To all our followers. – May your New Year be filled with Health, Happiness and Success.
Somersett Owners Association (SOA) Board Election ballots (about 900 total representing 30 % of the Somersett Community) were counted at the Annual SOA Homeowner Meeting on Monday, November 19th. Four candidates were running for the three open positions, with the following vote count results:
Congratulations to Tom Fitzgerald, Terry Retter and Joe Strout on their election. Also, to Bryan Martin, a new addition to the Somersett community, for his interest in serving.
The new Board met subsequent to the election and selected the following to serve as Officers:
New Board members Retter and Strout are also Country Club members, with Strout currently serving as the Country Club Treasurer. This in itself is not an issue. However, given the SOA’s ongoing disputes with the Country Club over Rockery Wall and Water Rights liabilities, could a potential conflict of interest arise here?
The first open Board meeting for the new Board is scheduled for December 12th, 5:30 PM at The Club at Town Center. Please plan to attend.
Note: The Board election results were also announced (along with other SOA News & Events) via the SOA’s “SOMERSETT HAPPENINGS” email distribution list. If you are not currently receiving these emails, suggest you contact the SOA Communications Coordinator, Robin Bolson, at email@example.com or 775-787-4500 x324 to sign up.
–All Somersett owners should now have received a Budget Mailer Package (either by electronic or hard copy media) summarizing the SOA’s 2019 Operating and Reserve Fund Budgets for the General Common, The Club at Town Center and the Streets & Gates assessment areas. So what are some take-aways?
General Common Special Assessment
Per the SOA’s “Notice of Special Assessment” memo contained in the Budget Mailer Package, “The purpose of the Special Assessment is to provide funding for rockery wall repairs in two locations (Gypsy Hill Trail & Timaru Trail and near Roundabout 2) and to bring the reserve funding balance to an acceptable level”. The $1200 Special Assessment will generate approximately $3,762,000 from unit owners plus an additional $90,000 from the Town Center commercial properties. These assessments will be transferred to the General Common reserves to replenish funds spent in 2018 on rockery wall repairs, which will have depleted the General Common reserve fund to an estimated $492,393 by the end of 2018, representing an unacceptable 8.3% funding level. Note that the General Common reserves, prior to 2018, did not address any “Retaining Wall” repair or replacement costs, hence the inadequate reserve funding when they failed.
Operating Fund Budgets
The Operating Fund Budgets summarize the operating expenses incurred by the SOA on a recurring annual basis and the revenue income that funds them. Summaries for the General Common, The Club at Town Center and Streets & Gates assessment areas follow:
Monthly assessments for the General Common area remain unchanged at $92/month/unit with an average of 3125 contributing unit owners. Approximately $81 of the $92 assessment is applied to the Operating Fund and $11 to the Reserve Fund. The 2019 budget estimates $3,437,600 in revenue and $3,248,326 in total expenses. The 2019 operating expenses are approximately $547K under that projected for 2018. Significant deviations from previous budgets include an increase in legal fees for the Rockery Wall lawsuit and no funding for Special Projects.
Monthly assessments for The Club at Town Center (TCTC) remain unchanged at $89/month/unit with an average of 1923 contributing unit owners. Approximately $78 of the $89 assessment is applied to the Operating Fund and $11 to the Reserve Fund. The 2019 budget estimates $2,077,449 in revenue and $2,244,972 in total expenses. The 2019 operating expenses are approximately $318K higher than that projected for 2018. Significant deviations from 2018 expenses include: Administration Costs (+$90K), Maintenance Allocations (+$44K) and Special Projects (+$185K). The Special Projects increase is primarily a result of 2018 budgeted TCTC expansion projects (e.g., pool modifications) moved into 2019.
Monthly assessments for the Streets & Gates remain unchanged at $54/month/unit with an average of 846 contributing unit owners, Approximately $26 of the $54 assessment is applied to the Operating Fund and $28 to the Reserve Fund. The 2019 budget estimates $272,208 in revenue and $272,208 in total expenses, which is $18K under that for 2018, primarily due to the absence of any Special Project.
Reserve Fund Budgets
The Reserve Funds are not as easy to assess as the Operating Funds unless one understands what the “Fully Funded Balance” entries pertain to. Hence,the following discussion:
The Fully Funded Balance (FFB) is a calculated amount which takes into consideration a reserve components replacement cost, useful life and age. The FFB is calculated as follows:
Fully Funded Balance = Replacement Cost x Age/Useful Life
For example if a components replacement cost is estimated at $30,000 with a useful life of 20 years and is 5 years old, the FFB would equate to: 30,000 x 5/20 = $7500. At year 10 the FFB amount would be $15,000 and at year 20 (i.e., end of life) $30,000. What the FFB does is to establish what the reserve funding amount should be such that, at the end of life, repair or replacement costs are fully funded. Note that many of the SOA reserve components are identified with a variable useful and remaining life. How these are used in the FFB calculation is unclear, but basically unimportant, only the result is.
That brings us to the percent funding level, which is the ratio between the actual reserve amount and the calculated FFB amount. For example if, in any given year, the actual amount in a reserve account for a reserve component is $15,000 and the corresponding FFB amount is $30,000 the funding level would be 50%. If this level was continued until end of life, replacement costs would be underfunded by 50%.
What constitutes adequate reserves for an HOA? Since neither Nevada Law nor Industry Standards establish such, it is up to the HOA Board and the opinion of others (paid consultants) to determine. However, as a rule of thumb, A 100% funding level is considered most desirable, above 70% strong, 30% – 70% fair and 0% – 30% poor. Poor funding levels should be avoided as they usually result in special assessments, whereas maintaining high funding levels generally require higher monthly assessments.
The General Common Reserve Study established a 2019 FFB of $5,284,654 along with an estimated year end reserve balance of $2,552,413, representing a 48.3% funding level, which compares to 8.3% for 2018, 76.5% for 2017 and 131.5% for 2016. As mentioned above, the 2018 reserves had been depleted to the 8.3% funding level due to rockery wall repair costs. Hence, the need for the $1200 special assessment which added $3,852,180 along with $400,000 from monthly dues to the reserve fund. Will this be enough to maintain future funding at an acceptable level without another special assessment or monthly dues increase? This given the uncertainties associated with future rockery wall repair costs (e.g., another $3M for Gypsy Hill Trail and Roundabout 2 repairs). Only time will tell.
The TCTC Reserve Study established a 2019 FFB of $2,111,977 with an estimated year end reserve balance of $851,058, representing a 40.3% funding level, which compares to 68.4% for 2018, 76.5% for 2017 and 50.6% for2016.
The Streets & Gates Reserve Study established a 2019 FFB of $2,462,981 with an estimated year end reserve balance of $3,322,970, representing a 134.9%, funding level, which compares to 141.7% for 2018, 134.1% for 2017, and 131.5% for 2016. Since no risks appear to exist with the reserve components, perhaps the SOA Board should consider reducing the Streets & Gates monthly assessment as the reserves appear to be continually overfunded.
Aside from the Streets & Gates, the General Common and TCTC funding levels appear to be trending downward, not a good sign for avoiding increased assessments.
The Somersett Owners Association (SOA) has notified homeowners that ratification of the 2019 operating and reserve budgets will not occur at the November 19th Annual SOA Members Meeting as originally planned. A separate meeting for the purpose of ratification has been scheduled for 5:30 PM on Wednesday, November 28th at The Club at Town Center. This leaves the election of Board members as the only agenda item for the November 19th meeting. That is, except for a “Homeowner Open Forum” item as required for all SOA open meetings.
So why the deviation from the norm in not accomplishing both at the annual member meeting? Most likely the SOA messed up in not providing a summary of the proposed budget to all members at least 14 days prior to the ratification meeting as required by Nevada Law (Ref: NRS 116.31151). If this is the case, then they did the right thing in rescheduling for a later date (not to excuse their mistake) . Any impact on members? Not really, except for having to attend two meetings instead of one for those interested in doing so.
Bear in mind that the budget ratification process in merely a formality. That is, under Nevada Law it would require at least a majority (or 75% per the SOA CC&R’s) of all SOA members present at the ratification meeting to reject it. As stated in a previous post, an impossible task.
So why go to the Budget Ratification Meeting? Only if you still want to vote against ratification knowing the outcome, or espouse on a topic during the Homeowner Open Forum period. Otherwise no reason to attend!
A reminder that the annual Somersett Owners Association (SOA) Member Meeting will be held at The Club at Town Center (TCTC) on Monday, November 19th, starting at 4:00 PM. What is on the Agenda? Not much, only Board of Director (BOD) election results and ratification of the SOA’s 2019 Budget. No other Association Business will be conducted.
Regarding ratification of the 2019 Budget, this is an automatic occurrence, unless a majority of owners (proxies accepted) show up to vote against it, essentially an impossible task.
Regarding BOD Election results, ballots will be opened and counted at the annual meeting with the three candidates (out of four) receiving the most votes then taking office. The new BOD will convene its first meeting on December 12, 2018.
If you have not yet voted, all ballots must be received by 1:00 PM on November 19th at TCTC. Mailing at this late date is not a good idea, suggest one make use of the ballot boxes at TCTC or Aspen Lodge. No ballots will be accepted at the annual meeting.
The Nevada Real Estate Division (NRED) has completed its investigation on an “Intervention Affidavit” filed on May 30, 2018. This Affidavit alleged that the SOA Board violated Nevada Law (i.e., NRS 116.31088) in not obtaining a majority vote of Somersett Owners to pursue the ongoing lawsuit against the Somersett Development Company et. al. pertaining to the SOA Common Area Rockery Wall failures. Detailed information on this Affidavit is contained in a previous SU post dated June 30, 2018, which may be accessed via the following link:
As a result of its investigation, the NRED concluded (in a November 5, 2008 memo, Re: Case No. 2018-784, to the Intervention Affidavit author) “that no good cause to pursue a complaint before the Commission for Common-Interest Communities and Condominium Hotels exists at this time”. The NRED investigator is of the opinion that the SOA Board appears to have made a good faith effort to commence and ratify the civil action, and that the NRS statute “does not mandate that a civil action is summarily dismissed if the association fails to garner the majority approval of its Units’ Owners”. The NRED memo ends with: “Please be advised that this case is now closed. The Division reserves the right to reopen its investigation should such action be warranted”.
What can one conclude from the NRED decision?
It is hard to agree with the NRED premise that the SOA Board made a good faith effort in commencing the lawsuit for the reasons described in the June 30 post referenced above, and that the majority vote provision of the Nevada 116.31088 could be overlooked. Also, why it took the NRED 4 months to perform their investigation. However, perhaps this is all moot, as if the Board had made a timelier effort to notify owners of its intent to commence the lawsuit, and allowed additional time to achieve the required majority vote, ratification for the lawsuit would most likely still have been achieved. This based on the results (77% in favor of ratification) from the limited number of ballots that were received.
This website last published an update on the Rockery Wall lawsuit on August 29, 2018, which may be accessed via the following link: Rockery Wall Litigation Update (2)
What has occurred since then? The following obtained from recently filed Washoe County District Court Documents (Case No. CV17-02427).
Recently Filed Court Documents by Date
Note: A third-party complaint is a claim asserted by a defendant in a lawsuit against a party who is or may be liable to the defendant for all or part of a plaintiffs claim against the defendant. Claim would be dropped if the defendant wins the litigation and is not found liable for any damages.
Note: For those interested in the Joint Case Conference Report details, a copy (minus the Exhibits referenced therein) may be accessed via the following Link: Joint Case Conference Report
Legal Fees Update
The Legal expenses incurred by the SOA for the Rockery Wall lawsuit totaled $154K through September 2018 (i.e., $44K in 2017 and $110K in 2018). The SOA”s recently approved 2019 Operating Budget projected $300K for 2018 (zero included in the original 2018 budget) and $200K for 2019. Giving a three-year (2017-2019) estimated total of $540K. This does not cover 2020 when the trial date (i.e., February 2020) is currently scheduled.
Candidate night questions from both the Communication Committee and attending Homeowners addressed the relationship and issues between the Somersett Owners Association (SOA) and the Somersett Golf and Country Club (SGCC). In response, all Candidates acknowledged the “Symbiotic” relationship that existed between the SOA and the SGCC and the importance of working together for the benefit of the Community (no argument here, although some may describe the symbiosis as more parasitic than mutualistic). That said, two ongoing issues were identified. One dealing with Rockery Wall and Hillside failures and the other over Water Rights. Both issues pertain to perceived SGCC liabilities under the current Purchase and Lease Agreement between the SOA and the SGCC. That is, the Agreement under which the SOA purchased the SGCC land and water rights for $2.75M and then leased them back to the SGCC (at $2200/year) for a 90-year period. A summary of the two disputes and current status follow:
SGCC Liability for Rockery Wall and Hillside Repairs on SGCC Leased Property:
Most Somersett Owners are aware of the Rockery Wall (upper and lower) and Hillside failures that occurred on land adjacent to the SGCC’s 5th fairway below Trail Ridge Court, some on SOA Common Area property (the upper wall) and some on SGCC leased property (the lower wall). In this regard, it has been the SOA’s contention that, under the terms of the SOA/SGCC Purchase & Lease Agreement (document link below), the SGCC is liable for the Rockery Wall and Hillside repairs on the leased-back property. This was documented formally in an October 27, 2017 letter from the SOA Attorney to the SGCC in which the applicable Maintenance, Warranty and Indemnity provisions of the Agreement were referenced (i.e., Sections 8, 9A & 12), along with a 30-day notice to commence repairs. Subsequent discussions between the parties were held, without the SGCC acknowledging any liability. As a result of these discussions, the SOA agreed to postpone enforcement of its rights pending release of a report by Construction Materials Engineers (document link below) who were engaged to investigate the damaged area and assess causes. The CME Report concluded that the lower rockery wall failed first causing the upper rockery wall to fail. During the discussion process, the SOA proceeded to repair the damage for both areas using Association funds (via reserves and secured loan), expecting to be reimbursed by the SGCC at a future date. Why this approach? – perhaps because it was far more expensive or impractical to accomplish the repairs separately and the undesirable impact delays would have on the affected Trail Ridge Court property owners, with perhaps additional consideration that the SGCC would not be forthcoming with any funding in a timely manner (if ever). Whatever the case, the SGCC’s share of repair costs has been estimated at $680K.
So where does this liability dispute currently stand? – Basically, on hold. Why? – pending outcome of the SOA’s current legal action against the Somersett Developer et. al. for recovery of repair costs under the SOA’s Chapter 40 Claim for Construction Damages., which includes both SOA Common Area and SGCC leased properties. Since the Chapter 40 Claim could result in the recovery of funds from the Developer applicable to both SOA and SGCC properties, in July 2018, the SOA and the SGCC entered into a “Tolling Agreement” (document link below). Under this Agreement, both parties agreed to not take any legal action against each other with regard to the dispute through June 30th, 2019 (i.e., the “Tolling Period”). However, given that the Pre-Trial and Trial dates for the SOA Chapter 40 lawsuit were subsequently scheduled for January and February of 2020 (if then), an extension of the Tolling Agreement is probable. Under the terms of the Tolling Agreement, the SGCC has agreed to pay the SOA $500/month during the Tolling Period. This in consideration of the loan the SOA incumbered to pay for the Rockery Wall damages. The overriding question is, assuming inadequate recovery of Chapter 40 damages from the Developer, will the SOA undertake legal action against the SGCC to recover the $680K or, given the SGCC’s past financial woes, will the then SOA Board once again financially accommodate them?
To date, this dispute with the SGCC has cost the SOA approximately $28K in legal fees. This is not to be confused with the $154K in legal fees (through September 2018) associated with the SOA’s Chapter 40 lawsuit against the Developer et. al.
SGCC Water Resources Responsibility
This dispute involves an allegation that the SGCC has failed to fulfill their responsibilities under the “Water Facilities Agreement” portion of the Purchase and Lease Agreement.
Note: The Purchase and Lease Agreement provided for the purchase of both the Country Club Land and its attendant Water Rights, which are described under Exhibit A-3 “Water Rights Legal Description” and Exhibit A-4 “Description of Water Facilities” to the Agreement. The Water Rights provide the source of irrigation water to both the SGCC and Canyon9 Golf Courses, with the Water Facilities providing for the distribution of such. Under an additional provision, Exhibit D “Water Facilities Agreement” to the Purchase and Lease Agreement, the SGCC was designated as the “Operating Manager” for the Water Facilities. As the Operating Manager, SGCC responsibilities included, facility operations, warranties, maintenance, training and equitable utility cost allocations.
An allegation that the SGCC was not fulfilling their Operating Manager obligations, first arose in a SOA Attorney Letter to the SGCC on October 14, 2016, in which the SGCC was put on notice for certain violations of the Water Facilities Agreement pertaining to maintenance, training and cost allocation requirements. A subsequent workshop apparently resolved electrical cost sharing concerns. However, there are still open issues associated with training, maintenance, water distribution, improper pump replacement and well conditions. A “Golf Course Irrigation Water Source Workshop” was held and subsequently summarized by the SOA’s Consulting Engineer Seth Padovan (see document link below). The workshop summary contains comments on Water Facility wells, pumps and usage factors. Future workshops are in the making to further discuss water rights issues and resolutions. Whether or not these can be equitably resolved between the SOA and the SGCC without legal action remains to be seen.
Reference Link: Golf Course Irrigation Water Source Workshop