Kiawah Island Property Owners Group

[Editor's Note:  Because the Development Agreement has a major impact on KICA, we asked the two property owner directors who worked with the town by providing comments on the Standards Manual to write this article for the Talk.]

Introduction:  Much has been written about the Development Agreement (the agreement) reached between the Town of Kiawah and KRA.  In their July and October '94 issues of Island Insights, KRA provided their perspective on the agreement, and the town explained the terms in considerable detail in their 27 September issue of Town Notes.   We will try to give you some understanding of  the impact the agreement will  have on KICA as seen by  those of us who will have to operate within the agreement as we strive to represent property owner interests on the board.  Our intent is not to replow ground covered by KRA and the town; therefore we begin with the assumption that you have read their articles. 

The first thing to recognize is that KICA is not a signatory to the agreement, even though KRA, which presently controls the KICA board, had a major role in crafting the agreement.  There is no compulsion for KICA property owner directors to abide by the terms of the agreement; however, if we do not conform, then KRA is released from their obligations toward KICA under the agreement.  The KICA covenants, incidentally, are not modified but they are affected in that KRA has given up some of their covenant-granted  rights.  The covenants remain the governing authority for the board in conducting the affairs of KICA.  There are many good things about the agreement, but there are also a number of things we do not care for.  We'll cover both the positive and negative aspects below.  Let us say right up front, however, that we believe the benefits accruing to KICA from the agreement considerably outweigh the disadvantages, hence we applaud the agreement as a  whole.  However, for property owners to realize the benefits of the agreement, they are going to have to pay a lot more attention in the future than they have in the past to whom they elect to the board and to the voting records of those elected once on the board.  More about this later.

Background:  It was the town's decision to include KICA affairs within the agreement because they recognize that Kiawah's future depends on shared governance between the town and the community association.  They felt this could be best and most cooperatively achieved if property owners control both the town and the community association.

Advantages:   1)  definite transition date - In addition to the issue of how best to succeed at shared governance, it was apparent that KRA would never build 5600 units (80% of 7000), therefore transition of control of the association from KRA to property owners would never be achieved under the then-existing terms. (Remember, Class A property owners now contribute about 89% of the operating funds to KICA each year, with KRA providing about 6%.)  Thus the town took it upon itself to try to remedy this situation by including KICA transition as part of their agreement.  This meant that to obtain concessions for the association from KRA, the town agreed to grant other concessions to KRA in some areas strictly within the purview of the town.  We applaud the town's willingness to look beyond their own interests to the interests of Kiawah as a whole, for in so doing the town has provided us a definite date for transition.  Even though the date is later than we had hoped for, a definite date is something we have never had before, and there is also partial transition along the way.  This is by far the most significant advantage of the agreement.

2)  beach parking -  An other important  positive aspect of the agreement is that  it also solves, at least for the near term, another major problem facing all of Kiawah B beach parking, the details of which have been  covered elsewhere. 

3)  no new  lands to come under the covenants - Because KRA has agreed not to bring additional lands west of our main gate (e.g. Andell and Hope Plantation) under the covenants unless 6 of 7 board members concur, a serious concern has hopefully been eliminated.  Of course, if KRA can influence 2 of the 3 property owner directors to vote with them, they might succeed in bringing an Andell in under our covenants.  The owners of any properties brought under our covenants would have full access to all Kiawah facilities.   We can't help but wonder why all land off-island wasn't included?

4)  new property for KICA - The many pieces of property being passed to KICA constitute a big plus.  Some of these properties such as the beach buffer zone probably would have been passed to KICA eventually.  However, many of the park sites, including Rhett's Bluff boat landing, and parking lots might not have, or might have been sold to us. 

5)  sale of part of parkway to town - If  property owners approve the sale of our main access road to the town,  KICA will be relieved of the required maintenance,  saving KICA a considerable amount yearly.  There is nothing to be gained by the town from this ownership. The town council was simply motivated to help KICA financially, since the town has numerous sources of income and KICA revenues are limited.   For this we are also grateful.  Looking into the future when the access road, as well as the bridge over the river, may have to be expanded to four lanes, KICA will be fortunate to avoid such expenses. 

6) reduction of KRA votes in KICA elections - KRA has agreed they will not exercise their Class A votes or any Class A proxies they may hold in future elections of a Type A director.  This is not nearly as meaningful as it sounds, since most of KRA's votes are Type C (owners of commercial property) and Type D (owner of unsubdivided lands).  The only Type A votes they have are for the lots and the few dwelling units they own.   Of the 470 property votes KRA cast in last March's election, most were class B and C votes. However, in addition, they did receive 255 Class A proxies last March and in the future they've agreed not to vote these.  The fact remains, however, that KRA will continue to control a large block of votes which they may decide to cast to influence the election of property owner board members, as they did in 1994 for the very first time.

This completes a rundown of the major advantages for KICA in the agreement, and you can see they are significant.  Now let's turn to some of the things included in the agreement that we would rather not have to live with.  By and large these are things KRA believed they had to retain to assure that, for the foreseeable future, no radical changes will occur in the operations of the association.

Stages of transition: Let's quickly review the phases of transition.  There are no changes in operations until initial transition begins on 1 March 1996, at which time KRA retains their 4-3 majority on the board, but they agree to vote only 2 of their 4 votes on certain categories of issues. This is termed a “weighted vote system.” Greatly simplified, KRA will cast all 4 votes on landscaping, lakes management and maintenance matters and only two votes on most other matters. (As previously agreed last year in a board action, KRA will cast only 3 of their votes on the use of reserve funds, resulting in equal control of these important funds.)  Interim transition commences on 31 December 2000, at which time property owners pick up another position and gain a 4-3 majority on the board.  Final transition occurs on 1 January 2004 when the property owner majority becomes 6-1.  The agreement expires on 1 January 2008, at which time KRA will sign a permanent waiver of its right to appoint a majority of the KICA board if transition of control has not yet occurred under the KICA covenants, which would take precedence over this agreement. 

Disadvantages, which arise from the Standards Manual:  1)  history - On the surface this transition phasing looks very promising.  Actually, what will occur is a situation where property owner directors have a majority of votes only to find there are a huge number of constraints which greatly limit the authority of the board majority.  Part of the agreement is a document called the Operating Standards Manual,  which has received only passing attention in KRA's and the town's articles, but which is particularly onerous from our viewpoint.  This document was allegedly designed “to insure continuation of Kiawah Island's standards” in order to prevent “the slow deterioration of common properties.” The first draft of the document was prepared in large part by KICA Administrator Bob Cowan for KRA at their direction without our knowledge and thus without any input from us.  It laid out supposedly existing landscape and maintenance standards, most of which had never been spelled out before.   KRA then made revisions to the document over and over, again without consulting us.  The town was provided a copy of the 11th iteration, which they shared with us and offered to consider our comments.  We spent countless hours reviewing the manual and provided extensive suggested changes, a few of which were successfully incorporated in the final document, but most were not.  KRA's lawyer, who is also the community association lawyer and intimately familiar with KICA, helped KRA write the document and represented KRA in negotiations with the town's lawyer concerning revisions to the Standards Manual.  In addition to its purported objective of preventing deterioration of common properties, the Standards Manual dictates in great detail how the association will be run until final transition,to include such things as the frequency of board meetings and the continuation of an annual charge to park at the Rhett's Bluff common property.  It gives KRA essentially unrestricted freedom to grant island access to anyone they wish by virtue of the privilege of issuing decals. It prescribes how committees will be formed for the next six years.   These are all decisions usually left to the board.  This manual simply insures continuation of KRA's will even after property owner directors have a majority vote.

2)  landscape standards - The Standards Manual lays out landscaping standards in detail (e.g., how frequently annuals are “changed out,” how much square footage of annuals and wildflowers will be planted, the amount of grass seed, weed killer and fertilizer to be applied per square foot, where rye grass will be planted in the winter) and maintenance standards.  

3)  division of budget - Although such standards usurp the authority of the board majority to make modifications as necessary, this is not our major cause of concern with this document.  The manual gives the KRA directors the authority to allocate and budget 41% of the operating budget (for landscaping, general maintenance, and lake management) while property owner directors allocate the remainder for general and administrative and security functions.  This breakout continues through the life of the agreement, even after property owner directors have a 6-1 majority on the board.  The ratio of funds spent by the five departments must continue on the same ratio as in the past 3 years. 

4)  dual majority - Only with the agreement of a majority of KRA directors and a majority of property owner directors (referred to as a “dual majority ”) can this Standards Manual, including the financial ratios, be changed.  Through 1 January 2008 it takes a dual majority vote to change our legal counsel (who is also KRA's counsel), to hire and fire the administrator or chief of security, to propose changes to the covenants or to relocate KICA offices or maintenance areas. KRA retains an equal vote on the use of all reserve funds even after we have a 6-1 majority on the board.  At that time, each of the six property owner directors gets 1/6 vote and the single KRA director gets 1 vote.  Thus, KRA can force expenditure of our reserves by persuading just one property owner director to vote with them.  This is of great concern, since dissipating our reserve fund, the adequacy of which has always been questionable, could well lead to major assessments for all property owners in the future after development is complete. 

5)  conflict with fiduciary responsibility - If we don't adhere to all of the standards in this manual, even though we were not included in their initial drafting and we did not approve or agree with them, we are guilty of failing to live up to the agreement.  This then relieves KRA from all of their promises to KICA within the agreement, and everything reverts back to the status quo and to their 4-3 majority control of the board. Our biggest problem with this arrangement, other than the fact that it  ties our hands on so many matters that should be board decisions rather than terms dictated ahead of time by KRA,  is the concern that our fiduciary responsibilities may fly directly in the face of the terms of this agreement. For example, if we believe it in the best interests of the association to allocate funds in the budget in other than the prescribed ratios, and we follow our consciences, we could negate the agreement to the advantage of KRA and the disadvantage of KICA.  It is highly questionable whether control of the board has really been transferred to property owner directors if, even when we have a 6-1 majority, we are constrained in the budget allocation process, we can't even change our legal counsel, and can't propose to the membership a change in the KICA covenants.

6)  fragile property owner majority - Another major concern is that from initial transition (1 March 1996) until final transition begins (31 December 2000) our so-called majority depends on a single vote.  Thus we retain that majority only if we property owner directors vote solidly as a block.  Property owner directors elected in 1994 and 1995 will  be on the board when initial transition commences.  If directors are elected who are developer oriented or who do not devote the time and effort to remain thoroughly knowledgeable on both Kiawah affairs and the Standards Manual, then our majority could quickly disappear.  KRA always votes as a solid block on important issues, but property owner directors vote as individuals and are potentially subject  to extensive “courting”  by KRA.  (We begin electing the officers in 1996, when we are permitted to use the 3-2 weighted vote to elect the board president..  KRA's two votes can influence the choice of a particular property owner director for president, and in fact, if KRA can persuade one property owner director to vote with them, they could elect a KRA director to be president.) The message here is very clear.  When you vote for your property owner directors in March each year, you'd better be certain you know what you are getting.  Furthermore, you'd better closely monitor the voting records of the property owner directors and express your displeasure when you believe your interests are not being properly protected.

7)  administrative complexity - The final disadvantage lies in the administrative complexity associated with operating under the agreement.  It has to be constantly determined when the weighted vote system is in effect (is a particular budget item considered maintenance or administration?), and the Standards Manual will be subject to differences in interpretation.  There is a dispute resolution procedure in the agreement which permits any three, and sometimes two, directors to request resolution by a professional arbitrator.  With the complexities of this agreement arbitration could be a frequent and expensive occurrence.  In addition, KRA always has legal resources available to assist them in interpreting this Standards Manual (which they wrote) while we property owner directors, as always, have no professional resources but only our common sense and dedication to back us up unless we can find a sympathetic property owner willing to provide assistance pro bono.