Muddy Waters for the Declarant

Now that I know more about the Declarant's role in community development, it's hard to ignore historical events that imply a changing of the guard. 

From what I've heard, the current LLC was informed by either a property owner, or Chelan County that the septic system would not support additional construction until capacity was expanded.  This was then reported to the KGCA Board in 2008.

From the June 2008 Board minutes:

It is unclear who should be responsible for installation—KGCA or the Resort LLC. The key issues are “who pays” for installation of necessary additional drain fields, and confirming ongoing septic capacity with the county. There are two new homes being built which would require two new septic fields costing an additional  $6,000 - $10,000.

From our covenants we have:

3.3.4 Maintenance of Water and Septic Systems. The Board shall repair, maintain and improve all fresh water and septic systems on the Property in a workmanlike manner.

And in practice, home owners pay the LLC $4,000 to hook up to the septic system that they [LLC] own, and we maintain.  Specifically, the Declarant owns the septic system until its Control Period ends.  The word "improve" in the covenants quote above can not be interpreted as "expand capacity", this is not in the spirit or intent of the original developer, or the covenants.  If the Declarant defers expansion responsibility to the CA, then the Declarant's Control Period for that stage of the community development should end.

From the July 9, 2008 Board minutes:

 

1. Septic Tank update – There are challenges associated with initial pre-payment of hookups fee per lot not covering the incremental costs of expanding septic fields for adequate capacity as required by recent Chelan County policies. It may be necessary to charge new homeowners additional fees to cover the incremental costs associated with expanding drain fields. There is a need to better estimate our actual costs for expanding the fields, and to establish the appropriate fee structure for owners.

Uh, why is this a CA problem?  Providing capacity is a problem solely for the developer.  Unless of course, the developer has transitioned responsibility for the systems to the CA.

In September 2008:

1.    Septic Report – .... There remains a challenge for adding new homes with consequent increased volume on existing septic systems. The county will likely require us to expand the system (primarily drain fields) for new homes. The cost and source of funds for the increased drain capacity is to be determined. The current estimate is around $12,000-15,000 per system for the increased capacity.

a.    Motion: The Kahler Glen Community Association will fund the expansion of the septic systems as needed for existing building lots, exclusive of new lots available as of May 2007.

And this is why contractual negotiations with the LLC should be vetted through an attorney!  Because our CA Board's have historically been proponents of an integrated Kahler Glen, they worked with the LLC like buddies to figure out a reasonable way to share the expenses.

But this motion wasn't reasonable!  It muddy's the lines of authority, accountability, and responsibility (AAR) for the septic systems.  What basis permits the CA to pay for septic expansions?  And if the CA accepts this responsibility, what concessions did it receive?  It certainly didn't renegotiate the Declarant's terms of control.  And if we're taking responsibility for these two lots, why not the "new lots" too, that would at least provide a clear line of AAR.  Then, and only then would it make sense for the CA to involve itself in capacity planning and associated costs.

From my previous article we know that the reason a Declarant maintains control in the early stages of a community is to ensure marketability of their investment.  Normally, the developer wants to sell their property and move on because they want to shed their liabilities--this often includes responsibility for maintenance of common areas and other amenities.  In KG's case, the Declarant's ongoing costs are minimal because the CA is responsible for almost all maintenance, so the LLC doesn't have the typical costs associated with hanging around and holding onto power.


Given the lack of clarity in the governing documents for ownership of our systems, combined with the fact that the LLC gladly accepts hookup fees but doesn't take responsibility for expanding all the septic fields, a valid argument can be made that the LLC does not have the rights typically associated with a Declarant.

What happens if one of the water towers fails?  Is the LLC ready to pick up the tab?