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HomeMy WebLinkAbout11/19/2003 - STAFF REPORTS (20) DATE: NOVEMBER 19, 2003 TO: CITY COUNCIL FROM: DIRECTOR OF COMMUNITY & ECONOMIC DEVELOPMENT APPROVAL OF A LEASE AMENDMENT WITH SUNRISE NORTE PROPERTY OWNERS EXTENDING THE LEASE TERM TO SIXTY YEARS FROM THE DATE OF EXECUTION RECOMMENDATION: It is recommended that the City of Palm Springs approve an Amendment to a master lease dated March 1, 1982 and amendments to the individual leases with the homeowners in Sunrise Norte, giving each lessee sixty years from the date of lease execution. No other changes to the lease are recommended at this time. SUMMARY: The City of Palm Springs approved a Lease Agreement (No. 1779) with Fredricks Development Corporation, a California Corporation on March 1, 1982 for the development of 60 acres of land located at the northwest corner of Sunrise Way and San Rafael Drive. As part of the lease, the Parties made a Declaration of Covenants, Conditions and Restrictions ("Declaration") and subsequently recorded the Declaration on October 22, 1982. One of the components of the Declaration was that the resale price of the homes to be built would need to be approved by the City of Palm Springs, and would be restricted so that they would increase by no more than the purchase price plus capital improvements, rising by no more than CPI. On February 8, 1983, the City entered an Agreement Re Enforcement of Lease Number 1779 with the State of California, Department of Housing and Community Development to facilitate the State making California Homeownership Assistance Program ("CHAP") loans to eligible households. This agreement with the state allowed for the CHAP financing program for a number of the original buyers, but the City agreed that it would seek written permission from the State before amending the lease. The parties also entered an Amendment to Lease Agreement on February 23, 1983 for the purpose of assisting the Lessee obtain Federal Housing Administration Insurance for the loans taken by purchasers which were to be secured by the lots into which the Property was to be subdivided and improvements. The Lessee then subdivided and sold homes in the Tract, subject to the terms of subleases and Declaration executed by Lessee and the buyers. The homes were manufactured homes of approximately 975 to 1,160 square feet on lots ranging from 3,800 to 4,300 square feet. There are attached and detached homes in the tract. On December 12, 1991, however, the Lessee executed a Quitclaim Deed terminating and cancelling the Lease Agreement by and between City and Lessee, as well as the Lessee's interest in the Covenants, Conditions and Restrictions (the "Declaration"). With the execution of the Quitclaim Deed, the City's interest merged with the Lessee's interest for the purpose of the subleases and the City became the Lessor to the individual homeowners. In 1991, the original Homeowners Association that was created by the developer was dissolved and an Assessment District was created by the City at the residents' request to maintain the common area improvements. The assessment district remains in existence. 174 One of the problems was that the original Lease was for 50 years. Given that it is nearly 22 years later, the existing leases have only about 28 years remaining on the term. Mortgage lenders, as a general rule, require five years more than the mortgage term on the lease when lending on leased land. In other words, most borrowers purchasing or refinancing in the tract in the past few years have been unable to obtain 30 year mortgages and have had to obtain 20- or 25 year mortgages at higher monthly payments. In addition, the residents have requested that the resale restrictions in their CC & Rs be waived or removed, as the Council has done on Sunrise Palms, Desert Dorado, and Quail Point. Staff is still negotiating with the residents on that issue. One key difference is that the lots in Sunrise Norte are leased from the City at below market rates, creating a subsidy on the part of the City that needs to be, by law, balanced with a restriction that creates a public good. Current leases are $12.49/month with no increases. In June the City hired the appraisal firm of Anderson & Brabant to determine the fair market fee simple value of the lots in order to determine a fair market lease or a value at which the City could sell the homeowners the lots and remove the restrictions. The average appraised value per lot is $11,350. The sales price and/or the resultant lease has been a matter of some concern to the residents, who have offered a proposal to the City for a renewed lease and/or sale. That matter may take several months to resolve. Therefore, staff has proposed a single-issue lease amendment extending the term of each of the leases to 60 years. That will give any lender the comfort they require and facilitate the refinancing or sale of any lot while the longer-term deal is being developed. ohn . R a y m o n irector f Comm ty & Economic Development ' Approved City Ma r �' Attachments: 1. Resolution 2. Lease Amendment AMENDMENT TO LEASE AGREEMENT THIS AMENDMENT TO THE LEASE AGREEMENT(herein Agreement), is made and entered into this _day of , 2003, by and between the City of Palm Springs (herein City), a municipal corporation and Charter City, and (herein Lessee), and amends that original certain Lease Agreement dated , 198_, as amended, between the Lessee and Fredricks Development Corporation, as follows: RECITALS WHEREAS, the City of Palm Springs approved that certain Lease Agreement No. 1779 with Fredricks Development Corporation, a California Corporation, dated March 1, 1982 for the development of 60 acres of land located at the northwest corner of Sunrise Way and San Rafael Drive, a memorandum of which was recorded on March 22, 1982 as Instrument No. 47803 of the Official Record of the Riverside County Recorder; and WHEREAS, the Parties made a Declaration of Covenants, Conditions and Restrictions ("Declaration")and subsequently recorded the Declaration on October 22, 1982 as Instrument No. 182722 of the Official Records of the Riverside County Recorder; and WHEREAS, on February 8, 1983, the City entered an Agreement Re Enforcement of Lease Number 1779 with the State of California Department of Housing and Community Development to facilitate the State making California Homeownership Assistance Program ("CHAP") loans to eligible households, recorded on February 15, 1983 as Instrument No. 28930 of the Official Record of the Riverside County Recorder; and WHEREAS, the parties entered an Amendment to Lease Agreement on February 23, 1983 and recorded as Instrument No. 37067 of the Official Record of the Riverside County Recorder, for the purpose of assisting the Lessee obtain Federal Housing Administration Insurance for the loans taken by purchasers which were to be secured by the lots into which the Property was to be subdivided and improvements constructed thereon; and WHEREAS Lessee subdivided and sold homes in the Tract as described in the Legal Description shown as Exhibit"A"to the Agreement, subject to the terms of subleases executed by Lessee and Sublessee; and WHEREAS Lessee Executed a Quitclaim Deed on December 12, 1991, recorded on December 27, 1991 as Instrument No. 446363 of the Official Record of the Riverside County Recorder; terminating and cancelling the Lease Agreement by and between City and Lessee, as well as the Lessee's interest in the Covenants, Conditions and Restrictions (the "Declaration"). WHEREAS, with the execution of the Quitclaim Deed by the Lessee and acceptance by the City, the City's real property interest merged with the Lessee's interest for the purpose of the subleases with the individual subleases. 1143 NOW THEREFORE, the Parties mutually desire to amend the Lease and Subleases as follows: 1. Term. Lease Term shall be Sixty (60) years from date of execution of the Amendment. 2. Lease Otherwise Unaffected. Except as expressly set forth herein, the terms of the Lease and Sublease, as amended, shall remain unaffected and unimpaired by reason of the foregoing amendments, and the Lease and Sublease, as amended, shall remain in full force and effect and binding on all parties hereto. IN WITNESS WHEREOF, the parties have executed and entered into this Amendment as of the date stated below. ATTEST: CITY OF PALM SPRINGS, a municipal corporation By: City Clerk City Manager DATED this day of 2003. REVIEWED AND APPROVED Aleshire & Wynder, LLP By: David J. Aleshire, Esq. City Attorney Homeowner Ay RESOLUTION NO. OF THE CITY COUNCIL OF THE CITY OF PALM SPRINGS,CALIFORNIA,APPROVING AN AMENDMENT TO LEASES WITH THE HOMEOWNERS IN SUNRISE NORTE, EXTENDING EACH OF THE LEASES TO A TERM OF SIXTY(60)YEARS, IN A FORM ACCEPTABLE TO THE CITY ATTORNEY WHEREAS, the City of Palm Springs approved that certain Lease Agreement No. 1779 with Fredricks Development Corporation, a California Corporation, dated March 1, 1982 for the development of 60 acres of land located at the northwest corner of Sunrise Way and San Rafael Drive, a memorandum of which was recorded on March 22, 1982 as Instrument No. 47803 of the Official Record of the Riverside County Recorder; and WHEREAS, the Parties made a Declaration of Covenants, Conditions and Restrictions ("Declaration")and subsequently recorded the Declaration on October 22, 1982 as Instrument No. 182722 of the Official Records of the Riverside County Recorder; and WHEREAS, on February 8, 1983, the City entered an Agreement Re Enforcement of Lease Number 1779 with the State of California Department of Housing and Community Development to facilitate the State making California Homeownership Assistance Program ("CHAP") loans to eligible households, recorded on February 15, 1983 as Instrument No. 28930 of the Official Record of the Riverside County Recorder; and WHEREAS, the parties entered an Amendment to Lease Agreement on February 23, 1983 as Instrument No. 37067 of the Official Record of the Riverside County Recorder, for the purpose of assisting the Lessee obtain Federal Housing Administration Insurance for the loans taken by purchasers which were to be secured by the lots into which the Property was to be subdivided and improvements constructed thereon; and WHEREAS Lessee subdivided and sold homes in the Tract as described in the Legal Description shown as Exhibit"A"to the Resolution, subject to the terms of subleases executed by Lessee and Sublessee; and WHEREAS Lessee Executed a Quitclaim Deed on December 12, 1991, recorded on December 27, 1991 as Instrument No. 446363 of the Official Record of the Riverside County Recorder; terminating and cancelling the Lease Agreement by and between City and Lessee, as well as the Lessee's interest in the Covenants, Conditions and Restrictions (the "Declaration"). WHEREAS, with the execution of the Quitclaim Deed by the Lessee and acceptance by the City, the City's real property interest merged with the Lessee's interest for the purpose of the subleases with the individual subleases. NOW THEREFORE BE IT RESOLVED by the City Council of the City of Palm Springs, that: SECTION 1. Term. Lease Term shall be Sixty (60) years from date of execution of the Amendment. SECTION 2. Lease Otherwise Unaffected. Except as expressly set forth herein, the terms of the Lease and Sublease, as amended, shall remain unaffected and unimpaired by reason of the foregoing amendments, and the Lease and Sublease, as amended, shall remain in full force and effect and binding on all parties hereto. SECTION 3. The City Manager or his designee is authorized to execute this formal amendment to the Lease(s) and any agreements, letters, documents, deeds, easements to facilitate this transaction. ADOPTED this day of 12003. AYES: NOES: ABSENT: ATTEST: THE CITY OF PALM SPRINGS, CALIFORNIA By City Clerk City Manager REVIEWED & APPROVED AS TO FORM By: City Attorney