Oregon Court of Appeals Addresses Conversion of Golf Course Land to Residential Subdivision Over Protest of Homeowners Association

In desirable areas of the Pacific Northwest, including Portland, Seattle, and Central Oregon, disputes and concerns relating to land development, lack of developable property within urban growth boundaries, and the effects thereof on supply and demand of homes and home prices have taken center stage.¹

Against this backdrop, the Oregon Court of Appeals, in a split decision, determined on December 29, 2021, that the Covenants, Conditions, and Restrictions (CC&Rs) governing the Creekside Golf Course in Salem, Ore., did not require the owner of that course to maintain it in perpetuity and allowed the owner to convert the course into residential lots.²

Case Background

Plaintiff Creekside Homeowners Association brought an action against defendant Creekside Golf Club Operations, LLC, the owner of the course, and Golf Club Operations, LLC, the golf club's operator, seeking a declaration that the CC&Rs require that defendants maintain the golf course in perpetuity or that, as a result of defendants' marketing of the lots as part of a "golf course community" and unit owners' reasonable expectations, the Association is the beneficiary of an equitable servitude by estoppel or implication on the golf course that prevents its development.³

After a bench trial, the trial court dismissed the Association's claims and issued a declaration that the CC&Rs do not prohibit defendants from ceasing to operate the golf course and that the plaintiff may not prevent the defendants from developing the property for residential use. The Association appealed.⁴

The Panel's Decision

In affirming the trial court's judgment, the Court of Appeals analyzed the CC&Rs, as a question of law, in accordance with Oregon's approach to contract interpretation.⁵ That is, as a first step, if the text of the disputed provisions in their context of the CC&Rs as a whole is clear, the court's analysis ends. The court focused on a provision of the CC&Rs, Article III, section 4, that in the court's opinion spoke "directly to the issue."⁶

That provision states that the "golf course and related facilities may be modified, expanded or contracted, discontinued or converted to other uses or sold or transferred by the owner thereof … all as more fully described in Article VII."⁷ In the court's opinion, that provision gives to defendants "plenum power" over the real property of the golf course, including the power to discontinue or convert the golf course to other uses, or to sell it.⁸

The court reached this conclusion despite the Association's position that Article III and Article VII, which is referenced in Article III, should be read together in the context of the document as a whole, with which the court agreed, and that, to the extent the two Articles are inconsistent, Article VII, which the Association deemed the "more specific" provision, controls, with which the court disagreed (both that they are inconsistent and that Article VII is the more specific provision).⁹

Article VII, section 1 stated, in relevant part, as follows: "Golf Course. A portion of the real property described in Exhibit A shall consist of the golf course and related facilities."¹⁰ The court found that the Association's interpretation "eviscerates the power reserved … under Article III, section 4, and, for that reason, it is not plausible."¹¹ The court went on to state that "Article VII must be understood to be subject to the declarant's general authority stated in Article III, section 4, and not the converse" and that such a reading is the only one "that gives both sections meaning."¹²

Since the court concluded the CC&Rs do not restrict defendants' ability to convert the golf course to a residential subdivision, it rejected the Association's contention that the CC&Rs themselves create an equitable servitude.¹³ As for representations about the golf course made by the original declarant before the golf course was transferred to defendant Creekside Golf Course, LLC, as the successor-in-interest, the court—in considering the elements of an equitable servitude claim¹⁴—declined to review the record de novo and make new findings, as it should do so "only in exceptional cases" and considered itself bound by the trial court's findings if there is any evidence in the record to support them.¹⁵

The court recited the trial court's findings that the Association did not prove by clear and convincing evidence (a higher evidentiary standard than a preponderance of evidence in a civil case) that its members relied on any express or implied representation that the golf course would exist in perpetuity or for some future duration.¹⁶ And the court relied on the trial court's conclusion that the evidence was insufficient to permit a finding that the defendants, as subsequent owners, had actual or constructive knowledge of any equitable servitude at the time of the transfers.¹⁷

As such, the court concluded that the trial court's findings were supported by the record and that the record supports its determination that plaintiff has not met its burden to establish by clear and convincing evidence that the golf course is subject to an equitable servitude, either expressed or implied.¹⁸

The Panel's Dissent

Judge DeHoog, in his dissenting opinion, concluded that the two competing provisions of the CC&Rs (Article III, section 4, and Article VII, section 1, as well as Article VII, section 3), viewed together and in context of the CC&Rs as a whole, can be read to support either side's view and, as a result, the CC&Rs are ambiguous, requiring the trial court to proceed to resolve that ambiguity in accordance with Oregon's approach to contract interpretation.¹⁹

Keying in on the difference in the language of Article VII, section 3's treatment of what an owner could do with the golf course, versus any related facility of the golf course, Judge DeHoog noted that the word "eliminate" was "[c]onspicuously absent" from what the owner could do with respect to the "golf course," but was included in what the owner could do with any related facility of the golf course.²⁰

Lessons Learned

This opinion from the Court of Appeals offers valuable lessons relating to the development of CC&Rs for golf course and similar communities, as well as guidance in interpreting and, potentially, challenging them. Please contact us if you have questions relating to developing or challenging CC&Rs, including those in golf communities.

FOOTNOTES

1  See, for example, the dispute between an owners association and golf course owner in Bend, Ore.; the "huge problem" over the lack of developable land in Bend, Ore., and its effect on supply and demand and prices; and the supply and demand "imbalance" in Portland, Ore., and the same in Seattle.
2  Creekside Homeowners Association, Inc. v. Creekside Golf Course, LLC, 316 Or App 646, 656-59, 2021 WL 6134871 (2021).
3  Id. at 653.
4  Id.
5  Id. at 654, citing Yogman v. Parrott, 325 Or 358, 361-364, 937 P2d 1019 (1997).
6  Id. at 655.
7  Id. (emphasis added in opinion).
8  Id. at 656.
9  Id. at 650, 654-57.
10 Id. at 650-51, n. 3.
11 Id. at 656.
12 Id.
13 Id. at 658.
14 The court, citing Mountain High Homeowners Assn. v. J.L. Ward Co., 228 Or App 424, 438, 209 P3d 347 (2009), identified the following elements of an equitable servitude claim: "'(1) [E]ither an express or implied representation made under circumstances where (2) it is reasonably foreseeable that the person to whom the representation is made will rely on it, (3) that person does so rely, (4) such reliance is reasonable, and (5) the establishment of a servitude is necessary to avoid injustice.'" Creekside Homeowners Association, Inc., 316 Or App at 658.
15 Creekside Homeowners Association, Inc., 316 Or App at 658.
16 Id. at 659.
17 Id., citing Ebbe v. Senior Estates Golf, 61 Or App 398, 405, 657 P2d 696 (1983) for the premise that a "promise is binding as an equitable servitude if, among other things, 'the subsequent grantee [has] notice of the covenant, either actual or constructive'" (brackets in original).
18 Creekside Homeowners Association, Inc., 316 Or App at 660.
19 Id. at 661-62.
20 Id. at 663-64.