LIMITED, INC., a licensed ) Pennsylvania Corporation, d/b/a ) TRAILS AT ROYAL PALM BEACH )
Respondent. )
Pursuant to notice, this cause was heard by Linda M. Rigot, the assigned Hearing Officer of the Division of Administrative Hearings, on March 8, 1988, in West Palm Beach, Florida.
Petitioner Department of Business Regulation, Division of Florida Land Sales, Condominiums and Mobile Homes was represented by Karl M. Scheuerman, Esquire, Tallahassee, Florida; and Respondent A.R.M. Limited, Inc., a licensed Pennsylvania Corporation, d/b/a Trails at Royal Palm Beach Condominium was represented by Dennis J. Powers, Esquire, West Palm Beach, Florida.
Petitioner issued a Notice to Show Cause alleging that Respondent had violated several provisions of the Condominium Act, and Respondent requested a formal hearing regarding those allegations. Accordingly, the issue for determination herein is whether Respondent is guilty of the allegations contained in that Notice to Show Cause and, if so, what action should be taken against Respondent, if any.
Petitioner presented the testimony of Wendy C. Heintz, Richard Coates, and Arthur Kerner. Wendy C. Heintz also testified on behalf of the Respondent.
Additionally, Joint Exhibits numbered 1-6 and Respondent's Exhibit numbered 1 were admitted in evidence.
Although both parties requested and were granted leave to file post-hearing proposed findings of fact, only Petitioner did so. A ruling on each of Petitioner's proposed findings of fact can be found in the Appendix to this Recommended Order.
Respondent A.R.M. Limited, Inc., is the developer of the residential condominium known as Trails at Royal Palm Beach, a phase condominium containing a total number of 230 units when completed, located in Royal Palm Beach, Florida.
During 1981 Respondent submitted to Petitioner all documents required to properly register the condominium, including the Declaration of Condominium and the Contract for Sale. By letter dated June 16, 1981, Petitioner notified Respondent that the documents it had received were in acceptable form and that Respondent would soon be advised as to the results of the Petitioner's "content examination". By letter dated July 14, 1981, Petitioner notified Respondent that it had completed its examination, and the condominium documents were proper.
On April 27, 1982, Respondent recorded the Declaration of Condominium for Phases I and II in the public records in Palm Beach County.
The Offering Circular, the Declaration of Condominium, and the Contract for Sale contained a developer's guarantee of common expenses for a two-year period commencing with the recording of the Declaration of Condominium and guaranteeing that the unit owners' monthly assessment would not exceed $75 a month for the period of the guarantee.
Accordingly, the initial guarantee period terminated April 27, 1984. Thereafter, the guarantee period was extended by the developer until April 27, 1985, and again until December 31, 1985. No evidence was offered to show that any unit owner objected to the extension of the guarantee period. However, no vote of the unit owners was taken regarding either of the two extensions, and no written agreement was obtained.
During the period of time between the initial guarantee period and January 1, 1986, Respondent did not pay assessments on a regular basis but instead paid the difference between the association's expenses and income. In other words, the developer did fund all shortfalls through December 31, 1985.
The Offering Circular approved by Petitioner in 1981 contained a copy of the Contract for Sale which was to be used, and in fact has been used, for the condominiums units. That Contract specifically provides for purchasers to pay an initial contribution to working capital in the amount of "$300 . . . which may be used by the Association for start-up expenses as well as ordinary expenses . . . " Pursuant to that contract, Respondent utilized start-up funds to off set common expenses of the condominium arising from the sale of 28 units between April 27, 1984 and April 27, 1985. Fourteen of those units were sold between April 27, 1984 and October 1, 1984, and 14 of those units were sold between October 1, 1984 and April 27, 1985.
In a phase condominium, since the total number of units within the condominium increases as phases are added, the number of unit owners paying assessments for common expenses increases and, consequently the percentage of ownership of the common elements and percentage of common expenses liability changes per unit. When Respondent registered the condominium with Petitioner in 1981 Respondent filed all documents necessary for the entire project (including all phases) but only paid the filing fee related to Phases I and II at that time.
As Respondent continued developing the condominium and selling additional units in subsequently-constructed phases, appropriate amendments to the original Declaration were recorded in the public records. Respondent, however, failed to file copies of those recorded amendments with Petitioner.
By cover letter dated March 3, 1986, Respondent filed with Petitioner a developer's filing statement for subsequent phases and enclosed a check in the amount of $940 to cover filing fee requirements. According to an attachment to that filing, Respondent was filing Phases 900, 1000, 1100, 1200, 1300, 1400, 2000, 2100, 2200, 2400, and 2500, which in totality comprised 94 units. According to the same attachment, these Phases were added to the condominium through recordation of amendments to the original Declaration with such recordation occurring between 1983 and 1986. According to information submitted by Respondent to Petitioner, as of March 3, 1986, closings had taken place on 77 units in Phases 900, 1000, 1100, 1200, 1300, 1400, 2100, 2400, and 2500 prior to Respondent's filing the subsequent phase documents with Petitioner.
There is no allegation that the documents when filed were improper or that Respondent failed to provide them to the unit owners at the time they were executed.
In January of 1988 unit owners other than the developer elected a majority of the board of administration of the condominium association, and turnover of control of the association from developer control to control by unit owners other than the developer occurred.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the subject matter hereof and the parties hereto. Section 120.57(1), Florida Statutes.
The Notice to Show Cause filed against Respondent charges three violations of the Condominium Act. First, Respondent is charged with excusing itself from payment of its share of the assessments for common expenses on units owned by Respondent after expiration of the developer's guarantee period on April 27, 1985, in violation of section 718.116(8), Florida Statutes.
Petitioner has no quarrel with the validity of the initial guarantee period i.e., from April 27, 1982 through April 27, 1984. Although Petitioner attempts some random argument regarding the period from April 27, 1984 through April 27, 1985 (the period of the first extension), only the time period between April 27, 1985 and December 31, 1985 is the subject of the Notice to Show Cause filed herein.
The statute sets forth no procedure for obtaining an extension of the guarantee period; however, logically an extension would necessarily be in the same or similar form as the original guarantee. Section 718.116(8), Florida Statutes, provides that the guarantee must be made to each purchaser and can be accomplished through the purchase contract, declaration or prospectus, or by agreement between the developer and the majority of the unit owners other than the developer. The facts in this case suggest that at a unit owner meeting Respondent was asked if it would extend the guarantee from April 27, 1985 and Respondent affirmatively agreed to extend the guarantee to December 31, 1985. Although there is no showing that there was disagreement between the developer and the majority of the unit owners other than the developer as to the guarantee being extended (during a guarantee period, the assessments paid by unit owners cannot be increased) , there is an insufficient showing that there was an agreement between the developer and a majority of the unit owners other than the developer.
There is no allegation that Respondent failed to make payments; in fact, Petitioner stated in its opening argument at the final hearing that it
would not present evidence as to any amounts paid or owing during the guarantee period since Petitioner was not quarrelling with the amounts paid but rather the timeliness of payment. The facts clearly indicate that no payment was made for the period between April 27, 1985 and December 31, 1985 until financial statements were prepared at the beginning of 1986. Accordingly, Respondent did not timely pay its share of the common expenses. Although Respondent did live up to its commitments, there is a violation of section 718.006(8), Florida Statutes. In its proposed recommended order Petitioner argues a related rule violation. Since Respondent has not been charged in the Notice to Show Cause with violating any of the Petitioner's rules, Petitioner's arguments regarding additional violations of its rules are not considered in this Recommended Order.
The second violation charged in the Notice to Show Cause relates to Respondent's utilization of capital contributions or start-up funds to off-set common expenses of the condominium between April 27, 1984 and April 27, 1985, in violation of section 718.116(8)(b), Florida Statutes. Such conduct was not forbidden by statute, however, until October 1, 1984. Petitioner argues that such conduct was prohibited prior to the statutory prohibition, however, pursuant to a rule enacted by Petitioner during 1983. Respondent has not been charged with violating that rule in the Notice to Show Cause. Petitioner further argues that even prior to the rule forbidding such conduct that Petitioner had a "policy" against such conduct. Petitioner failed to prove, however, that such "policy" would have prohibited such conduct in a situation where the pre-existing contract between the parties specifically permitted such conduct, and further failed to show that its "policy" was known or capable of being ascertained. Accordingly, Petitioner has failed to prove that such conduct when specifically authorized by contract between the parties in fact violated its "policy" and has failed to prove that Respondent's utilization of those funds in such a manner could be made illegal by a rule promulgated subsequent to the use of the contract approved by Petitioner to be used.
As to the statutory prohibition, this forum is not authorized to adjudicate constitutional questions inherent in the passage of a statute making existing contractual rights between private parties illegal, and, therefore, the impairment of contract issue cannot be resolved in this Recommended Order. Further, the statute does not indicate that it applies to existing contracts.
It must be remembered that the contract form utilized by Respondent for the sale of units at this condominium is the form that was registered and approved by Petitioner in 1981. Petitioner has made no suggestion that Respondent can alter that contract so that various unit owners would purchase pursuant to various contracts.
Interestingly enough, the statute Petitioner charges Respondent with violating only applies in situations during the period of time when a developer or other person has been excused from payment of assessments. Having proven that Respondent did not validly excuse its responsibility to pay assessments on its developer-owned units subsequent to April 27, 1984, Petitioner cannot now logically argue that the statute even applies after its effective date to Respondent. Even Petitioner admits in its proposed recommended order at page 17 that at the time Respondent recorded its declaration of condominium in the public records on April 27, 1982, no statute or rule expressly prohibited the use of working capital contributions during a guarantee period.
Finally, although it is accepted that condominium documents inconsistent with the Condominium Act will not be honored, a different scenario exists where the condominium documents become fixed and are recorded prior to the effective date of a statute which conflicts with a provision in those
condominium documents. Accordingly, Petitioner's reliance on cases such as Suntide Condominium Association, Inc. v. Division of Florida Land Sales, 463 So.2d 314 (Fla. 1st Dist. 1984), wherein the parties attempted to modify an existing statute by contract, is misplaced. In view of the pre-existing contract provision authorizing Respondent to utilize capital contributions to off-set common expenses; in view of Petitioner's failure to establish that its "policy" applied in the face of a valid pre-existing contract or that such policy was "the law" when the contract became fixed; in view of Petitioner's failure to charge Respondent with violating its 1983 rule; in view of the statute's effective date of October 1, 1984, and its application only to situations where payment of assessments was excused and Petitioner's proof that Respondent failed to properly excuse itself from paying regular assessments; and in view of the obvious constitutional question raised by Respondent as to the statute's impairment of its contract rights, Petitioner has failed to prove that Respondent violated section 718.116(8)(b) , Florida Statutes.
The Notice to Show Cause lastly charges Respondent with failing to file with the Division a copy of the condominium documents required to be furnished to buyers pursuant to sections 718.503 and 718.504, Florida Statutes, prior to offering and entering into approximately 82 contracts for sale of units in subsequent phases of the condominium, in violation of section 718.502(1) and (2), Florida Statutes. Section 718.503 requires the disclosure of the purchase contract contents prior to sale, regulates that contract, and further outlines copies of documents required to be furnished to prospective buyers and other disclosures required to be made to purchasers. There is no showing that Respondent failed to provide those documents to prospective purchasers.
Section 718.504, Florida Statutes, requires the filing of and regulates the content of an offering circular. The evidence is uncontroverted that Respondent filed with Petitioner its offering circular. The offering circular appears to contain the required provisions, Petitioner has offered no argument or evidence as to any defect in the offering circular, and there is no showing that the offering circular was not provided to buyers of condominium units by the Respondent. Further, there is no showing that any of the documents as to subsequent phases were different from the documents filed relative to the initial phases except that amendments to the declaration of condominium were executed and filed in the public records by Respondent to reflect the change in ownership interest as additional units were added to the condominium.
Section 718.502(1) provides that the developer shall file with Petitioner a copy of the documents and items required by sections 718.503 and 718.504, if applicable, and the developer's failure to do so makes a contract for sale or lease voidable by the purchaser prior to closing. Petitioner has failed to prove that Respondent violated section 718.502(1) since Petitioner failed to prove that Respondent failed to file the documents regulated in sections 718.503 and 718.504, Florida Statutes.
Section 718.502(2), Florida Statutes, provides that prior to filing as required by subsection (1) developers shall not offer contracts for purchase but may accept deposits for reservation and then sets forth requirements for reservation agreements. This case does not involve reservation agreements. Although it is clear that Respondent failed to file with the Division 77 amendments to the declaration resulting from sales in subsequent phases, Petitioner has failed to argue any requirement that such amendments be filed with the Division prior to or at the same time that Respondent recorded those
amendments in the public records in Palm Beach County. Accordingly, Petitioner has failed to prove that Respondent violated section 718.502(2), Florida Statutes.
In its proposed recommended order, Petitioner recommends that for the violation of section 718.116(8), Florida Statutes, found pursuant to count one of the Notice to Show Cause, Respondent be required to employ the services of an independent public accountant to prepare a review to establish whether Respondent owes the condominium association any amount of unpaid assessments for the period April 27, 1985 through January 1, 1986 taking into consideration the deficit funding by Respondent during that period and taking into account an interest penalty for untimely paid assessments. Petitioner further recommends that since the turnover of control has only recently occurred that Respondent could, at its option, supplement the turnover review to include the additional calculation. Petitioner further recommends that Respondent be fined $1000 for its failure to pay assessments without a valid guarantee of common expenses.
The dispositive date in this case is December 31, 1985 and not January 1, 1986. Further, no evidence was presented by Petitioner regarding the due dates for any assessment during that time period in order that appropriate interest can be calculated, or whether any grace period for such payment existed pursuant to the condominium documents. Raising the issue of interest penalties pursuant to section 718.116(3), Florida Statutes, for the first time in its proposed recommended order is insufficient to call that statutory provision into play since Respondent was never placed on notice that the due dates for assessments would be at issue for the computation of penalty interest. The remainder of Petitioner's recommendation is appropriate, i.e., that Respondent forthwith have prepared a financial review or incorporate such a review as part of the turnover review to determine whether Respondent owes the association any amount of unpaid assessments for the period April 27, 1985 through December 31, 1985 taking into consideration the deficit funding paid by Respondent during or for that period of time, and that Respondent be fined $1000.
