No, This City Hall Fix-It-Or-Lease-Default-Letter Doesn't Put Queen Mary Lessee Urban Commons In Imminent "Danger" Of Forfeiting Its Lease; Here's The Full Story Including Lease Terms That Allow Cure And Invite City Hall To Tap LB Taxpayers To Advance More Repair Costs
|(Oct. 4, 2019, 2:45 p.m.) -- An Oct. 1 letter sent by city management to Queen Mary lessee Urban Commons and obtained (and linked for our readers) by LBREPORT.com doesn't indicate the firm is "in danger" of imminently forfeiting its 66-year lease to operate the ship or (more valuable) 66 years of development rights to the ship's adjoining land.
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,
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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.
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.
The Oct. 1 letter also listed two financial items "currently outstanding" under the lease:
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."
The lease (which is publicly visible online) states in pertinent part:
14.2. Notice of Default; Tenant's Right to Cure
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.
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