PURPOSE:

The purpose of this report is for the City Council to consider the revisions made to the Amended and Restated Lease Agreement between the City of Burbank and Verdugo Restaurant Corporation (VRC) for Castaway Restaurant (hereafter the �Agreement�) and to adopt a resolution approving the Agreement.

BACKGROUND:

On September 13, 2005 the City Council held a public hearing to consider the Amended and Restated Lease Agreement for the Castaway Restaurant.  After public testimony and Council deliberation, staff was directed to make certain revisions to the Agreement. The Agreement was revised to:

• Include specifications prohibiting social functions such as �raves� and the like from taking place at the Castaway.

• Include provisions stipulating that the Castaway will provide all parking free of charge to patrons.

• Add traffic mitigation measures for delivery operations related to the Castaway.

• Modify the operating hours of the Luau Grounds.

• Include a provision prohibiting the sale of alcohol past midnight at the Castaway and its entire facilities.

• Add security requirements for events that take place past twelve midnight at the banquet facilities.

Further details of these revisions to the Agreement are discussed below.  The staff report from the September 13, 2005 public hearing is attached as Exhibit A.  The staff report details the business terms of the Amended and Restated Lease Agreement and other significant terms such as the Capital Improvement Reserve Fund, operating hours for all the restaurant�s facilities, special maintenance items, and cure periods.

ANALYSIS:

Pursuant to City Council direction, the Amended and Restated Lease Agreement has been revised to address the concerns and issues brought forth during the September 13, 2005 public hearing. 

1. To prohibit undesirable social functions such as �raves� from taking place at the Castaway, the definition of a banquet facility has been added to the Agreement which clarifies that specific use.  This definition will prevent events unbecoming of a first class establishment from occurring at the Castaway�s banquet facilities. Also, the event specifications for the space will be detailed in the banquet contract that is required when booking events at the banquet facilities.

2. New provisions have been added to the Agreement that require the Castaway to provide free self parking to patrons, and when they offer valet parking, to have that service be free as well.  Patrons to the Castaway and its facilities will now have a choice of either parking their cars themselves or using the valet parking service, absolutely free of charge. 

The Agreement requires that the Castaway submit a parking plan to the City that will detail all the available parking spaces for the restaurant and its facilities, including the overflow parking area, and ensures that the emergency fire lanes will stay clear of parked vehicles at all times.  In addition to this, new language has been added to address the availability of self and valet parking at the Castaway.  The Agreement now requires the Castaway to submit this parking plan not only to the City Fire Chief, but also the Police Chief and the Public Works Director to approve.  In the parking plan, they will need to demonstrate which spaces are available for self parking and which spaces will be used by the valet service.  This is to ensure that there will be self parking in the upper portion of the hilltop parking area as well as the lower portion of the hilltop area.  Patrons who prefer to self park will now be able to do so in the upper portion of the hilltop area instead of being required to park in the lower portion only and walk up the pathway to the restaurant.  The City may fine the Castaway, should they violate the parking plan, $250 for the first offense and $500 for the second offense within the same twelve months. 

3. To address traffic concerns related to the Castaway and their vendors, provisions have been added to the Agreement stating that the Castaway will be required to submit a delivery plan to the City for approval, which will specify delivery hours and truck routes.  The purpose of this plan is to reduce impacts of the Castaway�s vendor deliveries to the residential neighborhood.  The City will use the delivery plan to enforce the delivery hours and truck routes, and may pursue any legal remedy deemed appropriate and necessary should the Castaway violate the plan.

The Castaway is currently enforcing the recommendations made by the Hillside Recreation Neighborhood Protection Plan Citizen Advisory Committee (CAC) by requiring their vendors to use the Olive Avenue to Sunset Canyon Drive to Harvard Road route for their inbound and outbound trips, as well as requiring them to make deliveries not earlier than 8:00 a.m. in the morning.  The required delivery plan will continue to reflect the recommendations of the Citizen Advisory Committee unless otherwise revised by the City to resolve matters that may arise in the future. 

4. The Agreement also includes revisions to the operating hours for the Luau Grounds whereas the area will be available for City-approved functions from Sunday to Thursday until 9:00 p.m. and Friday and Saturday until 11:00 p.m. Before this revision, the operation hours for the Luau Grounds were from Sunday to Wednesday until 9:00 p.m. and Thursday to Saturday until 11:00 p.m. 

Any functions that are proposed to take place at the Luau Grounds will first need to be approved by the Park, Recreation and Community Services Director before the event is booked.  Any event at the Luau Grounds that will extend past 9:00 p.m. will need additional and specific City approval as well.  The City may request that the Castaway pay a fee for Police assistance with traffic along the Harvard/Sunset Canyon intersection for events that go past 9:00 p.m. and this Police assistance will be required one and a half hours before and after the closing time.

5. Additionally, there is now a provision in the Agreement that ends alcohol service at twelve midnight for the Castaway�s entire facilities.  This includes the restaurant, the lounge and patio bar service, events at the banquet rooms, and the Luau Grounds.  The Castaway will be required to enforce this stipulation.

6. The last provision added to the Agreement requires the Castaway to provide a security guard at the banquet facilities whenever an event goes beyond twelve midnight.  The purpose of the security guard is to restrict any disorder that may arise, such as noise or littering, after events come to an end.  This requirement will further reduce the impacts of the Castaway�s business on the neighboring residences.

Staff would like to emphasize that the Amended and Restated Lease Agreement has provisions that address cure periods if the Castaway is in default of any terms in the Agreement.  Should the Castaway fail to meet any of the conditions in the Agreement, the City will send a written notice requesting that the Castaway address and cure the default.  The failure on the part of the Castaway, to either cure or be in the process of curing the default within 30 days after receiving a written notice from the City, will lead to a breech in the Agreement.  As a result, the City may pursue any legal remedy deemed appropriate, including the option of removing the Castaway from the property.

In addition, during the Annual Inspection Program that will take place every twelve months, the City will inspect the restaurant, banquet facilities, luau grounds, parking areas and surrounding areas for compliance with the Agreement.  After each inspection, the City and the Castaway will meet to discuss the results of the inspection and address any concerns and issues.  This annual inspection does not preclude the City from making other code enforcement or fire inspections as necessary during the course of the year.

CONCLUSION:

Pursuant to the public hearing held on September 13, 2005, the City Council directed staff to return with revisions to the Amended and Restated Lease Agreement that addressed certain issues and concerns.   The subsequent revisions made to the Agreement further enhances the Castaway Restaurant�s operations, promotes good relations with the neighboring residents, and ensures that the restaurant remain as a first class establishment.  The term of the Amended and Restated Lease Agreement is 20 years.  The Agreement will be effective upon its execution and the existing lease and concession agreement will be terminated.   Should the City Council adopt the resolution approving the Agreement, the execution date will be November 1, 2005, the first day of the following month.  This will set the termination date to November 1, 2025.  If Castaway were to exercise the �Option Period� in the Agreement, and receive approval from the City, the termination date of the Agreement would extend to November 1, 2035. 

FISCAL IMPACT:

Under the Amended and Restated Lease Agreement, the minimum base rent for the Castaway will be $180,000 per year, payable $15,000 per month.  Every five years, the minimum base rent will be adjusted to the greater of the prior period�s base rent or 75% of the average total annual rent for the previous five years.  This adjustment is intended to keep the rents current with market rates.  The percentage rent for the Castaway restaurant portion will be 5% of the gross sales for the first two years of the Agreement, and then increased to 7% of the gross sales for the remaining term of the Agreement.  The percentage rent for the banquet facilities will be 7% of the gross sales for the entire term of the Agreement.  The Castaway, on a monthly basis, will pay the greater of either the base rent or the percentage rent.  The base rent will be due the first of the month, and the percentage rent will be collected at the end of the month if and when the amount is higher than the base rent. 

Keyser Marston Associates Inc. (KMA) has estimated that under the existing lease, the City�s revenues between 2005 and the 2012 expiration of the ground lease would be $2,454,000.  If the Council were to approve the Agreement in 2005, the City can expect to realize approximately $5,627,000 in revenues between the execution date and the 2012 expiration date.  This is an increase of $3,173,000 in revenues during that period of time.

RECOMMENDATION:

Staff recommends that the City Council adopt a resolution approving the Amended and Restated Lease Agreement between the City of Burbank and Verdugo Restaurant Corporation for the Castaway Restaurant.

ATTACHMENTS:   

Exhibit A          September 13, 2005 Staff Report and corresponding Exhibit A Only.

Exhibit B          Amended and Restated Lease Agreement

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