Article Courtesy of The
Daily Business Review
By Toby Snively
Published April 13, 2020
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With its rich history of acclaimed golf courses, “The Sunshine State” has become
a preferred destination for real estate developers seeking to build the next
great golf course community. Including a golf course in a new residential
community is a popular strategy implemented by developers to increase home
values and promote sales. A common model in Florida is for the community to be
governed by a homeowners’ association (HOA) and the golf course is separately
owned, operated and maintained by a golf club.
There are two varieties of this model that developers commonly incorporate in an
HOA’s Declaration of Covenants, Conditions and Restrictions (Declaration). Under
the first variety, members of the HOA are also mandatory members of the golf
club. As mandatory members of the golf club, they are required to pay a golf
club membership fee. Under the second variety, members of the HOA can
voluntarily opt-in to become members of the golf club, but golf club membership
is not a mandatory condition of owning a home in the community. From a sales
perspective, the voluntary model has traditionally been popular with developers
because it makes selling lots easier. The lots come with a right to opt-in for
golf club membership and pay the golf club membership fee, but there is no
requirement to do so. This article explores the tough decisions and legal
implications faced by Florida HOAs when their voluntary community golf clubs do
not generate enough income to cover the long-term costs of operating and
maintaining the golf course.
The supply of golf course communities has served a worthy purpose in Florida. It
satisfied the market demand of prospective home buyers that were looking for
convenient access to recreational sport activities, amenities (clubhouse, dining
facilities, etc.) and aesthetically enhanced communities. For many years, the
voluntary model resulted in a mutually beneficial financial relationship among
the developer, the HOA and the HOA members. The developer recouped its
investment through members of the HOA participating in the use of the golf
course, and the success of the golf course sustained property values in the
community. A community golf course benefits the entire community, although some
non-golfer homeowners choose not to recognize it. Published data establishes
that a profitable golf course favorably influences property values. However,
this correlation between a profitable golf course and increased property values
comes with consequences for homeowners when the golf course becomes a failing
business.
In recent years, homeowners and HOAs throughout Florida have experienced a rise
in golf courses failing in their communities. Some have attributed this, in
part, to market conditions, a decrease in the popularity of golf, age
restrictions in some golf course communities, and/or an array of other factors.
Ultimately, without a requirement in the Declaration that all members of an HOA
shall become members of the golf club and that they shall pay a golf club
membership fee, the income generated at voluntary golf clubs is frequently
inadequate to sustain the relatively high costs of operating and maintaining a
golf course. To further exacerbate the problem, additional capital eventually
becomes needed when golf course greens and bunkers need to be renovated and
rebuilt after years of use.
When faced with a failing golf course, some HOAs are taking control of their own
destinies. HOAs are purchasing golf courses, generating income by requiring
homeowners to make some level of mandatory contribution to the operation and
maintenance of the golf course, and contracting with a golf course management
company to provide highly specialized operation and maintenance services. This
process generally involves an amendment to the HOA Declaration that must be
approved by the HOA membership in accordance with requirements established in
the HOA governing documents. Some HOAs have even acquired golf courses through
passing amendments that annex the golf course to the HOAs common area, and then
HOA assessments collected for maintenance of the common area are used to help
maintain the golf course. Because each HOA and its governing documents are
different, and complex legal issues are involved, HOAs interested in acquiring a
community golf course should work closely with legal counsel to examine whether
golf course ownership is permissible and whether it is in the best interest of
their specific community.
HOA golf course ownership has not been without its share of controversy.
Requiring homeowners to fund a failing golf course can expose the HOA to
potential legal challenges from dissenting homeowners. There are various reasons
that homeowners may disagree with the requirement of contributing to the
operation and maintenance of a golf course. Some homeowners object to paying for
a golf course that they do not use. They argue that they did not agree to pay a
golf club membership fee when they purchased their home, and they claim they
would not have purchased their home if paying a golf club membership fee was a
condition of home ownership in the community. Some homeowners also reject the
notion that a mandatory golf club assessment is justified by the increased value
of owning property adjacent to a well-manicured golf course.
However, most Florida courts have taken a narrower focus when ruling on whether
an HOA can enforce an amendment to its Declaration that changes from voluntary
to mandatory golf club membership. Courts that have ruled against such
amendments have done so based on the legal principle that any amendments to an
HOA’s Declaration should be exercised in a “reasonable manner so as not to
destroy the general scheme or plan of the community.” This is founded on the
principle that the Declaration is a contract, and homeowners who purchased prior
to a mandatory golf course membership amendment rightfully believed at the time
of purchase that they would not be required to fund the golf course. In
anticipation of homeowner challenges, and to incorporate the considerations
raised by Florida’s courts, some HOAs have structured amendments to the
Declaration to make mandatory golf club membership applicable to future
homeowners only or to provide homeowners a golf course credit in the same amount
as the golf course membership fee. Although these approaches do not generate
income as effectively, some HOAs have attempted to minimize exposure to
litigation in this way.
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