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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