Community’s Owners May Lose Promised Refunds for Golf Memberships

Shareholder Laura Manning-Hudson authored the firm’s latest Miami Herald “Real Estate Counselor” column. Her article, which is titled “Community’s Owners May Lose Promised Refunds for Golf Memberships,” focuses on a decision over the taking of owners’ golf membership buy-in equity funds for future renovations at the Hunters Run Country Club in Boynton Beach that has been making headlines and will be closely watched by many other Florida golf communities.  It reads:

 . . . The board of directors at the Hunters Run homeowners association recently reached a decision that has been met with questions and dissent from some members. To pay for needed renovations and improvements, the directors approved a measure to take the $49 million in equity funds set aside for refunds due to members of the club, some of which are as high as $32,000, that the members were promised to receive when they eventually sold their residences. The decision and the predictable dissent that it prompted from some members were the subject of recent articles in the Palm Beach Post and Golf Week magazine.

The articles state the association directors determined that the community needed the $49 million to pay for property improvements, otherwise it would need to impose a special assessment of approximately $30,000 per household. They note that petitions by dissenting owners have since been filed with the board, which has approved and initiated a referendum on the matter.

Members had been alerted that they had until Oct. 1 to sell their units and still recover part of their initiation fee, resulting in a glut of sellers: “Ten two-bedroom condominiums are currently listed for sale for less than $5,000. One is for sale for $1,000 with a credit of $10,000 to a buyer who can close by Oct. 1. Prices of condo units have been repeatedly slashed to attract buyers,” reads the article in Golf Week.

The article also notes that the initiation fee for anyone who buys a residence at Hunters Run has been significantly increased over the years to its current level of $105,000, and there is no longer any refund being offered once units are sold. The raising of the buy-in fee and cessation of the refund offer for new buyers have become common practices for country club communities with mandatory memberships like Hunters Run, however the taking of the equity funds from older members is unusual.

“This was not an easy decision or one that the board took lightly,” the board wrote in a recent letter to homeowners. “Every member of the board will lose our equity as well. The board viewed the decision as necessary for the future of Hunters Run.”

The directors concluded that eliminating the refundable portion of the initial buy-ins was the right thing to do, adding: “For years, Hunters Run has toiled over the problem of how to fund our future and for years, the can has been kicked down the road. The board does not believe that members planning to continue to stay should have to pay those who choose to leave the community.”

A written statement by the board president to the Palm Beach Post states the community conducted a reserve study to determine replacement costs for its assets. The study confirmed the assets needed to be replaced, and the decision was made that the option of retaining funds from initiation fees was better than imposing special assessments on members.

It is also important to bear in mind the costs for maintenance and renovations for such communities. First started in 1979, Hunters Run has three 18-hole golf courses, 18 tennis courts, 12 pickleball courts, a fitness center, club spa and seven restaurants. Renovation projects for such amenities cost a great deal, and apparently the community is planning some major improvements.

While the board’s statements may have garnered support for the move in lieu of a special assessment, the referendum could spur litigation from owners. With such reallocations of members’ equity funds, there are obvious questions over the contractual rights of the parties stemming from members’ purchase agreements with the developer and country club.

Depending on the provisions in those sales contracts as well as the association’s governing documents, the impacted members may argue that the reallocation of their equity funds represents an illegitimate overreach by the association. However, based on past experience, the governing documents for such communities typically provide a great deal of leeway for the association over membership initiation fees and their ultimate disposition. . .

Laura concludes her article by noting that for such sprawling country club communities located throughout Florida, this decision by the Hunters Run HOA board of directors may well be a harbinger of things to come. She writes that the costs for their ongoing maintenance and major property improvements are not expected to diminish, and owners’ equity funds are likely to be obvious targets for such endeavors.

Our firm salutes Laura for sharing her insights into this decision by the golf community’s board of directors with the readers of the Miami Herald.  We write about important matters for community associations in this blog and our Herald column, which appears every two weeks on Sundays, and we encourage association directors, members and property managers to click here and subscribe to our newsletter to receive our future articles.