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There have also been numerous electrical, mechanical and plumbing permits applied for and issued, including the latest permit for the hotel plumbing, whose issuance required confirmation that the developer had paid for the necessary sewer permits.
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Current Status of Compliance with Original Conditions of Approval. When the project was approved by the Board of Supervisors in 1989, there were 63 conditions of approval stipulated by the County Planning Division, Building Inspection Section, Department of Public Works, Environmental Health Division as well as the Half Moon Bay Fire Department. Staff has prepared a table (Attachment B) listing all of those conditions and their status; e.g. whether or not they have been complied with or if they are still pending. When the conditions of approval were issued, it was not anticipated that project construction would occur in phases, as has subsequently occurred. Thus, the status of select conditions has been reviewed relative to that phase of the project as is currently ongoing. To summarize, compliance with all listed conditions has already or will be confirmed under the following scenarios: (1) as constructed to date, select and applicable conditions of approval have been met; (2) for portions of the project not yet begun, submitted construction drawings have confirmed that select and applicable conditions of approval will be met; and (3) prior to the project’s final construction approval, compliance with remaining and applicable conditions will be confirmed.
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DISCUSSION
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Section 15.E. of the Development Agreement specifies events which can serve as a basis to extend the Development Agreement. This section states, in relevant part:
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[A]ny delay or failure of performance by any party hereunder shall not be deemed to be a breach of the terms of this Agreement where such delays or failures are due to war, insurrection, strikes, walkouts, riots, floods, earthquake, fires, casualties, acts of God, moratoria imposed by County, governmental restrictions imposed or mandated by other governmental agencies, appeals of licenses, permits or approvals granted to Owner, enactment of conflicting state or federal laws or regulations, new or supplemental environmental regulation, litigation, or similar bases for excused performance. An extension of time for such cause shall be granted in writing for the period of the enforced delay or longer period as may be mutually agreed upon in writing and the term of the Agreement shall be extended for the same period, provided that in no event shall the term of the Agreement be extended for a period longer than five years in the aggregate. . . .”
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Thus, in order to establish the basis for an extension under this section: (1) the parties must agree that one or more of the listed bases for extension apply; (2) the parties must agree on the time of the enforced delay of some mutually agreeable longer period; (3) the extension of time must be granted in writing, and (4) extensions cannot exceed more than five years in the aggregate. No previous extensions of time have been granted under this provision.
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On January 4, 2005, the County received an application from Point Pillar Project Developers, LLC, the current owner of the project, for an extension of time under Section 15.E. of the Development Agreement. The application cited three reasons for delay:
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1.
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Delay in the ability to obtain financing, due to the events of September 11, 2001. The developer claimed that the inability to obtain financing persisted through the summer of 2002, for a period of about 10 months.
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2.
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Delay in obtaining necessary sewer permits for the project, caused by disagreements over the entitlement to and availability of sewer capacity from the Granada Sanitary District, for a claimed delay of about two years.
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3.
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Delays in plan checking by the Half Moon Bay Fire Department, lasting about seven months.
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Based on these claimed delays, the developer requested a total extension of two years.
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On February 15, 2005, County Counsel, after consulting the Director of the Environmental Services Agency, addressed a letter to the developer’s representative indicating that, while the three events cited could possibly serve as a basis for extension under Section 15.E., more detailed information was necessary to conclude that the events did qualify, and to determine an appropriate period of delay.
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The developer’s representative responded by letter dated March 30, 2005 (Attachment A). The developer’s submittal included a letter from John D. Curtis, an official with East West Bank, the bank providing financing for the project, indicating that project funding had been put on hold from September 2001 until the middle of 2003 due to the events of September 11, 2001; an outline of events surrounding the process for issuance of sewer permits, indicating a delay in the availability of permits to serve the project lasting from September 1999 through November 2000; and a declaration from Ron Stefanick, a contractor for the developer, concerning delays in the plan-checking process with the Half Moon Bay Fire Department. A copy of that submittal is attached as Attachment B.
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After reviewing the submitted information, staff has concluded as follows:
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1.
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The claim of delay as a result of the events of September 11, 2001 could serve as a basis for extension under “other similar bases for excused performance,” since those events could be seen as analogous to “war” or “insurrection.” The letter from John Curtis asserts that East West Bank was close to executing all required documents by September 2001, but after the events of September 11, 2001, the bank was “forced to inform Mr. Nerhan that until economic factors which were being impacted by the terrorist attack were assessed and settled, in no position to make the required loans. It was more than a year and a half later that we were authorized to proceed by our bank’s hierarchy.” Staff, through County Counsel, contacted Mr. Curtis, who confirmed that the bank did place a hold on providing a funding commitment for the project for an 18-month period because it had to assess the long-term impact the events of September 11th would have on the viability of new tourist hotels in general, and on projects that the bank had recently funded in particular. The information provided by Mr. Curtis would support a delay of up to 18 months.
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2.
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The claim of delay due to difficulties in securing sewer permits could be categorized as “government restrictions imposed or mandated by other governmental agencies.” The outline and supporting documents indicate that there was in fact a dispute concerning whether the project was entitled to Phase I or Phase II sewer capacity. Ultimately, the Granada Sanitary District concluded that there was insufficient capacity in Phase I to serve the project. Some of the events surrounding the effort to obtain sewer connections may be ascribed to differences between the developer and the District concerning the source and cost of capacity, and thus would not necessarily qualify to an extension under Section 15.E. It appears certain, however, that capacity was not available to give a commitment to the project from the time of application submittal in September 1999 until at least Mid-March of 2000, when the Phase II improvements to the SAM plant came on-line. Thus, a period of delay of approximately six months can be attributed to the non-availability of sewer capacity.
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3.
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Staff has concluded that there is insufficient information to establish grounds for delay in securing fire agency signoff. While it is clear that there were difficulties securing approvals, there is no clear indication that the difficulties rise to the level of a cause for excused delay.
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In summary, staff has concluded that there is substantial information to support a determination that the project has experience at least two years of delay as a result of causes covered by Section 15.E of the Development Agreement. Staff believes that a 2-year extension would provide more than ample time to complete the project. If, however, the Board concludes that additional time might be needed, such additional time could be granted under Alternative 3, below.
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In the event the Development Agreement were to expire before completion of the project, the developer may still have vested rights under California law to complete construction for which the developer has obtained building permits and for which substantial expenditures have been made in reliance on those permits. The Development Agreement brings an additional level of control to the development process that staff believes remains important in bringing the entire project to completion within a reasonable time period.
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RESPONSE TO CONCERNED CITIZENS’ LETTER OF APRIL 15, 2005
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On April 15, 2005, Board members received a 12-page memorandum from Larry DeYoung, President, Concerned Citizens of the Coastside, and Don Johnson (collectively “Concerned Citizens”), opposing any extension of the Development Agreement. Concerned Citizens ask that a stop work notice be placed on the project, that the Board find that the developer is in default of the Development Agreement, that the developer be encouraged to submit a new design for the site which would then go through a new permit approval process, and that the developer be required to remove any construction that is not incorporated into a new approved project. The memorandum argues that both the County and the developer have breached the Development Agreement (the County by failing to conduct the required yearly reviews, and the developer by failing to act in good faith in pursuing the project), and as a result, any building permits issued to the project are invalid. Staff, after consultation with County Counsel, has the following response to the main points raised in the memorandum:
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1.
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Concerned Citizens contends that the force majeure clause should not apply as to any claim of delay due to the events of September 11, 2001. Staff, after consultation with County Counsel, is of the view that if the Board is satisfied that delay resulted in obtaining a financing commitment from the financing entity, either directly or indirectly, as a result of the events of September 11, 2001, such a delay would qualify under Section 15.E as a grounds to extend the completion date. For the reasons discussed above, staff believes that such a determination can be made.
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2.
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Concerned Citizens contend that the developer has not operated in good faith in pursuing completion of the project, and for that reason, is in breach of the Development Agreement. In support of the argument, Concerned Citizens note an early effort by the developer to explore alternatives to the approved project, indicating a lack of commitment to the project as approved. In response, staff notes that the Development Agreement itself contemplates the possibility that the developer might pursue a modified project, and sets out a process for seeking approval of such a modified project; therefore, efforts to explore alternatives (and time spent to do so) would not constitute a breach of the Agreement.
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3.
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Concerned Citizens argue that, had yearly County reviews been conducted, the County would have concluded that the developer was not proceeding in good faith, and therefore had breached the Agreement. In response, staff notes that the Agreement specifies only two time requirements to be met by the developer: start of construction within five years, which was accomplished, and completion of construction, which is the subject of the matter currently before the Board. Recognizing the difficulties inherent in the development process, the evidence presented by the developer concerning the cause of delays in moving forward, and the developer’s evident commitment to complete the project as approved, staff does not believe there are grounds to find that the developer has not proceeded in good faith.
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4.
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Concerned Citizens also argue that, if the developer was in breach of the Agreement for not proceeding diligently, any building permits issued were necessarily invalid. As noted above, staff does not believe that the developer was in breach. Even if it were assumed that there may have been grounds to declare a breach of the Agreement, such a breach can only be established through the process outlined in the Agreement, which provides for notice and an opportunity to cure.
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5.
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Concerned Citizens also express concerns that County staff might be suggesting, as an argument favoring extension of the Development Agreement, that expiration of the Agreement will result in a loss in the ability of the County to enforce conditions of approval of the project. It is staff’s position, supported by County Counsel, that irrespective of the Development Agreement, any work done on the project, or any work that might be done in the future on the project, must be in full compliance with the conditions of approval of the coastal development permit, use permit and subdivision approvals for the project, and the requirements of any building permits issued for the project. A decision by the Board to extend the term of the Development Agreement will allow the additional oversight contemplate in the Agreement. A decision not to extend the term will present the Board with the issue of whether or not the developer should be allowed to proceed to completion of the project, but even if the developer is allowed to proceed, all conditions of project approval would apply.
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PROJECT MONITORING
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In a memorandum to your Board dated September 8, 2004, it was noted that the Development Agreement called for periodic (12-month) reviews of progress under the Development Agreement, with review limited to compliance with the Agreement, and that staff had not been conducting such reviews. As outlined above, staff has concluded that the project is in compliance with the conditions of approval for the project. In order to ensure that the project moves expeditiously to conclusion in accordance with whatever timetable for completion may be granted by the Board, staff will conduct comprehensive reviews at 6-month intervals, and take such action as may be necessary to expedite completion of the project.
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ALTERNATIVES
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The following alternatives to the staff recommendation are available to the Board:
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1.
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The Board could determine that there is insufficient information to establish the grounds for any extension under Section 15.E. of the Agreement. In this event, the Development Agreement would expire on June 22, 2005. The issue would remain, however, as to whether the developer has secured rights under law to complete the entire project, or to complete construction for which building permits have been issued, independent of the Development Agreement. If the Board chooses this alternative, staff requests that the Board set another hearing for consideration of these issues.
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2.
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The Board could determine that there is insufficient information to establish some (but not all) of the claimed grounds for extension, and grant a lesser extension based on that determination.
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3.
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The Board could determine that the claimed grounds for extension exist, but chose to grant a greater time extension than the time representing the delay, as authorized by Section 15.E. For example, an extension to meet the projected time of completion might be appropriate even though a lesser time might be calculated from the time of delay alone.
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FISCAL IMPACT
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The total revenues associated with all building, electrical, plumbing and mechanical permits applied for to date is approximately $967,125. Approximately $365,964 has yet to be paid by the applicant for permits not yet issued. It is also expected that as the project nears completion, future permits (i.e. for interior finish work, tenant improvements) will bring additional revenue. Additionally, the assessed tax revenue on the project parcel will increase significantly.
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ATTACHMENTS
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A.
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Letter from Point Pillar Project Developers, dated March 30, 2005 (including related Exhibits A-M)
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B.
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Table Listing Project Status with Conditions of Approval
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C.
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Letter from Concerned Citizens of the Coastside, dated April 15, 2005
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