The sale of the Old Colony Club property is embroiled in controversy as some members have questioned why other members sought to oust the club's leadership and negotiate a sale allegedly at two-thirds of its market value rather than advertise the property for sale on the open market.

A vote last month resulted in a majority of members accepting the Argus Group's $10 million cash offer for the 0.7 acre site on Trott Road in the heart of Hamilton. However some long-time members say that a group of members convinced proxy voters to vote for the sale without alerting them to the fact that a real estate firm had just valued the OCC property at $15 million.

In light of that higher valuation, the club's Committee of Management was asked to sell the 30,000 square foot property ? encompassing almost five average building lots ? by tender and on the open market.

"It is dubious as to how (the sale) came about because no one in their right mind would (negotiate that price) unless a windfall profit was coming along with that," one long-time member claimed.

While the Argus Group's valuation of the property put its worth at $8-$10 million, an independent valuation done on the club's behalf valued the property at $15 million.

The two valuations differ so significantly because the Argus valuation was done on behalf of a buyer and was based on the rental value of the existing property. The OCC valuation was done on behalf of the seller and was based on the property's development potential and the average cost per square foot of other properties recently developed in the area.

The members said that the sale of a neighbouring plot of land put the worth of the OCC property at more than $10 million even seven years ago.

In 1999, Argus purchased a parcel of property next door to the OCC for $468 per square foot. Using that figure, the 30,000 square foot OCC property would have been worth $14 million in 1999. The 2006 offer by the Argus Group to pay $10 million boils down to just $332 per square foot.

"We're bewildered as to why property in the heart of the city should be devalued in seven years," said one long-time member, adding that the OCC property is the largest free-standing lot in Hamilton in 2006. It is located behind Par-la-Ville Road, a street which has seen such a construction boom in office buildings it has recently been dubbed "Bermuda's Wall Street".

The catalyst for the unsolicited offer from the Argus Group dates back to last year when it began construction next door to the OCC, making it impossible for club members to access the club's back parking lot.

This newspaper understands that the club's management committee delegated OCC member Richard Davis, who owns Skyline Realty Ltd., with the task of negotiating a rental of the car park with the Argus Group.

Soon afterwards, the Argus Group sent a letter addressed to Mr. Davis.

The letter of May 4, 2006 stated that as per their discussions, Argus wanted Mr. Davis to advise the membership of its offer to buy the entire OCC property for $10 million cash. The offer was to expire 21 days later.

As a member of the club, he posted the letter on the club's notice board to notify members.

Under the club's by-laws, the long-time members say all such letters should have been addressed to the club's committee of management rather than a club member, or for that matter the broker acting for the proposed buyer.

Even so, the committee brought the offer to the membership at a special general meeting on May 25. A majority rejected the offer as "unfair value".

While a number of members did not want to sell the club at all, the majority supporting setting a reserve price for the property of $12.5 million. Most felt that the club was no longer being used to its full potential since membership had dwindled and many remaining members were seniors who seldom visited the club.

The Argus Group rejected the higher price on the grounds that it was not really interested in purchasing the whole property. The Argus Group then addressed a letter to club president Ray Madeiros offering $2 million to purchase a 3,179 square feet of land adjoining its construction site.

That offer on June 8 equated to $629 per square foot.

This newspaper understands that members were opposed to that offer since the club only has two frontages and that parcel of land was the prime side of the entire lot.

If it was sold, it would have significantly devalued the remaining portion of the club's property.

They never had a chance to vote on the offer however because on July 6, Argus addressed another letter to Mr. Davis stating that further to their discussions, it once again wanted to offer $10 million net for the entire property. This time Argus gave members a deadline of July 26.

Argus CFO David Pugh told this newspaper that he reinstated the offer after a "a lobby of the membership" came to him and asked him to do so.

In an interview last week, Mr. Pugh was unable to recall who suggested he should reinstate the offer.

On July 12, a group of 12 members signed their names to a requisition notice posted on the club bulletin board, asking members to consider a vote of "no confidence" for the current management committee and to vote in a new OCC committee led by Martin (Butch) Ray and Chance McLean, who is Mr. Davis' brother-in-law. There were ten other signatures on the requisition including Mr. Davis' father-in-law, David D. McLean. Mr. Davis was not a signatory.

The requisition also asked the membership to remove the reserve selling price of $12.5 million from consideration and instead support the sale to The Argus Group for the original $10 million. They also asked for members to support dissolving the club and liquidating its assets including a $300,000 cash deposit, to be divided equally amongst the club's 120 members.

The posting of the requisition notice was allegedly against the Club's constitution since all such requests must pass through the committee of management for authorisation, other members claimed.

This newspaper tried to ask Mr. Ray about his group's reasons for supporting the sale to the Argus Group. Last night, he refused to comment.

On July 20, the membership held a special meeting over the Argus offer. This newspaper understands that those in attendance split the vote, leaving the 25 proxy votes solicited by the 12 requisitioning members as the deciding factor. All 25 supported the bid to remove the reserve price of $12.5 million and sell for $10 million.

After the vote, some club members asked proxy voters why they supported the sale.

They now allege that the dissident group did not inform proxy voters ? many of whom were senior citizens and no longer frequented the club ? of all of the facts.

A long-time member said: "We asked some of the proxy votes, were you aware that the property was appraised at $15 million and they said no. They were only told they had to move quickly to meet the deadline for the $10 million cash offer," one long-time member said.

Proxy voters were also unaware that the Bermuda School of Music ? a tenant at the OCC where it teaches some 1,400 music students ? had informally offered to pay $5 million to the OCC in a bid to be a part owner of the property. Nor were they aware of the club's plan to put the sale out to tender in a bid to secure a sum closer to the club's own valuation of $15 million.

He added that proxy voters were led to believe that Argus was the only potential purchaser for the property, so if they wanted a cheque at all they had to accept the offer.

Since the vote, this newspaper understands that a majority of the 25 proxy voters have expressed their desire to withdraw their support of the sale because they did not have all the facts. The sale for $10 million will see each member receive just under $80,000 while a sale for $15 million would put $100,000 in each members' pocket. The proxy voters and long-time members believe the property should be put on the open market because the OCC's members, many of whom supported the club for decades, deserve to receive the best possible financial returns from the sale of the club.

Mr. Davis told this newspaper this week he had no idea how the bid to get members to vote was orchestrated since as the "middle man" for the sale, he had nothing to do with it.

"At the end of the day I present the offer and hopefully that is the end of my job until it is accepted," he said.

However, the long-time members say the real winner in the current deal is Argus, which managed to buy the property for $5 million below its actual value, and its appointed real estate agent. Under Bermuda Chamber of Commerce Real Estate division rules realtors can seek a maximum five percent commission on the sale of any real estate.

Mr. Davis declined to disclose his commission on the grounds it was "personal business". As for the member concerns about conflict of interest, he said he had been very clear with everyone throughout the process. He even sought a legal opinion on the issue and said he would not have taken on the role if he saw a conflict.

"This is a matter between Argus and members of the club at the end of the day. There has been quite a lot of time gone under the bridge now with this being talked about and we're at where we are because of what members decided. No one person sold the Colony Club," he said.

Argus CFO Mr. Pugh said last week that his company's offer was $10 million net so club members will not have to pay the real estate commission, stamp duty or any other fees associated with the closing. This is not normally the case.

However he refused to disclose how much OCC member Mr. Davis would reap as a result of the securing sale as it was a private matter between the realtor and his client.

"It is up to the Argus Group to pay the people who work for us in an appropriate fashion," he said.

The long-time members say no matter what his commission, Mr. Davis, who signed his letters to the membership "sales agent and full member", had a conflict of interest negotiating the sale.

However Mr. Pugh said Mr. Davis was merely acting as a real estate agent who "saw a potential deal which could be a benefit to both parties".

"Mr. Davis was acting as an entrepreneur, a go-between. He had no official capacity at the club," he said.

This newspaper asked why Argus Group used Mr. Davis rather than finding a realtor who was not affiliated with the club.

"One uses the people who come to hand," Mr Pugh said.

The member proposal to replace the current committee of management never went to a vote. As such the committee of management including its president Ray Madeiros remains in place.

Mr. Madeiros would not comment when contacted by this newspaper last week on the grounds that the OCC and its affairs are private.

He only said: "Club members voted two-thirds to one-third [for the sale and not everyone is happy with the way the sale was conducted and the way things were carried out, but majority rules. We have to go with the results."

The OCC sale is not a sure thing as the Argus Group's letter of offer is conditional on the Department of Planning giving it permission to include the 3,179 square foot portion of land in Argus' present construction project.

The Minister of Finance must also approve the sale of the property, which the club purchased after it formed as a body corporate via The Old Colony Club Act 1946.