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Exhibit 10.7
AMENDED AND RESTATED OFFICE LEASE
AND SETTLEMENT AGREEMENT
KILROY CENTRE DEL MAR
KILROY REALTY, L.P., a Delaware limited partnership
as Landlord,
and
PEREGRINE SYSTEMS, INC., a Delaware corporation
as Tenant
BUILDING 2
TABLE OF CONTENTS
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KILROY CENTRE DEL MAR AMENDED AND RESTATED OFFICE LEASE AND SETTLEMENT AGREEMENT
SUMMARY OF BASIC LEASE INFORMATION
The undersigned hereby agree to the following terms of this Summary of Basic Lease Information (the “ Summary ”). This Summary is hereby incorporated into and made a part of the attached Amended and Restated Office Lease and Settlement Agreement (the “ Office Lease ”) which pertains to the “Project,” as that term is defined in the Office Lease, to be known as “ Kilroy Centre Del Mar ”. This Summary and the Office Lease are collectively referred to herein as the “ Lease ”. Each reference in the Office Lease to any term of this Summary shall have the meaning set forth in this Summary for such term. In the event of a conflict between the terms of this Summary and the Office Lease, the terms of the Office Lease shall prevail. Any capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in the Office Lease.
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KILROY CENTRE DEL MAR
AMENDED AND RESTATED OFFICE LEASE
AND SETTLEMENT AGREEMENT
R E C I T A L S :
A. This Amended and Restated Office Lease and Settlement Agreement (“ Office Lease ”), which includes the preceding Summary of Basic Lease Information (the “ Summary ”) attached hereto and incorporated herein by this reference (the Office Lease and Summary are sometimes collectively referred to herein as the “ Lease ”), dated as of the date set forth in Section 1 of the Summary is made by and between KILROY REALTY, L.P., a Delaware limited partnership (“ Landlord ”), and PEREGRINE SYSTEMS, INC., a Delaware corporation (“ Tenant ”).
B. KR-Carmel Partners, LLC, a Delaware limited liability company (the “ Original Landlord ”), predecessor-in-interest to Landlord, and Tenant previously entered into that certain Office Lease dated June 9, 1999 (the “ Original Lease ”), as amended by that certain First Amendment to Office Lease (Building 2) dated as of January 17, 2003 (the “ First Amendment ”) (the Office Lease and the First Amendment are, collectively, the “ Existing Lease ”) for office premises consisting of the entirety of that certain office building located at 3611 Valley Centre Drive, San Diego, California 92130. In addition to the Existing Lease, Original Landlord and Tenant were parties to four (4) other leases with respect to four (4) other buildings located at 3579 Valley Centre Drive (“ Building 1 Lease ”), 3661 Valley Centre Drive (“ Building 3 Lease ”), 3721 Valley Centre Drive (“ Building 4 Lease ”), and 3811 Valley Centre Drive (“ Building 5 Lease ”), all in San Diego, California 92130.
C. On September 22, 2002, Tenant, as well as its wholly-owned subsidiary Peregrine Remedy, Inc., filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code, 11 U.S.C. § 101, et seq. (the “ Bankruptcy Code ”), in the United States Bankruptcy Court for the District of Delaware (the “ Bankruptcy Court ”), commencing Tenant’s bankruptcy case, Case No. 02-12740 (the “ Bankruptcy Case ”).
D. On September 23, 2002, Tenant Filed a motion seeking approval to reject the Building 1 Lease, the Building 3 Lease and the Building 4 Lease (the “ Rejection Motion ”). On September 24, 2002, the Bankruptcy Court entered its order, effective as of September 23, 2002, granting the Rejection Motion, provided no lessor timely filed an opposition. Landlord filed an opposition to Tenant’s rejection of the Building 1, 3 and 4 Leases. On January 17, 2003, Tenant and Landlord entered into that certain “Stipulated Agreement Regarding: (i) Lease Rejection, (ii) Ownership of Certain FF&E; and (iii) Waiver of Claims” (the “ Stipulation ”), pursuant to which the parties entered into an agreement regarding, among other things, (i) the rejection of the Building 1, 3 and 4 Leases; (ii) the modification of the Existing Lease and the Building 5 Lease to reflect, among other things, the modification in total space leased by Tenant, (iii) the disposition of certain personal property, and (iv) the waiver of Landlord’s administrative claims in respect of the Building 1, 3 and 4 Leases. The parties also entered into various ancillary agreements effecting the terms of the Stipulation. On February 14, 2003, the Bankruptcy Court entered its Order Granting Debtors’ Motion for Order Approving Settlement (Related to Docket No. 16) , pursuant to which it approved the Stipulation.
E. On December 23, 2002, Landlord filed five (5) proofs of claim in Tenant’s bankruptcy case in respect of claims arising in connection with each of the potential rejection of the Existing Lease and the Building 5 Lease and the actual rejection of the Building 1, 3 and 4 Leases (collectively, the “ Landlord Claims ”), in the aggregate minimum amount of $27,953,497.85. On March 14, 2003, Landlord amended the Landlord Claims alleging that, assuming section 502(b)(6) applies to limit the Landlord Claims, the Landlord Claims would be capped at a maximum amount of $30,467,462.00. Landlord has reserved the right to claim additional amounts arising in connection with each of the leases, including the right to assert that section 502(b)(6) does not, in any way, limit the Landlord Claims based upon Tenant’s alleged pre-petition misstatements of its financial condition. Tenant disputes the amounts alleged in the Landlord Claims.
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F. Landlord and Tenant desire to resolve the disputes between them concerning the Building 5 Lease and the Existing Lease and to amend and restate the terms of the Existing Lease in their entirety as set forth herein. Landlord and Tenant shall continue to perform all of their obligations set forth in the Existing Lease through the day immediately preceding August 28, 2003 (the “ Effective Date ”). Subject to the foregoing, effective from and after the Effective Date, this Lease amends and restates the Existing Lease in its entirety and supersedes the Existing Lease.
A G R E M E N T :
PREMISES, BUILDING, PROJECT, AND COMMON AREAS
1.1 Premi ses, Building, Project and Common Areas .
1.1.1 The Premises . Upon and subject to the terms hereinafter set forth in this Lease, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the premises set forth in Section 4 of the Summary (the “ Premises ”). The outline of the Premises is set forth in Exhibit A attached hereto and each floor or floors of the Premises has approximately the number of rentable square feet as set forth in Section 4 of the Summary. The parties hereto agree that the lease of the Premises is upon and subject to the terms, covenants and conditions herein set forth, and Tenant covenants as a material part of the consideration for this Lease to keep and perform each and all of such terms, covenants and conditions by it to be kept and performed and that this Lease is made upon the condition of such performance. The parties hereto hereby acknowledge that the purpose of Exhibit A is to show the approximate location of the Premises in the “ Building ,” as that term is defined in Section 1.1.2 , below, only, and such Exhibit is not meant to constitute an agreement, representation or warranty as to the construction of the Premises, the precise area thereof or the specific location of the Common Areas, as that term is defined in Section 1.1.3 below and the elements thereof or of the accessways to the Premises or the “ Project ,” as that term is defined in Section 1.1.2 below. Landlord and Tenant acknowledge that Tenant has been occupying the Premises pursuant to the Existing Lease and therefore Tenant continues to accept the Premises in its presently existing, “as is” condition. Except as specifically set forth in this Lease, Landlord shall not be obligated to provide or pay for any improvement work or services related to the improvement of the Premises. Tenant also acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty regarding the condition of the Premises, the Building, the “Adjacent Buildings,” as defined in Section 1.1.2 , below, or the Project or with respect to the suitability of any of the foregoing for the conduct of Tenant’s business, except as specifically set forth in this Lease.
1.1.2 The Building and The Project . The Premises are a part of the building set forth in Section 4 of the Summary (the “ Building ”). The Building is part of an office project known as “ Kilroy Centre Del Mar .” The term “ Project ,” as used in this Lease, shall mean (i) the Building, the Adjacent Buildings and the “Common Areas,” as that term is defined in Section 1.1.3 , below, and (ii) the land (which is or will be improved with landscaping, parking facilities and other improvements) upon which the Buildings and the Common Areas are to be located. For purposes of this Lease, (A) the term “ Building 1 ” shall mean that certain building with an address of 3579 Valley Centre Drive, (B) the term “ Building 3 ” shall mean that certain building with an address of 3661 Valley Centre Drive, (C) the term “ Building 4 ” shall mean that certain building with an address of 3721 Valley Centre, (D) the term “ Building 5 ” shall mean that certain office building with an address of 3811 Valley Centre Drive, and (E) the term “ Adjacent Buildings ” shall mean, collectively, Building 1, Building 3, Building 4 and Building 5 .
1.1.3 Common Areas . Tenant shall have the non-exclusive right to use in common with other tenants in the Building and the Project, and subject to the rules and regulations referred to in Article 5 of this Lease, those portions of the Building and the Project which are provided, from time to time, for use in common by Landlord, Tenant and any other tenants of the Building and the Project, whether or not those areas are open to the general public (such areas, together with such other portions of the Project designated by Landlord, in its discretion, specifically including the “Central Security Office,” as that term is defined in
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Section 29.33, below, and also including certain areas designated for the exclusive use of certain tenants, or to be shared by Landlord and certain tenants, are collectively referred to herein as the “ Common Areas ”). The Common Areas shall consist of the Project Common Areas and the Building Common Areas. The term “ Project Common Areas ,” as used in this Lease, shall mean the portion of the Project designated as such by Landlord. The Project Common Areas shall consist of all parking facilities, entrances and exits, driveways, exterior walkways, first-class landscaped and hardscaped areas which are generally consistent with the quality of landscaped and hardscaped areas of Comparable Buildings in existence as of the date of this Lease, open space areas and plazas on the real property comprising the Project. The term “ Building Common Areas ,” as used in this Lease, shall mean the portions of the Common Areas located within the Building designated as such by Landlord. The manner in which the Common Areas are maintained and operated shall be in accordance with a standard which is not less than that customarily followed in the operation and maintenance of first class mid-rise office buildings located within the University Towne Center (i.e., the area from two (2) blocks to the North of La Jolla Village Drive to two (2) blocks to the South of La Jolla Village Drive between the I-5 and 1-805 freeways), Del Mar, Carmel Valley and Torrey Hills geographical areas, provided that Landlord shall manage, maintain and operate the same in a manner consistent with that of Comparable Buildings, and the use thereof shall be subject to such rules and regulations as Landlord reasonably may make from time to time. As used herein, “ Comparable Buildings ” shall mean the first class mid-rise office buildings (now existing or subsequently constructed) within the projects located within the University Towne Center, Del Mar, Carmel Valley and Torrey Hills geographical areas and having substantially similar characteristics to the Building pertaining to size, accessibility, design, quality, amenities and tenancies. Landlord reserves the right to make alterations or additions to, or to change the location of, elements of the Project and the Common Areas, provided that if any such changes might affect Tenant’s use of the Premises (in other than an immaterial manner), Landlord obtains Tenant’s prior written approval of any such alterations, additions and changes and such alterations, additions and changes do not unreasonably interfere with Tenant’s access to the Premises. Except when and where Tenant’s right of access is specifically excluded in this Lease, Tenant shall have the right of access to the Building and the parking facilities designated by Landlord for Tenant’s use twenty-four (24) hours per day, seven (7) days per week during the Lease Term.
1.2 Stipulation of R entable Square Feet of Premises and Building . For purposes of this Lease, the “rentable square feet” and “usable square feet” of the Premises shall be deemed as set forth in Section 4 of the Summary, and the “rentable square feet” of the Building shall be deemed as set forth in Section 4.2.9 , below.
1.3 Fourth and Fifth Floor Premises . Landlord and Tenant hereby acknowledge that as of the date of this Lease, Tenant is, and as of the Effective Date Tenant may be, in possession of all or a portion of fourth (4 th ) and fifth (5 th ) floors of the Building (such portion shall be referred to herein as the “4 th and 5 th Floor Premises”) pursuant to the terms and conditions of the Existing Lease. Tenant shall have up to sixty (60) days following the Effective Date to vacate and surrender exclusive possession of the 4 th and 5 th Floor Premises to Landlord in accordance with the removal and repair obligations set forth in the Existing Lease (or, to the extent that as of the Effective Date Tenant has not commenced the permitting process required for the construction and/or reconfiguration of the Premises in order to accommodate Tenant’s property and personnel from the 4 th and 5 th Floor Premises, Tenant shall have up to ninety (90) days) (the “ Permitted Holdover Period ”). Notwithstanding the foregoing, Landlord and Tenant hereby acknowledge and agree that throughout the Permitted Holdover Period, (i) the 4 th and 5 th Floor Premises shall be deemed to be a part of the Premises, (ii) the “Premises” shall consist of the entire Building, and (iii) the 4 th and 5 th Floor Premises shall be subject to all of the applicable provisions of this Lease, including, but not limited to the payment of “Base Rent” and “Additional Rent,” as those terms are defined in Articles 3 and 4, respectively, below; provided, however with respect to the payment of Base Rent, throughout the remainder of the Permitted Holdover Period, Tenant shall pay monthly installments of Base Rent for the entire Building in the amount of Three Hundred Fourteen Thousand Eight Hundred Eighty-Eight and 97/100 Dollars ($314,888.97) ( i.e ., $2.4282 per rentable square foot of the Building per month times 129,680 rentable square feet); provided further, however, with respect to the payment of Additional Rent, for purposes of calculating the amount of Tenant’s Share of Direct Expenses for the entire Building throughout the remainder of the Permitted Holdover Period, Tenant’s Share shall be equal to one hundred percent (100%).
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LEASE TERM; OPTION TERM
2.1 Initial Term . The terms, covenants and conditions and provisions of this Lease shall be effective as of the Effective Date. The term of this Lease (the “ Least Term ”) shall be as set forth in Section 5 of the Summary and shall commence on the Effective Date. The Lease Term shall terminate on April 30, 2012 (the “ Lease Expiration Date ”), unless this Lease is sooner terminated or extended as hereinafter provided.
2.2 Option to Extend . Tenant shall have one (1) option to extend (the “ Extension Option ”) the Lease Term for a five (5) year period (the foregoing option term shall be referred to hereinafter sometimes as the “ Extension Term ”), by delivering a written notice of exercise to Landlord (“ Extension Notice ”) with respect to the Extension Term, which Extension Notice may not be delivered earlier than the date which is eighteen (18) months prior to the end of the initial Lease Term and may not be delivered later than the date which is thirty (30) days after the “ Reminder Notice ”. If Landlord has not received an Extension Notice by the date which is twelve (12) months prior to the end of the initial Lease Term, Landlord may provide written notice (“Reminder Notice”) to Tenant that the Extension Option will expire if Tenant fails to deliver the Extension Notice to Landlord within thirty (30) days after the date of such notice from Landlord. If Tenant fails to deliver the Extension Notice within said thirty (30) day period, Tenant shall be deemed to have waived its right to exercise such Extension Option. The parties acknowledge that Tenant’s Extension Option will not lapse until the date which is thirty (30) days after Landlord’s delivery of the Reminder Notice pursuant to this Section 2.2 . The Extension Option shall apply to all space (and not a portion of the space) then leased by Tenant in the Building. Tenant may exercise the Extension Option only if this Lease is in full force and effect and there is no uncured Event of Default under this Lease, at the time of exercise of Such Extension Option and/or at the time of the commencement of the Extension Term, but Landlord shall have the right to waive such conditions herein. The rights of Tenant contained in this Section 2.2 shall be personal to the original Tenant named in the Summary (“ Original Tenant ”) and any Permitted Affiliate and may only be exercised by the Original Tenant or such Permitted Affiliate if Tenant’s or such Permitted Affiliate’s net worth and financial standing are, as of the date of Tenant’s Extension Notice, are no less than Tenant’s or such Permitted Affiliate’s net worth and financial standing as of the effective dale (the “ Financial Standards ”). The Base Rent during the Extension Term (“ Extension Term Base Rent ”) shall be an amount equal to the then “ Fair Market Rental Value ” of the Premises (as such term is defined in Section 2.2.5 , below), as stated on a monthly basis and determined pursuant to this Section 2.2 as of the first (1 st ) day of the Extension Term (“ Extension Term Commencement Date ”); provided, however, the Base Year shall remain calendar year 2000 and in no event shall the Base Rent payable during the Extension Term for the Premises be less than the Base Rent payable during the period immediately preceding such Extension Term for the Premises and provided further that, on the first anniversary of the Extension Term Commencement Date, and on each subsequent anniversary thereof during such Extension Term, the then payable monthly Extension Term Base Rent shall be increased in accordance with market rate increases, as mutually agreed to by Landlord and Tenant or, if Landlord and Tenant cannot agree, as determined by the appraisal process described below. Upon receipt by Landlord of Tenant’s Extension Notice under this Section 2.2 , above, Landlord and Tenant shall meet in an effort to negotiate, in good faith, the Extension Term Base Rent which shall become effective as of the Extension Term Commencement Date. If Landlord and Tenant have not agreed upon the Extension Term Base Rent (including the annual market rate increases) on or before the “ Withdrawal Date ” (as that term is defined below), Tenant may elect to withdraw the Extension Notice thereby canceling Tenant’s exercise of the Extension Option. The term “ Withdrawal Date ” shall mean (i) if Landlord delivers the Reminder Notice prior to Tenant’s delivery of the Extension Notice, the date which is thirty (30) days after the date of the Reminder Notice, or (ii) if Landlord has not yet delivered a Reminder Notice at the time of Tenant’s delivery of the Extension Notice, the date which is the earlier of (1) the date which is eleven (11) months prior to the end of the initial Lease Term, or (2) the date which is sixty (60) days after the date of Tenant’s delivery of the Extension Notice. If Tenant fails to deliver written notice to Landlord so withdrawing the Extension Notice on or before the Withdrawal Date and if Landlord and Tenant have not agreed upon the Extension Term Base Rent (including the annual market rate increases) within sixty (60) days after the delivery of Tenant’s Extension Notice, the Extension Term Base Rent shall be determined as follows:
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2.2.1 Landlord and Tenant shall attempt to agree in good faith upon a single appraiser not later than the date (“ Single Appraiser Date ”) which is forty-five (45) days after delivery of Tenant’s Extension Notice. If Landlord and Tenant are unable to agree upon a single appraiser within such time period, then Landlord and Tenant shall each appoint one appraiser not later than five (5) days after the deadline for selecting a single appraiser. Landlord and Tenant shall each give written notice to the other as to the name of the appraiser it has selected, within five (5) days after the deadline for selecting a single appraiser. Within ten (10) days thereafter, the two (2) appointed appraisers shall appoint a third appraiser. All appraisers shall be independent from, and disinterested in, both Landlord and Tenant.
2.2.2 The only tasks which the appraiser(s) shall perform shall be forming and reporting to Landlord and Tenant an opinion of the Fair Market Rental Value (including annual market rate increases) of the Premises for use in determining the Extension Term Base Rent.
2.2.3 If either Landlord or Tenant fails to appoint its appraiser within the prescribed time period, the single appraiser appointed shall determine the Fair Market Rental Value of the Premises. If both parties fail to appoint appraisers within the prescribed time periods, or if the two (2) appointed appraisers cannot agree on a third appraiser then either party shall have the right to apply to the presiding judge of the Superior Court of San Diego County for the appointment of an appraiser meeting the qualifications hereof to determine the Fair Market Rental Value of such Premises.
2.2.4 Each party shall bear the cost of its own appraiser and the parties shall share equally the cost of any single or third appraiser, if applicable. All appraisers so designated herein shall have at least ten (10) years’ experience in the appraisal of commercial properties similar to the Premises and Comparable Buildings and shall be members of professional organizations such as MAI or its equivalent.
2.2.5 For the purpose of such appraisal and this subsection (e), the term “ Fair Market Rental Value ” shall mean the price that a ready and willing, non-equity, non-sublease tenant would pay as annual rent as of the Extension Term Commencement Date (taking into consideration the annual market rate increases specified in Section2.2.2 , above) and a ready and willing landlord would accept on a non-sublease, non-renewal basis, at arm’s length, from creditworthy tenants (provided Tenant is then in compliance with the Financial Standards) for a five (5) year term for unencumbered “space comparable to the Premises” in Comparable Buildings. Such “space comparable to the Premises” shall mean office space of comparable size, with tenant improvements of substantially similar quality and layout as the Premises. Fair Market Rental Value shall include or take into consideration any lease concessions offered by landlords in lease transactions from and after the date which is twelve (12) months prior to the Single Appraiser Date (the “ Qualifying Period ”) for space comparable to the Premises within such Comparable Buildings, including, without limitation, free rent, tenant improvement allowances or any other payments or concessions; however, Fair Market Rental Value shall also take into consideration (i) the market trend (i.e., all other factors being equal, comparable transactions entered into earlier in the Qualifying Period shall be accorded less weight than comparable transactions entered into later in the Qualifying Period), and (ii) the value in the market of the existing improvements in the Premises, as compared to the value in the market of the existing improvements in such space comparable to the Premises. Further, in calculating the Fair Market Rental Rate, no consideration shall be given to the fact that Landlord is or is not required to pay a real estate brokerage commission in connection with the Extension Term or the fact that comparable deals do or do not involve the payment of real estate brokerage commissions. If there are less than two (2) lease transactions for “space comparable to the Premises,” as defined in this Section 2.2.5 , entered into during the Qualifying Period, then the term “space comparable to the Premises” shall be expanded as necessary to allow appraiser(s) to consider lease transactions covering multiple floors in a building (but less than an entire building).
2.2.6 If a single appraiser is chosen, then such appraiser shall determine the Fair Market Rental Value of the Premises. Otherwise, the Fair Market Rental Value of the Premises shall be the arithmetic average of the two (2) appraisals which are closest in amount, and the third appraisal shall be disregarded.
2.2.7 Landlord and Tenant shall instruct the appraiser(s), in writing, to complete their written determination of the Fair Market Rental Value not later than thirty
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(30) days after their selection. If the Fair Market Rental Value has not been determined by such date, then the Fair Market Rental Value shall be determined thereafter, and if it has not been determined by the Extension Term Commencement Date, then Tenant shall continue to pay Landlord monthly installments of Base Rent in the amount applicable to the Premises immediately prior to the Extension Term Commencement Date until the Fair Market Rental Value is determined. When the Fair Market Rental Value of the Premises is determined, Landlord shall deliver notice thereof to Tenant, and Tenant shall pay to Landlord, within ten (10) days after receipt of such notice, the difference between the monthly installments ofBase Rent actually paid by Tenant to Landlord subsequent to the Extension Term Commencement Date and the new monthly installments of Base Rent which are determined to have been actually owing during such period in accordance with this Section 2.2 , plus interest at the Interest Rate from the date the applicable monthly installments were due until such difference is actually paid.
BASE RENT
Tenant shall pay, without notice or demand, to Landlord or Landlord’s agent at the management office of the Project, or at such other place as Landlord may from time to time designate in writing, in currency or a check for currency which, at the time of payment, is legal tender for private or public debts in the United States of America, base rent (“ Base Rent ”) as set forth in Section 6 of the Summary, payable in equal monthly installments as set forth in Section 6 of the Summary in advance on or before the first day of each and every month during the Lease Term, without any offset or deduction whatsoever except as otherwise expressly set forth in this Lease. Base Rent shall commence on the Effective Date. If any Rent payment date (including the Effective Date) falls on a day of the month other than the first day of such month or if any payment of Rent is for a period which is shorter than one month, the Rent for any fractional month shall accrue on a daily basis for the period from the date such payment is due to the end of such calendar month or to the end of the Lease Term at a rate per day which is equal to 1/365 (or 1/366 in a leap year) of the Rent. All other payments or adjustments required to be made under the terms of this Lease that require proration on a time basis shall be prorated on the same basis.
ADDITIONAL RENT
4.1 General Terms . In addition to paying the Base Rent specified in Article 3 of this Lease, Tenant shall pay “Tenant’s Share” of the annual “Building Direct Expenses,” as those terms are defined in Sections 4.2.9 and 4.2.2 of this Lease, respectively, which are in excess of the amount of Building Direct Expenses applicable to the “Base Year” for such Building, as that term is defined in Section 4.2.1 , below. Further, in no event shall any decrease in Building Direct Expenses for such Building for any “ Expense Year ” for the Building as that term is defined in Section 4.2.6 below, below Building Direct Expenses for the Base Year entitle Tenant to any decrease in Base Rent for the Building or any credit against sums due under this Lease. It is the intent of Landlord and Tenant hereunder that Building Direct Expenses be calculated for the Building separately based on the Building Direct Expenses allocated to such Building. Such payments by Tenant, together with any and all other amounts payable by Tenant to Landlord pursuant to the terms of this Lease, are collectively referred to in this Lease as the “ Additional Rent ”, and the Base Rent and the Additional Rent are collectively referred to in this Lease as “ Rent. ” All amounts due under this Article 4 as Additional Rent shall be payable for the same periods and in the same manner as the Base Rent. Without limitation on other obligations of Tenant which Survive the expiration of the Lease Term, the obligations of Tenant to pay the Additional Rent provided for in this Article 4 , and the obligation of Landlord to refund to Tenant any overpayment of Building Direct Expenses pursuant to Section 4.2 below, shall survive the expiration of the Lease Term.
4.2 Definitions of Key Terms Relating to Additional Rent . As used in this Article.4 , the following terms shall have the meanings hereinafter set forth:
4.2.1 “ Base Year ” shall mean the period set forth in Section 7.1 of the Summary.
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4.2.2 “ Building Direct Expenses ” shall mean “Building Operating Expenses” and “Building Tax Expenses,” as those terms are defined in Sections 4.2.3 and 4.2.4 below, respectively.
4.2.3 “ Building Operating Expenses ” shall mean the portion of “Operating Expenses,” as that term is defined in Section 4.2.7 below, allocated to the tenants of the Building pursuant to the terms of Section 4.3.1 below.
4.2.4 “ Building Tax Expenses ” shall mean that portion of “Tax Expenses,” as that term is defined in Section 4.2.8 below, allocated to the tenants of the Building pursuant to the terms of Section 4.3.1 below.
4.2.5 “ Direct Expenses ” shall mean “Operating Expenses” and “Tax Expenses.”
4.2.6 “ Expense Year ” shall mean each calendar year in which any portion of the Lease Term falls, through and including the calendar year in which the Lease Term expires.
4.2.7 “ Operating Expenses ” shall mean all expenses, costs and amounts which Landlord pays or accrues during any Expense Year because of or in connection with the ownership, management, maintenance, security, repair, replacement, restoration or operation of the Project, or any portion thereof. Without limiting the generality of the foregoing, Operating Expenses shall specifically include any and all of the following: (i) the cost of supplying all utilities to the Project, the cost of operating, repairing, maintaining, and renovating the utility, telephone, mechanical, sanitary, storm drainage, and elevator systems, and the cost of maintenance and service contracts in connection therewith; (ii) the cost of licenses, certificates, permits and inspections and the cost of contesting any governmental enactments which may affect Operating Expenses, and the costs incurred in connection with a governmentally mandated transportation system management program or similar program; (iii) the cost of all insurance carried by Landlord in connection with the Project as reasonably determined by Landlord; (iv) the cost of landscaping, relamping, and supplies, tools, equipment and materials used in the operation, repair and maintenance of the Project, or any portion thereof; (v) the cost of parking area (including any parking structures) repair, restoration, and maintenance; (vi) reasonable fees and other costs, including a five (5%) management fee, and the consulting, legal and accounting fees of all contractors and consultants in connection with the management, operation, maintenance and repair of the Project; (vii) payments under any equipment rental agreements and the fair rental value of any on-site or off-site management office space for the Project (as described in Section 6.1.4 below) not to exceed 2,000 rentable square feet (which fair rental value for the purpose of determining the Direct Expenses for the Base Year and any subsequent Expense Years shall be the same rate per rentable square foot as the monthly fair market rental rate per rentable square foot charged by the landlords of the Comparable Buildings, but in no event less than the rental rate per rentable square foot utilized in calculating the Base Year Direct Expenses for the Building); (viii) wages, salaries and other compensation and benefits, including taxes levied thereon, of all non-executive persons reasonably engaged in the operation, maintenance and security of the Project; (ix) costs under any instrument pertaining to the reasonable sharing of costs by the Project and the additional land and improvements subject to the CC&R’s (including, without limitation, any assessments and association dues under the CC&R’s); (x) operation, repair, maintenance and replacement of all systems and equipment and components thereof of the Project including, but not limited to HVAC systems, electrical, plumbing and life-safety systems, elevators, any Project locker rooms and workout facilities; (xi) the cost of janitorial, alarm, security and other services, replacement of wall and floor coverings, ceiling tiles and fixtures in common areas, maintenance and replacement of curbs, roadways, driveways, and walkways, repair to roofs and re-roofing; (xii) amortization (including interest on the unamortized cost) over the useful life as Landlord shall reasonably determine, of the cost of acquiring or the rental expense of personal property used in the maintenance, operation and repair of the Project, or any portion thereof; (xiii) the cost of capital improvements or other costs incurred in connection with the Project (A) which are intended, in good faith, to effect economies in the operation or maintenance of the Project, or any portion thereof, and only to the extent such anticipated economies exceed the cost of such item, (B) that are required to comply with present or anticipated conservation programs, (C) required by laws, ordinances or regulations enacted after the date permits for the construction of the Building were obtained, (D) that are made in connection with the “Project Reconfiguration,” as that term is set forth in Section 6.8 , below, and (E) includable in Operating Expenses pursuant to consistently applied
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and sound accounting and management principles (including, but not limited to, the repair, resurfacing and replacement of parking lots and Project roadways and driveways); provided, however, that any capital expenditure shall be amortized (including interest at the greater of ten percent (10%) or the amortized cost at Landlord’s actual cost of funds) over its useful life as Landlord shall reasonably determine; and (xiv) costs, fees, charges or assessments imposed by, or resulting from any mandate imposed on Landlord by, any federal, state or local government for fire and police protection, trash removal, community services, of other services which do not constitute “Tax Expenses” as that term is defined in Section 4.2.8 below. Notwithstanding the foregoing, for purposes of this Lease, Operating Expenses shall not, however, include:
(a) non-cash items such as deductions for depreciation and amortization of the initial costs of the construction of the Building and the Building Systems and Equipment;
(b) costs, including marketing costs, legal fees, space planners’ fees, and brokerage fees incurred in connection with the original or future leasing of the Project, and costs, including permit, license and inspection costs and allowances and other concessions, incurred with respect to the installation of tenant improvements made for new tenants in the Project or incurred in renovating or otherwise improving, decorating, painting or redecorating vacant leasable space for tenants or other occupants (or prospective tenants or occupants) of the Project;
(c) except as set forth in items (v), (xii), (xiii), and (xiv) above, depreciation, interest and principal payments on mortgages and other debt costs, if any, penalties and interest, costs of capital repairs and alterations, and costs of capital improvements and equipment;
(d) costs for which Landlord is reimbursed by any tenant or occupant of the Project or by insurance by its carrier or any tenant’s carrier (or if Landlord fails to carry the insurance required to be carried by Landlord pursuant to Section 10.4 below, costs which would have been covered by insurance had Landlord obtained the coverage required to be carried under this Lease) or by the “Association” under the CC&R’s or by anyone else, and electric power costs for which any tenant directly contracts with the local public service company;
(e) any bad debt loss, rent loss, or reserves for bad debts or rent loss;
(f) costs associated with the operation of the business of the partnership or entity which constitutes Landlord, as the same are distinguished from the costs of operation of the Project (which shall specifically include, but not be limited to, accounting costs associated with the operation of the Project). Costs associated with the operation of the business of the partnership or entity which constitutes Landlord including costs of partnership accounting and legal matters, costs of defending any lawsuits with any mortgagee (except as the actions of the Tenant may be in issue), costs of selling, syndicating, financing, mortgaging or hypothecating any of Landlord’s interest in the Project, and costs incurred in connection with any disputes between Landlord and its employees, between Landlord and Project management, or between Landlord and other tenants or occupants, and Landlord’s general corporate overhead and general and administrative expenses;
(g) the wages and benefits of any employee who does not devote substantially all of his or her employed time to the Project unless such wages and benefits are prorated to reflect time spent on operating and managing the Project vis-à-vis time spent on matters unrelated to operating and managing the Project, or the wages and/or benefits attributable to personnel above the level of asset manager;
(h) amount paid as ground rental for the Project by Landlord;
(i) any compensation paid to clerks, attendants or other persons in commercial concessions operated by Landlord, provided that any compensation paid to any concierge at the Project and any compensation paid regarding parking operations shall be includable as an Operating Expense;
(j) rentals and other related expenses incurred in leasing air conditioning systems, elevators or other equipment which if purchased the cost of which would be excluded from Operating Expenses as a capital cost, except equipment not affixed to the Project which is used in providing janitorial or similar services and, further excepting from this exclusion such
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equipment rented or leased to remedy or ameliorate an emergency condition in the Project, or during periods when the systems or equipment is being repaired;
(k) all items and services for which Tenant or any other tenant in the Project reimburses Landlord or which Landlord provides selectively to one or more tenants (other than Tenant) without reimbursement;
(1) costs, other than those incurred in ordinary maintenance and repair, for sculpture, paintings, fountains or other objects of art;
(m) any costs expressly excluded from Operating Expenses elsewhere in this Lease;
(n) costs incurred to comply with laws or otherwise relating to the removal or abatement of hazardous material in the soil and costs incurred to comply with laws or otherwise relating to the removal or abatement of hazardous material in the Building or any Common Area improvements except where such removal or abatement in the Building or Common Area improvements in required to be performed during the Lease Term by laws not in effect as of April 1. 2003;
(o) costs arising from Landlord’s charitable or political contributions;
(p) expenses directly resulting from the active or gross negligence of Landlord, its agents, servants or employees;
(q) rental for any space in the Building set aside for conference facilities, storage facilities or exercise facilities;
(r) the amounts of any payments by Landlord or to its affiliates for goods or services in the Project in excess of a competitive (but not necessarily the lowest) rate;
(s) costs (not including Tax Expenses), incurred in connection with the sale, financing, refinancing, mortgaging, selling or change of ownership of the Building, including brokerage commissions, consultant’s, attorneys’ and accountant’s fees, closing costs, title insurance premiums, transfer taxes and interest charges;
(t) intentionally omitted;
(u) intentionally omitted; and
(v) assessments, charges, and dues under the CC&R’s which would result in a duplicative charge to Tenant or a charge which is otherwise precluded under this Section 4.2.7 or other provisions of this Lease including without limitation (1) any expense, cost or charge which would be duplicative of a charge for which Tenant already is responsible under this Lease; (2) any expense for property management which would be duplicative of a charge for which Tenant already is responsible under this Lease; (3) special assessments levied under the CC&R’s which would be precluded by subsection 4.2.7(c) above; and (4) any expense precluded by Section 5.3 below.
There shall be deducted from Operating Expenses the following items in the year in which they are applicable: (i) insurance and condemnation proceeds to the extent that such proceeds relate to costs and expenses previously included in Operating Expenses, (ii) all other funds recovered from any tenant of the Building, contractors, or other parties as payment for expenses which were previously included in Operating Expenses, other than tenants’ contributions for their proportionate share of Operating Expenses, and (iii) all funds available through the CC&R’s which were previously included in Operating Expenses. Operating Expenses shall reflect reductions for cash discounts and trade discounts taken by Landlord.
If Landlord does not carry a form of insurance coverage (e.g., earthquake insurance) for the Building during any part of the Base Year but subsequently obtains such insurance for the Building during the Lease Term, then from and after the date upon which Landlord obtains such insurance coverage and continuing throughout the period during which Landlord maintains such insurance. Operating Expenses for the Base Year shall be deemed to be increased by the amount of the premium Landlord reasonably estimates it would have incurred had Landlord maintained
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such insurance for the same period of time during the Base Year as such insurance was maintained by Landlord during such subsequent calendar year. Conversely, if Landlord carries a form of insurance coverage (e.g., earthquake insurance) for the Building during any part of the Bass Year but subsequently no longer carries such form of insurance coverage, then from and after the date upon which Landlord no longer carries such insurance coverage and continuing throughout the period during which Landlord no longer maintains such insurance coverage, Operating Expenses for the Base Year shall be deemed to be decreased by the amount of premium Landlord incurred for such insurance for the same period of time during the Base Year as such insurance was no longer maintained by Landlord during such subsequent calendar year.
If Landlord is not furnishing any particular work or service (the cost of which, if performed by Landlord, would be included in Operating Expenses) to a tenant who has undertaken to perform such work or service in lieu of the performance thereof by Landlord, then Operating Expenses shall be deemed to be increased by an amount equal to the additional Operating Expenses which would reasonably have been incurred during such period by Landlord if it had at its own expense furnished such work or service to such tenant. If the Building is not at least ninety-five percent (95%) occupied during all or a portion of the Base Year or any Expense Year, Landlord shall make an appropriate adjustment to the components of Operating Expenses for such year to determine the amount of Operating Expenses that would have been paid had such Building been ninety-five percent (95%) occupied; and the amount reasonably so determined shall be deemed to have been the amount of Operating Expenses for such year.
4.2.8 Taxes .
4.2.8.1 “ Tax Expenses ” shall mean all federal, state, county, or local governmental or municipal taxes, fees, charges or other impositions of every kind and nature, whether general, special, ordinary or extraordinary, (including, without limitation, real estate taxes, general and special assessments, transit taxes, leasehold taxes or taxes based upon the receipt of rent, including gross receipts or sales taxes applicable to the receipt of rent, unless required to be paid by Tenant, personal property taxes imposed upon the fixtures, machinery, equipment, apparatus, systems and equipment, appurtenances, furniture and other personal property used in connection with the Project, or any portion thereof), which shall be paid or accrued during any Expense Year (without regard to any different fiscal year used by such governmental or municipal authority) because of or in connection with the ownership, leasing and operation of the Project, or any portion thereof. Tax Expenses for the Base Year of the Lease Term for the Building (and the underlying land for the tax parcel) shall be calculated as if the value of such Building, the Base, Shell and Core of such Building and the Tenant Improvements thereto and related improvements to the Common Area as reasonably allocated to such Building were fully assessed. With respect to Tenant Improvements in each Building, such Tax Expenses shall be calculated to include the actual “soft” and “hard” costs of such improvements.
4.2.8.2 Tax Expenses shall include, without limitation: (i) any tax on the rent, right to rent or other income From the Project, or any portion thereof, or as against the business of leasing the Project, or any portion thereof; (ii) any assessment, tax, fee, levy or charge in addition to, or in substitution, partially or totally, of any assessment, tax, fee, levy or charge previously included within the definition of real property tax, it being acknowledged by Tenant and Landlord that Proposition 13 was adopted by the voters of the State of California in the June 1978 election (“ Proposition 13 ”) and that assessments, taxes, fees, levies and charges may be imposed by governmental agencies for such services as fire protection, street, sidewalk and road maintenance, refuse removal and for other governmental services formerly provided without charge to property owners or occupants, and, in further recognition of the decrease in the level and quality of governmental services and amenities as a result of Proposition 13, Tax Expenses shall also include any governmental or private assessments or the Project’s contribution towards a governmental or private cost-sharing agreement for the purpose of augmenting or improving the quality of services and amenities normally provided by governmental agencies; (iii) any assessment, tax, fee, levy, or charge allocable to or measured by the area of the Premises or the Rent payable hereunder, including, without limitation, any business or gross income tax or excise tax or business license tax with respect to the receipt of or measured by the amount of such rent, or upon or with respect to the possession, leasing, Operating, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or any portion thereof; and (iv) any assessment, tax, fee, levy or charge, upon this
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transaction or any document to which Tenant is a party, creating or transferring an interest or an estate in the Premises.
4.2.8.3 Any costs and expenses (including, without limitation, reasonable attorneys’ fees) incurred in attempting to protest, reduce or minimize Tax Expenses shall be included in Tax Expenses in the Expense Year such expenses are paid. Tax refunds shall be credited against Tax Expenses and refunded to Tenant regardless of when received, based on the Expense Year to which the refund is applicable, provided that in no event shall the amount to be refunded to Tenant for any such Expense Year exceed the total amount paid by Tenant as Additional Rent under this Article 4 for such Expense Year. If Tax Expenses for any period during the Lease Term or any extension thereof are increased after payment thereof for any reason, including, without limitation, error or reassessment by applicable governmental or municipal authorities, Tenant shall pay Landlord upon demand Tenant’s Share of any such increased Tax Expenses included by Landlord as Building Tax Expenses pursuant to the terms of this Lease. Notwithstanding anything to the contrary contained in this Section 4.2.8 (except as set forth in Section 4.2.8.1 , above), there shall be excluded from Tax Expenses (i) all excess profits taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and succession taxes, estate taxes, federal and State income taxes, and other taxes to the extent applicable to Landlord’s general or net income (as opposed to rents, receipts or income attributable to operations at the Project), (ii) any items included as Operating Expenses, and (iii) any items paid by Tenant under Section 4.5 of this Lease.
4.2.8.4 If in any Expense Year subsequent to the Base Year (the “ Adjustment Year ”), the amount of Tax Expenses decreases below the amount of Tax Expenses for the Base Year as a result of a Proposition 8 reduction, then for purposes of all subsequent Expense Years, including the Expense Year in which such decrease in Tax Expenses occurs, the Building Direct Expenses for the Base Year shall be decreased by an amount equal to such decrease in assessed value or direct assessments, as applicable, in the Adjustment Year. Conversely, if the Tax Expenses thereafter are decreased by a lesser amount during any comparison year subsequent to the Adjustment Year (the “ Readjustment Year ”) as a result of Landlord’s failure to secure a Proposition 8 reduction which is greater than or equal to the Proposition 8 reduction secured during the Adjustment Year, then for purposes of all subsequent comparison years, including the comparison year in which such lesser decrease in Tax Expenses occurs, the Building Direct Expenses for the Base Year shall only be decreased by an amount equal to the decrease in assessed value or direct assessments, as applicable, during such Readjustment Year which resulted from Landlord’s failure to secure a Proposition 8 reduction greater than or equal to the Proposition 8 reduction secured during the Adjustment Year; provided that any costs and expenses incurred by Landlord in securing any Proposition 8 reduction shall not be included in Building Direct Expenses for purposes of this Lease. Landlord and Tenant acknowledge that this Section 4.2.8.4 is not intended to in any way affect (A) the inclusion in Tax Expenses of the statutory two percent (2%) annual increase in Tax Expenses (as such statutory increase may be modified by subsequent legislation), or (B) the inclusion or exclusion of Tax Expenses pursuant to the terms of Proposition 13, which shall be governed pursuant to the terms of Sections 4.2.8.1 through 4.2.8.3 . above and Section 4.4.4 below. Notwithstanding the foregoing, in the event that the Project is reassessed (the “ Reassessment ”) for real estate tax purposes by the appropriate governmental authority pursuant to the terms of Proposition 13, and such Reassessment results in a decrease in Tax Expenses, the component of Tax Expenses for the Base Year which is attributable to the assessed value of the Project under Proposition 13 prior to the Reassessment (without taking into account any Proposition 8 reductions) shall be reduced for the purposes of comparison to all subsequent Expense Years (commencing with the Expense Year for which the Reassessment is first attributable) to an amount equal to the real estate taxes based Upon such Reassessment.
4.2.9 “ Tenant’s Share ” shall equal the percentage set forth in Section 7.2 of the Summary. Tenant’s Share was calculated by multiplying the number of rentable square feet of the Premises, as set forth in Section 4 of the Summary, by 100, and dividing the product by the 129,680 rentable square feet in the Building.
4.3 Allocatio n of Direct Expenses .
4.3.1 Method of Allocation. The parties acknowledge that the Building will be a part of a multi-building project and that the costs and expenses incurred in connection with the Project (i.e. the Direct Expenses) should be shared among the tenants of the Building and the
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tenants of the Adjacent Buildings in the Project. Direct Expenses shall also include cost and expenses (or assessments charged in connection therewith) to maintain, repair and operate additional common areas (including parking areas and landscape areas) westerly of the Project, and also subject to the CC&R’s, and allocated to the Building and Adjacent Buildings. Such allocation shall be made in accordance with the CC&R’s; provided, however, that to the extent such allocation is not addressed in the CC&R’s, Landlord shall, in Landlord’s reasonable judgment, determine which Direct Expenses are properly allocable to an individual building (because the expense applies to only such building) and which Direct Expenses shall be allocable to tenants of more than one (1) building (in which case Building Direct Expenses shall include those expenses so allocated to the Building based upon the relative square footages of the affected buildings). Such portion of Direct Expenses allocated to Tenant shall include (i) Tenant’s Share of all Direct Expenses attributable solely to the Building, and (ii) Tenant’s Share of all Direct Expenses attributable to the Project Common Areas (as opposed to Direct Expenses which are solely and directly attributable to any other building in the Project).
4.3.2 Cost Pools . Notwithstanding anything to the contrary contained herein, Landlord shall have the right, from time to time, to equitably allocate some or all of the Direct Expenses for the Project among different portions or occupants of the Project (the “ Cost Pools ”), in Landlord’s reasonable judgment. Such Cost Pools may include, but shall not be limited to, the office space tenants of a building of the Project or of the Project, and the retail space tenants of a building of the Project or of the Project. The Direct Expenses within each such Cost Pool shall be allocated and charged to the tenants within such Cost Pool in an equitable manner.
4.4 Calculation and Pa yment of Additional Rent . If for any Expense Year ending or commencing within the Lease Term, Tenant’s Share of Building Direct Expenses for such Expense Year exceeds Tenant’s Share of Building Direct Expenses applicable to the Base Year, then Tenant shall pay to Landlord, in the manner set forth in Section 4.4.1 , below, and as Additional Rent, an amount equal to the excess (the “ Excess ”).
4.4.1 Statement of Estimated Building Direct Expenses . By May 1 of each year, Landlord shall give Tenant a yearly expense estimate statement (the “ Estimate Statement ”) which shall set forth Landlord’s reasonable estimate (the “ Estimate ”) of what the total amount of Building Direct Expenses for the then-current Expense Year shall be and the estimated excess (the “ Estimated Excess ”) as calculated by comparing the Building Direct Expenses for such Expense Year, which shall be based upon the Estimate, to the amount of Building Direct Expenses for the Base Year. The failure of Landlord to timely furnish the Estimate Statement for any Expense Year shall not preclude Landlord from enforcing its rights to collect any Estimated Excess under this Article 4 , nor shall Landlord be prohibited from revising any Estimate Statement or Estimated Excess theretofore delivered to the extent necessary but Landlord shall not do so more than twice during any Expense Year. Thereafter, Tenant shall pay, with its next installment of Base Rent due, a fraction of the Estimated Excess for the then-current Expense Year (reduced by any amounts paid pursuant to the next to last sentence of this Section 4.4.1 ). Such fraction shall have as its numerator the number of months which have elapsed in such current Expense Year, including the month of such payment, and twelve (12) as its denominator. Until a new Estimate Statement is furnished (which Landlord shall have the right to deliver to Tenant at any time), Tenant shall pay monthly, with the monthly Base Rent installments, an amount equal to one-twelfth (1/12 th ) of the total Estimated Excess set forth in the previous Estimate Statement delivered by Landlord to Tenant. Landlord shall maintain books and records with respect to Building Direct Expenses in accordance with generally accepted and sound accounting and management practices, consistently applied.
4.4.2 Statement of Actual Building Direct Expenses and Payment by Tenant . In addition, Landlord shall give to Tenant following the end of each Expense Year, a statement (the “ Statement ”) which shall state the Building Direct Expenses incurred or accrued for such preceding Expense Year for the Building, and which shall indicate the amount of the Excess. Upon receipt of the Statement for each Expense Year commencing or ending during the Lease Term, if an Excess is present, Tenant shall pay, with its next installment of Base Rent due, the full amount of the Excess for such Expense Year, less the amounts, if any, paid during such Expense Year as Estimated Excess, and if Tenant paid more as Estimated Excess than the actual Excess, Tenant shall receive a credit in the amount of Tenant’s overpayment against Rent next due under this Lease. In addition, Landlord shall, within ten (10) days after written request from Tenant, distribute (or if Landlord does not control the Association, request the Association to distribute) to Tenant a copy of (1) the budget, notice and summary prepared pursuant to
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Section 3.3 of the CC&R’s and (2) the accounting prepared pursuant to Section 3.6(c) of the CC&R’s. The failure of Landlord to timely furnish the Statement, or any other information required under this Section 4.4.2 , for any Expense Year shall not prejudice Landlord or Tenant from enforcing its rights under this Article 4 . Even though the Lease Term has expired and Tenant has vacated the Premises, when the final determination is made of Tenant’s Share of Building Direct Expenses for the Expense Year in which this Lease terminates, if an Excess if present, Tenant shall pay to Landlord such amount within thirty (30) days, and if Tenant paid more as Estimated Excess than the actual Excess, Landlord shall, within thirty (30) days, deliver a check payable to Tenant in the amount of the overpayment. The provisions of this Section 4.4.2 shall survive the expiration or earlier termination of the Lease Term.
4.4.3 Tenant’s Audit Right . Within six (6) months after receipt of a Statement by Tenant (“ Review Period ”), if Tenant disputes the amount set forth in the Statement, an independent certified public accountant (which accountant is a member of a nationally or regionally recognized accounting firm), designated by Tenant, may, at Tenant’s sole cost and expense subject to reimbursement, as provided for herein and after reasonable notice to Landlord and at reasonable times, inspect Landlord’s records at Landlord’s offices, provided that Tenant is not then in default in the payment of Bast Rent or Building Direct Expenses after expiration of all applicable cure periods and provided further that Tenant and such accountant or representative shall execute a confidentiality agreement, in a form reasonably acceptable to Landlord in Landlord’s reasonable discretion sole discretion, to maintain all information contained in Landlord’s records in strict confidence. Landlord shall cooperate with Tenant in obtaining all necessary or appropriate information from the Association. Notwithstanding the foregoing, Tenant shall only have the right to review Landlord’s records one (1) time during any twelve (12) month period. Tenant’s failure to dispute the amounts set forth in any Statement by written notice to Landlord within thirty (30) days after the Review Period shall be deemed to be Tenant’s approval of such Statement and Tenant, thereafter, waives the right or ability to dispute the amounts set forth in such Statement. If after such inspection, but within thirty (30) days after the Review Period, Tenant notifies Landlord in writing that Tenant still disputes such amounts, a certification as to the proper amount shall be made by an independent certified public accountant selected by Landlord and reasonably approved by Tenant who is a member of a nationally or regionally recognized accounting firm. Landlord shall cooperate in good faith with Tenant and the accountant to show Tenant and the accountant the information upon which the certification is to be based. If such certification by the accountant proves that the Building Direct Expenses set forth in the Statement were (i) overstated by less than four percent (4%), then the cost of the accountant and the cost of such certification shall be paid for by Tenant, (ii) overstated by four percent (4%) or more but less than six percent (6%), then the cost of the accountant and the cost of certification shall be split evenly between Landlord and Tenant, or (iii) overstated by six percent (6%) or more, then the cost of the accountant and the cost of such certification shall be paid for by Landlord. Promptly following the parties receipt of such certification, the parties shall make such appropriate payments or reimbursements, as the ease may be, to each other, as are determined to be owing pursuant to such certification.
4.4.4 Intentionally Omitted .
4.5 Taxes and Oth er Charges for Which Tenant Is Directly Responsible .
4.5.1 Tenant shall be liable for and shall pay ten (10) days before delinquency, taxes levied against Tenant’s equipment, furniture, fixtures and any other personal property located in or about the Premises. If any such taxes on Tenant’s equipment, furniture, fixtures and any other personal property are levied against Landlord or Landlord’s property or if the assessed value of Landlord’s property is increased by the inclusion therein of a value placed upon such equipment, furniture, fixtures or any other personal property and if Landlord pays the taxes based upon such increased assessment, which Landlord shall have the right to do regardless of the validity thereof but only under proper protest if requested by Tenant, Tenant shall upon demand repay to Landlord the taxes so levied against Landlord or the proportion of such taxes resulting from such increase in the assessment, as the case may be.
4.5.2 If the tenant improvements in the Premises, whether installed and/or paid for by Landlord or Tenant and whether or not affixed to the real property so as to become a part thereof, are assessed for real property tax purposes at a valuation higher than the “Tenant Improvement Allowance,” as that term is used in Section 2.1 of the Tenant Work Letter attached to the Original Lease, actually used to build-out the Premises then the Tax Expenses levied
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against Landlord or the property by reason of such excess assessed valuation shall be deemed to be taxes levied against personal property of Tenant and shall be governed by the provisions of Section 4.5.1, above.
4.5.3 Notwithstanding any contrary provision herein, Tenant shall pay prior to delinquency any (i) rent tax or sales tax, service tax, transfer tax or value added tax, or any other applicable tax on the rent or services herein or otherwise respecting this Lease, (ii) taxes assessed upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion of the Project, including the Project parking facilities; or (iii) taxes assessed upon this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises.
USE OF PREMISES
5.1 Permit ted Use . Tenant shall use the Premises for office, software development, training, research and development, storage, distribution and other lawful uses permitted under the CC&R’s (as defined below) and the Project’s permitted zoning and for no other purpose or purposes whatsoever without Landlord’s consent, which may be withheld in Landlord’s sole discretion.
5.2 Prohibite d Uses . Tenant further covenants and agrees that Tenant shall not use, or suffer or permit any person or persons to use, the Premises or any part thereof for (i) offices of any agency or bureau of the United States or any state or political subdivision thereof; (ii) offices or agencies of any foreign governmental or political subdivision thereof; (iii) offices of any health care professionals or service organization; (iv) schools or other training facilities which are not ancillary to corporate, executive or professional office use; (v) retail or restaurant uses (as opposed to Tenant’s employee cafeteria); (vi) communications firms such as radio and/or television stations, or (vii) any use or purpose contrary to the provisions of the Rules and Regulations set forth in Exhibit D . attached hereto, or in violation of the laws of the United States of America, the State of California, or the ordinances, regulations or requirements of the local municipal or county governing body or other lawful authorities having jurisdiction over the Project. Tenant shall not do or permit anything to be done in or about the Premises which will obstruct or interfere with the rights of other tenants or occupants of the Buildings or Project, or injure them or use or allow the Premises to be used for any unlawful purpose, nor shall Tenant cause or maintain any nuisance in, on or about the Premises. Tenant shall not use or knowingly allow another person or entity to use any part of the Premises for the storage, use, treatment, manufacture or sale of “Hazardous Material,” (as that term is defined in Section 29.23 of this Lease); provided, however, Tenant may use commercially reasonable amounts of any Hazardous Material in accordance with the terms and conditions set forth in Section 29.23 , below.
5.3 CC& R’s . Tenant continues to acknowledge and agree that the Project is subject to those certain covenants, conditions, and restrictions contained within that certain Agreement Between Landowners Including Covenants, Conditions and Restrictions and Grants of Easements for Carmel Center and Including Amendment and Restatement of Former Declaration and Termination of Prior Grants of Easements, recorded March 25, 2002 (the “ Amended CC&R’s ”), including the Site Plan attached thereto as Exhibit A, and the Carmel Center Parking Management Plan attached thereto as Exhibit D (the “ CC&R’s Parking Plan ”). In addition, Tenant acknowledges that the Project may be subject to any future covenants, conditions and restrictions (the “ Future CC&R’s ”) which Landlord, in Landlord’s discretion, deems reasonably necessary or desirable, and Tenant agrees that the Lease, as hereby amended, shall be subject and subordinate to such Future CC&R’s. Landlord shall have the right to require Tenant to execute and acknowledge, within fifteen (15) business days of a request by Landlord, a “Recognition of Covenants, Conditions, and Restriction,” in a form substantially similar to that attached hereto as Exhibit F , agreeing to and acknowledging the Future CC&R’s.
5.4 Building Lobb y . Tenant acknowledges and agrees that the lobby area located on the ground floor of the Building (the “ Building Lobby ”) is Building Common Area. Notwithstanding the foregoing, subject to the terms of this Section 5.4 . Tenant shall have the right to use and maintain, throughout the Lease Term, Tenant’s current reception desk (which reception desk shall be staffed by no more than (2) individuals), located in the eastern portion of such Building Lobby, and that such reception desk shall be identified by a desk placard approved
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by Landlord, and staffed, used and maintained by Tenant in a first-class, professional manner. Tenant hereby expressly acknowledges Landlord’s continued right (i) to itself utilize the Building Lobby, and (ii) to install the “Building Directory,” as that term is defined in Section 23.3, below, and any other signage in the Building Lobby, for Landlord or any other tenant of the Building, as determined by Landlord, in Landlord’s sole and absolute discretion.
SERVICES AND UTILITIES
6.1 Standard Tena nt Services . Landlord shall provide the following services on all days (unless otherwise stated below) during the Lease Term.
6.1.1 Subject to all governmental rules, regulations and guidelines applicable thereto, Landlord shall provide heating, ventilation and air conditioning (“ HVAC ”) from Monday through Friday, during the period from 7:00 A.M. to 7:00 P.M. and on Saturday during the period from 9:00 A.M. to 1:00 P.M. (the “ Building Hours ”), except for the dates of observation of New Year’s Day, Presidents Day, Independence Day, Labor Day, Memorial Day, Thanksgiving Day, and Christmas Day and other nationally recognized holidays that are not nationally recognized as of the date of this Lease (collectively, the “ Holidays ”). Notwithstanding the foregoing, Landlord shall change the Building Hours as requested by Tenant from time to time (but not more than two (2) times per calendar year) so long as (i) the total Building Hours for the weekly period (i.e., Monday through Sunday) do not exceed sixty-four (64) hours, (ii) Tenant leases the entire Premises, (iii) any such Building Hours so designated by Tenant for any day must be consecutive hours, and (iv) Tenant shall be responsible for any additional reasonable costs incurred by Landlord as a result of such change in hours requested by Tenant (which costs shall be payable as Additional Rent within thirty (30) days after Tenant’s receipt of invoice therefor). Tenant shall be entitled to install as an Alteration dedicated heating, ventilation and air conditioning units (“ Package Units ”) within or serving the Premises at Tenant’s sole cost and expense (but not window units). The plans and specifications for any Package Units shall, as indicated in Article 8 below and the Tenant Work Letter (as applicable), be subject to Landlord’s reasonable approval and the electricity required to power such Package Units shall be included within the allotment set forth in Section 6.1.2 below and such electricity and any other utilities used by such Package Units shall be payable by Tenant in accordance with Section 6.2 below. Tenant shall be solely responsible for maintenance and repair of the Package Units and such units shall be considered to be a fixture within the Premises and shall remain upon the Premises upon the expiration or earlier termination of Lease Term unless Landlord requires Tenant to remove such items upon expiration or earlier termination of this Lease pursuant to the provisions of Section 8.5 below. Notwithstanding the foregoing, Tenant may remove any “Libert” or similar type HVAC units from the Premises at any time prior to expiration or earlier termination of the Lease Term provided that Tenant removes all associated wiring and cabling, repairs any damage resulting from such removal and restores the Premises to the condition prior to the placement of such unit(s), reasonable wear and tear excepted.
6.1.2 Landlord shall provide adequate electrical wiring, facilities and power for connection to Tenant’s equipment, provided that the connected electrical load of such equipment does not exceed an average of four (4) watts per rentable square foot of the Premises during each of the Building Hours on a monthly basis (i.e., the total number of watts per rentable square foot allocable to such equipment during a given month divided by the number of Building Hours that occur during such given month shall not exceed four (4) watts per rentable square foot) and sufficient to provide an additional one point five (1.5) watts (per rentable square foot of thePremises during the Building Hours on a monthly basis) of connected electrical load for Tenant’s lighting fixtures. Any such electrical usage shall be subject to applicable laws and regulations. Tenant shall bear the cost of replacement of any non-Building standard lamps, starters and ballasts for lighting fixtures within the Premises; replacement of any such Building standard items (as shown on the “Specifications,” as that term was defined in Section 2.3 of the Tenant Work Letter attached to the Original Lease) shall be included in Operating Expenses.
6.1.3 Landlord shall provide city water from the regular Building outlets for drinking, lavatory and toilet purposes.
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6.1.4 Landlord shall manage the Project and employ qualified property management personnel and maintenance personnel to operate and manage the Project in accordance with a standard which is not less than customarily observed in the operation and management of Comparable Buildings.
6.1.5 Landlord shall provide janitorial services five (5) days per week except the date of observation of the Holidays, in and about the Building and window washing services in accordance with a standard which is not less than that customarily observed in other Comparable Buildings.
6.1.6 Landlord shall provide nonexclusive, non-attended automatic passenger elevator service during the Building Hours; Landlord shall have one elevator available at all other times, including Holidays.
6. 1.7 Landlord shall provide security services to the Project and Building in a commercially reasonable manner.
6.1.8 Tenant hereby acknowledges that Landlord shall have no obligation to provide guard service or other security measures for the benefit of the Premises. Any such security measures for the benefit of the Premises shall be provided by Tenant, at Tenant’s sole cost and expense. Tenant hereby assumes all responsibility for the protection of Tenant and its agents, employees, contractors, invitees and guests, and the property thereof, from acts of third parties, including keeping doors locked and other means of entry to the Premises closed.
Tenant shall cooperate fully with Landlord at all times and abide by all regulations and requirements that Landlord may reasonably prescribe for the proper functioning and protection of the HVAC, electrical, mechanical and plumbing systems (collectively, “Building Systems and Equipment” ).
6.2 Overstandard T enant Use .
6.2.1 In General . Tenant shall not, without Landlord’s prior written consent, use heat-generating machines, machines other than normal fractional horsepower office machines, or equipment or lighting other than Building standard lights in the Premises, which may affect the temperature otherwise maintained by the air conditioning system or increase the water normally furnished for the Premises by Landlord pursuant to the terms of Section 6.1 of this Lease. If such consent is given, Landlord shall have the right to install supplementary air conditioning units or other facilities in the Premises, including supplementary or additional metering devices, and the cost thereof, including the cost of installation, operation and maintenance, increased wear and tear on existing equipment and other similar charges, shall be paid by Tenant to Landlord upon billing by Landlord. If Tenant uses water, heat or air conditioning in excess of that supplied by Landlord pursuant to Section 6.1 of this Lease, Tenant shall pay to Landlord, upon billing, the cost of such excess consumption, the cost of the installation, operation, and maintenance of equipment which is installed in order to supply such excess consumption, and the cost of the increased wear and tear on existing equipment caused by such excess consumption; and Landlord may install devices to separately meter any increased use and in such event Tenant shall pay the increased cost directly to Landlord, on demand, at the rates charged by the public utility company furnishing the same, including the cost of such additional metering devices. Tenant’s use of electricity shall never exceed the capacity of the feeders to the Project or the risers or wiring installation, and subject to the terms of Section 29.28 , below, Tenant shall not install or use or permit the installation or use of any computer or electronic data processing equipment in the Premises, without the prior written consent of Landlord. Landlord hereby acknowledges Tenant’s current use, as of April 1, 2003, of the Premises, does not constitute an over-standard use as set forth in this Section 6.2.1, and hereby approves Tenant’s current use of Tenant’s computers and data processing equipment located in the Premises.
6.2.2 Tenant shall pay for all electricity attributable to its use of the entire Premises (including, without limitation, electricity required in order to provide HVAC to the Premises) and Tenant shall timely pay all charges for such service directly to Landlord, on demand, at the rates charged by the public utility company furnishing the same. The actual cost of electricity provided to the Premises (including, without limitation, electricity required in order to provide HVAC to the Premises which Tenant shall be responsible for pursuant to the terms of
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Section 6.2.3 , below) shall, notwithstanding anything to the contrary contained in this Lease, not be included in Operating Expenses (including, without limitation, Operating Expenses for the Base Year) for the Building (except for electricity relating to the Common Areas, which shall be included in Operating Expenses (including, without limitation, Operating Expenses for the Base Year) and paid by Tenant as part of Building Direct Expenses).
6.2.3 HVAC . If Tenant desires to use HVAC during hours other than those for which Landlord is obligated to supply such HVAC pursuant to the terms of Section 6.1 of this Lease (i.e., in excess of sixty-four (64) hours in any week), Tenant shall not be required to give Landlord prior notice of Tenant’s desired use but rather Tenant may control its after-hours HVAC use from within the Premises. Landlord shall supply such after-hours HVAC to Tenant subject to Tenant’s payment to Landlord of an amount reasonably determined by Landlord to be directly attributable to increased wear and tear on existing Building Systems and Equipment caused by such after-hours use, any engineer’s over-time and a nominal amount attributable to overhead and accounting costs. Amounts payable by Tenant to Landlord for such use of additional HVAC shall be deemed Additional Rent hereunder and shall be paid within thirty (30) days after Tenant’s receipt of invoice therefor.
6.3 Interruption of Use . Tenant agrees that Landlord shall not be liable for damages, by abatement of Rent (except for abatement as specifically provided in Section 6.8 below), or otherwise, for failure to furnish or delay in furnishing any service (including telephone, electrical and telecommunication services), or for any diminution in the quality or quantity thereof, when such failure or delay or diminution is occasioned, in whole or in part, by repairs, replacements, or improvements, by any strike, lockout or other labor trouble, by inability to secure electricity, gas, water, or other fuel at the Building or the Project after diligent and reasonable efforts to do so, by any accident or casualty whatsoever, by act or default of Tenant or other parties, or by any other cause beyond Landlord’s reasonable control; and such failures or delays or diminution shall never be deemed to constitute an eviction or disturbance of Tenant’s use and possession of the Premises or relieve Tenant from paying Rent (except for abatement as specifically provided in Section 6.8 below), or performing any of its obligations under this Lease. Furthermore, Landlord shall not be liable under any circumstances for a loss of, or injury to, property or for injury to, or interference with, Tenant’s business, including, without limitation, loss of profits, however occurring, through or in connection with or incidental to a failure to furnish any of the services or utilities as set forth in this Article 6 , except in any circumstances where the failure to furnish any such services or utilities arises out of or is a result of, Landlord’s sole or gross negligence or intentional misconduct (in which case Landlord shall be responsible to the extent such item is not covered by insurance required to be carried by Tenant under this Lease or actually carried by Tenant). Landlord shall be entitled to cooperate in a reasonable manner with the mandatory requirements of national, state or local governmental agencies or utilities suppliers in reducing the consumption of energy or other resources (including temporary stoppages in the supply of any utilities), and Landlord shall not be in default hereunder or be liable for any damages directly or indirectly resulting from, nor shall the Rent herein reserved be abated (except as expressly provided in Section 6.8 below) by reason of such cooperation by Landlord.
6.4 Additional Serv ices . Landlord shall also provide any additional services which may be reasonably requested by Tenant, including, without limitation, locksmithing, lamp replacement, additional janitorial service, and additional repairs and maintenance, provided that Tenant shall pay to Landlord within fifteen (15) days after receipt of written notice from Landlord, the sum of all costs to Landlord of such additional services plus a reasonable administration fee. Charges for any service for which Tenant is required to pay from time to time hereunder shall be deemed Additional Rent hereunder and shall be billed on a monthly basis. Tenant shall not be required to use Landlord for such any additional services; provided, however, that Landlord shall have the right to reasonably approve any other provider of such services should Tenant elect not to use Landlord for the providing of such services. However, nothing in this Section 6.4 shall be construed as requiring Landlord to provide any such service which would, in Landlord’s reasonable judgment, result in the receipt by Landlord of amounts that would fail to qualify as “rents from real property” within the meaning of Section 856(d) of the Internal Revenue Code of 1986, as amended, or any successor section thereto.
6.5 Intentio nally Omitted .
6.6 Emergency Gene rator . Subject to Tenant’s compliance with all Applicable Laws, Landlord shall permit Tenant to maintain, at Tenant’s sole cost and expense, the above-ground
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emergency generator (as a Miscellaneous Common Area Item) previously installed by Tenant pursuant to the Existing Lease for Tenant’s use in the Premises (the “Emergency Generator” ); provided, however, Tenant hereby acknowledges and agrees that promptly following the execution of this Lease, Tenant shall, at Tenant’s sole cost and expense, disconnect and/or remove all cabling, wiring, conduit and other such connections of the Emergency Generator, which cabling, wiring, conduit or other such connections are connected to any non-Premises portions of the Building, in accordance with the removal and repair requirements set forth in Section 8.5 , below. Such Emergency Generator shall be used by Tenant only during (i) testing and regular maintenance, and (ii) any period of electrical power outage in the Building. Tenant shall be entitled to operate the Emergency Generator for testing and regular maintenance only upon notice to Landlord and at times reasonably approved by Landlord. Any repairs and maintenance of such Emergency Generator shall be the sole responsibility of Tenant. Upon the expiration or earlier termination of the Lease, Tenant may, at Tenant’s sole cost and expense, remove the Emergency Generator and all associated cabling and wiring and repair all damage resulting from such removal; provided, however, to the extent this Lease is terminated prior to the Lease Expiration date pursuant to Article 19 of this Lease, then, unless Landlord provides prior written notice to Tenant requiring Tenant to remove such Emergency Generator in accordance with the removal and repair obligations in Section 8.5, below, such Emergency Generator shall become the sole property of Landlord in accordance with the terms of Section 8.5 , below. Landlord makes no representation or warranty with respect to the Emergency Generator or its suitability for use by Tenant and Article 10 of the Lease shall apply with respect to Tenant’s use, maintenance, repair and operation of the Emergency Generator.
6.7 Building Reconfigu ration Costs . Tenant acknowledges and agrees that Tenant shall pay the costs incurred by Landlord in connection with the reconfiguration of the Building, including, but not limited to: (i) the cost of installing submeters on each floor of the Building and in the Building Common Areas, as determined by Landlord, which submeters shall be for the use of monitoring Tenant’s utility usage in the Premises as well the utility usage by other tenants in the Building and of the Building Common Areas, (ii) the cost of reconfiguring and/or replacing the access control panels of the Building elevators, and (iii) the cost to replace all of the master locks and master keys in the Building (collectively, the “Building Reconfiguration Costs” ). Tenant shall pay such Building Reconfiguration Costs to Landlord within thirty (30) days following Tenant’s receipt of an invoice which shall provide a reasonable description of such Building Reconfiguration Costs. To the extent practicable, (i) Landlord shall not, in connection with the performance of the work set forth in this Section 6.7 , cause material interference with Tenant’s ongoing business operations in the Premises, (ii) Landlord shall only perform such work after prior written notice thereof to Tenant, and (iii) Landlord shall use commercially reasonable efforts to coordinate the work to be performed pursuant to this Section 6.7 with the work that Tenant is anticipating performing in the Premises in connection with the reduction of Tenant’s occupancy of the entire Building under the terms of the Existing Lease to the Premises set forth in this Lease.
6.8 Project Reconfig uration . Landlord and Tenant hereby acknowledge and agree that due to the changing nature of the Project from a single-tenant Project to a multi-tenant Project, certain reconfigurations of the Common Areas are required. Landlord shall implement the changes that are reasonably required in connection therewith (collectively, the “ Project Reconfiguration” ). All such costs incurred in connection with the Project Reconfiguration shall initially be paid for by Landlord, but shall be included as an Operating Expense under the terras of Section 4.2.7 , above.
6.9 Abatemen t Event . An “ Abatement Event ” shall be defined as an event that prevents Tenant from using the Premises or any portion thereof, as a result of any failure to provide services or access to the Premises, whether directly or as a result of any failure to provide services or access to the Common Area of the Building in which the Premises are a part where (i) Tenant does not actually use the Premises or such portion thereof, and (ii) such event is not caused by the negligence or willful misconduct of Tenant, its agents, employees or contractors. Tenant shall give Landlord notice (“ Abatement Notice ”) of any such Abatement Event, and if such Abatement Event continues beyond the “Eligibility Period” (as that term is defined below), then the Base Rent and Tenant’s Share of Direct Expenses shall be abated entirely or reduced, as the case may be, after expiration of the Eligibility Period for such time that Tenant continues to be so prevented from using, and does not use, the Premises or a portion thereof, in the proportion that the rentable area of the portion of the Premises that Tenant is prevented from using, and does not use, bears to the total rentable area of the Premises leased by
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Tenant; provided, however, in the event that Tenant is prevented from using, and does not use, a portion of the Premises for a period of time in excess of the Eligibility Period and the remaining portion of the Premises is not sufficient to allow Tenant to effectively conduct its business therein, and if Tenant does not conduct its business from such remaining portion, then for such time after expiration of the Eligibility Period during which Tenant is so prevented from effectively conducting its business therein, the Base Rent and Tenant’s Share of Direct Expenses for the entire Premises shall be abated entirely for such time as Tenant continues to be so prevented from using, and does not use, the Premises for Tenant’s business purposes. If, however, Tenant reoccupies any portion of the Premises during such period, the Base Rent and Tenant’s Share of Direct Expenses allocable to such reoccupied portion, based on the proportion that the rentable area of such reoccupied portion of the Premises bears to the total rentable area of the Premises, shall be payable by Tenant from the date Tenant reoccupies such portion of the Premises. The term “ Eligibility Period ” shall mean a period of five (5) consecutive business days after Landlord’s receipt of any Abatement Notice(s). If the Abatement Event is caused by the negligence or willful misconduct of Tenant, the Abatement described in this Section 6.8 shall not apply; however, Tenant may seek recovery from its business interruption insurance. Except as provided in Article 11 and Article 13 , such right to abate Base Rent and Tenant’s Share of Direct Expenses shall be Tenant’s sole and exclusive remedy at law or in equity for an Abatement Event.
REPAIRS
7.1 Obliga tions . Landlord shall maintain and repair any and all defects in the base, shell and core of the Building (the “ Base, Shell and Core ”), including, without limitation, the foundations, floor/ceiling slabs, structural portions of the roof (including the roof membrane), curtain wall, exterior glass, columns, beams, shafts, stairs, stairwells, and elevator cabs, and shall also maintain and repair the basic mechanical, electrical, life safety, plumbing, sprinkler systems and heating, ventilating and air conditioning systems of the Building (i.e., all of such systems except for distribution within the Premises, in which case (i) Landlord shall be responsible for repair of construction defects, (ii) with respect to design defects, that party that retained the consultant to design such distribution shall be responsible for repair of the defect and any additional costs incurred as a result of such defect (to the extent not covered by warranty or insurance), and (iii) Tenant shall be responsible for all other repairs and maintenance to interior of Premises), the exterior portions of the Building and the Common Areas. In addition, Landlord shall make repairs necessitated by the acts or omissions of Landlord or its respective agents, employees or contractors. Tenant shall, at Tenant’s own expense, keep the Premises and specifically all tenant improvements, fixtures and furnishings therein, in good order, repair and condition at all times during the Lease Term, and in this regard, Tenant shall at Tenant’s own expense within a reasonable period of time but under the supervision and subject to the prior approval of Landlord with respect to any repairs for which a building permit is required, adequately repair all such damage thereto. Except with respect to the express maintenance and repair obligations of Tenant under this Lease, Landlord shall maintain and repair the Building and the Project (including the Common Areas) and replace or repair all damaged, broken, or worn fixtures and appurtenances, the cost of which shall be included in Operating Expenses (subject to the provisions of Article 4 above). Landlord may enter the Premises at all reasonable times upon reasonable prior notice to Tenant (except that no notice will be required in cas | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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