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. 1^st 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.

Noah B. Tennyson is an associate at Nason Yeager in Palm Beach Gardens. His practice focuses on commercial and business litigation matters, including commercial foreclosures, business disputes, contract litigation, condominium and homeowners' association issues, construction defect litigation and employment issues. He can be reached at 561-686-3307 or via email at [email protected].