While pre-recessionary conditions were causing a spike in initiation fees, clubs were creating structures that would pay deposits back. Unfortunately, once the economy shifted, resignation lists grew and people became disgruntled over the long wait for refunds. Plummeting membership sales began to force clubs to repay deposits out of their own funds. Some resorted to bankruptcy or a transfer of ownership to survive. Others created multiple, low-priced categories, which failed to reduce the resignation list and slowed the refunding process even more. Recently, some clubs have been sued on the grounds of verbal misrepresentation in order to expedite the repayment of deposits. So what can be done? With the appropriate research, legal counsel, and stakeholder consensus, some options include:
1. Discourage “squatting” on the resignation list. Nonequity clubs could restrict access to the club upon resignation and require payment of a new join fee for re-entry.
2. Have specialized counsel review the membership documents (rules and regulations, bylaws and application) with regard to resignation rules and procedures, especially refunds and waiting lists. Reinforce with language that states that early refunds will not be given under any circumstances and that written guidelines take precedence over verbal representations. Amend the refund policy to be based on dollars received from new membership sales, rather than the number of memberships sold.
3. Resist the urge to refund early in hardship cases or by playing favorites.
4. Consider adding a lower-cost, nonrefundable structure. Although this won’t circumvent the repayment obligations to the existing refundable memberships, it should diminish the club’s refund liability over time.
5. Get creative. Market-based pricing (where a resigning member determines the refund they would accept) allows for value fluidity, based on how urgently the club wants to reduce the resignation list, and/or how quickly resigned members would like to be free of their commitment. A club could buy members off the resignation list for a designated (usually discounted) amount, and a bring-your-own-buyer program empowers members to bring their own replacement and receive a refund in exchange for introducing someone new to the club.
Although refundable deposits may not be as popular today as when the structure was first created, it still makes sense for some clubs. Conducting a proactive assessment of what’s working (and not) will ensure that the club remains on a sustainable path into the future.
Jeffrey Hansen is senior vice president and associate general counsel of Troon, the world’s largest golf management company, with more than 270 golf courses in 36 states and 31 countries in its portfolio. Troon also specializes in homeowner association management, private residence clubs, estate management and associated hospitality venues. He can be reached at [email protected] com. For more information, visit troon.com.