STAFF REPORT TO THE CITY COUNCIL
DATE: Regular Meeting of November 14, 2023
TO: Mayor Walker-Griffin and Members of the City Council SUBMITTED BY: Dante Hall, City Manager
Patrick Tang, City Attorney
Edwin Gato, Finance Director
SUBJECT: Proposed Amendments to Payment Provisions in the Existing Lease Between City of Hercules and Lotus Organic LLC of Property Located at 1991 Railroad Avenue -Leila’s By The Bay RECOMMENDED ACTION:
Adopt a resolution authorizing the City Manager to enter into an amendment to the existing lease between City of Hercules and Lotus Organic LLC for operation of a restaurant located at 1991 Railroad Avenue -Leila’s By The Bay BACKGROUND:
The improved real property known as 1991 Railroad Avenue in Hercules, California (Property) is owned by the City of Hercules. The City has rehabilitated the existing structure and converted it to a full service, sit-down restaurant and bar.
On or about December 17, 2013, the Hercules City Council authorized execution of a Lease Agreement with Moses and Sam Abu Gosh (“Lease”) to operate Leila’s By The Bay restaurant at the Property.
On or about March 24th, 2015, the City Council approved the transfer of the existing Lease from Moses and Sam Abu Gosh to Lotus Organic LLC through its authorized representative, Mohammed Azam (Tenant) for the continued operation of Leila’s by the Bay Restaurant.
The original ten (10) year lease expires April 1, 2024, unless extended pursuant to the provisions of Section 2.2 of the Lease, which provides for the option of two (2) extensions of five (5) years each.
DISCUSSION:
Pursuant to Section 3(d) of the Lease, Tenant is required to pay City rent on the 1st day of each month. However, over the past several years Tenant has on multiple occasions been in default of the lease terms by making irregular rent payments, causing the City to issue Demand Letters/Notices of Default demanding payment of back rent and putting Tenant on notice of default of the Lease terms. Staff has worked with Tenant to assure timely rent payments via subsequent Letters of Understanding, but despite specific requirements for timely payment of rent and other express conditions as contained in the Lease, the LOU, and Second LOU, Tenant has continued a pattern of irregular rent payments, requiring City Staff to spend considerable time preparing and sending Notices of Default and Notices of Late Payment.
On October 24, 2023, the City Council gave direction to staff to work with Tenant to amend the Lease in order to address the issue of late rent payments, specifically directing that all past due amounts, including interest and penalties, be paid in full prior to entering into a Lease Amendment, that all future payments be made by Direct Deposit, that penalties for late payment be increased, that the interest charged for any rent not paid on time be increased, and that the two, five year extensions be forfeited as a consequence of any future late or missed payments.
On November 11, 2023, staff met with Mr. Azam to discuss the proposed amendments to the Lease, as contained in Attachment 2 to this Staff report. Mr. Azam was in agreement with the terms of the proposed Lease Amendment, and indicated that past due amounts would be paid in full prior to tonight’s council meeting.
ANALYSIS:
The terms of the proposed Lease Amendment will provide that City will not pursue a Default or take possession of the Property or otherwise seek to terminate the Lease for non-payment or late payment of rent as long as Tenant agrees to be bound by the terms of the Lease as Amended, and subject to the following conditions:
Payment of All Past Due Amounts. All past due amounts must be paid in full, including interest and penalties, at the time the Lease Amendment is executed.
From the effective date of the Lease Amendment, rent payments shall be made to City via Direct Deposit, to be received by City on or before the date due for rent payments specified in the Lease Agreement.
Tenant shall provide proof of compliance with insurance requirements pursuant to Section 8.1 of the Lease, by no later than November 30, 2023.
If Tenant fails to make timely rent payments pursuant to all applicable terms and conditions of the Lease as amended, Tenant shall forfeit the Option to Extend Term for two (2) periods of five (5) years each provided in Section 2.2 of the Lease Agreement. The City Council may, at its sole discretion, reinstate the Option to Extend Term in part or in whole upon a showing of substantial compliance by Tenant.
The Late payment specified in Section 3(e) of the Lease Agreement shall be increased from One Hundred Fifty Dollars ($150) to Two Hundred Dollars ($200).
Any rent not paid within fifteen (15) days following the due date as specified in Section 3(e) of the Lease Agreement shall bear an increase in the rate of interest charged from the rate of ten percent (10%) to the rate of fifteen percent (15%).
FISCAL IMPACT:
There is no net fiscal impact associated with this agenda item.
ATTACHMENTS:
Resolution Authorizing the City Manager to execute the Lease Amendment Lease Amendment
Original Lease with supporting documents
Date Page 1