Oral argument was held last week in the D & T Properties vs. Marina Grande Associates appeal in Palm Beach County. As I wrote on this blog some months ago, Florida real estate market watchers and condo lawyers have an intense interest in the outcome because the court is being asked to clarify under what circumstances amendments to condominium documents are deemed “material and adverse” to the buyer, thus enabling the buyer to cancel the contract. While I was unable to attend the hearing, Paul Brinkmann of the South Florida Business Journal was there.
As Brinkmann reports, one of the judges on the appellate panel noted from the bench that if the lower court’s ruling were upheld, it would be akin to turning condo cases into “divorce cases.” This apt analogy is based on the fact that the lower court actively examined the buyer’s financial situation in determining that an increase in the assessments that the buyer would be required to pay if it closed on the property was not good grounds for cancelling the contract because the buyer could well afford the increase. In other words, as in divorce cases, the lower court’s approach entails scrutinizing the parties’ finances to determine the judicial result.
In my prior article, I focused on how prior opinions have construed the notion of “material and adverse,” and the manner in which those opinions might lend some guidance in predicting the outcome of the Marina Grande appeal, and how the Florida condominium statute will be interpreted. But, the divorce analogy invoked by the appellate court raises another set of concerns.
First, from a judicial resources point of view, it would certainly be disadvantageous to turn condo contract cancellation cases into “divorce” proceedings between the buyer and developer. Such an approach would mean longer and costlier cases for both sides, targeted at determining whether a given buyer could bear the burden of a given change to a condo. And while the trial court in D & T Properties denied the buyer’s request to cancel the contract and recover its deposit monies, ultimately the “divorce” approach could also be unfavorable for developers in the long run. In short, even relatively miniscule changes to the contract and condo documents could serve as valid bases for cancellation, if the buyer were able to demonstrate a personal financial situation where the change made the property unaffordable. Such result would surely run counter to well-established principles of contract law, whereby only significant or material changes to a contract may give rise to a right of rescission in one of the parties.
Second, adopting the “divorce” approach would amount to a wholesale transformation in the way condo purchases are viewed. By way of illustration, consider a 22-year-old case called Klinger v. Zaremba Florida Co., 502 So. 2d 1252 (Fla. 3d DCA 1986). Klinger involved a phased project which originally called for a subdivision of townhomes to be built with a jogging path and outdoor track as recreational facilities. After selling the townhomes, the developer altered the later stages of the project, replacing the jogging path and outdoor track with a second condominium subdivision. Based on how the project was originally represented to the townhome buyers, the court found they possessed a right to rescind their purchase agreements, noting that they “had a substantial interest in the recreational facilities as amenities to the expensive condominium units which they purchased” (emphasis added).
The takeaway point of Klinger is clear: a purchaser of a condominium has a prior and independent interest in the common areas of a condominium, including the recreational facilities, regardless of that buyer’s individual situation. That is to say, there was no need for the court to conduct an analysis of whether each individual buyer had an actual interest in using the jogging path or outdoor track before determining that all of the buyers had been harmed by their elimination — joggers and non-joggers alike. Of course, this approach should not be surprising given that, as one leading treatise on Florida condo law puts it, “[t]he key characteristic that distinguishes the condominium from other forms of property ownership is that a unit owner also owns an undivided interest with other unit owners in the ‘common elements,’ which interest cannot be separated from the unit.” William P. Sklar, “Concept of Condominium Ownership,” Florida Condominium Law and Practice (3rd Ed. 2003).
I would venture to say, however, that if the “divorce approach” to contract cancellation is adopted, the defining feature of condo ownership will be threatened. In my experience, many buyers rightly view significant changes to a condo’s common elements as material and adverse — indeed, many view the common elements as the real soul of the building itself, over and above the individual units. As recognized in Klinger and other longstanding case law, the buyer’s independent and substantial interest in the common areas should be respected — not only because it is the law, but because from a business vantage point, buyers choose to purchase condos based on the whole package offered by the building. Treating cancellation cases as divorces between the buyer and developer, however, would unfairly challenge and potentially undermine this interest by enabling developers to make wholesale changes to common elements while leaving their buyers with no recourse.
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 firstname.lastname@example.org