With the 2018 Regular Florida Legislative Session adjourning, some bills either have or will become law within the coming months. Here are some of interest that may affect you and your businesses.
Tax Savings on the Transfer of Homestead Property between Spouses
After marriage, many couples are told they need to transfer ownership of real property into the name of both spouses in order to take advantage of certain protections afforded to married couples. Unfortunately, what they are not told, and are often surprised to learn, is that they are required to pay taxes on these types of transfers.
If you’ve ever bought a house in Florida, you know deeds of real property are subject to documentary stamp taxes on the consideration paid for the real property (usually the purchase price). Taxes are due at the time of the transfer, and the tax rate is $0.70 per $100 (or portion) of the total consideration paid for the transfer. An exception is Miami-Dade County, where the rate with a local surcharge is $0.60 per $100 (or portion) when the property is a single-family residence. For example, if title to real property located in Hillsborough County, Florida is transferred from the name of one spouse to both spouses and the property is valued at $300,000, the documentary stamp taxes owed would be $2,100.00. So, in the past, a gift to your new spouse wound up costing you tax without any extra dollars in your pocket to pay it.
Until recently there was no tax relief for these transfers. With the recent passage of CS/HB 707, many married couples can avoid paying these often unexpected documentary stamp taxes in connection with the transfer of homestead property. As long as the deed transferring title to homestead property is recorded within one year following the date of marriage and there is no consideration for the transfer (other than the mortgage or other lien encumbering the homestead property), the following transfers are exempt from documentary stamp tax charges: (1) from one spouse to another, (2) from one spouse to both spouses and (3) from both spouses to one spouse. In addition to remembering the special one year deadline within which to make the gift, please remember the savings only apply to homestead property. The unexpected tax bill still would apply if you transferred a commercial building or residential property other than your personal residence.
The Florida Legislature Takes Action to Prevent Fraudulent Business Filings
Florida law requires the Department of State to collect, keep, and make available to the public on the internet, a vast amount of important business entity information. This information includes annual report filings and important documents for limited liability companies, limited partnerships, and corporations, as well as other business entities. The annual report is evidence of the names of the authorized officers, managers, or partners of the entity. Since the Department is a governmental agency, it must file any record it receives, unless the Department determines the record does not comply with its filing requirements, or the document is actually false. In reality, in the past, few filings have been rejected. Often, the true owners and officers of the entity would not discover the bogus filing for a significant time because the Department had no notification system for changes to documents and there was no reason to check filings.
Sensing a weakness in the system, criminals have been filing false business annual reports and amendments to business entity documents online with the Department as a means of committing fraud. For example, a clever criminal could easily file an amended annual report showing herself as the president of your corporation. The bogus president would then go to an unwary lender and title company and attempt to create a fraudulent loan transaction on the corporation’s real estate.
House Bill 661 was proposed to make it more difficult to file fraudulent business entity filings without the knowledge of the owners or officers.
The bill amends Florida law in two core areas:
- Notice. The Department will now be required to send notice to a business entity or its authorized representative, if a record is filed under the entity’s name either by email or US mail. If the filing changes the entity’s email address, the Department must send a notification to both the new email address and the most recent prior email address.
- Corrections to Business Filings. In addition, the Bill also makes it easier and cheaper for a business entity to correct a business filing made under its name. Any fees for filing a statement of correction to revise a record containing false, misleading, or fraudulent information are waived if the statement is delivered to the Department within fifteen (15) days of the Department’s notice of the filing.
As the access to technology increases and the frequency of business filings continues to rise, more attention must be spent on monitoring the accuracy of such information. Enacting House Bill 661 was a step in the right direction toward protecting the public from fraudulent business filings. The Bill goes into effect July 1, 2018.
Growth Management – Continuing the Long, Slow Death of DRIs
Chapter 2018-158, Laws of Florida, continues the state’s legislative trend toward decreasing the role of the Development of Regional Impact (DRI) programs. To review, beginning in the early 1970’s, the state of Florida created and utilized the DRI program as a tool for planning and regulating projects over a certain size. In recent years, much of the state and regional review process for DRI’s has been stripped through successive waves of deregulating legislation. This year’s growth management legislation goes even further, removing most state and regional roles in the DRI process and placing more control with the local government.
The 2018 legislation affects many aspects of the DRI process. For example, the legislation shifts the process for amending a DRI Development Order from a set of “substantial deviation” criteria set in the statute, to local government review for consistency based on the local government’s comprehensive plan and land development regulations. Annual and biennial DRI reporting requirements have been removed, unless required by the local government.
The 2018 legislation also affects standards for abandonment of a DRI, requiring the local government to grant a developer or owner’s request to abandon a DRI, so long as the mitigation linked to existing development can be demonstrated. Additional changes to the DRI regulatory framework are detailed in the legislation. Those with interests in DRI-designated property, or a large site that may meet minimum DRI level thresholds, should consult with counsel to fully understand the legislation’s effect.
The Florida Legislature Strengthens Laws to Remove Unwanted Parties from Your Property (Unless It Is a Beach)
The governor signed House Bill 631 into law on March 8, 2018, to update Florida law on ejectment, unlawful detainer, and customary use. So what does this mean?
First, let’s suppose the company owning the building next to yours puts up a fence ten feet over your property line, claiming to have a recorded deed to a strip of your land. You think the deed is bogus. To get rid of the fence you would likely file an “ejectment” action. “Ejectment” is a kind of eviction action in which the party in possession claims a right to be there under a written instrument in its chain of title (usually a deed, easement, or other serious title instrument). An ejectment action gives you the chance to prove your superior title to the property (after which you would eject the neighbor’s fence). Case closed. The amendments to the Bill modernize the statute to clarify the process and documents necessary to establish an ejectment action in Florida.
Second, suppose you leased your house to a guy for Gasparilla Parade week (let’s call him Ed). Ed takes possession of your house under a one week lease. While he’s there, Ed invites one of his friends (call him Jeff) to live with him for the week without your permission. A third guy Ed vaguely knows (call him Jim) lets himself into the house, picks a bedroom, and makes himself at home with no one’s permission. Now the week is up and Ed, Jeff, and Jim all refuse to leave. How do you get your house back? You’d file an unlawful detainer action against Ed (who overstayed his lease), an unlawful entry action against Jeff (who was invited by Ed but not allowed by you), and a forcible entry action against Jim (who, in effect, forced his way into the house without anyone’s permission).
The new law revises, clarifies, and streamlines the procedures to remove all these unwelcome parties. Better for you (but worse for Ed, Jeff, and Jim), the new law also allows for an award of damages equal to double the reasonable rental value of property if you establish that a defendant’s possession was willful and wrongful. The new law further provides an alternative method of service permitting a plaintiff to post a complaint in a conspicuous place on the property. That’s handy if Jim won’t come to the door. Think about this, by the way, before you rent your house for Gasparilla.
Finally, the new law addresses the common doctrine of “Customary Use,” which refers to the general right of the public to possess and use certain dry sand areas (beaches and lakes) for recreational purposes. In Florida, which has approximately 1,200 miles of coastline, it has long been the law that the public common and consistent use of beaches for recreational purposes prevents property owners from claiming the land as private. This issue has caused significant dispute over the years between property owners, on the one hand, whose land value is derived from their unique beach front property, and the public, on the other, who seek to use Florida’s beautiful beaches for recreation.
This new law recognizes both sides’ arguments and establishes a judicial process that governmental entities can use to determine whether a beach is public space. To do so, however, the governmental entity must now clear a higher burden of proof and provide notice to the affected property owners, conduct a public hearing, and file significant documentary support to prove the land in question should remain public. Governmental entities having such an ordinance in place prior to January 1, 2016 are exempt.
Changes to the Marketable Record Title Act Benefit Property Owners’ Associations
During the early boom years of Florida’s population growth, many documents recorded in the public records were not intended to affect real property indefinitely, yet remained a blemish against the title. To encourage investment in and development of land, the Florida legislature adopted the ‘Marketable Record Title Act’ or ‘MRTA’, which establishes what amounts to an ‘expiration date’ for certain recorded claims affecting real property. MRTA also established procedures by which certain interested parties could postpone this expiration date and reinstate already expired claims.
House Bill 619, signed into law and taking effect October 1, 2018, is the first major revision of MRTA in over two decades. The bill brings welcome changes for commercial property owners’ associations and homeowners’ associations who rely on recorded covenants and restrictions to protect the character of, and preserve property values in, their respective communities. MRTA provisions addressing the preservation and reinstatement of covenants and restrictions that formerly applied only to mandatory residential homeowners’ associations will instead apply to a variety of property owners’ associations (including commercial property associations that sometimes govern office parks, industrial parks, and other commercial communities). The bill also gives residential communities not governed by a homeowner’s association methods to revitalize lapsed covenants and restrictions. Certain homeowners’ associations will be able to follow a new, simplified procedure to renew covenants and restrictions before they expire. The law also creates new obligations for homeowners’ associations. Among these, the board of directors of a homeowners’ association will be required to annually consider whether to preserve covenants or restrictions from extinguishment under MRTA.
The Florida Legislature Permanently Extends Distressed Condominium Relief Act Window
Anyone who lends to or invests in condominium projects has likely heard of the Florida Distressed Condominium Relief Act of 2010 (DCRA). Enacted to encourage lenders and private equity investors to put money into floundering condominium projects during the Great Recession, the Act conferred a shield against major sources of liability to certain parties who acquired condominium units in bulk on or after July 1, 2010, whether by foreclosure, deed in lieu of foreclosure, or private sale.
The Act was a resounding success from a lender and investor perspective, and was a major factor in jump-starting moribund Florida condominium markets from a low point early in this decade.
The legislature originally provided for a two year “window” period after July 1, 2010, during which a bulk owner had to acquire condominium units to enjoy the benefits of DCRA. Units acquired after the window closed would not enjoy the liability shield under the Act.
Because of sustained lethargy in Florida real estate markets, however, the sunset deadline was extended repeatedly, most recently until July 1, 2018. The deadline has now been removed and the window permanently opened. Anyone who acquires or has acquired condominium units after July 1, 2010, can now enjoy the liability protections and advantages of DCRA indefinitely, subject, of course, to complying with the technical requirements of the Act.
Life after Irma: Vertical Subdivision and Tax Relief
House Bill 7087, enacted on March 21, 2018, was largely a response to one of Florida’s busiest storm seasons in recent years. The new law contains a number of provisions for tax relief and changes to tax policy. Buried in the text, however, are three provisions that real estate investors shouldn’t overlook .
First, the new law provides guidance to Florida property tax appraisers for the assessment of buildings whose ownership is subdivided in the air column. Florida common law currently recognizes the ability to transfer fee simple title to real estate that is solely in the air column; that is, not connected to the ground (literally, a “box in space”). This is particularly useful in mixed use projects where multiple commercial and residential projects may be owned in different segments of the same building (a so-called “vertical subdivision”). Some Florida property appraisers and tax collectors, notably Miami-Dade County’s, refused to assess such parcels separately; others had no problem with the concept. The result was confusion.
The new law expressly permits the vertical subdivision of real property, so that separate assessment of the parcels should not be a problem. We hope.
Meanwhile, Florida businesses can expect to see slight sales tax savings on rents payable under leases. The business rental tax is reduced from 5.8 percent to 5.7 percent.
Finally, as previously mentioned, the new law contains a wide range of provisions for abatement of taxes for property improvements that were rendered uninhabitable by the hurricanes of the 2017 season. This portion of the new law is worth reviewing if your home was damaged by a hurricane last year.
