Now that the Somersett Owners Association (SOA) has lost the Rockery Wall lawsuit against the Developer and its associated Subcontractors, it is time to address the perceived Somersett Golf and Country Clubs (SGCC) liability for its share of the Rockery Wall repairs paid for by the SOA. We say perceived, because the SGCC has never acknowledged a liability in this area. In this regard, there has been a lot of ongoing dialog, not only on this website, but on the Somersett Nextdoor website as well, some of which is factually correct and some incorrect. To set the stage for what lies ahead, perhaps some historical recap is in order.
- In 2005 the “Second Amended and Restated Declaration of Covenants, Conditions and Restrictions of Somersett” were duly recorded and still constitute the SOA’s controlling CC&R’s. Article VII Sections 5 & 6 of the CC&R’s clearly identify the SGCC as a separate entity from the SOA with regard to its ownership, operation and right to use (an Article that obviously needs updating an as result of the SOA’s purchase of the SGCC Land, Water Facilities and Water Rights).
- In 2012 the SOA’s then Developer controlled Board unilaterally (i.e., without Owner vote) entered into an agreement with the SGCC to divert $15/month of Owner assessments to the SGCC in exchange for some amenities. This to offset SGCC operating losses. This action was subsequently challenged by a group of Owners before the Nevada Real Estate Board, who after taking their time, decided that the SOA Board acted improperly and basically directed that the SOA redraft the agreement terms, modify the CC&R’s to permit such an agreement, and submit it for majority Owner vote.
- In 2014 after paying approximately $1,235,000 to the SGCC under the initial agreement, a new agreement was drafted up by a different and now Owner controlled Board. However, the new agreement took an entirely different approach as it called for the actual purchase of the SGCC’s Land, Water Facilities and Water Rights for $2.75M with a leaseback of such to the SGCC at $2,200/year. The CC&R’s were amended to allow for this type of purchase and both the Purchase Agreement and Amended CC&R’s were submitted for SOA Owner approval and subsequently approved by majority vote. It was also approved by SGCC Membership as they were in need of the money for operating and clubhouse building expenses. As one would expect, the executed Purchase Agreement contains several provisions regarding SGCC responsibilities as the Lessee and SOA responsibilities as the Lessor.
- In January 2017, two Rockery Walls on the hillside below Trail Ridge Court and adjacent to the SGCC Hole #5 failed after considerable precipitation. This consisted of an upper wall on SOA Common Area property, and a lower wall on SGCC leased property.
- In October 2017, the SOA Attorney issued a letter to the SGCC advising them of their liability for the wall failure on the SGCC leased land. This under applicable provisions of the Purchase Agreement, which were identified in the letter.
- In November 2017, the SOA Attorney issued another letter to the SGCC advising that the violation notices contained in the October 2017 letter would be placed on hold pending release of an engineering report on failure assessment. Also, that the SOA would consider paying for damages provided the SGCC will reimburse the SOA on “mutually agreed terms”. The SOA subsequently paid for all repairs without any written agreement with the SGCC.
- In December 2017, the SOA filed its Chapter 40 Complaint for Damages lawsuit against Somersett Development Company et al. This to recover SOA costs for Rockery Wall repairs.
- In January 2018 Construction Materials Engineers, Inc. issued their Preliminary Failure Investigation Report, which concluded the lower wall (on SGCC leased property) failed first subsequently causing failure of the upper wall (on SOA Common Area property).
- In July 2018, the SOA and the SGCC entered into a “Tolling Agreement”, wherein the parties agreed to place litigation on hold pending the outcome of the SOA’s Chapter 40 lawsuit. Under this agreement the SGCC is paying the SOA $500/month in consideration of the loan the SGCC took out to pay for repairs. This agreement ends on December 31, 2019, but also has a 30 notice termination clause.
- On October 2, 2019 the Washoe District Court ruled against the SOA in its Chapter 40 lawsuit and issued a Summary Judgement in favor of the Defendants.
Which brings us to the present, and what action will the SOA Board now take? We say the SOA Board, because the SGCC has no incentive to do anything in the absence of any agreement for the repayment of any money or other assets. Which leaves the SOA with the following options:
1. Appeal the Court ruling and extend the Tolling Agreement with the SGCC – What would this cost in legal fees and what is the probability of overturning the decision?
2. Do nothing – Accept the status quo and move on. Most likely preferred by the SGCC Members.
3. Proceed with a lawsuit against the SGCC for the recovery of funds for repair of the wall on SGCC leased property (~$680K). In this event, what if:
- The SOA wins – Does the SGCC have the resources to pay? Probably not without an assessment on its membership. Would it require them to file for bankruptcy with the result that they default on the Purchase Agreement and that all Land, Water Facilities and Water Rights revert back to SOA control? What would the SOA do in this event and what would be the short and long term costs to owners?
- The SOA Looses – How sure are the SOA Attorneys and Consultants on the cause of failure and that the Purchase Agreement provisions will prevail in a Court of Law? The SOA Attorney’s recent advise on the James’ and Rockery Wall lawsuits certainly did not prevail, costing the SOA around $1M. What legal costs would the SOA be out in this regard?
4. Negotiate a settlement with the SGCC outside of a Court of Law. Rather that attempting to recover the entire $680K, perhaps the SOA and SGCC can reach an agreement on a lesser amount (e.g., split the cost?).
Note that all of the above could have been avoided if not for the ill advised Purchase Agreement, which has placed this burden on the SOA Membership instead of on the SGCC Membership where it belongs!
Resolving this issue will certainly be a challenge for the SOA Board of Directors, which will consist of two new members come this November. With the two scheduled “Meet the Candidate” nights, perhaps our candidates will express their viewpoints on this subject.
Comments from our readers are solicited, particularly with regard to the following:
- Which of the above four options would you support – appeal, do nothing, sue or negotiate?
- Should the SGCC default on the Purchase Agreement, what direction should the SOA take?
- Do you believe that the SOA membership has an obligation to help out the SGCC financially to keep them afloat?
- To what extent do you believe the two SOA Board members who are also SGCC members, should recuse themselves from discussion and voting on SGCC related issues?