CITY OF CARMEL-BY-THE-SEA

CITY COUNCIL
Staff Report

January 9, 2018
ORDERS OF BUSINESS

TO: Honorable Mayor and City Council Members

SUBMITTED BY: Sharon Friedrichsen, Director of Budget and Contracts

APPROVED BY: Chip Rerig, City Administrator

Receive a presentation regarding possible options for the use of the Flanders mansion
SUBJECT:
and provide direction to staff

RECOMMENDATION:
Receive a presentation regarding possible options for the use of the Flanders mansion and provide direction to
staff.

BACKGROUND/SUMMARY:
On January 3, 2017, the City Council adopted a work plan for the 2017 calendar year and indicated that the
review of options pertaining to the leasing or other alternative uses of the Flanders Mansion (“mansion”) is a high
priority. Since acquiring the mansion in 1972, the City has grappled with determining the use of the property and
has tried several different approaches, including the use of a caretaker, renting or leasing to private parties and
municipal employees, attempting to sell the mansion and keeping the mansion vacant. On August 8, 2017,
Council received a presentation summarizing the recent history of the mansion and a synopsis of alternatives
regarding the use and the sale of the mansion. Council directed staff to return with additional information
regarding three possible approaches regarding the use of the mansion.

Curatorship: A curatorship approach has been used by other city, county and state governments as a way to
rehabilitate and maintain government-owned historic properties located on public or park land. As part of a
curatorship, an individual or organization enters into a long-term agreement with the public entity to reside within,
and restore and maintain, a historic property. Some of the features of a curatorship include:
The curator should have a background, experience and interest in restoration and historic preservation.
The curatorship term coincides with the curator (i.e. “for life”).
The curator is required to develop a schedule of restoration that lists the detailed tasks to be completed,
estimated costs and estimated time for completion.
The restoration schedule or plan should be completed within a set timeframe, usually 5-7 years.
The restoration is done in accordance with historic preservation standards, must be documented with
photographs or video and is subject to regular inspections by government staff.
The curator must demonstrate the financial ability to undertake the restoration.
The curator provides a minimum contribution to be expended for restoration based upon goods, services
and an estimate of the curator’s labor as applicable. Some entities stipulate a minimum threshold of the
contribution amount.
 The curator does not pay rent, but is responsible for utilities, fees and property taxes as applicable.
The curator may also be responsible for landscape development and maintenance.
The property is available for public access and viewing, typically between 2-5 days a year.
The curator may also serve as a docent and be available to assist the public that are visiting the park.

Some of the benefits of this approach, include, but are not limited to:
The City retains control in terms of the selection and retention of a curator by not allowing the curatorship
to be transferred, assigned or alienated.
The City has oversight of the restoration process, but does not incur costs for the restoration.
The City minimizes its current and future maintenance and repair costs.
The restored property is returned to the City; the City retains ownership of the property (building and land)
and preserves its long-term right to consider options regarding the use of the property.
The mansion is used as a single-family residence by the same individual for the life of the curatorship.
Public access to the property and surrounding Mission Trails Nature Preserve is maintained.

Possible drawbacks of this approach include, but are not limited to:
There may be limited viability of potential curatorship candidates with the skills, interest and financial
resources to complete the restoration of the mansion and to make a long-term commitment.
Potential legal issues should any contractual issues arise between the City and the curator.
Potential liability to the City of incurring costs to complete the restoration if the restoration work is started,
but not completed by the curator.
There may be concern from the surrounding neighborhood if public access to view the restored property
(building) is required.
Loss of potential rental income to the City.
The City retains ownership, and thus fiscal and legal responsibility, for the property (building and land).

Lease: A lease arrangement is a contractual obligation between a landlord, or the lessor, and the tenant, or
lessee, which specifies the length of the lease, the monthly rent and the responsibilities of each party, such as
maintenance of the property. In 2013, Council developed lease criteria for the mansion as follows:
The property must be used as a single-family residence during the lease term.
Potential lessee must show sufficient liquid financial resources to restore and renovate the residence and
grounds consistent with a preservation plan approved by the City according to historic preservation
standards.
The lessee must agree to conform to and implement all mitigation measures approved by the City Council.
The lessee must restore the property on a timely basis, maintain the property throughout the lease and
return it to the City in its fully restored condition.
The lessee must agree to pay market rent, including all expenses (with possible allowances to offset
improvements).
The lessee must provide adequate insurance to protect the City from any and all liability and to indemnify
and defend the City against any potential legal action.
Offers that meet the minimum conditions will be evaluated upon receipt.

This approach is a hybrid of a curatorship, as the lessee is required to restore the property based the Secretary
of the Interior’s Standards for the Treatment of Historic Properties on a compressed schedule of five years, and
a traditional lease, as the lessee is also required to pay rent. Unlike a curatorship, which has a lifelong
commitment, Council sought to execute a lease that include a termination date. The actual length of the term
was intended to be negotiated between the City and the lessee, with consideration that a longer lease makes it
more financially viable for a lessee to make the required improvements and pay rent to the City as well as enjoy
the benefits of living in the mansion once the restorations were completed. Staff tends to believe that the criteria
previously established may have precluded otherwise worthy applicants. As such, the City will review the criteria
if Council selects to move forward with this option.
Some of the benefits of this approach, include, but are not limited to:
The City retains control in terms of the selection and retention of a lessee and oversight of the restoration
process (if required as a condition of the lease). However, the City does not incur costs for actually
restoring the property.
The City retains more flexibility regarding preserving and executing its long-term options as the lease may
be shorter in duration than a curatorship.
The City minimizes its current and future maintenance and repair costs.
The restored property is returned to the City; the City retains ownership of the property (building and land)
and preserves its long-term right to consider options regarding the use of the property.
The mansion is used as a single-family residence for the term of the lease.
Public access to the property and surrounding Mission Trails Nature Preserve is maintained.
The City receives monthly rent for the duration of the lease.

Possible drawbacks of this approach include, but are not limited to:
There may be limited viability of potential lessees with the skills, interest and financial resources to
complete the restoration of the mansion and also pay rent.
The ability of the City and a potential lessee to determine and reach agreement on the amount of market
rent the lessee will pay may be challenging.
Depending on the length of the initial lease, the City may need to undergone the lease process within a
short time span and either re-negotiate a lease renewal or enter into a new lease agreement with a different
lessee.
Potential legal issues should any contractual issues arise between the City, acting as a landlord to both the
building and the land, and the lessee, which are governed by state laws pertaining to tenant rights.
Potential liability to the City of incurring costs to complete the restoration if the restoration work is started,
but not completed by the lessee.
The City retains ownership, and thus fiscal and legal responsibility, for the property (building and land).

Ground lease: The potential use of a ground lease may afford the City the ability to sell the building while
maintaining ownership of the land. Typically, as part of this approach, a tenant enters into a long-term lease with
the owner of either unimproved land or previously developed property and the tenant makes improvements to
the property, which could include the actual structure itself. Hence, this approach is known as a term ground
lease as only the ground, or land, is being leased.

This approach is common in the United Kingdom and, under English land law, many flats are sold as a
“leasehold”. The concept is also gaining popularity in cities like San Francisco and Washington, DC that have
limited housing stock and expensive real estate. With this model, the owner of the property, such as a flat or
condominium, is different than the owner of the actual building and/or the land upon which the building sits. The
leasehold model has been used in different ways by one university including (1) structure, such as a house, is
bought by, and sold among, faculty members and the university owns the land and (2) structure, such as the
home, is leased to faculty members for a maximum term of 51 years and the university owns the land.

Some characteristics of a ground lease include:

A typical lease duration is 50-99 years.
Lessee pays property taxes, insurance, utilities and a lease payment (akin to a mortgage).
Lessee makes improvements to the property and pays for maintenance and repair.
Lease term dictates the outcome of the improvement after the lease ends, but typically the landowner
retains the improvements made to the property when the lease ends.
Where structure is sold (instead of leased), the owner enters into a ground lease with land owner and land
lease is tied to ownership of the structure
Some of the benefits of this approach, include, but are not limited to:
The City controls the selection of the lessee and, barring any issues, there is a long-term commitment
between the City and the lessee dictated by the length of the lease.
Allows a lessee to live in and improve a property without acquiring the land, minimizes the up-front financial
liquidity needed to purchase the property, and the rent may be considered a business expense deduction,
which may entice potential lessees.
Allows the City to retain ownership of the land and thereby control the use of the land.This will assist in
ensuring public access to the property and Mission Trails Nature Preserve.

Depending on the lease arrangement (for example leasing the structure and land):
The City minimizes its current and future maintenance and repair costs for the building.
The property (building) is returned to the City after the end of the lease and the City preserves its options
regarding long-term use of the property.
The mansion is used as a single-family residence for the term of the lease.The City receives lease
payments for the duration of the lease.

If the structure is sold and the ownership of the land is retained by the City:
City divests itself of the mansion.
City receives one-time revenue from the sale of the mansion.
City minimizes its costs for maintenance and repair of the structure.
City receives ongoing revenue through ground rent (even if ownership of the structure changes hands, the
new owner will be required to enter into a ground lease with the City).

Possible drawbacks of this approach include, but are not limited to:
Ground leases are more complicated that a standard purchase of a home, may not be as familiar of an
options to a potential lessee, require a long-term financial commitment and the lessee has no control over
the property during the lease, which may deter interest from potential lessees.
Determining the amount to charge for the lease and reaching agreement with a lessee on the dollar
amount and length of the lease may be challenging.
Given the typical duration of a lease, the lessee would have a significant amount of time to complete
historic renovations, as compared to a compressed schedule under a curatorship model.
Potential liability to the City of incurring costs to complete the restoration if the restoration work is started,
but not completed by the lessee. This risk may be greater as the lessee could have 50-99 years to make
payments to the City, undergone renovations and maintain the building.
Potential legal issues should any contractual issues arise between the City, acting as the landowner, and
the lessee.
The City retains ownership of the building and/or the land. Depending on the terms of the lease, the
structure could revert back to the City during the end of the lease, for example in 99 years. Or, the
structure could be sold and the City retains ownership of the land. If the original buyer of the house sells it,
the new owner would be required to enter into a ground lease with the City.

Conclusion: Staff seeks Council direction on these three options and guidance regarding the approach to
moving forward on the use of the Flanders Mansion. Ideally, if Council selects one option, it will allow staff to
focus exclusively on the development of relevant materials and outreach pertaining to the specific option of
either a curatorship, lease or ground lease.
FISCAL IMPACT:
There is no fiscal impact associated with the discussion of options pertaining to the lease or other alternative
uses of the mansion. The fiscal impact associated with moving forward with any, or all, of the options in unknown
at this time, but will require City Administration and City Attorney time and may require additional legal assistance
depending on the option(s) selected by Council. It is also likely that consideration of these options, including
exploring the feasibility of the ground lease option, will require the re-circulation of an Environmental Impact
Report.

The City continues to incur costs for essential maintenance and ongoing repairs. Specifically, the mansion
requires ongoing burglar and fire alarm monitoring systems, pest control and termite treatments, vandalism
repairs, landscape maintenance services, and plumbing repairs, which collectively averages about $8,000 per
year. As these options would transfer the City costs of improvements, maintenance and repair to the curator,
lessee or purchaser of the mansion, the City will forgo expense such as interior cleaning, heating during the
winter, window cleaning, shutter repairs, and clearing gutters at a typical cost of $4,000 per year. In addition,
some larger repairs are needed immediately, and the cost for these will continue to increase the longer these
repairs are deferred. Currently-needed repairs include: front door restoration and water stops, rebuilding the
unsafe south stairs, stop water intrusion into the basement, and monitor and potentially repair the shifting
foundation and failing plaster in various rooms. The cost for any of the major repairs (i.e. water in basement,
foundation shifting) could be significant and easily exceed $25,000 for each type of repair.
PRIOR CITY COUNCIL ACTION:
On August 8, 2017, Council received a presentation on the recent history regarding the mansion and provided
preliminary direction for staff to explore options and return for additional discussion on these options.
ATTACHMENTS: