Hotel Condominiums - An Endangered Species

Hotel condominiums are created by combining hotel facilities and condominium units into a single project. They can exist as standalone buildings or part of larger vertical subdivisions. Either way, the hotel rooms are sold as individual condominium units and form the condominium component, and everything else (common elements in a traditional condominium) forms the hotel component.

Hotel condominiums are structured like this so developers and their hotel operators can retain control of the hotel component after selling the condominium units. This is an essential part of attracting a national hotel brand. This structure also allows a branding hotel to impose “brand standards” on the developer through a management or licensing agreement.¹ The agreements will mandate strict operational and maintenance criteria to ensure uniformity with other properties bearing the hotel’s name.² In the absence of brand control, however, unit owners could lower assessments and/or make other decisions that would be inconsistent with operating the property in accordance with the brand standards.

There is always tension in a hotel condominium between what is good for the brand versus what is good for the individual unit owners. Two recent cases - both involving nontraditional hotel condominiums with unfortunate fact patterns - demonstrated this tension. The first was IconBrickell out of the Third District Court of Appeal ("Third DCA").³ The second was Carillon out of the 11^th Judicial Circuit in Miami-Dade County.⁴ The unit owners prevailed in both cases, which means the decisions are a threat to all hotel condominiums.

The IconBrickell Case

In IconBrickell, a hotel condominium unit owner, upset over a large special assessment levied by the hotel operator, sued its condominium association, claiming the declaration violated the Condominium Act because portions of the building, which might otherwise be deemed common elements, were labeled "shared facilities" and included as part of the hotel component.⁵ The trial court agreed and granted summary judgment in favor of the unit owner.⁶ The Third DCA affirmed the trial court's decision, holding that the definition of common elements in F.S. §718.108 is clear and unambiguous, and that any portion of the condominium property, or any installation on the condominium property that serves more than one unit, was intended to be, by definition, a common element.⁷

IconBrickell was a headscratcher for many reasons. First, practitioners familiar with Florida condominium law did not interpret F.S. §718.108 as a mandate for having common elements.⁸ Most assumed the language was a declaration gap filler in the event the drafter failed to define the term as something else.⁹ Second, the Florida Division of Condominiums, Timeshares, and Mobile Homes accepted the filings for IconBrickell, which included the declaration and other governing documents.¹⁰ Third, the court expressly declined to say "everything outside of a condominium unit" has to be part of the common elements, creating ambiguity as to where practitioners can draw the line.¹¹ Fourth, the court granted a reformation of the declaration without including the hotel operator or the other unit owners in the litigation.¹² And lastly, there may have been a statute of limitations issue based on F.S. §718.110(10), which limits the time for challenging the creation of a condominium after three years.¹³  

Although the Third DCA refused to expressly denounce hotel condominiums, many could see the writing on the wall. In other words, IconBrickell opened the door to challenge other similar projects throughout Florida.¹⁴

The Carillon Case

The anticipated fallout from IconBrickell finally manifested on January 30, 2023. In Carillon, three hotel condominium sub-associations sued the hotel operator of the Carillon Resort and Hotel, claiming, among other things, that the project's master declaration is illegal because it grants the hotel operator (i.e., a for-profit commercial enterprise) control over condominium property, thereby divesting unit owners of certain protections under the Condominium Act.¹⁵ Judge Michael Hanzman, the same judge who presided over the Champlain Towers South litigation, agreed and entered summary judgment in favor of the condominium associations.¹⁶            

Judge Hanzman stated that the initial developer of the project overreached in two ways. First, it re-characterized statutory common elements as "shared facilities."¹⁷ Second, the initial developer granted itself, through the master declaration, a perpetual right to control the master board of directors, as well as ownership, control, and unilateral assessment authority for the operation and maintenance of all "shared facilities."¹⁸ Judge Hanzman, however, was quick to clarify that the entire master declaration was not illegal - rather, only the portions that granted the hotel operator ownership and control of property that the "Legislature has decreed must be owned/controlled by unit owners as a whole."¹⁹

A major concern with this ruling - besides the obvious precedent it may set - is that it seemingly fails to consider the Carillon Resort and Hotel's composition as a whole. Specifically, the project contains three separate towers. The north and south towers operate as standard condominiums with some "statutory common elements." The central tower, on the other hand, contains both condominium units and a hotel with traditional hotel rooms. Accordingly, there is a healthy mix of common elements and "shared facilities" throughout in order to make the project viable as a hotel condominium.

The primary question resulting from Carillon is one that was previously raised after IconBrickell: Where can practitioners draw the line with respect to minimizing and/or re-characterizing common elements? IconBrickell suggested that some common elements could be fair game in a mixed-use project. Judge Hanzman's ruling, however, seems to imply that under no circumstances can this be done. This uncertainty is leading many to believe that Carillon would be upheld on appeal, giving the Third DCA an opportunity to expand on the holding in IconBrickell.       

Conclusion

The attack on the hotel condominium in Carillon ironically did not involve adherence to brand standards but rather an attempt by a private equity operator to increase its profits. Regardless, if hotel operators continue to assess unit owners for items, and/or amounts they consider unreasonable, a possibility that may be inevitable with hotel condominiums, more and more of these projects will find themselves in the crosshairs of IconBrickell and Carillon.