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RESOLUTION NO. 2015-214 OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA AMENDING A LEASE AGREEMENT WITH SAN YSIDRO HEALTH CENTER FOR A PORTION OF A CITY-OWNED BUILDING AND APPURTENANCES LOCATED AT 1800 MAXWELL ROAD AND AMENDING THE FISCAL YEAR 2015-2016 BUDGET FOR PAYMENT OF RETROFIT CONSTRUCTION COSTS (4/5 VOTE REQUIRED)
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RECOMMENDED ACTION
Recommended Action
Council adopt the resolution.
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SUMMARY
On May 26, 2015, City Council approved a lease agreement with San Ysidro Health Center for a portion of the John Lippitt Public Works Center located at 1800 Maxwell Road (Resolution No. 2015-109). Subsequent to the Lease being executed, internal issues at SYHC developed that have prevented them from performing under the lease and taking occupancy. Subsequent negotiations have resolved their issues provided that an amendment to the lease is adopted. The purpose of this action is to consider an amendment to this lease agreement.
ENVIRONMENTAL REVIEW
The Development Services Director has reviewed the proposed activity for compliance with the California Environmental Quality Act (CEQA) and has determined that the activity qualifies for a Class 1 categorical exemption pursuant to Section 15301 (Existing Facilities) of the State CEQA Guidelines because the activity consists of approval of a lease agreement involving existing city owned property and facilities. Thus, no further environmental review is required.
BOARD/COMMISSION RECOMMENDATION
Not Applicable
DISCUSSION
Over the past year, the City has been negotiating with San Ysidro Health Center (SYHC), through the City’s Broker, Voit Real Estate Services, to lease 13,750 square feet of office space located at the JLPWC. On May 26, 2015, City Council approved a lease agreement with SYHC. However, subsequent to adoption, SYHC requested time to reconsider the lease. While not forgoing any of the City’s rights under the lease, SYHC was given time to resolve their concerns. As a result of subsequent dialogue, staff and SYHC have reached a tentative agreement to amend to the Lease to resolve their issues. This amendment will delay the start of the lease from July 1, 2015, to October 1, 2015. Staff believes this change is acceptable as the termination date will also be moved; thereby, maintaining the original lease duration.
The amendment will also make it easier for SYHC to terminate the lease before it expires. As currently written, SYHC can terminate the lease after 18 months by giving the City six months’ notice. This can be done only if they lose their funding sources. They have requested that this clause be revised to allow them to terminate after the stated period for any reason. Under both the original and the amended Clause, SYHC would be obligated to reimburse the City for the prorated portion of the prepaid Broker’s commission. The commission reimbursement would be $30,000 or less depending on the date they abandoned the lease.
RETROFIT COST
During the processing of STHC’s Tenant Improvement Plans it was discovered that, due to changing code regulations, the Maxwell site was deficient in several areas. Handicap parking and the fire risers were no longer up to code and one set of double doors was lacking the required exit hardware. Staff has estimated that it will require about $40,000 to fix these issues. This is work that must be done promptly to bring the site up to current standards. Funding to address these repairs will be offset by lease revenue.
DECISION-MAKER CONFLICT
Staff has reviewed the property holdings of the City Council and has found no property holdings within 500 feet of the boundaries of the property which is the subject of this action. Staff is not independently aware, and has not been informed by any Council member, of any other fact that may constitute a basis for a decision maker conflict of interest in this matter.
LINK TO STRATEGIC GOALS
The City’s Strategic Plan has five major goals: Operational Excellence, Economic Vitality, Healthy Community, Strong and Secure Neighborhoods and a Connected Community. By entering into this lease the City is utilizing un-used office space to create a revenue stream for the City. At the same time the City is relieved of the burden of utility cost and maintenance for space it cannot use. This furthers the City’s goal of maintaining Operational Excellence.
CURRENT YEAR FISCAL IMPACT
The fiscal year 2015-16 adopted budget includes the utility costs and a conservative projection for revenues for the lease agreement with SYHC. With the revised start date of October 1, the agreement should result in a positive fiscal impact of approximately $7,500 in the current fiscal year. Approval of the resolution will result in the appropriation of $40,000 to be offset by lease revenues; these funds will be used to address the building improvements discussed above.
ONGOING FISCAL IMPACT
The annualized fiscal impact of the agreement with SYHC results in a positive fiscal impact of $165,000 ($181,800 lease revenues less $16,800 utility expenses). These revenues were reflected in the most recent Five Year Financial Forecast.
ATTACHMENTS: SYHC Lease Amendment
Staff Contact: Rick Ryals, Real Property Manager, Economic Development Department