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Article Courtesy of The Daily Business Review
By Noah B. Tennyson
Published January 24, 2018
In a recent Florida appellate decision, titled
Beach Club Towers Homeowners Association v. Chris Jones, Property Appraiser
for Escambia County, Florida, 2017 WL 4526773, (Fla. 1st
DCA 2017), the First District Court of Appeals reviewed an ad valorum
property tax dispute between a condominium association and the property
appraiser of Escambia County.
The dispute arose from the fact that the unit owners do
not own, but rather lease, the land upon which their condominium stands.
This somewhat peculiar arrangement is actually not uncommon in Florida, and
arose in this particular matter as a result of the U.S. government initial
conveying the subject land to Escambia County, and Escambia County then
leasing that same land to a developer which built the resulting condominium.
Up until recently, the county did not attempt to levy ad valorum property
taxes upon the association or condominium unit owners for the value of the
land because the land was merely leased. While the county had been routinely
levying taxes for improvements made upon the land—i.e., the condominium
structure—it had refrained from levying upon the land itself. That, however,
changed in 2011 when the county levied upon the land based upon a Florida
appellate case decided that same year, see Accardo v. Brown, 63 So. 3d 798
(Fla. 1st DCA 2011); affirmed in Accardo v. Brown, 139 So. 3d 848 (Fla.
2014).
Based upon the concept of equitable ownership as articulated in Accardo, the
county thereafter dubbed the condominium unit owners as holding “equitable
title” to the land because they held “virtually all the benefits and burdens
of ownership of the leased property. Because they were imputed holders of
title to the land, the county levied ad valorum property taxes against the
unit owners.
The association and its individual members then challenged the levy in
court. While the county prevailed at the trial court level, the First
District Court of Appeal—which had decided the very same Accardo case upon
which the county relied—reversed the trial court decision and found in favor
of the association and its members. In doing so, the First District
distinguished Accardo from the case before it through noting that the Beach
Club Towers unit owners’ subleases “do not bear the primary hallmarks of
equitable ownership described in Accardo, namely, the right to perpetually
renew the lease … .” The First District came to this conclusion even though
each “unit owner’s sublease flows from a ninety-nine year master lease with
an option to renew ‘for an additional 99 years, terms and conditions to be
renegotiated at such time.’” Thus, despite the length of the lease and
option to renew, the court nevertheless found the lease to be not
perpetually renewable because it was subject to being “renegotiated.”
Essentially, the First District ruled that Escambia County’s reach exceeded
its legal grasp. The court clearly declared that the county had overreached,
and expressly stated that the unit owners are mere lessees. Because Escambia
County owns the land at issue, the land is exempt from ad valorem taxation
under section 196.199(1), Florida Statutes. Further, Section 192.001(13),
Fla. Stat., limits “taxpayer” to “the person or other legal entity in whose
name property is assessed …” This excludes the unit owners from being taxed
for the value of the land.
However, the unit owners should bear in mind that the leasehold interests
may still be taxed as intangible personal property pursuant to section
196.199(2)(b), Fla. Stat. Even so, the Beach Club Towers decision is an
important case for any similarly situated unit owners who find themselves
subject to an ad valorum property tax assessment upon land held pursuant to
a lease which is not perpetually renewable.
As a final note, there are both incentives and risks associated with the
development model implemented by Escambia County. From the developers’
perspective, they may choose to inform prospective purchasers that the land
upon which their future unit stands may not be subject to ad valorum
property taxes so long as presiding courts do not find the land leases to be
perpetually renewable. At the same time, owners of these units risk that the
underlying land leases may not be renewed, which may adversely impact the
units’ fair market value more and more as the lease expiration date draws
closer and closer. While the prospect of nonrenewal may be unlikely, all
interested parties nevertheless should keep these contingencies in mind when
such leases are present.
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