Findings Of Fact 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.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it Is'; RECOMMENDED that a Final Order be entered: Finding Respondent guilty of the allegation contained within count one; Finding Respondent not guilty of the allegations contained within counts two and three of the Notice to Show Cause; Requiring Respondent to effectuate the financial review discussed in the Conclusions of Law section of this Recommended Order and pay to the condominium association any amount of unpaid assessments for the time period in question; and Assessing a fine against Respondent in the amount of $1000. DONE and RECOMMENDED this 20th day of May, 1988, at Tallahassee, Florida. LINDA M. RIGOT, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 20th day of May, 1988. APPENDIX TO RECOMMENDED ORDER DOAH CASE NO. 87-2917 Petitioner's proposed findings of fact numbered 1, 3, 5, 7, the first sentence of 9, the third sentence of 15, and 16-20 have been adopted either verbatim or in substance in this Recommended Order. Petitioner's proposed finding of fact numbered 8 has been rejected as being immaterial to the issues under consideration herein. Petitioner's proposed findings of fact numbered 2, 4, 6, 9 except for the first sentence, 10-14, and 15 except for the third sentence have been rejected as not constituting findings of fact but rather as constituting conclusions of law, argument of counsel or recitations of the testimony. COPIES FURNISHED: Van B. Poole, Secretary Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32399-1000 Karl M. Scheuerman, Esquire Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32399-1000 A.R.M. Limited, Inc. Trails at Royal Palm Beach Suite 315 1300 North Florida Mango Road West Palm Beach, Florida 33409 Dennis Powers, Esquire Suite 315 1300 North Florida Mango Road West Palm Beach, Florida 33409
Findings Of Fact Respondent, Camino Real Village, is the joint venture and developer of a sixty-four unit condominium project known as Camino Real Village V (project) in Boca Raton, Florida. The project consists of two buildings (5751 and 5801) with thirty-two units each. Respondent, B&S Ventures, Inc. (B&S), a Florida corporation, is a partner in the joint venture. The other partner, Middlesex Development Corporation, a California corporation, was not named a respondent in this cause. Although the development consists of at least four separate condominium projects known as Camino Real Villages II, III, IV and V, only Camino Real Village V is in issue in this proceeding. Respondents, as the developer and partner of the joint venture, are subject to the regulatory requirements of petitioner, Department of Business Regulation, Division of Florida Land Sales, Condominiums and Mobile Homes (Division). They are charged with violating various provisions of Chapter 718, Florida Statutes (1985), as set forth in greater detail in the Division's notice to show cause issued on July 17, 1986. The Camino Real project is considered to be a multi-condominium project. This means the development includes more than one condominium project but that all are operated by a common association. The parties agree that the project is not a phase condominium project. Under Division rules and applicable statutes, the developer of a multi-condominium project is required to file with the Division a set of "creating" documents at the inception of the project. The creating documents include, among other things, a prospectus, declaration of condominium, plans and survey, legal description, percentages of common ownership, surplus and expenses, articles of incorporation, by- laws, site plan, restrictions (if any), and the estimated operating budget for the first year. Such documents must be submitted for each condominium within the project. However, where the documents are identical to those submitted for another condominium, the developer may file a "certificate of identical documents" wherein the developer certifies that all disclosure items are identical with items for another condominium within the project which has been previously filed with the Division. After the creating documents are filed, the developer must thereafter file additional documents as new condominiums are constructed and completed. This is generally accomplished by filing an amendment to the original declaration for condominium. The amendment includes a surveyor's certificate attesting that the construction on the project has been completed. The purpose of the later filing is to inform the Division that construction on the new condominium has been substantially completed. On an undisclosed date in 1979, respondents filed their creating documents for certain condominiums in Camino Real Village. On November 19, 1980, they submitted their filing for the creation of Camino Real Village V. These documents were accepted as to "form" on December 11, 1980. They included a certificate of identical document signed by B&S' president which certified certain documents were identical to those previously submitted for Camino Real Village IV, a legal description of the property on which the condominium sits, sketches of the types of units to be built, a typical floor plan for Buildings 5751 and 5801, an estimated operating budget based on sixty-four units and common ownership percentages for each unit in the two buildings. Under Division requirements and state law, the documents should have contained a statement reflecting that the condominium was not substantially completed. 3/ However, they did not, and this omission was not detected by the Division when it reviewed and approved the initial filing. On October 23, 1984 respondents filed the declaration of condominium for Camino Real Village V in the local public records. The documents have been received in evidence as petitioner's composite exhibit 1. They reflected that the percentage of ownership in the common elements for both buildings equaled one hundred percent. Section 3(b) of the declaration provided for the creation of a condominium consisting of two buildings (5751 and 5801) containing thirty- two units each. The documents included a surveyor's certification that Building 5751 was substantially completed. However, as to Building 5801, which was not completed at that time, no statement reflecting its state of completion was filed. It is also noted that the declaration was not filed with the Division as required by law, and the Division did not learn of its existence until sometime later. Since the filing of the declaration, respondents have operated Camino Real Village V as a condominium. On October 23, 1984, respondents executed the closing documents on the sale of the first unit (Unit No. 106 in Building 5751) in Camino Real Village V. The warranty deed was later recorded in the local public records on November 1, 1984, and it is found this is the appropriate date on which the sale of the first unit occurred. This is consistent with the standard practice of parties executing documents prior to closing but not considering a unit sold until the money is actually transferred from the buyer to the seller. This date is significant since it may bear directly upon the date when the developer must begin paying common expenses on developer-owned units. On or about October 24, 1985 a "First Amendment to the Declaration of Camino Real Village V" was recorded by respondents in the local public records. It amended the declaration previously executed on October 23, 1984 and included, among other things, a surveyor's certificate reflecting that Building 5801 had been substantially completed. It also attempted to submit Building 5801 to condominium ownership. Although the amendment and attached documents should have been filed with the Division, respondents neglected to do so. The Division first learned that the documents existed during the course of this proceeding. According to paragraph 15 of the declaration, common expenses can only be assessed by the Association against "each condominium parcel." A condominium parcel is defined in paragraph 4(c) as "the condominium unit, together with an undivided share in the common elements appurtenant thereto." A condominium unit in turn is defined in paragraph 4(a) as "the unit being a unit of space, designated 'condominium unit' on the sketch of survey and plans attached hereto and marked as Exhibit B." The latter exhibit, which is attached to the declaration, contains the plans and survey of the project, the surveyor's certification of substantial completion, and a graphic description of each finished unit within the project. Therefore, the above definitions evidenced an intent that common expenses could be assessed only against completed units. Pursuant to Subsections 718.116(1) and (8), Florida Statutes (1985), a developer is responsible for paying his pro- rata share of common expenses on all developer-owned units. The same law permits the declaration to provide that the developer is relieved of this per-unit obligation until the expiration of a ninety-day period after the first unit is sold. In this case, the declaration had such a provision in paragraph 14. It provided in part as follows: . . . for such time as the Developer continues to be a Unit Owner, but not exceeding ninety (90) days subsequent to the closing of the first condominium unit, the Developer shall only be required to contribute such sums to the common expenses of the Condominium, in addition to the total monthly common expense assessments paid by all other Unit Owners, as may be required for the Condominium Association to maintain the condominium as provided in said Declaration of Exhibits . . . Developer hereby reserves the option to guarantee the level of assessments to unit owners for a specified time interval and thereby limit its obligations to contribute to condominium maintenance in accordance with the provisions of Chapter 718.116(8), Florida Statutes. The parties agree that the monthly assessments for common expenses during the period relevant to this proceeding were as follows: Type A Units $135.20 Type B Units 138.64 Type C Units 163.96 The declaration also provides that ten percent interest must be added to any liability owed. The record reflects, and respondents concede, that such assessments were not paid on any units in Building 5801 until the following dates: Units 100-107 ----------- August 28, 1985 Units 200-207 ----------- September 5, 1985 Units 300-307 ----------- September 10, 1985 Units 400-407 ----------- September 18, 1985 The above dates are exactly ninety days after certificates of occupancy were issued for each of the four floors of Building 5801. Even though assessments were not paid by respondents until those dates, beginning on January 31, 1985 and continuing until such assessments were paid, other unit owners were charged and paid assessments based upon a budget for sixty-four units. As it turned out, the difference between the budget and annual common expenses actually incurred by the project was approximately $32,100, or the amount the Division contends respondents owe. In 1982-84, petitioner conducted an investigation of Camino Real Villages II, III and IV based upon complaints received from a certain unit owner. The complaint concerned allegations that access to association books was denied, that the declaration contained a developer guarantee, that maintenance expenses were not properly paid, and that improper assessments were levied on unit owners. The file was closed in November, 1984 after the Division's enforcement supervisor concluded that the allegations were either "unfounded" or could be resolved through voluntary compliance by the Association. As to the fourth issue, which was an allegation that the developer- controlled Association had improperly assessed unit owners from November, 1980 to January, 1982, the investigative report noted that the developer was "allocating them based on the completed units versus the total units filed for the entire community." The enforcement supervisor concluded that this was "the method chosen by the Association," and "absent specifics in the documents, we lack jurisdiction . . . to question this practice." There is no mention of the term "certificate of occupancy" in the report. However, uncontradicted testimony by respondents reflects that its use of the date of issuance of the certificate of occupancy to determine when assessments became due was the focus of the investigation, and that respondents relied upon those statements in continuing their practice of not paying assessments until ninety days after a certificate of occupancy was issued on a unit. They did so, at least in part, on the theory that the Association did not assume responsibility for expenses until that time. Respondents point out that the filing documents submitted to the Division in November, 1980 were defective in that the surveyor's certificate was incorrect. They go on to suggest that, because of this deficiency, the filing might be invalidated by a court and therefore the statutory assessment provision would not apply. However, no person has ever challenged the validity of the filing, and the general law contains a curative provision for any initial filing errors. They also assert that, if any liability is in fact owed, they are entitled to set-offs for expenses incurred by the developer while the project was being constructed. These include payments for real estate taxes, utility bills, Boca Del Mar Improvement Association, Inc. fees, trash removal, insurance, security service, assessments and maintenance and are itemized in attachments to respondents' exhibit 1. However, there is no rule or statutory provision which authorizes this type of set-off to be applied against common expenses. Therefore, the expenses itemized in respondents' exhibit 1 are deemed to be irrelevant.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the respondents be found guilty of violating Section 718.116, Florida Statutes (1985), as charged in the notice to show cause, and that they be required to pay the Association for past due common expenses on developer-owned units in Building 5801 as set forth in paragraph 8 of the conclusions of law plus ten percent interest to and including the date of payment. DONE AND ORDERED this 30th day of March, 1988, in Tallahassee, Leon County, Florida. DONALD R. ALEXANDER Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 30th day of March, 1988.
The Issue The issue for resolution in this proceeding is whether Respondent committed the violations alleged in the Notice to Show Cause: Failure to deliver to the association a review of financial records for the required period. Section 718.301(4)(c) F.S. (1981). Failure to fund reserves. Section 718.112(2)(k) F.S. (1981). Failure to turn over converter reserves. Section 718.301(4)(d) F.S. (1981). Charging the association $10,000 for management services without documentation of the contract for the services. Section 718.115(1) F.5. (1981). If it is determined that violations occurred, the remaining issue is what corrective action and civil penalties are appropriate.
Findings Of Fact The parties have stipulated to the following facts: Batura Enterprises, Inc. (Batura) is the developer, as defined in Section 718.103(13) F.S., of a residential conversion condominium known as English Park, in Melbourne, Florida. The condominium association for English Park was incorporated on December 2, 1980. The declaration of condominium for English Park was recorded in the public records on January 22, 1981. Turnover of control of the condominium association from control by the developer to control by unit owners other than the developer pursuant to Section 718.301 F.S., occurred on May 31, 1982. (Joint exhibit #1.) A review of financial statements dated January 19, 1983, was delivered to the condominium association. The review covers a ten-month period commencing August 1, 1981, and ending May 31, 1982. (Joint Exhibit #4.) A supplemental turnover review, performed during the course of this litigation and signed on February 7, 1987, covers the period from incorporation of the condominium association on December 2, 1980, through July 31, 1981. (Joint exhibit #6.) The function of the review is to provide an accounting during the time that the developer is responsible for the association, and to insure that assessments are charged and collected. (Testimony of Eric Larsen, C.P.A., qualified without objection as an expert in condominium accounting.) The proposed operating budget included $15,248.00 for an annual reserve account ($1,270 per month). (Joint exhibit *5, p. 83.) Based on this, the reserve account from the creation of the condominium, January 22, 1981, until the date of turnover, May 31, 1982 should have been $20,688.71 (sixteen months and nine days). The "election period" provided in Section 718.116(8)(a) F.S. (1979) is addressed in the Condominium documents, p. 31: F. Common Expenses payable by the Developer. Until the sale of the first Unit in the Condominium, Developer shall be solely responsible for all expenses of the Condominium. Following the first closing, the Unit Owner in whom title shall have been vested shall be responsible for his proportionate share of Common Expenses, based upon his percentage interest in the Common Elements. The Developer shall be excused from payment of the share of the Common Expenses and Assessments relating to the unsold units after the recording of this Declaration for a period of time which shall terminate on the first day of the fourth calendar month following the month in which the closing of the sale of the first unit occurs. The Developer shall pay the portion of expenses incurred during that period which exceeds the amount assessed against other Unit Owners. (Joint Exhibit #5.) The first units were sold in April 1981. (Joint Exhibit #2, p. 2). Therefore, the "election period" ended on August 1, 1981. The turnover review does not reflect the existence of the $20,688.71 reserve fund at the time of turnover on May 31, 1982. Instead, it reflects a certificate of deposit in the amount of $18,795.00 that was created as a "reserve for transition operations". This was derived from initial payments made by the owners to the association to provide working capital for the start- up phase. (Joint Exhibit #4., testimony of Philip Batura.) These "initial assessments" are addressed in the condominium documents: G. Initial Assessments. When the initial Board, elected or designated pursuant to these By-laws, takes office, it shall determine the budget as defined in this Section for the period cornencing 30 days after their election or designation and ending on the last day of the fiscal year in which their election or designation occurs. Assessment shall be levied against the Unit Owners during said period as provided in this Article. The Board will levy an "initial assessment" against the initial purchaser at the time he settles on his purchase contract. Such initial assessment shall be in an amount equal to two months regular assessments, and shall be utilized for commencing the business of the Association and providing the necessary working fund for it. In addition, the initial purchaser shall pay the pro-rated portions of the monthly assessments for the remaining balance of the month in which closing takes place. The initial assessment and other assessments herein provided shall be paid by each subsequent purchaser of a Unit; no Unit Owner shall be entitled to reimbursement from the Association for payment of the initial assessment. Developer shall not be liable to pay any initial assessment. (Emphasis added) (Joint Exhibit #5, p. 31.) Based on the above, it is apparent that none of the $18,975.00 was contributed by the developer. Between April 1, 1981, and August 1, 1981, 60 percent of the units were sold. (Testimony of Philip Batura. Joint exhibit #4, attachment C.) Therefore at any given point in time between those dates, at least 40 percent of the units were in the hands of the developer. Between August 1, 1981 and turnover at the end of May 1982, an additional 30 percent of the units were sold, for a total of 90 percent. (Testimony of Philip Batura.) This means a minimum of 10 percent of the units were in the hands of the developer at any point between those dates. While Philip Batura claims that reserves were waived by a majority of members pursuant to Section 718.1l2(2)(k), F.S. (1981), he produced no evidence of that. He admitted that the action is not reflected in association minutes. (Joint Exhibit #1.) Reserves are included in the proposed budget filed with the condominium documents. (Joint Exhibit #5.) Reserves are noted in the supplemental financial review provided by the developer: ENGLISH PARK CONDOMINIUM ASSOCIATION, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (SEE ACCOUNTANT'S REVIEW REPORT) JULY 31, 1981. NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES RESERVES - The Association's policy is to currently fund all expected replacements and major repairs of commonly owned assets. Should restricted funds available to meet future replacements and major repairs prove to be insufficient, the Association's Declaration provides that special assessments may be made against the unit owners. * * * (Joint Exhibit #6.) The purpose for a reserve account is to insure that funds are available in the future for replacements and deferred maintenance on the common elements. (Testimony of Eric Larsen) In addition to the statutorily-required reserves for exterior painting, roof replacement and repaving, the English Park proposed budget includes reserves for the swimming pool and "townhome hot water tanks". According to Philip Batura the budget was not amended prior to turnover. A separate reserve was required at the time of turnover because this was a condominium converted from apartments. (Testimony of Philip Batura) The only converter reserve applicable was a reserve for roofing in the amount of $6,114.00. (Joint exhibit #2, p. 2 of 11.) The Respondent has admitted its failure to turn over this reserve, but claims the obligation is offset by $10,000 in management fees which it asserts the association owes. (Joint Exhibit #1, p. 2 of 6.) Philip Batura is President of Batura Enterprises, Inc. He was elected or designated to the association board of directors at some point prior to turnover and remained on the board at turnover as he still owned some units. He mostly ran the association until the turnover in May 1982. (Testimony of Philip Batura.) Batura claims that there was an oral agreement for management services for $1,000.00 per month, commencing on August 1, 1981, between the association and Batura Enterprises, Inc. He said this was never paid by the association as there was not enough income to cover the costs of operation. The financial review covering the period August 1, 1981 to May 30, 1982, addresses the accrual of a management fee of $10,000, "...per the proposed operating budget which was recorded in the original declaration." (Joint Exhibit #4.) It is unclear where this figure was derived, as the budget does not reflect a $1,000.00 per month expense line item for management services. Included in the condominium documents is a proposed contract between the association and Eussel G. Hurren for management services. Both the fee and the term of the contract are left blank. The contract form that was filed is not signed, nor was a contract with this individual ever signed. (Testimony of Philip Batura.) The Declaration of Condominium permits a contract with a professional managing agent, including the developer. (Joint - Exhibit #5, p. 25.) No competent evidence was adduced by either party that this provision was ever fulfilled.
Recommendation Final hearing in the above-styled action was held on February 10, 1987, in Cocoa, Florida, before Mary Clark, Hearing Officer of the Division of Administrative Hearings. The parties were represented as follows: For Petitioner: Karl M. Scheuerman, Esquire Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32399-1007 For Respondent: James S. Cheney, Esquire Post Office Drawer 10959 Melbourne, Florida 32902-1959
The Issue The issue framed by the Notice to Show Cause is whether Allison on the Ocean, Inc., violated Section 718.502(2)(a), Florida Statutes (1984 Supp.) by accepting a deposit of $85,000 and executing a "Memorandum of Agreement" with Hildagard Waltraud Bitton when that Memorandum of Agreement had not been approved for use as a reservation agreement form by the Division of Land Sales Condominium and Mobile Homes?
Findings Of Fact Allison on the Ocean, Inc., is an active, for profit Florida Corporation (PX 4). 1/ Ms. Chantal Fianson is the owner of all five hundred shares of authorized stock in Respondent (PX 4; testimony of Ms. Fianson). The Allison Hotel in Miami Beach, consisting of studio apartments, was leased by Ms. Fianson. She intended to convert it to condominium ownership. Apparently the lease was held in the name of Allison on the ocean, Inc. An attorney was retained by Ms. Fianson to prepare the necessary papers for the condominium conversion. In connection with that conversion application, a reservation deposit agreement had been submitted to the Department of Business Regulation, copy of which was entered into evidence as PX 2. After those conversion papers were submitted to the Division in Tallahassee, Ms. Fianson was informed in April 1954 that the condominium conversion would not be approved because although she had a long-term lease, a condominium project required ownership of the land on which the building stood (testimony of Ms. Fianson). Before the Department of Business Regulation declined to approve the condominium project as originally proposed by Ms. Fianson, on March 2, 1984, an agreement entitled "Memorandum of Agreement" was executed between Allison on the ocean, Inc., and Hildagard Waltraud Bitton by their respective representatives stating Ms. Bitton's intent to purchase or sublease three units in the property (PX 1). That memorandum shows by its terms that it was not intended to be the contract for the purchase and sale of the units. It provided for the cancellation of the agreement within ninety days, at the buyer's option, and stated that the validity and the interpretation of the agreement would be governed by Florida law (PX 1 paragraph 7). Ms. Bitton paid $85,000 to Allison on the Ocean, Inc., in connection with this Memorandum of Agreement, which money was then used for expenses related to the conversion of the building to a condominium (testimony of Ms. Fianson). Significantly, the prefatory "whereas" clauses in the agreement stated that "Developer is in the process of converting the Allison Hotel, located at 6261 Collins Avenue, Miami Beach, Florida to a Condominium . . ." after which by hand interlineation was written "or SUB LEASE" and the initials of the representatives of both parties appear. The memorandum expressed the intention of the parties that if the proposed condominium conversion were not approved, Ms. Bitten would receive not a fee ownership in condominium units, but a sublease of an unspecified term from the lessee-developer, under the long-term lease which the Respondent did have on the Allison Hotel. The attorney for the purchaser/lessee Ms. Bitten drew up the Memorandum of Agreement (PX 1), and it was not submitted to the Division for review before it was executed. After learning in April 1984 that the condominium project would not be approved, Ms. Fianson did arrange to purchase the land from its owner, and another lawyer was obtained to file condominium documents reflecting the fee ownership by the developer. In the interim, the condominium market became very bad, and ultimately the bank which had provided the Respondent the purchase money mortgage for the property foreclosed on the Allison Hotel. The evidence does not show whether the $85,000 which was used in the conversion process was ever returned to Ms. Bitton.
Recommendation It is recommended that the notice to show case issued in this case be dismissed. DONE AND ORDERED this 5th day of September 1986 in Tallahassee, Leon County, Florida. WILLIAM R. DORSEY Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 FILED with the Clerk of the Division of Administrative Hearings this 5th day of September 1986.
Findings Of Fact Petitioner herein is the State of Florida, Department of Business Regulation, Division of Florida Land Sales Condominiums and Mobile Homes. One Respondent in this matter is Tanwin Corporation (hereinafter "Tanwin") the developer of two residential condominiums known as Vista Del Lago Condominium I and Vista Del Lago Condominium II, located in West Palm Beach, Florida. The other Respondent is Vista Del Lago Condominium Association, Inc. (hereinafter "Association"), the condominium association for Vista Del Lago Condominiums I and II. Transition from developer control of the Association has not occurred, and at all times pertinent hereto, Respondent Tanwin has in fact controlled the operation of the Respondent Association. The Declaration of Condominium for Vista Del Lago Condominium I (hereinafter "Condo I") was recorded in the public records on December 12, 1980. The Declaration of Condominium for Vista Del Lago Condominium II (hereinafter "Condo II") was recorded in the public records on March 11, 1982. Condo I contains 16 units; and Condo II contains 18 units. Herbert and Judith Tannenbaum are the President and Secretary, respectively, of both Tanwin and the Association and are members of the Association's Board of Directors. The developer-controlled Association failed to provide a proposed budget of common expenses for Condo I for the fiscal year 1982. The developer-controlled Association failed to provide a proposed budget of common expenses for Condo I and Condo II for 1983 until the unit owner meeting in March or April of 1983. The budget provided at that time contained no provision for reserves. Although the document alleged to be the 1983 proposed budget admitted in evidence as Petitioner's Exhibit numbered 17 does contain an allocation for reserves, Petitioner's Exhibits numbered 17 is not the 1983 budget disseminated to unit owners at the annual meeting in 1983. In addition, the 1983 budget was received by the unit owners at the meeting at which the proposed budget was to be considered and not prior to the budget meeting. Statutory reserves were not waived during the period December, 1980 through December, 1983. The "start-up" budgets contained as exhibits to the Declarations of Condominium indicate that reserves were to be collected from unit owners at the rate of $15 per month per unit at least during the first year commencing December of 1980 with the first closing. Hence, reserves were not waived December, 1980 through December, 1981. From November, 1981 through December, 1983, no vote to waive reserves was taken by the unit owners. Although reserves were discussed at the 1983 meeting, no vote was taken during the period in question including 1983, to waive reserves. The developer as owner of unsold units; has failed to pay to the Association monthly maintenance for common expenses during the period December, 1980 through December, 1983. The developer Tanwin has, in the nature of an affirmative defense, alleged the existence of a guarantee of common expenses pursuant to Section 718.116(8), Florida Statutes, which purportedly ran from the inception of the condominiums to date. Accordingly, the initial issue for resolution is whether the developer pursuant to statute guaranteed common expenses. Section 718.116(8)(b) provides that a developer may be excused from payment of common expenses pertaining to developer-owned units for that period of time during which he has guaranteed to each purchaser in the declaration of condominium, purchase contract or prospectus, or by an agreement between the developer and a majority of unit owners other than the developer, that their assessments for common expenses would not increase over a stated dollar amount during the guarantee period and the developer agrees to pay any amount necessary for common expenses not produced by the assessments at the guaranteed level receivable from other unit owners, or "shortfall". Actual purchase agreements were admitted in evidence. Respondents seek to label certain unambiguous language in the purchase contracts as a guarantee. This language, uniform throughout all those contracts as well as the form purchase contract filed with Petitioner except that of Phillip May, provides as follows: 9. UNIT ASSESSMENTS. The Budget included in the Offering Circular sets forth Seller's best estimation of the contemplated expenses for operating and maintaining the Condominium during its initial year. Purchaser's monthly assessment under the aforementioned Budget is in the amount of $109.00. Until Closing of Title, Seller has the right (without affecting Purchaser's obligation to purchase in accordance with the provisions hereof, to modify the estimated Budget and assessments periodically if then current cost figures indicate that an updating of estimates is appropriate). [Emphasis added]. That portion of the purchase agreement set forth above does not constitute a guarantee. Instead, the purchase agreement simply includes a best estimation of expenses for the initial year. It does not govern assessments after the expiration of one year, and even as to the initial year, the language in the contract sets forth only a "best estimation" and not a guarantee that the assessments would not increase during the "guarantee period." Phillip May's purchase agreement reflects that he purchased his unit in August of 1983; after condominium complaints had been filed by the unit owners with the Florida Division of Land Sales Condominiums and Mobile Homes. His purchase agreement has been altered from the purchase agreement of earlier purchasers in that his purchase agreement expressly, by footnote contains a one- year guarantee running from closing. The guarantee contained in his purchase agreement was presented by the developer without any request from Mr. May for the inclusion of a guarantee in his purchase agreement. The guarantee language in this purchase agreement is useful for the purpose of comparing the language with those portions of the pre-complaint contracts which Respondents assert contain or constitute a guarantee. Similarly it is determined that no guarantee of common expenses exists in the Declarations of Condominium for Condo I and II or in the prospectus for Condo II. While Respondents seek to assert the existence of a guarantee in those documents, the portions of those unambiguous documents which according to Respondents contain a guarantee, have no relation to a guarantee or do not guarantee that the assessments for common expenses would not increase. Respondent Tanwin also seeks to prove the existence of an oral guarantee which was allegedly communicated to purchasers at the closing of their particular condominium units. However, purchasers were told by Herbert or Judith Tannenbaum only that assessments should remain in the amount of $109 per month per unit unless there existed insufficient funds in the Association to pay bills. This is the antithesis of a guarantee. During a guarantee period the developer in exchange for an exemption from payment of assessments on developer- owned units agrees to pay any deficits incurred by the condominium association. Accordingly, no guarantee was conveyed at the closing of condominium units. Further Respondent Tanwin's additional contention that an oral guarantee arose when the condominiums came into existence is plainly contradicted by the express language throughout the condominium documents and purchase agreements that there exist no oral representations and that no reliance can be placed on any oral representations outside the written agreements. Further, prior to December, 1983, no reference was ever made by the developer either inside or outside of unit owner meetings as to the existence of the alleged guarantee. Moreover, a comparison between on the one hand, the 1981 and 1982 financial statements prepared in March of 1983, and on the other hand, the 1983 financial statements, clearly reveals that even the accountant for Tanwin was unaware of the existence of a guarantee during the period in question. While the 1983 statements, prepared in 1984 after unit owners filed complaints with Petitioner contain references to a developer guarantee, the 1981 and 1982 statements fail to mention a guarantee. Instead, included in the 1981 and 1982 statements of the Association are references under the current liabilities portion of the balance sheets for those years, to a "Due to Tanwin Corporation" liability in the amounts of $2,138 for 1981 and $2,006 for 1982. Petitioner through Ronald DiCrescenzo, the C.P.A. for Tanwin, established that at a minimum, the $2,006 figure reflected in the 1982 balance sheet was in fact reimbursed to Tanwin. Section 7D-18.05(1),(c), Florida Administrative Code, entitled "Budgets" and effective on July 22, 1980, was officially recognized prior to the final hearing in this cause. That section requires each condominium filing to include an estimated operating budget which contains "[a] statement of any guarantee of assessments or other election and obligation of the developer pursuant to Section 718.116(8); Florida Statutes." The estimated operating budgets for Condo I and Condo II do not include a statement of any guarantee of assessments or other election or obligation of the developer. The testimony of Herbert Tannenbaum with regard to an oral (or written) guarantee is not credible. He first testified that an oral guarantee was communicated to purchasers at the closing of each unit. In contrast, Tannenbaum also testified that the first discussion he had regarding a guarantee occurred with his attorney after the filing of the Notice to Show Cause in this action. Tannenbaum further testified that he did not understand what a guarantee was until after this case had begun and was unaware of the existence of any guarantee prior to consulting with his attorney in regard to this case. Moreover, Ronald DiCrescenzo, the C.P.A. for Tanwin testified that it was Tannenbaum who informed DiCrescenzo of the existence of a guarantee but DiCrescenzo was unable or unwilling to specify the date on which this communication occurred. Respondent Tanwin also seeks to establish the existence of a guarantee through Petitioner's Exhibit numbered 5 which is a document signed by less than the majority of unit owners even including Tannenbaum and his son, and signed on an unknown date during 1984. The document provides: The undersigned Unit Owners at the Vista Del Lago Condominium do not wish to give up the benefits of the developer's continuing guarantee which has been in effect since the inception of the condominium and agreed to by a majority of unit owners and whereby the developer has continuously guaranteed a maintenance level of no more than $109.00 per month per unit, until control of the condominium affairs is turned over to the unit owners in accordance with Florida's Condominium law. According to Respondent Tanwin, Petitioner's Exhibit numbered 5 constitutes a memorandum signed by unit owners evidencing their belief that a continuous guarantee of the developer has been in effect. First, however, this document was never admitted into evidence for that purpose; rather the document was admitted only to establish the fact that a unit owner had signed the document. Second, this document, unlike the purchase agreements or other condominium documents is ambiguous and is not probative of the existence of a guarantee. Instead, the evidence is overwhelming that the document was prepared by the developer in the course of this litigation for use in this litigation. Moreover, unit owner testimony is clear regarding what Mr. and Mrs. Tannenbaum disclosed to unit owners as the purpose for the document when soliciting their signatures, to- wit: that the document was a petition evidencing the unit owners' desire that their monthly maintenance payments not be increased and that prior confusion as to whether reserves had been waived needed resolution. Respondent Tanwin did pay assessments on some developer-owned units during the period December, 1980 through December, 1983, a fact which is inconsistent with its position that a guarantee existed. Noteworthy is the statement by Ronald DiCrescenzo, the C.P.A. for Tanwin, in his August 16, 1983, letter to Herbert Tannenbaum wherein it is stated: "It is my understanding that you are doing the following: . . .[Playing maintenance assessments on units completed but not sold." It is inconceivable that a developer during a "guarantee period" would pay assessments on some developer units as the purpose of the statutory guarantee is to exempt the developer from such assessments. The assessments for common expenses of unit owners other than the developer have increased during the purported guarantee period. At least some, if not all, unit owners paid monthly assessments of $128 - $130 for at least half of 1984. This fact is probative of the issue of whether a guarantee existed because unit owner assessments must remain constant during a guarantee period. At the Spring 1984 meeting chaired by Mr. Tannenbaum a vote was taken for the first time as to whether reserves should be waived. Although only 21 owners were present in person or by proxy; the vote was tabulated as 12 in favor and 12 opposed. Mr. Tannenbaum, therefore, announced an increase in monthly maintenance payments to fund reserves. Thereafter owners began paying an increased assessment. The fact that the developer-controlled Association collected increased assessments from unit owners during 1984, and had up to the time of the final hearing in this cause made no effort to redistribute those funds suggests that the developer-controlled Association and the developer considered themselves to be under no obligation to keep maintenance assessments at a constant level. There was no guarantee of assessments for common expenses by Tanwin from December, 1980, through at least December, 1983. Since there was no guarantee during the time period in question, Respondent Tanwin is liable to the Respondent Association for the amount of monthly assessments for common expenses on all developer-owned units for which monthly assessments have not been paid. In conjunction with the determination that Tanwin owes money to the Association (and not vice versa), Respondent Tanwin attempted to obtain an offset by claiming the benefit of a management contract between either Tannenbaum or Tanwin and the Association. No such management contract exists, either written or oral. Although a management contract is mentioned in one of the condominium documents there is no indication that one ever came into being, and no written contract was even offered in evidence. Likewise, no evidence was offered to show the terms of any oral contract; rather, Tannenbaum admitted that he may never have told any of the unit owners that there was a management contract. Tannenbaum's testimony is consistent with the fact that no budget or financial statement reflects any expense to the Association for a management contract with anyone. Likewise, the "budget" contained within Condo II's documents recorded on March 11, 1982, specifically states that any management fee expense was not applicable. Lastly, Tannenbaum's testimony regarding the existence of a management contract is contrary to the statement signed by him on February 10, 1981, which specifically advised Petitioner that the Association did not employ professional management. To the extent that Respondent Tanwin attempted to establish some quantum meruit basis for its claim of an offset, it is specifically found that no basis for any payment has been proven for the following reasons: Tannenbaum had no prior experience in managing a condominium, which is buttressed by the number of violations of the condominium laws determined herein; Tannenbaum does not know what condominium managers earn; no delineation was made as to specific duties performed by Tannenbaum on behalf of the Association as opposed to those duties performed by Tannenbaum on behalf of Respondent Tanwin; since there was no testimony as to duties performed for the Association, there was necessarily no testimony as to what duties were performed on behalf of the Association in Tannenbaum's capacity as President of the Association and member of the Association's Board of Directors as opposed to duties allegedly performed as a "manager." Tannenbaum's testimony as to the value of his "services" ranged from $10,000 to $15,000 a year to a lump sum of $60,000; it is interesting to note that the value of his services alone some years exceeded the Association's annual budget. Respondent Tanwin has failed to prove entitlement to an offset amount, either pursuant to contract or based upon quantum meruit. The financial statements of the Association--including balance sheets, statements of position, and statements of receipts and expenditures--for 1980-81 and for 1982 reveal consolidation of the records for Condo I and Condo II in these statements. Additionally, DiCrescenzo admitted that separate accounting records were not maintained for each condominium and Herbert Tannenbaum also admitted to maintaining consolidated records. Accordingly, the developer- controlled Association failed to maintain separate accounting records for each condominium it manages. The By-Laws of the Association provide: SECTION. 7. Annual Audit. An audit of the accounts of the Corporation shall be made annually by a Certified Public Accountant - and a copy of the Report shall be furnished to each member not later than April 1st of the year following the year in which the Report was made. The financial statement for 1981 bears the completion date of February 9, 1983. The 1982 financial statement contains a completion date of March 1, 1983. Both the 1981 and the 1982 statements were delivered to the unit owners in March or April, 1983. Accordingly, Respondents failed to provide the 1981 financial report of actual receipts and expenditures in compliance with the Association's By-Laws. As set forth hereinabove, statutory reserves were not waived during the period of December, 1980 through December, 1983. Being a common expense, reserves must be fully funded unless waived annually. In the instant case, Respondents, rather than arguing that reserves had in fact been fully funded, sought to prove that reserves had been waived during the years in question. The fact that reserves were not fully funded is established by reviewing the financial statements. In accordance with the start-up budgets, reserves were initially established at the level of $15.00 per unit per month. Therefore, during 1981, for Condo I containing sixteen units, the Association's reserve account should contain 16 multiplied by $15.00 per month multiplied by 12 months, or $2,880. Since the Declaration of Condominium for Condo II was not recorded until March 11, 1982, assessments for common expenses including allocations to reserves, were not collected from Condo II during 1981. Therefore, the balance in the reserve account as reflected in the balance sheet for the year 1981 should be no less than $2,880. The actual balance reflected in this account is $2,445. Both Tannenbaum and DiCrescenzo testified that most of the balance in that account was composed of purchaser contributions from the closing of each condominium unit "equivalent to 2 months maintenance to be placed in a special reserve fund" as called for in the purchase contracts. Tannenbaum further admitted that instead of collecting $15.00 per month per unit for reserves, the money that would have gone into the reserve account was used "to run the condominium." Similarly, for the year ending 1982, the balance in the reserve account also reflects that reserves were not being funded. First, the amount of reserves which should have been set aside in 1981 of $2,880 is added to the total amount of reserves which should have been collected for 1982 for Condo I ($2880), giving a total figure of $5,760. To this figure should be added the reserves which should have been collected from units in Condo II during 1982. This figure is derived by multiplying the total number of units in Condo II, 18 units, by $15.00 per unit multiplied by 8 months (since Condo II was recorded in March of 1982) to yield a figure for Condo II of $2,160. Adding total reserve assessments for Condo I and II, $2,160 plus $5,760 equals $7,920 the correct reserve balance at the close of 1982. The actual balance for the period ended December 31, 1982, is reflected to be $4,138. Similarly, the amount of reserves required for Condos I and II as of December 31, 1983, can be calculated using the same formula. Although the 1983 financial statement prepared in 1984 reflects the existence of a funded reserve account, both DiCrescenzo and Tannenbaum admitted there was no separate reserves account set up during the time period involved herein. Statutory reserves were not waived and were not fully funded for the period of December, 1980 through December, 1983. All parties hereto presented much evidence, unsupported by the books and records of the corporations, for the determination herein of the amounts of money owed by Respondent Tanwin to the Association to bring current the total amount which Tanwin should have been paying to the Association from the inception of each condominium for monthly maintenance on condominium units not yet sold by the developer, together with the amount owed by Tanwin to the Association so that a separate reserve account can be established and fully funded for all years in which the majority of unit owners including the developer have not waived reserves. No findings of fact determining the exact amount Tanwin owes to the Association will be made for several reasons: first, the determination of that amount requires an accounting between the two Respondents herein which is a matter that can only be litigated, if litigation is necessary, in the circuit courts of this state; second, the determination of the amount due between the private parties hereto is not necessary for the determination by Petitioner of the statutory violations charged in the Amended Notice to Show Cause; and third, where books and records exist; one witness on each side testifying as to conclusions reached from review of those records, even though the witnesses be expert, does not present either the quantity or the quality of evidence necessary to trace the income and outgo of specific moneys through different corporate accounts over a period of time, especially where each expert opinion is based upon questionable assumptions. It is, however, clear from the record in this cause that Respondent Tanwin owes money to the Respondent Association and further owes to the Respondent Association an accounting of all moneys on a specific item by item basis.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law it is, therefore, RECOMMENDED that a Final Order be entered: Finding Respondent Tanwin Corporation guilty of the allegations contained in Counts 1-7 of the Amended Notice to Show Cause; Dismissing with prejudice Count 8 of the Amended Notice to Show Cause; Assessing against Respondent Tanwin Corporation a civil penalty in the amount of $17,000 to be paid by certified check made payable to the Division of Florida Land Sales, Condominiums and Mobile Homes within 45 days from entry of the Final Order herein; Ordering Respondents to forthwith comply with all provisions of the Condominium Act and the rules promulgated thereunder; And requiring Tanwin Corporation to provide and pay for an accounting by an independent certified public accountant of all funds owed by the developer as its share of common expenses on unsold units and the amount for which Tanwin is liable in order that the reserve account be fully funded, with a copy of that accounting to be filed with Petitioner within 90 days of the date of the Final Order. DONE and RECOMMENDED this 9th day of August, 1985, at Tallahassee, Florida. LINDA M. RIGOT, 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 9th day of August, 1985. COPIES FURNISHED: Karl M. Scheuerman, Esquire Thomas A. Bell, Esquire Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32301 Joseph S. Paglino, Esquire 88 Northeast 79th Street Miami, Florida 33138 E. James Kearney, Director Department of Business Regulation Division of Florida Land Sales Condominiums and Mobile Homes 725 South Bronough Street Tallahassee, Florida 32301 Richard B. Burroughs, Jr., Secretary Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32301 ================================================================= AGENCY FINAL CONSENT ORDER ================================================================= STATE OF FLORIDA DEPARTMENT OF BUSINESS REGULATION DIVISION OF FLORIDA LAND SALES, CONDOMINIUMS AND MOBILE HOMES DEPARTMENT OF BUSINESS REGULATION, DIVISION OF FLORIDA LAND SALES, CONDOMINIUMS AND MOBILE HOMES, Petitioner, CASE NO. 84-0437 DOCKET NO. 84001MVC TANWIN CORPORATION and VISTA DEL LAGO CONDOMINIUM ASSOCIATION, INC. Respondents. / FINAL CONSENT ORDER The Division of Florida Land Sales, Condominiums and Mobile Homes, (hereinafter the Division), Vista Del Lago Condominium Inc., (hereinafter the Association), and Tanwin Corporation, (hereinafter Tanwin), hereby stipulate and agree to the terms and issuance of this Final Consent Order as follows: WHEREAS, the Division issued a Notice to Show Cause directed to Respondents and, WHEREAS, after issuance of the Recommended Order in this cause, the parties amicably conferred for the purpose of achieving a settlement of the case, and WHEREAS, Tanwin is desirous of resolving the matters alleged in the Notice to Show Cause without engaging in further administrative proceedings or judicial review thereof, NOW, THEREFORE, it is stipulated and agreed as follows:
Findings Of Fact Petitioner, Division of Florida Land Sales and Condominiums of the Department of Business Regulation, is seeking by a Cease and Dosist Order to enforce the provisions of Chapter 718, Florida Statutes, the "Condominium Act," pursuant to the authority granted in Sections 718.501(1) and 498.051, Florida Statutes, alleging that it has evidence that Respondent has violated Section 718.401(8), Florida Statutes, by binding an owner of a condominium parcel in Covered Bridge Condominium Phase 18 to the provisions of a long-term lease that contains an escalation clause. Respondent, Hovnanian Florida, Inc., is a "developer" as defined in Section 718.103(13), Florida Statutes. Kevork S. Hovnanian is the President of the corporation. Covered Bridge Condominium Association, Inc., incorporated on June 8, 1971, is an "association" as defined in Section 718.103(2) subscribed to by Kevork S. Hovnanian, Lawrence Dombrowski and John R. Langly (Respondent's Exhibit A). Covered Bridge Condominium No. 18 was created by a "Declaration of Condominium," as defined in Section 718.103(12) and filed on December 14, 1978. Attached as "Exhibit 3" and expressly made a part of Covered Bridge Condominium No. 18 is a "Lease Agreement" dated July 8, 1971 in which Respondent was the lessor and Covered Bridge Condominium Association, Inc. is a lessee (Petitioner's Exhibit 1). Kevork S. Hovnanian is the assignee of the Lease Agreement by assignment from Respondent on June 24, 1974 (Respondent's Exhibit C). Covered Bridge Condominium Association, Inc. is the association responsible for operation of the condominium, Covered Bridge Condominium No. 18. Paragraph IX of the foregoing Declaration, The Operating Entity, states in C.(9) in part that "Every owner of a Condominium Parcel, whether he has acquired his ownership by gift, conveyance or transfer by operation of law, or otherwise, shall be bound by the Bylaws of the Association (Exhibit 2), the provisions of this Declaration and the Long-Term Lease" (Exhibit 3). (Petitioner's Exhibit 1) IX A. provides in part: "Covered Bridge Condominium Association, Inc. shall administer, supervise and shall act by and on behalf of the owners of the family units in Covered Bridge Condominium No. 18 in accordance with this instrument, the Bylaws of the Association annexed hereto as 'Exhibit No. 2' and in accordance with the Condominium Act of the State of Florida, its supplements and amendments." Paragraph XIX of the Declaration, Long-Term Lease, requires each original purchaser from the Developer to execute a copy of the Long-Term Lease to secure the unit owner's (original purchaser's) obligation to pay his share of the common expenses as to the Long-Term Lease. The Long-Term Lease referred to in Paragraphs VIII, IX, X, XI, XII, XV, XVII, XIX, XX and XII of the Declaration was attached as "Exhibit 3" and is the aforesaid Lease Agreement of July 8, 1971 in which the Respondent is the lessor and the Developer, and Kevork S. Hovnanian is the assignee. Paragraph XXI, Miscellaneous Provisions, Section G, provides: "If any of the provisions of this Declaration, or of the Bylaws, or of the Long-Term Lease attached hereto, or of the Condominium Act, or any section, sentence, clause, phrase, or work, or the application thereof, in any circumstance, is held invalid, the validity of the remainder of this Declaration, the Bylaws, the Long-Term Lease or the Condominium Act, and of the application of any such provision, action, sentence, clause, phrase, or word, in other circumstances, shall not be affected thereby." XXI K. provides: "The captions used in this Declaration of Condominium and Exhibits annexed hereto, are inserted solely as a matter of convenience and shall not be relied upon and/or used in construing the effect or meaning of any of the text of this Declaration or Exhibits hereto annexed." XXI N. provides in part: "By way of clarification as to Article XIX of this Declaration, the Long-Term Lease may be amended by an instrument in writing, executed by the Lessor and the Condominium Association, by and through its Board of Directors except there shall be no Amendment affecting the Long- Term Lease which would change a unit owner's rent under the Long-Term Lease nor the manner of sharing common expenses under the Long-Term Lease, nor impair the rights of unit owners to the use and enjoyment of the recreational facilities, without the unit owners so affected, and all record owners of Institutional Mortgages thereon, joining in the execution of said Amendment." The Bylaws in Article XIV, Rules and Regulations, Section 4, "Recreation Area and Facilities," establish rules for the recreational facilities. Section 5, "Conflict," provides that should conflict arise the Condominium Act shall prevail (Respondent's Exhibit B). Section IX, Improvements, of the Lease Agreement provides in part: "The Lessor covenants and warrants unto the Lessee that it has constructed, or is in the process of constructing upon the aforedescribed premises, at Lessor's cost and expense, certain recreational facilities, consisting of a swimming pool and sundeck areas, shuffleboard courts, Community Center Building which will include and provide for a meeting area, cardroom, space for arts and crafts, sewing, and billiards, together with equipment and personalty contained therein, and such other improvements and personalty as Lessor determines in its sole discretion." Section XXIV, Rent Adjustment, provides in part: "Lessor and Lessee herein covenant and agree that the rental payments Provided for in Article III above, shall be adjusted, higher or lower, based upon the Cost of Living Index, as hereinafter defined and provided in this Paragraph at one (1) year intervals, commencing January 1st, 1972, and continuing yearly thereafter throughout the term of this Lease" (Petitioner's Exhibit 1). On September 26, 1979 Respondent sold by Warranty Deed a condominium in Covered Bridge Condominium No. 18 to Mr. and Mrs. Milton Marcus. The deed recited the fact of the assignment of the recreational facilities and further recited: "The Long-Term Lease as to the recreational facilities ... has been contemporaneously entered into by the Grantee(s) herein." On the same date the parties executed an "Acknowledgement of Lease Agreement" which recited their covenant to be bound by the 1979 Long-Term Lease Agreement (Petitioner's Exhibit 2). On October 15, 1979 Respondent sold another condominium in Covered Bridge Condominium No. 18 to Mr. and Mrs. Saul Schwartz with similar recitations and with a similar lease acknowledgement agreement (Petitioner's Composite Exhibit 3) Rental payments attributed to the escalation clause in the Long-Term Lease were paid by Covered Bridge Condominium Association, Inc. subsequent to June 4, 1975, the effective date of Section 718.401(8), Florida Statutes, which declared that public policy precludes the inclusion or enforcement of escalation clauses (Stipulation) On June 5, 1979 Petitioner Division of Florida Land Sales and Condominiums served a Notice to Show Cause why a cease and desist order should not issue on Respondent Hovnanian Florida, Inc. alleging: Covered Bridge, Phase 18, is a condominium created pursuant to the provisions of Chapter 718, Florida Statutes. The Respondent is offering for sale and has closed on contracts for sale of condominium parcels in the condominium. Article IX of the Declaration of Condominium binds the owner of a condominium parcel to the provisions of a long-term lease, attached to the Declaration of Condominium as Exhibit 3. Section XXIV of said long-term lease contains an escalation clause as defined and prohibited by Section 718.701(8)(a), Florida Statutes (1978 Supp.). On July 17, 1979 Petitioner requested an administrative hearing. A Notice of Hearing was mailed by the Division of Administrative Hearings on August 6, 1979 notifying the parties that a formal hearing would be held October 24, 1979 in West Palm Beach, Florida. The notice recited: ISSUES: Whether a cease and desist order should be entered against the Respondent for an escala- tion clause prohibited by statute. AUTHORITY: Chapters 120 and 718, F.S. Sections 718.401 and 718.501(b), F.S.; Section 478.171(1), F.S. The hearing was rescheduled and then continued numerous times but went to hearing on April 15, 1980. In the initial stage of the formal hearing on that date the parties jointly moved for a Continuance on the basis of an attached Stipulation, infra, which it was stated would change the character of the hearing and limit the necessity for an extended hearing. The Stipulation is set forth in full for clarity: "Stipulation A Declaration of Condominium creating Covered Bridge Condominium No. 18, address 7240 Covered Bridge Boulevard, Lake Worth, Florida, 33463, was filed and recorded on December 14, 1978, in the Circuit Court of Palm Beach County. Section XI, entitled "Assessments" of the Declaration states that "the portion of the common expenses under the Long-Term Lease shall be fixed and determined by the Lessor as provided under said Lease." Common expenses are defined in Section IH of the Declaration as "the expenses for which the unit owners are liable to the Association." Section XIX of the Declaration, entitled "Long-Term Lease" refers to a Lease and Assignment "... attached hereto as Exhibit 3 and made a part hereof, just as though said Lease were fully set forth herein." Payments under the lease are declared to be common expenses in Section XIX. By the above- referenced language, the Long-Term Lease is incorporated in and made a part of the Declaration of Condominium. Section XIX requires that each unit owner execute a copy of the Long-Term Lease attached as Exhibit 3, and that such lease be recorded in the Public Records of Palm Beach County, together with the deed conveying the unit to the owners. Exhibit No. 3 of the Declaration entitled "Lease Agreement" is an agreement between Hovnanian Florida, Inc., lessor, and Covered Bridge Condominium Association, Inc., lessee, the entity responsible for the operation of the condominium. Therein, it is stated that any reference to an obligation of a "lessee" shall be deemed to include Covered Bridge Condominium Association, Inc., and all individual lessees, jointly and severally. The Long-Term Lease, in Section III C states that rent due under it shall be the obliga- tion of the Individual Lessees and the Lessee-Association. Section XXIV of the Long-Term Lease provides that rental payments due under the lease shall be adjusted yearly. Such adjustment is computed by utilizing a nationally recognized comodity or consumer price index. Such lease was assigned to KEVORK S. HOVNANIAN by HOVNANIAN FLORIDA, INC., on June 24, 1974. Subsequent to the recordation of the Declara- tion of Covered Bridge Condominium No. 18, the developer did sell units to purchasers, and close on such sales. Purchasers were required to and did sign acknowledgements of Lease Agreement, in which purchasers have agreed to be bound by all the terms, covenants and conditions, set forth in the Long-Term Lease, and acknowledged that their signatures constituted an acknowledgement of the Long- Term Lease Agreement and their covenant to be bound by it. Such purchasers purchased sub- sequent to June 4, 1975. In 1975, Section 711.231, Florida Statutes, became effective on June 4, 1975. That act declared that the public policy of this state precludes the inclusion or enforcement of escalation clauses in leases for recreational facilities on other commonly used facilities serving residential condominiums. That statute has since been renumbered and is now Section 718.401(8), Florida Statutes. It is the position of the developer that all rents, including portions due under the esca- lation clause, are and remain the obligation of the association--lessees and the association remains bound to assess unit owners amounts necessary to pay such rents. The lessor has demanded such amounts from the lessee(s), and the lessee Association has refused to pay them. Rental payments attributed to the escalation clause were paid by the association to the lessor subsequent to June 4, 1975. It is stipulated that the following documents are placed before the Hearing Officer for con- sideration in deciding this matter, subject to the recitals in #13 relating to the determina- tion of the relevancy and admissability in this cause For petitioner: Warranty Deed - Hovnanian, Inc. to Saul, Shirly & Schwartz Acknowledgement & Acceptance by Grantee, Saul, Shirly & Schwartz Acknowledgement of Lease Agreement Milton & Rose Marcus Warranty Deed Hovnanian, Inc. to Milton & Rose Marcus Amendment to Declaration of Condominium Covered Bridge No. 18 Recorded August 31, 1979 Amendment to Declaration of Condominium Covered Bridge No. 18 Recorded April 26, 1977 Amendment to Declaration of Condominium Covered Bridge No. 18 Recorded February 21, 1979 Declaration of Condominium Covered Bridge No. 18, with Exhibits Recorded December 14, 1978 Complaint for Damages and Declaratory Relief, Case No. 79-306, 15th Judicial Circuit. Answer, Affirmative Defenses and Counterclaim, Case No. 79-306, 15th Judicial Circuit. Offering Circulars Without Exhibits For Respondent: All documents listed by Petitioner: Bylaws of Covered Bridge Condominium Association, Inc., as recorded in Official Record Book 1913 at pages 1025 through 1054 and in official Record Book 1013 at pages 1085 and 1086 of the Public Records of Palm Beach County. Assignment of Lease dated June 24, 1974 as duly recorded in Official Record Book 2320 at pages 1096 through 1100 of the Public Records of Palm Beach County, Florida. Covered Bridge Plat #1, as recorded in Plat Book 29 on Page 44 of the Public Records of Palm Beach County, Florida. Covered Bridge Plat #2 as recorded in Plat Book 29 on page 79 of the Public Records of Palm Beach County, Florida. 1976 Settlement Agreement entered into between Kevork Hovnanian, Hov- nanian Florida, Inc. and Covered Bridge Condominium Association, Inc. Exhibit 4, Offering Circular Petitioner and Respondent agree and stipulate that the facts recited in this stipulation and the documents are true and accurate. The parties reserve the right to present legal arguments directed to the relevancy and/or materiality of any and all facts and documentary evidence, or the contents thereof, to this action. This stipulation is contingent upon the Hearing Officer granting a Motion for Con- tinuance of the hearing scheduled in this matter for April 15 and 16, 1980. The parties agree that this stipulation will not be intro- duced into evidence in any proceeding or used in any manner unless and until the above- referenced Motion for Continuance is granted and, in the event the Motion for Continuance is denied, this stipulation is null and void. In no event will this stipulation be used in any other proceeding. The parties agree that should the stipu- lation be accepted and the hearing continued by the Hearing Officer no witnesses will be called in this cause at any future time, and additional documentary evidence will be placed before the Hearing Officer only upon the agreement of both the Petitioner and Respon- dent to such admission. Petitioner and Respondent agree that the sole remaining matters to be placed before the Hearing Officer shall consist of legal arguments re- lating to the admissability of evidence as stated above, and argument pertinent to the disposition of this cause." The hearing was continued and rescheduled to be heard June 24, 1980. The Notice of Hearing was in the same form and showed the same issue and authorities as stated in each of the previous notices, but with the addition: "issues involved in Stipulation filed April 15, 1980." Thereafter, a Motion to Dismiss for failure to state a course of action was denied. At the commencement of the formal hearing rescheduled for June 24, 1980, Petitioner moved to amend the complaint on the grounds that Article IX (9) of the Declaration was cited in error in the complaint rather than Article XIX (19). The Motion to Amend was orally granted. A Motion for Continuance was then presented by Respondent on the grounds that since the Motion for Amendment had been granted the Respondent had insufficient time to prepare a defense to the amended charge and had not been informed of the issue involved in the case. Believing that the Notice to Show Cause, both original and as amended, together with the Stipulation filed at the previous hearing and the issue and authorities stated in the numerous Notices of Hearing, the Motions and Memoranda filed by Respondent, and the length of time from the inception of the case to the date of hearing had given Respondent adequate notice of the issues involved in the case and the time to prepare, the Hearing Officer denied Respondent's Motion for Continuance of the administrative hearing then in process. Exerpts from the voluminous documentary evidence which was introduced at the hearing are hereinbefore detailed, but a capsule summary of the facts follows: Covered Bridge Condominium Association, Inc. and the plats of the property show that it was anticipated in June of 1971 that Covered Bridge Condominium No. 18 might be erected on said corporate property and that when erected, purchasers of the' condominium units would become members of the Association. The Bylaws in 1971 authorized the Board of Directors of the Association to enter into long-term leases of recreational facilities. The Developer entered into the subject lease agreement that contained an escalation clause with the Association in July of 1971. The lease provided that common expenses would be assessed against all condominium units. Respondent created Covered Bridge Condominium No. 18 by "Declaration of Condominium" on December 13, 1978 "pursuant to Chapter 718, Florida Statutes (1976)." It incorporated the lease agreement of 1971 by reference as well as the Bylaws of 1971 and provided that the operating entity of 1971 should be Covered Bridge Condominium Association, Inc. The Declaration stated under "Operating-Entity" that Covered Bridge Condominium No. 18 should be administered under Covered Bridge Condominium Association, Inc., its Bylaws and "in accordance with the Condominium Act of the State of Florida, its supplements and amendments." Respondent expressly sought to tie the owners to the long-term lease which contained an escalation clause. When the new units in the condominium created in 1978 were sold in 1979, the deeds bound the purchasers to the 1971 lease agreement which provided recreational facilities to the condominium parcel. The parties submitted proposed findings of fact and memoranda of law, and Respondent submitted a proposed recommended order. These instruments were considered in the writing of this order. To the extent the proposed findings of fact have not been adopted in or are inconsistent with factual findings in this order, they have been specifically rejected as being irrelevant or not having been supported by the evidence.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law the Hearing Officer recommends that an order be entered requiring Respondent Hovnanian Florida, Inc. to cease and desist from enforcing the escalation clause in the "Lease Agreement" of 1971 as it pertains to the condominium created in 1978, Covered Bridge Condominium No. 18, and the purchasers of units in said condominium. DONE and ORDERED this 29th day of August, 1980, in Tallahassee, Leon County, Florida. DELPHENE C. STRICKLAND Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 2nd day of September, 1980. COPIES FURNISHED: Mary Jo M. Gallay, Esquire Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32301 Samuel Spector, Esquire Cynthia S. Tunnicliff, Esquire Guyte P. McCord, III, Esquire SPECTOR & TUNNICLIFF, P. A. Suite 750 Barnett Bank Building Post Office Box 82 Tallahassee, Florida 32302
Findings Of Fact Based on the stipulations of the parties, on the exhibits received in evidence, and on the testimony of the witnesses at the hearing, I make the following findings of fact. Facts stipulated to by the parties Winston Towers 600 condominium was created by Winston Capital, Inc., which still owns units for sale in the condominium. Control of the association has been relinquished by the creator/developer and turned over by it to the unit owners including joint intervenors. In May of 1983, six Michigan limited partnerships each purchased a number of units in the condominium from Winston Capital, Inc. In March of 1984, four Texas limited partnerships each purchased a number of units in the condominium from Winston Capital, Inc. The joint intervenors consist of the six Michigan limited partnerships and the four Texas limited partnerships. The number of units so purchased gives the joint intervenors, as a block, a controlling interest in the condominium association. The association is controlled by the joint intervenors, who elected two of the three directors of the association. The association hired Hall Management Company, Kent Security Services, Inc., and an unnamed cleaning company. Records of the Secretary of State reveal that among other officers of Hall Management Company are Craig Hall, President and Director, and Christine Erdody, Vice-President. The records of the Secretary of State reveal no entity known as the Hall Real Estate Group. The public records of Dade County, Florida, reveal no fictitious name affidavit for any entity trading as the Hall Real Estate Group. The records of the Division of Florida Land Sales, Condominiums and Mobile Homes reflect that Winston Towers 600 is a residential condominium, located in Dade County, Florida. The joint intervenors are not now offering and have not ever offered condominium units for sale. The joint intervenors are not now offering and have not ever offered condominium units for lease for periods in excess of five years. Winston Towers 600 Condominium Association, Inc., is the non-profit condominium association established to maintain and operate the condominium. In July, 1984, a meeting of the condominium association was held upon instructions of the developer, Winston Capital, Inc. Winston Capital, Inc., scheduled and held the condominium association meeting in July 1984, under the good faith impression and belief that the threshold requirements in Section 718.301 mandating turnover of control of the association board of directors had been met. Joint intervenors, collectively, own more than 50 per cent of the units in the condominium. Joint intervenors, as developers, did not turn over control of the condominium association in July 1984. The declaration of condominium for the condominium and the Florida Statutes grant certain rights and privileges to the developers. The joint intervenors have a substantial economic investment in the condominium. The joint intervenors desire to have the condominium operated and maintained by competent professional management so as to protect and enhance the condominium project. The annual fee being paid to Hall Management Company for management of the condominium is the same fee as had been previously paid by the developer, Winston Capital, Inc., to the prior manager, Keyes Management Company. The names of the board of directors elected to the board of administrators of the association on July 16, 1985, were Ms. Christine Erdody, Mr. James Sherry, and Mr. Joseph Pereira. Ms. Christine Erdody and Mr. James Sherry are general partners in each of the ten limited partnerships. Mr. Craig Hall is President and Ms. Christine Erdody is Vice- President. Other findings based on evidence Adduced at hearing At the turnover meeting in July of 1984, Ms. Erdody cast votes on behalf of each of the ten limited partnerships, voting once for each unit owned by all ten of the limited partnerships. There has never been a meeting of the unit owners in which the limited partnerships turned over control of the association to unit owners other than the ten limited partnerships. The ten limited partnerships have no business ventures or income producing activities other than attempting to offset expenses of operations by leasing the units owned by the limited partnerships and attempting to increase their equity in the condominium units. The units acquired by the joint intervenors were not acquired for their own occupancy. The limited partnerships, while in control of the association, employed Hall Management Company, pursuant to contract, to manage the condominium and to lease the units owned by the limited partnerships. The rental office used by the management company consists of a unit owned by one of the limited partnerships. The contract specifically requires that Hall Management Company attempt to lease those condominiums units owned by the limited partnerships. The limited partnerships have no income producing mechanism other than the disposition of condominium units owned by the listed partnerships pursuant to the contract with the Hall Management Company. A regular, normal, and common activity of each of the ten limited partnerships is to offer to lease and to enter into leases of the condominium units owned by the limited partnerships. They typically engage in this activity through their agent, the Hall Management Company. None of the ten limited partnerships have ever offered any of their units for sale. None of the ten limited partnerships have ever offered any of their condominium units for leases in excess of five years. Ultimately, all of the ten limited partnerships intend to sell all of their condominium units. There is no relationship or affiliation between the creator/developer, Winston Capital, Inc., and any of the joint intervenors. Each of the joint intervenors is a separate limited partnership. However, due to the facts that each of the joint intervenors have a common purpose, each has at least several general partners in common, each has entered into a management contract with a closely related management company, and each has acted in concert with the others in prior matters concerning the condominium facility and the association, for all practical purposes relevant to this case, the joint intervenors may be regarded as a single entity. This is true even though there is no agreement or contract between the joint intervenors requiring them to act collectively in any matter involving or affecting their vote in condominium association matters at Winston Towers 600 Condominium. In all the actions of the joint intervenors in voting their interests at association meetings, they have never thought or acted on the understanding that the joint intervenors were developers of the condominium. The unit owners other than the joint intervenors have selected one-third of the Board of Directors of the Association. The right to vote for a majority of the board of directors of the condominium association is a significant and valuable right which the joint intervenors believed they would be entitled to upon purchasing a majority of the units in the condominium. A substantial number of the purchasers of Florida condominium units are non-residents of Florida. A substantial number of purchasers of condominium units intend to rent their condominiums under leases with a duration of two years or less.
Recommendation On the basis of all of the foregoing, it is recommended that the Division of Florida Land Sales, Condominiums and Mobile Homes issue a declaratory statement to the following effect: That the joint intervenors, individually and collectively, constitute concurrent and successor developers, and that as such concurrent and successor developers who collectively own more than fifty per cent but less than eighty-five per cent of the units, they are entitled to appoint two-thirds of the members of the board of administration of the condominium association. The statement should also note that the joint intervenors should comply with Section 718.3025(1)(e), Florida Statutes, by disclosing any financial or ownership interest which the joint intervenors have, if any, in Hall Management Company That the issue of whether the joint intervenors may have violated the provisions of the declaration of condominium is not a proper subject for a declaratory statement. DONE AND ORDERED this 9th day of April, 1986, at Tallahassee, Florida. MICHAEL M. PARRISH, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 Filed with the Clerk of the Division of Administrative Hearings this 9th day of April, 1986. COPIES FURNISHED: Mr. Arnold Belkin Apartment 912 210 - 174 Street Miami, Florida 33160 Thomas A. Bell, Esquire Deputy General Counsel Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32301 Karl M. Scheuerman, Esquire Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 323301 Joseph D. Bolton, Esquire Stephen Gillman, Esquire SHUTTS & BOWEN 1500 Edward Ball Building Miami Center 100 Chopin Plaza Miami, Florida 33131 Linda McMullen, Esquire McFARLAIN, BOBO, STERNSTEIN, WILEY & CASSEDY P. O. Box 2174 Tallahassee, Florida 32301 James Kearney, Jr., Acting Director Division of Florida Land Sales, Condominiums and Mobile Homes Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32301 James Kearney, Jr., Secretary Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32301 APPENDIX The Following are my specific rulings on each of the proposed findings of fact submitted by all of the parties. Rulings on findings proposed by the Division Paragraphs 1 through 23 of the Division's proposed findings are accepted and incorporated into the findings in this Recommended order. Paragraph 24 is rejected as irrelevant and as not supported by persuasive competent substantial evidence. Paragraph 25 is rejected as irrelevant in part and is redundant in part. The substance of paragraph 26 is accepted with the deletion of certain redundant information. The substance of paragraphs 27, 28, 29, 30, 31, 32, and 33 is accepted with some modifications in the interest of clarity and accuracy and with the deletion of certain redundant information. Rulings on findings proposed by the Joint Intervenors Paragraphs 1 through 12 of the Joint Intervenors' proposed findings are accepted and incorporated into the findings in this Recommended Order. Paragraph 13 is rejected as irrelevant, subordinate, and not supported by competent substantial evidence. Paragraphs 14 and 15 are accepted. Paragraphs 16 and 17 are accepted with additional findings for the purpose of clarity and accuracy. The substance of paragraphs 18, 19, 23, and 26 is accepted. Paragraphs 20, 21, 22, 24, 25, and 27 are accepted. Rulings on findings proposed by Petitioner Paragraphs 1, 2, 3, and 4 of Petitioner's proposed findings are accepted in substance. Paragraph 5 is rejected as irrelevant. Paragraphs 6, 7, 8, 9, and 10 are accepted in substance with the deletion of the reference to the Hall Group of real estate limited partnerships. Paragraph 11 is rejected in part because it is subordinate, in part because not supported by competent substantial evidence and in part because it is a conclusion of law. Paragraphs 12, 13, 14, and 15 are accepted in substance. Paragraph 16 is rejected because it is not supported by competent substantial evidence. Paragraph 17 is rejected because it is irrelevant and subordinate. Paragraphs 18, 19, and 20 are accepted in substance. Paragraphs 21 and 22 are rejected because they constitute argument or conclusions of law and are not supported by competent substantial evidence. Paragraph 23 is rejected because it is irrelevant to the issues to be decided in this case and because portions of it are not supported by competent substantial evidence. Paragraph 24 is accepted. Paragraph 25 is rejected because it is irrelevant to the issues to be decided in this case, because portions of it are not supported by competent substantial evidence, and because portions of it constitute argument or conclusions of law. Paragraph 26 is rejected because it is not supported by competent substantial evidence. Paragraph 27 is rejected because it constitutes argument. Paragraph 28 is rejected because it is irrelevant and redundant. Paragraphs 29 and 30 are rejected because they constitute argument or conclusions of law. Paragraphs 31 and 32 are rejected because they are not supported by competent substantial evidence. Paragraph 33 is rejected because it constitutes argument or conclusions of law. Paragraphs 34 and 35 are rejected because they are irrelevant and because they constitute argument.
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, as well as the parties' factual stipulations, the following relevant facts are found: Respondent Sheldon West, Inc. was the developer of Sheldon West Mobile Home Community, a "condominium," as those terms are used and defined in Chapter 718, Florida Statutes. The Declaration of Condominium was recorded in the official records of Hillsborough County on September 27, 1978. The respondent transferred control of the Sheldon West Condominium Owner's Association, Inc. to the unit owners on June 30, 1986. In the Declaration of Condominium, respondent provided a guarantee of common expenses pursuant to Section 718.116(8)(a)2, Florida Statutes. Under the guarantee, respondent was excused from the payment of common expense assessments on developer-owned units for a period of five years. During that period, respondent guaranteed to unit owners that assessments would not exceed a certain stated level, and respondent obligated itself to pay any amount of common expenses incurred during the period and not produced by the assessments at the guaranteed level receivable from other unit owners. Common expenses during the guarantee period amounted to $57,895.00. Assessments collected from unit owners during the guarantee period amounted to $49,190.00. Thus, respondent's liability for common expenses during the guarantee period was $8,705.00. Respondent's guarantee of common expenses ended September 26, 1983. From September 27, 1983, through June 30, 1986, the date of the turnover, respondent paid no assessments on the lots it still owned. The Declaration of Condominium provides that assessments not paid within five days of the due date shall bear interest at the rate of ten percent per annum from the due date until paid. Respondent's liability for assessments from September 27, 1983, through June 30, 1986, amounted to $40,870.00, and the interest on the overdue assessments amounted to $7,032.35. The Homeowners Association over-reimbursed respondent for expenses incurred during the guarantee period in the amount of $12,968.00. In addition, respondent received two payments from Association funds in June, 1986 of $7,000.00 and $8, 000.00. In January of 1986, the respondent and the Department of Business Regulation entered into a Final Consent Order, which called for a $500.00 civil penalty. The respondent paid the civil penalty, and, in March of 1986, he was reimbursed from the Association funds for payment of said penalty. The payables due from the respondent to the Homeowners Association, amounting to almost $70,000.00, were not paid to the Association at turnover. Instead, they were applied and offset against what were represented to be advances and receivables payable to the respondent from the Association in the amount of $77,142.00. This amount represents the cost of construction by the respondent of a pool and a clubhouse on the common property, interest charged on the advance of funds from respondent to the Association, and management fees due on uncollected assessments. Construction on the pool and clubhouse began in November of 1980 and ended in February of 1981. Neither the Prospectus nor the Declaration of Condominium mention the construction of a pool or clubhouse. No vote on construction of the pool and clubhouse was ever taken of unit owners other than the Board of Directors. No approval in writing was ever given by unit owners. The Declaration of Condominium was never amended to reflect the addition of a pool or clubhouse. The minutes of a special meeting of the Directors of the Association held on October 21, 1980, reflect that one of the three Directors gave a report that "residents wanted a Pool and Rec. Building" located on the common property and "were willing to pay for the same from the assessments on the residents." The minutes further reflect that a motion was made and adopted that the developer construct the pool and building and that, in return, the Association agreed to repay the developer the cost of same, estimated at $60,000.00, on or before turnover to the resident unit owners. The minutes further state "copy sent to Residents and Directors." These minutes are unsigned, but typewritten are the names of Tom F. Brown, the President of Sheldon West, Inc.; Anna K. Laughridge, Mr. Brown's daughter; and Ken Lord, who apparently was a unit owner. As reflected in a document received into evidence as petitioner's Exhibit 11, the members of the Board of Directors of the Association on January 2, 1981, consisted of Ora Katherine Brown, apparently Tom Brown's wife; and Anna K. Laughridge. The minutes of a "special joint meeting of Board of Directors" of the Association held on January 2, 1981, reflect that the resignation of Ora Katherine Brown as an officer and director was accepted, and that Tom Fairfield Brown and Anna K. Laughridge were named as Directors. The minutes of a "special meeting of directors" of Sheldon West, Inc., held at 10:00 A.M. on February 24, 1981, reflect the adoption of a motion that Sheldon West, Inc. would advance the funds for payment of the cost of construction of the pool and recreation building with the understanding that it would be repaid for the funds so advanced, and that it would receive credit therefore by the Association for any sums which might be due, owing or claimed by the Association. The minutes make reference to a promissory note evidencing the agreement. The promissory note, respondent's Exhibit 4, states that at a special meeting of the Association held on February 24, 1981, the Association agreed to repay and credit Sheldon West, Inc. for all sums advanced for the construction of the pool and recreation building. This promissory note is dated February 24, 1981, and is signed by Tom F. Brown as the President of the Association. The minutes of the "special meeting of directors" of the Association held on February 24, 1981, at 4:00 P.M. reflect that Directors Tom F. Brown, Anna K. Laughridge and Ken Lord were present. The minutes further make reference to an agreement that the costs of the pool and recreation building were to be advanced by Sheldon West, Inc. with the understanding that it would receive credit for such funds and be reimbursed for any balance on the date of turnover to the unit owners. These minutes state "copy posted outside clubhouse and del. to residents."
Recommendation Based upon the Findings of Fact and Conclusions of Law recited herein, it is RECOMMENDED that: Respondent be found guilty of violating Section 718.116(8)(a)2, Florida Statutes, for its failure to fund the deficit during the guarantee period; and that a civil penalty in the amount of $5,000.00 be imposed for this violation; Respondent be found guilty of violating Section 718.116(1)(a) and (8)(a), Florida Statutes, for its failure to pay assessments on developer-owned units after expiration of the guarantee period; and that a civil penalty in the amount of $5,000.00 be imposed for this violation; and Respondent be found guilty of violating Rule 7D- 23.003(3), Florida Administrative Code, for utilizing Association funds for the payment of a civil penalty; and that a civil penalty in the amount of $1,000.00 be imposed for this violation. Respectfully submitted and entered this 2nd day of December, 1988, in Tallahassee, Florida. DIANE D. TREMOR 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 2nd day of December, 1988. APPENDIX The proposed findings of fact submitted by the parties have been carefully considered and are accepted, incorporated and/or summarized in this Recommended Order, with the following exceptions: Petitioner 24 and 25. Accepted as factually correct, but not included as irrelevant and immaterial to the issues in dispute. Respondent 4 and 5. Partially rejected and discussed in the Conclusions of Law. 7 and 9. Rejected as irrelevant to the issues in dispute. 10. Amount stated rejected as contrary to the greater weight of the evidence. COPIES FURNISHED: Scott Charlton, Esquire Peavyhouse, Grant, Clark Charlton, Opp & Martino 1715 N. Westshore Post Office Box 24268 Tampa, Florida 33623 David L. Swanson, Esquire Sandra E. Feinzig, Esquire Assts. General Counsel Department of Business Regulation 725 S. Bronough Street Tallahassee, Florida 32399-1007 James Kearney, Director Department of Business Regulation Division of Florida Land Sales, Condominiums and Mobile Homes 725 South Bronough Street Tallahassee, Florida 32399-1007 =================================================================
The Issue The issue in this case is whether Respondent condominium association properly assessed unit owners for common expenses based on their respective proportionate shares of such expenses as set forth in the declaration of condominium.
Findings Of Fact Respondent Eden Isles Condominium Association, Inc. ("Association") is the entity responsible for operating the common elements of the Eden Isles Condominium ("Condominium"). As such, the Association is subject to the regulatory jurisdiction of Petitioner Division of Florida Land Sales, Condominiums, and Mobile Homes ("Division"). The Condominium was created——and continues to be governed by——a Declaration of Condominium ("Declaration"), which has been amended at least once during the Condominium's existence. The Condominium comprises seven identical buildings. Each four-story building contains 52 units. Each unit is laid out according to one of three different floor plans. The Declaration prescribes each unit's proportionate share (expressed as a percentage, e.g. 2.16%, 2.08%, 1.64%, etc.) of the common expenses. These percentages are used to calculate the amounts assessed against each respective unit to collect the funds needed to pay common expenses. For reasons not revealed at hearing, the Declaration——at least in its original form——established a separate and unique schedule of percentages for each building in the Condominium, with the result that similarly situated owners (i.e. those whose units had the same floor plan and comparable locations) did not necessarily pay the same proportionate share of the common expenses. Not surprisingly, owners who were compelled to contribute more toward the common expenses than their similarly situated neighbors were wont to complain about the seeming unfairness of this. Some time in 2004 the Association's governing Board of Directors ("Board") was made aware of an amendment to the Declaration, which, among other things, had revised the appendix that specified each unit's proportionate share of the common expenses. Due to an absence of evidence, the undersigned cannot determine when this amendment took effect, yet neither its existence (a copy is in evidence) nor its authenticity is in doubt. There is, further, no evidence explaining why the Board had not previously been familiar with the amendment, but——for whatever reason(s)——it was not. After deliberating over the meaning and import of the amendment, the Board voted, during an open meeting, to construe the amendment as providing for the assessment of common expenses against all units in the Condominium according to the percentages assigned to the units located in "Building G," which was the last of the buildings in the Condominium to be completed. In other words, the Board interpreted the amendment as requiring that all similarly situated unit owners be assessed the same amount for common expenses, using only the most recent proportionate shares. Consequently, starting in 2005, the Association assessed unit owners for common expenses pursuant to the Board's interpretation of the amendment. While this course of action evidently pleased most residents, someone complained to the Division about the change. The Division investigated. Based on its own understanding of the amendment, which differs from the Board's, the Division determined that the Association was not properly assessing the unit owners; accordingly, it demanded that the Association remedy the situation. Under pressure from the Division, which was threatening to impose penalties against the Association for noncompliance with the Division's directives, and for some other reasons not relevant here, the Board eventually decided to "revert back" to the original proportionate shares, beginning in 2006. The Board continues to believe, however, that its interpretation of the amendment (as requiring similarly situated owners to be assessed at the same percentage) is correct.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Division enter a final order rescinding the Notice to Show Cause and exonerating the Association of the charge of failing to assess for common expenses in the appropriate percentages as set forth in the Declaration, as amended. DONE AND ENTERED this 11th day of May, 2007, in Tallahassee, Leon County, Florida. JOHN G. VAN LANINGHAM Administrative Law Judge Division of Administrative Hearings Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 11th day of May, 2007.
