According to golf industry experts, the number of golf courses in the United States has been steadily declining since the early 2000s. With fewer people taking up the sport, golf course operators face declining revenues and are frequently approached by homebuilders looking to redevelop underperforming courses for residential use.
However, the course closure trend may be slowing as pandemic-related restrictions spurred a noticeable uptick in the number of new golfers in 2021. Consequently, the coming years may present opportunities for new golf-oriented residential development in addition to redevelopment of failing courses for residential use.
As demand for housing continues to surge, several homebuilders in the Pacific Northwest have sought to redevelop underperforming golf courses. Fearing the loss of amenities and more residential density, homeowners living adjacent to golf courses frequently challenge redevelopment efforts. The Oregon Court of Appeals’ recent decision in Creekside Homeowners Association Inc. v. Creekside Golf Course LLC highlights the potential pitfalls in redevelopment of underperforming courses and provides useful guidance for homebuilders in the context of both redevelopment and new development of golf-oriented residential communities.
The facts of the Creekside case are straightforward. In 1992, the original developer recorded covenants, conditions and restrictions (CC&Rs) for the “Golf Course Estates at Creekside,” which consisted of a residential development surrounding a golf course. In 2015, after prolonged financial struggles, the golf course operator, Creekside Golf Course LLC, proposed either selling the golf course to the homeowners association (HOA) for residential development or imposing a monthly assessment on HOA members to support the golf course.
The HOA declined the operator’s proposals, and the operator then announced plans to subdivide the entire golf course for residential redevelopment. The HOA promptly filed a lawsuit, seeking a declaration that the CC&Rs required the operator to maintain a golf course in perpetuity. Because the operator and its predecessors marketed homes as part of a “golf course community,” the HOA also sought a declaration that it was the beneficiary of an equitable servitude by estoppel which, to avoid injustice, would require the operator to maintain the golf course indefinitely due to HOA members reasonably relying on representations that the golf course would exist in perpetuity.
At trial, the Marion County Circuit Court found that the CC&Rs did not require the perpetual operation of a golf course and that, because the CC&Rs were clear and there was no reasonable reliance on representations of the developer, an equitable servitude by estoppel did not apply. On appeal, the Oregon Court of Appeals affirmed the trial court’s decision.
The appellate court, in its ruling, emphasized that the disputed provisions of the CC&Rs must be read in the context of the CC&Rs as a whole. If the CC&Rs’ meaning is clear, the analysis ends. Unlike prior cases, like Mountain High Homeowners Association v. J.L. Ward Co., which imposed an equitable servitude by estoppel because the CC&Rs did not specifically allow the owner to close the golf course, the court reviewing Creekside focused solely on the plain language of the CC&Rs.
The Creekside CC&Rs specified that the HOA has “no interest in” the golf course and that the property bound by the CC&Rs “does not include the golf course.” The CC&Rs also included provisions granting the operator broad rights to modify, expand, contract and discontinue the course. Consistent with the CC&Rs, a related easement also absolved the operator of any obligation to provide a golf course. Finally, the court found the HOA had failed to present any evidence that the developer of the residential community represented that the golf course would exist in perpetuity or some other duration, and the golf course operator lacked notice of any such representation. These facts, taken together, were fatal to the HOA’s request for an equitable servitude by estoppel.
The Creekside case provides a clear road map for developers of golf-oriented residential communities and developers converting existing courses to residential use. In new golf-oriented developments, Creekside instructs developers to carefully craft CC&Rs and other governing legal documents to remove golf course property from HOA control. Creekside suggests this may be accomplished by explicitly stating that golf property is separate from HOA property and that golf course operators have the absolute right to cease golf course operations at any time. Further, marketing materials and practices should be established that specifically advise homebuyers that golf course amenities are not guaranteed to exist in perpetuity, and homebuyers should be given copies of applicable CC&Rs.
For redevelopment of golf courses for residential use, Creekside highlights the need for extensive analysis of existing CC&Rs and dictates that developers conduct more extensive due diligence to understand historical marketing practices that might support an equitable servitude claim. Where CC&Rs and historical practices are ambiguous or pro-HOA, developers may need to reach negotiated resolutions with HOAs to preserve golf course operations for limited time periods, and may ultimately need to pass on redevelopment opportunities to avoid the expense and uncertainty of litigation.
This article summarizes aspects of the law and does not constitute legal advice. For legal advice for your situation, you should contact an attorney.
Column first appeared in the Oregon Daily Journal of Commerce on February 24, 2022.
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