CAO 99-01
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CITY OF MIAMI BEACH
OFFICE OF THE CITY ATTORNEY
MEMORANDUM
TO:
Sergio Rodriguez
City Manager
Murray H. Dubbittl ~
City Attorney 1\fJ\
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Raul J. Aguila tt-L,\
First Assistant City Attorney
C.A.O. NO. 99-01
C.M.O. NO. 1-2/99
FROM:
SUBJECT: COBB DEVELOPMENT AGREEMENT
DATE: March 24, 1999
This office is in receipt of your memorandum, dated February 25, 1999, relative to the above-
referenced Development Agreement and the Cobb Project (Project). In preparing the foregoing legal
opinion, we have reviewed the following documents:
1. Development Agreement between the Miami Beach Redevelopment
Agency (the Agency) and Cobb Partners Development, Inc. (Cobb or,
in the alternative, the Developer), dated March 31,1989
2. Contract for Purchase and Sale between the Agency and Cobb, dated
March 31, 1989
3. Modification to Cobb Development Agreement, dated October 9,
1989
4. Contract for Purchase and Sale Modification Agreement, dated
October 9, 1989
5. Extension and Clarification Agreement, dated February 6, 1991
6. Second Extension and Clarification Agreement, dated June 2, 1993
7. Amendment to Second Extension and Clarification Agreement, dated
December 17, 1993
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8. Third Extension and Clarification Agreement, dated February 23,
1995
9. Addendwn No.1 to the Third Extension and Clarification Agreement,
executed on February 13, 1997
As there are nwnerous docwnents (going back to 1989) affecting the Project and the rights
of the parties thereto, we will address your questions separately, with the same headings set forth in
your memorandwn.
I. Have the construction completion deadlines, as extended, expired?
As set forth in the original Development Agreement, dated March 31, 1989, which addressed
the acquisition and development of Blocks 78 and 80 (Parcell), pursuant to Section 9(b) therein,
Cobb was initially to have commenced construction of the Project within thirty (30) days after the
closing of the Contract for Purchase and Sale, and complete construction of all portions of Parcel
1 by a date defined as twenty four (24) months after closing.
The Modification to Cobb Development Agreement, dated October 9, 1989, served ir.l part
to exercise the Developer's option to purchase and develop Block 53 (Parcel 2). Pursuant to Section
15 therein, Cobb is required to commence construction on Parcel 2 within ninety (90) days after the
sale of seventy five (75) percent of the units on Parcell, and thereafter complete construction of the
entire Project by a date which is defined as thirty two (32) months from the aforestated construction
commencement date. 1
In the Extension and Clarification Agreement, dated February 6, 1991, the parties
acknowledged that the closing on Parcell was to have occurred not later than November 30, 1991;
however, due to "changed circwnstances associated with the passage of time," the parties extended
the closing dates on Parcell by thirty (30) months, and on Parcel 2 by sixty (60) months. (See
Section 2 of the Extension and Clarification Agreement). It also allowed the Developer, upon
written notice to the Agency, the right to extend its deadline to commence construction on Parcel
1 or Parcel 2 for up to six months from the deadlines that would otherwise apply (See Section 1 of
that Agreement).
As set forth in the Agency's Status Report on the Cobb Project, initially dated March
17, 1999, approximately seventy (70) units; 66 residential and 4 commercial, have been constructed
on Parcell.
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Pursuant to the Second Extension and Clarification Agreement, dated June 2, 1993, the
parties again acknowledged unforeseen delays affecting closing (the closing on Parcell was to have
occurred on August 8, 1993), and hence commencement of construction on the Project.2 The
deadlines established by the prior Agreements, including the commencement of construction for
Parcell, were again extended; pursuant to the revised time line chart attached as Exhibit A of the
Second Extension and Clarification Agreement, construction for Phase 1 was amended to commence
on January 30, 1994.
Section 5 of said Second Extension and Clarification Agreement, entitled "Building Permits,"
addressing the commencement of construction, also states in part as follows:
Once the Developer has demonstrated the cumulative committed
equity (as discussed in item 4 above), has closed on the land and has
completed the first phase of construction (the number of units thereof
being determined by the Developer) pursuant to the Contracts, all
further Project construction staging and orchestration shall be done
with due diligence based on absorption.
Counsel for Cobb has provided. a letter to the Agency, dated March 15, 1999, relative to its
interpretation of the construction completion deadlines for the Project. The interpretation of the
preceding portion of Section 5 of the Second Extension and Clarification Agreement is critical;
Cobb's counsel has stated that this provision altered the construction commencement and completion
deadline concept in the Development Agreement, from actual dates, to a "market driven" concept.
Regarding the interpretation of the construction completion deadlines, the Second Extension
and Clarification Agreement is also significant in that Section 8 therein, entitled "Continuation of
Effectiveness," extended the original Development Agreement, as modified, for an additional four
(4) years, thereby changing the expiration date to March 31, 2003. Developer's counsel, in its March
15, 1999 letter to the Agency, also alleges that, under its "market driven" theory, this would now be
the outside date by which the Developer would necessarily have to complete all construction on the
Project (and therefore arguing that the construction completion deadlines have not expired).
The Third Extension and Clarification Agreement, dated February 23, 1995, extended the
closing of Parcel 2 to not later than January 15, 1995.
Addendum No.1 to the Third Extension and Clarification Agreement, executed on February
13, 1997, again extended the construction completion deadlines by eighteen (18) months from the
deadline dates that would otherwise apply. Were the City to interpret that, pursuant to the Second
Extension and Clarification Agreement and Exhibit A therein, the Developer was to have
commenced construction on Phase 1 on January 30, 1994 and, as set forth pursuant to Section 9B
of the original Development Agreement, completed construction twenty four (24) months thereafter
2 In actuality, the closing on Parcell occurred on December 17,1993 for Block 80 and
March _, 1994 for Block 78; the closing on Parcel 2 occurred on February 24, 1995.
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(or January 30, 1996), an eighteen (18) month extension of this completion date (pursuant to
Addendum No.1 to the Third Extension and Clarification Agreement) would put the construction
completion date for Parcell on or around June 30, 1997.
A decision must be made as to whether the Agency agrees or disagrees with Developer's
counsel's interpretation in its March 15, 1999 letter, as to Section 5 of the Second Extension and
Clarification Agreement; that is, once Developer has closed and completed the first phase of
construction (the number of units thereof being determined by Developer), all further Project
construction staging and orchestration shall be done with due diligence based on absorption. Such
interpretation is apparently in conflict with the specific dates set forth in the time line of Exhibit A
of the Second Extension and Clarification Agreement.
Finally, a position must be adopted by the Agency as to whether the construction completion
deadlines, as eventually interpreted, have expired, must first be made by the Agency as to Parcel I
(Blocks 78 and 80), prior to determining whether the construction completion deadlines have expired
for Parcel 2 (Block 53). Section 15 of the Modification to Cobb Development Agreement, dated
October 9, 1989, provides that Cobb is not required to commence construction on Parcel 2 until
ninety (90) days after seventy five (75) percent of the units on Parcel I have been sold. This event
has not yet occurred.
II. If the construction completion deadlines, as extended, have expired, does Cobb
have any construction rights pursuant to the Development Agreement?
Assuming arguendo that Cobb's construction completion deadlines have expired, the Agency
must first address the expiration of said deadlines with respect to the completion of construction of
Parcell which, if the Agreement is to be strictly interpreted, may have expired on June 30, 1997.
Section 9 of the original Development Agreement, entitled "Commencement of
Construction," requires the Developer to maintain a letter of credit in favor of the Agency, in the
amount of two hundred and fifty five thousand dollars ($255,000.00), to secure its obligation to
timely complete construction on Parcell. A similar provision was included in Section 14 of the
Modification to the Cobb Development Agreement, requiring the Developer to maintain a letter of
credit, in the amount of one hundred and fifteen dollars ($115,000.00), to assure the timely
completion of Parcel 2.
Additionally, pursuant to Section 16 of the original Development Agreement, the Agency
was given an option to repurchase Parcel I, both in the event that the Agency and the Developer
failed to timely close on Parcell, or if the Agency and Developer closed on Parcel I, but Developer
failed to commence development on the property within sixty (60) days of said closing. If timely
exercised, and further provided that the Agency was not in default under the Agreement, the Agency
had the option to repurchase Parcell, at a purchase price of $2,740,000.00, and to terminate the
Development Agreement. However, the option to repurchase Parcel 1 is no longer applicable.
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Accordingly, as to Parcell, if the Agency determines that the construction completion
deadlines have expired, thereby jeopardizing Developer's construction rights pursuant to the
Development Agreement, as modified, the remedy(ies) available to the Agency would be to put the
Developer on notice of a default, pursuant to Section II of the original Development Agreement and,
within that, seek to recoup the monies under the letter of credit for Parcell, in the amount of
$255,000.00, as well as seek a termination of the Agreement.
III. If the Developer's construction completion deadlines have expired, is the
Developer in default ofthe Development Agreement and what are the Agency's
rights in the event of a default?
As briefly stated in Section II above, if the Agency has determined that the Developer's
construction completion deadlines for Parcel 1 have expired, and having failed to timely exercise
the option to repurchase Parcell, the Agency's remedies lie pursuant to Paragraph 11 of the original
Development Agreement, entitled "Default, Remedies and Termination," which states as follows:
In the event that Developer, on the one hand, or the Agency, on the
other, believes that the other party to this Development Agreement is
in default with respect to any term or condition herein contained or
those contained in the Contract for Sale, the party alleging such
default or breach shall give the breaching party Notice of Default in
the manner provided in Section 18 of this Development Agreement.
The Notice of Default shall specify the nature of the alleged default
and, where appropriate, the manner and period of time in which said
default may be satisfactorily cured. In no event shall the period of
time referred to herein be less than thirty (30) days measured from the
date of mailing of the Notice of Default. During any period of curing,
the party charged shall not be considered in default for the purposes
of termination or institution of legal proceedings. If the default is
timely cured, then no default shall be deemed to have existed and the
noticing party shall take no further action. After proper Notice of
Default, and the expiration of said curative period, the noticing party
to this Development Agreement may, at its option, institute legal
proceedings for enforcement of this Development Agreement.
Failure or delay in giving Notice of Default pursuant to this Section
shall not constitute a waiver of any default. Except as otherwise
expressly provided in this Development Agreement, any failure or
delay by a party in asserting any of its rights or remedies as to any
default shall not operate as a waiver of any default or of any such
rights or remedies, or deprive such party of its right to institute and
maintain any actions or proceedings which it may deem necessary to
protect, or enforce any such rights or remedies. In the event that
litigation is commenced to interpret, enforce, terminate or otherwise
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determine the rights of the parties hereunder, the prevailing party in
any such litigation shall be entitled to collect reasonable attorney's
fees, court costs, and other direct costs incurred in enforcing,
prosecuting or defending the action from the opposing party or parties
through and including appellate proceedings.
As also stated in Section II above, one of the Agency's remedies incident to declaring the
Developer in default would be to seek to recover the monies posted with the letter of credit, for the
timely completion of Parcel I (i.e. $255,000.00). However, were the Agency to declare the
Developer in default for failure to timely complete construction of Parcell, the Developer would
have to be given a cure period of at least thirty (30) days (or whatever the Agency deems
reasonable); in the event that the default was not cured within the cure period, as set forth in the
Notice of Default, the Agency has the option of instituting legal proceedings for enforcement of the
Development Agreement (which "enforcement" may include litigation for an interpretation,
enforcement, termination, or other determination of rights of the parties under the Agreement).
As stated herein, the Agency must first answer the threshold question of whether there has
been a default with regard to Parcell, prior to determining the rights of the parties with regard to
Parcel 2. Pursuant to the Modification to Cobb Development Agreement, the Developer is required
to commence construction on Parcel 2 within ninety (90) days after the sale of seventy five (75)
percent of the units on Parcell, and complete construction of all portions of the Project thirty two
(32) months therefrom. Pursuant to Section 17 of the Modification to Development Agreement, if
the Agency and the Developer have closed on Parcel 2, but Developer has failed to commence
construction on Parcel 2 within one hundred and twenty (120) days after the sale of seventy-five (75)
percent of the total units on Parcell, provided the Developer has not commenced development on
the date on which the Agency gives notice of the exercise of its option to repurchase, pursuant to
Subsection 16(b) of the original Development Agreement (i.e. written notice to Developer specifying
the option as being exercised, on a date not later than sixty (60) days after such notice at which the
Agency shall tender the option purchase price and the Developer shall deliver a deed; failure of the
Agency to timely perform under this Section shall constitute a waiver of its option), then the Agency
shall have the option to repurchase Parcel 2 at a purchase price of$I,554,200.00, and to terminate
the Development Agreement as to Parcel 2. However, as with Parcell, the Agency can only
exercise it option to repurchase Parcel 2 in the event that it is timely exercised and the Agency is not
itself in default.
IV. What are the Developer's rights and obligations based upon the 4 year extension
of the Development Agreement, from March 31,1999, to March 31, 2003?
Section 8 of the Second Extension and Clarification Agreement, dated June 2, 1993, extended
the term of the Development Agreement by four (4) years as follows:
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8. Continuation of Effectiveness. Without thereby altering the
Developer's deadlines to close on or commence construction on
Parcel 1 or Parcel 2 except as set forth in this Agreement, and in
consideration of the unforeseen delays faced by the parties in
assembling and preparing the land for redevelopment, the Cobb
Development Agreement, Modification to Cobb Development
Agreement, and the Extension and Clarification Agreement shall
continue in effect and the maturity of such Agreements are hereby
extended for an additional four (4) years. This paragraph shall not
operate to extend any of the parties other performance deadlines.
The Developer has argued in its March 15, 1999 letter that this extension effectively sets forth the
outside date for completion of all construction on the Project, to March 31, 2003. This assumption
conflicts with the language of Section 8 itself, which specifically states that said extension shall not
operate to extend the parties' "performance deadlines" under the Agreement, as modified, and which
necessarily must include the construction completion deadlines. Therefore, it is my opinion that, in
and of itself, the extension of the Development Agreement, as modified, does not serve to extend
the construction completion deadlines. Assuming that Developer has complied with all other terms
.!U1d conditions of the Agreement and is not in default of the Agreement, as modified, the Developer
may argue that the Cobb development rights are preserved from the time the Agreement was
executed, until the stated expiration of same (i.e. thereby extending Developer's rights for another
four (4) years, to March 31, 2003). However, if a default is declared by the Agency, and not cured
in a timely fashion, the Agency may go to court to seek termination of the Development Agreement.
Should you have any questions or comments regarding the above, please do not hesitate to
contact me.
JUAIkw
F:IATTOIAGURICAO\99-0I.CAO
cc: Christina M. Cuervo, Assistant City Manager
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