What do the CC&Rs say?

In Section 2.02, the CC&Rs provide that the developer can add properties to our Association with the affirmative vote of 2/3 of the members of the Association.

There is also a provision [see paragraphs 2.02(a) and (d)] that he can annex without permission if it has not been more than five years since the initial registration of a Kohala Ranch subdivision with the office in the California Department of Real Estate that deals with out-of-state properties to be marketed in California.

The initial California registration of Meadows II took place in 1992, and there were no new registrations until June of 2005, when Heathers II, the first Project IV subdivision, was registered.  The wording of the CC&Rs is confusing.  It could mean that new subdivisions cannot be annexed unless 2/3 of the members of our association agree.

The Association's attorney had a different interpretation, but only directors were allowed to see it.  Developer Bob Acree used that secret interpretation when he annexed Heathers II.  He has indicated that he doesn't intend to annex any additional properties.  but plans can change, or we could be dealing with a different developer in the future.

Is annexation good or bad for us?

1.  Loss of dues if future Project IV subdivisions form their own association should not be an issue, since the legal principle of equity requires that all lots pay for services received, whether they are annexed or not. Unannexed lots would pay less if they cost us less to service, so their status - in or not in the Association - should be pretty much revenue-neutral.  Original developer KJV paid full fees to the Association for 27 unannexed Project IV lots for years.  It never tried to vote them and, ultimately, deleted them. 

2.  There could eventually be 1968 ownerships in the Association, instead of the 519 we have now.  It will be very difficult and expensive to keep so many members informed when someone sees something wrong in the Association and wants to let others know.  Printing and mailing costs in the vicinity of $1500 will have a chilling effect on such communications. 

3.  The developer might get the County to allow timeshare units.  Bob Acree has already given indications of thinking this way.  This could mean 51 or 102 owners per unit!  (Some timeshares are for half a week.  One week per year is allocated to maintenance.)  Sending a letter to just one designated person in such a unit may not be an effective way of getting a message out to all the owners...whether that message is coming from a group of members or from the Association itself.

Even if timeshares are not allowed, we have seen de facto timeshares on this island, and this could mean a big headache for our association if we have to deal with Project IV problems.

4. The developer can keep giving himself additional blocks of votes by annexing new subdivisions.  He has disproportionate influence already, because he owns so many unsold lots - some created roughly two decades ago - coupled with the fact that fewer than half the owners vote in the board elections.

5.  Our votes will be diluted.  The CC&Rs warned that this could happen, but that doesn't diminish it as an argument against annexation.  Our votes, worth 1/519 at the present time, will be worth only 1/1968 if Project IV is developed to the maximum presently allowed and all the lots are annexed.  In that case we will be outvoted almost 4 to 1.

What difference will this make?  Maybe none.  But suppose a future golf course is, or threatens to become, a headache and a financial drain.  The people who have lots and condos around it may want the Association to maintain it, in order to keep up the value of their units, and they might be able to get enough votes to force us to do so.

If the Association doesn't own it, they might have enough votes to force us to accept it - or even buy it - from the owner.  If the owner is the developer, he may have created enough votes for himself to force this on us, in order to keep up the value of the lots he's trying to market.

Or suppose the developer wanted to put extensive landscaping or costly facilities into Project IV for marketing purposes and force us to help fund and/or maintain them.  If we're in a separate association from Project IV, we can enter into agreements to support facilities we want, but we cannot be forced to pay for things we feel are not worth the expense to us.

Something comparable to this has already happened on a small scale.  The original developers put corner landscaping into Project III - the only place where that occurred off of Kohala Ranch Road - when they were ready to market lots there.  Although all of the independent directors voted against it, the developers dominated the Board and were able to force the Association to accept the maintenance costs.

Presumably we will be paying forever to maintain those corners, even after all the lots have been marketed...and even though water rates have gone up considerably.  (The current developer, incidentally, still owns more than half the lots in Project III - as of April 2009 - including half the corners where this landscaping is found.)

The same thing happened more recently when Bob Acree annexed Heathers II to our association with landscaping inside the subdivision and adjacent to it that required excessive irrigation.  With less than 8% of the lots, it was using almost 43% of the water.

Because of the problems this created, and the outcry from Association members, this irrigation had been cut back to 28% of Association water charges by late 2008, with further cuts promised (though, inexplicably, the 2009 budget still allocates 40% of the water costs to Heathers II and environs).

We urge the directors to ask any developer who is creating new lots which may be annexed to our subdivision to consult with the Association in open meetings about whatever landscaping and facilities are being contemplated.  And the Board should be prepared to withhold support from any amenities they or the membership feels are not cost justified.

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Some people wonder what happens with design guidelines in subdivisions that are not annexed.  Paragraph 2.02(d) of the CC&Rs says that, without annexation, the new subdivisions need not be subject to our guidelines.  But they don't have to be, in any case, because paragraph 2.02(f) says that if the land use designation for Project IV is changed, it will have covenants and guidelines consistent with the new designation(s).   The land use classification was changed from agricultural to urban, so all bets may be off, whether it's annexed or not.

This should not be a concern, however, because a developer who wants to be keep charging up-scale prices for Project IV properties is not likely to allow things to become shoddy.   In fact, some excellent provisions have been included in the CC&Rs for Heathers II. 

If anything drags down the quality in the future, it is more likely to be the sheer number of units being built, and the probability that our overtaxed Architectural Control Committee would allow things to fall though the cracks if it had to take on the urban area as well.  Many things have already fallen though the cracks at the Ranch, with far, far fewer units than may be added in Project IV.

It isn't possible to envision all the situations that may come up, but we have more flexibility and are in a stronger position to protect our own interests if we have a separate association.  If being separate has unforeseen disadvantages, it may be possible to annex at a later date.  But once the annexation has taken place, the developer and 100% of the owners of the added lots would have to agree to reverse it...which could be virtually impossible to achieve.

ANNEXATION OF NEW SUBDIVISIONS 
 TO OUR COMMUNITY ASSOCIATION