Just as a golfer warns of a pending shot, yesterday the Fourth District Court of Appeal warned golf course and other Florida property owners to beware when seeking to dissolve covenants based on “changed circumstances” such as unprofitability, addressing the threshold for cancelling a covenant, the application of the Doctrine of Unreasonable Restraints on Alienation to an automatically renewing covenant, and when does the statute of limitations run on a claim to cancel a covenant. Victorville West LP v. The Inverrary Ass’n Inc., Case No. 4D16-2266 (4th DCA August 23, 2017)
THE ISSUE & POSTURE.
Though the Victorville opinion addressed three distinct matters, the court defined the issue, what likely for many is the main issue, as:
Whether a property owner may cancel a restrictive covenant when that covenant has become financially onerous.
Following a non-jury trial, Victorville’s claim was found to be time-barred, that the covenant remained beneficial to the surrounding community, and the covenant would not be vacated.
In 1971, the Inverrary golf course was encumbered by a restrictive covenant requiring the course to “be used solely for recreational purposes.…” Perhaps with wishful thinking, the covenant limited the club roster, if there were 1,500 golf memberships, then non-Inverrary residents could not be admitted as members. The covenant was binding for twenty-five years, followed by ten year successive renewals, unless amended, modified or terminated by the owners of two-thirds of the land.
In 2006, Victorville purchased the golf course “SUBJECT TO… all covenants… listed in the Public Records of Broward County, Florida.” [Recall in twenty-twenty hindsight that 2006 was an auspicious year to purchase Southeast Florida real property.] Membership “significantly” dropped after the purchase.
The Inverrary Association refused to cooperate with Victorville’s request for a vote to change the covenant. In perhaps a classic South Florida response, community members:
Indicated they like 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.
It appears the community wanted the golf course, but did not want to pay for it!
The appellate court’s test to cancel the restrictive covenant is summarized as:
- Whether the original intent of the parties can be carried out despite alleged material changed circumstances; or,
- Whether changed conditions frustrated the object of the covenant without fault or neglect on the party seeking to be relieved.
See Essenson v. Polo Assocs., 688 So. 2d 981, 984 (Fla. 2nd DCA 1997). Reciting the trial court’s factual findings, the covenant continues to benefit the dominant estate which was the residential properties. This benefit was preserving the character the community including the pleasant view.
Despite Victorville’s argument, the covenant’s text did not show an intent for the course to be profitable. Citing Essenson, cancellation should not occur just to accommodate the best or most profitable use of property. The trial court’s decision on this issue was affirmed.
Restraint on Alienation.
The covenant was not an invalid restraint on alienation. The covenant’s duration was not perpetual because of the ability to terminate by the two-thirds vote. Further, there is no restriction on “the type of alienation precluded” or “the size of the class precluded from taking.” The trial court’s decision on this issue was affirmed.
A claim begins to run when the action may be brought. The claim was not present when the covenant was created, or upon Victorville’s purchase, clarifying the court’s holding in Harris v. Aberdeen POA, 135 So. 3d 365, 368 (Fla. 4th DCA 2014). Not until “a substantial change in circumstances” occurred would the action accrue and the statute of limitations start to run. The trial court’s statute of limitations holding was reversed; however, that did not provide effective relief to Victorville in light of the affirmances on the first two issues.
Cancellation hung on the specific text of the covenant. The covenant was not conditioned on profitability. Instead, the condition for termination was an owner vote. Without expressly saying, the District Court of Appeal would not re-wrtie the covenant to save an investor from what ultimately became a bad deal.
Reinforcing this conclusion is the Court’s determination that “nothing in the covenant shows that its intent is for the golf course to be a profitable enterprise.” That may be so, but assuming that the golf course was a for-profit effort, this quote may cause consternation regarding what some would say is an “obvious” assumption. The Court may be signaling that if it is important, then write it down.
The decision, also without expressly saying, shifted the focus from the servient estate, the restricted party, to those the covenant was intended to benefit, the “dominant estate,” in this case the residential owners. The dominant estate just wanted their view and ambiance.
In the long run, communities are experiencing their golf courses shuttering and literally becoming brown fields. Whatever the desire on ambiance, in the midst of all this, whatever are your prejudices for or against owners, developers and golf courses, there is the ultimate question of how does a golf course remain green and manicured if there are not enough paying members/players funding maintenance. Covenants with strict provisions may force owner operators and their lenders to depreciate the valuation of their investments or close, and perhaps deed the property to their lender. Of course, if there are covenants in the drafting stage, it is anticipated that the fine print will become more friendly to operators. Finally, it is noted that in many golf course communities the covenants have terminated by the passage of time and what happens to the green space shifts to a zoning forum, a largely political matter for county or municipal governing boards.
Remember all eagles, no bogeys.
Michael J. Gelfand
Real Property, Probate and Trust Law Section of The Florida Bar
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