By Deborah Goonan, Independent American Communities
Yesterday’s blog featured a developer-controlled HOA in Laredo, Texas.
Today we look at Kings Gate HOA in Port Charlotte, FL. King’s Gate is a 55+ active adult community in southwest Florida. It boasts extensive recreational amenities and planned social events in a maintenance provided community. HOA members can take advantage of discounted membership to Kings Gate 18-hole golf course and Lion’s Den restaurant. Both the golf course and restaurant are also open to the public.
Kings Gate was incorporated as a mandatory HOA in 1998 by Benderson Development LLC.
Benderson Development is primarily a commercial developer. Kings Gate is currently listed as the only residential project on its website.
Original governing documents stated that Declarant (developer) control would expire no later than 2013. But in 2009, in a slow real estate market, Benderson amended the documents to state that control of the association would not transfer to owners until 90% of parcels have been sold.
The developer can easily amend CC&Rs, bylaws, and articles of incorporation during the control period. In this case, Benderson is entitled to 3.6 votes per unsold parcel, and overrides any vote of homeowners because of weighting voting interests.
Concerned homeowners say that Benderson has completed roughly 80% of Kings Gate, but has stopped building homes at least two years ago. At this rate, developer control might never end.
It is another case of de facto “taxation without representation,” and yet state laws do little to prevent perpetual developer control of homeowner funded mandatory HOAs.
Port Charlotte residents cry foul over developer’s HOA control
Published: July 5, 2017 7:48 PM EDTPORT CHARLOTTE, Fla. Kings Gate residents pay more than $1 million in homeowners association fees every year — but without any input on how it’s spent, they say.
Some within the 55-plus neighborhood off Rampart Boulevard near Interstate 75 are trying to gain control of their HOA, which Benderson Development Company has run for nearly two decades.
“Everything is decided by the developer,” said Bill Weil, a Kings Gate resident spearheading the effort to put the community in the hands of those who live there. “The residents actually have no input whatsoever.”
The homeowners association was to be turned over to the residents in 2013, but Benderson, which built the gated community, changed the rule in 2009 so that control wouldn’t go to the residents until 90 percent of the homes were sold, Weil said.
Read more (video):
http://www.winknews.com/2017/07/05/port-charlotte-residents-cry-foul-over-developers-hoa-control/
Update………….the Arbitration panel ruled in the homeowners favor. We have a meeting on Thursday to review the decision. I have a copy of the settlement and the Arbitration panel stated clearly that Benderson (the developer) illegally changed the terms. So now the HOA will be controlled by the homeowners who get to elect the members of the Board. Benderson no longer has 3.6 votes per undeveloped property just a single vote per property. Furthermore, Benderson is allowed to vote for only 2 people on the 9 person Board.
Peggy, HOA declarations are undoubtedly contracts. They are private contracts written by and for developers. Unfortunately, despite their complexity and potential for damage to owner rights (which this blog has repeatedly and in large part rightly laid out) local/state regulators have little to no oversight in their construction/content, largely because state/federal legislators have seen fit to ignore (arguably a cover-up for political gain) the issues created.
Florida is not alone in what I believe is a clear violation of the Contracts provision of the US Constitution, in passing laws that alter existing CC&Rs. Nevada legislators unanimously an inexplicably approved legislation in 2015 (SB 192) that provides developers control of an HOA board with as little as a 10% remaining interest in the community (interest defined as units/lots unsold). Given few states have imposed little if any regulator constraints in CC&R construction, particular in setting the total number of units a developer can claim available in any HOA, a developer so inclined, can effectively retain board control indefinitely.
Adding insult to injury, SB 192 was effectively retroactive- affecting all HOA owners living in Nevada HOAs communities (where about 60% of all homeowners reside) where developer control change had not yet been achieved.
Failing an extensive legal fight and/or owner uproar, both unlikely, we should expect this type activity to continue. I feel your pain. I too now find myself living where I am denied the right to freely elect those that represent me. Apparently, our respective state representatives, availing themselves of this countries hard fought and highly coveted electoral process, find they need not apply a similar standard to other governing bodies like HOAs- bodies far closer and often having larger impacts, both financials and civil liberties, on our lives. Thus, it should be no surprise our HOA boards have the problems they do given so little accountability?
It isn’t a contract. As I understand contract law, one party can not alter the contract unless the other party agrees. We residents did not agree but the Florida law gave the loophole. So please don’t refer to this as a contract.
Michael Kosor, we agree on some issues, disagree on others. Yes, developers need to be regulated. So does the HOA industry. But the problems go deeper than that.
I do not believe that the HOA concept is widely accepted. The majority of housing consumers do not actively seek out association governance or even common interest communities, per se. Even CAI’s self-funded research – with a tendency to skew opinions of HOAs in the positive direction – backs up my claim. Only 26-32% of home buyers surveyed reported that the fact that the home was in a “community association” made them “more interested” in buying or renting the home. Another 8-14% said they were less interested in the home and a whopping 58%-64% said that the existence of an association had “no impact” on their decision to buy or rent. (https://www.caionline.org/PressReleases/Pages/StatisticalInformation.aspx)
The buyer may be enticed by new construction, a stellar location, or various amenities, but they are almost always drawn into the HOA realm without full disclosure and knowledge of exactly what they are buying into. Because local governments enable and even encourage or mandate HOAs and housing density that results in condominiums, buyers have limited opportunities to purchase housing that is not association governed. Therefore, what we have is acquiescence, not acceptance. In many of the fastest growing real estate markets, consumers have almost no choice — they have to deal with a mandatory association, like it or not, if they want to own a home and, in some cases, if they need to rent a home in a market with a shortage of rental properties.
I see absolutely no reason why a developer must have absolute control over entire communities. In fact, I see no compelling reason for the government to push privatized common interest communities, because, in essence, a municipality or county is also a common interest community, but intended to serve the public interest under a Constitutional framework. Whether private or public, people share the expense of infrastructure and amenities – either by paying HOA assessments and fees or taxes. But public government, despite its slow response time, has checks and balances that voters and taxpaying citizens can use to protect their rights and to hold government accountable to the people. Not so with association-governed corporations governed under contract law. No amount of legislative tweaking around the edges will ever compensate for that fundamental shortcoming of association governance.
I might add that I hear many, many complaints from owners and residents that their homeowners or condo association is not only slow to respond to concerns, but often they completely ignore those concerns! Given the number of failed and struggling associations, as compared to the number of struggling municipalities, I would say that municipalities have a far better track record.
Give the housing consumer the choice to pay for new development via taxes rather than assessments paid to a private corporation that is designed and controlled by a developer. Allow entrepreneurs to build private recreational clubs and facilities as the market warrants. Do not tie these amenities to mandatory membership in an association-governed community. One’s home and private property rights need not be compromised in order to help a developer sell more homes at a higher profit. Even home builders have now come to realize that the majority of buyers do not really want to pay for recreational amenities. So local governments have to stop requiring the developer to build them.
Many states have also come to realize that private associations do a lousy job of maintaining infrastructure such as roads and storm drainage, and most cannot handle crime prevention and emergency services without public support either. So many of these functions are beginning to swing back to the public realm by way of annexation or creation of special districts.
Here’s an idea to test your claim that HOAs are widely accepted. Let’s make HOA planned communities voluntary, or allow the older HOAs with CC&RS to expire after 25-30 years. Then allow each homeowner to decide whether or not they want to participate going forward. I guarantee you that that a supermajority will not choose to become a member of an HOA.
As for multifamily housing, I see no reason for local governments to push condominiums rather than simply building smaller, more modest homes on modestly sized lots that people can own (not lease). When it comes to increasing housing density by building upward instead of outward, there are not many advantages to housing consumers or the surrounding community. Condominiums are notoriously complex to build, expensive to maintain, and prone to harbor a great deal of financial risk, not to mention interpersonal conflict. Few people can really afford condo living, and those that can tend to live in very luxurious units that are not nearly as densely packed as ULI or CAI would have you believe! Some luxury condos take up an entire floor or span two levels.
In general, Lenders are reluctant to finance most condo projects, and with good reason. Stick with multifamily apartment homes or privately owned income properties instead.
Deborah Goonan, local governments are notoriously inefficient, do not have the expertise, and are slow in addressing community development needs if left to their own, certainly when saddled with the entire development arena. I certainly hope you are not proposing socialistic central governmental planning. You mention free markets in your response so I will assume not.
If we are going to rely on free markets we need investors willing to take risks. The number of risk takers and level of interest is a matter of reward- a basic free market principle. HOA’s are vehicles to encourage investments by addressing risks governments must otherwise assume and pay.
Free markets also require a strong democratic process. The HOA regulatory scale is bloated and lopsided because of the inherent weakness of the democratic process- homeowners are all too often apathetic when it comes to the actions of their elected community leaders. In many states, little to no oversight is provided as to what a developer can put into their CC&Rs leaving them unnecessarily full of “legalizes” consumers do not read and/or understand. Legislators respond by addressing specific issues and not the greater environment while developers, with regular access, continually seek favorable provisions. Out of balance, regulations are added not limited.
The key, where we both appear to agree is a need to refocus on the value of the democratic process in HOAs. Developer control needs to terminate at 50-60% completion. The majority interest of owners must be fairly represented. Today, most states have set the bar at 75% with damaging exceptions too often allowed to creep in extending the actual control period. Certainly, states now allowing 90% must rethink their actions. More risk for developers? Possibly. The answer is certainly yes, and rightly so, for developers that rely on control over consumer satisfaction.
Once owner control is provided, owners need not be saddled with lingering developer control barriers that preclude freely electing representatives from enacting the will of the majority. Special developer rights, declaration changes requiring super majority votes, etc. need to terminate when owners assume the reigns and not run in perpetuity as most states allow.
The HOA concept is widely accepted (your readers excepted), desired by the consumers, and has a place in our free market system. Let’s not throw the baby out just because the bath water needs refreshing.
Michael Kosor, I disagree. One of the biggest flaws with the modern association-governed community is the fact that real estate developers control the finances and governance until most, if not all, of residential construction is complete. Get rid of developer control, and you eliminate the need for government to regulate what developers can and cannot do during the control period for the corporation.
Prior to the 1970s, Generations of Americans owned and managed private property without giving a land developer control over homeowner property rights. Local governments did not rely on infrastructure investment from for-profit developers and home builders. If a developer built a poor quality home, word of mouth spread quickly, and most other consumers would steer clear. The free market system worked because it tended to weed out the bad apples in the business of residential home construction.
It is far easier and less costly to prevent developer created conflict and community mismanagement than it is to regulate it or correct wrongdoing after it occurs.
Deborah
Your post addresses an all too common situation clearly avoidable and increasing in frequency. It appears Kings Gate owners are happy with what the HOA provides. They just desire, understandably, to elect those that represent them. I wish you had taken the next step in asking about a solution instead of using it to reinforce your view HOAs are inherently bad.
We should be asking “How is it Florida laws allow such an abuse?” Any honest answer would likely demonstrate Florida exercises little to no real regulatory oversight of what is allowed in the declaration/CC&Rs constructed by developer. I suspect an answer will also show little legislative effort on behalf of owners- likely just the opposite.
It is absurd that a developer in Florida, with as little as a 10% interest in an HOA, can be granted such dictatorship authority over the far greater interest of owners. This is not a problem with the HOA structure, rather a failing of legislators choosing to represent the interest of the developer community, active and regular in lobby efforts, over home owner constituents that have no organized lobby – certainly nowhere near the level exerted by developers.
I’d also ask where are the Florida laws precluding changing the control rules of the HOA/CC&Rs mid-stream? In most states and per the Uniform Common Interest Owners Bill of Rights used to structure most state HOA laws, once a declaration/CC&R is filed and accepted, only very limited changes are allowed. Certainly, not allowing significant changes in contracted provisions such as moving the control goal post back, as apparently this developer is attempting.
Yes, CC&Rs are private contracts between the home buyer and developer. Our laws generally support limited government intervention in private contracts. Unfortunately, as you regularly note in your post, few home owners recognize this element, rarely inquire as to CC&R content prior to buying, and/or understand their CC&R once read.
But CC&Rs are not the only complicated contract we are regularly asked to execute in our lives. The difference maker here is the flawed expectation by home buyers that government regulators, much as with other complicated agreements such as credit cards, home mortgages, real estate contracts, etc. are not vigilant (politically blinded) in precluding CC&R content that takes advantage of the average buyer.
Here again, we need state legislators to give regulators the authority and demand accountability in exercising their consumer protection mandate.
These homeowner’s would do good to read the recent DBPR Case 2017-1-1731 Martin Negron Petitioner, vs. Association of Poinciana Villages, Inc. Respondent. They also need to carefully read their Articles of Incorporation.
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