Water Rights Appraisal Addressed – Another Viewpoint

Note: Most of the information below was extracted from an equal space letter to the BOD from Somersett Homeowners Against the Purchase Agreement and reprinted with their permission.

Recently the SOA Board of Directors emailed an information bulletin to Somersett homeowners stating that an appraisal of the water rights under the proposed Country Club purchase agreement was in itself worth the proposed purchase price. Everyone agrees that water rights have value and it is nice that they have been appraised for $2.67M. However, they are only of value if they can be sold.  Water “rights” do not constitute absolute ownership. Nevada water, whether above or beneath the surface of the ground, belongs to the public and is subject to Nevada Water Law, which is administered and enforced by the Nevada Division of Water Resources, or in the case of the Truckee River, by the Truckee Meadows Water Authority. Also, consider the following:

  • Under the proposed $2.75M purchase price, these water rights, along with the land, will be leased back to the Country Club for a 90 year period at a nominal annual fee of $2200. Therefore, of no value to the association during this or any subsequent leaseback periods.
  • In event of default, acquisition of these rights comes with a cost. Water is not free nor is the operation and maintenance of the distribution facilities required to deliver it.
  • What is the probability that the Country Club will fail such that the association will actually acquire the land and water rights for their own use? By their own admission they are currently financially solvent. If they do fail, should the association really be in the business of land development?

In their email, the BOD also urged you to submit your vote so as not having to extend the December 11 deadline. What they did not tell you is that per Section 5.3 of the proposed agreement, close of escrow must occur no later than December31, 2014 or the agreement will terminate immediately. This Section also states that close of escrow shall occur 15 days following approval of the agreement. This leaves essentially no time for extending the December 11 deadline.

A water rights appraisal is valid information to disseminate to homeowners. However, to do so without accompanying facts, risks and/or consequences is simply an attempt by the BOD to influence your vote. Do not let this happen. There are more major factors at play here other than the water rights appraisal that one should consider.

4 thoughts on “Water Rights Appraisal Addressed – Another Viewpoint

  1. The purchase of these water rights will be 100% financed by a loan. The value of water rights tends to fluctuate (et.al.) with the business cycle. So the asset value will fluctuate while the loan is fixed. This introduces a lot more financial risk on SOA balance sheet. During the last recession the BOD delayed funding reserves by issuing IOUs to the reserve fund from the Operating Fund. Should a future BOD look to selling some water rights to raise cash during a recession, prices would likely be at a cyclical bottom.

  2. Do not be fooled. Vote “YES” for the agreement between our HOA, the Golf Club and the Developer.

    It is a shame that Nevada law requires opposing views to be posted even when they are false or misleading

    John Kerwin has been making misleading statements regarding this deal from the first flyer he published. In one of his publications he stated “Folks, those water rights required to irrigate 220 additional acres of fairway and open space would be the first to be curtailed or eliminated by the Water Authority etc” THERE IS NO FEDERAL OR STATE WATER AUTHORITY that could curtail pumping ground water under valid water rights.

    (1) Water rights are salable. Truckee Meadows Water Authority sells water rights all the time. Another of John’s misleading statements.
    (2) Voting on this agreement CAN be extended by an agreement of all the parties. This has been publicly stated more than once. Another of John’s misleading statements.
    (3) Of course there is a cost related to the water distribution equipment. As long as the golf course lease is in place, that cost is borne by the golf course. NO COST TO THE HOA. One of John’s scare tactics.

    The whole purpose of this agreement in my opinion is that if the Golf Course ever ceases to exist ( and we have heard of cases where that has happened) we, Somersett homeowners, will control what happens to the land and water rights, not some developer

    Nice scare tactic, Dan


    (1) As of November 14th Vote on this agreement was 977 for and 406 against. To pass the “YES” vote has to be approximately 1260
    (2) John Kerwin is one of 7 homeowners who have filed a lawsuit against the HOA seeking “an injunction preventing the Association from recording the amendments to the Declaration” i.e. the amendment to the CC&R’s that 1270 of us voted for. They are also seeking attorney’s fees and costs and “actual damages in an amount in excess of $10,000.
    Our homeowner’s dues will be used to defend this because these homeowners lost the vote.

  3. Homeowner dues will not be used to defend this or any other lawsuit against the Association. The Association carries insurance for lawsuits.

    SU Note: Mr. Redding is correct in that the SOA carries a $1M aggregate liability policy to defend against lawsuits. However, there is a deductible associated with this policy, the status of which is unknown.

    1. The status of the deductible on the liability insurance is $50,000. My understanding then is that the first $50,000 be it legal or other costs will be the responsibility of the homeowners. That is the usual practice with a deductible on an insurance policy. Dan Kanyr, a member of the finance committee, should be well aware of that.

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