Assignment and Assumption of Development Agreement for Whispering Hills Estates

On the Tuesday agenda, the San Juan Capistrano City Council is being asked for a second time to approve an assignment of vested rights and obligations set forth in an agreement between the City and Whispering Hills LLC to a new legal entity. The original Agreement was executed in July of 2005 and became effective on August 19, 2005.

In his Agenda Report, City Attorney Omar Sandoval indicates that the new entity, Rancho San Juan Development, LLC, is a “wholly owned” company formed by Whispering Hills LLC. This representation is being made by a City employee instead of the applicant owner. As such, it should be set aside. I urge the Council to consider the broader implications of this request.

Sandoval’s Report goes on to state that Section 4.2 of the Development Agreement provides, “that Whispering Hills LLC may assign any of its rights under the Development Agreement, subject to the prior written consent of the City, which consent shall not be unreasonably withheld.”

This is an incomplete characterization of Section 4.2. The actual language of that section is:

Assignments.

The rights and obligations of Owner under this Agreement may be assigned in writing in whole or in part as part of an assignment of all or a portion of the Property. Any assignment shall be subject to the provisions of the Agreement, and to the prior written consent of the City, which shall not be unreasonably withheld. During the Term, any assignee shall have those rights, benefits and obligations of Owner under this Agreement as expressly assigned with respect to the portion of the property owned by assignee. Immediately upon delivery by Owner to the City of the assignee’s written assumption of Owner’s rights and obligations under this Agreement with respect to any portions of the Property being assigned, Owner shall be released from all obligations as to any portions of the Property so assigned.

The italic format has been added by me to draw attention to text to be discussed below...

“...and obligations”

Any agreement involves obligations on the part of both parties. Sadoval’s Report fails to mention the obligations without which the Development Agreement would not exist.

“...in writing, in whole or in part as part of an assignment of all or a portion of the Property”.

The applicant owner has provided no evidence to the City of a sale other assignment of property appurtenant to the Agreement. This is a basic requirement for assignment to occur.

“...expressly assigned with respect to the portion of the property owned by assignee”.

Again, there is no evidence offered that the assignee owns any part of the subject property.

“... Immediately upon delivery by Owner to the City of the assignee’s written assumption of Owner’s rights and obligations under this Agreement with respect to any portions of the Property being assigned, Owner shall be released from all obligations as to any portions of the Property so assigned.”

Again, the portions of the property are not specified. But more importantly, does it not make sense that the City determine whether the obligations of the owner assignee have been fulfilled during its tenure as a party to the Agreement?

I request that City staff be instructed perform a detailed analysis of Owner obligations under the project FEIR, including the EIR amendment, CDP 04-01, TTM 16634, GPA-04-01, RZ04-05 and any other land use entitlements to determine Owner’s compliance before granting the requested assignment.

I request that the applicant be requested by the City to provide written details of the real property transaction that qualifies the requested assignment under the terms of section 4.2 of the Development Agreement, for consideration by Council the next time this request is heard.

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The subject Development Agreement contains two significant clauses that should be carefully considered by Council:

In paragraph 1.2, Interest of Owner, describing the underlying real property, the following appears:

“...and 34 acres of which real property are located in the unincorporated area of the County but within the City’s Sphere of Influence.” (capitalization from the original text).

In paragraph 10.12, the following appears:

“Third Party Beneficiary. The County of Orange is a Third Party Beneficiary of this Development Agreement pursuant to Section 6.8 herein.”

At section 6.8, a detailed “Public Benefits to and Easement Agreement with the County of Orange Relating to Avenida La Pata and Trail Improvements” appears. Multiple obligations on the part of Owner and County are documented.

Clearly, original Development Agreement pertained to areas outside of, but adjacent to the City, within the City’s “Sphere of Influence”. In fact, it was the City Planning Commission that championed the County’s interests in the original Agreement (see Matthews / Tomlinson correspondence, May 2002). It remains a matter of interest to the City whether these obligations to the County have been fulfilled.

I request that the applicant be requested by the City to provide written clearance from the County of Orange as evidence that Owner’s obligations set forth in the Development Agreement have been met. City staff should be instructed to independently confirm the evidence provided by the applicant.

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In paragraph 1.3, Intent of the Parties, this appears:

“The development of the Project is intended to implement specific land uses, provide public infrastructure and generate revenues to the City, all in promotion of the health, safety and general welfare of residents of the City."

Similar language is used throughout the Agreement. It is obvious to anyone that this intent has not been yet accomplished by the Agreement.

I request that the applicant be requested by the City to provide written evidence of the financial capability of the Assignee to fulfill the remaining obligations encompassed by the Development Agreement.

I request that the applicant be requested by the City to provide a project schedule that demonstrates the feasibility that the project be completed within the remaining term of the Development Agreement.

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The Assignment and Assumption of Development Agreement attached to the Agenda item raises a number of troublesome issues:

Paragraph 1, “...right, title and interest”

This document is not an assignment of title in real property. It is not suitable for that purpose. There is no evidence of a necessary transfer of title in the real property.

This same erroneous language appears in City’s consent document attached.

Paragraph 2 and 3, cross indemnification of Assignee and Assignor

This document should contain indemnification for the City, a reasonable condition of granting the assignment. Neglect of obligations by Whispering Hills LLC that are unknown to the Assignee could result in a future claim against the City for negligent enforcement of the Agreement and City codes. Even a claim of fraud or conspiracy involving the Assignor and the City could be constructed. The assignment agreement should indemnify the City against such claims.

Similar indemnification should be provided to the County of Orange.

Paragraph 7, Successors and Assigns: Entire Agreement

The explicit language of this paragraph states that, “the Assumption Agreement constitutes the entire understanding among the parties with respect to the subject matter hereof.” This is deficient language in light of the absence of evidence that any real property is being transferred to the Assignee.

Signature Page

I want to draw Council’s attention to the fact that the two “sides” of this agreement are identical, except for the insertion of a new corporation at the top of the Assignee. The same officers have signed for both parties (neither Grant or McGowan are listed as owners). Thus, without hearing from the actual owners of Whispering Hills, LLC and Rancho San Juan Development, LLC, the City has no way to determine whether the assignment is even valid based on this document.

I request that the applicant be requested by the City to insert indemnification for the City into the Assignment and Assumption Development Agreement.

I request that the applicant be requested by the City to provide more complete documentation of the requested assignment in the Assignment and Assumption Development Agreement.

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A “Cooperative Agreement”, dated May 20, 2003 (Agreement No. D03-044) exists between Capistrano Unified School District, Whispering Hills, LLC and the County of Orange pertaining to obligations arising from the use of La Pata Avenue (“LANDFILL ROAD”) the school and the new residential development. This Agreement creates numerous obligations on the part of the applicant, including:

Whispering Hills, LLC (and CUSD) agreed to indemnify the County of Orange against claims arising from “loss or damage of persons or property” arising from use of La Pata Avenue.

Whispering Hills, LLC (and CUSD) agreed not to cause or permit toxic or hazardous materials to contaminate La Pata Avenue.

Whispering Hills, LLC (and CUSD) agreed to maintain specific forms of liability insurance and name the County as “also insured”, to cover liability arising from use of La Pata Avenue.

Whispering Hills, LLC agreed to provide numerous pieces of documentary evidence pertaining to the “as-built” improvements to La Pata Avenue, to maintain performance bonds, to file completion documentation, and to comply with various regulatory “flow-down” requirements.

I request that the applicant be requested by the City to provide evidence of satisfactory completion, release or reassignment of its obligations to County under the Cooperative Agreement dated May 20, 2003, and any successor or similar agreements.

I request that the applicant be requested by the City to provide evidence of agreement by CUSD that Whispering Hills, LLC be relieved of its mutual obligations under the Cooperative Agreement, or that a substitute party acceptable to CUSD has been bound contractually to the mutual obligations toward County.

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I think these are all reasonable requests to make of the applicant. In particular, I think it is incumbent upon the City to provide notification to the County and CUSD, and allow each party time to respond, make inquiries of the applicant, and process whatever replacement agreements are necessary to protect the interest of the public in this assignment.