Luis Salazar (J. Albert Diaz)
Add golf course dues, like death and taxes, to the list of inescapable things.
U.S. Bankruptcy Judge Paul Hyman in West Palm Beach ruled against a homeowner association arguing the real estate crash and a Chapter 7 bankruptcy sale exempted homeowners from paying golf club dues to the buyer of their luxury development in Port St. Lucie.
“What happened is a clear statement by a bankruptcy court that dues … can be enforced,” said attorney Luis Salazar, a partner at Miami-based Salazar Jackson. “With the economic downturn, a lot of owners decided not to pay.”
A declaratory judgment issued by Hyman on April 14 turned the tables in favor of the buyer, paving the way for Salazar’s client, West Coast Investors LLC, to collect $17 million in unpaid membership dues and fees on the 36-hole golf club at the Tesoro Club.
Wellington-based West Coast Investors paid $10.99 million in 2009 for the private membership club and residential community with spa, tennis courts and croquet set against a landscape of scrub oak and loblolly trees.
It argued it had a right to collect dues from lot owners in the Tesoro community, who in turned claimed they were no longer obligated to join the golf club.
Hyman sided with the investor in Ginn-LA St. Lucie and West Coast Investors v. Tesoro Preserve Owners Association et al, ruling the buyer could purchase and enforce the golf club membership requirements as part of the bankruptcy sale.
“It’s going to give certainty to investors in communities like this,” Salazar said. “If you’re looking to buy out of bankruptcy or do any form of restructuring, this decision says very forcefully that you can acquire the rights under that declaration to require—and force if necessary—lot owners to become members and continue to pay.”
When real estate deals involve membership dues, that revenue figures heavily in determining future values, said forensic accountant Barry Mukamal, a veteran bankruptcy trustee who is not involved in the case. These deals often include more than just physical property, but also rights and interests as well as the development’s future value.
In West Coast’s case, it included a preserve master declaration that carried a mandatory membership clause for residents in a part of the development called the mainland parcel. The declaration allowed for liens to collect delinquent membership charges.
“The lot owners unilaterally changed the declaration,” said Mukamal, co-managing partner in KapilaMukamal LLP’s Miami office. “They attempted to eliminate their obligation to pay the dues, modify the dues and change the rights of the buyer of the property.”
Attorneys say the declaratory judgment does more than pave the way for Tesoro Golf Club to collect $17 million in unpaid membership dues and fees and will encourage investors to acquire and reposition distressed real estate.
The ruling protect investors who purchase golf courses and other developments and need to be able to enforce the dues collection rights to maintain key revenue streams.
“What this opinion does is make it clear that these restrictive covenants and covenants that require membership are enforceable by a buyer of these assets,” Salazar said.