The Agreement to Purchase the Barclay Grounds At the end of December 2013, as a result of a lot of hard work by members of the Barclay Grounds Preservation Alliance (BGPA), Senator Andy Dinniman, Mayor Carolyn Comitta and many elected officials and members of the public the West Chester Borough Council contracted with StanAb LLP (the owners and potential developers of the Barclay Grounds) to purchase the Barclay Grounds for $1.2 million. Of note to anyone who is concerned about the intervention of the Borough in this potential development project, the agreed upon sale price was at the fair market value determined by an independent appraiser – as the price for best use of the property and is consistent with the price at which two of the parcels were already under agreement of sale. Since the agreement to sell was in lieu of acquisition under eminent domain the deal also potentially qualifies for certain tax advantages. Key Terms of the Contract The contract itself is quite complex but here are the key contract terms as we understand them. Please note – we are not lawyers and this explanation has not been vetted by lawyers. The rationale supplied below has not been confirmed with either of the contracting parties and is simply provided as a plausible rationale for the terms of the contract – and not intended as a statement of fact.
- Total Price $1.2 million
- $20K Non-refundable Deposit to be paid at the signing of the contract on 12/31/13 (this downpayment was raised by supporters of the BGPA and donated to the Borough)
- $590K to be paid at the First closing (due 7/31/14) – for the 2 lots on N. High St.
- $590K to be paid at the Second closing (due in 2015) – for the 2 lots on N. Church St.
Since Council wished to minimize any potential financial risk to the residential taxpayers in the Borough – and it was recognized that the deal would only be practical if sufficient support was obtained from the County and State in the form of open space preservation grants – and since the availability of these grants would remain uncertain until some time in the future, the contract was designed to take the timing of any such grant awards into consideration.
- The four lots that comprise the Barclay Grounds would remain in the ownership of StanAb until the completion of the First Closing – at which time the ownership of the two lots on N. High St. would be transferred to the Borough.
- The timing of the first closing was set to be July 31st (i.e. after the County would make its grant award known). At that point the Borough could choose not to complete the First Closing and the contract would become nullified. The penalty to the Borough for not going ahead with the First Closing would be the loss of the $20K deposit (which had been supplied by the BGPA and so backing out of the contract would create no cost to the Borough).
- If the Borough chose to go ahead with the First Closing it would pay StanAb $590K. $10K of the initial downpayment would then be applied by StanAb to bring this upto the $600K price of the first two lots.
- The date of the second closing was set for December 2014 – which would fall after the anticipated date for the announcement of the State’s Department of Conservation and Natural Resources (DCNR) grants – but has been moved to 2015 date.
- Before the Second Closing date, if the Borough has completed the First Closing but does not wish to complete the Second Closing it can exercise what is called a “Put option”. By exercising the Put Option the Borough can nullify the contract with StanAb. As such it must return the two (N. High St.) lots that it acquired under the First Closing. In doing so it forfeits the $20K downpayment but is entitled to receive a refund of the $590K that it paid at the First Closing. StanAb would be entitled to hold onto the $590K for almost a year before refunding the money.
Is there any financial risk to the Residential Taxpayers of the Borough? The contract signed between the Borough and StanAb allows the Council time to determine how much the Borough will receive from County and State grants for the project before it decides whether or not to complete the purchase of the property. Since supporters of the BGPA donated the downpayment for the property the Borough did not put the residential taxpayers of the Borough at financial risk by entering into the contract to buy the property. Instead the payment of the $590K at the First Closing can be likened to the Borough making a bridging loan from to itself from its Capital Reserve Fund (secured against the value of the property) that it anticipates will soon be paid back to the reserve fund either from County and State grants or by the return of the money from the seller if the Council chooses to exercise its “Put Option” and not go through with the purchase. This short-term, secured loan essentially allows the Council to keep the deal open until it knows the outcome of the grant decisions and therefore allows it to delay any irreversible purchase decision until it is in full possession of the relevant facts regarding whether it will be able to purchase the property (and save it from development) without the residential taxpayers having to pay for it.
Who will pay for the transaction costs related to the Purchase of the Barclay Grounds One question that has been asked is “What about the legal fees and lost interest that would otherwise be earned on the $590K (that is to be paid to the seller) until it is recouped from the County and State?” The BGPA has guaranteed to provide up to $200K to help the Borough of West Chester cover any shortfall between the grants received and cost of purchasing the property. This cost includes the purchase price, lost interest and legal fees.