Our Golf Club Going Public? Let’s Focus on the Facts

While Rancho Santa Fe is greater than the sum of our common amenities (the trails, the tennis and pickleball facilities, the golf course, the horse facilities, etc.), they all add to the quality of life of those that use them. Common amenities is a legal term used in Home Owner Associations to refer to amenities that the property owners own and govern together. For practical reasons, some operational decisions may be best delegated to committees or clubs, but all operate under the final authority of the Board of Directors of the Rancho Santa Fe Association.

The disposition of common amenities must be made with open disclosure of significant details and approval of the property owners. Significant expansion or the elimination of an amenity requires the full membership’s informed approval.

Band-Aid Solutions 

As with many organizations, issues that were handled with Band-Aid solutions that may have seemed expedient at the moment, over time, result in conflicts that can be difficult to resolve. How then best to unwind the snarls that have gradually grown with regard to the golf club? I believe we have to re-examine current and anticipated practices to make certain they align with practical realities and first Principles.

The concept of our golf club is born of practical solutions to real problems and should advance with proper limitations: 

     1. Golf courses are expensive to operate.

     2. Non-golfing property owners preferred not to pay for an expensive amenity that they would never use (it appears that approximately 70% of members would rather not join the golf club for a variety of reasons), and golfers wanted greater ease and speed in making day-to-day decisions and implementation.

     3. In the 1980’s, an agreement was reached that allowed the golf club members to operate a club that was self sustaining (paid for 100% by club members, including operating costs of the course, clubhouse/restaurant, renovations, replacements and addition of facilities, etc), provided that the club would pay for everything except rent. 

    4. The RSFA Board retained absolute oversight and approval power over all aspects of the club, operations, and fees, as it does with every other committee.

    5. As a common amenity, rules must strive to be as inclusive of as many property owners as possible. Non-property owners or former property owners should be ineligible to play as members unless voted on by the entire membership of the Association. The property owners’ usage rights may not be diluted without their approval.

      6. Registration and initiation fees (if any) must be as low as practical and not constitute a “barrier to entry.” Monthly fees must be on an essentially equal basis and have enough sophistication to include reserves, depreciation of assets, and amortization of future capital improvements, etc. The courts have accepted the concept of annual membership requirements as a practical solution for the need to have predictable income and to plan.

       7. There can be no expense discrimination between new members and long-time members, between younger and older members, between men and women, etc. Special programs, such as temporary low rates for beginners of any age, are acceptable.

      8. The club may not make promises to members that it cannot fulfill, such as allowing those who are no longer property owners to continue to play, or suggesting that members have any equity in the golf course. Liability costs for false promises or other deceptions should fall squarely on golf members.

Barrier to Entry 

To take some of the needless heat out of this discussion, let me pose the example of an HOA with an olympic-size swimming pool. It was expensive to heat and maintain. Not all owners even wanted a pool. A club was formed to support the pool and eliminate the cost to non-swimmers. Over time, the club felt it was their pool and they could charge initiation fees on a “supply-and-demand basis.” They wanted to keep the club membership small for maximum enjoyment of the current club members and raise newcomer funds, thereby reducing or minimizing the current member costs. 

Obviously, not all HOA members could appropriately swim at one time, but most crowding issues could be resolved by practical solutions. Instead, their membership scheme became very expensive and unaffordable for some new homeowners and not worth it for others. New members were not being accommodated by simply paying their fair share of all costs; They were being blocked by an unconscionable “barrier to entry” initiation fee, which was not for the broadest use of the common amenity, but rather for the benefit of the existing members. These initiation fees were an illegal “barrier to entry.” Tax questions about profiting, violation of original purchase agreements, and other issues further damned the practice.

Common Amenity 

My point is this: The golf club should not be thought of as “a private club.” It will cause endless divisiveness, not to mention confusion in decision making. It is neither a public course, nor a private club. It is a common amenity to be operated with the fiduciary duty to make the club accessible to the most property owners as practicable, and on an equal basis. Rules about guests or any other privilege take a backseat after first protecting Property Owners’ paramount right to equal ease of use. The whole community needs to be able to verify that this is happening with mature debate and the disclosure of all relevant facts. 

Since no one, other than a few hysterics in the golf club, is talking about turning our common amenity golf course into a public course, and no one is talking about abolishing the golf club, let’s not waste time on the straw-dog debate designed to distract from substantive questions. This false question is hoping to cause fear as a substitute for facts.

Again, no one is advocating making our common amenity, the golf course, a public course. Nor is anyone proposing to abolish the golf club. Rather, let’s discuss the substantive issues. The horrendous losses in the recent past, and $1,800,000 budgeted restaurant loss for this year, need a thorough audit and explanation. Who runs a business with a battle plan to lose a huge amount of money in a good year, when business professionals know how to minimize losses in a terrible business environment? And we are far from a terrible business environment.

To most professionals, this plan would appear stunningly irresponsible. Perhaps, this is the best the current club management can do. It’s hard to imagine that sharper pencils and more thoughtful solutions can’t be found. With full disclosure, maybe we can agree on better solutions or more fully accept the current practices once they are brought into conformity with best practices for common amenities.

Sunk Costs 

“Supply-and-demand” laws in pricing, which are practiced by most successful businesses, have no place in Home Owner Associations. If there are opportunities for profiteering, the benefits should accrue to all members. However, this is a subject that should be approached cautiously. It requires in-depth study to professionally consider the impact on our non-profit tax status, the fiduciary duty to make amenities as widely available as practical, and the equal standing of all owners.

Remember, the higher the initiation fees the lower the value of your home. Golfers don’t pay more for a property because it has high initiation golf fees, any more than they do in condo sales with high HOA fees. Two houses exactly the same – the one with lower fees is worth more. Real estate agents know this from experience.

All members must be clearly informed when they agree to pay initiation fees that they are getting nothing more than the right to play while maintaining uninterrupted property ownership. They should also understand that, at any time, initiation fees may be reduced or eliminated. Unlike many private clubs, those paying initiation fees cannot redeem their membership for any consideration. If they sell their property, their initiation fee becomes a sunk cost. Hopefully, the club is not misleading anyone into believing they are joining a private club in the traditional sense.

Truth to Power

Times change and some businesses must change with the times. However, basic principles of fairness should not change. We must labor together, openly and truthfully, to find the best future for all aspects of governance.

This is a time for reform. This is a time for truth and simple honesty. No organization can long survive built on expensive coverups or obfuscation or delay. This is not the time for misrepresentations and bullying – it never is. Truth is a power of its own. No matter how much those in the wrong cry, “Just leave us alone,” or “That’s all in the past,” all-powerful Truth will pour in flood tides of Principle, correcting issues and individuals. Resistance to Truth just makes the process more painful and prolonged. The embrace of Truth is the first step in unity.

Let us all seek the truth in a thoughtful exchange of ideas including costs. Let’s have mature reasoning and allow verification of facts and numbers so that a well-informed community can make its desires known, free from slogans and manipulation. Then harmony and true community will blossom and trust will be fully restored for all.

Gary Krisel is a longtime Covenant member.