Paradise Canyon, LLC, which owns the Wolf Creek golf course in Mesquite, sued the Virgin Valley Water District on May 16 in civil court over a 2011 lease agreement that provides the golf course with irrigation water.
While the lawsuit does not seek direct monetary payment from the district should the golf course win, it does ask the court to place restrictions on future water payments and leases the district could ask for when the current lease expires in 2019. It also asks for attorney’s fees and costs incurred in having to prosecute the action.
The district and Paradise Canyon signed a lease in 2011 in which Wolf Creek received 155 shares of non-potable irrigation water at $250 a piece for a total annual payment of $38,750. VVWD currently leases 18 water shares to Southern Nevada Water Authority (SNWA) for $1,246 a share.
At the end of May, the district signed an agreement with Conestoga Golf Course that raised its irrigation share price from $250 to $650 beginning in 2020 and incrementally raises the price 10 percent every year until at least 2036. The Conestoga agreement also returns 50 shares to the district of water it wasn’t using.
The Wolf Creek lease also provided “for the right of Paradise Canyon to lease the Leased Shares on a perpetual basis” according to the court document. In 2011, the golf course paid the district a one-time fee of $25,575 for a “Right of First Refusal” to lease water in the future. Paradise Canyon alleges in its court document that “as a result, [it] has the right to lease the Leased Shares – and the use of the allocated water – in perpetuity.”
The civil complaint says that “The continued and perpetual use of water is critical to the operations of the golf course. During the lease negotiations, the District was aware that the number of leased shares – and the water allocated for those shares – may exceed, on an annual basis, the actual water use. The number of leased shares was necessary to provide adequate assurance that there would always be sufficient water available to the golf course.”
Meter readings have established that Wolf Creek only uses about 110 shares of the 155 it leases. Any unused portion of the water flows downstream to Lake Mead without additional remuneration to the district. VVWD has asked the golf course to return the unused shares so they too can be leased to SNWA at a higher rate. Paradise Canyons has resisted that for several years and indicated last fall that it would re-lease the 45 shares it wasn’t using to SNWA itself.
The lease’s language says “Lessee shall have no right to sublease the irrigation shares to any party. Any attempted assignment or sublease shall be void.”
The civil lawsuit requests the court to declare that the golf course “is not required to amend the Lease to permanently divest itself of all or any portion of the Leased Shares” and “that Paradise Canyon can sublease all or any portion of the Leased Shares to third parties.”
In 2012, the district signed an estoppel agreement with Paradise Canyon that allowed the golf course owners to receive a loan for $2.125 million from the Nevada State Development Corp. The court filing alleges that “Pursuant to the Estoppel Agreement, the District represented to the Lender and Paradise Canyon, among other things, that Paradise Canyon has the right to lease the leased shares on a perpetual basis.”
The 2012 Estoppel Agreement says “On or after January 1, 2020, if Borrower [Paradise Canyon] continues to hold a Right of First Refusal as to any of the Irrigation Shares, Borrower shall have the right to continue to lease the same Irrigation Shares on a perpetual basis so long as Borrower is not in breach of the Lease, and in such event, the rent amount for such Irrigation Shares shall be determined in the sole discretion of the District.”
In a letter the district sent to Paradise Canyon’s legal representative in December 2017, it addressed the estoppel language. “To be clear, the District did not provide the estoppel so that Wolf Creek could sublease the District’s shares to a third-party (SNWA) for Wolf Creek’s own profit. This is especially true since the District was already leasing the shares to Wolf Creek at well below-market rates.
“Under the terms of the lease agreements, the District leases the shares to your clients for $250 per share and SNWA is offering five times that amount. The golf courses have enjoyed these below market rates for more than 7 years and the District’s rate payers have carried this burden and are the ones who should benefit from any leases of the unused shares to SNWA.
“This is because, among other things, every dollar derived by leasing irrigation shares is one less dollar needed from the general rate payers. On the other hand, every dollar uncollected by leasing shares at below-market rates to for-profit golf courses must be subsidized by the District’s rate payers as a whole.”
The 2011 water lease also requires Paradise Canyon to use available recycled or effluent water from the City of Mesquite for its landscaping or irrigation needs before using the water represented by the leased shares.
Currently, the city charges an equivalent rate of approximately $618 per share for its effluent water.
In April 2000 the city and Paradise Canyon signed an agreement in which “the city agrees to provide Paradise Canyon with a maximum of 1,000,000 gallons per day, 365 days per year. Paradise Canyon additionally agrees that it will take no less than 1,000,000 gallons per day 365 days a year if the wastewater treatment plant requires disposal of excess effluent.
“Paradise Canyon also agrees that the treatment plant will provide 1 million gallons a day to the Oasis golf course, 1.5 million gallons a day to the Arroyo Heights, 750,000 to the City of Mesquite, after these allocations Paradise Canyon will receive the remaining amount of reuse effluent up to 1 million gallons per day as it becomes available from the treatment plant.”
Paradise Canyons’ civil complaint filed against the district says, “To date, the city of Mesquite has not made treated, effluent water available to Wolf Creek for its irrigation use, or there is otherwise an insufficient amount of effluent water available for use.” The complaint also asks the court to determine “the requirement, if any, to accept effluent water from the City of Mesquite and a declaration that it has not materially breached the Lease.”
The legal filing gives the water district 20 days to file a response to the civil lawsuit. The district has not made its response available to the Mesquite Local News by press time.