Approved Agreements and Contracts Development Agreement LRS Enterprises

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                      Agenda Item Review Form
                                                    us                              GO
                         Muskegon City Commission

Commission Meeting Date: February 22, 2022               Title: Development Agreement LRS
                                                         Enterprises

Submitted By: Jake Eckholm                               Department: Dev. Svcs/Economic Dev.


Brief Summary: Staff is seeking approval of the attached development agreement.


Detailed Summary. LRS Enterprises was selected as one of four contractors for the ARPA-funded
infill housing program. The goal of the program is to continue in-filling vacant lots in our core
neighborhoods while ensuring the housing units are offered in a more-affordable manner.
There is not crystal-clear guidance from the US Treasury related to required level of affordability, but
we expect that a portion of the homes will be designated to families with incomes between 60% and
80% of AMI . The City will maintain ownership of the infill sites throughout the construction process,
and will control the sale process. The City Commission will vote on each formal sale at the time of
the sale - similarly to the Midtown Square projects. This will allow the City Commission more
discretion in determining the depth of the affordability component of the program .


The most notable change from the model agreement previously presented to the City Commission
in 2021 is the anticipated cost per house. We have raised the maximum to $235,000 to address
increases in materials.


Access to housing at all levels of affordability is difficult now. We are in a prime position to lead the
county in new housing, and I recommend that we do so. Note that the addresses are not included.
There are hundreds of addresses to select from, but many were acquired via the tax foreclosure
process and have title issues to address. Staff feels comfortable working with the builder to identify
the most-appropriate building sites that have clear title.

Amount Requested : $750,000                            Amount Budgeted: N/A


Fund(s) or Account(s): State/Federal Grants            Fund(s) or Account(s) : N/A


Recommended Motion: Approve the agreement and authorize the City Manager to sign.
       LRS ENTERPRISES ARP INFILL HOUSING DEVELOPMENT AGREEMENT

                                  RESIDENTIAL CONSTRUCTION AGREEMENT

        This ARP InFill Housing Development Agreement (the "Agreement") is between the
City of Muskegon, of 933 Terrace Street, Muskegon, MI 49441 ("Owner") and LRS Enterprises,
a Michigan Limited Liability Company, whose address is 525 South Dangl Road, Muskegon,
Michigan 49442 (Builder").


                                                                     Background


        Builder and Owner agree that Builder shall construct 6 single family residences (the
"Residences") for Owner on the terms and conditions set forth in this Agreement and in the
general conditions attached as Exhibit A ("General Conditions"). Builder will be paid by Owner
from funds obtained by Owner pursuant to the American Rescue Plan ("ARP Funds"). As such,
there are limitations on potential Buyers of the residences exist and will be more formally
declared by the federal government in the future.

           The parties agree as follows:

       1.     Building Site. Owner owns the building sites located in the City of Muskegon
and described on Exhibit B (the "Properties"). Owner has agreed to hire Builder to build the
Residences on the Properties.

2.      The Residence. Builder and City staff shall agree, in writing, as to the materials, floor
plan design, and all cost impacting details, and the construction cost for each of the Properties
attached as Exhibit B. Each Property shall have a not to exceed construction cost of $235,000.
Allowances provided for certain items, such as carpeting, light fixtures, window treatments, etc.,
and shall be set forth in the above referenced document. for The Price may change in the
event Builder and Owner agree to change orders, modifications or extras as defined below.
Builder shall build the Residences in accordance with the mutually agreed to plans and
specifications. Any features of the Residence that are not explicitly described in the Plans shall
be determined in the sole discretion of Builder. For example, unless specifically set forth on the
Plans, the location of all electrical outlets shall be as determined by Builder.

        3.     Price. The price for constructing the Residences as determined in Paragraph 2
above shall be paid one half by Owner and one half by Builder. As to Owner's obligations,
Owner shall establish the "ARP In Fill Housing Fund- LRS" ("Fund") and deposit $750,000
into that Fund. All monies owed by Owner to Builder pursuant to this Agreement shall be paid
from the Fund. Owner shall have no obligation to pay any monies to Builder pursuant to this
Agreement from any other source of funds. Upon termination of this Agreement or construction
of all Residences provided for pursuant this Agreement, all monies left in the Fund shall revert to
the Owner.



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In the event the actual cost of any allowance exceeds the estimated amount (' 1Additional
Allowance Amount 11 ), Owner shall pay the Additional Allowance Amount within 30 days of
Builder1s invoice. No Additional Allowance Amount shall be billed through Builder without the
express prior written consent of Builder.

       4.      Costs Included. The Price shall include the cost of the building permits and
materials purchased and installed in the Residences. Owner shall waive or pay for all water and
sewer connection fees and Builder shall be responsible for all other fees, specifically including
mechanical, plumbing, electrical and any other construction and building permit fees.

        5.     Payment of the Price. Builder shall be responsible for 50% of the purchase price
for each residence. As to the remaining 50% of the purchase price Owner shall pay in
accordance with the following schedule ( 11 Payment Schedule 11 ):

           a.          Foundation installed ................................. 25% of the Owner's pmiion of the Price
           b           Roof sheeting installed ............................. 35% of the Owner's portion of the Price
           c           Plaster or drywall installed ....................... 30% of the Owner's pmiion of the Price
           d           Substantial completion/certificate of occupancy ....................... Balance due in full

          6.     Modifications/Extras. No modificatio.l).s to the Plans ("Modifications 11 ) or
requests for additional construction ( 11 Extras 11 ) the cost of which exceeds $200 shall be binding
upon either party, unless the Modifications and/or Extras are set forth on a written change order
that is signed by Builder and City Manager for Owner ("Change Order 11 ). The Change Order
must provide a detailed description of the Modifications and/or Extras and the cost or credit to be
charged. In those instances where a Change Order increases or decreases the Price by more than
$200 ( 11 Adjusted Price 11 ), the Adjusted Price shall be paid according to the remaining pmiion of
the Payment Schedule.

        7.      Minor Modifications. Builder and Owner may from time to time agree on minor
modifications, the cost for which is less than $200 ("Minor Modifications 11 ). Minor
Modifications may be made either in writing or by a verbal agreement between Builder and City
Manager for Owner. The cost or credit for Minor Modifications shall be added to or credited
against the Price and paid according to the remaining portion of the Payment Schedule.

        8.      Possession. Owner shall be entitled to possession of the Residence upon payment
of the Price or Adjusted Price in full. Upon payment in full, Builder shall deliver to Owner a
completed sworn statement and a full unconditional waiver of lien. Payment of the Price or
Adjusted Price by Owner shall constitute the acceptance of the Residence and a waiver of all
known claims of Owner against Builder.

        9.       Failure to Pay. If Owner fails to make a payment within 30 days from the date
due, Builder may, upon written notice to Owner, terminate this Agreement and recover from
Owner the Owner's pmiion of the Price if the Residence is complete or, if the Residence is not
complete, the 50% of the fair market value for all work performed by Builder and any laborer or
sub-contractor of Builder and 50% of the actual cost of all materials provided and for any loss
sustained by Builder in connection with the construction of the Residence, including, but not
limited to, lost profits in connection. Notwithstanding the foregoing, Builder, in the event Owner

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fails to make the required payments, reserves the right to complete the Residence and Owner
shall pay 50% of the Price in full.

        10.    Estimated Completion Date. Builder shall commence construction of the
Residences within 60 days from the date this Agreement is fully executed. ("Commencement
Date"). Builder shall endeavor to complete the Residences within 365 days of the
Commencement Date ("Completion Date"). Provided, that both the Commencement Date and
the Completion Date may be extended as a result of circumstances beyond the control of Builder,
including, but not limited to, delays caused by suppliers or subcontractors, delays for utility
hook-ups, Acts of God, labor disputes, governmental inspections, regulations, or permit
processes, material back orders, Owner requests for Change Orders, fire, injury or disability to
Builder or weather.

        11.     Sale of Properties. Owner is using ARP funds for its portion of the construction
costs. As such, Owner shall comply with all applicable rules implementing the ARP program, in
particular all Buyers shall have income levels under 120% of the Area Median Income (AMI) for
Muskegon County, as defined by the Michigan State Housing Development Authority
("MSHDA"). Owner shall be responsible for verifying Buyer's eligibility and income to ensure
Buyer's qualifications to participate as a Buyer.

               Owner shall maintain ownership of the Properties described in Exhibit B during
the construction and marketing period. Once Builder has been reimbursed its portion of the
Construction costs of a Prope1iy, City may sell the Property free and clear of any obligations
imposed by this Agreement.



        12.   Sale Proceeds. Upon sale of a Prope1iy to the extent that Builder has not already
been reimbursed its cost of construction, Builder shall be reimbursed its cost of construction.
Owner may use the balance of the proceeds for any purpose or deposit in the City of Muskegon
Public Improvement Fund or any other fund so specified by the Muskegon City Commission.




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13.    General Conditions. This Agreement is subject to and includes all of the General
Conditions attached to this Agreement as Exhibit A and Warranty attached to this Agreement as
Exhibit C.



Dated:     _3__,/__3_ _ _ ,cU)~

                                                                                     Owner-

Dated:
                                                                                     ?~
Dated:




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                                                                     EXHIBIT A

                                                         GENERAL CONDITIONS

         1.      Evidence of Credit. Builder's obligation to commence construction of the Residences is
expressly conditioned on Owner depositing $750,000 into the ARP In-Fill Housing Fund- LRS
Construction ("Credit Evidence"). Payments required by the Payment Schedule shall be made by Owner
directly to Builder within five days after presentation of a proper partial unconditional waiver of lien,
request for payment, and sworn statements before making payments at each stage of completion as
required above. Builder shall not under any circumstances be required to waive any future lien rights that
it may have by reason of work and/or materials thereafter furnished.

            2.          Builder's Warranties. Refer to attached Exhibit C "Limited Warranty."

        3.       Owner's Warranties. Owner covenants and warrants that the Property is owned by
Owner in fee simple, free and clear of all liens. Owner shall locate the exact location of the Residence on
the Property. All corners of the Property and the Residence shall be clearly marked with surveyor stakes.
Owner covenants and agrees that such location is in compliance with all applicable federal, state and local
rules and regulations, including, but not limited to, building restrictions, set-back requirements, sand dune
and wetland laws, and regulations and zoning ordinances.

        4.       License. Builder is a residential builder and a residential maintenance and alteration
contractor and is required to be licensed under article 24 of Act 299 of the Public Acts of 1980, as
amended, being sections 339.2401 to 399:2412 of the Michigan Compiled Laws. An electrician is
required to be licensed under Act No. 217 of the Public Acts of 1956, as amended, being sections 338.881
to 338.892 of the Michigan Compiled Laws. A Plumber is required to be licensed under Act No. 266 of
the Public Acts of 1929, as amended being sections 338.901 to 338.917 of the Michigan Compiled Laws.
Builder is licensed by the State of Michigan as a licensed Michigan Contractor and maintains its license
in good standing. Builder's License and ID numbers are _________ and_________
respectively.

       5.      Laws, Ordinances and Regulations. In connection with the construction of the
Residence, Builder shall meet and comply with all applicable laws, ordinances, and regulations.


       6.      Notice of Commencement. Owner shall deliver a Notice of Commencement in
accordance with the Michigan Construction Lien Act within ten days of this Agreement.

        7.       Diligent Pursuit. Builder shall diligently pursue its obligations under this Agreement. If
Owner believes that Builder has failed to comply with this paragraph, it shall provide Builder not less
than 15 days written notice of such non-compliance, a list of Owner's specific complaints, and a
reasonable time within which Builder shall cure any such reasonable complaints. Until Owner fully
complies with the notice provisions set forth in this paragraph, Owner may not replace Builder with any
other party to complete construction and may not deduct from the Price any amount paid by Owner to
complete construction in accordance with the Plans.

         8.      Insurance. Builder shall carry public liability insurance with coverage limits not less
than $300,000 single-limit coverage and worker's compensation insurance in an amount not less than the
statutory minimum. Such policies shall name Owner and their mortgagee as additional named insured.
Builder shall provide Owner with evidence of such insurance upon request. Owner and Builder waive all


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rights against each other for damages caused by fire or other perils to the extent covered by insurance
provided under this paragraph.

           9.          Miscellaneous.

                   a.      Applicable Law. This Agreement is executed in, shall be governed by, and
           construed and interpreted in accordance with the laws of the State of Michigan.

                    b.      Entire Agreement. This writing shall constitute the entire Agreement, and shall
           supersede any other Agreements, written or oral, that may have been made or entered into by the
           parties with respect to the subject matter hereof and shall not be modified or amended, except in a
           subsequent writing signed by the patiy against whom enforcement thereof is sought.

                    c.    Binding Effect. This Agreement shall be binding upon, inure to the benefit of,
           and be enforceable by the parties and their respective legal representatives, successors, and
           assigns.

                   d.        Full Execution. This Agreement requires the signature of both parties. Until
           fully executed on a single copy or in counterparts, this Agreement is of no binding force or effect,
           and if not fully executed, this Agreement is void.


                     e.       Counterpat1s. This Agreement may be executed in two or more counterparts,
            each of which shall be. deemed an original as against any party whose signature appears thereon,
            and all of which together shall constitute one and the same instrument. This Agreement shall
            become binding upon the parties when one or more counterparts, individually or taken together,
            shall bear the signatures of all patties.

                    f.      Non-Waiver. No waiver by any party of any provision of this Agreement shall
            constitute a waiver by such party of such provision on any other occasion or a waiver by such
            party of any other provision of the Agreement.

                    g.      Severability. Should any one or more of the provisions of this Agreement be
            determined to be invalid, unlawful, or unenforceable in any respect, the validity, legality, and
            enforceability of the remaining provisions shall not in any way be impaired or affected.

                    h.       No Discrimination. Discrimination on the basis of religion, race, creed, color,
            national origin, age, sex, marital status, or handicapped condition by either party in respect to the
            construction of the Residence is prohibited.

                     i.     Assignment or Delegation. Neither Builder nor Owner may assign all or any part
            of this Agreement. Provided, that Builder may delegate all or any pat1 of its obligations to
            perform the services under this Agreement, to any persons or entities that Builder, in its sole
            discretion, deems appropriate, including sub-contractors. Such delegation shall be at the sole
            expense of Builder unless otherwise provided.

                    j.       Notices. All required or permitted written notices shall be deemed effective and
            duly given when: (i) personally delivered; (ii) sent by telephone facsimile; (iii) one day after
            depositing in the custody of a nationally recognized receipted overnight delivery service; or (iv)
            two days after posting in the U.S. first class, registered or certified mail, postage prepaid, to the
            recipient party at the address as set fo11h at the outset of this Agreement, or to such other address


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            as the recipient party shall have furnished to the sender in accordance with the requirements for
            the giving of notice.

                   k.       Pronouns. For convenience, Owner has been referred to this Agreement
            sometimes in the singular and at other times in the plural.

                                                                                      Builder -   hJ2-S   Bi{-c..V f V; &e-S    LLG
Dated:     3 k:J                   -      ~a:)__,                                      Ul!dyf?
                                                                                       Owner-

Dated:      H,~ 9'J..-,~




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                                                                     EXHIBIT B

                       Property Addresses, Plans and Specifications, and Construction Cost




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                                                                      EXHIBITC

                                                           LIMITED WARRANTY

These are additional terms to the New Home Construction Agreement between the undersigned Buyer
and Owner. At the time of closing, Owner shall enjoy a limited warranty on the New Home which
contains the following terms:

LIMITED WARRANTY

NOTE: CONSEQUENTIAL AND INCIDENTAL DAMAGES ARE EXCLUDED AND THERE ARE
LIMITATIONS IN THE DURATION OF IMPLIED WARRANTIES.

1. Term. The terms of the various coverages of this warranty begin on the date of closing or the date of
the Certificate of Occupancy issued by the Building Department, whichever comes first.

2. Coverage. Builder warrants that all construction related to the New Home has been in substantial
conformity with the plans and specifications and change orders for the New Home under the New Home
Construction Agreement. Within one (1) year from the date of certificate of occupancy, Builder will
repair or replace, at the Builder's option, any latent defects in material or workmanship of the New Home.
All workmanship and materials shall satisfy the standards of construction described in the current version
of The Residential Construction Pe,formance Guidelines -- For Professional Builders and Remodelers,
published by the National Association of Home Builders (the "Guidelines"). A latent defect is defined as
one which was not apparent/asce1iainable at the time of occupancy. The owner agrees to accept a
reasonable match in any repair or replacement in the event the original item is no longer available. If any
latent defects in material or workmanship results in water, mold, insect or animal infestation, or damage
from any other agent, Builder's responsibility will be limited to repairing or replacing the portions of the
dwelling which allowed water, mold, insects, animals, or other agents to enter or occupy the New Home.
Builder is not responsible for any damages caused by water, mold, insect or animal infestation, or damage
by some other agent, that may be associated with defects in our construction, to include but not be limited
to property damage, personal injury, loss of income, emotional distress, death, loss of use, loss of value,
and adverse health effects, or any other effects.

3. Manufacturers' Warranties. Builder assigns and passes through to Owner, to the extent they are
assignable, the manufacturers' warranties on all appliances and equipment. The following are examples of
such appliances and equipment, though not every home includes all of these items and some homes may
include appliances or equipment not in this list: refrigerator, range, space heater, washing machine,
dishwasher, garbage disposal, ventilating, attic fan, and air conditioner.

4. Exclusions from Coverage. WE DO NOT ASSUME RESPONSIBILITY FOR ANY OF THE
FOLLOWING, ALL OF WHICH ARE EXCLUDED FROM THE COVERAGE OF THIS LIMITED
WARRANTY:

(a) Consequential or incidental damages, including but not limited to claims asserting a diminution in the
value of the dwelling, or damages arising from the presence of insect or animal infestation, mold, or other
biological agents in or about the dwelling.
(b) Defects in appliances and equipment that are covered by manufacturers' warranties. (We have
assigned these manufacturers' warranties to you, to the extent they are assignable, and you should follow
the procedures in these warranties if defects appear in these items.)
(c) Damage resulting from fires, floods, storms, electrical malfunctions, accidents, acts of God; or
damages from alterations, misuse or abuse of the covered items by any person; or damage resulting from
the owner's failure to observe any operating instructions furnished by the builder at the time of

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installation; or damage resulting from a malfunction of telephone, gas company, power company, or
water company equipment or lines.
(d) Damage due to ordinary wear and tear, abusive use, or lack of proper maintenance of your home, or
animals/pets.
(e) Defects that are the results of characteristics common to the materials used, such as (but not limited to)
warping and deflection of wood, fading, chalking, and checking of paint due to sunlight; cracks due to
drying and curing of concrete, stucco, plaster, bricks, and masonry; drying, shrinking and cracking of
caulking and weather-stripping.
(f) Defects in items purchased or installed by you or anyone else except us or, if requested by us, our
subcontractors.
(g) Work done by you or anyone else except us or, if requested by us, our subcontractors.
(h) Conditions resulting from condensation on, or expansion or contraction of, materials.
(i) Paint applied over newly plastered interior walls.

5. No Other Warranties. This Limited Warranty is the only express warranty given by Builder. Implied
warranties, including but not limited to warranties of merchantability, fitness for a patticular purpose,
habitability, and good workmanship are expressly excluded, or to the extent not excludable by law,
limited to the warranty period set forth above. This Limited Warranty gives you specific legal rights, and
you may also have other rights.

6. Claims Procedure. If a defect appears that you think is covered by this Limited Warranty, you must
write a letter describing it to our office and email it to lts. You must tell us in your letter what times
during the day you will be at home, so that we can schedule service calls appropriately. If delay will cause
extra damage ( e.g., if a pipe has burst) telephone us. Only emergency reports will be taken by phone.

7. Repairs . Upon receipt of your written report of a defect, if the defective item is covered by this
warranty, we will repair or replace it at no charge to you within 60 days (longer if weather conditions,
labor problems, or material shortages cause delays). The work will be done by us or subcontractors
chosen by us. The choice between repair or replacement is ours.

8. Not Transferable. This Limited Warranty is extended to you only if you are the first purchaser of the
home. When the first purchaser sells the home or moves out of it, this Limited Warranty automatically
terminates. It is not transferable to subsequent purchasers of the home.

9. This is the Only Warranty Given by Builder. Owner acknowledges that he/she/they has/have
thoroughly examined the propetty to be conveyed and relies solely on his judgment in signing this
Limited Warranty, and that there are no guarantees, warranties, understandings, or representations made
by Builder, or any representatives of Builder, that are not set fotth in this document.


BUILDER                                                                                  OWNER




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