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Enter the Twilight Zone: The IconBrickell Case and Mixed-Use Condominiums

The Florida Bar Journal

Publication
January 1, 2021

As Florida has become more citified, mixed-use developments have become much more common. Typically, these buildings consist of a single structure housing a number of different uses. The Four Seasons in downtown Miami has an office component, a hotel component, a gym component, and hotel and residential condominium units. A building with multiple uses renders the building more interesting from a street view and allows the different uses to enhance the operation of the project. Guests of the office portion or the residential portion can spend an overnight requirement at the hotel. A retail operation can serve as an amenity to residential occupancy.

One issue faced by developers of mixed-use projects with integrated elements, e.g., a common lobby area or the building exterior, is assigning responsibility for the maintenance of these integrated or common areas to one of the building components. This issue becomes critical in projects with a national branded hotel, since such hotels require the adherence to “brand standards.” This term refers to the look and feel of each hotel bearing the brand name. The branding entity, the hotel company, wants each hotel bearing its name to look and feel similar. Brand standards involve both operational and maintenance requirements. These brand standards are imposed upon the owner of a branded hotel through a management or licensing agreement.

In the simplest case, a mixed-use project containing a hotel and a residential condominium, if a common lobby were maintained by the residential component, the owner of the hotel could not insure that the lobby would meet brand standards and, therefore, would likely be unable to acquire a national brand for the operation or the name of the hotel.

Faced with this problem, developers of mixed-use projects containing a residential condominium have been extracting from the condominium portions of the project that might otherwise be considered common elements.

Initially, the Division of Florida Condominiums, Timeshares and Mobile Homes took the position that such extraction violated the Condominium Act. At least 15 years ago, however, the division changed its position and allowed residential condominiums in mixed-use projects to proceed without all those traditional common elements, typically included in a non-mixed-use residential condominium, it is believed, upon understanding that otherwise they would not be viable.

The Case

With this background in mind, we examine the recent case of IconBrickell Condominium No. Three Association v. New Media Consulting, 2020 WL 5931882 (Fla. 3d DCA 2020). The IconBrickell development consists of three towers, including a W Hotel in Tower Three. The development is governed by a master association and each tower contains a separate condominium. Tower Three, the subject of the litigation, was formed as a condominium in 2009. The condominium consists of 509 units, 501 residential units, seven commercial units, and one “hotel unit.” The hotel unit contains the hotel rooms and all of the amenities, plus everything that would otherwise be considered common elements, including the residential lobby, hallways, and elevators.

The plaintiff, New Media Consulting, purchased its unit in Tower Three in 2015. In 2017, there was a serious problem with a community pool, and the owners of units in Tower Three were specially assessed a total of $72,216.01 for pool restoration. Plaintiff brought suit in 2018 claiming that the condominium documents violated the Condominium Act because portions of the building that might otherwise be deemed common elements were included in the hotel unit and characterized as “shared facilities.” The sole defendant in the case was the condominium association. The most important party, the owner of the hotel unit, was not made a party in the lawsuit. Plaintiff’s claim was for reformation of the declaration of condominium to address this perceived injustice of unlawful expropriation of the common elements of the condominium by the hotel unit.

The association raised five defenses to the plaintiff’s reformation action: failure to state a cause of action, statute of limitations, limited duties of the association, the association acted in good faith, and the declaration should be afforded a strong presumption of validity. All were rejected by the trial court. Since the owner of the hotel unit was not a party to the lawsuit, it was not given the opportunity to raise other important defenses.

The trial court granted the plaintiff summary judgment on its claim for reformation of the condominium declaration holding that the condominium declaration violated the Condominium Act in seven respects: 1) allocated expenses in a manner other than on each owner’s percentage interest in the condominium; 2) recharacterized common elements as shared facilities; 3) failed to assign ownership in the common elements in accordance with size of the units or equally; 4) assigned control of the common elements to a minority condominium owner; 5) granted the hotel unit owner, rather than the condominium association, control of the maintenance, repair, and improvement of the common elements; 6) shifted the burden for condominium and master association assessments from the hotel unit owner to the residential owners; and 7) allowed the hotel unit owner to employ third-party service providers in its sole discretion and without competitive bids.

The Appeal

On appeal, the Third DCA affirmed the holding of the trial court in an ambiguous opinion. While the appellate court recites its attempt to affirm the lower court judgment on the narrowest terms possible, quoting in a footnote that, “if it is not necessary to decide more, it is necessary not to decide more,” the ultimate analysis does not appear to comport with this directive.

The appellate court properly notes that condominiums are creatures of statute and are, thus, governed by their statutory authority. It then concludes that the governing statutory law “is clear and unambiguous.”[1] The appellate court placed its reliance on F.S. §718.108(1) of the Condominium Act containing a definition of common elements:

(1) “Common elements” includes within its meaning the following:
(a) The condominium property which is not included within the units.
(b) Easements through units for conduits, ducts, plumbing, wiring, and other facilities for the furnishing of utility services to units and the common elements.
(c) An easement of support in every portion of a unit which contributes to the support of a building.
(d) The property and installations required for the furnishing of utilities and other services to more than one unit or to the common elements.

It held that the common elements described in this statutory provision could not be recharacterized as something else, such as shared facilities. The appellate court noted that:

Despite this plainly penned legislative preemption…the Declaration designates 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,’ along with the wires, conduits, pipes, ducts, transformers, cables,’ residential lobby and elevators, and communal trash disposal systems as shared facilities. This recharacterization, and the resultant expropriation of undivided common ownership, indubitably contravenes the edit of the Act.[2]

And the appellate court then affirmed the trial court’s judgment for reformation.

Enter the Twilight Zone

The Statutory Mandate — Most practitioners in the condominium field would be surprised to learn that F.S. §718.108, describing common elements, should be read as a mandate and not as a default provision. Many assumed that the purpose of the statute was to insure, if the drafter failed to indicate in the description of common elements those indicated in this section, they would be supplied by the statute. As noted above, the division has been accepting filings without all of the elements described in F.S. §718.108(1), for at least 15 years. In fact, the division accepted the filing of the declaration, which was the basis of this case without such elements. In addition, other cases addressing this issue found no such mandate.[3]

If F.S. §718.108(1) were, in fact, such a mandate, wouldn’t the language be “common elements must or shall include” rather than “common elements includes?” When the legislature wants to create mandates, they use clear language directing same. For example, F.S. §718.104, dealing with creation of condominiums uses the word “must” six times. But more importantly, almost all of the provisions of Part I of the Condominium Act use the term “shall” or “must” to create some sort of a mandate.[4] F.S. §718.108 seems to be an outlier, one of the few provisions without either term.

And, if F.S. §718.108 is a mandate, what is the extent of the mandate? Here, the appellate court seems to lead us in two separate directions.

The appellate court’s reading of F.S. §718.108(1)(d) appears to find a clear statutory mandate that the lobby, the elevators, and trash disposal systems are mandated common elements. One assumes the appellate court is relying on the language in F.S. §718.108(1)(d), reciting as common elements, “The property and installations required for the furnishing of utilities and other services to more than one unit or to the common elements.”[5]

Such language, following the appellate court’s clarity, would appear to mandate that any portion of the condominium property or any installation on the condominium property that serves more than one unit was intended to be, by definition, a common element. In other words, almost everything that is outside of the units is a common element. But the appellate court specifically declines to render such a holding. The appellate court states, “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.”[6] This is a headscratcher. If F.S. §718.108(1)(d) covers everything shared by two or more units, what is left as the “broader proposition?”

Many have read the opinion as focusing on F.S. §718.108(1)(b) and the first portion of (d). This would mean the court addressed only the provisions of the declaration of condominium indicating utility lines that were part of the shared facilities controlled by the hotel unit owner serving the residential units were, in fact, common elements of the residential portion of the condominium.

But the Third DCA did not limit its affirmance to the utility lines and, as noted, they specifically included the lobby, elevators, and trash facilities. In fact, the Third DCA noted, “this threshold misnomer [of the shared facilities] engendered the litany of additional statutory violations comprehensively delineated in the order below.”[7] Thus, implying that everything the trial court found wrong with the declaration was improper.

So what did the Third DCA not address in its statement that it was not necessary to decide more than they had to decide? And what broader proposition that typical common elements could be recharacterized did the court not cover?

Turning Florida Jurisprudence on Its Head — While it might not be clear exactly what the Third DCA determined, what is clear is that the trial court determination and the Third DCA’s affirmance violated settled and fundamental principles of law. The trial court granted a reformation directly affecting the property and rights of the hotel unit owner. But this unit owner was not a party to the proceedings. Nor were the other 507 unit owners who would be affected by any reformation. How then would the trial court go about the reformation?[8]

Furthermore, is it permissible to take the hotel unit owner’s property with or without giving it a day in court? Isn’t there a constitutional prohibition on such a taking? Was it intended that the hotel unit owner would be compensated for the loss of its property? These issues are not addressed.

It should also be noted that the declaration was recorded in 2009 and was challenged nine years later. Is there a statute of limitations issue? Section 718.110(10) of the Condominium Act makes a declaration of condominium incontestable as creating a condominium after three years, but does confer on the courts the power to reform without any specific time limitation. But to the extent the declaration constitutes a contract, should it be bound by the five-year limitation provisions in F.S. §95.11(2)(b)? In the absence of this case, would it be proper for a unit owner acquiring a unit some time in the future to challenge the declaration in 2025, 2035, or 2055? The Third DCA furnishes no guidance on this issue, but the trial court held that the statute started running in 2015 when the plaintiff acquired its unit, a view of questionable validity at best, since, in effect, there would never be a limitations period for challenging a declaration as the units continued to be reconveyed to subsequent purchasers.

The Equitable Undercurrent

Some will applaud the decision, however flawed, as righting an injustice. The Third DCA came to the aid of David in his struggle against Goliath. Others may see it as affirming the concept of “no taxation without representation.” The unit owners were forced to pay for facilities over which they had no control based on a budget over which they had no control. Surely this was the basis of the trial court’s decision and appears to have been accepted by the Third DCA. But is this a proper lens with which to view the underlying facts?

First, and most importantly, this is not a case of bait and switch. The original prospectus and the recorded declaration of condominium clearly indicated the lack of control by the residential unit owners.[9] The law is clear that the declaration is a contact among the unit owners. How does a court have the power to order a reformation of that contract when there was no mutual mistake?

Next it should be noted how many of the 507 other owners came to assist David in its suit against Goliath, a/k/a the hotel unit owner. The answer is zero. But even if it were 100, the analysis would be the same.

For example, your friend reported that she had sold her Nash Rambler under a contract that indicated the car was 25 years old and may have reached the end of its useful life. She later related that, after the purchase, when the car’s engine stopped working, the buyer sued and the judge awarded the buyer damages in the amount of the purchase price since the buyer lost his use of the car. Was this an “equitable” result?

What does the purchaser of a mixed-use or hotel condominium project think he or she is purchasing? This is where the analysis should start.

These purchasers are typically looking for professional management to maintain or increase the value of their investment. A buyer of a unit in a Four Seasons project wants the level of maintenance and operation to comport with a Four Seasons brand standard. Such buyer is relying on the operation being run to achieve this objective. Allowing individual unit owners to determine the standard is the antithesis of the basis of the investment, since the unit owners might decide to save money on operating expenses by reducing the standard of operations, thereby devaluing unit ownership. Believing condominium boards only act in the best interests of all owners belies more than 50 years of Florida condominium history.

Conclusion

While mixed-use buildings of the type under examination exist in other projects, the most common form of minimization of common elements occurs in a traditional hotel condominium. As noted above, in order to achieve brand standards, the developer of a hotel condominium typically removes from the common elements the lobby, elevators, corridors, and amenities in order to be able to achieve the level of operation and maintenance required by the national brand. The Third DCA’s opinion imperils all national branded hotel condominiums and perhaps the very concept of a hotel condominium in Florida.

The appellate court’s oversimplified and confusing analysis indicates its lack of understanding of the fundamentals governing the purchase and operation of mixed-use and hotel condominium projects.
We may not be sure about the conclusions reached in this case, but we can be sure of the results. This case will be read by some as a basis to attack existing mixed-use and hotel regimes and will likely spawn litigation, the results of which we will not see for many years. It is unfortunate that the Third DCA saw clarity in statutory interpretation that seems arguable at best. It also remains a mystery how the courts involved in this case thought they could make a determination that would be binding on and affect the rights of parties who were not parties to the litigation. This is typically an entry-level problem.

As urban development in Florida’s cities occurs, the use of a mixed-use form of development with nonresidential components will necessitate the enabling and allowance of creative allocations of governance, maintenance, and costs to create viable and equitable vertical development.

 

[1] IconBrickell, 2020 WL 5931882, at *3.

[2] Id.

[3] Brazilian Court Condo Ass’n v. CSC Brazilian, et al., No. 502011CA, 1280XXXX (Fla. 15th Cir. Dec. 6, 2012); Carillon Beach Investments v. Trustmark National Bank, et al., No. 10-1535-CA (Fla. 14th Cir. Dec. 29, 2010).

[4] Twenty-two sections in Part I of Ch. 718 use the term “shall” (103, 1035, 104, 1045, 105, 106, 107, 109, 110, 111, 112, 1124, 113, 116, 117, 119, 120, 124, 125, 1255 and 1256) and 10 use the term “must” (103, 104, 106, 110, 111, 112, 1124 113, 114 and 115).

[5] Emphasis added.

[6] IconBrickell, 2020 WL 5931882, at *3

[7] Id.

[8] It should be noted that the courts have held that if a failure to name an indispensable party has not been raised in the court below it is considered waived and cannot be raised on appeal. See Ivens Corp. v. Hobe Cie Ltd., 555 So. 2d 425 (Fla. 3d DCA 1989); Community Federal Savings and Loan of the Palm Beaches v. Wright, 425 So. 2d 638 (Fla. 4th DCA 1984).

[9] Section 2.14 of the declaration of condominium indicates: “The Condominium has been established in such a manner to minimize the Common Elements. Most components which are typical ‘common elements’ of the condominium have instead been designated herein as part of the Shared Facilities of the Hotel Unit….”

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