There has been much discussion on SGCC cost liabilities (i.e., at Board Meetings and on this and the Somersett Nextdoor websites) with regard to both Water Facility maintenance and the Rockery Wall failures, which collectively has been reported to be in excess of $1.5M. The question of concern being who is responsible for what, and is the SGCC up to the challenge of meeting their liabilities, or will the SOA have to pick up the tab as many owners fear, or apparently O.K. by others? Since these are separate issues, we will just address Water Facilities responsibilities and cost allocations in this post and the Rockery Wall issues in another post.
In addressing liabilities, there should really be no issue as to who is responsible for what as this is all clearly defined within the Purchase & Lease Agreement entered into between the SOA and the SGCC (referred to as SCC in the Agreement) in August 2016, which included a Water Facilities Agreement (hereinafter the Agreement). This Agreement, signed by both parties, describes the Water Facilities and who (the SOA or SGCC) is responsible for its operation, maintenance and associated cost allocations. To insure we all consider the Agreement provisions in developing our opinions, applicable Sections of the Agreement are quoted below ( “just the facts ma’am”). However, for those wishing to view all the details, a complete copy of the Agreement may be accessed by clicking on the following link:
Under the Agreement:
1. Exhibit E of the Agreement lists the Water Facilities components under the following categories 1) Truckee River Facilities, 2) Canyon9 Facilities, 3) Championship Course Facilities, and 4) Well Facilities. References in the Agreement point to who is responsible for what under these categories. Exhibit E is available via the following link:
2. Section 3.1 “Operation of Water Facilities” of the Agreement establishes an “Operating Manager” for the Facilities and clearly identifies the SGCC as such under 3.1 (a), which is quoted as follows:
3.1 (a) Operating Manager. The Party responsible for operating the Water Facilities under this Agreement from time to time is referred to herein as the “Operating Manager”. Subject to Section 3.1 (b), during the term of this Agreement, SCC shall operate the Water Facilities. SCC shall receive no compensation from SOA for serving as Operating manager. Upon the expiration or earlier termination of the Lease, SCC shall immediately and automatically cease being the Operating Manager, without any further act or thing required by either party.
3. Section 3.1 (d) “Water Rights” addresses the Operating Manager responsibilities related to the purchased water rights, which are quoted as follows:
3.1 (d) Water Rights. During the term of this Agreement, the Operating Manager shall have the exclusive right and license to use the Water Rights and water thereunder for the purpose of performing its duties under this Agreement. The Operating Manager shall ensure that the Water Rights are used so that they are kept in good standing and not subject to forfeiture or abandonment for non-use pursuant to the laws or regulations of the State of Nevada.
4. Section 3.2 defines the “Duties of Operating Manager”, which are quoted as follows:
3.2 Duties of Operating Manager. The Operating manager shall be responsible for (a) managing the Water Rights, and (b) operating the Water Facilities in a continual, diligent, and prudent manner and as reasonably requested by the non-operating party so as to provide irrigation water by and through such facilities for application to: (i) the Championship Course Property or, if not so operated, to the extent the Championship Course Property is maintained as green open-space and (ii) the Canyon Nine Property, during all such times as the Canyon Nine Property is being operated as a golf course, or, if not so operated, to the extent the Canyon Nine Property is maintained as green open-space.
5. Section 3.3 defines the “Information/Training” requirements placed on the Operating Manager, which are quoted as follows:
3.3 Information/Training. The Operating Manager shall use commercially reasonable efforts to keep the other Party timely informed with respect to the operational status of the Water Facilities, any existing or expected issues, and other information as such party may reasonably request. While SCC is serving as the Operating Manager, at reasonable times, and from time to time, and without compensation to SCC, SCC will undertake to train designated SOA staff with respect to the operation of the Water Facilities, so that said capability is imparted to SOA staff.
6. Section 3.4 “Water Service Interruption” defines the responsibilities of the Operating Manager in the event of water supply interruption from a Facility source, which is quoted as follows:
3.4 Water Service Interruption. Subject to SOA’s prior written consent, which shall not be unreasonably withheld, the Operating Manager may relocate and modify the Water Facilities or any portion thereof as may be necessary in furtherance of performing its duties under this Agreement, provided that in all such instances of relocation or modification there shall be no unreasonable interference with or interruption of the Operating Manager’s ability to comply with its obligations to provide water to: (i) the Championship Course Property and (ii) the Canyon Nine Property in accordance with this Section 3. Except in the case of emergency and in order for SCC and SOA to mitigate and plan for any interference with or interruption of water delivery under this Section, the Operating Manager shall notify SCC and SOA of any reasonably anticipated interference with or interruption of the delivery of water not less than thirty (30) days prior to the work or event anticipated to give rise to such interruption or interference.
7. Section 4.3 establishes the “Maintenance of Water Facilities: Cost Allocation” – “After the Warranty Period” (the period we are now in) as follows:
4.3 After Warranty Period. For so long as the Lease in in effect and after the Warranty Termination Date:
(a) Responsibility. (i) the Operating Manager shall perform, or cause to be performed, all Maintenance of all the Truckee River Facilities described on Exhibit E: (ii) SOA shall perform, or cause to be performed, all Maintenance of the components of the Canyon Nine Facilities described in Section B.1 of Exhibit E; (iii) SCC shall perform, or cause to be performed, all Maintenance of the components of the Canyon Nine Facilities described in Section B.2 of Exhibit E: (iv) SCC shall perform, or cause to be performed, all Maintenance of the Championship Course Facilities described on Exhibit E; and (v) SCC shall perform, or cause to be performed, all Maintenance of the Well Facilities described on Exhibit E.
The preceding represents binding contract provisions between the SOA and the SGCC regarding operation and maintenance of the Water Facilities and Water Rights. In reading them, one can make up their own mind as to who is responsible for what, and whether or not the respective parties are living up to their responsibilities under the Agreement.
Of course establishing responsibilities and cost liabilities is one thing, funding them is quite another! We will discuss this in a follow-on post, along with current situations and SU opinions.