said all loans are set at 3%. Chairperson Scarpelli said hs versus we remain the titleholder on the land and lease it to the property. That is another option the City is looking at? Ms. Fountain said yes, that is what we are proposing. Chairperson Scarpelli asked so if we approve this tonight, do we negate the leasehold environment? Ms. Fountain answered no. It would be a separate action. This is just the cash assistance into the project, then the acquisition of the property. We are proposing that the City buy the property and then we enter into a ground lease back to Affirmed Housing and then they ground lease. But the City gains ownership of the land. Chairperson Scarpelli stated that it would be interesting to see how that turns out. Of course, we don’t have any option other then to talk to our Council Members about that, but I would almost lean towards the leasehold on something like that. HOUSING COMMISSION MI"ES FEBRUARY 24,2005 PAGE 9 of 12 He thanked Mr. Silverwood for bringing forth this project. I think it is a great project and well needed within the City. Certainly it will meet the needs of a lot of the people. I do have one more question. Will this apply to all the people on Section 8 as well, if they meet the standards? These units will be available to them? Ms. Fountain said right. Chairperson Scarpelli said from our perspective as a Commission who are responsible to try to do everythmg we can to bring about affordable housing for people in these income groups, this project certainly meets the spirit and also the requirements. Ms. Fountain asked if Ms. Socorro Rodnguez Anderson would like to say anythmg? Ms. Anderson commented that considering that a lot of Section 8 has been cut back, the affordable housing need is great here in Carlsbad. There is a waiting list on a lot of our inclusionary housing requirements of two to three years. To me this inakes a lot of sense to be able to have something like this. Commissioner Ritchie asked Ms. Fountain how faithful we are at determining the ability to continue to live in affordable housing. Do we determine if people continue to be able to live in these categories able to live in these affordable complexes? Ms. Fountain asked if she meant if they are still qualifjmg for it. They get recertified every year. We include in the regulatory agreement the guidelines, but they don't get immediately kicked out of the unit. That is something that is looked at. All the people who are living in the affordable units, are still qualifjmg for them. Commissioner Ritchie asked if that is once a year? Ms. Fountain answered yes, once a year. Commissioner Huston asked what the interest rate is on the loan? Ms. Fountain answered 3%. Commissioner Ritchie commented that what she likes about the project is it is near the geographical center of Carlsbad. We def~tely need housing in that area. Chairperson Scarpelli added that it is near an employment.center along Palomar corridor. Ms. Fountain added that its location is helping with the competitiveness of it in the tax credit application. Commissioner Ritchie asked if there was any public transportation in that area? Ms. Fountain answered that it is right on the bus line. Commissioner Huston commented that she agrees this is a good project with the exception of the pool. The Commissioners all agree that affordable housing has needed projects like this; good location, good project. I can't find anything wrong with the project. In terms of the financing, I am not completely comfortable because I don't think there is enough leverage on the part of the developer. Chairperson Scarpelli suggested to Commissioner Huston that if she wanted to make more then a comment regarding the pool, she can also make a motion. Again, that would only be in the form of advisory that since the developer came in with a grassed in area in the pool area, and it was staff that requested it be turned into a pool, if you get HOUSING COMMISSION MINUTES FEBRUARY 24,2005 PAGE 10 of 12 support of this Commission, it would strictly be advisory in its nature, but it could be asked that this be looked at again for the purpose of going back. Commissioner Huston asked if she can make that motion? Chairperson Scarpelli answered sure. Commissioner Huston moved that the Planning Commission and staff review the project as it was first put out there by Affirmed Housing Group to be a grassy area. Perhaps that would be more appropriate for the children that will be living in that community as an advisory. Commissioner Smith asked Commissioner Huston if she is saying because of the insurance liability with the children involved? Commissioner Huston said she hnks there are numerous reasons. The cost of maintaining and heating the pool, there will not be good runoff because you have less grassy area there, and also you will have to have a big fence around it and it needs to be watched because of small children getting in there and drowning. The liability issues are great. You are going to have a higher premium on insurance because of those issues. Not to mention that the swim complex is going in that quadrant of the city, which is in process. Commissioner Smith seconded the motion. Chairperson Scarpelli supports the recommendation and the motion, possibly revisiting the issue on the basis that Commissioner Huston presented. It might be worth a second look with encouragement that it go back to a grassy area or a play area. VOTE: 5-0-0 AYES: NOES: None ABSTAIN: None Scarpelli, Huston, Ritchie, Schraml, and Smith Chairperson Scarpelli entertained a motion on the staff recommendation to the City Council to provide $1,454,276 in financial assistance for construction of fifty-six affordable apartment units in the southeast quadrant of the City. Commissioner Ritchie moved that we accept the Carlsbad Family Housing/Cassia Heights recommendation of approval to the City Council to provide $1,454,276 in financial assistance for construction of fifty-six affordable apartment units in the southeast quadrant of the city. Commissioner Schraml seconded the motion. VOTE: 4-1-0 AYES: NOES: Ritche Scarpelli, Ritchie, Schraml, and Smith ABSTAIN: None DIRECTOR’S REPORT Ms. Fountain doesn’t have any specific projects to talk to the Commission about, but she does want to bring them up to date what is happening with the Rental Assistance Program. Actually, Socorro mentioned this with her comment. There have been fairly significant cuts in the rental assistance program. The Federal government has approved some cuts to that whch we are still trying to figure out how it will impact our overall program. Right now, we have a temporary policy in place that we are not accepting any new people onto the Rental Assistance Program and we are HOUSING COMMISSION MINUTES FEBRUARY 24,2005 PAGE 1 1 of 12 not allowing any people to port in or port out, which means they cannot come in or leave with a voucher. We have those temporary policies in place until we can figure out how we can best address the cuts. The cuts were significant enough that they are equal to about one month of our Housing Assistance Payments, which are close to half a million dollars. We will be bringing a report back to you at a later date on whzt the strategy is for dealing with that. 1n.case you begin hearing about this issue, I wanted to let you know it is real. We had cuts in both the administrative cost related to operating the program as well as the rental assistance payments that go out. Right now we are in a holding pattern on that program as to whether or not we are going to be able to process any additional people on to it. We are hoping that the’ cuts do not get any worst. There are proposals that probably in the next three years, we could see more cuts. This is difficult for us because we have over 2,000 people on our waiting list for rental assistance and we may have to tell people there isn’t a chance right now that they can get on the program. We are trying to make sure at a minimum that we can maintain the people we have currently on the program. Ms. Fountain continued that the good thing about these types of projects coming forward though is they are getting the rents down low enough where a lot of those people on the waiting list would hopefully be able to qualifj for them without assistance. Our hope is to keep adding units. It is, as you saw tonight, it is going to keep getting more expensive to do those because costs of construction have gone up, the prevailing wage is about 35%, and typically between 35% and 40% is what we are seeing on projects. More of this may be seen in the newspapers as people become more aware of that. In the next year the new budget appropriations proposals are coming out and not looking much brighter then what we have right now. Commissioner Huston asked if this means the Commission will not be meeting for a while? Ms. Fountain said we have several things we are working on including projects in the Villages of La Costa, their second phase, which is going to be coming forward with a financial assistance request. It may not be in March, but probably at our next meeting in April. There are still projects in the pipeline that will come before you. The housing element is being processed too so that will be coming forward to this Commission for recommendation on programs. CHAIRPERSON’S REPORT Chalrperson Scarpelli stated that he feels we have enough new people on the Commission that we need to go into the fundamentals of how affordable housing really works, with all the subsidies that are available. Since we do not have that many scheduled meetings due to the lack of projects that will be coming forth to us, getting back to our last official meeting. We had talked about starting to look for new ways and new ideas on how to approach old problems, and he asked Ms. Fountain to give consideration to inviting the Commission members to staff meetings and staff planning sessions, even as sitting in, so that we can get a better understanding. For example, the concern Commissioner Huston had about the leverage that doesn’t exist for the developer. We know how much leverage is guaranteed. Sometimes with the Commissions misunderstandings because we don’t know what it really entails, then maybe we can get some type of workshop or planning session. This is not in any way trying to do staffs job, but to sit in as observers for learning to help us. Ms. Fountain said we can do another workshop. We have actually put together some spreadsheets that show all of the projects that we have in Carlsbad and how they’ve been financed. It is interesting to see the different ways projects have been financed, how much money has been brought to the table from different components. We just did that recently. Commissioner Ritchie asked if we were supposed to have one more workshop meeting on the Housing Element? Ms. Fountain said we will have one more Housing Element workshop. There was one scheduled and we decided not to hold it because we weren’t ready to make recommendations on any of the programs, because we are still working through some issues. One of the main issues is we haven’t agreed on the numbers yet as to what our obligations are HOUSING COMMISSION MINUTES FEBRUARY 24,2005 PAGE 12 of 12 in providing housing in Carlsbad. Actually, it is not just Carlsbad, it is a region-wide issue because SANDAG gets numbers from the state. Commissioner Huston asked if we were already locked into that by way of our General Plan of Growth 1985? Ms. Fountain answered we have housing caps through our growth management plan, but th~s is something that we are supposed to work into the housing caps. Commissioner Huston asked what if it conflicts with the General Plan, or in Carlsbad’s case, it’s growth management plan? Ms. Fountain said that is one of the major issues that is being discussed right now, whlch is why we don’t have any programs yet to recommend. That is the question as to whether or not you can be forced to accept units that you have a growth management plan that says you can’t. There is some opinion that the state overrules any local decisions like that, but that hasn’t been tested in the courts yet. Ms. Fountain said there is supposed to be a decision tomorrow on those housing numbers at SANDAG. ADJOURNMENT By proper motion, the meeting of February 24,2005 was adjourned at 6:45 p.m. Respectfully submitted, Debbie Fountain Housing and Redevelopment Director PATRICIA CRESCENT1 Minutes Clerk MINUTES ARE ALSO TAPED AND KEPT ON FILE UNTIL THE WRITTEN MINUTES ARE APPROVED.