During the Town Council worksession and regular meeting on August 27, part one of the housing restrictive covenant/deed restriction discussion took place. Staff reports and recordings from that meeting may be reviewed in the August 27, 2024 Town Council meeting agenda. The purpose of the work session held on August 27 was to review housing restrictive covenants/deed restrictions, including what they are and why they exist. Additionally, staff explained the resale calculation formulas commonly utilized within the Town and compared them with other resale calculation formulas used in other jurisdictions. An analysis of the effect that the different options for resale calculations would have on properties was provided. During the regular Town Council meeting on August 27, comments were received from eighteen members of the public, including letters that were submitted to Council.
The purpose of the September 16, 2024 special worksession is for staff to provide information regarding the following topic areas, as they relate to Frisco’s housing restrictive covenants/deed restrictions:
- Eligible Household Incomes
- Qualifying Capital Improvements (“QCI”)
- Asset Limit Testing
The provided information was intended to set the table for Town Council to have a thoughtful conversation about whether they want to make changes regarding eligible household incomes, qualifying capital improvements, and asset limit testing.
What is a Restrictive Covenant/Deed Restriction?
A restrictive covenant/deed restriction is a common tool used for placing limitations on the uses of a housing unit and are frequently utilized when a housing unit has been partially (or fully) funded by taxpayer money, and subsequently, deed restrictions are recorded on applicable properties. The covenant is a written agreement that restricts or limits the activities that may take place on a property or development. When purchasing a property that has a covenant recorded on it, new property owners acknowledge a written statement affirming that they understand the restriction recorded on the property and that they will abide by it.
There are approximately 155 properties within the Town that have restrictive covenants/deed restrictions on them through various development measures primarily stemming from development agreements or bonus density commitments. Approximately 40 of these units are employee units with no resale price cap (often referred to as “light” or “live/work” restrictions). The remaining have some type of limitation on household income and/or resale calculation, typically tied to an area median income (AMI) between 80-120% area median income; some units have a higher AMI, up to 160% AMI.
In 2019, Town Council adopted a new Residential Housing Restrictive Covenant and Notice of Lien document, which was to provide a resale calculation that allows owners to potentially sell their property for a value, which is an increased value over the previous method and which provided a priority to buyers who work in Frisco for the first month that a property is listed. The purpose of the modifications was to allow an alternative method for calculating the allowable maximum resale price, and alternative methodology was established to create a new deed restriction option for affordable workforce housing developments moving forward. Additionally, any property has the option to terminate their existing covenant and opt-into the 2019 covenant/deed restriction. This has primarily been utilized when property owners sell or refinance their property, as the 2019 covenant typically allows a higher resale price than many of the older covenants recorded on properties. Since 2020, 24 deed restricted properties within the Town of Frisco have sold, 14 of these properties were sold under the 2019 covenant, and 10 remained under the existing covenant recorded on the property. No matter which covenant/deed restriction is applied, there is a clause that protects against a property being priced at less than it was purchased due to pricing calculations; pricing could still be less but only if market conditions cannot support prices.
Eligible Household Income
Some covenants throughout Summit County have an eligible household income that is between 10% to 30% higher of an Area Median Income (AMI) than the designated AMI for a particular property. This allows a household qualifying to purchase a unit to make a higher income than the restricted property’s stated AMI. This income buffer allows households that have expenses such as childcare, student loans, auto loans, etc. afford monthly mortgage payments. If the Town moved forward with this income increase, it would apply to all prospective buyers interested in a unit for sale that has this within the restrictions. This change would increase the buyer pool as more households would qualify for units. This can be viewed as a positive or negative based on an individual perspective:
- If the buyer pool is larger, the seller would have more of an assurance that someone could purchase the house at the price they are listing it at.
- If a household is allowed a higher income to purchase a unit, it potentially allows those with additional financial burdens such as student loans, childcare payments, etc. to be able to purchase the unit.
- Those households whose income limits fall under the original income cap established for the property when the original covenant was recorded may not be comfortable that others are allowed to qualify to purchase the unit with a higher income.
Staff is requesting direction from Council if they would like to include an income buffer which would allow prospective buyers to have a higher household income than what is currently allowed. Council gave staff direction to keep this as it is currently and not allow for a buffer, but to also continue to offer a 20% AMI buffer if a property has not sold after 30 days.
Qualified Capital Improvements
Some original covenants allow Qualified Capital Improvements (QCI), previously referred to as Permitted Capital Improvements. These are permitted within some Peak One Neighborhood properties and some South End Village properties. No other covenants within the Town were originally written with allowances for capital improvements. Attachment C of the Council packet outlines Peak One Neighborhood Affordability Categories and Permitted Capital Improvements, which is further listed in the 2019 covenant. QCIs are permitted in the 2019 covenant. These range from a variety of items and depreciate on a five- or twenty-year schedule. If a property owner asks for QCIs for work that required a building permit and a building permit was not submitted for and/or issued, the owner does not get to use that QCI, and property owners are subsequently given the option to retroactively apply for the permit and show code compliance, which would then allow the QCI.
Staff asked Council to provide direction whether or not they would like to make changes to the Qualified Capital Improvements (QCIs) from the 2019 covenant, which allows capital improvements and does not have a maximum cap on the amount of QCIs an owner may add to their sale price. Council indicated that they would like to continue to think on a possible cap on QCIs and would like staff to return with examples from other towns about the average/customary/reasonable costs of improvements, but that they do not want to give firm direction until they understand and make decisions around other aspects of resale pricing.
Asset Limit
Assets are the sum of all real (including another property anywhere) and personal property, money, and other things of value owned or controlled by a person at the time of their purchase or lease of a property. Breckenridge and Summit County have begun implementing asset limits for some of their deed restricted units. Asset limits are reviewed in some jurisdictions, as it addresses concerns raised by prospective buyers who have stated that it is unfair that some owners of restricted units have enough money to purchase a market rate unit, and therefore, should be limited from qualifying for a deed restricted unit. The Town of Frisco currently does not limit assets that a buyer has, except for a limit on owning property elsewhere, when qualifying to be a purchaser. Asset limits have recently been included in newer covenants throughout Summit County.
Staff asked Council to consider whether they want to have asset limits in the standard covenant, and to clarify the amount, along with any exceptions. Council asked staff to return with some options to allow ownership of other properties and indicated that they are not inclined to feel strongly about an asset test, especially after the purchase has been made, but would consider an asset test before purchase as long as they are reasonable and do not include retirement, college funds, health savings accounts, and other types of financial tools intended to plan for the future.
Maximum Resale Calculations
As requested by Town Council at the August 27 meeting, staff researched additional methods of resale calculations performed throughout local jurisdictions. Similar to Frisco, Breckenridge has received inquiries from owners of homes in certain deed restricted neighborhoods in regards to their appreciation formula; specifically concerning the use of AMI as an index for calculating maximum resale prices. Attachment D includes a brief summary of the evolution of covenants in Breckenridge and more methods for resale calculations performed throughout local jurisdictions. Council did not have questions about this right now but indicated that this information provides important information for the next phase of discussions.
Council did indicate that they are supportive of a lottery for resale, which includes extra entries based on longevity of residency.
Next Discussion
As only four Council Members may make decisions around restrictive covenants/deed restrictions (three Council Members recused themselves due to conflict of interest), it is more challenging to schedule meetings, as they require all four of these specific Council Members to be present. Therefore, the next phase of this discussion will likely not be possible until early December.
Frisco Town Council Meetings: Ways to Participate
Frisco Town Council meetings are available to view via Zoom and YouTube, and are also held in person to make Town Council meetings easier to access for everyone.
The public can provide comment during meetings via Zoom or in person (not YouTube), and a public comment period will be available at 7:00pm; during the consideration of ordinances; and at the discretion of Town Council during work session items, which are discussions that don’t require a formal vote by Town Council and do not require public comment. Again, this hybrid approach is intended to make Town Council meetings more accessible, and meeting recordings will typically also be made available the day after a meeting in the meeting archive with agenda topics bookmarked to the discussions in the video.