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2024-07-16; City Council; ; Fifth Amendment to the Retail Lease Agreement with House Martel, LLC to extend the existing lease agreement for the Chapters Café at the City Library Fifth Amendment to t
CA Review AZ Meeting Date: July 16, 2024 To: Mayor and City Council From: Scott Chadwick, City Manager Staff Contact: Curtis M. Jackson, Real Estate Manager curtis.jackson@carlsbadca.gov, 442-339-2836 Subject: Fifth Amendment to the Retail Lease Agreement with House Martel, LLC to extend the existing lease agreement for the Chapters Café at the City Library District: 3 Recommended Action Adopt a resolution approving the ratification of the Fifth Amendment to the Retail Lease Agreement with House Martel, LLC to extend the lease agreement for a period of five years for the Chapters Café at the Carlsbad City Library, extending the payoff date of the deferred rent payments until the end of the amended term and authorizing the City Manager to execute the lease amendment and to act on behalf of the City of Carlsbad in all future decisions and actions necessary to implement the amendment. Executive Summary House Martel, LLC operates the Chapters Café, leased from the city at Carlsbad City Library on Dove Lane, or Dove Library. City staff are recommending that the City Council authorize execution of an amendment to the lease agreement to extend the term of the agreement for a period of five years allowing Chapters Café to continue operations at the Dove Library through April 2029 and to extend the payoff date of its deferred rent payments until the end of the amended term. The City Council’s approval is required because the Carlsbad Municipal Code does not authorize the City Manager to approve and execute lease agreements. The recommended action also authorizes the City Manager to execute the amendment and to act on behalf of the City of Carlsbad in all future decisions and actions necessary to implement the lease amendment. Explanation & Analysis The Chapters Café occupies approximately 700 square feet adjacent to the courtyard and the entrance to the Dove Library. The café was included as a part of the overall library improvement project completed in 2016 with the goal of enhancing the location as a community gathering place and to serve patrons visiting the library, Schulman Auditorium, Cannon Gallery, and patrons attending cultural programs, meetings and events in the courtyard. July 16, 2024 Item #4 Page 1 of 10 In July 2018, the City Council approved a five-year lease agreement with one five-year extension option for the construction of the new café (Resolution No. 2018-136). During the initial term of the lease agreement, Chapters Café and the city entered into numerous amendments between 2020 and 2022 related to the COVID-19 pandemic. These amendments were related to rent deferrals due to the café being forced to shut down during the pandemic. Overall, the amount of deferred rent increased to $30,823 due to the forced closure of the café. On Aug. 16, 2022, the City Council approved Amendment No. 4 to the agreement modifying the base rent and deferring payment of the deferred rent until the end of a new lease term of April 24, 2024 (Resolution No. 2022-203). Amendment No. 4 established a percentage rent payment of 12% of gross sales over $75,000 per year, not to exceed $5,000 per year, to be used to offset and pay back the deferred rent obligation. Chapters Café is current on all deferred rent payments, and the deferred rent balance has been reduced to $22,524. Chapters Café has requested to extend the lease by five years and extend the payoff date of its deferred rent payments to April 29, 2029, the date of the termination of the five-year extension term of the current agreement. If the extension is granted, it is anticipated that all deferred rent will be paid back by the fourth year of the five-year extension term. Chapters Café has continued to maintain its leasehold in good condition and complied with all other terms of its lease. Staff are recommending that the City Council authorize the City Manager to execute the amendment and to act on behalf of the City of Carlsbad in all future decisions and actions necessary to implement the Fifth Amendment to the retail lease agreement with Chapters Café, extend the lease term for an additional five-year term to April 29, 2029, and extend the payoff date of its deferred rent payments to April 29, 2029, subject to all other terms of the lease agreement, including amendments. Fiscal Analysis Chapters Café is currently obligated to pay an annual base rent of $9,000 per year, or $750 per month. Chapters Café will continue to pay a percentage rent of 12% of its annual gross sales over the rent breakpoint amount of $75,000, which will be used to offset the $22,524 deferred rent balance in an amount not to exceed $5,000 per year. Chapters Café will be required to pay any remaining balance of deferred rent due to the city at the termination of this agreement on April 29, 2029. Once the deferred rent has been paid in full, the percentage rent will no longer be applied to the deferred rent but will continue to be paid to the city until the termination of the five-year extension. No additional appropriations are required. Next Steps Chapters Café and city staff will implement the terms of the amended agreement. Environmental Evaluation The proposed action is exempt from the California Environmental Quality Act under guidelines 15301 - Existing Facilities, which exempts the leasing of property involving negligible or no expansion of use beyond that existing at the time of the agency’s determination. July 16, 2024 Item #4 Page 2 of 10 Exhibits 1.City Council resolution July 16, 2024 Item #4 Page 3 of 10 July 16,2024 Item #4 Page 4 of 10 Exhibit 1 RESOLUTION NO. 2024-169 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD, CALIFORNIA, APPROVING THE RATIFICATION OF THE FIFTH AMENDMENT TO THE RETAIL LEASE AGREEMENT WITH HOUSE MARTEL, LLC TO EXTEND THE LEASE AGREEMENT FOR A PERIOD OF FIVE YEARS FOR THE CHAPTERS CAFE AT THE CARLSBAD CITY LIBRARY, EXTENDING THE PAYOFF DATE OF THE DEFERRED RENT PAYMENTS UNTIL THE END OF THE AMENDED TERM AND AUTHORIZING THE CITY MANAGER TO EXECUTE THE LEASE AMENDMENT AND TO ACT ON BEHALF OF THE CITY OF CARLSBAD IN ALL FUTURE DECISIONS AND ACTIONS NECESSARY TO IMPLEMENT THE AMENDMENT WHEREAS, on Aug. 2, 2018, the city and House Martel, LLC (Chapters Cafe}, entered into a Retail Lease Agreement for the property located at 1775 Dove Lane, Carlsbad, California, 92011 (Premises}, consisting of approximately 700 square feet of commercial building space located within the Carlsbad City Library (Lease} (Resolution No. 2018-136}; and WHEREAS, on Jan. 29, 2019, the city and Chapters Cafe entered into Amendment No. 1 to the Lease, extending the required business opening date ninety-days, from August 2, 2018, to April 30, 2019 (Resolution No. 2019-010}; and WHEREAS, on Oct. 6, 2020, the city and Chapters Cafe entered into Amendment No. 2 to the Lease, deferring rental payments for up to nine months from May 1, 2020, to Jan. 31, 2021 (Resolution No. 2020-198}; and WHEREAS, on Feb. 9, 2021, the city and Chapters Cafe entered into Amendment No. 3 to the Lease, deferring rental payments for up to an additional six months from Feb. 1, 2021, to Aug. 31, 2021 (Resolution No. 2021-039}; and WHEREAS, on Aug. 16, 2022, the city and Chapters Cafe entered into Amendment No. 4 to the Lease, amending the base rent to $9,000 per year, the annual percentage rent to 12% of all gross sales above the rent breakpoint of $75,000 per year not to exceed $5,000 per year, and establishing the deferred rent in the amount of $30,823 to be paid by April 29, 2024 (Resolution No. 2022-203}; and WHEREAS, Chapters Cafe has reduced its deferred rent from $30,823 to approximately $22,524 since August 2022 and will completely remit payment of its deferred rent by April 29, 2029; and WHEREAS, Chapters Cafe has continued to maintain its leasehold in good condition and complied with all other terms of its lease; and July 16,2024 Item #4 Page 5 of 10 WHEREAS, the Fifth Amendment will extend the Lease term by five years to April 29, 2029, and extend the payoff date of its deferred rent payments until the end of the lease extension period of April 29, 2029, with any remaining balance of the deferred rent to be paid back to the city prior to the termination of the five-year extension period. Once the deferred rent has been paid in full, the percentage rent will no longer be applied to the deferred rent but will continue to be paid to the city until the termination of the five-year extension. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Carlsbad, California, as follows: 1. The above recitations are true and correct. 2. That the City Manager is hereby authorized to execute this Fifth Amendment to the Retail Lease · Agreement with Chapters Cafe, attached hereto as Attachment A, to act on behalf of the City of Carlsbad in all future decisions and actions necessary to implement the amendment, and to do so in full compliance with the terms and conditions expressed in the Lease and to the satisfaction of the City Attorney. PASSED, APPROVED AND ADOPTED at a Regular Meeting of the City Council of the City of Carlsbad on the 16th day of :!..!!ly, 2024, by the following vote to wit: AYES: NAYS: ABSTAIN: ABSENT: BLACKBURN, BHAT-PATEL, ACOSTA, BURKHOLDER. NONE. NONE. LUNA. KEITH BLACKBURN, Mayor SHERRY FREISINGER, City Clerk (SEAL) July 16,2024 Item #4 Page 6 of 10 RATIFICATION OF AMENDMENT NO. 5 TO RETAIL LEASE AGREEMENT This Ratification of Amendment No. 5 to Retail Lease Agreement ("Amendment") is entered into as of ::Tu \ ~ \ 1 , 2024, by and between the CITY OF CARLSBAD, a California municipal corpo tion ("Landlord") and House Martel, LLC, a California limited liability company ("Tenant") and shall be effective and binding upon the parties as of the date of its execution by both parties. RECITALS WHEREAS, Landlord and Tenant are parties to a Retail Lease Agreement entered into as of August 2, 2018 for the property located at 1775 Dove Lane, Carlsbad, CA 92011 , consisting of approximately 750 square feet of commercial building space located within the Carlsbad City • . library ("Lease"). WEREAS, on Jan. 29, 2019, the Landlord and Tenant entered into Amendment No. 1 to the Lease, extending the business opening date ninety days, from August 2, 2018, to April 30, 2019; and WHEREAS, on Oct. 6, 2020, the Landlord and Tenant entered into Amendment No. 2 to the Lease, deferring rent payments for up to nine months, from May 1, 2020, to Jan. 31, 2021 ; and WHEREAS, on Feb. 9, 2021, the Landlord and Tenant entered into Amendment No. 3 to the Lease, deferring rent payments for up to six additional months, from Feb. 1, 2021 , to Aug. 31, 2021 ; and WHEREAS, on Aug. 16, 2022, the Landlord and Tenant entered into Amendment No. 4 to the Lease, amending the Base Rent to $9,000 per year, the annual Percentage Rent to 12% of all gross sales above the rent breakpoint in an amount not to exceed $5,000 per year, and establishing the Deferred Rent in the amount of $30,823 to be paid by April 29, 2024; and WHEREAS, the parties desire to exercise the Extension Option to extend the Agreement for a period of five (5) years; and WHREAS, the initial term of the Lease expired on April 29, 2024, and the Tenant has continued to operate and use the leased premises; and WHEREAS, the Tenant has requested the parties extend the term of the amended Agreement for an additional five years ending on April 29, 2029; and WHEREAS, the City Council has determined it is in the Landlord's best interest to extend the term of the amended Agreement for an additional five years; and WHEREAS, the Landlord and tenant agree to extend the Deferred Rent Period to allow payment of Deferred Rent during the extension term period, ending on April 29, 2029; and WHEREAS, all capitalized terms used in this Amendment, unless otherwise specified, shall have the same meaning as the capitalized terms used in the Lease. Page 1 of 4 July 16, 2024 Item #4 Page 7 of 10 NOW, THEREFORE, for valuable consideration, the receipt and adequacy of which are expressly acknowledged, Landlord and Tenant agree as follows: AGREEMENT 1. Article 1: Basic Lease Provisions: Subsections 1.3 Term and Rent Commencement and 1.5(b) Deferred Rent of the Lease are hereby deleted in their entirety and replaced with the following language: 1.3 Term and Rent Commencement. The term of the Lease shall be for a period of five (5) years commencing on April 30, 2024, and ending on April 29, 2029. For purposes of the approval and execution of the final five-year extension option, the City Manager, or his designee, is hereby authorized to act on behalf of the City of Carlsbad 1.5 (b) Deferred Rent. Notwithstanding the provisions in Article 1 of the Lease, Tenant may continue to defer payment of past due Base Rent for the period commencing May 1, 2020, and continuing through April 29, 2029, in the aggregate amount of approximately $22,524 ("Deferred Rent"). Tenant shall pay Landlord the Deferred Rent no later than April 29, 2029. The Deferred Rent will not be subject to interest or late charges or cause an event of default under Article 17 of the Lease, provided: (1) Failure to Comply. If Tenant fails to timely comply with Sections 1.4 or 1.5 of this Lease, as amended, then (i) any unpaid Deferred Rent will become immediately due and payable and subject to 3% interest compounded monthly; and (ii) Landlord will have the right to pursue any available remedies under the Lease and/or applicable law. (2) Tenant Certification. By execution of this Amendment, Tenant certifies that Landlord has not defaulted in the performance of its obligations under the Lease and Tenant has no claim, defense, excuse or offset with respect to the Lease as it relates to COVID-19, or otherwise. Tenant further acknowledges and agrees that prior to executing this Amendment, Tenant has had an opportunity to discuss this Amendment with its legal counsel, tax professionals and financial advisors. (3) Confirmation. Except as modified by this Amendment, all provisions of the Lease shall remain in full force and effect. In the event of an irreconcilable conflict between the terms of the Lease and the terms of this Amendment, the terms in this Amendment shall control. 2. Article 3: TERM: Subsections 3.2 Extension Options of the Lease are hereby deleted in their entirety and replaced with the following language: 3.2 Extension Option. N/A 3. All other provisions of the Agreement will remain in full force and effect. Page 2 of 4 July 16, 2024 Item #4 Page 8 of 10 4. All requisite insurance policies to be maintained by the Tenant pursuant to the Agreement will include coverage for this Amendment. 5. The individuals executing this Amendment and the instruments referenced in it on behalf of Lessee each represent and warrant that they have the legal power, right and actual authority to bind Lessee to the terms and conditions of this Amendment. [Signatures on Next Page] Page 3 of 4 July 16,2024 Item #4 Page 9 of 10 IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first written above. LANDLORD: City Manager Dated: _\. ___ Lf:_.;;;;~_)-=~"""'~:;......;...._---- APPROVED AS TO FORM: Cindie McMahon City Attorney BY: ~ ;::, u df uwn_ City Attorney TENANT: HOUSE MARTEL, LLC a California limited liability company By: Name: -=LJ~~-· e:.L...-..__cr]~~;,.:.;,f-_:/e~..::......J --,,- Title: ~N2r~- Dated: --=Lt---~~--· d_Y __ ··---.-- Page 4 of 4 July 16, 2024 Item #4 Page 10 of 10 CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT CIVIL CODE§ 1189 A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document. State of California County of ~A..., )>1'40 On \v,-.,'-l\ 1 2.0.2-y Date personally appeared ___ .E.k: ...... l ..... ~"'"'A~M~A'--'-2.:'--";(i_._G;...::L-'----------------- Name(s) of Signw(s) who 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. Place Notary Sea/ Above I certify under PENAL TY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. . Signat ---------------OPTIONAL--------------- Though this section is optional, completing this information can deter alteration of the document or fraudulent reattachment of this form to an unintended document. Description of Attached Document Title or Type of Document: _____________ Document Dat:::,e:..--:.. _______ _ Number of Pages: ___ Signer(s) Other Than Named Above: ------:7"""-:::__ _________ _ Capacity(ies) Claimed by Signer(s) Signer's Name: ___________ _ ·~ er's Name: ___________ _ □ Corporate Officer -Title(s): --------=.-::c-□ Corporate Officer -Title(s): ______ _ □ Partner -□ Limited □ General □ Partner -D Limited □ General □ Individual □ Attorne • act □ Individual □ Attorney in Fact □ Trustee □ □ Trustee D Guardian or Conservator □Other:---=~----------□ Other: _____________ _ Signer Is Signer Is Representing : ________ _ ©2014 National Notary Association • www.NationalNotary.org • 1-800-US NOTARY (1 -800-876-6827) Item #5907