Golf course communities are a fact of life in south Florida. But what happens when the course becomes too expensive to maintain? Sometimes, what started out as a voluntary club membership becomes mandatory for new owners. This can have obvious negative effects on sales due to the added expenses of the mandatory club membership. To avoid that consequence, more than one golf course community has sold memberships to non-association members. Others sell the golf course to a developer for space to build new homes. This can have multiple positive effects on an association’s cash flow. It eliminates the ever increasing costs of maintaining the golf course, provides new members who will be paying assessments, and results in a huge cash infusion to the association when the sale closes. But, it’s not all a panacea as there are significant hurdles that must be first overcome. Avid golf club members might launch a legal fight to keep their club, despite the economic hurdles. Local zoning and development codes may have certain restrictions. Golf course communities may also have restrictive covenants preventing other uses for the golf course.
The average 18-hole golf course comprises at least 74 acres and many modern courses are built on 150 acres. At 5 homes per acre, this means the average 74 acre course can be used to build 370 new single family homes not including other infrastructure needs such as new roads, green-space, and retention ponds, etc. That said, it does not take a rocket scientist to see the profits that can be made.
In a recent case Victorville West Limited Partnership v. The Inverrary Association, Inc., decided August 23, 2017 by Florida’s Fourth District Court of Appeal, the developer, Victorville, sought to cancel a restrictive covenant because the golf course was no longer profitable. Victorville wanted to allow non-association members into the golf club. The restrictive covenant in force since 1971, provided that,
“The [Golf Course] shall henceforth be used solely for recreational purposes, including all sports as defined herein, and for the Facilities and amenities appurtenant thereto, such as clubhouses and recreational, maintenance, and storage facilities and equipment. For the purposes of this Declaration, the term “sports” shall be deemed to include, by way of illustration and not in limitation thereof, the following: Golf, tennis, horseback riding, swimming and all such other recreational activities as may be appropriate and in keeping with the overall development of Inverrary․ … Developer agrees that… it will not at any such time offer, sell, or admit to golf membership any persons or families not then bona fide residents of Inverrary.”
In 2006, Victorville purchased the golf course “subject to all covenants listed in the Public Records of Broward County, Florida” which included this covenant. It asked the Association to hold a membership vote to cancel the covenant. The Association refused because, even though its members were not purchasing sufficient club memberships, its members liked the golf course, even if they did not have a membership, because it provided a tranquil view, prevented overcrowding, and preserved the nature of the community.
In 2012, Victorville filed a lawsuit against the Association and argued that the covenant was an economic hardship. The trial court found that Victorville’s claim was time-barred because the statute of limitations began to run when it purchased the golf course and it did not bring its claim within the five-year statutory limit. The trial court also held that, even if the statute of limitations had not run, Victorville was not entitled to vacate the restrictive covenant because the covenant remained beneficial to the surrounding community. As a result, Victorville appealed.
On appeal, Victorville argued that the trial court should have nullified the restrictive covenant due to a substantial change in circumstances that prevented the covenant’s original purpose from being carried out and the covenant was an unlawful restraint on alienation (meaningful and unlawful restraint on the transfer of real property). The appellate court reviewed the trial court’s findings of fact under what is called “the clearly erroneous standard of review” meaning that their review was “de novo”. A de novo review allows the appellate court to review all of the evidence anew and substitute its opinion for that of the trial court.
The appellate court noted that, “in an action to cancel a restrictive covenant the test is whether or not the covenant is valid on the basis that the original intention of the parties can be carried out despite alleged materially changed conditions or, on the other hand, whether the covenant is invalid because changed conditions have frustrated the object of the covenant without fault or neglect on the part of the party who seeks to be relieved from the restrictions…although few Inverrary residents have memberships at the golf course, the golf course preserves the character of the community and provides residents with a pleasant view. These are reasonable objectives of a restrictive covenant.” Therefore, the appellate court held that, “even if the golf course is failing financially, the covenant must be enforced because it remains a substantial value to the surrounding residences, the dominant estates.”
The appellate court noted that nothing in the covenant reflected an “intent for the golf course to be a profitable enterprise…. Victorville’s financial hardships do not support cancellation of the covenant because ‘the law does not permit cancellation of property restrictions for the purpose of accommodating the best or most profitable use of a particular piece of property affected by the restriction.’” In citing to another case, the appellate court also noted that “the law does not permit cancellation of property restrictions for the purpose of accommodating the best or most profitable use of a particular piece of property affected by the restriction.”
Victorville argued that the covenant was akin to a perpetual covenant because the two-thirds vote necessary to revoke the covenant could never be obtained. The appellate court found that “the duration of the covenant is significant though not perpetual because the covenant may be removed by a two-thirds vote of surrounding homeowners.”
The appellate court did, however, differ with the trial court’s opinion that the five-year statute of limitations had run and, in fact, found that this part of the trial court’s opinion was “error.” The appellate court did not agree that the statute of limitations began to run when Victorville acquired the property. Rather, the appellate court explained that “the statute of limitations begins to run when the action may be brought…. for the statute of limitations to have begun to run when Victorville purchased the golf course, a substantial change in circumstances would have had to have taken place before Victorville purchased the property.”
To recap, while the appellate court disagreed with the trial court’s statute of limitations rational, it still agreed with the trial court’s outcome because the covenant at issue remained a substantial benefit to the surrounding homeowners and was not an unlawful restraint on alienation.