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HomeMy WebLinkAbout5M - Building Permits for the Bluffs of Northwood Meadows O~ PR.IO~'" t ~~ 4646 Dakota Street S.E. U ~ Prior Lake, MN 55372-1714 t't'f ~lNl\rE~~ CITY COUNCIL AGENDA REPORT MEETING DATE: AGENDA #: PREPARED BY: JUNE 15, 2009 5M STEVE ALBRECHT, DIRECTOR OF PUBLIC WORKS AGENDA ITEM: CONSIDER APPROVAL OF RESOLUTION APPROVING THE CONDITIONS FOR ISSUING BUILDING PERMITS FOR THE BLUFFS OF NORTHWOOD MEADOWS DISCUSSION: Introduction The purpose of this agenda is for the City Council to approve the conditions negotiated by City Staff for the issuance of building permits at Northwood Meadows. Historv Manley Land Development (Manley) is in default of the Development Contract for the Bluffs of Northwood Meadows, City Project #06-131 (Plat). The Letter of Credit was determined to be invalid as Lakeland Finance and Construction the issuer of the LOC is insolvent. In correspondence addressed to Mr. Kurt Manley (Manley) dated February 9,2009 and April 7, 2009, both sent by Certi- fied Mail and delivered personally by City Engineer Steve Albrecht, Manley was advised of its default, what steps Manley must take to cure the default, the amount of time Manley had to cure the default and that unless cured, the City was electing as a non-exclusive remedy, its right to withhold building permits for the Plat and the sixty-four (64) lots owned by Manley Land Development. On April 8, 2009 Manley met with City officials to discuss the default and Man- ley's desire to complete the street improvements, landscaping requirements and punch list items. The following individuals attended the meeting: Kurt Manley, Kurt Larson, Jane Kansier, Director of Building and Transportation Services, Bob Hutchins, Building Official, Larry Poppler, Assistant City Engi- neer, Steve Albrecht, City Engineer and Director of Public Works, Jerilyn Erickson, Finance Director and Suesan Lea Pace, City Attorney. Manley stated his desire to fulfill his obligations under the Development Contract but that in order to perform, he would need to collect and use the proceeds from the sale of homes he alleges to have construction contracts for on lots in the Plat. The City is aware that Manley is in foreclosure. Lakeland Finance and Con- struction, Manley's mortgagor, is insolvent and in receivership. The potential financial permutations of Manley's situation and Lakeland's situation are un- clear at this time. The City Staff are guided in this situation by two conflicting principles; (1) assuring that the public is not at the risk of having to pay for ob- ligations of Manley that it/he has defaulted on and (2) that the Customer Creed adopted by the City Council requires City Staff to harmonize conflicting inter- ests to the extent feasible without exposing the City and its taxpayers to undue risk. www.cityofpriorlake.com Phone 952.447.9800 / Fax 952.447.4245 Current Circumstances Currently about $86,000 of street construction and punchlist items remain to be completed. In addition to the street and punchlist items an estimated $38,400 in landscaping still needs to be completed. There are also anticipated to be additional punch list costs that will be required as part of project closeout. In order to ensure that the development does not sit vacant for several years and that the incomplete roadway and infrastructure improvements do not dete- riorate, City Staff believed it was in the best interest of the City to explore po- tential options to protect the existing residents of Northwood Meadows and the general taxpayer. City Staff and Manley Brothers reached agreement on the conditions set out below that are designed to protect Prior Lake taxpayers from the risk posed if the roadway improvements are not completed due to Manley's precarious fi- nancial position. The agreement permits Manley to obtain building permits on an incremental basis to construct up to twenty-eight (28) houses and upon their sale, satisfy its obligations under the Development Contract for the Plat. 1) Manley will pay all outstanding fees set out in the letter from Larry Pop- pier and Jane Kansier to Kurt Manley dated April 7,2009. Previously Manley has submitted permits for review which were completed by the City and failed to pick the permits up or reimburse the City for costs in- curred. 2) Manley will pay the entire building permit fee at the time of permit appli- cation. Any adjustment to the fees will either be due or remitted at the time of permit pick-up. All payments must be in the form of a cashiers check. Within two (2) business days of receiving the permit application, the Building Department will determine the estimated amount of the permit and will contact Manley with that amount. The permit submittal will not be considered complete and will not be reviewed until the permit fee is paid in full. 3) With the submission of a building permit application, Manley will submit the following additional escrows: a. Tree Escrow: $600 shall be escrowed for two (2) trees to be in- stalled on the permit lot or in the City Park located in Northwood Meadows as directed by the City. These additional trees shall be either Black Hills Spruce or White Pine as stipulated in De- velopment Contract. This escrow will be in addition to $1,500 escrow and the trees will be in addition to the standard number of trees required as part of the permit. The escrow will be re- funded in accordance with standard procedure upon completion of lot restoration and tree planting. b. Permits 1-8: With the first building permit, a $36,000 escrow will be due along with the outstanding fees and tree escrow as de- scribed above. This will cover a "construction escrow" for per- mits 1-8 only, standard permit fees will still be collected along with additional tree escrow at time of each permit. (The con- struction escrow will be used to complete Hawk Ridge Road street punchlist items estimated to be $36,000) c. Permits 9-28: The City will grant up to twenty (20) more permits with a $2,500/permit construction escrow along with the out- standing fees, tree escrow and standard permit fees. (The con- struction escrow will be used to complete the remaining street punchlist items estimated to be $50,000) d. Permits 29+ Before issuing any additional permits the City will review the costs of the remaining work and the $2,500/permit construction escrow will be adjusted accordingly to complete the remaining punch list work and any costs owed the City. The City will not pro-rate the cost of the work over all of the remaining lots. e. The construction escrow may be used as follows: (1) At the request of the Developer, funds may be drawn to pay the contractor retained by the Developer for the final wear course and punch list work completed for the Plat. Manley shall indemnify and hold the City harmless against any and all claims arising out of work contracted for by Manley or a successor developer. (2) Manley understands and acknowledges that the escrow amounts are to complete the wear course and punch list within the Plat only. If Manley fails to complete the pav- ing and punch list work in the Plat pursuant to its Devel- opment Contract with the City, Manley will not be entitled to the return of any of the funds escrowed and hereby waives any right to claim an interest in said funds except as provided in paragraph 3b-d. (3) If the lots in the Plat are transferred to another developer or foreclosed on by the Receiver appointed by District Court to preserve the assets on behalf of The Bank of Scotland and the Development Contract is assigned, with the consent of the City, to another party, the City may transfer the escrowed funds to said party upon evidence, satisfactory to the City Engineer, City Attorney and City Manager, that street improvements have been completed consistent with the Development Contract and Public Works Design Manual. (4) The City may use the escrowed funds to pay any costs associated with completion of the street improvements and punchlist within the Plat less any incidental expenses incurred by the City; including, but not limited to adminis- trative expenses and fees for professional services. These conditions are a prerequisite to the City processing any building permit applications for Manley. These conditions do not amend or supersede any ob- ligation set out in the Development Contract for the Plat. To the extent any language in these conditions are inconsistent with a provision of language in the Development Contract the City Engineer shall advise Manley of the appli- cable interpretation. The agreement and its terms and conditions are provided to Manley and are not transferable or assignable to a subsequent developer or assignee. These conditions do not rescind the City's position that Manley is in default of the Development Contract, as stated in its correspondence to Man- ley dated February 9,2009 and April 7, 2009. ISSUES: The City Attorney and I believe the document titled "Conditions Precedent to the City of Prior Lake Accepting, Processing or Issuing Any Building Permit For Bluffs of Northwood Meadows" detailed above is not an Amendment to the Development Contract for the Bluffs of Northwood Meadows. The City's stan- dard Development Contract provides a list of non-exclusive remedies for the City to use to resolve defaults and does not require an Amendment. It is our opinion that the administration of a City contract is a staff function, unless Staff is recommending a remedy which involves litigation, in which case Staff or the City Attorney brings the matter to the City Council for its approval. However, in an effort to make sure the City Council believes the public's best interests are being protected, we are asking the City Council by resolution to ratify the agreement between the City and Manley. Staff also wants to ensure that when a default occurs we are approaching them consistently. The City's Standardized Development Contract sets up the following specific remedies for addressing default: 1. The City may suspend its performance under this Development Con- tract. 2. The City may cancel or suspend this Development Contract. 3. The City may draw upon or bring action upon any or all of the Securi- ties provided to the City pursuant to any of the terms of this Develop- ment Contract. 4. The City may take whatever action, including legal or administrative ac- tion, which may be necessary or desirable to the City to collect any payments due under this Development Contract or to enforce perform- ance and/or observance of any obligation, agreement or covenant of development under this Development Contract. 5. The City may suspend issuance of building permits and/or certificates of occupancy on any of the lots, including those lots sold to third par- ties, in this Plat. 6. The City may draw upon the Irrevocable Letter of Credit if the City re- ceives notice that the bank elects not to renew the Irrevocable Letter of Credit. 7. The City may, at its option, install or complete the Developer Installed Improvements. 8. Any fees incurred by the City associated with enforcing any of the pro- visions set out in sections 1-7 above shall be the sole responsibility of the Developer. The City treats all Development Contract defaults in the same manner. First the City pursues remedy No.6 and attempts to draw on the Letter of Credit to complete the improvements. If that remedy is unavailable the City then pro- ceeds to suspend issuance of building permits (No.5). Once the permits are suspended the City then proceeds to evaluate other potential remedies to complete the improvements and protect the taxpayers. This process was fol- lowed for both the Maple Glen 2na Addition and for the Bluffs of Northwood Meadows. Staff proposes to handle all future defaults utilizing the same pro- cedures. CONCLUSION: FINANCIAL IM- PACT: ALTERNATIVES: RECOMMENDED MOTION: The Manley situation has prompted staff to review the Standard Development Contract in an effort to see if changes are needed to protect the City from fu- ture issues of this type. The City's Standard Development Contract defines what language the LOC must contain and the accessibility that must be pro- vided by the "Bank" to the City to draw on the LOC. The Contract does not define the details of what is an acceptable "Bank." Staff believes this section should be evaluated to determine if a different language should be included to provide stricter definition of banks. Changes to this section may have pre- cluded an entity such as Lakeland from providing the LOC. Because of the economy and the downturn in the residential construction, market developers are facing financial problems and some are even in bank- ruptcy. The reason the City has always required a Letter of Credit as a condi- tion of Final Plat approval is to assure there is a means to complete construc- tion of developer-installed improvements and other obligations set out in the Development Agreement. Banks have become more and more reluctant to issue letters of credit to developers in the first instance or to renew LOC's. In the case of foreclosure or bankruptcy, the LOC is not available to the City to draw on. I have been working closely with the City Attorney to develop creative solutions to address each unique situation that arises. Our goal is to protect the City and taxpayers from incurring costs to complete infrastructure within a plat which is the developer's obligation. If there were no homes on any of the lots in a plat, not issuing any building permits in the plat until the default was cured would be an acceptable approach. But where homes have already been built on some of the lots and homeowners have moved in, we believe that the best approach is to see if there is a way for the developer to complete the im- provements. The agreement with Manley is an effort to create a win-win. If Manley is allowed to build and sell a home, he has money available to com- plete at least a portion of the streets, landscaping and punch item list. Implementation of these conditions will provide reimbursement of review fees and work already completed by the City. It also provides a process to fund all improvements required to complete the Bluffs of Northwood Meadows in ac- cordance with the Development Contract at no cost to the taxpayers. 1. Approve a resolution ratifying the agreement dated May 26, 2009 between the City and Manley. 2. Deny this agenda item for a specific reason and provide staff with di- rection. 3. Defer this item to a certain date in the future. Staff recommends alternative number 1. Revie71 by: .:J Frank Boyes, C' o~ PRIO~ tO~ 4646 Dakota Street S.E. U ;) Prior Lake, MN 55372-1714 hot/ / ~lNNE~?~ RESOLUTION 09-xx A RESOLUTION APPROVING THE CONDITIONS FOR ISSUING BUILDING PERMITS AT THE BLUFFS OF NORTHWOOD MEADOWS Motion By: Second By: WHEREAS Manley Land Development's Letter of Credit (LaC) for the Bluffs of Northwood Meadows is no longer valid and therefore Manley is in default of the Development Contract; and WHEREAS, Lakeland Construction and Finance the issuer of the Letter of Credit is insolvent and in receivership; and WHEREAS, As provided by the Development Contract, the City as a remedy has frozen the issuance of building permits for the 64 remaining lots owned by Manley; and WHEREAS, In the best interest of the taxpayers of Prior Lake the City has agreed to "Conditions Precedent to the City of Prior Lake Accepting, Processing or Issuing Any Building Permit For Bluffs of Northwood Meadows; and WHEREAS, The conditions set forth in the document dated May 26, 2009 between Manley and the City best protect the City's interests. NOW THEREFORE, BE IT HEREBY RESOLVED BY THE CITY COUNCIL OF PRIOR LAKE, MINNESOTA as follows: 1. The recitals set forth above are incorporated herein. 2. Staff is directed to enforce the conditions on the 64 lots identified as part of the February 9, 2009 letter. 3. Staff is directed to utilize the escrow funds to complete the improvements as stipulated in the conditions. PASSED AND ADOPTED THIS 15th DAY OF JUNE 2009. YES NO I Haugen I Erickson I Hedberg I LeMair I Millar Haugen Erickson Hedberg LeMair I Millar Frank Boyles, City Manager R:\Council\2009 Agenda Reports\06 15 09\Bluffs Resol~<t!tyofpriorlake.com Phone 952.447.9800 / Fax 952.447.4245