Settlement reached in legal dispute between port district and San Diego YC.
SAN DIEGO — Two lease agreements on the Port of San Diego Board of Port Commissioners’ consent calendar agenda were approved Dec. 13, with one approval maintaining current levels and the other amending terms to reflect the end of a legal dispute.
Sunroad Marina will enter into the next phase of its lease agreement paying the port district the same minimum annual rent as current levels.
Rental terms for San Diego Yacht Club, however, were updated to reflect a settlement agreement the organization reached with port district officials. The settlement agreement ends a legal dispute between both parties.
Sunroad Marina lease
Commissioners unanimously approved a resolution to establish lease terms between the port district and Sunroad Marina, a 600-slip marina at Harbor Island.
Lease terms were adjusted in December 2015 and would remain in place during the upcoming 10-year period from Feb. 1, 2017 to Jan. 31, 2027.
Sunroad’s minimum annual rent of $900,000 will remain in place when the next 10-year lease segment takes effect in February. The marina paid the port district, on average, nearly $1.2 million annually between August 2013 and July 2016.
Port district staff stated Sunroad is the district’s highest grossing marina.
“It is district practice that the [minimum annual rent] be set at no less than 75 percent of the average rent paid during the last three years of the preceding rental period. Sunroad currently has a [minimum annual rent] of $900,000 per year, which exceeds 75 percent of the average rental paid during the last three accounting years,” port district staff stated in a report to commissioners.
Sunroad and the port district entered into a 50-year lease agreement in 1987; terms of the agreement call for the lease to be reviewed every 10 years.
Commissioner Rafael Castellanos abstained from voting on the resolution; the remaining board members approved this consent calendar item.
San Diego Yacht Club
Lease terms between the port district and San Diego YC were amended, resolving a legal dispute between the two parties over rent payments.
San Diego YC and the port district have a lease agreement in place through Sept. 30, 2049; the yacht club leases land and water space from the port district.
Both parties reportedly disputed the lease’s language with respect to rent payments and attempted to resolve the disagreement in mediation. An amicable resolution was not achieved and San Diego YC filed a lawsuit against the port district in August 2015.
Settlement discussions resulted in San Diego YC and the port district coming to terms with how the yacht club’s rent would be calculated.
“The Addendum to Amended and Restated Lease clarifies and limits certain deductions from gross income upon which percentage rent is based, sets the percentage rent rate by which gross income is multiplied for the remaining rental periods of the lease, and states the calculation of Minimum Annual Rent,” port district staff stated in its report to commissioners.
The yacht club’s percentage rate, under the amended lease agreement, would be 11 percent from 2017 to 2026 and then 11.1 percent from 2027 to 2036. The rate would increase again to 11.2 percent in 2037 before capping off at 11.3 percent in 2047.
“Certain allowable deductions from gross revenue are capped preventing unlimited reductions in overall rent paid by [San Diego YC], port district staff stated. “Rent paid by [San Diego YC] will depend on [San Diego YC] gross revenue and capital spending.”
Yacht club officers and port district staff initially signed a 40-year lease in 2009.
Port district staff added its dispute with the yacht club was not representative of lease agreements it has in place with other tenants.
“The dispute, the unique San Diego Yacht Club lease language, the factual circumstances, and the proposed settlement are specific to the San Diego Yacht Club,” port district staff stated. “The advice of the General Counsel regarding this lawsuit and dispute is protected by the attorney-client privilege and attorney work product doctrine, and is addressed in a separate privileged and confidential memorandum to the Board [of Port Commissioners].”
Commissioner Dan Malcolm, who is a San Diego YC member, abstained from this consent calendar item.