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HomeMy WebLinkAbout02/16/2010, C 4 - LEASE AGREEMENT WITH THE SAN LUIS OBISPO ART CENTER FOR THE PROPERTY LOCATED AT 1010 BROAD STREET council Febnma 16 X010 j, acEnaa REpoRt ImmN.A` C4 CITYY O F SAN LUIS O B I S P O FROM: Shelly Stanwyck, Assistant City Manager Prepared by: Brigitte Elke, Principal Administrative Analyst. SUBJECT: LEASE AGREEMENT WITH THE SAN LUIS OBISPO ART CENTER FOR THE PROPERTY LOCATED AT 1010 BROAD STREET RECOMMENDATION 1. Rescind the current lease agreement with the San Luis Obispo Art Center valid until 2017; 2. Approve anew 55-year agreement (with a potential 44-year extension) lease agreement with the Art Center for construction and subsequent operation of the San Luis Obispo Art Center; 3. Authorize the Mayor to execute the agreement. DISCUSSION Background In April 1967, the City approved a 25-year lease with the San Luis Obispo Art Center for property located at 1010 Broad Street. Under the terms of the lease agreement, the building on the site was to be remodeled by the Art Center organization for use in the promotion, development and exhibition of arts and crafts on a non-profit basis. Rent for the Building was set at $1.00 per year, plus five percent of the annual gross receipts on the sale of artwork. The Art Center was made responsible for maintenance of all improvements on the property. In October 1991, the Art Center exercised its option to extend the lease for an additional 25 years. That option is set to expire in February 2017. Since then, the Art Center has outgrown its current space that is largely outdated in respect to current needs, building technology, life safety and accessibility. The organization started looking into the feasibility of constructing a new center at the same location and in January 2000, it received its first donation from Ken and Martha Schwartz towards this project. The Art Center approached the City for review of its plans, and on June 20, 2000 the City Council gave conceptual approval to the expansion planned by the Art Center. After community surveys, needs assessments, and community workshops, the Art Center issued a statewide Request For Qualifications for architects. On January 20, 2001 they assigned the contract to Barcelon & Jang and started the review and permitting process through the City. The new facility is planned to feature well-equipped classrooms, climate controlled gallery space required by traveling exhibits, modernized utilities for greater safety, an elevator to provide access for all residents, more exhibit space for regional and member artists, as well as an exhibit space for selected art work from the Art Center's Permanent Collection. Current Situation The Art Center has since gone through the entire City process necessary to build a new facility and has received final approval for the use permit for the new center at the current location by the City Council on February 17, 2009. The new center will feature three-stories and 23,000 square feet of exhibition and class room space. The Art Center estimates having to fundraise $15 million in order to construct the center as planned, designed, and approved. cq- Council Agenda Report—Historical Society Lease Page 2 Proposed New Agreement In November 2009, staff met with Karen Kile, Executive Director of the Art Center and Wendy George, Member of the Art Center's Board of Directors. They wanted to discuss the possibility of entering into a long-term lease for the property in order to apply for grant funding. To successfully apply and compete for funding, the Art Center depends on having the property secured in a long-term lease to make the investment and grant funding viable to donors. Without such an agreement, the Art Center does not expect to qualify for the necessary grant funding. In order to provide the Art Center with an agreement to accompany grant application and donor requests, staff proposes to rescind the current agreement and enter into a new lease agreement. The Art Center proposed a 99-year term, but State statue and current City policy limit the initial term to 55 years. The new agreement would therefore terminate in February 2065. However, staff has included a lease extension option of an additional 44 years, bringing the possible lease to the requested 99 years. FISCAL IMPACT The lease requires a $1.00 per year rent from the Art Center, consistent with its current lease agreement and other similar leases with non-profit organizations such as the San Luis Obispo Little Theater, the Children's Museum, and the Historical Society. The yearly rent will not be affected by the change to the new lease agreement and duration. During discussion, the Art Center asked that the current remittance of five percent of the center's annual gross art sales to the City be eliminated. Staff reviewed this request and compared the lease terms with the organizations mentioned above. Even though the Children Museum, as well as the Historical Museum have merchandise shops, they are not required to pay the five percent commission. Staff recommends elimination of this term from the Art Center]case in order to keep it consistent with other similar lease agreements. The receipts submitted over the past three years were: Year Remittance 2007 $4,554.55 2008 $3,033.18 2009 $2,371.22 ALTERNATIVE The Council could choose to deny the new agreement and continue with the currently signed and executed lease agreement. This could prolong the time needed to secure the funding for the already approved new center and limits the Art Center's ability to compete for available grant funding. ATTACHMENTS 1. Vicinity Map 2. Proposed Lease Agreement with Exhibits C4-d-, a �. ATTACHMEW2 LEASE AGREEMENT BETWEEN THE CITY OF SAN LUIS OBISPO AND SAN LUIS OBISPO ART CENTER FOR USE OF CITY PROPERTY AT 1010 BROAD STREET This Lease Agreement (Agreement) is entered into this _ day of 2010 by and between the City of San Luis Obispo (herein referred to as "City") and the San Luis Obispo Art Center, a non-profit organization (herein referred to as "Art Center") WITNESSETH WHEREAS, the City is the legal owner of the property located at 1010 Broad Street in the City of San Luis Obispo as shown on Exhibit A; and WHEREAS, the Art Center and the City have a current lease agreement for said property through February 28, 2017; and WHEREAS, pursuant to the 1967 Agreement, the City allowed the Art Center the use of the City s property at 1010 Broad Street for $1.00 per year plus an added charge of 5% of its gross artist sales; and WHEREAS, the terms of said agreement are in alignment with similar lease situation such as the Little Theater, and the Historical Society except that the Art Center pays an added charge on sales: and WHEREAS, the Art Center is engaged in a major capital campaign to raise the funds to build a new 26,000 square-foot facility on this location; and WHEREAS, the Art Center has found that major donors are looking at long-term lease situation to invest in such a facility; and WHEREAS; the design of the new facility has gone through the regular City processes and is currently in its fundraising state;and WHEREAS, the Art Center wishes to enter into a new long-term lease agreement with the City to facilitate the fundraising efforts and building start date for the new facility. NOW, THEREFORE, in consideration of the mutual covenants, conditions, promises, and agreements herein set forth, the City and the Art Center hereby agree to the following terms and conditions for use of this property: TERMS 1. Location of Property. The City will allow the Art Center to use the City- owned property located at 1010 Broad Street in San Luis Obispo for the purpose of _ - ATTACHMENT 2 constructing and operating an Art Center for the term of this Agreement. The property that may be used by the Art Center is depicted on Exhibit A and hereinafter referenced as "the Premises." In general terms, the Premises consist of approximately 8600 square feet bordered by Broad Street, Monterey Street, and the San Luis Obispo Creek Walk. 2. Purpose of Agreement. The Art Center agrees to lease the subject property and to develop and operate a facility on the proposed site for the term of the lease, which will serve to meet the intent of this Agreement. The City shall have no obligation for development, operation or maintenance of the proposed facility. Any costs incurred for development, operation or maintenance of the facility shall be the sole responsibility of the Art Center. 3. Term of Agreement. The term of this Agreement shall commence upon execution by both parties and expire on December 31, 2065. Prior to the expiration of this Agreement, the Art Center may request an extension of this Agreement for a mutually agreeable term not to exceed 44 years. Nothing in this paragraph 3 shall be construed to obligate the City to agree to an extension of-this Agreement. 4. Extent and Condition of the Premises. The Art Center shall accept the Premises "as is." This Agreement shall not obligate the City to guarantee the condition of the Premises, the suitability of the Premises for the Art Center's intended use, the duration that the Premises may be safely occupied, or the availability of alternate facilities. Should any occurrence (such as fire, earthquake, flood or the need to repair, improve or use the Premises) necessitate closing the Premises or a portion of the Premises to the public, the Art Center shall have no recourse to the City for any loss incurred. 5. Rent. In recognition of the benefits the Art Center provides the community, the City agrees to provide the Art Center the use of site for$1 per year, with no additional charges, payable on July 1st of each year. 6. Cost of Operations. The Art Center shall bear the entire cost of its operations on the Premises, including utility bills and any taxes and fees related to its occupancy of the Premises, such as possessory interest taxes. 7. ADA Compliance. The Art Center agrees to assume full responsibility for insuring that the facility complies with the requirements of the Americans with Disabilities Act. 8. Minimum Hours of Operation. Beginning from the Completion Date, as defined in Paragraph 12, the Art Center shall use reasonable efforts to keep the center open to the public a minimum of ten (10) hours on weekends from September through May and thirty (30) hours per week from June through October. The parties acknowledge that the Art Center is a non-profit organization dependent in large part on 2 L4-5 ATrACHMEW2 charitable contributions for operational funding and that a lack of charitable contributions might temporarily impact the ability of the Art Center to maintain operations. 9. Maintenance by the Art Center. The Art.Center agrees to maintain the facility in a clean, safe and attractive condition at all times. This includes maintaining and cleaning the building interior, exterior, performing routine repairs and maintaining landscaping. 10. Creek Access. The City reserves 8 feet, along the southeast boundary for the purpose of entering accessing and maintaining retaining walls, slope banks, the creek channel, the San Luis Obispo Creek Walk, and other related features as they exist today and as they may be modified, changed or replaced in the future. 11. Construction of Facility. The Art Center intends to complete construction of a new building at its own expense, in accordance with the design approved by the City. 12. Construction.Schedule. The Art Center is in the process of constructing a new building on the Premises. The Art Center will use reasonable efforts to complete construction on or before 2025 ("Completion Date"). The City reserves the right to grant time extensions or to cancel this Agreement for failure to make reasonable progress in the completion of construction by the Completion Date. The Art Center shall follow all City requirements, including paying fees and obtaining permits that are appropriate to construction of the kind proposed. 13. Termination of Lease by City. The City reserves the right to terminate this Agreement by notifying the Art Center in writing six months prior to termination should the City need the property for official City business. Additionally, should the Art Center be unable to complete the proposed construction, the lease may be terminated, and, at the City's option, all improvements will become the property of the City or the site shall be delivered free and clear of all Improvements. In the event of early termination of this Agreement by the City after completion of the construction, the City shall have the option to buy out improvements at the proportional rate of 90% of actual construction costs if cancellation is within the first ten (10) years, 70% between ten (10) and twenty (20) years, 50% between twenty (20) and forty (40) years and nothing thereafter. The above "buyout" provisions shall be in lieu of any other compensation including, but not limited to, relocation assistance. 14. Termination of Lease by Art Center. The Art Center may terminate this Agreement by notifying the City in writing six months prior to termination. In the event that the Art Center chooses to exercise this option, all permanent improvements (excluding removable exhibits and outdoor equipment, specifically related to the functioning of the center) shall revert to the City of San Luis Obispo. 3 C`7 '� I - - R�RCHMENT� 15. Labor Code. The Art Center certifies that it is aware of the provisions of the Labor Code of the State of California, which require every employer to be insured against liability for workers compensation or to undertake self-insurance in accordance with the provisions of that Code, and it certifies that it will comply with such provisions throughout the term of this Agreement. The Art Center further agrees to comply with prevailing wage requirements to the extend it determines through its independent legal analysis that such provisions govern any project construction on the site. 16. Non-discrimination of Lessee. There shall be no discrimination against or segregation of any person or group of persons on account of race, religion, sex, sexual orientation, national origin, age, physical, mental or economic status in the construction, operation, lease, sublease, use, occupancy, tenure or enjoyment of the Property or the improvements thereon, or any part thereof, and the Art Center, or any person claiming under or through it, shall not establish or permit any such practice of discrimination or segregation with reference to the construction of the Project Improvements, or the selection, location, number, use or occupancy of employees., contractors, subcontractors, laborers or materialmen, tenants, lessees, subtenants, sublessees, invitees or vendees of the Property or the improvements thereon, or-any part thereof. The Art Center shall not restrict access or use of the Property or the improvements thereon, or any portion thereof, on the basis of race, religion, sex, sexual orientation, national origin, age, physical, mental or economic status of any person. 17. Relationship of Parties. Under this Agreement, the City shall be solely and exclusively a lessor, and the Art Center shall be solely and exclusively a lessee. The Art Center shall not be considered a partner, agent, officer or employee of the City. The Art. Center's officers, members, affiliates, volunteers, employees and independent contractors shall not be considered agents, officers or employees of the City. 18. Assignment. The Art Center shall not assign this Agreement to another party without the City's prior written consent. 19. Subrogation Waiver. The City and the Art Center release and relieve each other and waive their entire rights of recovery against each other for damage from perils covered by their property insurance, whether due to the negligence of the City, the Art Center, or their agents, officers, employees or guests. 20. Proof of Insurance. The Art Center agrees to provide proof of insurance in accordance with the requirements below: ATTACHMENT2 Minimum Scope of Insurance Coverage shall be at least as broad as: 1. Insurance Services Office Commercial General Liability coverage (occurrence form CG 0001). 2. Workers' Compensation insurance as required by the State of California and Employer's Liability insurance (for lessees with employees). 3. Property insurance against all risks of loss to any tenant improvements or betterments. Minimum Limits of Insurance Lessee shall maintain limits no less than: 1. General Liability: $1,000,000 per occurrence for bodily injury, personal injury and property damage. If Commercial General Liability Insurance or other form with a general aggregate limit is used, either the general aggregate limit shall apply separately to this project/location or the general aggregate limit shall be twice the required occurrence limit. 2. Employer's Liability: $1,000,000 per accident for bodily injury or disease. 3. Property Insurance: Full replacement cost with no coinsurance penalty provision. Deductibles and Self-Insured Retentions Any deductibles or self-insured retentions must be declared to and approved by the City. At the option of the City, either: the insurer shall reduce or eliminate such deductibles or self-insured retentions as respects the City, its officers, officials, employees and volunteers; or the Lessee shall provide a financial guarantee satisfactory to the City guaranteeing payment of losses and related investigations, claim administration and defense expenses. Other Insurance Provisions The general liability policy is to contain, or be endorsed to contain, the following provisions: 1. The City, its officers, officials, employees and volunteers are to be covered as insureds with respect to liability arising out of ownership, maintenance or use of that part of the premises leased to the lessee. 2. The Lessee's insurance coverage shall be primary insurance as respects the City, its officers, officials, employees and volunteers. Any insurance or self- 5 ON-31 AITACHMEW2 insurance maintained by the City, its officers, officials, employees or volunteers shall be excess of the Lessee's insurance and shall not contribute with it. 3. Each insurance policy required by this clause shall be endorsed to state that coverage shall not be canceled, except after thirty (30) days' prior written notice by certified mail, return receipt requested, has been given to the City. Acceptability of Insurers Insurance is to be placed with insurers with a current A.M. Best's rating of no less than A:VI. Exception may be made for the State Compensation Insurance Fund when not specifically rated. Verification of Coverage Lessee shall furnish the City with original certificates and amendatory endorsements effecting coverage required by this clause. The endorsements should be on forms provided by the City or on other than the City's forms, provided those endorsements or policies conform to the requirements. All certificates and endorsements are to be received and approved by the City before work commences. The City reserves the right to require complete, certified copies of all required insurance policies, including endorsements effecting the coverage required by these specifications at any time. 21. Indemnification. A. The Art Center hereby agrees to indemnify and hold harmless the City, its officers, agents, and employees against: (i) Any and all claims and demands which may be made against the City, its officers, agents or employees by reason of any injury or death of any person or corporation caused by any act or omission of the Art Center under this Agreement or of the Art Center's employees or agents; (ii) Any and all damage to or destruction of the property of the City, its officers, agents, or employees, occupied or used by or In the care, custody, or control of the Art Center, or in proximity to the site of the Art Center work, caused by any act or omission of the Art Center under this Agreement; (iii) Any and all claims and demands which may be made against the City, its officers, agents, or employees by reason of any injury to or death of or damage suffered or sustained by an employee or agent of the Art Center under this Agreement, however caused, excepting, any such claims or demands which are the result of the sole active negligence or willful misconduct of the City, its officers, agents, or employees; (iv) Any and all claims and demands which may be made against the City, its officers, agents or employees by reason of infringement or 6 C,4-9 ATTACHMENT 2 alleged infringement of any trademark or copyright rights or claims caused by the use of any apparatus, appliance, or materials furnished by the Art Center under this Agreement; (v) Any and all penalties imposed or damages sought on account of the violation of any law or regulation or of any term or condition of any permit, when said violation of any law or regulation or of any term or condition of any permit is due to negligence on the Art Center; and (vi) The Art Center, at its own costs, expense, and risk shall defend any and all suits, actions, or other legal proceedings that may be brought against or for employees on any such claim or demand of such third persons, or to enforce any such penalty, and pay and satisfy any judgment or decree that may be rendered against the City, its officers, agents, or employees in any such suit, action, or other legal proceeding, when same were due to negligence of the Art Center. B. Notwithstanding anything to the contrary in this Agreement, the City shall defend, indemnify and hold harmless Art Center, its Board Members, officers, agents and employees from and against any and all loss, liability, claim, penalty or expense, including, without limitation claims for personal injury, property damage or economic loss, arising from the presence of hazardous material on the Premises to the extent that the presence of such hazardous material is not caused by the Art Center, its employees, contractors, guests or invitees. 22. Enforcement Costs and Attorney's Fees. The prevailing party in any action between the parties to this Agreement, brought to enforce the terms of this Agreement, may recover from the other party its reasonable costs and attorney's fees in connection with such an action. 23. Entirety and Integrity of Agreement. This Agreement is intend to supersede and replace the 1967 Agreement. This document represents the entire and integrated agreement between the City and Art Center. This document supersedes and negates all prior negotiations, representations, agreements and amendments, either written or oral, regarding the Premises and the operation of a Art Center on the Premises including, without limitation, the 1967 Agreement.. Both parties also recognize that some issues may not have been anticipated or addressed herein, and that changes to the Agreement may be warranted. This Agreement. may be amended upon written consent of both parties, to the approval of the City Manager and the City Attorney and as provided by law. Cq_10 ARACHMENT2 This Agreement is executed this day of 2010, in the City of San Luis Obispo, State of California. ART CENTER CITY OF SAN LUIS OBISPO Executive Director David F. Romero Mayor Attest: Elaina Cano City Clerk Approved as to form: Christine Dietrick City Attorney Page 1 of 2 Coundl,SloCity, From: Karen Kile[kkile@sloartcenter.org] Sent: Tue 2/16/2010 1:21.PM To: Council,SloCity Cc: Subject: Red file for Agenda Item at Tonight's Council meeting RED FILE Attachments: -- MEETING AGENDA ®A rb o ITEM # e'-I Dear Mayor and Councilmen, The San Luis Obispo Art Center's request that the lease agreement between the City of San Luis Obispo and the San Luis Obispo Art Center be renegotiated was for two reasons. One, we found that ,a, D ,�m cbPy E-atp j� major donors are more willing to help build a new 26,000 squa-fai� foot facility on our location if the Art Center has a longer lease l SAA ADD DIR with the City. And two, the.Art Center is the only community Ha o10e 3� FIN DIR partner to pay 5% commission in addition to the ! rent. ZATTORNE AW 2_PW DIIRE R CHIEF Neither the Children's Museum, Little Theatre, HIstoncal Museun?CLERK/ORIG a-POLICE CHF or Railroad Museum have such a requirement in their agreements.DEPTHEADS 1?REC DIR ``p�p — Z'UTIL DIR 17-1 We do not know why the first lease signed in .1967 included the ErHHR DiR �-n!� 5% stipulation. While the 5% amounts paid to the City over the =Cour, past 43 years have been relatively small, in the range of $3,000 to elf lq&e- $6,000 they have been significant to this non-profit organization �eL&azA,, that provides so much programming to our city residents and visitors on such a tight budget. The Art Center's primary mission is to promote the visual arts with exhibitions and educational components. It is not a commercial gallery. Over 40,000 people a year walk through free of charge to view the exhibitions as part of their enjoyment of the cultural life of San Luis Obispo. Surveys show that most people are on their way to shop or dine downtown, many are retuming tourists that make a requisite stop at the Art Center as part of their San Luis Obispo experience, and a significant number just happen to walk in because of our prominent location on the Mission Plaza. Fundraising efforts such as the Plein Air Festival are important cultural events on the City's calendar, as well as raising vital funds for the Art Center's operational budget. The Art Center consciously chose an art related event as its major fundraiser to be in line with its mission and purpose—to further the understanding of the. visual arts, exhibiting the finest art, increasing the audience for the arts, and creating new awareness and support for the Art Center's year round exhibition and education programming. Any effort to add a 5% commission to the art sales from this weekend fundraising event would be a hardship. It would also be unfair, especially since the City does not add a 5% commission to the fundraising events of other community partners. If the Art Center held Sk runs, golf tournaments or other such events, we don't believe this idea would have surfaced.. hnps:Hmail.slocity.org/Exchange/slocitycouncil/Inbox/Red%20file%20for%2OAgenda%2... 2/16/2010 - . Page 2 of 2 We understand that there has been a suggestion of charging the 5% commission to the City only on sales revenue over a certain amount, in anticipation of a bigger building's increased earning power. Such a payment would be just as harmful proportionally to the operations of the new Art Center as the current 5% charge is to us now, since a bigger building will also have its increased costs. On behalf of the Board of Directors, staff and many volunteers that keep the Art Center a vital part of our City, please support tonight the lease agreement as originally submitted. Sincerely, Karen Kile Executive Director https://mail.slocity.org/Exchange/s locitycounciVInbox/Red%20file%20for%20Agenda%2... 2/16/2010