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Primer: MOU, UA, and TDs

Ron Chenoy-US PRESSWIRE

A bit of acronym soup for you. Setting this up as a handy resource to refer to when discussing the various project agreements for the proposed Seattle Arena.

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MOU: MEMORANDUM OF UNDERSTANDING
From Wikipedia: A memorandum of understanding (MoU) is describing a bilateral or multilateral agreement between two or more parties. It expresses a convergence of will between the parties, indicating an intended common line of action. It is often used in cases where parties either do not imply a legal commitment or in situations where the parties cannot create a legally enforceable agreement. It is a more formal alternative to a gentlemen's agreement.

While there are provisions of the MOU for this project that have been agreed to as legally binding, it has been demonstrated in court on two separate occasions that the MOU is not a course of action, does not constitute a "done deal" for the arena, and does not lock either party into moving forward with the project at the end of the established evaluation period.

In loosest terms, the MOU lays out the guidelines of the process of the evaluation and analysis of the feasibility of an arena. It states the intended purpose of the evaluation, the methodology of the evaluation (including looking at multiple sites, despite what has been contested by the arena opposition), that a partnership this time is only about the evaluation, and it spells out next steps in the process following the evaluation should the parties decide to enter into an agreement to move forward with the project.

Done Deal?
What seems to be tripping people up regarding whether the MOU is a "done deal" or not is that WSA Properties (Hansen's group established for the arena project), Seattle City Council, and King County Council all went above and beyond, taking the extra step to negotiate and agree to the concept behind the financing mechanism in the MOU so everyone would know what they were dealing with up front and not have to go through those negotiations down the road. This was an extremely valuable step in the given Seattle climate because they needed to prove a mechanism that complies with the existing I-91 (no arena subsidy) law. Each party didn't have to negotiate these terms at that time, but they wanted to be forward with the public regarding the money requested and involved if the project moves forward. Not to editorialize too much, but this is something quite frequently overlooked by the opposition in the effort to prove that the model is wrong. Hansen knew he needed to address this elephant in the room right from the beginning and the Councils jumped on that to make it a reality.

Though the mechanism was negotiated and agreed to, being placed in the MOU meant that this was not a tacit agreement to put this mechanism in place, locking them into an arena deal. In a sense, this easily could've been in an appendix on the MOU, identifying that this would be the model they would use should they move forward with the project. Placing it within the body of the MOU helped to clearly define the steps of the evaluation process and what could come next if and when the councils decided to go ahead with the project. All parties also agreed that this would be legally binding, identifying their roles and responsibilities in the financing of the project should the project move forward. It is not legally binding in the sense that it requires them to move forward with the project. Following the evaluation process, any party can walk away without obligation.

The Clock
As part of the agreement, the terms and conditions of the MOU are active until one of two conditions are met: either 1) steps of the evaluation laid out in the MOU are met and, happy with the results, all parties into an umbrella agreement to move forward; or 2) five years from the execution date have passed. The execution date of the MOU is October 16, 2012, meaning there is a "clock" to get something done by October 16, 2017. It is possible that all parties could choose to extend the MOU, but that would require a separate negotiation, a separate written agreement based on the original MOU, and a separate approval by the councils. In effect, if the MOU is terminated at the five-year mark, they have to agree to a second MOU, which can be based off of the original.

Summation
Simply, the MOU is the instruction manual on how to proceed with evaluating the viability of the project and gather that information for WSA, SCC, and KCC to make a decision on entering into a partnership in the financing and construction of an arena.


UA: UMBRELLA AGREEMENT
The Framework agreement, often known as an umbrella agreement, is an agreement which is reached between two parties to cover a long-term collaborative arrangement. The umbrella agreement is not a single, stand-alone contract. It creates the environment for a number of contracts that are to work within a similar set of rules and services.

This is the next step in the process, as laid out in the MOU, whereby all parties agree to move forward with the project. There are a number of tenets of the UA laid out in the MOU, but there actually has to be a whole separate negotiation for the UA. This would be the legally binding agreement that creates the public-private partnership; dictates roles, rights, responsibilities, and penalties of all involved; and it establishes the framework for which all the separate contracts will work in.

UA Without a Team?
The $500 million question. While one of the requirements for moving forward set up in the MOU is that an NBA team must be acquired through either relocation or expansion for the parties to move forward with the project, there appears to be some confusion on that point. This has also led to many questions regarding whether or not the MOU needs to be amended to allow for an NHL team to be the catalyst to start the project.

To clarify, it appears that the team procurement requirement is strictly to agree to and enact the financing mechanism. As written right now, any of the requested public funding from bonds can only be issued when Hansen's group has an NBA franchise. However, it leaves open the possibility that the parties can all agree to move forward with the project and enter into the umbrella agreement.

Entering into the UA establishes the environment where WSA, SCC, and KCC can negotiate and execute contracts to begin construction, sell and transfer land, set up rental agreements, etc. By law, the UA doesn't necessarily require the public bond issuance to enter into the agreement. So, if satisfied with what the Environmental Impact Statement (EIS) analysis process and economic impact analysis find, and actions taken on any of the parties' parts to mitigate any negative impacts, they can all enter into the UA.

Changes to Agreements
Here's the interesting part. Though there are provisions agreed to in the MOU that would be rolled over and included in the UA -- some of which are the process by which the bonds would be issued in two installments -- there are separate negotiations that must occur for the parties to enter this agreement. Gratefully reminded by Mike Baker of the course of procedure, negotiations for the UA could allow them to alter the agreement to an NHL-first option without having to amend, and possibly make vulnerable, the existing MOU.

The Clock
After the evaluation process and the Final EIS is released, the public will have a 45-day period in which to make comments on the findings of the EIS and economic study. Following that period, the councils will take the studies and the comments under advisement and deliberate. It's expected that sometime during the summer, the councils will decide whether they want to move forward. If they do, the UA negotiation process begins. Once that process is complete and the UA is written and executed, that effectively terminates the MOU and kicks the 5-year clock. Now, it's possible that they could set up another clock or timeline (with possible milestone financial penalties) in the UA to move things along, but the 5-years everyone is concerned with will be no more.

Summation
Again, the MOU is a series of guidelines for the process. The Umbrella Agreement creates the rules for the parties to negotiate and agree to contracts in moving forward with the project.


TDs: TRANSACTION DOCUMENTS
Transaction Documents are legally relevant documents that are presented by one party in a transaction to another. For our purposes, the TDs constitute the sales agreement, land transfers, bond issuances, etc.

This is the "done deal," what many are assuming is the MOU. This is a contract. This legally binds all of the parties in the partnership to specific actions. In this case, the most relevant is the issuance of the bonds, which will effectively allow the city to purchase the land for the arena from Hansen. The TDs in this case will also likely set up the rental agreement for the land, as well as kick off construction.

This would be what having a team is required to agree to, so this would be the final step in getting everything going. Now, it's possible that everyone involved could agree to some other kind of contract that allows for WSA to begin construction of the arena without a team procured yet, but the public funding portion won't enable unless and until we have a team. The MOU states that has to be an NBA team. The UA might allow the freedom to make that an NHL-first requirement.

Summation
This is the goal. The Transaction Documents are a "go" project. No construction on the arena begins until TDs are signed and executed.

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Hope that helps to clear up some of the process and the lingo. As always, this is subject to change, both as things adapt and evolve and as more information becomes available.

UPDATE 4/9/14

This post was originally written following Geoff Baker's first breaks on the NHL Seattle story. I wrote to the City Attorney's office a day or two after publishing to check with them on the latitude in the language of the MOU to move things to hockey-first when going forward with the Umbrella Agreement or if they'd absolutely need to amend the MOU beforehand. They finally got back to me the morning of April 9th. Here's the response:

Dear MATT TUCKER,

Thank you for contacting the City of Seattle with your question regarding the MOU for the Seattle Arena Project. We really appreciate the effort you took to write to us. So we apologize for the delay in response to you. Your message was as follows:

"Clarification rather than opinion, if possible, regarding the language of the MOU for the Seattle Arena project. Section 7 of the Understandings seems to imply changes to the NBA team requirement in Section 24 can be waived in the move of those sections to an Umbrella Agreement, allowing the negotiation for an NHL-first approach in the UA. Is this a fair assessment or would the MOU need to be amended prior to negotiating and drafting the UA? Not asking if this approach is necessarily being taken just that if the language of the MOU, as drafted and executed, allows for it. Appreciate your time and consideration. Any clarification of the language from a legal standpoint for us laymen would be of great help."

To answer your question, there is nothing prohibiting the County Executives and the Mayor from negotiating a new set of documents and then presenting those documents to the City and County Councils.

Thanks again for contacting us.

For further concerns, please click here.

Kind regards,

Seattle City Attorney's Office

So, once and for all, it sounds like the city sees them as having to craft an entire new agreement for an NHL-first approach to an arena. That could very well be a big reason why they are very reluctant to approach it.

FanPosts are written by members of the Sonics Rising community and do not represent the opinion of site management.

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