Santa Cruz City Council
February 24, 2026

CITY COUNCIL AGENDA
Regular Meeting - February 24, 2026
Council Chambers
809 Center Street
Santa Cruz
1:30 P.M. CLOSED SESSION
2:00 P.M. ORAL COMMUNICATIONS, CONSENT, CONSENT PUBLIC HEARING, AND

GENERAL BUSINESS
Council meetings are hybrid, and may be viewed remotely, using any of the following sources:
 Click on Zoom link (no time delay): https://zoom.us/j/94684401344  Online at http://www.cityofsantacruz.com/government/city-council/council-meetings  Online at Watch – Community Television of Santa Cruz County  Comcast Channel 25
Or: Call any of the numbers below. If one is busy, try the next one.  1-833-548-0276 (Toll Free)
 1-833-548-0282 (Toll Free)
 1-877-853-5247 (Toll Free)
 1-669-900-9128
 Enter the meeting ID number: 946 8440 1344
 When prompted for a Participant ID, press #.
 Press *9 on your phone to “raise your hand” when the Mayor calls for public comment.  It will be your turn to speak when the Mayor calls on you. Press *6 to unmute yourself. The timer will then be set.

Correspondence to be included in the agenda packet must be received by 5:00 pm on Monday, February 23rd
PLEASE NOTE:
 Council may take a break(s) as needed.
 Requests for extra speaking time on items other than Oral Communications must be made by 5:00 p.m. on Sunday, February 22nd by emailing the Mayor and the City Clerk.

Approval will be confirmed via email.
[email protected] [email protected]
February 24, 2026 City Council 2
The City of Santa Cruz does not discriminate against persons with disabilities. Out of consideration for people with chemical sensitivities we ask that you attend fragrance free. Upon request, the agenda can be provided in a format to accommodate special needs. Additionally, if you wish to attend this public meeting and will require assistance such as an interpreter for American Sign Language, Spanish, or other special equipment, please call the City Clerk’s Department at 420-5030 at least five days in advance so that we can arrange for such special assistance, or email [email protected]. The Cal-Relay system number: 1-800-735-2922.

Si desea asistir a esta reunión pública y necesita ayuda - como un intérprete de lenguaje de señas americano, español u otro equipo especial - favor de llamar al Departamento de la Secretaría de la Ciudad al 420-5030 al menos cinco días antes para que podamos coordinar dicha asistencia especial o envié un correo electrónico a [email protected]. El número del sistema Cal-Relay es: 1-800-735-2922.

Agenda and Agenda Packet Materials: The City Council agenda and the complete agenda packet containing public records, which are not exempt from disclosure pursuant to the California Public Records Act, are available for review on the City’s website: www.santacruzca.gov/councilmeetings and at the Office of the City Clerk located at 809 Center Street, Room 8, Santa Cruz, California, during normal business hours.

Agenda Materials Submitted after Publication of the Agenda Packet: Pursuant to Government Code §54957.5, public records related to an open session agenda item submitted after distribution of the agenda packet are available at the same time they are distributed or made available to the legislative body on the City’s website at: www.santacruzca.gov/councilmeetings and are also available for public inspection at the Office of the City Clerk, 809 Center Street Room 8, Santa Cruz, California, during normal business hours, and at the Council meeting.

Need more information? Contact the City Clerk’s office at 831-420-5030. 1:30 PM
Statements of Disqualification
Public Comment on Closed Session Items
Closed Session

1. Conference With Legal Counsel – Liability Claims (Government Code §54956.95)
1) Claimant: Alan J. Mac
2) Claimant: James Morrissey
3) Claimant: Angelo Jason Mirizzi Kaplan
4) Claimant: Michael Benjamin Ruder
5) Claimant: David W. Turner
6) Claimant: Michael Deuschel
Claims against the City of Santa Cruz
February 24, 2026 City Council 3
Closed Session (continued)

2. Real Property Negotiations (Government Code §54956.8) Property: 37 Municipal Wharf (Gilda’s)
APN: 007-341-03
Owner: Charles Maier
City Negotiator: Bonnie Lipscomb
Negotiating Parties: City of Santa Cruz and Charles Maier dba Gilda’s Under Negotiation: Price, terms of payment, or both

3. Conference With Legal Counsel – Anticipated Litigation (Government Code §54956.9(d)(2))
Significant exposure to litigation (one potential case to be discussed) February 24, 2026 City Council 4
City Council
2:00 PM
Call to Order
Roll Call
Oral Communications - Members of the public may address Council on matters not on the agenda, but within the jurisdiction of the Council. 30 minutes is allocated for Oral Communications. No extra time for groups will be granted.

Presentation

4. Mayoral Proclamation Declaring February 20, 2026, as Government Communicators Day
Presiding Officer's Announcements
Statements of Disqualification
Additions and Deletions
City Attorney Report on Closed Session
Council Meeting Calendar

5. The City Council will review the meeting calendar attached to the agenda and revise it as necessary.

February 24, 2026 City Council 5
Consent Agenda

6. Minutes of the February 10, 2026 City Council Meeting (CC) LOCATION: None
Motion to approve as submitted.

7. Authorization to Participate in the Local Government Climate Alliance (CM)
LOCATION: Citywide
Motion to direct staff to participate in the Local Government Climate Alliance (LGCA) and provide ongoing authorization for involvement in LGCA activities, including coordinated state-level climate and energy advocacy.

8. Day Services Planning Update - Budget Adjustment (CM) LOCATION: Citywide
Motion to:
1) Adopt a resolution amending the Fiscal Year 2026 budget to appropriate up to $409,115 for the procurement and operation of expanded public hygiene access in the City, through a reallocation of currently budgeted funds in Homelessness Response and Community Programs; and
2) Direct staff to continue to collaborate with the County of Santa Cruz staff in further exploring additional options for providing access to basic hygiene and other services to support the unhoused community.

9. Approval of Three (3) Professional Services Agreements for Qualified Firms to Provide On-Call Grant Support Services (CM)
LOCATION: Citywide
Motion to approve and authorize the City Manager to execute a Professional Services Agreement with qualified firms in a form approved by the City Attorney for on-call grant support services not to exceed $100,000 per vendor per year over a three-year term. The Assistant City Manager is authorized to execute change orders within the approved budget.

February 24, 2026 City Council 6
Consent Agenda (continued)

10. 136 River Street Grant Administration - Budget Adjustment (ED) LOCATION: District 3
Motion to:
1) Adopt a resolution committing funding from the California State Department of Housing and Community Development (HCD) Permanent Local Housing Allocation (PLHA) Program in an amount of $623,298 as a loan to the 136 River Street Affordable Housing Project, an eligible affordable housing project;
2) Adopt a resolution amending the Fiscal Year 2026 budget to appropriate $1,800,000 in the Affordable Housing Trust Fund (AHTF), funded by State HCD through the Local Housing Trust Fund (LHTF) as a loan to 136 River Street Apartments Investors, L.P.;
3) Authorize the City Manager, or designee, to execute related PLHA and LHTF documents; and
4) Authorize staff to submit requests for reimbursement of PLHA and LHTF funds.

11. Authorization for Application and Acceptance of Prohousing Incentive Program Funds (ED)
LOCATION: District 5
Motion to adopt a resolution to approve application submittal and, if selected, receive an allocation of the 4th round of the Prohousing Incentive Program (PIP) and authorize the City Manager or designee to execute any documents or amendments related to the award, in a form approved by the City Attorney.

February 24, 2026 City Council 7
Consent Agenda (continued)

12. Municipal Wharf Lease Agreement with Santa Cruz Diner, Inc., dba Gilda’s for City-owned Commercial Space at 37 Municipal Wharf - Budget Adjustment (ED)
LOCATION: District 4
Motion to:
1) Approve and authorize the City Manager to execute the Municipal Wharf Lease Agreement with Santa Cruz Diner, Inc., and any documents, amendments or extensions of a non-substantive nature, in a form approved by the City Attorney, for the commercial retail space located at 37 Municipal Wharf;
2) Adopt a resolution amending the Fiscal Year 2026 budget to appropriate revenue in the amount of $4,233.00 to the 37 Municipal Wharf (w512601) project; and
3) Adopt a finding of categorical exemption pursuant to the following CEQA guidelines: 14 CCR 15301 (Existing Facilities) and 14 CCR 15061(b)(3) (Common Sense Exemption).

13. Design Services Contract for the Coral Street SUD Navigation Center (ED)
LOCATION: District 5
Motion to:
1) Authorize the City Manager, or designee, to execute a contract with NJA Architecture for design services through construction management in an amount not to exceed $1,280,040, and any related documents in a form to be approved by the City Attorney; and
2) Authorize the Deputy City Manager, or designee, to execute amendments or change orders with NJA Architecture within the approved budget of the Navigation Center BHCIP project (c512602).

February 24, 2026 City Council 8
Consent Agenda (continued)

14. Resolution Establishing the 2026 Security Deposit Interest Rate for Residential Rental Property (ED)
LOCATION: Citywide
Motion to adopt a resolution establishing the 2026 interest rate for the residential security deposits at 0.02% and rescinding Resolution No. NS30,444.

15. Liability Claims Filed Against the City of Santa Cruz (FN) Motion to reject the liability claims of 1) Alan J. Mac, 2) James Morrissey, 3) Angelo Jason Mirizzi Kaplan, 4) Michael Benjamin Ruder, 5) David W. Turner, and 6) Michael Deuschel, based on staff recommendation.

16. Puerto Escondido, Oaxaca, Mexico Friendship City Status (PR) LOCATION: Citywide
Motion to approve the adoption of Puerto Escondido, Oaxaca, Mexico as a Friendship City as recommended and resolved by the Sister Cities Committee.

17. Purchase of Lift Vehicle (PW)
LOCATION: Citywide
Motion to award a contract for the purchase of a Ford E-Transit T-350 Cargo Van with a LiftUp Aerial Device from Rush Truck Center (Commerce City, CO) in the amount of $127,598.

18. Purchase of Wastewater Collection Utility Truck (PW) LOCATION: Citywide
Motion to award a contract for the purchase of one Ford F-550 Utility Truck from Watsonville Ford (Watsonville, CA) in the amount of $108,388.

February 24, 2026 City Council 9
Consent Agenda (continued)

19. SCMU Customer Assistance Program (UCAP) Update—Expansion to Include Multi-Family Customers - Budget Adjustment (WT) LOCATION: County
Receive an update on the SCMU Customer Assistance Program (UCAP), including the expansion of the UCAP to serve multi-family customers, and adopt a resolution amending the Fiscal Year (FY) 2026 budget in the amount of $1,101,000 for the UCAP Special Revenue Fund (Fund 296) and ($42,631) for the Water Department (Fund 711).

End Consent Agenda
Consent Public Hearing

20. 2nd Reading and Final Adoption of Ordinance Nos. 2026-02 and 2026-03 Amendments to Municipal Code Chapter 24.04 – Administration, Section

24.12.1755 – Properties with Accessory Dwelling Units, and Chapter

24.16 Part 2 – Accessory Dwelling Units to Align Local Accessory Dwelling Unit Regulations with New State Laws, Clarify Language of Existing Regulations, and Other Minor Changes (PL)
LOCATION: Citywide
Motion to:
1) Adopt Ordinance 2026-02 amending Chapter 24.16 Part 2 of the Santa Cruz Municipal Code (SCMC) related to Accessory Dwelling Unit Regulations;
2) Adopt Ordinance 2026-03 amending the Local Coastal Program (LCP) Implementation Plan (IP), amending Chapter 24.04 and Section

24.12.1755 of the Municipal Code related to Coastal Commission appeal of Accessory Dwelling Unit coastal permits and length of tenancy in Junior Accessory Dwelling Units; and
3) Adopt a resolution directing staff to submit Ordinance No. 2026-03 to the California Coastal Commission.

February 24, 2026 City Council 10
General Business

21. E-Bike Regulation Concepts (PW)
LOCATION: Citywide
Motion to:
1) Introduce for publication an ordinance amending Chapter 10.68 of the Santa Cruz Municipal Code pertaining to bicycles;
2) Adopt a finding of categorical exemption pursuant to California Environmental Quality Act (CEQA) Guidelines Section 15307 (Actions by Regulatory Agencies for Protection of Natural Resources) and Section 15308 (Actions by Regulatory Agencies for Protection of the Environment);
3) Direct staff to continue coordination with state and regional partners to address concerns related to speed and age limits for ebikes; 4) Direct staff to continue efforts to expand e-bike education, with an emphasis on partnership with Santa Cruz City Schools; and 5) Direct staff to continue to seek outside funding to provide continued and expanded e-bike education for youth and community members.

22. Review of 2025 State of California Legislation Impacting Land Use, Housing, Homelessness Response, and Economic Development (CD/ED/CM)
LOCATION: Citywide
Motion to accept the review of 2025 State of California legislation impacting land use, housing, homelessness response, and economic development.

Adjournment
February 24, 2026 City Council 11

INFORMATION ITEMS PREVIOUSLY DISTRIBUTED TO CITY COUNCILMEMBERS ADDENDUM TO CITY COUNCIL AGENDA – FEBRUARY 24, 2026

23. Economic Development: First Amendment to the Lease with Santa Cruz Metropolitan Transit District, dba Metro 2/3/26 (EDFYI 002)

24. Library: Incident Report – Santa Cruz Public Library 1st & 2nd Quarter 2025-2026 2/4/26 (LBFYI 023)

MAYOR'S PROCLAMATIONS
None Issued.

Advisory Body Appointments
The following positions are either currently vacant or the terms are due to expire.

Council will make appointments at a future meeting.

Board of Building and Fire Appeals One opening – at-large nomination.

Public Hearing
If, in the future, you wish to challenge in court any of the matters on this agenda for which a public hearing is to be conducted, you may be limited to raising only those issues which you (or someone else) raised orally at the public hearing or in written correspondence received by the City at or before the hearing.

Any person seeking to challenge a City Council decision made as a result of a proceeding in which, by law, a hearing is required to be given, evidence is required to be taken, and the discretion in the determination of facts is vested in the City Council, shall be required to commence that action either 60 days or 90 days following the date on which the decision becomes final as provided in Code of Civil Procedure Section 1094.6 Please refer to code of Civil Procedure 1094.6 to determine how to calculate when a decision becomes “final.” The 60-day rule applies to all public hearings conducted pursuant to the City’s Zoning Ordinance, Title 24, Santa Cruz Municipal Code. The 90-day rule applies to all other public hearings.
2026 City Council Meeting Calendar
March 10 - Regular Meeting
March 24 - Regular Meeting
March 31 - City Hall Closure - Cesar Chavez Day
April 1/2 - Passover (City observed sundown to sundown) April 14 - Regular Meeting
April 28 - Regular Meeting
May 12 - Regular Meeting
May 25 - City Hall Closure - Memorial Day
May 26 - Regular Meeting/Budget Hearings
May 27 - Special Meeting - Budget Hearings
June 9 - Regular Meeting
June 19 - City Hall Closure - Juneteenth
June 23 - Regular Meeting
July 3 - City Hall Closure - Independence Day
July 14 and 28 Meetings Cancelled
August 11 - Regular Meeting
August 25 - Regular Meeting
September 7 - City Hall Closure - Labor Day
September 8 - Regular Meeting
September 11/12 - Rosh Hashanah (City observed - sundown to sundown) October 20/21 - Yom Kippur (City observed - sundown to sundown) September 22 - Regular Meeting
October 13 - Regular Meeting
October 27 - Regular Meeting
November 11 - City Hall Closure - Veteran's Day (observed) November 17 - Regular Meeting
November 26 - City Hall Closure - Thanksgiving Day
November 27 - City Hall Closure - Day After Thanksgiving Day December 4/5 - Hanukkah (City observed - sundown to sundown) December 8 - Regular Meeting
December 22 Meeting Cancelled
December 25

5.1 MINUTES ARE UNOFFICIAL UNTIL APPROVED BY COUNCIL
City of Santa Cruz
809 Center Street
Santa Cruz, California 95060

MINUTES OF A CITY COUNCIL MEETING
February 10, 2026
2:00 PM
Mayor Keeley opened the City Council Closed Session at 2:02 p.m. in a public meeting via Zoom and in Council Chambers, for the purpose of announcing the agenda, and receiving public testimony.

Roll Call

Present: Councilmembers Brunner, Newsome, Golder, O’Hara (via Zoom); Vice Mayor Kalantari-Johnson; Mayor Keeley.

Absent: Councilmember Trigueiro.

Staff: City Manager M. Huffaker, Assistant City Attorney C. Bronson, Director of Information Technology K. Morgan, Deputy City Clerk Administrator J. Wood, City Clerk Administrator B. Bush.

At this time, Mayor Keeley called on City Attorney C. Bronson who explained that Councilmember O’Hara’s remote appearance is authorized as “just cause” per Government Code 54953.8.3 (c)(2).

Statements of Disqualification – Councilmember Brunner announced she will be recusing herself from item 2.3 as it relates to her employment.

Public Comment on Closed Session Items
Mayor Keeley opened the public comment period at 2:06 p.m. There were no speakers. Mayor Keeley closed the public comment period at 2:06 p.m., at which time the meeting was closed to the public and Council adjourned to the Courtyard Conference Room.

6.1 February 10, 2026 CITY COUNCIL MINUTES 8165
Closed Session

1. Conference With Legal Counsel – Liability Claims (Government Code §54956.95) 1) Claimant: Michael Andrew Collins
2) Claimant: Brendan W. Daly
3) Claimant: Linda Ann Waskiewicz
4) Claimant: Vahid Ebrahimi
Claims against the City of Santa Cruz
Council received a status report, took up under agenda item 10, and no reportable action was taken.

2. Real Property Negotiations (Government Code §54956.8) 1) Property: 47 Municipal Wharf
APN: 007-341-06
Owner: City of Santa Cruz
City Negotiator: Bonnie Lipscomb
Negotiating Parties: Bonnie Lipscomb and Bruce Noland (dba Flotsam of California, Inc.)
Under Negotiation: Price, terms of payment, or both
2) Property: 41 Municipal Wharf
APN: 007-341-04
Owner: City of Santa Cruz
City Negotiator: Bonnie Lipscomb
Negotiating Parties: Bonnie Lipscomb and Bruce Noland (dba Flotsam of California, Inc.)
Under Negotiation: Price, terms of payment, or both
3) Property: 121 Soquel Avenue (Frazier Lewis Lane, portion) and 1316-1320 Pacific Ave
APN: 005-081-51, 005-081-20, and 005-081-21
Owner: City of Santa Cruz and Doghouse2 LLC
City Negotiator: Bonnie Lipscomb
Negotiating Parties: Bonnie Lipscomb and Danco Communities Under Negotiation: Price, terms of payment, or both.

Council received a status report from the City Negotiator on items 2.1 and 2.2, and no reportable action was taken. Item 2.3 was not discussed.

6.2 February 10, 2026 CITY COUNCIL MINUTES 8166
Closed Session (continued)

3. Conference with Labor Negotiators (Government Code §54957.6) Police Officers Association
City Negotiator - Sara De Leon
Council received a status report from the City Negotiator, and no reportable action was taken.

6.3 February 10, 2026 CITY COUNCIL MINUTES 8167
City of Santa Cruz
809 Center Street
Santa Cruz, California 95060

MINUTES OF A CITY COUNCIL MEETING
February 10, 2026
3:00 PM
Call to Order – Mayor Keeley called the meeting to order at 3:02 p.m. in Council Chambers.

At this time, Mayor Keeley called on City Attorney C. Bronson who explained that Councilmember O’Hara’s remote appearance is authorized as “just cause” per Government Code 54953.8.3 (c)(2).

Roll Call

Present: Councilmembers Brunner, Newsome, Golder, O’Hara (via Zoom); Vice Mayor Kalantari-Johnson; Mayor Keeley.

Absent: Councilmember Trigueiro.

Staff: City Manager M. Huffaker, Assistant City Manager M. Templeton, City Attorney C. Bronson, Deputy City Manager/Director of Economic Development B. Lipscomb, Director of Community Development L.

Butler, Director of Finance E. Cabell, Director of Parks and Recreation T. Elliot, Urban Forester L. Keedy, Senior Planner C. Stanger, Deputy City Clerk Administrator J. Wood, City Clerk Administrator B. Bush.

Oral Communications
At 3:04 p.m. Mayor Keeley opened Oral Communications for members of the public who wished to speak regarding items not listed on the City Council agenda.

Unidentified person spoke about making balloons, the fire at the Moss Landing Power Plant, and hopes for the next Mayor.

Garrett spoke regarding immigration, calling those who have immigrated illegally, “thugs,” and stated Sanctuary Cities are only a sanctuary for criminals.

Gillian Greensite spoke regarding Measure C and the Local Preference Policy Update FYI submitted to the Mayor and Councilmembers.

Michael Collins spoke regarding an ordinance that is supposed to prohibit electric bikes from being ridden adjacent to Commercial establishments.

6.4 February 10, 2026 CITY COUNCIL MINUTES 8168
Oral Communications (continued)
Lion Baumgartner spoke regarding hate, vehicles idling longer than they are permitted, and endangered butterflies.

At 3:14 p.m. Mayor Keeley closed Oral Communications.

Presentation

4. Leslie Keedy 25-year Service Pin Presentation
Director of Parks and Recreation T. Elliot gave a presentation. Urban Forester L. Keedy spoke.

Presiding Officer's Announcements – Mayor Keeley congratulated former Santa Cruz County Supervisor John Leopold for winning a Grammy award, and by consensus Council agreed to send a letter to him on behalf of the City.

Statements of Disqualification – None.

Additions and Deletions – None.

City Attorney Report on Closed Session – See pages 8165—8166 for the report.

Council Meeting Calendar

5. The City Council did not review or revise the meeting calendar attached to the agenda.

Consent Agenda
Vice Mayor Kalantari-Johnson made a comment on item 7.

Councilmember Brunner made a comment on items 7, 11, 12, 13 and 14.

Mayor Keeley opened the public comment period. The following people spoke:

Unidentified person made a comment on item 7.

Unidentified person made a comment on items 6, 7, and 10.

Unidentified person made a comment on item 7.

Garrett made a comment on item 7.

Mayor Keeley closed the public comment period.

6.5 February 10, 2026 CITY COUNCIL MINUTES 8169
Consent Agenda (continued)
MOTION: Vice Mayor Kalantari-Johnson moved, seconded by Councilmember Golder, to approve the Consent Agenda.

ACTION: The motion carried with the following vote.

AYES: Councilmembers Brunner, Newsome, Golder, O’Hara; Vice Mayor Kalantari-Johnson; Mayor Keeley.

NOES: None.

ABSENT: Councilmember Trigueiro.

DISQUALIFIED: None.

6. Minutes of the January 27, 2026 City Council Meeting (CC) LOCATION: None
Motion carried to approve as submitted.

7. City of Santa Cruz Sugar-Sweetened Beverage Distribution Tax Oversight Committee (CM)
LOCATION: Citywide
Motion carried to:
 Ratify the Parks and Recreation Commission’s December 8, 2025 selection of Barbara Lawrence to serve on the Sugar-Sweetened Beverage Tax Oversight Committee (Committee);
 Appoint Vice Mayor Kalantari-Johnson to serve on the Committee; and  Ratify the City Manager’s selection of five at-large members to the Committee.

6.6 February 10, 2026 CITY COUNCIL MINUTES 8170
Consent Agenda (continued)

8. Municipal Wharf Lease Agreement with Flotsam of California, Inc, dba Surf City for City-owned Commercial Space at 41 Municipal Wharf (EDH) Location: District 4
Motion carried to:
 Approve and authorize the City Manager to execute the Municipal Wharf Lease Agreement with Flotsam of California, Inc., and any documents, amendments or extensions of a non-substantive nature, in a form approved by the City Attorney, for the commercial retail space at 41 Municipal Wharf;  Adopt Resolution No. NS-30,613 amending the Fiscal Year 2026 budget to appropriate revenue in the amount of $19,480.39 to the Municipal Wharf Fund (Fund 104) and $1,970.00 to 41 Municipal Wharf (w512501); and  Adopt a California Environmental Quality Act (CEQA) finding of categorical exemption pursuant to 14 CCR 15301 (Existing Facilities) and 14 CCR 15061(b)(3) (Common Sense Exemption).

9. Amended and Restated Municipal Wharf Lease Agreement with Flotsam of California, Inc, dba Noland’s for City-owned Commercial Space at 47 Municipal Wharf (EDH)
Location: District 4
Motion carried to:
 Approve and authorize the City Manager to execute the Amendment and Restated Municipal Wharf Lease Agreement with Flotsam of California, Inc., and any documents, amendments or extensions of a non-substantive nature, in a form approved by the City Attorney, for the commercial retail space located at 47 Municipal Wharf;
 Adopt Resolution No. NS-30,614 amending the Fiscal Year 2026 budget to appropriate revenue in the amount of $382.44 to the Municipal Wharf Fund (Fund 104); and
 Adopt a California Environmental Quality Act (CEQA) finding of categorical exemption pursuant to 14 CCR 15301 (Existing Facilities) and 14 CCR 15061(b)(3) (Common Sense Exemption).

6.7 February 10, 2026 CITY COUNCIL MINUTES 8171
Consent Agenda (continued)

10. Liability Claims Filed Against the City of Santa Cruz (FN) Motion carried to reject the liability claims of 1) Michael Andrew Collins, 2) Brendan W. Daly, 3) Linda Ann Waskiewicz; and to return as late claim of 4) Vahid Ebrahimi, based on staff recommendation.

11. FY 2026 Budget Adjustments and Information on City’s Financial Status – Budget Adjustment (FN/HR)
Location: Citywide
Motion carried to:
 Adopt Resolution No. NS-30,615 amending the Fiscal Year (FY) 2026 budget appropriation of expenditures to all funds as listed in Exhibit A, in the amount of $24,669,730, including an increase of $2,735,762 to the General Fund, and a total decrease in revenues as listed in Exhibit A in the amount of $26,432,222 to all funds, including a reduction of $124,666 to the General Fund;
 Authorize the City Manager to allocate budgetary changes within the applicable funds and departments; and
 Adopt Resolution No. NS-30,616 amending the personnel complement for the City Manager’s Office, Economic Development and Housing, Human Resources, Information Technology, Library, Parks and Recreation, Public Works, and Water Departments.

12. 2025-2028 City of Santa Cruz Supervisors Operating Engineers, Local 3 Agreement for Successor Memorandum of Understanding (HR) LOCATION: Citywide
Resolution No. NS-30,617 was adopted adopting the 2025-2028 Successor Memorandum of Understanding between the City of Santa Cruz and the Supervisors Operating Engineers, Local 3, effective December 6, 2025 through December 8, 2028.

6.8 February 10, 2026 CITY COUNCIL MINUTES 8172
Consent Agenda (continued)

13. 2025-2028 City of Santa Cruz Fire Management Association Agreement for Successor Memorandum of Understanding (HR)
LOCATION: Citywide
Resolution No. NS-30,618 was adopted adopting a successor Memorandum of Understanding between the City of Santa Cruz and the Fire Management Association effective October 11, 2025 through June 30, 2028.

14. 2025-2028 City of Santa Cruz International Association of Firefighters, Local 1716, Successor Memorandum of Understanding (HR)
LOCATION: Citywide
Resolution No. NS-30,619 was adopted adopting successor Memorandum of Understanding between the City of Santa Cruz and the International Association of Firefighters, Local 1716 effective September 27, 2025 through July 3, 2028.

End Consent Agenda
Public Hearing

15. Amendments to Municipal Code Chapter 24.04 – Administration, Section

24.12.1755 – Properties with Accessory Dwelling Units, and Chapter 24.16 Part 2 – Accessory Dwelling Units to Align Local Accessory Dwelling Unit Regulations with New State Laws, Clarify Language of Existing Regulations, and Other Minor Changes (PL)
LOCATION: Citywide
Senior Planner C. Stanger gave a presentation and responded to Council questions.

Mayor Keeley opened the public comment period. The following people spoke.

James Ewing Whitman
Garrett
Mayor Keeley closed the public comment period.

6.9 February 10, 2026 CITY COUNCIL MINUTES 8173
Public Hearing (continued)

15. Amendments to Municipal Code Chapter 24.04 and Chapter 24.16 (PL) LOCATION: Citywide (continued)
MOTION: Vice Mayor Kalantari-Johnson moved, seconded by Councilmember Brunner, to:
 Introduce for publication Ordinance No. 2026-02 amending Chapter 24.16 Part 2 of the Santa Cruz Municipal Code (SCMC) related to Accessory Dwelling Unit (ADU) regulations;
 Introduce for publication Ordinance No. 2026-03 amending the Local Coastal Program (LCP) Implementation Plan (IP), amending Chapter 24.04 and Section 24.12.1755 of the Municipal Code related to Coastal Commission appeal of Accessory Dwelling Unit coastal permits and length of tenancy in Junior Accessory Dwelling Units; and
 Acknowledge the determination that the proposed amendments are exempt under Public Resources Code Section 21080.17 as an ordinance to implement ADU state law and under California Environmental Quality Act (CEQA) Guidelines Section 15061(b)(3) as a project that can be seen with certainty to have no possibility for causing a significant effect on the environment.
 Direct staff to bring back an analysis of the Planning Commission’s recommended changes to short-term rental regulations as they relate to Accessory Dwelling Units no later than at the next annual ADU update to the City Council.

ACTION: The motion carried with the following vote.

AYES: Councilmembers Brunner, Newsome, Golder, O’Hara; Vice Mayor Kalantari-Johnson; Mayor Keeley.

NOES: None.

ABSENT: Councilmember Trigueiro.

DISQUALIFIED: None.

Adjournment – Councilmember Golder moved, seconded by Councilmember Brunner, to adjourn. By consensus City Council adjourned at 3:56 p.m.

6.10 February 10, 2026 CITY COUNCIL MINUTES 8174
Respectfully Submitted:

Julia Wood, Deputy City Clerk Administrator
Attest:

Bonnie Bush, City Clerk Administrator
Approved:

Fred Keeley, Mayor

6.11 City Council

AGENDA REPORT
DATE: 02/05/2026
AGENDA OF: 02/24/2026
DEPARTMENT: City Manager
SUBJECT: Authorization to Participate in the Local Government Climate Alliance (CM)
LOCATION: Citywide
RECOMMENDATION: Motion to direct staff to participate in the Local Government Climate Alliance (LGCA) and provide ongoing authorization for involvement in LGCA activities, including coordinated state-level climate and energy advocacy.

BACKGROUND: Cities and counties across California have long led on climate action and pollution reduction, demonstrating through on-the-ground implementation that ambitious climate strategies are feasible, scalable, and deliver real community benefits. At the same time, the impacts of climate change—and the benefits of climate solutions—are experienced most directly at the local level, affecting residents, infrastructure, public health, emergency response, and local budgets.

State-level climate, energy, and utility policies play a significant role in shaping local government costs, authority, and implementation pathways. Local governments are often required to implement state policies or may be adversely impacted by state policies without having had meaningful opportunities to inform their design. Proactive engagement by cities and counties in initiating, drafting and refining climate legislation is essential to ensure that policies are informed by local realities, practical implementation pathways, and proven municipal best practices.

The Local Government Climate Alliance (LGCA) was formed in 2025 to provide cities and counties with a coordinated, technically informed voice in Sacramento. City staff serve on the steering committee that created LGCA. Currently, local governments that represent over 30% of California’s population are in the process of joining LGCA. The LGCA focuses on advancing legislative advocacy activities that:
• Expand local authority and secure funding for local climate action; • Accelerate affordable access to clean electricity, electrified transportation, zero-emission buildings, and low‑carbon industry;
• Remove barriers to local clean energy and climate strategies;

7.1 • Support worker retraining, wage protection, and community reinvestment during the transition away from fossil fuels;
• Invest in wildfire prevention, water security, coastal resilience, habitat restoration, and urban greening using nature-based approaches where possible; and • Advance climate policies that also improve housing affordability, air quality, public transit access, public health and safety, and local economic development.

These legislative priorities are fully consistent with the City’s current legislative platform and the City Council’s current Strategic Plan.

DISCUSSION: Participation in LGCA provides a targeted and cost-effective way for local governments to collectively influence state policy in areas that directly affect local operating costs, service delivery, and community well-being. Acting together allows jurisdictions to exert greater influence while overcoming the subject matter expertise limitations of general local government advocacy.

A central near-term focus of the LGCA is energy affordability, recognizing that energy costs are a growing and volatile expense for local governments and residents alike. Escalating energy costs are a major risk for local governments and are already impeding progress on commercial and residential decarbonization. LGCA advocacy is intended to support policies that stabilize utility rates, expand access to affordable clean energy, and lower long-term costs rather than shifting costs onto local agencies or vulnerable households.

Participation allows staff to engage in advocacy and policy discussions consistent with articulated and adopted City legislative priorities, while maintaining full local discretion.

Membership does not replace the City’s general legislative advocate or commit the City to specific policy positions without separate approval. Instead, it provides complementary, targeted climate and energy expertise that bolsters the City’s ability to realize its state-level legislative program. Importantly, as a member, if any jurisdiction does not support a position LGCA is recommending, LGCA will not take a position and instead provide resources for those cities and counties who do want to take the recommended position. This flexibility ensures that the City’s legislative priorities are always reflected in the LGCA membership’s activities.

Upon approval, staff will notify LGCA of the City’s approval to participate as a dues paying member. Staff will participate in LCPA meetings and report back as appropriate on policy priorities and opportunities.

CALIFORNIA ENVIRONMENTAL QUALITY ACT (CEQA) DETERMINATION:

Participation in LGCA does not require CEQA review because the activities do not meet the definition of Project under CEQA. (Public Resources Code § 21065; CEQA Guidelines § 15378 (“Project does not include: (1) Proposals for legislation to be enacted . . . [or] (5) organizational or administrative activities of governments[.]”)
HEALTH IN ALL POLICIES (HiAP): Membership in LGCA will be a major driving force in achieving the City’s climate goals equitably. With its focus solely on climate action and, specifically, clean, inexpensive electricity, LGCA membership also will contribute to increased energy affordability and improved public health outcomes associated with decarbonization.

7.2 FISCAL IMPACT:

1. The recommendation in this report impacts the General Fund: No

2. This recommendation requires a budget adjustment: No

3. The recommendation creates an on-going expenditure commitment: Yes FISCAL IMPACT DESCRIPTION: Staff will coordinate invoicing for the $4,500 membership dues with the fiscal sponsor, City of Santa Barbara. Staff are able to pay the membership dues from the Climate Action Program’s current budget. The Climate Action Program has also included LGCA membership dues in its FY27 budget request, while maintaining an overall status quo budget for the Climate Action Program activity.

Prepared By:

Tiffany Wise-West, P.E.

Sustainability and Resiliency
Officer
Submitted By:

Michelle Templeton
Assistant City Manager
Approved By:

Matt Huffaker
City Manager
ATTACHMENTS:

None.

7.3 City Council

AGENDA REPORT
DATE: 02/09/2026
AGENDA OF: 02/24/2026
DEPARTMENT: City Manager
SUBJECT: Day Services Planning Update (CM)
LOCATION: Citywide
RECOMMENDATION: Motion to:
1) Adopt a resolution amending the Fiscal Year 2026 budget to appropriate up to $409,115 for the procurement and operation of expanded public hygiene access in the City, through a reallocation of currently budgeted funds in Homelessness Response and Community Programs; and
2) Direct staff to continue to collaborate with the County of Santa Cruz staff in further exploring additional options for providing access to basic hygiene and other services to support the unhoused community.

BACKGROUND: On October 16, 2025, Housing Matters, the largest homelessness nonprofit in the County, announced plans to discontinue its drop-in day services as of March 31, 2026. In announcing this decision, Housing Matters pointed to a shift in its mission to focus on its core services of interim housing and permanent supportive housing. This decision comes in advance of the completion of Harvey West Studios, a 120-unit permanent supportive housing development on the Coral Street campus that is scheduled to open in July of 2026. The drop-in day services currently provided by Housing Matters include restrooms, showers, mail services, water, charging stations, and a safe space during daytime hours. The public showers and bathrooms serve approximately 40-50 people per day, and the mail services support approximately 1,700 people per year. The upcoming closure will eliminate the only public, dropin day services facility in the city. The Hygiene Bay, which offers showers and restrooms, will remain open to shelter guests on campus. The organization’s mail room will also not be available for the public, or for Loft shelter and Rebele Family Shelter participants. Housing Matters will also stop offering public access to water, device-charging, and the welcome area will be open only to shelter guests or those visiting for an appointment.

Since this announcement by Housing Matters, City officials have been meeting regularly with County of Santa Cruz Officials and Housing Matters leadership to discuss and explore possible options and next steps to ensure continued access to these vital services after March 31, 2026. In addition, both City and County officials had heard from individuals and community

8.1 organizations expressing interest partnering in this process – including those who may be in position to provide or leverage resources, or who may be potential services providers.

DISCUSSION: Since the December 9, 2025 update provided to Council, City staff have participated in “day services” planning conversations with County of Santa Cruz staff and community partners. The County, in partnership with the City of Santa Cruz, released a community survey (February 5, 2026) on “Basic Needs and Connection Services for People Experiencing Homelessness” to gather community ideas and conceptual proposals for addressing the impacts associated with the loss of Housing Matters day services as well as the loss of other similar services that were provided by Mental Health Client Action Network (MHCAN). While the survey is still open, preliminary results indicate a strong need and support for public restrooms and handwashing stations with additional support for shower access and drinking water. The full results from this survey are expected to be available by the end of the month and will be provided to the City Council when received.

Given the imminent closure of day services programming at Housing Matters, City and County staff developed three recommended next steps to be implemented immediately: (1) That the City reallocate existing City budgeted funds to provide hygiene services and resources, specifically focusing on public restrooms and handwashing stations; (2) That the County develop a mail services program with two regional access points; (3) That the County and City explore longerterm resource investments based on community feedback, budgetary priorities, and funding leveraging opportunities.
1) City of Santa Cruz staff recommend utilizing Fiscal Year 2026 budgeted funds of $100,000 for MHCAN, and $235,175 for its Continuum of Care (CoC) contribution toward addressing homelessness countywide to procure alternative restroom and handwashing resources and services. In addition, City staff recommend reallocating up to $73,940 in budgeted funds for Downtown Street Team (DST) that will not be expended in the current fiscal year due to its closure, to support the proposed hygiene services. In the near-term, City staff recommends prioritizing its resources on establishing alternative restroom and hand-washing access points at various locations in the City. Staff is exploring a variety of products including more durable restroom and handwashing stations (e.g. Throne Labs, Portland Loos). Staff is also exploring options with the County to potentially provide mobile shower services that could be in place as early as April 1, 2026.
2) County staff recommend utilizing redeployed funds from Housing Matters contract reductions and existing staffing resources to help address the loss of mail services. The Human Services Department Employment and Benefits Services Division (EBSD) intend to offer mail services to public benefit applicants and recipients (CalWorks, General Assistance, CalFresh, and Medi-Cal) at its main offices – 1020 Emeline Ave, Santa Cruz and 500 Westridge Dr., Watsonville. These services will focus on ensuring people experiencing homelessness in the County maintain access to public benefits and resources to help them secure support and a stable living situation. 3) Staff will return with recommendations for continued and longer-term investments as part of the Fiscal Year 2027 budget hearings for City Council consideration. Investments by the City and County for these types of services in Fiscal Year 2026 and beyond will additionally be informed by community feedback, budgetary priorities, community

8.2 provider capacity, and funding leveraging opportunities. City and County staff have jointly discussed the prospect continuing to utilize the City’s Continuum of Care (CoC) annual contribution of $235,175 in Fiscal Year 2027 toward addressing these service needs in the community going forward.

The County of Santa Cruz Board of Supervisors, at an upcoming meeting, will be considering the termination of the MHCAN contract which would make $349,565 in Fiscal Year 25/26 County general funds available for meeting community needs and addressing known or potential budget shortfalls in the current or next fiscal year. The Board of Supervisors may consider directing staff to reallocate these funds toward replacement day services. County staff is recommending that, should County general funds be repurposed toward day services, dollars be invested in ways that create opportunities for leveraging additional state or federal funds.

CALIFORNIA ENVIRONMENTAL QUALITY ACT (CEQA) DETERMINATION: The proposed Council action is a budgetary reallocation and a direction to staff to coordinate with the County to coordinate efforts. These are preliminary administrative activities and are not considered a “project” under CEQA. (Pub. Resources Code, § 21065; CEQA Guidelines § 15378(b)).

HEALTH IN ALL POLICIES (HiAP): HiAP is a collaborative framework designed to improve population health by integrating health considerations into decision-making processes across sectors and policy areas. HiAP is built on three core pillars: equity, public health, and sustainability. Its primary goal is to ensure that policymakers fully consider the health, equity, and sustainability impacts of various policy options during development. The proposed action aligns with HiAP principles by promoting public health and equity, ensuring that lower-income individuals have access to funding to mitigate the immediate impacts of homelessness. By prioritizing the welfare of vulnerable populations, this initiative reinforces commitment to a healthier, more resilient community.

FISCAL IMPACT:

1. The recommendation in this report impacts the General Fund: No

2. This recommendation requires a budget adjustment: Yes

3. The recommendation creates an on-going expenditure commitment: No FISCAL IMPACT DESCRIPTION: There is no new fiscal impact associated with the recommended actions at this time. The proposed action recommended by staff represents onetime reallocation of up to $409,115 in general funds currently budgeted in Fiscal Year 2026 as follows:
$235,175 from the Fiscal Year 2026 jurisdictional contribution to Continuum of Care budget (101-10-16-6105-54990), $100,000 from HOPES (MHCAN) budget (101-10-00-6103-52152), and $73,940 from Downtown Streets Team budget (101-10-00-6103-54905).

Prepared By:

Larry Imwalle
Director of Homelessness
Response and Community
Programs
Submitted By:

Bonnie Lipscomb
Deputy City Manager
Approved By:

Matt Huffaker
City Manager

8.3 ATTACHMENTS:

1. BUDGET ADJUSTMENT.PDF

8.4 City of Santa Cruz

BUDGET ADJUSTMENT REQUEST
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 Clear Form
2026
02/11/2026
The procurement and operation of expanded public hygiene access in the City, through a reallocation of currently budgeted funds in Homelessness Response and Community Programs. Specifically, this request represents one-time reallocation of up to $409,115 in general funds currently budgeted in Fiscal Year 2026 as follows:
$235,175 from the Fiscal Year 2026 jurisdictional contribution to Continuum of Care budget (101-10-16-6105-54990), $100,000 from HOPES (MHCAN) budget (101-10-00-6103-52152), and $73,940 from Downtown Streets Team budget (101-10-00-6103-54905).

The accounts listed will provide the needed revenue to fund the contract. 0 101-10-16-6105-54990 Jurisdictional Contribution to Continuum of Care -235,175 101-10-00-6103-52152 HOPES (Mental Health Client Action Network (MHCAN)) -100,000 101-10-00-6103-54905 Downtown Streets Team -73,940
101-10-16-6105-52199 Other professional & technical services 409,115 0 0
Larry
Imwalle
Digitally signed
by Larry Imwalle
Date: 2026.02.12
07:17:38 -08'00'
Bonnie
Lipscomb
Digitally signed by
Bonnie Lipscomb
Date: 2026.02.12
08:05:47 -08'00'
Digitally signed
by Emily Burton
Date: 2026.02.12
'15:05:09 -08'00
Elizabet
h Cabell
Digitally signed by
Elizabeth Cabell
Date: 2026.02.12
16:17:57 -08'00' 8.5
Brittany Inclan
From: coral ne <[email protected]>
Sent: Monday, February 23, 2026 10:37 AM
To: City Council
Subject: Housing Matters(literally)
When I first began working on housing and homelessness issues in the 1990s as a coordinator at MHCAN, there was a culture of collaboration and care. Leaders like Page Smith and Paul Lee, along with groups like the Rebeles, were deeply involved in maintaining day centers and stable housing programs.

At that time, the Homeless Services Center provided consistent meals, showers, and beds.

Over the years, however, the City Council’s priorities have shifted away from the daily needs of the unhoused. This neglect has culminated in 2026 with the removal of funding for essential mail services, showers, and meals. By dismantling these vital programs and ignoring basic needs like health, medicine, and shelter, Santa Cruz is failing its most vulnerable residents.

The current lack of vision and the reduction of supportive services have allowed desperation to grow, replaced by a shadow of crime, disease, and brutality. Who will stand up to the issues this city is allowing to fester and restore the light and hope that once defined our community efforts? Sincerely,
Coral Brune
Neighborhood near Coral Street

8.6 Brittany Inclan
From: Athena Flannery <[email protected]>
Sent: Monday, February 23, 2026 1:21 PM
To: City Council; [email protected]; [email protected]; Matt Huffaker; Michelle Templeton; Bonnie Lipscomb; [email protected]; [email protected] Subject: Public Comment: Winter Warming Center and Day Services Hi everyone,
Thank you for your time- i will try to make this as short as possible.

1. The requirements for the warming shelter nights to open result in many freezing cold nights especially in the rain that do not qualify for the warming shelter to open. On rainy winter nights it often is 40 degrees which does not qualify, however when folks are wet and have no where to escape the rain - then 40 degrees fumctionally is much colder. Please change the requirements to be 45 degrees instead of 38 degrees to ensure there are more nights that qualify. People get very sick and those already immunocompromised can die in the cold weather that doesnt meet current requirements.

1.A. Honestly i really think itd be far more useful, easier to staff, and easier to advertise if there was consistent warming center days instead of random two days in a row when the weather qualifies. Many people do not know when the shleter is open and when it changes locations it is even hard for the information to get out to those who really need that safety.

2. Day Services.

There are many many companies that provide shower, laundry, and bathroom trailers that will functionally be far more helpful than Portland Loos or Throne Labs. I have looked into both of these companies and they are very expensive and will not come even close to providing enough toilets for the population. Bathroom trailers with many more toilets would be more useful. Showers and Laundry are basic dignity resources that allow folks to take control of their autonomy, apply to and maintain jobs, apply to housing, etc etc. Please do not let Laundry and Showers fall behind in importance. Laundry vouchers used to be available a frw years back and many folks found them extremely useful and could be a great opportunity for the cities and county to partner with local laundry businesses.

2.A I have also been researching change:WATER labs which have enzyme evaporating toilets that cut fown on water watse and are specifically designed to help populations living away from plumbing and electricity. These toilets could be very helpful in spaces like Pajaro River, Pogonip, Up the 9 highway, etcetc. I have been in vontact with them and learned they are partnering with Santa Fe, AZ and would be interested in talking to folks from Santa Cruz to learn more how their mission could help our folks here.

8.7 1
Day Services
Planning Update
February 24, 2026

8.8 Background
• Housing Matters announced plans to discontinue is drop-in day services program as of March 31, 2026, as part of focusing mission on core services of interim and permanent supportive housing.
• Decision comes in advance of the completion of Harvey West Studios in July 2026. • Current drop-in day services include restrooms, showers, mail services, water, charging stations. Restrooms and showers serve approximately 40-50 per day on a drop-in basis, as well a shelter program participants.
• Mail services support approximately 1700 people per year

8.9 Update on Planning Efforts
• Ongoing City-County Collaboration Planning conversations and meetings with community partners on services options
• County-City release “Basic Needs and Connection Services for People Experiencing Homelessness” to gather community ideas and conceptual proposals on February 5.
• Preliminary results indicate a strong need and support for public restrooms and handwashing stations, with additional support for shower access and drinking water
• Final results expected at the end of February

8.10 Next Steps

1. City prioritize access expanded hygiene resources (restrooms and handwashing stations), by reallocating existing budgeted funds

2. County develop a mail services program with two regional access points; 1020 Emeline, Santa Cruz; 500 Westridge in Watsonville

3. County and City explore longer-term resource investments based on community feedback, budgetary priorities, and funding leveraging opportunities, and return with additional recommendations at future meetings.

8.11 Recommendation Action
1) Adopt a resolution amending the Fiscal Year 2026 budget to appropriate up to $409,115 for the procurement and operation of expanded public hygiene access in the City, through a reallocation of currently budgeted funds in Homelessness Response and Community Programs; and
2) Direct staff to continue to collaborate with the County of Santa Cruz staff in further exploring additional options for providing access to basic hygiene and other services to support the unhoused community.

8.12 City Council

AGENDA REPORT
DATE: 02/05/2026
AGENDA OF: 02/24/2026
DEPARTMENT: City Manager
SUBJECT: Approval of Three (3) Professional Services Agreements for Qualified Firms to Provide On-Call Grant Support Services (CM)
LOCATION: Citywide
RECOMMENDATION: Motion to approve and authorize the City Manager to execute a Professional Services Agreement with qualified firms in a form approved by the City Attorney for on-call grant support services not to exceed $100,000 per vendor per year over a three-year term. The Assistant City Manager is authorized to execute change orders within the approved budget.

BACKGROUND: The City of Santa Cruz (City) utilizes consultants to assist with a wide range of grant services, including tracking grant opportunities, preparing applications, administering awarded funds, and overseeing grant-funded projects. Expanding the City’s capacity to leverage grant funding and expand City resources aligns directly with the City’s Strategic Plan.

DISCUSSION: Despite success in securing grant money to fund local projects, the City lacks the capacity to identify and pursue many grant opportunities that could support City initiatives.

At times, the City staff may also lack the capacity to properly manage and oversee potential grant-funded projects, and for that reason opt not to pursue such opportunities. Furthermore, the City’s procurement process is not well suited to the timeframe needed to meet grant deadlines. In 2022, the City conducted its first procurement of “on-call” grant support vendors to reduce the time and expense associated with project-by-project solicitations for services and mitigate the challenges related to staff capacity and application timelines. Working with these on-call vendors over the last three (3) years, the City has provided staff training for grant readiness and proposal preparation, improved its prospecting for grants and successfully applied for and been awarded multi-million dollar grants on both the federal and state levels.

While the City does currently have on call consultants for this purpose, the vendors’ agreements that have been in place for the last three (3) years are now expired. On September 22, 2025, the City released a Request for Proposals (RFP) seeking firms with knowledge and experience identifying, applying for, and managing state, federal, and private grant opportunities across various topic areas that align with the City’s needs. The proposal submission deadline was October 31, 2025.

9.1 The City received proposals from seventeen (17) firms. A review panel comprised of staff from several departments reviewed and scored the proposals and evaluated their cost reasonableness (i.e. rate sheets), ranking the firms based on the services offered and projected costs.

As specified in the RFP, the City seeks to award multiple Professional Service Agreement(s) for a three-year period, with the possibility that the initial term may be extended upon City approval.

A tabulation of scores across all scoring categories (Adherence to RFP Requirements; Firm Background Information; Firm Qualifications, Expertise, and Experience; Team Qualifications, Expertise, and Experience; Technical Approach and Work Plan; Cost Proposal; and References) is provided below.

Vendor Total Score
Mark Thomas & Company 87.36%
Engineering Solutions Services, Inc. 86.78%
Blais & Associates, LLC 86.7%
TRC Engineers, Inc. 83.26%
Hagerty Consulting, Inc. 81.99%
NCB Incorporated 80.25%
Eide Bailly LLP 75.53%
Capuzzi Consulting Group, Inc. 72.65%
California Consulting, Inc. 72.15%
Learn Design Apply Inc. 71.75%
GrantPro Consult 52.65%
Shawn Noetzli 50.94%
Granthropology LLC 49.44%
Bid Lab LLC 44.69%
Reviewr 21.63%
Firms scoring over 85% were recommended by the review panel to proceed to negotiation of agreements. Pending City Council approval and an agreement of terms approved by the City Attorney and each respective firm, the City will execute PSAs with Mark Thomas & Company, Engineering Solutions Services, Inc., and Blaise & Associates, LLC CALIFORNIA ENVIRONMENTAL QUALITY ACT (CEQA) DETERMINATION: Not applicable. The action recommended in this report does not require CEQA review as it does not meet the definition of a Project under CEQA because it does not have the potential to result in either a direct physical change in the environment or a reasonable foreseeable indirect physical change to the environment.

9.2 HEALTH IN ALL POLICIES (HiAP): HiAP is a collaborative approach to improving the community well-being of the City by prioritizing public health, sustainability, and equity into decision-making processes across sectors and policy areas. Sustainability was integrated into the RFP process by considering each firm’s sustainability practices. The recommendations were equitable in that the firms selected were determined in an equitable fashion. Further, the administrative efficiencies that On-Call Grant Support Services agreements bring to City processes will allow City staff to more effectively pursue projects that promote the three pillars of HiAP. Specifically, working with these firms will better enable City staff to present and position HiAP focused projects competitively considering current federal conditions.

FISCAL IMPACT:

1. The recommendation in this report impacts the General Fund: No

2. This recommendation requires a budget adjustment: No

3. The recommendation creates an on-going expenditure commitment: No FISCAL IMPACT DESCRIPTION: Each qualified vendor’s PSA includes a not-to-exceed fee amount of $100,000 per year over three (3) years of the PSA term. Costs for the consulting services will be paid by the department utilizing their services and absorbed within the department’s budget, as needed.

Prepared By:

Tiffany Wise-West, P.E.

Sustainability and Resiliency
Officer
Submitted By:

Michelle Templeton
Assistant City Manager
Approved By:

Matt Huffaker
City Manager
ATTACHMENTS:

1. ON-CALL GRANT SUPPORT SERVICES MASTER PSA.PDF

9.3 City of Santa Cruz Professional Services Agreement for On-Call Grant Support Services February, 2026 Page 1
Professional Services Agreement With
[CONSULTANT NAME]
For ON-CALL GRANT SUPPORT SERVICES
THIS PROFESSIONAL SERVICES AGREEMENT (“Agreement”) for professional services is made by and between the City of Santa Cruz (“City”) and _________________[Insert Full Name of Organization with corporate designation or DBA (“doing business as”)] (“Consultant”) (each is referred to individually as a “Party” and collectively, as the “Parties”) as of ____________, 20__ (the “Effective Date”).

NOW, THEREFORE, in consideration of each other’s mutual promises, the Parties hereto agree as follows:

SECTION 1: SCOPE OF WORK
Consultant will furnish services as defined and described in the Scope of Work, attached hereto as Exhibit A and incorporated herein.

SECTION 2: RESPONSIBILITIES OF CONSULTANT
All services performed by Consultant, or under Consultant’s direction, shall be rendered in accordance with the generally accepted practices, and to the standards of, Consultant's profession. Consultant represents and agrees that Consultant: (i) is fully experienced and properly qualified to perform the work and services provided for herein, (ii) has the financial capability required for the performance of the work and services, and (iii) is properly equipped and organized to perform the work and services in a competent, timely, and workmanlike/professional manner, in accordance with the requirements of this Agreement.

Consultant shall not undertake any work beyond the Scope of Work set forth in Exhibit A unless such additional work is approved in advance and in writing by City. City shall compensate Consultant for such additional work on the same basis as provided for in Section 4.

If, in performing the services, it is necessary to conduct field operations, security and safety of the job site will be the Consultant's responsibility excluding, the security and safety of any facility of City within the job site which is not under the Consultant’s control or authority.

Consultant shall meet with Michelle Templeton, Assistant City Manager, hereinafter called "Director", or other designated and authorized City personnel, and/ or third parties as necessary, on all matters connected with carrying out Consultant’s services described in Exhibit A. Such meetings shall be held at the request of either Party.

Consultant shall obtain City’s review and acceptance of completed work monthly, or at other intervals as may be mutually agreed upon during the term of this Agreement. Review or acceptance of Consultant’s work by City or its designee shall not relieve Consultant from responsibility for errors and omissions in Consultant’s work.

SECTION 3: RESPONSIBILITIES OF THE CITY
City shall make available to Consultant all data and information in the City’s possession necessary to carrying out and completing the services and shall actively assist Consultant in obtaining such information from other agencies and individuals as needed. Consultant is entitled to reasonably rely upon the accuracy and completeness of such data and information, and Consultant shall provide City prompt written notice of any known defects in such data and information.

The Director may authorize a City staff person to serve as their representative with respect to this Agreement.

Consultant’s work shall be reviewed at such intervals as may be mutually agreed upon between the Parties. The City will be the sole judge of acceptable work, provided that such approval will not be unreasonably withheld or

9.4 City of Santa Cruz Professional Services Agreement for On-Call Grant Support Services February, 2026 Page 2
delayed. If the work is not acceptable, City will inform Consultant of the changes or revisions necessary to secure acceptance.

SECTION 4: FEES AND PAYMENT
For services actually performed, the City will compensate Consultant at the rates set forth in the Fee Schedule detailed in Exhibit B and in accordance with the terms set forth therein. Payment for Consultant's services in carrying out the entire Scope of Work shall be made within the budget limit, or limits shown, upon Exhibit B.

Consultant agrees that the payments to Consultant specified in this Section 4 will constitute full and complete compensation for all obligations assumed by Consultant under this Agreement. Such payments shall be considered the full compensation for all personnel, materials, supplies, and equipment used by Consultant in the Scope of Work. Where conflicts regarding compensation may occur, the provisions of this section shall apply.

Variations from the budget for each task which are justified by statements indicating personnel time expended and submittal of a revised budget are only allowed with prior City approval; however, in no event shall the total fee charged for the Scope of Work set forth in Exhibit A exceed the budget of $100,000.00 per year without advance written City authorization in the form of an amendment pursuant to Section 13.

Invoices shall detail the time worked by each class of employee on each task and the expenses incurred for which billing is made. Invoices shall indicate the percentage completion of each work task as identified in the Scope of Work in Exhibit A and the overall percentage of completion of the total required services. Unless otherwise specified in the fee schedule, payments shall be made monthly by the City within 30 days based on itemized invoices from the Consultant which list the actual costs and expenses.

All invoices shall contain the following affidavit signed by Consultant (if individual) or by an authorized representative of Consultant (if Consultant is an entity):
"I [or as an authorized representative of Consultant] hereby certify that the charge of (Insert invoice amount) as summarized above and shown in detail on the attachments is in accordance with the terms of the Agreement by and between the City of Santa Cruz and (Insert Party Name) dated (Insert Agreement Date), and has not been previously paid." This Agreement is contingent upon the appropriation of sufficient funding by the City for the Scope of Work covered by this Agreement. If funding is reduced or deleted for the Scope of Work covered by this Agreement, the City has the option without penalty or liability to either terminate this Agreement or to offer an amendment to this Agreement indicating any reduced amount.

SECTION 5: TRAVEL REIMBURSEMENT POLICY
The City shall not be responsible for any travel, meal, or lodging reimbursements to Consultant and/or Consultant’s employees unless otherwise specified in the Scope of Work, per Exhibit A.

SECTION 6: CHANGES IN WORK
City may negotiate changes to the Scope of Work. No changes to the Scope of Work shall be made without the prior written agreement between City and Consultant. Any change requiring compensation in excess of the sum specified in Exhibit B shall be approved in advance in writing by the City. Only City’s authorized representative(s) is authorized to approve changes to this Agreement on behalf of City.

9.5 City of Santa Cruz Professional Services Agreement for On-Call Grant Support Services February, 2026 Page 3
SECTION 7: TERM AND SCHEDULE
The term of this Agreement shall be for three (3) years and commence on the Effective Date of this Agreement and terminate on _____________ 2029. At the option of the City, this Agreement may be renewed under the same contractual terms and conditions by amendment pursuant to Section 13 below.

Consultant shall begin the Scope of Work as specified in a written authorization (e.g., Notice to Proceed) to perform services issued by the City. The written authorization to perform work shall not be issued until after this Agreement has been approved and executed by the City.

The Work Schedule for completion of the work shall be as shown upon Exhibit C. In the event there are major changes to the Scope of Work, the schedule for completion as stated in Exhibit C may be adjusted with the City’s approval to allow Consultant a reasonable period of time within which to complete any additional work which may be required as a result of the changes to the Scope of Work.

Neither party shall be held responsible for delay or default caused by declared emergencies, natural disasters, or any Force Majeure event which is beyond the party's reasonable control. Consultant will, however, make all reasonable efforts to remove or eliminate such a cause of delay or default and will, upon the cessation of the cause, diligently pursue performance of its obligations under this Agreement.

The City reserves the right to obtain the item(s) and/or services covered by this Agreement from another source during any on-going suspension of service due to the circumstances outlined above.

Consultant acknowledges that it is necessary for Consultant to complete its work on or before the completion date set forth in Exhibit C in order to allow the City to achieve its objectives for entering into this Agreement. The Parties therefore agree that time is of the essence in the performance of this Agreement.

SECTION 8: TERMINATION
The City may terminate the Agreement for any reason by providing written notice to Consultant not less than 10 calendar days prior to an effective termination date.

The City may, at its option, allow Consultant to cure its failure to perform within 10 business days (or longer period authorized in writing by the City) from the date of the City’s termination notice. The termination shall be become effective if Consultant has not cured within the specified time period to the City’s satisfaction.

Consultant may terminate this Agreement for cause if the City fails to cure a material default in performance of its obligations under this Agreement within a period of 30 calendar days (or such longer period agreed to by the Consultant), from the date of the Consultant’s written termination notice specifying the default in performance.

Consultant must provide a written notice of termination to the City not less than 60 calendar days of the effective termination date.

Upon notice of termination by either the City or Consultant, the Consultant will immediately act to not incur any additional obligations, costs or expenses, except as may be reasonably necessary to terminate its activities. The City’s only obligation to the Consultant will be just and equitable payment for services authorized by, and received to the satisfaction of, the City up to and including the effective date of termination less any amounts withheld. All finished or unfinished work or documents procured or produced under the Agreement will become property of the City upon the termination date. In the event of Consultant’s failure to perform pursuant to the Agreement, the City reserves the right to obtain services elsewhere and Consultant will be liable for the difference between the prices set forth in the terminated Agreement and the actual cost to the City. Termination of the Agreement pursuant to this paragraph shall not relieve the Consultant of any liability to City for additional costs, expenses, or damages sustained

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by City due to failure of the Consultant to perform pursuant to the Agreement. City may withhold any payments to Consultant for the purpose of set-off until such time as the exact amount of damages due City from Consultant is determined. After the effective date of termination, Consultant will have no further claims against the City under the Agreement. No other compensation will be payable for anticipated profit on unperformed services.

SECTION 9: INSURANCE
Prior to the beginning of and throughout the duration of the Agreement, Consultant will maintain and comply with the Insurance Requirements as set forth in Exhibit D. Consultant will insure the City against claims for injuries to persons or damages to property which may arise from or in connection with the performance of the work hereunder. The insurance coverages required shall not in any way limit the liability of the Consultant.

SECTION 10: INDEMNIFICATION
Consultant agrees, to the fullest extent permitted by law, to indemnify, defend, and hold harmless the City, its officials, officers, employees, agents, and volunteers (collectively, “Indemnitees”) from and against any and all liability, claim, action, loss, injury, damage, judgment, or expense, including attorneys’ fees and costs (“Losses”) caused by or resulting from the negligence, recklessness, or willful misconduct of Consultant, Consultant’s officers, employees, agents, or subcontractors in any way related to this Agreement. Consultant’s duty to indemnify and hold harmless Indemnitees shall not apply to the extent such Losses are caused by the sole or active negligence or willful misconduct of Indemnitees. Consultant’s obligation to defend shall arise regardless of any claim or assertion that Indemnitees caused or contributed to the Losses.

In the event this Agreement involves the performance of design professional services by Consultant, Consultant’s officers, employees, agents, or subcontractors, Consultant’s costs to defend Indemnitees shall not exceed the Consultant’s proportionate percentage of fault per Civil Code §2782.8. This section shall survive the termination or expiration of this Agreement.

SECTION 11: EQUAL EMPLOYMENT OPPORTUNITY/NON-DISCRIMINATION POLICIES City’s policies promote a working environment free from abusive conduct, discrimination, harassment, and retaliation; and require equal opportunity in employment for all regardless of race, religious creed (including religious dress and grooming practices), color, national origin (including language use restrictions), ancestry, religion, disability (mental and physical), medical condition, sex, gender (including gender identity and gender expression), physical characteristics, marital status, age, sexual orientation, genetic information (including family health history and genetic test results), organizational affiliation, and military or veteran status, or any other consideration made unlawful by local, State or Federal law. City requires Consultant to comply with all applicable Federal and State and local equal employment opportunity laws and regulations, and Consultant is responsible for ensuring that effective policies and procedures concerning the prevention of abusive conduct, discrimination, harassment, and retaliation exist in Consultant’s business organization. The City’s current Equal Employment Opportunity and Non-Discrimination policies to which this Section applies may be viewed at http://www.codepublishing.com/CA/SantaCruz/?SantaCruz09/SantaCruz0983.html and https://www.santacruzca.gov/Government/City-Departments/Human-Resources/Equal-Employment-OpportunityEEO.

SECTION 12: LEGAL ACTION/ATTORNEYS’ FEES
If any action at law or in equity is brought to enforce or interpret the provisions of this Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees in addition to any other relief. The laws of the State of California, with jurisdiction in the Santa Cruz County Superior Court, shall govern all matters relating to the validity, interpretation, and effect of this Agreement and any authorized or alleged changes, the performance of any of its terms, as well as the rights and obligations of Consultant and the City.

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SECTION 13: AMENDMENTS
This Agreement may not be amended in any respect except by way of a written instrument which expressly references and identifies this particular Agreement, which expressly states that its purpose is to amend this particular Agreement, and which is duly executed by the City and Consultant. Consultant acknowledges that no such amendment shall be effective until approved and authorized by the City’s authorized representative. No representative of the City is authorized to obligate the City to pay the cost or value of services beyond the scope of services set forth in Exhibit A.

Such authority is retained solely by the City Manager, Director, or their designee. Unless expressly authorized by the City Manager or Director, Consultant’s compensation shall be limited to that set forth in Exhibit B, Fee Schedule.

SECTION 14: MISCELLANEOUS PROVISIONS

1. Project Manager/Key Staff. Director reserves the right to evaluate and confer with Consultant regarding the project manager or other key staff assigned by Consultant to perform the work under this Agreement. Consultant shall replace the project manager or key staff upon Director’s request due to Director’s concern about their performance.

Otherwise, no change in assignment by the Consultant may occur without prior written approval of the City.

2. Consultant Services Only. Consultant is employed to render professional services only and any payments made to Consultant are compensation solely for such professional services.

3. Independent Contractor. In the performance of this Agreement, it is expressly understood that Consultant, including each of Consultant’s employees, agents, subcontractors or others under Consultant’s supervision or control, is an independent contractor solely responsible for its own acts and omissions, and shall not be considered an employee of the City for any purpose. Consultant agrees to indemnify, defend and hold harmless the City, its officials, officers, employees, and agents against any claim or liability, including attorneys’ fees and costs, arising in any manner related to this Agreement that an employee, agent or others under Consultant’s supervision or control was misclassified.

In the event that Consultant or any employee, agent, or subcontractor of Consultant providing services under this Agreement is determined by a court of competent jurisdiction or the California Public Employees Retirement System (PERS) to be eligible for enrollment in PERS as an employee of City, Consultant shall indemnify, defend, and hold harmless City for the payment of any employee and/or employer contributions for PERS benefits on behalf of Consultant or its employees, agents, or subcontractors, as well as for the payment of any penalties and interest on such contributions, which would otherwise be the responsibility of City.

4. Consultant Not an Agent. Except as City may specify in writing, Consultant shall have no authority, express or implied, to act on behalf of City in any capacity whatsoever as an agent. Consultant shall have no authority, express or implied, pursuant to this Agreement to bind City to any obligation whatsoever.

5. Subcontractors. Consultant shall obtain prior approval of the City prior to subcontracting of any work pursuant to this Agreement. If at any time, the City determines any subcontractor is incompetent or unqualified, Consultant will be notified and will be expected to immediately cancel the subcontract. Consultant shall require and verify that all subcontractors maintain insurance meeting all of the requirements stated herein, including naming the City of Santa Cruz, its officers, officials, employees, agents, and volunteers as additional insureds. Any modification to the insurance requirements for subcontractors must be agreed to by the City in writing.

Consultant shall be as fully responsible to the City for the negligent acts and omissions of its contractors and subcontractors or subconsultants, and of persons either directly or indirectly employed by them, or acting on Consultant’s behalf pursuant to this Agreement, as it is for the acts and omissions of persons directly employed by Consultant. Consultant’s obligation to pay its subconsultants is an independent obligation from the City’s obligation to make payments to the Consultant.

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6. Assignment. This Agreement shall not be assigned without first obtaining the express written consent of the Director or after approval of the City Council. Neither party may assign this Agreement unless this Agreement is amended in accordance with its terms.

7. Conflicts of Interest. Consultant agrees to comply with conflict of interest lawsin performing the work and services under this Agreement. Consultant covenants (on behalf of Consultant and Consultant’s employees, agents, representatives, and subcontractors) that there is no direct or indirect interest, financial or otherwise, which would conflict in any manner or degree with the performance of services required under this Agreement. Consultant acknowledges and agrees to comply with applicable provisions of conflict of interest law and regulations, including the CA Political Reform Act, (Gov’t. Code §§1090, 87100), Levine Act (Gov’t. Code §84308), and the City’s conflict of interest code. Consultant will immediately advise City if Consultant learns of a conflicting financial interest of Consultant during the term of this Agreement.

8. City Property. The work, or any portion, of Consultant in performing this Agreement shall become the property of City. The Consultant may be permitted to retain copies of such work for information and reference in connection only with the provision of services for the City. All materials and work product, whether finished or unfinished, shall be delivered to City upon completion of contract services or termination of this Agreement for any reason.

Consultant acknowledges and agrees that the work product shall be considered a work made for hire within the meaning of the patent and copyright laws of the United States; and Consultant agrees that all copyrights which arise from creation of project-related documents and materials pursuant to this Agreement shall be vested in the City and Consultant waives and relinquishes all claims to copyright or other intellectual property rights in favor of City. Any work product related to this Agreement shall be confidential, not to be used by the Consultant on other projects or disclosed to any third party, except by agreement in writing by the City, or except as otherwise provided herein.

Consultant’s final deliverables shall comply with Section 508 (29 U.S.C. Section 794d) accessibility requirements, as applicable. Notwithstanding any other provision of this Agreement to the contrary, Consultant shall retain the rights in any pre-existing standard drawing details, designs, specifications, databases, computer software, proprietary information, documents, templates, and any other property owned by Consultant on the date of this Agreement or developed outside of this Agreement.

9. Intellectual Property and Indemnity.
a. Consultant represents to City that, to the best of Consultant’s knowledge, any Intellectual Property (including but not limited to: patent, patent application, trade secret, copyright and any applications or right to apply for registration, computer software programs or applications, tangible or intangible proprietary information, or any other intellectual property right) in connection with any services and/or products related to this Agreement does not violate or infringe upon any Intellectual Property rights of any other person or entity. b. To the fullest extent permitted by law, Consultant agrees to indemnify, defend, and hold harmless City, its officials, officers, employees, and agents, from any and all claims, demands, actions, liabilities, damages, or expenses (including reasonable attorneys’ fees and costs) arising out of a claim of infringement, actual or alleged, direct or contributory, of any Intellectual Property rights in any way related to Consultant’s performance under this Agreement or to the City’s authorized intended or actual use of Consultant’s product or service under this Agreement. This provision shall survive termination or expiration of this Agreement. c. If any product or service becomes, or in the Consultant’s opinion is likely to become, the subject of a claim of infringement, the Consultant shall, at its sole expense: (i) provide the City the right to continue using the product or service; or (ii) replace or modify the product or service so that it becomes non-infringing; or (iii) if none of the foregoing alternatives are possible even after Consultant’s commercially reasonable efforts, in addition to

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other available legal remedies, City will have the right to return the product or service and receive a full or partial refund of an amount equal to the value of the returned product or service, less the unpaid portion of the purchase price and any other amounts, which may be due to the Consultant. City shall have the right to retrieve its data and proprietary information at no charge prior to any return of the product or termination of service.

10. Confidentiality.
a. Consultant shall not acquire any ownership interest in data and information (“City Data”) received by Consultant from City, which shall remain the property of the City. Certain information may be considered confidential (“Confidential Information”). Confidential Information shall mean all information or proprietary materials (in every form and media) not generally known to the public and which has been or is hereafter disclosed or made available directly or indirectly to Consultant through any means of communication, either verbally or in writing even if it has not been designated in writing as “Confidential” to Consultant in connection with this Agreement. Unless otherwise required by law, Consultant shall not, without City’s written permission, use or disclose City Data and/or Confidential Information other than in the performance of the obligations under this Agreement. As between Consultant and City, all City Confidential Information shall remain the property of the City. Consultant shall not acquire ownership interest in the City’s Confidential Information. b. Consultant shall be responsible for ensuring and maintaining the security and confidentiality of City Data and Confidential Information, protect against any anticipated threats or hazards to the security or integrity of City Data and Confidential Information, protect against unauthorized access to or use of City Data and Confidential Information that could result in substantial harm or inconvenience to City or any end users; and ensure the proper return and/or disposal of City Data and Confidential Information upon termination of this Agreement with notice to the City.
c. Consultant shall take appropriate action to address any incident of unauthorized access to City Data and Confidential Information, including addressing and/or remedying the issue that resulted in such unauthorized access, notifying City as soon as possible of any incident of unauthorized access to City Data and Confidential Information, or any other breach in Consultant’s security that materially affects City or end users; and be responsible for ensuring compliance by its officers, employees, agents, and subcontractors with the confidentiality provisions hereof. Should confidential and/or legally protected City Data be divulged to unauthorized third parties, Consultant shall comply with all applicable federal and state laws and regulations, including but not limited to California Civil Code sections 1798.29 and 1798.82 at Consultant’s sole expense.

Consultant shall not charge City for any expenses associated with Consultant’s compliance with these obligations.

d. Consultant shall defend, indemnify and hold harmless City, its officials, officers, employees and agents against any claim, liability, loss, injury or damage (including attorneys’ fee and costs) arising out of, or in connection with, the unauthorized use, access, and/or disclosure of City Data and/or Confidential Information by Consultant and/or its agents, employees or subcontractors, excepting only loss, injury or damage caused by the sole negligence or willful misconduct of the City. This provision shall survive the termination or expiration of this Agreement.

11. Consultant's Records/Audits. Consultant shall maintain accurate accounting records and other written documentation pertaining to the costs incurred relating to this Agreement for examination and audit by the City, State, or federal government, as applicable, in compliance with Gov. Code §8546.7 for a contract in excess of $10,000, or in compliance with other applicable federal laws (e.g. 48 CFR 31) or regulations for a period of three (3) years from: the date of the final City payment for Consultant's services, or from the date of final disposition of real property or equipment acquired with federal funds, or date of the termination of this Agreement, whichever is later. If Consultant engages a subcontractor to perform work related to this Agreement with a cost of $10,000 or

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more over a 12-month period, such subcontract shall contain these same requirements. This provision shall survive the termination of this Agreement.

12. California Public Records Act. City is a public agency subject to the disclosure requirements of the California Public Records Act (“CPRA”). If Consultant’s proprietary information is contained in documents or information submitted to City, and Consultant claims that such information falls within one or more CPRA exemptions, Consultant must clearly mark such information “Confidential and Proprietary,” and identify the specific lines containing the information. In the event of a request for such information, City will make best efforts to provide notice to Consultant prior to such disclosure. If Consultant contends that any documents are exempt from the CPRA and wishes to prevent disclosure, it is required to obtain a protective order, injunctive relief, or other appropriate remedy from a court of law in Santa Cruz County before the City is required to respond to the CPRA request. If Consultant fails to obtain such remedy within the time the City is required to respond to the CPRA request, City may disclose the requested information without any liability. Consultant further agrees that it shall defend, indemnify and hold City harmless against any claim, action or litigation (including but not limited to all judgments, costs, and attorney’s fees) that may result from denial by City of a CPRA request for information arising from any representation, or any action (or inaction), by the Consultant.

13. Compliance with Laws. All activities of Consultant, its employees, subcontractors and/or agents will be carried out in compliance with all applicable federal, state, and local laws and regulations. Consultant further agrees to comply with the covenant of good faith and fair dealing and other provisions of Santa Cruz Municipal Ordinance chapter 3.09, or otherwise Consultant may be subject to penalties including being declared an irresponsible contractor.

14. Licensure. Consultant agrees that Consultant, its subcontractors and/or agents (if any) has/have complied with all applicable federal, state, and local licensing requirements and agrees to provide proof of a current City of Santa Cruz Business Tax Certificate if:
• Consultant, its subcontractor(s) and agent(s) or its business is/are located in the City of Santa Cruz; • Will perform actual work in the City of Santa Cruz for 6 or more days annually; or • Will use company vehicles to deliver within the City of Santa Cruz for 6 or more days annually.

For additional information and licensing requirements, view the City’s Business Licenses and Permits webpage or call the Revenue and Taxation division at 831/420-5070.

15. Living Wage. Every contract for services to the City for $10,000 or more, is subject to City of Santa Cruz Living Wage Ordinance number 2000-25. If applicable, Consultant agrees to comply with the requirements of the Living Wage ordinance as provided in Santa Cruz Municipal Code Chapter 5.10.

16. Prevailing Wages for Public Work. To the extent that the work or services to be performed under this Agreement may be considered a “public work” (construction, alteration, demolition, or repair work) pursuant and subject to Labor Code section 1720 et seq., Consultant (and any subconsultant performing the work or services) shall conform to any and all prevailing wage requirements applicable to such work/and or services under this Agreement. Consultant (and any subconsultant) shall adhere to the prevailing wage determinations made by the Director of Industrial Relations (DIR) pursuant to California Labor Code Part 7, Chapter 1, Article 2, applicable to the work, if any. All workers employed in the execution of a public works contract (as such term is defined California Labor Code section 1720 et seq. and section 1782(d)(1)) must be paid not less than the specified prevailing wage rates for the type of work performed. (CA Labor Code sections 1720, 1774 and 1782.) To the extent applicable to the scope of work and services under this Agreement, Consultant agrees to be bound by the state prevailing wage requirements, including, but not limited to, the following:
a. If a worker is paid less than the applicable prevailing wage rate owed for a calendar day (or any portion thereof), Consultant shall pay the worker the difference between the prevailing wage rate and the amount

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actually paid for each calendar day (or portion thereof) for which the worker(s) was paid less than the prevailing wage rate, as specified in Labor Code section 1775; b. Consultant shall maintain and make available payroll and worker records in accordance with Labor Code sections 1776 and 1812;
c. If Consultant employs (and/or is legally required to employ) apprentices in performing the work and/or services under this Agreement, Consultant shall ensure compliance with Labor Code section 1777.5; d. Consultant is aware of the limitations imposed on overtime work by Labor Code sections 1810 et seq. and shall be responsible for any penalties levied in accordance with Labor Code section 1813 for failing to pay required overtime wages;
e. Consultant shall post a copy of the applicable wage rates at each jobsite at a location readily available to its workers.
f. Any failure of Consultant and/or its subconsultant to comply with the above requirements relating to a public work project shall constitute a breach of this Agreement that excuses the City’s performance of this Agreement at the City’s sole and absolute option and shall be at the sole risk of Consultant. Consultant on behalf of itself and any subconsultant, agree to indemnify, defend and hold harmless the City and its officials, officers, employees, and agents from and against any and all claims, liabilities, losses, costs, expenses, attorney’s fees, damages, expenses, fines, financial consequences, interest, and penalties, of any kind or nature, arising from or relating to any failure (or alleged failure) of the Consultant and any subconsultant to pay prevailing wages or to otherwise comply with the requirements of prevailing wage law relating to a public work.
g. Consultant acknowledges that it and/or any subconsultant may not engage in the performance of any contract for public work unless currently registered with the DIR and qualified to perform public work pursuant to Labor Code section 1725.5 [with limited exceptions from this requirement for bid purposes only under Labor Code section 1771.1(a)].

17. Storm Water Requirements. To the extent applicable to the Scope of Work under this Agreement, Consultant, Consultant’s employees, subcontractors, and agents are required to abide by the applicable City of Santa Cruz Storm Water Best Management Practices (BMPs) for the duration of the work. The City’s mandatory Storm Water BMPs, which are listed according to the type of work, operations, or business, are located on the City website at: https://www.cityofsantacruz.com/government/city-departments/public-works/stormwater/bestmanagement-practices

18. Dispute Resolution. The Parties agree to attempt in good faith to resolve through negotiation any dispute, claim or controversy arising out of or relating to this Agreement. Either party may initiate negotiations by providing written notice in letter form to the other party, setting forth the subject of the dispute and the relief requested.

Promptly upon such notification, the Parties shall meet at a mutually agreeable time and place in order to exchange relevant information and perspective, and to attempt to resolve the dispute. In the event that no resolution is achieved, and if, but only if, the parties mutually agree, then prior to pursuing formal legal action, the parties shall make a good faith effort to resolve the dispute by non-binding mediation or negotiations between representatives with decision-making power, who, to the extent possible, shall not have had substantive involvement in the matters of the dispute. To the extent that the dispute involves or relates to a public works project, the Parties agree to attempt to resolve the dispute by complying with the claims process as set forth in Public Contract Code sections 9204(e), 20104-20104.6, but without waiving the requirements of the California Tort Claims Act, Gov’t Code section 800 et seq. unless otherwise agreed to by the Parties.

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19. Force Majeure. Neither party hereto shall be considered in default in the performance of its obligation hereunder to the extent that the performance of any such obligation is prevented or delayed by an act of God, natural disaster, pandemic, acts of terrorism, war, a strike, lockout or other labor difficulty, or other peril, which is beyond the reasonable control of the affected party and without the negligence of the respective Parties. Each party hereto shall give notice promptly to the other of the nature and extent of any Force Majeure claimed to delay, hinder or prevent performance of the services under this Agreement. Each Party will, however, make all reasonable efforts to remove or eliminate such a cause of delay or default and will, upon the cessation of the cause, diligently pursue performance of its obligations in this Agreement. In the event either party is prevented or delayed in the performance of its respective obligation by reason of such Force Majeure, the only remedy is that there may be an equitable adjustment of the schedule based on City’s sole discretion.

20. Complete Agreement. This Agreement, along with any attachments, is the full and complete integration of the Parties’ agreement with respect to the matters addressed herein, and that this Agreement supersedes any previous written or oral agreements between the Parties with respect to the matters addressed herein. Unless otherwise stated, to the extent there is any conflict between this Agreement and any other agreement (written or oral), the terms of this Agreement shall control.

21. Severability. The unenforceability, invalidity or illegality of any provision(s) of this Agreement shall not render the other provisions unenforceable, invalid or illegal.

22. Waiver. Waiver by any party of any portion of this Agreement shall not constitute a waiver of the same or any other portion hereof.

23. Governing Law. This Agreement shall be governed by and interpreted in accordance with California law.

24. Contract Interpretation. Each party acknowledges that it has reviewed this Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement.

25. MacBride Principles/Peace Charter. City of Santa Cruz Resolution NS-19,378 (7/24/90) encourages all companies doing business in Northern Ireland to abide by the MacBride Principles and Peace Charter.

26. Notices. If either party shall desire or is required to give notice to the other, such notice shall be given in writing, via email, and concurrently delivered by: (a) personal delivery, in which case notice is effective upon delivery; (b) overnight courier (i.e., Federal Express) with charges prepaid or charged to the sender’s account, in which case notice is effective when delivered; (c) priority U.S. Mail, in which case notice shall be deemed delivered on the second business day after the deposit thereof with the U.S. Postal Service. Notices shall be addressed to recipient as follows:

To CITY:

City Manager’s Office
Tiffany Wise-West
809 Center St. Rm 9/10
Santa Cruz, CA 95060
[email protected]
831-420-5433
To CONSULTANT:

Business Name
Consultant Contact Name
Address
Email/Phone
The Parties must provide notice of any changes to the above information in writing at least ten (10) business days before the change is effective.

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27. Counterparts. The Parties may execute this Agreement in two or more counterparts, which shall, in the aggregate, be deemed an original but all of which, together, shall constitute one and the same instrument. A scanned, electronic, facsimile or other copy of a party’s signature shall be accepted and valid as an original.

28. Warranty of Authority. The signatories to this Agreement warrant and represent that each is authorized to execute this Agreement and that their respective signatures serve to legally obligate their respective representatives, agents, successors and assigns to comply with the provisions of this Agreement. [SIGNATURES ON FOLLOWING PAGE]

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Signature Requirements for Business Entity:
a. Corporation – 2 officer signatures required (one from each group, unless person signing holds officer positions in both Group 1 and 2):

Group 1: Chief Executive Officer, Chairman of the Board, President, or Vice President Group 2: Secretary, Assistant Secretary, Chief Financial Officer, Treasurer, Assistant Treasurer b. Partnership - Signature of General Partner, or signature of partner who is authorized to execute documents per the Certificate of Partnership. If authorized partner is a corporation, follow Corporation signature requirement. c. LLC- For a member-managed LLC, signature of any member. For a manager-managed LLC, signature of the manager. If the LLC has corporate officer designations, follow Corporation signature requirement.

See, City’s Signature Requirements for Business Entities for more information.

Approved As To Form:

By: _____________________________ Date: __________________ Office of the City Attorney

CITY OF SANTA CRUZ
By: ______________________________ Date: _________________ Matt Huffaker
City Manager

CONSULTANT
By: _____________________________ Date: __________________ Printed: ___________________________ Title: __________________ By: _____________________________ Date: __________________ Printed: ___________________________ Title: __________________ 2/5/2026

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EXHIBIT A: SCOPE OF WORK
City and Consultant agree that Consultant will provide on-call grant support services pursuant to the terms and conditions of this Agreement. For each on-call project, City and Consultant agree that the Scope of Work will be defined in a future City executed purchase order. No work is to begin without the City executed purchase order that will include the requirements for the project, an estimate of the total fee for the project, project schedule, and any additional project information. Each on-call project’s executed purchase order that sets forth the Scope of Work will refer to this Agreement and when signed by the City, will be incorporated into this Agreement as Exhibit A1, Exhibit A2, etc.

Consultant may be asked to provide grant-related services on an as-needed basis. The Consultant may be asked to provide a variety of professional services related to a specific grant project to (1) research, develop, write, prepare, and submit successful grant proposals for federal, state, and local government and foundation grants; (2) provide staff training on grant activities; and (3) provide grant administrative services to address City priorities.

The scope of an individual project may include service delivery and capital infrastructure improvements, management and administration, reporting support, and training. The scope of grant writing services may include but are not limited to:

Funding needs analysis - Work with City departments to assess current funding priority areas and identify new priority areas for funding;
Grand funding research - Conduct research to identify grant resources that support the City’s funding needs and priorities, and facilitate go/no go decision making on project topics that include but are not limited to:
o Homelessness
o Major and minor municipal infrastructure capital projects o Technology and security
o Workforce development
o Renewable energy, battery storage, microgrids, building and transportation electrification o Parks, recreation, open space, trails, ecosystems, and habitat o Climate resilience
o Fire resiliency, vegetation planning and management
o Economic development;
Grant proposal development - Provide grant proposal writing services associated with the completion of grant applications on behalf of the City, including but not limited to the preparation of funding abstracts and submittal of applications.

Grant management and grant administration - Upon award of grant, provide grant management and administration services, including but not limited to budgeting analysis, reporting, and training; Grant writing and administration training - Provide grant training services, including grant writing, go/no-go decision making opportunities, monitoring and reporting.

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EXHIBIT B: FEE SCHEDULE
The City will compensate Consultant pursuant to Consultant’s hourly service rates set forth in the table below. For each on-call project, City and Consultant agree that there will be a separate not-to-exceed amount for that particular project specified and a budget set for that on-call project which will be defined as part of any future executed purchase order. (If an Adjusted Fully Burdened Rate is listed, that is the rate that shall be charged to the City and will be the base rate for any price increases.) In no event shall the total payment pursuant to this Agreement from the City to the Consultant exceed $100,000.00 per year. [Personnel Cost-Sheet to be completed for each Vendor / agreement ] Personnel Area of
Expertise Position Title
Fully
Burdened
Hourly
Rate
Adjusted
Fully
Burdened
Rate

9.17 City of Santa Cruz Professional Services Agreement for On-Call Grant Support Services February, 2026 Page 15
EXHIBIT C: WORK SCHEDULE
For each on-call project, City and Consultant agree that the Work Schedule will be defined as part of any future executed purchase order.

9.18 City of Santa Cruz Professional Services Agreement for On-Call Grant Support Services February, 2026 Page 16
EXHIBIT D: INSURANCE REQUIREMENTS
Consultant shall procure and maintain insurance against claims for injuries to persons or damages to property and otherwise which may arise from or in connection with the performance of the work under this Agreement and the results of that work by Consultant, its agents, representatives, employees, or subcontractors.

A. CERTIFICATE REQUIREMENTS
The City will be issued a Certificate of Insurance (a Memorandum of Understanding will not be accepted) with the following minimum requirements:
• Certificate(s) will show current policy number(s) and effective dates, • Coverage and policy limits will meet, or exceed, requirements below, • The Certificate Holder will be City of Santa Cruz, Risk Management, 1200 Pacific Ave., Suite 290, Santa Cruz, CA 95060,
• Certificate will be signed by an authorized representative, • An endorsement, if required below, will be provided to show the City, its officers, officials, employees, and volunteers as additional insureds, and
• Coverages must be maintained during the term of the Agreement with the City, unless a longer duration is required as specified below.

B. MINIMUM SCOPE AND LIMITS OF INSURANCE
Consultant acknowledges that the insurance coverage and policy limits set forth in this section constitute the minimum amount of coverage required. If Consultant maintains broader insurance coverage and/or higher limits than the minimums shown below, the City of Santa Cruz requires and shall be entitled to the broader insurance coverage and/or higher limits maintained by Consultant. Any available insurance proceeds in excess of the specified minimum limits of insurance and coverage shall be available to the City of Santa Cruz.

Coverage will be at least as broad as:
• COMMERCIAL GENERAL LIABILITY (CGL): $1,000,000 PER OCCURRENCE; $2,000,000 AGGREGATE Proof of coverage for $1 Million per occurrence and $2 Million in the aggregate including products and completed operations, property damage, bodily injury, personal and advertising injury will be provided on Insurance Services Office (ISO) Form CG 00 01 covering CGL. • PROFESSIONAL LIABILITY (ERRORS AND OMISSIONS): $2,000,000 PER OCCURRENCE OR CLAIM, $2,000,000 AGGREGATE.

Consultant will maintain insurance appropriate to Consultant’s profession; with limit no less than $2,000,000 per occurrence or claim, $2,000,000 aggregate. Insurance must be maintained, and evidence of insurance must be provided for at least five (5) years after date of completion of the services under this Agreement. If coverage is canceled or non-renewed and not replaced with another claims-made policy form with a Retroactive Date prior to the contract effective date or start of work date, Consultant must purchase “extended reporting” coverage for a minimum of five (5) years after completion of the contract of work.
• AUTOMOBILE LIABILITY:

Proof of coverage for $1,000,000 provided on ISO Form Number CA 00 01 covering any auto (Code 1), or if Consultant has no owned autos, hired, (Code 8) and non-owned autos (Code 9), per accident for bodily injury and property damage.
• WORKERS’ COMPENSATION AS REQUIRED BY THE STATE OF CALIFORNIA, WITH STATUTORY LIMITS, AND EMPLOYER’S LIABILITY INSURANCE: $1,000,000 per accident for bodily injury or disease.

9.19 City of Santa Cruz Professional Services Agreement for On-Call Grant Support Services February, 2026 Page 17
The Worker’s Compensation policy must be endorsed with a waiver of subrogation in favor of the City for all work performed by the Consultant and its employees. (Not required if Consultant provides written verification it has no employees) - If Consultant has no employees, Consultant shall complete and sign a Workers’ Compensation Exemption Declaration and Release of Liability.

C. OTHER INSURANCE PROVISIONS
The insurance policies are to comply with the following provisions:
• ADDITIONAL INSURED STATUS
The City, its officers, officials, employees, agents, and volunteers are to be covered as additional insureds on the CGL ,CPL, and automobile insurance (if transporting hazardous materials) policy(ies) with respect to liability arising out of work or operations performed by or on behalf of Consultant including materials, parts, or equipment furnished in connection with such work or operations, products and completed operations. General liability coverage will be provided in the form of an endorsement to Consultant’s insurance at least as broad as ISO Form CG 20 10 11 85, or if not available, through the addition of both CG 20 10, CG 20 26, CG 20 33, or CG 20 38; and CG 20 37 (if a later edition is used). • PRIMARY COVERAGE
For any claims related to this Agreement, Consultant’s and all subcontractor’s insurance coverage will be primary and non-contributory as respects the City, its officers, officials, employees, agents, and volunteers. Any insurance or self-insurance maintained by the City, its officers, officials, employees, agents, or volunteers will be excess of Consultant’s and all subcontractor’s insurance and will not contribute with it.
• NOTICE OF CANCELLATION
Each insurance policy required above shall state that the coverage shall not be canceled, except with notice to the City.
• WAIVER OF SUBROGATION
Consultant hereby grants to the City a waiver of any right to subrogation, except as otherwise not applicable, which any insurer of said Consultant may acquire against the City by virtue of the payment of any loss, including attorney’s fees under such insurance. Consultant agrees to obtain any endorsement that may be necessary to effectuate this waiver of subrogation, but this provision applies regardless of whether or not the City has received a waiver of subrogation endorsement from the insurer. • EXCESS LIABILITY/UMBRELLA INSURANCE POLICIES
Consultant may use excess liability/umbrella policies to meet the required liability limits on the condition that they provide all of the insurance coverages required herein, including, but not limited to, primary and non-contributory, additional insured, Self-Insured Retentions (SIRs), indemnity, and defense requirements. The excess liability/umbrella insurance policies shall be provided on a true “following form” or broader coverage basis, with coverage at least as broad as provided on the underlying CGL insurance. No insurance policies maintained by the additional insureds, whether primary or excess, and which also apply to a loss covered hereunder, shall be called upon to contribute to a loss until the Consultant’s primary and excess liability policies are exhausted. • SELF-INSURED RETENTIONS (SIR)
Self-insured retentions must be declared to and approved by the City. City may require Consultant to purchase coverage with a lower retention or provide proof of ability to pay losses and related expenses.

9.20 City of Santa Cruz Professional Services Agreement for On-Call Grant Support Services February, 2026 Page 18
The policy language shall provide, or be endorsed to provide, that the self-insured retention may be satisfied by either the named insured or City.
• ACCEPTABILITY OF INSURERS
Insurance is to be placed with insurers with a current A.M. Best’s rating of no less than A: VII, unless otherwise acceptable to the City.
• CLAIMS MADE POLICIES
If any of the required policies provide coverage on a claims-made basis:

1. The Retroactive Date must be shown and must be before the date of the contract or the beginning of contract work.

2. Insurance must be maintained, and evidence of insurance must be provided, for at least five (5) years after completion of the contract of work.

3. If coverage is canceled or non-renewed, and not replaced with another claims-made policy form with a Retroactive Date prior to the contract effective date, the Consultant must purchase “extended reporting” coverage for a minimum of five (5) years after completion of contract work. • VERIFICATION OF COVERAGE
Consultant will furnish the City with original Certificates of Insurance including all required amendatory endorsements (or copies of the applicable policy language effecting coverage required by this clause) and a copy of the Declarations and Endorsement Page of the CGL policy (and CPL, automobile and any Excess Liability/Umbrella policies, as applicable) listing all policy endorsements to be approved by the City before work commences. However, failure to obtain the required documents prior to the work beginning will not waive the Consultant’s obligation to provide them. The City reserves the right to require complete, certified copies of all required insurance policies, including endorsements required by these specifications, at any time.

D. SUBCONTRACTORS
Consultant shall include their subcontractor(s) as additional insured(s) under the policies or shall furnish separate certificates and endorsements for each contractor and subcontractor. Consultant shall require and verify that all contractors and subcontractors maintain insurance meeting all the requirements stated herein, and Consultant shall ensure that City, its officers, officials, employees, agents, and volunteers are named as additional insureds on insurance required from its contractor(s) and subcontractor(s).

E. SPECIAL RISKS/CIRCUMSTANCES
City reserves the right to modify these requirements, including limits, based on the nature of the risk, prior experience, insurer, coverage, or other special circumstances and provide notice to Consultant.

9.21 City Council

AGENDA REPORT
DATE: 02/05/2026
AGENDA OF: 02/24/2026
DEPARTMENT: Economic Development
SUBJECT: 136 River Street Grant Administration – Budget Adjustment (ED) LOCATION: District 3
RECOMMENDATION: Motion to:
1) Adopt a resolution committing funding from the California State Department of Housing and Community Development (HCD) Permanent Local Housing Allocation (PLHA) Program in an amount of $623,298 as a loan to the 136 River Street Affordable Housing Project, an eligible affordable housing project;
2) Adopt a resolution amending the Fiscal Year 2026 budget to appropriate $1,800,000 in the Affordable Housing Trust Fund (AHTF), funded by State HCD through the Local Housing Trust Fund (LHTF) as a loan to 136 River Street Apartments Investors, L.P; 3) Authorize the City Manager, or designee, to execute related PLHA and LHTF documents; and 4) Authorize staff to submit requests for reimbursement of PLHA and LHTF funds.

BACKGROUND:

PLHA
In 2017, the State of California (State) passed a 15-bill housing package to address the State’s housing shortage and high housing costs. This included the Building Homes and Jobs Act (Senate Bill 2), which established a $75 recording fee on real estate documents. Seventy percent of these recording fees were to be set aside for a Permanent Local Housing Allocation (PLHA) program. The PLHA program is overseen by the State’s Department of Housing and Community Development (HCD).

The basis for PLHA program funding allocations to jurisdictions partially depends on whether a jurisdiction receives Community Development Block Grant (CDBG) funds directly from the federal Department of Housing and Urban Development (HUD). For these participating jurisdictions, including the City, PLHA grants will be allocated annually based proportionally on HUD CDBG funding formulas as a basis through an over-the-counter annual application process.

Under these requirements, the City applied for a five-year period (PLHA 2019-2023 (Fiscal Year

10.1 2021-2025), and HCD estimated the total funding for the City over the five-year period would be $1,588,464.

In the 2019 and 2020 PLHA award cycles, the City was awarded and committed funding in the amount of $676,239 to purchase the Putney Perry building, a parcel used in the construction of Pacific Station South. In the 2021 and 2022 PLHA award cycles, the City was awarded $452,837 and $226,963, respectively, for a total of $679,800. The City can apply for a fifth year of approximately $174,000 of 2023 PLHA funding after the remaining awarded PLHA funding is drawn to below $500,000, per State HCD requirements. $56,502 of PLHA funding was utilized by the Downtown Library Affordable Housing Project (DLAHP), leaving $623,298 currently available..

LHTF
On July 9, 2024, State HCD issued a Notice of Funding Availability (NOFA) for the Local Housing Trust Fund (LHTF). The NOFA stated that approximately $53 million in state LHTF program funds from the Veterans and Affordable Housing Bond Act Trust Fund of 2018 was available to fund local public agencies or nonprofit corporations for eligible activities within the LHTF Program.

Matching funds are required for this program, and the applicant must designate the project that will utilize the funding to be competitive for the State grant. All LHTF Program funds provided by the State must be matched by the applicant on a dollar-for-dollar basis with matching funds derived from dedicated sources of funding, such as taxes, fees, loan repayments, or public or private contributions by the applicant. The City has already satisfied this matching requirement through a $1.8 million loan to the 100% affordable housing project at 136 River Street through the Affordable Housing Trust Fund (Fund 279).

DISCUSSION: With the project at 136 River Street nearing loan closing, staff recommend that the City Council pass the attached resolution to commit $623,298 of available year 2021 and 2022 PLHA funds to help satisfy a project funding gap. This action will allow the City to receive the already budgeted revenue which cannot be drawn without the resolution. Once the funds are committed, the City can apply for future funding of the current five-year plan, , and submit a new five-year plan to secure future funding..

On September 10, 2024, the City Council authorized staff to apply for LHTF funding for 136 River. The application was successful and the City was awarded $1.8 million. The Standard Agreement for the award was executed in December 2025 (see 2024 LHTF Standard Agreement) and now staff recommend a budget adjustment to budget the funding to the project in Fiscal Year 2026.

CALIFORNIA ENVIRONMENTAL QUALITY ACT (CEQA) DETERMINATION: The 136 River Project (Project) has already been approved and qualified for Categorical Exemptions under CEQA guidelines Section 15332, Class 32 for an infill development project. The Project was deemed consistent with the General Plan and zoning regulations except as modified by State Density Bonus Law. The Project site is less than five acres in size, is substantially surrounded by urban uses, and has no value as habitat for endangered, rare, or threatened species as it does not contain any natural open space and is not mapped for sensitive habitat under the general plan.

The Project will not result in significant effects related to traffic, noise, air quality, or water

10.2 quality, and the site is within the urban services area and will be served by all utilities and public services.

HEALTH IN ALL POLICIES (HiAP): HiAP serves to ensure that all decision-makers remain informed about the health, equity, and sustainability impacts of various policy options during the policy development process. The 136 River Project supports the pillar of equity by providing rental units on an infill site in a developed urban area improved with sidewalks and street trees.

It also offers direct access to public transportation, commercial goods and services, and recreational areas, including parks and beaches. The development of residences on the existing low-performing, underutilized site encourages a sustainable and healthy lifestyle by promoting alternative forms of transportation. Through the incorporation of additional bicycle parking and site landscaping, the redevelopment encourages a sustainable and healthy lifestyle by promoting alternative modes of transportation in a resource-rich environment encouraging outdoor recreation. As such, the Project fortifies the three pillars of the HiAP and demonstrates efficient and judicious use of the subject property.

FISCAL IMPACT:

1. The recommendation in this report impacts the General Fund: No

2. This recommendation requires a budget adjustment: Yes

3. The recommendation creates an on-going expenditure commitment: No FISCAL IMPACT DESCRIPTION: There is no impact to the General Fund by the approval of the recommended actions. The funds have been awarded to the City by State HCD through PLHA and LHTF. PLHA funding was previously budgeted in project PLHA (g512103), and this budget adjustment newly budgets the LHTF funding in Fiscal Year 2026.

Prepared By:

Tiffany Lake
Development Manager
Submitted By:

Bonnie Lipscomb
Deputy City Manager
Approved By:

Matt Huffaker
City Manager
ATTACHMENTS:

1. 136 RIVER PLHA RESOLUTION.DOCX

2. BUDGET ADJUSTMENT.PDF

3. 2024 LHTF STANDARD AGREEMENT.PDF

10.3 RESOLUTION NO. NS-30,XXX

RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SANTA CRUZ AUTHORIZING

DEPARTMENT OF HOUSING AND COMMUNITY DEVELOPMENT PERMANENT LOCAL HOUSING FUNDING ALLOCATION FOR 136 RIVER STREET AFFORDABLE

HOUSING PROJECT
WHEREAS, the State Housing and Community Development Department (“Department” or “HCD”) is authorized to provide up to $296 million under the Senate Bill (SB) 2 Permanent Local Housing Allocation (PLHA) Program Formula Component from the Building Homes and Jobs Trust Fund for assistance to Cities and Counties (as described in Health and Safety Code section 50470 et seq. (Chapter 364, Statutes of 2017 (SB 2)); and WHEREAS, the City of Santa Cruz, a California municipal corporation, (the “City”) is an eligible local government who has applied for program funds to administer one or more eligible activities, or a Local or Regional Housing Trust Fund to whom an eligible local government delegated its PLHA formula allocation; and
WHEREAS, on June 23, 2020, City Council approved the five-year PLHA plan, submitted to HCD, which budgeted the first five years of PLHA funding for Affordable Housing with an approved use for Affordable Housing Development in an amount not to exceed the five-year estimate of the PLHA formula allocations; and
WHEREAS, the City agreed to use the PLHA funds for eligible activities as approved by HCD and in accordance with all Program requirements, Guidelines, other rules and laws, as well as in a manner consistent and in compliance with the Standard Agreement and other contracts between the City and HCD; and
WHEREAS, the City of Santa Cruz City Manager, designee, or Economic Development and Housing Director were authorized to execute the PLHA Program Application, the PLHA Standard Agreement and any subsequent amendments or modifications thereto, as well as any other documents which were related to the Program or the PLHA grant awarded to the City; and WHEREAS, the City previously committed and received $264,744 of PLHA 2019 (Fiscal Year (FY) 2021) funding, and $411,495 of PLHA 2020 (FY 2022) for the Pacific Station South project; and
WHEREAS, the City applied for and was awarded additional funding for PLHA 2021 and PLHA 2022 in the amounts of $452,837 and $226,963 for years 3 and 4 of the five-year plan from PLHA, of which the City previously committed and will expend $56,502 of PLHA 2021 funding for the Downtown Library Affordable Housing Project; and WHEREAS, the City will execute a Land Lease and a Regulatory Agreement for the 136 River Street Affordable Housing Project (136 River Street) restricting the occupancy and rents of the project for a term of at least 55 years; and

10.4 WHEREAS, the City is committing up to $623,298 to 136 River Street in the form of a loan to the developer from PLHA 2021 and 2022 Program years.

NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Santa Cruz as follows:

1. The City is committing up to $623,298 of PLHA funds from HCD pursuant to the above referenced loan to developer and as outlined in the 5-year PLHA plan approved on June 23, 2020, and previously approved for the FY 2024 and FY 2025 budget for future PLHA affordable housing projects.

2. The City of Santa Cruz, City Manager’s Office is hereby authorized and directed to submit the Requests for Reimbursements to HCD for the PLHA grant(s) for up to $623,298 of the above affordable housing project.

3. The City of Santa Cruz City Manager, designee, or the Deputy City Manager are authorized to execute the PLHA Program Application, the PLHA Standard Agreement and any subsequent amendments or modifications thereto, as well as any other documents which are related to the Program or the PLHA grant awarded to the City, as HCD may deem appropriate.

PASSED AND ADOPTED this 24th day of February, 2026 by the following vote:

AYES:

NOES:

ABSENT:

DISQUALIFIED:

APPROVED: ________________________________
Fred Keeley, Mayor
ATTEST: ________________________________
Bonnie Bush, City Clerk Administrator

10.5 City of Santa Cruz

BUDGET ADJUSTMENT REQUEST
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 Clear Form
2026
2/24/2026
Budget $1.8 million of Local Housing Trust Fund (LHTF) awarded by State Housing and Community Development (State HCD) for 136 River St, an affordable housing project.
279-51-81-5201-43239 p512605-290-1062-0 2024 LHTF 1,800,000 1,800,000
279-51-81-5201-56960 p512605-100-2020-357 2024 LHTF - Loans and Grants 1,710,000 279-51-81-5201-52121 p512605-100-2010-0 2024 LHTF- Labor 45,000 279-51-81-5201-52199 p512605-100-2020-0 2024 LHTF-Other professional and technical services 45,000 1,800,000
0 Tiffany
Lake
Digitally signed
by Tiffany Lake
Date: 2026.02.04
10:47:25 -08'00'
Bonnie
Lipscomb
Digitally signed by
Bonnie Lipscomb
Date: 2026.02.04
13:40:46 -08'00'
Digitally signed
by Emily Burton
Date: 2026.02.06
'12:31:02 -08'00
Elizabet
h Cabell
Digitally signed by
Elizabeth Cabell
Date: 2026.02.09
10:18:25 -08'00' 10.6
Crystal Alvarez
12/17/2025

10.7 City of Santa Cruz
24-LHTFCOM-18661

EXHIBIT A
Local Housing Trust Fund (LHTFCOM) Program
NOFA Date: 07/09/2024
Approved Date: 09/26/2024
Prep. Date: 09/25/2025

AUTHORITY, PURPOSE AND SCOPE OF WORK

1. Authority & Purpose
The Local Housing Trust fund Program (hereinafter variously "LHTF" "LHTF Program," or the "Program") is authorized pursuant to the California Health and Safety Code Section 50842.2. The LHTF was created by AB 1891 of 2002 (Diaz) and is funded under the Veterans and Affordable Housing Bond Act of 2018 (Proposition 1). This Standard Agreement (hereinafter "Agreement") provides official notification of a conditional funding commitment to the Contractor under the Program administered by the State Department of Housing and Community Development (variously, the "Department," or the "State") as authorized by and pursuant to the terms and conditions of the LHTF Program general Notice of Funding Availability (NOFA) dated July 9, 2024. In accepting this conditional funding, the Contractor agrees to comply with the terms and conditions of this Agreement, the NOFA, Program statutes and regulations, and the representations made in the Contractor's application for this funding award.

2. Scope of Work
Contractor shall perform the Scope of Work (Work) as described in the Application, which is on file at the California Department of Housing and Community Development, Division of Financial Assistance, 651 Bannon Street, Sacramento, California 95811 and which is incorporated herein by reference. All written materials or alterations submitted as addenda to the original application, and which are approved in writing by the LHTF Program Manager or higher Departmental official, as appropriate, are hereby incorporated as part of the Application. In the event of a conflict between the description of the Work in the Application and as described in this Exhibit A, the description in this Exhibit A shall prevail. The State reserves the right to require the Contractor to modify any or all parts of the Application in order to comply with the LHTF Statutes or Regulations. The State reserves the right to review and approve all Work to be performed by the Contractor in relation to this Agreement. Any proposed revision to the Work must be submitted in writing for review and written approval by the State.

10.8 City of Santa Cruz
24-LHTFCOM-18661

EXHIBIT A
Local Housing Trust Fund (LHTFCOM) Program
NOFA Date: 07/09/2024
Approved Date: 09/26/2024
Prep. Date: 09/25/2025

3. Amount of Agreement
For the purposes of performing the Work, the State agrees to provide the amount shown on Page 1, Section 3 of this Agreement (STD 213). In no instance shall the State be liable for any costs for the Work in excess of this amount, nor for any unauthorized or ineligible costs. No more than five (5) percent of the funds provided through this Agreement may be used for administrative expenses.

4. Local Matching Funds
A. The Contractor shall provide documentation of the value and source of contributions included as Matching Funds to the project activity with each drawdown request. The total Matching Funds amount shall equal or exceed the following amount that was identified in the application.

B. Local Matching Funds must be expended concurrently with expenditure of Program funds on a dollar-for-dollar basis on the same Project.

C. Local Matching Funds must be On Deposit, meaning that all of the Matching Funds required by this Agreement are deposited in the trust fund, before a drawdown request may be submitted.

5. State Contract Coordinator
The LHTF program’s contact person for the Agreement may vary; therefore, you will be contacted directly by your assigned representative. Unless otherwise informed, any notice, report, or other communication required by this Agreement shall be mailed by first class to the Program Manager at the following address or emailed to [email protected]:

Department of Housing and Community
Development Division of Financial Assistance
Local Housing Trust Fund Program
651 Bannon Street, Suite 400
Sacramento, CA 95811

10.9 City of Santa Cruz
24-LHTFCOM-18661

EXHIBIT A
Local Housing Trust Fund (LHTFCOM) Program
NOFA Date: 07/09/2024
Approved Date: 09/26/2024
Prep. Date: 09/25/2025

6. Contractor Contact Coordinator
The Contractor's contact for this Agreement is listed below. Unless otherwise informed, any notice, report, or other communication required by this Agreement shall be mailed by first class or priority mail to the contact at the following address:

Contractor: City of Santa Cruz
Authorized Representative Name: Matt Huffaker
Authorized Representative Title: City Manager
Address: 809 Center Street, Room 10
Santa Cruz, CA 95060
Phone: (831) 420-5010
Email: [email protected]

10.10 City of Santa Cruz
24-LHTFCOM-18661

EXHIBIT B
Local Housing Trust Fund (LHTFCOM) Program
NOFA Date: 07/09/2024
Approved Date: 09/26/2024
Prep. Date: 09/25/2025

BUDGET DETAIL AND PAYMENT PROVISIONS

1. Security Documents for Rental Housing Development Loans Prior to the disbursement of any grant funds in the form of a construction or permanent Rental Housing Development Loan (Development Loan) from the Contractor to a borrower ("Borrower"), the following documents shall be entered into and approved by the Department, executed, and where appropriate, acknowledged and recorded:

Promissory Note, Deed of Trust, and a Regulatory Agreement, as well as any other documents or terms as required by the LHTF guidelines.

A. The Loan to the Borrower shall be evidenced by a promissory note ("Note"), executed by the Borrower and payable to the Contractor. The Note shall contain a special provision that repayment shall be made to the Department in the event the Contractor is no longer in operation.

B. Repayment of the Note shall be secured by a deed of trust executed by the Borrower and recorded in the official records of the county recorder for the county in which the development is located, as a lien against the Borrower's interest (leasehold or fee) in all lots upon which the development, rehabilitation or purchase will take place ("Deed of Trust"). If the loan is to finance manufactured housing, the Contractor is to take a security interest in every manufactured home being assisted by Program funds.

C. For Rental Housing Construction Loans, the Contractor and the Borrower shall execute a Development Loan Agreement (the "Development Loan Agreement") which shall set forth the terms and conditions for closing and disbursing the Development Loan proceeds including, but not limited to, requirements for title insurance for the Deed of Trust and Borrower's responsibilities and obligations with respect to hazardous substance detection, disclosure and remediation.

D. In the event of amendments to any of the documents mentioned below, the Contractor shall submit copies of all trust fund loan guidelines and underwriting standards and procedures for review and approval by the Department.

E. The Department reserves the right to request copies of documentation at any time prior to or after the processing of any draw request. This documentation may include, but is not limited to, documents required as pre-disbursement conditions and documents related to the Contractor's program activity, including loan documents, loan closing documents, rehabilitation project documents and other documents as requested.

10.11 City of Santa Cruz
24-LHTFCOM-18661

EXHIBIT B
Local Housing Trust Fund (LHTFCOM) Program
NOFA Date: 07/09/2024
Approved Date: 09/26/2024
Prep. Date: 09/25/2025
F. Loans for the development or rehabilitation of rental housing- projects, transitional housing projects, and emergency shelters shall also have a regulatory agreement, executed by the Borrower and the Contractor, and recorded in the official records of the county recorder for the county in which the project is located, documenting the affordability restrictions for the project. At the minimum, the affordability restrictions must be for a term of:
1) For Multi-Family properties, at least 55 years from the date such loan is made.
2) For Emergency Shelters or Transitional Housing properties, for at least 15 years from the date such loan is made. All loans must also meet the affordability requirements of the Program and the Contractor's Application.

G. Loans for the development of for-sale housing projects shall also require, as part of the documentation in the sale of every individual housing unit to a homeowner/purchaser, a deed restriction in compliance with the Program Statutes and Regulations. The deed restriction must be recorded in the official records of the county recorder for the county in which the housing unit is located.

A deed restriction is not required if it would conflict with the requirements of law or another public funding source providing funds to finance the unit.

2. Disbursement to Contractor for Rental Housing Development, Emergency Shelter, Transitional Housing Loans, and Single-Family Development Loans Contractor shall comply with the following process when requesting a disbursement of grant funds from the Department:

A. At least ninety days prior to the grantee's need for the disbursement of grant funds, Contractor shall submit for the Department's review a completed Request for Funds on a form provided by the Department.
1) Documentation of the required Matching Funds must be submitted with the Request for Funds, including documentation that all Matching Funds required by this Agreement are deposited in the trust fund and the source of the Matching Funds. Matching Funds must be spent concurrent with the grant funds; and must be spent on the same project.
2) No more than five (5) percent of grant funds may be used for administrative costs. No more than five (5) percent of the Local Matching Funds may be used for administrative costs.

10.12 City of Santa Cruz
24-LHTFCOM-18661

EXHIBIT B
Local Housing Trust Fund (LHTFCOM) Program
NOFA Date: 07/09/2024
Approved Date: 09/26/2024
Prep. Date: 09/25/2025
3) Local Matching Funds committed at the time of application may not be substituted by other types of match funds without Department written approval. Local Matching Funds may not be from a source restricted for housing, nor shall they be from a source that is designated by any state or federal law to be spent on housing, except for state Permanent Local Housing Allocation Funds, when used as Matching Funds by Regional Housing Trust Funds. 4) All Requests for Funds shall be for the greater of $25,000 or the remaining undisbursed balance of the Contractor's grant.
5) The Contractor's signature on the Request for Funds must be the signature of the authorized party in the Contractor's authorizing resolution.

B. At the time funds are requested for a project, the Contractor shall provide to the Department all of the underwriting documents that are required by the Department.

C. Contractor shall provide a Department prepared executed Request for Funds form for each disbursement request.

D. Upon the Department's determination that the disbursement requirements of this Agreement have been satisfied and that the disbursement is in compliance with the Agreement and the Program Statutes and Regulation, the Department will process the Request and mail the check to the Local Housing Trust or Regional Housing Trust Fund.

3. Security Documents for Down Payment Assistance Loans, Rehab Loans for Owner Occupants, and Loans for Accessory Dwelling Units Prior to the disbursement of any grant funds for down payment assistance loans, rehab loans made to owner occupants, or loans for Accessory Dwelling Units from the Contractor, the following documents shall be entered into and approved by the Department, executed and, where appropriate, acknowledged and recorded:

Promissory Note, Deed of Trust, and a Restrictive Covenant.

10.13 City of Santa Cruz
24-LHTFCOM-18661

EXHIBIT B
Local Housing Trust Fund (LHTFCOM) Program
NOFA Date: 07/09/2024
Approved Date: 09/26/2024
Prep. Date: 09/25/2025
A. As a condition of the first draw of funds for the loans, Contractor shall submit the following for the Department's review and approval:
1) In the event of amendments to any of the documents mentioned below, the Contractor's loan guidelines and underwriting standards and procedures, including methods of outreach and compliance with Fair Housing laws;
2) Copies of the Promissory Note that will be used by the Contractor.

Every loan to a purchaser/owner ("Borrower'') shall be evidenced by a promissory note, executed by the Borrower and payable to the Contractor. The Note shall contain a special provision that repayment shall be made to the Department in the event the Contractor is no longer in operation. The term must be at least 10 years for Accessory Dwelling Unit loans and must be at least 30 years for rehab loans to owner occupants and home buyers;
3) Copies of the Deed of Trust that will be used by the Contractor.

Repayment of the Note shall be secured by a Deed of Trust executed by the Borrower and recorded in the official records of the county recorder for the county in which the unit is located, as a lien against the Borrower fee interest in the housing unit. If the loan is to finance manufactured housing, the Contractor is to take a security interest in the manufactured home being assisted by Program funds; and, 4) Copies of the restrictive covenant that will be used by the Contractor.

The Borrower shall execute a restrictive covenant in compliance with the Program Statutes and Regulations. The restrictive covenant must be recorded in the official records of the county recorder for the county in which the housing unit is located.

4. Disbursement to Contractor for Down Payment Assistance Loans, Rehab Loans for Owner Occupants, and Loans for Accessory Dwelling Units Contractor shall comply with the following process when requesting a disbursement of grant funds from the Department:

A. At least 90 days prior to the grantee's need for the disbursement of grant funds, Contractor shall submit for the Department's review a completed Request for Funds on a form provided by the Department.

10.14 City of Santa Cruz
24-LHTFCOM-18661

EXHIBIT B
Local Housing Trust Fund (LHTFCOM) Program
NOFA Date: 07/09/2024
Approved Date: 09/26/2024
Prep. Date: 09/25/2025
1) Documentation of the required Matching Funds must be submitted with the Request for Funds, including documentation that all Matching Funds required by this Agreement are deposited in the trust fund and the source of the Matching Funds. Matching Funds must be spent concurrent with the grant funds; and must be spent on the same unit.
2) No more than five (5) percent of grant funds may be used for administrative costs. No more than five (5) percent of the Local Matching Funds may be used for administrative costs.
3) Local Matching Funds committed at the time of application may not be substituted by other types of match funds without Department written approval. Local Matching Funds may not be from a source restricted for housing, nor shall they be from a source that is designated by any state or federal law to be spent on housing, except for state Permanent Local Housing Allocation Funds, when used as Matching Funds by Regional Housing Trust Funds. 4) All Requests for Funds shall be for the greater of $25,000 or the remaining undisbursed balance of the Contractor's grant.
5) The Contractor's signature on the Request for Funds must be the signature of the authorized party in the Contractor's authorizing resolution.

B. Payments to Contractor for down payment assistance loans, rehab loans made to owner occupants, or loans for Accessory Dwelling Units shall be on an advance basis. Upon the effective date of this Agreement, and upon submission of the required draw request on the Department provided Excel workbook and submission of any documentation required by the Department, as identified herein, Contractor may obtain an advance of funds not to exceed 25 percent the amount needed for loans scheduled to close within the next 60 days. This procedure of advances shall continue until the total amount for the down payment assistance Loans under this paragraph is expended.

C. The Department reserves the right to request copies of documentation at any time during processing of any draw request. This documentation may include, but is not limited to, documents required as pre-disbursement conditions and documents related to the Contractor's program activity, including loan documents, loan closing documents, escrow statements, recorded loan documents from loans that have closed, and other documents as requested.

10.15 City of Santa Cruz
24-LHTFCOM-18661

EXHIBIT B
Local Housing Trust Fund (LHTFCOM) Program
NOFA Date: 07/09/2024
Approved Date: 09/26/2024
Prep. Date: 09/25/2025

5. Completion Dates
A. Contractor shall encumber all funds within 60 months from the effective date of this Agreement. If Contractor fails to encumber the funds by this date, such failure shall constitute a breach of this Agreement, cause for termination pursuant to Exhibit C, paragraph 7, and all funds not encumbered by this deadline shall be disencumbered and revert back to the Department for use by the Program or its successor program.

B. Contractor's source of Ongoing Revenues identified in the Application must continue for a period of no less than the number of years stated in Section 101 of the LHTF Guidelines. If the Ongoing Revenues are not continued as required by the Guidelines, or if the Contractor ceases operations, or fails to continue to comply with the terms of this Agreement for the entire term of this Agreement, then:
1) the amount of the Department's grant then unencumbered shall be disencumbered by the Department; and,
2) any Program Funds advanced to a Contractor shall be immediately repaid to the Department; and,
3) any loan repayments, interest and fees from any projects funded by the Contractor using State funds that would have been paid to the Contractor shall be paid instead to the Department.

C. The total combined amount paid to the Department under 1) and 2) and 3) above shall not exceed the amount of the Department’s grant under this Agreement.

D. Any disbursed grant funds not used to provide Program loans shall be repaid to the Department upon termination of this Agreement.

E. Any grant funds not used in accordance with Program regulations and this Agreement shall be repaid to the Department.

F. Final disbursement request must be submitted by Contractor no later than March 31, 2034.

G. This Agreement shall terminate on June 30, 2039.

10.16 City of Santa Cruz
24-LHTFCOM-18661

EXHIBIT D
Local Housing Trust Fund (LHTFCOM) Program
NOFA Date: 07/09/2024
Approved Date: 09/26/2024
Prep. Date: 09/25/2025

LHTF COMPETITIVE PROGRAM GENERAL TERMS AND CONDITIONS

1. Effective Date and Commencement ofWork
This Agreement is effective upon approval by the Department as evidenced by the Department representative’s signature on page one of the fully executed Standard Agreement, STD 213. The Contractor agrees that Work shall not commence, nor any costs to be paid with grant funds be incurred or obligated by any party prior to the receipt of the award letter or the execution of this Agreement by the Department, of all required environmental clearances, and compliance with the applicable conditions of this Agreement. The Contractor agrees that the Work shall be completed in accordance with the timeframe as described in Exhibit B, Section 5.

2. Permitted Uses of Funds
The Contractor shall use funds provided pursuant to this Agreement only for performance of the Work, and consistent with the requirements of the NOFA and the Program Statutes and Regulations.

3. Termination and Breach
The Department may terminate this Agreement and withdraw its conditional commitment or the balance thereof and be released from any further obligation to the Contractor.

A. In the event the Contractor fails to satisfy or comply with any term or condition in this Agreement, or with respect to the loan documents, if any, specified in Exhibit B, within the time and in the manner specified, after written notice to the Contractor by the Department specifying: the breach; the action required to cure such breach; and a date, not less than fifteen days from the date of receipt of such notice by the Contractor, by which such breach must be cured, after notifying the Contractor in writing of the State's intention to terminate this Agreement.

B. Unless otherwise approved by the Department, upon termination of this Agreement, the Contractor shall complete all the Work in progress and terminate any other activities that were to be paid for with Program funds. Any unexpended funds received by the Contractor shall be returned to the State within 15 days of the notice of termination.

10.17 City of Santa Cruz
24-LHTFCOM-18661

EXHIBIT D
Local Housing Trust Fund (LHTFCOM) Program
NOFA Date: 07/09/2024
Approved Date: 09/26/2024
Prep. Date: 09/25/2025

4. Insurance
Prior to the disbursement of funds under this Agreement and thereafter during the term hereof, the Contractor shall obtain, carry, and maintain in force, comprehensive general liability insurance in the amount of not less than one million dollars for injury to or death of one person, one million dollars for injury to or death of more than one person in one accident, and adequate property damage insurance. All insurance carriers must meet the requirements of the State of California Department of Insurance. Upon demonstration of cause satisfactory to the Department, these requirements may be satisfied by the Contractor providing evidence of an alternative to conventional insurance sufficient to provide equivalent protection.

5. Inspections
A. The Contractor shall inspect any Work performed hereunder to ensure that the Work is being and has been performed in accordance with the applicable federal, State and/or local requirements, any applicable construction contract, and this Agreement. The Contractor agrees to require that all Work found by such inspections not to conform to the applicable requirements be corrected, and to withhold payment to the construction contractor or subcontractor until it is so corrected. B. The Department reserves the right to inspect any site upon which the Work is being performed; and the Contractor shall cause to be inserted in any subcontract for performance of the Work a provision permitting the State or its agents the right to inspect the worksite at any reasonable time.

6. Signs
If assistance is provided as a secured development loan, any signs placed on the property during construction which identifies the Program, or lenders to, the development shall include the Department as one of the entities providing financing to the development. During the construction period the Department may place one or more signs on the property stating that it is providing financing for the development.

7. Public Meeting Requirements
Grantees shall have held, or shall hold, a public hearing to discuss and describe the projects that will be funded. Nonprofit grantees shall hold one public meeting per year that is open to the public, and a public notice of the meeting shall be posted on the nonprofit’s website at least 10 days prior to the meeting, at which will be discussed the criteria used to select projects to be funded. Evidence of the required meeting(s) shall be submitted to the Department for its approval prior to the first disbursement request.

10.18 City of Santa Cruz
24-LHTFCOM-18661

EXHIBIT D
Local Housing Trust Fund (LHTFCOM) Program
NOFA Date: 07/09/2024
Approved Date: 09/26/2024
Prep. Date: 09/25/2025

8. Reporting Requirements
A. During the term of this Agreement, or at such time all program funds have been disbursed and expended, and all contractors’ projects have been completed as evidenced by a certificate of occupancy, whichever occurs first, and no later than 31 days after June 30th of each year, the Contractor shall submit an annual performance report on a form provided by theDepartment.

B. During the term of this Agreement, the Department reserves the right to request other forms or reports as may be necessary or required.

C. During the term of this Agreement, the Contractor shall provide documentation on the value and source of other contributions included as Matching Funds to the project activity with each drawdown request. The total Matching Funds amount shall equal or exceed the amount identified in the Application, and stated in Exhibit A, Section 4.

9. Audit/Retention and Inspection of Records
A. The Contractor shall retain all books and records pertaining to performance of this Agreement for a minimum of three years after the expiration of the Agreement and any and all amendments hereto, or for three years after the conclusion or resolution of any and all audits or litigation relevant to this Agreement, whichever is later. B. The Contractor shall adequately document each transaction to permit the determination, through an audit if requested by the Department, of the accuracy of the records and the allowability of the expenditures paid in whole or in part, with grant funds. If the allowability of expenditure cannot be determined because records or documentation are inadequate, the questionable expenditure will be disallowed. The Contractor shall reimburse the Department for the amount of any disallowed expenditures of the Contractor or its agents or subcontractors.

Determination by the Department of allowability of any expenditure shall be final.

C. The Department does not require a routine audit of the Contractor's books; provided, however, the Contractor shall comply with any reasonable demand by the Department for an audit of the Contractor's activities related to this Agreement.

D. The Contractor agrees that the Department or its delegate will have the right to review, obtain, and copy all records pertaining to performance of this Agreement.

Contractor agrees to provide the Department or its delegate with any relevant information requested and shall permit the Department or its delegate access to

10.19 City of Santa Cruz
24-LHTFCOM-18661

EXHIBIT D
Local Housing Trust Fund (LHTFCOM) Program
NOFA Date: 07/09/2024
Approved Date: 09/26/2024
Prep. Date: 09/25/2025
its premises, upon reasonable notice, during normal business hours for the purpose of interviewing employees and inspecting and copying such books, records, accounts, and other material that may be relevant to a matter under investigation for the purpose of determining compliance with Government Code section 8546.7.

10. Compliance with Laws and Regulations
Contractor agrees that at all times its acts with respect to the Program and Program activities, and use of funds committed herein shall be in conformity with all laws applicable to the Program including those of the State of California, all federal laws, all local rules or ordinances, all requirements of the Program, including the Program Statutes, the Guidelines and the NOFA.

11. Disencumbrance of Funds
Funds authorized by this Agreement may be disencumbered in whole or in part if funds are not encumbered within the time frame specified in Exhibit B, Paragraph 5. Funds authorized by this Agreement will be disencumbered if Contractor ceases operations less than five (5) years from the date of the Program award, and any Program Funds advanced to Contractor shall promptly be returned to the Department, and all current and future loan repayments, interest and fees shall be remitted to the Department.

12. Waiver
No waiver of any breach of this Agreement shall be held to be a waiver of any prior or subsequent breach. Any remedy afforded in this Agreement shall be taken and construed as cumulative, and in addition to, any other remedy provided therein or by law. The failure of the Department to enforce at any time the provisions of this Agreement or to require at any time performance by the Contractor of such provisions shall in no way be construed to be a waiver of such provisions nor to affect the validity of this Agreement or the right of the Department to enforce these provisions.

13. Litigation
A. If any provision of this Agreement, or underlying obligation, is held invalid by a court of competent jurisdiction, such invalidity, at the sole discretion of the Department, shall not affect any other provisions of this Agreement and the remainder of this Agreement shall remain in full force and effect. Therefore, the provisions of this Agreement are, and shall be, deemed severable.

10.20 City of Santa Cruz
24-LHTFCOM-18661

EXHIBIT D
Local Housing Trust Fund (LHTFCOM) Program
NOFA Date: 07/09/2024
Approved Date: 09/26/2024
Prep. Date: 09/25/2025
B. The Contractor shall notify the Department immediately of any claim or action undertaken by or against it which affects or may affect this Agreement or the Department and shall take such action with respect to the claim or action as is consistent with the terms of this Agreement and the interests of the Department.

14. Prevailing Wages
A. Where funds provided through this Agreement are used for construction work, or in support of construction work, the Contractor shall ensure that the requirements of Chapter 1 (commencing with section 1720) of Part 7 of the Labor Code (pertaining to the payment of prevailing wages and administered by the California Department of Industrial Relations) are met.

B. For the purposes of this requirement, construction work includes, but is not limited to, rehabilitation, alteration, demolition, installation or repair done under contract and paid for, in whole or in part, through this Agreement. All construction work shall be done through the use of a written contract with a properly licensed building contractor incorporating these requirements (construction contract).

Where the construction contract will be between the Contractor and a licensed building contractor, the Contractor shall serve as the "awarding body" as that term is defined in the Labor Code. Where the Contractor will provide funds to a third party that will enter into the construction contract with a licensed building contractor, the third party shall serve as the "awarding body." The construction contract and any amendments thereto shall be subject to the prior written approval of the Department. Prior to any disbursement of funds, including but not limited to release of any final retention payment, the Department may require a certification from the awarding body that prevailing wages have been or will be paid when required by Section 1720 of the Labor Code.

10.21 City of Santa Cruz
24-LHTFCOM-18661

EXHIBIT E
Local Housing Trust Fund (LHTFCOM) Program
NOFA Date:07/09/2024
Approved Date: 09/26/2024
Prep. Date: 09/25/2025

PROJECT-SPECIFIC PROVISIONS AND SPECIAL CONDITIONS

1. Project-Specific Provisions
The following are project-specific terms and conditions (referred to as enumerated provision(s) for ease of reference in prior exhibits) and shall inform the references made to project-specific information not contained in prior exhibits.

The Contractor shall provide documentation of the value and source of contributions included as Matching Funds to the project activity with each drawdown request. The total Matching Funds amount shall equal or exceed the following amount that was identified in the application:
$1,800,000.00
Payees:

The authorized Payee(s) is/are as specified below:

Name: City of Santa Cruz Amount: $1,800,000.00
Deeper Income Targeting:

The extent to which the Applicant commits to expend less than 20 percent of its Program Funds and Matching Funds to serve Moderate-Income Households.

The Applicant commits 0 percent.

Increasing the Supply of Lower-Income Rental Housing:

The extent to which the Applicant commits to use Program Funds and Matching Funds for the new construction of rental housing developments Affordable and restricted to households with average incomes of no more than 60 percent of Area Median Income.

The Applicant commits 100 percent.

2. Special Conditions
None.

10.22 City Council

AGENDA REPORT
DATE: 02/05/2026
AGENDA OF: 02/24/2026
DEPARTMENT: Economic Development
SUBJECT: Authorization for Application and Acceptance of Prohousing Incentive Program Funds (ED)
LOCATION: District 5
RECOMMENDATION: Motion to adopt a resolution to approve application submittal and, if selected, receive an allocation of the 4th round of the Prohousing Incentive Program (PIP) and authorize the City Manager or designee to execute any documents or amendments related to the award, in a form approved by the City Attorney.

BACKGROUND: In August of 2023, the City of Santa Cruz was honored with the prestigious Prohousing designation by the State Department of Housing and Community Development (HCD). The designation provides the City with priority consideration for various housing funding programs administered by HCD. HCD recently released the fourth grant opportunity through the Prohousing Incentive Program (PIP). HCD defines Eligible Applicants as limited to cities, counties, and cities and counties.

The PIP award funds based on the Eligible Applicant’s Prohousing Designation Program Score (as codified in the California Code of Regulations Title 25 Housing and Community Development, Division 1, Chapter 6, Subchapter 6.6, Sections 6600 through 6608, Consecutive Prohousing Designation Program). The City, with a score of 57, is currently ranked as the 11th highest scoring jurisdiction in the State. The City received $500,000 in funding for the 2nd NOFA round, the only previous PIP funding cycle to which the City has applied.

This 4th round of PIP funding provides awards for Eligible Applicants to use towards planning and implementation activities related to housing and community development, prioritizing eligible applicants who have not previously received PIP funding.

DISCUSSION: The City is applying for a grant in the amount of up to $500,000 as well as the potential Bonus Award of up to $500,000 based on the City’s Prohousing Designation Score.

This grant proposal will provide funding for acquisition, predevelopment, and/or construction of a mixed use 100% affordable housing project at the River Street and Highway 1 intersection.

The City is working on property assemblage so that the project will consist of the parcels identified as APNs: 008-661-11, 008-163-06, -07, and 008-172-08, -16, -18, -19, and any other lots created through lot line adjustment or consolidation.

11.1 CALIFORNIA ENVIRONMENTAL QUALITY ACT (CEQA) DETERMINATION: The proposed Council action is not a “project” under CEQA because no direct or indirect physical change to the environment is anticipated by this Council action. This proposed Council action is simply authorizing the staff to apply for and, if selected, receive PIP funds. If a project is eventually proposed to be constructed with the funds applied for and received, an analysis of CEQA requirements will be performed at that time. With that said, any facility that may ultimately be constructed on the site will likely qualify, under 14 CCR Section 15332, for a Class 32 Categorical Exemption, which applies to infill projects that are consistent with all applicable general plan policies and zoning criteria.

HEALTH IN ALL POLICIES (HiAP): The River Street and Highway 1 intersection affordable rental housing and mixed-use project located at a gateway to the City will help bridge the connection from the intersection to downtown and encourage a sustainable and healthy lifestyle by improving opportunities and infrastructure for residents to walk and ride to the City’s commercial center. By providing 100% affordable rental apartments, this will not only help the City with a more sustainable supply of rental housing but will also help create a more inclusive equitable community.

FISCAL IMPACT:

1. The recommendation in this report impacts the General Fund: No

2. This recommendation requires a budget adjustment: No

3. The recommendation creates an on-going expenditure commitment: No FISCAL IMPACT DESCRIPTION: If this grant is awarded, the funds will be used to provide funding for one of the eligible activities allowed in the award category, including: acquisition, predevelopment, and/or construction of a future affordable housing and mixed-use project at River Street and Highway 1. There is no impact to the General Fund. Funds will be budgeted, if awarded, at a later date.

Prepared By:

Andrea Inouye
Principal Management
Analyst
Jessie Bristow
Development Manager
Submitted By:

Bonnie Lipscomb
Deputy City Manager
Approved By:

Matt Huffaker
City Manager
ATTACHMENTS:

1. RESOLUTION.DOCX

11.2 RESOLUTION NO. NS-30,XXX

RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SANTA CRUZ AUTHORIZING

APPLICATION FOR, AND RECEIPT OF, PROHOUSING INCENTIVE PROGRAM (PIP) FUNDS AND AUTHORIZATION FOR THE CITY MANAGER OR DESIGNEE TO EXECUTE ANY DOCUMENTS RELATED TO THE 2026 PIP FUNDING AWARD
WHEREAS, pursuant to Health and Safety Code 50470 et seq., the California Department of Housing and Community Development (Department) is authorized to issue Guidelines as part of an incentive program (hereinafter referred to by the Department as the Prohousing Incentive Program or “PIP”); and
WHEREAS, the City of Santa Cruz desires to submit a PIP grant application package (“Application”), on the forms provided by the Department, for approval of grant funding for eligible activities toward planning and implementation of activities related to housing and community development as a result of meeting eligibility criteria including but not limited to Prohousing Designation; and
WHEREAS, this action is not project approval under CEQA, no acquisition or development approvals are granted, and CEQA review, including analysis of any applicable exemptions, will occur prior to future discretionary approvals; and WHEREAS, the Department has issued Guidelines and Application on September 30, 2025 in the amount of approximately $8,000,000 for PIP; NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Santa Cruz as follows:

SECTION 1. The City Manager is hereby authorized and directed to submit an Application to the Department in response to the NOFA, and to apply for the PIP grant funds in a total amount up to $500,000 as well as the potential Bonus Award of up to $500,000 based on the City’s Prohousing Designation Score of 57;
SECTION 2. In connection with the PIP grant, if the Application is approved by the Department, the City Manager of the City of Santa Cruz, or their designee, is authorized and directed to enter into, execute, and deliver on behalf of the Applicant, a State of California Agreement (Standard Agreement) for the amount up to $500,000, as well as the potential Bonus Award of up to $500,000 based on the City’s Prohousing Designation Score of 57, and any and all other documents and agreements required or deemed necessary or appropriate to evidence and secure the PIP grant, the Applicant’s obligations related thereto, and all amendments thereto in a form approved by the City Attorney; and
SECTION 3. The Applicant shall be subject to the terms and conditions as specified in the Guidelines, and the Standard Agreement provided by the Department after approval.

The Application and any and all accompanying documents are incorporated in full as part

11.3 RESOLUTION NO. NS-30,XXX
of the Standard Agreement. Any and all activities funded, information provided, and timelines represented in the Application will be enforceable through the fully executed Standard Agreement. Pursuant to the Guidelines and in conjunction with the terms of the Standard Agreement, the Applicant hereby agrees to use the funds for eligible uses and allowable expenditures in the manner presented and specifically identified in the approved Application.

PASSED AND ADOPTED this 24th day of February, 2026 by the following vote:

AYES:

NOES:

ABSENT:

DISQUALIFIED:

APPROVED: ______________________________
Fred Keeley, Mayor
ATTEST: _________________________________
Bonnie Bush, City Clerk Administrator

11.4 City Council

AGENDA REPORT
DATE: 02/05/2026
AGENDA OF: 02/24/2026
DEPARTMENT: Economic Development
SUBJECT: Municipal Wharf Lease Agreement with Santa Cruz Diner, Inc., dba Gilda’s for City-owned Commercial Space at 37 Municipal Wharf - Budget Adjustment (ED)
LOCATION: District 4
RECOMMENDATION: Motion to:
1) Approve and authorize the City Manager to execute the Municipal Wharf Lease Agreement with Santa Cruz Diner, Inc., and any documents, amendments or extensions of a non-substantive nature, in a form approved by the City Attorney, for the commercial retail space located at 37 Municipal Wharf;
2) Adopt a resolution amending the Fiscal Year 2026 budget to appropriate revenue in the amount of $4,233.00 to the 37 Municipal Wharf (w512601) project; and 3) Adopt a finding of categorical exemption pursuant to the following CEQA guidelines: 14 CCR 15301 (Existing Facilities) and 14 CCR 15061(b)(3) (Common Sense Exemption).

BACKGROUND: Gilda’s has been an iconic Wharf restaurant for over 50 years. It was constructed by the C. Stagnaro Family around 1971 as the original Sport Fishers Coffee Shop opposite their landing, which was popular for fishing trips and speed boat rides on the Sea Stag vessels. The restaurant was soon rebranded Gilda’s, after Gilda Stagnaro who ran the business for over 35 years. During the extended pandemic closure of restaurants that began on March 16, 2020, Gilda’s announced it would permanently close for operations under the C. Stagnaro Family on April 21, 2020. In June 2020, Santa Cruz Diner, Inc. (Charles Maier) was approved by the City to take over the lease for Gilda’s and continue the business.

Reopening in September 2020, Mr. Maier desired to retain existing staff and continue business operations as close to its tradition as possible. The City and Mr. Maier now wish to proceed with a new Municipal Wharf Lease Agreement for Gilda’s based on the new lease template, and subject to the terms outlined below.

DISCUSSION: With deep local roots, Charles Maier is committed to sustaining the legacy of long-time Santa Cruz landmarks. In addition to operating Gilda’s, Charles Maier owns and

12.1 operates several other local businesses, including Santa Cruz Diner on Ocean Street, The Crow’s Nest at the Harbor, and Palace Arts. In each of his businesses, he pursues a business model prioritizing traditions and aims to preserve workplace culture and staff. Gilda’s aligns well with this model and Charles has worked to preserve this historical Wharf business for the past 5 years.

As the business has begun to recover from its transition and pandemic impacts, both the owner and City staff are seeking stability to enable future investments in the space. As part of the proposed lease terms, investments in the property are proposed for both near and longer-term improvements. Near-term improvements focus on Gilda’s curb appeal, including replacement of the storefront windows to improve sight lines into and through the restaurant toward Steamers Lane. Window operability will allow windows to open during fair weather for a more engaging indoor/outdoor experience consistent with the Wharf Master Plan. An updated entry ceiling and dynamic multicolored lighting are also planned to draw in customers and add vibrancy to Gilda’s rich history. Within the initial term, the Tenant will also be replacing carpets, updating seating and tables, and investing at least $25,000 in other tenant improvements. Throughout the proposed lease term, the owner will continue improvements to the property through payment into the Capital Improvement Fund and minimum contributions of $40,000 worth of tenant improvements for each extended term of the lease.

These features, as well as the proposed terms below help address current needs, while being responsive to the practical conditions faced by Gilda’s and other Wharf restaurants under current market conditions
Proposed Terms:

Commencement Date: April 1, 2026
Term of Lease: Five (5) years, plus three (3) five-year (5) options to extend Rent: The greater of an annual minimum base rent of $38,864, or the sum of 3% of gross sales.

The minimum base rent is subject to annual adjustment based on the Consumer Price Index (CPI) for the San Francisco Area. A process for renegotiation of rental rates prior to the 2nd and 3rd extensions is also included to provide future opportunities for the City to reconcile revenue needs as Gilda’s continues to grow toward its full potential.

Capital Improvements: Tenant shall make payments into a dedicated Capital Improvement Fund project for the property, as specified below.
1% of adjusted gross sales up to a fund balance of $100,000

0.5% of gross sales if the fund balance exceeds $100,000 Tenant Improvements: Tenant shall invest a minimum amount in fixtures, furnishings, equipment, or facility upgrades during each term and option of the lease. Required contributions are as follows:

Initial Term: $25,000
Each Optional Extended Term: $40,000 ($120,000 Total)

12.2 CALIFORNIA ENVIRONMENTAL QUALITY ACT (CEQA) DETERMINATION: The proposed City Council action does not meet the definition of “project” under CEQA, as codified in Public Resources Code § 21065.

To the extent any of the proposed Council actions are deemed a project, they are exempt from CEQA under: (1) 14 CCR 15301 – Class 1 Categorical Exemption because the City Council action relates to the lease of an existing facility involving negligible or no expansion of existing or former use; and (2) 14 CCR 15061(b)(3) as an activity that, with certainty, does not have an effect on the environment.

HEALTH IN ALL POLICIES (HiAP): Promoting locally owned businesses helps support social and community bonds, improves community economic resilience, reduces commute times and pollution from owner operators, and generally aligns business activities with local culture and initiatives. While these factors may not in themselves influence public health, they have been shown to have a positive impact on the social determinants of health and support the overall well-being in the community.

FISCAL IMPACT:

1. The recommendation in this report impacts the General Fund: Yes

2. This recommendation requires a budget adjustment: Yes

3. The recommendation creates an on-going expenditure commitment: No FISCAL IMPACT DESCRIPTION: The minimum base rent of $9,716.00 per quarter is expected to yield minimum annual revenues in the amount of $38,864.00. Should sales exceed the minimum base rent, the percentage rent would increase the revenue Lease revenue from the commercial space is maintained in Municipal Wharf Fund (Fund 104) and helps support ongoing maintenance of the Wharf. Capital Improvement Fund contributions are collected in a capital investment project (CIP) 37 Municipal Wharf (w512601), dedicated to support ongoing property improvement and capital needs related to the premises. For the remainder of Fiscal Year 2026, the expected revenue is pro-rated for one (1) quarter at $4,233.00 based on observed Fiscal Year 2025 sales.

Prepared By:

David McCormic
Development Manager
Submitted By:

Bonnie Lipscomb
Deputy City Manager
Approved By:

Matt Huffaker
City Manager
ATTACHMENTS:

1. WHARF LEASE AGREEMENT – GILDA’S.PDF

2. BUDGET ADJUSTMENT.PDF

12.3

Rev. 12.15.2025

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 Santa Cruz Diner Inc., 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. “Gilda’s” (Section 8.01).

1.02 Commencement Date. April 1, 2026 (“Commencement Date”) (Section 3.01).

1.03 Term. Five (5) years, as of the Commencement Date and terminating no later than 11:59 p.m. on March 31, 2031 (“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 37 Municipal Wharf, Santa Cruz, California 95060 (APN 007-341-03) in the City of Santa Cruz, County of Santa Cruz, State of California and further depicted on Exhibit A and consisting of:
(a) Approximately ±5,257 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 - $9,716.00 per quarter, subject to annual increase. (Article 4)
(b) Percentage Rent Rate - Three percent (3%) of Gross Sales (Section 4.04). (c) Additional Rent (Section 4.10) and Capital Improvement Contributions (Section 4.11), as specified herein.

1.06 Use of Premises. Tenant shall use the Premises for operating and maintaining a restaurant and related merchandise (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)

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Winter: 11:00 AM – 5:00 PM (daily) (Section 8.04) (Operation of Business; Hours of Operation).

1.08 Security Deposit. $19,432 (Article 7).

1.09 Tenant’s Deadline to Complete Tenant’s Work. See Description of Landlord and Tenant Work (Exhibit H).

1.10 Guarantor of Lease. Charles Maier.

1.11 Tenant’s Address for Notices.

Charles Maier
PO Box 66488
Scotts Valley, CA 95067
Phone: 831-334-7000
Email: [email protected]

1.12 Landlord’s Address for Notices.

City of Santa Cruz
Attn: Dave McCormic
337 Locust Street
Santa Cruz, CA 95060
Phone: (831) 420-5156
Email: [email protected]

1.13 Landlord’s Address for Payment of Rent.

City of Santa Cruz
Finance Department
Attn - Revenue
1200 Pacific Ave, Suite 290
Santa Cruz, CA 95060

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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

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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.

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(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.

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(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

3.01 Commencement of Term. The initial term of this Lease (the “Initial Term”) shall commence on the date specified in Section 1.02 (Commencement Date) and shall continue until the date of termination specified in Section 1.03 (Term), unless terminated sooner in accordance with the terms and provisions of this Lease.

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3.02 Extension of 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 or any Extended Term (as defined below and as applicable). Landlord shall have the sole option to extend the Initial Term of this Lease for three (3) additional five (5) year periods (each an “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) and this Section 3.02(b). The Initial Term and Extended Terms are collectively referred to herein as the “Term.”
(b) No more than one hundred eighty (180) days and no less than one hundred and twenty (120) days prior to Tenant exercising the option to extend the first Extended Term (effective April 1, 2036) and second Extended Term (effective April 1, 2041), the Parties shall meet and confer to discuss adjustments to the Minimum Base Rent and Percentage Rent. Landlord may, in Landlord’s sole discretion, adjust the Minimum Base Rent and Percentage Rent (in addition to adjustments made pursuant to Article 4 (Rent)) for the second Extended Term (effective April 1, 2036) and third Extended Term (effective April 1, 2041), provided however, that Landlord will take into consideration the following targets:
(i) Landlord desires a target Percentage Rent of five percent (5%). (ii) Tenant desires a minimum target profit of five percent (5%).

Adjustments to the Minimum Base Rent and Percentage Rent pursuant to this Section will be documented via written amendment to this Lease.

If Tenant does not accept Landlord’s adjustment to the Minimum Base Rent and Percentage Rent made pursuant to this Section 3.02(b) Tenant’s Extension Request shall be ineffective and this Lease shall expire at the end of the Initial Term (or Extended Term, if applicable), unless otherwise terminated earlier in accordance with this Lease. (c) If Tenant has failed to cure a default in accordance with Article 15 (Default) of this Lease, at any time during the Initial Term or any Extended Term, if applicable, Tenant’s Extension Request shall be ineffective and this Lease shall expire at the end of the Initial Term (or Extended Term, if applicable), unless otherwise terminated earlier in accordance with this Lease. (d) 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). (e) 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 (or Extended Term, if applicable),. Tenant shall have no other rights to extend the Term.
(f) 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,

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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.
(a) The Term will expire at 11:59 p.m. (PST) on the Expiration Date specified in Section 1.03 (Term), unless sooner terminated or otherwise extended as permitted under this Lease.
(b) If Tenant should remain in possession of the Premises after the expiration or earlier termination of the Term of this Lease in the absence of a new lease agreement, or after Landlord has declared a forfeiture of this Lease as a result of Tenant’s default, then such holding over shall be construed as a tenancy from month-to-month, subject to all of the terms, conditions, provisions and obligations of this Lease at the time this Lease expires or upon Tenant’s default, as the case may be, except the Minimum Base Rent, and/or the Percentage Rent shall be one and one half (1 ½ ) times the amount of such rent in effect immediately prior to Tenant’s holdover. Unless Tenant obtains the express written consent of Landlord to holding over, Landlord does not waive its right to pursue any legal or equitable remedy against Tenant with regard to Tenant’s continued possession of the Premises after the expiration of the Term of this Lease. Under a month-tomonth tenancy, Tenant may terminate this Lease by providing Landlord with written notice at least thirty (30) days prior to the intended termination date. Tenant shall be responsible for paying Rent through the termination date even if moving out early. Landlord may terminate the tenancy by giving notice to Tenant as required by law.

3.04 Surrender of Premises.
(a) Surrender. On the expiration or earlier termination of this Lease, Tenant shall, at Tenant’s sole expense:
(i) surrender and vacate the Premises (including, but not limited to all Tenant Improvements) to Landlord in a clean, safe, sanitized, and in good order and condition, except for ordinary wear and tear; and,
(ii) abate and remove all of Tenant’s Personal Property in compliance with Applicable Requirements; and repair all damage caused by such removal subject to the provisions of Section 9.04 (Trade Fixtures), Section 9.05 (Design Standards), Section 9.07 (Restoration), Section 9.08 (Ownership of Improvements), and this Section; and, (iii) restore the Premises to the condition existing as of the first day of the Term or better, without removing approved Tenant Improvements, alterations or additions, reasonable wear and tear excepted, unless Landlord expressly requested their removal at Tenant’s sole cost and expense; and,
(iv) render the Premises safe and free from debris and hazards, and without any reduction in value resulting from any conduct in violation of this Lease; and (v) surrender all keys to the Premises to Landlord.

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.

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(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 quarter based on the following periods for each quarter (Jan-March, April-June, July-Sept, OctDec); or a percentage rent (“Percentage Rent”) in a sum equal to three percent (3%) of Gross Sales (as defined in Section 4.07 [Gross Sales] below) calculated quarterly.

The foregoing Minimum Base Rent and Percentage 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.
(a) 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.
(b) 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.

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4.03 Rent Payment Procedure. Rent shall be paid in lawful money of the United States and remitted to Landlord at the address listed in Section 1.13 (Landlord’s Address for Payment of Rent) or at such other location as Landlord may notify Tenant in writing. Rent for the preceding quarter shall be due and payable in full by Tenant thirty (30) days after the quarter ending. Rent paid after thirty (30) days after the quarter ending will be considered late and subject to a late charge and interest as set forth below. Each rent payment shall be paid without deduction, offset, prior notice or demand.

4.04 Percentage Rent/Quarterly Statements of Gross Sales. In accordance with the rent payment schedule set forth in Section 4.03 (Rent Payment Procedure), Tenant shall furnish to Landlord a written Statement of Gross Income and Percentage Rent (the “Quarterly Statement”) (Exhibit D), certified by Tenant under penalty of perjury to be true and correct, showing the total Gross Income and Percentage Rent and other rent due based upon the preceding quarter. Said statement shall be in a form substantially similar to that as set forth in Exhibit D (Statement of Gross Income and Percentage Rent) (attached hereto and made part hereof), which is subject to modification by Landlord. In addition, Tenant shall provide Landlord with copies of all state sales tax reports at the same time as they are provided to the State Board of Equalization and upon request by Landlord. Tenant acknowledges that Rent paid without being accompanied by the Quarterly Statement will be considered late payment of Rent.

4.05 Adjustments to Minimum Base Rent.
(a) Adjustment to Base Rent. In addition to the adjustment specified in Section 3.02 (Extension of Term), 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.

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(b) 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.

4.06 Late Charges and Interest on Unpaid Rent; Maximum Legal Interest; NonSufficient Funds. (a) Tenant acknowledges that late payment by Tenant to Landlord of Rent, and/or failure to submit when due Quarterly Statements, California state, local and district sales and use returns, and/or other reports, records or documentation set forth herein, will cause Landlord to incur costs not contemplated by this Lease, the exact amount of such costs being extremely difficult and impracticable to fix. Such costs include, without limitation, processing and accounting charges, and late charges that may be imposed on Landlord by the terms of any encumbrance and/or note secured by any encumbrance covering the Premises.

(b) Therefore, if any installment of Rent due from Tenant, Quarterly 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 Quarterly 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 Quarterly Statement and/or of Gross Sales.

(b) If Tenant fails to furnish any Quarterly Statement or annual balance sheet and profit and loss statement when due, Landlord shall have the right, after giving Tenant five (5) days' written

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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 Quarterly 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 $108.00 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

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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 quarterly 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 quarter. In the event the Capital Improvement Fund’s balance is $100,000 or greater at the time the payment is due, Tenant’s deposit to the Capital Improvement Fund shall be reduced to one half percent (0.5%) for the next quarter. The contribution amount shall return to one percent (1%) for the next quarter if the unencumbered Capital Improvement Fund balance falls below $100,000 at the end of the quarter. 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

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Fund deposits required to be made by Tenant pursuant to this Section 4.11 (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 quarter 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

4.10 (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 4.10 (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

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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

5.01 Tenant to Pay Personal Property and Possessory Interest Taxes. (a) Tenant shall be solely responsible for and promptly pay before delinquency during the Term of this Lease, without abatement, deduction, or offset, any and all real property, possessory interest, and personal property taxes, general and special assessments, and other charges and fees of any description (including, without limitation, any increase caused by a change in the tax rate or by a change in assessed valuation) attributable, levied or assessed by any governmental agency or entity on or against the Premises, the improvements located (or to be located) on the Premises (including, but not limited to any Tenant Improvements), personal property located on, at, about or in the Premises or improvements located or to be located thereon (including, but not limited to any Tenant Improvements), and the leasehold estate created by this Lease. Tenant shall also be responsible for all other operating costs associated with the Premises and/or Tenant’s use of and/or operations at the Premises (as further described in Article 6 below). (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 other charges have been paid by Tenant as required under this Article 5. If Tenant fails to timely pay any taxes, fees, charges, or assessments, as provided herein, Landlord shall have the right (without notice to Tenant), but not the obligation, to pay such taxes, fees, charges, and/or assessments on behalf of Tenant. In that event, Tenant shall promptly on written demand of Landlord reimburse Landlord for the full amount paid by Landlord in paying or discharging that tax, assessment, fee or other charge, together with a twenty percent (20%) overhead administrative fee and interest thereon at the then-maximum legal rate from the date of payment by Landlord until the date of repayment by Tenant.

5.02 Tenant Indemnification of Landlord for Taxes. Tenant shall indemnify, defend and hold Landlord (and Landlord’s officers, officials, employees, representatives, and agents) and Landlord's property, including, but not limited to, the Wharf, the Premises and any improvements (including, but not limited to, any Tenant Improvements) now or subsequently located on the Premises, harmless from any liability, loss, cost, or damage resulting from any taxes, fees, assessments, or other charges required by this Article 5 to be paid by Tenant and from all interest, penalties, and other sums imposed thereon and from any sales or other proceedings to enforce collection of any such taxes, assessments, or other charges.

5.03 Parking and Business Improvement Area Zone and Charges. Tenant shall pay before delinquency all taxes, assessments, fees, and other charges that are attributable, levied, assessed, charged or imposed upon businesses within any Parking and Business Improvement Area Zones that include the Santa Cruz Municipal Wharf, which may be established by the City of Santa Cruz. On demand by Landlord, Tenant shall furnish Landlord with satisfactory evidence of these payments.

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5.04 Title 12 Santa Cruz Municipal Code - Local Improvements. Tenant shall pay before delinquency its proportionate share of all taxes, assessments, fees, and other charges that are attributable, levied, and/or assessed against the building(s), other improvements, and land of which the Premises are part by any improvement and/or maintenance district that includes the Santa Cruz Municipal Wharf, which may be created under Title 12 Santa Cruz Municipal Code - Local Improvements as amended (Chapter 12:32.420, Resolutions NS-2233, 20190, and 20424) or any revised or successor ordinances or resolutions applicable thereto. On demand by Landlord, Tenant shall furnish Landlord with satisfactory evidence of these payments.

5.05. City of Santa Cruz Business License. A city business license is required concurrent or prior to execution of this Lease. Tenant agrees to provide proof of a current City of Santa Cruz Business Tax Certificate. Tenant may contact the City’s Finance Department at 831- 420-5050 for more information.

ARTICLE 6 - OPERATING EXPENSES

6.01 Operating Expenses. In addition to the Minimum Base Rent and Percentage Rent specified above, Tenant shall pay as Additional Rent, a pro rata amount of certain expenses (the “Operating Expenses”) incurred by Landlord in the operation and maintenance of the Premises.

These common Operating Expenses include, without limitation, general maintenance and repair of the fabric portion of the awnings, general maintenance and repair of exterior siding, exterior painting, periodic cleaning of the roof, and certain maintenance, repairs and replacement of the heating, ventilation and air conditioning systems. Upon request, on or before September 30th of each year, Landlord shall provide Tenant with an annual statement or recapitulation of all charges allocated to Tenant as Operating Expenses and Landlord reserves the right to seek payment thereof with prior notice to Tenant, of not less than thirty (30) days, for Tenant’s payment of such expenses.

6.02 Tenant’s Pro Rata Share. Tenant’s pro rata share of Operating Expenses shall be determined as follows:

(a) Exterior Siding: Tenant shall be responsible for a pro rata share of the cost of maintenance and repair of all exterior siding based on the ratio of the square footage of the Premises to the total square footage of the building in which the Premises are located. (b) Awnings: Tenant shall be responsible for a pro rata share of the cost of maintenance (including, but not limited to, cleaning) and repair of the fabric portion of all exterior awnings based on the ratio of the linear feet of the awnings benefiting the Premises to the total linear feet of all awnings.
(c) Roof: Tenant shall be responsible for a pro rata share of the cost of the cleaning of the roof based on the ratio of the square footage of the Premises to the total square footage of the building in which the Premises are located. Said periodic cleaning shall include, without limitation, the removal of bird debris and excrement at such times as the Landlord deems necessary.
(d) HVAC: In the event that Landlord contracts with a service company pursuant to Section 10.01 (Landlord’s Maintenance Obligations), Tenant shall be responsible for the cost of the maintenance, repairs and replacement of the heating, ventilation and air conditioning systems (“HVAC”) of the Premises.

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ARTICLE 7 - SECURITY DEPOSIT

7.01 Amount of Deposit. Concurrently with the Effective Date of this Lease or within a timeline approved by Landlord, Tenant shall deposit with Landlord the sum set forth in Section

1.08 herein (the “Security Deposit”) or an amount equal to two (2) quarters of the Minimum Base Rent, whichever is greater. This Security Deposit shall be held by Landlord, as partial security for the full and faithful performance by Tenant of all the terms, covenants and conditions of this Lease to be performed by Tenant. Landlord may commingle the Security Deposit and shall not be required to keep it separate from its general funds. Tenant shall not be entitled to any interest on such deposit.

Landlord may adjust the Security Deposit amount annually to account for increases in Minimum Base Rent. Such additional Security Deposit amounts shall be due within a timeline approved by Landlord. The Security Deposit shall not exceed the equivalent of two (2) quarters of the Minimum Base Rent.

7.02 Use of Security Deposit. If Tenant fails to abide by any of the terms, covenants and/or conditions of this Lease, or otherwise defaults with respect to the provisions of this Lease, then Landlord, at its option (and without any obligation to do so), may use any amount of the Security Deposit to compensate Landlord for any loss or damage sustained or suffered due to such failure by Tenant. The entire Security Deposit, or any portion thereof, may be applied by Landlord for the payment of overdue Rent or other sums due and payable to Landlord by Tenant hereunder. Tenant shall, upon the written demand of Landlord, immediately remit to Landlord a sufficient amount to restore the Security Deposit to the original sum deposited or two (2) quarters of the Minimum Base Rent, whichever is greater. Failure to do so within five (5) days after such demand, or a timeline approved by Landlord, shall constitute a material breach of this Lease.

7.03 Return of Security Deposit. If Tenant fully performs all of its duties and obligations under this Lease, complies with all of the terms, covenants and conditions of this Lease, and promptly pays when due all of the Rent herein provided and all other sums payable by Tenant under this Lease, Landlord will return to Tenant the remaining portion of the Security Deposit within thirty (30) days after the expiration or earlier termination of this Lease, Tenant’s vacation of the Premises, and Landlord’s receipt of possession of the Premises in accordance with the provisions of this Lease.

7.04 Increase of Security Deposit. If Tenant shall default under this Lease more than two (2) times in any twelve (12) month period, irrespective of whether or not such default is cured, then the Security Deposit shall, within ten (10) days after demand by Landlord, be increased by Tenant to an amount equal to the greater of: (i) two (2) times the amount specified in Section 7.01 (Amount of Deposit) above; or (iii) as may be otherwise reasonably required by Landlord.

7.05 Transfer of Security Deposit. Landlord may deliver the Security Deposit to Landlord’s assignee or successor in interest in the Premises, in the event that Landlord’s interest is sold, conveyed, transferred or assigned, and upon delivery. Landlord shall be discharged from any further liability with respect to repayment of the Security Deposit to Tenant.

7.06 Waiver. Tenant waives the provisions of California Civil Code section 1950.7 and any Laws, or any successor statute, or any other law, which is contrary to the terms of this Article

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ARTICLE 8 - USE

8.01 Use of Premises.
(a) Tenant shall use the Premises under the trade name, and solely for the use specified in Section 1.01 (Tenant Trade Name), Section 1.06 (Use of Premises) and Section 1.07 (Hours of Operation) herein, subject to the terms and conditions contained in this Article 8 and in compliance with all Applicable Requirements, and governing permits, approvals, authorizations, and Laws (which shall include all applicable city, county, state, or federal laws, ordinances, and/or regulations) now existing or which shall exist.
(b) Tenant shall use the Premises solely for the purposes of operating, maintaining and managing for profit as described in Section 1.06 (Use of Premises). Tenant’s business shall be established and conducted throughout the Term in a clean, safe, and lawful manner. Tenant shall not change the use of the Premises without first obtaining the written consent of Landlord (which consent may be delayed or withheld in Landlord’s sole and absolute discretion). Tenant shall use its best efforts to operate its business on the Wharf and use the Premises for purposes permitted by this Article 8 in a manner that will maximize Gross Sales. (c) Tenant’s branding and business concepts shall be distinct from other businesses on the Wharf and approved by the City of Santa Cruz’s Economic Development and Housing Director, or City’s designee.
(d) At City’s request, Tenant shall provide an anticipated annual percentage increase in growth of Gross Sales goal during the Term (including, without limitation, any Extended Term) to Landlord, and at a minimum, shall consider the following recommendations to attain the annual goals:

1. Clearly identify a target market

2. Mixed media advertising campaign

3. Develop online presence and/or virtual sales

4. Consider pricing changes

5. Consult with Small Business Development Center

6. Explore options to enhance curb appeal and customer experience (e) In the event Tenant sales decrease more than twenty-five percent (25%) over the prior three (3) year average, Tenant and Landlord shall, within forty-five (45) days of Landlord’s request, develop an action plan incorporating the recommendations outlined in Section

8.01(d) to increase growth of Gross Sales. Such plan shall be subject to Landlord approval.

Tenant shall implement this pre-approved action plan within one hundred eighty (180) days or within a timeline approved in writing by Landlord.
(f) Tenant shall at no time allow slot machines or any other gaming machines or arcade amusement machines (including, without limitation pinball, video, and other games of amusement), to be used, operated or kept within the Premises without the prior written consent of Landlord. Tenant shall not commit or suffer to be committed any waste upon the Premises or any nuisance or other act or thing which may disturb the quiet enjoyment of any other tenants or their customers on the Wharf.

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8.02 Compliance with Laws; Permits. From and after the Effective Date of this Lease and throughout the entire Term of this Lease and operation of Tenant’s business, Tenant shall, at Tenant's sole cost and expense, observe, comply with and conform to all Laws, permits, approvals, certifications, permissions, authorizations and requirements (including, without limitation, those requiring capital improvements to the Premises and/or improvements thereon) of all Governmental Bodies (which for purposes of this Lease shall include, without limitation, federal, state, county, and/or municipal) and any board of fire underwriters (or other similar body now or hereafter constituted), relating to the Premises and/or the improvements located (or to be located) thereon, any activities on, at or in connection with the Premises and/or the improvements located (or to be located) thereon, and any use and/or occupancy of the Premises and/or the improvements located (or to be located) thereon (and including, but not limit to, any particular use or occupancy by Tenant).

Any use permitted by this Lease, as well as any construction, improvement, addition, alteration, or modification of the Premises or improvements located (or to be located) thereon, must be independently consistent with, and not in violation of, the provisions of the City of Santa Cruz Charter and Municipal Code, Applicable Requirements and Laws. Tenant is advised and understands that in addition to this Lease, Tenant may need to obtain permits, licenses, authorizations, certifications, permissions, approvals, and/or other dispensations from the City of Santa Cruz and/or other Governmental Bodies prior to engaging in the permitted uses, performing any work, performing any Tenant Improvement, and/or engaging in any other construction, improvement or modification of the Premises or improvements located (or to be located) thereon.

From and after the Effective Date and throughout the Term of this Lease, Tenant shall be responsible for obtaining and maintaining, at its own cost and expense, any and all licenses, permits, certifications, permissions, approvals, and/or other governmental authorizations required for Tenant’s occupancy and use of the Premises, any portion of the Premises, and any improvements located (or to be located) thereon, in the manner contemplated under this Lease, including, without limitation, those necessary for the construction and operation of any Tenant Improvements, and all related uses. Tenant shall promptly take all actions necessary to comply with all Laws, licenses, permits, certifications, permissions, approvals, and authorizations regulating the occupancy and/or use by Tenant of the Premises and improvements located (or to be located) thereon.

8.03 Prohibited Uses; No Illegal Purposes or Nuisance. Tenant shall not use, or permit the Premises (or any part thereof or any improvement located or to be located thereon) to be used, for any purpose other than the purpose for which the Premises are hereby leased. No use shall be made or permitted to be made of the Premises or any improvement located (or to be located) thereon, nor acts done, which will increase the existing rate of insurance upon the Premises, or cause a cancellation of any insurance policy covering the Premises or any part thereof. Tenant shall not sell or permit to be kept, used, stored or sold in, on, at or about the Premises (or any improvement located or to be located thereon) any article which may be prohibited by any policy of fire, casualty or liability insurance obtained by Landlord. Tenant shall, at its sole cost and expense, comply with any and all requirements regarding the use of the Premises (and any improvement located or to be located thereon) by any company that issues a policy of fire, casualty or public liability insurance to Landlord. If Tenant's use of the Premises results in any rate increase for the Premises, Tenant shall pay as Additional Rent within ten (10) days written notice, a sum equal to the additional premium caused by such rate increase.

Tenant shall not use or permit the Premises (or any improvement located or to be located thereon) or any portion of the Premises to be improved, altered, constructed, developed, used, or occupied in any manner or for any purpose that is in any way prohibited or in violation of any applicable Law or permit. Furthermore, Tenant shall not cause, maintain, commit, or permit the Premises (or any improvement located or to be located thereon) or any adjoining or underlying portion of the Wharf to be used in any way that constitutes waste or a nuisance (as now or

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hereafter defined by any statutory or decisional law applicable to the Premises or any part of the Premises), or that unreasonably annoys, disturbs or interferes with owners and/or occupants of, or causes damage to the balance of the Wharf or neighboring premises, properties, or improvements.

Tenant shall not conduct any auctions, liquidation or bankruptcy sales, “fire” sales or sidewalk sales on, about or near the Premises without Landlord’s prior written consent.

8.04 Operation of Business; Hours of Operation. During the Term of this Lease, including, but not limited to, any and all extensions thereto, Tenant shall utilize all of its usable space within the Premises in the ordinary course of business. Tenant shall conduct its business in the Premises during the usual and customary days and hours for such type of business, as set forth in Section 1.06 (Use of Premises) and Section 1.07 (Hours of Operation). Unless otherwise agreed by Landlord in writing, Tenant’s hours of operation shall be as specified in Section 1.07 (Hours of Operation) and shall in no event be less than such hours of operation, except in an emergency or Force Majeure event, or otherwise approved in writing by Landlord.

Tenant shall notify Landlord prior to any temporary closure of the business exceeding two (2) days, or any modification of ongoing operating hours. In the event Tenant desires to close the business for five (5) consecutive days, Tenant shall make a written request to Landlord at least fourteen (14) days prior to the start of the business closure, or immediately in the event of an emergency. In no event, shall Tenant close the business for five (5) consecutive days or more without Landlord’s prior written approval. Notwithstanding any other terms of this Lease, Tenant’s closure of the business shall not constitute a waiver or modification of any Rent due.

In the event that Tenant intends to terminate this Lease for any reason, or abandon the Premises, prior to the expiration of the Term of this Lease without the prior written consent of Landlord, Tenant shall immediately notify Landlord in writing of its intention to terminate or abandon. Except for the expiration of the Term of this Lease, Tenant agrees to keep the Premises open for business during regular business hours for a period of ninety (90) days following notice of termination or abandonment. During this ninety (90) day period, Tenant shall keep the Premises adequately stocked with merchandise and maintain sufficient personnel in order to conduct its business in accordance with sound business practices.

8.05 Storage; Office Space. Tenant may warehouse, store and stock within the Premises only such goods, wares and merchandise as Tenant intends to offer for retail sale on or about the Premises. This shall not preclude occasional emergency transfers of merchandise to any other store belonging to Tenant, if any, which is not located on the Wharf. Tenant shall use for office, clerical or other non-selling purposes only such limited space in the Premises as is, from time to time, reasonably required for Tenant’s business operation on the Premises.

Tenant shall not conduct any auctions, liquidation or bankruptcy sales, “fire” sales or sidewalk sales on, about or near the Premises without Landlord’s prior written consent.

8.06 Cooperative Retail Management. INTENTIONALLY OMITTED.

8.07 Hazardous or Toxic Materials/Indemnification of Landlord. (a) Tenant shall, at its sole cost and expense, comply with all Laws concerning environmental conditions, emissions, pollutants and controls. Tenant warrants and agrees that it will not introduce, disturb, release, discharge, use, maintain, generate, store, treat or dispose of any Hazardous Material (as defined below) on, in, at, about, from, or under the Premises (or any improvements located or to be located thereon) in violation of any applicable environmental Laws (including, but not limited to, those laws described below). Tenant further warrants and agrees that Tenant shall not cause, store, use or permit any Hazardous Material, including without

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limitation, asbestos or polychlorinated biphenyls, to be brought upon, kept or used on, in, at, about, from, or under the Premises (or the improvements located or to be located thereon) by Tenant, its officers, directors, employees, representatives, agents, volunteers, contractors, subcontractors, suppliers, invitees, customers, or others acting on Tenant’s behalf or under Tenant’s authority or control, without the prior written consent of Landlord (which consent may be withheld or delayed in Landlord’s sole discretion).
(b) Tenant shall indemnify, defend (with counsel reasonably satisfactory to Landlord) and hold harmless Landlord (and its officials, officers, directors, employees, volunteers, agents, representatives, independent contractors, successors, and assigns) from and against (a) any costs, actions, lawsuits, judgments, penalties, fines, liability, loss, damages, or claims as related to a Hazardous Materials contamination of the Premises (or the improvements located or to be located thereon) caused by Tenant, its officers, directors, employees, representatives, agents, volunteers, contractors, subcontractors, suppliers, invitees, customers, or others acting on Tenant’s behalf or under Tenant’s authority or control; and (b) any and all claims, actions, lawsuits, judgments, damages, penalties, fines, costs, expenses (including, but not limited to, reasonable attorneys’ fees), liabilities and/or losses, including, without limitation, diminution in value of the Premises (or the improvements located or to be located thereon), damages for the loss or restriction on use of rentable or usable space or of any amenity of the Premises (or the improvements located or to be located thereon), damages arising from any adverse impact on marketing of space on the Wharf, and sums paid in settlement of claims, attorneys’ fees, consultant fees and expert fees which arise during or after the Term as a result of or as related to (i) the presence in, on, under, at or about the Premises (or the improvements located or to be located thereon), or discharge in, on, at, under or from the Premises (or the improvements located or to be located thereon), of any Hazardous Materials generated and/or brought on or about the Premises (or the improvements located or to be located thereon) by Tenant (or its officers, directors, employees, agents, or anyone acting within Tenant’s authority or control); and/or (ii) Tenant’s failure to comply with any applicable environmental Laws (including, without limitation, those laws described below) applicable to the Premises (and/or the improvements located or to be located thereon). Without limiting the foregoing, if the presence of any Hazardous Material on the Premises (or the improvements located or to be located thereon) caused or permitted by Tenant results in any contamination of the Premises (or the improvements located or to be located thereon), Tenant shall promptly take all actions at its sole cost and expense as are necessary to return the Premises (and the improvements located or to be located thereon) to the condition existing prior to the introduction of any such Hazardous Material to the Premises; provided that Landlord’s approval of such action(s) shall first be obtained, which approval shall not be unreasonably withheld so long as such action(s) would not potentially have any material adverse long-term or short-term effect on the Premises (or the improvements located or to be located thereon).
(c) As used herein, the term “Hazardous Material” means any hazardous or toxic substance, material or waste which is or becomes regulated by any local governmental authority, the State of California or the United States Government. The term “Hazardous Material” shall include without limitation, any material or substance which is: (i) defined as a “hazardous waste,” “extremely hazardous waste” or “restricted hazardous waste” under Sections 25115, 25117 or 25122.7, or listed pursuant to Section 25140, of the California Health and Safety Code, Division 20, Chapter 6.5 (Hazardous Waste Control); (ii) defined as a “hazardous material” under Section 25501 of the California Health and Safety Code, Division 20, Chapter 6.95 (Hazardous Materials Release Response Plans and Inventory); (iii) defined as a “hazardous substance” under Section 25281 of the California Health and Safety Code, Division 20, Chapter

6.7 (Underground Storage of Hazardous Substances); (iv) petroleum; (v) asbestos; (vi) listed under Article 9 or defined as hazardous or extremely hazardous pursuant to Article 11 of Title 22 of the California Administrative Code, Division 4, Chapter 20; (vii) designated as a “hazardous substance” pursuant to Section 311 of the Federal Water Pollution Control Act (33 U.S.C. § 1317);

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(viii) defined as a “hazardous waste” pursuant to Section 1004 of the Federal Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq. (42 U.S.C. § 6903); or (ix) defined as a “hazardous substance” pursuant to Section 101 of the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq. (42 U.S.C. § 9601), and any amendments or successor statutes thereto.

8.08 Compliance with Governmental Regulations. Tenant shall, at its sole cost and expense, comply with all of the requirements of all local, state, and federal authorities now in force, or which may hereafter be in force, pertaining to the Premises and the Wharf. With regard to the use of the Premises, Tenant shall faithfully observe all local ordinances and state and federal statutes now in force or which may hereafter be in force.

8.09 Americans with Disabilities Act. Throughout the Term of the Lease, Tenant acknowledges and expressly accepts full responsibility and shall incur all costs and expenses (whether structural or non-structural in nature) for compliance with the requirements of the Americans with Disabilities Act (ADA) and any other Law regarding the accessibility of the Premises (and the improvements located or to be located thereon) by disabled individuals. Tenant agrees to release, indemnify, defend and hold harmless Landlord (and its officials, officers, directors, employees, agents, representatives, volunteers, contractors, successors and assigns) from and against any claim, loss, expense or liability arising from or related to Tenant’s failure to fully comply with all such Laws and/or this Section 8.08 (Americans with Disabilities Act).

If the Premises requires modifications to comply with the ADA or any other local, state or federal law or regulation regarding the accessibility of the Premises by disabled individuals, Tenant shall be fully responsible for the cost thereof, provided however, that if expenditures are required during the last six (6) months of this Lease, or Extended Term, and the cost thereof exceeds six (6) months the Minimum Base Rent, Tenant may instead terminate this Lease unless Landlord notifies Tenant, in writing, within ten (10) days after receipt of Tenant’s termination notice that Landlord has elected to pay the difference between the actual cost thereof and the amount equal to six (6) months the Minimum Base Rent. If Tenant elects termination, Tenant shall immediately cease the use of the Premises and deliver to Landlord written notice specifying a termination date at least ninety (90) days thereafter. Such termination date shall, however, in no event be earlier than the last day that Tenant could legally utilize the Premises without commencing such modifications. Termination of this Lease does not relieve Tenant of any duty to assume legal responsibility as stated below for any third-party claims related to compliance with the ADA.

8.10 CASp Inspection.

Landlord states that the Premises has not been inspected by a Certified Access Specialist (CASp). Accordingly, this notice is provided by Landlord pursuant to California Civil Code Section 1938:
“A Certified Access Specialist (CASp) can inspect the subject premises and determine whether the subject premises comply with all of the applicable construction-related accessibility standards under state law. Although state law does not require a CASp inspection of the subject premises, the commercial property owner or lessor may not prohibit the lessee or tenant from obtaining a CASp inspection of the subject premises for the occupancy or potential occupancy of the lessee or tenant, if requested by the lessee or tenant. The parties shall mutually agree on the arrangements for the time and manner of the CASp inspection, the payment of the fee for the CASp inspection, and the cost of making any repairs necessary to correct violations of the construction-related accessibility standards within the premises.” Unless otherwise expressly stated in this Lease and subject to the terms of this Lease, Tenant may elect at any time to perform a CASp inspection of the Premises at Tenant’s expense;

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Tenant agrees that: (a) any repairs or modifications necessary to correct violations of applicable construction-related accessibility standards within or about Premises are the responsibility of Tenant; (b) any construction-related accessibility improvements by Tenant or alterations of or improvements to the Premises are the responsibility of the Tenant; (c) any repairs or modifications to correct violations of applicable construction-related accessibility standards are the responsibility of Tenant.

8.11 Green Business Program.
(a) Landlord requires that all Wharf tenants become a certified Green Business through the City of Santa Cruz Green Business Program. Green Businesses reduce carbon dioxide generation, conserve energy by using fluorescent lighting and Energy Star rated equipment, conserve water through the use of low-flow toilets and water flow restrictors, conserve natural resources by promoting public transit, biking and walking, reduce waste by recycling and composting and using materials with recycled content, and use less toxic products, all of which provide a safer and healthier environment for employees and visitors to the Wharf. (b) Tenant shall contact the City of Santa Cruz Green Business Program and schedule and complete a free Green Business Program Audit within six (6) months of the Commencement Date.
(c) Upon receiving the results of the Green Business Program Audit, and at Tenant’s sole discretion, Tenant may proceed to become a certified Green Business. (d) As an incentive to Tenant to become a certified Green Business, and only after receiving Landlord’s express written approval, Tenant may utilize up to twenty-five (25%) percent of Tenant’s contributions to the Capital Improvement Fund for improvements to the Premises specifically listed on the Certified Green Business Program Checklist. (e) Upon receipt from Tenant of documented proof of Tenant’s payment of costs for eligible Green Business improvements, and Tenant’s certification as a Green Business Program, Landlord, at Landlord’s sole and absolute discretion, will reimbursement Tenant or defer collection of Tenant’s required quarterly Capital Improvement Fund contributions until the total amount deferred equals the amount of Tenant’s Green Business improvement costs, at which time Tenant shall resume making quarterly Capital Improvement Fund contributions.

8.12 Use of Sidewalk Area. Tenant shall not in any way encumber, obstruct or impede the sidewalks and any ramps that may be present in front of the Premises.

Tenant shall at all times keep and maintain said sidewalks in good condition and repair, free and clear of all obstacles, stands (including, but not limited to, any hostess or sales stands), dirt, mud, water, debris, rubbish, filth, and other encumbrances or obstructions, and safe and convenient for the use of the public, unless otherwise approved by the Landlord in writing.

ARTICLE 9 - IMPROVEMENTS, ALTERATIONS, AND ADDITIONS
For the purpose of this Lease, “Tenant Improvements” shall mean any fixtures, furnishings, equipment, or modifications to the Premises installed or caused to be installed by Tenant or otherwise not present on the Premises prior to Tenant’s occupancy.

9.01 Tenant Improvements
Tenant shall make all improvements listed in Exhibit H (Description of Landlord and Tenant Work), attached hereto and incorporated herein, prior to the deadlines specified therein.

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In addition to improvements listed in Exhibit H:
(a) Prior to the end of the Initial Term, and as a requirement to obtain Landlord’s approval of the first Extended Term, Tenant shall make Tenant Improvements, with Landlord’s prior written consent (which consent may be withheld or delayed in Landlord’s sole and absolute discretion) in an amount equal to at least $25,000. (b) Prior to the end of the first Extended Term, and as a requirement to obtain Landlord’s approval of the second Extended Term, Tenant shall make Tenant Improvements, with Landlord’s prior written consent (which consent may be withheld or delayed in Landlord’s sole and absolute discretion) in an amount equal to at least $40,000. (c) Prior to the end of the second Extended Term, and as a requirement to obtain Landlord’s approval of the third Extended Term, Tenant shall make Tenant Improvements, with Landlord’s prior written consent (which consent may be withheld or delayed in Landlord’s sole and absolute discretion) in an amount equal to at least $40,000. (d) Prior to the end of the third Extended Term, Tenant shall make Tenant Improvements, with Landlord’s prior written consent (which consent may be withheld or delayed in Landlord’s sole and absolute discretion) in an amount equal to at least $40,000. (e) Tenant may make the required Tenant Improvements for the first, second or third Extended Terms during any prior Extended Term, such that total expenditures equal at least $40,000 per Extended Term or an aggregate of $120,000. (f) Tenant shall be required to construct Tenant Improvements at the Premises in accordance with the following:
i. No later than thirty (30) days following the expiration of the applicable Term, Tenant shall submit to Landlord an accounting of all expenses paid by Tenant for any Tenant Improvements at the Premises. Such accounting shall include copies of paid receipts, paid invoices, and other documentation as determined by Landlord to be sufficient to validate Tenant’s aggregate costs for the Tenant Improvements.
ii. In the event that Tenant cannot document its expenditures for Tenant Improvements for the applicable Term in the amount required herein, Tenant shall, immediately upon demand from Landlord, pay to Landlord any underage as determined by Landlord.
iii. Tenant shall obtain Landlord’s written consent pursuant to Section

9.02 (Consent) of this Agreement prior to constructing or installing Tenant Improvements.
iv. Tenant shall be solely responsible for applying for and obtaining all building, zoning or other permits required by local or state regulatory authorities related to any Tenant Improvements.
(g) Tenant may receive a credit, at Landlord’s sole discretion and subject to Landlord’s final approval of design and cost estimate, towards Capital Improvement Fund up to fifty percent (50%) of the value of window replacements as specified in Exhibit H (Description of Landlord and Tenant Work) and constructed by Tenant at the Premises during the Initial Term.

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In order to receive a credit Tenant shall submit documentation as determined by Landlord to be sufficient to validate Tenant’s aggregate costs.

9.02 Consent. Tenant shall not make any improvements, alterations, additions, or repairs to the exterior of the Premises without Landlord’s prior written consent (which consent may be withheld or delayed in Landlord’s sole and absolute discretion). Tenant shall not make any improvements, alterations or additions to the interior of the Premises which cost in excess of fifteen thousand dollars ($15,000), or the equivalent current dollar value at Landlord’s sole discretion, at the time work is proposed, without Landlord’s prior written consent (which consent may be withheld or delayed in Landlord’s sole and absolute discretion). All improvements, alterations, additions, or repairs shall be in conformity with the laws, directives, rules, permits, or regulations of all applicable public and governmental agencies, as well as the terms and conditions of this Lease, including, but not limited to, the provisions of this Article 9. Any improvements, alterations, additions, or repairs shall be made at Tenant’s sole costs and expense. Landlord shall also own any improvements constructed by Tenant or Landlord on the Premises.

9.03 Notices; Liens. At least fifteen (15) days prior to commencing any work relating to any improvements, alterations, additions, or repairs approved by Landlord, Tenant shall notify Landlord and Wharf Supervisor in writing of the expected commencement date and completion date for the work. Landlord shall have the right thereafter to post and maintain on the Premises such notices (including, but not limited to, notices of Landlord’s non-responsibility) as Landlord deems necessary to protect Landlord and the Premises from mechanics’ liens, materialmen’s liens and/or any other liens or encumbrances. Tenant shall pay, when due, all claims for labor and materials furnished to or for Tenant for use in repairing or improving the Premises. Tenant shall not permit any mechanics’ or materialmen’s liens to be levied against the Premises arising out of work performed, materials furnished or obligations to have been performed on the Premises by or at the request of Tenant. Tenant hereby indemnifies and holds Landlord harmless against loss, damage, attorneys’ fees and all other expenses on account of claims of lien of laborers or materialmen or others for work performed or materials or supplies furnished to Tenant or persons claiming under it.

In the event of an emergency, Tenant may promptly commence repairs to the Premises, but shall provide written notice to Landlord as soon as practical.

At all times during the Term of this Lease, Tenant shall keep the Premises and all improvements now or hereafter located on the Premises (including, but not limited to, any Tenant Improvements) free and clear of all liens and claims of liens for labor, services, materials, supplies, and/or equipment performed on or furnished to the Premises. Tenant shall not suffer or permit any mechanics’ or materialmen’s lien, attachment, execution or similar liens or stop notices to attach to, or to be filed or levied against the Premises (including, but not limited to, the equipment or improvements located thereon) or against Landlord’s interest therein. Subject to the provisions of Section 9.03 (Contesting Liens) below, if any such liens, stop notices, or similar proceedings are filed or commenced, Tenant shall, within twenty (20) days after notice of the filing, cause the same to be discharged of record by payment, deposit, order of court or by bonding. Subject to the provisions of Section 9.03 (Contesting Liens) below, should Tenant fail to pay and discharge or cause the Premises (and improvements now or hereafter located on the Premises) to be released from any such lien or claim of lien within twenty (20) days after notice of the filing of such lien or claim, Landlord shall have, in addition to all other remedies provided under this Lease and/or applicable Law, the right (but not the obligation) to cause the same to be released by such means as Landlord shall deem proper (including, but not limited to, paying, adjusting, compromising, and/or discharging any such lien or claim on any terms and in any manner that

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Landlord may deem appropriate on behalf of the Tenant) and charge Tenant the costs incurred by Landlord as Additional Rent. In that event, Tenant shall, on or before the first day of the next calendar month following any such payment by Landlord, reimburse Landlord for the full amount paid by Landlord in paying, adjusting, compromising, and/or discharging that lien or claim of lien, including, but not limited to, any attorneys' fees or other costs expended by Landlord, together with interest at the then-maximum legal rate from the date of payment by Landlord to the date of repayment by Tenant.

Tenant shall indemnify, hold harmless, and defend (with counsel reasonably satisfactory to Landlord) Landlord (and Landlord’s officers, employees, representatives, and agents) from and against any and all liens and encumbrances arising out of any work performed or materials furnished by or at the direction of Tenant, as well as any loss, damage, attorneys’ fees and all other costs and expenses on account of claims of lien of laborers or materialmen or others for work performed or materials or supplies furnished to Tenant or persons claiming under Tenant.

Nothing in this Lease shall be deemed or construed in any way as giving Tenant any right, power or authority to contract for or permit, on Landlord’s behalf or as to Landlord’s interest, the rendering of any services or the furnishing of any materials.

9.04 Contesting Liens. If Tenant desires to contest any lien of the nature set forth above, it shall notify Landlord of its intention to do so within ten (10) days after the filing of such lien, and Tenant shall furnish the bond required in California Civil Code § 8424 (or any comparable statute hereafter enacted) or otherwise cause such lien to be removed within twenty (20) days after it has been recorded against the Premises. Within five (5) days after the final determination of the validity thereof, Tenant shall satisfy and discharge such lien and the amount owed to the extent held valid, and all penalties, interest and cost in connection therewith, as the case may be.

In the event of any such contest, Tenant shall indemnify, defend, and protect Landlord (and Landlord’s officers, employees, representatives, and agents) and the Premises (and improvements located or to be located thereon) against all loss, cost, expense and damage (including, but not limited to, attorney’s fees and costs) resulting therefrom. If Tenant fails to comply with foregoing provisions, Landlord may (but is not obligated to) do so on behalf of Tenant and charge the Tenant the costs incurred by Landlord as Additional Rent.

9.05 Trade Fixtures. Tenant may install trade fixtures, display items, machinery or other trade equipment in conformance with this Article 9 and all laws, ordinances, directives, rules, permits, or regulations of all applicable public and governmental agencies. With the exception of furniture, equipment and trade fixtures that may be removed by Tenant without causing damage to the Premises, all improvements, alterations, repairs, or additions shall become part of the realty and belong to Landlord at expiration or earlier termination of this Lease. Tenant shall not remove any trade fixtures, display items, machinery or other trade equipment from the Premises, without Landlord’s prior written consent, if the removal of any such item would cause damage to the Premises and, in the absence of Landlord’s written consent to removal, any such item shall be deemed a part of the realty and belong to Landlord at expiration or earlier termination of the Lease.

9.06 Design Standards.
(a) No structure or other improvement of any kind (including, but not limited to, any Tenant Improvements) shall be constructed on the Premises unless and until the construction documents (including, but not limited to, the plans, specifications, drawings, and related documents [collectively “Construction Documents”]) and proposed location of that structure and/or improvement have been approved in writing by Landlord. The Construction Documents prepared for the Tenant Improvements by Tenant shall comply with all applicable goals, policies, and guidelines contained in the 2024 Santa Cruz Wharf Master Plan and Engineering Report (as such may be amended), particularly the 2024 Santa Cruz Wharf Master

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Plan and Engineering Report Design Standards (the “Design Standards”), all of which are incorporated herein and made part hereof by reference. No structure or other improvement of any kind (including, but not limited to, the any Tenant Improvements) shall be constructed on the Premises that does not comply with the Construction Documents (including, but not limited to, the plans and specifications) approved in writing by Landlord. (b) After approval by Landlord of the Construction Documents pertaining to any Tenant Improvements, any substantial change in the Construction Documents must be approved in writing by Landlord. For purposes of this Section, "substantial change" means a change that (i) materially alters the exterior appearance of the subject Tenant Improvements, (ii) substantially alters the approved design intent, or a (iii) results in a decrease or increase in construction costs of $15,000 or more. Minor changes in work or materials not constituting a substantial change need not be approved by Landlord, but a copy of the altered plans and specifications reflecting those changes must be promptly given to Landlord. (c) Tenant shall accomplish any and all repair, construction, addition, improvement, and/or alteration in, on, at, about, from, or under the Premises expeditiously, diligently, and with due care.
(d) Contractor Requirements.
(1) All work required in the construction of any Tenant Improvements, including, but not limited to, any site preparation work, landscaping work, and/or utility installation work, as well as actual construction work on the Tenant Improvements, shall be performed only by competent contractors licensed and registered under the laws of the State of California and shall be performed in accordance with written contracts with those contractors. Each such contract shall comply with California prompt payment laws (including, but not limited to California Public Contract Code section 7201) and provide that the final payment under the contract due to the contractor shall be in an amount equaling at least five percent (5%) of the full amount payable under the contract and shall not be paid to contractor until whichever of the following last occurs:
(a) The expiration of thirty-five (35) days from the date of recording by Tenant of a Notice of Completion of the Tenant Improvements, Tenant agreeing to record that Notice of Completion promptly within the time specified by law for the recording of that notice; or (b) The settlement and discharge of all liens of record claimed by persons who supplied any labor and/or materials for the construction of the Tenant Improvements.
(2) If Tenant engages or uses an independent contractor for the subject work, Tenant shall furnish to Landlord for Landlord’s approval, a true and correct copy of Tenant’s proposed contract with the general contractor for the Tenant Improvements, along with evidence of the general contractor’s financial condition. The contract shall grant Tenant the right to assign and Landlord the right (but not the obligation) to assume Tenant’s obligations and rights under that contract if Tenant defaults (with such assignment becoming effective only upon and to the extent of Landlord’s acceptance of such assignment(s) in writing). Landlord may disapprove such contract by notice given within thirty (30) days following Landlord’s receipt of the copy of the proposed contract and evidence specified above. The notice shall specify the grounds for disapproval. Landlord shall not unreasonably disapprove and shall be considered to have approved in the absence of notice of disapproval given within thirty (30) days after Landlord receives the contract and evidence specified above.
(3) Prior to entering into a contract with Tenant for such work and/or services, each contractor engaged by Tenant to perform any work or services for construction of the authorized and approved Tenant Improvements that costs over $25,000, including, but not limited to, any construction, site preparation, utility installation, or landscaping services, shall furnish to Tenant, who shall promptly deliver copies of both of the following to Landlord:

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(A) A faithful performance bond issued by a corporate
surety authorized to issue surety insurance in California, in an amount equal to one hundred percent (100%) of the contract price payable under the contract securing the faithful performance by the contractor of its contract with Tenant, and in form and content acceptable to Landlord; and (B) A labor and materials payment bond issued by a
corporate surety authorized to issue surety insurance in California, in an amount equal to one hundred percent (100%) of the contract price payable under the contract securing the payment of all claims for the performance of labor or services on, or the furnishing of materials for, the performance of the contract and in form and content acceptable to Landlord.

The labor and materials payment bond and faithful performance bond referenced above shall be issued by an insurance organization or surety (1) currently authorized by the Insurance Commissioner to transact business of insurance in the State of California; (2) listed as an acceptable surety in the latest revision of the Federal Register Circular 570; and (3) assigned a Policyholders’ Rating A- (or higher) and Financial Size Category Class VII (or larger) in accordance with the latest edition of Best’s Key Rating Guide: Property-Casualty. (e) Tenant shall take all reasonably necessary measures to minimize any damage, disruption or inconvenience caused by such work and make adequate provision for the safety and convenience of all persons affected thereby. Dust, noise and other effects of such work shall be controlled by Tenant using methods customarily utilized in order to control deleterious effects associated with construction.
(f) All improvements, alterations, additions, or repairs (including, but not limited to, any Tenant Improvements) shall be constructed and maintained in a good and workmanlike manner, in accordance with the generally accepted practices, and to the standards of, any engaged contractor’s profession, using only new materials of good quality and which are equal to or exceeding that of the original equipment or improvement, and in compliance with all Applicable Requirements, Laws, and permits, licenses, certifications, variances, authorizations, permissions, and other regulatory approvals, including but not limited to the City’s Coastal Development Permit conditions for the Wharf Maintenance Program (Th16a – Application Number: 3-18-1081).

(g) Tenant shall have the sole responsibility for obtaining all necessary permits, licenses, certifications, authorizations, and other approvals for the Tenant Improvements and shall make application for such permits, licenses, certifications, variances, authorizations, and other approvals directly to the person or governmental agency having jurisdiction. Tenant shall notify Landlord in writing at least thirty (30) days prior to submitting application(s) to any governmental regulatory agency for any development, construction or building permit or license pertaining to the Premises or the Tenant Improvements. Tenant shall provide Landlord with a copy of all application(s) within five (5) days of making said application(s), along with copies of all documentation (including, but not limited to, plans and specifications) submitted as part of the application(s). Tenant shall also provide Landlord, within ten (10) days of Tenant’s receipt, a copy of all permits, licenses, variances, certifications, authorizations, or other approvals subsequently issued.
(h) Tenant shall pay all Landlord’s costs incurred in connection with review and approval of any Tenant Improvement. Landlord shall bear no cost for their review or processing of any Tenant Improvement.

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(i) All construction work shall comply with and conform to the City’s Construction Work Best Management Practices and Regulations, a copy of which is attached hereto as Exhibit E and incorporated herein.
(j) It shall be the obligation of Tenant (and any contractor and/or subcontractor under Tenant) to comply with and conform to all applicable State of California labor laws, rules and regulations (including, but not limited, prevailing wage laws and requirements as further detailed below), and the Parties agree that Tenant shall be liable for any violation thereof. (k) With respect to Tenant Improvements involving structural changes or expenditures in excess of $15,000, or equivalent current dollar value at Landlord’s sole discretion, at the time work is proposed, Tenant shall submit to Landlord evidence that Tenant has sufficient cash on-hand to build Tenant Improvements in accordance with the approved Construction Documents (defined above) and working drawings. (l) Tenant shall make, at its sole cost and expense, improvements, alterations, repairs, or additions in and to Tenant Improvements and structures on the Premises that may be required by any Applicable Requirement and/or Laws (including, but not limited to, the ADA) from time to time.
(m) The construction of any Tenant Improvements involving structural changes (if any are proposed by Tenant and allowed by Landlord) shall strictly conform to the requirements and terms of this provision.
(1) Tenant shall submit an executed construction contract or contracts, in a form and content reasonably acceptable to Landlord, with competent and financiallyresponsible contractors for construction in accordance with the Construction Documents and working drawings approved by Landlord.
(2) Tenant will commence construction within sixty (60) days of approval by Landlord of the construction contract(s) and Tenant shall continuously and diligently pursue construction to completion by a date approved by the Landlord. Provided, however, the commencement and completion dates may be extended pursuant to subsection (m)(3) below. All construction will be substantially in accordance with the plans and specifications, including but not limited to the Construction Documents and working drawings, previously approved in writing by Landlord, subject to changes thereto as may be approved in writing by Landlord, in Landlord’s sole discretion. Said plans and specifications, and any approved changes thereto, are by this reference made a part of this Lease. In the event of any inconsistency between the Construction Documents (including, but not limited to, the plans and specifications) and the terms and conditions of this Lease, the terms and conditions of this Lease shall prevail. (3) The time(s) during which Tenant’s construction is delayed by Force Majeure Events (as defined in Section 20.06 [Force Majeure] below), shall be added to the times for the commencement and completion of the construction established above on a day-for-day basis. Any extension due to excused delay shall not commence until such time as Tenant notifies Landlord in writing of such delay.
(n) If requested by Landlord, Tenant shall furnish Landlord a completion bond as described below promptly following Landlord’s demand therefor. The bond shall be issued by a corporate surety authorized to issue surety insurance in California, in an amount equal to one hundred percent (100%) of the estimated costs of construction of the Tenant Improvements, securing completion of the proposed construction of the Tenant Improvements and in form and content acceptable to Landlord. Landlord may, but shall not unreasonably,

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disapprove the completion bond. The completion bond shall be deemed approved unless notice of disapproval is given within fifteen (15) working days after receipt of the proposed bond. (o) Tenant shall indemnify, defend (with counsel reasonably satisfactory to Landlord), and hold harmless Landlord its officials, officers, directors, employees, agents, representatives, contractors, volunteers, successors and assigns from and against any damage, claims, cost, expense or liability as a result of or as related to the Tenant Improvements, including, without limitation, any and all expenses such as consultant, architect, contractor fees and attorney’s fees related to reviewing and approving the Construction Documents (including, but not limited to, the plans) or removing any Tenant Improvements upon termination or expiration of this Lease. This Article 9 shall not expand or restrict the indemnity obligations of the Parties under Article 12 (Indemnification, Insurance) below.
(p) With the exception of furniture, equipment and trade fixtures that may be removed by Tenant as provided in Section 9.04 (Trade Fixtures) above, the Tenant Improvements shall be surrendered with and remain on the Premises upon expiration or earlier termination of this Lease, subject to Landlord’s right to require their removal by Tenant within sixty (60) days after the termination or expiration of this Lease. (q) Tenant shall, at the expiration or earlier termination of this Lease, remove the Tenant’s Personal Property and the trade fixtures that are removable as provided in Section 9.04 (Trade Fixtures), whether or not bolted or otherwise attached to the Premises, and shall repair all resultant damage or injury to the Premises. (r) Notwithstanding any other provision of this Lease that may be construed to the contrary, the Parties agree that upon expiration or earlier termination of this Lease, Landlord shall have no liability or obligation to pay compensation for any improvements made to the Premises.

9.07 Signs and Advertising Matter.
(a) Tenant will not place, install, maintain or construct or allow any third party to place, install, maintain or construct any sign, banner, flag, awning or canopy, covering, or advertising matter on the roof, or on any exterior door, wall or windows of the Premises without Landlord’s prior written consent, which shall not be unreasonably withheld. Tenant further agrees to maintain such sign, awning, canopy, decoration, lettering, advertising matter or window coverings in good condition and repair at all times. Tenant shall not display or sell any merchandise or allow carts, portable signs, devices, vending machines or other objects to be stored or remain on the sidewalk or elsewhere outside of the defined exterior of the Premises without the prior written consent of Landlord.
(b) No advertising medium shall be used or allowed to be used by Tenant which can be heard or experienced outside the Premises, including without limitation, flashing lights, searchlights, loudspeakers, phonographs, radios or television. Except with Landlord’s prior written consent, Tenant shall not display, paint or place, or cause to be displayed, painted or placed, any handbills, bumper stickers or other advertising devices on any vehicle parked in the parking area of the Wharf, including, but not limited to, those belonging to Tenant, or to Tenant’s agent or any other person; nor shall Tenant distribute or cause to be distributed on the Wharf any handbills or other advertising devices.
(c) Tenant agrees, at Tenant’s sole cost and expense, to construct and install signs as may be required or allowed by Landlord in strict conformance with the Municipal Wharf Sign Guidelines (“Sign Guidelines”) attached hereto as Exhibit F and the Design Standards made part hereof by reference. Tenant’s signs shall not be installed without the written

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consent of Landlord. Tenant, at its sole cost and expense, shall obtain all necessary permits, licenses, variances, certifications, authorizations, and other approvals before installing, erecting or constructing any such sign. Signs shall be installed prior to the commencement of Tenant’s business and thereafter shall be maintained by Tenant at Tenant’s sole cost and expense. If Tenant fails to maintain any such sign(s), Landlord shall have the right (but not the obligation) to maintain any such sign(s) and Tenant shall reimburse Landlord for such cost, plus a twenty percent (20%) administrative overhead fee. If Tenant installs a sign without Landlord’s prior written consent, or said sign does not conform to Landlord’s Sign Guidelines, Landlord shall have the right, at its sole and absolute discretion, to remove and store Tenant’s sign at Tenant’s sole cost and expense. The removal and storage costs and expenses shall bear interest at the rate of one and one half percent (1 1/2%) per month until paid, or at the maximum rate allowed by law, whichever is less.
(d) Landlord reserves the right to revise the Sign Guidelines and the Design Standards for any reason, at any time, including without limitation changes in any governmental requirement or Landlord’s renovation of the Wharf. Within sixty (60) days of Landlord’s request, Tenant shall remove Tenant’s existing sign, patch and repair the underlying attachment surface, and install a new sign, at Tenant’s sole cost and expense, in accordance with Landlord’s then existing Sign Guidelines and Design Standards.

9.08 Restoration. Except as otherwise provided herein, upon expiration or earlier termination of this Lease, Tenant shall return the Premises to the same condition as existed at the date of execution of the Lease, except as the Premises were repaired, rebuilt, restored, altered, and/or added to as permitted or required by the provisions of this Lease, reasonable wear and tear excepted. Landlord, at Landlord’s sole discretion and authority, and upon receipt of written request from Tenant, may consider allowing any Tenant Improvements approved by Landlord under this Lease to remain. In addition, Landlord, at its election, may also require Tenant to remove, at Tenant’s sole cost and expense, any improvements, alterations or additions approved by Landlord in accordance with this Lease. Tenant shall repair, at its sole cost and expense, any damage resulting from the removal of any improvements, alterations, additions, equipment, machinery or trade fixtures.

9.09 Ownership of Improvements.
(a) Any improvements existing on the Premises at the Effective Date of this Lease and/or the Commencement Date shall remain Landlord’s property. Landlord shall also own any improvements constructed on the Premises by Tenant or Landlord. (b) Landlord owns the Wharf and the pilings, substructure, and decking under the Premises, as well as the Premises.
(c) Upon expiration or earlier termination of this Lease from any cause, all improvements on the Premises, including but not limited to any Tenant Improvements, Landlord elects to retain, shall automatically and without any act of Landlord, Tenant, or any third party, become Landlord’s property and Tenant, upon Landlord’s demand, shall execute a quit claim deed whereby all right, title and interest of Tenant in and to the Premises (including, but not limited to, the Tenant Improvements) is quitclaimed to Landlord. Said improvements on the Premises shall be free and clear of all liens and encumbrances upon expiration or earlier termination of this Lease.
(d) Subject to Landlord’s right to require removal of fixtures and improvements as provided in this Article 9, all permanent improvements and fixtures on the Premises at the expiration or earlier termination of this Lease shall, without compensation to Tenant, automatically and without any act of Tenant or any third party become Landlord's

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