STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF PROFESSIONAL )

REGULATION, DIVISION OF ) FLORIDA LAND SALES, CONDOMINIUMS ) AND MOBILE HOMES, )

)

Petitioner, )

)

v. ) CASE NO. 85-2261

) GRAYSTONE FAIRWAYS CORPORATION, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the above matter was heard before the Division of Administrative Hearings by its duly designated Hearing Officer, Donald R. Alexander, on November 7, 1985 in Fort Lauderdale, Florida.

APPEARANCES

For Petitioner: Robin H. Conner, Esquire

Thomas A. Bell, Esquire 725 South Bronough Street

Tallahassee, Florida 32301

For Respondent: Allen Bosworth, Esquire

Kingston Plaza, Suite 504 8251 West Broward Boulevard

Fort Lauderdale, Florida 33324 BACKGROUND

By amended notice to show cause dated May 24, 1985, petitioner, Department of Professional Regulation, Division of Land Sales, Condominium and Mobile Homes, has charged that respondent, Graystone Fairways Corporation, a residential condominium developer, had violated various provisions within Chapter 718, Florida Statutes (Supp. 1984), and a rule promulgated thereunder.1 Generally, petitioner has alleged that

respondent (a) violated Subsection 718.301(1), Florida Statutes (Supp. 1984), by failing to call a meeting to allow unit owners other than the developer to elect a majority of the Board of Administration of a condominium known as Fairways of Tamarac, III (Count I), (b) violated Sections 718.503 (2) and 718.504, Florida Statutes (Supp. 1984), by failing to provide three unit owners with a prospectus prior to the owners closing on their units (Count II), and (c) violated the same sections by failing to provide purchasers or units at the condominium project with a complete prospectus (Count III).

Respondent disputed the above allegations and requested a formal hearing pursuant to Subsection 120.57 (1), Florida Statutes. The matter was referred to the Division of Administrative Hearings by petitioner on July 3, 1985, with a request that a hearing officer be assigned to conduct a formal hearing. By notice of hearing dated August 9, 1985, the final hearing was scheduled for October 2, 1985, in Fort Lauderdale, Florida. At the request of the parties, the matter was rescheduled to November 7, 1985, at the same location.

At final hearing petitioner presented the testimony of Morton Tolmack, Irving A Goodman, Sidney G. Resnick and Joan Nathanson and offered petitioner's exhibit 1 which was received in evidence. Respondent presented the testimony of Louis Wingold. It also offered respondent's exhibits 1-12. All were received in evidence.

This Recommended Order was prepared without the benefit of a transcript of hearing. Proposed findings of fact and conclusions of law were filed by the parties on December 2, 1985.2 A ruling on each proposed finding of fact has been made in the Appendix attached to this Recommended Order.

At the outset of the hearing, petitioner voluntarily dismissed Count III of the amended notice to show cause. Remaining at issue herein is whether respondent should be disciplined for the alleged violations remaining in the amended notice to show cause.

Based upon all of the evidence, the following findings of fact are determined:

FINDINGS OF FACT

1. Respondent, Graystone Fairways Corporation (GFC), is wholly owned by Louis Wingold, a Canadian developer. He is also

   its president. In January, 1979, GFC entered into a five-year joint venture with Tamway Corporation (Tamway), whose president was Harvey Kaliff. The agreement provided that GFC and Tamway would construct, develop and market a two phase condominium project in Tamarac, Florida known as Fairways of Tamarac III (Fairways or project). Each phase of the project was intended to have thirty units. To date only the first phase of the project has been constructed. Building permits for the second phase have been obtained, but no construction work has commenced. The project was apparently subject to registration requirements with petitioner, Department of Business Regulation, Division of Florida Land Sales, Condominiums and Mobile Homes (Division). It is that agency which has initiated the complaint herein, of which two of three counts therein remain pending.

   
   

2. Under the foregoing joint venture agreement, GFC generally provided the financing for the project while Tamway provided the site construction and sales of units. The agreement further designated Tamway as the managing partner to conduct the day-to-day business of the joint venture. Among other things, Tamway was authorized to enter into purchase and sale contracts for the sale of individual units in the project. Accordingly, Wingold had no active participation in the management of the project's day-to-day business, for the agreement provided that Kaliff would have that responsibility.

   
   

3. After Fairways of Tamarac III was constructed, Kaliff hired Ron Settler and Victoria Falzone as salespersons to market and sell the individual units. The first unit was sold by Settler to Irving A. Goodman in November, 1982. Goodman was represented by counsel at the closing and, through counsel, received a packet of documents. In the summer of 1984 Goodman learned that he should have received a prospectus prior to closing, but did not. He was given a prospectus by the present project manager, Joan Nathanson, after asking for a copy.

   
   

4. Two other units were purchased in July and September, 1983, respectively, by Sidney G. Resnick and Morton Tolmack. Both were sold by either Settler or Falzone. Tolmack was represented by counsel at closing while Resnick had no attorney. Although both executed receipts for condominium documents which reflected a prospectus was included in their packet of documents, their oral testimony to the contrary is accepted as being more credible and persuasive, and it is found that neither received a prospectus at or before closing. When they discovered at a later date they were supposed to have received one, they were given one by Nathanson. Wingold had no knowledge

   of Tamway's failure to give a prospectus to Goodman, Resnick and Tolmack. He first learned of this when the complaint herein was filed.

   
   

5. Sometime in 1983 or early 1984, Wingold discovered that Kaliff was not fulfilling the terms of his obligation under the joint venture. Beginning in February, 1984, three circuit court actions were filed, and a settlement, the joint venture was dissolved, and GFC was given exclusive title and rights to the project by Tamway/Graystone. According to Wingold, Settler was convicted on 22 counts of theft from the project. He was dismissed from employment around May, 1984.

   
   

6. During the course of the above litigation, no units could be sold because Kaliff would not agree to sign any documents conveying clear title to the purchaser. Consequently, no sales efforts could be made during this period of time. Except for the time when the litigation was pending, the unsold project units were being offered for sale by the developer in the ordinary course of business.

   
   

7. When the settlement was executed on September 5, 1984, thirteen out of thirty units had been sold by Kaliff and Tamway. The last closing under Kaliff's management occurred in May, 1984. Wingold hired a new project manager that same month, and after the litigation was settled, began advertising in local newspapers in an effort to sell the remaining units. This included periodic advertising in two Fort Lauderdale newspapers in September and October, 1984 and January, 1985. This effort met with little or no success due to the then-existing "glut" of condominiums in South Florida. Wingold then searched for a broker to sell the units. Although he had a difficulty in finding a broker who was interested in marketing the units, in February, 1985 he executed a six-month agreement with Condovest, Inc., a firm in Miami that specializes in such sales. Since September, 1984 the developer has closed on six units and has four more under constract at the present time. This leaves seven unsold units, all of which are now rented except one which is used as a model apartment and office. The office is open only on week-days except by special appointment.

   
   

8. The unsold units were rented by Wingold due to a large monthly payment ($15,000) on the construction loan. Such units were offered for rent in local newspaper advertisements and at one time on a sign appearing at the front entrance to the property. The rents are used to cover the debt service until the units are sold. The oldest lease agreement expires in May,

   1986. Therefore, only the model unit is immediately available for occupancy by a buyer. All others must be sold subject to the lease. Even so, four units are now under contract subject to the leases, and Wingold continues to seek buyers for the remaining rented units.

   
   

9. Subsection 718.503(2), Florida Statutes (Supp. 1984), requires that a prospectus be given to purchasers of condominium units prior to closing. Goodman, Resnick and Tolmack were not given such documents as required by law. This finding is based upon the testimony of the three unit owners which is accepted as being the more persuasive evidence on this issue. However, there is no evidence that any of the three was harmed or disadvantaged by their failure to receive copies of the prospectus until 1984 or 1985, particularly since two were represented by counsel at closing. Subsection 718.301(2), Florida Statutes (Supp. 1984), also requires that a meeting be called to allow unit owners to elect a majority of the members of the board of administration when none of the unsold units in the project are being "offered for sale by the developer in the ordinary course of business." There is no evidence of record as to how the agency construes that term, or what is the generally accepted meaning within the condominium industry. It is undisputed that no meeting has yet been called by Wingold. However, Wingold has not done so nor is he required to do so since units have been and are still being offered for sale in the ordinary course of business. Besides this, he fears that he cannot fulfill the terms of the four pending purchase and sell contracts if control of the project is turned over to the present unit owners.3 But this concern is irrelevant to a determination of the issue presented herein.

   
   

   CONCLUSIONS OF LAW

   
   

10. The Division of Administrative Hearings has jurisdiction of the subject matter and the parties thereto pursuant to Subsection 120.57(1), Florida Statutes.

    
    

11. As narrowed at the outset of the hearing, petitioner has charged that respondent has (a) violated Subsection 718.301(1), Florida Statutes (Supp. 1984), by "failing to call a meeting to allow the unit owners other than the developer to elect a majority of the members of the Board of Administration of the condominium even though some of the units have previously been conveyed and none of the units are being constructed or offered for sale by the developer in the ordinary course of business," and (b) violated Sections 718.503(2) and 718.504,

    Florida Statutes (Supp. 1984) by failing "to provide unit owners Sidney Resnick, Irving Goodman, and Morton Tolmack with a prospectus prior to the time that said unit owners closed on the purchase contracts for their units." These charges will be discussed separately.

    
    

12. Count I - Initially, it is noted that the amended notice to show cause alleges that respondent violated Subsection 718.301(1) by failing to call a meeting to allow unit owners to elect a majority of the board of administration. Actually, the requirement to call a meeting is contained in Subsection 718.301(2), and if the alleged violation has occurred, it is that subsection which has been violated rather than the citation in the amended notice to show cause. Respondent did not object to the improper citation and it is accordingly deemed to be harmless error.

    
    

13. The law requires that a meeting should be called "[w]hen some of the units have been conveyed to purchasers and none of the others are being constructed or offered for sale by the developer in the ordinary course of business." According to the amended notice to show cause, this condition is now present, and by failing to call a meeting, respondent is in violation of the law. The evidence of record establishes that Tamway attempted to sell units continually from when the first unit was sold in November, 1982 until May, 1984 when litigation between GFC and Tamway was underway. Although a dispute between Tamway and Graystone prevented sales effort for a brief period of time, there has been a continual effort by Graystone to sell units since September, 1984 when it reacquired title to the property. This is evidenced by newspaper advertisements, a broker's agreement, and the closing or obtaining of contracts to sell on ten units in the last twelve months. Under this undisputed factual scenario, it is concluded that Graystone (and Tamway) have continued to offer units for sale in the ordinary course of business, and therefore, no requirement to call a meeting exists. This is true even if six of the seven unsold units are being rented so long as active, good-faith efforts to sell the units are made by the developer. In reaching these conclusions, it is noted that no definitive standards have been adopted by the agency which construe the statutory language in question. Then, too, there is no record foundation as to what the practice in the industry is, or to support an interpretation that would indicate a violation on the part of respondent. Accordingly, the charges in Count I should be dismissed.

14. Count II - In this count it is alleged that respondent has violated Sections 718.503 (2) and 718.504, Florida Statutes (Supp. 1984), by failing to give a prospectus to three unit purchasers at or prior to closing. The more persuasive evidence supports a conclusion that Tamway did not provide this documentation, and that the violation has accordingly occurred. The principal developer, GFC, is accordingly responsible for that omission.

    
    

15. In assessing a penalty against GFC, it should be noted that its owner had no knowledge of Tamway's omissions, and that none of the three unit owners were shown to have been harmed or disadvantaged by failing to get their copies of the prospectus unitl 1984 or 1985. Petitioner suggests the imposition of a

$5,000.00 civil penalty. But this recommended penalty is apparently premised upon the notion that both counts have been established. Since respondent is only guilty of only one count is the amended notice to show cause, a $500.00 civil penalty is more appropriate.

RECOMMENDATION

Based on the foregoing findings of fact and conclusions of law, it is

RECOMMENDED that respondent be found guilty as charged in Count II of the amended notice to show cause, and that it be fined $500.00 to be paid within thirty days from date of the Final Order in this Cause. Count I should be DISMISSED, with prejudice.

DONE and ORDERED this l6th day of December, 1985, in Tallahassee, Florida.

DONALD R. ALEXANDER

Hearing Officer

Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32301

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 16th day of December, 1985.

ENDNOTES

1/ The amended complaint identified respondent as Graystone S.

1. Corporation. At the outset of the hearing, petitioner corrected the name of respondent to Graystone Fairways Corporation.

   
   

   2/ Respondent submitted two post-hearing pleadings, one entitled "Respondent's Final Argument" and the other "Recommended Order." Both contain proposed findings of fact. A ruling has been made only upon the proposed findings in the "Recommended Order."

   
   

   3/ According to Wingold, the contracts provide asurances to the buyers that they will receive certain rental income until closing. If the project is turned over to unit owners, he fears these agreements can somehow be abrogated.

   
   

   APPENDIX

   
   

   PETITIONER:

   
   

   1. Proposed findings of fact (a)-(q) have been substantially adopted and are covered in the Recommended Order.

RESPONDENT:

1. Proposed findings of fact 1-17 have been essentially adopted and covered in this Recommended Order.

2. Proposed findings of fact 18 and 19 have been partially accepted, but as noted in the Recommended Order, the oral testimony of Resnick, Goodman and Tolmack has been accepted as being more persuasive on the issue.

3. Proposed finding of fact 20 has been partially rejected as to that portion which relates to Count II of the amended notice to show cause.

COPIES FURNISHED:

Robin H. Conner, Esquire 725 S. Bronough Street Tallahassee, FL 32301

Allen Bosworth, Esquire Kingston Plaza, Suite 504

8 2 51 W. Broward Blvd. Ft. Lauderdale, FL 33324

Docket for Case No: 85-002261

Orders for Case No: 85-002261