Looking at the ADU lawsuit from the property owner perspective

Council has to weigh risk versus affordable housing benefit

by Mark Reaman

The Crested Butte Town Council will decide Monday on whether to accept a proposed settlement in the lawsuit over some long-term rental deed restrictions in town. The idea of a settlement has spurred some vigorous discussion within the community, both on social media and in person.

The settlement proposal hammered out by council representatives, town staff and the two property owners in the lawsuit would result in the town releasing the language in the covenants requiring a long-term rental be maintained on each of the two properties. In exchange, the plaintiffs will each make a one-time payment of $275,000 to the Crested Butte’s Affordable Housing Fund, for a total of $550,000.

District Court judge Steven Patrick had ruled in favor of the town during the first court case in the lawsuit that is now heading toward appeal. He said that while the Crested Butte rules were clarified, the intent of the original deed restrictions was obvious and the owners needed to rent spaces on the property to local workers. In exchange for the deed restrictions, the original property was given a discount on town tap fees.

Both sides admit that any time a dispute goes to court, there is risk in long-term consequences with a decision for either side. The appeal is set to go to the state court of appeals on January 15.

One of the property owners who brought the case against the town made it clear this week that the settlement proposal is an attempt to strike a balance that can ultimately help the affordable housing issue in Crested Butte.

“We didn’t sue the town over the deed restriction. I knew there was a deed restriction when I purchased the property,” explained John Kiltz of Sopris 715 LLC. “We sued over the fact the town changed the deed restriction after we owned the property and a brand new deed restriction was imposed on the property without our consent after we bought the property.

“Chris [Mize] and I understand how important affordable housing is to the town,” Kiltz continued. “On the other hand we both sincerely believed, and still believe, that under our deed restrictions, the decision whether to rent the accessory dwelling unit was up to us: We have an obligation to maintain it, and if we decide to rent it, we have to rent it for six months or more.”

The original deed restriction covenants simply required that a long-term rental unit be maintained on the property. It in effect prohibited the unit from being short-term rented or used as part of the primary home but there was no clear rule requiring it be rented to local workers.

The ordinance has been amended three times since 1999. The most recent amendment was in 2015 when the Town Council directed the town attorney to tighten up the language to require all ADUs in Crested Butte be actively offered for rent or be out of compliance with town regulations and subject to town fines.

Town regulations now state such a deed-restricted space cannot be vacant for longer than three months in any six-month period.

Crested Butte town manager Dara MacDonald explained that the town maintains that the modifications to the definition in the regulations were clarification of the original intention that the rentals be utilized by locals. And that stance was upheld in District Court. But she said that if the court of appeals rules in favor of Kiltz and Mize, “The town would have to carefully consider future enforcement actions against the other 41 ADU owners should they fail to rent their units under the current definition of a long-term rental.”

Kiltz said the person who sold him the house had not rented the ADU in the previous 21 years so he did not change the use. Changing the rules in the middle of the game did not seem fair but he said the proposed settlement could strengthen the town’s ADU position.

“Why let a Denver court decide what the town does with this issue when we have two reasonable parties that can come to a good compromise? It made sense to try to find a good deal and we all think this does that. It’s not ideal for town and it’s not ideal for us,” Kiltz said. “It is a practical win-win for both parties. It gets us both out of this with our heads up. It gives town the ability to do good things in affordable housing and upholds the lower court ruling as the law of the land so in essence protects the current deed restrictions in Crested Butte.”

MacDonald does not disagree. “Enforcement of 80-plus rental covenants can be challenging,” she said. ”Settlement of the case with a favorable ruling should help to bolster compliance with other existing similar covenants.”

Kiltz emphasized he loves the town and does not want to hurt the efforts to protect affordable housing in Crested Butte. But he doesn’t want to be subject to new rules without his knowledge and consent. “Court is risky, so getting it done now is good for everyone,” he said. “By settling the lawsuit, the district court ruling holds up as the law. That’s good for town. It’s not a precedent; it is a settlement in that the town is not under any obligation to do the same deal for others. We have spent two years on this and feel it really does help the town.”

MacDonald and Kiltz both feel the settlement approach avoids the risk of an adverse outcome for the town by the court of appeals negatively affecting all of the similarly situated units.

“There is always risk in any litigation,” MacDonald acknowledged. ”The risk of losing the case and the associated impacts must be weighed against the goal of furthering affordable housing efforts in the town. That is the crux of the decision facing the council.”

The council has not determined specifically how they would like to utilize any settlement money, just that the funds will go into the Affordable Housing fund. Some of the possible uses discussed include construction of additional units; acquisition of existing units; or buying deed restrictions on existing properties. In each of these cases MacDonald and mayor Jim Schmidt say the town would have the opportunity to control the restrictions much more directly going forward.

“The settlement proceeds will create options more diverse and better suited for affordable housing,” added Kiltz. ”This settlement also reflects a more collaborative and cooperative approach in which the town is working voluntarily together with property owners who have deed restrictions to grow the affordable housing fund.”

“The goal of the ADU program has always been to provide workforce housing for the people of Crested Butte,” said Schmidt. “That certainly was the intent when we instituted the ADU program many years ago. With this settlement as we move forward, we have ensured that it is clear that any accessory dwelling unit is used for that purpose.”

The council will discuss the settlement at the December 17 Town Council meeting.