Here is the Board's response. If allegations are true, what does it say about the Management Company's actions in other properties???
December 6, 2023
Dear Fellow Grand Residence Club Lake Tahoe Owners,
As President of GRCLT Condominium, Inc. and on behalf of the Board of Directors, I am writing to you in response to the unfortunate and misleading letter that was sent to the membership on December 4, 2023, by Tom McCormack, purportedly on behalf of the Management Company (i.e. Marriott Resorts Hospitality Corporation). Mr. McCormack’s letter does not accurately represent the facts of the current budget situation, and, because of the Management Company’s unauthorized and unprecedented decision to send his misleading letter to all Grand Residence Club owners, we feel compelled to respond.
The Board of Directors is comprised of individuals that have been elected by you. We take very seriously our duty to make decisions that individually and collectively we believe in good faith to be in the best interests of the Association, including you as owners and members. Serving the Association as a Director is voluntary and without compensation yet requires a significant time commitment. Fortunately, several Board Members have served the Association for well over a decade and have garnered what I believe is invaluable institutional knowledge regarding Grand Residence Club operations, including financial and budgetary matters.
One of the primary duties of the Board is to approve an annual budget. Beginning approximately 15 years ago, the Board and Management Company agreed that a reasonable benchmark to aid the Board in its deliberations to approve a budget for the following year was the San Francisco Consumer Price Index for August. The Board would typically approve a budget with a percentage increase, year-over-year, that was higher than the San Francisco CPI, based on the Board’s reasoned judgment of what the anticipated basic expenses of the Association for the following year would be.
As part of this deliberation process, the Management Company historically has prepared a pro forma budget for the Board to consider that included the San Francisco CPI as a comparative benchmark, but which typically included a budget recommendation by the Management Company with a year-over-year increase that was significantly higher than the benchmark. It is important to understand that the Management Company is incentivized to have a larger budget approved by the Board because under the terms of the Management Agreement, the Management Company’s fee is 10% of the Association’s basic expenses. Although the Board values the Management Company’s input in its deliberations to approve a budget, the Board historically has approved a budget that is greater than the San Francisco CPI but less than the Management Company’s recommendation, again based on the Board’s reasoned judgment of the estimated basic expenses for the following year. We believe this prudent fiscal approach to budget deliberations and approval has served and continues to serve the Association and its owners very well.
In September of this year, we discovered in the minutia of the Association’s 2022 Tax Return prepared by the Management Company that indicated the Management Company had overspent the 2022 Budget by $238,000 without ever disclosing it to the Board and without ever obtaining the prior written consent of the Board, as required by law. The Management Company has ignored our request to reimburse these funds.
Consequently, the Board recently authorized the filing of a lawsuit against the Management Company in El Dorado County Superior Court (Case No. 23CV2018) seeking, among other relief, reimbursement of the $238,000 improperly taken by the Management Company. This lawsuit also seeks the Court’s intervention as to the 2023 Budget and even 2024 Budget that were approved by the Board. As you know from Mr. McCormack’s letter, the Management Company essentially has admitted that it has overspent (or is about to) the Board-approved 2023 Budget by approximately $550,000, which we believe violates the Association’s governing documents, the Management Agreement, and applicable law. What the Management Company characterizes as a “shortfall” would be more accurately described as unauthorized overspending by the Management Company in excess of the fully funded and Board-approved 2023 Budget.
The intent to engage in this same overspending has been admitted to by the Management Company for 2024. As to the 2024 Budget, in October of this year the Management Company presented a pro forma budget to the Board that intentionally omitted the San Francisco CPI benchmark and instead included an astonishing year-over-year increase of 19.7%. Even with increased utility and insurance costs, which the Board recognizes may be significant, the Board concluded that such a drastic increase was excessive and unnecessary to meet the anticipated basic expenses for 2024. Ultimately, the Board approved a 2024 Budget with a year-over-year increase of 4.8% (the San Francisco CPI was 3.4%). A similar variance between what the Management Company presented to the Board and what the Board ultimately approved occurred for 2023. We believe it is noteworthy that the last two years which have seen such a deviation by the Management Company from the historical San Francisco CPI benchmark in the budgets it has recommended to the Board coincide with a persistent gradual decline in the stock price (presently at 2-year lows) of the Management Company’s affiliate, and we believe the Management Company may be under significant pressure to increase revenue, which may explain what we believe to be unwarranted and unlawful strong-arm tactics presently on display by the Management Company.
We want to assure you that the Association is financially secure. However, should an actual cash shortfall occur with respect to the Association’s operating account, we believe that because the Management Company apparently decided to exceed the Board approved 2023 Budget, the Management Company should shoulder responsibility for any shortfall until this issue is resolved in the recently filed lawsuit, instead of having the Board authorize a short term transfer of funds from the Association’s reserve accounts or levy a special assessment against the owners to cover the forecasted shortfall. Additionally, we believe the threats in Mr. McCormack’s letter to reduce or eliminate Grand Residence Club owner services or benefits is disingenuous, ill-advised, and reckless.
While the Board has strived to have good working relations with the Management Company over the years, the recent lawsuit is not without precedent. In 2021, we were forced to file suit against the Management Company for reimbursement of money that the Management Company unilaterally and without authorization took from Association accounts to pay for legal costs associated with other claims, including a class action lawsuit, against the Management Company that did not even involve the Grand Residence Club. The Management Company ultimately agreed to reimburse the Association and the lawsuit was dismissed.
Similarly, from approximately 2015-2017, the Association was involved in a lawsuit against South Lake Tahoe Public Utility District in connection with utility charges that the District had been double billing the Association for more than ten years. Because the Management Company also manages Timber Lodge next door, the disparate utility charges of the adjacent resorts was something that we believed the Management Company should have discovered long before it came to light. However, instead of reimbursing the Association for what we believed was caused by the Management Company’s gross negligence, the Management Company forced the Association to spend years in litigation against the District before a settlement was reached on the eve of trial. It was only after a settlement with the District was reached that the Management Company agreed to reimburse the Association a fraction of the damages it had sustained over more than a decade.
Now, in addition to the pending lawsuit against the Management Company regarding the budget issues described above, the Board may be compelled to file another action against the Management Company related to foreclosed fractional interests. The Management Company was recently forced to admit that it improperly conveyed title to at least six (and perhaps more than ten) fractional interests to Marriott affiliates instead of to the Association upon nonjudicial foreclosure for unpaid delinquent assessments. Not only has the Association suffered hundreds of thousands of dollars in actual damages as a result, but we also believe that the Management Company and its affiliates have been unjustly enriched by these improper conveyances in excess of three million dollars.
It is our hope that this letter provides you with more context and a better understanding of the budget issue we have been trying to resolve with the Management Company. Unfortunately, as described above, we have been compelled to take legal action against the Management Company over the years to enforce the Association’s legal rights under the governing documents and applicable law. This budget dispute is another example of that, and we ask for your continued support to see this through.
I can assure you that your Board of Directors will do everything in its power to protect your investment and all that comes with that, despite the false accusations and threats made by the Management Company.
Sincerely,
James M. Deatherage
Board President
GRCLT Condominium Inc.