Wharf_Lease_Agreement_-_57_Municipal_Wharf.docx

MUNICIPAL WHARF LEASE AGREEMENT

THIS MUNICIPAL WHARF LEASE AGREEMENT (the “Lease”) is entered into by and between the City of Santa Cruz, a municipal corporation (hereinafter “Landlord") and [insert name], a California corporation (hereinafter “Tenant”). The effective date of this Lease shall be ______________ (“Effective Date”). Landlord and Tenant are sometimes hereinafter referred to individually as “Party” and collectively as “Parties”. Landlord and Tenant agree to all terms and conditions of this Lease as set forth herein.

ARTICLE 1 - BASIC LEASE PROVISIONS

The following are basic terms applicable to this Lease. The Sections and Exhibits referenced below in parenthesis explain and define the basic terms specified below and are to be read in conjunction with basic terms herein:

1.01 Tenant Trade Name. “_______” (Section 8.01).

1.02 Commencement Date. _________________ (“Commencement Date”) (Section 3.01).

1.03 Term. ________ years, as of the Commencement Date and terminating no later than 11:59 p.m. on ____________ (“Expiration Date”), unless sooner terminated or otherwise extended as permitted under this Lease (Article 3).

1.04 Premises Location and Leased Area. That certain designated area, located on the Wharf at 57 Municipal Wharf, Santa Cruz, California 95060 (APN 007-351-03) in the City of Santa Cruz, County of Santa Cruz, State of California and further depicted on Exhibit A and consisting of:

(a) Approximately ±1,030 square feet of space

(b) 0 parking spaces

(collectively the “Premises”).

The Premises is further described in Section 2.02 (Premises) of this Lease and depicted in Exhibit A (Premises) and Exhibit B (Floor Plan of Premises), both of which are attached hereto and incorporated herein.

1.05 Rent.

(a) Minimum Base Rent - $3,090 per month, subject to annual increase. (Article 4)

(b) Percentage Rent Rate - ten percent (10%) of Gross Sales (Section 4.04), subject to increase (Article 4).

1.06 Use of Premises. Tenant shall use the Premises for operating and maintaining [insert services, sales, etc.] (the “Permitted Use”) and for no other purposes without Landlord’s prior written consent. (Article 8).

1.07 Hours of Operation. Tenant’s hours of operation, unless otherwise agreed in writing by Landlord, shall be at least the following:

Summer (Memorial Day through Labor Day): 10:00 AM - 8:00 PM (daily) Winter: 11:00 AM – 5:00 PM (daily) (Section 8.04) (Operation of Business; Hours of Operation).

1.08 Security Deposit. $6,180 (Article 7).

1.09 Tenant’s Deadline to Complete Tenant’s Work. [insert].

Santa Cruz, CA 95060

1.12 Landlord’s Address for Notices.

1.13 Landlord’s Address for Payment of Rent.

City of Santa Cruz

ARTICLE 2 - LEASE OF PREMISES

2.01 City of Santa Cruz as Landlord. Tenant acknowledges and understands that Landlord is a municipality consisting of numerous offices and departments. Whenever a provision contained in this Lease, or any extension, modification or amendment, requires the “written consent” of Landlord, such consent must be obtained from the then acting City Manager or authorized designee for the City of Santa Cruz (“City”). Tenant may not rely on any statement or representation by any other employee, agent or representative of Landlord in obtaining such consent and any such statement or representation other than the express written consent of the then acting City Manager or authorized designee shall be null and void and have no effect. Nothing contained in this Section shall limit in any way the authority of any office, or department of the City of Santa Cruz from approving or withholding consent to any event or activity regulated by local law.

2.02 Premises. For and in consideration of the rents to be paid and promises and covenants to be performed by Tenant under this Lease, Landlord leases to Tenant, and Tenant leases from Landlord, in accordance with the terms and conditions set forth in this Lease, that certain designated area, (together with certain appurtenant rights and easements), described in Section 1.04 (Premises), as more particularly described and depicted in Exhibit A (collectively the “Premises”). A floor plan of the Premises is attached to this Lease as Exhibit B.

2.03 License Area of Adjacent Public Right of Way. INTENTIONALLY OMITTED.

2.04 Reservations of Leasehold Rights. This Lease is subject to any and all exceptions, easements, rights, rights-of-way, and other matters of record affecting the Premises, structures or other improvements on the Premises, and land of which the Premises are a part, and such other matters as are apparent from an inspection of the Premises (including, but not limited to, existing easements, servitudes and right-of-ways for roads, telephone, and electric power lines and facilities, pipelines, and other purposes whether recorded or not). This Lease confers no rights either with regard to the subsurface of the water or land below the ground level of the Premises or with regard to airspace above the roof of the Premises. Easements for light and air are not granted in this Lease. Tenant shall have no rights in, the Municipal Wharf of Santa Cruz (the “Wharf”), or the Wharf decking, pilings, substructure, and support elements underlying or surrounding the Premises.

Landlord reserves and shall at all times have the right to make inspections, alterations, repairs, improvements, and/or additions to the Premises and the Wharf and all associated structures, including, but not limited to, areas and structures under and/or affecting the Premises; and, to conduct or perform any obligations or duties assigned or assumed to be the responsibility under this Lease or applicable law. Landlord also reserves the right to construct other buildings or improvements on the Wharf and to make alterations or additions thereto. Landlord further reserves the right to enter and access the roof of any buildings and/or structures on and/or comprising the Premises, or to repair and maintain the roof, and to use any space within the walls, above the ceiling finish, beneath the floor surface, and under the Premises for purposes including, but not limited to, inspections, utility lines and conduits, and/or Wharf operation and maintenance. Tenant hereby waives any claims for damage against Landlord (including, but not limited to, those arising from loss of business) by reason of Landlord’s entry onto the Wharf and/or removal of all of any portion of any structure or building on the Wharf for the purposes of making repairs, alterations, improvements and/or additions. Except as otherwise expressly provided herein, when exercising the rights reserved under this Section, Landlord shall not unreasonably disturb or interfere with Tenant’s quiet enjoyment of the Premises.

2.05 Condition of Premises. Tenant agrees to lease the Premises in their “AS IS, WHERE IS, IN ITS CURRENT CONDITION, WITH ALL FAULTS” condition, subject to all applicable city, county, state or federal laws, ordinances, and/or regulations affecting the use of the Premises.

Tenant acknowledges that Tenant has determined by Tenant’s own independent investigation that the Premises are suitable for Tenant’s intended use.

Tenant is responsible for determining whether or not the building codes, zoning, applicable laws, permits, certifications, permissions, approvals, authorizations, and covenants and/or restrictions of record ("Applicable Requirements") are appropriate for Tenant's intended use, and acknowledges that past uses of the Premises may no longer be allowed. Correction of any item of non-compliance with any Applicable Requirements shall be the obligation of Tenant at Tenant's sole cost and expense. Any work required by Tenant to prepare the Premises for Tenant’s occupancy shall be paid for by Tenant and shall be subject to all of the terms and conditions set forth in this Lease.

Tenant acknowledges that: (a) Tenant has been advised by Landlord to satisfy itself with respect to the condition of the Premises (including, but not limited to, the electrical, security, environmental aspects, and compliance with Applicable Requirements, including, but not limited to, the Americans with Disabilities Act), and their suitability for Tenant’s intended use; (b) Tenant has made (and will make) such investigation as Tenant deems necessary and Tenant assumes all responsibility for the investigation related to Tenant’s occupancy and use of the Premises; (c) Tenant acknowledges that Tenant has determined by Tenant’s own independent investigation that the Premises are suitable for Tenant’s intended use; and (d) neither Landlord, nor Landlord’s employees, officers, officials, representatives, or agents have made any oral or written representations or warranties (express or implied) as to the condition of the Wharf or Premises or as to the present or future suitability of the Wharf or Premises for the conduct of Tenant's business or any purposes whatsoever.

Tenant Initials: ___________________

2.06 Wharf Closure. Tenant acknowledges and understands that the Wharf may be subject to closure (either full or partial) due to conditions, events, or other public health, welfare, and safety reasons in Landlord’s sole discretion, including, but not limited to, ocean conditions (including, but not limited to, high surf), waterfront and/or weather related conditions, as well as Force Majeure events (as defined in Section 20.06 (Force Majeure)) (collectively “Closure Conditions”). Tenant enters into this Lease with full knowledge of the existing conditions of the Wharf and Closure Conditions, and with the understanding that at any point during the Lease Term (as defined in Article 3), Landlord may close the Wharf and/or Premises to public and Tenant access and use (including, but not limited to Tenant’s access and/or use) due to Closure Conditions, without any liability to Tenant by virtue of such closure and/or related actions. Notwithstanding the forgoing, Landlord reserves the right to establish policies for Tenant relief and compensation but in no event shall Landlord be obligated to do so. During any such period of Wharf closure where Tenant is completely unable to access and use the Premises, Tenant shall not be liable to Landlord for damages for failure to operate pursuant to Section 4.90 (Damages For Failure To Operate).

2.07 Relocation of Premises. Landlord shall have the right, at Landlord’s sole discretion, during the term of this Lease and any extensions thereof, to relocate Tenant to other premises (“New Premises”) on the Wharf comparable to the Premises in accordance with the following:

(a) For the purposes of this Section “comparable” shall mean New Premises of reasonably similar size to the Premises to the extent that such alternate property is available or made available within the timeline described in Section 2.08(b). In the event that the New Premises varies in square footage, Rent shall be adjusted by the same square footage rate.

(b) Except in a case of an emergency, such as the destruction of the Premises, Landlord shall give Tenant at least one hundred eighty (180) days’ notice of Landlord’s intention to relocate the Premises (“Notice of Intent to Relocate”) and at least ninety (90) days’ notice (“Relocation Notice”) of the estimated date of relocation (“Relocation Date”), and the location of the New Premises. Tenant shall have ten (10) days following the date of the Relocation Notice to accept in writing regarding the relocation to the New Premises. In the event that Tenant fails to so accept the New Premises within such ten-day period, this Lease shall be terminated ninety (90) days following the date of the Relocation Notice to Tenant and Tenant shall have ninety (90) days following the date of the Relocation Notice to vacate and surrender the current Premises. Should Tenant accept the New Premises within such ten-day period, Tenant shall have ninety (90) days following the date of the Relocation Notice to complete the move to the New Premises. Landlord shall provide Tenant access to the New Premises for the purpose of planning and constructing any Tenant Improvements (as defined below in Article 9) effective as of the date of the Relocation Notice, and Tenant shall not be required to pay Minimum Base Rent or Percentage Rent for the New Premises prior to the earlier of (a) the Relocation Date or (b) the date Tenant has relocated to the New Premises.

(c) Landlord shall not require Tenant to relocate during the period between May 15 through September 15 of each calendar year, except in a case of an emergency.

(d) Tenant shall be responsible for vacating the current Premises and relocating all of Tenant’s trade fixtures, furniture, equipment, inventory, and other personal property (collectively “Personal Property”) to the New Premises no later than the Relocation Date. Tenant shall submit to Landlord within sixty (60) days of Landlord’s issuance of the Notice of Intent to Relocate a schedule itemizing Tenant’s anticipated costs to relocate Tenant’s Personal Property. Landlord shall review said schedule and provide to Tenant a moving allowance (“Moving Allowance”), the amount of which shall be determined by Landlord at Landlord’s sole discretion. Such Moving Allowance shall cover the reasonable cost of relocating Tenant’s Personal Property to the New Premises, said payment to be made to Tenant following Landlord’s receipt of correct invoices for the expenses actually incurred by Tenant (in form satisfactory to Landlord), provided Tenant submits such invoices within sixty (60) days after completion of Tenant’s move to the New Premises. Landlord shall reimburse Tenant the lesser of (a) the approved Moving Allowance or (b) Tenant’s actual relocation costs within thirty (30) days of Landlord’s receipt of Tenant’s correct and substantiated invoices, not to exceed the specified Moving Allowance.

(e) Tenant shall be responsible for installing Tenant Improvements at the New Premises equal in quality and function to those at the Premises, subject to the terms, conditions, and requirements of Article 9 (Tenant Improvements, Alterations, and Additions). Tenant shall obtain Landlord’s prior written approval, which shall not be unreasonably withheld, for any proposed Tenant Improvements, subject to the terms and conditions of Article 9 (Tenant Improvements, Alterations, and Additions). Tenant shall submit to Landlord within sixty (60) days of Landlord’s issuance of the Notice of Intent to Relocate a schedule itemizing Tenant’s anticipated costs to install the Tenant Improvements. Landlord shall review said schedule and provide Tenant an improvement allowance (“New Premises Improvement Allowance”), the amount of which shall be determined by Landlord in Landlord’s sole discretion. Such New Premises Improvement Allowance shall cover the reasonable cost of the approved Tenant Improvements, including costs to demolish, remove, or alter existing Tenant Improvements at the New Premises, and any required permits, said payment to be made to Tenant upon receipt of correct invoices (in form satisfactory to Landlord) for expenses actually incurred by Tenant, provided Tenant submits such invoices within sixty (60) days after completion of the move. Landlord shall reimburse Tenant the lesser of (a) the approved New Premises Allowance or (b) Tenant’s actual costs to install the subject improvements within thirty (30) days of Landlord’s receipt of Tenant’s correct and substantiated invoices, not to exceed the specified New Premises Allowance.

(f) If Tenant does not accept Landlord’s determination of the Moving Allowance and/or the New Premises Improvement Allowance, Tenant shall rescind Tenant’s acceptance of the New Premises and shall vacate and surrender the Premises no later than ninety (90) days following the date of the Relocation Notice to Tenant.

(g) Tenant shall be solely responsible for applying for and obtaining all building, planning, development, zoning and other permits, licenses, authorizations, permissions, certifications, dispensations and approvals required by local, regional, state, and/or federal regulatory authorities related to the work and/or Tenant Improvements.

(h) Tenant shall be responsible for the transfer of all Utilities and Services (as defined in Article 11 below) to the New Premises.

(i) Tenant shall be solely responsible for all other costs of remodeling, outfitting and furnishing the New Premises. At no time shall Landlord be obligated for other out-of-pocket expenses over and above the Moving Allowance and the New Premises Improvement Allowance or for downtime incurred by the Tenant or Tenant’s employees, representatives, and agents in the event of a relocation. Except as set forth in this Section 2.08 (Relocation of Premises), Tenant hereby releases, indemnifies, and holds harmless Landlord (and its officials, officers, directors, employees, agents, attorneys, volunteers, representatives, successors and assigns) from any and all losses, claims, injuries, damages, costs, expenses, fines, penalties, or other liability, of every kind and nature, including, but not limited to, consequential damages, whether to persons or property, no matter how caused, resulting from or in any manner related to or incidental to the relocation of the Premises pursuant to this Section 2.08 (Relocation of Premises), and Tenant expressly waives any right to claim that such relocation constitutes grounds for a claim of abatement of rent, constructive eviction, or for termination of the Lease.

(j) Landlord shall transfer Tenant’s contributions to the Premises’ Capital Improvement Fund to the New Premises’ Capital Improvement Fund.

(k) Effective as of the Relocation Date, and notwithstanding any adjustments allowed under the Lease, Tenant’s Minimum Base Rent at the New Premises shall be determined by multiplying the Premise’s annual square foot rent in effect on the Relocation Date by the square footage of the New Premises. Minimum Base Rent for the New Premises shall be calculated in accordance with Article 4 (Rent).

(l) Pursuant to Section 20.32 (Amendments to Lease), Landlord and Tenant shall execute an amendment to this Lease acknowledging the relocation of the Premises to the New Premises and the terms and conditions thereof. Upon the effective date of the amendment, the term “Premises” in this Lease shall refer to the New Premises.

(m) Landlord may only relocate Tenant to other premises once during the Initial Term and once during the Extended Term (both as defined in Article 3 [Term] below), if any, of this Lease. Landlord may exercise its right to substitute the Premises pursuant to this Section 2.08 (Relocation of Premises) during any subsequent extension or renewal of the Term.

ARTICLE 3 - TERM

(a) If Tenant fully and faithfully performs all of the terms and conditions of this Lease and is not in default at any time during the Term of this Lease, Tenant may request an extension to the Initial Term by giving written notice (“Extension Request”) to Landlord at least one hundred twenty (120) days but not more than one hundred eighty (180) days before the expiration of the Initial Term. Landlord shall have the sole option to extend the Initial Term of this Lease for one [insert] (the “Extended Term”) immediately following the expiration of the Initial Term, upon the same terms and provisions contained in this Lease except for the amount of the Minimum Base Rent, and/or Percentage Rent, which shall be adjusted as provided in Article 4 (Rent). The Initial Term and Extended Term are collectively referred to herein as the “Term.”

(b) If Tenant has failed to cure a default in accordance with Article 15 (Default) of this Lease, at any time during the Initial Term of this Lease, Tenant’s request to extend the Term of this Lease shall be totally ineffective and this Lease shall expire at the end of the Initial Term, unless otherwise terminated earlier in accordance with this Lease.

(c) Landlord may (in its sole and absolute discretion and without any obligation to do so) elect to accept the Extension Request notwithstanding the default of Tenant (which acceptance shall not waive or otherwise relieve Tenant of its obligations to promptly correct such default(s) and fully comply with all terms and conditions of this Lease).

(d) Tenant’s failure to timely give the Extension Request to Landlord shall constitute an election by Tenant not to request an extension. In that event, Tenant’s right to request an extension of the Term shall automatically and immediately terminate without notice and this Lease shall expire at the end of the Initial Term. Tenant shall have no other rights to extend the Term.

(e) Any extension granted to Tenant in this Lease is personal to the original Tenant and cannot be assigned or exercised by anyone other than said original Tenant without Landlord’s prior written consent, which may be given or withheld in Landlord’s sole and absolute discretion, and only while the original Tenant is in full possession of the Premises and, if requested by Landlord, with Tenant certifying that Tenant has no intention of thereafter assigning or subletting.

3.03 Expiration; Holding Over.

Tenant’s abatement and removal of its Personal Property on the Premises pursuant to this section shall be in compliance with all applicable Laws, permits, certifications, approvals, permissions, and authorizations.

(b) Landlord’s Property. Landlord may remove, store, and dispose of any items Tenant does not remove from the Premises as permitted or required under this Lease.

(c) No Implied Acceptance of Surrender. Landlord's acceptance of Tenant's surrender of the Premises will be valid and binding only if it is in a writing signed by Landlord, and no act by Landlord will be deemed to be Landlord's acceptance of Tenant's surrender.

(d) Indemnity. Tenant shall reimburse Landlord and indemnify and hold harmless Landlord, and Landlord’s officers, officials, employees, and agents against any and all damages that Landlord incurs from Tenant’s delay in vacating and/or surrendering the Premises, removing and abating Tenant’s Personal Property, and/or restoring the Premises. This indemnification and hold harmless provision extends to any and all damages, costs, and expenses incurred by Landlord as a result of Tenant’s breach of the covenants contained herein with respect to the condition of the Premises at the expiration or earlier termination of this Lease as provided in this Lease.

(e) Survival of Surrender Obligations. Tenant's obligations under this Section will survive the expiration or termination of this Lease.

3.05 Quit Claim Deed. At any time after the expiration or earlier termination of this Lease, Tenant shall execute, acknowledge and deliver to Landlord, within fifteen (15) days after receipt of written demand therefore, a good and sufficient deed whereby all right, title and interest of Tenant in and to the Premises, Tenant Improvements and other improvements are quitclaimed to Landlord. Should Tenant fail or refuse to deliver the required deed to Landlord, Landlord shall have the right to prepare and record a notice reciting the failure of Tenant to execute, acknowledge, and deliver such deed. Said notice shall be conclusive evidence of the termination of this Lease and of all right of Tenant in and to the Premises, any Tenant Improvements and other improvements.

ARTICLE 4 - RENT

4.01 Rent. Beginning with the Commencement Date, Tenant shall pay to Landlord the greater of: a minimum base rent (“Minimum Base Rent”) as described in Section 1.05 (Rent) per month; or a percentage rent (“Percentage Rent”) in a sum equal to ten percent (10%) of Gross Sales (as defined in Section 4.07 [Gross Sales] below) calculated monthly.

The foregoing Minimum Base Rent shall be subject to increase during the Term as provided in Section 4.05 (Adjustments to Minimum Base Rent).

In addition to the Minimum Base Rent and Percentage Rent specified above, Tenant shall pay to Landlord any additional rent (“Additional Rent”) as defined in Section 4.10 below.

“Rent” as used in this Agreement shall mean the applicable Minimum Base Rent, Percentage Rent, and Additional Rent.

4.02 Commencement of Rent.

Tenant’s obligation to pay the Minimum Base Rent or Percentage Rent under this Lease shall start on the Commencement Date of the Term as set forth in Section 1.02 (Commencement Date). The greater of the Minimum Base Rent or Percentage Rent specified in Section 4.01 (Rent), subject to adjustment as set forth in Section 4.05 (Adjustments to Minimum Base Rent). Rent shall be remitted to Landlord at the address set forth in Section 1.13 (Landlord’s Address for Payment of Rent) or at such other location as Landlord may notify Tenant in writing.

In the event that Tenant’s obligation to pay rent does not commence on the first (1st) day of a calendar month, Tenant shall pay Rent for the fractional month on a per-diem basis (calculated on the basis of a thirty (30) day month) for the first month.

(a) Option 1 Adjustments to Base Rent. Commencing on each anniversary of the Commencement Date of the Lease, the Minimum Base Rent shall increase by ## percent (##%). In no event shall the Minimum Base Rent for any given year be less than the Minimum Base Rent established for the immediately preceding year.

Option 2 Adjustment to Base Rent. The Minimum Base Rent specified herein shall be subject to adjustment at each anniversary of the Commencement Date including all extensions thereto (the “Adjustment Date”) as follows:

i. The base for computing the adjustment is the Consumer Price Index, All Urban Consumers, San Francisco-Oakland-Hayward, All Items (1982-1984 = 100), as published by the United States Department of Labor, Bureau of Labor Statistics (“Index”), which is in effect on the date of the commencement of the term (“Beginning Index”). The Index published most immediately preceding the Adjustment Date in question (“Extension Index”) is to be used in determining the amount of the adjustment. If the Extension Index is increased over the Beginning Index, the Minimum Base Rent for the following year (until the next rent adjustment) shall be set by multiplying the preceding year’s Minimum Base Rent set forth above by a fraction, the numerator of which is the Extension Index and the denominator of which is the Beginning Index.

ii. In no case shall the Minimum Base Rent be less than the amount set forth in Section 1.05 (Rent), nor shall the Minimum Base Rent be less than the Minimum Base Rent in effect immediately prior to the adjustment date then occurring. On adjustment of the Minimum Base Rent as provided in this Agreement, Landlord shall notify Tenant in writing of the new Minimum Base Rent. If the Index has changed so that the base differs from that in effect on the Commencement Date, the Index shall be converted in accordance with the conversion factor published by the United States Department of Labor, Bureau of Labor Statistics. If the Index is discontinued or revised during the term of this Agreement, such other government index or computation with which it is replaced shall be used in order to obtain substantially the same result as would be obtained if the index had not been discontinued or revised.

(c) Upon adjustment of the Minimum Base Rent, as provided for above, Landlord shall notify Tenant in writing. Failure of Landlord to so notice Tenant shall not relieve Tenant of responsibility to pay any increase in Minimum Base Rent and/or Percentage Rent.

(b) Therefore, if any installment of Rent due from Tenant, Monthly Statement, sales and use return, and/or report, record, or documentation referenced herein which is due from Tenant is not received by Landlord when due, Tenant shall pay to Landlord an additional sum of ten percent (10%) of the overdue Rent as a late charge, and interest at the rate of one and one half percent (1½%) per month, or the maximum rate of interest allowed by law (whichever is less), on the unpaid balance of said Rent or sum until paid (or until such outstanding Monthly Statement, report or record is received by Landlord). The Parties agree that said late charges and interest represents a fair and reasonable estimate of the costs that Landlord will incur by reason of late payment (and/or late submittal of required documentation) by Tenant. The acceptance by Landlord of any late charge shall not constitute a waiver of Tenant's default with respect to the overdue amount, nor prevent Landlord from exercising any of the other rights and remedies available to Landlord under this Lease or as provided by law.

(c) Additionally, if a check is returned for non-sufficient funds (“NSF”), Tenant shall pay to Landlord a $25 NSF fee. If any payment is returned for NSF or because Tenant stops payment, then Landlord may, in writing, require Tenant to pay future Rent in cash.

4.07 Gross Sales. The term "Gross Sales" as used in this Lease means all gross receipts of every kind and nature from sales and services from all business conducted by Tenant on, in, at, about, or from the Premises, whether upon credit or for cash, in every department operating on, in, at, about, or from the Premises, whether operated by Tenant or by any subtenant, representative, agent, or concessionaire, excepting therefrom any rebates or refunds to customers and clients and the amount of all sales or excise tax receipts collected from customers and clients and paid by Tenant to any government agency. Sales upon credit shall be included in the Gross Sales for the period in which the merchandise is delivered or service rendered to the customer or client, regardless of when payment is made.

4.08 Books and Records.

(a) Tenant shall keep full, complete and proper books, records, and accounts of its operations and daily Gross Sales for a period of four (4) years. Landlord and its employees, representatives and agents shall have the right, with twenty-four (24) hours prior notice, and anytime during the regular business hours, to examine and copy all of the books, records, and accounts of Tenant, including, but not limited to, any sales tax reports pertaining to the business of Tenant conducted on, in, at, about, or from the Premises, for the purpose of investigating and verifying the accuracy of any Monthly Statement and/or of Gross Sales.

(b) If Tenant fails to furnish any Monthly Statement or annual balance sheet and profit and loss statement when due, Landlord shall have the right, after giving Tenant five (5) days' written notice, to engage an auditor to examine Tenant's books, records, and accounts and verify the amount of Tenant's Gross Sales. Such auditor’s verification will be binding on Tenant, and Tenant shall promptly pay the cost of the examination, plus any Rent shown to be due.

(c) In addition to engaging an auditor as provided in subsection (b), Landlord may also, once in any calendar year, cause an audit of Tenant's business to be made by an accountant of Landlord's selection. Tenant shall furnish any requested information necessary for the audit within thirty (30) days, unless otherwise approved by Landlord in writing. If the audit discloses an understatement by Tenant of three percent (3%) or more in Gross Sales for the period of any report, then Tenant shall immediately pay to Landlord the cost of such audit, as well as the additional Rent payable by Tenant to Landlord, plus interest and late charges; otherwise, the cost of such audit shall be paid by Landlord.

(d) Tenant shall provide Landlord, annually within ninety (90) days after the close of the business fiscal year for income tax purposes, Tenant's current annual balance sheet and profit and loss statement for Tenant's business on, in, at, about, or from the Premises, either certified under penalty of perjury by Tenant to be true and correct or accompanied by a report of Tenant's certified public accountant (“CPA”). Any Guarantor of this Lease shall, upon request but not more frequently than annually, provide Landlord its current balance sheet, either certified under penalty of perjury by Guarantor to be true and correct or accompanied by a report of Guarantor's CPA. Any annual balance sheet or profit and loss statement submitted by Tenant or Guarantor shall be used by Landlord only to verify and audit compliance with this Lease, including, but not limited to, verifying and auditing Gross Sales records.

(e) Landlord agrees to maintain all business information obtained through Monthly Statements and/or audits as confidential, to the extent legally permitted and allowed under the California Public Records Act, with the exception of information required to bring or defend legal actions.

(f) Tenant agrees to use a cash collection system acceptable to Landlord to record sales. Landlord may, at its option, require Tenant to institute changes in said cash collection system.

4.09 Damages For Failure To Operate. LANDLORD DESIRES TO HAVE TENANT KEEP THE PREMISES FULLY OPERATIONAL. TENANT ACKNOWLEDGES AND UNDERSTANDS THAT ITS FAILURE TO KEEP ITS BUSINESS OPEN AND OPERATIONAL DURING THE TIMES SET FORTH ELSEWHERE IN THIS LEASE WITHOUT THE PRIOR WRITTEN CONSENT OF LANDLORD WILL CAUSE LANDLORD TO INCUR LOSSES NOT CONTEMPLATED BY THIS LEASE, THE EXACT AMOUNT OF SUCH LOSSES BEING EXTREMELY DIFFICULT AND IMPRACTICABLE TO FIX. THEREFORE, (A) IF TENANT FAILS TO OPEN AND CONTINUOUSLY OPERATE ITS BUSINESS TO THE PUBLIC ON THE COMMENCEMENT DATE, OR (B) THEREAFTER, IF TENANT FAILS TO CONTINUOUSLY OPERATE ITS BUSINESS IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THIS LEASE OR VACATES OR ABANDONS THE PREMISES PRIOR TO THE EXPIRATION OF THE INITIAL TERM, OR ANY EXTENDED TERM, LANDLORD SHALL HAVE THE RIGHT, AT ITS OPTION, TO COLLECT AS LIQUIDATED DAMAGES AN AMOUNT EQUAL TO $103.00 FOR EACH DAY WHICH TENANT FAILS TO SO OPERATE IN ORDER TO COMPENSATE LANDLORD FOR THE LOSS OF PERCENTAGE RENT AND CUSTOMER TRAFFIC, AND ANY OTHER LOSSES. LANDLORD AND TENANT AGREE THAT SAID CHARGE REPRESENTS A FAIR AND REASONABLE ESTIMATE OF THE COSTS THAT LANDLORD WILL INCUR BY REASON OF SUCH ACTION BY TENANT AND THAT LANDLORD MAY (AT ITS OPTION AND WITHOUT ANY OBLIGATION TO DO SO) DEDUCT SAID CHARGE FROM THE SECURITY DEPOSIT. THIS LIQUIDATED DAMAGES PROVISION SHALL NOT IN ANY WAY AFFECT OR LIMIT LANDLORD’S RIGHTS OR REMEDIES RESULTING FROM TENANT’S BREACH OF ANY OBLIGATION UNDER THIS LEASE. BY EXECUTING THIS LEASE, TENANT ACKNOWLEDGES THAT IT HAS READ AND UNDERSTOOD THE ABOVE PROVISION COVERING LIQUIDATED DAMAGES, AND THAT TENANT HAD THE OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL WHO EXPLAINED THE CONSEQUENCES OF THIS LIQUIDATED DAMAGES PROVISION AT THE TIME THIS LEASE WAS EXECUTED. TENANT’S PAYMENT OF THE AMOUNTS NOTED ABOVE AS LIQUIDATED DAMAGES HEREUNDER IS NOT INTENDED AS A FORFEITURE OR PENALTY WITHIN THE MEANING OF CALIFORNIA CIVIL CODE SECTIONS 3275 OR 3369, BUT IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO LANDLORD PURSUANT TO CIVIL CODE SECTION 1671.

Tenant Initials: ___________________

4.10 Additional Rent. All amounts which Tenant is required to pay pursuant to this Lease (other than Minimum Base Rent or Percentage Rent), together with any fine, penalty, interest and costs which may be added for nonpayment or late payment thereof, shall constitute additional rent (hereinafter referred to as “Additional Rent”). Additional Rent shall include but not be limited to payment for Operating Expenses, as defined in Section 6.01 (Operating Expenses), and utility charges as provided in for in Section 11.02 (Jointly Metered Utilities). Unless this Lease provides otherwise, Tenant shall pay all Additional Rent as described in Section 4.03 (Rent Payment Procedure) or by the due date noted in the notice to submit payment (whichever is sooner). If Tenant fails to pay when due any Additional Rent due under this Lease, then Landlord shall have the right, but not the obligation, to pay the same and shall have all of the rights, powers and remedies with respect thereto as are provided in this Lease or by law in the case of nonpayment of Minimum Base Rent or Percentage Rent.

4.11 Capital Improvement Contributions.

(a) Commencing with the Commencement Date and continuing throughout the Term of this Lease (including, but not limited to any Extended Term), Tenant shall fund a capital improvement reserve fund (the “Capital Improvement Fund”) in accordance with the provisions of this Section for the cost of Permitted Capital Improvements (as defined below).

(b) Tenant and Landlord agree and acknowledge that the purpose of the Capital Improvement Fund shall be to provide funds for the costs and expenses of additions, replacements, renovations, and/or significant upgrades of or to the improvements on the Premises, including, but not limited to, building exteriors and major building systems (such as HVAC, mechanical, electrical, plumbing, vertical transportation, security, communications, Wharf substructure and pilings, structural elements, roof, etc.) that significantly increase the capacity, efficiency, useful life and/or or economy of operation of the improvements or their major systems, as determined by Landlord (the “Permitted Capital Improvements”). Landlord’s determination as to whether an addition, replacement, renovation or upgrade is necessary and constitutes a Permitted Capital Improvement shall be binding upon Tenant and shall conclusively establish whether amounts may be disbursed from the Capital Improvement Fund.

(c) Commencing with the Minimum Base Rent first due after the Commencement Date, Tenant shall make monthly deposits to the Capital Improvement Fund in an amount equal to one percent (1%) of Tenant’s total Gross Sales (as defined above) for the previous month. All interest and earnings on the Capital Improvement Fund shall be added to the Capital Improvement Fund, but shall not be treated as a credit against the Capital Improvement Fund deposits required to be made by Tenant pursuant to this Section 4.10 (Capital Improvement Contributions).

In the event, Tenant separately funds Permitted Capital Improvements that may be reimbursed by the Capital Improvement Fund, Landlord at its sole discretion may reimburse Tenant for the real cost of improvements or authorize a credit towards the Capital Improvement Fund payments. Reimbursements shall not exceed available Capital Improvement Funds; credits towards payment to the Capital Improvement Fund shall be established in writing signed by both Parties and shall not reduce the payment amount to less than one-half percent (0.5%) of Tenant’s total Gross Sales for any month nor exceed a cumulative total amount of $99,999 without prior City Council approval. Except in the event of an emergency or other sole source procurement eligible case, Tenant shall comply with City procurement rules and regulations, including, but not limited to, seeking a minimum of three (3) bids or proposals, for any work above $10,000 seeking reimbursement.

(d) The Capital Improvement Fund shall be held in an account established and administered by Landlord into which deposits shall be made by Tenant pursuant to this Section 4.11 (Capital Improvement Contributions).

(e) Disbursements shall be made from the Capital Improvement Fund only for costs which have been approved by Landlord in writing and which satisfy the requirements of this Section 4.11 (Capital Improvement Contributions). For the purpose of obtaining Landlord’s prior written approval of any Capital Improvement Fund disbursements, Tenant shall submit to Landlord on an annual calendar year basis a capital expenditure plan (the “Capital Expenditure Plan”) for the upcoming year which details the amount and purpose of anticipated Capital Improvement Fund expenditures for which Tenant requests Landlord’s approval (which approval shall not be unreasonably withheld). Any anticipated expenditure set forth in such Capital Expenditure Plan that is approved in writing by Landlord as an acceptable Capital Improvement Fund disbursement shall be considered pre-approved by Landlord (but only up to the amount of such expenditure approved by Landlord and set forth in the annual Capital Expenditure Plan) for the duration of the upcoming year. Tenant shall have the right during the course of each year to submit to Landlord for Landlord’s approval revisions to the then current Capital Expenditure Plan in effect for such year, or individual expenditures not noted on the previously submitted Capital Expenditure Plan. Prior to the disbursement of any amounts from the Capital Improvement Fund, Tenant shall furnish to Landlord applicable invoices, evidence of payment and other back-up materials reasonably acceptable to Landlord, documenting and substantiating costs incurred and the use of amounts from the Capital Improvement Fund.

(f) Notwithstanding any provision contained in this Lease that may be construed to the contrary, the Capital Improvement Fund shall not be used to fund any portion of the cost of periodic, recurring or ordinary expenditures, repairs or replacements (excepting repairs or replacement of Wharf substructure and/or pilings) that keep the Premises or its major systems in an ordinarily efficient operating condition, but that do not significantly add to their value or appreciably prolong their useful life. Permitted Capital Improvements must constitute capital replacements, improvements or equipment under generally accepted accounting principles consistently applied. Permitted Capital Improvements shall not include costs for any necessary repairs to remedy any broken or damaged improvements (including, but not limited to, Tenant Improvements), all of which costs and expenses shall be borne solely by Tenant. All specific purposes and costs for which Tenant desires to utilize amounts from the Capital Improvement Fund shall be subject to Landlord’s prior written approval, which approval shall not be unreasonably withheld.

(g) Notwithstanding any provision contained in this Lease that may be construed to the contrary, Landlord may in its discretion utilize and expend fifty percent (50%) of any Capital Improvement Fund contributions of Tenant that remain unspent in any calendar year for repairs or replacement of Wharf decking, substructure and pilings related to or supporting the Premises.

ARTICLE 5 – TAXES; ASSESSMENTS; AND LICENSES

(b) Landlord hereby gives notice to Tenant, pursuant to California Revenue and Tax Code Section 107.6 that this Lease may create a possessory interest that is the subject of property taxes levied on such interest, the payment of which taxes shall be the sole obligation of Tenant. Tenant shall advise (in writing) any sublessee or third party using the Premises of the requirements of Section 107.6.

(c) Any payments under this Section shall not reduce or offset Rent payments. Landlord has no liability for such payments. On demand by Landlord, Tenant shall furnish Landlord with satisfactory evidence of these payments by delivering to Landlord the official and original receipt evidencing the payment of any taxes, fees, assessments, and other charges required under this Article 5; or Tenant shall retain at its sole cost and expense for the Term of this Lease, a tax service to notify Landlord whether the taxes, assessments, and…