EXHIBIT 10.2
MANAGEMENT AGREEMENT
This MANAGEMENT AGREEMENT (the "Agreement") is dated as of
this_________day of_________, 2002, between the Tenants in Common whose
signatures appear at the end hereof (collectively, the "Tenants in Common"), and
Triple Net Properties Realty, Inc., a California corporation ("Property
Manager").
The Tenants in Common own certain real property and improvements in
_______________, _______, commonly known as__________________________, as more
particularly described in Exhibit "A" attached hereto and incorporated herein
(the "Property"). The Tenants in Common have entered into a Tenants in Common
Agreement (the "Tenants in Common Agreement") concurrently herewith to provide
for the orderly ownership and operation of the Property. The Tenants in Common
desire to engage Property Manager to manage, lease, operate, and maintain the
Property.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. COMMENCEMENT AND TERMINATION DATES; AUTHORITY OF TENANTS IN COMMON.
1.1 Commencement and Termination. Property Manager's duties and
responsibilities under this Agreement shall begin on the date of this Agreement
(the "Start Date") and shall terminate on the earlier of (i) the sale of the
Property or any portion thereof, as to such portion of the Property sold only
(other than any sale of an undivided interest held by a Tenant in Common to a
party that will acquire such interest subject to the Tenants in Common
Agreement), (ii) termination as provided in Section 10.1, or (iii) December 31,
2012.
1.2 Approval of the Tenants in Common. Whenever in this Agreement
the approval, consent or other action by the Tenants in Common is required or
otherwise appropriate, the unanimous approval, consent or other action of the
Tenants in Common shall be required to approve: (i) this Management Agreement
and all amendments and renewals hereof in accordance with Section 10.1; (ii) all
leases and amendments thereof in accordance with Sections 2.5 and 2.6; (iii) all
financing and refinancing of the Property; and (iv) sale of the Property (other
than a sale pursuant to the Purchase Option described in Section 11 of the
Tenants in Common Agreement). All other actions in this Agreement requiring
approval of the Tenants in Common may be taken by the Tenants in Common holding
more than fifty percent (50%) of the undivided interests in the Property.
Whenever in this Agreement the consent or approval of the Tenants in Common is
required or otherwise requested, each Tenant in Common generally shall have
thirty (30) days after the date on which the request for consent or approval is
submitted to it by Property Manager in which to approve or disapprove of the
matter in writing (unless a longer or shorter period for response is expressly
provided for herein, for example, the ten (10) day period to review and approve
leasing matters). A Tenant in Common who does not disapprove of the matter
within such thirty (30) day period (or such longer or shorter period expressly
provided for herein) shall be deemed to have approved the matter. Property
Manager shall have no obligation hereunder to comply with any requests or
direction made by less than all of the appropriate percentage of the Tenants in
Common pursuant to Section 1.2 of this Agreement.
2. PROPERTY MANAGER'S RESPONSIBILITIES.
2.1 Status of Property Manager. The Tenants in Common and Property
Manager do not intend to form a joint venture, partnership or similar
relationship. Instead, the parties intend that Property Manager shall act solely
in the capacity of an independent contractor for the Tenants in Common. Nothing
in this Agreement shall cause Property Manager and the Tenants in Common to be
joint ventures or partners of each other, and neither shall have the power to
bind or obligate the other party by virtue of this Agreement, except the powers
of Property Manager as expressly provided in this Agreement. Nothing in this
Agreement shall deprive or otherwise affect the
right of either party to own, invest in, manage, or operate, or to conduct
business activities which compete with, the Property.
2.2 Management. Property Manager shall manage, operate and maintain
the Property in an efficient, economic, and satisfactory manner and shall manage
the performance of everything reasonably necessary for the proper operation of
the Property for the tenants thereof, subject to (a) applicable governmental
requirements, and (b) the terms and provisions of this Agreement. At the expense
of each of the Tenants in Common, based on their undivided interests in the
Property, Property Manager shall keep the Property clean and in good repair,
shall order and supervise the completion of such repairs as may be required and
shall generally do and perform, or cause to be done or performed, all things
necessary or required for the proper and efficient management, operation, and
maintenance of the Property, provided each of the Tenants in Common, based on
their undivided interests in the Property, in a manner reasonably satisfactory
to Properly Manager, make available to Property Manager sufficient sums to pay
the costs thereof. Property Manager shall perform all services in a diligent and
professional manner.
2.3 Employees/Independent Contractors of Property Manager. Property
Manager shall employ, directly or through third party contractors (for example,
an employee leasing company or on-site property manager), at all times, a
sufficient number of capable employees and/or independent contractors to enable
Property Manager to properly, adequately, safely and economically manage,
operate and maintain the Property. All matters pertaining to the supervision of
such employees shall be the responsibility of Property Manager. All salaries and
benefits and positions of employees who perform work in connection with the
Property shall be consistent with the Budget (as defined in Section 2.5).
2.4 Compliance with Laws, Mortgages and Other Matters
2.4.1 Property Manager shall use reasonable efforts to comply
with all applicable governmental requirements, including by way of illustration,
but not limitation, Board of Fire Underwriters or other similar body, relative
to the performance of if its duties hereunder, and cause the Property to comply
with all applicable governmental laws, ordinances, rules, regulations, and
requirements. Property Manager may implement such procedures with respect to the
Property as Property Manager may deem advisable for the more efficient and
economic management and operation thereof. Property Manager shall pay from the
Operating Account (defined in Section 6.1) expenses incurred to remedy
violations of laws. However, Property Manager shall not be obligated to remedy
violations of law if sufficient funds are not available in the Operating Account
or if the Tenants in Common do not provide sufficient additional funds to do so.
2.4.2 Property Manager shall furnish to the Tenants in Common,
promptly after receipt, any notice of violation of any governmental requirement
or order issued by any governmental entity, any Board of Fire Underwriters or
other similar body against the Property, any notice of default from the holder
of any mortgage or deed of trust encumbering the Property, or any notice of
termination or cancellation of any insurance policy.
2.5 Budgets and Operating Plan.
2.5.1 Property Manager shall prepare and submit to the Tenants
in Common, upon written request, an initial capital and operating budget
("Budget") for the promotion, operation, leasing (including leasing parameters
for the Property), repair, maintenance and improvement of the Property for the
first full calendar year of ownership on or before November 15th of the calendar
year in which the Property was acquired. The Budget shall be on a monthly, cash
basis. Property Manager shall also deliver a Budget for each subsequent calendar
year on or about November 15th of the calendar year before the budget year. The
Budget shall be approved by each Tenant in Common. Each Tenant in Common shall
be deemed to have approved the Budget and the leasing parameters contained
therein (the "Leasing Parameters") unless the Tenant in Common provides written
notice to Property Manager and the other Tenants in Common indicating specific
objection to certain Budget items within (a) thirty (30) days from receipt of
the Budget for all matters except leasing matters and (b) ten (10) days with
respect to all leasing matters. In the event any Tenant in Common disagrees with
any item in the Budget, the disputing Tenant in Common shall negotiate in good
faith with Property Manager and the other Tenants in Common for fifteen (15)
days to resolve the issue. If the parties are unable to reach an agreement on
any issue other than leasing matters, the issue shall be resolved by arbitration
as set forth in Section 2.5.5 with (a) each of the disputing Tenant(s) in
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Common paying his pro rate share of fifty percent (50%) of the cost of
arbitration, and (b) all the other Tenants in Common paying his pro rata share
of fifty percent (50%) of the costs of the arbitration. The Property Manager may
proceed under the terms of the proposed Budget for items that are not objected
to and may take any action with respect to items not approved for Emergency
Expenditures (as defined in Section 2.5.2). Property Manager shall provide the
Tenants in Common with such information regarding the Budget as may be, from
time to time, reasonably requested by the Tenants in Common. Property Manager
may at any time submit a revised Budget to the Tenants in Common.
2.5.2 Property Manager shall charge all expenses to the proper
account as specified in the Budget, provided that Property Manager may
reallocate savings from one line item to other line items, so long as not more
than ten percent (10%) of the amount of any line item is reallocated in any
calendar year. Property Manager shall submit a revised Budget to the Tenants in
Common prior to making any expenditure not within the Budget unless the
expenditure is (a) less than Ten Thousand Dollars ($10,000), or (b) in the
Property Manager's reasonable judgment, required to avoid personal injury,
significant property damage, a default under any loan encumbering the Property,
a violation of applicable law or the suspension of a service (collectively,
"Emergency Expenditures").
2.5.3 During each year, Property Manager shall inform the
Tenants in Common of any material increases in costs and expenses not foreseen
and not included in the Budget within a reasonable time after Property Manager
learns of such changes.
2.5.4 Together with the submission of the Budget, Property
Manager shall submit each year to the Tenants in Common an operating plan for
the general operation of the Property, including a proposed list of improvements
to the Property, general insurance plan, marketing plan and plan for the general
operation and maintenance of the Property (the "Operating Plan"). Property
Manager may submit a revised Operating Plan to the Tenants in Common at any
time.
2.5.5 Any controversy arising out of, or related to, any
dispute regarding the Budget as set forth in Section 2.5.1 shall be settled by
binding arbitration in Orange County, California, in accordance with the rules
of The American Arbitration Association (the "AAA"). The arbitration panel shall
consist of one member, and shall be a person agreed to by each party to the
dispute within fifteen (15) days following the end of the ten (10) day period
set forth in Section 2.5.1. If the parties are unable within such fifteen (15)
day period to agree upon an arbitrator, then the panel shall be comprised of one
arbitrator selected solely by the Orange County office of the AAA, which
arbitrator shall be experienced in the area of real estate and who shall be
knowledgeable with respect to the subject matter area of the dispute. The
disputing Tenants in Common and all the other Tenants in Common shall each pay
fifty percent (50%) of any fees and expenses of the arbitrator and other
tribunal fees and expenses; each Tenant in Common's share shall be computed
separately for the disputing and non-disputing Tenants in Common as a group, by
taking each Tenant in Common's undivided interest in the Property over all such
non-disputing (or disputing) Tenants in Common (as the case may be). Each party
shall pay their own legal fees and other costs. Each party shall submit a
written proposal with respect to the issues in dispute. The arbitrator shall
render a binding, non-appealable decision within fifteen (15) days (or as soon
thereafter as may be practicable) following the close of presentation by the
parties of their cases and any rebuttal. The arbitrator shall be limited to
picking either alternative submitted without any change. Property Manager shall
proceed with the alternative selected by the arbitrator.
2.6 Leasing.
2.6.1 Each Tenant in Common hereby approves all Leases (as
defined in Section 2.6.2) presently in effect on the date hereof. New leases,
amendments and renewals shall be subject to the procedure and voting process
described in Sections 2.5.1 and 2.6.2
2.6.2 Property Manager shall use its commercially reasonable
efforts to obtain tenants for all rental units in the Property and to renew
leases and rental agreements (collectively, "Leases") as provided herein.
Property Manager shall have the authority to negotiate and execute new leases,
amendments and renewal on behalf of the Tenants in Common provided the terms are
consistent with the Leasing Parameters set forth in the Budget. Property Manager
will forward to each Tenant in Common by certified United States mail, with
return receipt requested, a copy or summary of all new leases, material lease
modifications and lease renewals (other than
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automatic renewals contained in previously approved leases) that have not been
approved by the Tenants in Common in accordance with the procedure set forth in
Section. 2.5.1. The Tenants in Common are encouraged to review all such leasing
materials or summary and contact the Property Manager to discuss any questions
and comments they may have with respect to the Leasing Parameters and any other
leasing matters. If any Tenant in Common objects to any such leasing matters not
described in the Leasing Parameters section of the Budget, he is required to
give the Property Manager and all other Tenants in Common written notice that
must be received by the Property Manager and all the other Tenants in Common
within ten (10) days of when the leasing materials were sent to the objecting
Tenant in Common. All of the Tenants in Common will be deemed to have approved
all such leasing matters if no Tenant in Common objects within this 10-day
period. In addition, the Tenants in Common will grant to the Property Manager a
power of attorney to execute all approved leases. If any Tenant in Common
objects to any such leasing matters, the Property Manager will not have
authority to execute the rejected leases on behalf of the Tenants in Common.
2.6.3 Notwithstanding anything to the contrary contained
herein, Property Manager shall only provide ordinary and customary services to
tenants of the Property and others, and shall provide no unusual or
non-customary services to the tenants or any other parties on behalf of the
Tenants in Common.
2.6.4 Except as provided in the Operating Plan, Property
Manager shall not, without the prior written approval of the Tenants in Common,
give free rental or discounts or rental concessions to any employees, officers
or shareholders of Property Manager or anyone related to such employees,
officers or shareholders, unless such discounts or concessions are in lieu of
salaries or other benefits to which they would be contractually entitled.
Property Manager shall not lease any space in the Property to itself or to any
of its affiliates or subsidiaries, except as provided in the Operating Plan,
without the prior written consent of the Tenants in Common.
2.6.5 Property Manager shall reasonably investigate all
prospective tenants, and shall not rent to persons not meeting credit standards
reasonable for the market. Property Manager shall obtain a credit check for all
prospective tenants through Equifax or a similar service. Property Manager shall
retain such information for the duration of the tenancy, and shall make it
available to the Tenants in Common upon reasonable request. Property Manager
does not guarantee the accuracy of any such information or the financial
condition of any tenant.
2.6.6 Property Manager and the Tenants in Common agree that
there shall be no discrimination against or segregation of any person or group
of persons on account of age, race, color, religion, creed, handicap, sex or
national origin in the leasing of the Property, nor shall the Tenants in Common
or Property Manager permit any such practice or practices of discrimination or
segregation with respect to the selection, location, number or occupancy of
tenants.
2.6.7 Property Manager shall engage contractors, engineers,
architects and other consultants on behalf of the Tenants in Common to design
and construct improvements to the Property other than those required to be
performed by tenants under their leases. For any contract requiring capital
expenditures in excess of $50,000, Property Manager shall follow the bidding
procedures specified in Section 2.9 below.
2.7 Collection of Rents and Other Income. Property Manager shall
▇▇▇▇ all tenants and shall use its commercially reasonable efforts to collect
all rent and other charges due and payable from any tenant or from others for
services provided in connection with the Property. Property Manager shall
deposit all monies so collected in the Operating Account. Each of the Tenants in
Common shall be entitled to the income and revenue from any Property based on
their undivided interests in the Property.
2.8 Repairs and Maintenance. Property Manager shall maintain the
buildings, appurtenances and grounds of the Property, other than areas which are
the responsibility of tenants, including, without limitation, all repairs,
cleaning, painting, decorations and alterations, for example electrical,
plumbing, carpentry, masonry, elevators and such other routine repairs as are
necessary or reasonably appropriate in the course of maintenance of the Property
(subject to the limitations of this Agreement). Property Manager shall pay
actual and reasonable expenses for materials and labor for such purposes from
the Operating Account. Property Manager shall take reasonable precautions
against fire, vandalism, burglary and trespass to the Property. However,
Property Manager
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shall only provide ordinary and customary services to tenants of the Property
and shall provide no other services to the tenants or others on behalf of the
Tenants in Common.
2.9 Capital Expenditures. Property Manager may make any capital
expenditure within any Budget approved by the Tenants in Common without any
further consent, provided that Property Manager follows the bid procedures
prescribed below. All other capital expenditures other than on an Emergency
Expenditure shall be subject to submittal of a revised Budget to the Tenants in
Common. Unless the Tenants in Common specifically waive such requirements, or
approve a particular contract, Property Manager shall award any contract for a
capital improvement exceeding $50,000 in cost on the basis of competitive
bidding, solicited from a minimum of two (2) written bids. Property Manager
shall accept the bid of the lowest bidder determined by Property Manager to be
responsible, qualified and capable of completing such improvements on a
reasonable schedule.
2.10 Service Contracts, Supplies and Equipment.
2.10.1 Property Manager may enter into or renew any customary
contract for cleaning, maintenance, repairing or servicing the Property or any
of the constituent parts of the Property (including contracts for fuel oil,
security or other protection, extermination, landscaping, architects or
engineering services) contemplated by the Budget and/or the Operating Plan with
any unrelated third party without the consent of the Tenants in Common. Each
such service contract shall (a) be in the name of the Tenants in Common, (b) be
assignable to the transferee of the Tenants in Common, and (c) be for a term not
to exceed one (1) year. Unless the Tenants in Common specifically waive such
requirements or approve a particular contract, all service contracts for amounts
in excess of $50,000 per year shall be subject to bid under the procedure
specified in Section 2.9.
2.10.2 If this Agreement terminates pursuant to Section 10,
Property Manager, at the option of the Tenants in Common, shall assign to the
nominee of the Tenants in Common all of Property Manager's interest in the
service agreements pertaining to the Property.
2.10.3 At the expense of the Tenants in Common, Property
Manager shall purchase, provide, and pay for all needed janitorial and
maintenance supplies, tools and equipment, restroom and toilet supplies, light
bulbs, paints, and similar supplies necessary to the efficient and economical
operation and maintenance of the Property. Such supplies and equipment shall be
the property of the Tenants in Common based on their undivided interests in the
Property. All such supplies, tools, and equipment generally shall be delivered
to and stored in the Property and shall be used only in connection with the
management, operation, and maintenance of the Property.
2.10.4 Property Manager shall use reasonable efforts to
purchase all goods, supplies or services at the lowest cost reasonably available
from reputable sources in the metropolitan area where the Property is located.
In making any contract or purchase hereunder, Property Manager shall use
reasonable efforts to obtain favorable discounts for the Tenants in Common and
all discounts, rebates or commissions under any contract or purchase order made
hereunder shall inure to the benefit of the Tenants in Common based on their
undivided interests in such Property. Property Manager shall make payments under
any such contract or purchase order to enable the Tenants in Common to take
advantage of any such discount if the Tenants in Common provides sufficient
funds therefor.
2.11 Taxes and Mortgages. Property Manager, unless otherwise
requested, shall obtain and verify bills for real estate and personal property
taxes, general and special real property assessments and other like charges
(collectively "Taxes") which are, or may become, liens against the Property.
Property Manager shall appeal such Taxes as Property Manager may decide, in its
reasonable judgment, to be prudent. Property Manager shall report any such Taxes
that materially exceed the amounts contemplated by the Budget to the Tenants in
Common prior to Property Manager's payment thereof. Property Manager, if
requested by the Tenants in Common, will cooperate to prepare an application for
correction of the assessed valuation to be filed with the appropriate
governmental agency. Property Manager shall pay, within the time required to
obtain discounts, from funds provided by the Tenants in Common or from the
Operating Account, all utilities, Taxes and payments due under each lease,
mortgage, deed of trust or other security instrument, if any, affecting the
Property. To the extent contemplated by the Budget and/or the Operating Plan (as
either may be revised from time to time), Property Manager may make any such
payments without the approval of the Tenants in Common. Expenses for any Taxes
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that are based upon the assessed valuation of the Property (or any portion
thereof or interest therein) shall not be allocated to the Tenants in Common on
a pro rata basis. Instead, each Tenant in Common shall be responsible for all
such Taxes attributable to the Tenant in Common's undivided interest in the
Property, as reasonably determined by Property Manager, based on the Taxes that
would have been allocated to the undivided interest if it was a separate
assessor's parcel.
2.12 Tenant Relations; Compliance. Property Manager will use
reasonable efforts to develop and maintain good relations with the tenants in
the Property. At all times during the term hereof, Property Manager shall use
its reasonable efforts to retain existing tenants in the Property and, after
completion of the initial leasing activity for new tenants, to retain such
tenants. Property Manager shall use its reasonable efforts to secure compliance
by the tenants with the terms and conditions of their respective Leases.
2.13 Miscellaneous Duties. Property Manager shall (a) maintain at
Property Manager's office address as set forth in Section 12.1 and readily
accessible to the Tenants in Common, orderly files containing rent records,
insurance policies, leases and subleases, correspondence, receipted bills and
vouchers, bank statements, canceled checks, deposit slips, debit and credit
memos, and all other documents and papers pertaining to the Property or the
operation thereof; (b) provide information about the Property necessary for the
preparation and filing by each of the Tenants in Common of their individual
income or other tax returns required by any governmental authority, including
annual statements, identifying each Tenant in Common's undivided percentage of
all expenses paid and income received by such Tenant in Common; (c) consider and
record tenant service requests in systematic fashion showing the action taken
with respect to each, and thoroughly investigate and report to the Tenants in
Common in a timely fashion with appropriate recommendations all complaints of a
nature which might have a material adverse effect on the Property or the Budget;
(d) supervise the moving in and out of tenants and subtenants; arrange, to the
extent possible, the dates thereof to minimize disturbance to the operation of
the Property and inconvenience to other tenants or subtenants; and render an
inspection report, an assessment for damages and a recommendation on the
disposition of any deposit held as security for the performance by the tenant
under its lease with respect to each premises vacated; (e) check all bills
received for the services, work and supplies ordered in connection with
maintaining and operating the Property and, except as otherwise provided in this
Agreement, pay such bills when due and payable; and (f) not knowingly permit the
use of the Property for any purpose that might void any policy of insurance held
by the Tenants in Common or which might render any loss thereunder
uncollectible. All such records are the property of the Tenants in Common and
will be delivered to the Tenants in Common upon request.
2.14 Right to Subcontract Property Management Functions. Property
Manager reserves the right, in its sole discretion, to subcontract some or all
of the property management functions described herein to local property managers
and certain other parties. However, except as expressly provided herein, the
fees to be paid to Property Manager under this Agreement are inclusive of fees
payable to such third parties.
3. INSURANCE.
3.1 Insurance.
3.1.1 Property Manager, at the Tenants in Common's expense,
based on their undivided interests in the Property, will obtain and keep in
force adequate insurance against physical damage (such as fire with extended
coverage endorsement, boiler and machinery) and against liability for loss,
damage or injury to property or persons which might arise out of the occupancy,
management, operation or maintenance of the Property, as contemplated by the
Operating Plan to the extent available at commercially reasonable rates. Such
insurance shall be obtained for each of the Tenants in Common and shall include
each of the Tenants in Common as a named insured. Property Manager shall not be
required to obtain earthquake or flood insurance unless expressly directed to do
so by a specific written notice from the Tenants in Common, but may do so in
Property Manager's reasonable discretion. Property Manager shall be a named
insured on all property damage insurance and an additional insured on all
liability insurance maintained with respect to the Property.
3.1.2 As part of the Operating Plan, Property Manager shall
advise the Tenants in Common in writing and make recommendations with respect to
the proper insurance coverage for the Property, taking into account the
insurance requirements set forth in any mortgage on the Property, shall furnish
such
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information as the Tenants in Common may reasonably request to obtain insurance
coverage and shall reasonably aid and cooperate with respect to such insurance
and any loss thereunder. The Tenants in Common acknowledge that Property Manager
is not a licensed insurance agent or insurance expert. Accordingly, Property
Manager shall be entitled to rely on the advice of a reputable insurance broker
or consultant regarding the proper insurance for the Property.
3.1.3 Property Manager shall investigate and submit, as soon
as reasonably possible, a written report to the insurance carrier and the
Tenants in Common as to all accidents, claims for damage relating to the
ownership, operation and maintenance of the Property, any damage to or
destruction of the Property and the estimated costs of repair thereof, and
prepare and file with the insurance company in a timely manner required reports
in connection therewith. Notwithstanding the foregoing, Property Manager shall
not be required to give such notice to the Tenants in Common if the amount of
the claims, damage or destruction, as reasonably estimated by Property Manager,
does not exceed $10,000 for any one occurrence. Property Manager shall settle
all claims against insurance companies arising out of any policies, including
the execution of proofs of loss, the adjustment of losses, signing and
collection of receipts and collection of money, except that Property Manager
shall not settle claims in excess of $10,000 without submitting prior notice to
the Tenants in Common.
3.2 Additional Insurance. Any insurance obtained by Property Manager
for its own account, and not for the benefit of the Tenants in Common, or the
Property, shall be at Property Manager's own expense.
3.3 Contractor's and Subcontractor's Insurance. Property Manager
shall require all contractors and subcontractors entering upon the Property to
perform services to have insurance coverage at the contractor's or
subcontractor's expense, in the following minimum amounts: (a) worker's
compensation - statutory amount; (b) employer's liability (if required) -
$500,000; and (c) comprehensive general liability insurance, including
comprehensive auto liability insurance covering the use of all owned and hired
automobiles, with bodily injury and property damage limits of $750,000 per
occurrence. Property Manager may waive such requirements in its reasonable
discretion. Property Manager shall obtain and keep on file a certificate of
insurance which shows that each contractor and subcontractor is so insured.
3.4 Waiver of Subrogation. To the extent available at commercially
reasonable rates, all property damage insurance policies required hereunder
shall contain language whereby the insurance carrier thereunder waives any right
of subrogation it may have with respect to the Tenants in Common or Property
Manager.
4. FINANCIAL REPORTING AND RECORD KEEPING.
4.1 Books of Accounts. Property Manager shall maintain adequate and
separate books and records for the Property with the entries supported by
sufficient documentation to ascertain their accuracy with respect to the
Property. Such books and records shall contain a separate accounting of all
items of income and all items of expenses for each Tenant in Common. The Tenants
in Common agree to provide to Property Manager any financial or other
information reasonably requested by Property Manager to carry out its services
hereunder. Property Manager shall maintain such books and records, including
separate accounting records for each Tenant in Common's income and expense of
the Property, at Property Manager's office set forth in Section 12.1. Property
Manager shall ensure such control over accounting and financial transactions as
is reasonably necessary to protect the Tenants in Common's assets from theft,
error or fraudulent activity by Property Manager's employees. Property Manager
shall bear losses arising from such instances, including, without limitation,
the following: (a) theft of assets by Property Manager's employees, principals,
or officers or those individuals associated or affiliated with Property Manager;
(b) overpayment or duplicate payment of invoices arising from either fraud or
gross negligence, unless credit is subsequently received by the Tenants in
Common; (c) overpayment of labor costs arising from either fraud or gross
negligence, unless credit is subsequently received by the Tenants in Common; (d)
overpayment resulting from payment from suppliers to Property Manager's
employees or associates arising from the purchase of goods or services for the
Property; and (e) unauthorized use of facilities by Property Manager or Property
Manager's employees or associates.
4.2 Financial Reports. On or about the twentieth (20th) day of each
month, Property Manager shall furnish to the Tenants in Common a report of all
significant transactions occurring during the prior
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month. These reports shall show all collections, delinquencies, uncollectible
items, vacancies and other matters pertaining to the management, operation, and
maintenance of the Property during the month. Property Manager also shall
deliver to the Tenants in Common within a reasonable time after (a) the close of
a calendar year and (b) the termination of this Agreement, a balance sheet for
the Property. The statement of income and expenses, the balance sheet, and all
other financial statements and reports shall be prepared on a cash basis.
4.3 Supporting Documentation. As additional support to the monthly
financial statement, unless otherwise directed by the Tenants in Common, and at
the expense of the Tenants in Common, Property Manager shall maintain and make
available at Property Manager's office, as set forth in Section 12.1, copies of
the following: (a) all bank statements, bank deposit slips, bank debit and
credit memos, canceled checks, and bank reconciliations; (b) detailed cash
receipts and disbursement records; (c) detailed trial balance for receivables
and payables and billed and unbilled revenue items; (d) rent roll of tenants;
(e) paid invoices (or copies thereof); (f) summaries of adjusting journal
entries as part of the annual accounting process; (g) supporting documentation
for payroll, payroll taxes and employee benefits; (h) appropriate details of
accrued expenses and property records; (i) information regarding the operation
of the Property necessary for preparation by each Tenant in Common of such
Tenant in Common's individual tax returns; and (j) market study of competition
(quarterly only). In addition, Property Manager shall deliver to the Tenants in
Common with the monthly financial statement copies of the documents described in
(a) (statements and reconciliations only), (b), (c), (d), and (h) above.
Property Manager shall deliver a copy of the document described in (j) to any
Tenant in Common upon request. Property Manager shall maintain separate income
and expense accounts for each Tenant in Common.
5. RIGHT TO AUDIT. Each of the Tenants in Common and their representatives
may examine all books, records and files maintained for the Tenants in Common by
Property Manager. The Tenants in Common may perform any audit or investigations
relating to Property Manager's activities at any office of Property Manager if
such audit or investigation relates to Property Manager's activities for the
Tenants in Common. Should any of the Tenants in Common discover defects in
internal control or errors in record keeping, Property Manager shall undertake
with all appropriate diligence to correct such discrepancies either upon
discovery or within a reasonable period of time. Property Manager shall inform
the Tenants in Common in writing of the action taken to correct any audit
discrepancies.
6. BANK ACCOUNTS.
6.1 Bank Account. Property Manager shall establish and maintain, in
reputable banks or financial institutions designated by Property Manager,
separate bank accounts in trust for, or in the name of, the Tenants in Common
(the "Bank Accounts"). All moneys collected from, or in connection with, the
Property shall be deposited in the Bank Accounts. Any bank accounts maintained
by a third party property manager shall be designated as a real estate trust
account or shall be in trust for, or in the name of, the Tenants in Common.
6.2 Operating Account. Property Manager shall be permitted to
deposit and make withdrawals from a master Bank Account. Property Manager shall
maintain books and records of deposits and withdrawals credited and charged to
each Tenant in Common's subaccount (such master account together with and any
interest earned thereon, shall hereinafter be referred to as the "Operating
Account"). The Tenants in Common shall maintain the Operating Account so that an
amount at least as great as the budgeted expenses for such month is in Operating
Account as of the first of each month. Property Manager shall pay from the
Operating Account, on behalf of each Tenant in Common with respect to their
share of Property operating expenses, based on their undivided interests in the
Property, the operating expenses of the Property and any other payments relating
to the Property as required by this Agreement. If more than one bank account is
necessary to operate the Property, each account shall have a unique name.
6.3 Security Deposit Account. If applicable law requires a
segregated account of security deposits, Property Manager will open, on behalf
of each Tenant in Common, a separate account at a reputable bank or other
financial institution. Property Manager shall maintain such account in
accordance with applicable law. Property Manager shall use the account only to
maintain security deposits on behalf of the Tenants in Common. Property Manager
shall inform the bank or financial institution to hold the funds in trust for
the Tenants in Common. Property Manager shall maintain detailed records of all
security deposits deposited, and allow the Tenants in Common or their designees
access to such records. Property Manager may return such deposits to any tenant
in the
8
ordinary course of business in accordance with the terms of the applicable lease
and applicable law. If interest is earned on any interest-bearing accounts in
excess of $2,500 in any given month, each Tenant in Common shall be entitled to
its share of such interest; otherwise, Property Manager shall be entitled to
retain such interest.
6.4 Access to Account. As authorized by signature cards,
representatives of Property Manager shall have access to and may draw upon all
funds in the accounts described in Sections 6.1, 6.2 and 6.3 without the
approval of the Tenants in Common. The Tenants in Common may not withdraw funds
from such accounts without Property Manager's prior written consent.
7. PAYMENTS OF EXPENSES.
7.1 Costs Eligible for Payment from Operating Account. Property
Manager shall pay all expenses of the operation, maintenance and repair of the
Property contemplated by the Budget directly from the Operating Account, subject
to the conditions set forth in Section 2.5, including the following: (a) costs
of the gross salary and wages or proportional shares thereof, payroll taxes,
worker's compensation insurance, and all other benefits of employees (for
example, on-site personnel) required to manage, operate and maintain the
Property properly, adequately, safely and economically, subject to this
Agreement, provided that Property Manager shall not pay such employees in
advance; (b) cost to correct the violation of any governmental requirement
relating to the leasing, use, repair and maintenance of the Property, or
relating to the rules, regulations or orders of the local Board of Fire
Underwriters or other similar body, if such cost is not the result of Property
Manager's gross negligence or willful misconduct; (c) actual and reasonable cost
of making all repairs, decorations and alterations if such cost is not the
result of Property Manager's gross negligence or willful misconduct; (d) cost
incurred by Property Manager in connection with all service agreements; (e) cost
of collection of delinquent rents collected by a collection agency or attorney;
(f) legal fees of attorneys; (g) cost of capital expenditures subject to the
restrictions in Section 2.9 and in this Section; (h) cost of printed checks for
each account required for the Property and the Tenants in Common; (i) cost of
utilities; (j) cost of advertising; (k) cost of printed forms and supplies
required for use at the Property; (1) management compensation set forth in
Section 9; (m) the cost of tenant improvements to the Property; (n) all hiring,
relocation and termination costs for any employee, including those individuals
whose salaries and benefits are paid by the Tenants in Common; (o) broker's
commissions; (p) debt service; (q) the cost of utilities, services, contractors
and insurance; (r) reimbursement of Property Manager's out-of-pocket costs and
expenses to the extent not prohibited by Section 8 below; (s) general accounting
and reporting services within the reasonable scope of the Property Manager's
responsibility to the Tenants in Common; (t) cost of forms, papers, ledgers, and
other supplies and equipment used in connection with the Property for the
preparation of reports, information and returns to be prepared by Property
Manager under the terms of this Agreement; (u) all expenses of Property
Manager's on-site office; (v) all other costs directly related to the Property,
including, but not limited to, communication costs (telephone, postage, etc.),
computer rentals or time, supplies (paper, envelopes, business forms, checks,
payroll forms and record cards, forms for governmental reports, etc.), printing,
insurance, fidelity bonds, taxes and license fees, and general office expenses
allocable to the Property; and (w) cost of routine travel by Property Manager's
employees or associates to and from Property. Except as expressly set forth in
the Budget, Property Manager shall be paid $5,000 per year as reimbursement for
the items set froth above in Subsection 7.1(r), (s) and (t). All other amounts
not directly related to the Property or the Tenants in Common shall be payable
solely by Property Manager, and shall not be paid out of the Operating Account
or reimbursed by the Tenants in Common.
7.2 Operating Account Deficiency. If there are not sufficient funds
in the Operating Account to make any such payment, Property Manager shall notify
the Tenants in Common, if possible, at least ten (10) days prior to any
delinquency so that the Tenants in Common have an opportunity, based on their
interests in the Property, to deposit sufficient funds in the Operating Account
to allow for such payment prior to the imposition of any penalty or late charge.
No later than the twentieth (20th) day of each month, Property Manager shall
remit to the Tenants in Common all unexpended funds for the prior month, except
for a reserve for contingencies reflected in the Budget which shall remain in
the Operating Account in the amount equal to the expenses budgeted for the month
in which the remittance is to be made. All expenses of the Property shall be
allocated to the Tenants in Common in accordance with their interests in the
Property.
7.3 Interest on Funds Advanced or Loaned by Property Manager.
Property Manager, ▇▇▇▇▇▇▇▇▇▇ Lending Group, LLC, an Affiliate of ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇, President of the Property Manager, or NNN 2004 Notes Program, LLC, an
Affiliate of Property Manager, may (but shall not be obligated to) loan funds to
9
the Tenants in Common in the future, with simple interest thereon at its cost of
funds not to exceed twelve percent (12%) per annum (or, if lower, the highest
rate permitted by law), plus a possible profit participation for loans made by
NNN 2004 Notes Program, LLC. Such loans, if any, shall be fully recourse to each
Tenant in Common and must be repaid within thirty one (31) days of funding.
8. PROPERTY MANAGER'S COSTS NOT TO BE REIMBURSED.
8.1 Non-reimbursable Costs. The following expenses or costs incurred
by or on behalf of Property Manager in connection with the management and
leasing of the Property shall be at the sole cost and expense of Property
Manager and shall not be reimbursed by the Tenants in Common: (a) cost
attributable to losses arising from gross negligence or fraud on the part of
Property Manager, Property Manager's associates or employees; (b) cost of
insurance purchased by Property Manager for its own account; and (c) Property
Manager's cost of overhead, salaries and other items except as expressly
provided in Section 7.1.
8.2 Litigation. Property Manager will be responsible for and hold
the Tenants in Common harmless from, all fees, costs, expenses, and damages
relating to disputes with employees for worker's compensation (to the extent not
covered by insurance), discrimination or wrongful termination, including legal
fees and other expenses.
9. COMPENSATION. Each Tenant in Common shall pay the fees set forth below
based on their undivided interest in the Property.
9.1 Property Management Fee. Property Manager, or an Affiliate,
shall receive, for its services in managing the Property in accordance with the
terms of this Agreement, a monthly management fee (the "Property Management
Fee"), equal to five percent (5%) of Gross Revenues (defined below), which
Property Management Fee shall be in addition to out-of-pocket and on-site
personnel costs that are reimbursable pursuant to Section 7, and the other fees
provided in this Agreement. "Gross Revenues" shall be all gross ▇▇▇▇▇▇▇▇ from
the operations of the Property, including rental receipts and reimbursements by
tenants for common area expenses, operating expenses and taxes and similar
pass-through, obligations paid by tenants, but excluding (a) security deposits
received from tenants and interest accrued thereon for the benefit of the tenant
until such deposits or interest are included in the taxable income of the
Tenants in Common, (b) advance rents until the month in which payments are to
apply as rental income, (c) reimbursements by tenant's for work done for that
particular tenant, (d) insurance proceeds received by the Tenants in Common as a
result of any insured loss (except proceeds from rent insurance), (e)
condemnation proceeds not attributable to rent, (f) capital contributions made
by the Tenants in Common, (g) proceeds from capital, financing and any other
transaction not in the ordinary course of the operation of the Property, (h)
income derived from interest on investments or otherwise, (i) abatement of
taxes, awards arising out of takings by eminent domain, discounts and dividends
on insurance policies, and (j) rental concessions not paid by third parties. The
Management Fee shall be payable monthly, following calculation thereof, upon
submission of a monthly statement from the Operating Account or from other funds
timely provided by the Tenants in Common. Upon termination of this Agreement,
the parties will prorate the Management Fee on a daily basis to the effective
date of such cancellation or termination. If Property Manager engages local
property managers or other parties to provide property management services in
accordance with Section 2.14, Property Manager shall be obligated to pay such
third parties, it being intended that the Property Management Fee shall be
inclusive of such third party fees.
9.2 Leasing Commissions. Property Manager or an Affiliate shall
receive, for its services in leasing the Property in accordance with the terms
of this Agreement, a leasing commission (the "Leasing Commission") equal to six
percent (6%) of the value of any lease centered into during the term of this
Agreement and three percent (3%) with respect to any renewals. Any leasing fees
due outside leasing agents or brokers, except for any who are on site will be
paid by the Property Manager from these commissions. The value of the lease
shall be calculated by totaling the minimum monthly rent (or similar rent) for
the term of the lease. The term of the lease shall not exceed five (5) years for
purposes of the foregoing computation and shall be exclusive of option periods.
If another broker represents the tenant, then Property Manager may cooperate
with that broker on terms and conditions acceptable to Property Manager, in its
sole discretion, with commissions to the other broker to be paid by the Property
Manager.
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9.3 Construction Management Fee. Property Manager, or an Affiliate,
shall receive, for its services in supervising any construction or repair
project in or about the Property, including the anticipated improvements
described in Section 2.14, a construction management fee (the "Construction
Management Fee") equal to five percent (5%) of any amount (including related
professional services) up to Twenty-Five Thousand Dollars ($25,000.00), four
percent (4%) of any amount over Twenty-Five Thousand Dollars ($25,000.00) but
less than Fifty Thousand Dollars ($50,000.00), and three percent (3%) of any
amount over Fifty Thousand Dollars ($50,000.00) which is expended in any
calendar year for construction or repair projects.
9.4 Selling Commission. The Tenants in Common hereby grant Property
Manager, or an Affiliate, the exclusive right to sell the Property on terms
acceptable to the Tenants in Common as described herein. Property Manager shall
be entitled to receive a sales commission (the "Selling Commission") from the
Tenants in Common equal to up to five percent (5%) maximum of the gross sales
price of the Property if the Property Manager obtains a buyer for the Property
(or portion thereof) on terms approved by the Tenants in Common or if Property
Manager or an Affiliate purchases the Property pursuant to the Purchase Option
set forth in Section 11 of the Tenants in Common Agreement. The Property Manager
or an Affiliate will be entitled to a maximum of four percent (4%) of the
Selling Commission; any third party real estate agents and brokers who assist in
the sale will also be paid a portion of the Selling Commission up to a maximum
of five percent (5%) including the Selling Commission paid to the Property
Manager. Notwithstanding anything to the contrary contained herein, if the
Property Manager is terminated "for cause" pursuant to Section 10.1 of this
Agreement, the Property Manager shall not thereafter have the right to sell the
Property and shall not receive the Selling Commission.
9.5 Loan Fee. Property Manager or an Affiliate shall receive a loan
fee (the "Loan Fee") in the amount of one percent (1%) of the principal amount
of all loans obtained for the Property by the Property Manager during the term
of this Agreement. Property Manager or an Affiliate shall pay any loan brokers
or other parties (other than the lender) who assist in such financings.
9.6 Payment of Fees. The Property Management Fee shall be paid
monthly in arrears. The Leasing Commission, Construction Management Fee and Loan
Fee shall each be paid when the Lease is signed, the construction is
substantially completed, the court appearance has occurred and the new financing
has closed escrow. The Selling Commission shall be paid upon closing escrow,
after the Tenants in Common have received a return of their unrecovered
investment in the Property but before any net profits are distributed to the
Tenants in Common.
10. TERMINATION.
10.1 Termination by Tenants in Common. This Agreement shall renew on
an annual basis until December 31, 2012, unless terminated by any of the Tenants
in Common as provided below. Each of the Tenants in Common shall have the right
to terminate this Agreement: (a) without cause, within thirty (30) days of each
anniversary of the date hereof and upon payment of their pro rata share of the
termination fee computed in the same manner as the Special Allocation (as
defined in the Memorandum), as if the Properties were sold based on a value
equal to the greater of (i) the appraised value or (ii) the acquisition
capitalization rate for the Properties, times the net operating income of the
Properties for the 12 month period prior to the termination and (b) "for cause,"
upon thirty (30) days prior written notice. However, the Lender is required to
approve the termination in writing before any such termination shall be
effective. For purposes of this Agreement, termination "for cause" shall mean
termination due to the (a) gross negligence or fraud of Property Manager, (b)
willful misconduct or willful breach of this Agreement by Property Manager, (c)
bankruptcy, insolvency or inability of the Property Manager to meet its
obligation as the same come due, or (d) a conviction of a felony by ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇, President of Property Manager. If an affiliate of Property Manager
owns membership interests in NNN 2002 Value Fund, LLC, the vote of such
affiliate shall not be counted for any purpose in such a vote to terminate this
Agreement. The parties acknowledge that the termination fee is due on
termination without cause in recognition of the substantial costs that Property
Manager has incurred in start-up and other expenses to be prepared to manage,
and to manage, the Property.
10.2 Termination by Property Manager. Property Manager shall have
the right to terminate this Agreement, provided that the Tenants in Common are
in default in the performance of any of its obligations hereunder, and such
default remains uncured for thirty (30) days following Property Manager's giving
of written notice of such default to the Tenants in Common.
11
10.3 Termination On Sale. This Agreement shall automatically
terminate upon the sale of the entire Property without payment of any
termination fee.
10.4 Final Accounting. Within thirty (30) days after termination of
this Agreement for any reason, Property Manager shall deliver to each Tenant in
Common based on their undivided interest in the Property, the following: (a) a
final accounting, setting forth the balance of income and expenses on the
Property as of the date of termination; (b) any balance or monies of the Tenants
in Common or tenant security deposits held by Property Manager with respect to
the Property; and (c) all materials and supplies, keys, books and records,
contracts, leases, receipts for deposits, unpaid bills and other papers or
documents which pertain to the Property. For a period of thirty (30) days after
such expiration or cancellation for any reason other than the Tenants in
Common's default, Property Manager shall be available, through its senior
executives familiar with the Property, to consult with and advise the Tenants in
Common or any person or entity succeeding to the Tenants in Common as owner of
the Property or such other person or persons selected by the Tenants in Common
regarding the operation and maintenance of the Property. In addition, Property
Manager shall cooperate with the Tenants in Common in notifying all tenants of
the Property of the expiration and termination of this Agreement, and shall use
reasonable efforts to cooperate with the Tenants in Common to accomplish an
orderly transfer of the operation and management of the Property to a party
designated by the Tenants in Common. Property Manager shall receive its monthly
Property Management Fee for such services. Property Manager shall, at its cost
and expense, promptly remove all signs wherever located indicating that it is
the Property Manager and replace and repair any damage resulting therefrom.
Termination of this Agreement shall not release either party from liability for
failure to perform any of the duties or obligations as expressed herein and
required to be performed by such party for the period prior to the termination.
11. CONFLICTS. Property Manager shall not deal with or engage, or purchase
goods or services from, any subsidiary or affiliated company of Property Manager
in connection with the management of the Property for amounts above market
rates.
12. NOTICES.
12.1 Notices. All notices, demands, consents, approvals, reports and
other communications provided for in this Agreement shall be in writing and
shall be given to the Tenants in Common or Property Manager at the address set
forth below or at such other address as they may specify hereafter in writing:
Tenants in Common: At the addresses specified in the Tenants in
Common Agreement
Property Manager: Triple Net Properties Realty, Inc., Property
Manager
▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President
With a copy to: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esquire
Such notice or other communication may be delivered by a recognized overnight
delivery service providing a receipt, facsimile transmission or mailed by United
States registered or certified mail, return receipt requested, postage prepaid
if deposited in a United States Post Office or depository for the receipt of
mail regularly maintained by the post office. Notices sent by overnight courier
shall be deemed given one (1) business day after mailing; notices sent by
registered or certified mail shall be deemed given two (2) business days after
mailing; and notices sent by facsimile transmission shall be deemed given as of
the date sent (if sent prior to 5:00 p.m. PST and if receipt has been
acknowledged by the operator of the receiving machine).
12
13. MISCELLANEOUS.
13.1 Assignment. Property Manager may not assign this Agreement
without the prior written consent of each of the Tenants in Common, which
consent may be withheld in each of the Tenants in Common's sole and absolute
discretion. Subject to the Tenants in Common Agreement, a Tenant in Common may
assign its rights to a party acquiring its undivided interest ("Successor Tenant
in Common") and upon assignment and the assumption of this Agreement by the
Successor Tenant in Common pursuant to an agreement whereby (a) the assigning
Tenant in Common assigns to the Successor Tenant in Common all of its right,
title and interest in and to this Agreement and (b) the Successor Tenant in
Common assumes and agrees to perform faithfully and to be bound by all of the
terms, covenants, conditions, provisions and agreements of this Agreement with
respect to the undivided interest to be transferred, the assigning Tenant in
Common shall be relieved of all liability accruing after the effective date of
the assignment and, without further action by Property Manager or the other
Tenants in Common, the Successor Tenant in Common shall become a party to this
Agreement.
13.2 Gender. Each gender shall include each other gender. The
singular shall include the plural and vice-versa.
13.3 Amendments. Except as otherwise provided, each amendment,
addition or deletion to this Agreement shall not be effective unless approved by
the parties in writing.
13.4 Attorneys' Fees. In any action or proceeding between Property
Manager and the Tenants in Common arising from or relating to this Agreement or
the enforcement or interpretation hereof, the party prevailing in such action or
proceeding shall be entitled to recover from the other party all of its
reasonable attorneys' fees and other costs and expenses of the action or
proceeding.
13.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of California
without regard to any choice of law rules.
13.6 Headings. All headings are only for convenience and ease of
reference and are irrelevant to the construction or interpretation of any
provision of this Agreement.
13.7 Representations. Property Manager represents and warrants that
it is or shall be prior to entering into any transaction fully qualified and
licensed, to the extent required by law, to manage and lease real estate and
perform all obligations assumed by Property Manager hereunder. Property Manager
shall use reasonable efforts to comply with all such laws now or hereafter in
effect.
13.8 Indemnification by Property Manager. Property Manager shall
indemnify, defend and hold the Tenants in Common and their shareholders,
officers, directors, and employees harmless from any and all claims, demands,
causes of action, losses, damages, fines, penalties, liabilities, costs and
expenses, including reasonable attorneys' fees and court costs, sustained or
incurred by or asserted against the Tenants in Common by reason of the acts of
Property Manager which arise out of its gross negligence or fraud of Property
Manager, its agents or employees or Property Manager's breach of this Agreement.
If any person or entity makes a claim or institutes a suit against the Tenants
in Common on a matter for which the Tenants in Common claim the benefit of the
foregoing indemnification, then (a) the Tenants in Common shall give Property
Manager prompt notice thereof in writing; (b) Property Manager may defend such
claim or action by counsel of its own choosing provided such counsel is
reasonably satisfactory to the Tenants in Common; and (c) neither the Tenants in
Common nor Property Manager shall settle any claim without the other's written
consent.
13.9 Indemnification by the Tenants in Common. The Tenants in Common
shall indemnify, defend and hold Property Manager and its shareholders,
officers, directors and employees harmless from any and all claims, demands,
causes of action, losses, damages, fines, penalties, liabilities, costs and
expenses, including reasonable attorney's fees and court costs, sustained or
incurred by or asserted against Property Manager by reason of the operation,
management, and maintenance of the Property and the performance by Property
Manager of Property Manager's obligations under this Agreement but only to the
extent of each Tenants in Common's interest in the Property, except those which
arise from Property Manager's gross negligence or fraud. If any person or entity
makes a claim or institutes a suit against Property Manager on any matter for
which Property Manager claims the
13
benefit of the foregoing indemnification, then (a) Property Manager shall give
the Tenants in Common prompt notice thereof in writing; (b) the Tenants in
Common may defend such claim or action by counsel of its own choosing provided
such counsel is reasonably satisfactory to Property Manager; (c) neither
Property Manager nor the Tenants in Common shall settle any claim without the
other's written consent; and (d) this subsection shall not be so construed as to
release the Tenants in Common or the Property Manager from any liability to the
other for a breach of any of the covenants agreed to be performed under the
terms of this Agreement.
13.10 Complete Agreement. This Agreement shall supersede and take
the place of any and all previous agreements entered into between the parties
with respect to the management of the Property.
13.11 Severability. If any provisions of this Agreement or
application to any party or circumstances shall be determined by any court of
competent jurisdiction to be invalid and unenforceable to any extent, the
remainder of this Agreement, where the application of such provisions or
circumstances other than those as to which it is determined to be invalid or
unenforceable shall not be affected thereby, and each provision hereof shall be
valid and shall be enforced to the fullest extent permitted by law.
13.12 No Waiver. The failure by any party to insist upon the strict
performance of, or to seek remedy of, any one of the terms or conditions of this
Agreement or to exercise any right, remedy, or election set forth herein or
permitted by law shall not constitute or be construed as a waiver or
relinquishment for the future of such term, condition, right, remedy or
election, but such item shall continue and remain in full force and effect. All
rights or remedies of the parties specified in this Agreement and all other
rights or remedies that they may have at law, in equity or otherwise shall be
distinct, separate and cumulative rights or remedies, and no one of them,
whether exercised or not, shall be deemed to be in exclusion of any other right
or remedy of the parties.
13.13 Binding Effect. This Agreement shall be binding and inure to
the benefit of the parties and their respective successors and assigns.
13.14 Enforcement of Property Manager's Rights. In the enforcement
of its rights under this Agreement, Property Manager shall not seek or obtain a
money judgment or any other right or remedy against any shareholders or
disclosed or undisclosed principals of the Tenants in Common. Property Manager
shall enforce its rights and remedies solely against the estate of the Tenants
in Common in the Property or the proceeds of any sale of all or any portion of
the Tenants in Common's interest therein.
13.15 Binding Arbitration. BY EXECUTING THIS AGREEMENT YOU ARE
AGREEING TO HAVE CERTAIN DISPUTES DECIDED BY NEUTRAL ARBITRATION AND YOU ARE
GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE SUCH DISPUTES LITIGATED IN A
COURT OR JURY TRIAL. BY EXECUTING THIS AGREEMENT YOU ARE GIVING UP YOUR JUDICIAL
RIGHTS TO DISCOVERY AND APPEAL. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER
AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE. YOUR AGREEMENT TO
THIS ARBITRATION PROVISION IS VOLUNTARY.
[BALANCE OF PAGE LEFT INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
date and year first above written.
PROPERTY MANAGER:
TRIPLE NET PROPERTIES REALTY, INC.,
a California corporation
By:
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▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President
TENANTS IN COMMON:
NNN 2002 VALUE FUND, LLC,
a Virginia limited liability company
By: TRIPLE NET PROPERTIES, LLC,
a Virginia limited liability company
Its: Manager
By:
------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President
----------------------------------------
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15