December 1, 2020

How “Minimal” Can Common Elements Be in a Condominium?

This was the question raised in the recent Florida Third District Court of Appeal case of IconBrickell Condominium No. Three Association, Inc. v. New Media Consulting, LLC, Case No. 3D19-0521 (Fla. 3d DCA, October 7, 2020).

The condominium at issue was a mixed-use condominium – consisting of both residential units and a hotel unit. In creating the condominium, the declaration of condominium expressly stated its intent to minimize the common elements of the condominium – declaring that “most components which are typical to ‘common elements’ of a condominium have instead been designated . . . as part of the Shared Facilities of the Hotel Unit.” Included specifically in the definition of such non-common element “shared facilities” were utility installations, elevators, trash rooms and chutes, and both the hotel lobby and residential lobby.

One of the residential unit owners in the condominium challenged this designation, claiming that the declaration’s identification of such shared amenities as shared facilities of the hotel unit instead of common elements of the condominium violated the Florida Condominium Act, including specifically s. 718.108(1)(d), Fla. Stat., which defines the term “common elements” as follows:

(1) “Common elements” includes within its meaning the following:

(a) The condominium property which is not included within the units.

(b) Easements through units for conduits, ducts, plumbing, wiring, and other facilities for the furnishing of utility services to units and the common elements.

(d) The property and installations required for the furnishing of utilities and other services to more than one unit or to the common elements.

(2) The declaration may designate other parts of the condominium property as common elements. (Emphasis added).

Section 718.108(2) allows a declaration to designate parts of the condominium other than those listed in subsection (1) as common elements, but can a declaration designate fewer than those items in s. 718.108(1) as common elements as was done in this case? In IconBrickell, the Third District Court of Appeal affirmed the lower court’s decision answering in the negative.

After restating fundamental “doctrines” of condominium law, including that a condominium is a creature of statute and subject to the provisions of the Condominium Act, the court concluded that the effect of the declaration’s language was the “recharacterization, and . . . expropriation of undivided common ownership” of these shared facilities and that it therefore violated the Condominium Act. In other words, the declaration’s attempt to exclude that property outlined in s. 718.108(1)(d), was improper.

Why would a condominium declaration create such a carve-out for shared components of a condominium? The consequences of this type of arrangement, which is somewhat common in mixed-use condominiums, is that the shared facilities are owned and, therefore, controlled by the hotel unit owner, but the expenses of maintenance of the shared components are nonetheless paid for, at least in part, by the residential unit owners. This arrangement allowed the hotel unit owner to unilaterally control and regulate the shared facilities, and yet avoid various statutory requirements that may be undesirable to a large commercial owner, such as a hotel operator, which arise when such components are “common elements” of the condominium – including joint decision-making regarding their control and oversight of the budget.

It seems this intentional avoidance of these statutory protections otherwise applicable to common element assessments may have been a primary motivator of the court’s decision. The appellate court expressed specific concern over the lack of application of statutory assessment regulations in this scheme, stating: “[n]otwithstanding the absence of common ownership, the Declaration emburdens residential unit owners with those expenses incurred by [the hotel unit owner] in furtherance of the maintenance, repair, replacement, improvement, management, and operation of the shared facilities. At the same time, [the hotel unit owner] remains unencumbered by certain statutory provisions regulating condominium association assessments.” The trial court noted in its order that the “shared expenses” budget prepared by the hotel unit owner is not submitted to the unit owners and that the declaration allowed the hotel unit owner the “unbridled ability to charge unit owners for de-facto common element expenses without any reservation or oversight.” Notably, the lawsuit that led to this decision was initiated following a $727,216.01 special assessment against residential owners in connection with the restoration of a shared swimming pool.

Notwithstanding, the court attempted to narrow its ruling holding the provision of the declaration designating “‘property and installations required for the furnishing of utilities and other services to more than one unit or to the common elements’ . . . along with ‘wires, conduits, pipes, ducts, transformers, cables, residential lobby and elevators, and communal trash disposal systems” as shared facilities violated the Condominium Act, but then rejected the conclusion that the “transfer of ownership and control of any amenities traditionally designated as common elements” violates the Condominium Act.

The court found that the declaration provision in IconBrickell went too far in recharacterizing common elements but failed to provide guidance on how to apply this ruling to other condominiums, and what particular components must be designated as common elements in a declaration. It seems fairly clear under the ruling that shared utilities required for the furnishing of utilities and other services to more than one unit or to the common elements must be common elements. However, substantial ambiguity remains as to what other shared components of a condominium must also be common elements. Existing similarly situated condominiums, particularly mixed-use condominiums, or those in stages of development, should review the treatment of shared facilities in their declarations with legal counsel to address any potential concerns of violation of the Condominium Act by improperly recharacterizing common elements.