HomeMy WebLinkAbout5.a. Modification to the Development Contract for Harmony ROSEMOUNT EXECUTIVE SUMMARY
PORT AUTHORITY
Port Authority Regular Meeting: July 17, 2012
AGENDA ITEM: Modification to the Development Contract AGENDA SECTION:
for Harmony to Add Additional Builders to
the Approved Builders List Old Business
PREPARED BY: Kim Lindquist, Deputy Director AGENDA NO. 5.a.
ATTACHMENTS: Memorandum from the City Attorney,
Contract for Private Development APPROVED BY:
between Rosemount Port Authority and
Contractor Property Developers Company
Section 7 and Exhibit G; 0b
RECOMMENDED ACTION: Discussion
DISCUSSION
At the June meeting staff brought before the Port Authority a request to add several builders to the
preferred builders list. Based upon the members' direction, staff did review the proposed builders and also
checked references that were given. Staff did uncover some information about one of the builders which
was of concern. The others were cleared and a letter forwarded to each stating they were added to the list.
Staff contacted the City Attorney regarding the one builder, asking for the appropriate procedure. The
Attorney indicated that the City is limited in its ability to deny building permits to individual licensed
builders, even though the agreement requires placement on the preferred builders list. The City Attorney
has provided a memorandum to the Port Authority regarding this topic and he will be available at the
meeting for further questions and discussion.
Charles L. LeFevere
470 US Bank Plaza
200 South Sixth Street
Minneapolis MN 55402
(612) 337 -9215 telephone
(612) 337 -9310 fax
clefevere@kennedy-graven.com
http://www.kennedy-graven.com
CHARTERED
MEMORANDUM
Date: July 11, 2012
To: Rosemount Port Authority
From: Charles LeFevere
Re: Approved Builders under CPDC Development Contract
Eric Zweber asked that I provide to the Port Authority a memorandum explaining the
significance of approval or disapproval of a builder under the Port Authority's contract with
CPDC.
Under the Contract for Private Development between the Port Authority and CPDC (the
"Agreement the Port Authority would issue Notes to CPDC in the total aggregate principal
amount of $3,500,000. In consideration of these Notes, CPDC was obligated to purchase the
development property, demolish structures on the property, and complete environmental cleanup.
These obligations were defined as the "Minimum Improvements The Notes were issued in two
stages, and the final Note was not issued until CPDC had completed the Minimum
Improvements, which occurred some years ago.
Under the Agreement, the Port Authority would then receive tax increment resulting from the
construction of residential dwellings in the project area and use a portion of those funds to make
payments on the Notes.
Once the Minimum Improvements were completed, the primary obligations of CPDC were
satisfied. CPDC would be motivated to encourage residential development because the Notes
that were issued to CPDC would be repaid only from tax increment received from the
development of residences on the development property.
407389v1 CLL RS230 -1
Memo to Rosemount Port Authority Re: Approved Builders under CPDC Contract Page 2
After the Minimum Improvements were completed, CPDC did have one remaining obligation
under the Agreement. That was that CPDC would not sell any of the development properties
except to residential contractors who were approved by the Port Authority, either at the time of
the execution of the Agreement, or a later date. The purpose of this requirement was to assure
that the property would be developed for housing purposes and would not be held for the purpose
of real estate speculation. Section 7.1 of the Agreement provides that: "The Developer
represents and agrees that its undertakings pursuant to the Agreement, are and will be for the
purpose of redevelopment of the Property and not for speculation in land holding."
Section 7.2 goes on to add that: "...Developer intends to sell the Property to one or more housing
builders, with the intention that, after completion of the Minimum Improvements, approximately
624 residential housing units will be constructed on the Property. The Developer agrees that it
will not sell any portion of the Property to a housing builder unless either (i) such housing
builder is identified on Exhibit G hereto; or (ii) the prior written approval of the Authority...is
first obtained." Exhibit G was a list of housing builders who were approved at the time of the
execution of the contract.
Nothing in the contract suggests that the purpose of limiting sale to approved house builders was
a quality control measure to assure that the builders were reputable and would build quality
products. The list of builders may, in fact, all have been quality builders. However, the apparent
purpose of the Agreement was to assure that sales would be to housing builders rather than to
others who would be more likely to hold the land for speculative investment purposes.
Under section 7.2(b) of the Agreement, if CPDC sold property to builders on the approved list,
CPDC was released from its obligation under the Agreement as to the portions of the property
sold. The builders to whom properties were sold did not have any continuing obligation under
the Agreement. That is, they were not obligated to perform in any way (such as build a specified
number of houses by a specified date). Rather, it was apparently assumed that a sale to these
builders would be for purpose of development rather than speculation.
As I understand the facts related to the current question, CPDC sold the property in question to
McDonald Homes, which is on the approved list. Having so transferred the property, CPDC had
no further obligation, and McDonald Homes had no obligation under the Agreement. CPDC has
sold all of the property to approved builders and therefore has no further obligations under the
Agreement with respect to development of the property.
Therefore, CPDC did not breach the Agreement by transferring lots to McDonald Homes and
McDonald Homes had no obligation under the Agreement once it had title to the property.
If there had been a breach of the Agreement, the Port Authority's primary remedy would be to
stop payment on the Note. Some time ago, the City purchased the Note from the Note's holder
at a discount. Therefore, the payments on the Note are being made to the City, and there would
be no purpose served by stopping payments on the Note. Under the Agreement, the Port
Authority could pursue any other remedy available at law, but since no party has been guilty of a
breach of the Agreement, there would be no one to sue.
407389v1 CLL RS230 -1
Memo to Rosemount Port Authority Re: Approved Builders under CPDC Contract Page 3
Since CPDC has sold or transferred all of the property to approved builders, the designation of a
party as an approved builder under the Agreement has no further meaning or effect, nor would
the decision by the Port Authority not to approve a proposed builder.
I understand that the lots in question were purchased from a bank that took the lots over from
McDonald Homes. Neither CPDC, McDonald Homes, the bank, nor the current owner of the
lots are in breach of the Agreement and would not be subject to any claims by the Port Authority.
The City would not have a legal basis for denying an application for a building permit from these
owners, assuming the builder is properly licensed by the State of Minnesota and the homes
proposed are consistent with the approved PUD Development Plan.
I will be present at the next Port Authority meeting to answer any questions that the
Commissioners have about this memorandum.
CLL:peb
407389v1 CLL RS230 -1
deposit with the Authority a certificate or certificates of the respective insurers as to the amount
of coverage in force with respect to the Minimum Improvements.
ARTICLE VI
Tax Increment; Taxes
Section 6.1. Use of Tax Increments. Except for its obligations under this Agreement and
the Authorizing Resolution and the Note regarding the application of Available Tax Increment to
the payment of the Note, the Authority shall be free to use any Tax Increment for any purpose
for which such increment may lawfully be used pursuant to the provisions of State law, and the
Authority shall have no obligation to the Developer with respect to the use of such Tax
Increment.
Section 6.2. Right to Collect DOnquent Taxes. (a) The Developer acknowledges that
the Authority is providing substantial aid and assistance in furtherance of the development of the
Property. The Developer understands the Authority's ability to assist the Developer in the
manner specified in this Agreement is directly dependent upon the prompt and timely payment of
real estate taxes. To that end, the Developer agrees in addition to the obligation pursuant to
statute to pay real estate taxes, that it is also obligated by reason of this Agreement to pay when
due all real estate taxes assessed against the Property as long as the Developer owns the
Property. The Developer acknowledges that this obligation creates a contractual right on behalf
of the Authority to sue the Developer to collect delinquent real estate taxes and any penalty or
interest thereon and to pay over the same as a tax payment to the County auditor. In any such
suit, the Authority shall also be entitled to recover its costs, expenses, and attorney fees.
(b) Notwithstanding the foregoing, the parties hereto agree that the Developer, and its
successors and assigns, may, at their own expense, contest the real estate taxes assessed with
respect to the Property, and permit such taxes to remain unpaid during the period of the contest.
ARTICLE VII
Prohibitions Against Assignment and Transfer; Indemnification
Section 7.1. Representation as to Development. The Developer represents and agrees
that its undertakings pursuant to the Agreement, are and will be for the purpose of redevelopment
of the Property and not for speculation in land holding.
Section 7.2. Transfer of Property. (a) The parties hereto understand and agree that the
Developer intends to sell the Property to one or more housing builders, with the intention that,
after completion of the Minimum Improvements, approximately 624 residential housing units
will be constructed on the Property. The Developer agrees that it will not sell any portion of the
Property to a housing builder unless either (i) such housing builder is identified on Exhibit G
hereto; or (ii) the prior written approval of the Authority the prior written approval of the
Authority is first obtained.
(b) Upon transfer or assignment of the Property or any portion thereof to a housing
builder identified on Exhibit G, or to any other assignee approved by the Authority, the
Developer shall be released from its obligations under this Agreement as to the portions of the
Property that are so transferred or assigned, except the obligation to complete the Minimum
Improvements with respect to that portion of the Property, if not already completed.
(c) The Developer shall submit to the Authority written evidence of any such transfer
or assignment. If the Developer fails to provide such evidence of transfer and assumption, the
Developer shall remain bound by all it obligations under this Agreement.
Section 7.3. Release and Indemnification Covenants. (a) Except for any negligent act of
the following named parties, the Developer releases from and covenants and agrees that the
Authority, and its governing body members, officers, agents, servants, and employees shall not
be liable for, and agrees to indemnify and hold harmless the Authority, and its governing body
members, officers, agents, servants, and employees against any loss or damage to property or any
injury to or death of any person occurring at or about or resulting from any defect in the
Minimum Improvements.
(b) Except for any willful misrepresentation or any willful or wanton misconduct or
negligence of the following named parties, the Developer agrees to protect and defend the
Authority, and its governing body members, officers, agents, servants, and employees, now or
forever, and further agrees to hold the aforesaid harmless from any claim, demand, suit, action or
other proceeding whatsoever by any person or entity whatsoever arising or purportedly arising
from this Agreement, or the transactions contemplated hereby or the acquisition of the Property
or the construction of the Minimum Improvements.
(c) Except for any negligent act of the following named parties, the Authority, and its
governing body members, officers, agents, servants, and employees shall not be liable for any
damage or injury to the persons or property of the Developer or its partners, officers, agents,
servants or employees or any other person who may be about the Property or Minimum
Improvements due to any act of negligence of any person.
(d) All covenants, stipulations, promises, agreements, and obligations of the
Authority contained herein shall be deemed to be the covenants, stipulations, promises,
agreements, and obligations of the Authority, and not of any governing body member, officer,
agent, servant, or employee of the Authority in his or her individual capacity.
ARTICLE VIII
Events of Default
Section 8.1. Events of Default Defined. Each of the following shall be an "Event of
Default" under this Agreement:
12
EXHIBIT G
LIST OF APPROVED HOUSING BUILDERS
American Classic Homes
Butler Housing Corporation
Charles Cudd, LLC
College City Homes, Inc.
D.R. Horton, Inc. Minnesota
DLJ Homes, Inc.
Grundhofer Construction, Inc.
Hillcrest Homes, Inc.
K. Hovanian Homes
Kathy Trimble Custom Homes, Inc.
Lecy Construction, Inc.
Lind Homes, Inc.
Lundgren Bros. Construction, Inc.
Manley Brothers Construction Inc.
McDevitt Homes, Inc.
McDonald Construction, Inc.
Metro Classic Homes, Inc.
Mittelstaedt Brothers Construction, Inc.
Pietsch Builders, Inc.
R.A. Kot Homes, Inc.
Schafer Brothers Coast. Co., Inc.
Senn Youngdahl, Inc.
Severson Homes, Inc.
Sunset Homes Corporation
Toll Brothers
The Rottlund Company, Inc.
The Windwood Company, Inc.
Wensmann Homes, Inc.
Windwood Homes, Inc.
Wright Homes, Inc.
G-I