SGCC Lease Agreement Justification Analysis

Analysis Submitted by Ed Hardy

The previous Board of Directors (BOD) for the Somersett Owners Association (SOA) entered into the Somersett Golf & Country Club (SGCC) Lease Agreement at an assessment cost of $15/month/unit owner (i.e., $435K annual cost based on 2415 unit owners). The BOD justified this expenditure on the premise that there would be zero financial impact on homeowners due to a $16/month/unit of assessment cost saving offsets the SOA would realize from the following five budget areas:

  1. Canyon9 Maintenance and Golf Management:  $3.00
  2. Non-Golf Events Management Revenues:  $3.00
  3. Developer Subsidy Repayments: $5.00
  4. Common Area landscaping:   $3.00
  5. Carryover of 2011 Operating Surplus:  $2.00

Based on the 2012 SOA financial reports, Mr. Hardy performed an analysis on the zero impact premises and concluded that the $16/month/unit of cost savings from the forgoing five budget areas were not only not realized, but in some cases misrepresented. The actual saving offsets for these areas only amounted to $5.35/month/unit. When compared to the $15/month/unit cost going to the SGCC, this results in a $9.65/month/unit shortfall (i.e., $15/unit cost minus the $5.35/unit savings) or a financial impact of $280K on the SOA budget and not the stated $0.

In his report Mr. Hardy points out that in transition from Developer to Homeowner control it is the fiduciary responsibility of the new BOD to review all existing contracts and leases, and to terminate those they may find objectionable (i.e., under NRS 116.3105 “Termination of contracts and leases of declarant”). He further concludes that the SGCC Lease Agreement falls into this category.

Mr. Hardy’s complete report containing analysis details and conclusions may be accessed via the following link: SGCC AGREEMENT JUSTIFICATION ANALYSIS. In addition to posting on this website, Mr. Hardy’s report was also submitted to the current BOD for comment and consideration.

It should be noted that Mr. Hardy is a CPA whose professional background includes public accounting experience and Financial Management/Controller positions at major corporations.