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LTC 137-2018 Management Agreement Between the City of M iami BeCity of Miami Beach, 1700 Convention Center Drive, Miami Beach, Florida 33139, ym,v iniam,i,b, „ ,G,h.f.I.:g.4.Y.. OFFICE OF THE CITY MANAGER 137-2018 LETTER TO COMMISSION TO: Mayor Dan Gelber and Members of the City ommission FROM: Jimmy L. Morales, City Manager DATE: March 9, 2018 SUBJECT: MANAGEMENT AGREEMENT BETWEEN THE CITY OF MIAMI BEACH (CITY) AND LIVING ARTS TRUST, INC. D/B/A 0 CINEMA (0 CINEMA), DATED OCTOBER 24, 2014, FOR THE MANAGEMENT AND OPERATION OF A PORTION OF THE BYRON-CARLYLE THEATER. The purpose of this Letter to the Commission (LTC) is to inform the Mayor and City Commissioners regarding the status of various contractual requirements contained in the management and operation agreement between the City and Living Arts Trust, Inc. d/b/a 0 Cinema for the Byron -Carlyle Theater. BACKGROUND The City of Miami Beach and 0 Cinema are parties to an agreement, dated October 24, 2014, for management and operation of a portion of the Byron -Carlyle Theater, located at 500 -71St Street, Miami Beach, FL 33141 (Agreement). The City's proportionate use of the theater is 28% (City Area) and 0 Cinema's proportionate use of the theater is 72% (Facility). The initial term is for five (5) years and one (1) month commencing retroactively on October 1, 2014 and ending October 31, 2019. At its sole option and discretion, the City may extend the Agreement for up to five (5) additional one (1) year terms, or multi-year terms, but not to exceed five (5) years in total. Under the terms of the Agreement, 0 Cinema shall operate, manage, maintain, promote and market the Facility as a motion picture theater, in a manner consistent with other comparable first class motion picture theaters in Miami -Dade County. The facility may also be used for live theatrical entertainment, private events and corporate events & receptions. 0 Cinema may also operate a food and beverage concession, including reasonably priced beer and wine (subject to obtaining the requisite licenses for the sale or service of beer or wine), artisan cookies, cupcakes and other snacks. 0 Cinema shall have the right to operate a "film -centric" merchandise shop offering for sale film related t -shirts and other film memorabilia. Internal Audit reviewed selected provisions in the Agreement, for the period October 1, 2014 through July 31, 2017. The Audit, attached hereto as Attachment 1, revealed several deficiencies in 0 Cinema's performance under the Agreement. Letter to Commission — Living Arts Trust, Inc. d/b/a 0 Cinema March 9, 2018 Page 2 of 2 Most notably, the Audit revealed that 0 Cinema failed to: 1) obtain the requisite State license for the sale of beer and wine for consumption on premises; 2) remit City of Miami Beach resort taxes; 3) remit Florida sales tax to the Department of Revenue; and 4) satisfy the City's insurance requirements under the Agreement. Pursuant to the Agreement, the City issued a Notice of Default to 0 Cinema, dated December 26, 2017, attached hereto as Attachment 2. The Notice of Default advised 0 Cinema failure to cure the aforementioned defaults, within the specified cure periods provided in the Agreement, would entitle the City to avail itself of any and all rights and remedies under the Agreement including, without limitation, termination of the Agreement. O Cinema, through its representative, SG Law Group, provided a response letter to the City dated January 26, 2018, attached hereto as Attachment 3. On March 8, 2018, the City issued a Notice of Failure to Cure Defaults, attached hereto as Attachment 4. In this letter, the City notified 0 Cinema that it has failed to cure its defaults within the thirty (30) day cure period, which expired on February 21, 2018, and that accordingly, O Cinema is now in default of the Agreement. As the foregoing issues — failure to remit taxes and the unlicensed sale or service of alcoholic beverages — raise serious concerns and implicate basic compliance with law in connection with the management and operation of a City -owned facility, it is my intention to exercise all remedies that may be available to the City, which may include the termination for cause of the Ag reement. Please feel free to contact me with any questions you may have. Attachments: 1 Internal Audit Report 2 Notice of Default 3 0 Cinema Response Letter 4 Notice of Failure to Cure Defaults JLM/KGB/ES/MMM F:\RHCD\$ALL\ECON\$ALL\ASSET\O Cinema\Default\LTC - Living Arts Trust, Inc. dba 0 Cinema (03-09-18).docx Attachment 1 MIAMIBEACH INTERNAL AUDIT REPORT City of Miami Beach, 1700 Convention Center Drive, Miami Beach, Florida 33139, www,miamibeachfl.gov Office of Internal Audit Tel: 305-673-7020 TO: Jimmy L. Morales, City Manager VIA: Mark D. Coolidge, Inter'm Internal A ditor FROM: Luis Medina, Auditor DATE: February 20, 2018 AUDIT: Living Arts Trust, Inc. d/b/a 0 Cinema Management Agreement Review PERIOD: October 1, 2014 through July 31, 2017 This audit report is the result of a departmental request to review selected provisions in the executed agreement between the City and Living Arts Trust, Inc. d/b/a 0 Cinema for the management and operation of a portion of the Byron -Carlyle Theater for the period October 1, 2014 through July 31, 2017. INTRODUCTION Living Arts Trust, Inc. d/b/a 0 Cinema is a Florida not-for-profit 501(c)(3) corporation that showcases independent, foreign, art and family films with locations in Miami's Wynwood Arts District, the Village of Miami Shores and the City of Miami Beach. Additionally, 0 Cinema presents special programs that speak to the needs and interests of children, families, young adults and seniors in an effort to engage new audiences. City Resolution 2014-28729 was adopted on October 24, 2014 approving 0 Cinema to manage and operate a portion of the Byron -Carlyle Theater, located at 500 71 Street between Byron Avenue and Carlyle Avenue, for an initial term of five (5) years commencing on October 1, 2014 and ending on September 30, 2019 with five (5) additional one (1) year renewal terms at the City's sole option and discretion, The management agreement requires 0 Cinema to pay the following annual base use fees over its term: a) During the first three (3) contract years (October 1, 2014 — September 30, 2017), in consideration for their investment in equipment, staffing, marketing and improvement; 0 Cinema shall pay the City a base use fee of $2,500 per year; b) Commencing with the fourth contract year effective October 1, 2017, 0 Cinema shall pay the City a base use fee in the amount of 10% of all net ticket revenues and net concession revenues, generated from the facility (percentage base use fee); however, said percentage base use fee shall not be less than $5,000 per year (minimum guaranteed base use fee); and c) During the remainder of the initial term, commencing with the fifth contract year effective October 1, 2018 and every contract year thereafter (including any renewal terms, if granted), the percentage base use fee shall be increased by 1% per year, but not to exceed 2Q% of total net ticket revenues and net concession revenues over the total term of the agreement. The percentage base use fee paid under Section 6.1(c) shall not be less than the minimum guaranteed base use fee of $5,000. We Ore committed to providM9 excellent public service and safety to alt who live, work, and play in our vibiont, tropical, l'HVoric community Internal Audit Report Living Arts Trust, Inc. d/b/a 0 Cinema Management Aareement Review Februarv20, 2018 The base use payments for the first three years were due quarterly on the first day of the months of January, April, July, and October. Commencing on the fourth contract year starting on October 1, 2017, the percentage base use fee or minimum guaranteed base use fee, whichever is greater, is to be paid quarterly, within thirty days from the end of each quarter. The management agreement also requires 0 Cinema to pay utilities, based on its 72% proportionate usage of the Byron -Carlyle Theater, within ten (10) days following notice of such amount being due. The Tourism, Culture and Economic Development Department's Office of Real Estate is tasked with billing 0 Cinema for the base use fees and utility charges. Invoices were created by combining both base use fees and utility charges into one quarterly bill which was subsequently sent to 0 Cinema for payment. The table below shows the quarterly base use fee and utility payments remitted to the City during the audit period by fiscal year: CategoryFY FY FY Totals 2014/2015 2015/2016 2016/2017* Base Use Fee $2,500,00 $2.500.00 $1"875.00 $ 6,875.00 Utility charges Electricity $15,917.54 $15,565.88 $ 9,206.47 $ 40,689.90 Water $ 1,554.61 $ 917.94 $ 689.58 $ 3,162.13 Storm $ 3,744.75 $ 3,744.75 $ 3,819.44 $ 11,308.94 Sewer $ 1,624.30 $ 361.46 $ 1,172.07 $ 3,157.83 Total Utility Charges $22,841.20 $20,590.03 $14,887.56 $ 58,318.80 Adjustments** $ (4,301.41) $ - $ - $ (4,301.41) Totals Per Period $21,039.79 $23,090.03 $16,762.56 $ 60,892.39 The amounts shown for FY 2016/2017 are for the period October 1, 2016 through July 31, 2017. 0 Cinema's first quarterly bill was reduced by $4,301.41 due to incorrect water and sewer meter readings for December of 2014 and a complete exclusion of the water, sewer, and storm bill for the month October 2014 for the Byron Carlyle Theater due to the agreement's execution date of October 24, 2014. Furthermore, the management agreement is contingent upon 0 Cinema remaining in good standing, free of default, and meeting its annual benchmarks, stated below, set forth in Section 4.2.4 of said agreement: • Operate a minimum of 5 days a week, 48 weeks a year schedule. • Present no Tess than 500 events throughout the year. • Serve an anticipated 10,000 visitors per year. • Increase attendance by 5% annually over prior years. • Highlight and market 0 Cinema Miami Beach as part of 0 Cinema's annual marketing budget, which budget shall not be less than $50,000. • Provide Miami Beach residents with discounted quality cinematic offerings (10% discount) at least 12 times per year, for a minimum of one film screening per month. The following table shows 0 Cinema's gross sales revenue including taxes collected per fiscal year for 0 Cinema's Miami Beach location since the management agreement's inception: Page 2 of 22 Internal Audit Report Livina Arts Trust. Inc. d/b/a 0 Cinema Management Agreement Review February 20, 2018 FY FY FY Category 2014/2015 2015/2016 2016/2017* Total Gross Admissions Revenue $ 178,443.42 $ 213,488.00 $ 178,420.60 $ 570,352.02 Event Rental $ 12,004.50 $ 400.00 $ - $ 12,404.50 Onscreen Advertisements $ 2,502.50 $ 4,930.00 $ 4,970.00 $ 12,402.50 Service Fees $ - 1 $ 12,898.25 $ 18,700.15 $ 31,658.40 Concession Sales $ 42,689.00 1 $ 55,036,75 $ 56,281.50 $ 154,007.25 Total Sales $ 235,639.42 $ 286,753.00 $ 258,432.25 $ 780,824.67 Sales Tax - 7% (6% State & 1% County) Resort Tax - 2% Total Tax Grand Total (Sales +Tax) $ 2,988.25 $ 3,852.59 $ 3,939.71 $ 10,780.55 $ 853.80 $ 1,100.76 $ 1,125.66 $ 3,080.22 $ 3,842.05 $ 4,953.35 $ 5,065.37 ` $ 13,860.77 $ 239,481.47 I $ 291,706.35 1 $ 263,49'7.62 ($ 794,685.44 * The amounts shown for fiscal year 2016/2017 are for the period October 1, 2016 through July 31, 2017. OVERALL OPINION Living Arts Trust, Inc. d/b/a 0 Cinema (0 Cinema) did not provide the requested Miami Beach records timely which were needed to evaluate if controls were adequate, appropriate, and effective to provide reasonable assurance that risks were managed and objectives were met. Once provided, additional obstacles were faced as the financial records were incomplete and were commingled with their two other locations (Miami Shores and Wynwood). The following deficiencies, summarized in the bullet points below, were noted: • 0 Cinema did not obtain the required Florida Department of Business & Professional Regulation license or permit to sell alcoholic beverages, as required in Section 4.2.1(c)(v) of the management agreement, pursuant to Section 563.02 (Beer) and Section 564.02 (Wine), 2017 Florida Statutes at all three of 0 Cinema's locations (Miami Shores, Wynwood, and Miami Beach). • 0 Cinema did not register with the City's Resort Tax Section and did not remit collected resort taxes, as required in Section 4.2.1(c)(vi) of the management agreement, pursuant to City Code Section 102-307, resulting in a $5,106.87 assessment including interest and penalties. Although, 0 Cinema subsequently remitted payment for this assessment on November 27, 2017 they have not remitted any resort taxes to the City for the six months (August 2017 through January 2018) that have passed since this audit was completed. • 0 Cinema did not register with the Department of Revenue to collect and remit sales taxes to the State of Florida, as required in Section 5.3.13 of the management agreement, pursuant to Section 212.05, 2017 Florida Statutes. • 0 Cinema did not timely renew their business tax receipt, as required in Section 19 of the management agreement, pursuant to City Code Section 102-357. • 0 Cinema remitted aII of the audit period's eleven (11) quarterly payments after the management agreement's Section 6.1 specified due dates. • 0 Cinema did not adhere to the insurance requirements stated in Section 14 of the management agreement. Page 3 of 22 Internal Audit Report Living Arts Trust. Inc. d/b/a 0 Cinema Management Agreement Review February 20.2018 • 0 Cinema did not meet three (3) out of the six (6) stated annual benchmarks set forth in Section 4.2.4 and did not timely submit an annual management plan to the City on or before June 1st of 2016 and 2017 as required in Section 12.1.3 of the management agreement. • 0 Cinema did not comply with the recordkeeping provisions set forth in Section 12 of the management agreement. Based on the deficiencies noted In findings 1, 2, 3 and 6, the Office of Real Estate, through the City Manager's Office, issued a Notice of Default letter on December 26, 2017. 0 Cinema's legal counsel provided a response to the noted deficiencies delineated in the Notice of Default letter on January 26, 2018, but has not cured the underlying defaults. SCOPE, OBJECTIVES, AND METHODOLOGY The scope of this audit was to evaluate whether the Living Arts Trust, Inc. d/b/a 0 Cinema (0 Cinema) complied with selected provisions set forth in their executed management agreement with the City of Miami Beach. The audit covered the period October 1, 2014 through July 31, 2017 and focused primarily on determining whether the following objectives were satisfied or achieved: • the permitted uses stated in Section 4.2.1 of the management agreement. • the annual benchmarks specified in Section 4.2.4 of the management agreement. • the quarterly payments due to the City as addressed in Section 6 of the management agreement. • register with the Florida Department of Revenue to collect, accrue, and remit sales and use taxes as required in Section 5.3.13 of the management agreement and in accordance with Section 212.05, 2017 Florida Statutes, • obtain the City required annual business tax receipts pursuant to Section 19 of the management agreement and City Code Section 102-357. • the recordkeeping provisions set forth in Section 12 of the management agreement. • adhere to the insurance provisions set forth in Section 14 of the management agreement. This audit was conducted in accordance with the Standard Operating Procedures of the City of Miami Beach's Office of Internal Audit as well as internal audit best practices. They require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. The audit methodology included the following: • Reviewing selected provisions within the management agreement between the City and 0 Cinema. • Interviewing and making inquiries of staff in order to gain an understanding of the internal controls (relative to the operation of the Byron -Carlyle Theater), assess control risk, and plan audit procedures. • Performing substantive testing consistent with the audit objectives, including but not limited to examination, on a sample basis, of applicable transactions and records. • Drawing conclusions based on the results of testing, made corresponding recommendations, and obtaining auditee responses and corrective action plans. • Performing other audit procedures as deemed necessary. Page 4 of 22 Internal Audit Report Living Arts Trust. Inc. d/b/a 0 Cinema Management Agreement Review Februarv20.2018 FINDINGS, RECOMMENDATIONS AND MANAGEMENT RESPONSE 1. Finding — Living Arts Trust, Inc. d/b/a 0 Cinema did not Obtain the Required Florida Department of Business & Professional Regulation License or Permit to Sell Alcoholic Beverages, as Required in Section 4.2.1(c)(v) of the Management Agreement, Pursuant to Section 563.02 (Beer) and Section 564.02 (Wine), 2017 Florida Statutes The City Commission adopted Resolution 2014-28790 on October22, 2014 to allow for alcohol sales for consumption on site for Living Arts Trust, Inc. d/b/a 0 Cinema (0 Cinema) at the Byron -Carlyle Theater located at 500 71St Street. The corresponding management agreement between the City and 0 Cinema for the operation of the Byron -Carlyle Theater was executed shortly thereafter on October 24, 2014. According to Section 4.2.1(c) of the management agreement, "0 Cinema shall have the right to operate or, subject to the City Manager's prior written approval, have a third party concessionaire operate: a fully stocked beverage concession with a concession menu offering regular movie theater fare with an " art house twist," including reasonably priced beer and wine, artisan cookies, cupcakes and chocolate ganache goodies". Additionally, Section 4.2.1(c)(v) of the management agreement requires 0 Cinema to obtain the requisite state licenses. Furthermore, City Code Section 6-2(a) states "No vendor shall sell or distribute any alcoholic beverages without securing a license from the Florida Division of Alcoholic Beverages and Tobacco of the Department of Business and Professional Regulation ("state license')': City Code Section 6-3(a)(9) also delineates the types of penalties and enforcement the City may impose for violation of City Code Section 6-3(a), which states "The hours of sale of alcoholic beverages, whether as a permitted main or accessory use, shall require a state license, and shall be according to the following schedule:....'. As a result, copies of the required Florida Department of Business and Professional Regulation (DBPR) licenses needed by 0 Cinema to sell beer and wine in the City were requested. Additionally, an online search of DBPR's publicly accessible records was conducted to obtain evidence of proper licensure and to ensure the validity of state licenses, for permanent food services and retail beverages, to be submitted by 0 Cinema. The following deficiencies were noted: • 0 Cinema did not provide copies of the DBPR state licenses required to sell beer and wine in the State of Florida and in the City of Miami Beach. Furthermore, 0 Cinema's Co -Directors stated that they had not acquired the licenses prior to the commencement of beer and wine sales; however, they claimed to have started the application process but no evidence was provided to substantiate this claim. • An online search of DBPR's publicly accessible records confirmed that 0 Cinema does not possess and has not applied for any of the state licenses required to sell beer and wine in the State of Florida and in the City of Miami Beach, The sale of alcoholic beverages without a license or registration is strictly prohibited by City and State laws and punishable as provided in City Code Section 6-3(a)(9) and Section 775.082 or Section 775.083, 2017 Florida Statutes. Lastly, Section 4.2.1 states "Failure to comply with the provisions of Section 4.2.1 shall be deemed to be a Default under this Agreement" Page 5 of 22 Internal Audit Report Living Arts Trust, Inc. d/b/a 0 Cinema Management Aareement Review February 20, 2018 As further addressed in findings 2 and 3, 0 Cinema applied on September 25, 2017 for a resort tax account in order to collect and remit resort tax to the City as a result of this audit. However, they have not received their certificate because they do not possess the DBPR state licenses required to sell beer and wine in the State of Florida and in the City of Miami Beach. Recommendation(s) 0 Cinema should adhere to the state license requirements set forth in Section 4.2.1(c)(v) of the management agreement, as required by Chapter 6, Article I, Section 6-2(a) of the Miami Beach City Code. Also, the Tourism, Culture and Economic Development Department's Office of Real Estate should determine how to proceed as 0 Cinema is in default of the management agreement. Vendor Response (0 Cinema): 0 Cinema was limited in its resources and was unaware of a licensing requirement for beer and wine (B&W). It was 0 Cinema's position such licensing was only required for full liquor licensing. Since 0 Cinema's discovery of the licensing requirement on December 20, 2017, all B&W sales have ceased until license with the DBPR has been obtained. 0 Cinema has already updated its Business Tax Receipt (BTR) pre-packaged food sales. However, as will be discussed further, 0 Cinema's status as a 501(c)(3) organization exempts it from resort tax. Additionally, 0 Cinema has retained the services of City Land Use Experts (C. L.U.E.) in order to expedite State license required by DBPR for B&W Sales so we may begin selling Beer and Wine. Management Response (Office of Real Estate): The Office of Real Estate issued a Notice of Default to 0 Cinema dated December 26, 2017 for failure to obtain the requisite State license for the sale of beer and wine for consumption on premises, in violation of Sections 4.2.1(c)(v) and 19 of the agreement, which ordered 0 Cinema to immediately cease and desist from the sale or service of any alcoholic beverages at the Byron -Carlyle Theater. The Office of Real Estate will work in conjunction with the City Attorney's Office to ensure compliance; otherwise, pursue default proceedings under the agreement. Internal Audit Observation: The Office of Internal Audit conducted an entrance meeting with 0 Cinema's principals on Thursday, August 31, 2017 at the Byron -Carlyle Theater to discuss the audit scope, objectives, methodology, timeframe, and records requested. As part of this entrance meeting, inquiries were made about whether alcohol was sold at the concession stand of the Byron -Carlyle Theater and, if so, to submit a copy of 0 Cinema's state license permitting the sale of alcohol. 0 Cinema's principals advised that beer and wine were sold at the concession counter and that they did not possess the state license required to sell beer and wine. Furthermore, they advised that they were aware of the state license requirement since the beginning of their operations in October of 2014, but they did not follow up with obtaining the license. During this meeting, 0 Cinema's principals advised that they were in the process of obtaining the required license. In response to this claim, Internal Audit requested supporting documentation. 0 Cinema's principals advised that a permit expediting service was hired to obtain the state license and that they would request supporting documentation. However, supporting documentation has not been provided to date to substantiate their claim. Page 6 of 22 Internal Audit Report Living Arts Trust, Inc. d/b/a 0 Cinema Management Agreement Review February20, 2018 2. Finding — 0 Cinema did not Register with the City's Resort Tax Section and did not Remit Collected Resort Taxes, as Required in Section 4,2.1(0)(vi) of the Management Agreement, pursuant to City Code Section 102-307, Resulting in a $5,106,87 Resort Tax Assessment Including Interest and Penalties Section 4.2.1(c)(vi) of the management agreement requires 0 Cinema to collect and remit resort taxes to the City, as required pursuant to Chapter 102, Section 102-307 of the City Code. City Code Section 102-307 calls for a two (2) percent tax to be levied upon the total sales of all food, beverages, alcoholic beverages or wine sold at retail of any restaurant. Chapter 102 also includes City Code Section 102-310 entitled "Resort tax registration certificate" which states "Within 15 days after commencing business, each operator of any hotel, motel, rooming house, apartment house or restaurant shall register such hotel, motel, rooming house, apartment house or restaurant with the City finance director and obtain from him a resort tax registration certificate to be at all times posted in a conspicuous place on the premises." In order to determine whether 0 Cinema complied with the resort tax requirements set forth in Section 4.2.1(c)(vi), copies of their resort tax certificate and filed returns with payments were requested. Additionally, monthly point of sale (POS) reports, federal returns, and merchant activity statements were requested by a Tax Auditor who performed a resort tax audit in conjunction with this review. The following deficiencies were noted: • 0 Cinema did not register and obtain a resort tax account with the City's Finance Department, yet sold beer, wine, candy, coffee, tea, popcorn, snacks, soft drinks, and water during the audit period of October 1, 2014 through July 31, 2017, • 0 Cinema charged and collected resort taxes on the concession items listed above but did not remit any of these monies to the City. 0 Cinema's failure to adhere to the resort tax requirements set forth in Section 4.2.1(c)(vi) resulted in $154,007.25 of unreported concession revenues and $5,106.87 in resort taxes ($3,080.15), penalties ($1,540.07) and interest ($486.65) owed to the City. As stated in City Code Section 102-320, "Any such tax collected by an operator that has not been paid to the City shall be deemed a debt owed by the operator to the City." Lastly, Section 4.2.1 states "Failure to comply with the provisions of Section 4.2.1 shall be deemed to be a Default under this Agreement". As a result of this audit, 0 Cinema applied on September 25, 2017 for a resort tax account in order to collect and remit resort taxes to the City. However, they have not received their certificate because they do not possess the DBPR state licenses required to sell beer and wine in the State of Florida and in the City of Miami Beach as further discussed in finding 1. Lastly, 0 Cinema remitted payment for the $5,106.87 assessment owed to the City on November 27, 2017 but they have not remitted any additional resort taxes for the six months (August 2017 through January 2018) that have elapsed since this audit was completed. Recommendation(s) It is recommended that 0 Cinema adhere to the management agreement's established resort tax requirements by immediately registering and obtaining a resort tax account with the City as well as to acquire the DBPR state licenses required to sell beer and wine in the State of Florida and in the City of Miami Beach. Also, the Tourism, Culture and Economic Development Department's Office of Real Estate should determine how to proceed with the management agreement as 0 Cinema is in default. Lastly, the City should ensure that 0 Cinema complies Page 7 of 22 Internal Audit Report Living Arts Trust, Inc, d/b/a 0 Cinema Management Agreement Review February 20, 2018 with the aforementioned resort tax requirement and remits all monies owed prior to the City's Cultural Affairs Division disbursing any pending and future Cultural Arts Council grant monies. Vendor Response (0 Cinema): As stated in 0 Cinema's response to the City of Miami Beach's notice of default, it was not and is not subject to Miami Beach's resort tax due to its status as a 501(c)(3) organization. Section 102-308 (2) of the Miami Beach City Code specifically states that no tax shall be imposed upon "any ... nonprofit charitable institutions when engaged in carrying on the customary . , . nonprofit charitable activities." 0 Cinema is clearly acting in accordance with the City Code. Management Response (Cultural Affairs Division): At this time, the FY 2017/18 Cultural Arts Council grant agreement with 0 Cinema has not been executed and any outstanding or future grant payments will not be made until compliance is met, Management Response (Office of Real Estate): The Office of Real Estate issued a Notice of Default to 0 Cinema dated December 26, 2017 for failure to remit City of Miami Beach resort taxes, in violation of Sections 4.2.1(c)(vi) and 19 of the agreement. The Office of Real Estate is in the process of formulating its response to 0 Cinema's assertion that it is somehow exempt from remitting resort taxes collected from the general public for food and beverage sales at the Facility. City disagrees with 0 Cinema's assertions in its response to the City's default letter. To begin with, City disagrees with any assertion (nor did 0 Cinema provide any legal authority for the proposition), that the operation of a food and beverage concession, incidental to 0 Cinema's charitable purpose of promoting and exhibiting films, is itself a charitable non-profit activity that would somehow exempt 0 Cinema from complying with the requirement to collect taxes from the general public on sales of food and beverage items. Further, resort taxes are not "imposed upon" 0 Cinema in connection with its nonprofit charitable activities. Rather, resort taxes are imposed upon patrons who purchase food and beverage services at the Facility. 0 Cinema's obligation, pursuant to Section 102-309 of the City Code and its Management Agreement with the City, is to collect and remit resort taxes at the time of sale. Moreover, in the instant matter, the issue identified by the auditors relates to 0 Cinema's failure to remit taxes already collected from the general public, as outlined more fully in the Internal Audit observations (noted below), and as required under Section 102-309 of the City Code and the Management Agreement. City submits that there is no exemption available under the law that would permit 0 Cinema to falsely represent to its customers that it was charging them a tax, or which would permit 0 Cinema to actually collect monies from its customers under such fraudulent pretenses, when in fact 0 Cinema merely intended to keep those funds for itself on the basis of any purported exemption from the very same tax it collected from its patrons. The Office of Real Estate is in the process of finalizing its response in coordination with the City Attorney's office, and will work with 0 Cinema to ensure compliance or otherwise pursue default proceedings under the agreement. Going forward, the Office of Real Estate will coordinate with the Finance Department to implement a process to ensure annual compliance with resort tax payments. Page 8 of 22 Internal Audit Report Living Arts Trust, Inc. d/b/a 0 Cinema Management Aareement Review February 20, 2018 Management Response (Finance Department): 0 Cinema does not have a Business Tax Receipt (BTR) to sell food or alcoholic beverages. 0 Cinema cannot obtain a BTR for to sell the aforementioned goods until they obtain the required State Licenses to conduct such business activities. Until they obtain the appropriate BTR, a Resort Tax account will not be opened for a business engaged in illegal activities. 0 Cinema has been issued a Code violation for the business operations not listed on the theater's BTR. Resort Taxes assessed by our Office of Internal Audit have been collected. Internal Audit Observation: Internal Audit confirmed 0 Cinema's not-for-profit 501(c)(3) status on the Internal Revenue Service's online Exempt Organizations Select Check Tool. As a not-for-profit organization operating within the City of Miami Beach, 0 Cinema is exempt from taxes that may be imposed upon them per City Code Section 102-308(2) which states "No tax shall be imposed upon: (2) Any nonprofit religious, nonprofit educational or nonprofit charitable institutions when engaged in carrying on the customary nonprofit religious, nonprofit educational or nonprofit charitable activities." However, 0 Cinema is not exempt from collecting resort taxon behalf of the City as required in City Code Section 102-309 entitled "Duty of operators to collect tax". City Code Section 102-309 states "Each operator shall collect the tax imposed by this division to the same extent and at the same time as the rent or sales price is collected from every occupant or guest. No operator shall advertise or state in any manner, whether directly or indirectly, that the tax or any part thereof will be assumed or absorbed by the operator, or that it will not be added to the rent or sales price, or that if added, any part will be refunded except in the manner hereinafter provided." In the same manner that 0 Cinema has collected, not paid, and will make arrangements to pay Sales and Use Tax to the Florida Department of Revenue, mentioned in finding 3, 0 Cinema has been collecting and not remitting resort tax to the City since the agreement's inception. A $5,106.87 (including interest and penalties) assessment of resort taxes charged, collected but not remitted during the audit period, of October 1, 2014 through July 31, 2017, was paid by 0 Cinema on November 27, 2017. However, 0 Cinema has not remitted any resort taxes to the City for the six months (August 2017 through January 2018) that have passed since this audit was completed. Lastly, Internal Audit reviewed 0 Cinema's sales summary report, sent by email on Wednesday, September 20, 2017, which showed that sales tax and resort tax had been collected, for concession sales, during the audit period of October 1, 2014 through July 31, 2017. 3. Finding — 0 Cinema did not Register with the Florida Department of Revenue in order to Collect and Remit Sales Taxes to the State of Florida, as Required in Section 5.3.13 of the Management Agreement, pursuant to Section 212.05 and 212.054 of the 2017 Florida Statutes Section 5.3.13 of the management agreement requires 0 Cinema to act as a collection agent for the City on sales taxes from the operation of the Byron -Carlyle Theater and to remit sales taxes collected to the State of Florida. Additionally, Section 19 of the management agreement, as mentioned in Finding 4, requires 0 Cinema to obtain all of the permits and licenses necessary for the legal operation of Byron -Carlyle Theater. Page 9 of 22 Internal Audit Report Living Arts Trust, Inc. d/b/a 0 Cinema Management Agreement Review February20, 2018 Section 5.3.13 is in accordance with Section 212.05 of the 2017 Florida Statutes which states that "every person is exercising a taxable privilege who engages in the business of selling tangible personal property at retail in this state, including the business of making mail order sales, or who rents or furnishes any of the things or services taxable under this chapter, or who stores for use or consumption in this state any item or article of tangible personal property as defined herein and who leases or rents such property within the state." Per Section 212,05(a)(1.a), 2017 Florida Statutes, 0 Cinema was required to collect and remit a six (6) percent tax of the sales price of each item or article of tangible personal property sold at retail in the State of Florida. Moreover, Section 212.054, 2017 Florida Statutes allows Miami -Dade County to impose a one (1) percent discretionary sales surtax on retail sales that occur within its boundaries. Therefore, 0 Cinema was required to collect and remit a total of seven (7) percent In sales tax to the State (6%) and County (1 %). In order to determine whether 0 Cinema complied with these terms, copies of State Sales Tax Returns for the audit period were requested. Additionally, monthly point of sale (POS) reports, federal returns, and merchant activity statements were requested by a City Tax Auditor who performed a resort tax audit in conjunction with this review. The following deficiencies were noted: • 0 Cinema did not provide copies of the requested State Sales Tax Returns for the audit period. 0 Cinema's Co -Directors stated that they had not obtained a Sales and Use Tax collection account with the Florida Department of Revenue to date but they said that they had begun the application process. However, documentation was not provided by 0 Cinema to substantiate this claim. • O Cinema charged and collected the seven (7) percent sales tax, 6% for the State and 1% for the County, on all concession items but not on admission sales which are also subject to state sales tax. No monies were remitted to the either the State or the County. 0 Cinema's failure to adhere to the sales tax requirements resulted in unreported concession revenues of $154,007,25 during the audit period to the State of Florida which is subject to penalties set forth in Chapter 212 of the 2017 Florida Statutes. More specifically, Sections 212.07, 212,085, 212.12, and 212.15 detail applicable penalties that 0 Cinema may be subject to. Recommendation(s) It is recommended that 0 Cinema immediately adhere to the sales tax requirements set forth in Section 5.3.13 of the management agreement. In addition, the amount owed to the State of Florida continues to increase for each day going forward that 0 Cinema does not comply. Vendor Response (0 Cinema): As was the case with the beer and wine application, 0 Cinema was limited in their resources and believed its sales tax exemption certificate exempted its collection by 0 Cinema. Since 0 Cinema's discovery of the tax requirement, 0 Cinema has taken steps to report and pay all sales tax due to the State of Florida as per the state voluntary disclosure process. We have also retained the services of attorney Senen Garcia who specializes in Sales Tax in order navigate the payments of sales tax for the State of Florida's Department of Revenue. Page 10 of 22 Internal Audit Report Living Arts Trust. Inc. d/b/a 0 Cinema Management Agreement Review February 20. 2018 We have collected and are holding in our account the 7% Sales Tax due the State of Florida for the amount due. Management Response (Office of Real Estate): The Office of Real Estate issued a Notice of Default to 0 Cinema dated December 26, 2017 for failure to pay Florida sales tax, in violation of Sections 5.3.13 and 19 of the agreement. The Office of Real Estate will work in conjunction with the City Attorney's Office to ensure compliance; otherwise, pursue default proceedings under the agreement. Going forward, the Office of Real Estate will require proof of sales tax payments on an annual basis. Internal Audit Observation: During Internal Audit's entrance meeting with 0 Cinema on Thursday, August 31, 2017, 0 Cinema's principals advised that they were aware of their obligation to collect and remit Sales and Use Tax to the Florida Department of Revenue (FDOR). However, they had not registered an account with FDOR to collect and remit sales tax. Furthermore, Internal Audit reviewed 0 Cinema's sales summary report, sent by email on Wednesday, September 20, 2017, which showed that sales tax and resort tax had been collected, for concession sales, during the audit period of October 1, 2014 through July 31, 2017. 4. Finding — 0 Cinema did not Timely Renew their Business Tax Receipt, as Required in Section 19 of the Management Agreement, Pursuant to City Code Section 102-357 Section 19 of the management agreement states "0 Cinema agrees to obtain and pay for all permits and licenses necessary for the conduct of its business and agrees to comply with all laws governing the responsibility of an employer with respect to persons employed by 0 Cinema 0 Cinema shall also be solely responsible for payment of any and all taxes levied on the Facility and its operations. In addition, 0 Cinema shall comply with all rules, regulations and laws of the City; Miami- Dade County; the State of Florida; and the U. S. Government now in force or hereafter to be adopted."Examples of permits and licenses mentioned in Section 19, applicable to 0 Cinema, include state license permitting the sale alcohol (finding 1), resort tax certificate permitting collection and remittance of resort tax to the City (finding 2), state sales tax account permitting collection and remittance of sales tax to the State of Florida (finding 3), business tax receipt certificate permitting the operation of the business within the municipal boundaries of the City, etc. City Code Section 102-357, pursuant to Section 205.042 of the 2017 Florida Statutes authorizes the City to levy a business tax for the privilege of engaging in or managing any business, profession or occupation within the City. Moreover, City Code Section 102-377 delineates the penalties and enforcement that the City may impose for violation of City Code Section 102-357. In order to determine whether 0 Cinema complied with the business tax receipt (BTR) requirements set forth in Section 19, copies of 0 Cinema's BTR certificates for fiscal years 2014/15, 2015/16, and 2016/17 were requested. Additionally, a search of the City's current and previous licensing and permitting software was conducted to obtain evidence of proper licensure and to ensure the validity of business tax receipt certificates submitted by 0 Cinema. The following deficiencies were noted: • 0 Cinema did not renew their BTR for fiscal years 2015/16 and 2016/17 in a timely mariner as payment for both renewals occurred on August 24, 2017 which was 693 days late for fiscal 2015/16 and 327 days for fiscal year 2016/17. The Finance Page 11 of 22 Internal Audit Report Living Arts Trust. Inc. d/b/a 0 Cinema Manaaement Agreement Review Februarv20. 2018 Department's Customer Service Division did not assess late payment penalty fees for these renewals for unknown reasons. • 0 Cinema did not obtain the appropriate alcohol and food sales categories to their BTR. On September 25, 2017 0 Cinema applied with the City's Customer Service Division to add these categories to their BTR; however, they cannot be added until 0 Cinema obtains a state liquor and/or food sales license (Finding 1) and a City issued resort tax registration certificate (Finding 2). • 0 Cinema's BTR record for fiscal year 2014/15 shows that they were only charged an application fee of $45 thereby omitting the required fire annual inspection fee to be paid by all not for profit businesses. Recommendation(s) 0 Cinema should adhere to the BTR requirements set forth in Section 19 of the management agreement, as required by City Code Section 102-357, pursuant to Section 205.042 of the 2017 Florida Statutes. The Office of Real Estate should check annually to ensure that the BTR is complete and current. Also, the Finance Department's Customer Service Division should inform the Code Compliance Department of 0 Cinema's alcohol and food sales operation without the appropriate BTR categories, state licenses or permits, and resort tax certificate. Additionally, the Customer Service Division should calculate and assess late payment penalties for 0 Cinema's BTR renewals for fiscal years 2015/16 and 2016/17 as well as properly charge them for the 2014/15 fiscal year. Vendor Response (0 Cinema): Regarding the renewal of 0 Cinema's Business Tax Receipt, it has been renewed and is effective. Regarding the renewal's timeliness, it is unfortunate this took place. However, this tardiness was due to the documentation for the renewal arriving at the incorrect address. All correspondence regarding 0 Cinema is to be sent to its Wynwood location. 0 Cinema has since rectified the issue to avoid the tardiness in the future. As for the classification of 0 Cinema's BTR so as to include food sales, said classification has been amended and now correctly reflects the additional sales activities. Finally, any penalties contemplated should be waived for having correspondence sent to the incorrect mailing address. Manaaement Response (Office of Real Estate): The Office of Real Estate will coordinate with the Finance Department to implement a process to ensure annual compliance with the BTR requirements set forth in the agreement. Management Response (Finance Deparlmentl: As a 501(c)(3) not-for-profit entity, 0 Cinema is exempt from the BTR portion of their renewal notice; however they are responsible for fees associated with the Certificate of Use and Annual Fire Inspection portions of their renewals. 0 Cinema has been invoiced $232.20 for Fiscal Year 16 and 17 late fees and FY 15 Annual Fire Inspection fees. These fees were not billed as a result of a clerical error by new staff members that were under the assumption that in addition to being exempt from the BTR portion of their bill, not -for -profits were also exempted from the Annual Fire Inspection fees and late penalties. This matter has been discussed and addressed with the two employees involved. Additionally, 0 Cinema has been issued a Code violation for the business operations not listed on the theater's BTR. Page 12 of 22 Internal Audit Report Living Arts Trust, Inc. d/b/a 0 Cinema Management Aareement Review February 20, 2018 Internal Audit Observation: Itis 0 Cinema's responsibility to timely inform the City of any address changes as established in Section 32 of the management agreement, which states "0 Cinema and the City may change the above mailing addresses at any time upon giving the other party written notification. All notice under this agreement must be in writing."As a result, they are at fault for any subsequent correspondence not received and Internal Audit opines that no penalties should be waived, 5. Finding — 0 Cinema Remitted All of the Audit Period's Eleven (11) Quarterly Payments after the Management Agreement's Section 6.1 Specified Due Dates Resulting in $2,164.06 in Late Charges that were Not Billed and Collected Section 6 of the management agreement states `All payments are payable quarterly, as of the first day of the months of January, April, July, and October of each contract year without demand, commencing on the commencement date. The base use fee shall be paid on a quarterly basis, except with respect to the payment for the first quarter, which will be due upon execution of the Agreement." Additionally, Section 29 of the management agreement states "0 Cinema's Defaults - The occurrence of any one or more of the following events shall constitute an event of default by 0 Cinema:"Sections 29.1.2.1 and 29.4 are set forth in Section 29 as default events. Furthermore, Section 29.1.2.1 states that 0 Cinema's failure to make any payment required by the City, which continues for more than ten (10) days after written notice from the City, shall constitute as an event of default. Additionally, Section 29.4 establishes that any payment owed to the City or 0 Cinema under the management agreement that is not received by the City or 0 Cinema within ten (10) days following notice of such amount being due shall bear interest at the rate of 18% per annum, known as the "Default Rate" in the agreement, or the highest allowable rate under Florida law, whichever is less from the date due until fully paid. Section 687.02, 2017 Florida Statutes establishes 18% per annum simple interest as the highest allowable rate under Florida law. In order to determine whether 0 Cinema complied with the payment requirements set forth in Section 6 and default and termination provisions stated Section 29.1.2,1 and Section 29.4, Internal Audit conducted a search for 0 Cinema's payment records in the City's current and previous enterprise resource planning systems during the, October 1, 2014through July 31, 2017 audit period. Both bill creation dates and payment received dates were examined to determine if the Office of Real Estate timely created the invoices and whether 0 Cinema made timely payments. The following deficiencies were noted: • The Office of Real Estate created a combined invoice for 0 Cinema's quarterly base use fee and utility charges. This resulted in a portion of the invoice (base use fee) due, according to Section 6's specified due dates, on the first day of the months of January, April, July, and October and another portion (utility charges) due upon the invoice's actual due date. However, the base use fee was consistently billed after its due date since all the charges were all combined. In addition, the Office of Real Estate created ten (10) out of eleven (11), or 90.91%, of 0 Cinema's base use fee quarterly payment invoices after the management agreement's specified due date, ranging from 6 to 76 days late. • 0 Cinema remitted all 11 quarterly payments owed to the City after the management agreement's specified due date. Internal Audit calculated an average of 122 days late for these payments throughout the audit period, ranging from 18 to 306 days late. Page 13 of 22 Internal Audit Report Living Arts Trust, Inc. d/b/a 0 Cinema Management Aareement Review February 20, 2018 • The 18% per annum penalty interest rate was applied to the late payments submitted by 0 Cinema resulting in $384.65 in late charges owed for quarterly base use fee payments and $1,779.41 in late charges owed for quarterly utility payments totaling $2,164.06 owed to the City. Section 6 of the management agreement and the payment due dates stated therein explicitly apply to the base use fee while Section 29.4's late payment penalty interest can be applied to all payments owed to the City or 0 Cinema. Consequently, penalty interest was applied to base use fee portion of the quarterly payment amounts based on the management agreement's specified due dates and to the utility portion using the invoice's specified due date. Although the Office of Real Estate created over 90% of the quarterly payment invoices after the due date, 0 Cinema is bound by Section 6 of the management agreement that stipulates that the base use fee of $2,500 per year or $625 per quarter was owed annually on the first day of January, April, July and October, regardless of the timeliness of the created City Bill or invoice. Recommendation(s) 0 Cinema should adhere to the management agreement's established payment requirements set forth in Section 6 and Section 29.4. Additionally, 0 Cinema should work to submit the base use fee stated in Section 6.1(b) accurately and timely going forward as they are required to submit a percentage base use fee (10% of all net ticket and concession revenues) commencing on the fourth (4th) contract year, or October 1, 2017 within thirty (30) days from the end of each quarter. Furthermore, the Office of Real Estate should create separate invoices for the percentage base use fee and utility charges in order to better track the timeliness of payments submitted by 0 Cinema and assess late payment penalty interest when required. The Office of Real Estate should create an invoice to bill 0 Cinema for the $2,164.06 in outstanding late payment penalty interest owed to the City. Lastly, the Office of Real Estate should determine how to proceed with O Cinema as they are in default under Sections 29.1.2.1 and 29.4 of the management agreement. Vendor Response (0 Cinema): O Cinema worked to make all payments timely and currently is current with all quarterly payments to the City of Miami Beach. 0 Cinema is aware the City of Miami Beach was unsatisfied with the overall time 0 Cinema took to submit payments. Therefore, in order to assist in compliance with our management agreement, 0 Cinema hired a managing director, Sarah Roffman and retained accountant Billy Bolin of Ace Professional Services to oversee the recordkeeping of 0 Cinema. Ms. Roffman will be assisting in improving our payments and timely payments to the City of Miami Beach along with the assistance of BiIIy Bolin. Though, this again, goes to the need of a subsidy as the many requirements set forth in the management agreement cannot be adequately maintained while operating the theater at its current admission levels without the financial support of the City of Miami Beach. Management Response (Office of Real Estate): Historically, the Office of Real Estate has created one invoice combining the base use fee and utilities. The utilities are calculated on a percentage of actual use, and typically don't become available until at least one week after the end of the month, causing a delay in invoicing. Going forward, effective with the fourth contract year, the Office of Real Estate will separately bill the quarterly invoices for the percentage base use fee, due within thirty (30) days from the end of each quarter, and the utilities, due within thirty (30) days of receipt of invoice. Page 14 of 22 Internal Audit Report Living Arts Trust, Inc. d/b/a 0 Cinema Manaaement Aareement Review February 20.2018 6. Finding — 0 Cinema did not Adhere to the Insurance Requirements Stated in Section 14 of the Management Agreement As per Section 14.1 of the management agreement, "0 Cinema shall maintain, at its own cost and expense, insurance coverage at all times throughout the term of the agreement." The following are the required types of insurance coverage: a) General Liability General Aggregate: $2,000,000 Products — Completed Operations Aggregate: $2,000,000 Personal and Advertising (Injury): $1,000,000 Per Occurrence: $1,000,000 Fire Damage: $ 100,000 Medical Expense: $ 5,000 b) Liquor Liability Aggregate Limit: $2,000,000 Per Occurrence: $1,000,000 Furthermore, workers' compensation insurance coverage, required under Section 14.2 of the management agreement and in accordance with Chapter 440, 2017 Florida Statutes, must be provided to 0 Cinema employees. Section 14.3 of the management agreement restricts 0 Cinema from cancelling or making changes to City approved insurance certificates unless the City is given at least thirty (30) days written notice and written approval has been given by the City's Risk Manager. 0 Cinema must provide the City with an insurance certificate for each such policy, which should name the City as an additional name insured. Insurance certificates submitted to the City are then compiled and archived in the Insurance Tracking Services, Inc. (ITS) website, which automates managing and tracking insurance certificates and assists in verifying compliance with insurance requirements. In order to determine whether 0 Cinema complied with the insurance requirements set forth in Section 14, copies of their insurance certificates since the agreement's inception were requested. Simultaneously, Internal Audit accessed copies of City approved insurance certificates through the ITS website in order to confirm the validity of copies submitted by 0 Cinema. Additionally, online research was conducted to confirm that workers' compensation coverage had been provided to 0 Cinema employees. The following deficiencies were noted: • Proof of insurance coverage for the period November 1, 2015 through November 1, 2016 for 0 Cinema was found on the ITS website. This insurance certificate copy showed compliance with the management agreement's insurance requirements. However, upon Internal Audit's request, 0 Cinema provided an insurance certificate copy generated on August 22, 2017 showing coverage for the period November 6, 2015 through November 6, 2016. This insurance certificate copy's effective policy date (November 6th) differs from the submitted insurance policy's effective date (November 1st). Additionally, this copy did not meet the insurance requirements stated in Section 14 of the management agreement. Differences identified included a reduction in Products -Completed Operations Aggregate coverage amount from $2,000,000 (minimum required per the management agreement) to $1,000,000 dollars; the City was Page 15 of 22 Internal Audit Report Living Arts Trust. Inc. d/b/a 0 Cinema Manaaement Agreement Review February 20.2018 not named as an additional insured on the modified certificate; Liquor Liability coverage was missing; and the policy effective and expiration dates for workers' compensation coverage are the same day, November 18, 2015. Documentation to show City approval for the above mentioned changes could not be found. • Proof of City approved insurance coverage for 0 Cinema for the period November 17, 2016 to November 17, 2017 was found on the ITS. Additionally, 0 Cinema provided a copy as requested by Internal Audit. Again, a difference between the ITS City approved copy and the 0 Cinema copy was noted as the Products -Completed Operations Aggregate coverage amount was reduced from $2,000,000 (minimum required per the management agreement) to $1,000,000 dollars. Documentation to show City approval for this change could not be found. • A lapse of 0 Cinema's insurance coverage occurred in 2016. Certificates of insurance submitted to ITS and separately to Internal Audit contain policy expiration dates that occur prior to the November 17, 2016 policy effective date for the 2016/2017 coverage period. Based on the 2016/2017 certificate of insurance, the 2015/2016 insurance coverage should have expired on November 16, 2016. However, the City approved ITS copy expired on November 1, 2016, revealing a 15 day lapse in coverage. Additionally, the copy submitted to Internal Audit expired on November 6, 2016, showing a 10 day lapse in coverage. • A search on the Division of Workers' Compensation Compliance Proof of Coverage Search Page showed that 0 Cinema's insurance carrier reported zero (0) employees for the organization from November 2015 to current date searched of September 19, 2017. The failure of 0 Cinema to adhere to the insurance requirements delineated in Section 14 of the management agreement increases the City's risk exposure. Section 14 states "Should 0 Cinema fall to obtain, maintain or renew the policies of insurance referred to above, in the required amounts, the City may, at its sole discretion, obtain such insurance, and any sums expended by City in obtaining said insurance, shall be repaid by 0 Cinema to City, plus ten percent (10%) of the amount of premiums paid to compensate City for its administrative costs. If O Cinema does not repay City's expenditures within fifteen (15) days of demand, the total sum owed shall accrue interest at the rate of twelve percent (12%) until paid, and such failure shall be deemed an event of default hereunder." Since the City was unaware of these insurance coverage shortcomings during the audit period, Section 14's provisions were not implemented so no monies are due. However, the City's Risk Management Division should apply this section's terms going forward, if applicable. Recommendation(s) 0 Cinema should adhere to the management agreement's established insurance requirements to mitigate its and the City's risk exposure. Furthermore, the City's Office of Real Estate should periodically verify the validity of insurance certificates submitted by 0 Cinema and the coverage amounts contained therein on ITS. If not, 0 Cinema should promptly be notified of the need to comply and Section 14's enforcement terms should be applied. Vendor Response (0 Cinema): 0 Cinema attached a letter from its insurance agent, the Miami Beach based South Florida Assurers, to confirm that 0 Cinema has had consistent, uninterrupted coverage since the commencement of the management agreement without any change to aggregate amount of Page 16 of 22 Internal Audit Report Livina Arts Trust, Inc. d/b/a 0 Cinema ManaaementAareement Review Februarv20, 2018 coverage. 0 Cinema has attached the appropriate insurance certificates as well. 0 Cinema has asked its insurance agents to explain why there were conflicting dates on these certificates. While the differentiating dates do stand out, 0 Cinema has in no way altered or amended any certificates provided to the city, as is insinuated in the audit findings. Additionally, 0 Cinema has consistently maintained Workman's Compensation coverage. As a result of these audit findings, it was brought to 0 Cinema's attention that its insurance carrier has incorrectly listed employees as zero though it did correctly list its payroll amount so that the correct amount of Workman's Compensation coverage has been in place. 0 Cinema has requested from its insurance carrier the correct amount of employees be reflected immediately on the policy. Management Response (Risk Management Division): Ideally, since the City is named as an additional insured as a basic boiler plate requirement, the insurance companies and the insurance agents should be notifying the City in writing. There may be instances where a vendor may change their effective coverage dates throughout the policy term along with cancelling certain term of their insurance program through non-payment. Nonetheless, any change made should require notification to the City directly and not to ITS. Internal Audit Observation: Internal Audit reviewed the insurance certificate documentation sent by email from 0 Cinema's legal counsel on Wednesday, January 31, 2018. A statement from Florida Assurers, Inc. was sent along with the insurance certificates stating that the policy limits and the insurance coverage complying with the City's minimum required insurance coverages were maintained by 0 Cinema since the inception of the management agreement. The 2015/16 and 2016/17 submitted insurance certificates represent the third unique versions of these documents. A review of all three years insurance certificates identified the following deficiencies: • 0 Cinema's commercial general liability coverage was maintained for November 6, 2015 through November 1, 2016; which represents a 5 day lapse as the prior certificate effective date ended on November 1, 2015 and this year's certificate began on November 6, 2015. • 0 Cinema's commercial general liability coverage was maintained for November 17, 2016 through November 1, 2017; which represents a 16 day lapse as the prior certificate effective date ended on November 1, 2016 and this year's certificate began on November 17, 2016. • 0 Cinema's commercial general liability coverage was maintained for November 17, 2017 through November 17, 2018; which represents a 16 day lapse of coverage as the prior certificate effective date ended on November 1, 2017 and this year's certificate began on November 17, 2017. Although this insurance certificate was outside our stated audit period, 0 Cinema's legal counsel provided this document as support for their claim. Additionally, on this certificate, the Products — Completed Operations Aggregate coverage given is $1,000,000 while the City requires a minimum of $2,000,000. 7 Finding -- 0 Cinema did not Satisfy Three (3) of the Six (6) Stated Annual Benchmarks Set Forth in Section 4.2.4 and they did not Create nor Submit en Annual Management Plan to City on or before June 1st of 2016 and 2017 as Required in Section 12.1.3 of the Management Agreement Page 17 of 22 Internal Audit Report Living Arts Trust, Inc. d/b/a 0 Cinema Management Aareement Review February 20, 2018 Section 4.2.4 of the management agreement states "Every year, throughout the Term of the Agreement, 0 Cinema shall achieve the following benchmarks: • • • Operate a minimum of 5 days a week, 48 weeks a year schedule. Present no less than 500 events throughout the year. Serve an anticipated 10,000 visitors per year. Increase attendance by 5% annually over prior years. Highlight and market 0 Cinema Miami Beach as part of 0 Cinema's annual marketing budget, which budget shall not be less than $50K. Provide Miami Beach residents with discounted quality cinematic offerings (10% discount) at least 12 times per year, for a minimum of one film screening per month." In addition to the aforementioned annual benchmarks, Section 12.1.3 of the management agreement requires 0 Cinema to provide an annual management plan to the City on or before June 1st of each year, commencing on October 1, 2015. The annual management plan should include the annual operating budget for the then current fiscal year, information regarding 0 Cinema's anticipated operations for such fiscal year, including planned operating and maintenance activities, anticipated capital improvements and capital equipment purchases, an anticipated budget, anticipated events and other uses at the theater, and planned equipment and furnishings purchases. 0 Cinema shall have the right from time to time to make any changes it deems necessary or appropriate to any such annual plan so long as the annual plan is consistent with their fulfillment of its obligations hereunder. The City Manager or his designee may request additional documentation and information as the City believes necessary, in order to confirm compliance with the annual benchmarks set forth in Section 4.2.4. In order to determine compliance with these benchmark and annual plan requirements set forth in Section 4,2.4 and Section 12.1.3, copies of event inventory and attendance reports, for the period October 1, 2014 through July 31, 2017, and the annual management plans were requested. It is important to note that the annual management plans requested were to be submitted on or before June 1st, 2016 and June 1st, 2017. Moreover, ticket sales revenue reports were requested to confirm that event inventory and attendance reports were accurate. During the audit, 0 Cinema provided an annual benchmark report, which was completed on a calendar year basis, on September 22, 2017 in an effort to demonstrate their compliance with Section 4.2.4. However, as further discussed in finding 8 of this report, 0 Cinema submitted consolidated financial documents on October 2, 2017, such as monthly profit and loss statements. The consolidation of financials included 0 Cinema's locations in Miami Beach, Wynwood, and Miami Shores. The format of the aforementioned reports did not allow Internal Audit to break down marketing expenditures on a monthly basis, which was required to calculate the annual benchmark amounts per fiscal year as they were furnished to us on a calendar year basis. However, the management agreement does not state specifically whether annual benchmarks are expected to be achieved on a fiscal or calendar year basis. Nonetheless, Internal Audit utilized 0 Cinema's annual benchmark report to determine compliance with Section 4.2.4. This report reveals deficiencies in three (3) out of the six (6) stated annual benchmarks as shown below: • 0 Cinema did not meet the required benchmark to increase attendance by 5% annually over prior years. 0 Cinema's 2016 attendance, 26,091 visitors, increased by 4.30% over their 2015 attendance of 25,016 visitors. Attendance increases from 2014 to 2015 Page 18 of 22 Internal Audit Report Living Arts Trust. Inc. d/b/a 0 Cinema Management Agreement Review February 20.2018 and 2016 to 2017 were not tested as attendance for 2014 only includes the period from October through December and the attendance for 2017 only includes the period January through July. • 0 Cinema's expenditures for 2015 and 2016 fell below the $50,000 minimum annual marketing budget required by the annual benchmarks stated in Section 4.2,4. Additionally, 0 Cinema did not provide a projected annual marketing budget for 2017.0 Cinema's stated marketing expenditures on their benchmark report showed $56,891.87 expended in 2014, $42,325.86 in 2015, $29,573.46 in 2016, and no projected annual marketing budget for 2017. • 0 Cinema did not meet the required benchmark to provide Miami Beach residents with discounted film screenings at least 12 times per year, for a minimum of one film screening per month. 0 Cinema's annual benchmark report showed that discounted or free film screenings were offered on one (1) occasion in 2014, sixteen (16) in 2015, four (4) in 2016, and four (4) in the seven months between January and July 2017. • 0 Cinema did not create nor submit an annual management plan to the City as required in Section 12.1.3 of the management agreement prior to the aforementioned report furnished on September 22, 2017. The table below summarizes the annual benchmark data provided by 0 Cinema on a calendar year basis: Annual Benchmark Operate a Minimum of 5 Days a Week, 48 Weeks a Year Schedule Present No Less than 500 Events Throughout the Year Serve an Anticipated 10,000 Visitors Per Year Increase Attendance by 5% Annually Over Prior Years Highlight and Market 0 Cinema Miami Beach as Part of 0 Cinema's Annual Marketing Budget, which Budget Shall not be Less Than $50K* Provide Miami Beach residents with Discounted Quality Cinematic Offerings (10% discount) at Least 12 Times Per Year, for a Minimum of One Film Screening Per Month 214 2017 NovDec 2015 2016 Jan --Jul Yes Yes Yes Yes 107 703 947 557 2,023 25,016 26,091 18,516 N/A N/A 4.30% N/A $ 56,891.87 $ 42,325.86 $ 29,573.46 Not Submitted 1 16 4 4 *Marketing expenditures were provided by 0 Cinema on a calendar year basis; annual marketing budgeted figures and expenditures were not submitted for calendar year 2017 Page 19 of 22 Internal Audit Report Living Arts Trust, Inc. d/b/a 0 Cinema Manaaement Agreement Review February20, 2018 0 Cinema's did not satisfy three (3) of the six (6) stated annual benchmark requirements set forth in Section 4.2 and they did not create the annual management plan required in Section 12.1.3 of the management agreement. Recommendation(s) 0 Cinema should adhere to the management agreement's established annual benchmarks and annual plan requirements set forth in Section 4.2.4 and Section 12.1.3. Moreover, the development of an anticipated budget, information regarding 0 Cinema's planned operating and maintenance activities, anticipated capital improvements, anticipated capital equipment purchases, and planned equipment and furnishings purchases should be included in the annual management plan. Lastly, the Office of Real Estate should request and review documentation annually from 0 Cinema to determine whether the designated benchmarks have been satisfied. Vendor Response (0 Cinema): Attendance - At the time of the execution of the management agreement, it was anticipated the attendance figures for the theater to be approximately 10,000 and increase from that starting point. However, due to unexpected growth from 0 Cinema's showings, attendance increased dramatically by 150%. Upon reaching such a high and surprising growth, maintaining the benchmark laid out in the management agreement were not and would not be able to be met consistently. This was not due to inability to achieve numbers but because it achieved near maximum growth in its first year. The solution to this issue is an amendment to the management agreement to accurately reflect the current nature of what took place regarding attendance and what will continue following the high growth in attendance. Marketing - 0 Cinema's marketing budget marks were in compliance with management agreement while 0 Cinema received necessary subsidies from the Knight Foundation for its marketing budget. Unfortunately, the Knight Foundation's subsidy was eliminated forcing 0 Cinema to absorb the loss, which it was unable to do absent a new subsidy. 0 Cinema did realign its advertising to continue to generate interest and even achieved higher attendance. In review of the management agreement, it is clear the purpose of the specific marketing budget benchmark was implemented to ensure proper marketing of the location to maximize attendance. However, in retrospect, 0 Cinema has been able to maintain, if not exceed the minimum 10,000 annual visitors each full year in operations. To penalize 0 Cinema for being cost effective all the while achieving the result would be inappropriate. In fact, the operations of the Miami Beach location are such that a subsidy would be necessaryto maintain the marketing budget required while simultaneously maintaining the viability in a similar fashion as with other organizations that receive a subsidy from the City of Miami Beach that are located on Miami Beach. Examples of such organizations are Miami New Drama and Rhythm Foundation whose management agreements with the City of Miami Beach are not nearly as costly as 0 Cinema's management agreement with the City of Miami Beach. In fact, Miami New Drama receives $255,000 for hosting 75 events a year and Rhythm Foundation receives $45,000 for hosting 35 events a year while 0 Cinema hosts at a minimum 700 events a year and receives $0 in subsidies. As can be established from this review, this benchmark should be amended to accurately reflect the success 0 Cinema has been able to achieve and not be penalized for it. Discounted Screenings - Concerning offering discounted tickets to Miami Beach residents, 0 Cinema in fact superseded such a requirement by offering free admission to City of Miami Beach residents as mentioned in the audit report. However, to ensure compliance with the management agreement, 0 Cinema will maintain a higher discount requirement for City of Page 20 of 22 Internal Audit Report Living Arts Trust, Inc. d/b/a 0 Cinema Management Agreement Review Februarv20, 2018 Miami Beach residents with a discount of 20% for showings on the first Monday of every month beginning on February 5, 2018. Management Plan -- Once more, 0 Cinema's financial and operational constraints did limit the time and function with which to resolve these matters. However, 0 Cinema will be able to provide a management plan in less than 30 days. It should be noted, 0 Cinema considers this benchmark to be rather onerous after conducting operations on the beach and, as such, requests this benchmark to be amended to fall in line with the operational flow of the theater. Additionally, this again, goes to the need of a subsidy as the many requirements set forth in the management agreement requiring compliance cannot be adequately maintained while operating the theater year round, 7 seven days a week at its current admission levels without the financial support of the city of Miami Beach. Management Response (Office of Real Estate), The Office of Real Estate requested the requirements set forth in Section 4.2.4 and Section 12.1.3 on July 24, 2017. 0 Cinema failed to provide this information to the Office of Real Estate and instead, upon commencement of this audit, provided their response to Internal Audit. 8. Finding — Living Arts Trust Inc. d/b/a 0 Cinema did not Adhere to the Recordkeeping Provisions Set Forth in Section 12 of the Management Agreement Section 12.1.1 of the management agreement requires 0 Cinema to keep at least three (3) years following each fiscal year, or for as long as such records are required to be retained pursuant to Florida Public Records Law (whichever is longer), all sales slips, rental agreements, purchase order, sales books, credit card invoices, bank books or duplicate deposit slips, and other evidence of operating revenues and expenses for such a period. Under this provision, 0 Cinema is also required to provide to the City, on or before 120 days following each fiscal year, a line item (i.e. by categories) statement of operating costs and revenues (and profit and loss) for the facility for the preceding fiscal year, including the number of tickets sold and events and other uses held, prepared in accordance with generally accepted accounting principles certified as accurate by 0 Cinema's Chief Accounting Officer or Chief Financial Officer. In order to determine whether 0 Cinema complied with the recordkeeping requirements set forth in Section 12.1.1, copies of credit card statements, monthly point of sale (POS) reports, federal returns, merchant activity statements, monthly profit and Toss statements, general ledger report, and bank statements for the audit period were requested. Additionally, the line item statement required to be prepared in accordance with generally accepted accounting principles and certified as accurate by 0 Cinema's Chief Accounting Officer or Chief Financial Officer and be submitted to the City on or before 120 days following each fiscal year was requested. The following deficiencies were noted: • Financial documents requested on August 24, 2017 were not available until October 2, 2017. Additionally, the financial documents provided such as monthly profit and loss statements for 0 Cinema Miami Beach were consolidated with additional 0 Cinema locations in Wynwood and Miami Shores and were not separated. • The line item statement to be prepared in accordance with generally accepted accounting principles and certified as accurate by 0 Cinema's Chief Accounting Officer or Chief Financial Officer was not prepared nor submitted. Page 21 of 22 Internal Audit Report Living Arts Trust, Inc. d/b/a 0 Cinema Management Aareement Review February 20, 2018 Recommendation(s) 0 Cinema should adhere to the management agreement's established recordkeeping requirements. If not, the City's Office of Real Estate should promptly notify 0 Cinema and take any corrective action outlined in the management agreement. Vendor Response (0 Cinema): 0 Cinema worked to be transparent and responsive to all requests from the Office of Internal Audit and began submitting financial documents and requested reports shortly after the August 24th request and completed said request as quickly as possible. 0 Cinema is aware the City of Miami Beach was unsatisfied with the overall time 0 Cinema took in completing the document request. Therefore, in order to assist in compliance with our management agreement, 0 Cinema hired a managing director, Sarah Roffman and retained accountant Billy Bolin of Ace Professional Services to oversee the recordkeeping of 0 Cinema. Ms. Roffman will be assisting in improving our recordkeeping and proper reporting to the City of Miami Beach along with the assistance of Billy Bolin. Though, this again, goes to the need of a subsidy as the many requirements set forth in the management agreement such as the recordkeeping cannot be adequately maintained while operating the theater at its current admission levels without the financial support of the city of Miami Beach. Management Response (Office of Real Estate): The Office of Real Estate requested the requirements set forth in Section 4.2.4 and Section 12.1.3 on July 24, 2017. 0 Cinema failed to provide this information to the Office of Real Estate and instead, upon commencement of this audit, provided their response to Internal Audit. EXIT CONFERENCE An exit conference was held on December 20, 2017 and the participants included Kathie Brooks (Assistant City Manager), Eva Silverstein (Tourism, Culture and Economic Development Director), Brandi Reddick (Cultural Affairs Program Manager), Benjamin Nussbaum (Revenue Manager), Manny Marquez (Assistant Finance Director), Sasha Gonzalez (Customer Services Manager), Mark Coolidge (Interim Internal Auditor) and Luis Medina (Auditor). The agreed upon revisions were made in the draft audit report which were subsequently sent to Living Arts Trust Inc. dba 0 Cinema for review. Management responses were solicited from all parties and were included above. F;\OBPI1$AUD\INTERNAL AUDIT FILES\DOC17-18\REPORTS M FINAL\Living Arts Trust Inc DBA 0 Cinema - Management Agreement Revlew.doc cc: Kathie G. Brooks, Assistant City Manager Eva Silverstein, Tourism, Culture and Economic Development Director Mark Milisits, Asset Manager John Woodruff, Chief Financial Officer Manny Marquez, Assistant Finance Director Page 22 of 22 Attachment 2 City of Miami Beach, 1700 Convention Center Drrve, Miami Beach, FL 33139, www.miamlbeachfl.gov Jimmy L. Morales, City Manager Tel: 305.673-7010, Fax: 305-673-7782 December 26, 2017 Mr, Kareem Tabsch Secretary Living Arts Trust, Inc. d/b/a 0 Cinema 90 NW 29th Street Miami, Florida 33127 Living Arts Trust, Inc. d/b/a 0 Cinema 2401 Swanson Avenue Miami, Florida 33133 Sent Via US Certified Mail Return Receipt No, 70151 7300001 82951406 With copies sent via email to:kareem@o-cinema.org Re: Management Agreement between the City of Miami Beach ("City") and Living Arts Trust, Inc. d/b/a 0 Cinema ("0 Cinema"), dated October 24th, 2014 ("Agreement"), for the management and operation of a portion of the Byron Carlyle Theater located at 500 71 Street, Miami Beach, Florida 33141 Notice of Default Dear Mr, Tabsch: Pursuant to Section 29 of the Agreement, the City hereby provides notice that 0 Cinema has failed to comply with its obligations under the Agreement, including the requirements of Sections 4.2.1(c)(v), 4.2.1(c)(vi), 5.3.13, 14 and 19 of the Agreement, as follows: 1. Failure to Obtain the Requisite State License for the Sale of Beer and Wine For Consumption on Premises, in violation of Sections 4,2,1(c)(v) and 19 of the Agreement. Section 4.2.1(c) of the Agreement provides that the "Beer and Wine Privileges" permitted under the Agreement are expressly "subject to 0 Cinema securing the requisite authorizations to sell the alcohol for consumption" at the Facility, including, as provided in Subsection 4.2.1.(c)(v), the obligation of 0 Cinema to "obtain the requisite state licenses." In addition, Section 19 of the Agreement requires 0 Cinema to "obtain and pay for all permits and licenses necessary for the conduct of its business and agrees to comply with all laws „ . of the City, Miami -Dade County, the State of Florida, and the U.S. Government now in force or hereafter to be adopted." Based on the City's review of 0 Cinema's sales summary report, showing beer and wine sales, for their operations at the Byron Carlyle Theater (Facility) for the period October 1, 2014 through July 31, 2017, 0 Cinema's failure to provide a copy to the City of a Department of Business and Professional Regulation (DBPR) state license required to sell beer and wine in the State of Florida, and an online search of DBPR's publicly accessible records confirming that 0 Cinema does not possess and has not applied for the aforementioned state license, 0 Cinema has failed to comply with its obligation, under Section 4.2.1(c)(v) and Section 19 of the Agreement, to obtain the requisite state licenses to sell beer and wine for consumption at the Facility, as required by Florida law, and does not possess the required Florida Department of Business & Professional Regulation License or Permit to Sell Alcoholic Beverages, pursuant to Section 563.02 (Beer) and Section 564.02 (Wine), 2017 Florida Statutes at the Facility. In addition, 0 Cinema has failed to obtain and pay for the Local Business Tax Receipt ("BTR") in the ' appropriate business tax category for alcoholic beverage establishments serving beer and wine for consumption on premises, as required by Chapter 102 of the City of Miami Beach Code. Accordingly, the City hereby orders 0 Cinema to immediately cease and desist from the sale or service of any alcoholic beverages at the Facility, until such time as 0 Cinema has obtained the requisite State of Florida alcoholic beverage license, and complied with the requirements of Florida law, the City of Miami Beach Code, and the Agreement with respect to the sale or service of alcoholic beverages at the Facility. 2. Failure to Remit City of Miami Beach Resort Taxes, in violation of Sections 4.2.1(c)(vi) and 19 of the Agreement. Section 4.2.1(c)(vi) of the Agreement provides that "0 Cinema shall collect and remit resort taxes to the City, as required by Section 102-306 of the City Code." 0 Cinema has not registered with the City's Resort Tax Section and has not remitted the applicable Resort Taxes to the City, for the period August 1, 2017 through November 30, 2017, pursuant to City Code Section 102-307. Accordingly, the failure to cure the foregoing within the time period prescribed in Section 29.1.2.1, shall constitute an Event of Default. 3. Failure to Pay Florida Sales Tax, in violation of Sections 5.3.13 and 19 of the Agreement. Section 5.3.13 of the Agreement requires 0 Cinema to "act as a collection agent for the City on sales taxes from operation of the Facility and remit to the State of Florida such sales taxes". Additionally, Section 19 provides that "0 Cinema shall also be solely responsible for payment of any and all taxes levied on the Facility and its operations." Based on the City's review of 0 Cinema's sales summary report, showing sales taxes collected on concessions, for their operations at the Byron Carlyle Theater (Facility) for the period October 1, 2014 through July 31, 2017, and 0 Cinema's failure to provide copies of state sales tax returns to the City, 0 Cinema has not paid Florida sales tax, as required by Florida law and the Agreement, for the period October 1, 2014 through July 31, 2017. Accordingly, the failure to cure the foregoing within the time period prescribed in Section 29.1.2.1, shall constitute an Event of Default. 4. Failure to Satisfy the City's Insurance Requirements, In Violation of Section 14 of the Agreement Section 14 of the Agreement requires 0 Cinema to maintain at its own cost and expense, Insurance coverage, meeting the Agreement's established coverage amounts, at all times throughout the term of the Agreement. Additionally, Section 14.2 of the Agreement requires 0 Cinema to provide workers' compensation insurance coverage to employees. 0 Cinema has failed to comply with these requirements, as the City's review of 0 Cinema's insurance certificates revealed reductions of insurance coverage occurred during the period of November 2015 through November 2017 without City approval, an online search of the Florida Division of Workers' Compensation Compliance Proof of Coverage search page showed that 0 Cinema's insurance carrier reported zero (0) employees for the organization from November 2015 to the search date of September 19, 2017, and the City's Insurance Tracking Services website shows that a current insurance certificate has not been submitted to the City for approval. Accordingly, the failure to cure the foregoing within the time period prescribed in Section 29.1.2.2, shall constitute an Event of Default. 2 O CINEMA'S FAILURE TO CURE THE ABOVE SPECIFIED DEFAULTS, WITHIN THE RESPECTIVE TIME PERIODS PROVIDED IN THE AGREEMENT, SHALL ENTITLE THE CITY TO AVAIL ITSELF OF ANY AND ALL RIGHTS AND REMEDIES UNDER THE AGREEMENT INCLUDING, WITHOUT LIMITATION, TERMINATION OF THE AGREEMENT. Finally, the foregoing notice is without waiver of City's rights, pursuant to Section 38.8 of the Agreement, to take action with respect to any other violation or default of the Agreement not specified herein, and accordingly, the City reserves all rights that may be available to it at law and in equity. Should you have any questions, please do not hesitate to contact Mark Milisits, Asset Manager, at 305-673-7193. PLEASE GOVERN YOURSELF ACCORDINGLY. Cc: Via E-mail only: Eva Silverstein, Director of Tourism, Culture and Economic Development Mark Milisits, Asset Manager 3 Attachment 3 January 26, 2018 City of Miami Beach c/a Jinuny L. Morales, City Manager 1700 Convention Center Drive Miami Beach, FL 33139 Re: Response to Notice of Default Dated December 26, 2017 in reference to the Management Agreement between the City of Miami Beach ("City") and Living Arts Trust, Inc. d/b/a 0 Cinema ("0 Cinema"), dated October 24, 2014 (`Agreement"), for the management and operation of a portion of the Byron Carlyle Theater located at 500 71 Street, Miami Beach, Florida 331.41, To Whoin It May Concern: Please be advised that the undersigned represents 0 Cinema in the present matter. 0 Cinema sets forth the following in response to your letter regarding the October 24, 2014 Agreement: Cinema In the time ceased. currently in the process of obtaining a license for the sale of wine and beer. nce the Notice of Default was sent to 0 Cinema, sales of wine andbeer have 2. 0 Cinema is presently classified as a 501 (e)(3) charitable organization. By virtue of its classification as a charitable not-for-profit organization, 0 Cinema is not subject to the Miami Beach Resort Tax. Section 102-308 (2) of the Miami Beach City Code specifically states that no tax ,shall be unposed upon "any nonprofit charitable institutions when engaged in carrying on the customary ... nonprofit charitable activities." 0 Cinema is clearly acting in accordance with the City Code. 3,. 0 Cinema is in the process of registering for its Sales and Use Tax as well as paying amounts due towards the Florida Sales Tax. Currently, payments are being arranged with the state. l-Iowever, it should be noted that only its concession revenues are subject to sales tax. It should be noted 0 Cinema is exempt from the payment of sales tax on admissions charges by virtue of its classification as a not-for-profit entity under s. 501(c)(3) of the Internal Revenue Code as per Florida Statute 212.04(2)(a)(2). Additionally, as per the management agreement with the City of Miami Beach, 0 Cinema has sixty (60) days to resolve issues if it is in process as set forth herein. And when in process of such issues, 0 Cinema shall not be deemed to be in default, FLORIDA NEW Ji: Y NEW YORK 2665 S. 13ayshorc Drive, Ste. 220, Coconut Grove, FL 33133 Phone: 877.404.5781 17ax: 877.788.6297 Web: sgarcialaw.com 4. From the beginning of the execution of the Agreement in 2014 to the present date, 0 Cinema has always maintained, at its own cost and expense, insurance coverage that meets the established coverage amount in the Agreement, This includes worker's compensation insurance coverage, The insurance documentation is attached to this letter. We hope this letter will resolve any issue the City alleges in its Notice of Default letter to 0 Cinema dated December 26, 2017, Please contact me with any questions or concerns. You may contact my office at: 2665 S. Bayshot.e Dr., Ste. 220; Coconut Grove, FL 33133 or at the contact information listed above. Sincerely, Senen Garcia, Esq. Encl. FLORIDA NEW JERSEY NEW YORK 266$ S. BayShOle Drive, Ste. 220, Coconut (irove, Fl, 33133 Phone'. 877.404.5781 Fax: 877.788,6297 Web: sgarcialaw.com li --� OCINE-2 OP ID: AB AC©R© CERTIFICATE OF LIABILITY INSURANCE DATE(MM/DDIYYYY) �...r 01106/2018 THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW, THIS CERTIFICATE OF INSURANCE DOES NOT CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED REPRESENTATIVE OR PRODUCER, AND THE CERTIFICATE HOLDER, IMPORTANT: If the certificate holder le an ADDITIONAL INSURED, the pollcy(Ies) must bo endorsed, If SUBROGATION IS WAIVED, subject to the terms and conditions of the policy, certain policies may require an endorsement. A statement on this certificate does not confor rights to the certificate holder In lieu of such endorsement(s). CONTACT - lorlaPRODUCER NAME, LEIGH B NFEDELMAN Florida Assurers, Inc, PHonTTT 306 632 2471 rA�` 306 673 0180 777 Arthur Godfrey Road #400 , , 1�w1 t)..._ ..._. IAIC, Not.. Mlami Beach FL 33140 s•MAIL LEIGH B. NEEDELMAN _ADDRESS: INSURERIS AFFORpiNG COVERAGE NAIL N INSURER A t SENECA INSURANCE COMPANY 10729 INSURED 0 -Cinema Miami Beach INSURER e :WILSHIRE INSURANCE COMPANY Vivian Marthell 2401 Swanson Avenue INSURER C_ Miami, FL 33133 INSURER D: INSURER E INSURER F COVERAGES CERTIFICATE NUMBER: REVISION NUMBER: THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED. NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS. INSR ADD'CSIBR POLICY EFF POLICY EXP INFO INvp POLICY NUMBER IMM/DD/YYYYI IMMIOD/YYYY) L7R TYPE OF INSURANCE X I COMMERCIAL GENERAL LIABILITY CLAIMSMADE [X— OCCUR Y BAK1008034 GEN'L AGGREGATE LIMIT APPLIES PER: POLICY 1.,.J JECT II '.......I LOC OTHER: AUTOMOBILE LIABILITY _ ANY AUTO - ALL OWNED AUTOS HIRED AUTOS SCHEDULED AUTOS NONOWNED AUTOS UMBRELLA. LIAB EXCESS LIAR 1 DED P RETENTION $ WORKERS OM ENSATION AND EMPLOYERS' LIABILITY Y / N ANY PROPRIETOR/PARTNER/EXECUTIVE OFFICER/MEMBER EXCLUDED? L_ N / A (Mandatory In NH) If oa describe undor rJ B� RIPTION OF OPERATIONS below OCCUR CLAIMS•MADE 11/01/2014 11/01/2016 A Property Section BAK1008034 11/01/2014 Special Form INCLUDING THEFT 1/01/2016 LIMITS EACH OCCURRENCE $ DAMAGE TO -RENTED PREMISES (Ea occurrence) $ MED EXP (Any one person) $ PERSONALS ADV INJURY $ GENERAL AGGREGATE $ PRODUCTS • COMP/OP AGG $ I$ COMBINED SINGLE LIMIT $ SEa accident_,e______.__, BODILY INJURY (Per person) $ BODILY INJURY (Poi -accident) $ P OPERr eccidenTYnDAMAGE $ ( e EACH OCCURRENCE $ AGGREGATE '$ $ STATUTE I I ERH E.L. EACH ACCIDENT $ E.L. DISEASE • EA EMPLOYEE $ E.L, DISEASE • POLICY LIMIT $ Property Deductibl DESCRIPTION OF OPERATIONS I LOCATIONS / VEHICLES (ACORD 101, Additional Remarks Schedule, may be attaohed If more space la required) Holder Is listed as additional insured and Waiver of Subrogation in Favor of The City of Miami Beach CERTIFICATE HOLDER CANCELLATION City of Mlarnl Beach c/o Insurance Tracking Service Inc, (ITS) P.O, Box 20270 Long Beach, CA 90801 1,000,000 100,000 5,000 1,000,000 2,000,000 2,000,000 55,000 1,000 SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, NOTICE WILL BE DELIVERED IN ACCORDANCE WITH THE POLICY PROVISIONS. AUTHORIZED REPRESENTATIVE LEIGH B. NEEDELMAN 1988-2014 ACORD CORPORATION. All rights reserved. ACORD 25 (2014/01) The ACORD name and logo are registered marks of ACORD --�� OCINE-2 OP ID; AB ACC) 12 © DATE (MMIDD/YYYY) CERTIFICATE OF LIABILITY INSURANCE I 01/05/2018 THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. THIS CERTIFICATE OF INSURANCE DOES NOT CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED REPRESENTATIVE OR PRODUCER, AND THE CERTIFICATE HOLDER. IMPORTANT: If tho certificate holder Is an ADDITIONAL INSURED, the policy(les) must be endorsed. If SUBROGATION IS WAIVED, subject to the terms and conditions of the policy, certain policiesmay require an endorsement. A statement on this certificate does not confer rights to tho certificate holder in lieu of such endorsement(s). PRODUCER CONTACT LEIGH B. NEEDELMAN Florida Assurers, Inc. ____ _. ____.. 777 Arthur Godfrey Road #400 4A. E7 :306-532-2471 Lin c�NN� 306673-0190 673-640'— Miami Be N �DELMAN Wor Gas: INSURED 0 -Cinema Miami Beach Vivian Marthell 2401 Swanson Avenue Miami, FL 33133 INSURER(S)AFFORDINGCOVERAGE INSURER A:SENECA INSURANCE COMPANY INSURER B;WILSHIRE INSURANCE COMPANY INSURERC:TECHNOLOGY INSURANCE CO INSURER D; NAIL f! 10729 INSURER E INSURER F COVERAGES CERTIFICATE NUMBER: REVISION NUMBER: THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED, NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY ,ERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN 18 SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH oOLUCIES, LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS. ILTR TYPE OF INSURANCE ADDL BURR POLICY EFF POLICY EXP NSD WVD POLICY NUMBER IMMIDD/YYYYI (MMIDDIYYYY) A X COMMERCIAL GENERAL LIABILITY CLAIMS -MADE I X _I OCCUR B Liquor Liability C A GEN'L AGGREGATE LIMIT APPLIES PER: POLICY r PRO-- jl LOC JECT J OTHER: AUTOMOBILE LIABILITY ANY AUTO ALL OWNED AUTOS HIRED AUTOS UMBRELLA LIA EXCESS LIAR SCHEDULED AUTOS NON•OWNED AUTOS rlOCCUR CLAIMS•MADE Y BAK1008947 04100089510 DE0 I I RETENTON$ WORKERS COMI,ENSATION AND EMPLOYERS' LIABILITY ANY PROPRIETOR/PARTNER/EXECUTIVE Y!N TWC3516463 OFFICER/MEMBER EXCLUDED? N 1 A (Mandatory In NH) If yyon describe under DESCRIPTION OF OPERATIONS below Property Section BAK1008947 Special Form INCLUDING THEFT LIMITS EACH OCCURRENCE $ t1,1 I ED 11/06/2016 11/01/2016LAMAUt PREMISE$ (Ep ccu encs)_ $ 11/11/2015 11/11/2016 MED EXP (Any one person) i $ 1,000,000 10.0,000 5,000 PERSONAL & ADV INJURY $ 1,000,000 GENERAL AGGREGATE $ 2,000,000 PRODUCTS • COMP/OP AGO $ 2,000,000 Liquor LI $ 1MM/2MM COMBINED SINGLE LIMIT (Ea accident) $ BODILY INJURY (Per person) $ BODILY INJURY (Por accident) $ ..PROPCOTTDAMAWE _far accldepJ_.. EACH OCCURRENCE AGGREGATE _,..._LSTATUTE I 1011 $ $ 11/18/2015 11/18/2016 E.L. EACH ACCIDENT $ E.L. DISEASE • EA EMPLOYEE $ EL. DISEASE • POLICY LIMIT $ 11/06/2016 11/01/2016 Property Deductibl DESCRIPTION OF OPERATIONS / LOCATIONS / VEHICLES (ACORD 101, Additional Remarks Schedule, may be attached If more space Is required) Holder Is listed as additional insured and Waiver of Subrogation in Favor of The City of Miami Beach CERTIFICATE HOLDER City of Miami Beach c/o Insurance Tracking Service Inc, (ITS) P.O. Box 20270 Long Beach, CA 90801 CANCELLATION 100,000 100,000 500,000 55,000 1,000 SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, NOTICE WILL BE DELIVERED IN ACCORDANCE WITH THE POLICY PROVISIONS, AUTHORIZED REPRESENTATIVE LEIGH B. NEEDELMAN @1988-2014 ACORD CORPORATION. All rights reserved. ACORD 25 (2014/01) The ACORD name and logo are registered marks of ACORD OCINE-2 OP ID: AB ACC; Fr© CERTIFICATE OF LIABILITY INSURANCE DATE(MMIDDIYYYY) �..•--'' 01/05/2018 THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER, THIS CERTIFICATE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. THIS CERTIFICATE OF INSURANCE DOES NOT CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED REPRESENTATIVE OR PRODUCER, AND THE CERTIFICATE HOLDER. IMPORTANT: If the certificate holder Is an ADDITIONAL INSURED, the policy(les) must be endorsed. If SUBROGATION IS WAIVED, subject to the terms and conditions of the policy, certain policies may require an endorsement. A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s). PRODUCER CONTACT LEIGH B. NEEDELMAN Florlda Assurers, Inc. 777 Arthur Godfrey Road #400 l/ "� ,); 305-532-2471 I V, No): 306-673.0190 Miami Beach FL 33140 �tA LEIGH B. NEEDELMAN A DRESS: INSURED O -Cinema Miami Beach Vivian Marthell 2401 Swanson Avenue Miami, FL 33133 INSURER(S) AFFORDING COVERAGE NAIC f INSURER A :SENECA INSURANCE COMPANY 10729 INSURER B :WILSHIRE INSURANCE COMPANY INSURER C : TECHNOLOGY INSURANCE CO INSURER D ,. INSURER E : INSURER 0: COVERAGES CERTIFICATE NUMBER: REVISION NUMBER: THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED. NOTVVITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES, LIMITS SHOWN MAY HAVE BEEN REDUCED BY ,AID CLAIMS. INOR yIUE. LIR TYPE OF INSURANCE ''Nt7DUL S'VVSUqR1 POLICY NUMBER POLICY EFF POLICY $ POLICY LIMITS MM/DD/YYYY) fMMIDD) A X COMMERCIAL GENERAL LIABILITY EACH OCCURRENCE I $ i 1 CLAIMS -MADE � XJ OCCUR Y BAK-1009832 11/17/2018 11/01/2017 PREMSEB( 0aoccurance) 1 $ 13 Liquor Liability CQ00089511 11/1112016 11/11/2017 MED EXP (Any one person) $ 1 PERSONAL & ADV INJURY $ GENT AGGREGATE LIMIT APPLIES PER: AGGREGATE $ AGO I$ 111I POLICY [� JECT LI LOC _I OTHER: Liquor LI 1 $ AUTOMOBILE LIABILITY GOMDINED SINGLE LIMIT $ (Ea acddent) BODILY INJURY (Per person) $ BODILY INJURY (Per accident) $ PROPERTY DAMAGE -(Per accident) ANY AUTO ALL OWNED AUTOS HIRED AUTOS SCHEDULED AUTOS NON -OWNED AUTOS UMBRELLA LIAR OCCUR EXCESS LIAR CLAIMS.MADE DED I I RETENTION$ WORI{ERS .OMPENSATION AND EMPLOYERS' LIABILITY C ANY PROPRIETOR/PARTNER/EXECUTIVE YI"'� OFFICER/MEMBER EXCLUDED? (Mandatory In NH) IfeB describe under DES5RIPf I9N OF OPERATIONS below A Property Section Special Form NIA TWC3588568 11/18/2016 11/18/2017 BAK1009832 INCLUDING THEFT EACH OCCURRENCE S AGGREGATE $ STATUT€J l SRH E.L. EACH ACCIDENT $ E.L. DISEASE - EA EMPLOYEEI $ E.L. DISEASE. POLICY LIMIT 1 $ 11/17/2016 11/17/2017 Property Deductibl DESCRIPTION OF OPERATIONS 1 LOCATIONS / VEHICLES (ACORD 101, Additional Remarks Schedule, may be attached if more space Is requlred) Holder Is listed as additional Insured and Waiver of Subrogation In Favor of The City of Miami Beach CERTIFICATE HOLDER CANCELLATION City of Miami Beach c/o Insurance Tracking Service Inc, (ITS) P.O. Box 20270 Long Beach, CA 90801 1,000,000 100,000 6,000 1,000,000 2,000,000 2,000,000 1 MM/2MM 100,000' 100,000. 500,00C 56,000 1,00r SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, NOTICE WILL BE DELIVERED IN ACCORDANCE WITH THE POLICY PROVISIONS. AUTHORIZED REPRESENTATIVE LEIGH B. NEEDELMAN © 1988.2014 ACORD CORPORATION. All rights reserved. ACORD 26 (2014/01) The ACORD name and logo are registered marks of ACORD � •�-�� OP ID; AI3 ACcaR© DATE (MMIDDIYYYY) CERTIFICATE OF LIABILITY INSURANCE 01/05/2018 THIS CERTIFICATE 18 ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. THIS CERTIFICATE OF INSURANCE DOES NOT CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED REPRESENTATIVE OR PRODUCER, AND THE CERTIFICATE HOLDER. IMPORTANT: If the cortiflcate holder Is an ADDITIONAL INSURED, the policy(las) must be endorsed. If SUBROGATION IS WAIVED, subject to the terms and conditions of the policy, certain policies may require an endorsement. A statement on this certifloate does not confer rights to the certificate holder In Lieu of such endorsement(s). PRODUCER CONTACT LEIGH B. NEEDELMAN Florida Assurers, Inc. NAND' 777 Arthur Godfrey Road #400 A o No. Ext1:305-632.2471 I FAX No) 306.673-0190 Miami Beach FL 33140 'Am LEIGH B. NEEDELMAN ADDRESS? PRODUCER CUSTOMER INSURED 15=Cinema Miami Beach Living Arts Trust dba 11107 NE 9 Avenue Miami, FL 33161 OCINE 2 INSURER(8) AFFORDING COVERAGE INSURER A:Crum &Forster Specialty Ins Co INSURER I ILLINOIS UNION INSURANCE CO INSURER C : TECHNOLOGY INSURANCE CO INSURER D INSURER E INSURER F NAIC COVERAGES CERTIFICATE NUMBER: REVISION NUMBER: THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED. NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES, LIMITS SHOWN MAY HAVE BEEN REDDpUCyyED BY PAID CLAIMS. ILTR^'y TYPE OF INSURANCE (NSR ��UDR POLICY NUMBER (MOLICY RE IMo/Dp YYY) LIMITS I$ `DAMAGE TO 11ENTCp"`""'__._. PREMISES (Ea occurrence) I $ MED EXP (Anyoneperson) _I $ PERSONAL& ADV INJURY I$ GENERAL AGGREGATE $ PRODUCTS - COMP/OP AGO $ GENERAL LIABILITY A X COMMERCIAL GENERAL LIABILITY J CLAIMS,MADE LXj OCCUR GEN'L AGGREGATE LIMITAPPLIES PER: I POLICY [ ^1.2-g 1 1 LOC AUTOMOBILE LIABILITY ANY AUTO ALL OWNED AUTOS SCHEDULED AUTOS HIRED AUTOS NON•OWNED AUTOS UMBRELLA LIAR EXCESS LIAR DEDUCTIBLE RETENTION r; WORKERS COMPS OATION C A B OCCUR CL MS -MA y BAK•38651-1 AND EMPLOYERS' LIABILITY Y / N ANY PROPRIETOR/PARTNER/EXECUTIVE OFFICER/MEMBER EXCLUDED? (Mandatory In NH) It yes,describe under DESRIPTION OF OPERATIONS below Property Liquor Liability NIA TWC3668634 BAK-36651-1 LQRFLF137307754 11/17/2017 11/17/2018 11/18/2017 11/18/2018 11/17/2017 11/11/2017 11/17/2018 11/11/2018 DESCRIPTION OF OPERATIONS / LOCATIONS / VEHICLES (Attach ACORD 101, Additional Remarks Schedule, I1 more space Is required) CERTIFICATE HOLDER CITYQFM CITY OF MIAMI BEACH 3RD MORTGAGEE 1700 CONVENTION CENTER DRIVE MIAMI BEACH, FL 33139.0000 CANCELLATION EACH OCCURRENCE- COMBINED CCURRENCE COMBINED SINGLE LIMIT $ (Ea accident) BODILY INJURY (Per person) $ BODILY INJURY (Per accident) $ PROPERTY DAMAGE (PER ACCIDENT) $ EACH OCCURRENCE AGGREGATE WC STATU•OTH. _...,-._11QRYT,IMITS I ems,,, EAOH ACCIDENT El, DISEASE - EA EMPLOYEE 1,000,000 100,000 5,000' 1,000,00C' 2,000,00&' 1,000,000 E.L, DISEASE - POLICY LIMIT 1 $ PP Liquor Li 100,000 100,00C. 500,00C 55,000 2,000,000 SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, NOTICE WILL BE DELIVERED IN ACCORDANCE WITH THE POLICY PROVISIONS, AUTHORIZED REPRESENTATIVE LEIGH B. NEEDELMAN 01988-2009 ACORD CORPORATION. All rights reserved, ACORD 26 (2009/09) The ACORD name and logo are registered marks of ACORD Attachment 4 City of Miami Ueacli, 1700 Convention Contor Drive, Miami Beach, FL 33139, www.ralemlboachfl.gov Jimmy L. Morales, City Manager Tel: 305-673-7010, Fax: 305.673-7782 March 8, 2018 Living Arts Trust, Inc. d/b/a 0 Cinema 2401 Swanson Avenue Miami, Florida 33133 Senen Garcia, Esq. 2665 8, Bayshore Drive, Ste, 220 Coconut Grove, FL 33133 Sent Via US Certified Mail Return Receipt: 70151730000182951437 Sent Via E -Mail (Senen(5.saarcialawcorn) Re: Notice of Failure to Cure Defaults Under Management Agreement between the City of Miami Beach ("City") and Living Arts Trust, Inc. d/b/a 0 Cinema ("0 Cinema"), dated October 24th, 2014 ("Agreement"), for the management and operation of a portion of the Byron Carlyle Theater located at 500 71 Street, Miami Beach, Florida 33141 Dear Mr. Garcia: We are in receipt of your correspondence dated January 26, 2018 in response to the City's Notice of Default dated December 26, 2017 ("Notice of Default"). Put simply, the City is disappointed by the response and 0 Cinema's failure to cure the defaults outlined in the Notice of Default. The City disagrees with several assertions made in 0 Cinema's correspondence regarding its obligations at the Byron Carlyle Theater ("Facility"). In the Notice of Default, the City outlined four separate events of default, all of which could have reasonably been cured within the thirty (30) day cure period, which expired on February 21, 2018,1 Based on 0 Cinema's failure to cure the numerous defaults within the cure period, the City hereby places 0 Cinema on notice that the cure period has expired and that 0 Cinema is now in default of its Agreement with the City, for the reasons as set forth below. 1. Failure to Remit Florida Sales Tax, in violation of Sections 5.3.13 and 19 of the Agreement. 1 The City delivered the Notice of Default to 0 Cinema by email, in addition to delivering the Notice of Default by certified mail to the address 0 Cinema provided In Section 32 of the Agreement. On Jan, 22, 2018, the City received a "return to sender" delivery notification, because the addressee had moved and left no forwarding address. Pursuant to Section 32 of the Agreement, as the Notice of Default was "deemed duly served if mailed by registered or certified mail," the Notice of Default was deemed duly served on January 22, 2018, the date of the return of service (even though 0 Cinema and its counsel had actual notice well before then), Accordingly, the 30 day notice period therefore expired February 21, 2018. Living Arts Trust, Inc. d/b/a 0 Cinema Senen Garcia, Esq. March 8, 2018 Page 2 As a threshold consideration, it is inconceivable that 0 Cinema has still failed to remit Florida sales tax to the state despite the City placing 0 Cinema on notice of its failure to do since 2014. Since the inception of this Agreement, 0 Cinema has failed to register with the Florida Department of Revenue to remit applicable sales taxes. In its response to the City's Notice of Default, 0 Cinema acknowledges that it is required to collect and remit sales tax on concession revenues, and has failed to do so. 0 Cinema has similarly acknowledged its obligation to collect and remit sales tax to the State since as early as August 31, 2017, during a meeting with staff from the City's Office of Internal Audit. 0 Cinema's failure complete its registration with the Florida Department of Revenue and remit applicable sales taxes within the 30 day cure period is a default of 0 Cinema's obligations as set forth in Sections 5.3.13 and 19 of the Agreement. Specifically, Section 5.3.13 of the Agreement required, and 0 Cinema has failed, to property and timely "act as a collection agent for the City on sales taxes from operation of the Facility and remit to the State of Florida such sales taxes." To this end, the remittance of applicable sales taxes to the Florida Department of Revenue is a default that was capable of being cured within a 30 day cure period. Indeed, this is a basic obligation of any business, and it is difficult to comprehend how 0 Cinema could have permitted this to even become an event of default, much less fail to cure after the City's audit and a formal Notice of Default from the City. Accordingly, the failure to remit applicable taxes to the State of Florida is a default under the Agreement and 0 Cinema has failed to cure despite more than thirty (30) days written notice from the City.2 2. Failure to Remit City Resort Taxes, in violation of Sections 4.2.1(c)(vi) and 19 of the Agreement. The City disagrees with 0 Cinema's assertion that it is somehow exempt from remitting resort taxes collected from the general public for food and beverage sales at the Facility. As you are aware, 0 Cinema must "collect and remit resort taxes to the City, as required pursuant to Section 102-306 of the City Code" (and Section 4.2.1(c)(vi) of the Agreement). To begin with, the City disagrees with any assertion (nor did 0 Cinema provide any legal authority for the proposition), that the operation of a food and beverage concession, incidental to 0 Cinema's charitable purpose of promoting and exhibiting films, is itself a charitable non-profit activity that would somehow exempt 0 Cinema from complying with the requirement to collect resort taxes from the general public on sales of food and beverage items. Further, resort taxes are not "imposed upon" 0 Cinema in connection with its nonprofit charitable activities. Rather, resort taxes are only to be required and imposed upon patrons 2 Separately, 0 Cinema claims it is exempt from sales tax on its film admission or ticket sales pursuant to Section 212.04(2)(a)(2) of the Florida Statutes, which provides for an exemption from sales tax for "dues, membership fees, and admission charges imposed by not-for-profit sponsoring organizations." Notwithstanding this assertion, whether or not true, 0 Cinema has yet to register with the State to pay applicable sales taxes (which at a minimum includes sales taxes on concession revenues), much Tess obtain an informal or formal opinion from the Department of Revenue with respect to any purported exemption for any portion of its operations. 2 Living Arts Trust, Inc. d/b/a 0 Cinema Senen Garcia, Esq. March 8, 2018 Page 3 who purchase food and beverage services at the Facility. 0 Cinema's obligation, pursuant to Section 102-309 of the City Code and its Management Agreement with the City, is to collect and remit resort taxes at the time of sale. Moreover, the City's Office of Internal Audit has observed that 0 Cinema has already collected taxes collected from the general public. The City submits that there is no exemption available under the law that would permit 0 Cinema to falsely represent to its customers that it was charging them a tax, or which would permit 0 Cinema to actually collect monies from its customers under such fraudulent pretenses, when in fact 0 Cinema merely intended to keep those funds for itself on the basis of any purported exemption from the very same tax it collected from its patrons. Again, 0 Cinema's complete disregard of the Agreement and City Ordinances to remit resort taxes it has already collected from its patrons, serves as a separate ground for termination of the Agreement. 3. Failure to Obtain the Requisite Licenses for the Sale of Alcohol, in violation of Sections 4.2.1(c)(v) and 19 of the Agreement. In your January 26, 2018 response, you asserted that "0 Cinema is in the process of obtaining a license for the sale of wine and beer" and that since the City's Notice of Default, "sales of wine and beer have ceased." The sale or service of any alcoholic beverages, at any time, without a license, is an event of default under Sections 4.2.1(c)(v) and 19 of the Agreement. Moreover, since City's Notice of Default, 0 Cinema has not provided the City with any evidence of appropriate licensure to permit any beer or wine to be served at the Facility. Notwithstanding City's notice to 0 Cinema to cease and desist from the sale or service of alcoholic beverages at the Facility, and notwithstanding 0 Cinema's assertion that sales of wine and beer have ceased, it appears that 0 Cinema continue to serve or sell alcoholic beverages at an advertised "mimosa" event on February 11, 2018, in violation of Sections 4.2.1(c)(v) and 19 of the Agreement.3 0 Cinema's complete disregard of its obligations under Florida law and the City Code with respect to the sale or service of alcoholic beverages, is a separate default under the Agreement. 4. Failure to Satisfy the City's Insurance Requirements, in violation of Section 14 of the Agreement The City disagrees with your assertion that 0 Cinema has maintained uninterrupted insurance coverage satisfying the established amounts required by the Agreement, including lapses that were noted on policy coverage dates for the past three years, including current Insurance Policy 3 Based on the foregoing event, 0 Cinema was cited by the City of Miami Beach's Code Enforcement Division, for violating Section 6-2(a) of the City Code. A copy of Miami Beach's Code Enforcement Violation: CC2018-04824 is attached as Exhibit "A". Living Arts Trust, Inc. dlb/a 0 Cinema Senen Garcia, Esq, March 8, 2018 Page 4 BAK-366651-1, which became effective on November 17, 2017 (following the expiration of Policy BAK-1009832 16 days prior on November 1, 2017), Further, with respect to the current certificate, the Products—Completed Operations Aggregate coverage limit is listed as $1,000,000, whereas Section 14,1 of the Agreement requires a minimum of $2,000,000. The cure period has expired and 0 Cinema has yet to satisfy its contractual obligation to maintain the specific insurance coverages required by the Agreement. Conclusion Based on 0 Cinema's failure to cure the numerous defaults set forth above within the cure period, the City hereby places 0 Cinema on notice that the cure period has expired and 0 Cinema is in material default of Its Aareement with the City. I intend to advise the City Commission of the status of this matter, and hereby reserve all rights and remedies available to the City under the Agreement and Florida law. By separate notice to 0 Cinema, I intend, in the next few weeks, to advise 0 Cinema of the remedies the City will exercise in connection with the foregoing defaults. Should you have any questions, please do not hesitate to contact Mark Milisits, Asset Manager, at 305-673-7193. PLASE GOVI RN YOURSELF ACCORDINGLY. i r y L. Msrales it Manager CC: Eva Silverstein, Director of Tourism, Culture and Economic Development (via E-mail only) Mark Milisits, Asset Manager (via E-mail only) Exhibit A 01, , • ddress of:Violation: cartel Number': egal Description: rolator Nau ailing Address: Notice of Vlolation r ore 2/22/2018 1 T'"1° 9: OAM 600 71 ST 0232110021070 NORMANDY BEACI-1 SOUTH PB 21-54 Code Compliance Department 555 - 17th Street Miami Beach, Florida 33139 Tele: 305.673.7555 Fax: 305.673.7012 1CuNttr CC2018-04824 1 Will LOTS 1-2-11 & 12 BLK 14 LOT SIZE11-i-RE6ULAR OR 68-4990 0501 3 Living Arts Trust Inc DBA 0 Cinema C/ 0 Vivian Martha 11107 NE 9th Avenue I City and Stale Bl.cayne Park, FL I Code 33161 The City of Miami Beach Code Compliance Department has determined that the above Property has violated the Miami Beach Code of Laws and Ordinances (the "City Code"). Specifically, Code Compliance Officer Joardeen Jarquin has found there to be a violation(s) of the City Code, which Is/are: Section 6-2 (a): Selling or distributing alcoholic beverages without securing a license from the division of Alcoholic Beverages and Tobacco of the Department of Business and Professional regulation of the State of Florida. . Reference: Establishment offering/selling alcoholic beverages without having alcohol sales on their Business Tax Receipt You can comply by immediately ceasing the sale or distribution of alcoholic beverages, until a license is obtained from the division of Alcoholic Beverages and Tobacco, Failure to comply will result in your prosecution before the City of Miami Beach Special Master, The Special Master may impose fines of up to $1,000.00 per day for noncompliance and up to $5,000.00 per day for recurring violations, Failure to pay imposed fines will lead to placement of liens upon the real and personal property of violators, which will be foreclosed upon or otherwise collected as provided by this code. If you aro aggrieved by the decision of the Code Inspector in issuing this notice of violation, you may appeal. To appeal the violations submit an application for appeal within Ton (1Q days of receipt of this notice of violation to the appropriate board or the Office of the Special Master 1700 Convention Center Dr., Miami Beach, FL 33139, A check for $100 (administrative charges) must accompany the request along with the case number 3ceIvoc$ By Name I Badge # I Phone and Extension. Joardeen Jarquin 729 (305) 673-7555 ext 4810 Email Joarc1eonJarquintmlamibeachfl.gov Compliance Date Received Date Received Time 02/22/2018 02/22/2018 2:45PM ADA Inform don To request this material In accessible format, sign language interpreters, Information on access for persons with disabilities, and/or any accommodation to review any document or participate In any City -sponsored proceeding, please contact 306.604.2489 (voice), 305,673.7524 (fax) or 306.673.7218 (TTY) five (5) days in advance to initiate your request. TYY users may also call 711 (Florida Relay Service). Joardeen Jarquin