Before you lose interest in reading about the 1991 Alabama Uniform Condominium Act (AUCA), be aware that a related Baldwin County legal case, currently on appeal to the Alabama Supreme Court, is drawing attention from around the state.
Before you conclude that condominium development, sales and purchases have little or nothing to do with you, consider the arguments.
“If the Supreme Court overthrows that decision — sends it back overturned — that is going to open up Pandora’s box,” warned condo owner Pam Montgomery. “Deceitful developers will come to the Gulf Coast, represent one thing to you — whatever it takes to get you to buy that product — and the real estate agent will give you the same narrative because [they’re] representing the developer, knowing the developer can record whatever he wants when he’s finished. And you don’t have a remedy.”
As a condo owner and as the president of the Phoenix on the Bay II Owners Association (POBII), Montgomery and the association were sued by developer Brett/Robinson in 2015, claiming they trespassed on private commercial units and interfered with contractual and business relationships after the association decided to use another rental manager.
But Baldwin County Circuit Court Judge Clark Stankoski determined otherwise. After a bench trial early last year, he found the plaintiffs had no evidence of any wrongdoing, and Brett/Robinson didn’t legally own any units to trespass on at POBII, commercial or otherwise.
As Lagniappe reported Feb. 26, while the ruling was considered a victory for Montgomery and POBII, it was Stankoski’s remedy that set a precedent and drew opposition from such powerful business interests as the Alabama Association of Realtors (AAR), the Associated Builders and Contractors of Alabama, rival large condo developers and a group of legal professors.
According to Montgomery’s attorney, Jessica McDill, Section 110 of the AUCA allowed Stankoski “to put the aggrieved party in as good a position as they should have been in” had Brett/Robinson never claimed the units. Further, Section 414 “provides that a court is authorized to award damages or appropriate equitable relief,” McDill said.
Thus, Stankoski struck and amended several portions of POBII’s declarations and redistributed Brett/Robinson’s fractional ownership interest among 104 residential property owners.
In “friend-of-the-court” briefs submitted in the case last month, the business interests urged the Supreme Court to reverse the ruling.
An attorney for the realtors argued the decision was problematic “because provisions in the primary documents which create ownership interests for condominium declarants … are now subject to invalidation on a delayed post-hoc basis based on the lower court’s holding. This precedent could disincentivize those types of real estate development, and thereby harm the business market for AAR members who assist both the developers, purchasers and sellers of property in those developments as well.”
An attorney for Brett/Robinson wrote the ruling was “a direct, unprecedented threat to one of the most fundamental principles of the AUCA and indeed of condominium law anywhere — that ‘the declaration is the instrument which creates and defines the [condominium] units.’”
But Montgomery said it was one brief in particular — from the Alabama Office of the Attorney General — that she found most disappointing.
Attorney General Steve Marshall, siding with the business interests, argued Stankoski “completely abolished” Brett/Robinson’s rights, and the judge’s reformation of the condo declaration “is not an available or appropriate remedy.”
But Montgomery sees it this way: “The attorney general’s office takes the position that it is OK with fraud being an acceptable business practice as long as it benefits the developers of the condominium projects regardless of a ‘bait and switch’ scheme deployed by that developer in luring unsuspecting consumers to purchase their product. As chief law enforcement officer in the state of Alabama, the attorney general should be looking out for the welfare of the consumer and not turning a blind eye to blatant fraud.”
What had happened was
According to evidence submitted in the case, Brett/Robinson began seeking individual investors in POBII after it filed a phasing statement in probate court in 2007. The statement described the condo as a 104-unit residential complex, a claim that was repeated on marketing materials and offering statements provided to investors.
Montgomery described the lure to invest as a pre-purchaser, when buyers can typically get better deals than after the value has increased.
“The requirement when you buy a condo pre-construction is you’re given an offering statement,” she explained. “It’ll have the recorded declarations, the association bylaws, it will have all the information you need to know about what you’re buying, because it doesn’t exist yet. So you’re basically having to trust what’s being represented to you in the offering statement, and also what the real estate agent, who is representing the developer, is telling you what you’re buying.”
Montgomery, who had years of previous knowledge of the AUCA through her work at a title company, said many condo developers rely on pre-sales for initial financing.
“One of the things this developer does is he pre-sells a significant portion of the development up front, so you pay for your condo in full, up front, before it’s ever built, and they use the money to buy the land and build the development … You are actually his bank,” she said. “So, it’s a relationship of trust in one way, but it’s also legal because of the offering statement.”
But after POBII was constructed, Brett/Robinson submitted “as built” plans and a second declaration to probate court, both of which added four “commercial units” to the 104 residential units, thereby reducing the square footage of common areas owned by the association and the ownership interest allocated to each unit.
Stankoski’s order of May 2017 upheld the 2007 phasing amendment, ruling there were only 104 units and all were intended solely for single-family residential use. Brett/Robinson’s creation of the four commercial units subsequently recorded in “as built” plans were “invalid and of no force or effect,” he determined.
The order struck and deleted language in the second declaration referring to maintenance, sales, check-in and housekeeping areas of the property and voided the four commercial units claimed by Brett/Robinson, disbursing its ownership interest back among the other 104 owners.
Since construction, Brett/Robinson utilized some of the areas for rental management and real estate sales, along with some maintenance storage. But at the time the lawsuit was filed, Montgomery and the association had also decided to terminate Brett/Robinson’s management contract and use another vendor. It was then they discovered the four additional units.
In a 2017 deposition, Bill Brett, who described himself as “the most senior person” at Brett/Robinson, said his father, Gene Brett, was one of the developers of POBII. He testified it was Brett/Robinson’s position the four private commercial units were intended at the time the building was built and sold.
He claimed the association encouraged its owners to use vendors other than Brett/Robinson, causing at least $24,000 in annual loss of revenue from three owners who complied. Further, the company claimed the four units were worth a combined $600,000, even though they were described as a lobby with a front desk area and two sales desks, a maintenance closet and a spot in the parking garage that was never developed as intended into a housekeeping unit.
Brett claimed he had little knowledge of condo declarations or how the four units were created, as at least two co-workers and principals in the company had since died.
But Brett/Robinson Association Manager Keith Jiskra was more revealing, testifying that as a liaison to property owners associations at as many as 19 of the company’s condominium developments, he “always managed POBII as a 104-unit residential condominium.” Jiskra testified that utilities on the four units were paid by the association, while he also never disclosed the four units in insurance applications or policies.
Montgomery explained that the AUCA provides “broad avenues for developers to develop a condominium, but there are certain restrictions and certain limitations which basically prevent developers from embedding themselves on a property and owners can’t get rid of them.”
The declaration did provide the developer use of the common areas for a period of 10 years, and Brett/Robinson recouped some of its construction costs by charging 22 percent commission on the rental fee for each unit, while also collecting a housekeeping fee, a $65 reservation fee and a fee on parking passes. Brett said the margins were “razor thin.”
Among Jiskra’s duties, according to the depositions, was contracting with vendors for services. Among those was SecureVision, which provided TV and internet service. During the lawsuit, it was revealed SecureVision obtained an easement on the building that would be advantageous to providing services to nearby properties, and the association did not collect any fees for the easement.
After owners complained about the quality of service, Jiskra recommended a $17-per-month upgrade, without disclosing it renewed SecureVision’s contract for another five-year term. Allegedly, the value of the contract was more than $300,000.
During depositions, both Jiskra and Brett admitted they received free audio-visual equipment and DISH satellite TV service from SecureVision for their personal homes, although Brett claimed to have since repaid the company and Jiskra said the perk was just a test, to see how the equipment and service performed.
The four commercial units also gave Brett/Robinson voting authority on the association, which the association claims were “improperly counted” at board meetings.
What can happen is
One of the more interesting briefs filed to the Supreme Court last month was one by attorney Forrest Latta, submitted on behalf of three other condominium developers — David Head, Rick Phillips and Larry Wireman — who admittedly are “direct competitors” of Brett/Robinson in Gulf Shores and Orange Beach.
Alleging they share a “deep concern” about the ruling, Latta wrote if Judge Stankoski’s ruling is upheld, it “would severely undermine [our] confidence in the AUCA, jeopardize [our] past projects and fundamentally complicate [our] ability to achieve finality on future projects, among many other potential ramifications.
“The goal of the AUCA is to promote certainty and clarity in the creation and marketing of condominium interests. No basis exists for a unit buyer, through the courts, to nullify and rewrite the Declaration of Condominium, and such a ruling is highly detrimental to the industry,” he concluded.
But a cursory comparison of condominium declarations from the time reveals they vary widely in language and specificity. Some of Brett/Robinson’s other Phoenix projects use conflicting language at times, while other developers have been more clear.
For example, in the declaration for the Phoenix VIII condominium, filed in 2000, it is represented that two units were reserved for offices and maintenance, but a conflicting section governing “use restrictions” states that “all units must be single-family residences.” Common language in declarations from then until today often state the developer “may maintain” offices at the buildings for 10 to 16 years, but nothing regulates or restricts how commercial units may be used from that point onward.
In another example, there are two separate-but-neighboring properties named Phoenix on the Bay. The first, a v-shaped building just west of POBII, was declared in August 2003 and describes itself as “one building containing a total of 163 residential units.”
However, Brett/Robinson also disclosed there were six commercial units that “shall not be considered part of the common elements.” There, the declaration gave Brett/Robinson ownership interests of the units, but prevented it from being a member of the association.
In yet another declaration for the 14-story, 100-unit Phoenix IX, it’s noted there are two commercial units for two offices. The declaration was filed just a few months after Brett/Robinson filed its lawsuit against Montgomery and POBII, and by then, Brett/Robinson was certain to clarify the language under the “use restrictions” section to emphasize that “excepting for the two office units, the condominium property shall be used only for single-family residences.”
Brett/Robison’s biggest development is the 31-story Phoenix West II condominium, marketed as “the largest building in Alabama” with 1.9 million square feet and 358 three- and four-bedroom units.
The Phoenix West II declaration, recorded in 2013, notes there are also “four non-residential private elements (units)” in the development. But the use restrictions are again undefined, stating only that residential units should be used for single-family residential.
Declarations also vary among different developers.
Wireman’s Caribe Resort, which first filed its declaration in 2002 and then amended it in 2005, purported to have 192 residential units. But the declaration also discloses a total of 203 units if you count commercial and residential units. Further, it assigns “special rights” to the commercial units, namely, they can be used for “any commercial enterprise allowed by local zoning ordinances” whether it is related to real estate activities or not.
Head’s Mustique, a 21-story condo developed on West Beach in Gulf Shores in 2007, lists “a total of 38 units” in its declaration, all restricted to single-family residential use.
Between 1999 and 2001, Head’s Beach Club filed three declarations for separate condos on separate parcels, totaling 528 units. All were designated residential.
McDill would not disclose if she was working any similar cases at other condominiums, but asked if consumers would be jeopardized by a reversal of Stankoski’s decision she said: “If a developer is required to comply with the act, [consumers] are protected. But where a developer is not required to comply with the act, they are risk. I think you’ll find there is certainty in the act if there’s compliance with it. I feel like the trial court’s ruling is well supported in both the facts and the law, and should be affirmed on appeal.”
In her own brief to the Supreme Court, she stated: “The amicus briefs … merely restate the developer’s legal arguments without offering any unique information or perspective; raise issues outside the scope of the primary brief; contain erroneous or incomplete factual statements; contain unnecessary dissertations of general and historical principles of law; and unfairly prejudice [my clients] by the additional volume of arguments diluting focused and efficient consideration of this appeal.”
Montgomery was more willing to speculate about the potential effects of the ruling being reversed.
“The threat is against the consumers, who are absolutely vital for creating economic welfare [in Baldwin County] for tourism to even be established,” she said. “Think about it. First off, the developer can’t build the condo without somebody giving him the money. And number two, if nobody wants to buy it, then what have you got? So, you have to have willing and trusting investors believing in the product, believing in what’s being represented to them to take the risk. And if there is no protection for those willing to take the risk, that’s where the economic impact is.”
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