ASSIGNMENT OF MANAGEMENT AGREEMENT AND EXCLUSIVE RIGHT TO LEASE AGREEMENT

ASSIGNMENT OF MANAGEMENT AGREEMENT AND EXCLUSIVE RIGHT TO LEASE AGREEMENT

 

THIS ASSIGNMENT OF MANAGEMENT AGREEMENT AND EXCLUSIVE RIGHT TO LEASE AGREEMENT (“Assignment”) is made as of the ____ day of April, 2006, by and among SECURED INVESTMENT RESOURCES FUND, L.P . II, a Delaware limited partnership (“SIR II”), and EVEREST BAYBERRY, LP, a California limited partnership (“Borrower”), each having its principal place of business at c/o Everest Properties, 199 S. Los Robles Avenue, Suite 200, Pasadena, California 91 101 Attn: W. Robert Kohorst, and WINBURY REALTY OF K.C., INC., a Missouri corporation (“Agent”).

 

RECITALS:

 

BANK, FSB, a federal stock savings bank (“Lender”) in the principal sum of Two Million Nine Hundred Twenty-Five Thousand and 00/100 Dollars ($2,925,000.00).

 

B.        The Loan is secured by, among other things, that certain Security Instrument, which grants Lender a first lien on the property encumbered thereby (the “Property”).

 

C.        SIR II and Agent entered into that certain Property Management Agreement dated as of March 15, 2005 (the “Management Agreement”) (a true and correct copy of which is attached hereto as Exhibit “A), pursuant to which SIR II employed Agent exclusively to rent, lease, operate and manage the Property and Agent is entitled to certain management fees (the “Management Fees”).

 

D.        SIR II and Agent entered into that certain Exclusive Right to Lease Agreement dated as of March 1, 2005 (the “Broker Agreement”) (a true and correct copy of which is attached hereto as Exhibit “B”), and Agent is entitled to certain broker fees (“Broker Fees”).

 

E.        As a condition to making the Loan, Lender is requiring that: (i) SIR II assign its interest in the Property, the Management Agreement, the Management Fees, the Broker Agreement, and the Broker Fees to Borrower, which is a wholly owned, single purpose subsidiary of SIR II; and (ii) Borrower assign the Management Agreement and the Broker Agreement, and subordinate its interest in the Management Fees and the Broker Fees in lien and payment to the Security Instrument as set forth in that certain Assignment Of Management Agreement And Subordination Of Management Fees, dated as of the date hereof (“Assignment and Subordination”).

 

AGREEMENT:

 

For good and valuable consideration the parties hereto agree as follows:

 

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1 .         Assignment of Management Agreement Broker Agreement Management Fees, and Broker Fees . SIR II hereby unconditionally transfers, sets over and assigns to Borrower, and Borrower hereby assumes, all of SIR II’s right, title and interest in and to and obligations under the Management Agreement, the Management Fees, the Broker Agreement, the Broker Fees.

 

2.          Estoppel . SIR II, Borrower and Agent each represents and warrants that (a) the Management Agreement and the Broker Agreement are in full force and effect and have not been modified, amended or assigned with respect to the Property, (b) neither Agent, SIR II, nor Borrower is in default under any of the terms, covenants or provisions of the Management Agreement or the Broker Agreement with respect to the Property and Agent knows of no event which, but for the passage of time or the giving of notice or both, would constitute an event of default under the Management Agreement or the Broker Agreement with respect to the Property, (c) neither Agent, SIR II , nor Borrower has commenced any action or given or received any notice for the purpose of terminating the Management Agreement or the Broker Agreement with respect to the Property and (d) the Management Fees and all other sums due and payable to the Agent under the Management Agreement have been paid in full with respect to the Property.

 

3.          Agreement by Borrower and Agent . Borrower and Agent hereby acknowledge and agree that during such periods as an Event of Default (as defined in the Security Instrument) may exist under the Security Instrument during the term of this Assignment, Lender may, at its option by written notice to Borrower and Agent in the manner described in the Assignment and Subordination: (a) require that all rents, security deposits, issues, proceeds and profits of the Property collected by Agent, after payment of all costs and expenses of operating the Property (including, without limitation, operating expenses, real estate taxes, insurance premiums and repairs and maintenance) shall be applied in accordance with Lender’s written directions to Agent; and (b) immediately terminate the Management Agreement and/or the Broker Agreement and require Agent to transfer its responsibility for the management of the Property to a management company selected by Lender in Lender’s sole and absolute discretion. During such time period, Agent shall not collect or be entitled to any Management Fees or Broker Fees or other fee or commission due under the Management Agreement or the Broker Agreement.

 

4.          Authority to Make Assignment . SIR II and Borrower represent and warrant that they have the power and authority to make and enter into the aforementioned assignment.

 

5.          Consent and Agreement by Agent . Agent hereby acknowledges and consents to this Assignment and agrees that Agent will act in conformity with the provisions of this Assignment and Borrower’s rights hereunder or otherwise related to the Management Agreement and the Broker Agreement. In the event that the responsibility for the management of the Property is transferred from Agent in accordance with the provisions hereof, Agent shall, and hereby agrees to, fully cooperate in transferring its responsibility to a new management company and effectuate such transfer no later than thirty (30) days from the date the Management Agreement and/or Broker Agreement is

 

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terminated. Further, Agent hereby agrees not to contest or impede the exercise by Borrower of any right it has under or in connection with this Assignment.

 

6.          Governing Law . This Assignment shall be governed, construed, applied and enforced in accordance with the laws of the state in which the Property is located and the applicable laws of the United States of America.

 

7.          Notices . All notices or other written communications hereunder shall be deemed to have been properly given (i) upon delivery, if delivered in person, with receipt acknowledged by the recipient thereof, (ii) one (1) Business Day (hereinafter defined) after having been deposited for overnight delivery with any reputable overnight courier service, or (iii) three (3) Business Days after having been deposited in any post office or mail depository regularly maintain d by the U.S. Postal Service and sent by registered or certified mail, postage prepaid, return receipt requested, addressed as follows:

 

 

 

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or addressed as such party may from time to time designate by written notice to the other parties. For purposes of this Section 7, the term “Business Day” shall mean a day on which commercial banks are not authorized or required by law to close in New York, New York. Any party by notice to the others may designate additional or different addresses for subsequent notices or communications.

 

modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Borrower, SIR II or Agent, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought.

 

9.          Inapplicable Provisions . If any term, covenant or condition of this Assignment is held to be invalid, illegal or unenforceable in any respect, this Assignment shall be construed without such provision.

 

10.        Headings, Etc . The headings and captions of various paragraphs of this Assignment are for convenience of reference only and are not to be construed as defining or limiting, in any way, the scope or intent of the provisions hereof

 

11.        Duplicate Originals; Counterparts . This Assignment may be executed in any number of duplicate originals and each duplicate original shall be deemed to be an original. This Assignment may be executed in several counterparts, each of which counterparts shall be deemed an original instrument and all of which together shall constitute a single Assignment. The failure of any party hereto to execute this Assignment, or any counterpart hereof, shall not relieve the other signatories from their obligations hereunder.

 

12         Number and Gender . Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural and vice versa.

 

[SIGNATURES ARE ON FOLLOWING PAGE]

 

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IN WITNESS WHEREOF, the undersigned have executed this Assignment as of the date and year first written above.

 

 

 

 

 

 

 

 

 

 

 

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IN WITNESS WHEREOF, the undersigned have executed this Assignment as of the date and year first written above.

 

 

 

 

 

 

 

 

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EXHIBIT “A”

 

MANAGEMENT AGREEMENT

 

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PROPERTY MANAGEMENT AGREEMENT

BAYBERRY CROSSING

 

This PROPERTY MANAGEMENT AGREEMENT (the “Agreement”) is dated as March 15, 2005 between SECURED INVESTMENT RESOURCES FUND, L.P.II , a Delaware limited partnership (“Owner”), and WINBURY REALTY OF K.C., INC., a Missouri corporation (“Manager”).

 

Owner owns the retail shopping center commonly known as Bayberry Crossing, located at 523 SE Melody Lane, Lee’s Summit, MO 64063 (the “Property”). Owner desires to engage Manager, and Manager desires to accept such engagement, to manage, lease, operate, and maintain the Property on the terms and subject to the conditions set forth herein.

 

THEREFORE, the parties agree as follows:

 

ARTICLE 1. COMMENCEMENT AND TERM

 

1.1        Commencement and Term . Manager’s duties and responsibilities under this Agreement shall begin on the date hereof (the “Start Date”) and shall terminate on the earlier of (i) the conveyance of the Property or any portion thereof, as to such conveyed portion thereof only, or (ii) termination as provided in Article 10.

 

ARTICLE 2. MANAGER’S RESPONSIBILITIES

 

2.1        Management . Manager shall manage, operate and maintain the Property in an efficient and economic manner and shall arrange the performance of everything reasonably necessary to accomplish the foregoing, subject to the budgets, policies and limitations provided to Manager in writing by Owner from time to time. Manager shall keep the Property clean and in good repair, shall promptly order and supervise the completion of such repairs as may be required and shall generally do and perform, or cause to be done or performed, all things necessary or desirable to ensure the proper and efficient management, operation, and maintenance of the Property. Manager shall perform all services in a diligent and professional manner. Additionally, Manager shall upon Owner’s request cooperate with any proposed purchaser of the Property, any proposed lender evaluating the Property as collateral or any broker named by Owner in connection with a sale or financing of the Property. Manager is hereby authorized to take any action with respect to the Property which Manager believes in good faith is necessary for Manager to comply with all laws, rules and regulations applicable to Manager, as a licensed real estate broker or otherwise, and, when possible, Manager agrees to provide advance notice to and consult with Owner about any such action that has not been previously authorized. Manager shall exercise reasonable efforts to comply with all directions or instructions from Owner pertaining to the Property.

 

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2.2        Employees; Independent Contractor . All arrangements and agreements with employees or independent contractors working at the Property shall confirm that Owner has no obligation or relationship with respect to such employees or independent contractors. Manager shall comply with all applicable governmental requirements relating to worker’s compensation, liability insurance, Social Security, unemployment insurance, hours of labor, wages, working conditions, employment discrimination, and other employer-employee related matters and shall prepare and file all forms required in connection therewith. Manager shall obtain coverage of all employees who handle funds of Owner by fidelity bond or under a comprehensive crime insurance policy, each in amounts required by Owner and indemnifying Owner against loss, theft, embezzlement, or other fraudulent acts of Manager or its employees. Manager shall employ, directly or through third party contractors (e.g., an employee leasing company) all labor and employees required for the operation and maintenance of the property, it being agreed that all employees shall be deemed employees of Manager and not Owner. Owner’s insurance policies required hereunder shall not cover and the Owner shall not be liable for any wrong doing by Manager’s employees, any claims, costs, damages and liabilities, including but not limited to the defense of any claim or lawsuit arising out of the employment of any of the Manager’s employees. All approved costs and expenses associated with such employees (including, without limitation, wages and benefits) shall be costs of, billed to, and reimbursed by the Property.

 

2.3        Compliance with Laws . Manager shall comply with all governmental requirements relative to the performance of its duties hereunder and shall use diligent efforts to cause the Property to comply with all applicable governmental requirements.

 

(a)       Owner represents that it has no knowledge of any violations existing at or prior to the Start Date of any ordinances, laws, rules, regulations or orders (including, but not limited to, those relating to the disposal of solid, liquid and gaseous wastes or materials) of any city, county, state or federal government, or any public authority or official thereof, or of any court, having jurisdiction over it.

 

(b)       Except to the extent any existing violations resulted from the acts or omissions of Manager, Manager shall not have any responsibility or liability for violations existing at or prior to the Start Date of any ordinances, laws, rules, regulations or orders (including, but not limited to, those relating to the disposal of solid, liquid and gaseous wastes or materials) of any city, county, state or federal government, or any public authority or official thereof, or of any court, having jurisdiction over it, except to: (i) notify Owner promptly of any existing violations actually discovered by Manager: (ii) forward to Owner promptly any complaints, warning, notices or summonses received by it relating to such matters; and (iii) use diligent efforts to cure any such existing violations.

 

(c)       Manager shall have responsibility and, to the extent of its or its agents’ acts or omissions, liability for compliance of the Property and any of its equipment with the requirements of any and all ordinances, laws, rules, regulations or orders (including, but not limited to, those relating to the disposal of solid, liquid and gaseous wastes or

 

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materials) of any city, county, state or federal government, or any public authority or official thereof, or of any court, having jurisdiction over it on a going forward basis. Manager shall notify Owner promptly, and forward to Owner promptly, any complaints, warnings, notices or summonses received by it relating to such matters, and shall use diligent efforts to cure any violation relating to such complaints, warnings, notices or summonses.

 

(d)       Owner: (i) represents that the Property has not received any notice regarding non-compliance with all applicable legal requirements; (ii) authorizes Manager to disclose the ownership of the Property to any such officials; and (iii) agrees to indemnify, defend and save Manager, its affiliates and their respective officers, directors, representatives and employees harmless from any and all losses, costs, damages, claims, fines, penalties, expenses and liabilities which may be imposed upon or threatened against any of them by reason of any current or future violation or alleged violation of such laws, ordinances, rules, regulations, or orders, or in connection with any bills or charges unpaid by Owner except for any violations resulting from the acts or omissions of any such indemnified party.

 

(e)       Manager shall furnish to Owner no later than the end of the third (3rd) business day after receipt by Manager each notice or order affecting the Property, including, without limitation, any notice from any taxing or other governmental authority, any notice of violation of any governmental requirement by the Property or Owner, any notice of default or otherwise from the holder of any mortgage or deed of trust, or any notice of renewal, termination or cancellation of or default under any insurance policy. Manager shall not take any action regarding such notice, order or requirement, however, as long as Owner is contesting or has notified Manager of its intention to contest such notice, order or requirement.

 

2.4        Approved Budget . (a) An initial annual capital and operating budget on a monthly basis for the projected revenue and the promotion, operation, staffing, repair, maintenance and improvement of the Property is attached hereto as Exhibit A. Such budget as amended by Owner from time to time and each subsequent annual budget as approved and amended from time to time by Owner is referred to herein as the Approved Budget. Owner may amend prospectively such Approved Budget at any time in its good faith discretion upon thirty (30) days prior notice to Manager. Manager shall promptly provide Owner with such information and explanation as may be, from time to time, requested by Owner in order to monitor compliance with or evaluate changes to such Approved Budget. Any staff changes, including salary, hourly compensation levels, and bonus plans must be approved in writing by Owner.

 

(b)       Manager shall charge all expenses to the proper account as specified in a list of accounts theretofore approved by Owner. Subject to the provisions of Section 2.7, Manager shall obtain Owner’s prior approval for any expenditure that exceeds the applicable amount in the Approved Budget unless: (i) the amount over budget does not exceed: (A) Two Hundred Fifty Dollars ($250), and (B) Five percent (5%) of the annual applicable amount in the Approved Budget, and (ii) is, in the Manager’s reasonable

 

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judgment, required for the operation of the Property. (c) During each calendar year, Manager shall inform Owner of any increases or decreases in costs and expenses not included in the Approved Budget as soon as Manager becomes aware of such changes.

 

2.5        Leasing . (a) Manager shall have the exclusive authority to negotiate and execute all leases and lease renewals for the Property and to advertise the availability for rental of the Property or any part thereof, and to display signs thereon, using a standard lease form approved by Owner. All leases are subject to prior review and approval by Owner, in its sole discretion. Manager shall not give free rental or discounts or rent concessions except in accordance with specific discretion or promotions approved in writing by Owner or with the prior written approval of Owner.

 

(b) Manager shall not, without the prior written approval of Owner, give or continue any free rent or discounts or rental concessions to any employees, representatives or affiliates of Manager or anyone related to such employees, representatives or affiliates. Manager shall not lease any space in the Property to itself or to any of its employees, representatives or affiliates, without the prior written consent of Owner.

 

(c)       Manager shall investigate all prospective tenants in accordance with credit standards approved by Owner, and shall not rent to persons not meeting such standards. If requested by Owner, Manager shall obtain a credit check for all prospective tenants from a credit investigation service approved by Owner, and shall reasonably investigate and document references with respect to income verification and prior rental history. Manager shall retain such information for the duration of the tenancy, and shall make it available to Owner upon reasonable notice. At the request of Owner, Manager shall obtain a personal or other guaranty regarding any prospective tenant. Manager does not guarantee the accuracy of any such information or the financial condition of any tenant.

 

(d)       Manager and Owner agree that there shall be no discrimination against or segregation of any person or group of persons on account of age, race, color, religion, creed, handicap, sex or national origin in the leasing or occupancy of the Property, nor shall Owner or Manager permit any such practice or practices of discrimination or segregation with respect to the selection, location, number or occupancy of tenants. In addition, Manager shall comply with all applicable local, state, and Federal regulations regarding non-discrimination.

 

2.6        Collection of Rents and Other Income . Manager shall regularly bill all tenants and use its best efforts to collect all rent and other charges due and payable from all tenants or from others for services provided in connection with the Property. Manager is authorized on behalf of Owner to initiate legal action for the collection of all amounts due Owner under tenant leases and enforcements of the terms of said leases. Manager shall deposit promptly all monies so collected in the Operating Account.

 

2.7        Repairs and Maintenance . (a) Manager shall maintain the buildings, appurtenances and grounds of the Property, other than areas which are the responsibility of tenants, including, without limitation, all ordinary and extraordinary repairs, cleaning,

 

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painting, decorations and alterations including electrical, plumbing, carpentry, masonry, elevators and such other routine repairs as are necessary or reasonably appropriate in the course of maintenance of the Property (subject to the limitations of this Agreement). In cases of emergency, Manager may make expenditures for repairs in excess of Manager’s normal authority without prior approval of Owner, if Manager believes in good faith that such expenditures are immediately necessary to prevent damage or injury, to comply with a governmental requirement, or to avoid the suspension of any necessary service to the Property. Manager shall inform Owner of any such emergency as soon as reasonably practical, but no later than before the end of the next business day.

 

(b)       Manager shall take all reasonable precautions against fire, vandalism, burglary and trespass to the Property. Manager shall use reasonable diligence to require each tenant to comply with its obligations to maintain its respective leased premises pursuant to its lease.

 

2.8       Capital Expenditures . (a) The Approved Budget shall constitute authorization for Manager to make any budgeted capital expenditures; provided that the Manager follows the bid procedures prescribed below unless Owner specifically waives such bid procedures or approves a particular contract. All other capital expenditures shall be subject to written approval of Owner. Unless Owner specifically waives such requirements or approves a particular contract, Manager shall solicit competitive bids for capital expenditures or new or replacement equipment as follows: (a) Manager shall obtain a minimum of two (2) written bids for each purchase; (b) Manager shall solicit each bid according to a specification approved by Owner so that uniformity will exist in the bid quotes; (c) for capital expenditures where all bids exceed $5,000, Manager shall provide Owner with all bid responses accompanied by Manager’s recommendations as to the most acceptable bid (such recommendations shall be in writing if Manager advises acceptance of other than the lowest bidder); and (d) for capital expenditures where all bids exceed $5,000, Owner may accept or reject any bid. Owner will promptly communicate to Manager its acceptance or rejection of bids.

 

(b) Manager shall assist and cooperate with Owner in management of capital improvement construction projects; and shall provide access to the Property and other reasonable accommodations for any such projects.

 

(c) Manager shall ensure and verify that, as required, each entity providing services to the Property holds a valid license in, and meets all the requirements of, the state, county, and/or municipality where the work is to be performed.

 

2.9         Service Contracts . Supplies and Equipment. In its capacity as agent for Owner, Manager is authorized to contract on behalf of Owner for electricity, gas, fuel, water, telephone, rubbish hauling and other services or such of them as Manager shall deem advisable. It is agreed that Manager shall execute such contracts expressly as agent for Owner, and Owner shall ratify and approve all such service contracts if requested by the Manager or service provider. Each such service contract shall (a) be in the name of Owner, (b) be assignable, at Owner’s option, to Owner’s designee, (c) be for a term not to

 

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exceed one (1) year, (d) be cancelable by Owner or Manager upon no more than 30 days’ written notice, for any reason or no reason at all, without fee or penalty, and (e) require that all contractors provide evidence of insurance as set forth in Section 3.3 . Unless Owner specifically waives such requirements or approves a particular contract, either by memorandum or as an amendment to the contract, all service contracts shall be subject to bid under the procedure as specified in Section 2.8.

 

(b)       If this Agreement terminates for any reason, Manager, at Owner’s option, shall assign to Owner or its designee all of Manager’s interest in all service agreements pertaining to the Property.

 

(c)       Manager shall procure all janitorial and maintenance supplies, tools and equipment, restroom and toilet supplies, light bulbs, paints, and similar supplies necessary for the efficient and economical operation and maintenance of the Property. Such supplies and equipment shall be the property of Owner. All such supplies, tools, and equipment shall be delivered to and stored in the Property and shall be used only in connection with the management, operation, and maintenance of the Property.

 

(d)       Manager shall use its best efforts to procure all goods, supplies or services at the lowest cost available from reputable sources in the metropolitan area where the Property is located. In making any contract or purchase hereunder, Manager shall use its best efforts to obtain favorable discounts for Owner and all discounts, rebates or commissions under any contract or purchase order made hereunder shall inure to the benefit of Owner. Manager shall make payments under any such contract or purchase order to enable Owner to take advantage of any such discount. Manager shall not request or accept any compensation in any form for selecting or continuing to use a supplier of goods or services for the Property.

 

2.10      Taxes, Mortgages . Manager, unless otherwise requested, shall pay bills for real estate and personal property taxes, general and special real property assessments and other like charges which are or may become liens against the Property. Manager shall report such taxes or assessments to Owner in a timely fashion and obtain Owner’s approval prior to Manager’s payment thereof. Manager, if requested by Owner, will cooperate to prepare an application for correction of the assessed valuation (in cooperation with representatives of Owner) to be filed with the appropriate governmental agency. Manager shall pay, within the time required to obtain discounts, from funds provided by Owner or from the Operating Account, all utilities, real estate and personal property taxes, general and special real property assessments and other like charges and any lease, mortgage, deed of trust or other security instrument, if any, affecting the Property.

 

2.1 1     Tenant Relations . Manager will use its best efforts to develop and maintain good tenant relations in the Property. At all times during the term hereof, Manager shall use its best efforts to retain existing tenants in the Property and, after completion of the initial leasing activity, to retain the new tenants. Manager shall use its best efforts to secure compliance by the tenants with the terms and conditions of their respective Leases.

 

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2.12       Conduct of Other Business . Without the prior written approval of Owner, Manager will allow no business other than the management and operation of the Property to be conducted by Manager’s employees or by any other person on or from the Property, including the on-site management offices.

 

2.13      Miscellaneous Duties . Manager shall (a) maintain at Manager’s office at Manager’s address as set forth in Section 13.1 and make readily accessible to Owner, orderly files containing rent records, insurance policies, leases and subleases, correspondence, receipted bills and vouchers, bank statements, canceled checks, deposit slips, debit and credit memos, and other documents and papers considered material by Manager or expressly requested by Owner pertaining to the Property or the operation thereof (b) provide reports for Owner’s accountants in the preparation and filing by Owner of each income or other tax return required by any governmental authority as well as reports required by any lender or a lienholder on the property; (c) prepare and file timely all necessary forms for unemployment insurance, withholding and social security taxes and all other tax and other forms relating to employment of Manager’s employees; (d) consider and record tenant service requests in systematic fashion showing the action taken with respect to each, and investigate and report to Owner in a timely fashion with appropriate recommendations all complaints of a nature which might have a material adverse effect on the Property or the Approved Budget; (e) render an inspection report, an assessment for damages and a recommendation on the disposition of any deposit held as security for the performance by the tenant under its lease with respect to each premises vacated; (f) check all bills received for the services, work and supplies ordered in connection with maintaining and operating the Property and, except as otherwise provided in this Agreement, pay such bills when due and payable and, in no event, later than thirty (30) days after Manager’s receipt of such bills; and (g) not knowingly permit the use of the Property for any purpose that might void any policy of insurance held by Owner or which might render any loss thereunder uncollectible, or which might violate any applicable law, rule or ordinance. All such records are the property of Owner and will be delivered to Owner upon request.

 

ARTICLE 3. INSURANCE

 

3.1        Insurance . (a) Subject to Section 2.2, Owner, at its expense, will obtain and keep in force adequate insurance against physical damage (such as fire) and against liability for loss, damage or injury to property or persons which might arise out of the occupancy, management, operation or maintenance of the Property. The aggregate coverage for commercial general liability insurance maintained hereunder shall not be for less than Five Million Dollars ($5,000,000). Owner shall include Manager as an additional insured in all liability insurance maintained with respect to the Property. Owner shall furnish to the Manager certificates evidencing the existence of such insurance.

 

(b)        In lieu of complying with Section 3.l(a) above, Owner may request that Manager maintain the insurance required under Section 3.l(a). If such a request is made by Owner, Manager shall use its best effort to comply with such request. If Manager

 

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obtains and maintains the requested insurance under Section 3.l(a), Owner shall reimburse Manager for actual cost of such insurance.

 

(c)       Manager shall advise Owner in writing and make recommendations with respect to the proper insurance coverage for the Property, taking into account the insurance requirements set forth in any mortgage on the Property, shall furnish such information as Owner may reasonably request to obtain insurance coverage and shall aid and cooperate in every reasonable way with respect to such insurance and any loss thereunder. Owner shall include in its hazard policy covering the Property all personal property, fixtures and equipment located thereon which are owned by Owner. Owner acknowledges that Manager is not a licensed insurance agent or insurance expert and will seek its own advice on the proper insurance for the Property. Owner shall not be required to cover Manager’s furniture, furnishings or fixtures situated at the Property, and each of Manager and Owner shall to the extent available, include in their respective policies appropriate clauses pursuant to which the respective insurance carriers shall waive all rights of subrogation with respect to losses payable under such policies.

 

(d)       Manager shall promptly investigate and promptly submit a written report to the insurance carrier and Owner as to all accidents and claims for damage relating to the ownership, operation and maintenance of the Property, any damage to or destruction of the Property and the estimated costs of repair thereof, and at Owner’s request prepare and file with the insurance company in a timely manner and otherwise as the insurance company requires all reports in connection therewith. Manager shall take no action (such as admission of liability) which might preclude Owner from obtaining any protections provided by any policy held by Owner or which might prejudice Owner in its defense to a claim based on the applicable loss. Manager shall settle all claims against insurance companies arising out of any policies, including the execution of proofs of loss, the adjustment of losses, signing and collection of receipts and collection of money, except that Manager shall not settle claims in excess of $1,000 without the prior written approval of Owner.

 

3.2       Employees, Contractor’s. Subcontractor’s Insurance. For all of Manager’s employees and all contracts or work orders procured by Manager, Manager shall maintain and require all contractors and subcontractors entering upon the Property to perform services to maintain insurance coverage at the contractor’s or subcontractor’s expense, in the following minimum amounts: (a) Worker’s Compensation insurance for the statutory amount or Five Hundred Thousand Dollars ($500,000), whichever is higher; (b) employer’s liability insurance for the statutory amount or Five Hundred Thousand Dollars ($500,000), whichever is higher; (c) comprehensive auto liability insurance covering the use of all owned, non-owned and hired automobiles with bodily injury and property damage limits of One Million Dollars ($1,000,000) per occurrence; and (d) commercial general liability with a combined single limit of at least Five Million Dollars ($5,000,000) as to Manager and One Million Dollars ($1,000,000) as to contractors and subcontractors. Manager shall obtain Owner’s permission before altering or waiving any of the above requirements or limits. For any contract or series of related contracts with the same party which total in excess of Five Thousand Dollars ($5,000), Manager shall

 

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obtain and keep on file a certificate of insurance which shows that each contractor and subcontractor is so insured and which names Owner, Property Manager and Property as additional insureds.

 

3.3        Waiver of Subrogation . To the extent available, all insurance policies obtained relating to the Property shall contain language whereby the insurance carrier thereunder waives all rights of subrogation with respect to losses payable under such policies.

 

ARTICLE 4. FINANCIAL REPORTING AND RECORDKEEPING

 

4.1        Books of Accounts . Manager shall maintain adequate and separate books and records for the Property with the entries supported by sufficient documentation to ascertain their accuracy with respect to the Property. Manager shall maintain such books and records at Manager’s office at Manager’s address as set forth in Section 13.1. Manager shall ensure such control over accounting and financial transactions as is reasonably necessary to protect Owner’s assets from theft, error or fraudulent activity. To the extent not reimbursed by insurance proceeds, Manager shall bear losses arising from such instances, including, without limitation, the following: (a) theft of assets by Manager or its employees or affiliates; (b) overpayment or duplicate payment of invoices arising from either fraud or gross negligence, unless reimbursement or credit is subsequently received; (c) overpayment of labor costs arising from either fraud or gross negligence, unless reimbursement or credit is subsequently received; (d) overpayment resulting from kickbacks from suppliers to Manager or its employees or affiliates arising from the purchase of goods or services for the Property; and (e) unauthorized use of facilities by Manager or its employees or affiliates.

 

4.2        Financial Reports . No later than the fifteenth (1 5th) day of each month, Manager shall h i s h to Owner an income statement, balance sheet and general ledger for the prior month. These reports shall show all collections, delinquencies, uncollectible items, expenses, vacancies and other matters requested by Owner pertaining to the management, operation, and maintenance of the Property during the month. Manager also shall deliver to Owner within 15 days after the termination of this Agreement, a balance sheet for the Property. The statement of income and expenses, the balance sheet, and all other financial statements and reports shall be prepared on an accrual basis as directed by Owner. Manager shall also provide Owner or any third party (as directed by Owner) any financial reports as the Owner may require from time to time.

 

4.3        Supporting Documentation . As additional support to the monthly financial statement, unless otherwise directed by Owner, Manager shall maintain and make available at Manager’s office at Manager’s address as set forth in Section 13.1 copies of the following: (a) all bank statements, bank deposit slips, bank debit and credit memos, canceled checks, and bank reconciliations; (b) detailed cash receipts and disbursement records; (c) detailed trial balance for receivables and payables and billed and unbilled revenue items; (d) rent roll of tenants; (e) paid invoices (or copies thereof; (f) summaries of adjusting journal entries as part of the annual audit process; (g) supporting

 

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documentation for payroll, payroll taxes and employee benefits for Manager’s employees; (h) appropriate details of accrued expenses and property records; (i) any other information requested by Owner regarding the operation of the Property necessary for preparation of tax returns for Owner; and (j) rent and occupancy surveys of competition (quarterly only).

 

In addition, Manager shall deliver to Owner with the monthly financial statement copies of the documents described above in (a) (statements and reconciliations only), (b), (c), (d), and (h), on a monthly basis, and (j), on a quarterly basis.

 

ARTICLE 5. OWNER’S RIGHT TO AUDIT

 

5.1        Owner’s Right to Audit . (a) Owner, or persons appointed by Owner, may examine all books, records and files maintained for Owner by Manager. Owner may perform any audit or investigations relating to Manager’s activities either at the Property or at any office of Manager if such audit or investigation relates to Manager’s activities for Owner.

 

(b)       Should Owner or its appointees discover either weaknesses in internal control or errors in recordkeeping, Manager shall correct such discrepancies within a reasonable period of time. Manager shall inform Owner in writing of the action taken to correct any audit discrepancies.

 

ARTICLE 6. BANK ACCOUNTS

 

6.1        Operating Account . Unless Owner specifies otherwise, Manager shall deposit on a daily basis, all rents and other funds collected from the operation of the Property in a bank designated by Owner in a special deposit account (the “Deposit Account”) for the Property to be maintained by Owner. Manager shall also maintain in a bank designated by Owner a disbursement trust account such trust account and withdrawals therefrom (such trust account together with and any interest earned thereon, shall hereinafter be referred to as the “Operating Account”) for the benefit of the Owner. Manager shall maintain books and records of the funds deposited in the Deposit Account and withdrawals from the Operating Account. Owner shall deposit in the Operating Account an amount equal to the expenses set forth in the Approved Budget as requested in writing by Manager, less expenses directly paid by Owner. Unless Owner specifies otherwise, Manager shall pay from the Operating Account the operating expenses of the Property and any other payments relative to the Property as required by this Agreement. If more accounts are necessary to operate the Property, each account shall have a unique name.

 

6.2        Security Deposit Account . Manager shall, if required by law, maintain one or more separate interest-bearing accounts for tenant security deposits known collectively as the Security Deposit Account. The Security Deposit Account shall be maintained in accordance with applicable state or local laws, if any, and shall be maintained in an institution in which the Security Deposit Account is insured by the FDIC and which

 

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Security Deposit Account balances shall not exceed levels which are fully insured by FDIC.

 

6.3        Change of Banks . Owner may direct Manager to change a depository bank or the depository arrangements.

 

6.4        Access to Account . Owner shall not be responsible for, and Manager shall defend, indemnify and hold Owner harmless for, from and against, any loss, liability, cost or expense, or other consequences of any kind, resulting from Manager’s loss of Operating Account funds (or funds that should have been deposited in the Operating Account by Manager) or use of Operating Account funds other than for the benefit of Owner or the Property, except for losses due to bank failure or any action of Owner.

 

ARTICLE 7. PAYMENTS OF EXPENSES

 

7.1        Costs Eligible for Payment from Operating Account . Unless otherwise expressly provided in this Agreement, all costs and expenses paid or incurred by Manager in carrying out any of its duties or performing any of its obligations pursuant to and in accordance with this Agreement shall be paid out of the Operating Account or otherwise reimbursed by Owner. Unless Owner specifies otherwise, Manager shall pay first, all management fees due to Manager; second, all payroll expenses; and then all expenses of the operation, maintenance and repair of the Property included in the Approved Budget directly from the Operating Account, subject to any applicable conditions set forth in this Agreement. Without limiting the generality of any other provision of this Agreement, it is hereby expressly acknowledged and agreed that, except as expressly provided in Article 8, all salaries, wages and other compensation included in the Approved Budget to be paid to Manager’s employees, and all other routine expenses related to such employees, including without limitation social security taxes, worker’s compensation insurance premiums and unemployment insurance, shall be reimbursed to Manager. All other amounts payable with respect to the Property shall be payable from the Operating Account only to the extent approved by Owner, as provided in this Agreement. If there are not sufficient funds in the account to make any such payment, Manager shall notify Owner, if possible, at least ten (10) business days prior to any delinquency so that Owner has an opportunity to deposit sufficient funds in the Operating Account to allow for such payment prior to the imposition of any penalty or late charge. No later than the twentieth (20th) day of each month, Manager shall advise Owner of the amount of unex