It’s not uncommon for manzanitas (Arctostaphylos columbiana, in this case) to develop spots and fungal infections. This is made worse by overhead watering, so don’t ever do that to them. You’re doing the right thing by removing the infected leaves. https://pnwhandbooks.org/plantdisease/host-disease/manzanita-arctostaphylos-manzanita-leaf-spots

Most manzanitas like it hot, well-drained, and dry. Good air circulation helps to reduce fungus. Once they are established, they generally don’t need any summer water. (A little water the first year or two to help them get through hot summers may be appreciated). This article in Pacific Horticulture says A. columbiana is “an exacting garden plant. It shuns all irrigation and is subject to leaf spot diseases. Provided with fast draining soil and good air circulation, however, it makes a handsome shrub…” https://pacifichorticulture.org/articles/arctostaphylos-for-pacific-northwest-gardens/

So that’s how you make it happy. Mulch – generally no. Rocks could be OK, or a very coarse loose mulch of arborist wood chips or bark. Nothing that will hold moisture against the trunk or keep the soil too wet in winter.

Lawn…are you watering the lawn? If so, either the manzanita or the lawn is going to be unhappy. The frequent, shallow watering lawns prefer is anathema to a plant like this. If you are letting the lawn go dry in summer, that should be OK.

There’s a lot of good information on growing manzanitas at the Xera website – they grow and sell a lot of them. https://xeraplants.com/arctostaphylos/

Good luck!