What is a Redevelopment Agreement?
Redevelopment agreements are contractual arrangements between a municipality and a private developer or group of developers (referred to in this context as redevelopers). Typically, a redevelopment agreement will have a term of 10 or more years and will address the scope of the redeveloper’s work, the rights of the parties, the obligations of the redeveloper, and the incentives, if any, that the municipality will provide (e.g., tax abatement). Because of New Jersey’s long history of municipal redevelopment, some municipalities have adopted redevelopment ordinances or established redevelopment agencies with specific redevelopment processes that are outside the general statutory framework used by most municipalities. Things that would be found in a generic redevelopment agreement, such as a description of the redevelopment area, the designation of a redeveloper, the time period for the projected redevelopment, where to send notices under the agreement, etc. must be customized depending on the specific circumstances , the projects being undertaken and the applicable statutory provisions.
State law imposes certain procedural requirements on municipalities when considering entering into a new redevelopment agreement, and those can differ based on what type of redevelopment agency is involved – if at all. However, in all cases, there should be a public hearing before entering into any redevelopment agreement, and the agreement should be made available to the public and read into the public record if it is being considered for adoption. It is rare that a municipality will undertake a wholesale redevelopment project (unless there are major physical and/or economically significant obstacles to redevelopment in the area) as each redevelopment project must be individually negotiated and independently reviewed for compliance with the state’s Local Redevelopment and Housing Law. Similarly, redevelopers must also conduct their own due diligence in connection with each redevelopment project as the underlying land use approvals will vary from project to project, and the redevelopment agreement must set forth the timeline and development schedule for each.
Essential Elements of a Redevelopment Agreement Draft
Whether you are suggesting an amendment to your agreement or working toward a new redevelopment agreement, reviewing and understanding the draft documents is vital to achieving your desired outcome. A redevelopment agreement draft typically contains:
Parties. Names of the parties usually include several interested developers, municipalities, and occasionally a municipal housing authority.
Scope of Work. The scope describes the work to be performed and identifies timeframes for completing certain tasks. It attempts to provide crystal clarity, eliminating debate over what each party is required to do.
Reimbursable Expenses. This section requires the developer to pay for all incurred costs, including those related to environmental liability and borrowings.
Annual Municipal Report. This report is presented to the municipality and other interested parties annually for review and comment.
Disclosure of Financial Disclosures. This requires developers to immediately disclose if they become insolvent and to apply specific accounting procedures.
Conditions Precedent. This section is satisfied if everything in the agreement has been completed to the parties’ satisfaction.
Default. This highlights the default conditions (such as failure to make timely payments).
Termination. The circumstances in which the redevelopment agreement may be terminated.
Legal Issues to Address in a Redevelopment Agreement
As with any development agreement, the proposed redevelopment plan should be examined from legal and regulatory perspectives. From zoning law, the agreement should be scrutinized to ensure that the zoning and land use controls are appropriate and will accomplish the purposes of the redevelopment plan. Also, municipal development regulations should be considered to determine whether the plan could be realized and what, if any, variances, conditional uses or design waivers will be needed. Incentives, which may be offered in connection with a redevelopment plan, may raise issues related to the doctrine of separation of powers and other ethical concerns, both of which should be addressed up front in any redevelopment agreement. Redevelopment agreements should also identify potential environmental issues. The redevelopment plan should take into account any environmental conditions that are present, and also, potential environmental liabilities which may become the responsibility of the municipality after approval of a redevelopment plan. Further, the redevelopment agreement should anticipate and address the process for the transfer of redevelopment parcels from a redevelopment entity to a redeveloper, and the best manner by which to manage a redistribution of land uses.
Common Problems and Solutions in the Drafting Process
Both private and public developers must face the practicalities of a site-specific redevelopment context that is constantly changing. For example, market forces, the local real estate sector and non-governmental civic forces make a site-specific area dynamic. What are the common challenges in drafting a redevelopment agreement? Here are some. The first common issue is land assembly at the start of a deal. It is common for a developer to need more land than what was anticipated. Another challenge in drafting is the need to update the assistance that is being provided to a redevelopment project. For example, the future costs of remediation and demolition may prove to be higher than anticipated or the construction of infrastructure may change. A third problem in drafting and negotiating is the need to revisit a project’s time schedule. This is common when there are one or more long-term projects, such as controlling the reuse of land at the end of a redevelopment area’s life. These are just a few common challenges in drafting a redevelopment agreement. There are many others.
Negotiating Points and Strategies for Redevelopment Agreements
A redevelopment agreement is arguably the most important negotiating document that will be entered into for a Municipal Redevelopment Plan. In this document, the keys to any project are identified and details can be nailed down for all parties to know what will happen under what circumstances. Theoretically, if everybody does their job as expected, once the redevelopment agreement is in place, nothing else should be necessary between the redeveloper and the municipality to assure that any ongoing development is consistent with the redevelopment agreement.
The possibility of negotiating a good redevelopment agreement makes it worthwhile to work through areas of concern identified during the redevelopment process. These issues include, but are not limited to, the amount of flexibility available in the redevelopment agreement. It is not uncommon for a redeveloper to push for a reopener provision in the redevelopment agreement, while the municipality pushes back. The development timeframe will also be a focus of negotiation, with the redeveloper seeking more time, and the municipality rejecting any extension, except for in very limited circumstances.
Compensation will always be a focal point of any redevelopment agreement, whether it is the method of calculating the amount of a payment to be made to the municipality for a PILT obligation, or the determination of any percentages or purchase prices owed as part of a redevelopment entity . Other issues on the table include the type of security, whether covenant defaults will allow the municipality to retaliate with regard to the redevelopment agreement, and whether a redeveloper will be required to construct certain improvements as a condition to opening its doors. Following a redevelopment agreement, future obligations of the redeveloper to the municipality may dominate the discussion.
The operative language is critical in assuring that a redevelopment entity is not subject to any future challenges. During the negotiation process, the municipality will take a hard-line on inserting language providing comfort that it will be "in or out" on all aspects of any future agreements. The redeveloper will seek to limit its own future obligations, while the municipality will negotiate just the opposite. As a result, the final negotiation of any redevelopment agreement will almost certainly include issues such as whether unnecessary limitations will restrict the ability of a redeveloper to develop on a site.
Once all final terms have been agreed upon, the redevelopment agreement should be submitted to the governing body for approval, and thereafter, following approval, sent to the Local Finance Board for review. If all goes as planned, the redevelopment agreement will be sent to the redeveloper within 30 days of the meeting.
Examples of Redevelopment Success
The following is a brief summary of notable examples of successful redevelopment projects.
Vogue Hotel
In 1979, the City of Toronto entered into a redevelopment agreement with Vogue Statutory Trust (now known as Vogue Management Inc.) for the sale of air rights and the development of a 30-storey residential tower on Wellesley Street. Later, the city attempted to amend the agreement unilaterally, which led to litigation. The Ontario Superior Court of Justice ultimately found that the city had breached its contractual obligations to Vogue. Two key lessons from this case are that: 1) housing initiatives require careful planning and cooperation between municipalities and developers, and 2) a redevelopment agreement should clearly define the obligations of each party.
Portlands Energy Centre
Between 2003 and 2007, Toronto Hydro Energy Services Inc. (now the Portlands Energy Centre Inc.) and the City of Toronto entered into amendments to a redevelopment agreement relating to the redevelopment of an area along the Toronto waterfront. However, the agreements were so ambiguous that both parties interpreted key clauses of the agreements differently, resulting in litigation. The Ontario Superior Court of Justice ultimately found that the city had breached its contractual obligations to Toronto Hydro. Takeaway: a redevelopment agreement should clearly detail the rights and obligations of the parties involved in the project.
Streetcar Depot Study Post 2014
Following a new decision by the Ontario Municipal Board, the City of Toronto land-use department we directed to review its view of the project and the products it related to. This resulted in the city taking a second look at the redevelopment project and issuing a new document.
Legal Pros’ Top Drafting Tips
To assist in this effort, we asked a number of prominent land use lawyers for their thoughts on how best to craft redevelopment agreements. Here is what they had to say:
Peter M. Scully, Esq. (Scully Estates, LLC) "The developer is looking to the municipality to provide certainty that the approval process will be completed within a reasonable period of time. Similarly, the municipality wants to be certain that the developer will have the wherewithal to accomplish the end goal. These agreements have become very detailed and comprehensive, covering everything from the big picture to the smallest points of detail. However, it’s important to remember that there is always a chance that things can go awry. This is where something as basic as an ‘excusable delay’ clause can be helpful. It allows both parties the ability to agree to extend deadlines for reasons outside of their control, which can serve to build a little more trust into the deal."
Nancy Solomon, Esq. (Wilentz) "There are often high-level government connections made during the early stages of the transaction, and I believe it is important to incorporate into the agreement the communications between the developer and the municipality during these early stages . Not only should the developer have the ability to contact the Municipality’s representatives with respect to a number of issues, but it is also important for the city to be able to utilize whatever influence its government provides to the developer, whether it is seeking an expedited approval or assistance in calming an anxious public voice. At the same time, it is equally important that the developer not unduly interfere with the process or promise anything of material importance in the transmission of these contacts. This is also why the establishment of timetables is so important. I can’t tell you how many times I would receive an email, say, around 4:00 p.m., asking me for a letter of support by 5:00 the next day. We were just not prepared to act quickly enough for these demands, so we needed the developers to agree to a timetable with which they could work."
Robert A. Donato, Esq. (McManimon, Scotland & Baumann) "I believe it is essential for all parties to clearly define their expectations, so that each knows exactly what is expected of them. Many times we find that the holder of a right-of-way will ask for twenty foot wide access through a site, when the plan actually shows an 18 foot-wide access. Under these circumstances, it may well turn out that the right-of-way holder will have to spend quite a bit to redesign their flow pattern, only to have the development of the site fail to proceed. It is far better that the right-of-way holder should have more clarity going in, so that they will know right away whether they can proceed or not."