July 14, 2009
City Council Meeting: June 9, 2009
Agenda Item: 8-B
To: Mayor and City Council
From: Marsha Jones Moutrie, City
Attorney
Subject: Future Use of Beach Property Leased by
Jonathan Club
Recommended
Action
Staff recommends that the
City Council assess whether there has been a material change in the need for public
use of the three beach parcels currently leased to the Jonathan Club for
private use pursuant to a twenty-five year lease which expires at the end of
this year. If Council determines that
the need for public use has materially changed since the lease was executed in
1984, then staff recommends that Council make appropriate findings and direct
staff to notify the Club that the renewal option has been extinguished by the
findings. Alternatively, if Council determines
that the need for public use has not materially changed, staff recommends that
Council authorize staff to negotiate a ten year extension of the lease and
provide guidance as to those negotiations.
Executive
Summary
The Jonathan Club's lease of three beach parcels,
totaling about 39,000 square feet, expires on December 31, 2009; and the Club
wishes to exercise a ten year renewal option.
The lease conditions exercise of that option upon findings by both the
City and the State that there has been no material change in the need for
public use of the parcels, and the lease requires six month notice as to the
availability of the option. This staff
report provides information about the parcels, access to them and to the public
beach, beach usage, recreational needs, and the City's current planning
policies relating to the north beach in particular and recreational facilities
and opportunities in general. It also
provides information about the recent history of lease discussions between the
Club and the City, which supplies an indication of the financial impact of
allowing the lease to expire or extending it.
Background
This section provides a summary of the
lease provisions and of interactions between the City and Club involving the
lease. This information is intended only
to provide background and context. It is
not directly relevant to the issue of whether there has been a material change
in the City's need to use each of the parcels.
The current lease was executed in 1984 and
is titled "Permit for Improvements and Lease Option Agreement by and
between State of
The lease term is 25 years, with an
option. The option clause gives the Club
an exclusive option to lease the three parcels, or portions of them, for an
additional ten years subject to specified conditions. Conditions A is: "A prior written
finding shall be made by the State and City that there has been no material
change in the need of the State or City for the use of each of the
Parcels. A separate finding shall be
made as to each of the Parcels individually.
Should there be finding of such material change as to any of the
Parcels, the specific reasons therefor (sic) shall be
submitted to the Club in writing with five (5) days after such
determination."
The lease covers the three adjacent
parcels, immediately seaward of the Jonathan Club, which total about 39,000
square feet in size. The parcels are
shown on Exhibit A to this staff report.
The lease provides that the use of the parcels "shall be limited to
beach recreational uses related solely to the conduct of a private beach club,
provided, however, that Parcels 2 and 3 may be used, at the Club's option, for
the parking of the automobiles of the Club's members, guests of members and
employees." And, the lease requires
written permission of the City and State for permanent improvements on the
leasehold and approval, as well as any necessary permits, for alterations.
The lease establishes "front
loaded" rents that afforded a higher rental income stream during the
lease's early years. At maximum, the
rental payment for the parcels was $43,367 annually. However, at present, the annual rental
payment is $975, or about $.03 per square foot.
In recent years, there have been a number
of interactions between the City and the Club about the lease. In 2004, an attorney for the Club notified
staff that the Club had overpaid rent in the amount of $212,300 and suggested
that this amount be taken into consideration in negotiating a lease
extension. The City and Club entered
into a tolling agreement which tolled all claims, including the claim for the
overpayment.
In 2005, the three leased parcels were
surveyed. The surveys revealed
encroachments by the Club on to the public beach. The tolling agreement was modified to include
encroachment claims, and the City demanded removal of the encroachments. The Club complied.
In 2007, the Club submitted a proposal to
extend the term of the lease for 25 years beyond the option period, through
2044, with an additional 10 year option, through 2055. The Club asserted that the fair market value
was about $1.00 per square foot and offered to pay that amount through 2009 and
to increase payments for the remainder of the term to $2.00 per square foot, subject
to CPI increases every 5 years. The City rejected this offer. The rejection letter stated that the lease
parcels might be needed for public use.
In 2008, the City sent a Notice of Default
advising the Club that it had violated the lease by conducting a private event
on the public beach adjacent to the leasehold.
This event involved installing a perimeter fence on the public beach and
pitching tents inside the fenced area, both of which are prohibited on the
public beach.
Discussion
The lease paragraph that establishes the option, Paragraph 5.A.,
is cryptic and somewhat ambiguous. As a
result, questions could arise about the process for determining the need to use
the parcels for public purposes. This
section addresses process issues before turning to information relating to the
substantive issue.
The Process for Determining Material Change in Need for
Public Use
The first sentence of Paragraph 5.A. appears to condition the
option on the making of negative findings:
"[a] prior written finding shall be made by the State and City that
there has been no material change in the need of the State or City for the use
of each of the Parcels." Pursuant
to this language, if no findings were made, the Club's option would be
extinguished. However, the last sentence
of the paragraph indicates otherwise. It
suggests that the existence of a material change should be reflected by an
affirmative finding: "[s]hould there be finding
of such material change as to any of the Parcels, the specific reasons therefor (sic) shall be submitted to the Club in writing
within five (5) days after such determination." Based on the language of the last sentence of
Section 5.A., staff recommends that the Council make a determination of whether
or not the City needs the lease parcels for public use. Pursuant to the second sentence of Paragraph
5.A., a separate finding should be made as to each Parcel.
Paragraph 5.A. is also
somewhat ambiguous as to process. It
specifies that "a prior written finding shall be made by the State and
City that there has been no material change in the need of the State or
City ….." (Emphasis added.)This
language could be read to indicate that the State and City should make a single
determination of need together. However,
that reading would be incorrect because the use of the disjunctive
("or") establishes that each public entity's need must be
assessed. And, as a practical and legal
matter, there is no process or mechanism for the State and City to make such
public determinations jointly.
Therefore, staff recommends that the Council determine whether or not
there has been a material change, since 1984, in the City's need to use each of
the parcels for public purposes.
Paragraph 5.A. does not specify or limit the information Council
may consider in making its findings.
Accordingly, staff has gathered information about a number of factors
that are relevant to the determination of need.
City Policy Related to
the Beach
Much has happened with regard to the beach since the lease was
made in 1984. The City Council has
adopted several new plans and policies.
These planning documents chart the course for beach usage in the years
to come. For example, the 2008 Land Use
and Circulation Element Strategy Framework explains that the City's form and
character are derived from its physical and cultural relationship with the
ocean, which the City meets on three levels: the beach, the Pier and
Similarly, the Open Space Element adopted in 1997, notes that the
shoreline holds great potential for enhanced public use and calls for "[t]aking fuller advantage of the beach and strengthening its
connections with the city." See
Attachment C. Objective 5 of the Element
calls for establishing stronger connections to regional open spaces, and Policy
5.1 expresses the need to "reconnect the city and the beach" by
promoting pedestrian and other access.
And, Policy 5.2 establishes the need to "develop new beach
parks" north of the Pier which would create recreational destinations
along the beach. Likewise, Objective 9 calls for increasing the accessibility
of open spaces by, among other things, providing more ways for everyone,
including those with special needs, to physically access them.
Moreover, the Parks and Recreation Master Plan, also adopted in
1997, calls for enhanced public use of the beach. See Attachment D. The Plan notes that the north beach is
underutilized because it is isolated by the bluffs and the traffic on
The City's growing interest in protecting and facilitating public
use of the beach is reflected in the Municipal Code as well as in the City's
planning documents. In 1990, the voters
adopted an initiative adding a new overlay district that restricts private
development at the beach. The stated
purpose of this initiative is to "preserve
The Characteristics of
Like the City's planning policies and law, use of north beach has
changed since 1985. In general, beach
usage has increased. More people use the
beach for individual recreation. And,
there has been a significant increase in the demand for group usage by youth
camps, other organized recreational groups, schools, churches, and other
entities. Staff believes the
Additionally, more cyclists come to the beach. The same year that the Lease was executed,
the bike path was completed. In the
years since, its usage has increased significantly. Moreover, along with usage, conflicts have
increased. These arise partly because
pedestrians use the bike path. Such
conflicts have been a source of concern for some time and were recently
highlighted in a column by Steve Lopez in the Los Angeles Times. On north beach the conflicts are inevitable
because there is no pedestrian promenade north of 1100 block Ocean Front
Walk. The City has been working with the
Whatever the best location, the opening of the Annenberg Community
Beach House has redoubled interest in moving ahead with construction of a
pedestrian path and in other approaches to improving
The leasehold is actually located at the one point on
Perhaps the most significant change in the immediate vicinity
during the lease term was the addition of a new pedestrian bridge over
Together these facilities – the large parking lot, two pedestrian
bridges, pedestrian access way, and public restroom - make this the single most
accessible area of
Moreover, the leasehold is ideal in another way. While Parcel 1 consists of sand, Parcels 2
and 3 consist largely of dirt. This
substrate makes Parcels 2 and 3 particularly suitable for the development of a
beach green, as called for in the City's planning documents.
Alternatives
If Council determines that there has been a material change in the
City's need for the use of one or more of the parcels, then staff will prepare
findings in accordance with Council's direction and notify the Club as
specified in the lease. Staff will also
notify the State of the Council's determination, ascertain the State's position
and share that information.
If the lease is not extended, there would, of course, be
consequences and costs for the City and members of the community. The City would gain opportunities to fill a
public need, but it would lose rental income and might become embroiled in a
legal dispute involving claims under the lease.
The individual members of the Jonathan Club would still be able to use
the property, in the same way that any other members of the public could use it,
except that they could access it from the Club building. However, the Club would lose parking and the
private use of the beach parcel.
On the other hand, if Council determines that there has been no
material change in the need to make public use of one or more of the parcels,
then staff will give notice of that determination to the Club, which will
likely exercise the option.
Additionally, staff will give notice of the proposed rental rate. Pursuant to the lease, it would be based on
the State Land Commission's current practices or fair market rates.
Financial
Impacts & Budget Actions
A
lease extension would increase revenue to the Beach Fund, which has a projected
deficit starting in fiscal year 2011-2012.
The fair market value of the leasehold is disputed. In 2007, the Club claimed that it was about
$1.00 square foot but offered $2.00 per square foot for an extension. The City rejected this offer as too low for
such prime beach land. In any event,
current rent is well below the fair market rate, so extending the lease at a
fair market rate, would certainly increase revenue to the Beach Fund. Additionally, if the lease were extended, the
extension would provide an opportunity to resolve the Club's overpayment claim
of $212,300 and any City claims. If not,
litigation could be necessary to resolve the claims; and, the City could be
liable for the amount of the overpayment and attorney's fees.
Prepared by: Marsha Jones Moutrie, City Attorney
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Approved: |
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Forwarded to Council: |
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Marsha
Jones Moutrie City
Attorney |
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P.
Lamont Ewell City
Manager |
Attachments:
B.
Excerpts from City of Santa Monica Land Use and
Circulation Element Strategy Framework, (June 2008):