Grandfather clause stopped sale of cement plant in city of Park Rapids
A local bank is concerned that a city policy will hinder economic development and lending in Park Rapids.
A grandfather clause that reverted a piece of property back to residential has caused a cement plant sale to fall through. State Bank of Park Rapids, the lender for the property, thinks the city acted incorrectly and has requested the city consider modifying its policy and procedure on discontinuance of a non-conforming use property.
The specific property in question is the former Rapid Ready Mix cement plant on Kaywood Drive.
Rapid Ready stopped operating in the fall of 2008. The owner filed for bankruptcy in early 2009 and the action was completed in mid-2009. State Bank later foreclosed on the property.
In 2010, State Bank offered the property for sale at an auction and accepted a bid. However, the zoning requirements and status of the non-conformity was not confirmed before the sale.
With a non-confirming use, if there is a 12-month discontinuance of the use - in this case operating as a cement plant - then the use is no longer allowed. The property reverted to residential.
While the bank thought the city had acted incorrectly in not allowing the cement plant to reopen, city staff said it explored all legal options for the continuance of the plant but under legal advice was limited in providing an option to continue the non-conforming use of the property.
Marty Peterson, president of State Bank of Park Rapids, asked the City Council Tuesday to consider a change in policy and procedure.
"As I'm told, March of 2009 this plant went vacant. In working with the client we tried to get it back on its feet. It didn't happen ... In September of 2009 we started foreclosure, in November the sheriff's sale existed and in May of the following year we got the property back," he said.
"Just take the two end dates of March and May, it's 14 months long. The grandfather clause is 12 months long."
State statute supports 12 months as far as the window that the city has to stand by to allow that property to be reused for the purpose so intended, Peterson added.
However, he proposed the city consider another option.
"Right now there is what is called voluntary and involuntary cessation of property," Peterson said.
Voluntary cessation of property is when someone vacates the property, 12 months passes, the grandfather clause expires and the city makes its determination.
Case law in Iowa and North Dakota supports involuntary cessation of property, which is when an entity cannot use that property, the clock stops.
"So the grandfather clause technically, if you follow that ruling, would stop from September to May when we got the property back," Peterson said. "The reason this is important to you and important to us is that if I can't get the property back why would I lend the money?
"You guys aren't going to let me have the right to use it as it was used and it was lent for that and it also created a tax base for that amount. That's significant. In this case, in your determination in what you decided to do you caused a significant drop in value in that property the day that decision was made."
Banks tend to lend between 60 and 80 percent of tax assessed value as a rule.
"Why would I lend on a property that has a grandfather clause of a conditional use permit?" Peterson asked.
He recommended that the city look at involuntary cessation of property for future instances.
Grandfather clauses were created a long time ago, Peterson said.
"A lot has changed as far as our capacity to take the property back and remarket the said property," he said. "With that said, it's significant."
Economic development is at risk, he said.
"Your decision, at this point in time, reduced the employment in Park Rapids by four jobs," Peterson said.
He asked for some direction from the city as far as whether it will be taking this approach in the future.
"I will go back and instruct my lenders to add a check to the box as far as what we need to be aware of," he said. " ... We can't have unannounced, un aware ideas happen to us if we're expected to do well in this environment.
"We're very much in place to do economic development for the community, we definitely want to build Park Rapids and the surrounding area. But this is significant and it's something that I would ask you to reassess."
City planner Dan Walker said he felt the city had to follow the grandfather clause in this case because of state statute. Also, he added that the involuntary cessation was backed up in other states but not in Minnesota.
In the future, he said communication earlier in the process would help in making sure something like this doesn't happen again.
"I think it would behoove the city to work more closely with the banks," said Mayor Nancy Carroll.
Councilman Paul Utke also wanted city staff to do more research to see if the policy could be changed. The council voted to have staff look into this issue because there could be other properties in this situation in the future.