Developer Agreements 101. Dan Olsen, Law Offices of Dan Olsen

Transcription

1 Developer Agreements 101 Dan Olsen, Law Offices of Dan Olsen

2 DISPOSITION AND DEVELOPMENT AGREEMENTS DAN R. OLSEN 1. Definition and Authority Disposition and Development Agreements (DDA) are not defined by statute. Essentially, a DDA is a more or less standard real property purchase and sale agreement that also governs how the purchaser will develop the property, typically in exchange for a subsidy from the seller. DDA s are authorized by: ORS An urban renewal agency, in addition to its other powers, may (7) Engage in any other housing or community development activities specifically delegated to it by the governing body of the municipality including but not limited to land acquisition and disposition ORS (1) The urban renewal agency shall, in accordance with the approved urban renewal plan, make land in an urban renewal project available for use by private enterprise or public agencies. Such land shall be made available at a value determined by the urban renewal agency to be its fair reuse value, which represents the value, whether expressed in terms of rental or capital price, at which the urban renewal agency in its discretion determines such land should be made available in order that it may be developed, redeveloped, cleared, conserved or rehabilitated for the purposes specified in such plan. (2) To assure that land acquired in an urban renewal project is used in accordance with the urban renewal plan, an urban renewal agency, upon the sale or lease of such land, shall obligate purchasers or lessees: (a) To use the land for the purposes designated in the urban renewal plan. (b) To begin the building of their improvements within a period of time which the urban renewal agency fixes as reasonable. (3) Any obligations by the purchaser shall be covenants and conditions running with the land where the urban renewal agency so stipulates. (4) Any contract for the transfer of any interest in land by the urban renewal agency may be recorded in the land records of the county in which the land is situated in the same manner as any other contract for the transfer of an interest in land is recorded.

3 May cities and counties enter into DDA s without using an urban renewal agency? ORS (1) Except as provided in subsection (2) of this section and subject to subsection (3) of this section, whenever any political subdivision possesses or controls real property not needed for public use, or whenever the public interest may be furthered, a political subdivision may sell, exchange, convey or lease for any period not exceeding 99 years all or any part of the political subdivision s interest in the property to a governmental body or private individual or corporation. The consideration for the transfer or lease may be cash or real property, or both. See also, Pullen v. Oregon Indus. Development Corp., 402 P.2d 240, 240 Or. 583 (Or., 1965)"* * * All property held by the city in fee simple, without limitation or restriction as to its alienation, may be disposed of by the city at any time before it is dedicated to a public use. In other words, the city has the right to sell or dispose of property, real or personal, to which it has the absolute title and which is not affected by a public trust, in substantially the same manner as an individual unless restrained by statute or charter; and this power is an incidental power inherent in all corporations, public or private. * * * So land bought for a public purpose, if not actually so used, cannot be said to be affected by a public trust, and hence may be sold.' 3 McQuillin on Municipal Corporations (2d Ed.) 1242.' Seafeldt v. Port of Astoria, 1933, 141 Or. 418, 16 P.2d 943. The statute, ORS , enacted in 1935, makes the rule more definitive. ORS (1) Any political subdivision is granted express power to relinquish the title to any of the political subdivision s property not needed for public use to any governmental body, providing the property shall be used for not less than 20 years for a public purpose by the governmental body in the State of Oregon. These transfers for public purposes may include transfers without consideration of property held by counties as a result of tax foreclosures. (2)(a) Any political subdivision is granted express power to relinquish the title to any of the political subdivision s property to a qualifying nonprofit corporation or a municipal corporation for the purpose of providing any of the following: (A) Low income housing; 2. Key Issues and Terms A. The subsidy. Apart from political considerations a key legal issue is avoiding prevailing wage. OAR Exemptions from prevailing wage: (c) Projects for which no funds of a public agency are directly or indirectly used. (d) Projects: (A) That are privately owned; (B) That use funds of a private entity; (C) In which less than 25 percent of the square footage of a completed project will be occupied or used by a public agency; and (D) For which less than $750,000 of funds of a public agency are used OAR Definitions (9) (a) "Funds of a public agency" includes any funds of a public agency that are directly or indirectly used, as described below. (A) "Directly used funds of a public agency" means revenue, money, or that which can be valued in money collected for a public agency or derived from a public agency's immediate custody and control, and, except as provided in ORS 279C.810(1)(a)(H) and (J) and subsection (b) of this section, includes but is not limited to any money loaned by a public agency, including the loan of proceeds from the

4 sale of conduit or pass-through revenue bonds for the specific purpose of financing a project, and public property or other assets used as payment for all or part of a project. (B) "Indirectly used funds of a public agency" means, except as provided in subsection (b) of this section, that a public agency ultimately bears the cost of all or part of the project, even if a public agency is not paying for the project directly or completing payment at the time it occurs or shortly thereafter. A public agency does not indirectly use funds of a public agency when it elects not to collect land rent that is due. Examples of when an agency "ultimately bears the cost" of all or part of a project include but are not limited to: (i) Amortizing the costs of construction over the life of a lease and paying these costs with funds of a public agency during the course of the lease; (ii) A public agency subsidizing the costs of construction that would normally be borne by the contractor; (iii) Using insurance proceeds that belong to a public agency to pay for construction. Insurance proceeds represent "money collected for the custody and control of a public agency" and therefore are funds of a public agency, whether the contractor obtains payment directly from the insurance company or the public agency; or (iv) Using or creating a private entity as a conduit for funding a project when the private entity is in fact an alter ego of the public agency. (b) "Funds of a public agency" does not include: (A) Funds provided in the form of a government grant to a nonprofit organization, unless the government grant is issued for the purpose of construction, reconstruction, major renovation or painting; (B) Building and development permit fees paid or waived by the public agency; (C) Tax credits or tax abatements; (D) Land that a public agency sells to a private entity at fair market value; (E) The difference between: (i) The value of land that a public agency sells to a private entity as determined at the time of the sale after taking into account any plan, requirement, covenant, condition, restriction or other limitation, exclusive of zoning or land use regulations, that the public agency imposes on the development or use of the land; and (ii) The fair market value of the land if the land is not subject to the limitations described in subparagraph (i) of this paragraph; (F) Staff resources of the public agency used to manage a project or to provide a principal source of supervision, coordination or oversight of a project; (G) Staff resources of the public agency used to design or inspect one or more components of a project; (H) Moneys derived from the sale of bonds that are loaned by a state agency to a private entity, unless the moneys will be used for a public improvement; (I) Value added to land as a consequence of a public agency's site preparation, demolition of real property or remediation or removal of environmental contamination, except for value added in excess of the expenses the public agency incurred in the site preparation, demolition or remediation or removal when the land is sold for use in a project otherwise subject to ORS 279C.800 to 279C.870; or

5 (J) Bonds, or loans from the proceeds of bonds, issued in accordance with ORS Chapter 289 or to , unless the bonds or loans will be used for a public improvement. Portland Development Commission v. State of Oregon, 216 Or App 72, 171 P3d 1012 (2007) (Reversed BOLI determination that public/private project subject to prevailing wage). State ex rel. Gardner v. City of Salem, 219 P.3d 32, 231 Or. App. 127 (2009) (Reversed BOLI determination that public/private project for hotel and convention center was subject to prevailing wage.) Holland Development Prevailing Wage Determination (September 5, 2013) (Mixed use development involving Hillsboro and TriMet, including public plaza. Not subject to prevailing wage.) Clackamette Cove LLC Prevailing Wage Determination (March 18, 2014) Work on Phases 1 and 2 constitute one project. Public subsidy exceeds exemption amount. Project subject to prevailing wage. The consideration for the conveyance of the Property by CCDA to Developer shall: (a) be the greater of (the Purchase Price ): (i) $1,609,000 or (ii) the fair market value of the Property as determined by an appraisal to be obtained by CCDA, and shall be payable by Developer at Closing, and (b) further includes completion of the Project in accordance with this Agreement. The parties agree that the purchase price is the fair market value of the Property. CCDA shall pay to the City of Tigard the first systems development charges payable with respect to the Project in an amount equal to the Purchase Price. The parties shall cooperate to provide CCDA with notice of impending permit applications, credit details and other matters to ensure prompt payment. The obligations contained in this Section 3.10 shall survive Closing. The Purchase Price for the Property shall be One Hundred Fifty Thousand Dollars ($150,000). The Purchase Price reflects the reduction in the value of the Property to XXXX resulting from the extraordinary costs imposed on the Property by Owners' development requirements and restrictions set forth in Section 3 herein and the added risk of accepting title to the Property subject to the terms of the PPA. The City agrees to waive or pay Eight Hundred Seventy-Two Thousand Dollars ($872,000) in building and development fees owed or to be owed by the Project, such as: parks system development charges, transportation system development charges, water system development charges, and plumbing fees. Vertical Housing partial tax exemption. OAR to

6 B. Project Control. Balance ensuring that what you want gets built, but not creating a public work. XXX shall prepare Construction Plans and Specifications conforming to the approved Scope of Development and submit to them to Owners for review and approval.. Owners will not unreasonably condition, delay or withhold approval of the Construction Plans and Specifications for the Project, if said plans and specifications conform with the approved Scope of Development a nd Development Review Plans, as determined by Owners in Owners' sole discretion. Elements depicted in the Final Construction Plans and Specifications shall be in a sufficient level of detail to permit an evaluation of their conformity and to confirm their conformity with the Scope of Development. XXX agrees to complete all construction as required herein. Owners shall have and exercise no control over the construction of the Project. XXX covenants and agrees for itself, its successors, its assigns and every successor in interest to the Property or any part thereof, that during construction and thereafter, XXX and its successors and assignees will devote the Property to use as Joint Development consistent with the Scope of Development. Developer has prepared and submitted to CCDA Project plans with sufficient detail to demonstrate compliance with the City Center Urban Renewal Plan and this Agreement. The plans shall demonstrate that structures will be built with quality design and materials, with particular focus on ground floor, pedestrian areas and attractive useable open space. CCDA staff will review and will provide tentative approval within ten (10) days after receiving Project plans with sufficient detail to demonstrate compliance with the City Center Urban Renewal Plan and this Agreement. Upon completing any revisions, the parties shall provide the revisions to CCDA staff, which will then review the revisions and provide the submittals with staff recommendations to the CCDA Board for its review within 14 days of receiving the revisions from the parties. The CCDA Board shall then review and either accept or provide final comments on the Project plans within 45 days after receiving the revised site plan. Failure to respond within that timeframe shall constitute acceptance. CCDA staff shall not unreasonably withhold a recommendation that the Board approve the design. CCDA is not the developer of the Project. This Agreement is not intended to be a contract providing for construction by CCDA either directly or through a contractor. Developer is solely responsible for selecting a construction contractor and the rights and responsibilities of Developer, the general construction contractor and any construction subcontractors, shall be provided for in a construction contract to which CCDA is not a party. Developer has demonstrated financial feasibility for the Project to the reasonable satisfaction of CCDA by providing to CCDA: (a) copies of binding commitment letters from private lenders for the construction financing for the Project, (b) written evidence of necessary equity commitments, (c) commitments from public funding sources, including the approval by the CCDA, if necessary, subject to standard underwriting practices, for the construction of the Project, and (d) such other documentation or assurances as may be reasonably required by CCDA. At least ten (10) business days prior to the scheduled date of Closing, XXX shall have provided to Owners evidence of a construction financing commitment necessary and sufficient to complete construction of the Project, and that closing of XXX construction financing shall occur concurrently with conveyance of the Property.XXX shall demonstrate to Owners the financial feasibility of the Project and XXX s financial capacity to complete the Project consistent with the Project Budget, by providing to Owners copies of executed loan commitments, and letters of intent acceptable to Owners and XXXX, from construction sources and investors providing proof that XXX has obtained sufficient equity capital and mortgage financing for the Project. After conveying the Property and until a temporary or final Certificate of Occupancy is issued, CCDA shall upon reasonable notice, be permitted access to evaluate conformance with the terms of this

7 Agreement. CCDA agrees not to interfere with the work occurring on the Property. CCDA employees shall enter the Property at their own risk and shall comply with all construction site rules established by Developer and Developer s contractor.. C. Post-Closing Remedies ORS (2) To assure that land acquired in an urban renewal project is used in accordance with the urban renewal plan, an urban renewal agency, upon the sale or lease of such land, shall obligate purchasers or lessees: (a) To use the land for the purposes designated in the urban renewal plan. (b) To begin the building of their improvements within a period of time which the urban renewal agency fixes as reasonable. (3) Any obligations by the purchaser shall be covenants and conditions running with the land where the urban renewal agency so stipulates. Subject to force majeure delays, if Developer fails to commence construction within one (1) year of the date provided for in Section 6.1, or fails to complete the Project by the date that is three (3) years after the date Developer commences construction of the Project, CCDA shall have the right to repurchase the Property Payment of the purchase price for the Property to Developer together with 50% of the total amount of all hard costs of construction plus soft costs, including design, permitting and other directly related costs as of the date of re-conveyance; Reduced by: the amount of any assessments, liens or other charges against the property that Developer has not paid as of the date of re-conveyance, payment or assumption of any mortgage including any payment or assumption costs. Subject to the rights of Mortgagees and other parties holding interests in the Project, the right to reenter and take possession of the Property and the Project, and to terminate (and re-vest in Owners) the estate conveyed by the Deed for the Property, and to terminate XXX right to develop the Project, and to provide Owners with the right to resell the Property pursuant to Section 9.5, it being the intent of this provision together with other provisions of this Agreement that the conveyance of the Property to XXX shall be made upon, and that the Deed to the Property shall provide for, a condition subsequent to the effect that in the event of default by XXX and XXX s failure to remedy, end or abrogate such default, within the period and in the manner stated, then Owners, at their option, may, upon sixty (60) days' written notice declare a termination in favor of Owners of the title, and of all the rights, title and interest in the Property.shall be re-conveyed to Owners by Quitclaim Deed, pursuant to the Escrow Instructions in Exhibit I.