Kiawah Island Property Owners Group

The history of the Development Agreement, a pullout feature article (available at www.kiawah.org) in the April TALK piqued the interest of many readers and generated interesting questions which we will address here.  Some questions have been combined because of space constraints.

 In Mr. Darby’s February 15, 2005 letter to the community he notes the positive impact his development and decision-making have had on Kiawah property values.  If what’s been good for KRA until now has been good for the Island, why can’t we assume the same going forward?

Anyone who has tracked Kiawah property values over the last 20 years will agree that our personal investments in Kiawah real estate have grown as KRA has prospered. As we approach build-out on the Island, and KRA completes its work here, however, the interests of KRA and property owners may diverge.  KRA is a business, and as such, is focused on creating profit for its shareholders.  This is nothing more than basic economics. 

Assuming a new DA is negotiated, once it is signed we will be unable to negotiate protections or benefits for the Town and property owners.  It is incumbent upon us as a community to determine what issues are important and to assure there is fair exchange for any concessions made to KRA.  When the chairs are pulled up to the negotiating table, property owners need the Town to represent them by looking at all sides of an issue, considering why it is important to KRA, while identifying the benefit/detriment to the Town and property owners.  

KRA’S RELATIONSHIP WITH KICA

 It seems that so much of what was traded off by the town in the 1994 agreement was done to transition control of the KICA Board to property owners.  Why was that so important? 

 Under the terms of the Covenants governing the operation of KICA, control would be transitioned to property owners when the Island grew to 80% of the vested number of dwelling unit equivalents.  The original Planned Development District Plan (PDD-1a) negotiated between the Kuwait Investment Corporation and Charleston County, and adopted by the Town as its Planning and Zoning Ordinance shortly after it incorporated in 1988, permitted approximately 7,000 dwelling units.  According to the Covenants then, control would be transitioned to property owners when 80% of 7000 or 5600 dwelling units were sold. By 1994 it was obvious that the Island would never contain 5600 dwelling units.  Therefore, it is unlikely that the Developer would retain control even after most, if not all of his properties were sold.  

At KICA’s March 20, 2005 Annual Meeting, property owners took over their sixth seat on the seven-member KICA Board of Directors.  Yet there is still talk about KRA’s controlling the Community Association.  If property owners have six Directors and KRA only one, how can property owner control still be an issue?

We began to explore that issue in last month’s article which quoted a 1995 Talk article written by KICA Property Owner Directors in which they expressed their concerns about the amount of control KRA would still retain after the Association was ostensibly turned over to property owners. 

Now that transition to property owner control is “complete,” KRA maintains its control via provisions in the DA’s Operating Standards Manual for KICA.  This manual gives KRA Directors outright control over 41% of the operating budget and an equal vote on the use of all reserve funds.  It prevents the Board from changing its legal counsel, and, as set forth in the KICA Covenants, the Board cannot propose to the membership any changes to the KICA Covenants without authorization from KRA as the “Company.”

The KICA Board’s report presented at KPOG’s March 5, 2005 Annual Meeting mentioned something about a “dual majority.”  What is a “dual majority” and how does it affect us?

Under the Operating Standards Manual, KICA’s decision making in some key areas is done by “dual majority.”  This includes changing the Standards Manual, and its financial ratios; changing KICA’s legal counsel, who is also KRA’s legal counsel; use of all reserve funds; and proposing changes to the Covenants. This means that a majority of Property Owner Directors and a majority of Developer Directors (now the one Developer Director) must vote together in order to make a decision about these issues.  Each of the six Property Owner Directors has 1/6 vote and the single Developer Director has 1 vote.  KRA needs only one Property Owner Director’s vote to pass a motion, and can potentially block any motion affecting these all-important areas with which it does not agree.  This provides KRA with continued control over the Community Association, even though the Property Owner Directors have a 6-1 vote on other issues not requiring the dual majority.  

Isn’t it a conflict of interest for KRA’s attorney to also serve as the attorney for KICA?

Trenholm Walker serves as both KRA’s attorney and KICA’s attorney.  The question of conflict of interest has been raised in the past and the Property Owner Directors who raised it were told by the State Attorney General’s office that in order for there to be a conflict of interest, the client, i.e., KICA, would have to object.  No KICA Board has voted to do so.  As noted above, KICA’s Operating Standards Manual does not permit the Board to change its attorney without KRA’s agreement.

Is the current KICA Board of Directors concerned about property owner control of the Association?  If so, why aren’t we reading anything about this in KICA’s Digest?

This issue of property owner control was raised during the public comments portion of KICA’s Annual Meeting held on March 20, 2005.  Property owners who were unable to attend that meeting, however, may not realize this issue was raised.  A summary of that meeting, posted on the KICA Mail List, simply stated that a question had been raised about whether the KICA Board was reviewing the DA in order to provide input to the Town. 

Outgoing President Fred Peterson talked about the transition in his Annual Meeting Report, presented to the membership that day.   The front page feature article in the April 2005 Kiawah Island Digest provides excerpts from Peterson’s report, a portion of which is quoted below.

“This Annual Meeting marks an important step in the transition to property owner control of KICA.  We recently elected two new Property Owner Directors to replace one [Property Owner] director and one Developer Director, so that your board now has six of its seven seats held by property owners.  The Developer retains the right to name one director as long as it owns property on Kiawah Island.”

If KICA is concerned about the balance of power, it has not voiced this concern publicly yet  –either in its publication, the Kiawah Island Digest or on its website. 

According to a mid-April conversation with KICA’s new President Faith Dodge, “the KICA Board is considering the various issues in the DA which affect the Association and their recommendations will be presented to the Town.  All of these issues will be published in the hearing processes going forward.”

Why can’t we simply change the KICA Covenants to address some of the KRA/KICA issues?

As mentioned in an answer to an earlier question, KRA must authorize any changes to the Covenants before such changes can be presented to KICA’s membership for a vote. Retaining power over KICA is to KRA’s advantage, and it is highly unlikely this power will be relinquished voluntarily.  Unless this is a negotiating point in discussions about the DA, there is no incentive for KRA to relinquish this control. 

Why does KRA have so much control over KICA when the Resort has none? 

The Resort is only one of over 4,000 property owners on Kiawah.  KRA is the Developer, the legal entity it became when it purchased the unsold assets on Kiawah from the Kuwaitis.  KRA’s control is vested by the Covenants.  The Resort is merely a property owner like the rest of us.  We must all conform to the Covenants - which are controlled by KRA.

THE TOWN AND THE DA

What is the advantage to the Town of a new DA?

Development agreements are permitted by State Statute for parcels 25 acres or larger.  The permissible length of an agreement increases with parcel size.  Since a good agreement conveys benefits to both the municipality as well as the Developer, it is generally a good idea.  Just as the Town was willing to cede zoning control to KRA for undeveloped properties in the 1994 DA, there might be issues important enough to the Town to negotiate a new one. 

According to Mayor Wert’s article, “The Development Agreement – What and Why,” in the April 2005 issue of Town Notes, “It is obvious that both sides want a new agreement. . .”  With that as a given, KPOG believes it is critical that property owners share their concerns and priorities with the Town, not just with each other.

Why are the Mayor and Mayor Pro Tem meeting privately with KRA regarding a new agreement? 

The current process is similar to the process used in 1994.  At that time, several informational sessions and a public hearing were held after a tentative deal between the Town and KRA was negotiated in private.  In 1994, however, the Town’s legal counsel – with input from two of the Town’s elected officials, negotiated the agreement.  In the current process, Mayor Wert and Mayor Pro Tem McIver are negotiating directly with KRA principals.  We trust that the Town will hold public information sessions before the statutory public hearings in order to maximize public understanding and input and have the Town attorney present during negotiations with KRA as was done previously.

How is the current process different from what was done when the 1994 DA was negotiated?

When the 1994 DA was initially negotiated, the Mayor and Town Council actively sought input from the community, but after negotiations with KRA were completed.  In addition to three public hearings, although only two were required, they sponsored public meetings and a four-day session at which the agreement and its exhibits were on display and Council Members were available to answer questions.  

Some property owners voiced disappointment in the content of the April 2005 Town Notes article on the DA.  KPOG had hoped the Town would have described a process to engage the community in a discussion on this topic. 

Can the Town require KRA to pay impact fees for Kiawah Island Utility (KIU), its wholly-owned subsidiary?  If so, why hasn't this been done?  Wouldn't this either lower water/sewer costs of property owners, or at least limit rate increases?

According to an April 9, 2005 article in The Post and Courier (“Judge backs Summerville in suit over impact fees”), “State law allows towns to collect money from builders to pay for services required by growth as long as the town demonstrates that the fees are necessary and will be used only in the immediate growth areas.”  Since Kiawah is a gated community and KICA is responsible for roads inside the gate, it is unlikely the Town could assess impact fees for wear and tear on roads inside the gate.  However, the Town may be able to negotiate KRA’s payment of fees to offset expenses KIU and property owners bear as a direct result of new development.  One such expense is the cost of purchasing water lines and fire hydrants KRA sells to the KIU, rather than donating these, as is customary in most other South Carolina communities.  

The issue of KRA’s relationship with the utility is not addressed in the 1994 DA.  A thorough review and discussion of the utility issue is needed and will be addressed in a future issue of TALK.  Considerable research and study – and a management audit – will be necessary if issues about the utility are to be addressed in any new agreement.

CONTENTS OF THE 1994 DA AND KRA’s PLANS  

Have any significant changes been made to the DA since it was signed in 1994? 

There have been nine amendments to the 1994 DA.  The first eight corrected errata, clarified parkland, and modified dates for completion of beach parking.  The ninth amendment, adopted by the Town on April 12, 2005, incorporated the Town’s ordinance which caps size of large houses on multiple lots in developed areas.  

If a new DA is negotiated, what happens to the provisions in the old one?  For example, if a new DA covers only Cougar Island, what happens to zoning of the hotel tract at Beachwalker Park?

Since zoning specified in the 1994 DA (for example, the hotel at Beachwalker Park) is incorporated in the Town’s Article 12 Planning and Zoning Ordinance, KRA would retain its right to build this hotel unless the Town’s Article 12 is revised.  This makes revision and updating of the Town’s Planning and Zoning Ordinance absolutely critical.

Why does the ARB have the power to regulate as it does?  Would it be better for property owners if KICA or the Town controlled this? 

KRA’s power to control architectural features via its ARB is vested by the Covenants.  KRA’s power to unilaterally adjust lot setbacks and other standards on undeveloped properties is established in the DA.  Even under the DA, however, the Town always had control on setbacks, height, etc. on developed properties.  That, however, was not thoroughly understood by the Town and clarified until a legal assessment was conducted in 2002.

KRA could choose to give up control of the ARB at some time in the future, for example, at build-out, and transfer ARB responsibilities to the Community Association.

How much undeveloped property does KRA have remaining and where is it located? 

KRA holds just over 330 undeveloped acres, as shown in the table below (excerpted from Exhibit 13.2, 1994 DA).  The biggest parcel, Cougar Island, is east of the Ocean Course.  Several other smaller parcels are outside the Main Gate.

Note 1:  No structures on this parcel shall be higher than the eave height of the Vanderhorst Mansion.

What are KRA’s plans for Cougar Island?  If it is not developed by January 1, 2008, when the DA expires, what happens to that land?

KRA has not yet submitted plans for Cougar Island at this time.  However, under the 1994 DA, the 250+ acres at Cougar Island are limited to single family detached units. Patio homes and zero lot line development are permitted uses.  The maximum number of units is 375, density limited by the unbuildable nature of some of the property.  If the property is not developed by January 1, 2008, and the current DA expires, the property would be subject to the Town’s zoning and lot standards that are in place at that time.

Do we know if KRA anticipates building any multi-family housing?  In what areas would this be allowed under the current DA? 

KRA has not yet stated their plans.  Condos, villas, and town houses could be built on all parcels zoned R-2 and R-3 in the table above.  However, the 1994 DA restricts development on Cougar Island to single family detached units described in the question on the preceding page.

Under the existing DA, KRA has the right to build a large hotel on the western end of the Island.  Is this in property owners’ best interests?

The right to build a large hotel at Beachwalker Park is a right vested by the 1994 DA.  Whether this is in property owners’ best interests is a matter of individual judgment.  As previously stated, if there is no new DA, that right will remain unless it is eliminated by the Town in a revised zoning ordinance.

The April Talk article says that the 1994 DA broadened the type of commercial activity from what was described in the 1994 Comprehensive Plan.  What additional activity does the DA permit that wasn’t discussed in the 1994 Comprehensive Plan? 

The 1994 Comprehensive Plan specifically mentioned professional offices, retail establishments, commercial services, community buildings, churches, water, wastewater, electrical system facilities, and maintenance areas as typical uses.  The 1994 DA allowed 128 different types of commercial activities in all areas zoned commercial.  Examples of permitted commercial activities are heliports, animal hospitals, sanitariums, gas stations, department stores, and a wide variety of retail sales including paint, wallpaper, electrical, and lumber.   While it is highly unlikely that we would ever see proposals for most of these uses, they are permitted uses under the terms of the 1994 DA.  Note that KRA constructed storage units on Sora Rail Road under the 1994 DA.

What are the implications for KRA if the DA is simply allowed to expire in 2008? 

If the DA is allowed to expire in 2008, any remaining KRA-owned parcels would be subject to the provisions of the Article 12 Planning and Zoning Ordinance then in effect. 

KICA’s COMMON PROPERTIES

Does the 1994 DA provide a time frame when Rhett's Bluff Landing will be open to all property owners?  I have heard that Rhett’s Bluff property owners have deeds saying that only they will be able to use the facilities at the Landing.  If other property owners want to visit the park, don’t they have to pay a $25 fee for a gate key? 

As per requirements of the 1994 DA, Rhett’s Bluff Landing was conveyed to KICA on March 1, 1995. All property owners may use the facilities there, and may reserve them for functions for a fee.  At other times, free access is provided to all property owners on foot or bicycle.  Those wishing to visit the facilities by car, or to launch boats, require a key to the gate, which is available for a $25 annual fee. 

At the June 2004 KICA Board meeting, there was a discussion about the gate at the Landing and its inhibiting use by property owners who have not paid the annual access fee and/or boat launch fees.  KRA’s Developer Director Buddy Darby noted (“Rhett’s Bluff Access Highlights KICA Meeting,” TALK, July/Aug. 2004) that “KRA had promised the Rhett’s Bluff owners that the area would be accessible only to boat-owning property owners. He said that they (KRA) had made a representation to people buying property on Rhett’s Bluff . . .”  The KICA Board decided to continue to charge a fee for use of the facility, but a fee is not required by the DA.  The 1994 DA, however, does note that KRA has reserved for itself and its guests “the right in perpetuity, without charge, to use and reserve” the facility. 

With the Resort restricting use of its pool facilities to Resort guests and Governor’s Club members, we’re anticipating overcrowding at the Sandcastle pool.  Didn’t the initial PDD 1-A agreement with the Kuwaitis include plans for a second property owners’ pool where the Kiawah Island Club’s Beach Club is currently located?  With the DA on the table, isn’t this the time to seek additional property for a second property owner recreation facility? 

Crowding at KICA’s common facilities is only going to get worse as Kiawah approaches build-out.  If property owners want a second community pool facility, we should address this issue now. Is it critical such a facility be next to the beach, or would it be acceptable to have it located elsewhere on the Island?  If the Town were to seek such property in exchange for concessions in a new DA, what would we have to give up in exchange? It is KICA’s responsibility to address and resolve whether or not this is a priority in negotiations for a new DA.

Beach parking on the Island is an ongoing problem.  Wasn’t KICA promised additional parking in the 1994 DA?

The 1994 DA cites nine spaces conveyed to KICA on Ocean Marsh Road, 50 spaces adjacent to the second fire station and 110 spaces at the Kiawah Island Beach Club.  The 110 spaces at the Kiawah Island Beach Club, however, are owned by KRA, located behind a gate, and available only to Kiawah Island Club members and their guests.  An additional eight spaces located outside the gate there are owned by KICA and available to all Kiawah property owners.  KRA also committed to develop 30 spaces at the Ocean Course by January 1, 2000.  Location and construction of these last 30 spaces has been postponed several times by amendments to the 1994 DA.  The obligation to provide and construct this lot passed to the Resort when it purchased the Ocean Course property.

The broader question of whether sufficient parking is or will be available in the future is an issue that needs to be addressed by KICA.

KPOG’s ROLE

Why is KPOG being so negative about the DA?

KPOG is not being negative about the DA.  We believe knowledge is power, and property owners are entitled to full disclosure of information regarding a new DA.  In the vacuum of virtual silence surrounding this most critical topic, KPOG is trying to facilitate the flow of information, so that property owners may become educated about this topic.  We are trying to facilitate dialogue – true two-way communication between property owners and the Town - about issues, outcomes, and ramifications.  Our first article on this topic (Talk, April 2005) drew heavily on Town Notes from 1994 and concerns of KICA Property Owner Directors serving at that time.  This article addresses questions posed by property owners as a result of the April pullout section.  [Note: You may send questions to KPOG@kiawah.org.] KPOG’s sole position to date is that public discussion is critical, and more discussion is needed than we have seen or has been promised to date.

Will KPOG hold public discussions about the DA so that property owners can ask questions and receive informative answers? 

KPOG is looking to the Mayor and Town Council to lead the community discussion about any new agreement.  We believe that such discussion should begin now, rather than after the Town and KRA have developed an outline and negotiations begin.  The Town’s engaging in a dialogue with the community to establish the community’s priorities in no way jeopardizes negotiations.  In fact, as stated last month, we strongly believe Kiawah’s property owners deserve input into the process before the process has been completed.  A full public discussion will only strengthen the Town’s negotiation position when our elected officials speak with the force of our collective priorities.