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?
- Country Club Purchase Agreement
- CME Rockery Wall Preliminary Failure Investigation Report
- SGCC Tolling Agreement 2018
- Rockery Wall Litigation Update 2 (SU Post of August 29, 2018)
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