Letters to the Editor
Letter to the Editor | Analyzing PenMet’s Madrona lease contract
I support PenMet regarding the Madrona Golf Course. Some of the ownership and operational history of Madrona predates PenMet meaning the current Board largely inherited this situation. I believe they are doing their best to resolve it. While I am an attorney, I am no longer licensed to practice law. The statements below are just my opinions and are not to be considered legal advice.
I see four major issues:
- Who’s responsible for the operation and maintenance of the golf course?
- How are green fees calculated when determining PenMet’s rent and the required capital improvements?
- What are “capital improvements”?
- How does the 14+ acre parcel impact Madrona? (to be discussed in a separate Letter)
Who’s responsible for course maintenance?
1977 Lease Agreement
The answer is in the original lease between the City of Tacoma and DenMark, Inc. for the 71 acres now owned by PenMet. Tacoma signed a Lease dated April 1, 1977 (“77 Lease”), with DenMark, Inc. as Lessee. Paragraph 10 states:
The Lessee agrees to keep and maintain the leased premises in good condition and repair, and at the expiration or termination of this lease, Lessee will return the leased premises, together with all structures, facilities, and improvements thereto, except business fixtures and equipment, to the City in good condition and repair, reasonable wear and tear and damage by fire or unavoidable casualty excepted.
In 2008, PenMet purchased the 71 acres from Tacoma subject to the 77 Lease. At some point, DenMark dissolved and its interest in the 77 Lease went to Tyson Limited Partnership (“Tyson”). The 77 Lease authorizes the rent to be reevaluated every five years. Various reevaluations followed:
| Title | Rent Period |
| Lease Amendment | 1/1/84 to 12/31/87 |
| Five Year Lease Renegotiation | 1/1/88 to 12/31/92 |
| Second Amendment (included JDL, Inc. as a sublessee) | 1/1/99 to 12/31/03 |
| Third Amendment (included JDL) | 1/1/04 to 12/31/08 |
| Fourth Amendment (included JDL) | 1/1/10 to 12/31/14 |
| Fifth Amendment (included Stutsman and RM Kelly) | 1/1/15 to 12/31/19 |
| Sixth Amendment (same parties) | 1/1/20 to 12/31/24 |
The Second Amendment required JDL, the “operator” of the course, to invest 1.50% of “Gross Greens Fees” in “capital improvements.” The Third Amendment is missing pages, but presumably contained the same 1.50%. The Fourth Amendment drops the rate to 1.0%. The Fifth Amendment required Stutsman, as the new Sublessee, to invest 1% of the Gross Greens Fees in “capital improvements” and the Sixth raised that to 1.5%. These amendments don’t relieve Tyson of its obligations under paragraph 10.
Consent to Sublease
Dated April 25, 2014
This Consent involved PenMet as lessor, Tyson as lessee, and Stutsman as sublessee. PenMet’s only role was to approve a sublease between Tyson as the Lessor and Stutsman Enterprise, Inc. (“Stutsman”) as the Lessee (i.e., a SubLessee with respect to PenMet. Paragraph 10 was still in effect.
Consent to Sub-Sublease
Also Dated April 25, 2014
This Consent is between the same parties above and RM Kelly, Inc. as sub-sublessee (operator of the restaurant and bar). PenMet’s only role was to approve the Sub-Sublease. Paragraph 10 remains in effect). PenMet was not a party to the Sub-Sublease.
Sixth Amendment to Lease
Effective January 1, 2020
The Sixth Amendment is between PenMet and Tyson (Lessee), Stutsman Enterprises, Inc. (Sublessee) and RM Kelly, Inc. (Sub-Sublessee). This Amendment adds the following:
In addition to the quarterly rent due to PenMet Parks, beginning January 1, 2020, through December 31, 2024, Sublessee agrees to invest One and a Half Percent (1.5%) of the gross green fees (as defined in the Lease) into capital improvements on the Premises. Sublessee agrees to provide an annual report on capital improvements to PenMet Parks.
PenMet is a party to the Sixth Amendment and would appear to have the right to enforce the capital investment provision against Stutsman directly.
How Are Green Fees Calculated?
The fee structure for PenMet’s rent and the Capital Improvements obligation are both based on “Gross Greens Fees” defined in the 77 Lease:
Greens fees for the purposes of assessing rent shall include any consideration paid for the privilege of using the golf course for playing golf.
PenMet notified Tyson:
PenMet Parks receives a percentage of the greens fees collected from Madrona Links as rent. Based on the NGF report, it does not appear that all of the greens fees are being reported.
See the Third Notice of Default on PenMet’s website: Madrona Links Golf Course – PenMet Parks
What Are “Capital Improvements?”
“Capital Improvements” is not defined anywhere. There is guidance from various sources on this issue. Newly acquired costly assets and expenditures that extend the original estimated useful life of an asset are generally considered capital improvements, but in many cases it’s hard to answer this question. Normal operating expenses are not considered capital improvements.
I support PenMet in its efforts to protect the Madrona Golf Course regarding possible operational deficiencies and in their efforts to make sure the required rent payments and capital improvement investments have been made.
Craig McLaughlin
Fox Island
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