THE TRUMPETS LEASE PROCESS IN DISARRAY
and
HIDDEN AGENDA, a one act play
Brought to you by the Sun City Anthem Board Players
When board members put their trust and eggs in one basket and that basket has a gaping hole in it, what should board members expect other than an occasional disappointment and failure. Here I will describe an interesting example of how that failure went down when it came to entering into a lease for the operation of Trumpets. But what’s even more incredible than the omission of a key provision in the lease is the extent to which some board members will go to cover up their own failure. Attempting to covering up one’s failure can have a long history and become an unwelcome trait in meeting the needs of a home owners association; so much for transparency in Sun City governance.
Play: Hidden Agenda
Scene 1: Tirzo Hernandez visits City Hall’s Business License unit to inquire about securing a liquor license.
Time: Late July
Background: Anyone wishing to operate a restaurant/bar needs to obtain an operating license to do so. In the case of a restaurant/bar, that license can cost the license holder recurring fees plus an initial license origination fee of $30,000. There are some exceptions to paying that origination fee. For example, under certain conditions, there is an exception to paying that origination fee when the existing license holder transfers their license to a prospective lessee to operate the restaurant/bar.
Dialogue:
Tirzo Hernandez. Good morning, I’m here to inquire about securing a liquor license. In a couple of months I’ll be opening up a restaurant with bar at Trumpets in Sun City Anthem. Here is a copy of my lease. Please tell me what I need to do.
[After going over the filing requirements and discussing the required fees and learning that Tirzo does not possess a current license he could use for this purpose, the clerk takes a few minutes to review the terms of the lease.]
Chief Licensing Clerk. I need to inform you that under the terms of your lease, you will be required to pay a $30,000 origination fee for the liquor license. However, that fee is not required if you have an existing license that you can transfer to Sun City or if the association transfers their existing liquor license to you. However, I see there is no provision in the lease to accommodate your use of their dormant liquor license. That’s very strange Mr. Hernandez since I have had a number of meetings with Sun City Anthem homeowners over the past year and provided them with this critical information. I have told these homeowners what the lease needs to say to protect the association’s interests and how to handle the license transfer issue and its return to the association upon termination of the lease. Perhaps you should get in touch with president Rosalyn Berman and discuss this apparent omission in the lease with her.
Scene Two: Two People Talking
Background: Tirzo Hernandez has returned and discussed the lease problem with Mrs. Berman. Mrs. Berman apologizes for the omission and assures Mr. Hernandez that she will take care of this problem by an amendment to the lease in order that he will not have to pay that $30,000 origination fee. The dialogue below takes place later that day between two people.
Dialogue:
How in the world could you have f- - - - - this license issue up? The lease has been portrayed to the community as an exemplary example of a model restaurant lease that will stand the test of time and here we are on the verge of reopening Trumpets and the lease you signed omitted a key provision on transferring our liquor license to Tirzo Hernandez. You know, this will go down as a major blunder on your part. There is no getting around this. To compound the matter, any lease revision to correct this omission will have to go before the entire board at the next board meeting.
On the other hand, maybe we can come up with an acceptable scenario that's both believable and will minimize any damage to you and your reputation.
[After a discussion on the pros and cons of how to proceed, the following plan of action was developed.]
And so the plan to deceive homeowners came to be.
How seven board members could be so clueless about their own licensing situation with the City is hard to comprehend. In their defense, though, when your trust and faith has been misplaced, unplanned and undesirable events beyond your control can happen. What these board members failed to realize was that as far as the City was concerned the current license holder of the dormant liquor license was the association, with some suggesting that it was grandfathered in by the City as a courtesy to the association and their troubles with the prior lessee. Whatever the reason, the license that was formerly held by S & D Café V reverted back to the association when the lessee was evicted from the Sun City premises, or so the City now declares.
For well over a year, it has been the position of the City, to anyone who might inquire, that all the board of directors of Sun City Anthem had to do when reopening their restaurant facility was to do three things: 1) put City approved language in the new lease agreement; 2) provide in that agreement for the transfer of the liquor license to the new lessee while operating at the Trumpets facility; and 3) provide that upon the lessee’s termination of the lease for any reason, the liquor license would then revert back to the association. That was not done.
One gets the distinct impression that someone on the board, even our crack attorney who has taken credit for the bullet-proof lease agreement, ignored prior advice or forgot to make that needed inquiry of the City’s business licensing unit. Why do I say that? Simply because there was no provision in the signed lease agreement to provide for this eventuality. And, why not? Indeed, why not?
At last week's special board meeting, how did their lease amendment read to correct this omission? Did it refer to the board's need to correct an omission on transferring their liquor license to the lessee? Remember, the lease signed by Berman was literally silent on the issue of the liquor license, the transfer of that license to the lessee, or on the retention of the license after termination of the lease.
You can tell for yourself. Here is Item A of the board's 14 August agenda:
"A. License Agreement for the Trumpets Tenant to Use Sun City Anthem’s Conditional Use
Permit Associated with the Trumpets Restaurant Space
Approve a license for Tirzo’s Bistro to use the Sun City Anthem’s Conditional Use Permit."
Anyone reading the above might get the wrong impression that the “License Agreement” referred to above has something to do with the SCA’s Conditional Use Permit (CUP) when in fact the agenda item has to do with correcting an omission in the lease to account for how the association's liquor license will be handled. I don't get that meaning from the language in the agenda, nor will anyone else. Agendas are supposed to properly inform homeowners of the boards plans. One can speculate that the board's intent in setting forth their agenda was less to convey correct information than it was to mislead homeowners on their actual purpose, to correct a gross error in the lease.
Typically, a CUP merely gives gives the developer permission to construct, in our case in 1998 a recreation center with an included restaurant and bar. The CUP has nothing to do with the licensing requirements, which is handled by a separate city department and their Business License unit. You can view the City's action to approve Del Webb's original CUP by clicking here: http://www.scaview.org/AnthemUsePmt.html If you view this Linked page, click the back arrow to return to this page.
It's still true that you can lead a horse to water but you cannot make it drink. Last October I posted the City's licensing requirements on our website for all to read at http://www.scaview.org/TrumpetsAnew2.html. Unfortunately, the City had initially waffled on the issue of who retained the liquor license immediately following S & D Cafe V departure. Last year's October article on Trumpets described the same City requirements that exist today.
POLLING AGREEMENT ON ALLOWING GAMING MACHINES IN TRUMPETS
And then of course, there was inclusion of a second item on the agenda. This item provided for a polling agreement on gaming between the lessee and the landlord. This agreement was allegedly designed to give the board some guidance based on homeowner sentiment in the likely event the lessee opted for the installation of gaming machines.
According to our eminent community blogger David Berman, here is his recollection of that provision:
"Based on my notes, the polling agreement, which must be signed by landlord and tenant, will include the following provisions, among others:
"No earlier than June 10, 2010, the tenant will have the right to commission a written poll in the form of a ballot/questionnaire to be sent to all SCA members.
"The contents/wording of the ballot must be approved in advance by the Board.
"All costs of the balloting/polling will be borne by the tenant.
"In the event that a majority of households respond affirmatively on the subject of gaming in Trumpets, which means a total of at least 3,573 households, the Association agrees to enter into discussions with the tenant to revise the lease terms to allow gaming.
"If less than a majority of all members return the ballot but at least 35 percent of members do participate, the Association reserves the right, IN ITS SOLE DISCRETION, to initiate these discussion with the tenant IF a majority of those 35 percent or more vote in favor of gaming."
Here is the bottom line of how that poll will work in practice. If more than 1,250 unit owners, with each owner having but one vote, or 17.5% of 7,144 unit owners, give a thumbs up to gaming, then the board will not have a reasonable basis to object to the lessee's proposal to install gaming machines in the restaurant. Allegedly, this polling agreement was designed to "give meaning" to the clause in the existing lease agreement to the term "unreasonably withheld." The permission to install gaming machines was allegedly a deal breaker for the lessee. According to the gaming section of the lease, 7.22(b):
"The installation of any gaming device on or about the Premises is prohibited without the prior written consent of Landlord, which consent may not be unreasonably withheld."
Before this polling agreement was approved, the board presumably had no guidance on what "unreasonably withheld" meant. Said differently, the board had no basis on which to deny the lessee's request to install gaming machines. Now, however, with this agreement in place, the board has some basis at its discretion on which to approve or deny a request by the lessee to install gaming machines.
Of course, the true nature of the polling agreement was to give effective carte blanche to the lessee on the issue of gaming, assuming there is sufficient community support, while at the same time permitting the board to run for cover on the gaming issue in the event it comes before the board in the future. By virtue of this polling agreement, the board is relieved effectively forever of any responsibility for decisions they might make on the gaming issue.
An keen observer, or perhaps a true cynic, might conjecture that a major purpose of putting the gaming agreement on polling on this special board meeting's agenda was not so much that this item was really needed at this time but was included in the agenda merely as a needed distraction from the main purpose of the meeting. How come? Simply because the polling agreement could have been introduced at any time, given that it does take effect until a year from now. That main purpose of the board's special meeting, of course, was to correct Berman's mistake and her failure to properly manage the Trumpets lease agreement with Tirzo Hernandez the first time around.
Ron Johnson 19 August 2009