By Toby Snively, Esq. of Law Offices of John L. Di Masi, P.A.
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 HOA’s when their voluntary community golf clubs do not generate enough income to cover the long-term costs of operating and maintaining a 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 amongst 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 HOA’s 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 HOA’s are taking control of their own destinies. HOA’s 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 HOA’s have even acquired golf courses through passing amendments that annex the golf course to the HOA’s 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, HOA’s 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 HOA’s 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 HOA’s have attempted to minimize exposure to litigation in this way.
HOA’s and homeowners in golf course communities have a vested interest in ensuring that sufficient revenue is generated for the operation and maintenance of the golf course. However, acquiring a golf course and implementing a plan to help sustain the golf course can be a risky venture for an HOA from a financial and legal perspective. The proposition should be carefully evaluated on a case-by-case basis as Florida’s HOA’s continue to make tough decisions when faced with a failing golf course.