Board spending millions without member vote

Our Board of Dirctors is planning an expansion (renovation) of our (10-year-old) clubhouse at a cost of $3 million, without allowing members to have any input or vote on the matter. We will lose our pool tables and computer room in the process. Additionally, the board has assured us that their attorney told them they could do anything they wanted, and cited as example: purchasing a neighboring (bankrupt) golfcourse. Upon request, the club GM admits that they did not get a legal opinion.

Our bylaws do not address any spending limits, and the board relies on this for their authority:

6. Powers and Duties of the Board.

6.1. Powers. The board shall, subject to the limitations and reservations set forth in the Declaration and Articles, have the powers reasonably necessary to manage, operate, maintain, and discharge the duties of (the) Association, including, but not limited to, to cause the Association to do the following:

6.1.1. General. Exercise all powers, duties, and authority vested in or delegated to Association by Law and in these by-laws, etc., including, without limitation, adopt budgets, levy Assessments, and enter into contracts with service providers.

I say this is standard language for the boars to keep and maintain what we have - but in no way authorizes them to spend millions on capital improvements, buy a golf course, or build a Hyatt Regency on our common grounds.

What say you?

John:

Where is the money coming from? They may or may not have the authority based on the funding source.

While they probably have the power to spend the money for the renovations, most CC&R's that I've seen limit the amount the Board can use for capital improvements which the golf course would be.

Hi Carol:

LOL … and that section in Chapter 720 makes references to potential member approval required.

720.31 Recreational leaseholds; right to acquire; escalation clauses.—

(6) An association may enter into agreements to acquire leaseholds, memberships, and other possessory or use interests in lands or facilities, including, but not limited to, country clubs, golf courses, marinas, submerged land, parking areas, conservation areas, and other recreational facilities. An association may enter into such agreements regardless of whether the lands or facilities are contiguous to the lands of the community or whether such lands or facilities are intended to provide enjoyment, recreation, or other use or benefit to the owners. All leaseholds, memberships, and other possessory or use interests existing or created at the time of recording the declaration must be stated and fully described in the declaration. Subsequent to recording the declaration, agreements acquiring leaseholds, memberships, or other possessory or use interests not entered into within 12 months after recording the declaration may be entered into only if authorized by the declaration as a material alteration or substantial addition to the common areas or association property. If the declaration is silent, any such transaction requires the approval of 75 percent of the total voting interests of the association. The declaration may provide that the rental, membership fees, operations, replacements, or other expenses are common expenses; impose covenants and restrictions concerning their use; and contain other provisions not inconsistent with this subsection. An association exercising its rights under this subsection may join with other associations that are part of the same development or with a master association responsible for the enforcement of shared covenants, conditions, and restrictions in carrying out the intent of this subsection. This subsection is intended to clarify law in existence before July 1, 2010.

yes, Janet............the potential membership approval was the reason I posted it. I'm just not as savy about bolding things. LOL

The money is coming from financing through a bank - 15 years, 5%. To be paid from our monthly maintenance. A fancy name for an assessment

I personally don't like the idea of borrowing money for something like this. The only reason I have seen for borrowing money was for needed maintenance and this money was paid back when we could cash in our cds. Since I wasn't on the Board at the time I am assuming we paid ourselves back.

Is this a non profit or for profit HOA? That could make a difference. Our HOA had an established rule of anything over $100 3 bids had to be taken and Board approval. The contractors had to be licensed and insured. It was a policy I established and part of Standard of Operations. However, without establishing that then the board may have been able to spend the money without majority membership. I'd say making sure to establish this policy for the future would be at hand.

As for the $3 Million dollar upgrade itself I would need more details. If it's for re investment purposes for the purchase to the golf club then that is different story. It's a "Build it they will come" scenerio. It may be an attempt to keep the investment profitable and bringing in income. It loses income or profitability your membership could be forced to pay for that loss instead of an upgrade.

And thank you too - for the highlights

The restaurant operation currently loses $500,000 per year and the board has made it clear that this is "an amenity" and intends to do nothing about it

We are a 617 not-for-profit Florida corporation. All owners have Social Membership. 2/3 of the members also have Golf Membership. The golf members elect their own committee to run golf. The golf members paid for the golf course renovations. The Board of Directors is over both groups and has the final vote on everything.

John

This is not the first time I have seen issues with an HOA and a clubhouse/golf course. Been there, done that.

Where the HOA (175 homeowners) owned the clubhouse/golf course (common asset) and each homeowner was assessed (a one time charge) $2,000.00 each for clubhouse and golf course remodeling. Now of the 175 homeowners, all were mandatory social members (by the HOA Bylaws) of the clubhouse but only 75 or so were golf members. They also had non-homeowner club members.

The assessment was legally challenged by a group of homeowners. It took well over a year but the courts ruled that while one (the plantiffs) could say the Bylaws might have "forced" all homeowners to be club members, the fact was that each homeowner had signed and agreed to such thus it was legal.

The classic arguements will arise between those that view the HOA as a golf community and that is why they live/belong there versus the non-golfers especially those that are forced to be social members when they may well want nothing at all to do with the club.

One common arguement is in many cases if not for the golf course the HOA might be nothing more then an also ran HOA. The club I mentioned had a living example. At the same time the homes were built on the course, a similar complex was built some 3 miles away. Some 10 years later the homes on the course sold for over 30% more then the homes not on the golf course. This was attributed to the golf course/open space.

An aside. 6 of the 7 elected HOA BOD Members were also golf members so basically the HOA golf club members controlled the HOA BOD. The golf club also had its own BOD elected by its golf club members but one had to be a full golfing member to vote for their BOD, so social only members did not get to vote.

There is a complex and symbiotic relationsip as ones amenities get large and complex (like a golf course) especially if they also take in outside members.

The situation happening at your place is quite common and I assure you, not all will like the outcome.

Hi John:

If you fall under Chapter 720 of the state statutes then you may want to review the following section and see if they are abiding by the budget requirements. Reserve accounts are generally set in FL by either developer or the members and meant to avoid special assessments or other manipulation to pay for the expenses. The following is stated in part:

http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&Search_String=&URL=0700-0799/0720/Sections/0720.303.html

(6) BUDGETS.—

(b) In addition to annual operating expenses, the budget may include reserve accounts for capital expenditures and deferred maintenance for which the association is responsible. If reserve accounts are not established pursuant to paragraph (d), funding of such reserves is limited to the extent that the governing documents limit increases in assessments, including reserves. If the budget of the association includes reserve accounts established pursuant to paragraph (d), such reserves shall be determined, maintained, and waived in the manner provided in this subsection. Once an association provides for reserve accounts pursuant to paragraph (d), the association shall thereafter determine, maintain, and waive reserves in compliance with this subsection. This section does not preclude the termination of a reserve account established pursuant to this paragraph upon approval of a majority of the total voting interests of the association. Upon such approval, the terminating reserve account shall be removed from the budget.

(c)1. If the budget of the association does not provide for reserve accounts pursuant to paragraph (d) and the association is responsible for the repair and maintenance of capital improvements that may result in a special assessment if reserves are not provided, each financial report for the preceding fiscal year required by subsection (7) must contain the following statement in conspicuous type:

That's the way I look at it too, and I have hired an attorney.

John

Does not the below pretty well let them do as they like, especially the """without limitation"""?

6. Powers and Duties of the Board.

6.1. Powers. The board shall, subject to the limitations and reservations set forth in the Declaration and Articles, have the powers reasonably necessary to manage, operate, maintain, and discharge the duties of (the) Association, including, but not limited to, to cause the Association to do the following:

6.1.1. General. Exercise all powers, duties, and authority vested in or delegated to Association by Law and in these by-laws, etc., including, without limitation, adopt budgets, levy Assessments, and enter into contracts with service providers.

Can I also assume their attorney says they have the authority to do so?

Thanks

John

Janet

I agree, but quite often the real question is where is someone coming from/their agenda?

As an example, I doubt any docs say there will be a pool table and computer room in the clubhouse. If I like/want/use such then I will try and look for the least little esoteric thing that makes my case. Like maybe a general statement that says something like we shall/will/can have additional areas not covered in this document areas for member enjoyment. Well I am a member and the pool room was for my enjoyment. Well I am a member and I do not want children under 18 in the dining room. Well I am a member and I am Kosher so I want a Kosher kitchen.

No matter how esoteric it might be (and even if it flies in the face of 6.1.1), I can find an attorney willing to back me. It is a billable hour (there are many starving attorneys) issue, more then a right or wrong issue.

I have posted before that the only real difference between my scumbag lawyer and your scumbag lawyer is that one is my scumbag lawyer. The other is yours.

My past experience says John will lose the case, but that is his decision. I am sure he can find an attorney to take his case on. See the above paragraph....LOL

PS

There will be snakes on that golf course. Some playing golf.....

John ... my hubby and I are also hoping Eureka still has all you can eat seafood buffet including the "lobster tails". Did you know that some snakes love lobster?

If I indicated 5 years, it was a typo. They are getting a loan from a bank for 15 years, supposedly not securitized by the members' individual units. The board claims that they somehow 'saved' money from our existing budget so there will be no increase in dues to pay for this boondoggle. For 15 years !!. Now I see how the suckers bit on Obamacare - it will actually save money. Does anyone in South Carolina want to by a bridge?

Should be's are one thing, but lawyer's fees to correct are another. My lawyer isn't too sure if they don't have the right, even though we can't find case law to back up the board. As far as I see it, they have the right to maintain, etc., but not the right to do anything they want to do. But (and the lawyer is right here) if we go for a Declaratory Judgment in court, and get a stupid judge, we wind up paying the board's legal fees.

Regarding change in “uses”, while for Condominium would potentially be similar situations for an HOA:

http://www.myfloridalicense.com/dbpr/lsc/arbitration/allorders/025244.pdf

The issue of material alterations to the common elements has been addressed in numerous arbitration decisions. In Ladolcetta v. Carlton Condo. Assn., Inc., Arb. Case No. 94-0499, Summary Final Order (April 24, 1995), the association converted an area designated as an office to an office area to be used by the association’s property manager and the secretary of the board of directors. Part of the office area was subsequently converted to use as a locked storage room. In Ladolcetta, the arbitrator held that the conversion of the game room to an office area constituted a material alteration to the common elements, requiring the approval of the unit owners.

In Goodman v. Winston Towers 300 Assn., Inc., Arb. Case No. 93-0368, Final Order (June 16, 1994), the association installed a partition wall in the hospitality/youth room to expand an office area used by the board. The partition wall removed a substantial portion of the hospitality room and converted to use as an office. Furthermore, the partition wall removed all windows from the hospitality room and interfered with the room’s use for art classes by the residents. The arbitrator in Goodman, held that due to the substantial interference with the hospitality room’s use, and the conversion of a portion of the hospitality room to office area, a material alteration of the common elements had occurred.

Finally, in A.N. Inc. v. Seaplace Assn., Inc., Arb. Case No. 98-4251, Summary
Final Order (November 19, 1998), the association performed a $225,000 remodeling of the clubhouse by replacing the fireplace, adding six new windows, removing ceiling beams and replacing the counter in the kitchen, without obtaining unit owner approval. The arbitrator in Seaplace, held that due the striking differences in both function and appearance made by the remodeling of the clubhouse, these changes went beyond mere repair or maintenance and constituted a material alteration to the common elements, requiring a unit owner vote.

These reference arbitration cases, but probably should be some HOA court cases regarding "material alteration to common elements" requiring owner approvals.

By the way, it appears we are heading to court on this. As I can't find any caselaw wherein a board has even tried to spend this kind of money without specific right to do so in the documents, or without a vote of the members, it is my opinion that rule 6.1.1 (see below), upon which the board relies, is a standard clause that defines what a board can do to run everyday activities - nothing more.

Those of you (especially former board members) have a clause similar to 6.1.1. would you please scan and e-mail to me? It's important. Thanks

John Sawyer

6. Powers and Duties of the Board.

6.1. Powers. The board shall, subject to the limitations and reservations set forth in the Declaration and Articles, have the powers reasonably necessary to manage, operate, maintain, and discharge the duties of (the) Association, including, but not limited to, to cause the Association to do the following:

6.1.1. General. Exercise all powers, duties, and authority vested in or delegated to Association by Law and in these by-laws, etc., including, without limitation, adopt budgets, levy Assessments, and enter into contracts with service providers.