Score A Win For The Developer In The Marina Grande “Material And Adverse” Battle: But Is It Really A Victory For Developers In The Long Run?

The Fourth District Court of Appeal has spoken in likely the most watched condominium contract case in recent memory, D & T Properties v. Marina Grande, and the Court has sided with the developer against condo buyers seeking to recover their preconstruction deposits.   A good summary of the decision can be found in Paul Brinkmann’s report from last week’s South Florida Business Journal.  A copy of the opinion itself is available here.

In recent days, many have asked for my take on Marina Grande.  The Court took the time to write a long and detailed opinion which in many ways is self-explanatory, so it is definitely worth reading the opinion in full.  In my view, there two main takeaway points, one “small picture” point and one “big picture” point.

The Small Picture:  The Court held that a 2007 law passed by the Florida legislature had the effect of eliminating a buyer’s right to cancel a purchase contract based on amendments to the condo’s operating budget — i.e., rising assessments — which are based on “matters beyond the developer’s control.”  The substantive interpretation of the 2007 law is not surprising to me; what left me scratching my head, however, was that the Court applied the law retroactively to a purchase contract that was signed well before the law was passed.  Florida law has a very clear and large presumption against the retrospective operation of a statute.  See State Farm Mutual Auto Ins. Co. v. Laforet, 658 So. 2d 55 (Fla. 1995).  Not only that, but even if a legislature passes a law with intended retrospective effect, it cannot be applied retroactively if to do so would impair rights under an existing contract, as such application would violate both the Florida and U.S. Constitutions.  See Fla. Dep’t of Transp. v. Chadbourne, 382 So. 2d 293 (Fla. 1980).  Unquestionably, removing a buyer’s statutory right to rescind a contract is an impairment of the buyer’s contractual rights, and the Court had nothing to say on this issue.

Even given the ruling, however, it is important to recognize that the Court has not entirely foreclosed the possibility for rising assessments to serve as a valid basis to cancel a condo contract.  Instead, the focus will now be on whether such increases were “beyond the developer’s control.”  In many instances, this will not be a black or white determination, and if anything, the Marina Grande opinion has opened up a new line of factual issues for contested litigation in condo contract cases.

The Big Picture:   In the second part of its opinion, the Court actually reversed the trial court’s reasoning, although it reached the same result as the trial court in denying the buyers’ claims to recover their deposit monies.  Essentially, the Court disagreed with the trial court’s view that the individual buyer’s specific situation or financial condition should be determinative of whether the buyer may cancel the contract and recover the deposits.  Rather, as the Court stated, “an objective test is appropriate . . . would a reasonable buyer under the purchase agreement find the change to be so significant that it would alter the buyer’s decision to enter into the contract?”  Here, the Court got it right and properly applied the Florida condo statute as it has been construed in other cases, and averted the disastrous result of turning condo contract into “divorce cases,” or battles over each buyer’s subjective situation.

This result is good for both buyers and developers in the long run, because it will lend predictability to the interpretation and judicial enforcement of condo contracts.  When you think about it, the objective test may actually be more beneficial to buyers in the short run with respect to the rash of condo cases being litigated in courts across Florida.  For instance, with respect to changes to a development’s common elements — for example, a decrease in the size of the swimming pool or the elimination of the gym — the Marina Grande decision clarifies that there is no need to inquire whether an individual buyer would have gotten any use out of the common element in question, only whether a “reasonable buyer” would have cared about the change before entering into the contract.  Not only is this the right way to treat condo buyers — given that collective ownership of all of the common elements is the very defining feature of condo ownership — but it accords with longstanding treatment of condo buyers in Florida courts.

By Jared H. Beck, Esq.

This article does not constitute legal advice or the formation of an attorney-client relationship, and is not for re-publication without express permission of the author.

Mr. Beck has a law degree from Harvard Law School, and practices law in the courts of South Florida. His law firm, Beck & Lee Business Trial Lawyers in Miami, is dedicated to the practice of business and real estate litigation. A significant portion of Mr. Beck’s practice is devoted to issues arising under condominium and other real estate purchase agreements. He can be reached at 305-789-0072 or jared@beckandlee.com