Newport Beach Scrutinizes Club’s Lease on Good Life

In a 1970 special election, the public disturbed the peace inside the exclusive Balboa Bay Club, a tony enclave that sits on about 13 acres of Grade A property owned by the city on Lido Channel.

City Council members and club managers--confident of victory at the polls--were stunned by the results. A proposal to extend the club’s lease with the city from 50 years to 55 years was overwhelmingly defeated by an almost 2-to-1 margin.

That special election nearly 20 years ago was the first time the public voted on the club’s use of the city’s land, but it might not be the last.

Although some decisions affecting the Balboa Bay Club have remained on the council level, there is mounting concern within the city about whether the public should have a say again, at this key time in the social landmark’s history.

The club--which has become an upper-class fun zone for hundreds of Southern California’s most powerful and famous people--is now pushing for a second 50-year lease with the city and has plans to grant more public access and completely renovate its facilities at 1221 W. Coast Highway. Its current rental agreement expires in 2011.

Council members Evelyn R. Hart and Jean C. Watt say a new lease should go before the voters because of city charter provisions and because the city-owned site has been designated state tidelands. As such, the choice bay-front property occupied by the private club is held in trust by the city for the benefit of the public.

“I just think the people should have a say in some very expensive property in the United States,” Hart said. “It’s a very valuable piece of land, and 50 years is a very long time to give it to someone to use.”

Councilmen Clarence J. Turner and John C. Cox Jr. say elected officials, not the public, should decide whether to develop and approve a new rental agreement for the club, which has about 4,000 members.

Council members Phil Sansone and Mayor Donald A. Strauss remain undecided. Mayor Pro Tem Ruthelyn Plummer says she is ambivalent about who should approve the lease, but would agree to a public vote “to keep peace in the community.”

Meanwhile, citizens who live near the club have mounted a petition drive asking for a special election on the lease. They say they are concerned about the renovation plan and that the club’s rent is too low. One petition with 77 signatures was turned into City Hall on Friday.

On the other side, members and officials of Balboa Bay Club have mounted a public relations effort in an attempt to gain support for a new lease and the redevelopment plan.

Members have written letters to city officials, urging the council to proceed. Club managers have met with community associations. They too have sent mailers to the public criticizing Hart and asking citizens to sign petitions in support of the club’s proposals.

Their mailer states that Hart has been lobbying against negotiations for a new lease agreement, “obstructing the city from proceeding in good faith.”

The issues surrounding a new rental agreement are scheduled to be debated Nov. 27, when the City Council considers whether to begin lease discussions with the club and reappraise the property.

To club officials, the start of negotiations is a top priority. They say they need a new long-term lease in order to obtain loans for a planned $60-million renovation of the club, which Councilman Cox has jokingly described as the city’s biggest “tear-down”--Newport parlance for a rundown beach dwelling.

“A 50-year lease is the minimum necessary to get financing,” said Balboa Bay Club President Tom Deemer. “Most banks require 75 years to 99 years. The lease is key to redeveloping the property.”

The Balboa Bay Club entered its first 50-year agreement with the city in 1948, when the Coast Highway site was little more than a stretch of debris-filled mud flats with docks and a few frame structures. The rent was $25,000 a year.

Since then, the grounds have been improved dramatically and include a huge swimming pool, clubhouse facilities, hotel accommodations and a 145-unit apartment complex, now a second home to many of the county’s elite. According to the city, the facility will generate more than $1.5 million a year in revenue for the next 10 years.

The city, however, has never done a detailed analysis of what uses of the land--club included--might be the most beneficial to the city, said former Councilman Hans Lorenz.

Questions about voter involvement in the Balboa Bay Club first surfaced in 1963, when the club indicated that it wanted to extend its lease by 15 years. Club attorneys concluded that under city law the extension could be granted without a vote of the people.

The city charter states the city cannot sell or lease waterfront or beachfront property it owns unless approved by the voters. But the charter states that the provision shall not invalidate any leases in effect when the charter was adopted in 1955, or the future renewal of those leases. Club lawyers pointed out that the facility’s first lease was signed in 1948.

Another charter provision states that the City Council cannot lease city land or extend a lease for more than 25 years without voter approval, unless improvements and buildings revert to the city at the end of the lease. Club attorneys pointed out that the extension was only for 15 years, therefore it didn’t require a vote. Also, the buildings would revert to the city, they said.

Then-City Atty. Walter Charamza in 1963 was more cautious. He leaned toward a public vote, to prevent the possibility of circumventing the charter by granting a series of leases or lease extensions that totaled more than 25 years but none of which alone totaled 25 years.

Charamza suggested that the city might want to ask a court to rule on the matter.

The extension proposal was dropped and did not surface again until the late 1960s, when the club sought a five-year extension and wanted to build two high-rise towers. Club attorneys reiterated their position, and then-City Atty. Tully Seymour, now a Superior Court judge, said the controversial matter should go to the voters.

The measure was decisively defeated at the polls.

“On the lease extension, the interpretation was unclear whether the Balboa Bay Club was exempt (from the city charter). We decided to put it on the ballot,” said Lorenz, a council member in 1970. “No one thought there was much opposition, but it got clobbered.”

Among other things, the defeat was blamed on widespread anti-growth sentiment and public bitterness toward the club’s new six-story apartment complex, which some opponents dubbed “The Great Wall of China.”

In 1978, then-City Atty. Dennis D. O’Neil again mulled over the legalities surrounding a possible lease extension. He noted the 1970 special election, but concluded that he did not believe the charter provisions required a public vote.

The lease-extension issue lay dormant once again until 1986, when the council approved a 12-year extension and new lease conditions, including phased-in rent increases. A study by a city committee at the time concluded that rent for the club’s site had been far below market value for years.

In March, the City Council began considering negotiations for a new 50-year lease, but postponed a decision when questions were raised during a public hearing about the necessity for a public vote and whether use of city-owned tidelands for a private club was appropriate.

The city then obtained another legal opinion in May. It said the city might want to turn the matter over to the voters because of the “unique nature of the Balboa Bay Club.” But the opinion stated that the council has the power to enter into a proposed lease with the club without voter approval.

“The power rests with the council and we need to do our job,” Councilman Turner said. “We are here to analyze complicated issues and make decisions.”

Also figuring in the debate over whether voters should have a say in the lease is a 1985 State Lands Commission determination that the club sits on tidelands and must be held in trust for the public’s benefit.

Curt Fossum, an attorney for the commission, said that under tidelands regulations the club eventually must provide the public with more access to the bay front and remove permanent residences in the 145-unit apartment complex. Club officials say their redevelopment plans address those changes.

“The land is supposed to be used for the public benefit. That could be money or it could be something else,” Councilwoman Watt said. “I think this should go to a vote of the public to let them decide.”

A group of citizens who say they are concerned about the club’s rent and the potential impact of the club’s redevelopment have circulated a petition calling for a public vote on the 50-year lease.

Frank Eisendrath, a local real estate investor involved in the petition, said that the club has paid far less rent for its bay-front property compared to other tenants of city-owned land.

Citing city figures, Eisendrath pointed out that the club pays $642,000 a year for 13 acres, while the Balboa Parking Lot pays $825,000 a year for 6.2 acres, and the Marina Trailer Park pays $506,000 a year for 4.9 acres.

City and club officials say, however, that the club’s rent will be increasing under terms of the lease approved in 1986, and the property will be reappraised if negotiations are approved for a 50-year lease.

Balboa Bay Club opposes the petitioners and maintains that a public vote is not required on a new lease. Club Chairman William Ray contends the City Council clearly has the power to develop and approve a new lease. “I feel comfortable that it does,” he said.

“I’m sure they’d like to avoid a vote for fear that it would go against them,” Councilwoman Watt said of the private club. After all, former councilman Lorenz pointed out, a vote would pit the 4,000 club members against almost 80,000 people who think they “gain no advantage” from the club.