According to golf industry experts, the number of golf courses in the United States has been steadily declining since the early 2000s. With fewer people taking up the sport, golf course operators face declining revenues and are frequently approached by homebuilders looking to redevelop underperforming courses for residential use.

However, the course closure trend may be slowing as pandemic-related restrictions spurred a noticeable uptick in the number of new golfers in 2021. Consequently, the coming years may present opportunities for new golf-oriented residential development in addition to redevelopment of failing courses for residential use.

As demand for housing continues to surge, several homebuilders in the Pacific Northwest have sought to redevelop underperforming golf courses. Fearing the loss of amenities and more residential density, homeowners living adjacent to golf courses frequently challenge redevelopment efforts. The Oregon Court of Appeals’ recent decision in Creekside Homeowners Association Inc. v. Creekside Golf Course LLC highlights the potential pitfalls in redevelopment of underperforming courses and provides useful guidance for homebuilders in the context of both redevelopment and new development of golf-oriented residential communities.

The facts of the Creekside case are straightforward. In 1992, the original developer recorded covenants, conditions and restrictions (CC&Rs) for the “Golf Course Estates at Creekside,” which consisted of a residential development surrounding a golf course. In 2015, after prolonged financial struggles, the golf course operator, Creekside Golf Course LLC, proposed either selling the golf course to the homeowners association (HOA) for residential development or imposing a monthly assessment on HOA members to support the golf course.

The HOA declined the operator’s proposals, and the operator then announced plans to subdivide the entire golf course for residential redevelopment. The HOA promptly filed a lawsuit, seeking a declaration that the CC&Rs required the operator to maintain a golf course in perpetuity. Because the operator and its predecessors marketed homes as part of a “golf course community,” the HOA also sought a declaration that it was the beneficiary of an equitable servitude by estoppel which, to avoid injustice, would require the operator to maintain the golf course indefinitely due to HOA members reasonably relying on representations that the golf course would exist in perpetuity.

At trial, the Marion County Circuit Court found that the CC&Rs did not require the perpetual operation of a golf course and that, because the CC&Rs were clear and there was no reasonable reliance on representations of the developer, an equitable servitude by estoppel did not apply. On appeal, the Oregon Court of Appeals affirmed the trial court’s decision.

The appellate court, in its ruling, emphasized that the disputed provisions of the CC&Rs must be read in the context of the CC&Rs as a whole. If the CC&Rs’ meaning is clear, the analysis ends. Unlike prior cases, like Mountain High Homeowners Association v. J.L. Ward Co., which imposed an equitable servitude by estoppel because the CC&Rs did not specifically allow the owner to close the golf course, the court reviewing Creekside focused solely on the plain language of the CC&Rs.

The Creekside CC&Rs specified that the HOA has “no interest in” the golf course and that the property bound by the CC&Rs “does not include the golf course.” The CC&Rs also included provisions granting the operator broad rights to modify, expand, contract and discontinue the course. Consistent with the CC&Rs, a related easement also absolved the operator of any obligation to provide a golf course. Finally, the court found the HOA had failed to present any evidence that the developer of the residential community represented that the golf course would exist in perpetuity or some other duration, and the golf course operator lacked notice of any such representation. These facts, taken together, were fatal to the HOA’s request for an equitable servitude by estoppel.

The Creekside case provides a clear road map for developers of golf-oriented residential communities and developers converting existing courses to residential use. In new golf-oriented developments, Creekside instructs developers to carefully craft CC&Rs and other governing legal documents to remove golf course property from HOA control. Creekside suggests this may be accomplished by explicitly stating that golf property is separate from HOA property and that golf course operators have the absolute right to cease golf course operations at any time. Further, marketing materials and practices should be established that specifically advise homebuyers that golf course amenities are not guaranteed to exist in perpetuity, and homebuyers should be given copies of applicable CC&Rs.

For redevelopment of golf courses for residential use, Creekside highlights the need for extensive analysis of existing CC&Rs and dictates that developers conduct more extensive due diligence to understand historical marketing practices that might support an equitable servitude claim. Where CC&Rs and historical practices are ambiguous or pro-HOA, developers may need to reach negotiated resolutions with HOAs to preserve golf course operations for limited time periods, and may ultimately need to pass on redevelopment opportunities to avoid the expense and uncertainty of litigation.

Brendan Crowley is a Schwabe, Williamson & Wyatt shareholder. One of his focuses is real estate and construction. Contact him at 503-796-2497 or bcrowley@schwabe.com.

Note: This article is intended to provide readers with general information and not legal advice. For specific situations, consult with competent counsel.

The opinions, beliefs and viewpoints expressed in the preceding commentary are those of the author and do not necessarily reflect the opinions, beliefs and viewpoints of the Daily Journal of Commerce or its editors. Neither the author nor the 91��Ƶ guarantees the accuracy or completeness of any information published herein.

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As 2020 mercifully concludes, a clearer picture is emerging of the outlook for the local real estate market in 2021. COVID-19 cases are spiking in the region as promising vaccination news arrives, civil unrest continues and businesses struggle under heightened pandemic restrictions. Plus, various protections for local real estate owners and occupants will lapse in the coming weeks and months. Following is a summary of trends, concerns and considerations as we move into a new year.

Downtown office leasing lags while suburban markets see increased demand

On the heels of stay-at-home orders, months of protests and small business failures, the downtown Portland office market has seen a considerable increase in vacancy rates. With more office product coming online in 2021, downtown vacancy is likely to increase, as absorption remains slow and rental rates remain flat. Challenges in downtown might continue if ongoing restrictions that hinder the operation of nearby retail and restaurant amenities are not relaxed. Also, ongoing unrest threatens to prolong the struggles of Portland’s hotels, which have one of the lowest occupancy rates in the nation.

Leading brokers in the downtown office market report that long-term deals are rare and touring activity is slower than ever. While some users look for larger spaces to accommodate socially distanced office work or a return to normal operations after a vaccine is widely available, many tenants with expiring leases have opted for short-term extensions or downsizing to assess needs as the pandemic continues. A growing number of tenants are eager to leave downtown entirely. Either privately or publicly, many owners and occupants have expressed dismay at the grim sight of boarded retail storefronts, vandalism, widespread property damage and safety issues, as well as a perceived lack of leadership at the state and local levels to address the business community’s concerns.

Recent months have demonstrated that the central city’s loss is the suburbs’ gain. Many office tenants have relocated to suburban markets like Lake Oswego, Hillsboro and Beaverton or will do so. Compared to downtown, the suburban markets feature favorable rents, parking arrangements, and safety, along with better proximity for current and future employees. While many suburban tenants are currently able to secure landlord concessions and expansion rights to accommodate anticipated post-pandemic growth, the suburban market may become far more landlord-friendly in the months ahead.

Lapse of protections leads to uncertainty while homebuilders remain active

On June 26, the Oregon Legislature passed House Bill 4213, which imposed an eviction ban for both residential and commercial tenancies through Sept. 30, and granted tenants a six-month grace period through March 31, 2021, to repay rent that accrued between April 1, 2020 and Sept. 30, 2020. Then the Legislature passed House Bill 4204, which banned both residential and commercial foreclosures through Sept. 30. While Gov. Brown allowed House Bill 4213’s ban on commercial evictions to lapse on Sept. 30, Executive Order 20-37 extended the ban on foreclosures through Dec. 31, and Executive Order 20-56 extended the ban on residential evictions through Dec. 31.

While it is likely that Gov. Brown will extend the foreclosure and residential eviction bans if COVID-19 cases continue surging, the spring and summer could see a large number of borrowers and tenants subject to foreclosure and eviction. In the residential context, a wave of foreclosures and evictions may lead to further civil unrest, as people demand leniency against the specter of a pandemic and increased homelessness. In commercial real estate, landlords, tenants, and lenders are likely to continue cooperating on short-term rent abatements and deferrals for tenants and temporary restructurings and forbearances for borrowers, particularly if vaccination efforts prove effective and spur optimism for a local and national economic recovery.

For businesses in industries hit particularly hard by restrictions on operations, 2021 may bring renewed efforts to relax restrictions. Despite growing job losses in the food and beverage, hospitality, fitness and related industries, state and local leaders have shown an inclination toward heightened lockdown measures. Many of these measures strike business owners as arbitrary and inconsistent with current scientific knowledge.

In particular, food and beverage operators that have invested heavily in outdoor dining equipment or lobbied to permit the sale of cocktails for customer pickup may increase their efforts to enact measures that strike a more reasonable balance between the economic realities of operating food and beverage businesses on the one hand, and public health concerns on the other. A modified approach to governmental restrictions could have the benefit of both saving jobs and reducing evictions and foreclosures.

Despite the struggles of many businesses navigating ever-changing pandemic restrictions, an ongoing shortage of housing, the desire of many parties to leave the city for suburbs, and a sense that the work-from-home model is here to stay have led to a noticeable uptick in residential construction. In particular, suburban homebuilders have actively pursued development opportunities, and institutional investors have demonstrated an increased interest in manufactured home communities, workforce housing and affordable housing.

Brendan Crowley is an attorney with Schwabe, Williamson & Wyatt. One of his focuses is on real estate and construction. Contact him at 503-796-2497 or bcrowley@schwabe.com.

The opinions, beliefs and viewpoints expressed in the preceding commentary are those of the author and do not necessarily reflect the opinions, beliefs and viewpoints of the Daily Journal of Commerce or its editors. Neither the author nor the 91��Ƶ guarantees the accuracy or completeness of any information published herein.

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