CC Resolution No. 19-145 Approving an Amended and Restated Agreement for Lease of Real Property (Water System) with San Jose Water CompanyRESOLUTION NO. 19-145
A RESOLUTION OF THE CUPERTINO CITY COUNCIL
APPROVING AN AMENDED AND RESTATED AGREEMENT FOR LEASE
OF REAL PROPERTY (WATER SYSTEM) WITH SAN JOSE WATER
COMPANY
WHEREAS, the production, treatment, and distribution of potable water
within the Cupertino Municipal Water System area is determined and declared to
be a health, sanitary and safety measure necessary for the promotion, protection
and preservation of the health, safety and general welfare of the people of the City
of Cupertino; and
WHEREAS, the City Council of the City of Cupertino enacted provisions of
the Municipal Code, in part, to satisfy applicable potable water safety and health
requirements; and
WHEREAS, the City Council adopted on September 2, 1997 by Council
Resolution 9950 the original Agreement for Lease of Real Property (Water System);
and
WHEREAS, pursuant to the proposed Amended and Restated Agreement
for Lease of Real Property (Water System), included as attachment C to the staff
report for this Resolution and incorporated herein by this reference, ("Amended
Lease") all operations of the Cupertino Municipal Water System are provided by
a private water utility operator collector pursuant to the terms of the Amended
Lease and Cupertino Municipal Code; and
WHEREAS, the City does not provide water system services, rather the
private water utility has agreed to protect public health, safety and welfare and
comply with applicable laws; and
WHEREAS, as the lessee of the Cupertino Municipal Water System, San
Jose Water Company, is responsible for all operations of the system including
repair, maintenance, operation, customer service, rate setting, billing, emergency
service and water quality testing; and
WHEREAS, pursuant to the terms of the Amended Lease, San Jose Water
Company has the responsibility to operate the Cupertino Municipal Water System
Resolution No.19-145
Page 2
in a manner similar to that in which it operates in own systems and to maintain
the leased system in accordance with specified operational standards; and
WHEREAS, pursuant to the terms of the Amended Lease, San Jose Water
Company has the responsibility to make certain capital investments up to $5
million in the Cupertino Municipal Water System before the Amended Lease
expires in October 2022; and
WHEREAS, pursuant to the terms of the Amended Lease, when rate setting
for customers of the Cupertino Municipal Water System, the private water utility
is solely responsible for setting and collecting such rates and charges at a level at
or below the authorized amount set by the California Public Utilities Commission
in effect on SJWC's regulated water system located within Cupertino; and
WHEREAS, the City has determined that the Amended Lease is not a
project under CEQA because it has no potential for resulting in a physical change
in the environment, but even if it were, it would be exempt from environmental
review pursuant to the exemption in 14 Cal. Code Regs. §15601(b)(3) in that it can
be seen with certainty that there is no possibility that this action will have a
significant effect on the environment because approval of the Amended Lease
merely clarifies the standards of operation of the system and the procedures for
establishing water rates, which are technical changes concerning the general
administration of the lease of property and does not commit the City to a definite
course of action, so this is not an activity subject to CEQA. Environmental review
will be conducted as necessary for any changes to the water system that may be
agreed upon in the future; and
WHEREAS, the City Council, using its independent judgment, before
taking action on this Resolution, determines that the action is not a project and/or
exempt from CEQA for the reasons stated above; and
WHEREAS, each and every customer and owner of real property within the
Cupertino municipal water system was notified of a public hearing scheduled on
the Amended Lease by U.S. mail prior to said public hearing; and
WHEREAS, a public hearing notice regarding the Amended Lease was
posted on the City's website on November 5, 2019; and
Resolution No. 19-145
Page 3
WHEREAS, all documentation to support consideration of this Amended
Lease was placed on file with the City Clerk for public inspection and review; and
WHEREAS, at its regular meeting on December 17, 2019, the City Council
held a duly noticed public hearing to consider the Amended Lease; and
WHEREAS, at the public hearing, interested persons had the opportunity
to testify regarding the Amended Lease; and
WHEREAS, the City Council of the City of Cupertino finds and determines
as follows:
1. The above recitals are true and correct and material to the adoption
of this Resolution.
2. Pursuant to the Amended Lease between the City and San Jose
Water Company, the public's written comments and testimony received at this
public hearing, and the staff report and information presented at the hearing, the
City Council hereby determines that the Agreement for Lease of Real Property
(Water System) adopted by Council Resolution 9950 on September 2,1997 should
be restated and amended.
NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of
Cupertino, does hereby:
1. Approve the Amended and Restated Agreement for Lease of Real
Property (Water System) with San Jose Water Company.
2. Authorize the Mayor to execute the Amended Lease.
3. Authorize the City Manager or his/her designee to take all action as
may be reasonably necessary to effectuate the Amended Lease.
BE IT FURTHER RESOLVED that this Resolution is not a project under the
requirements of the California Quality Act of 1970, together with related State
CEQA Guidelines (collectively, "CEQA") because it has no potential for resulting
in physical change in the environment, either directly or ultimately. In the event
that this Ordinance is found to be a project under CEQA, it is subject to the CEQA
exemption contained in CEQA Guidelines section 15061(b)(3) because it can be
seen with certainty to have no possibility of a significant effect on the environment.
CEQA applies only to projects which have the potential of causing a significant
effect on the environment. Where it can be seen with certainty that there is no
Resolution No. 19-145
Page 4
possibility that the activity in question may have a significant effect on the
environment, the activity is not subject to CEQA. In this circumstance, the
amendments to the City Code would have no or only a de minimis impact on the
environment. The foregoing determination is made by the City Council in its
independent judgment.
PASSED AND ADOPTED at a regular meeting of the City Council of the City of
Cupertino this 171h day of December, 2019, by the following vote:
Vote Members of the City Council
AYES: Scharf, Paul, Chao, Sinks, Willey
NOES: None
ABSENT: None
ABSTAIN: None
SIGNED:
Steven Scharf, Mayor
Date
City of Cupertino
ATTEST:
Date
Grace Schmidt, City Clerk
Attachment C
RECORDING REQUESTED BY
City of Cupertino
WHEN RECORDED MAIL TO
City of Cupertino
10300 Torre Avenue
Cupertino, CA 95014
(SPACE ABOVE THIS LINE FOR RECORDER'S USE)
AMENDED AND RESTATED AGREEMENT
FOR LEASE OF REAL PROPERTY (WATER SYSTEM)
SEPARATE PAGE PURSUANT TO GOVT. CODE 27316.6
AMENDED AND RESTATED AGREEMENT
FOR LEASE OF REAL PROPERTY (WATER SYSTEM)
THIS AMENDED AND RESTATED AGREEMENT FOR LEASE OF REAL
PROPERTY (WATER SYSTEM) ("Lease") is entered into as of , between the .
CITY OF CUPERTINO (hereinafter referred to as "City"), and SAN JOSE WATER COMPANY,
a California corporation ("Lessee") (collectively "Parties") with reference to the following facts
and intentions:
RF.0 ITAT,R-
WHEREAS, prior to City's incorporation in 1955, and continuing thereafter, the Cupertino
area was provided with water service by investor -owned private utility companies including San
Jose Water Works, the predecessor to Lessee; and
WHEREAS, in 1958, City granted San Jose Water Works (the former name of Lessee) a
franchise to construct, operate, maintain, and improve a portion of the water system within the
City of Cupertino, which Lessee privately owns and operates in exchange for payment of a
franchise fee set by Chapters 6.16 and 6.20, respectively, of the Cupertino Municipal Code; and
WHEREAS, from about 1960 until October 1, 1997, in the areas not already served by the
private water companies, City provided water service to approximately 4,200 (currently
approximately 4,400) metered customers in the service area described in Exhibit A attached hereto
(as such service area may change from time to time in accordance with this Lease, the "Service
Area"); and
WHEREAS, as a result, Cupertino was served by three roughly equal -size water systems:
a city -owned system within the Service Area and two others owned and operated by investor -
owned utilities; and
WHEREAS, within the Service Area, City is the owner of certain real property, easements
and rights of way and those certain pipes, mains, pumps and appurtenant facilities (including
without limitation buildings, pump houses, sheds and other structures) constituting all of City's
water system (the "Water System") as generally depicted in Exhibit B attached hereto and may
be updated from time to time; and
WHEREAS, City has no legal obligation to provide public water service to its residents
and desired to terminate its role in the provision of water service and allow those services to be
provided city-wide exclusively by investor -owned utilities; and
WHEREAS, City may lease property to private parties pursuant to California Constitution
Article XI Section 9; Government Code Sections 37350, 37380 and 37395; and Public Utilities
Code Sections 10003, 10004, and 10061; and
WHEREAS, pursuant to the requirements of Public Utilities Code Section 10061, in 1997
City considered two lease proposals from existing investor -owned utilities operating in Cupertino
to operate the Water System. As a result, the City Council found that Lessee was the best qualified
operator that could continue to provide equal or better service to the customers of the Water System
for just compensation; and on that basis granted a concession to Lessee; and
WHEREAS, the Parties entered into an Agreement for Lease of Real Property (Water
System) dated October 1, 1997 ("Original Lease"), which provided for a twenty-five (25) year
term, a concession fee of $6,800,000, and other terms and conditions as contained in the Original
Lease; and
WHEREAS, City and Lessee mutually desire to amend and restate the Original Lease in
its entirety to reflect updated terms and conditions agreed to by the Parties; and
WHEREAS, the amendments are intended, among other things, to clarify the intent of the
Parties in providing compensation, provide for capital investments in the Water System, and
simplify SJWC's rate setting procedure with regard to the Lease; and
WHEREAS, City has determined that these revised terms and conditions of the Lease
assure that the Water System will continue to be operated and maintained, and that water service
will be provided within the Service Area in a manner that benefits the public and fulfills the public
purposes of the Water System; and
WHEREAS, such public benefits and public purposes will be preserved by, among others,
requirements that the Water System be operated and maintained, and the utility services be
performed, in accordance with this Lease, and in a manner consistent with the operational and
maintenance standards applicable to Lessee's own regulated water system, such as General Order
103 A and Lessee's existing tariffs as approved by the California Public Utilities Commission
("CPUC") for domestic water and fire flow service, as may be amended from time to time (the
"Operational Standards"); and
WHEREAS, City and Lessee met and conferred about amending the Original Lease, shared
relevant information and, with the aid of competent counsel and advisors, mutually negotiated the
amendments in an arm's length transaction, taking into account what constitutes fair and
reasonable compensation for the value of the governmental property, rights, and privileges being
conveyed to a private party; and
WHEREAS, this Lease supersedes and replaces the Original Lease in its entirety.
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AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises and covenants contained
herein and for good and valuable consideration, the receipt and adequacy of which the Parties
hereby acknowledge, City and Lessee hereby agree as follows:
Section 1. Lease of Water System and Grant of Concession.
City hereby leases to Lessee, and Lessee hereby leases from City, the Water System as
described on Exhibit B. The Water System is leased in an "as is" condition. City also grants a
concession to Lessee to provide water service within the Service Area, and in connection therewith,
to use, possess, operate, manage, maintain, rehabilitate, expand, and improve the Water System in
exchange for those rates and charges Lessee establishes in accordance with and pursuant to this
Lease. In conveying this interest in governmental property to a private party, neither City nor any
of its agents has made any representation or warranties with respect to the Water System except as
specifically set forth in this Lease. City provided Lessee with copies of maps, drawings, plans and
specifications of the 1997 system, along with customer service and account records prior to the
Closing Date (defined below). Lessee agrees to use its best efforts keep all customer information
confidential, whether received from City or developed during the Term of the Lease.
Section 2. Term of Lease.
The term of the Lease of the Water System shall be twenty-five (25) years unless
terminated earlier as provided in this Lease (the "Term"), beginning on October 1, 1997 (the
"Closing Date").
Section 3. Use of Water System.
Subject to the provisions of this Lease, Lessee agrees to use the Water System for the
purpose of furnishing potable water service to customers connected to the Water System. Lessee
agrees to furnish water, including water service for fire protection, to all customers in the Service
Area in accordance with the applicable Operational Standards relating to service at all times during
the Term of the Lease.
Lessee has no authority to and shall not retire, sell, transfer, convey, or encumber any real
property of the Water System without prior written permission of the City. Lessee has no authority
to retire, sell or otherwise dispose of any personal property of the Water System without prior
written permission of the City.
City retains the right to utilize or continue to utilize any portion or portions of the Water
System, including easements, tanks, buildings, and appurtenances for any legal purpose which
does not interfere with Lessee's use of the Water System to furnish potable domestic water service
to customers connected to the Water System.
Section 4. Title.
All existing and future capital improvements shall be deemed part of the Water System and
title to such. Capital Improvements shall vest in City following inspection and written approval by
the City Engineer and formal acceptance by the City. Any other installed water utility
infrastructure added to or incorporated into the Water System by Lessee pursuant to its obligations
under this Lease or which are added by new developments shall be deemed part of the Water
System and title to such property shall vest in City following inspection and written approval by
the City Engineer and formal acceptance by the City. Lessee shall not own the Water System or
any part thereof or any interest therein during the Term of this Lease.
Section 5. Concession Fee.
This Lease sets forth that the Water System be leased and the potable domestic water
service be supplied exclusively by Lessee, a regulated utility, as a concession. As partial
consideration for the property, rights, and privileges granted under this Lease (along with the
consideration provided for in Section 6 and Section 28), Lessee and City met and conferred about
this matter in good faith and mutually negotiated a concession fee, taking into account the fair
market value of the Water System being leased and the service accounts, among other relevant
factors in determining what constitutes fair and reasonable compensation under the terms and
conditions of this Lease. Lessee agreed to pay and did pay the City a one-time concession fee (the
"Concession Fee") of 6.8 million dollars ($6,800,000.00) upon the execution of this Lease. The
Parties understand and acknowledge that the Concession Fee was not a levy imposed by City on
Lessee in its governmental capacity; it was voluntarily paid, negotiated compensation resulting in
a fair, and reasonable payment for a valuable interest in the Water System and water service. The
Concession Fee is not a security deposit and is not refundable. The Concession Fee was legally
incident on Lessee and the legal duty to pay remained with Lessee regardless of how Lessee opted,
in its sole discretion, to fund the Concession Fee.
Section 6. Base Rent.
As additional consideration (along with the consideration provided for in Section 5 and
Section 28), for the property, rights, and privileges granted under this Lease, Lessee agrees to pay
to City as annual rental (hereinafter called the "Base Rental") for the use of the Water System, the
sum of one dollar per year ($1.00/year). The Base Rental shall be paid to City on the basis of City's
fiscal year which commences July 1 and ends on June 30. City and Lessee agree that this rent
provides sufficient consideration considering the benefits and burdens placed upon the Parties
under the terms and conditions of this Lease. The Parties understand and acknowledge that the
Base Rental is not a levy imposed by City on Lessee in its governmental capacity; it is voluntarily
paid, negotiated compensation resulting in a fair and reasonable payment for a valuable interest in
the Water System. The Base Rental shall be legally incident on Lessee and the legal duty to pay
shall remain with Lessee regardless of how Lessee opts, in its sole discretion, to fund the Base
Rental.
4
Section 7. Operation of Water System.
A. Repair, Maintenance, Operation and Capital Improvement.
(1) Repair, Maintenance, and Operation. Lessee shall at its own expense throughout the
Term of this Lease, undertake any utility plant addition, betterment, replacement, improvement,
and repair and also perform routine and emergency maintenance of the Water System in
accordance with all applicable Operational Standards and any federal, state or local law, rule,
regulation, code, or ordinance (collectively "System Maintenance"), and shall manage and
operate the Water System and pay all costs and expenses of operating the same (including the costs
of all utilities, plant improvements, water and all public charges, taxes and assessments of any
nature whatsoever) (collectively "System Operation"), it being understood and agreed that City
shall be under no obligation to pay any cost or expense of any kind or character in connection with
or related to the System Maintenance or System Operation during the Term of this Lease.
(2) Lessee's Capital Improvements. In addition to the foregoing System Maintenance and
System Operation obligations, Lessee shall be responsible for all capital improvements with
respect to the Water System required to be designed, constructed and completed during the Term
in accordance with the terms of this Lease, including those Capital Improvements as required by
the applicable Operational Standards, and as required by any federal, state or local law, rule,
regulation, code, or ordinance. For the purposes of this Lease, "Capital Improvement" is defined
as any project having an estimated cost in excess of one thousand dollars ($1,000), which
constitutes an expansion to or addition, betterment, replacement, improvement and/or repair of the
Water System that will either enhance the Water System's overall value, increase its useful life or
adapt it to new uses, and has a useful life of ten (10) years for pumps, mechanical and electrical
equipment, forty (40) years for above -ground buildings and structures, and fifty (50) years for
underground pipes and lines.
Further, to amicably resolve a dispute between the Parties regarding the adequacy of
Lessee's investment in the Capital Improvement of the Water System during the time period prior
to the amendment and restatement of this Lease, and subject to the terms and conditions below,
Lessee shall also be exclusively responsible for expending up to five million dollars ($5,000,000)
of Lessee's funds ("Capital Improvements Funds") prior to September 30, 2022 to remove and
legally dispose of existing facilities, and to design, construct and complete Water System Capital
Improvement projects approved by the City, in the City's sole discretion, and reasonably
necessary as determined by the City for System Maintenance and System Operation (each a
"Capital Improvement Project"). To facilitate the timely initiation of Capital Improvement
Projects, during the Term of this Lease, City and Lessee shall meet and confer from time to time
in good faith to make reasonable efforts to coordinate on the Capital Improvement Projects that
shall be initiated pursuant to this Section..
Lessee's cost to design, bid and manage a Capital Improvement Project paid for with the
Capital Improvement Funds shall be consistent with other capital projects constructed in Lessee's
regulated water system.
The design and construction of a Capital Improvement Project paid for with Capital
Improvement Funds shall be based upon and incorporate the applicable Operational Standards,
and any federal, state or local law, rule, regulation, code, or ordinance, and shall provide a
minimum design life of ten (10) years for pumps, mechanical and electrical equipment, forty (40)
years for above -ground buildings and structures, and fifty (50) years for underground pipes and
lines.
(3) True -Up of Capital Improvement Funds. Following the completion of each Capital
Improvement Project paid for with the Capital Improvement Funds, the Lessee and the City shall
confer in good faith regarding any true -up of the Capital Improvement Fund that may be necessary
or appropriate based on the total costs, .fees and expenses incurred by the Lessee on such project.
Once an individual Capital Improvement Project paid for with the Capital Improvement Funds is
complete, any unused or unapproved amounts shall be returned to the Capital Improvement Funds
defined in Paragraph (10) below. The Parties shall proceed in good faith to negotiate and agree
upon the true -up of the Capital Improvement Funds.
(4) Contractors. The City acknowledges and agrees that Lessee may engage contractors to
perform some or all of the services associated with the design and construction of Capital
Improvements to the Water System. The Lessee may, at its sole discretion, subcontract to
contractors all or portions of the services to be provided regarding the design and construction of
the Capital Improvements, provided, however, that Lessee shall remain liable for any work so
subcontracted. If any contractor defaults on its contract, the Lessee shall make all reasonable
efforts to enforce its rights under such contract, but such default shall not relieve the Lessee of its
obligation to complete the Capital Improvements in accordance with this Lease.
(5) Progress Schedule. City and Lessee shall meet and confer from time to time in good
faith to negotiate and mutually agree upon schedules to execute the Capital Improvement Projects.
(6) Project Cost. A minimum of thirty (30) days prior to beginning any work on a Capital
Improvement Project paid for with Capital Improvement Funds, Lessee shall submit to the City a
written schedule of anticipated costs for all Lessee design, labor, material, overhead and sub-
contractor costs for each Capital Improvement Project identified in paragraph (2) above.
(7) Design Plans/As Built Plans. The Lessee shall provide a set of "as -built" plans for each
of the Capital Improvement Projects completed, all manuals required for operation and
maintenance of the Capital Improvement, and copies of warranties issued by the manufacturer of
the equipment and materials installed as part of the Capital Improvement. A copy of the "as -built'
plans for each of the Capital Improvement Project shall be provided to the City by Lessee in
electronic form. The Lessee shall make available for review by the City, a paper copy of the "as -
built' plans and specifications for each of the Capital Improvements, all manuals required for
operation and maintenance of the Capital Improvement, and copies of warranties issued by the
manufacturer of the equipment and materials installed as part of the Capital Improvements.
(8) Capital Improvement Startup. The Lessee shall provide all necessary services in
connection with planning, direction and supervision, and shall provide all materials, supplies and
R
equipment required for the start-up, testing, commissioning and performance of the Capital
Improvements.
(8) Cooperation. The Lessee and City shall, in good faith, cooperate in any and all actions
necessary or appropriate for the completion of the design, construction, start up, testing,
commissioning and performance of the services relating to Capital Improvements.
(9) Reports. The Lessee shall prepare quarterly reports describing the progress with respect
to the design, construction and cost of each Capital Improvement Project paid for with Capital
Improvement Funds. In addition, the Lessee shall keep, and furnish to the City, at the City's
request, such information on the design, construction and cost of Capital Improvement Projects as
the City may reasonably request. Upon the commencement of construction of a Capital
Improvement Project paid for with Capital Improvement Funds, the Lessee and the City shall hold
regularly scheduled construction progress meetings. The frequency of the regularly scheduled
construction progress meetings shall not be more than once per quarter unless otherwise agreed
upon between the Parties. The Lessee shall prepare and submit information regarding progress of
construction, dollars expended to date as a percentage of the total project, and percent project is
complete to the City at least five (5) days prior to the regularly scheduled construction progress
meetings. The information to be prepared by the Lessee shall generally include the following: (i)
updates regarding the costs and expenses incurred with respect to the design and construction of
each Capital Improvement Project, and any updates of the cost estimate for each Capital
Improvement Project; (ii) update and narrative with respect to progress schedules; (iii) overview
of the work performed on each Capital Improvement Project currently being constructed; (iv)
narrative of any expected upcoming issues or changes in the design of a Capital Improvement
Project; and (v) updated list of any outstanding issues and action items.
(10) Capital Improvement Funds. No later than thirty (30) days after the execution of this
Amended and Restated Lease, Lessee shall remit to the City the sum of five million dollars
($5,000,000) which shall be used by the City to reimburse Lessee for fees and costs to be incurred
for the Capital Improvement Projects to be undertaken after the effective date of this Lease. The
five million dollars in Capital Improvement Funds are to be maintained by the City solely for the
benefit of City and the Lessee, free from any lien or claim of any creditor of City or the Lessee.
Lessee shall invoice City monthly for reimbursement from the Capital Improvement Fund for costs
incurred with respect to a Capital Improvement Project meeting the requirements under this Lease.
Provided that the invoices reflect costs that are consistent with other capital projects constructed
in Lessee's regulated water system, such invoices shall be due and payable by City after thirty (30)
days of receipt by City. Invoices that are disputed shall be addressed as part of the true -up
procedure described in subsection (3) above. Lessee shall not be obligated to expend any amounts
in excess of the $5,000,000 Capital Improvement Funds on Capital Improvement Projects. If
monies remain in the Capital Improvement Funds upon the termination or expiration of the Lease,
the money shall vest with the City and be used for Water System expenditures which may include,
but are not limited to, costs to complete any Capital Improvement Project that is incomplete.
B. Customer Services Obligations.
Except in the case of developer projects, Lessee shall at its own expense throughout the
Term of this Lease be exclusively responsible for satisfying any and all customer service
obligations pursuant to the Operating Standards, associated with Lessee's provision of water
service in the Service Area. Pursuant to the Operating Standards,. these customer service
obligations include, but are not limited to: rendering periodic bills to all customers receiving water
service in the Service Area; payment processing; responding to customer inquiries on water
service, bills, leaks or other concerns; collecting bills; processing applications for new or transfer
of service; collection of customer deposits for new service; collection of construction meter
deposits; and investigation of customer complaints.
C. Emergency Service Obligations.
Lessee shall at its own expense throughout the Term of this Lease be exclusively
responsible for maintaining twenty-four (24) hour on -call response to emergency calls or customer
inquiries; providing an emergency or natural disaster operations plan; maintaining an emergency
communications system; providing or having access to equipment required to perform emergency
repair work to vital system equipment and water mains; including evaluating and if necessary
providing emergency diesel powered backup generator at critical pumping stations.
D. Water Quality Testing Obligations.
Lessee shall at its own expense throughout the Term of this Lease be exclusively
responsible for performing, or causing to be performed, by a State of California certified
laboratory, any and all water sampling, analysis, testing and reporting as required for water
sources, distribution mains or customer premises, testing and reporting as required for water
sources, distribution mains or customer premises, by the U.S. Environmental Protection Agency,
State of California Department of Health Services and Office of Drinking Water and the County
Environmental Health Department or acts of the U.S. Congress or California Legislature;
scheduling and collecting water samples to test for microbiological, inorganic and organic
constituents; transportation to certified lab; preparation of monitoring plans; sample collection
training; reporting to appropriate regulator(s); record keeping; analysis interpretation; special or
emergency sample collection and analysis emergency notification to affected customers, if
required; preparation and distribution of any and all published and distributed customer reports on
water quality; management of a cross -control program; new well or water source sampling and
analysis; response to customer inquiries on water quality issues; conducting annual system survey
with California State Department of Health Services; obtaining permits and compliance with
appropriate air district; providing hazardous materials control program, and ensuring all operator
certification is in compliance with State and Federal requirements.
E. Other Service Obligations.
Lessee shall at its own expense throughout the Term of this Lease be exclusively
responsible for implementing any City, County, Valley Water, State or Federal water conservation
program; maintaining distribution system maps and plat maps; preparing any required urban water
management plans; and in general, doing all such acts and performing all such services as required
to operate the Water System in a manner similar to that in which it operates its own district systems,
subject; however, to the provisions of this Lease. All maps, plans and records required by this
section and/or through the operation, maintenance and improvement of the Water System shall be
transmitted to City at a minimum frequency as specified in the following subsection regarding
reports.
F. Reports: Lessee shall at its own expense throughout the Term of this Lease be
exclusively responsible for providing City written reports, in a form suitable to both Parties, related
to Lessee's operation and maintenance of the Water System, as described herein. The frequency
and contents of the reports shall be as follows:
(1) Annually. Summary of extraordinary maintenance, capital improvements
completed and in design, developer installations with job description, percentage of completion
and pertinent comments relative to the project; service and complaint report with listing of
customer complaints and inquiries, reason for customer contact and resolution of the matter; water
quality analysis of microbiological testing; and status of operation and maintenance activities.
(2) Periodically. Any other report or information that is reasonably requested by City
in connection with the operation, maintenance and betterment of the Water System as
contemplated under the terms of this Lease.
(3) Confidential Information. The Parties acknowledge and agree that the Non -
Disclosure, Limited Use, and Confidentiality Agreement by and between the Parties dated June
13, 2016, as amended (the "Confidentiality Agreement") shall determine the rights and
obligations with respect to "Information" as such term is defined in the Confidentiality Agreement.
G. General Operation.
Unless inconsistent with the specific terms of this Lease, Lessee shall operate the Water
System according to the procedures and administrative rules by which it operates its other water
systems in the City of Cupertino.
H. Transition Period.
Lessee shall fully cooperate and not hinder in any way with City's efforts to operate, lease,
and/or sell the Water System to a party other than the Lessee. All records required under this
Lease shall be made current by the Lessee at the frequency previously defined or as reasonably
requested by City and without undue burden or cost to Lessee. All customer billing information
shall be kept current and coordinated with City during the last twelve (12) months of the Lease
Term.
Section S. Rates and Charges.
Lessee shall, in its sole and exclusive discretion, be responsible for setting, levying, and
providing notice of any and all of the rates, surcharges, surcredits and other service charges and/or
fees and penalties that Lessee will apply to water service to be delivered to the customers served
by the Water System.
To ensure that the property interests, rights, and privileges granted by City to Lessee
hereunder are not abused, the rates, surcharges and other service charges and/or fees and penalties
levied -by Lessee on Water System customers shall not exceed the rates, surcharges, surcredits and
other service charges and/or fees and penalties approved and/or authorized by the CPUC and in
effect on Lessee's CPUC regulated water system located in areas of City (hereinafter "Regulatory
Cap"). City and Lessee agree that this Regulatory Cap affords Lessee with sufficient flexibility
to establish rates and charges while ensuring Lessee's customers are subject to just, reasonable,
and nondiscriminatory rates and charges regardless of whether they are receiving water service
from the leased Water System or Lessee's CPUC regulated water system. The Regulatory Cap
applicable to Water System customers shall not include the "Surcharge to Fund Public Utilities
Commission Reimbursement Fee" an administrative fee imposed by the CPUC on the tariffed
system.
Provided that Lessee is in material compliance with this Section 8, City shall have no
authority or obligation to impose, set, modify, approve, or provide notice of the rates and charges
levied by Lessee on Water System customers. Lessee shall notify City of any proposed
modifications to Lessee's rates, surcharges and other service charges and/or fees and penalties at
least thirty (30) days prior to their effective date and provide documentation to demonstrate that
the proposed rates, surcharges and other service charges and/or fees and penalties will be at or
below the Regulatory Cap as described above. City, acting in its regulatory capacity, may confirm
that Lessee is in compliance with this substantive requirement. In the event of a discrepancy, City
may request additional information for clarification, which Lessee shall provide within fifteen (15)
business days. If, in City's reasonable determination, Lessee's rates, surcharges and other service
charges and/or fees and penalties exceed the Regulatory Cap and Lessee cannot demonstrate that
its rates are in compliance, City may order Lessee to revise its rates to achieve compliance with
this Section 8. Such a revision may require that Lessee provide a refund and/or credit to the
customers to make them whole, as applicable.
Notwithstanding the foregoing, the City reserves the right to impose and collect fees for
new or expanded water service connections on the Water System such as connection fees and
development impact fees.
In the event, that rates, surcharges and other service charges and/or fees and penalties are
reduced by order of the CPUC, including any determinations necessitating a refund or credit, or
voluntarily by Lessee on Lessee's CPUC regulated water system located in areas of the City,
Lessee shall forthwith reduce its rates, surcharges and other service charges and/or fees and
penalties within the Service Area of the Lease consistent with such reductions, refunds or credits.
No charge will be made for water delivered to Cupertino fire department facilities. No
charge will be made for firefighting activities. All municipal properties using water service will be
charged generally applicable rates as described herein.
In the event of mandatory water rationing imposed by Valley Water, State of California, or
any other authorized public utility and other authorized public authority and to the extent allowed
by law, Lessee may impose water conservation, mandatory water rationing, and applicable
penalties on Water System customers that violate duly authorized restrictions.
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Section 9. Evaluation of System/Arbitration.
Lessee, upon written request of City or City's agent, shall permit City or City's agent to
conduct a comprehensive inspection of the Water System, including, but not limited to, field
inspections, maintenance records and reports, customer complaints, capital improvement
installations, schedules, and plans, in order to assess the condition of the Water System.
In the event that City determines that all or part of the Water System is not being operated
or maintained in accordance with applicable Operational Standards, or other applicable
requirements of this Lease, City shall provide written notice to Lessee describing the deficiencies
which City wishes to be corrected. Lessee shall, within sixty (60) days thereafter, file with City its
written response describing which deficiencies Lessee agrees are valid together with a plan to
correct said deficiencies. Failure of Lessee to provide said written response within said period shall
be deemed by City as an admission that said deficiencies exist and City may through an action for
specific performance or other legal action compel Lessee to perform the work necessary to correct
said deficiencies.
In the event that Lessee, in its written response to City disagrees with any or all of the
deficiencies described in City's notice or in the event that City does not agree to the plan for
deficiency corrections, then, in that event, the parties shall meet in good faith, in an attempt to
resolve all issues.
In the further event that agreement cannot be reached between the parties or any or all
issues, then the parties agree to submit the unsolved issues to arbitration under the rules of the
American Arbitration Association or such other association as selected by the Presiding Judge of
the Santa Clara County Superior Court, State of California.
Section 10. Water Supply.
Lessee shall not modify or take water supply wells out of permanent service without the
express written permission of the City's Director of Public Works.
Section 11. Customer Billing and Collections.
A. Lessee's Obligation.
Lessee shall at its own expense throughout the Term of this Lease. be exclusively
responsible for rendering periodic bills to and collecting all rates and fees from all customers
receiving water through the Water System. Lessee shall own, keep and retain all proceeds from
such collections as the sole property of Lessee. Lessee may propose payment and credit rules
substantially similar to those imposed by Lessee -in similar adjacent localities, and more
particularly to customers served by Lessee in other parts of the City. City shall have no role in the
rendering of periodic bills or collection of rates and fees, or the frequency thereof.
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B. Utility User's Tax.
To the extent required by law, Lessee shall bill and collect on behalf of City from customers
receiving water through the Water System any additional amounts which City may assess as a
utility user's tax on such customers and shall promptly pay all such amounts to City.
C. Unpaid / Delinquent Accounts.
Lessee shall at its own expense throughout the Term of this Lease be exclusively
responsible for the collection of unpaid and/or delinquent accounts. City shall have no role in
collection of unpaid/delinquent accounts. City shall not be obligated to pursue collection on behalf
of the Lessee of any such amounts unpaid by customers.
D. Transition Periods.
City and Lessee jointly read the meters of all customers in the Service Area within fifteen
(15) business days preceding the Closing Date and allocated all monies for services rendered and
water sold prior to the Closing Date as property of City. All monies for services rendered and water
sold after the Closing Date meter readings through the expiration or termination of the Lease shall
be and remain the property of Lessee. Accrued expenses will be allocated in a similar manner. All
monies for services rendered after the expiration or termination of the Lease shall be the property
of City.
Section 12. Insurance.
A. Obligations of Lessee. During the term of this Lease, Lessee at its own cost and
expense shall maintain insurance, issued by a carrier or carriers acceptable to City, as follows:
(1) Commercial general liability insurance in the single limit amount of not less than
$5,000,000 which amount may be satisfied by any excess liability insurance carried by Lessee,
written on an occurrence basis. Such insurance shall include coverage for injury (including death)
or damage to persons and/or property arising out of the operations of Lessee pursuant to this Lease.
The policy shall include coverage for liability assumed under this Lease for personal injury,
property damage and all other insurable claims as an "insured contract" for the performance of
Lessee's indemnity obligations under this Lease.
(2) Workers' compensation insurance, or a certificate of self-insurance, insuring
against liability under the Workers' Compensation Insurance and Safety Act now in force in
California, or any act hereafter enacted as an amendment or supplement thereto or in lieu thereof.
Such insurance shall fully cover all persons employed by Lessee in connection with its operations
under this Lease for claims of death or bodily injury arising in connection with their employment
by Lessee pursuant to its operations under this Lease.
(3) Automobile (vehicle) liability insurance on an occurrence basis for bodily injury
and/or property damage in a single limit amount of not less than one million dollars ($1,000,000).
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B. Lessee's commercial general liability policy of insurance shall contain an
endorsement in favor of City and its officers, agents and employees listing them as additional
insureds.
C. The parties shall periodically review the insurance required hereby for the purpose
of agreeing on increases in the minimum limits of such insurance, from time to time, to amounts
which may be reasonable and customary for similar facilities of like size and operation.
D. All insurance shall be affected under policies issued by insurers of recognized
responsibility, licensed or permitted to do business in the State of California and reasonably
acceptable to City.
E. All policies of insurance issued by the respective insurers shall provide that such
policies shall not be canceled or materially changed without at least thirty (30) days' prior written
notice to Lessee and to City. Evidence of all renewed or new policies, together with evidence of
payment, shall likewise be deposited with City prior to expiration dates of expiring or non -renewed
policies.
F. The limits of insurance required by this Lease or as carried by Lessee shall not limit
the liability of Lessee nor relieve Lessee of any obligation hereunder.
G. Lessee shall cause each insurance policy obtained by it to provide that the insurance
company waives all rights of recovery by way of subrogation against City in connection with any
damage covered by any policy.
Section 13. Liens and Encumbrances.
City agrees to keep the Water System free and clear of all liens, security interests and
encumbrances except for those consented to by Lessee. Lessee agrees to keep the Water System
free and clear of all liens, security interests and encumbrances, except for those consented to by
the City.
Section 14. Surrender Upon Expiration or Termination.
Upon expiration or termination of the Lease, Lessee agrees that it shall surrender to City
the Water System in good order and condition and in a state of repair that is consistent with the
applicable Operational Standards. After expiration or termination of the Lease, Lessee shall
provide City with an updated Water System map (ArcGIS or equivalent), the accuracy of which
Lessee cannot provide verification to the extent information was or is provided by City or third
parties or to the extent of changes of such information with the passage of time, showing spatial
location of all surface and subsurface assets including all asset types, age, diameter and to the
extent known by Lessee. Notwithstanding the foregoing, City acknowledges and agrees that
Lessee shall not be liable to City or any third party based upon the information provided hereunder
nor shall City rely on any information provided to City under in this Section.
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Section 15. Default and Remedies.
A. Default.
The occurrence of any of the following shall constitute a default by Lessee:
(1) If Lessee fails to make any payment to City or to any third party required by this
Lease as and when due, or to obtain and maintain any insurance required by this Lease, where such
failure continues for ten (10) days following receipt of written notice from City specifying the
failure;
(2) If Lessee fails to perform any of its other covenants or agreements herein contained,
where such failure continues for thirty days following receipt of written notice from City
specifying the failure;
(3) Notwithstanding subsection (2) above, if a failure to perform cannot feasibly be
cured within thirty (30) days, for example, a major repair, if then Lessee fails to commence and
diligently proceed toward full performance of the cure within thirty (30) days following receipt of
written notice from City specifying the failure, or if Lessee fails to complete such performance
within a reasonable time; or
(4) (a) If Lessee is or becomes bankrupt or insolvent or makes any general arrangement
or assignment for the benefit of creditors; (b) if Lessee becomes a "debtor" as defined in 11 U.S.C.
Section 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee,
the same is dismissed within ninety (90) days); (c) if a trustee or receiver is appointed to take
possession of substantially all of Lessee's assets or of Lessee's interest in this Lease and possession
is not restored to Lessee within sixty (60) days; or (d) if a writ of attachment or execution is levied
on, or there is a judicial seizure of, substantially all of Lessee's assets or of Lessee's interest in this
Lease and such seizure is not discharged within sixty (60) days.
B. Notice and Cure.
If City shall default in the performance of any of its covenants or agreements contained
herein and such default shall continue for a period of thirty (30) days after receipt by City from
Lessee of written notice specifying the nature of the default, then Lessee may at its option, upon
thirty (30) days written notice, cancel and terminate this Lease. In the case of a default which
cannot reasonably be cured within thirty (30) days, if City fails to commence performance and
diligently proceed toward full performance within thirty (30) days after receipt of notice by Lessee
of City's failure to perform or fails to complete performance within a reasonable time thereafter,
Lessee may, upon fifteen (15) days' notice, terminate this Lease.
C. Remedies.
City shall have the following remedies if Lessee commits a default. These remedies are not
exclusive; they are cumulative in addition to any remedies now or later allowed by law or provided
for elsewhere in this Lease.
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(1) Lessee's Right to Possession Not Terminated. In the event of a default by Lessee,
during the continuance of the default and for so long thereafter as any damages or other sums
payable by Lessee in connection with such default remain unpaid, City may continue this Lease in
full force and effect, and the Lease will continue in effect as long as' City does not terminate
Lessee's right to possession, and City shall have the right to collect the rent when due. In the event
that Lessee ceases to operate the Water System, City can enter the Water System and relet the
Water System and the groundwater, or any part of it, to third parties for Lessee's account. Lessee
shall be liable immediately to City for all costs City incurs in reletting the Water System and the
groundwater. Reletting may be for a period shorter or longer than the remaining Term of this
Lease. Lessee shall pay to City the rent due under this Lease on the dates the rent is due, less the
rent City receives from any reletting. No act by City allowed by this section shall terminate this
Lease unless City notifies Lessee that City elects to terminate this Lease.
(2) Termination of Lessee's Right to Possession. In the event of a default by Lessee,
during the continuance of the default and for so long thereafter as any damages or other sums
payable by Lessee in connection with such default remain unpaid, if Lessee is not taking prompt
and reasonable efforts to cure the default in City's reasonable discretion, City may terminate
Lessee's right to possession of the Water System and the groundwater upon fifteen (15) days'
notice. No act by City other than giving formal written notice to Lessee shall terminate this Lease.
Acts of maintenance, efforts to relet the Water System and the groundwater or the appointment of
a receiver on City's initiative to protect City's interest under this Lease (other than the appointment
of a receiver to perform all of Lessee's obligations hereunder) shall not constitute a termination of
Lessee's right to possession. On termination, City has the right to recover from Lessee any amount
necessary to compensate City for all detriment proximately caused by Lessee's default.
(3) City's Right to Cure Lessee's Default. City, at any time after Lessee commits a
default, may cure the default at Lessee's cost, provided that Lessee has not provided City notice
that it will need additional time to cure the default and Lessee is not using reasonable efforts to
cure the default in City's reasonable discretion, unless immediate action is necessary to ensure
uninterrupted operation of the Water System. If City, at any time, by reason of Lessee's default,
pays any sum or does any act that requires the payment of any sum, the sum paid by City shall be
due immediately from Lessee to City at the time the sum is paid, and if not paid within fifteen (15)
days of notice shall bear interest at the maximum rate an individual is permitted by law to charge
from the date the sum is paid by City until City is reimbursed by Lessee.
D. Corrective Action. Notwithstanding any provision of this Section 15 to the
contrary, if a default or failure to perform by Lessee poses a threat to public health or safety, City
shall so notify Lessee, and if Lessee fails to take corrective action within the time specified in such
notice, City may enter the Water System and take all necessary action at Lessee's expense. Lessee
shall promptly reimburse City for its costs.
Section 16. Force Maieure.
Each Party's respective obligations under this Lease shall be suspended only to the extent
that and only for the duration in which the performance of its obligations hereunder is precluded
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by acts of nature; war; riots; civil insurrection; acts of civil or military authority taken to protect
public health and safety; fires; floods; earthquakes or other natural phenomena; labor strikes,
accidents or incidents; laws; rules and regulations of any federal, state, or other governmental
agency; changes in law, rules, or regulations of any federal, state or other governmental agency;
or other cause of the same or other character, any of which are beyond the reasonable control of
such Party (collectively, a "Force Majeure"). In the event of a suspension due to the foregoing,
the Party whose obligations are suspended shall promptly notify the other Party in writing of such
suspension and the cause and estimated duration of such suspension.
The Party providing such notice shall be excused from fulfilling its obligations under this
Lease only until such time and only to the extent that the Force Majeure has ceased to prevent
performance or other remedial action is taken, at which time the Party shall promptly notify the
other Party(s) in writing of the resumption of its obligations under this Lease. Any Party rendered
unable to fulfill any of its obligations by reason of a Force Majeure shall exercise due diligence to
remove such inability with reasonable dispatch within a reasonable time period and mitigate the
effects of the Force Majeure. The relief from performance shall be of no greater scope and of no
longer duration than is required by the Force Majeure.
Section 17. Assignment.
Lessee agrees not to assign this Lease or sublet the Water System or any portion thereof
without the consent of City, which consent shall not be unreasonably withheld; provided, however,
that City's consent shall not be required in connection with any assignment by Lessee of all of its
rights and obligations hereunder to an affiliated company which is controlled by, controls, or under
common control with Lessee.
Section 18. Discharge of Liens.
Lessee agrees to pay and discharge all claims for materials, parts, labor, water, power and
other consumables and supplies furnished at Lessee's instance or request upon or to the Water
System and to keep the Water System free and clear of all liens resulting from such claims. City
agrees to pay and discharge all claims and obligations for materials, parts, labor, water, power and
other consumables and supplies furnished at City's instance or request upon or to the Water System
prior to the commencement of the Term of this Agreement.
Section 19. Indemnity.
Lessee agrees to hold City, and its officers, agents and employees, free and harmless of
and from, and to defend, indemnify, and protect City, and its officers, agents and employees,
against all liability, loss, claims, demands, damage, expense, costs (including, without limitation,
reasonable attorneys' fees and all costs and fees of litigation and its threat) of any kind or nature
arising out of or in any way connected with the Lease or Lessee's performance or obligations under
this Lease to the maximum extent permitted by Law. The expiration or termination of this Lease
and/or the termination of Lessee's right to possession shall not relieve Lessee from liability under
any indemnity provisions of this Lease as to matters occurring or accruing during the Term hereof
or by reason of Lessee's occupancy of the Water System. Without in any way limiting the
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foregoing, Lessee shall be solely responsible for, and agrees to defend and indemnify City and
hold City harmless for any third party claim or action challenging the validity of this Lease. In the
event this Lease is declared invalid, Lessee waives any claim . it may have against City in
connection therewith.
City agrees to hold Lessee, and its officers, agents and employees, free and harmless of
and from, and to defend and indemnify Lessee, and its officers, agents and employees, against all
liability, loss, claims, demands, damage, expense, costs (including, without limitation, all costs
and fees of litigation and its threat) of any kind or nature arising from claims by third parties or
governmental agencies and resulting from negligence, gross negligence, recklessness or willful
misconduct by City in connection with City's ownership or operation of the Water System
occurring or accruing prior to the Closing Date.
Section 20. California Law.
This Lease shall be governed by the laws of the State of California and the Santa Clara
County Superior Court shall have exclusive and mandatory jurisdiction over any and all
controversies arising from, related to or connected with this Lease and all Parties hereby submit to
such jurisdiction and any and all proceedings involving such a controversy shall be brought in
these courts, and not elsewhere.
Section 21. Notices.
All notices, statements, demands, requests, consents, approvals, authorizations, offers,
agreements, appointments or designations hereunder by either party to the other shall be in writing
and shall be sufficiently given and served upon the other party; if sent by United States registered
mail, return receipt requested, postage prepaid and addressed as follows:
City: City of Cupertino, City Clerk
10300 Torre Avenue
Cupertino, CA 95014
Lessee: San Jose Water Company
Attention: Legal Department
110 W. Taylor Street
San Jose, CA 95110-2131
or at such other address as either party shall later designate for such purpose by written notice to
the other party. Mailed notice shall be deemed given on the date of delivery shown on the receipt
card.
Section 22. Waiver.
The waiver by City of any breach by Lessee of any term, covenant or condition hereof shall
not operate as a waiver of any subsequent breach of the same or any other term, covenant or
condition hereof. The waiver by Lessee of any breach by City of any term, covenant or condition
17
hereof shall not operate as a waiver of any subsequent breach of the same or any other term,
covenant or condition hereof.
Section 23. Representation.
City hereby represents and warrants to Lessee that the City owns the Water System free
and clear of any and all liens, security interests and encumbrances.
Section 24. Nondiscrimination.
Lessee covenants by and for itself, its officers and assigns, and all persons claiming under
or through it, and this Lease is made and accepted upon and subject to the following conditions:
that there shall be no discrimination against or segregation of any person or group of persons, on
account of sex, race, color, creed, national origin, ancestry, religion, citizenship status, age, marital
status, medical condition, mental or physical disability, sexual orientation, veteran status or any
other characteristic protected by federal or state law or local ordinance in the leasing, transferring,
use, or enjoyment of the Water System nor shall Lessee itself, or any person claiming under or
through it, establish or permit any such practice or practices of discrimination or segregation.
Section 25. Counterparts.
This Lease may be executed in any number of counterparts, each of which when so
executed shall be deemed to be an original, but all together shall constitute but one and the same
Lease.
Section 26. MerIzer and Modification.
This Lease, including the recitals and attachments thereto, which are incorporated by this
reference, set forth the entire agreement between the parties with respect to the subject matter
hereof, and supersedes all other oral or written provisions. This Lease may be modified or
terminated only in a writing signed by all Parties.
Section 27. Taxes and Assessments: Possessory Interest.
Lessee shall pay all taxes, assessments, fees, levies, charges, license or permit fees and
other governmental charges of any kind or nature which are or may be at any time or from time to
time during the Term of this Lease levied, charged, assessed or imposed upon or against the Water
System or the groundwater or the leasehold estate created hereby or which may be imposed upon
any taxable interest of Lessee acquired pursuant to the Lease. Without limiting the generality of
the foregoing, Lessee acknowledges that this Lease may create a possessory interest which may
be subject to property taxation and that Lessee may be subject to the payment of property taxes
levied on such interest. Any such tax shall be the sole responsibility of Lessee.
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Section 28. Franchise Fees
As partial consideration for the property, rights, and privileges granted under this Lease
(along with the consideration provided for in Section 5 and Section 6), Lessee shall pay City during
the term of this Lease a franchise fee similar to the franchise fee charged to Lessee by the City for
its other water system existing within the City (and which is not part of this Lease) as prescribed
by Chapter 6.20 of the City's Municipal Code. City and Lessee considered various methods of
compensating City for the value of the Water System concession and determined a certain formula
for computing complementary franchise fees based on receipts attributable to the use, operation
and possession of the franchise is equally applicable to the concession granted here and represents
a fair and reasonable form of compensation that provides for practical and accountable
administration. The franchise fee is not a levy imposed by City on Lessee in its governmental
capacity; it is voluntarily paid as fair and reasonable compensation for the use of City's property
and resources related to the Water System. The franchise fee shall be legally incident on Lessee
and the legal duty to pay shall remain with Lessee regardless of how Lessee opts, in its sole
discretion, to fund the franchise fee.
Section 29. Attorneys' Fees.
If any party to this Lease commences legal proceedings or arbitration to interpret this
Lease, to enforce any of its terms or for damages for its breach, the prevailing party shall be entitled
to recover reasonable attorneys' fees.
Section 30. Net Lease.
This Lease shall be deemed and construed to be a "net lease" and Lessee hereby agrees that
the rental provided for herein shall be an absolute net return to City free and clear of any expenses,
charges or setoffs.
Section 31. Lessee's Compliance with Law.
Except as otherwise provided in this Lease, Lessee shall, at Lessee's sole cost and expense,
diligently and in a timely manner, comply in all material respects with all "Applicable Law,"
which term is used in this Lease to include all laws, rules, regulations, ordinance, directives,
covenants, easements and restrictions of record, permits, and requirements of any applicable fire
insurance underwriter or rating bureau, relating in any manner to the Water System or the
groundwater (including but not limited to matters pertaining to: (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Water System or the groundwater, including
soil and groundwater conditions, and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill or release of any Hazardous
Substance (as defined below) or storage tank, now in effect or which may hereafter come into
effect, and whether or not reflecting a change in policy from any previously existing policy. Lessee
shall notify City in writing (with copies of any documents involved) of any threatened or actual
claim, notice, inquiry, citation, warning, complaint or report pertaining to or involving failure by
Lessee, the Water System or the groundwater to comply with any Applicable Law.
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Section 32. Hazardous Substances.
A Lessee will not cause or permit to occur any release, generation, manufacture,
storage, treatment, transportation, or disposal of Hazardous Substance (defined below) on, in,
under, or from the Water System or the groundwater or any portion of it in violation of Applicable
Law. If Lessee does cause or permit any release or disposal of any Hazardous Substance on, in, or
under the Water System or any portion of it, Lessee, at its own cost and expense, will immediately
take such action as is necessary to detain the spread of and remove the Hazardous Substance to the
complete satisfaction of City and other appropriate governmental authorities. Lessee shall
promptly notify City of any release or disposal (of which Lessee has knowledge or becomes aware)
of any Hazardous Substance on, in, under or from the Water System or the groundwater.
B. Lessee agrees to indemnify, defend (with counsel reasonably acceptable to City)
and hold City and City's officers, agents and employees free and harmless from and against, all
losses, liabilities, obligations, penalties, claims, litigation, demands, defenses, costs, judgments,
suits, proceedings, damages (including consequential damages), disbursements or expenses of any
kind (including attorneys' and experts' fees and expenses and fees and expenses incurred in
investigating, defending, or prosecuting any litigation, claims, or proceeding) that may at any time
be imposed upon, incurred by, asserted, or awarded against City in connection with or arising from
or out of:
(1) any Hazardous Substance, on, in, under, or affecting all or any portion of the Water
System or the groundwater, excluding any Hazardous Substance released, generated or disposed
by City;
(2) any breach of any covenant or agreement of Lessee contained or referred to in this
section;
(3) any violation or claim of violation by Lessee of any Applicable Law; or
(4) the imposition of any lien for the recovery of any costs for environmental cleanup
or other response costs relating to the release or threatened release of Hazardous Substance,
excluding any Hazardous Substance released, generated or disposed by City.
The expiration or termination of this Lease and/or the termination of Lessee's right to
possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as
to matters occurring or accruing during the Term hereof or by reason of Lessee's occupancy of the
Water System and the groundwater.
C. For purposes of this Lease, "Hazardous Substance" means any solid, liquid, gas,
odor, heat, sound, vibration, radiation or other substance, material or waste which is defined as
contaminant, pollutant, dangerous substance, toxic substance, hazardous waste, hazardous
material, hazardous substance, extremely hazardous waste, restricted hazardous waste, residual
waste, solid waste or similar term which is or becomes regulated by applicable Environmental
Laws (as defined herein) or which is classified as hazardous or toxic under applicable
Environmental Laws (including, without limitation, hydrocarbons, petroleum, gasoline, diesel
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fuel, crude oil or any products, other petroleum hydrocarbons, polychlorinated biphenyls, asbestos,
and urea formaldehyde foam insulation, or their by-products or fractions thereof).
"Environmental Laws" means any Federal, state or local laws or any regulations promulgated
pursuant to such laws, as such laws or regulations may from time to time be amended, applicable
to the Water System, groundwater or the utility services regulating or imposing liability or
standards of conduct concerning or relating to (i) the protection of human health or the
environment, (ii) the regulation, use or exposure to Hazardous Substances or (iii) the operation,
maintenance, construction, repair or rehabilitation of the Water System.
Section 33. City's Access.
City and City's agents shall have the right to enter the Water System at any time in the case
of an emergency, and otherwise at reasonable times and on reasonable prior notice for the
following purposes: (i) to determine whether the Water System is in good condition as required by
this Lease and whether Lessee is complying with its obligations under this Lease, (ii) to serve, post
or keep posted any notices required or allowed by law or under this Lease, and (iii) as City may
otherwise reasonably deem necessary.
Section 34. Execution.
This Lease is effective upon full execution. It is the product of negotiation and therefore
shall not be construed against any Parry.
Section 35. General Provisions.
A. Recitals.
The recitals to this Lease are true and correct and are hereby made part of this Lease as if
fully set forth in their entirety.
B. Integration.
This Lease, including the exhibits incorporated herein, constitutes the entire understanding and
agreement of the Parties and supersedes all negotiations or previous agreements between the
Parties with respect to all or any part of the terms discussed in this Lease.
C. Interpretation and Severability.
The terms of this Lease have been negotiated by the Parties hereto and the language used
in this Lease shall be deemed to be the language chosen by the Parties hereto to express their
mutual intent. This Lease shall be construed without regard to any presumption or rule requiring
construction against the Party causing such instrument or any portion thereof to be drafted, or in
favor of the Party receiving a particular benefit under this Lease. If one or more provisions of this
Lease are held to be unenforceable or invalid under any laws, rules, or regulations applicable to this
Lease, such provision, or such portion of such provision as may be necessary, shall be excluded from
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this Lease and the balance of the Lease shall be interpreted as if such provision were so excluded
and shall be thereafter enforceable in accordance with its terms.
D. General Compliance with Law.
Each Party hereto shall comply with all laws, rules, and regulations applicable to this Lease
including, but not limited to, prevailing wage payments, payroll records, working hours and
workers compensation insurance, unemployment insurance benefits, FICA laws, and City's
ordinances, including business license requirements.
E. Effective Date.
Upon approval by the City Council and full execution by the Parties, this Lease shall govern
the rights and. obligations of the Parties from and after the date of this Lease, and the Original
Lease shall govern such rights and obligations prior to the date of this Lease.
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be executed and
attested by their proper officers thereunto duly authorized, and their official seals to be hereto
affixed, as of the day and year first above written.
//
[Signature page follows]
//
22
CITY OF CUPERTINO
By:
Steven Scharf, Mayor
ATTEST:
By:
Grace Schmidt, MMC, City Clerk
APPROVED AS TO FORM:
By:
Heather M. Minner, City Attorney
LESSEE: SAN JOSE WATER COMPANY
By:
James P, Lynch, CFO and Treasurer
List of Exhibits:
Exhibit A — Service Area
Exhibit B — Water System
23
EXHIBIT A
Service Area
This document certifies that a true and complete map detailing the boundaries of the service area
for Cupertino Water, California Water, and San Jose Water (Revised June 1991 and September
1997) and listed as Exhibit A in this Agreement for Lease of Real Property is on file in the Office
of the City Clerk.
Date:
H� o�
�Npy
Deputy City Clerk
O
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City of Cupertino
Water Service Areas
\_ a 0 025 05
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PROSPECT RD
24