At the July 24th Board of Directors meeting, the Somersett Owners Association (SOA) General Manager, Tracy Carter, made the statement “We (the SOA) own the Golf Course”, when referring to the Somersett Golf & Country Club (SGCC). This statement is not entirely true and needs the following clarification in understanding what was included and excluded under the 2014 SGCC Purchase Agreement.
Included was purchase of the following Property: 1) Approximately 220 acres comprising the land on which the SGCC operates, 2) Approximately 500 acre feet annually of water rights originating from both wells (major source) and the Truckee River, 3) Water Facilities (e.g., wells, retention ponds, pumping stations, related piping, etc) providing the irrigation water for both the SGCC and Canyon9 golf courses, and 4) the 7500 sq. ft. Maintenance Building adjacent to the SGCC Driving Range.
Excluded from the purchase was the following: 1) The SGCC Retained Property , that is, the SGCC Clubhouse, Parking Lot and the 6 acres of land it sits on, 2) Any leases, permits, service contracts, personal property, located on or relating to the Property, or that the SGCC uses in connection with the repair, maintenance, use, possession or operation of the Somersett Country Club and/or the Championship Golf Course and 3) The SGCC’s business of owning and operating the Championship Golf Course and/or the Somersett Country Club.
Therefore, what the SOA purchased (for $2.75M plus loan interest), and subsequently leased back to the SGCC at $2200/year (for 50 years with two 20 year renewal options at SGCC’s sole discretion), is basically just the land, water rights and water facilities, and not the business, the Club House, or any of the golf course maintenance equipment. If the SGCC ever defaulted on the leaseback agreement, for the SOA to continue operation of the golf course would require significant additional funding.
Regarding the “Seller Retained Property”, if for some reason the lease is terminated, the SGCC could continue to own and operate the Clubhouse property simply as a social/recreation club for its members. Also, if the SGCC wishes to sell this property to a third-party, the purchase agreement includes a “Right of First Refusal” clause, which provides the SOA with the right to purchase the property at the third-party offering price. However, this right only lasts for 30 days, making this provision moot, as it is likely such a purchase would require Somersett owner approval, which could not be accomplished within 30 days. Per the SOA CC&R’s any purchase over $500K requires owner approval and it is doubtful that this property would sell for less than the $500K limit. There is also a “Purchase Option” within the Lease Agreement that has longer option periods and market value considerations.
Exhibit C (Commercial Lease) and Exhibit D (Water Facilities Agreement) to the Purchase Agreement establishes the terms and conditions associated with the leaseback of the SOA purchased property to the SGCC, including SGCC responsibilities for maintenance and repair activities. It is in these areas that a dispute has arisen between the SOA and the SGCC over rockery wall and water facility component repair liabilities – but more on these issues in a subsequent post.
For those interested in all the gory details, a copy of the 2014 SGCC Purchase Agreement is available via the following link (also available under the References tab):
Question: Was the purchase of the SGCC properties referenced above a “piece of good fortune” for the SOA, or will it be “an albatross around our neck”? Comments welcome.