Victorville West Limited Partnership (“Victorville”) purchased the Inverrary Golf Course and Clubhouse within the Inverrary community in Lauderhill, Florida, in 2006. Victorville acquired the property subject to a restrictive covenant that became the subject of a lawsuit that the Fourth DCA recently ruled could not be canceled because it remained a substantial benefit to the surrounding homeowners.
When a person or entity purchases property, the property may be subject to a restrictive covenant that limits the purchaser’s use. The most common example is the restrictions provided by the declaration of covenants, restrictions, and easements that a homeowner’s association enforces within a residential neighborhood.
In this case, Victorville bought the Inverrary Golf Course and Clubhouse subject to a restrictive covenant that stated:
…when at any time [the Golf Course] has a roster of Fifteen Hundred Golf Memberships…it will not at any such time offer, sell, or admit to golf membership any persons or families not then bona fide residents of Inverrary.”
Substantial Change in Circumstance
After Victorville purchased the golf course, they attempted to negotiate with the local HOA to relieve their property from the restrictive covenant. When the association refused, Victorville filed suit against the HOA alleging economic hardship and sought to cancel the covenant because the golf course was no longer profitable. Victorville maintained that there had been a substantial change in circumstances such that the covenant’s purpose could no longer be accomplished.
The Fourth District Court of Appeals framed the issue as for whether or not a property owner could cancel a restrictive covenant when the covenant has become too financially onerous.
To decide the case, the Fourth DCA had to determine whether the covenant remained beneficial to the dominant estate holders. In the ruling against Victorville, the court stated that the golf course continues to benefit the “dominant estate” (in this case, the HOA) and the surrounding residential properties, even though few Inverrary residents have memberships to the golf course. Victorville West Limited Partnership v. The Inverrary Association, Inc., 42 Fla. L. Weekly D1860 (Fla. 4th DCA August 23, 2017).
Victorville argued that the covenant contemplated a bilateral relationship whereby members of the community received memberships in the club and, in return, the club provided the facilities. The Court ignored this argument and found that nothing within the covenant that showed its intent was for the golf course to be profitable.
With this decision, the Court concluded that the covenant could not be canceled because it remained a substantial benefit to the surrounding homeowners. The Court ruled against Victorville stating:
Victorville’s financial hardships do not support cancellation of the covenants because ‘the law does not permit cancellation of property restrictions for the purpose of accommodating the best or most profitable use of a particular piece of property affected by the restriction.’”
Victorville also argued that the covenant constituted an unreasonable restraint on alienation because obtaining a two-thirds vote from the association was virtually impossible. The Court ruled that because a two-thirds vote was theoretically possible, the covenant did not amount to an unreasonable restraint on alienation.
Whether a court will cancel a restrictive covenant based on substantial change in circumstance is decided by looking at whether or not the covenant is valid on the basis of the original intention of the parties and whether that original intention can be carried out despite substantially changed circumstances. Essenson v. Polo Club Assocs., 688 So. 2d 981, 984 (Fla. 2d DCA 1997). Said another way, does the covenant still do what the original parties intended?
In this case, the covenant’s purpose was for the benefit of the surrounding community and, as a result, had nothing to do with the profitability of the golf course. From this case, we can determine that courts are going to hold for covenants and precedent over the profitability of business.