memorandum

to: Lake Holiday Country club board of directors and interested lhcc members

from: margaret c. mcculla

subject: Proposed new declaration

date: September 18, 2005

Thank you for the opportunity to review the latest version of the proposed new Declaration. I appreciate all the work the Board and the Governing Documents Committee has done on this document. However, I still do not think that the declaration you are going to vote on on September 22, 2005 should be approved. While the declaration is better than the draft presented to the community in February 2005, in many important matters it still puts the developer’s interests over those of the current members, to the detriment of the members.

There are so many issues with the declaration that it is impossible in the time I have had to set them all out in one memo. So I will list the most important issues here, and include with this memo a copy of my markup of the declaration, which indicates other issues and problems. Some of these issues are the same issues highlighted in the memo I wrote giving comments on the proposed new articles and bylaws, but some relate solely to the declaration. The issues highlighted in this memo and my markup of the declaration represent my views on the document, but please believe me when I say that many, many other members of the Association feel the same way I do on these issues.

Many of the issues I raise here were addressed in the rewrite of the declaration that I gave Chris Allison in July, but it appears that very little of that work (even the technical corrections) made it into this document.

1. Definitions Still Don’t Work: Some of the definitions still don’t work and are not consistent with the definitions in the articles of incorporation.

· Majority Vote: This definition does not match the definition in the Articles of Incorporation. The documents should be consistent when they use the same terms, or have different definitions if different concepts are intended.

· Member and Owner: These terms seem to be used interchangeably in the declaration but they aren’t given the same meaning. member is anyone who owns a lot and is obligated to pay assessments. Owner is anyone who owns a lot. The term Owner is specifically defined to refer to a member. I don’t know if there was an intentional distinction made between these terms in the declaration, but if there was, it doesn’t work. This needs to be cleaned up so there is no confusion over who has what rights. I really think we need only one term.

· Submitted Land: I still do not think the definition of Submitted Land works; it’s circular. It says “Submitted Land is all real estate submitted to the declaration.” It needs to say that it is all land included in the original development plan (the Ingram plan), including lots, common area, unplatted green space. The unplatted property is missing. And see comment #3 on whether the common area has been legally submitted/dedicated.

2. Definitions of Common Area and Common Property: The distinction between Common Area and Common Property is not made clear in the declaration. It suffers from the same issues raised in my memo on the articles and bylaws: What exactly is Common Area and what exactly is Common Property? Why is this distinction necessary? If the issue is the board being able to sell individual lots owned by the Association without member consent, that’s easy to draft around. If there is some other reason for the distinction, make clear what it is so the members can understand the board’s position and make an intelligent decision, with all the facts. Otherwise, it appears the board is trying to hide its ultimate motives from the members. (For example, consider the last week’s change of categorization of beach 2 by the board after it became apparent it was an issue with the members.) If the board intends to sell some of the community’s assets, let’s get it out in the open for debate. The easy fix for this is to go back to just the concept of Common Area and define it as all real property covered by the original Development Plan that is owned by LHCC, other than platted lots.

3. Designation and Dedication of Common Area. Under the current articles (Article XI), the Association can only dedicate all or any part of the common or recreational areas or facilities with “the assent of sixty seven percent (67%) of the total eligible voting power of the membership present…at a properly called meeting…” I understand the board has or is in the process of designating certain of the common facilities of the Association as common area and recording a deed of dedication with respect to such facilities. However, I don’t recall there being a member vote on the dedication of such facilities. The board’s unilateral designation and dedication of some of the common facilities of the Association without a member vote appears to violate the current articles and is an ultra vires act of the board.

4. Clarification of Use of Terms Common Area and Common Property. The declaration constantly misuses the terms Common Area and Common Property to the detriment of the member’s rights. The declaration says members have an easement right to use Common Area, but not Common Property. So the members don’t have any protected right to use any community asset or facility that the Board unilaterally has declared to be Common Property. This doesn’t sound right on its face, and it’s doubly bad because it is unclear what is Common Property. (See, e.g., Section 3.8(a))

5. Use of Common Property.

· The board is giving itself the right to allow people who don’t live in the community to use our facilities (lake, beach 1, etc.) on a daily or annual basis. Does this mean the board can let non-members pay to put a boat in the lake or use the beach in the summer? This is not what the community wants and flies in the face of having a gated community. (Section 2.2)

· The board has given itself the right to transfer common property so long as the developer transfers back to the Association as much property as is necessary to maintain the total acreage of common property that existed before the transfer. This means the board could transfer beach 1 or beach 2 or the clubhouse property as long as they get back the same number of acres somewhere else. This clearly is not fair to the current members. Who wants a clubhouse out by the back gate? (Section 2.3)

· The board has given itself the right to terminate easements over the Common Property. Technically, this means that the board could terminate the members’ right to use the lake. Clearly, this is a bad result and needs to be fixed. (Section 3.8(a))

· The board has given itself the right to license out the use of Common Property and limit who can use it. This means the board could restrict the members’ right to use the lake. This is not acceptable as written. (Section 3.9(a)) The board has also given itself the right to designate Common Property for the exclusive use of some but not all members. This means the board could designate the use of the lake only for certain members. This clearly is not acceptable as written. (Section (3.9(b))

6. Voting Rights: The section setting out voting rights does not track the Articles. There absolutely needs to be consistency on this provision between the documents. (Section 1.3(c))

7. Voting Rights of Developer: The declaration says the developer does not have voting rights for lots in Sections 5B, 5C, 7, 9, 10, 11 and 12 for which they are not paying Assessments. Is the developer paying Assessments on all other lots it owns within the community other than in these Sections? If so, the document works. If not, the declaration should make clear that the developer is not entitled to exercise voting rights with respect to any lots it owns in the community for which it is not paying Assessments, regardless of what section the lots are located in. (Section 1.3(c))

8. Easements and Setbacks. The declaration gives the Association and developer enormous easements rights over members’ property that are an unfair burden to current owners and extremely preferential to the developer.

· For example, the developer gets a blanket easement across all of the Submitted Land (even individually owned lots) for purposes related to the development of Sections 5B, 5C, 7, 9, 10, 11 and 12. This means the developer can put a sewer lift station in your front yard without your consent. There is no limited easement area delineated. This clearly is unacceptable. (Section 3.1(a)(1))

· The declaration gives the Association the same blanket easement over current members’ lots for the installation of utilities, but it does limit the easement area to the setback areas. However, this is still unacceptable. Members do not want the Association to have a right to put a pump station or other utility facility in their yards. Utilities should be run in the roads or within currently designated utility easement areas unless you have the lot owner’s consent. (Section 3.1(a)(3))

· The declaration tries to increase lot setback lines over what is on the current plats for each lot. For example, lots in Section 1 and 6A have 35’ front setbacks and 10’ setbacks on all other sides. The declaration tries to change these to 35’ front, 25’ rear and 10’ side setbacks. This is not appropriate, and I’m not even sure it’s legal. (Section 8.2(y))

· The declaration gives the Association and the developer a blanket easement over all land within 10’ from the boundary lines of every lot to promote the developer’s development. This is not fair to give the developer these rights at the expense of current members’ rights. (Section 3.1(a)(3)(B))

9. Adding Land. The board is allowing land to be added to the community on the affirmative vote of 2/3 of the votes cast at a meeting. There are no limits on what land can be added, as there were in the original draft of the new declaration. This is a backdoor way that the developer could add additional land to the community because the developer could begin paying assessments on enough of its lots that it could control the vote. (Section 4.1)

10. Developer Withdrawal of Land: The declaration give the developer the right to withdraw its land from the Association if the Association is in material default of any of its contractual obligations to the developer which would prevent the developer from developing any portion of Sections 5B, 5C, 9, 10, 11 or 12. Ostensibly this right to withdraw originates in the Development Agreement; but the Development Agreement only provides that the developer can withdraw for a default under the Development Agreement, not under “any of [the Association’s] contractual obligations”. Also, the Development Agreement only speaks to the developer’s right to withdraw Sections 9, 11 and 12, while the declaration gives the developer the right to withdraw Sections 5B, 5C, 9, 10, 11 and 12. The declaration goes much further in giving the developer withdrawal rights that the Association is obligated to, to the detriment of the Association. (Section 4.3)

11. Developer Rights. The board is still giving the developer significant rights under new docs that the rest of the community doesn’t have, such as easement rights. Also, the proposed new documents give the developer special rights with respect to all lots the developer owns, not just lots in the Sections where it owns a majority of the lots. I’m not sure this was the original intent of giving the developer special rights and I think these special rights should be limited to the Sections where the developer is the majority owner of the lots within the Section.

· The declaration gives the developer special rights in Sections 5B, 5C, 7, 9, 10, 11 and 12. The 1984 Agreement and the Development Agreement do not include Sections 7 and 10. Why does the declaration give the developer special rights in sections 7 and 10 when there does not appear to be any obligation to treat the developer differently in those sections than any other member? (Section 5.2) Also, different parts of the declaration give the developer different rights for different sections. Is this intentional? I could not discern any clear pattern or reason for this.

· The declaration allows the developer to transfer its special rights to “any Person acquiring lots”. Does this mean that the developer can transfer the right to withdraw land to a builder for an individual lot? I’m sure this wasn’t intended, but it’s what it says. (Section 5.1)

· In the 1984 Agreement, the only sections the developer could replat were 9, 11 and 12. In the declaration the Association is giving the developer the right to replat all of its property. This goes significantly beyond the 1984 Agreement, potentially to the detriment of the Association. (Definition of “Development Plan”)

· The declaration gives the developer quite a bit of control over development rights in portions of the community not owned by the developer. For example, no other owner can rezone its lots without the developer’s approval (during the Development Period). This gives the developer greater rights than every other member of the community, to the other members’ detriment. (Section 7.6(b)) Also, the community cannot amend the declaration without the developer’s consent at any time that the developer owns lots in Sections 5B, 5C, 7, 9, 10, 11 and 12 if the amendment would diminish or impair the developer’s rights. This gives the developer more control over the community than the members. (Section 15.2) (See also discussion in #8 on special easement rights given to the developer.)

· The declaration exempts the developer from paying Assessments on any lots it owns in Sections 5B, 5C, 7, 9, 10, 11 and 12. This exemption includes lots that were not originally part of the Trust property, so we’ve expanded the developer’s exemption from paying Assessments. Is this appropriate or fair to other members? (Section 6.3(a))

12. Extension of Services to Membership Lots. The board is trying to require that membership lot owners pay to have roads and water and sewer brought to their lots. This was not in the original draft of the declaration given to the community in February 2005. Isn’t this what the Association members bought when they bought their lots 30 years ago—lots in a community with utilities? Isn’t this why got the community into a lawsuit several years ago—for the community’s failure to provide water and sewer to people who had been paying dues for it for years? If the board gets away with this it means that the membership sections across the lake won’t get water and sewer until they come up with the money for it themselves. Is this fair? It also is inconsistent with the current declarations for some of the sections with a large number of membership lots. For example, the declaration for Section 6A states that members have to pay a capped one time charge to connect to water and sewer (capped at $500 and $1,200, respectively), irrespective of the cost to the developer for installation of the central system. (Sections 6.2(a)(3)(D), 6.2(c)(1), 7.4)

13. Builders Paying Assessments. The declaration still seems to imply that builders don’t have to pay Assessments. I thought that builders paid capitalization fees and Assessments. (Section 6.3(a))

14. Grandfathering Right to Use Boats. Clearly one of the big issues to the community is grandfathering members’ rights to use powerboats on the lake. This was recommended by the Lake Committee and rejected by the board. This is a lake and boating community; the right to use boats needs to be protected. The developer has offered to restrict the right in its sections; we should protect it for current members and restrict it in the developer’s sections. (Used to be in Section 8.2)

15. Control over New Construction. The declaration does not allow the Covenants Committee or the board the right to review new construction approved by the Initial Construction Subcommittee. The developer has two out of five members on the Initial Construction Subcommittee. Why are we ceding this responsibility and authority to a subcommittee without review by the board? This seems irresponsible and giving too much power and favor to the developer to the detriment of the members. (Section 9.1(c))

16. Compliance and Default. As written, the section has a lot of internal inconsistencies and creates a lot of questions. It needs to be rewritten in a more logical fashion. Only the board should have the right to suspend voting rights and the right to use common facilities; this power should not be given to any committee. (Section 12.1(f)) All committee actions should be appealable to the board, and all respondents should have the right to a hearing. (Section 12.1(h)) Section 12.4 should be deleted because it is unfair to members and way too broad. It allows the board to require members to post bonds or give the Association a deed of trust to secure Assessments. The Association should just rely on its lien rights.

17. Member Votes:

· Dilution of Member Votes: Member votes on (i) whether to sell Common Area (Section 2.2), (ii) whether to replace Common Property taken by the government (Section 14.2), (iii) amendment of the declaration (Section 15.1(b)), and (iv) material amendments and extraordinary actions all diluted from 67% of all members to 67% of votes cast at a meeting. (Section 15.3) Generally, the standard of 67% of votes cast at a meeting is too low for these types of actions while we are in the Development Period, because that vote could easily be controlled by a developer if it wanted to pass an action.

· Matters Submitted to Members for a Vote: The list of matters subject to a member vote in the declaration is much more extensive that what is in the Articles and Bylaws. I am assuming the declaration will prevail, but the documents should be consistent so no questions are raised; the Articles should be changed. (Section 15.3)

· Material Amendments and Extraordinary Actions. Other amendments/actions should be added for member votes (Section 15.3):

i. Increasing the annual cap on Assessments;

ii. Borrowing in excess of 25% of annual budget;

iii. Designation of property as Common Area or Common Property or recordation of a document in the land records dedicating any Submitted Land as Common Area or Common Property;

iv. Abandonment, partition, sale transfer, lease, mortgage or other encumbrance or conveyance of any portion of Common Area or Common Property, except for (A) sale of individual lots owned by Association for fair market value, (B) granting of easements in accordance with declaration, (C) mortgages not to exceed 25% of annual budget, (D) minor lot line adjustments in accordance with declaration, (E) dedication to public authority (e.g., roads), (F) merger/consolidation approved in accordance with Association Documents;

v. Adding or annexing any real property to the Submitted Land, including the golf course;

vi. Restrictions on the mortgage, transfer or other conveyance of a lot;

vii. Approving a change in the Development Plan as to the nature of development in the community; and

viii. Terminating the declaration or the Association.

Again, thank you for the opportunity to raise these issues. I don’t raise them lightly because I think they are important to the community at this time. I trust you will give them due consideration so that you approve new documents that are fair to the community.