LAKE COUNTY— A dispute over the County of Lake’s role in the sale of the Lucerne Castle property dating back to September 2021 has not yet been settled, but the case was part of recent closed session discussions by the Board of Supervisors. The matter is again listed under closed session for this week’s meeting.
The case filed in Lake County’s Superior Court cites the county and the BOS as defendants alleging, “breach of contract, intentional misrepresentation and rescission due to fraud and mistake” and was filed by Earthways Foundation Inc., a Delaware nonprofit public benefit corporation which owns the property located at 3700 Country Club Drive in Lucerne.
County Counsel Lloyd Guintivano, cited the California Open Meeting (Brown Act) which shields local governments from discussing details of litigation as reason for not commenting further. The attorney representing Earthways Foundation Inc., Walnut Creek-based Clifford Hirsch, whose firm recently took over the case, praised ongoing efforts to settle the complaint amicably and emphasized that discussions with Lloyd have not been contentious and that attorneys are working towards arriving at a resolution favorable to both parties.
Hirsch said he had constructive conversations with Guintivano and added that he had nothing but positive things to say about the County counsel.
The main thrust or crux of the complaint appears to be that the county allegedly reneged on the original agreement which they entered on Dec. 12, 2018 with the Romero Institute- New Paradigm College or assignees. Romero was acting on behalf, and for the benefit of the foundation as the buyer. Earthways is a 501c3 nonprofit organization focused on ecological education and “conscious activism.” When the property became available, Romero submitted a bid to the County for the Castle of $2.5 million and closed a deal to acquire the property.
According to section 18 of the agreement signed by both parties, throughout Romero’s negotiations with the County and/or the BOS, Romero “consistently underscored that it was a not-for-profit educational entity that sought contractual terms reflecting this fact, including most importantly and relevant, that the County waive any imposition of property tax as to the entirety of the parcels that constitute the Castle.”
The plaintiff (Earthways) claims that the clarity of the condition of purchase, which was the exemption from imposition of property taxes was “well acknowledged by the County/and or Board and was an express term reflected and memorialized in the Agreement.” Specifically, this portion of the complaint points to Section 10.6 of the agreement which states that the property is not subject to property taxes if owned by a not-for-profit organization.
Earthways claims that on or about April 14, 2020, approximately more than one year after the purchase, they received notice from Lake Couty Assessor Richard Ford’s office that for the tax period of July 1, 2019 to June 30, 2020 a property tax of $125,723.08 was due and owing for the Castle based upon the County’s new assessed value of $8.5 million. The nonprofit and Romero claim this was the first tax bill that they received from the County since the original purchase on Feb. 28, 2019 and such value was approximately $5.5 million more than the purchase price, and more than Romero and the County deemed to be fair market value, which both parties relied on as a consequential term for entering into and consummating the agreement.
The complaint further alleges that despite such understanding from both parties, Ford determined without explanation that the sale was not an “arms-length transaction”, and that the buyer’s appraisal was “misleading and erroneous” with respect to the highest and best use for the property, its failure to rely upon the income approach with respect to an income producing property, and the inappropriateness of comparable sales.
Earthways contends that the County, via Ford, erroneously conceived of the property’s highest and best use as being comparable to a “modern” resort when in reality it had absolutely no hotel use value as an unrenovated shell of a 1930s hotel with small out-of-date rooms in disrepair, out of code wiring, obsolete, unusable boilers, and no modern parking areas and poor security, among other drawbacks. The complaint goes on to note that the Castle had never risen to the level of an income producing property on account of its “minimal renovations sufficient only for a beginning level educational endeavor, [therefore] the income approach was patently unwarranted, [and further,] given the Castle’s state of disrepair in 60 percent of its total capacity, the comparable sales provided were more than reasonable and similar to those used by other assessors.”
County Assistant Planner Max Stockton previously told the Record-Bee that the property is currently zoned for commercial use and would require a major use permit application by whoever buys the property. Timothy Toye, whose real estate company has been listing the property for over a year confirmed that the property remains in the market and acknowledged the challenges to potential buyers, including the renovation of the 68 bedrooms at the site and other needed repairs.
After filing an appeal of the tax bills before the Board of Equalization, Earthways and Romero filed the claim with the County based on the alleged breach of contract, and what they allege to be misrepresentation of facts on the County’s side. The tax bills sought payment of taxes for the Castle for the Fiscal Year of July 1, 2019 to June 30, 2020 in the amount of $125,723.08. According to the court records, the plaintiff timely paid the first installment of the bill under protest in the amount of $62,861.54 but was unable to pay the second installment, and all tax bills and installments thereafter. These were still accruing penalties and damages at the time the complaint was filed.
Ford did not answer questions by press time seeking clarification on how the disputed property tax assessments were originally arrived at and whether they have been modified since the original agreement and subsequent actions, and whether his office can provide records that Feb. 28 2019 was the first tax bill issued by the County since the Foundation’s purchase of the property, as alleged in the plaintiff’s complaint. Notice of further closed session discussion of the item is included in the agenda for this week’s BOS meeting on Tuesday.
