Can a Developer Retain the Right to Veto a Declaration Amendment After Turnover of the Association?
Surprisingly, the answer is yes. In the recent case of First Equitable Realty III, Ltd. vs. Grandview Palace Condominium Association, Inc., 329 So. 3d 167 (Fla. 3rd DCA October 6, 2021) before the Third District Court of Appeals, the Court held valid and enforceable a developer-recorded amendment to the condominium declaration, which granted the developer the right to reject future declaration amendments it deemed in, “its sole opinion,” harmful to the future sale of its units.
Grandview Palace Condominium Association, Inc. (“Association”) brought suit after the developer, First Equitable Realty III, Ltd., had turned over control of the Association to the unit owners. Prior to the Association’s turnover, the developer had derived a profit by charging residents on a pay-per-use basis for use of laundry room facilities located throughout the condominium. Pursuant to the original condominium declaration, the laundry rooms were designated as limited common elements. The Association was responsible for paying utility expenses. After turnover, and without the consent of the developer, the members amended the declaration relieving the Association of any financial responsibility for the laundry room gas or electricity expenses.
The developer argued that the unit owner adopted amendment was unenforceable and in violation of an earlier developer-recorded amendment, which prohibited any action by the Association without the consent of the developer, which, in its sole opinion, was detrimental to the sale or lease of its units, for as long as it owned units for sale in the “ordinary course of business”. The Association filed a declaratory action against the Developer to determine the validity and enforceability of the amendments in question.
The trial court granted summary judgment in favor of the Association finding that the unit owner adopted amendment was valid, and, that the original declaration required payment of the utility expenses by the developer. The developer successfully appealed the trial court ruling to the Third District Court of Appeals.
The Court first relied on the long-standing principle that the condominium declaration was the condominium’s contract, which strictly governed the relationship between the Association and the owners. Where the language of the declaration was clear and unambiguous the Court was required to give effect to the declaration as it was written. See Cohn v. Grand Condo. Ass’n, Inc., 62 So. 3d 1120, 1121 (Fla. 2011).
The Court noted that the original declaration designated the laundry rooms as “limited common elements,” and that the operation and maintenance of the common elements and utilities for the condominium were common expenses to be absorbed by the Association. The Court also noted that this was consistent with the association’s statutory responsibilities under the Condominium Act (Chapter 718, Florida Statutes). Had the Association intended to shift the statutory expense allocation, it could have done so with clear language in the declaration. The Court also noted that the unambiguous language of the amendment to the declaration (which it held was indisputably valid) granted the developer the right to reject any further amendments which it deemed within, “its sole opinion”, harmful to the future sale of its units. Accordingly, the Court held the trial court erred by finding valid the Association’s amendment which was adopted and recorded without the consent of the Developer.
This undoubtedly will come as a surprise to many homeowner controlled boards of directors. However, developers can retain numerous rights in the association or community after transition to owner control. For example, in homeowner associations, if the documents so provide a developer can retain rights to:
- Require the express written consent of the developer prior to any amendment affecting that developer’s rights, especially if it impacts the sale of Lots still owned by the developer;
- Exclusive right to construct improvements within the community; and
- Be exempt from obligation to pay assessments on developer-owned lots.
In recognizing a developer’s ability to retain rights after turnover, the legislature has sought to limit those rights. Section 720.3075(1), Florida Statutes, expressly prohibits any clause in the association’s governing documents that has the effect of:
- allowing the developer to unilaterally make changes to the HOA documents after turnover;
- prohibiting or restricting an association from suing the developer; or
- allowing the developer to cast votes in amount exceeding one vote per residential lot.
If your community recently transition from developer control, you should consult with experienced counsel to determine what rights the developer has retained before making decisions or amendments that may affect those rights.