Analysis of the Development Agreement
revised 10/05/2005

We've been hearing about the Development Agreement with LHLLC for well over a year now, and have been fed tidbits as justification for board actions at various meetings. The document is 27 pages long and the main body is available as a .tif file on the Lake Holiday website. The current board frequently surprises us with arcane actions which, when researched are traceable back to this agreement. I, and many others have serious doubts about it, and often wonder just how bad we are being hosed. I endeavored to do a comprehensive analysis which is as follows:

Key elements are separated into two groups. First, the Developer's "contribution" to LHCC. Have your scorecard ready...

LHLLC's commitments:
1. Contribute $150,000 toward community center over the course of construction - in exchange for lots.
2. Renovation of the main entrance on route 701 - LHCC pays for the gatehouse.
3. Community identification signs, upgrade Rt. 522 billboard, municipal signs throughout Lake Holiday and mail facilities.
4. If requested, engage its attorneys to pursue the formation of a service district, sanitary district or CDA.
5. Employ engineers to prepare a development plan, which may be done in stages.
6. Manage the development process including the development plan, construction and infrastructure improvements.
7. Incur infrastructure construction costs in sections 5B, 5C, 9, 10, 11 & 12.
8. Waive its right to obtain credit for tap fees in exchange for water and sewer main installation.

The conditional promise of a $150k contribution toward the clubhouse, as stated in the agreement, is in exchanged for lots. We know a number of lots in section 1A and 7 changed hands, but we don't know all the transaction details. The condition is that we enter into a Construction Contract with LHLLC, which apparently started as a renovation and evolved into a new building. Now it's nowhere along with the $150k promise, possibly at the expense of some of our lots.

We all know the gatehouse cost us $150k. Enough said there. Note that all of the LHLLC commitments are self serving in that they promote sales, and are generally inconsequential to most LHCC residents. Somehow they were promoted as "of value" to the community. Personally, I can do without the ambiguous village signs. The last item, the waiver of credit for tap fees requires additional explanation and is covered later.

In exchange for these wonderful things (which cost us $$$ in cash and lots), LHCC agreed to the following on your behalf:

LHCC 's commitment
1. Cooperate and supply applications, contracts and documents requested.
2. Participate in any easement, covenant, agreement, site plan or document requested.
3. Amend the Restated Declaration if required
4. Board will appoint an executive committee to work with LHLLC.
5. Grant various easements and right-of-way for the development period.
6. Share infrastructure construction costs in sections 4A, 4B, 5A,6A, 6B & 8A, LHCC pays for all non-LHLLC lots.
7. Mail stations and dumpster sites may be constructed by LHLLC on LHCC land to be maintained by LHCC.
8. Cooperate and assist with the extension of utilities to sections 5B, 9, 10, 11 & 12 at LHCC expense, recoverable by assessments of lots other than those owned by LHLLC or sold by LHLLC.
9. If the utility is sold, LHCC is responsible to convey or carry out the conditions of 2002 court order.
10. LHCC shall use its best efforts to enact the new Declaration.
11. Allow directional, model/marketing, informational, municipal, builder or neighborhood signs.
12. LHLLC may build model homes in sections 7, 9, 10, 11 & 12. Realtors and prospective buyers shall have access.
13. LHLLC may revise the master plan and relocate lots provided the buildable number stays the same.
14. LHLLC may withdraw sections 9, 11 or 12 if LHCC is in default of this agreement.
15. LHCC lots for sale must be first offered to LHLLC (First Right of Refusal).

Some familiar activities crop up here. We've been entertained by the new document campaign in item #10 and even got a free lunch. We've seen confidential negotiations with Aqua America transpire as item #9 is incorporated. Assorted marketing signs appeared per item #11 until it was noted that they violated the deeds of dedication. First right of refusal item #15 has appeared a number of times as an impediment to selling lots. As designed, LHCC winds up paying out in items #6 and #8, in which cases lots may be used for payment. An appraisal is required per the agreement to establish the market value.

Do you think this is a good deal? I guess it is if you are the Developer. Otherwise it is like giving away the store. The Board will tell you it is because it saves us millions (or whatever) in tap credits. But is that really true? What does the waiver really do? The issue is with the 1984 Release and Settlement Agreement between LHCC and Independent Land Inc. The full agreement is on the Lake Holiday website, and the relevant paragraph is reported as follows:

12. WATER AND SEWER SERVICE FOR INDEPENDENCE LAND PROPERTY
The Utility Company agrees that Independence Land, its successors and assigns, will be allowed to connect all and any portion of the Independence Land Property to the water and sewer service provided by the Utility Company, provided that the cost of any extension (including any and all special pumps) necessary for such connection is paid by Independence Land or such successor of assigns in advance of the construction of such extension. Independence Land or such successor or assigns will be given credit by the Utility Company for the cost of such construction plus reasonable interest thereon. The credit provided for herein shall apply against any and all tap in fees for Independence Land Property served by such extension over a period of 20 years after the date of completion of such extension.

The paragraph states that LHLLC, as the "successor" , is entitled to connect to LHEUC, the "Utility Company", water and sewer provided that the cost of any necessary expansion is paid in advance of said construction. The cost becomes a "credit" against which LHLLC may apply individual home tap in connections, or water/sewer hookups, which today are about $9000.

In other words, this says is that LHLLC pays for expansion (water and sewer mains and other associated costs) and for that effort, it does not have to pay hookup costs for each home in the expansion area.

So what's the problem? Unpaid hookup charges are not an actual loss - they are uncollected charges for work to be done to provide piping from the street to each lot. This work can be mitigated. Since expansion is only "paid for" by LHLLC in the 1984 Agreement, it suggests that LHEUC contracts the work. As such, water crocks and sewer taps may be installed as part of the expansion minimizing the hookup costs later. This also avoids digging up roads for hookups and subsequent patching. Expansion is paid for by the Developer, and our tap in work cost is minimized. Presumably this is what was envisioned.

As stated in the Development Agreement however, LHLLC both manages and pays for the development process and infrastructure improvements (circumventing LHEUC). It is unclear if this includes wells and processing plants. With the "waiver" it also pays LHEUC for tap ins for each home in the expansion area. These are prepaid in bulk which denies them to other home builders should capacity be exceeded.

The 2005 LHEUC budget indicates $1.2M in LHLLC prepayments. Considering the recently reported financial state of LHEUC, any deal with the devil was an obvious solution. The prepayment windfall drove the Development Agreement to be considerably favorable to LHLLC. The Board was certainly self congratulatory in the May 2004 Newsletter when this deal was announced. Having paid for LHCC's loyalty, LHLLC is free to exercise any of the Agreement's conditions, to control the utility availability to independent builders or, if LHCC defaults, to withdraw it's land and form a separate community on our lake.

One thing often overlooked is the emotional cost of this whole endeavor. For over two years the entire community has endured uncertainty, construction detours, dust and debris, a barrage of proposed documents and increasing fees. The board has been preoccupied with Developer activity at the expense of other domestic issues. The Architectural Committee has been deluged with building applications. Large sums were spent on legal counsel. There is very little benefit for the community as a whole, with the possible exception of an increase in property values due to growth. I think a better deal could have been cut.

Hopefully I got it more right in this revision. There are no doubt other views and interpretations. I'm not a lawyer. Its possible I've missed something in the rhetoric or in some other relevant document. If so, I stand corrected, but otherwise I believe this analysis to be fair and accurate. If for no other reason, this essay exists to shed light some of the details of these underlying documents. It is my belief that an informed resident is an asset to the community. - Bill Adams