NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING
MOTION AND, IF FILED, DETERMINED
IN THE DISTRICT COURT OF APPEAL
OF FLORIDA
SECOND DISTRICT
AHF-BAY FUND, LLC, )
)
Appellant, )
)
v. ) Case No. 2D14-408
)
CITY OF LARGO, FLORIDA, )
a municipal corporation, )
)
Appellee. )
________________________________ )
Opinion filed April 22, 2015.
Appeal from the Circuit Court for Pinellas
County; John A Schaefer, Judge.
Joseph H. Lang, Jr., and Christopher W.
Smart of Carlton Fields Jorden Burt, P.A.,
Tampa, for Appellant.
Elizabeth W. Neiberger of Bryant Miller
Olive P.A., Tallahassee, and Alan S.
Zimmet and Nicole C. Nate of Bryant
Miller Olive P.A., Tampa, for Appellee.
MORRIS, Judge.
AHF-Bay Fund, LLC (AHF), appeals a final judgment entered in favor of
the City of Largo on its claims for breach of contract and enforcement of a covenant at
law. The underlying dispute involves a PILOT agreement entered into by AHF's
predecessor in interest, RHF Brittany Bay, LLC (RHF), and the City. A PILOT
agreement is an agreement which requires an entity that is otherwise exempt from ad
valorem taxation to make "payments in lieu of taxes" to a local government. AHF
purchased the property that was the subject of the agreement but failed to make the
payments as required. As a result, the City sued, and the trial court entered summary
judgment on the two claims, followed by entry of final judgment in the City's favor.1 AHF
raises three arguments on appeal. AHF first argues that the PILOT agreement was not
a covenant running with the land. We find no merit to that argument and do not address
it further. However, because we agree with AHF's second argument that the PILOT
agreement is contrary to Florida law, as well as Florida's public policy, we reverse.
Because our resolution of the second issue is dispositive of the case, we express no
opinion on the third issue raised by AHF relating to its liability under the final judgment.
I. BACKGROUND
In December 2000, RHF acquired the subject property. RHF was a tax
exempt 501(c)(3) organization as defined by the Internal Revenue Code. See 26
U.S.C. § 501(c)(3) (2000). RHF planned to develop the property to provide affordable
housing for persons with low to moderate income pursuant to chapter 420, Florida
Statutes. As set forth in section 196.1978, Florida Statutes (2000), affordable housing
projects owned by a 501(c)(3) organization are exempt from ad valorem taxation.
1
In the complaint, the City also raised a claim of breach of contract as
against AHF's predecessor in interest, as well as claims of quantum meruit and unjust
enrichment as against AHF. The trial court did not enter a final judgment on the
quantum meruit or unjust enrichment claims on the basis that they were pleaded in the
alternative and were ultimately seeking the same relief as the other two claims against
AHF. The breach of contract claim as against AHF's predecessor in interest is not a
subject of this appeal.
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To finance the project, RHF reached an agreement with the City wherein
the City would arrange for the issuance of tax-exempt bonds2 that carried a
considerably lower interest rate than RHF could have obtained using traditional bank
financing. In exchange for the issuance of the bonds, RHF entered into the PILOT
agreement, thereby agreeing to make annual payments to the City "in an amount equal
to the portion of ad valorem taxes to which the City would otherwise be entitled to
receive for the [p]roperty as if the [p]roject were fully taxable in accordance with
standard taxing procedures." The PILOT agreement provided that the amount of the
payments would be determined by multiplying the property's assessed value by the
millage rate established by the City each year. The PILOT agreement also provided
that "the City has and will provide services to [RHF] as a result of [RHF's] status as a
tax-exempt entity."
The PILOT agreement specified that it was binding on any subsequent
owners of the subject property as long as certain conditions were met, though it made
no mention of a covenant running with the land. The PILOT agreement was not
recorded in the official public records. However, simultaneously with the execution of
the PILOT agreement, the parties executed a memorandum of agreement that was
recorded in the public records. The memorandum indicated that the PILOT agreement
was available for inspection in the city clerk's office and that it imposed certain
covenants running with the land.
RHF made the payments as required by the PILOT agreement for the
years 2001 through 2005. AHF, also a nonprofit affordable housing provider, acquired
2
The City entered into an interlocal agreement with the Capital Trust
Agency to permit the Agency to issue tax-exempt bonds.
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the property in November 2005. AHF has continued to own and operate the property as
an affordable housing community since the purchase. However, when the City did not
receive the annual payment that was due on December 31, 2006, it contacted AHF.
AHF denied knowledge of either the PILOT agreement or the memorandum of
agreement, asserting that neither had been shown to be an exception to coverage in its
title insurance policy and that neither had been referenced in the special warranty deed
by which AHF took title.
Based upon AHF's refusal to make payments under the PILOT
agreement, the City filed suit in 2010. The City sought a summary judgment and the
trial court granted the motion in part. Ultimately, the trial court entered a final judgment
in favor of the City, awarding $695,158.23 in damages and prejudgment interest.
II. ANALYSIS
Where a trial court has granted summary judgment and there are no
disputed factual issues, our review "focuses on whether the court correctly determined
that the moving party was entitled to prevail as a matter of law." Damianakis v. Philip
Morris USA Inc., 155 So. 3d 453, 461-62 (Fla. 2d DCA 2015) (citing Volusia Cnty. v.
Aberdeen at Ormond Beach, L.P., 760 So. 2d 126, 130 (Fla. 2000)). Pure issues of law
are reviewed under a de novo standard. See Bosem v. Musa Holdings, Inc., 46 So. 3d
42, 44 (Fla. 2010).
Exemptions from taxation are granted by the Florida Legislature when
they are deemed to be in the interest of the general welfare of the public. See Miami
Battlecreek v. Lummus, 192 So. 211, 216 (Fla. 1939). Such exemptions are to be
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strictly construed. See id. The exemption from ad valorem taxation as set forth in
section 196.1978 is applicable here.
Section 196.1978 was the legislature's response to Southlake Community
Foundation, Inc. v. Havill, 707 So. 2d 361 (Fla. 5th DCA 1998). Prior to the Havill
decision, nonprofit entities typically enjoyed exemption from ad valorem taxation without
qualification. But in Havill, the Fifth District Court of Appeal called into question that
practice. After Havill was decided, the Florida Legislature enacted section 196.1978,
making it clear that all 501(c)(3) nonprofit entities that provide affordable housing for low
to moderate income families were entitled to the exemption. The legislative history of
section 196.1978 is particularly instructive:
A recent court ruling in Florida's Fifth District Court of
Appeal[] (Southlake Community Foundation, Inc. v. Havill,
(Fla. 5th DCA 1997)), held that non-profit housing
organizations, qualified under 501(c)(3) of the Internal
Revenue Code, cannot be considered "charitable" unless
they provide affordable housing exclusively to persons who
are Section 8 Housing and Urban Development voucher
tenants. The court failed to recognize other non-profit
housing organizations, qualifying under 501(c)(3) of the
Internal Revenue Code, that provide affordable housing to
persons under other state affordable housing programs such
as the State Apartment Incentive Loan Program (SAIL).
Consequently, the ruling financially undermines non-profit
properties which provide housing to low or very low income
working families under programs provided for years by the
Florida Housing Finance Corporation or local governments.
The ruling effectively makes such properties subject to ad
valorem taxation for which they are presently exempt.
Fla. H. Comm. on Water & Resource Management, HB 17 (1999) Staff Analysis (Apr. 8,
1999).
There is no dispute that AHF is a nonprofit 501(c)(3) organization or that it
owns and operates the property as an affordable housing option for low to moderate
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income families. Consequently, AHF is entitled to exemption from ad valorem taxation
pursuant to section 196.1978. But the dispute here centers on whether the payments
called for under the PILOT agreement are the equivalent of ad valorem taxes disguised
under another name. We conclude that they are. The payments were to be made in
amount equal to the amount of ad valorem taxes that would have been due but for
AHF's tax exempt status. The next question, then, is whether an agreement such as
the one involved here violates the Florida Constitution.3
Because a municipality's taxing power is granted only by the Florida
Constitution or Florida Legislature, see art. VII, § 9(a) Fla. Const. (providing generally
that municipalities shall impose taxes as authorized by law); § 166.211(1), Fla. Stat.
(2000) (limiting power to levy ad valorem taxes "in a manner not inconsistent with
general law"),4 and because section 196.1978 expressly prohibits ad valorem taxation
on properties being used for affordable housing, a municipality cannot circumvent that
prohibition by seeking to recover ad valorem taxes merely by utilizing a different name,
see State v. City of Port Orange, 650 So. 2d 1, 3 (Fla. 1994) (applying that principle
where City sought to impose a tax under the guise of a transportation utility fee).
This precise issue—involving PILOT agreements in place of ad valorem
taxation—appears to be one of first impression in this state. However, a Pennsylvania
3
The City contends that this issue was not properly preserved below.
However, we conclude that this issue was preserved through AHF's answer and
affirmative defenses as well as AHF's motion for reconsideration of the order granting
partial summary judgment. See LoBello v. State Farm Fla. Ins. Co., 152 So. 3d 595,
600 (Fla. 2d DCA 2014) (noting that trial courts may reconsider and modify interlocutory
orders—such as an order granting summary judgment—at any time prior to entry of a
final judgment).
4
See also State v. City of Port Orange, 650 So. 2d 1, 3 (Fla. 1994); City of
Miami v. Kayfetz, 30 So. 2d 521, 524 (Fla. 1947).
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court addressed a similar issue in School District of Monessen v. Farnham & Pfile Co.,
Inc., 878 A.2d 142 (Pa. Commw. Ct. 2005). That case involved a Pennsylvania Act
declaring certain areas to be exempt from ad valorem taxation on a temporary basis.
Farnham and Pfile's predecessor in interest had entered into a PILOT agreement with
the local school district whereby it agreed to make payments in lieu of taxes "for
municipal services and other services to be rendered for the property." Id. at 145. The
annual payments were based upon the millage rates, much like the payments in this
case. Id. When Farnham and Pfile purchased the property, it was informed the
property was temporarily exempt from ad valorem taxes, and Farnham and Pfile agreed
to abide by the terms of the PILOT agreement. Id. at 145-46. However, Farnham and
Pfile refused to make the payments as called for in the agreement, and the school
district, along with the City of Monessen, filed a complaint for declaratory judgment. Id.
at 146. Summary judgment was granted in favor of the school district. Id.
On appeal, Farnham and Pfile argued that the PILOT agreement was
unenforceable, illegal, and invalid because it imposed "the substantive equivalent of real
property taxes" despite the fact that the property was exempt from such taxes. Id. at
150. The appellate court agreed, concluding that the payments violated the intent of the
Act delineating the property exempt from ad valorem taxes. Id. In reaching that
holding, the court noted that the payments were not correlated to any specific services
and that they did not "reflect the fair cost of any particular service provided to the
[p]roperty by the [s]chool [d]istrict." Id. at 151. Additionally, the court pointed to the
school district's complaint, wherein it alleged that the payments were being made in lieu
of taxes. Id. Thus the court concluded that "[b]ecause the PILOT[] [was] calculated and
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billed like taxes and [was] not linked to the taxing authority's supply of needed services,
. . . the PILOT[] [was] the equivalent of real property taxes, merely disguised as
payments for municipal services." Id. at 152.
Beyond the holding that the payments violated the Act, the court also
concluded that Farnham and Pfile was not liable for the payments despite the fact that it
had agreed to abide by the PILOT agreement. Id. The court noted that parties are
generally free to contract as they wish, but relied on earlier case law for the proposition
that a contract may be found unenforceable on grounds of public policy. Id. at 152-53
(citing Cent. Dauphin Sch. Dist. v. Am. Cas. Co., 426 A.2d 94 (Pa. 1981)).
We acknowledge that the Pennsylvania court did not hold that all PILOT
agreements are invalid. See id. at 152 n.6. Rather, the PILOT agreement was found
invalid there because the Act specifically provided a temporary exemption from ad
valorem taxation and the PILOT agreement in question was merely an attempt to
recoup the ad valorem taxes that would have otherwise been due. Id. at 152.
Similarly here, the property in question is exempt from ad valorem taxation
pursuant to section 196.1978, but the PILOT agreement requires the owner of the
property to make annual payments that are the equivalent of the ad valorem taxes that
would have otherwise been due. Additionally, much like the PILOT agreement in
Farnham & Pfile Co., Inc., the agreement here does not specify any particular service
that the City will provide to AHF that is not provided to other properties. 878 A.2d at
151. There is no dispute that those services were enjoyed by other properties within the
jurisdiction and that those services would have been provided in the absence of the
PILOT agreement. And in the City's complaint, it alleged that AHF "fail[ed] to tender the
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Payments in Lieu of Taxes," and requested that the trial court enforce the PILOT
agreement by either awarding the ad valorem taxes that would otherwise have been
due or imposing an equitable lien on the property. The utilization of that language
supports the argument that the City was attempting to recoup the ad valorem taxes
under a different name. See Farnham & Pfile Co., Inc., 878 A.2d at 151-52 (citing
school district's allegations in its complaint as indication that school district was seeking
to recoup ad valorem taxes).
We conclude that based on the statutory exemption from ad valorem
taxation as set forth in section 196.1978, the City did not have authority to collect ad
valorem taxes from AHF via enforcement of the PILOT agreement. The PILOT
agreement violates the public policy of promoting the provision of affordable housing for
low to moderate income families and is therefore void. See Am. Cas. Co. v. Coastal
Caisson Drill Co., 542 So. 2d 957, 958 (Fla. 1989) (noting that contracts that contravene
an established interest of society can be found void as against public policy).
Additionally, we hold that a PILOT agreement that requires a party to make payments
that are the equivalent of ad valorem taxes that would otherwise be due but for a
statutory tax exemption violates article VII, § 9(a) of the Florida Constitution, which
permits municipalities to impose taxes only as authorized by law. Accordingly, the final
judgment entered in favor of the City is hereby reversed.
Finally, we recognize that PILOT agreements similar to the one in this
case abound in municipalities throughout Florida. Thus, the magnitude of our opinion
holding that these types of agreements violate Florida law may pose a significant
hardship on municipalities that rely on such payments to meet their budget
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requirements. We therefore certify to the Florida Supreme Court the following question
to be of great public importance:
DO PILOT AGREEMENTS THAT REQUIRE PAYMENTS
EQUALING THE AD VALOREM TAXES THAT WOULD
OTHERWISE BE DUE BUT FOR A STATUTORY TAX
EXEMPTION VIOLATE SECTION 196.1978, FLORIDA
STATUTES (2000), AND ARTICLE VII, § 9(a) OF THE
FLORIDA CONSTITUTION?
Reversed and remanded.
SILBERMAN and BLACK, JJ., Concur.
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