This is the first article in a series about what Developer Settlement is, how it is unfolding in Verandah, and the implications for our homeowners. It is a common legal process that occurs when the developer of a community turns over governance to its residents.
When Verandah was first established as a planned development our Governing Documents created a legal structure with two separate entities.
The Verandah Club is a For Profit Corporation with its own governance and finances. It operates and maintains the amenities inside Verandah, including the golf courses, restaurant, fitness center, pool area, and racquet facilities with its own management and staff.
The Association is a Not For Profit Corporation with responsibility to govern and maintain the community’s infrastructure (e.g., common areas, roads, gatehouses, etc.) for the benefit of the homeowners.
The Developer had complete control of the Club and the Association from 2003 to October of 2021, when the assets and operation of the Association were turned over to homeowners. Over the past three years, the Association’s Board of Directors has conducted an extensive review of financial records, associated documents, and practices used by the Developer prior to turnover. This work raised many questions and concerns. The Board then engaged in discussions with the Developer. To protect our homeowners and to comply with Statute of Limitations the Association filed a legal claim in Lee County in June of 2024. The filing contains numerous components.
VCA – CLUB COST SHARE AGREEMENT
This article focuses on one particular claim – the VCA – Club Cost Share Agreement. Going back to 2003, the Club and the Association had a written Agreement that there would be a sharing of expenses for the maintenance of what are referred to as “Joint Property Expenses.” The Agreement defines “Joint Property” as “the real and personal property within the area of Verandah, that are owned and/or maintained for the common benefit of the Association and the Club….” The Agreement defines “Joint Property Expenses” as “the actual and estimated expenses incurred or anticipated to be incurred by the Association or the Club to own, operate, maintain, improve, repair, replace, and/ or insure the Joint Property for the general benefit of the Association and the Club.”
Why we share expenses – There are several reasons that the Club and Association both contribute to Joint Property Expenses. Members of the Club and homeowners, vendors, guests (e.g., golf and functions in River Village such as weddings, etc.) and Club maintenance and amenity staff all use the roads and walkways in Verandah. The perimeter of Verandah is surrounded by walls, fences, and landscape buffers that separate and provide privacy from non- residents, which benefits both the Club and the Association. The gatehouses control and track the passage of vehicles into the community. All of these assets incur wear and tear and will need replacement in the future, which is properly a shared expense of the Club and the Association.
Amendments to the Agreement – Before the Association was turned over to the homeowners in 2021, the original Developer and then the current Developer amended the so-called Cost Share Agreement. In the 2003 Agreement the Club was primarily responsible for maintaining Joint Property and collected sixty percent (60%) of the costs from the Association. There was no cap or limit on the amount that the Association would have to pay from year to year.
In 2007 the Developer still controlled both the Club and the Association. It amended the Agreement to make the Association responsible for the maintenance of Joint Property and changed the formula for sharing expenses from sixty percent (60%) to eighty-five percent (85%). There was still no cap or limit on the amount that either party would pay as its share of the Joint Property Expenses. The impact of this amendment was to place on homeowners the lion’s share of the cost of maintaining Joint Property.
In 2015, the Developer amended the Cost Share Agreement again to impose a cap on the Club’s share of Joint Property Expenses as “the lesser of: (a) Fifteen percent (15%) of Joint Property Expenses; or (b) Fifty Thousand dollars ($50,000.00) per annum. As an example of the impact of this amendment on the Association, in 2021, without the cap, the Club’s fifteen percent (15%) share of Joint Property Expenses would have been approximately $116,000. The cap on the Club’s share caused the Association to pay approximately $66,000.00 more toward Joint Property Expenses.
Financial records show that in 2007 the Club was paying more than $100,000.00 annually towards Joint Property Expenses. The Association calculates that since the 2015 amendment it has paid more than $650,000 toward Joint Property Expenses, which, but for the cap, should have been paid by the Club.
There is an additional aspect of the Cost Share Agreement that adds to its unfairness to the Association. Because the original Agreement predates the buildout of homes to the east of River Village Way, the cost of maintaining assets such as common areas, landscaping, roads and the Tropic gatehouse are not included in the calculation of Joint Property Expenses. The exclusion of these Joint Property Expenses from the Agreement unfairly reduces the Club’s annual contribution and is borne by homeowners.
…since the 2015n amendment it has paid more than $650,000 toward Joint Property Expenses, which, but for the cap, should have been paid by the Club.
Rationale for the claim – The legal basis for this claim is that the Agreement does not comply with Florida Statute section 720.309. This statute provides that any contract that has a term of greater than 10 years, which is made before control of the Association is turned over to the members other than the developer, and that provides for the operation, maintenance or management of the association or common areas, “must be fair and reasonable.”
In summary, the Cost Share Agreement and various amendments were executed by the developer on behalf of both the Club and the Association. It allocates 85% of the cost of Joint Property Expenses to the Association, places a cap on the Club’s share of the Joint Expenses, and excludes costs associated with Joint Property located east of River Village Way. The Club has refused to negotiate a Cost Share Agreement with the Association that is fair and equitable for all concerned. This is just one of several reasons that the VCA is now pursuing litigation.
