The lease, approved by the City Council in Nov. 2016 on a 6-1 vote (Price dissenting), specifies that even if the City were to declare the Urban Commons in "default" under the terms of the lease, the lease then gives Urban Commons 60 days in most cases to complete curing the default. In addition, the lease provides an additional period if "the nature of the Default is such that the same cannot reasonably be cured within said sixty (60) day period" in which case the tenant is entitled to "such additional time as is reasonably necessary to cure such Default, provided that Tenant is diligently and continuously pursuing the cure of such Default."

But even more significantly -- and LBREPORT.com believes the real story here -- is that the lease includes a provision letting the City (at its choice) spend City sums to cure the tenant's default (with public money with repayment by the tenant in subsequent rent payments.) And we presume even the repayment term could be amended by future mutual consent of the parties.

14.3. Landlord's Right to Cure Tenant's Defaults,

After expiration of the applicable time for curing a particular Default and if such Default remains uncured, Landlord may, at Landlord's election, make any payment required of Tenant under this Lease or perform or comply with any covenant or condition imposed on Tenant under this Lease, and the amount so paid, plus the reasonable cost of any such performance or compliance, plus interest on such sum at the Agreed Rate, from the date of payment, performance, or compliance until the date of repayment by Tenant, shall be due and payable by Tenant as additional Rent hereunder on the first day of the next calendar month following any such payment, performance or compliance by Landlord...

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These developments occur in the context of a Sept. 23, 2019 city management memo previously reported by LBREPORT.com that told the Mayor/Council that although "critical ship repairs" are the responsibility of the lessee Urban Commons, city "staff is working with the Lessee to improve operational income and to develop new revenue streams associated with the Queen Mary and surrounding activities and city staff "hope to receive from Urban Commons an update on this plan "by the end of the year."

This raises the possibility -- more taxpayer-impactful than a future lease "default" for Urban Commons -- that city management might seek Council approval to have the City (meaning LB taxpayers) pay for additional QM repairs that the City previously indicated in Nov. 2016 would be covered by a "Historic Preservation Capital Improvement Plan" funded by $23 million taken from LB public leasehold reserves plus a $17 million publicly floated debt bond.

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In Sept. 2018, city management informed the Council and the public that one of those repair items -- fire systems -- had ended up costing $5 million more than initially expected, effectively consuming sums that were supposed to cover other repair items.

A year later, the Sept. 23, 2019 city management memo told the Mayor/Council that "critical" repairs are now needed to lifeboats hanging from small pairs of cranes above the Promenade Deck plus repairs to Side Shell/Bridge wings...costing an estimated $7 million. It indicated that the city's inspecting engineeer recommended prioritizing these repairs "within the next 12 -24 months."

The Sept. 23 memo indicated the City will work with the lessee and its third party structural engineer "to prepare a plan for completing the remaining Critical Projects within the recommended two-year period, and that said plan "is currently under development by the Lessse" and will include strategies, costs and timing for replacing the lifeboats and repairing the side shell ofthe ship in a historically appropriate way."

One day later on Sept. 24, 2019, Mayor Robert Garcia stated in conspicuously brief terms during a staged event titled "Building A Better Long Beach" that he wasn't pleased that plans for developing "Queen Mary Island" (the land surrounding the Queen Mary) that hadn't progressed as quickly as he'd hoped. He made no mention of potential additional taxpayer costs or the items detailed in city management's memo to him and the City Council a day earlier.

The City's Oct. 1 letter to Urban Commons then followed. It cited five remaining repair items that it said should be "immediately addressed to be considered in compliance with the Lease" plus two financial documents it said "are currently outstanding under the the lease. " The Oct. 1 letter said if Urban Commons failed "to respond" within 30 days, the City could find the firm "in default" under a portion of the lease "with a right to cure" pursuant to another portion of the lease.

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• [Cited in Oct. 1, 2019 letter] Exterior Paint on the Hull, Funnels, and Top of House Areas ("areas of the exterior hull port and starboard, the aft funnel, and top of house, including vents and scuppers,require painting")
• Expansion joints ("at least one of the expansion joints requires plate installation, fasteners, water testing, and repair of caulking")
• Bilge Repair and Rust Remediation ("standing water and intrusion of rust, despite the application of a rust remediator")
• Side shell and Lifeboats ("identified by the City's Landlord Representative as the most critical priority for the long-term viability of the ship, removal of deteriorating lifeboats and repair of the ship side shell must be prioritized...the continued corrosion represents a serious threat to the ship's structural integrity and the safety of guests and employees.")
• General Maintenance ("insufficient resources being dedicated to ongoing upkeep of the ship, including maintenance of improvements completed or partially funded through the HPCIP Fund [Historic Preservation Capital Improvement Plan.") ..[T]he number of staff hours dedicated to the Base Maintenance Plan appear to be insufficient to maintain the Premises in first class condition and repair. Please provide a current Base Maintenance Plan as a reference for staffing requirements."

The Oct. 1 letter also listed two financial items "currently outstanding" under the lease:

• Annual Audited Financials for 2018 -- Section 4.3, Schedule 1
• Evidence of Base Maintenance and Replacement Plan (BMRP) Fund account deposits and balance -- Section 7.3.1

The Oct. 1 letter stated that Urban Commons staff had been responsive in taking steps to obtain the financials, but indicated the two items "are due no later than October 30, 2019." It concluded: "Please respond to this letter within 30 days and provide a plan to address the deficiencies described above. If you fail to respond within 30 days, Urban Commons may be found in default per Section 14.1.b of the Lease, with the right to cure pursuant to Section 14.2."

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The lease (which is publicly visible online) states in pertinent part:

14.2. Notice of Default; Tenant's Right to Cure

If Tenant is in breach of this Lease as described in Section 14.1, Landlord may give notice of said breach ( "Notice of Default ") to Tenant. Each such Notice of Default shall specify the alleged Default. As provided in Section 14.1, following the giving of such notice, the nonperformance which is complained of shall constitute a Default by Tenant under this Lease. If the alleged Default is nonpayment of Rent, Impositions or other sums to be paid by Tenant as provided in this Lease, or is a failure to maintain the insurance coverages required by this Lease, Tenant shall have fifteen (15) days after the Notice of Default is given to cure the Default; provided, however, that Tenant shall have thirty (30) days after the Notice of Default is given to cure a Default in the payment of Rent if such Notice of Default is the first Notice of Default for nonpayment of Rent given during any twelve (12) month period during the Term. For any other Default, Tenant shall, after the Notice of Default, promptly and diligently commence curing the Default and shall have sixty (60) days after the Notice of Default to complete the cure of the Default; provided, however, that if the nature of the Default is such that the same cannot reasonably be cured within said sixty (60) day period, Tenant shall have such additional time as is reasonably necessary to cure such Default, provided that Tenant is diligently and continuously pursuing the cure of such Default.

14.3. Landlord's Right to Cure Tenant's Defaults

After expiration of the applicable time for curing a particular Default and if such Default remains uncured, Landlord may, at Landlord's election, make any payment required of Tenant under this Lease or perform or comply with any covenant or condition imposed on Tenant under this Lease, and the amount so paid, plus the reasonable cost of any such performance or compliance, plus interest on such sum at the Agreed Rate, from the date of payment, performance, or compliance until the date of repayment by Tenant, shall be due and payable by Tenant as additional Rent hereunder on the first day of the next calendar month following any such payment, performance or compliance by Landlord. No such act shall constitute a waiver of any Default or of any remedy for Default or render Landlord liable for any loss or damage resulting from any such act (except to the extent such loss or damage arises from Landlord's negligence or intentional misconduct).

Who authorized those contract terms? The City Council did (without seeing the actual text of the contract) on a 6-1 vote (motion by Pearce, Price dissenting, Richardson and Gonzalez traveling in the "Peoples Republic of China.")

City staff tells LBREPORT.com that the City administers hundreds of leases, permits, contracts and associated agreements, and communications requesting outstanding items or documenting deficiencies aren't uncommon. LBREPORT.com has confirmed that the Oct. 1, 2019 City letter to Urban Commons is the City's first formal communication addressing project concerns with that lessee under the relatively recent lease after Urban Commons completed a majority -- but with millions in costs now remaining -- not all of planned capital projects over the past two years.

City staff's Sept. 23 memo to the Mayor/Council didn't identify (by name) who among LB City Hall electeds or management knew or should have known about Queen Mary maintenance issues as they piled up over a period spanning multiple years. LB's incumbent City Auditor, Laura Doud, is the city's longest citywide elected official, taking office in mid-2006 after criticizing the then-incumbent City Auditor for his record on the Queen Mary.

Developing.

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