Country Club Purchase Agreement – Pros and Cons

Somersett UnitedIn a few days, Homeowners will be receiving a ballot from the Somersett Owners Association (SOA) Board of Directors (BOD) to either approve or disapprove a $2.75M purchase of Somersett Golf and Country Club (SGCC) land and water rights.  Details of the purchase agreement were discussed in a previous article on this website.  To access, select August in the ARCHIVE box and scroll down to the August 18 article entitled “Country Club Purchase Agreement”.

Basically the proposed agreement calls for the SOA to purchase the SGCC land and water rights for $2.75M payable upfront via a bank loan, which will be repaid (approximately $4.0M with interest) over the next 15 years via homeowner assessments.  The SOA will then lease back the land and water rights to the SGCC for a $2200 annual fee. Lease term is for 50 years with two 20 year SGCC renewal options.  If the SGCC fails to operate as a Country Club, then the land and water rights revert to SOA control to do with as they wish.   It has been reported that the SGCC will use most of the $2.75M to build a clubhouse, with the remainder placed in reserves.

Arguments For:

  1. The proposed agreement allows the SOA to maintain control of the land and water rights.  Via a current deed, if the SGCC fails to operate as a Country Club, then the land and water rights revert back to the Developer. (Note: this reverter right provision expires in 2109). Under the proposed purchase agreement, these Developer rights are cancelled.
  2. If the SGCC succeeds, the presence of an exclusive Country Club supports home values at no additional cost to homeowners.
  3. If the SGCC fails, land will always stay green either as a community golf course or greenbelt.
  4. During the lease term, the SGCC will be responsible for costs associated with operating, maintaining and repair of the golf course. Hence, no SOA cost obligations during this period.
  5. Monthly assessments will not increase as a result of the proposed agreement.  Debt service plus reserve contributions are expected to be less than the $15/month per unit included in existing assessments to pay for the current SGCC Lease Agreement.
  6. A $2.75M purchase for 224 acres of land and 411 acre feet of water rights, plus distribution facilities,  represent a reasonable above market value price.
  7. Access to Country Club amenities afforded under the current lease agreement will continue.

Arguments Against:

  1. If the SGCC succeeds, during the 90 year lease term, the SOA will receive approximately $200K in revenue from the SGCC.  Not a very good return for a $4.0M investment. Therefore, if one believes the SGCC will continue to operate as a successful entity, then the agreement represents a costly venture with little or no merit.
  2. If the SGCC fails, the SOA has no current plans on what to do with the acquired land and water rights. To continue to operate as a community golf course would (by BOD estimate) require an increase in monthly assessments of $50-$70.  To maintain as green space the BOD estimated an additional $2/month for landscape maintenance. However, this does not include costs associated with water facility maintenance, damage due to acts of god, or improvements.  Also, the clubhouse built with SOA funds and the land on which it stands, will not revert to the SOA.  The ownership of this property remains with the SGCC.
  3. The current lease agreement will not be in effect beyond December 2014.  Therefore, the $15/month assessment reference becomes moot. If the purchase agreement is disapproved, Homeowner assessments should be decreased by $15/month.
  4. Whether or not the acquired land would continue to remain green is speculative. As in Las Vegas, drought conditions may dictate whether the irrigating of 224 acres of open land is affordable or permissible.  Also, having 224 acres, much of which is directly adjacent to homes, being accessed as open space, without controls, could represent a significant nuisance to homeowners.   Also speculative is the effect on property values should the golf course “go brown” and revert to a native environment.  Most in Somersett would not be affected by this happening.
  5. Access to SGCC amenities are exercised by only a few homeowners, represent little value and were not a high priority in a recent homeowner amenity survey.  Therefore, should not be a determining value in accessing the merits of the proposed agreement.

The proposed SGCC Purchase Agreement represents a very important step for Somersett and should not be taken lightly.  Homeowners are encouraged to familiarize themselves with the details of the proposed agreement, discuss with others and submit an informed vote.

Whatever your persuasion, comments on the preceding are encouraged.