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HomeMy WebLinkAboutFirst amendment to original leaseAMENDMENTS TO LEASE AGREEMENT BETWEEN CITY OF AUBURN AND AVIATION PROPERTIES, INC. DATED MAY 31, 2001 This document (the "Amendment") amends that certain Lease Agreement between the City of Auburn, a municipality of the State of Washington, and Aviation Properties, Inc., a Washington corporation. WHEREAS, the City of Auburn ("Auburn"), and Aviation Properties, Inc. ("API") entered into a Lease Agreement, entitled "City of Auburn Airport Hangar Land Lease Agreement" dated June 8, 2001, a memorandum of which was recorded with the Auditor of King County, Washington, under Auditor's File No. 20020627002407 on the 27th day of June, 2002; and WHEREAS, the City of Auburn Airport Hangar Land Lease Agreement (the "Lease") contemplates that API will construct real property improvements on the leasehold, consisting of buildings to be used as hangars for aircraft and related uses, and the condominium units thereinafter sold to third parties; and WHEREAS, the Lease contemplates that API will be required to obtain construction financing to argi lire the materials and to construct the real property improvements; and WHEREAS, the Lease specifically provides for amendment to accommodate construction lending; THEREFORE, Auburn, API and Bank NorthWest (the "Bank") do hereby agree, warrant, undertake and acknowledge as follows: 1. Lease. The Lease is between Auburn as Lessor and API as Lessee and has been filed of record as noted above. The Lease is in full force and effect and there is no existing default on the part of either party. The Lease contemplates that API will construct hangars for the storage of aircraft and related uses under a condominium 1 regime. The condominiums, when constructed, are to be sold to third parties. The condominiums will be owned by third parties, but are constructed upon land owned by Auburn which is leased to API for the purpose of the condominium development project. 2. Construction Lender. The Lease contemplates that API will require construction financing to develop the condominium hangar project. The Bank has agreed to provide the financing for the construction of the improvements under certain terms and conditions, including this Amendment to the Lease. Auburn agrees that Bank and Bank's undertaking satisfies the requirements of Paragraph 6(a) of Exhibit B to the Lease, regarding Funding Assurances. 3. Pertinent Documents. This Amendment takes into account the Lease and the Condominium Declaration for Auburn Airport Hangar Condominium to be submitted by API and approved by Auburn, which will be recorded with the King County Auditor in due course. Additionally, API and its principals have executed the following documents (the "Loan Documents"): a. Corporate resolution to borrow/grant collateral; b. Business Loan Agreement; C. Promissory Note; d. Commercial Guaranty of Bill Vanderberg; e. Commercial Guaranty of Gordon Estrada; f. Deed of Trust; g. Assignment of Rents; h. Security Agreement and Financing Statement; i. Hazardous Substances Certificate and Indemnity Agreement; j. Agreement to Provide Insurance; k. Disbursement Request and Authorization; and I. Notice of Final Agreement. 4. Obligation and Limitation on Obligation of Bank. Bank undertakes to make the loan to API in conformance with the foregoing Loan Documents, upon their proper execution, delivery and recording, as appropriate; the Condominium Declaration; the Lease and this Amendment (which Auburn and API warrant is the first and only 2 amendment to the Lease). As between the parties, they agree that the Lease and this Amendment shall supersede the Condominium Declaration so long as rights of third parties are not thereby affected. Nothing set forth in this Amendment shall obligate Bank to perform any obligation due from API to Auburn, but Bank may perform any such obligations and duties, including the payment of rent, to protect the financial interests of the Bank and its interest in the security for the obligation of API to Bank, all as set forth in Paragraph 6, below. 5. Specific Amendments. The following are references to paragraphs and provisions of the Lease, to the extent that such Lease provisions are identified, and otherwise constitute amendments, revisions or modifications to the Lease, to -wit: 5.1 Assignment and Subletting. Notwithstanding the provisions of Paragraph 12 or other provisions of the Lease to the contrary, the rights of Bank to assume and acquire the rights of API as Lessee under the Lease are as otherwise provided in the Lease and in this Amendment. In particular, the assumption of API's position, rights and obligations under the Lease do not require Auburn's prior written consent, where the assignment is in foreclosure of Bank's financial interest, except to the extent of Auburn's approval and acceptance of this Amendment, to be accomplished in the manner otherwise provided in this Amendment or the Lease. To the extent that Paragraph 12 provides for a novation as between API, a condominium association, or a unit owner, such novation shall not affect Bank's security or rights with regard to the collateral for the loan, and shall not constitute a release of any obligation of API, and its principals who execute guarantees on behalf of API. 5.2 Priority. Paragraph 25(a) is amended or clarified to the extent that Auburn warrants that there is no existing mortgage, deed of trust, or other Financial Encumbrance against the real property which is the subject of the Lease, and that Auburn will not cause or allow any new Financial Encumbrance to arise except as shall be subordinate to the security of Bank. 5.3 Lender Security. With regard to Paragraph 25(b), this Amendment memorializes the prospective grant of a first position deed of trust, between API as grantor, and Bank as beneficiary, and Chicago Title Insurance Company of Bellingham 3 as trustee. In addition, this Amendment constitutes the notice of such proposed first position deed of trust; and this Amendment constitutes partial satisfaction of Lessor's agreement to make reasonable modifications to the Lease as requested by Bank. 6. Bank's Relationship to Auburn and API as Deed of Trust Beneficiary. 6.1 Right of API to Grant Financial Encumbrance. API, as Lessee, and its successors and assigns, shall have the unrestricted right to grant financial encumbrances against its interests under the Lease to Bank, subject, however, to the terms, conditions and limitations of this Paragraph 6. As used herein, "Financial Encumbrance" shall mean a mortgage or deed of trust on the Leasehold Estate. "Leasehold Estate" shall mean the estate of API created by the Lease upon and subject to all the terms and conditions of the Lease, but expressly excluding Auburn's fee simple interest in the land described in Exhibit A-1 of the Lease (it being the intent and understanding of Auburn, API and Bank that Auburn's fee simple interest in the land shall not be subordinate to Bank's Financial Encumbrance). Any such Financial Encumbrance shall be subordinate to the rights of Auburn as set forth in accordance with all the terms and conditions of the Lease, except as provided to the contrary in this Amendment. 6.2 Notice of Loan Documents. By this Amendment, API and Bank notify Auburn of the pending grant of a Financial Encumbrance to Bank by API. API acknowledges that it remains obligated to provide Auburn notice of an intended grant of a subsequent Financial Encumbrance. 6.3 Protection of Bank. So long as Bank's Financial Encumbrance shall remain unsatisfied of record, the following provision shall apply: .(a) No cancellation, surrender or modification of the Lease shall be effective as to Bank unless consented to in writing by Bank; provided that such consent shall not be required in the event of a termination of the Lease in accordance with this Section 6.3. (b) Auburn, upon providing API any notice of: (i) default under the Lease, (ii) a termination of the Lease, or M. (iii) a matter on which Auburn may predicate or claim a default, shall at the same time provide a copy of such notice to Bank. No such notice by Auburn to API shall be deemed to have been duly given unless and until a copy thereof has been so provided to Bank. From and after the date such notice has been given to Bank, Bank shall have the same period for remedying any default or acts or omissions which are the subject matter of such notice, or causing the same to be remedied, as is given API after the giving of such notice to API, plus in each instance, the additional periods of time specified in subsections (c) and (d) of this Section 6.3, to remedy, commence remedying, or cause to be remedied, the defaults or acts or omissions which are specified in such notice. Auburn shall accept such performance by or at the instigation of Bank as if the same had been done by API. API authorizes Bank to take any such action at Bank's option and does hereby authorize entry upon the Premises by Bank for such purpose. (c) Anything contained in the Lease to the contrary notwithstanding, if any default shall occur which entitles Auburn to terminate the Lease, Auburn shall have no right to terminate the Lease unless, following the expiration of the period of time given API to cure such default or the act or omission which gives rise to such default, Auburn shall provide notification to Bank (a "Termination Notice") of Auburn's intent to so terminate at least thirty (30) days in advance of the proposed effective date of such termination if such default is capable of being cured by the payment of money, and at least ninety (90) days in advance of the proposed effective date of such termination if such default is not capable of being cured by the payment of money (the "Termination Notice Period"). The provisions of Section 6.3(d) shall apply only if, during such thirty (30) or ninety (90) day Termination Notice Period, Bank shall: (i) notify Auburn of Bank's desire to nullify such notice; (ii) pay or cause to be paid all Rent and other payments then due and in arrears and which may become due during the Termination Notice Period as specified in the Termination Notice to Bank; (iii) comply or in good faith with reasonable diligence and continuity, commence to comply with all non -monetary requirements of the Lease then .91 in default and reasonably susceptible of being complied with by Bank; provided, however, that Bank shall not be required during such Termination Notice Period to cure or commence to cure any default consisting of API's failure to satisfy and discharge any lien, charge or encumbrance against API's interest in the Lease or the Premises junior in priority to the lien of the Financial Encumbrance held by Bank; and (iv) any notice to be given by Auburn to Bank pursuant to any provision of this Section 6.3 shall be deemed properly addressed if sent to the Bank at the address provided below in Paragraph 7. (d) (i) If Auburn shall elect to terminate the Lease by reason of any default of API, and Bank shall have proceeded in the manner provided for by Section 6.3(c), the specified date of the termination of the lease as fixed by Auburn in its Termination Notice shall be extended for a period of six (6) months, provided that Bank shall, during such six (6) months: (A) pay or cause to be paid the Rent and other monetary obligations of API under the Lease as the same become due, and continuous good faith efforts to perform all of API's other obligations under the Lease, including during any period during which Bank is entitled to possession of the Premises, the obligation to operate and maintain the Improvements and the Premises in accordance with the Lease, excepting obligations of API to satisfy or otherwise discharge any lien, charge or encumbrance against API's interest in the Lease or the Leasehold Estate junior in priority to the lien of the Financial Encumbrance held by Bank; and past non -monetary obligations then in default and not reasonably susceptible of being cured by Bank; and (B) if not enjoined or stayed, take steps to acquire or sell API's interest in the Lease by foreclosure of the Financial Encumbrance or other appropriate means and prosecute the same with due diligence. (ii) If at the end of such six (6) month period, Bank is complying with Section 6.3(d)(i), the Lease shall not then terminate, and the time for completion by Bank of its proceedings shall continue so long as Bank is enjoined or stayed and thereafter for so long as Bank proceeds to complete steps to acquire or sell no API's interest in the Lease by foreclosure of the Financial Encumbrance or by other appropriate means with reasonable diligence and continuity. Nothing in this Section 6.3(d), however, shall be construed to extend the Lease beyond the original term thereof, or to require Bank to continue such foreclosure proceedings after the default has been cured. If the default shall be cured and Bank shall discontinue such foreclosure proceedings, the Lease shall continue in full force and effect as if API had not defaulted under the Lease. (iii) If Bank is complying with this Section 6.3(d), upon the acquisition of API's Leasehold Estate herein by Bank, or its designee or any other purchaser at a foreclosure sale or otherwise, and the discharge of any lien, charge or encumbrance against API's interest in the Lease or the Premises which is junior in priority to the lien of the Financial Encumbrance held by the Bank, and which API is obligated to satisfy and discharge by reason of the terms of the Lease, this Lease shall continue in full force and effect as if API had not defaulted under this Lease. (iv) For the purposes of this Section 6.3, the granting of a Financial Encumbrance to Bank shall not be deemed to constitute an assignment or transfer of the Lease or the Leasehold Estate, nor shall Bank, as such, be deemed to be an assignee or transferee of the Lease or the Leasehold Estate so as to require Bank, as such, to assume the performance of any of the terms, covenants or conditions on the part of API to be performed hereunder, but the purchaser at any sale of the Lease and of the Leasehold Estate in any proceedings for the foreclosure of Bank's Financial Encumbrance, or the assignee or transferee of the Lease of the Leasehold Estate under any instrument of assignment or transfer in lieu of the foreclosure of Bank's Financial Encumbrance, shall be deemed to be an assignee or transferee within the meaning of this Section 6.3 and shall be deemed to have agreed to perform all the terms, covenants and conditions on the part of API to be performed hereunder from and after the date of such purchase and assignment. If Bank shall become the holder of the Leasehold Estate and if the Premises shall have been or become materially damaged on, before or after the date of such purchase and assignment, Bank, or such designee shall be obligated to repair, replace, or reconstruct the Improvements only to the extent 7 of the net insurance proceeds received by Bank or such designee by reason of such damage. However, should such net insurance proceeds be insufficient to repair, replace or reconstruct the Improvements to the extent required by the Lease and should Bank or such designee choose not to fully reconstruct the Improvements to the extent required by the Lease, such failure shall entitle Auburn to terminate the Lease, and the net insurance proceeds shall be distributed first to Bank and then to other parties in accordance with their respective interests. (v) Bank or other acquirer of the Leasehold Estate pursuant to foreclosure, assignment in lieu of foreclosure, or other proceedings, may, upon acquiring API's Leasehold Estate, without further consent of Auburn, sell and assign the Leasehold Estate on such terms and to such persons and organizations as are acceptable to Bank or other acquirer and thereafter be relieved of all obligations under the Lease; provided that the assignor shall have complied with all the requirements described in Section 6.3(d)(i)(A) above; and further provided such assignee has delivered to Auburn its written assignment to be bound by all the provisions of the Lease, including any and all restrictions on further assignments, alienation, subletting, and further transfers of its interest hereunder. (vi) Notwithstanding any other provisions of the Lease, any sale of the Lease and the Leasehold Estate and any proceedings for the foreclosure of Bank's Financial Encumbrance, or the assignment or transfer of the Lease and of the Leasehold Estate in lieu of the foreclosure of Bank's Financial Encumbrance, shall be deemed to be a permitted sale, transfer or assignment of the Lease and of the Leasehold Estate. (e) In the event of the termination of the Lease as a result of API's default, Auburn shall, in addition to providing the notices of default and termination as required in Sections 6.3(b) and (c), provide Bank with written notice that the Lease has been terminated (Final Termination Notice), together with a statement of all sums which would at that time be due under the Lease but for such termination, and of all other defaults, if any, then known to Auburn. Auburn agrees to enter into a new Lease ("New Lease") of the Premises with Bank or its designee for the remainder of the term of the NO Lease, effective as of the date of termination, at the same Rent and upon the terms, covenants and conditions of the Lease; provided: (i) Bank shall make written request upon Auburn for such New Lease within thirty (30) days after the date Bank receives Auburn's Final Termination Notice if any default specified in such notice can be cured by the payment of money, or within sixty (60) days after the date Bank receives Auburn's Final Termination Notice if no such default is capable of being cured by the payment of money; (ii) Bank shall pay or cause to be paid to Auburn at the time of the execution and delivery of such New Lease, any and all sums which would have at the time of execution and delivery thereof be due pursuant to the Lease (including interest as required under the terms of the Lease), but for such termination, and, in addition thereto, all reasonable expenses, including reasonable attorney's fees, which Auburn shall have incurred by reason of such termination and the execution and delivery of the New Lease and which have not otherwise been received by Auburn from API or other parties in interest under API; (iii) Bank or such designee shall agree to remedy any of API's defaults of which Bank was notified by Auburn's Final Termination Notice and which are reasonably capable of being so cured by Bank or such designee; (iv) any New Lease made pursuant to this Section 6.3(e) shall have the same priority as the Lease, and the Lessee under such New Lease shall have the same right, title and interest in and to the Premises and the Existing Improvements and improvements thereon as API had under the Lease as of the date of the New Lease; and (v) if not satisfied or otherwise released, the priority of Bank's Financial Encumbrance shall not be affected. (f) If the holder of another Financial Encumbrance shall request a New Lease, Auburn shall enter into such New Lease with the party whose Financial Encumbrance is superior in priority. Auburn, without liability to API or Bank, may rely upon a mortgagee title insurance policy, or similar policy or guarantee, issued by a 9 responsible title insurance company doing business in King County as the basis for determining the appropriate party entitled to such New Lease, and the party which executes the New Lease shall indemnify, defend and hold Auburn harmless from and against any claims by API or the holders of other Financial Encumbrances with respect to such determination. Provided, nothing set forth in the Lease or this Amendment shall authorize API to grant another financial encumbrance except as may be allowed by the Loan Documents. (g) Nothing herein contained shall require Bank as a condition of its exercise of rights hereunder to cure any default of API which by its terms is not reasonably susceptible of being cured by Bank or such designee in order to comply with the provisions of Section 6.3(c) and (d), or as a condition of entering into the New Lease provided for by Section 6.3(e). The financial condition of Bank or its successor to API's interest under the Lease or a New Lease shall not be a consideration in the determination of the reasonable susceptibility of cure of the default. No default or Event of Default, the cure of which, and no obligation of API, the performance of which, requires possession of the Premises, shall be deemed reasonably susceptible of cure of performance by Bank or a successor to API's interest under the Lease or a New Lease not in possession of the Premises, provided such holder is otherwise complying with the requirements described in Section 6.3(d), above, nor shall Bank be required to cure the bankruptcy, insolvency, or any related or similar condition of API. (h) API's share of the proceeds arising from an exercise of the power of eminent domain, shall be disposed of as provided for by Bank's Financial Encumbrance. (i) A Standard Mortgagee Clause naming Bank may be added to any and all insurance policies required to be carried by API under the Lease on condition that the insurance proceeds are to be applied in the manner specified in the Lease and the terms. of the Financial Encumbrance shall so provide; except that the Financial Encumbrance may provide a manner for the disposition of such proceeds, if any, otherwise payable directly to API (but no such proceeds, if any, which are supposed to be payable jointly to Auburn and API). 10 Q) API and Auburn shall give Bank notice of any arbitration or legal proceedings between Auburn and Bank involving obligations under the Lease. Bank shall have the right to intervene, within sixty (60) days after receipt of such notice of arbitration or legal proceedings, in any such proceedings to be made a party to such proceedings, and the parties hereto do hereby consent to such intervention. Bank, after intervening in any such proceedings, shall not be entitled to receive an award of attorney's fees from Auburn. Bank, as an intervening party, shall be bound by the outcome of such proceedings. In the event that Bank shall not elect to intervene or become a party in any such proceedings, Auburn and API shall give Bank notice of, and a copy of any award or decision made in any such proceedings, which shall be binding on Bank, if it has not intervened, after receipt of notice of such proceedings. (k) So long as Bank's Financial Encumbrance is in existence, unless Bank otherwise expressly consents in writing or Auburn shall have terminated the Lease in accordance with the terms hereof, the fee title to the Premises and the Leasehold Estate of API therein created by the Lease shall not merge but shall remain separate and distinct, notwithstanding the acquisition of said fee title and said Leasehold Estate by Auburn or by API or by any third party, by purchase or otherwise. (1) Notices from Auburn to Bank shall be mailed to the address furnished Auburn in Paragraph 7, below, and those from Bank to Auburn shall be mailed to the address designated in Paragraph 31 of the Lease. Such notices, demand and requests shall be given in the manner described in the Lease and shall in all respects be governed by the provisions of the Lease. (m) No payment to Auburn by Bank shall constitute agreement that such payment was, in fact, due under the terms of the Lease; and Bank, having made any payment to Auburn pursuant to Auburn's wrongful, improper or mistaken notice or demand shall be entitled to the return of any such payment or portion thereof, provided written demand therefor shall have been delivered not later than one (1) year after the date of such payment. (n) In the event of any proceeding by either Auburn or API under the United States Bankruptcy Code (Title 11 U.S.C.) as now or hereafter in effect: 11 (i) If the Lease is rejected in connection with bankruptcy proceeding by API or a trustee in bankruptcy for API, such rejection shall be deemed an assignment by API to Bank of the Leasehold Estate and all of API's interest under the Lease, in the nature of an assignment in lieu of foreclosure, and the Lease shall not terminate and the Bank shall have all rights as if such bankruptcy proceeding had not occurred, unless Bank shall reject such deemed assignment by notice in writing to Auburn within thirty (30) days following rejection of the Lease by API or API's trustee in bankruptcy. If any court of competition jurisdiction shall determine that the Lease shall, have been terminated notwithstanding the terms of the preceding sentence as a result of rejection by API or the trustee in connection with any such proceeding, the rights of Bank to a New Lease from Auburn pursuant to Section 6.3(e) hereof shall not be affected thereby. bankruptcy: (ii) If the Lease is rejected by Auburn or by Auburn's trustee in (A) API shall not have the right to treat the Lease as terminated, except with the prior written consent of Bank; and the right to treat as terminated in such event shall be deemed assigned to Bank, whether or not specifically set forth in Bank's Financial Encumbrance, so that the concurrence in writing of API and Bank shall be required as a condition to treating the Lease as terminated in connection with such proceeding. (B) If the Lease is not treated as terminated in accordance with Section 6.3(n)(i), above, then the Lease shall continue in effect upon all the terms and conditions set forth herein, including rent, but excluding the requirements that are not then applicable or pertinent to the remainder of the term thereof. Thereafter, API or its successors shall be entitled to any offsets against rent payable hereunder for any damages arising from such rejection and any such offset properly made shall not be deemed a default under the Lease. The lien of Bank's Financial Encumbrance then in effect shall extend to the continuing possessory rights of API following such rejection with the same priority with respect to Bank as it would have enjoyed had such rejection not taken place. 12 (o) The rights of Bank hereunder shall not diminish any right or claim of Auburn against API. 6.4 Assignment by Bank. Notwithstanding any other provisions of the Lease, if Bank or other successor in interest shall acquire title to API's interest in the Lease by foreclosure or other sale pursuant to a Financial Encumbrance thereon or by assignment in lieu of foreclosure or by an assignment from a designee or wholly owned subsidiary corporation of Bank, or under a New Lease pursuant to this Paragraph 6, Bank may assign such Lease and shall thereupon be released from all liability for the performance or observance of the covenants and conditions of such Lease contained on API's part to be performed and observed from and after the date of such assignment; provided that the assignee of Bank shall have assumed the Lease in accordance with its terms. 7. Notice. Any notice to be given by Auburn or API to Bank in the manner provided for notices in Paragraph 31 of the Lease, shall be given as follows: Bank Northwest Main Office 100 Grand Avenue P.O. Box 1038 Bellingham, WA 98225 8. Definitions. Words and phrases used in this Amendment which have the first letter of the word, or the first letter of each word in the phrase, capitalized, are "defined terms." Such words or terms shall have the meanings given to them by this Amendment, or by the Lease if not defined in this Amendment. DATED this 1944- day of Roy -r 12002. City of Auburn A Washington State- Municipality Its. Al-eA.;, 13 Aviation Properties, Inc. A Washington Corporation By: -' Its: Bank NorthWest 14