What is the legal situation for a golf club wanting to sell its land?

By Alistair Dunsmuir December 26, 2017 10:34

This guidance from the National Golf Clubs’ Advisory Association (NGCAA) explores the matters golf clubs should consider if they are selling their land

Golf courses are often regarded as prime real estate, whether they are in the country or in town, and can attract developers seeking to embark on developments where they can see a potential gain, whether the project is for commercial or, more frequently, residential purposes. Clearly the prime purpose and raison d’etre of a golf club is to provide its members with as good a club as possible both from a playing as well as social perspective, but it may be that a club has surplus land which could be better used by selling off and maximising a financial return either for the club’s future development or to put it on a firmer financial footing by reducing any debt burden that there may be to a bank or other financial institutions.

Set out next are some of the issues and criteria that should be taken into account when considering whether to sell-off part of the club’s land, and which are divided into two headings: the first, of a general nature in relation to the decision by the club and its members to sell and, second, specific legal and professional issues.

Matters for the club

The question of whether to sell can be not just a purely financial matter but can be emotive as well and will very much depend on the culture of the club and its members, many of whom may have been part of it for generations and who have a deep personal commitment to its wellbeing. Weighing up the pros and cons of any opportunity which presents itself can be difficult. It almost goes without saying that there will be a variety of views when deciding on how to proceed, especially when it comes to financial matters and whether to either actively go to the market to sell off surplus land or to accept, or at least entertain, an offer that a developer has proposed. These matters need to be dealt with sensitively and the membership must consider what is in both the short term and longer-term interests of its present membership and future generations. For this reason, a general meeting should be called and all the facts presented so that opinions can be aired in an open and honest way and an indication of the likely benefits and problems discussed in deciding on a particular course of action.

Whilst a developer may approach the club to either buy land outright or even to enter into a joint venture with the club, it may be a once in a lifetime opportunity and if the club decides to turn it down, the opportunity may not arise again for a generation, if at all. Accordingly, it is sensible for a committee to be formed, hopefully with the appropriate professional experience of its members or, if not, with the authority to seek professional advice whether legal, accounting or surveying, to enable the membership to make a properly considered decision as to whether to proceed. So far as possible, a timeline should be put in place so that the appropriate investigations can be made and brought back to the membership for further discussions and decisions.

Legal and professional issues

Generally, it is not unusual for even the committee or trustees of a club to be fully aware of the legal title of the land owned by the club. It is quite common for long established golf clubs to hold land which has never been registered at the Land Registry and is made up of various pieces of land bought over the years with the effect that the committee or trustees are not actually aware of any impediments or problems that there may be when selling off a part.

A developer will usually target a particular area of land which may or may not have direct access to a main road. There are numerous issues to be resolved and it is important that at an early stage legal advice is taken and a full assessment of the title deeds made to ascertain the ease or difficulty with which a sale could be effected. It is also worth bearing in mind that a sale for, say, residential purposes may result in the diminution of the value of the retained land and, again, expert advice from a surveyor as to the full implications of the sale should be sought.

In the event that the club has a mortgage, the consent of the lender will be required and it will in all probability want at least part of the loan repaid from any net proceeds. A club organised along traditional lines, with land held by trustees, means that unless the membership has agreed to indemnify them, they are potentially personally liable for the land and any debt that may be on it. This is often something that is not fully understood and which would not apply if the club was a company limited either by shares or by guarantee. As such, an approach to sell may be a good time for the trustees and membership to consider updating the ownership structure of the club in order to give greater legal protection to those who run it.

There are numerous legal issues that will need to be dealt with concerning easements, possible restrictions, covenants, services and any shared costs relating to connecting into gas, water and electricity, pipes and conduits, as well as road access, these will all vary according to the legal title, as well as the location and nature of the specific land in question, all of which will need to be disclosed for a potential developer.

In addition to the legal aspects, the club will need to take accounting advice in order to minimise any tax liabilities. It is also usually necessary to engage a surveyor or land agent for advice on valuations and on ways to maximise value for the club. One method that can be advantageous is to attach an overage, or clawback clause, into the sale agreement whereby the developer agrees to pay a percentage of the sale price of the dwelling houses that are sold within a period of, say, five or 10 years in the event that planning permission for the part of the land is obtained at a future date. This device is not unusual as it sometimes is of benefit to a developer to pay a lower initial price for land so that it can be seen whether the development is a success and if it is, a higher overage will be paid for later development. This is a matter for negotiation but is something to bear in mind before financing any deal.

Once all the necessary information is to hand and professional advice taken, the membership is in a position to make a decision as to whether it is in the club’s interest to proceed. All this will take time, some money for initial professional advice, as well as mutual forbearance in respecting differing views, but with proper procedures in place there is no reason why the right decision cannot be reached.

The NGCAA provides support, advice and guidance – from start to resolution – on all legal matters impacting upon both proprietary and private members’ golf clubs.