Fourth District Court of Appeal Affirms Ruling Invalidating Amendments to Master Declaration of Covenants, Conditions and Restrictions Governing the Ironhorse Community. With the economy the way it is, country clubs are losing members while costs continue to rise. The costs associated with maintaining and operating a golf course and related club facilities, including the clubhouse, restaurant, etc., as well as the staff salaries and administrative expenses are enormous. Over the past several years country clubs have relied on homeowners in the community(ies) to fund these expenses. While all owners are automatically members of the homeowners association, typically membership in the county club was not mandatory. The Declarations of Covenants and Restrictions frequently made membership voluntary. In order to capture new memberships (and additional sources of revenue) several communities amended their governing documents to require all homeowners to join the country club (with the attendant responsibility to pay dues, initiation fees, restaurant charges, etc.). Others adopted amendments require all new purchasers to join the club. Many of these amendments resulted in litigation. The Hamlet community reportedly resolved several lawsuits by waiving membership requirements and fees for homeowners that participated in the lawsuit. Similar settlements were reached in connection with a case against the Willoughby Golf Club after the trial court ruled that the amendments were invalid. Appeals were pending in two other cases involving challenges to amendments creating mandatory memberships – that is until the court affirmed the ruling in the Ironhorse case this week. The trial court ruling in the Ironhorse case found that amendments imposing mandatory membership in the club, the levy of membership fees and dues were invalid and unenforceable. It said:
[Homeowners] who had once justifiably relied upon the recorded covenants and restrictions, were now required to obtain membership and pay more dues and fees in the form of common assessments to Association, originally set at $2,500.
The Court also found:
An amendment, or a covenant … is unreasonable as a matter of law if it destroys or substantially impairs the scheme of the development. Since this Court hereby finds that mandatory membership in the Club destroys and impairs the scheme of the Ironhorse community as originally intended by the developer and relied upon by the [homeowners], then no question need be reserved for the trier of fact. While the developer may have has its best intentions in providing for amenities and recreational facilities, such considerations must not, and should not, trump an individual’s right to rely on previously recorded documents and promises as was done here.
A Motion for Reconsideration and Rehearing of a Final Judgment entered against the Aberdeen Property Owners Association, Inc. is still pending. In that case a sub-association (Bristol Lakes) challenged an amendment requiring new purchasers of homes to join the country club. Aberdeen sought to disqualify the trial court judge after entry of the Final Judgment and recently obtained that relief from the appellate court. The Ironhorse ruling creates questions about the enforceability of amendments adopted by other communities. These amendments (and actions taken as a result of the amendments) may become a source of potential exposure to liability. I encourage community leaders to undertake a comprehensive analysis of potential claims with Association counsel. Perhaps a second opinion from ‘fresh eyes’ is worthwhile as well. We will report on the Aberdeen case when more information becomes available – as well as any developments in the Ironhorse case. Although the Fourth DCA issued its ruling, there are still opportunities for rehearing and/or other actions.