Lake Lease Updates
Protecting Lake Access at a Fair Price
After many years of negotiations, the Canyon Lake Property Owners Association ("CLPOA") and Elsinore Valley Municipal Water District ("EVMWD") have entered into a 5th Amendment to the Lake Lease.
CLPOA and EVMWD remain committed to cooperating with each other in good faith to resolve the remaining issues and may need the Court’s decision making authority to do so. CLPOA will continue to provide updates to the membership as this process plays out. This truly is a monumental step forward. The hard work from both sides, and the patience and participation of CLPOA’s members, has produced a durable and lasting agreement, which will preserve the special character of the Canyon Lake community for decades to come.
5th Amendment Changes
Here is a point by point analysis of the major changes that result from entering into the 5th Amendment:
Lake Lease Duration
Prior to the 5th Amendment, the Lake Lease would have expired on December 31, 2022. With the 5th Amendment now in effect, the Lake Lease does not expire until December 31, 2066. Additionally, the 5th Amendment gives CLPOA a unilateral option to extend the Lake Lease another 44 years after December 31, 2066, on the same terms and conditions as are now in effect.
Lake Lease Payments
Prior to the 5th Amendment, the Lake Lease payments were adjusted every year, according to how much it cost to purchase water. As we've seen over the years, the cost to purchase water has increased significantly, and we expect it will continue to do so into the future, as more people move into Southern California, straining the state's water supply. This winter has been good for us in terms of drought relief, but a significant portion of Southern California remains in drought conditions.
With the 5th Amendment now in effect, the Lake Lease payments will be adjusted on yearly basis based on the Consumer Price Index. There is also a floor and ceiling to the payment increases - CLPOA's Lake Lease payments will never increase more than 4 percent per year, and the minimum increase will be 1 percent per year. This is a fair and stable payment schedule. Conservatively, it is projected that CLPOA will save millions of dollars over the next 10 years alone based upon this new payment schedule. EVMWD gets the benefit of having a predictable and stable revenue stream from the Lake.
Prior the 5th Amendment, the Lake Lease included fairly vague indemnification obligations of CLPOA to EVMWD. During much of the negotiations between CLPOA and EVMWD up until this point, EVMWD was insisting CLPOA agree to an onerous indemnity provision, that would have required CLPOA to indemnify EVMWD for essentially all loss related to the Lake, even if the loss was EVMWD's fault. Recently, EVMWD agreed to a less onerous indemnity provision, where CLPOA would indemnify EVMWD for losses related to the Lake which are the fault of CLPOA, its members, or other third parties, but not the fault of EVMWD. This less onerous indemnity provision is now effective in the 5th Amendment to the Lake Lease.
In short - EVMWD is responsible for its mistakes, CLPOA is responsible for its mistakes, as well as those of its members and third parties.
Dispute Resolution Process
Prior to the 5th Amendment, the dispute resolution process called for in the Lake Lease was convoluted, sometimes unclear, and there was essentially no mechanism to prevent disputes from spiraling out of control. With the 5th Amendment to the Lake Lease, there are now mechanisms in place to help head off any disputes that may arise between CLPOA and EVMWD. Specifically, there will now be an Interface Committee, comprised of CLPOA Board Members, and EVMWD Board Members, who will meet as necessary to discuss any dispute between the parties that may pop up. If the dispute persists, the dispute must then go to mediation, before a neutral third party, to see if the parties can voluntarily resolve the dispute. If mediation does not work, the dispute is submitted to streamlined arbitration, so it is resolved as quickly and efficiently as possible.
The section of the Lake north of the northern causeway, where the river upstream feeds into the Lake, known as "Section 26" of the Lake, was previously governed by an entirely separate lease agreement between CLPOA and EVMWD. Pursuant to this separate lease agreement, EVMWD had the ability to grant rights of use to Section 26 of the Lake to others, under certain conditions.
Now with the 5th Amendment to the Lake Lease in effect, Section 26 of the Lake is governed by the same Lake Lease, though some special provisions apply to this portion of the Lake. Notably, EVMWD is permitted to install fencing or access control devices around this portion of the Lake, to prevent unwanted visitors from using this portion of the Lake. This portion of the Lake remains open to CLPOA and its members for the same uses as were previously in effect.
Prior to the 5th Amendment, there were no requirements with respect to CLPOA's insurance of the Lake. With the 5th Amendment in effect, CLPOA is now required to maintain general liability insurance on the Lake, with EVMWD as an additional named insured, at amounts reasonable to cover any anticipated losses. The current amount is $2 million per occurrence or $2 million in the aggregate, however the parties expressly agree to review the insurance limits on a periodic basis to see if any increase is needed. With this insurance in place, it will also help prevent any disputes between the parties going forward.