FOCUS TODAY - September 2002
Mandatory Club Membership
Editor’s note: Many Florida clubs associated with planned golf communities that have given homeowners a choice of whether to belong to the club are now pushing for mandatory membership instead. Bob Patasnick of McGladrey & Pullen, the accounting firm with the most Florida clubs as clients, has called the move toward mandatory membership “the single most identifiable trend in the Florida club industry.”
Bernard R. Baker III, an attorney who specializes in the Florida club market, recently provided an overview of why and how this is happening, plus the benefits and risks.
Why is this happening? In Florida many golf communities have been around for 20 or more years. As the owners in those communities have aged, their needs and desires have changed. In some cases, people who were extremely active golfers and heavy users of the club when they originally bought their real estate and memberships are no longer as active and are dropping out of (or would like to drop out of) the club. Or they may not be supporting the club financially in other ways to the extent they did 20 years ago.
If the club wants to keep dues and fees at reasonable levels and keep its membership up, it has several choices:
a) Try to change facilities and programs to encourage greater use by the members;
b) Charge higher prices where possible and/or reduce expenses;
c) Go outside the community and recruit new members, or
d) Impose a mandatory membership requirement for property owners.
Benefits. With mandatory membership for property owners, you have a ready-made market for memberships among all residents of the community, all of whom contribute to the support of the club. In addition to financial support, membership in the club fosters greater social interaction among the residents of the community and therefore creates a more “cohesive” community, with a deeper sense of shared values and community than might otherwise be the case.
Risks.
1) The market for real estate within the community may be narrowed, because there will be a certain number of people who are interested in a particular house but are not interested in belonging to the club and who, therefore, may buy elsewhere.
2) Property prices may be driven down because property buyers may perceive the cost of membership as an additional cost of ownership, requiring reduced purchase prices for the residences.
3) Imposition of the requirement may create controversy, turmoil and bad feeling within the community.
4) The risk of litigation is significant. And, litigation not only costs money and creates dissension, but the publicity may negatively affect property sales.
5) The following legal issues must be addressed:
a) Unless the club or homeowners association is prepared to acquire the seller’s property or provide a substitute buyer within a short time if the buyer is not approved for membership in the club, the requirement of mandatory membership may be unenforceable.
b) If the requirement is imposed upon all current homeowners, it may be unenforceable. This is usually dealt with by “grandfathering” the existing non-member homeowners and imposing the requirement only on future purchasers of the residences.
c) If the club has operated as a “truly private” club that is simply located within a residential community, the requirement that all property owners become members of the club may reduce the club’s ability to be selective in its membership by triggering the applicability of the anti-discrimination laws.
d) If everyone is required to belong to the club and, particularly, if the club has lien rights in the event that club bills are not paid, the club itself may become a homeowners’ or property owners’ association under local law and required to comply with the laws governing homeowners or property owners’ associations.
e) A careful examination of the club’s bylaws and the community’s rules and restrictions will be required in order to ascertain the precise steps that must be taken to implement such a program, which may require member and/or homeowner votes.
6) If the proposal is thought through and implemented correctly, with a carefully structured marketing campaign within the community, appropriate grandfathering of properties owned by non-members, and careful analysis of the legal risks, the risks mentioned above can be reduced significantly.
History. Generally speaking, where mandatory membership has been imposed, it is described as a success by clubs that have done it. However, many of these requirements have been imposed only within the past few years and in a generally strong real estate sales environment. In many other cases, communities have looked carefully at this option and have decided that the potential for turmoil and litigation is too great, and they need to solve their problems by upgrading and modernizing their facilities and their memberships to appeal to a broader audience of prospective members, both within and outside the community.
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