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New Decision: Taxation, Improvements and Leaseholds (Beach Club Towers HOA v. Jones)
October 16, 2017

Wednesday the First District Court of Appeals addressed whether the remainder of a leasehold upon which a condominium was declared is to be included in the condominium’s units’ ad valorem tax valuation. In Beach Club Towers H.O.A. v. Jones, Case No. 1D15-5886 (Fla. 1st DCA, October 11, 2107), the property owner/leasehold remainder holder was a county which created special circumstances, and further, the decision justified a second look see for commentary concerning whether a condominium may be declared upon a leasehold.

Short and sweet background: Beach Club Towers is a condominium located in Escambia County. The United States conveyed the land to Escambia County with a condition that the County retain legal title. After a number of leases and subleases the Condominium developer obtained a sublease and declared the Condominium which included “an undivided leasehold interest in the underlying land.” The master lease provides for renewal “for an additional ninety-nine (99) years, terms and conditions to be renegotiated at such time.”

Focusing on “who owns the land” the opinion swiftly shifted to the concept of “equitable ownership” of the leasehold as described in the First District Court of Appeal’s earlier decision in Accardo v. Brown, 63 So. 3d 798 (Fla. 1st DCA, 2011) approved in Accardo v Brown, 139 So. 3d 848 (Fla. 2014).

The Supreme Court held that, because the leases in the land were “perpetually renewable,” the condominium owners owned a equitable title to the land and were liable to pay ad valorem property taxes. Id. at 856.

Slip at 4. The Court held that Accardo was inapplicable because in Accardo “the primary hallmarks of equitable ownership” were different. In Accardo the lease could be renewed upon nominal consideration “or to otherwise exercise perpetual “domination over the property.” In this instance, the lack of an automatic renewal distinguished the potential perpetual domination.

Onto the Condominium Act issues, the Court rejected the County’s assertion that the land underlying a condominium must be declared as part of the Condominium, apparently meaning the fee simple interest. The County relied upon Section 718.104(4)(s)(c) Fla. Stat., which the Court noted requires a statement of the underlying property submitted to condominium ownership. Instead, the Court relied upon Section 718.104(1) Fla. Stat. which it noted expressly acknowledges the creation of a condominium upon a leasehold.

Further, the Court commented that the Condominium Act does not change the exempt treatment of property. Section 718.120(1) Fla. Stat., only requires that each condominium parcel must be assessed separately from other parcels. Essentially, the underlying fee does not have to be included in the units valuation if a leasehold.

In reviewing the opinion, of critical significance is the fee owner being a county. Generally county land is exempt from ad valorem taxation. There are a number of condominium and homewowners’ communities that are declared on land owned by and leased from a political subdivision that would otherwise be exempt from ad valorem taxation. Note however the critical provisions of a lease which may provide the functional equivalent of taxation. Where a leasehold is owned by a person or private entity, then one may see that the landlord includes in the lease a requirement that the tenant pay ad valorem taxes as a pass through.

There was a vigorous dissent; however, the dissent was primarily based upon whether there was equitable ownership. The dissent seemingly assuming that the renegotiation text mandated the renewal, an assumption that the majority opinion rejected.

A couple of matters of interest. First, of course, is the reminder that a name does not dictate the type of ownership. The “homeowners association” name still requires a review of the governing documents because, as the opinion reported, the property was a condominium. Second, is the import of a requirement to negotiate an extension of time and how does that obligate the parties. This decision assumes that such a duty does not mean that the parties must renew which may raise secondary issues.

Michael J. Gelfand

Past Chair
Real Property, Probate and Trust Law Section of The Florida Bar
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Note: This article is not legal advice. Statements and comments made are not those of The Florida Bar or the RPPTL Section
© 2017 Michael J. Gelfand

Michael J. Gelfand

Florida Bar Board Certified Real Estate Attorney
Florida Supreme Court Certified Mediator:
Civil Circuit Court & Civil County Court
Fellow, American College of Real Estate Attorneys

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