Thursday, city officials announced that work will soon begin to clean up the abandoned base and demolish 90 World War II era structures.
The property fell into serious disrepair, after the company planning to develop the 167 acre site was forced into bankruptcy by the collapse of Lehman Brothers.
"We're happy to announce that the cooperation from Lehman and the bankruptcy trustee in this case will result in the fixes that the city and Oak Knoll property owners have been hoping and pushing for," Oakland City Attorney John Russo said.
Under the agreement, Lehman will commit $3.7 million to tear down the buildings and remove debris and asbestos.
Officials say neither the hospital nor the historic Club Knoll building will be demolished.