Covenants Expiration, Part 3

HOW HARD WAS IT TO RENEW THE COVENANTS IN 2010?

Somewhere along the line in 2009-10, the board accepted the Ramirez Report’s view that getting the consent of the required percentage of owners in each phase or unit was unlikely to succeed, although seeking consent by means of a vote (rather than a more intensive process) was the only thing considered. By March 2010, they had hired two more lawyers to double check the legalities of incorporating the covenants into the bylaws.

The new team, Rick Tubertini, and John Gutierrez, agreed with Newton’s opinion that the board had authority to do this under the Perry case, but they tread more cautiously, warning that Perry “is subject to contrary interpretations, and the relevant holding has not been tested, to our knowledge, since the opinion was handed down in 1986. Therefore, there is some degree of risk that bylaws incorporating and extending the restrictive covenants may be subject to challenge.” In plain English, that means a judge may not see this case the same way we do, and it’s the only case that says what we hope it says about your following this course of action, and oh yeah, you could lose if it winds up in court.

covenant-1The new lawyers also assumed that consent to amend under the covenants was too hard. To Ramirez and Newton, it had been “most unlikely” that the required percentage could be obtained. Tubertini and Gutierrez upped that assumption to being a “practical impossibility,” and by 2013 the board declared that it was “impossible.” Yesterday the 2016 version arrived on the front page of the Diamondhead News: it “cannot not [sic] be reasonably met.”

Interestingly, the only person who has refused to make such an unfounded assumption about actually renewing the covenants is a Purcell officer, Carl Joffe. When told that you can’t get 85% approval, he replied, “Well, that’s hypothetical. We got two-thirds in Lake Arrowhead, GA when our covenants could only extend for twenty years. Our covenants didn’t call for 85%, it was 66 2/3, so I’m not saying it’s impossible.”

My own speculation about why the board saw renewal as so difficult back then is that despite their real concern about extending the covenants there were still ten years to run before they actually expired, the recommended alternative was easy in the face of so many other immediate problems needing attention, and it’s  possible that casino and city incorporation issues were sucking all the air out of any other considerations at the time.

Whatever their reasons, they opted for an annual meeting vote on adopting covenants into the bylaws minus their expiration dates. It was certainly riskier than the sure-fire method of amending the covenants, but in the event that it worked, it would maintain the board’s powers to collect dues and exert architectural control. All the covenants’ provisions would continue to exist in the bylaws while the covenants themselves could go ahead and expire on schedule.