[i].  Because the definitions provided in Rule 61B-15.007 of the Florida Administrative Code may apply to Section 718.203, the definitions stated in the Rule are relevant to a complete analysis of a lender’s exposure to statutory warranties. 

These filing requirements involve, among other things, the filing of a copy of the sale or lease agreement with the Division of Florida Land Sales, Condominiums and Mobile Homes, a division of the Department of Business and Professional Regulation.  See Fla. Stat.§ 718.502 (1)(a) (2007).  The developer must also affirmatively disclose certain facts to the prospective unit owner and file a prospectus or offering circular.  See Fla. Stat. §§ 718.503 and 718.504 (2007).

[ii]. See Fla. Stat. § 718.101 (2007).

[iii].  See Fla. Stat. § 718.203 (2007).  Of course, when the statute of limitations begins to run and whether the statute of limitations acts to bar the claim are entirely separate issues that should also be considered by the lender.  See Fla. Stat. § 95.11 (3)(c) and (f) (2007); Charley Toppino & Sons, Inc., Seawatch Marathon Condominium Assn., Inc., 658 So.2d 922 (Fla. 1994).

[iv].  If an improvement is made, the warranty on that improvement begins once the improvement is completed. Fla. Stat. § 718.203 (1)(c)(2007).  Completion occurs upon the issuance of the certificate of occupancy for the building or improvement or, if the governing authority does not issue a certificate of occupancy, then upon substantial completion in accordance with plans and specifications. Fla. Stat. § 718.203 (3) (2007).  

[v]. See Fla. Stat. § 718.203 (3) (2007).  For purposes of this memorandum, completion requires a certificate of occupancy.   However, as is often the case, not all of the units may be certified for occupancy or completed at the same time.

[vi].  See Fla. Stat. § 718.103 (16) (2007).  One could easily argue that unit owners should not obtain more rights than they otherwise would have had simply because a lender attempts to sell the parcels after foreclosing on the property due to the developer’s inability to repay the loan.

[vii].  See Fla. Stat. § 718.203 (16) (2007).

[viii].  A lender that undertakes to complete a project will be considered a developer, exposing it to both statutory and common law warranty claims, as well as the statutory filing requirements discussed more fully below.  

[ix].  The Rule defines “developer” in terms that are virtually identical to the language used by Florida’s Legislature to define a “developer” for purposes of vacation plans and time shares.  See Fla. Stat. § 721.05 (2007).  However, the legislature did not use such language in defining the term “developer” for purposes of Section 718.103 of the Condominium Act, which applies to the warranties set forth in Section 718.203.  Although the administrative code is binding until challenged, it could be argued that the DBPR exceeded its authority in “redefining” developer, which had already been defined by Florida’s Legislature.

[x].  In 2006, the first sentence in paragraph (1) of the Rule was amended to clarify that it applied only to purposes of “filing under” various sections of Chapter 718.  The Rule never listed the warranty section, 718.203, and specifically listed only Sections of Chapter 718 that dealt with filing requirements.   Yet, as indicated through the recent amendment, at some point there was some confusion as to the application of this Rule beyond just the filing requirements.  See Horizons North Condominium No.1 Assn., Inc. V. Norbro I, 551 So.2d 526 (Fla. 3d DCA 1989) (citing to Rule 7D-15.007, now 6B-15.007, in analyzing the definition provided in Section 718.103).  In fact, an article written by Matthew J. Comisky entitled “Issues of Lender Successor Liability” suggests that there was indeed some confusion as to the breadth of this Rule.  See Fla. B.J., (Nov. 1992).  This article dealt with a lender’s due diligence prior to lending money to a developer and assumed that the definitions in the Rule (as it was in 1992) were relevant to lender liability, without distinguishing between warranty or filing requirements.  

The courts have not addressed the breadth of the Rule since its enactment, including the effect of the 2006 amendment.  Some doubt still exists due to the Rule’s reference to the definition stated in Section 718.103 (16), which defines “developer” as it applies to all of Chapter 718.   The unit owner’s attorney may use the language of this Rule to convince a judge to interpret Section 718.103's definition of “developer” in a broad fashion as is applied to all of Chapter 718, including Section 718.203's warranty requirements.  Of course, it can also be argued that the limitations of the Rule (i.e. for “filing purposes only”) should be given effect and interpreted as an indication that the Division of Florida Land Sales, Condominiums and Mobile Homes, a division of the Department of Business and Professional Regulation, did not intend for this definition to apply to Sections 718.103 and 718.203.  This is the more logical and well-reasoned argument. In addition to the fact that Section 718.203 is not listed, the Division specifically added the limiting language in 2006.

[xi]. See Fla. Stat. § 718.501 (1)(d)(4) (2007).

[xii]. See Fla. Stat. § 718.202 (5).   Essentially, by attempting to void the contract, the purchaser is seeking rescission.  See First Sarasota Service Corp. v. Miller, 450 So.2d 875 (Fla. 2d DCA 1984).

[xiii].  Application of the definitions stated in the Rule to Section 718.203 is an attempt to analyze the worst case scenario for the lender.

[xiv].   See Fla. Admin. Code, Rule 61B-15.007 (1)(a)(b) and (c).

[xv].  Id.

[xvi].  Id.

[xvii]. See Fla. Admin. Code, Rule 61B-15.007 (2)(a)(b).  It is irrelevant whether the units are offered for sale or for lease.

[xviii].  See Fla. Admin. Code, Rule 61B-15.007 (3) (2007). This Rule effectively abrogated the Opinion of the Attorney General of the State of Florida, which stated that a lender foreclosing on a condominium was required to comply with the statutory filing requirements.  1977 Fla. Op. Atty. Gen. 24.  The Attorney General further stated that the issue was best resolved by the Legislature or, in lieu of that, by the courts on a case by case basis.

[xix].  See Bishop Associates Limited Partnership v. Belkin, 521 So.2d 158 (Fla. 1st DCA 1988) (noting that the qualification of the term “developer” for filing purposes does not “require” that the qualifications apply to other provisions regarding developer in the statute).  The same reasoning applies in this situation.  If the Department of Business wanted the definitions stated in the Rule to apply to the entire statute or the warranty provision, it certainly could have done so.  Yet, no such language exists.  

[xx]. Reidlinger v. Rousset, 910 So.2d 302 (Fla. 2d DCA 2005) (relying on Fla. Admin. Code, R. 61B-15.007, and holding that plaintiff could not rescind the contract for failure to abide by filing requirements because the vendor was not offering units in the “ordinary course of business” by selling only 4 units of an 8 unit building).

[xxi]. The case of First Federal Savings & Loan Assn. of Seminole County v. Dept. of Business Regulation, 472 So. 2d 494 (Fla. 5th DCA 1985) is very important in determining how a court is likely to interpret Section 718.103 and whether the lender will be responsible for warranties stated in Section 718.203 based solely on its decision to offer the parcels for sale after foreclosure.  In that case, the lender took deeds in lieu of foreclosure and sold one unit to one buyer and ten units to another buyer.  In interpreting the term “developer” and the phrase “ordinary course of business,” as stated in Section 718.103, the court held that a lender was not a “developer,” was therefore not required to comply with filing requirements and not subject to civil penalties for failure to comply with filing requirements.   The court based its decision, in part, on the fact that a lender does not regularly or normally sell condominium parcels in the ordinary course of its business as a mortgagee.  The court stated, “We do not think that a lender selling units in lieu of foreclosure is acting in ‘the ordinary course’ of its business . . . . If this were ordinary for a mortgagee, it would not long continue in the lending business.”  Id. at 496.  Accordingly, the court acknowledged that lenders do not want to be in the business of foreclosing on properties since that means they are not making the money on the contract but instead incurring additional costs.

Although First Federal involved the issue of whether a lender had a duty to comply with the statutory filing requirements, it is clear that the court interpreted the meaning of the phrase “ordinary course of business” found in Section 718.103 of the Condominium Act.  First Federal may have been the basis for promulgation of Rule 61B-15.007.  However, the Rule specifically limited the definitions contained therein to filing requirements.  Accordingly, when courts construe the phrase “ordinary course of business”under Section 718.103 as it applies to Section 718.203, they should rely on First Federal and not the Rule.

Additionally, an argument can be made that, in promulgating the Rule, the DBPR exceeded its powers in redefining the term “developer” that was already defined by the Legislature and in defining  “ordinary” which is contrary to the common meaning of the word, as shown by the decision in First Federal and the court’s rejection of the definition requested by the DBPR.  See And Justice For All, Inc. v. Dept. of Ins., 799 So.2d 1076 (Fla. 1st DCA 2001).  The position of DBPR is that the number of units offered for sale in a given year is solely determinative of whether one is offering in the ordinary course of one’s business. The court rejected that argument in First Federal.

[xxii]. Id.

[xxiii].  See also Bishop Associates Limited Partnership v. Belkin, 521 So.2d 158 (Fla. 1st DCA 1988) (where the trial court found, in relation to relinquishing control of condominium association, that limited partnerships that purchased units from original developer did not sell their units in the ordinary course of business but were nonetheless developers because each partnership had no business ventures or income producing activities other than attempting to lease units ) citing First Federal Savings & Loan Assn of Seminole County v. Dept. of Business Regulation, 472 So. 2d 494 (Fla. 5th DCA 1985).

[xxiv].  The court in First Federal noted that, to hold otherwise, would cause lenders to discontinue the lending business.  472 So. 2d 494.

[xxv].  Horizons North Condominium No.1 Assn., Inc. V. Norbro I, 551 So.2d 526 (Fla. 3d DCA 1989) (limited partnership that acquires original developer’s remaining inventory was a “developer” where document contained a provision entitled “Assignment of Leases, Warranties, Guarantees, Plans and Specifications, Name and Miscellaneous Rights”).

[xxvi]. Id. The Horizons case is very fact specific.  The company that purchased the developer’s remaining inventory, also obtained all of the developer’s rights, with the intent of holding the units long-term and for eventually sale.  The association sought to have the company deemed a “purchaser” for purposes of making capital contributions to the association, since the company purchased one-third of the units and contemplated leasing those units until they were sold, either individually or in bulk.  In its attempt to avoid payment to the association, the company claimed that, under Chapter 718, it could not be deemed both a “developer” and a “purchaser.” 

It is important to note that the court did not base its finding on the fact that the acquiring company planned to “offer” or advertise units for sale or that the company had, in fact, offered or sold the units in the ordinary course of its business.  However, the Horizons court felt that the company’s purpose, which was to sell the units in the ordinary course of business, was a factor that weighed in favor of a finding that the company was a developer.   

[xxvii].  Rice v. First Federal Savings & Loan Association of Law County, 207 So.2d 22 (Fla. 2d DCA 1968).

 [xxviii]. Chotka v. Fidelco Growth Investors, 383 So.2d 1169 (Fla. 2d DCA 1980).  In Chotka, the court held that, although the construction lender acquired title through foreclosure proceedings, when the lender took title to the project, it held itself out as the developer and owner of the project, completed construction of the project and advertised and sold the units, the lender became a developer of the project and became liable for express warranties, patent defects in the entire project and for breach of any applicable warranties in defects for portions of the project completed by the lender.  The court specifically noted that the case did not involve any claims brought pursuant to Chapter 718.  Id.   See also North American Mortgage Investors v. Reef Club Condo. Assn., 469 So.2d 930 (Fla. 3d DCA 1985) (citing Chotka with approval).  

[xxix].  Port Sewall Harbor And Tennis Club Owners Assn., Inc. V. First Federal Savings and Loan Association of Martin County, 463 So.2d 530, 531-532 (Fla. 4th DCA 1985) (stating that otherwise “no lender could buy the property at the public sale without potential catastrophic exposure to liability). 

[xxx].  As one appellate court noted, it is always best to disavow, through a bold and conspicuous disclaimer, any and all express warranties other than those that have been made as part of the contract.  Belle Plaza Condominium Assn. Inc., v. B.C.E. Development, Inc., 543 So.2d 239 (Fla. 3d DCA 1989) (trial court properly dismissed express warranty claim where prospectus disclaimed any and all express or implied warranties).  This will help deter warranty claims.  If applicable, a contract for sale or lease should also include a statement that the lender is not a developer, did not develop the property and has not inspected the unit or premises for latent or patent defects.  The purchaser is advised to carefully examine the premises and to closely inspect the premises for defects.

[xxxi].  First Federal Savings & Loan Assn. of Seminole County v. Dept. of Business Regulation, 472 So. 2d 494 (Fla. 5th DCA 1985).

[xxxii].  Chotka v. Fidelco Growth Investors, 383 So.2d 1169, 1170 (Fla. 2d DCA 1980).  Creating a separate legal entity to contract for the completion of construction and to sell the deeds can help to insulate the lender from liability.