Florida Real Estate Lawyer Blog

A recent appellate ruling has important ramifications for developers as they navigate the issues of the delivery of condominium units after the completion of construction.

In the case of Tranquil Harbour Development, LLC v. BBT, LLC,the developer obtained a certificate of occupancy for a condominium unit but did not record the declaration of condominium with a surveyor's certificate of substantial completion until several months later. The contract for the sale of the unit in question contained a covenant that the developer would complete the unit within two years. However, the delay between the receipt of the certificate of occupancy and the recording of the declaration caused the developer to pass the two-year mark.

This delay proved to be very costly for the developer. When the buyer refused to close based on a breach of the covenant to deliver within two years, the developer argued that the date of the issuance of the certificate of occupancy should determine that it had met its obligation. Unfortunately for the developer, the First District Court of Appeal found that under Section 718.104, Florida Statutes, the surveyor's certificate of substantial completion had to be recorded for the unit to be conveyed to a buyer. Until it was recorded, the unit was not eligible for delivery, and therefore the developer had not met its two-year delivery obligation.

With so many condominium unit sales being contested in the aftermath of the meltdown in the real estate market in South Florida, this case illustrates the importance for developers to work closely with experienced legal counsel to ensure that all of the required notices, certificates and documentation are filed and recorded on a timely basis in accordance with Florida law.

When the real estate market was booming a few years ago, everyone was looking for an edge, and the interest in sustainability and green building methods began to take off. By spending a little more in construction, developers were able to market a project as environmentally friendly and achieve a long-term reduction in operating costs, which created considerable added appeal for their properties.

Even as lenders have tightened up financing and developers have canceled or scaled back projects over the last few years, green building has managed to stay on the radar. Some developers have been reluctant to add any costs to projects, even if minimal, as the need to shrink construction budgets has been a primary focus. Others, however, have seen that the return on investment is worth the additional cost, particularly if they plan to hold a building for any significant length of time.

Although Florida has not been at the forefront of green building, several markets in the state are starting to catch up. A recent article in the Tampa Tribune explained the impact of the sustainability culture on the Tampa Bay market.

In addition, a recent report prepared for the Energy Foundation shows the potential for billions of dollars in financing opportunities associated with sustainability.

As the real estate market continues to rebound from the economic downturn, we encourage our clients to consider all potential financing resources and concepts for development. As Gerald M. Stern said in The Buffalo Creek Disaster: "Sometimes you do well by doing good."

Opinions on the real estate recovery seem to change with the news cycle. Just a couple of weeks ago, an article from USA Today titled "Commercial Real Estate's Improving Health Exceeds Forecasts" indicated that we've taken a step forward in the commercial real estate market. The report noted that lenders' distressed commercial real estate loans decreased by $7 billion from last September to February, and mortgage defaults for office, retail and industrial building loans fell for the first time since 2005 in the fourth quarter of 2010. In the last few days, news from Reuters that delinquencies in the CMBS market have reached record highs may indicate a step back, though values provide hope that this reverse may be just half a step back.

The real estate attorneys in Miami-Dade, Broward and Palm Beach counties at our firm understand that part of the reason for confidence in the commercial real estate sector is that lenders have become more adept and astute in their management of distressed commercial loans. During the downturn, we worked with many of our clients to help them to restructure their loans on major commercial properties with their current lenders, enabling both parties to avoid the negative implications of a default. We assisted other developers who elected to surrender their properties via deeds in lieu of foreclosure, simultaneously securing releases of their personal guaranties. Once released, many of these developers have been able to pursue new projects that are better suited to the ever-changing financial climate.

With the volume of commercial loans which are underperforming, lenders have been forced to adapt and become more willing to look at creative ways to keep properties afloat, especially now that the commercial real estate market is beginning to rebound. Developers need to keep in mind that no reasonable deal is off the table when they are negotiating with their lenders.

We will continue to monitor and write about important matters for the real estate industry in Florida, and we encourage industry followers to submit their e-mail address in the box on the right in order to automatically receive all of our future blog posts.

The final two days of the 2011 legislative session proved to be extremely productive for the development community, as the Florida Legislature approved HB-7203 by including it in the budget bill which passed late Friday night. The bill shifts almost all oversight of the real estate development process from the state level to the local level, which essentially eliminates the bulk of the duties that are presently handled by the Florida Department of Community Affairs (DCA) and divides the few remaining duties of the DCA among different existing state departments.

The bill prohibits local authorities from imposing impact fees on non-residential developments for a two-year period and immediately extends all permits for large-scale developments for a period of seven years. The legislature felt that the current system of multiple layers of local and state approvals had become too burdensome and costly, and abolishing state oversight would encourage future development and stimulate the economy.

A few days earlier, the legislature also passed HB-993, which shifted the burden of proof to citizens and organizations for challenges to water permit applications. Present law provides that a developer must prove that the new permit application would cause no pollution. HB-993 would require those who are objecting to the issuance of the permit to prove that the development would cause pollution. The change in the burden of proof was backed by the Florida Department of Environmental Protection.

Both of these bills were considered priorities by Governor Scott and the legislature, and it is expected that the Governor will soon sign both into law. The South Florida real estate attorneys at our firm will continue to monitor and write about new laws affecting the real estate development industry in Florida, and we encourage industry followers to enter their e-mail address in the box on the right in order to automatically receive all of our future blog posts.

The Florida Supreme Court severely curtailed the protections offered to the members of Florida single-member LLCs when it decided the case of Olmstead v. Federal Trade Commission. In this decision, the court allowed a creditor of the member in a single-member LLC to bypass the limited liability charging order restrictions offered by Florida law. This allowed the creditor to seize the debtor's entire membership interest in the LLC, which delivered all of the entity's assets to the creditor. New legislation (HB 253) was passed by the Florida Legislature during the 2011 session and awaits the Governor's signature. This new legislation, if signed by the Governor, will make the following changes and clarifications to the existing Florida LLC charging order statute:

1) The legislation is intended to clarify existing law and be remedial in nature, and it is designed and intended to apply retroactively.

2) It clarifies that the Florida Supreme Court decision in the Olmstead case does not extend to multiple member LLCs.

3) It states that in a single member LLC, a charging order is the "sole and exclusive remedy" which a judgment creditor of a member may use to satisfy a judgment from such debtor member. It also provides that the judgment creditor is only entitled to distributions from an LLC, unless the judgment creditor establishes that distributions under a charging order will not satisfy the judgment within a reasonable time, in which case a charging order will not be the sole and exclusive remedy available to the judgment creditor.

4) It states that in a multiple member LLC, a charging order is the "sole and exclusive remedy" which a judgment creditor of a member may use to satisfy a judgment from such debtor member, and it provides that the judgment creditor is only entitled to distributions from an LLC. It also prohibits foreclosure on a judgment debtor's membership interest in the LLC by the judgment creditor.

5) The new law leaves intact the rights of secured creditors that have been granted a consensual security interest in the LLC by the debtor; the principles of law and equity regarding fraudulent transfers; equitable principles not inconsistent with the law; and the continuing jurisdiction of courts to enforce the charging order consistent with the law.

The real estate lawyers at our firm have decades of experience in structuring corporate transactions, and we focus on drafting appropriate lease provisions to comply with all of these issues and intricacies.

Today, letters of credit are routinely requested by landlords as security deposits under commercial leases, and they are also used by tenants as security for landlords' tenant improvement allowances. In addition, owners and/or lenders often rely on letters of credit in lieu of payment and performance bonds by contractors and subcontractors that are unable or unwilling to increase their bonding capacity. For the most part, these letters of credit act as stand-by letters that allow the holder to draw from the letter in the event that the other party has failed to perform under their contract.

For all of those who are relying on these letters of credit to safeguard their real estate deals in today's market, it is imperative that they keep in mind that many of these letters of credit have been issued by local community banks that have an ongoing relationship with one of the parties to the transaction. As a result of the widespread financial problems that many of these banks are now facing, the holders of these standby letters of credit issued by banks which are undergoing FDIC receivership or takeover are coming to the realization that their letters may actually be worthless.

The position taken by the FDIC is that the stand-by letters of credit of the failed banks are contingent obligations that do not support an allowable claim unless the right to draw on the letter had vested prior to the FDIC taking over the financial institution. Since the FDIC can repudiate undrawn letters of credit and shield itself and the lending institution that issued the letter from any damages or responsibility, beneficiaries in today's marketplace must review their current letters and take a close look at the financial strength of the issuing bank.

The South Florida real estate attorneys at our firm have been undertaking these reviews for many of our clients. Generally, letters of credit allow the beneficiary to draw down the letter in case the issuer fails to meet certain financial requirements. A review of all pending letters should be undertaken to determine what possibilities exist to draw upon any letter issued by a troubled bank.

In addition, in any new transactions, the lease and the letter of credit need to be drafted in a manner that takes into consideration the problems facing many community banks. They must clearly establish the financial ratings and solvency requirements that the issuing bank must maintain throughout the life of the letter of credit. Also, the documents should provide that the beneficiary may draw upon the letter at any time that the issuing bank's financial strength dips below the agreed upon minimum financial standards.

Our law firm has more than thirty years of experience in structuring lease transactions, construction contracts and other agreements encompassing letters of credit guarantees, and we focus on drafting and using lease and contractual provisions that effectively protect our clients.