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.

14 thoughts on “Country Club Purchase Agreement – Pros and Cons

  1. The SOA BOD estimate of $50-70/lot/month to operate the SGCC golf course assumed no user fees. The BOD refused to consider the business plan used by most HOAs that own and operate golf courses – a share of costs paid by homeowner assessments, and a larger share paid by user fees. The SOA BOD referred to the most common HOA golf course business plan as “public,” which is untrue. The proposed contract and “no user fee” options considered by the SOA BOD are both unfair to SOA owners, and neglect the SOA BOD’s fiduciary responsibility to be equitable to all members.

  2. Pros and cons are mostly stated from each point of view. The only correction is there are no plans to use the funds of this transaction to build a club house. The majority will go into reserves to assure maintenance and upkeep of the course and facilities.

    Any decision by the SGCC for a club house will come only after reasonable long term financial stability is established and adequate capital funds are raised. The influx of the $2.75 is not considered as part of these two conditions.

  3. A no vote for the SGCC purchase is the best choice based on the facts provided. As stated only a few benefit at the cost of the many. The supporters for the SGCC say it will cost nothing more as far as increased assement. Well the truth is each property owner will save $15 if the SGCC is voted down. Also if the vote approves the SGCC purchase and in the future the Golf Coarse fails the club house and land it is on will belong to the SGCC with no benifit to the majority of the property owners. As been said before why should we supplement the life style of a few. Vote no for the purchase of the SGCC!!!!

  4. Will this Pros & Cons information be provided with each ballot so the voter will be informed on what they are voting on? If not, what will be enclosed with the ballot?

    1. Given the BOD’s history with the CC&R Ballot process, I doubt they will prepare a “Pro & Con” document to be provided with each ballot. My guess is that they will provide a “Pro” document soliciting an approval vote. Homeowners opposed to the agreement will have to prepare their own opposition statements and request the BOD submit it to all voters as required under Nevada law.

      1. After reading other posting about the golf course and the Pros and Cons I have a few questions that need addressed.

        1) Who accually owns the Golf course land?
        2) If the Golf course closes can houses be built on the land?
        3) Was this land not set aside as a green /open area when the develoment was laid out?
        4) What is happening with the AG finding that money was be used illegally, has not the time passed for the settlement?

        1. Bob,

          In response to your questions:

          The Developer (Blake Smith) upon early turnover of the Country Club to its then equity members, deeded the land to the Country Club subject to the provision that if any time during the next 99 years it ceased to be used for a “championship golf course” for twelve consecutive months the land and water rights reverted back to the Developer.

          If the Developer re-acquires the land pursuant to item 1 above, a fear has been expressed by some that the developer may build more houses on it. Whether this is a bad or good thing one may decide on their own. However, for this to happen many hurdles with the city of Reno would have to be overcome, as it is not currently zoned for residential use. Perhaps someone else out there knows more about what the current permissible uses are.

          The AG’s office found that the original Country Club Lease Agreement violated Nevada Law and drafted up a Complaint to be prosecuted before the Nevada Real Estate Commission. This filing was delayed until June of this year to allow time for the parties to renegotiate the agreement and put it out for homeowner vote. Unfortunately (for some) they have continued to increase the stay due to the time it has taken for the parties to reach an agreement. If the proposed purchase agreement passes, I suspect that the original Complaint will be dropped. If it fails, I expect the Complaint to proceed. But then again who knows what Lawyers will come up with!

          It is interesting to note that under Section 3.9 of the proposed purchase agreement, if it passes, the SOA gives up any claims against the Developer and those Board Members who initiated the original illegal Lease Agreement.

  5. This whole controversy over contractual relationships between the Somersett Owners Association (SOA) and the Country Club is pure ridiculousness. As stated in our CC&R’s, The Country Club is a separate entity with no ownership, operation or usage rights by Somersett homeowners. The fact that the previous and current SOA Board of Directors (BOD) wants to by-pass these provisions and indebt homeowners to the tune of millions of dollars to involve the Association with Country Club business is unconscionable.

    It all started three years ago when the Developer controlled BOD decided to funnel association monies (without homeowner approval) to the Country Club to help offset their operating losses (i.e., the $15/month of homeowner assessments under the current lease agreement). Perhaps the Developer (Blake Smith) felt guilty that he had previously snookered Country Club members into accepting early turnover with false predictions.

    When the Nevada Attorney General’s office determined that the current lease agreement was in violation of Nevada Law, one would think that would have been the end of it. However, instead of just terminating the existing lease agreement and concentrating on normal Association business, the current BOD decided to spend considerable resources in coming up with the proposed Country Club Purchase Agreement, additional foolishness! Let’s eliminate this folly and just have the BOD take care of Association business and the Country Club take care of their business. Perhaps then we can all return to normal.

  6. Something that hasn’t been said is the water rights themselves are worth almost as much as the price the SOA is paying for the land. Another thing is we don’t know what the developer could do with that land if it reverted back. Considering the City of Reno and their previous actions they would almost approve anything that would increase the taxes for their coffers. Would you be happy with apartment buildings in that area? And finally for those who think the $15 would be great in your pockets there nothing there that would reduced those either. It’s a pipe dream for those who don’t want this to happen.

    1. I disagree with you on the value of the water rights. The water rights are a right to use 411 acre feet of water. If there is not enought water available because of the continues drought you get no water. Hard to place a value on a unknown. Would you buy the rights?

    2. Mr McNeill

      The $2.75 million (if voted in) will finally get the master developer out of our community. The reverter rights will go away. The 220 acres will not be built on. If the SGCC fails, and the water rights (due to drought) are diminished in value – the course may still go brown, and revert to desert scape.

      Unfortunately there has not been a professional appraisal as to the real value of the purchase, I feel that many of arguments for and against would be moot if the Board had done their fiduciary duty. What are we really buying? – with a 90 year lease back to a private club for essentially nothing..

      it seems to me that we are investing in something we cannot control,(unless the SGCC goes out of business – then we will have to spend at least a $1 million more to buy the “last 5 acres, trailers, spanking new club house”.)

      A tricky situation to say the least – and being urged to vote to spend monies without an outside professional valuation of the deal!

      Who cares about $15 a month now, I would worry about how much extra we will have to pay to manage and maintain the water after 4 years?

      (I have asked Ray Lee for details on these expenses and how much the SGCC is currently paying for water) Check MySomersett for an answer!

      Also, please consider that the HOA says our dues maybe raised $50 to 70 a month if we gain control.

      The future potential financial liability is far bigger concern, than the expropriation of a mere $15 a month by the developer controlled board for the SGCC Especially after all those promises made by the realtors selling houses in Somersett that paying to play was optional,

      Geoffrey Brooks

  7. Does anyone buy insurance? Fire, thief, liability. I look at the Northgate property as I drive into Somersett and I NEVER want to see the current golf course property look like that. To pay $8 per month (less than that as more homes are built) for 15 years (less than $1,400 in total) to insure that the SOH has control over what that those 224 acres looks like is worth it to me.

    The “Doom Sayers” who say that further doughs will make the water rights worthless hopefully do not really believe that since (A) we are not the only people pulling water out of the Truckee and if no one can get water we ALL are in REALLY big trouble. and (B) The pro column also forgets to mention the 100 acre feet of water we can pull from wells. To answer Bob Perkins’ question: “Would you buy the water rights?” ABSOLUTELY (I look at the long term,not just today)

    I will ask my own question. Would you have purchased your home in Somersett if the 224 acres of the golf course looked like Northgate? I most likely would have looked elsewhere.

    1. Mike
      $4.0M for an insurance policy that will not guarantee the 220 acres will stay green! Not to mention the Golf Course first has to go belly-up. Sounds like a crap shoot to me. Would you buy an insurance policy if told you only had a 50–50 (or less) chance of collecting on a claim? Additionally, I have no faith that our current or future Board of Directors will do what is best for the community as opposed to personal objectives. Their powers need to be limited not expanded. Just look at the HOA mess going on in Las Vegas.

      Regarding the Northgate property, now that it has reverted to natural habitat I actually like it better than when it was a golf course. Why the obsession with green grass? As another commenter put it “we live in a high desert”.

      To answer your last question, I (and I assume along with many others) did not buy in Somersett because of the Golf Course greenery, not a factor! As a private entity, the Golf Course needs to survive on the backs of their own membership, not the association. And no, I am not afraid of what will happen to property values if the Golf Course ceases to exist.

      1. desert rat

        Greenery and grass has a special fascination – it is my favorite color – and chlorophyll via plants created the oxygen that breathed life into all on this planet.

        Green needs water, lush green, lots of water. Yes we live in a desert, and sage green (maybe drab) looks great. Water is a precious resource, what we do with it is si important to everyones future – especially in a desert where every drop should be invested in the things that are important.

        Moving to Reno from California, it is smply amazing how carelessly we “spray water” around in Somersett. We did not buy to be in a golfing community, we were told that golf was optional, we would not have to pay, especially if we did not want to play. The greenery is nice – but times change and water is short.

        Love the look of the high cool desert, love our mountain vistas. Green is a distraction, and in California, during the most severe drought in the last 500 years, a sign of selfishness (and a $500 + fine). I agree with the “rat” an unecessary expense. Our open spaces can become what they used to be, a beautiful mountain desert. We live in the desert, we live surrounded by stunning Mountain vistas; not in a green and pleasent land.

        Already over $1,000,000 of our hard earned money has been shoveled into a private golf club. Now we are asked to spend another $2,750,000. The realtors who sold us our properties should give the commun ity back these monies. We were told that we would not have to spend a penny on golf – unless we wanted to. – false advertising, false promises ….

        Green Grass of Home

        PS Please Mr. SOA Board can I take out my lawn and mow-strip to save water?

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