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New Decision: Hotel Condominiums: An Oxymoron? (IconBrickell Cd’m. No. Three Ass’n v. New Media Consulting)

Michael Gelfand 10/19/2020

Did you feel the first wave of reverberations? It may have been the impact of the felling of legal “edifices” following the Third District Court of Appeal’s opinion last week in IconBrickell Cd’m. No. Three Ass’n v. New Media Consulting, LLC., Case No. 3D19-0521 (Fla. 3rd DCA, October 7, 2020),

The opinion addressed whether a “hotel condominium” may have minimum common elements.

The “Edifice.”

New Media Consulting owned a residential unit in IconBrickell Condominium. No. Three. The Condominium, one of three “edifices” in a multi-condominium project “developed” in 2008. The Condominium includes hundreds of residential units, some commercial units, and a hotel unit which was the W Miami Hotel.

The opinion turned on the interplay between the Condominium Act and the Declaration of Condominium. In 2009 the Declaration of Condominium was recorded submitting the property as follows:

to the condominium form of ownership and use in the manner provided for in the Florida Condominium Act as it exists on the date hereof and as it may be hereafter renumbered

The developer made no effort to hide the minimum nature of the Condominium’s common elements:

The Condominium has been established in such a manner to minimize the Common Elements. Most components which are typical “common elements” of a condominium have instead been designated herein as part of the Shared Facilities of the Hotel Unit, including, without limitation, all property and installations required for the furnishing of utilities and other services to more than one Unit or to the Common Elements, if any

The Condominium’s common elements were defined as “limited to property not included in the units”, and

(1) “[a]n easement of support in every portion of a Unit which contributes to the support of the Building;” and,

(2) “the surface water management system.”

The Declaration further differentiated property not within the units, as “Shared Facilities”:

any and all structural components of the Improvements, . . . balconies, terraces and/or facades attached or affixed thereto . . . ; all utility, mechanical, electrical, telephonic, telephone switchboard, Life Safety Systems, telecommunications, plumbing and other systems, including, without limitation, all wires, conduits, pipes, ducts, transformers, cables and other apparatus used in the delivery of the utility, mechanical, telephonic, telecommunications, electrical, plumbing, Life Safety Systems and/or other services or systems; . . . all elevator shafts, elevator cabs, elevator cables and/or systems and/or equipment used in the operation of the elevators [traversing] the Condominium Property; and all trash rooms, trash chutes (if any) and any and all trash collection and/or disposal systems. In addition, the Shared Facilities include the following areas . . . the main hotel lobby and the residential lobby.

Shared Facilities were owned and controlled by the owner of the Hotel. Residential unit owners were “emburden[ed]” with the expense of the Shared Facilities to be paid to the Hotel owner; however, the Hotel owner “remains unencumbered by certain statutory provisions regulating Condominium Association assessments.”

In The Trial Court.

In 2018 New Media sought a determination whether the designation of the “statutorily circumscribed common elements and shared facilities” violated the Condominium Act. The trial court granted New Media a summary judgment.

The Opinion.

The appellate court started by restating traditional fundamental precepts, though first declaring that pertinent provisions of the Condominium Act are “clear and unambiguous.” Then, as to the status of a condominium:

A condominium is created by statute and “all provisions of a condominium declaration must confirm to the Act, “and to the extent they conflict therewith, the statute must prevail.” Winkelman v. Toll, 661 So. 2d 102, 105 (Fla 4th DCA, 1995).

Further,

Every condominium created and existing in this state shall be subject to the provisions of this Chapter

Section 718.102, Fla. Stat.. In addition,

A provision of this Chapter may not be waived if the waiver would adversely affect the rights of the unit owners or the purpose of the provision.

Section 718.303(2), Fla. Stat.

The court proceeded to address a required component of a condominium, common elements, through a series of statutory quotes. The Condominium Association is “responsible for the operation of common elements.” Section 718.103(2), Fla. Stat. Reciting Section 718.108 Fla. Stat. the Condominium’s common elements must include easements for utilities and support as well as property and station required for furnishings of utilities.

Characterizing the Declaration as “intrepidly mirroring the words of the Act” the Court held that the Declaration’s effect was:

This recharacterization, and the resultant expropriation of undivided common ownership, indubitably contravenes the edict of the Act. See 718.107, Fla. Stat.

Though perhaps some may see this as a broad stroke, the court stated that the discussion was limited to statutory required common elements:

In closing, we decline to embrace the broader proposition that the transfer of ownership and control of any amenities traditionally designated as common elements violates the spirit, if not the letter, of the law.

The court seems to have pulled back from a literal requirement that all the facilities that are shared must be kept as common elements.

Literally, a note at the very end of the opinion affirmed that the trial court’s requirement that the Association “reform” the Declaration, somehow differentiating this from “reformation” because the trial court “merely directed the Association to “reform” the Declaration to comply with Florida law.” The trial court cited to a dictionary definition of “reform” which essentially is to “improve” or “put into a better form.”

Kibbitzing.

Where do we begin?

The big picture? If shifting shared facility expenses to residential owners violates the Act, where does that place similarly declared hotel condominiums? Those on the drawing board? What is the threshold?

Before jumping to the big picture, the opinion’s predicates will be of long-term value to the practitioner. First, the Court reaffirms that a declaration of condominium must be in compliance with the Condominium Act. Second, the Court invokes the Act’s non-waiver provision to protect unit owners, citing to Section 718.303(2), reinforcing the importance of compliance with the Act. Quoting the anti-waiver text, the court reinforces the Legislature’s concern that allowing a waiver would invite contracts and declarations’ small type to strip hard fought for rights, gutting the statutory protections.

On to the big show!

For many hotel unit owners in condominiums with minimum common elements, and their developers, the opinion will be problematic, to say the least. The minimal common element approach is now disrupted, at a minimum, if not prohibited unless there is contrary treatment en banc, a decision from another District Court of Appeal, or from the Florida Supreme Court.

Significant questions remain, for new projects in terms of planning, and for existing condominiums associations considering how to “fix” the situation. The big questions that first appear are:

What is the threshold as to what extent “Shared Facilities” can be stripped out of a condominium; and,

To what extent may the residential owners be saddled with the Shared Facilities expenses.

Put another way, at what point is shifting the burden of Shared Facilities too much? It seems clear that merely designating as common elements Section 718.108 Fla. Stat. components, for utilities and support as well as property and station required for furnishings of utilities, are just a floor upon which other components must be added.

The opinion does not explain what components must be designated as common elements. Declaring at the start that the Act’s provisions are “clear and unambiguous” may allow a swift analysis, up front; however, side stepping a statutory analysis may be more problematic because the decision does not provide guidance to the trial courts or practitioners. Did the Court realize the difficulty of the task and proverbially punted, hoping that the parties as the groping in legal darkness will both seek to settle rather risk post-judgment proceedings and another appeal?

It appears those components necessary for the condominium’s intended operation must be designated as common elements. The opinion’s Condominium Act quotations indicate that those components for which the members pay is a start; however, in practice we have seen that there are many components which unit owners pay to maintain but are appropriate for “master association” administration; thus, the criteria of payment may not be sufficient.

Perhaps those items that are integral to the condominium’s operation but not shared with others is the threshold. The “integral” adjective may not be objective enough for many. A glance at the trial court’s judgment provides some additional guidance, but what is not stated in the appellate opinion does not provide guidance to other courts.

Consider whether there should be a type of quid pro quo, allowing owners some say in the administration of Shared Facilities? But sharing decision making would seemingly undercut the apparent reason to strip out Shared Facilities in the first place, to allow the hotel unit owner to control decision making. But, what about the Act’s anti-waiver requirements.

How will the IconBrickell No. Three situation be rectified? How to “reform” what is there? Would that be a Rule 1.221 class action or is a statutory derivative action required? The opinion drops the problem back onto the parties to solve ala Towerhouse Cd;’m. v. Millman, 475 So. 2d 674 (Fla. 1985), and test the extent of reformation of a unilateral instrument allowed by Providence Square v. Biancardi. Keep in mind Ocean Trail v. Meads practical approach of how to pay for improper expenditures. Proceeding to an extreme, would equity support a type of termination because the Hotel owner’s expectations were not met; however, the situation was of the developer’s making and termination would likely place the residential owners at an even greater disadvantage.

For condominium associations and unit owners, the question now may be whether to challenge the Declaration. Many hotel condominiums’ declarations contain similar if not the exact text as quoted in this opinion.

Concerning timing, the facts stated in the opinion seemingly would have shown a potential limitations issue, barring claims because of the passage of time, specifically that the Declaration was recorded nine years before suit was filed. Nevertheless, the opinion does not address bar issues, either the statute of limitations, especially post-Harris v. Aberdeen P.O.A., 135 So. 3d 365 (Fla. 4th DCA 2014), nor the three-year statute of repose in Section 718.111(10) Fla. Stat. Nevertheless, newer associations may want to ensure that if they raise a challenge that it occurs within statutes of limitation and repose.

Concerning remedies, potentially complicating the next phase is who are the parties to the litigation. The opinion does not state whether the Hotel owner was a party, or whether the residential owners were parties. Would both otherwise be thought of as indispensable parties?

Was the claim brought as a Rule 1.221 class action, or a derivative action? If not, what binds the individual owners? If there is a change in common elements or manner of dividing common expenses, then are mortgage holders are indispensable parties? Not to construct a slippery slope, but if there are adverse impacts, then will there be impacts on marketability leading to title insurance claims? Will just the disclosure of the situation impact marketability?

Moving a bit further afield from legal to practical lessons, the opinion does not indicate what triggered the claim. For the legal voyeurs, a peak at the trial court judgment indicates that the Hotel owner sought a special assessment of over $727.000 for shared facilities expenses. Perhaps another instance of when one person pushes too hard, unanticipated consequences occur (e.g. litigation), upturning all.

In conclusion, the opinion’s analysis of Shared Facilities, shifting expenses and authority, illuminates the conundrum created by stripping out Shared Facilities. The court appears to be trying to hold that stripping out is contrary to the underlying philosophy of the Condominium Act, which was created to ensure that all owners, especially residential owners, have the ability to control their destiny. Particularly as the Act is remedial in nature does this undermine the concept of a hotel condominium? Recognizing that the hotel condominium concept may at its heart be but a method of financing a development, with there be a new financing tool?

Monitoring continuing status, whether a motion for re-hearing, en banc or certification was filled, the docket can be viewed at:

http://onlinedocketsdca.flcourts.org/DCAResults/CaseByYear?CaseYear=2019&CaseNumber=521&Court=3

None were docketed at time of writing.

A shout out to our own, Condominium and Planned Development Committee chair Professo r Sklar who is cited, not just once, but twice, explaining the origins of the condominium concept!

Thank you to Jeff Rembaum for swiftly providing the opinion and the lower court’s summary judgment.

Michael J. Gelfand

Past Chair

Real Property, Probate and Trust Law Section

of The Florida Bar

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