When the City of Stoughton’s Redevelopment Authority bought a half-acre parcel on West Main Street in 2010, something important was missed.
Now known as the Marathon Site, it was for many years the home of a gas station, and a restrictive covenant on the title deed prevents most types of non-gas station developments.
That restriction was discovered by McFarland State Bank this spring, and now, after eight years and attempts to develop the property, plans to build two four-unit apartment buildings on the site are once again stalled.
A restrictive covenant limits what can be built on a property and how it can be used in the future. In this case, Speedway, the company that owns Marathon and operated the site from 2000-2005, ruled out a variety of uses, including residential.
The RDA agreed Wednesday, July 10, to try to get that restriction removed through the courts. It also agreed to authorize its attorney to pursue monetary damages against Dane County Title, the entity that was responsible for finding such restrictions. That process, including time for appeals, could last months.
That could put the apartment project that has been in the works for years in jeopardy of being abandoned.
Developer Todd Nelson had agreed to be responsible for creating $900,000 in taxable value by the end of this year, which now appears impossible.
RDA chair Roger Springman said during the Wednesday meeting Nelson had met with Springman and mayor Tim Swadley and reported that Nelson was still interested in the development, but the restriction would need to be removed.
Damages the RDA could seek include attorney fees, the purchase price of the property, the price of the adjacent, now combined, property that was purchased in 2012 and lost tax increment. Commissioners and staff are still trying to figure out what else the RDA might be entitled to, though the key loss might be simply be time.
An attorney for Dane County Title had not responded for comment as of Tuesday afternoon.
Since purchasing the property, the RDA has invested hundreds of thousands of dollars in environmental remediation to prepare the site for apartments. That included removing the underground gas tanks and the surrounding structure, as well as the demolition of an adjacent foreclosed home that was purchased and demolished in 2013.
It also paid $169,000 for the property.
“If we had known that it was going to prohibit us from developing it, we wouldn’t have paid as much for it or ever bought it because we had ideas that it was going to be redeveloped,” alder and committee member Regina Hirsch said during the Wednesday night meeting. “We’re the Redevelopment Authority; we weren’t going to make it into a park.”
The city has been trying to redevelop the property – which now combines two lots – for nearly a decade.
A month after purchasing the 314 W. Main Street site, the RDA had the gas station demolished. Cleanup of the site was supported by a $30,000 EPA grant.
In an effort to maximize its potential, the RDA later purchased a lot that had been foreclosed on in 2012 at 217 S. Prairie St., on the northwest corner of the site.
The RDA originally aimed for a commercial or retail building and began soliciting developers in 2011. Planning director Rodney Scheel said at that time the planning department was more interested in extending the character of downtown further west than it was in building homes.
After investing more than $300,000 into the property, the RDA agreed to sell it to Nelson for $72,000 in 2017. He agreed to create $800,000 in taxable value by the end of 2019, but after five extensions of the closing date, that number has since increased to $900,000.
Getting the limitations removed could be complicated.
The RDA needs to notify Speedway of its intent to remove the restriction, and Speedway has several weeks to respond. It would then move to Dane County Circuit Court, likely in September, where a judge would decide whether to remove the restriction.
Speedway would have 45 days to appeal if the judge rules in the RDA’s favor.
Part of the reason a restrictive covenant could exist on the property is the potential for hazardous fumes. After the city removed the gas tanks and added protections that could eliminate the potential for hazardous fumes, the Wisconsin Department of Natural Resources gave the city the OK to build apartment buildings on the site.
The covenant is there to protect Speedway from potential legal action if someone claims to have been harmed by the environmental impact, even years after Speedway no longer owns the site.
Covenants can be enforced by the original owner, as well as any neighboring owner, even if that landowner was not the person who originally imposed the covenant. Covenants apply to the property itself, not any specific owner, so the limitations are legally binding for anybody who buys the property.
Restrictive covenants date back to 18 and 19th century England, when property owners sometimes used covenants to prevent a factory from operating in order to protect area farmers.