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SCA Finance Committee Recommendation to
the SCA Board of Directors
Proposed Restaurant Lease Agreement
By Jim Mayfield
The Finance Committee (FC) recognizes the significant challenge faced by SCA to simultaneously 1) comply with Nevada law and SCA CC&R’s, 2) protect the equity of the residents, and 3) provide SCA residents with the various amenities that the majority of people in the Community desire all while exercising due care and appropriate fiscal restraint to minimize the financial burdens to homeowners.
The FC believes its recommendations with respect to the proposed Restaurant Lease Agreement with Masterpiece Cuisine are a valuable step in accomplishing the above objectives.
After careful review of the terms of the proposed Lease Agreement, in-person meetings with and emails to Board members and Shawn Hicks, as well as telephone conversations with Shawn and resident comments at Board of Directors Open Sessions, the FC continues to have significant concerns with the one-sided nature of the proposed Lease Agreement.
Accordingly, the FC has voted unanimously to recommend the Board of Directors defer any decision on a Restaurant Lease Agreement until the new Board of Directors is in place.
Our concerns are listed below:
Rent, Utilities and Other Costs: Masterpiece Cuisine currently pays $10,000 per month for rent, in addition to $2,500 per month in utilities for approximately 1,700 square feet of space at their Water Street location. SCA’s restaurant and kitchen facility is more than 4 times the size, yet the proposed Lease Agreement would only charge $1 in “Minimum rent” annually with no charge for utilities. There is the potential for “Additional rent” equal to 3% of Gross Proceeds generated from our facility that exceed $1,500,000.
Commercial rent for restaurant spaces in Henderson typically ranges from $23 to $43 per square foot annually. Even at the very low end, that would translate to $172,000 of annual rent with utilities being an additional charge. Just to cover the $172,000 in rent, Masterpiece Cuisine would need to generate $7,200,000 in annual revenue, which we do not believe is attainable. The proposed budget that Masterpiece Cuisine provided to the Restaurant Work Group, estimated gross revenues of $1,300,000 for a 12-month period.
Their budgeted income before tax was over $200,000. If they achieved that and were also producing their current revenues of $1,500,000 from our location, SCA would only receive $39,000, which hardly seems fair, especially considering the other costs SCA would be responsible for and there being no “escape clause” among other issues.
Duty of Care of Board Members: Under NRS 116.3103, the Board of Directors is “required to exercise the ordinary and reasonable care of officers and directors of a nonprofit organization, subject to the business-judgment rule”.
Based on the collective expertise of SCA’s Finance Committee, we are not convinced that executing the proposed lease agreement is an act that a “reasonably prudent person” would do in similar circumstances.
Accordingly, we recommend the current Board of Directors keep the current “pop-up” service being provided by Masterpiece Cuisine in effect and defer any decision on a Restaurant Lease Agreement until the new Board of Directors is in place.
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