In a previous post, I discussed Senate Bill 58 and House Bill 351, which were proposed bills that would have prohibited the application of foreign laws in family law disputes pending in the State of Florida unless the foreign body of law granted the litigants the “same” rights and protections as the Florida and U.S. Constitutions.  After fierce opposition from the International Law and Family Law Sections of the Florida Bar, as well as from the Anti-Defamation League, the American Civil Liberties Union, and the Council on American-Islamic Relations, SB 58 stalled by one vote in the Florida Senate and subsequently died on calendar despite the best efforts of its sponsor, Florida Senator Alan Hays (R-Umatilla). 

If prior years are any indication, Senator Hays and Representative Larry Metz will renew their efforts during next year’s legislative session, which will require the International Law Section of The Florida Bar to, once more, make the case that such legislation will be harmful to Florida’s pro-foreign business reputation and to its reputation as a center for international dispute resolution.

Miami residents have a long history of escaping to cooler climates during the summer months.  While the advent of central air conditioning has made regular visits to the north more of a luxury than a necessity, vacation homes in such exotic locations as North Carolina, Maine, Vermont, Massachusetts and New York remain as popular as ever.  Many Miami residents also own out-of-state real estate for reasons other than vacations, with many owning property for rental income, long-term investment, or present/future use by family members.

Review Your Florida-Centric Estate Plans

Florida resident owners of out-of-state real estate and tangible personal property (such as furniture, artwork, automobiles and boats) may be surprised to learn, however, that without proper planning their spouses or children may pay a steep tax price to inherit the property when the owner dies.  Many owners may be even more surprised to learn that their current Florida-centric estate plans do not include planning to avoid or postpone the tax.

This unexpected tax trap is a result of the “decoupling” of state and federal estate taxes which was fully phased in by 2005.  While most states, such as Florida, let their state estate tax lapse at that time, a few – including notably the states listed above – continue to tax both residents of their state and owners of real and tangible personal property located in their state.  Some states, such as Pennsylvania, have separate inheritance taxes to consider.  Dying while owning property in these states will frequently result in a state estate or inheritance tax being assessed on the full value of the real and tangible personal property located in the state (unreduced by mortgage indebtedness) even in cases where careful planning has avoided federal estate tax being assessed due to the marital deduction or otherwise. 

To add insult to injury, it may also be necessary to hire local experts to pass the title to the property through local probate.  In some cases, ownership of the property at death could spark a state income tax or estate tax audit as budget-strapped states attempt to bring the deceased owner into the fold (or back into the fold in the case of Florida residents who may have moved south to escape such taxation to begin with) for state income tax purposes.

Plan Ahead to Avoid the Tax Trap

With proper planning, state estate and inheritance tax may be postponed or eliminated altogether.  While the great variety of state laws and personal situations ensures that there is no “one size fits all” solution, many property owners choose to avoid the state estate tax issues by gifting, or selling, the real property (and tangible property contents) to an irrevocable grantor trust while leasing the property back at fair market value.  This planning may save state estate and inheritance taxes while providing an effective platform for Federal estate tax reduction and protection from creditors for the current owner and future generations.  In other words, the hidden tax trap, once sprung, may become the cornerstone of a solid planning structure.

The Third District Court of Appeal recently issued an opinion that is a game changer for third-party purchasers of condominium units at foreclosure sales.  The Third District’s opinion in Aventura Management, LLC v. Spiaggia Ocean Condominium Association, Inc., Case No. 3D11-2545 (Fla. 3d DCA 2013), absolves third-party purchasers of responsibility for a prior owner’s  past-due maintenance, assessments, and late fees in circumstances where a condominium association has previously foreclosed on a lien.

Condominium associations have suffered through the economic downturn due to lost revenue from unit owners who have defaulted on their obligations to pay regular maintenance and special assessments.  In order to try to recoup some of these losses, many associations have taken advantage of the provisions of Florida law that create a lien in favor of condominium associations for unpaid maintenance and assessments.  Florida law also allows associations to foreclose on their liens, subject, of course, to a bank’s mortgage on the property.  The functional result is that condominium associations regularly take possession of units and rent them out until the bank foreclosure process is completed.  This allows an association to collect rent from a defaulted unit for several months or years until the bank’s foreclosure sale is completed.

Until the Aventura Management decision, potential purchasers of condominium units had to account for significant uncertainty in the amount of money it would take to purchase a condominium property out of a bank foreclosure.  The great unknown was whether the third-party purchaser would be responsible for the past-due payments accrued by the former owner of the unit.

Section 718.116

Indeed, many condominium associations aggressively touted the provisions of Section 718.116(1)(a) of the Florida Statutes.  That provision provides in part that “a unit owner is jointly and severally liable with the previous owner for all unpaid assessments that came due up to the time of transfer of title.”  Condominium associations regularly argued that even though an association may have taken title to a property, it did so subject to a bank mortgage, and, therefore, third-party purchasers were jointly and severally liable with the previous owner for all unpaid assessments.  As a practical matter, since the previous owner (who defaulted on his or her mortgage and obligations to the association) could not meet his or her financial obligations to the association, the entirety of the unpaid sums fell on the third-party purchaser.

Third District Court of Appeal Decision

The Third District Court of Appeal resolved this uncertainly in favor of the third-party purchaser.   In Aventura Management, an owner of a condominium unit stopped paying maintenance assessments and the condominium association recorded a claim of lien against the unit.  The association proceeded to foreclose on its lien and rent the unit.  The bank mortgage-holder subsequently obtained a final judgment of foreclosure and the Appellant, Aventura Management, LLC, was the successful third-party bidder at the foreclosure sale and obtained title to the unit.

After obtaining title to the unit, the association attempted to collect from new owner the past due assessments, late fees, and interest that had accrued since the original owner defaulted.  The association asserted that pursuant to Section 718.116(1)(a), Florida Statutes, as a third-party purchaser, the new owner was responsible for all past due assessments, late fees, and interest up to the time it took title.  The new owner argued that it was liable only for assessments accruing after it took title to the unit.  The trial court agreed with the association and granted its motion for summary judgment.

On appeal, the Third District reversed the trial court’s decision and found that the new owner was not liable for past due assessments, late fees, and interest that had accrued since the original owner defaulted.  Specifically, the court found that the association, as an intervening owner of the unit, not the third-party purchaser, was jointly and severally liable for the past due assessments when it was the owner.  Contrary to the association’s argument, the court opined that the plain language of Section 718.116(1)(a), which provides that “a unit owner is jointly and severally liable with the previous owner for all unpaid assessments that came due up to the time of transfer of title,” does not “state or suggest an exception is to be made when the previous owner is the condominium association.”

In sum, Aventura Management paves the way for a third-party to achieve what could be a significant financial advantage should it be the winning bidder (under similar circumstances) at a foreclosure sale by side-stepping liability for any past due assessments tacked onto a condominium unit.  It also serves as a warning to condominium associations that foreclosing on a lien for unpaid maintenance and assessments will preclude it from collecting unpaid sums from a subsequent third-party purchaser.

The Florida real estate market remains a prime target for Canadian investment, with a particular focus on South and South West Florida.  These Canadian purchasers are being credited with playing a role in the rebound of the Florida housing market, which has seen a 12% increase since its April 2011 low.  Indeed, notwithstanding competition from South American buyers and emerging interest from Asia, a recent BMO Financial Group report indicates that Canadians are Florida’s number one foreign buyer of real estate.

Canadian Dollar Remains Strong

This is particularly true as the Canadian dollar remains strong as compared to the U.S. Dollar, a far cry from the historical exchange rates seen before the economic downturn.  As a result, Canadian buyers continue to flock to Florida – not just for the sun and the sand, but for the investment opportunity as well.

And these Canadians are coming with cold, hard cash. In fact, research reports have touted that while 8% of all home purchases in Florida are cash purchases, an astounding 89% of 2010 Canadian real estate purchases were made in cash.  Researchers largely attribute this statistic to Canadians being less burdened by the mortgage crisis than Americans and Europeans.  With so many Canadians of all ages looking south for opportunity, it is not surprising that many sellers and brokers have even headed north to meet potential buyers.

Rise in Cost of Florida Real Estate Investment

Whether it be a winter getaway or an income-generating investment property, given the momentum that has been generated by Canadian purchases of Florida real estate – reports indicate that more than 500,000 Canadians currently own property in Florida – this trend shows no sign of slowing down, although as the market rebounds, the cost of investing in Florida appears to be on the rise.

Chapter 11 filings in the Southern District of Florida continue to trend downward.  Since 2010, annual chapter 11 filings have declined by about 25%.  The decline is consistent with the national bankruptcy experience.

Variety of factors contributing to decline in filings

To some extent, the current low filing rate is attributable to a robust local economy, particularly in the hospitality and commercial development sectors, leading segments of the South Florida economy. Generally speaking, however, the decline in filings is also fueled by other dynamics (less favorable) including delays in foreclosure proceedings putting off the need for bankruptcy relief; paucity of debtor in possession financing; prevalence of “bad boy” guaranties which makes borrower filings a Hobson’s Choice for guarantors; the requirement that “new value” plans of reorganization be market tested making insider exit strategies less predictable; and, complicated capital structures that make reaching consensus on an exit plan difficult. 

After three consecutive years of similar declines in chapter 11 filings, perhaps that fact alone is not necessarily a key indicator of economic recovery. The decline in no small part may well be testimony that chapter 11 is no longer regarded as the best way to navigate through financial extremis.

U.S. companies with, or that were seeking to acquire, foreign operations often fretted over the possibility that plaintiffs in the foreign jurisdiction would seek to invoke the Alien Tort Statute (“ATS”), 28 U.S.C. § 1350, and commence actions in the U.S. in an attempt to seek redress for egregious conduct (violations of the “laws of nations”) committed by the foreign subsidiary or affiliated companies.

Recently, ATS cases have involved foreign plaintiffs seeking redress for atrocities purportedly committed by state actors on behalf of the foreign corporations and for the damages and costs associated with cleaning up environmental pollution that purportedly was caused by the foreign corporations.

WHAT THIS DECISION COULD MEAN FOR YOU

As discussed below, the U.S. Supreme Court decided that the ATS cannot be invoked as a basis for federal jurisdiction where the “relevant conduct” occurred within the territory of a sovereign other than the U.S. This substantial narrowing of the scope of the ATS likely will cause putative ATS plaintiffs to think twice about bringing their claims, since they likely will have to make a strong showing that the “relevant conduct” that led to the injury occurred in the U.S. Since the majority of ATS cases have involved acts that occurred in foreign countries, corporate clients likely will have to worry less about the possibility of ATS litigation relating to their foreign operations.

WHAT YOU NEED TO KNOW

By its April 17, 2013 decision in Kiobel v. Royal Dutch Petroleum, 569 U.S. __ (2013), the U.S. Supreme Court significantly curtailed foreign plaintiffs’ access to U.S. federal courts to seek redress for injuries that occurred overseas. In particular, Chief Justice Roberts, writing for the majority, held the presumption against extraterritoriality to apply to the ATS and essentially found that, to successfully invoke the ATS, the “relevant conduct” must have taken place in the U.S. Mere presence – of a multinational corporate with operations in both a foreign country and the United States, for example – does not suffice.

It seems, though, based on Kiobel and existing Supreme Court precedent, that the proverbial door has nonetheless not been totally slammed shut, in the event that future plaintiffs can allege that at least some relevant, actionable facts and circumstances (i.e., plus factors beyond presence, such as the planning, financing, or support for the tort) occurred in or somehow materially affected the United States.

Impact on Corporations & Individuals Doing Business Overseas

The Kiobel opinion is likely to have a substantial impact on corporations and individuals doing business overseas, as well as those looking to do so. Most immediately, companies and individuals operating abroad will be protected from tort claims in U.S. federal court, forcing injured plaintiffs to bring their claims elsewhere. Foreign jurisprudence, especially in civil-law countries, is generally far less favorable and substantially less generous to plaintiffs than U.S. tort law, which might act as a deterrent to the institution of claims in the first place.

Impact on Transactional World and Beyond

This shift will also have ripple effects in the transactional world, as potential purchasers of multinational companies – especially those with operations in hot-button areas – may have fewer potential or threatened claims against the target company to worry about. Finally, Kiobel shows that the Supreme Court isn’t gun shy about exercising limits on the extraterritorial application of U.S. laws, which might one day have implications for other breeds of would-be actionable conduct, such as FCPA or money laundering, occurring abroad.

We recently wrote about the Florida House and Senate bills regarding public-private partnerships that are currently under consideration.  As a brief update, House Bill 85 was approved on Tuesday by the House Appropriations Committee.  It is next scheduled to be considered by the State Affairs Committee, and from there, it could be considered for adoption by the full House.  The progress of the bill can be tracked by clicking here.

Meanwhile, Senate Bill 84 is pending review by Senate Appropriations.  Its progress can be tracked here.

Understanding the current fees

Miami-Dade County imposes road impact fees on new developments in both unincorporated and incorporated areas of the County, subject to any applicable exemptions or credits, which may reduce or eliminate the fee due. Road impact fees must be paid prior to obtaining a building permit for new construction and are often substantial. 

For example, the current road impact fee, including applicable administrative charges, for a new 50-unit condominium development in an urban-infill area would be $113,600 ($2,272.00 per unit), and the current road impact fee for a new 2,500-square-foot fast-food restaurant without a drive thru would be $71,228.75 ($28.4915 per square foot). These road impact fees are levied in addition to other applicable impact fees, such as Fire, Police, Parks, and School fees, which are payable to either the County or the municipality in which a development is located. 

In 2009, Miami-Dade County adopted increased road impact fees, with the increases to take effect in phases. However, in order to help alleviate the impact of the economic downturn on the development industry, the Board of County Commissioners has passed legislation each of the past few years that delayed implementation of the increased fees, thus extending the discount. The above fees therefore represent a 50% reduction compared to the full amount of the road impact fee that would otherwise be due. 

Impact of the fee increase

The discount is set to expire in five phases, with the next phase of the expiration to take effect on April 22, 2013. On that date, the amount of the road impact fee due will increase from 50% of the full amount to 65% of the full amount. While this may appear to be a 15% change, the net result is a 30% increase over current rates. Although the County has, in the past few years, extended the discount in recognition of the downturn in the economy, it does not appear that there is pending County legislation that would do the same this year. Therefore, on April 22, 2013, the road impact fee for the same 50-unit condominium described above will increase from $113,600 to $147,680. Again, this amount is only for road impact fees; other applicable impact fees will also be due. 

Moving forward, the discount will continue to be phased out, with corresponding increases in road impact fees. On, April 22, 2014, the fees will increase from 65% to 80% of the full amount—a total increase of 60% over the fees due today. On April 22, 2015, the fees due will increase from 80% to 90% of the full amount, and on January 1, 2016, the discount will expire completely. Thus, between April 21, 2013, and January 1, 2016, road impact fees will double, with the bulk of that increase occurring by April 22, 2014. These increases are independent of the annual increases in the road impact fee rates of approximately 3.5% to account for inflation. 

Developers should be aware of these increases in impact fees, as substantial cost savings can be achieved through pulling building permits on April 19 instead of April 22 (April 20 and 21 fall on Saturday and Sunday, respectively, and the last day to pay fees at current rates is therefore April 19) or, possibly paying the impact fee prior to April 22 at the current rate even though the permit is not yet ready to issue. In addition, as described above, certain exemptions or credits against road impact fees may be available for a particular project or location. 

As development in Miami’s core returns, many developers are concerned with what appears to be a review by the Federal Aviation Administration (FAA) height regulations, which could impose restrictions to the maximum allowable heights.   However, the FAA is not being clear on what exactly its intended revisions to the regulations may be, causing additional angst and uncertainty in the development community.  The FAA has merely indicated that they are reviewing the One Engine Inoperative (OEI) policy and that the public would be able to comment on any proposed changes.

One Engine Inoperative Policy

The Miami-Dade County Aviation Department (MDAD) contends that in 2010 the FAA reviewed certain local airports including Miami International Airport and found that the local zoning regulations already addressed the One Engine Inoperative policy.  In fact, MDAD indicates that the height restrictions were raised in 2006 from its prior approved heights.  In light of the increase to proposed development, this issue has been getting additional attention with the Miami Herald reporting among others.  This is also getting the attention of the Downtown Development Authority (DDA), which is clearly concerned about how any proposed height decreases can stunt development in the downtown core.

Impact of Height Limitations

According to some lobbyists who are studying the impact, the height limitations can be cut in half, leaving many buildings at a cap of 250 feet.  With several developments in the pipeline in downtown with heights well over 250 feet, this could cause severe implications towards the comeback of development in our community.