Tens of thousands of people belong to
hundreds of private clubs in the state of
Florida. Yet, few club members are
aware of the fact that their rights and obligations as members are subject to change.
For some members, changes are understood as progress and improvement. For others, change can be disconcerting and can
undermine their investment plans.
On the other hand, the club directors feel
that modifying club bylaws and other governing documents is critical to a club’s survival and its ability to overcome adverse economic cycles and demographic changes.
“It is important for an applicant to a private
club to understand that the privileges and
obligations of membership are subject to
change by a process that can itself be
changed,” says Michael D. Katz, a shareholder with Katz Barron Squitero Faust.
Smart Business spoke with Katz about private clubs and the legal issues involved in
their internal changes.
Do private club members have vested rights
that protect against membership changes?
The concept of vested rights means that
members have certain rights related to their
club memberships that cannot be changed or
taken away. There are few, if any, vested
rights in most private clubs. This is because
the documents that create the members’
rights can be amended. The courts have generally held that membership rights (and obligations) are subject to change as the governing documents themselves change. If the procedures for amending the governing documents are followed, the changes apply to
both existing and new members.
What are the procedures for amendment of
the bylaws and other club documents?
It depends on the requirements of each
club’s documents. If the club was created as
part of a residential community and if the
developer is still active in that pursuit with a
retained board presence, the right to amend
will often repose solely with the board of
directors and may require a super-majority
vote, which allows the developer to block the
amendment as a defensive matter. Super-majority voting may be limited to matters
that could negatively impact construction or
sales, but more often it is not, at least until the
development is sold out.
In club communities where the developer
has exited, most amendments will require
approval by the board of directors. Others
may require approval by the members, such
as those modifying limiting provisions of club
documents concerning the imposition of capital assessments. Super-majority votes may
be required at the board level, the membership level, or both, on key matters such as
sale of the club property. In cases where
clubs suffer financial distress or, over time,
find their real estate to be in great demand for
redevelopment, clubs have lawfully sold
excess land, golf courses and other amenity
parcels for redevelopment.
What kinds of changes can be made to the
club documents?
There is no limit on the changes that can be
made. While most clubs take pride in preserving their character, they also recognize
the need to adapt to what their members
want and the economic model required to
achieve it. Clubs are inevitably in competition
with one another and may need to evolve
their membership structures to attract and
retain the most desired members.
Bylaw changes can involve minor procedural matters or the members’ substantive
interests. For example, a club can change the
terms of admission or resignation. The classes of membership and privileges appurtenant
to each class may also be changed by amendment. Bylaw changes may alter voting rights
and the ways and means of imposing capital
and operating assessments.
Incidentally, condominium and homeowners’ associations have the same latitude to
change their governing documents. For
example, Florida courts have upheld amendments that restrict or prohibit owners from
leasing their units on a ‘rule of reason’ analysis. The amendments are binding on existing
owners who are leasing their property as well
as on new owners. The ‘vested rights’ assertion has been rejected in those cases.
What if there is a disagreement over the
meanings of the club documents?
Florida courts grant very broad authority
and discretion to the board of directors of a
private club to determine if a governing document is ambiguous and, if it is, to determine
its meaning. Generally, as long as the interpretation is not patently arbitrary or unreasonable, the courts will not interfere.
The courts have also declared themselves
hands off where disciplinary processes are
concerned. The club itself is the sole judge of
what conduct warrants sanction, which can
take the form of monetary fines, suspension
or even expulsion. As long as there is notice
and an opportunity to be heard, and any
other requirements of the club documents
are observed, the outcome of the disciplinary
process is not subject to review by the courts.
Mention should be made that the opportunity to be heard is not necessarily the equivalent of a ‘hearing,’ and that club policy may
not allow a member the right to be represented by counsel, nor do rules of evidence
or civil procedure apply.
Also, it is important to understand the relationship of real estate ownership in a private
club community to the club itself, as well as
any master community association. Such
communities provide unique amenities and
wonderful lifestyle experiences, but come
with the risk — and often the necessity — of
future change.
MICHAEL D. KATZ is a shareholder with Katz Barron Squitero Faust. Reach him at [email protected].
