A: Under South Carolina law, the Developer has a fiduciary duty to provide adequate amenity capacity. The Board of Stewards of the Preservation Trust have a fiduciary duty to act in the best interests of all property owners – especially in that they oversee and manage the homeowners dues paid to the Trust. Unfortunately, it appears that the prioritization of Montage Hotel guests over members has come at great cost to the members. For example, challenges to amenity capacity (apparently referred to as “compaction” by the Developer) have increased significantly in recent times, forcing closures of club venues, difficulty in securing reservations to dining and events, excessive use of the Village Green for Montage-controlled events like weddings, etc.
A: This is an important topic for all homeowners because the Developer tends to blur the lines between the Club and the Trust. They are actually distinct and very different entities. The Preservation Trust is a non-profit corporation, and it is essentially the Homeowners Association (HOA) for the community. The Trust’s purpose is to manage the common areas. The common areas in Palmetto Bluff include things like the roads, ponds, landscaping, and trails – but the common areas do not include the amenities.
In contrast, the Palmetto Bluff Club is a “for profit” entity. The for-profit Club owns and operates the amenities, including swimming pools, racket courts, fitness centers, and restaurants.
Your confusion may arise because both the Club and the Trust are owned and/or controlled by South Street Partners. The Governing Documents suggest there should be transparency in both Trust and Club financial statements, but such information at an appropriate level of detail is not readily available. Without transparency, it is difficult to understand how dues are calculated and whether and how expenses are allocated between the Club, the Trust, and the Hotel (which is independent but uses Club and Trust services and offerings) – which are all legally distinct entities.
The lack of transparency raises key questions. Is the Club receiving appropriate fees for events, especially when member restaurants are closed for hotel events? Is the Trust adequately being compensated for the wear and tear and security needed for large weddings on the Village Green, for example?
The Governing Documents suggest the Club, in its sole discretion, could completely and indefinitely restrict member access to any or all of the amenities, regardless of the amount it charges in dues. It might be possible that—even if the Club eliminates member access to certain facilities—the Club could still charge members any cumulative amount for dues (e.g., $1 million annually). Making this scenario even more troubling is that, if that amount is not paid, a lien could be placed on the member’s property.
The uncertainty is disturbing. How could amenity access change under this structure? How might changes to access to amenities affect home values? How might it impact each member and their future at Palmetto Bluff?
A: In South Carolina, real property transfer fee covenants are unenforceable when they require a fee to be paid to a third party as part of a property transfer. Although there are certain exceptions, none apply to the Club. Here, the various governing documents contain an alleged “covenant” or requirement to pay a joining fee to a for-profit club as a condition of conveyance of property. The joining fee is a payment made at closing to the Palmetto Bluff Club which appears to be a third party to the transaction. Notably, the prohibition against transfer fee covenants comes from the South Carolina Legislature as well as the common law. See Section 27-1-70 (A) (4) Code of Laws - Title 27 - Chapter 1 - General Provisions (scstatehouse.gov).
A: The Club is currently a Developer-owned, Developer-driven “for profit” entity or set of entities. If the Club is member-owned and the operator of the Club manages it for the benefit of the residential owners (as specified in the Declaration of Recreational Covenant) any misalignments of interests should subside. The friction between the economic interests of private equity firms and homeowners’ property interests would seemingly fade. Under that structure, the Club’s financial durability and future amenity plans could become more transparent and inclusive - and a quality member experience would likely be the top priority.
A: The Preservation Trust, an HOA, owns the Village Green, which should be available for the enjoyment of all property owners. It appears that the Trust has increasingly allowed this space to become a cash-driving vehicle for the Developer’s hotel (which is operated by Montage). Recently, it seems that this community space is almost exclusively used for private Hotel events. Perhaps this is intentional. If so, it would allow the Developer’s hotel to generate millions from weddings and corporate events. Yet, the Preservation Trust may only be charging a nominal site fee for each event. Homeowners have no transparent way to understand this usage and the associated flow of revenue. Further, these large, often tented functions may be causing repeat damage that the Trust must repair repeatedly. The more one considers this increase in hotel-associated events, the more questions that come up. As an example, these events require extensive security – is the Trust paying for that?
A: When property owners currently purchase a home in Palmetto Bluff, it is mandatory that they join the Palmetto Bluff Club and pay a $30,000 joining fee. The Palmetto Bluff Club’s budget overview no longer shows these significant fees as revenue going into the Club as they once did. This leads to transparency questions. Where are these fees reflected in the Club financials? Are they being misused? Are they not being put into reserves or invested back into Club amenities? Could these joining fees be used for other non-Club needs and activities? The lack of transparency with the Club’s budget, and the spending against it, raises concerning questions about how money is being spent – by whom – and how it benefits the Club.