It is never too soon to look ahead.
To that end, Shelter Bay and Swinomish Tribal Community officials have begun laying the groundwork for the 2023 decennial rent adjustment mechanism built into the two parties’ master lease agreement.
In a column penned in October for the community’s newsletter, Shelter Bay Homeowners Association Board President Tom Napier alerted its residents to begin preparing for a new decade-long rent schedule set to take effect in two years.
“My intent in relaying this information to you,” Napier wrote, “is that we all need to begin to prepare for our rent to increase as a result of the 2023 rent adjustment.”
Just how much of an increase is to be paid by Shelter Bay sublessees hinges on a process spelled out in the 75-year master lease agreement under which the development was built on Swinomish Reservation in the late 1960s.
That format calls for an appraisal of Shelter Bay’s 420 acres as raw land. If both parties agree on the value, then the rent is determined by multiplying that value by a rate of return of seven per cent.
Should the parties not agree on the value, the issue would go to arbitration, which last occurred in 2003. That is an option no one wants to see happen.
To avoid arbitration in 2013, Shelter Bay and Swinomish employed an index of similar properties to track relative land value changes, with the difference used to adjust Shelter Bay’s land value and the rent calculation.
The total Shelter Bay rent amount is divided among sublessees in the community, now home to about 1,800 residents on more than 900 lots.
Shelter Bay and Swinomish representatives have already begun working cooperatively on the rent adjustment plan to ward off the prospect of going to an arbiter.
“We believe this method of adjusting the rent is desirable over the expense and uncertainty of another protracted and expensive appraisal and arbitration process as occurred during the 2003 rent adjustment,” said Napier.
Swinomish Tribal Community officials share that view.
“We are optimistic that all parties will be able to agree on the use of the index again for 2023,” said Swinomish Tribal Senate Chairman Steve Edwards, “so that Shelter Bay may begin to set aside the funds that will be needed to pay the new rental amount in July 2023.”
“The index,” Edwards added, “provides an efficient, predictable and low-cost method for adjusting the rent that is based on similar parcels by an independent party. As such, it is a fair method for determining the change in value of the Shelter Bay land since 2013.”
In 1968 Axel Osberg leased property from the Swinomish Tribal Community, an agreement then lauded as a relatively new concept in long-term land leasing and development.
Designed to provide Swinomish annual rental incomes as the tribe began diversifying its economy, the lease agreement was approved by the U.S. Bureau of Indian Affairs and Department of Commerce.
The master lease rent remained flat for the first 25 years, said Stephen LeCuyer, director of the Swinomish Tribal Community Attorney’s Office.
“After this 25-year period, which ended in 1993, the Shelter Bay master lease requires rent review and adjustment every 10 years,” LeCuyer told the Weekly News.
The method of rent review and adjustment must be approved by the tribe, landowners, Shelter Bay and the BIA, LeCuyer said. The index used in 2013 was based on one Swinomish previously developed for rent adjustments on leases in the Pull-and-Be-Damned residential area, he said.
“The rent is seven per cent of the value of the leased land in an undeveloped condition,” LeCuyer said, “but with the necessary rights to be developed into what exists as Shelter Bay today.”
Napier said it is too early to predict how much the next adjustment will increase Shelter Bay rents.
“But, as of now,” he wrote in the Association’s October newsleter, “with six years of data, the change in land value is at 42 per cent. Using an appreciation rate of six per cent per year we should be prepared for a 75 per cent to 80 per cent increase in rent. Six per cent may seem high, but it is the average rate of increase for the Puget Sound region over the last 30 years.
“However,” he noted, “if the real estate market flattens or it drops, the increase could be lower – in the 50 per cent range.”
He is advising Shelter Bay residents to “please begin planning now to include such an increase in your budget and financial planning.”
There is much on their checklists of all involved to be filled in the months ahead, Edwards said.
“Work still remains to be done by the tribe to bring the proposal to the landowners and BIA for review,” he said, “and discussions with these important parties will drive the process moving forward.”
It is never too soon to look ahead.