Every Golf Community Resident Needs to Read This - then Write Me
Article Courtesy of The Daily Business Review. By Toby Snively. Published April 13, 2020
NOTE: Comments added in bold italics.
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. Golf course lots would sell from 20% to 50% more than non-golf course lots. 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 (example: Peridia Country Club, Bradenton, Florida).
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. In this example, developers, bankers, and lenders were misguided by data from sources like the National Golf Foundation indicating golf participation rates on a national basis that were not necessarily applicable locally. Hence, there were not enough golf players to support 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 sports 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 (Turkey Creek Golf Club, Alachua, Florida, Walden Lake Golf Club, Plant City, Florida, Indigo Lakes Golf Club, Daytona, Florida). 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. The latter issue is why you need Kahn and his associates at Golf Rescues.com, Bill McIntosh, and Cameron White. Our 150-years of combined experience in golf can sort out the golf course including clubhouses, kitchens, swimming pools, tennis courts, fitness rooms, maintenance facilities, and equipment. Your HOA surely won't know about expensive deferred issues from irrigation systems, to clubhouse roofs, to air conditioning units without proper analysis. For instance, a golf course acquired for only $1.2 million will easily need over $2 million in additional capital for refurbishes and replacements.
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. Associate, Cameron White, a Florida attorney, specializes in Residential Golf Community Documentation. 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 (rightfully) 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 homeownership in the community. Some homeowners also reject the notion that a mandatory golf club assessment (contact, firstname.lastname@example.org, us to review an assessment to learn how justified it may be) 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. Mike Kahn assisted a separate group of homeowners that was formed in an Arizona community, Sunland Springs in Mesa, AZ. With Kahn's analysis and evaluation, the group acquired the golf course successfully and sensibly.
CONSEQUENCES OF DOING NOTHING!
Don't just sit there and do nothing. Look at what happened at Walden Lake in Plant City, Florida. The HOA boards kept their heads in the sand for over 20-years. Subsequently, they allowed a truly beautiful community centered by a golf course to turn into a completely disgusting unsightly debacle. One homeowner lost 50% of the value of his residence to move away.