STATE OF FLORIDA DEPARTMENT OF BUSINESS AND PROFESSIONAL REGULATION DIVISION OF FLORIDA LAND SALES, CONDOMINIUMS, AND MOBILE HOMES IN RE: PETITION FOR ARBITRATION Weyland and Margaret Burns, James and Elisabeth Jones, Edward and Carol Kime, James and Dorothy McAfee, Kenneth and Florence Snyder, Richard and Stella Thompson, Raymond and Ruth Wann, Karl and Elisabeth Timmerman, Petitioners, v. Case No. 03-6076 Paradise Park Condominium Association, Inc., Respondent. / AMENDED SUMMARY FINAL ORDER Comes now, the undersigned arbitrator, and issues this amended summary final order as follows: The original final order was issued in this case earlier on February 24, 2004. This amended final order is substituted in its place. The substance of the order has not been altered but various corrections have been added. Petitioners filed this action on January 16, 2003, seeking a declaration that a merger that occurred in 1993 between two condominiums was void and ineffective. The association filed its answer on July 24, 2003, raising a number of defenses, including the statute of limitations. The parties were given 14 days from the date of the order of August 11, 2003, in which to file any written arguments concerning the statute of limitations defense. After considering the arguments filed 1
by the parties, the arbitrator hereby enters this summary final order dismissing the action. According to the petition, prior to the merger, Paradise Park consisted of two separate legally distinct condominiums operated by a single association. The first condominium, Paradise Park Phase I, was created on November 20, 1980, and contained 173 units, with each owner being responsible for 1/173 share of the common expenses. The declaration states that the project will be developed in 3 phases but does not refer to or adopt the modern-day phase condominium statute located in 718.403, F.S.; 1 the declaration instead provides that each subsequent phase of 3 planned phases will be a separate condominium. 2 However, an entirely new declaration creating Phase II, was recorded in the public records in March of 1983. That declaration adopts the true modern-day phase condominium language: This will be a two phase condominium per F.S. 718.403. The declaration created an independent second condominium to consist of phases II and III to contain a combined 293 units; each unit owner is made responsible for paying 1/293 of the common expenses of phases II and III. Only phase II was 1 By way of contrast, under the current phase statute, each phase in a phase condominium is considered to be a part of the same condominium. The first formal authorization in the condominium statute for phase projects appeared in Ch. 74-104, Laws of Florida, creating 711.64, Florida Statutes that allowed the developer to provide that additional lands could be added to the project under the conditions specified. Prior to this law, references to phase projects appear seemingly at random in the statute. See, e.g., 711.13(4), F.S. (1971) providing for the cancellation of management contracts in a multiphase condominium project. Section 718.403, Florida Statutes, (2003) providing that a condominium built in phases was to constitute a single condominium, was created by Ch. 76-222, Laws of Florida, which law also moved the condominium statute from Ch. 711 to Ch. 718, Florida Statutes. Prior to this, pursuant to 718.111(11), Florida Statutes (1983), an old phase project created under 711.64, Florida Statutes, was allowed to operate in the manner of a modern day multi-condominium association with a single association consolidating the financial operations of multiple independent condominiums. 2 The arbitrator rejects the association s argument that there was no actual merger in 1993 because Paradise Park was always one condominium, and that the differences between the first and second declarations were ministerial and not substantive. The declarations make it clear that the two condominiums would be considered separate, and there is no provision contained in either 2
recorded and created with the initial recording of the declaration in March 1983. It contained 141 units while the future phase III was to contain 152 units. 3 An amended declaration was recorded in the public records on November 18, 1993, which the petitioners claim is void. The amended declaration purports to combine or merge phase I with phases II and III. The new declaration purports to change the owners ownership interest in the common elements to 1/314. 4 Petitioners argue that this amendment violates 718.110(4), F.S., because the amendment was not passed or approved by all unit owners and the lienholders of record. The petitioners request entry of a final order declaring the 1993 amendment and certain subsequent amendments void. Petitioners further request an order requiring the association to operate the condominiums in a manner consistent with the original declarations making these condominiums separate and independent. The documents support the position that each of the condominiums was intended to constitute a separate condominium operated by the same association. The introduction section to the declaration for Phase I describes Phase I as an all Airstream travel trailer condominium consisting of 173 units that are essentially lots or parcels of land approximately 42 x 63 feet and equipped with an 8 x 20 concrete patio. Also according to the introduction, Each phase will be a separate condominium with all three administered by one master association. 5 Exhibit D to declaration for merging the two condominiums. 3 Under the phase plan as described in the declaration for Phase I, Phases II and III would also contain 141 and 152 units respectively. 4 Obviously, not all units in Phases II and III were ultimately added to the condominium, or the denominator in this ratio would be 466. It appears that only phase II containing 141 units was added by the time of the merger, which would yield the denominator of 314. In fact, the amended declaration which presumably merged the two condominiums recites that construction of Phase III was abandoned by the developer, and that the phase III property constitutes the common elements of the combined condominium. 5 By virtue of the fact that the declaration for Phases II and III combined phases II and III into one 3
the declaration provides that each owner is assigned a 1/173 percentage of ownership in the common elements. Article 13 addresses amendments to the declaration and provides that amendments that do not change the proportion or percentage by which the owners share the common expenses or own the common elements may be exacted by a 51% vote, but that extraordinary amendments shall require the affirmative vote of all the record owners of the affected units and all record owners of liens thereon and the affirmative vote of the owners of all other units. Article 14 provides that the condominium may be terminated by the agreement of 80% of the owners. 6 Petitioners argue that their cause of action is not barred by the statute of limitations because the attempted merger was violative of 718.110(4), Florida Statutes, and because the merger was void ab initio rather than simply voidable. Petitioners also argue that the merger was void because it violated 718.110(7), Florida Statutes, providing that two or more condominiums may be merged upon the approval of such voting interest required in the declaration for modifying the appurtenances to the units. For its part, the association argues that this action is barred by either the four or the five-year statute of limitations. Section 718.110(7), Florida Statutes addresses mergers and provides that the declarations of two or more independent condominiums may be merged to form a single condominium upon the approval of such voting interests as is required in the declaration to change the appurtenances to the units (or changing the percentages of sharing the common expenses or owning the common surplus). The declaration in the phase condominium created pursuant to 718.403, Florida Statutes, each phase did not ultimately become a separate condominium. 6 The declaration shows it was prepared by Richard D. DeBoest, Sr., father of petitioners counsel. 4
instant case, in article 13D, requires 100% approval of all the owners for changing these types of property interests. It goes without saying that a merger of separate condominiums changes basic property rights such as those listed in 718.110(4), Florida Statutes: It is axiomatic that in the process [of merger], the real property interests of every unit owner must change. Each owner retains title to the same physical unit owned before the merger and gives up a larger numerical ownership of the common elements within one condominium in exchange for a smaller numerical ownership share of a larger set of common elements in the surviving condominiums. Property mergers of up to 100 units are feasible. Beyond that level, the difficulties of obtaining the necessary unanimous consent often make the project impossible. Very few declarations specifically set forth a procedure to modify appurtenances. Most declarations merely set forth the language found in F.S. 718.110(4). Thus, most mergers require consent by all unit owners and lieholders. [John M. Swalm, III, Esquire; Chad McClenathen, Esquire, Florida Condominium Law and Practice, Ch. 13 (Fla. Bar CLE 3 rd Edition, 2003)]. Certain prior arbitration decisions have explored the defense of the statute of limitations. In Hubner v. Seawatch at Marathon Condominium Association, Inc., Arb. Case No. 00-0643, Final Order Dismissing Petition (April 24, 2001), a group of owners sought to challenge a 1993 amendment to the declaration creating certain voting rights in the boat slip owners where no voting rights had previously existed. The amendment diminished the voting rights of the other owners and also reduced their proportionate share of ownership in the common elements. The arbitrator ruled that either the 4 or the 5-year statute of limitations applied, and as such ruled 5
the action time-barred. The arbitrator recognized in that case that the amendment being challenged implicated the property rights addressed by 718.110(4), Florida Statutes. In Richardson v. Jupiter Bay Condominium Association, Inc., Arb. Case No. 02-4354, Final Order (July 3, 2002), Final Order on Motion for Rehearing (August 26, 2002), a group of owners filed a petition for arbitration seeking to challenge certain bylaw amendments placing substantive restrictions on the ability of the owners to lease their units. The declaration permitted owners to lease their units, and the association first attempted to amend the declaration without success, and subsequently amended the bylaws with a lesser vote in a series of amendments placing increasingly restrictive amendments on the right of the owners to offer their units for rent. The arbitrator ruled that since the declaration expressly recognized the right of the owners to lease their units, the bylaw amendments were more restrictive than rights afforded under the declaration, and thus were invalid. Regarding the statute of limitations defense advanced by the association, the arbitrator ruled that the board, in attempting to amend the declaration by amending the bylaws, acted without authority, thereby rendering the bylaw amendments void. Since the amendments were void, the statute of limitations did not operate to exonerate them. The Seawatch case and the Jupiter Bay cases are somewhat distinguishable. The unit owners in Seawatch did not argue that the amendment changing voting rights was a nullity because it violated 718.110(4), Florida Statutes. Rather, the limited issue presented was whether a 7 year, 5 year, or 4 year statute of limitations applied. An additional case that is consistent with Jupiter Bay is Mesnick v. Hillsboro 6
Le Baron Condominium Apartments, Inc., Arb. Case No. 02-5367, Partial Summary Final Order (February 4, 2003), in which the arbitrator ruled that the statute of limitations did not apply to a challenge brought by an owner to amendments to the declaration recorded in 1979 and 1987 where the association had failed to procure mortgagee consent as required by the declaration. The arbitrator ruled that the amendments were void because they were passed without the requisite approval of all institutional first mortgagees. The same result was achieved in Tortuga Club, Inc. v. Szarek, Arb. Case No. 95-0274, Final Order (February 13, 1997). The arbitrator concludes in the instant case, that based on the foregoing cases, absent any further considerations or arguments, the merger would be considered invalid as violating both 718.110(4) and 718.110(7), Florida Statutes. However, the Condominium Act contains a curative provision that was intended to address exactly these types of amendments. Section 718.110(10), Florida Statutes, provides in part: (10) If there is an omission or error in a declaration of condominium, or any other document required to establish the condominium, which omission or error would affect the valid existence of the condominium, the circuit court has jurisdiction to entertain a petition of one or more of the unit owners in the condominium, or of the association, to correct the error or omission.if an action to determine whether the declaration or another condominium document complies with the mandatory requirements for the formation of a condominium is not brought within 3 years of the recording of the declaration, the declaration and other documents shall be effective under this chapter to create a condominium, as of the date the declaration was recorded, whether or not the documents substantially comply with the mandatory requirements of law. [emphasis added.] In the present case, there was an error or omission in the intended merger because 7
100% of the owners and lienholders did not approve of the merger of the condominiums. The defect would tend to go to the valid existence of the condominium, and by the operation of 718.110(10), Florida Statutes, the declaration of the resulting condominium shall be effective under this chapter to create a condominium. 7 WHEREFORE, the merger is hereby declared to be effective. The amended declaration accomplishing the merger is declared valid. No subsequent amendment is invalid by reason of the merger or by reason of the technical grounds set forth in the petition to the effect that the amendment occurred without reference to the prior declarations or that the correct OR book and page number was omitted. The petition is hereby dismissed. DONE AND ORDERED this 24th day of February, 2004, at Tallahassee, Leon County, Florida. Karl M. Scheuerman, Arbitrator Department of Business and Professional Regulation Arbitration Section Northwood Centre 1940 North Monroe Street Tallahassee, Florida 32399-1029 7 Using this same section of the statute, the arbitrator also concludes that the declaration for Phase I was effective at the time of its recordation to create Phase I as a valid stand-alone (non-phase) standard condominium despite the inconsistency between that declaration and 718.403, Florida Statutes (1981) which was in effect at the time. 8
Certificate of Service I hereby certify that a true and correct copy of the foregoing summary final order has been sent by U.S. Mail to the following persons on this 24th day of February, 2004, to the following persons: Richard D. DeBoest, II, Esquire DeBoest Knudsen Stockman Decker & Dryden, P.A. 1415 Hendry Street Ft. Myers, Florida 33901 Edward L. Wotitzky, Esquire 223 Taylor Street Punta Gorda, Florida 33950 Karl M. Scheuerman, Arbitrator Right to Appeal As provided by s. 718.1255, F.S., this final order may be appealed by filing a petition for trial de novo with a court of competent jurisdiction in the circuit in which the condominium is located, within 30 days of the entry and mailing of this order. This order does not constitute final agency action and is not appealable to the district courts of appeal. Attorney's Fees As provided by s. 718.1255, F.S., the prevailing party in an arbitration proceeding is entitled to have the other side pay its reasonable costs and attorney's fees. As provided by rule 61B-45.048, F.A.C., a motion seeking an award of attorney's fees and costs, which motion must conform to the requirements of the administrative rule, must be filed with the Division within 45 days of the date of the entry and mailing of this final order. 9