Submitted by Jim Haar
On August 24, the SGCC issued an “Open Letter to Somersett Residents” basically defending the “SOA SGCC lease management agreement” that was entered into between the SGCC and SOA Board of Directors without homeowner approval. An Agreement that has been challenged as ill written and illegal by many Somersett homeowners. Most of the topics included in their letter have been discussed in previous Blogs. However, given its recent issuance, it is only appropriate that differing viewpoints are again presented. In this regard, the following bulleted items address the contents of the SGCC letter:
- It is nice to know that the Somersett Golf and Country Club (SGCC) is protecting us from fire, flood and allergies and that its membership spends in excess of $700,000 per year to maintain its infrastructure at no cost to Somersett residents, as certainly should be the case for a private club. However, if no cost to Somersett residents as stated, then where is the $435,000 that the SOA is giving to the SGCC this year being spent?
- There is no question that the presence of the SGCC in Somersett has an impact on home values, along with many other factors, the current recession notwithstanding. Arguments can be made both pro and con as to the positive or negative impact under the current economic conditions (see the “Rescind and Replace” Blog submitted by Herb James), but why is this even an issue if the SGCC is solvent without the homeowner assessments as many members claim?
- The early turnover of ownership from the developer to the equity members was accomplished because membership growth was lacking and the developer did not want to continue funding operating deficits. The financial projections offered up by the developer to support turnover vote were suspect at best (e.g., membership growth decreased rather than increased and operating deficits increased rather than decreased). However, the majority of members voted to accept early turnover and the liabilities associated therewith, whereas others decided not to and walked away from their membership without compensation. What the general membership did not know at the time was that they did not have clear title to the land and water rights. That is, if the golf club failed and did not continue to operate as such, then all land and water rights reverted back to the developer (Reference: SGCC Quitclaim Correction Deed).
- The SGCC reports it considered various options for generating revenue and/or decreasing operating costs (e.g., going public, selling to a third party, partnering with casinos, decreasing playing standards, etc.) but chose instead to work with the SOA Board on an homeowner assessment solution, which resulted in the current “Lease and Management Agreement”. All for the benefit of the community. However, it is interesting to note that there is nothing in the Agreement that precludes the SGCC from still exercising any of these options and whatever option the SGCC may choose to pursue in the future, the SOA homeowner assessments will continue.
- The SGCC letter implies that it openly shared its options with the community; this is certainly a stretch, as the vast majority of homeowners had no knowledge of what the SGCC and SOA Boards were cooking up in this regard. There was no upfront “Somersett Resident Welcome Letter” or “Open Letter from SGCC Board of Directors” (or the SOA Board for that matter) addressing the Agreement until after it was negotiated and approved.
- The SGCC letter touts how it has incurred costs in excess of $200,000 this year to provide the amenities required by the Agreement. What they fail to mention is that these costs are being born via the homeowner assessments (of which the SGCC can draw $100K in advance for both 2012 and 2013 to support construction costs). Bottom line is that Somersett homeowners are paying for amenity construction costs (and in the case of the driving range and putt-putt course, a fee to use) with no right of ownership.
- The SGCC continues to justify that access to these amenities are being provided “for no increase in their homeowner’s dues”, implying a free ride. How is this possible? The answer is simple; The SOA had a surplus of homeowner funds after all other liabilities, which they applied to the Agreement ($435K for 2012). They also budgeted $325K for 2012 “Special Projects” and it is now being reported that there will be an additional $200K in surplus funds from 2011 and perhaps another $200K for 2012. Add these up and you get $1,160,000 for the last two years. Is it possible that we as homeowners are being over assessed for services provided? Perhaps the new, non developer controlled, board will exercise greater fuduciary responsibility to the homeowners.
- The SGCC states they have 145 residents as equity owners (8% of the community), yet they expect the other 92% to offset their liabilities via homeowner assessments in return for amenities of questionable value.(Reference: SGCC Lease Analysis)
- The SGCC reports the cost to homeowners via assessments as being $3,732,288 over the initial three year and seven year renewal terms. This is based on 1) no growth in residents over the ten years, and 2) no exercise of the “Trigger Point” option wherein additional assessments (up to $15/month) can be levied to support construction of a SGCC permanent clubhouse. If one assumes linear growth over the 10 year period to the currently approved 3062 residential lots (the developer claims he can expand to 5000 lots) the $3,732,228 figure grows to $4,215,168. Factor in the “Trigger Point” option and you have the potential for another $2,382,000 (assuming implementation in 2015 at $10/mo/unit). This illustrates that the previously reported potential homeowner liability of $6,000,000+ over the life of the Agreement was not an overstatement.
- I concur that Somersett in an amazing community, and no one wants to see the golf course “go brown” as is often used as a scare tactic by the SGCC in drumming up community support for the Agreement. However, neither the SGCC nor SOA Boards have gone on record in stating that SOA subsidies are required for continued operation of the golf course. However, given the current economic conditions, I suspect that this may be the case and requests for additional assessments are not out of the question. No matter what the case, for the SOA Board to unilaterally divert $6,000,000+ to the privately owned SGCC without homeowner disclosure and approval was a violation of their fiduciary responsibility. These funds could have been returned to the homeowner in reduced assessments and/or used for other endeavors, such as TCTC expansion, indoor swimming pool, play areas, etc. that would have benefited a much broader base of residents.
If Somersett homeowners wish to subsidize the SGCC, then so be it, but let it be accomplished via majority vote.