Articles Posted in Real Estate Development

Steve Siegfried 2013 srhl-law.jpgSteven M. Siegfried, our firm’s founding partner, was quoted in an article in the September 24 edition of the Daily Business Review about the impact of a new federal law to eliminate registration requirements for new condominium and timeshare developments under the Interstate Land Sales Full Disclosure Act.

The article reads:

A bill headed to President Barack Obama’s desk could be a “major victory” for condominium developers and save them millions of dollars in rescinded deposits from clients with buyer’s remorse.

The proposed S.2101 would amend the Interstate Land Sales Full Disclosure Act, which was used by some depositors as a tool to escape regrettable real estate contracts after the market crashed.

Developers and their attorneys are applauding the legislation, saying the [ILSA] law’s stringent technical requirements give buyers a green light to spot reporting loopholes and recoup deposits on condo contracts.

. . . Florida developers have been prime targets under ILSA. State regulations allow them to launch condo sales well before projects break ground, which means developers rely on renderings and forward-looking statements when marketing pre-construction projects.

But that practice cost them in court when judges interpreted the law in favor of “definitive” descriptions in sales and prospectus documents.

“The word ‘anticipate’ was not definitive enough, so there were lots of cases,” said Steve Siegfried, shareholder at Siegfried, Rivera, Hyman, Lerner, De La Torre, Mars & Sobel. “The courts were interpreting the basic requirements very, very strictly in a manner that almost gave the buyers an opportunity to find some technical reason why there was a noncompliance.”

“The statute is so extensive that attorneys were looking for very questionable errors, and basically arguing that any minor error in the property report allows them to rescind the contract,” added Siegfried, adjunct construction law professor at the University of Miami School of Law. “It was so technical, it became almost abusive and really caused a lot of problems for developers.”

Click here to read the complete article in the Daily Business Review’s website (registration required).

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The latest reports from the federal government illustrate that the housing market is back on the rise after two months of decline. The U.S. Commerce Department logged a 15.7 percent increase in July in home construction nationwide, following declines of 4 percent in June and 7.4 percent in May. A summary of all of the findings and statistics in a report from the Associated Press can be found by clicking here, and some of the highlights include:

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“The July rebound reflected strength in single-family home construction, which rose 8.3 percent, and in apartment construction, which was up 33 percent.

“. . . Housing construction was up 29 percent in the South, recovering from a 26.8 percent plunge the month before that was blamed in part on heavy rains

“. . . Economists noted that the July performance was much better than expected. Sal Guatieri, senior economist at BMO Capital Markets, said solid job growth and a recent decline in mortgage rates were helping boost construction.

“. . . A report Monday indicated home builders are feeling more confident about their sales prospects, a hopeful sign that home construction and sales of newly built homes could pick up after stalling. Builders’ views of current sales conditions for single-family homes, their outlook for sales over the next six months and traffic by prospective buyers all increased in August.”

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These figures and findings reinforce what our firm’s real estate attorneys and clients have been seeing throughout Florida: The housing market is solidifying its rebound from the foreclosure crisis in the state, and here as well as in other states the surfeit distressed properties are being brought back into the marketplace.

Our other real estate attorneys and I monitor and write about important business and legal issues affecting the industry in this blog, and we encourage industry followers to enter their email address in the subscription box at the top right of the blog in order to automatically receive all of our future articles.

Michael Hyman srhl-law.jpgFirm shareholder Michael L. Hyman was quoted in an article that appeared on Thursday, June 12, 2014, in The Real Deal (www.therealdeal.com) about the latest court decision in the dispute between two homeowners associations and developer of the Privé condominium towers in Aventura. The decision in Miami-Dade Circuit Court granted a request by the homeowners associations to abate the case until issues raised by the City of Aventura are resolved, effectively delaying for 90 days the hearing that will decide whether the lawsuits filed by the associations to block the development can move forward.

Hyman represents the Williams Island Property Owners Association, and he successfully demonstrated to the court that the case should not proceed as the City of Aventura had not yet approved a building permit for a sidewalk on an adjacent south island – which is a requirement for the issuance of a building permit pursuant to a variance issued by the city when the first island was developed with single family homes. Judge Jerald Bagley granted Hyman’s motion and ordered the case stay for 90 days, after which both sides must report back to the court on the status of the sidewalk permit.

Hyman explains in the article that the association’s motion “was based upon the fact that if the city would not issue the sidewalk permit, the matter could be resolved without the necessity of Williams Island proceeding forward with its lawsuit.” He noted that the stay would be lifted if the city issues the permit within the 90-day period.

The Williams Island association and the Island Estates Homeowners Association separately filed lawsuits in 2013 challenging the development rights for Privé, which is planned as a pair of 16-story condominium towers with 160 units by developer BH3 and Gary Cohen, the developer of the Island Estates enclave in the south island of the two-island property.

Click here to read the complete article from The Real Deal.
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Jeffrey Respler srhl-law.jpgThe firm’s lawsuits alleging major construction defects against the developer, general contractor, architect and engineers behind Miami’s Quantum on the Bay condominium towers were the subject of an article by the Daily Business Review that appeared in the June 16, 2014, edition of the newspaper. The lawsuits allege that the defendants’ work resulted in hundreds of defects, including stucco and HVAC problems as well as inadequate drainage that has led to severe flooding in the community’s fitness center and loading dock.

Firm Partner Jeffrey S. Respler is quoted in the article indicating that “[t]he unit owners want to have the property that should have been delivered to them. At the end of the day, we’re not looking for a windfall. We’re only looking to be made whole.”

The lawsuit names as defendants developer Terra ADI-International Bayshore LLC, builder Facchina-McGaughan LLC, architect Nichols Brosch Wurst Wolfe & Associates Inc., contractor Fred McGilvray Inc., and engineers Florida Engineering Services Inc., VSN Engineering Inc., Gopman Consulting Engineers Inc. and John J. Kirlin LLC, a Maryland-based firm that specializes in plumbing, heating, ventilation and air conditioning.

“The biggest problem is whenever there’s even a minor rain event, there’s flooding,” explains Respler in the report. “Every single day, the association people have to go out and pump the drainage wells in this luxury development. If not, there’s flooding – even when there’s no rain.”

The article describes how sandbags are being used at the property to keep water out of a service area during storms, and residents have been forced to have repairs made to swamped elevators.

Respler concludes: “The parties who we know are responsible are pointing fingers at each other. We are just the end users. We weren’t there when it was being built. The bottom-line fix is we’re probably going to have to move the drains to the front of the property. The speculation is the building was built too low.”

Click here to read the complete article in the DBR’s website (registration required).

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Banks are lending money. Developers are building new condominiums. And yet occasionally we are reminded of the turmoil that arose following the bursting of the housing bubble. A recent Florida Supreme Court decision regarding escrow accounts is one such reminder.

In North Carillon, LLC v. CRC 603, LLC, Case No. SC 12-75 (January 23, 2014), the Court addressed the issue of whether a condominium developer is required under the Florida Statutes to have separate escrow accounts for certain funds held in escrow pursuant to unit purchase agreements. Subsection 718.202(1), F.S., requires developers to “pay into an escrow account all payments up to 10 percent of the sale price . . . .” Subsection 718.202(2), F.S., provides that “payments which are in excess of the 10 percent of the sale price described in subsection (1) and which have been received prior to completion of construction by the developer . . . shall be held in a special escrow account established as provided in subsection (1) . . . .” What has been in question is whether the account required under subsection (2) must be separate from that required under subsection (1), requiring developers to have two different accounts for each buyer who paid into escrow more than 10 percent of the sale price.

The Third District Court of Appeal had decided the case in favor of two separate accounts in its decision in CRC 603, LLC v. North Carillon, LLC, 77 So.3d 655 (Fla. 3d DCA 2011). That court had followed the United States District Court for the Southern District of Florida in Double AA International Investment Group, Inc. v. Swire Pacific Holdings, Inc., 674 F. Supp. 2d 1344 (S.D. Fla. 2009) and found that without two separate accounts, a buyer’s purchase contract was voidable by the buyer. Since many developers believed in good faith that only one account was required, these decisions contributed to what was already a rising tide of litigation following the market downturn.

FSCourt2.jpgIn the recent decision, the Florida Supreme Court disagreed with the other courts, determining that the language in question was ambiguous. It also examined statutory history but remained unable to resolve the issue based on the statutory text.

Ultimately, because Subsection 718.202(7), F.S., provides that a willful violation of the statute by a developer is a third degree felony, the Court applied the rule of lenity to the case. The rule of lenity provides that ambiguity be construed in favor of the party who would be the accused in a criminal proceeding so as to avoid a harsher penalty than what was intended. Because it was not clear that a developer need maintain two separate accounts to avoid charges of a third degree felony, the Court found that the developer could maintain all funds in one escrow account.

As the courts resolve these remaining issues from the market downturn, we will continue to monitor all of the important rulings and discuss their impact for the real estate industry in this blog. We encourage industry followers to submit their email address in the subscription box at the top right of the blog in order to automatically receive all of our future articles.

We are sometimes engaged to close loans on behalf of entities providing financing for individuals or projects. Often, there are a number of parties participating in the loans. In other words, different parties are pooling different sums to come up with the total amount of the loan. In these scenarios, it is essential that the relationships among all of the participants be properly and clearly documented.

Most established lenders use form participation agreements. When several friends come together to pool resources and lend money , that is often where we see a lack of documentation which can have unintended and often ugly consequences. We are often amazed when we are asked to foreclose on loans that we have not closed, and we find that the participation and the rights of the different parties providing the loan are not properly documented.

A participation agreement among all participants should be drafted by loan counsel and executed by all participants well before the closing of the loan. warranties and reps.jpg Key elements of the participation agreement are the naming of an “agent” to act on behalf of the participants, and the establishment of the rights and responsibilities of the agent and the participants. Generally, the agent is responsible for the management of the loan and the disbursement and collection of all funds on behalf of the participants. A lengthy list of the agent’s obligations and limitations is generally the linchpin of the agreement.

The agent is generally responsible for collection of the proceeds from all of the participants prior to the loan closing; coordinating the closing of the loan; managing and servicing the loan after closing; collecting all funds and making all disbursements to the participants during the loan process; managing compliance with the loan documents; enforcing the loan covenants and satisfying the loan upon payment.

The agent is generally compensated by retaining a percentage of the interest collected or earning a pre-established fee equal to a percentage of the outstanding principal of the loan, on a per annum basis. Sometimes the agent is compensated with a flat one-time fee for acting as agent and servicing the loan for the participants. The agent’s fee is a critical element of the transaction, and it should be properly documented so as to avoid any misunderstanding among the participants.

Our other real estate attorneys and I have a great deal of experience with these and other types of financing structures, and we write regularly in this blog about important business and legal issues for the commercial/industrial real estate industry in Florida. We encourage industry followers to submit their email address in the subscription box at the top right of the blog in order to automatically receive all of our future articles.

A Florida court recently reminded developers that even if they reserve rights to amend a declaration, they must exercise these rights in a reasonable manner or reserve rights with specificity in the original document. In Flescher v. Oak Run Associates, Ltd., Case Nos. 5D12-2575 & 5D12-3254, the Fifth District Court of Appeal noted the limitations on these rights of the developer. In that case, the developer had recorded declarations of covenants in multiple single-family home neighborhoods, each declaration following a similar form. The original declarations provided that the developer, as the declarant, would use assessments collected from homeowners for various expenses, including landscaping, utilities, garbage collection and various other items.

The developer, which had the right to amend each declaration in its sole and absolute discretion, later amended all of the declarations to remove the text that required assessments to be used for these specific expenses. The amendment did not preclude the developer from using assessments for those costs, but under the terms of the amendment such use would no longer be a requirement. As a result of this and other changes made to the declarations, some of the homeowners sued. They obtained mixed results in the lower court.

5DCA Court House.JPGThe appellate court found that although the developer had the right to amend the declarations, the amendments had to be reasonable and could not change the general plan under which the community operated. The exception to this rule would be if the original declarations had warned homeowners that the burdens on the community could be changed by unilateral amendment by the developer.

The court found that the removal of the obligation to use assessments for the items mentioned above effectively moved the burden from the developer to the homeowners. Although the amendments did not specifically provide as such, the amendments allowed the developer to continue to collect assessments in the same manner, eliminated its obligation to pay for these expenses, and allowed it to keep any funds remaining after payment of expenses which remained developer obligations. The court found the shift in responsibility to be an unreasonable use of the developer’s right to amend the declarations.

This decision is not yet final, so it will be interesting to see if there are any further developments in this case. In any event, it is an important reminder to developers that even with a right to amend their documents, they must act in a reasonable manner. If a developer desires to retain a specific right to change a term in a declaration, that right should be specifically addressed in the original document so that purchasers are on notice that the term is subject to change. Without such specificity, changes will not be permitted if they change the character of the development or the burdens on the homeowners.

Our other real estate attorneys and I will continue to monitor and write about this case and other important legal and business issues for the Florida real estate industry in this blog. We encourage industry followers to submit their email address in the subscription box at the top right of the blog in order to automatically receive all of our future articles.

3rd-district-court-of-appeal-1In December, firm partners Helio De La Torre and Laura M. Manning-Hudson, together with of-counsel attorney H. Hugh McConnell, prevailed in their appeal on behalf of the developer of the 28-story Courvoisier Courts condominium tower on Miami’s Brickell Key before the Third District Court of Appeal. The appellate court found that the lower court erred when it entered a Final Judgment requiring the developer to relinquish to the association all of the parking spaces and storage areas that it assigned to an unsold penthouse prior to turning over control of the property to the association.

The appellate court’s decision in the case of Courvoisier Courts, LLC v. Courvoisier Courts Condominium Association, Inc. hinged on the association’s declaration of condominium, which states that the association would receive all parking spaces and storage areas that are left unassigned after the developer has sold all of its units. The panel found that the parking and storage spaces in question did not become the property of the association upon turnover, and the developer retained the right to assign the exclusive use of these limited common elements until such time as it had sold all of its units.

dbr logo.jpgA report on the ruling from the Daily Business Review on December 27, 2012 quoted De La Torre indicating that “The lower court ruling said basically that all of the assignments made since the turnover were invalid. [The appellate decision] means we get our parking spaces back, [and] it’s a very significant opinion.” He, Manning-Hudson and McConnell believe that the trial court’s interpretation of the condominium’s declaration in this case could have set a challenging precedent for condominium developers in Florida.

Click here to read the Third District Court of Appeal’s opinion for the case.

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. firstdca.jpg 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.

green-building.jpg 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.”