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HomeMy WebLinkAbout9A - Bluffs of Northwood Meadows o~ PR.IO~ tO~ 4646 Dakota Street S.E. u : Prior Lake, MN 55372-1714 CITY COUNCIL AGENDA REPORT ~llVNESO~~ MEETING DATE: March 1, 2010 ~ AGENDA #: 9A PREPARED BY: Frank Boyles, City Manag~ AGENDA ITEM: Consider Approval of a Report on the Bluffs of Northwood Meadows DISCUSSION: Introduction The purpose of this item is to provide the City Council with a status report on this issue. Historv At the February 1, 2010 City Council meeting, approximately 20 persons living in the general area of the Bluffs of Northwood Meadows subdivision attended the City Council forum. They requested that the City staff or City Council enforce co- venants relating to the value of housing in the subdivision. Bryce Huemoeller, their attorney, opined that the City should assume some degree of responsibility or, at minimum, cooperate with the residents and their representatives in review- ing City files. Planner Matzke met with subdivision residents, adjacent developers and Huemoeller firm legal representatives and reviewed City files. Mr. Huemoeller subsequently prepared a memorandum addressed to the City Attorney concluding that the City does have the responsibility of enforcing subdivision covenants. Current Circumstances City Attorney Pace has spent a considerable amount of time reviewing the files and researching applicable law. Attached is her comprehensive letter addressing the topics raised with respect to enforcement of covenants at the Bluffs of North- wood Meadows. The City Attorney will provide the staff report on this issue. Conclusion The Council should ask the City Attorney for clarification, if necessary, and deter- mine if additional information is needed. ISSUES: This matter is very likely to arise again in other subdivisions. The City Attorney has suggested that we prepare newspaper and Website articles on this topic and complete an Inside City Hall for airing on PL TV 15. For further subdivisions, we should decide whether or not to request covenant copies as some may assume this means the City has some approval or enforce- ment authority which we do not. FINANCIAL IM- PACT: Since the City does not have the responsibility for enforcing covenants, the finan- cial impact should be minimal. ALTERNATIVES: 1. Receive and file the City Attorney's report. 2. Request the preparation of additional information on this topic. RECOMMENDED Alternative #1. MOTION: www.cityofpriorlake.com J?~n~21~4a44U:il800 / Fax 952.447.4245 o~ PR.IO./( tO~ 4646 Dakota Street S.E. o ~ Prior Lake, MN 55372-1714 n,. "rllVNESO"\:~ February 11,2010 Bryce Huemoeller, Esq. Huemoeller & Gontarek PLC 16670 Franklin Trail Prior Lane, Minnesota 55372 RE: Bluffs of North wood Meadows Dear Mr. Hueomeller, Thank you for your memorandum dated February 11,2010. Your clients are concerned that the value of their properties will be negatively impacted if the cost to purchase a lot in the Bluffs is decreased or the style and minimum square footage of a house is reduced. Lakeland Construction Finance filed amended covenants on 1-19-10 that reduce the minimum square footage of ramblers and two-story homes and permit the construction of split-entry style homes in the Bluffs. I have carefully considered the rationale you have offered to support the theory that the City has a responsibility to protect the property values of current residents in the Bluffs by not issuing building permits for lots that are sold at a reduced price and homes that are less than the minimum square footage of the homes allowed by the earlier covenants filed by Manley on 7-13-09. You believe that the plat of the Bluffs is governed by the "proposed covenants" submitted by Manley as part of its subdivision application ( Section 1103.204) and required information in the developers application for a Planned Unit Development ("PUD") (Section 1106.708 (7).) Jeff Matzke briefed me on the February 10th meeting he attended with you, two residents in the Bluffs, Paul Donnay and an associate of Mr. Donnay concerning the sale oflots and construction of homes in the Bluffs of North wood Meadows plat. I understand that Mr. Donnay's raised an issue unrelated to "the issue of the new covenants for the Bluffs of North wood Meadows (Bluffs)." Your memorandum raised two issues. The first issue is a claim by Mr. Donnay, without any supporting facts, that Manley Land Development, Inc. ("Manley") was "consistently held to a lesser standard of compliance with City requirements" than the Cardinal Development Group and Northwood Meadows, LLC.; and, the second issue is "[w]hether Lakeland Construction Finance, LLC (Lakeland), as Manley's successor under the PUD [and bluffs of North wood Meadows plat]...can unilaterally and materially change the covenants for the Bluffs, in a way that is inconsistent with the development concept presented to, and approved by, the City in the PUD and [is] also detrimental to other developers, existing residents within the PUD, and neighboring property owners, www.cityofpriorlake.com Phone 952.447.9800 / Fax 952.447.4245 without the approval of the other developers and the City Council under Section 1106 of the Prior Lake Zoning Ordinance (PLZO)." UNEOUALTREATMENT The developers ofthe Villas and the Coves (Cardinal Ridge and Northwood Meadows) were not held to a "lesser standard of compliance with City requirements" than the developer of the Bluffs. Fortunately for Mr. Donnay and Mr. Larson they did not find themselves financially challenged with the development of the Coves and the Villas to the point that the City had to hold them in default of their Development Contracts or freeze issuing any additional building permits in lots in the Cove or Villas. Manley and Lakeland Construction Finance, which holds (held) the mortgage on the Bluffs, were among the less fortunate. Due to financial difficulties Manley was not able to maintain its Irrevocable Letter of Credit with the City and unable to complete the final wear course and some required landscaping within the Bluffs. Lakeland was foreclosing on the unsold lots in the Bluffs, while at the same time facing its own financial difficulties. The City's Standard Development Contract contains a paragraph which lists its that constitute a material breach and another paragraph that lists the remedies avail to the City if the developer fails to cure a breach. Manley breached the Development Contract when its letter of credit became worthless and because it failed to complete the final wear course on the streets and failed to install required landscaping elements and materials. The remedy the City created to assure the streets and landscaping in the Bluffs could be completed had two principle objectives. The first objective was to make sure that the tax payers of Prior Lake were never put at risk for the cost incurred to complete the streets and landscaping in the Bluffs. The second objective was to protect the property values and safety of individuals who had already built and lived in the Bluffs. The City believed that it was in everyone's best interest, including Mr. Donnay's and Mr. Larson's to complete the streets and landscaping and not leave the Bluffs looking like an abandoned project and deter the sale of additional lots. At least one of the other developers was opposed to the City assisting Manley with the situation in the Bluffs because all three projects were in competition for the sale of lots. There is nothing in the covenants filed by Manley on 7-13-2009 or the covenants filed by Lakeland Construction Finance on 1-19-10, as the successor to Manley and the owner of a majority of the lots in the Bluffs prohibits a change to the covenants. From the City's perspective the real question is whether "[a]ny deed restrictions, covenants, agreements and Articles ofIncorporation and Bylaws of any proposed homeowners' association or other documents or contracts which control the use or maintenance of property covered by the PUD plan" that were submitted as part ofthe "Application for a Final PUD" (Section 1106.708) are enforceable pursuant to the provisions in the PUD Development Contract or provisions of the Zoning Ordinance applicable to applications for a PUD. There is nothing in the PUD Development Contract that gives the City the right to prohibit a developer from changing the covenants relating to the property it owns. The Development Contract for the PUD does not incorporate the covenants of any of the individual subdivisions. Furthermore, I have not seen nor am I aware of a covenant executed by Manley, Cardinal Ridge and Northwood Meadows that controls all of the land in the PUD. It is my opinion that the covenants for the Bluffs are not part of the Final Plat Development Contract and therefore, a change in the content is not a breach of the Development Contract. The City has no authority to enforce the covenants DISCUSSION Since you may want to distribute this letter with your clients and I intend to provide copies of it to the City Council I thought it would be helpful to first briefly set out some of the facts relating to the Bluffs and the submission and approval requirements for a subdivision ("plat") and Planned Unit Development (PUD). The City was not aware that the development or individual lots in the Bluffs had been sold until the City Staff started to receive phone calls from concerned property owners in the Bluffs and neighboring developments. I was aware that some developers are working with banks to purchase lots in distressed subdivisions at dramatically reduced prices. The fact is that banks don't want to be developers. Mr. Donnay is mistaken to believe that the developer of the Bluffs was treated more favorably than the developers of the Coves or the Villas. In order to be treated differently all three developers would have to be standing in the same shoes as one another. Neither Mr. Donnay nor Mr. Larson was in the same financial position as Mr. Manley. They had not defaulted on obligations set out in their respective Development Contracts, neither was financed by a lender that was in receivership, neither had a letter of credit that was worthless and the City had not put a freeze on the issuance of building permits in the Coves or the Villas. Mr. Donnay raised this same claim when the City was meeting with Manley in an effort to get the streets and landscaping in the Bluffs completed. After Manley had defaulted on its Development Contract for the Bluffs, City Staff and I met with Mr. Manley. Only the final wear course and landscaping needed to be completed but Mr. Manley was not in a position to finish these improvements. When Lakeland failed and was placed into receivership the City was without recourse against Manley's Letter of Credit and therefore, unable to use the security to pay for the completion of the developer installed improvements. THE COVENANTS Section 1106.100 describes the purpose of a PUD and Section 1106.200 sets out the findings the City Council made when they adopted Section 1106, the Planned Unit Development Ordinance. Under a PUD the City can relax certain development criteria in exchange for additional public amenities or benefits. Also, theoretically working together Manley, Cardinal Ridge and Northwood Meadows would be able to achieve greater synergy and efficiency in the construction and installation of the developer installed improvements and presumably reduce the carbon foot print of the plats. The Bluffs, the Coves and the Villas were similar developments but not the same. The location and physical characteristics of lots in the Coves and Villas would be more desirable to most buyers if all things were equal. Some of the lowest price point lots were in the Bluffs. Most PUD's are developed by one developer or one entity. The City Staff urged Mr. Manley, Mr. Larson and Mr. Donnay to consider carefully whether the benefits of a PUD outweighed the risks in a situation where essentially the three developers would be competing for buyers. SUBDIVISION APPLICATIONS AND APPROVAL Prior Lake City Code Sections 1001 to 1006 ("Subdivision Ordinance") deals with the subdivision of land ("platting"). Section 1003.100 describes the required content of a "Concept Plan." It's been my experience that many developers will use the "concept plan" process to show the types and design of homes they intend to construct. During the presentation of a concept plan members of the Council may ask questions about the lay- out of development and proposed style of homes. I've also heard questions asked about price point and whether the development is intended strictly for owner occupancy. The rationale of the City Council in approving or denying a subdivision application is set forth in the Findings adopted as part of approving a particular preliminary and final plat. There is nothing in the Subdivision Ordinance, particularly in Section 1003.203 Proposed Design Features and Section 1003.300 Final Plat Application that requires a developer to submit information on the proposed cost of individual lots in a subdivision or the minimum or maximum cost of a home in a particular subdivision. One might even argue that it would be improper for a municipality to require this sort of information under the Fair Housing Act. If a developer meets the criteria set out in the subdivision ordinance for preliminary and final plat approval it is my opinion that it would be unreasonable for a City Council to deny an application. However, there is a provision in the Subdivision Ordinance, Section 1003.204 titled Supplementary Information that authorizes City Staff, City Attorney, and consultants, the Planning Commission or the City Council to request an applicant to submit "proposed restrictive covenants". The Planning Staff routinely request copies of any purposed restrictive covenants. The covenants are reviewed as a courtesy to developers to make certain that the proposed covenants do not violate any provisions of the City's subdivision or zoning ordinances. There is nothing in the Final Plat for the Bluffs of North wood Meadow that incorporated the proposed restrictive covenants into the Development Contract or created a duty on the part of the City to enforce them. The Final Plat was approved long before Manley actually filed the covenants. APPLICATION AND APPROV AL OF A PUD Unlike an application for a subdivision, Section 1106.708 (7) provides that part of the information reauired in an Application for a Final PUD includes "[a]ny deed restrictions, covenants, agreements and Articles of Incorporation and Bylaws of any proposed homeowners' associations or other documents or contracts which control the use of maintenance of property covered by the PUD plan The City and developer of a PUD shall execute a Development Contract which shall incorporate the resolution approving the PUD Plan and all conditions set forth in the resolution. Section 1106.710 (1). Even though the Final PUD Plan incorporates the covenants for the land governed by the PUD, I am aware of any covenants relating to the entire PUD, just the covenants for the individual subdivisions. This seems to be a consequence of three individual plats being included under one PUD. Section 1106.711 (1) prohibits development to occur in a PUD or building permits to be issued "which does not conform to the approved Final PUD Plan. Since there are no covenants that apply to all of the lands in the PUD, the City needs to look to the Development Contract for the Final Plat. The Final Plat does not incorporate the covenants for the Bluffs. CONCLUSION Manley did not receive preferential treatment from the City. Cardinal Ridge and Northwood Meadows were never in breach of the Development Contracts for their respective plats. I am not aware of any covenants for all of the land in the Final PUD. Absent evidence that there are covenants that apply to all three plats that are part of the PUD there is not as violation of PUD development Contract and therefore not a basis to withhold building permits in the Bluffs. cc: Mayor and City Council Frank Boyles, City Manager Jeff Matzke Steve Albrecht