Court Rules No Mulligans for Golf Course Investors
The struggles of the golf industry in the past decade are well chronicled, particularly in Florida where a large number of courses, built as amenities for or in conjunction with surrounding residential communities, has been negatively impacted by the economic downturn, playing habits, and perhaps an over saturation of the market. Couple those external factors with the significant cost of course maintenance and operations, and it is easy to see why overgrown fairways and closed clubhouses are an increasing sight in the sunshine state. For some developers, these defunct courses presented a unique opportunity.
However, an interesting new case out of south Florida just added a new wrinkle for investor owners who purchase courses surrounding communities in the hopes of developing new housing. Victorville West LP v. The Inverrary Ass’n Inc., Case No. 4D16-2266 (4th DCA August 23, 2017) also gives us a window into the arguments for owners living within those communities to prevent said courses from being converted into new developments.
The case involves a Broward County golf course property that was originally developed in 1971 with a restrictive covenant prohibiting the property from being used for any purpose other than golf and recreational activities. The restrictive covenant specifically provided that it was for the benefit of the owners of the surrounding community, and was to last for a term of twenty-five (25) years from the date the restriction was recorded, with automatic ten (10) year renewal periods. However, at the expiration of any term, two-thirds (2/3) of the community owners could vote to terminate the restriction.
In 2006 (just prior to the recession), Victorville purchased the golf course property, presumably with hopes of running a profitable golf course operation. However, shortly after its purchase, memberships at the golf course significantly dropped, leaving the course largely unprofitable. In response, Victorville asked the community association to hold a vote to cancel the restrictive covenant to allow the property to be used for other purposes. The community association predictably declined to do so. When Victorville sought to hold its own meeting of the community’s owners, barely 2 percent of the membership attended.
Based upon its failure to obtain approval from the owners, Victorville filed suit to terminate the restrictive covenants. It argued the course could no longer be profitable because of significantly changed economic circumstances, and requiring the approval of 2/3 of the owners to terminate the restrictive covenant was essentially impossible. Further, they pointed to the fact that very few of the owners were actually paying members of the golf course. The trial court ruled in favor of Victorville and terminated the restriction.
On appeal, the District Court held that there was nothing within the language of the restriction which conditioned the enforceability of the restriction on the golf course being profitable. Despite the unfortunate changed circumstance for Victorville, the covenant remained beneficial to the surrounding community as intended in the text of the restriction, and therefore cannot be terminated. Indeed, the owners of the community indicated that even if they did not purchase a membership or play golf, the course prevented overcrowding and preserved the nature of the community. Being that these original objectives of the restriction could still be carried out, the court held termination should not occur just to accommodate the best or most profitable use of property.
As those involved with community association documents are well aware, the court also held that requiring a 2/3 approval of the owners to cancel the restriction, while practically difficult, is a fully enforceable and valid limitation on the use of the property.
The main takeaway from this case is that the specific language of the actual restrictions in the governing documents is critically important, whether you are the purchaser of a golf course property or a home within a community. Even if economic circumstances change negatively impacting the intended use of the property, if the restrictions still provide an intended benefit to others within the community, they will likely remain enforceable.
While this may seem like a victory for the community association and its members, this is a cautionary tale for owners, as well. If the course is no longer profitable, and approval is not granted to authorize a different use of the property, residents may see the greenspace views from their own property headed for the rough. Without generating profits, golf course properties can quickly turn from a community asset, to an eyesore affecting the property values of surrounding owners.