IN THE SUPREME COURT OF FLORIDA

Case No. SC11-2231 Lower Tribunal Case Nos.: 1D10-2050, 2004-CA-2290, 2005-CA-2231, 2006-CA-2338, 2007-CA-2908, 2008-CA-3919

1108 ARIOLA, LLC., et al., Petitioners,

v.

CHRIS JONES, etc., et al., Respondents.

PETITIONERS’ INITIAL BRIEF ON THE MERITS

ON REVIEW FROM THE FIRST DISTRICT COURT OF APPEAL OF FLORIDA

DANNY L. KEPNER TALBOT D’ALEMBERTE Florida Bar No: 174278 Florida Bar No.: 0017529 SHELL, FLEMING, DAVIS & MENGE PATSY PALMER Post Office Box 1831 Florida Bar No.: 0041811 Pensacola, Florida 32591-1831 D’ALEMBERTE & PALMER, PLLC Telephone: (850) 434-2411 Post Office Box 10029 Facsimile: (850) 435-1074 Tallahassee, Florida 32302-2029 Email: [email protected] Telephone: (850) 325-6292 Email: [email protected] [email protected]

Counsel for Petitioners TABLE OF CONTENTS

TABLE OF CITATIONS ...... iv-vii

PRELIMINARY STATEMENT ...... 1

STATEMENT OF THE CASE AND OF THE FACTS ...... 1

SUMMARY OF ARGUMENT ...... 11

ARGUMENT ...... 13

I. PETITIONERS ARE NOT OWNERS OF THE LEASEHOLD IMPROVEMENTS ...... 13

A. The Ordinary Leases Here Convey To The Lessees No Equitable Interest In The Property ...... 14

1. An Ordinary Lease Is Not a Conveyance of Lessor’s Ownership Interests...... 14

2. The Leases Here Are Ordinary ...... 17

a. A lessee ordinarily has the right to rent or transfer the leasehold...... 17

b. A lessee ordinarily may mortgage the leasehold...... 19

c. The burdens of the leaseholds are ordinary...... 20

B. The Legal Construct Of Equitable Ownership Does Not Apply To Petitioners’ Leases ...... 21

1. The Leases Grant Petitioners No Opportunity to Own Legal Title to the Improvements ...... 21

2. The Leases Are Not Part of Financing Arrangements Whereby Petitioners May Obtain Legal Title to the Improvements ...... 26

C. The Leases Here Are Not Perpetual ...... 34

ii

1. Courts Have Allowed Local Taxation of Perpetual Leaseholds ... 34

2. No Lease in This Case is Perpetual ...... 34

D. There Is No Other Theory Of Equitable Ownership That Could Be Applicable To Petitioners ...... 35

1. An Executed Contract for Sale Creates Equitable Ownership ..... 36

2. A Trust Can Create Equitable Ownership ...... 36

3. Hidden Control of Property Can be Deemed Equitable Ownership ...... 37

II. THE DECISION BELOW CONFLICTS EXPRESSLY AND DIRECTLY WITH DECISIONS OF THIS COURT AND THE THIRD DISTRICT ...... 39

A. The Opinion Conflicts With Leon County ...... 39

B. The Opinion Conflicts With Robbins...... 40

III. THE DECISION BELOW DIRECTLY AFFECTS CLASSES OF CONSTITUTIONAL OFFICERS ...... 42

IV. AFTER AFFIRMING THE IMPOSITION OF AD VALOREM TAXES ON PETITIONERS, THE COURT IMPROPERLY DECLINED TO ADDRESS THE ENFORCEMENT ISSUE ...... 44

CONCLUSION………...... 49

CERTIFICATES OF COMPLIANCE AND SERVICE ...... 50

APPENDIX

iii

Cases Page

1108 Ariola, LLC v. Jones, 71 So. 3d 892 (Fla. 1st DCA 2011) ...... passim

Accardo v. Brown, 63 So. 3d 798 (Fla. 1st DCA 2011) ...... 1, 48

Barnett v. Department of Managment Services, 931 So. 2d 121 (Fla. 1st DCA 2006), rev. dism., 953 So. 2d 461 (Fla. 2007) ...... 29, 30, 32, 42

Bell v. Bryan, 505 So. 2d 690 (Fla. 1st DCA), rev. den., 513 So. 2d 1060 (Fla. 1987) ...... passim

Bell v. Bryan, 519 So. 2d 1024 (Fla. 1st DCA 1988) ...... passim

Bowman v. Saltsman, 736 So. 2d 144 (Fla. 5th DCA 1999) ...... 22, 42

Brevard County v. Ramsey, 658 So. 2d 1190 (Fla. 5th DCA 1995) ...... 36

B.W.B. Corp. v. Muscare, 349 So. 2d 183 (Fla. 3d DCA 1977) ...... 22, 36, 42

Canaveral Port Authority v. Dept. of Revenue, 690 So. 2d 1226 (Fla. 1996) ...... 31

Cason v. Florida Dept. of Management Services, 944 So. 2d 306 (Fla. 2006) ...... 46

The Crossings at Fleming Island Community Development District v. Echeverri, 991 So. 2d 793 (Fla. 2008) ...... 4, 13, 44

Dobson v. Lawson, 370 So. 2d 1238 (Fla. 1st DCA 1979)...... 25

Estate of Sweet v. First National Bank, 254 So. 2d 562 (Fla. 2d DCA 1971), rev. den., 259 So. 2d 717 (Fla. 1972) ...... passim

Fernandez v. Vazquez, 397 So. 2d 1171 (Fla. 3d DCA 1981) ...... 18

First Union National Bank v. Ford, 636 So. 2d 523 (Fla. 5th DCA 1993) ...... 29, 30, 32, 41

iv

Frissell v. Nichols, 94 Fla. 403, 114 So. 431 (1927) ...... 18

Gautier v. Lapof, 91 So. 2d 324 (Fla. 1956) ...... passim

Godwin v. State, 593 So. 2d 211 (Fla. 1992) ...... 47

Gould, Inc. v. Hydro-Ski Intern Corp., 287 So. 2d 115 (Fla. 4th DCA 1973) ...... 19

Hialeah, Inc. v. Dade County, 490 So. 2d 998 (Fla. 3d DCA), rev. den., 500 So. 2d 544 (Fla. 1986) ...... passim

Hull v. Maryland Casualty Co., 79 So. 2d 517 (Fla. 1954) ...... 22, 32, 42

Johnson v. Metzinger, 116 Fla. 262, 156 So. 681 (1934) ...... 19

Leon County Educational Facilities Authority v. Hartsfield, 698 So. 2d 526 (Fla. 1997) ...... passim

Martinez v. Scanlan, 582 So. 2d 1167 (Fla. 1991) ...... 45, 46

May v. Holley, 59 So. 2d 636 (Fla. 1952) ...... 45

Metropolitan Dade County v. Brothers of the Good Shepherd, Inc., 714 So. 2d 573 (Fla. 3d DCA 1998) ...... 12, 31, 32, 41

Mikos v. King’s Gate Club, Inc., 426 So. 2d 74 (Fla. 2d DCA 1983) ...... 37, 38

Old Port Cove Holdings, Inc. v. Old Port Cove Condominium Association One, Inc., 986 So. 2d 1279 (Fla. 2008) ...... passim

Oliver v. Mercaldi, 103 So. 2d 665 (Fla. 2d DCA 1958) ...... 19

Pro-Art Dental Lab, Inc., v. V-Strategic Group, LLC, 986 So. 2d 1244 (Fla. 2008) ...... 24

Provence v. Palm Beach Taverns, Inc., 676 So. 2d 1022 (Fla. 4th DCA 1996) ...... 36-37

v

Robbins v. Mt. Sinai Medical Center, Inc., 748 So. 2d 349 (Fla. 3d DCA 1999), rev. den., 767 So. 2d 459 (Fla. 2000) ...... passim

Santa Rosa County v. Administration Commission, 661 So. 2d 1190 (Fla. 1995) ...... 47

Service Metro Corp. v. Bell, 786 So. 2d 1216 (Fla. 1st DCA 2001) ...... 38, 39

Spradley v. State, 293 So. 2d 697 (Fla. 1974) ...... 42

State Dept. of Revenue v. Gibbs, 342 So. 2d 562 (Fla. 1st DCA 1977) ...... 44

State v. Escambia County, 52 So. 2d 125 (Fla. 1951) ...... 2

State v. Florida Consumer Action Network, 830 So. 2d 148 (Fla. 1st DCA 2002), rev. den., 852 So. 2d 861 (Fla. 2003) ...... 47

State Road Dept. v. White, 148 So. 2d 32 (Fla. 2d DCA 1962), cert. disch., 161 So. 2d 828 (Fla. 1964) ...... 14

Tyson v. Lanier, 156 So. 2d 833 (Fla. 1963) ...... 42

Volusia County v. Aberdeen at Ormond Beach, L.P., 760 So. 2d 126 (Fla. 2000) ...... 13

Wadlington v. Edwards, 92 So. 2d 629 (Fla. 1957) ...... 37

Waldorff Insurance & Bonding, Inc. v. Eglin National Bank, 453 So. 2d 1383 (Fla. 1st DCA 1984) ...... 22, 42

Ward v. Brown, 919 So. 2d 462 (Fla. 1st DCA 2005), rev. den., 923 So. 2d 1165 (Fla. 2006) ...... passim

Wells v. City of Savannah, 181 U.S. 531 (1901) ...... 34

Constitutional Provisions Fla. Const. Article V, Section 3(b)(3) ...... 13, 42

vi

Legislative Enactments Chapter 80-368, Laws of Florida ...... 8

Statutes Fla. Stat. § 66.021 ...... 24 Fla. Stat. § 83.21 ...... 24 Fla. Stat. §194.192(2) ...... 46 Fla. Stat. §196.199 ...... 8 Fla. Stat. §196.199(2)(b) ...... 8, 17 Fla. Stat. §196.199(8)(a) ...... 44, 48 Fla. Stat. §197.432(a) ...... 44, 48 Fla. Stat. §199.023 ...... 8 Fla. Stat. §199.023(1)(d) ...... 8 Fla. Stat. §697.01 ...... 23

Other Authorities 3A R. Thompson, Real Property § 1200 (J. Grimes, 1981) ...... 18 Black’s Law Dictionary, 4th Edition ...... 23

vii

PRELIMINARY STATEMENT

Petitioners, 1108 Ariola, LLC, et al., will be referred to collectively herein as

“petitioners.” Respondents, Chris Jones, Property Appraiser for Escambia County,

Florida, and Janet Holley, Tax Collector for Escambia County, Florida, will be referred to herein as “respondents” or as “Property Appraiser” and “Tax Collector” respectively. References to the Record on Appeal in this Initial Brief will be made with an “R” indicating the record, followed by the page number of the document contained in the Record, e.g. (R 557). References to the Appendix of this Initial

Brief shall be made with an “A:” indicating the Appendix, followed by the tab and page number of the appended document, e.g. (A:3, p.4).

The present case deals with local real property taxation of improvements on leaseholds on Pensacola Beach in Escambia County. A companion case where petitioners hold leases from Santa Rosa County on Navarre Beach (the eastern end of Santa Rosa Island) -- Accardo v. Brown, 63 So. 3d 798 (Fla. 1st DCA 2011), assigned Case No. SC11-1445 -- is also before the Court on a slightly different certified question from the First District. That case will be referred to as the

“companion case,” and the initial brief is adopted by reference in this case.

STATEMENT OF THE CASE AND OF THE FACTS

This case seeks review of 1108 Ariola, LLC v. Jones, 71 So. 3d 892 (Fla. 1st

DCA 2011). Petitioners (3,754 in number) are private lessees or sublessees of more

1 than 2,200 parcels of property on Pensacola Beach, including the lands and the permanent improvements erected thereon, by virtue of residential leases issued by the Santa Rosa Island Authority (“SRIA”), acting on behalf of Escambia County,

Florida. (R 6215; A:3, p.4). A large portion of the lands of Santa Rosa Island, which include Pensacola Beach, was deeded to Escambia County by the United

States of America in 1947. The deed required Escambia County to “retain” the land for public purposes, granting the authority to use or lease the land, “but [it was] never to be otherwise disposed of or conveyed” by the county to private persons. (R 148-49). Escambia County was authorized by the Florida Legislature to develop the Island and the County determined that leasing the property for residents fit within the public purpose of making the Island a place to “attract many tourists.” See, State v. Escambia County, 52 So. 2d 125, 126-127 (Fla. 1951).

Under the terms of the leases issued by SRIA, Escambia County is the owner of all improvements of a permanent character erected or placed on the lands. (R 6215-16;

A:3, pp.4-5).

When, in 2004, respondent Property Appraiser placed the leasehold improvements on the local tax rolls and the Tax Collector sent bills to petitioner- lessees requiring payment of ad valorem taxes on the assessed value of the improvements situated on their leaseholds (owned by the County, as noted above), petitioners filed suit seeking a declaration that the Florida Statutes, as previously

2 verified by appellate court decisions on the exact same issue, prohibited such taxation. [The statutes and cases are discussed infra.] Actions also were filed in tax years 2005 through 2008, and these were consolidated at the trial level. 1108

Ariola, LLC v. Jones, 71 So. 3d 892, 895 (Fla. 1st DCA 2011) (A:1, p.7). Among the defenses raised by the respondents was the assertion that the statutes are unconstitutional.

The parties filed cross motions for summary judgment and, on the central issue, the trial court ruled that petitioners are the equitable owners of the improvements constructed on their respective leaseholds and that such improvements are therefore subject to taxation at the ad valorem rate.1 The court also ruled that respondents had no standing to challenge the constitutionality of the statutes.2 Partially granting petitioners’ motion for rehearing, the court enjoined the

Tax Collector from selling tax certificates on beach property to enforce payment of any delinquent taxes (R 6390-91) (A:4).

Petitioners appealed and respondents cross-appealed to the First District.

That court affirmed the Final Summary Judgment (hereinafter, “Judgment”), but reversed the trial court on the tax certificate issue, describing it as “premature.”

1 The ruling was, on the other hand, favorable to lessees of eight parcels. See discussion at pp.8-9 herein.

2 The Final Summary Judgment, entered on December 18, 2009, is found in the record on appeal at R 6212 and also in the Appendix, tab 3.

3

Addressing the other issue on respondents’ cross-appeal, the court declined to rule on the question of the Tax Collector’s standing to challenge the constitutionality of the taxing statutes at issue here. 1108 Ariola, 71 So. 3d 892, 893 (A:1, p.2).3 At petitioners’ request, the district court subsequently certified the following question to be of great public importance:

WHETHER THE APPELLANT-LEASEHOLDERS ARE EQUITABLE OWNERS OF THE LEASEHOLD IMPROVEMENTS ON THE SUBJECT REAL PROPERTY WHEN THEY HAVE NEITHER A PERPETUAL LEASE OF THE UNDERLYING REAL PROPERTY NOR AN OPTION TO PURCHASE SUCH PROPERTY FOR NOMINAL VALUE.4

Petitioners timely served notice in this Court for discretionary review of the district court’s decision, on three grounds: (1) the appellate court’s certified question; (2) conflict between the First District’s opinion and prior decisions of this Court and the Third District Court of Appeal; and (3) the direct effect of the decision below on classes of constitutional officers. Jurisdiction was accepted by the Court on February 29, 2012.

The trial judge made a number of factual findings relating to the leases, some

3 Defendant Jones did not appeal the trial court’s ruling that he, as Property Appraiser, lacked standing to challenge the tax statutes. See, The Crossings at Fleming Island Community Development District v. Echeverri, 991 So. 2d 793 (Fla. 2008).

4 A copy of that order, dated October 14, 2011, is found in the Appendix, tab 2.

4 of which are mentioned in the opinion of the First District. What follows is a summary of those found in the Judgment at (R 6215-18; A:3, pp.4-7); and where mentioned in the appellate decision, the citation to the First District’s opinion is also included.

1. All of the petitioners’ leases5 require the lessees, as part of the consideration for the lease, to construct (at the lessees’ expense) specified improvements on the demised premises within a specified period of time.

2. The leases all contain clauses requiring the lessees to repair or rebuild any building or improvement damaged or destroyed by fire, windstorm, water, or any cause so as to place the same in as good and tenable condition as it was before the event causing such damage or destruction. Further, pursuant to their lease agreements, no petitioner may remove any building or improvement of a permanent character from the leased premises. 1108 Ariola, 71 So. 3d at 895 (A:1, p.7).

3. Petitioners’ leases provide that, upon default, the lessees shall forfeit all rights of possession of the leased property. All of the leases provide that, upon the expiration or sooner termination of a lease, the lessee shall have 15 days in which to remove all personal property, and the lessee must surrender possession of

5 Copies of all of petitioners’ leases were included in compact discs (CD’s) submitted to the trial court prior to the summary judgment hearing. (R 5582). 5 the land and improvements in as good state and condition as reasonable use and wear will permit.

4. None of petitioners’ leases contains any clauses granting the petitioners an option ever to purchase the leased property, or otherwise to acquire legal title to the leasehold improvements, nor could they, considering the prohibition written into the 1947 deed of conveyance.

5. Some of the leases prohibit any assignments, subleases, or transfers of the lessees’ leasehold interest without the prior consent of the lessor. Some allow the lessees to assign their leasehold interests but prohibit any sublease of the leased premises without the lessor’s prior consent. Some allow assignments, subleases, or transfers of the lessees’ leasehold interests without any requirement to obtain the lessor’s prior consent. The First District acknowledged that “many of the leases herein have restrictions on alienation.” Id. (A:1, p.8).

6. All of the leases at issue are for 99-year terms. Id. (A:1, p.7). Many have an option for the lessee to renew for further 99-year terms, by giving the

SRIA written notice of the election to renew not later than six months prior to expiration of the original term.

7. Leases covering more than 600 of the parcels involved in this action – thirteen condominium leases, one townhouse lease, and some leases on single- family residences – contain no renewal provision at all, and some provide for

6 renewal on terms that are subject to negotiation or “renegotiation.” Some leases provide renewals for 30 years, some for 25 years, and others for “a further term of years.” Those leases granting lessees an option to renew their respective leases require affirmative action on the part of the lessees to exercise their option to renew.

The appellate court summarized the renewal provisions (“vary widely from

99-year renewals to no renewal provision at all”), and agreed with the trial judge that “none of the leases are [sic] automatically renewable.” Id. (A:1, p.7). The First

District also pointed out that the lessees here have “requirements and limitations on record keeping and renting out condominium units.” Id. (A:1, p.8). The lessees may mortgage or otherwise encumber their leaseholds without prior approval of the lessor; they may collect rent (subject to the limitations mentioned above); and they have the benefit of “capital gains or appreciation in the values of the properties.” Id. (A:1, p.8).

The key issue to be decided in this case is whether petitioner-leaseholders are equitable owners of the improvements affixed to the leasehold land that they rent from Escambia County. The district court summarized the legislative and judicial history regarding taxation of property on Santa Rosa Island. Id., 71 So. 3d at 893-4 (A:1, pp.2-5). It is important to note that, although the First District here

7 has declined to apply earlier decisions that favor the leaseholders, the substance of the applicable statutes has not changed.

In 1980, the Legislature enacted Chapter 80-368, Laws of Florida, which was partially codified in Sections 196.199 and 199.023 of the Florida Statutes.

Subsection 199.023(1)(d) 6 defined as “intangible personal property” any privately held leasehold interests in government-owned properties of an initial term of less than 100 years, if the leaseholds were undeveloped or predominantly used for commercial or residential purposes, and if rent was payable for the leasehold.7

Subsection 196.199(2)(b) directs that such leasehold interests are to be taxed only as intangible personal property. Under this subsection, however, improvements and personal property that are owned by a lessee are to be taxed as real property.

In 1982 and 1983, the former property appraiser and the tax collector for

Escambia County appraised and taxed the lessees’ interest in the improvements on

Pensacola Beach as real property. (R 6226; A:1, p.15). In 1984, lessees of eight parcels on Pensacola Beach sued the Tax Collector for declaratory judgment that the taxes were improperly levied on the improvements at real property rates; and in

6 This section has since been repealed, but Section 196.199(2)(b), at the same time, was amended to retain the reference to Section 199.023(1)(d) (2005), so, in effect, the law remains unchanged. [Within this brief, only the citations to the repealed statute will include the year.]

7 The residential leases at issue in this case all have initial lease terms of less than 100 years, and fit within the definition of intangible personal property set out in Section 199.023(1)(d) (2005). (R6225; A:3, p.14). 8

1986, the Tax Collector sued the same persons to enforce tax liens against the improvements (the Property Appraiser intervened in that action). The lessees prevailed at the trial court level in both cases and in the respective appeals to the

First District Court of Appeal. See, Bell v. Bryan, 505 So. 2d 690 (Fla. 1st DCA), rev. den., 513 So. 2d 1060 (Fla. 1987) (“Bell I”), and Bell v. Bryan, 519 So. 2d

1024 (Fla. 1st DCA 1988) (“Bell II”), hereinafter referred to collectively as the Bell cases. After the district court’s decisions in the Bell cases, the former property appraiser and the former tax collector ceased appraising and taxing the lessees’ interests in the improvements as real property.

For a period of approximately sixteen years, from 1988 through 2003, the respective property appraisers and tax collectors of Escambia County continued to regard the lessees’ interests in the improvements on Pensacola Beach as intangible personal property, and therefore not subject to real property taxes. (R 6227; A:3, p.16). As noted earlier, all that changed in tax year 2004.

The Escambia County Property Appraiser, respondent Jones, testified (R

231-2) that he based his 2004 decision to appraise the improvements as real property, owned by the lessees, upon a trial court ruling dealing with certain parcels on Navarre Beach (the Santa Rosa County end of Santa Rosa Island). That ruling was appealed by the Navarre Beach leaseholders involved, and eventually the First District affirmed the decision that the lessees in that case were equitable

9 owners of the improvements. Ward v. Brown, 919 So. 2d 462 (Fla. 1st DCA 2005), rev. den., 923 So. 2d 1165 (Fla. 2006).

A careful comparison of trial and appellate rulings in Ward 8 demonstrates that the First District was not persuaded by the trial judge’s reasoning, which made no mention of perpetual leases. As noted by the First District panel considering the present case, that court in Ward “emphasized the fact that the leaseholders in that case had the right to perpetual renewals.” 1108 Ariola, 71 So. 3d at 897.

As might be expected, the seven petitioners in Ward contended that Bell I controlled the outcome; it was, after all, historical fact that Navarre Beach had been part of Escambia County when the Bell cases were decided.9 But the district court opinion in Ward declared that Bell I was of no consequence in its decision.

Ward, 919 So. 2d at 464, n.2. (“We agree with appellees that [Bell I] is not controlling because the issue of equitable ownership was not addressed.”)

What was shown to the trial court in the instant case, and was recognized in the appellate decision below, is the fact that the comment in footnote 2 in Ward was wrong; it “has been disproved in this case.” 1108 Ariola, 71 So. 3d at 898.

Thus, the district court in the present case was confronted with two unassailable

8 The trial court ruling is found at (R 1127-39) (A:6).

9 The new county line placing Navarre Beach in Santa Rosa County was established in 1991. 10 facts: (1) the leases here are not perpetual; and (2) Bell I did, in fact, consider the issue of equitable ownership and ruled in favor of the leaseholders.

Bell I dealt with the same issues, virtually the same leases, and the same statutes, and concluded the leaseholders had no ownership interest in the improvements and therefore could not be subjected to ad valorem taxes. 505 So. 2d at 691-92. Concerning the Bell cases, the First District discussed the leaseholders who were the litigants there (and were also plaintiffs here):

With respect to the leaseholders in Bell I and Bell II, the trial court concluded that, based on principles of res judicata, they were entitled to retain their exemption from ad valorem taxation on leasehold improvements. In applying the test for application of res judicata, the trial court expressly found that “the issue of equitable ownership was in fact raised in the Bell cases.” The court concluded that res judicata precludes the taxing authorities from litigating their claim in this case that the Bell v. Bryan leaseholders are the equitable owners of their leasehold improvements. The taxing authorities, Jones and Holley, have not cross-appealed this ruling.

1108 Ariola, at 897. The appellate court thus recognized the binding nature of the

Bell cases, but decided to follow Ward instead.

SUMMARY OF ARGUMENT

The petitioner-leaseholders are not equitable owners of the leasehold improvements on the subject real property because they have neither a perpetual lease of the underlying property, nor an option to purchase such property for nominal value. Florida courts have approved no other basis for concluding, under

11 the facts presented here, that a lessee has been transformed into an equitable owner of the leasehold improvements.

The court below decided to follow Ward, but that case cannot support a determination that the plaintiff-leaseholders in the present matter are equitable owners of the improvements. There are no perpetual leases here, so as to justify following Ward; instead, these leases are ordinary and grant the lessees no equitable interest in the land or the improvements. Leon County Educ. Facilities

Auth. v. Hartsfield, 698 So. 2d 526 (Fla. 1997). Courts have declared equitable ownership to exist in a lessee when the lease essentially serves as a mortgage.

Hialeah, Inc. v. Dade County, 490 So. 2d 998 (Fla. 3d DCA), rev. den., 500 So. 2d

544 (Fla. 1986). But when the lessee has no means or mechanism of ever obtaining legal title to the property, the Bell cases and Metropolitan Dade County v. Brothers of the Good Shepherd, Inc., 714 So. 2d 573 (Fla. 3d DCA 1998), hold that the lessee has no equitable ownership.

The decision below conflicts with Leon County, and with Robbins v. Mt.

Sinai Medical Center, Inc., 748 So. 2d 349 (Fla. 3d DCA 1999), because petitioner-lessees have ordinary leases with no option to purchase the property for a nominal price.

The decision under review also directly affects two classes of constitutional officers -- property appraisers and tax collectors -- thus providing another basis,

12 under Article V of the Florida Constitution, for this Court to conduct a discretionary review and quash the decision below.

Should the Court reject petitioners’ argument and approve ad valorem taxation of leasehold improvements, the First District’s decision on the enforcement issue should be quashed, reinstating the trial court’s order on rehearing that the tax collector has no authority to utilize tax liens and sales of tax certificates on Pensacola Beach property. Finally, the decision that the Tax

Collector has no standing to challenge the constitutionality of the taxing statutes here, should be upheld, on the authority of The Crossings at Fleming Island

Community Development District v. Echeverri, 991 So. 2d 793 (Fla. 2008).

ARGUMENT

There were no genuine issues of material fact presented to the trial court, and that court’s granting of summary judgment was based upon conclusions of law. Thus, the standard of review for this Court is de novo. Volusia County v. Aberdeen at

Ormond Beach, L.P., 760 So. 2d 126 (Fla. 2000).

I. PETITIONERS ARE NOT OWNERS OF THE LEASEHOLD IMPROVEMENTS

The Court has accepted jurisdiction to address the question certified by the district court:

Whether the appellant-leaseholders are equitable owners of the leasehold improvements on the subject real property when they have

13

neither a perpetual lease of the underlying property nor an option to purchase such property for nominal value.

Stated another way: Should this Court find that equitable ownership of leasehold improvements exists for the lessees of these 2,200+ parcels, where title to such improvements belongs to the County from the moment a fixture is attached to the sand, when the only legal ground asserted is that the lessees (who can never own title to the improvements) have some benefits and burdens that resemble ownership, but do not have perpetual renewals? The answer must be no.

It is not without significance that the trial court and the First District in the instant case cited heavily to Leon County, Hialeah, and Ward. Those cases set forth the prevailing principles of law whereby a leaseholder can be deemed an equitable owner -- principles which clearly reveal error in the decision under review.

A. The Ordinary Leases Here Convey To The Lessees No Equitable Interest In The Property

1. An Ordinary Lease Is Not a Conveyance of Lessor’s Ownership Interests

It is elementary that a lease agreement does not convey ownership10 of the leased property. The lessee is typically granted exclusive possession and use of the real property and the improvements thereupon, but only for the period of time to

10 Courts have declared that possessory rights under a lease are comparable to ownership, for the purposes of eminent domain. See, e.g., State Road Dept. v. White, 148 So. 2d 32 (Fla. 2d DCA 1962), cert. disch., 161 So. 2d 828 (Fla. 1964). 14 which the lessor has agreed. This Court has addressed the issue on more than one occasion and has spoken clearly on the subject.

A case which continues to provide guidance is Gautier v. Lapof, 91 So. 2d

324 (Fla. 1956), in which the lessees sought to be declared equitable owners of a parcel of real estate. The Lapofs had purchased a building on a lot in Dade County on September 1, 1953. On that same date, they took an assignment of a 99-year lease covering the lot on which the building was located. The lease contained an option to purchase the lot, which the Lapofs exercised on July 1, 1954. They applied for 1954 homestead exemption on the basis that they were the equitable owners of the property from September 1953, when they acquired the lease by assignment.

This Court held that the Lapofs were not the equitable owners of the property as of January 1, 1954, stating:

[U]nder the lease with option to purchase the relation of the parties is merely that of landlord and tenant until the option is exercised, and the tenant has no estate in the land beyond the lease, until he elects to purchase. It seems clear to us that until an optionee exercises the right to purchase in accordance with the terms of this option, he has no estate, either legal or equitable, in the lands involved…The majority rule is that the change of position from optionee to purchaser occurs at the date an option becomes, by acceptance, a contract of sale and purchase, and the change cannot relate back to the date of the option.

Id., at 326.

Gautier’s continuing validity was apparent when this Court cited it 41 years

15 later in Leon County Educational Facilities Authority. v. Hartsfield:

[T]his Court has long held that the status of parties to the ordinary lease with an option to purchase remains that of landlord and tenant until the option is exercised and that the lessee has no equitable interest in the property. Gautier v. Lapof, 91 So. 2d 324 (Fla. 1956).

698 So. 2d 526, 530 (Fla. 1997) (Emphasis added). The words quoted from Leon

County were repeated in Old Port Cove Holdings, Inc. v. Old Port Cove

Condominium Association One, Inc., 986 So. 2d 1279, 1287 (Fla. 2008).

The logical extension of the legal principal is this: If a lessee who has an ordinary lease with an option to purchase “has no equitable interest in the property,” then a lessee who has an ordinary lease with no option to purchase likewise has no equitable interest in the property he or she is leasing, including the improvements constructed thereon. Petitioners in this case have no option to purchase the improvements on the leasehold properties; instead, “all of

[petitioners’] leases here provide that legal title to any building or improvement of a permanent character erected on the premises shall vest in Escambia County, subject to the terms of the leases.” 1108 Ariola, 71 So. 3d at 895 (A:1, p.7). Or, as the trial court stated:

None of Petitioners’ leases contain any clauses granting the Petitioners an option to ever…acquire legal title to the leasehold improvements, nor could they, considering the prohibition written into the 1947 deed of conveyance from the United States to Escambia County.

16

(R 6216; A:3, p.5)

Given the principle that an ordinary lease does not grant equitable ownership to the lessee, the next logical question to ask is whether the leases in this case are, in fact, ordinary.

2. The Leases Here Are Ordinary

In the opinion under review, the First District listed certain “benefits” to the leaseholders, arising from the leases here: (1) they may mortgage the leasehold without prior approval of the lessor; (2) they may convey their leasehold interest by a sublease or assignment; (3) they may rent the property and produce income; and (4) they receive the full benefit of any appreciation in the value of the leasehold. Id. at 892. (A:1, p.8). These benefits (along with certain “burdens” that will be addressed later) led the court to conclude that petitioners are “equitable owners” of the improvements, subject to local ad valorem tax.11

a. A lessee ordinarily has the right to rent or transfer the leasehold.

As a matter of law, a lease grants to the lessee the right to rent the premises and retain the rental income, to sublease the property, and to assign the leasehold to a third party. “[U]nder common law a tenant has the right to assign his leasehold

11 Fla. Stat. §196.199(2)(b) taxes these leaseholds only as intangible personal property, but includes the following provision: “Nothing in this section shall be deemed to exempt personal property, buildings, or other real property improvements owned by the lessee from ad valorem taxation.” 17 interest without the consent of the lessor.” Fernandez v. Vazquez, 397 So. 2d 1171,

1172 (Fla. 3d DCA 1981), citing Frissell v. Nichols, 94 Fla. 403, 114 So. 431

(1927) and 3A R. Thompson, Real Property §1200 (J. Grimes, 1981). The

Fernandez court went on to say: “In order to protect the landlord from this common law right of assignment, many leases expressly provide that the property cannot be assigned without the written consent of the landlord.” 397 So. 2d. at

1172. Lawyers and judges today may be accustomed to seeing leases that include such protection of the landlord, but the trend does not mean that leases which freely allow assignment are extra-ordinary or so unusual that the lessee must now be deemed an owner. As a practical matter, the SRIA is wise not to require lessees to ask permission to assign. The paperwork could be substantial. This case involves over 2,200 parcels, and there are other residential properties and also commercial parcels on Pensacola Beach not included here.

Being allowed to make money collecting rent or being paid an appreciated value for the leasehold at the time of transfer, are by-products of the common law rights inherent in a lease situation, as confirmed in Fernandez.

Logic cannot support an argument that, because it was convenient for SRIA to allow free transfers of leaseholds, and because lessees have the common-law right to such free transfers, the improvements must now be deemed owned by the lessees, when the leases themselves say title to all improvements vests in Escambia

18

County. 1108 Ariola, 71 So. 3d at 895 (A:1, p.7). It was error for the First District to treat as out-of-the-ordinary, rights granted by the common law, to transfer, rent, or enjoy the appreciation in value of the leasehold and its improvements.

b. A lessee ordinarily may mortgage the leasehold.

In the absence of an express agreement to the contrary, a tenant has a property right in the premises that may stand for security of a loan. See, e.g., Oliver v.

Mercaldi, 103 So. 2d 665, 667 (Fla. 2d DCA 1958) (“The Supreme Court of

Florida has specifically recognized the mortgaging or pledging of leasehold interests in realty,” citing Johnson v. Metzinger, 116 Fla. 262, 156 So. 681 (1934)).

See also, Gould, Inc. v. Hydro-Ski Intern Corp., 287 So. 2d 115 (Fla. 4th DCA

1973). Respondents Jones agreed in his deposition that none of these provisions is unusual in the context of lease agreements between private parties. (R 269-80)

(A:7).

Being able to mortgage the leasehold is, therefore, not an uncommon, unusual or extra-ordinary benefit found in these leases; that right exists in every lease situation, unless the parties agree otherwise. These very leases required the original lessees to construct the improvements. See, Bell I, quoted in the opinion below, 71

So. 3d at 894: “‘the improvements, which are property of Escambia County, and the development of which is the express purpose of the creation of the leasehold’”… (A:1, p.5). It is erroneous reasoning for the Court below to say that

19 because the SRIA did not require the lessees to ask it for permission to mortgage the leasehold (something the lessees had a right to do under Florida law without permission), SRIA has somehow transferred equitable ownership of improvements to the lessees.

The leases allow free transfers, collection of rent, and the benefit of appreciation in the value of the improvements constructed by the lessee (or his or her predecessor) -- as does the common law in Florida. The leases allow mortgaging of the leasehold -- as does Florida common law. The benefits listed by the court below are ordinary; they cannot serve as grounds for declaring petitioners to be owners of the improvements, when this Court has consistently said a tenant has no equitable interest in the leasehold property. See, Gautier, Leon County, and

Old Port Cove. If these leases are deemed to grant equitable ownership of improvements, virtually every lease could be swept into respondents’ taxing net.

c. The burdens of these leaseholds are ordinary.

The court below considered not only the benefits bestowed, but also the burdens imposed, by petitioners’ lease agreements. The burdens were described as follows:

The leases require the lessee to make improvements on the property and to repair and maintain those improvements. The leases provide that a leaseholder must rebuild any damaged or destroyed improvement so as to place it in its former condition and that no leaseholder may remove any improvement of a permanent character from the leasehold.

20

71 So. 3d at 895 (A;1, p.7).

Applying the Leon County model, one must look carefully at the lessee’s burdens to see if they are ordinary or not. Being required to build, maintain, repair, or replace improvements would not appear to be unusual or out-or-the-ordinary obligations of a lessee. It would also be typical that the landlord would insist that the permanent improvements remain after the tenant’s lease term has ended. Thus, the burdens on the petitioners as leaseholders on Pensacola Beach are not unusual, but ordinary provisions for long-term leases.

Because the leaseholders here have no benefits or burdens that could be considered out of the ordinary, the teaching of Gautier, Leon County, and Old Port

Cove is that the leases have bestowed no equitable interest in the property. The decision of the First District should, therefore, be quashed.

B. The Legal Construct Of Equitable Ownership Does Not Apply To Petitioners’ Leases

1. The Leases Grant Petitioners No Opportunity to Own Legal Title to the Improvements.

The First District affirmed the trial court’s ruling that petitioners, who possess the land and improvements under lease agreements, have become

“equitable owners” of the leasehold improvements, despite the lack of any document transferring such interests to the lessees (as described in the foregoing section of this brief), despite the County’s lack of power to convey ownership (R

21

6216; A:3, p.5), and despite the provision in each lease that title to the improvements vests in the County. Other than the perpetual lease situation, which is discussed later in this brief, the only legal construct recognized by this Court whereby a lessee can be deemed an equitable owner arises out of the common law doctrine of “equitable conversion.”

That doctrine arose out of agreements for deed under the terms of which the purchaser obtained possession of the property and all the “burdens and benefits” of ownership, but the seller retained legal title to the property to secure payment of the purchase price. Once the seller was paid in full, a deed was executed, giving the purchaser title to the property. These “agreements for deed” were held early on to convey the equitable or beneficial interest in the property to the purchaser with the seller being deemed to hold only the “naked title,” “legal title,” or “bare title” to the property. Under such circumstances, the purchaser was held to be the

“equitable owner” of the property.

Many Florida cases have recognized and applied this “equitable conversion” doctrine, including: Hull v. Maryland Casualty Co., 79 So. 2d 517 (Fla. 1954);

B.W.B. Corp. v. Muscare, 349 So. 2d 183 (Fla. 3d DCA 1977); Estate of Sweet v.

First National Bank, 254 So. 2d 562 (Fla. 2d DCA 1971), rev. den., 259 So. 2d 717

(Fla. 1972); Waldorff Insurance & Bonding, Inc. v. Eglin National Bank, 453 So.

2d 1383 (Fla. 1st DCA 1984); and Bowman v. Saltsman, 736 So. 2d 144 (Fla. 5th

22

DCA 1999). See also §697.01 Fla. Stat., which deems a contract for deed to be a mortgage, requiring foreclosure in the event of default.

Here is how Black’s Law Dictionary, 4th Edition, describes the respective interests. “Legal title” is one which gives the owner:

the apparent right of ownership and possession, but which carries no beneficial interest in the property, another person being equitably entitled thereto; … the antithesis of “equitable title.”

“Equitable title,” on the other hand, is:

…the beneficial interest of one person whom equity regards as the real owner, although the legal title is vested in another.

“Equitable owner” is defined as:

One who is recognized in equity as the owner of property, because the real and beneficial use and title belong to him, although the bare legal title is vested in another… One who has a present title in land which will ripen into legal ownership upon the performance of conditions subsequent… there may therefore be two “owners” in respect of the same property, one the nominal or legal owner, the other the beneficial or equitable owner.

If, as here, a litigant makes the claim that a lessee of county property is the equitable owner of the improvements, the court must ask:

• Does the county retain beneficial interest in the property? The answer is yes according to the Judgment in the trial court, “the ultimate benefit of ownership remains in the county.” (R 6234; A:3, p.23).

• Should equity regard the lessee as the real owner? The answer is no, because the ultimate benefit of ownership is in the county. 23

• In the event of default by the lessee, should he or she be recognized in court proceedings as the real owner of the improvements? There is no question that petitioners’ lessor, SRIA, considers the beach lessees to be entitled only to the notices and quick eviction processes available under the landlord-tenant statutes

(§83.21, Fla. Stat.). An equitable owner, on the other hand, could not be summarily evicted; instead, some other type of proceeding would be required, such as ejectment under §66.021, Fla. Stat., with due process implications not present in the usual landlord-tenant litigation. See, Pro-Art Dental Lab, Inc., v. V-Strategic

Group, LLC, 986 So. 2d 1244 (Fla. 2008).

• Is there a condition subsequent the lessee can perform to cause her or his interest to “ripen into legal ownership?” The answer is no, because there is no option to purchase the improvements, which will, and must, remain titled in

Escambia County. See the Judgment of the trial court (R 6216; A:3, p.5).

The lessees on Pensacola Beach are not the “real,” the “beneficial,” or the

“equitable” owners of the leasehold improvements. There has been no equitable conversion.

The real-life effect of an equitable conversion is illustrated by the holding in

Estate of Sweet. There, the owner of a condominium apartment entered into a sales agreement with a buyer, but before the closing date, the seller was killed in an automobile accident. The seller’s will devised to her son “all of the real property”

24 she owned at her death. The son asserted that he was entitled to the proceeds of the sale of the condominium unit, but the Second District disagreed, declaring as follows:

[T]he equitable conversion doctrine is well established in Florida; when an owner makes a specifically enforceable contract to sell his real property, the vendee becomes the beneficial owner and the vendor retains only naked legal title in trust for the vendee and as security for the vendee’s performance (citations omitted). Under this doctrine the vendor’s interest is considered personalty and passes accordingly upon the vendor’s death, at least in the absence of a showing of contrary intent.

Estate of Sweet, 254 So. 2d at 563.12

This Court should not approve a result under which Escambia County’s interest in the buildings and other improvements on Pensacola Beach would be deemed personalty and not real estate. The ultimate benefit of ownership of the improvements is in Escambia County, not in the lessees. As stated in the trial court’s Judgment:

[I]t is not insignificant that all of the leases contain clauses providing that the lessees will surrender possession of the land and improvements in good condition and repair upon the expiration of the lease, which further suggests that the leases are not perpetual. All of Petitioners’ leases provide that legal title to any building or improvement of a permanent character erected on the premises shall vest in Escambia County, subject to the terms of the leases. The leases all contain clauses requiring the lessees to repair or rebuild any

12 The Florida Probate Code was amended after this decision, to ensure that a devisee in such a situation would receive any balance of the purchase price owed at the time of the testator’s death. See, Dobson v. Lawson, 370 So. 2d 1238, 1240 (Fla. 1st DCA 1979). 25

building or improvement damaged or destroyed by fire, windstorm, water or any cause so as to place the same in as good and tenable condition as it was before the event causing such damage or destruction. Further, pursuant to their lease agreements, no Plaintiff may remove any building or improvement of a permanent character from the leased premises. These provisions emphasize that the ultimate benefit of ownership remains in the County.

(Judgment, R 6234; A:3, p.23).

The only possible conclusion regarding petitioners’ leases is that there has been no equitable conversion -- no transfer of ownership of any kind to the lessees.

The County remains the owner of both legal and equitable title to the improvements, and the court below erred in ruling otherwise.

2. The Leases Are Not Part of Financing Arrangements Whereby Petitioners May Obtain Legal Title to the Improvements.

The court below quoted extensively from the trial court’s Final Judgment, including its discussion regarding two very significant cases (one being Leon

County), dealing with claims of equitable ownership of leasehold property by lessees. 1108 Ariola, 71 So. 3d at 896 (A:1, pp.9-11). These two cases, and the others which will be discussed in this section of the brief, involve leases that are not ordinary. They are unusual because they serve as security for indebtedness, which is not true in the ordinary landlord-tenant relationship.

The earlier of the two cases is Hialeah, Inc. v. Dade County, 490 So. 2d 998

(Fla. 3d DCA), rev. den., 500 So. 2d 544 (Fla. 1986), which was cited with approval in Leon County. The opinion of the court below explains the factual basis,

26 whereby the City of Hialeah bought property from a private corporation, and leased it back to the company to run a horse racetrack. Not mentioned in the lower court’s opinion is the fact that the city borrowed the purchase money from two banks and gave notes and a mortgage to secure payment. The city then charged

Hialeah, Inc., a lease fee equivalent to the combined loan payments it owed to the banks. Hialeah, 490 So. 2d at 998-99.

In fact, the company made those payments directly to the banks, and covered all other expenses relative to the property. Id., at 999. Of major significance is the fact that the corporation was obligated to pay the lease payments even if the improvements were destroyed or the property taken by eminent domain. Id. Once the corporation had paid the city’s debt, it could acquire title to the property

(market value over $11.4 million) for a nominal sum ($100). Hialeah, 490 So. 2d at 1001.

The First District here quoted from Hialeah that the city held “‘legal title to the property merely as security’” (71 So. 3d at 896), but what it did not quote was the statement a few sentences later that “the instant agreement [i.e., the lease] was made for the purpose of securing money and therefore must be deemed a mortgage.” Hialeah, 490 So 2d at 1001. Thus, Hialeah, Inc. was deemed to be the equitable owner of the property, and the city held bare legal title “as security” for the debt. Id. The corporation was therefore liable for ad valorem taxes.

27

The lease agreements in the present case are not mortgages. The lessees have no option to purchase the property, or even the improvements thereon, for a nominal value because they are not paying a mortgage debt -- they are paying mere lease fees. Both the trial court and the district court were in error to rely on

Hialeah; it does not support a finding of equitable ownership by the petitioners here.

Leon County cited Hialeah with approval because the transaction in Leon

County had virtually the same features, but with a role reversal: The government agency (the Authority) leased the property from a private company, SRH, which arranged the financing.13 This Court held that the Authority, as lessee, was the equitable owner because it had “virtually all the benefits and burdens of ownership” and therefore the property was immune from taxation. Leon County,

698 So. 2d at 530.

Although this Court in Leon County did not refer to the lease as a mortgage, as the Third District did in Hialeah, it is clear that the same pattern was present in

13 The Court found: 1) SRH held only “bare title” to the property; 2) SRH had been created for the sole purpose of securing financing; 3) the only purpose for SRH was to act as a “conduit” to collect the rental payments from the lessee and use them to retire the certificates of participation that had been issued to finance the project; the legal owner had absolutely no “burdens and benefits” of ownership; 4) any net proceeds in excess of the amount owed the certificate holders were to be paid to the lessee; 5) the lessee had the option to purchase the property for one dollar ($1.00) upon satisfaction of the indebtedness; and 6) the lessee had been created through legislation that was clearly intended to exempt this type of project from ad valorem taxation. 28 both cases: legal title in one entity for financing purposes, a lease granted to the entity ultimately destined to own it, lease payments made directly to the lessor’s creditors to satisfy its purchase money obligation, and an option for lessee to purchase legal title for a nominal sum, after the lessor’s debt had been satisfied.

Review of the First District Court of Appeal’s decision in Leon County was granted by this Court based on certification by the district court that its decision was in conflict with the Fifth District’s holding in First Union National Bank v.

Ford, 636 So. 2d 523 (Fla. 5th DCA 1993). In First Union, Brevard County desired to construct a center to house its primary governmental and administrative offices. Based on the facts, Brevard County was held to be the property’s beneficial owner, and the property therefore was immune from real property taxation. Id., 636 So. 2d at 527. In Leon County, this Court approved that result.

698 So. 2d at 530.

In Barnett v. Department of Managment Services, 931 So. 2d 121 (Fla. 1st

DCA 2006), rev. dism., 953 So. 2d 461 (Fla. 2007), the First District held that the facts presented were indistinguishable from the facts in Leon County. The lessee

(the Correctional Privatization Commission, a public entity) was determined to be the equitable owner of the leased premises. The court expressly noted that the lease in that case granted the lessee an option to purchase the leased premises and

29 receive all the lessor’s interest in the premises upon expiration of the lease without the payment of any additional consideration. Barnett, 931 So. 2d at 133.

All of these cases finding a lessee to be the “equitable owner” of the leased premises prior to the lessee’s exercise of the option to purchase emphasize that: 1) the lessor holds only “bare” or “naked” title to the property; 2) legal title is vested in the lessor solely to secure financing for the project; 3) the lessor has absolutely no “burdens or benefits” of ownership in the property; and 4) the lessee has an option to acquire legal title to the property upon satisfaction of the financing indebtedness and the payment of either no additional consideration or a nominal sum to the lessor. There is no such opportunity in the leases in this case -- nor could there be, given the restrictions in the original deed from the United States government.

Leon County, Hialeah, First Union, and Barnett do not depart from the principle enunciated in Gautier v. Lapof, that a lessee holding an option to purchase the leased premises cannot be deemed to be the equitable owner of the property until the lessee exercises his option to purchase the property and the instrument becomes a binding contract of sale and purchase. The holding in

Gautier is consistent with the general law that it is the binding contract for sale and purchase which results in an equitable conversion of the purchaser into the

“equitable owner” of the property.

30

A lessee under a lease without an option to purchase for nominal value cannot be held to have any equitable interest in the leasehold property. That is what the Third District Court of Appeal held in Robbins v. Mt. Sinai Medical Center,

Inc., 748 So. 2d 349 (Fla. 3d DCA 1999), rev. den., 767 So. 2d 459 (Fla. 2000).

After discussing some of the “benefits and burdens” considered by Florida courts in determining whether a lessee can be deemed to be the equitable owner of leased premises, the court stated:

[I]n considering all of these aforementioned factors, Florida courts have only granted a lessee equitable ownership of leased property when that lessee retained an option to purchase the leased property for nominal value.

Id., 748 So.2d at 351.

In the case of Metropolitan Dade County. v. Brothers of the Good Shepherd,

Inc., 714 So. 2d 573 (Fla. 3d DCA 1998), the court dealt with a charitable organization with a 99-year lease from the city of Miami,14 obligating it to construct a building on the premises, which it did. At the end of the lease term, the property, including the improvements, would have to be surrendered to the lessor, and there was no option to purchase the leased property. In holding that the lessee could not be considered to be the "equitable owner" of the property because it did

14 Municipal property is subject to ad valorem taxation unless used for an appropriate governmental purpose. County property, on the other hand, is immune from taxation. Canaveral Port Authority v. Dept. of Revenue, 690 So. 2d 1226, 1228 (Fla. 1996). 31 not hold "virtually all the benefits and burdens of ownership" of the property, the court relied upon several cases, including Leon County, Gautier, Hull, First Union, and Hialeah. See, Brothers of the Good Shepherd, 714 So. 2d at 573-4.

Florida’s doctrine of "equitable conversion" is still limited to circumstances in which an owner has contracted to sell his property to a purchaser, except in cases with unusual factual situations like Leon County, Hialeah, Inc., First Union, and Barnett. The only expansion of this doctrine concerning lessor-lessee relationships has been in situations where: 1) the owner/lessor holds only "bare title" to the property as security to facilitate financing of a project to be constructed on the property, 2) the owner/lessor has no "burdens or benefits" of ownership, and

3) the lessee has an option to purchase the property upon satisfaction of the financing indebtedness for no additional consideration or for a nominal sum.

Under Florida law, the lessees on Pensacola Beach cannot be deemed the

"equitable owners" of improvements to their leaseholds.

Escambia County (through SRIA) is a very active lessor. It has the standard

"burdens and benefits" of ownership retained by a lessor. SRIA administers and enforces the leases; it collects the lease payments and expenses those funds in accordance with the provisions in its annual budget; it ensures that the improvements on the leased premises are properly maintained and that any improvements damaged by casualty -- including hurricane and storm damage -- are

32 repaired or rebuilt; it monitors the operations of the businesses and audits the lessees' business records; it is responsible for constructing and maintaining the roads on Pensacola Beach; and it is responsible for adopting and enforcing the land use plan for the beach, including contracting for renourishment of the beach. As the trial court expressed it: “[T]he ultimate benefit of ownership remains in the county.” (R 6234; A:3, p.23).

Legal title to the improvements on Pensacola Beach is not vested in

Escambia County solely to facilitate financing of projects on the leased premises.

Lessees are required to obtain their own financing and to construct designated improvements on the leased properties as a fundamental part of the consideration for Escambia County entering into the leases. Thus, these leases are not like those discussed above where financing of the construction is facilitated by bare legal title in the County. Most importantly, the lessees here do not have any option ever to purchase or acquire legal title to the improvements they lease.

Clearly, the lessees are not the “real” owners of the improvements nor does the County hold only “nominal” title to them. The concept simply does not apply here. The lessees are mere lessees, and the interests in the land and the improvements are to be taxed as intangible personal property as the Legislature directed and as they were for 16 years under the law. It was error for the court below to rule otherwise.

33

C. The Leases Here Are Not Perpetual

1. Courts Have Allowed Local Taxation of Perpetual Leaseholds.

There is a certain amount of logic in the contention that one who holds a lease providing for a tenancy in perpetuity should be taxed for the improvements constructed on the leased property, “as if” the lessee owned them. As the First

District has indicated, if there is literally “no end to the lease,” the tenant’s obligations to maintain, repair, and even rebuild the improvements and return the property to the landlord are of no legal consequence. Ward, 919 So. 2d at 464. In such a situation, it is the permanent possession of the improvements by lessees that justifies treating them “as if” they are owners.

The Ward opinion cited to Wells v. City of Savannah, 181 U.S. 531, 544

(1901), in which U. S. Supreme Court observed that, with a perpetual lease, the lessee’s right is in essence ownership, and it “‘bears no resemblance to the case of an ordinary lease for years between landlord and tenant’” (emphasis added). See,

Ward, 919 So. 2d at 464. A perpetual lease is not ordinary, so finding equitable ownership in the tenant does not run afoul of Gautier, Leon County, or Old Port

Cove.

2. No Lease in this Case is Perpetual.

The court below has made clear that in Ward, it had “emphasized the fact that the leaseholder in that case had the right to perpetual lease renewals, a factor

34 which is not present in the case before us.” 1108 Ariola, 71 So. 3d at 897. (A:1, p.12). The district court pointed out that “none of the leases in the instant case renew [sic] automatically and vary widely from 99-year renewals to no renewal provision at all.” Id., at 895 (A:1, p.8).

Thus, the argument that the holder of a perpetual lease is a virtual owner and never has to part with the improvements cannot be made against the petitioners in the present action. The court below did not draw that conclusion, but decided to follow Ward anyway. It is more than a little puzzling why the district court considered itself bound to follow a case in which it had “emphasized” that the leases had perpetual renewals (Ward), in deciding a case which did not involve perpetual leases (1108 Ariola). By certifying the question it did, the First District has asked this Court to address the subject.

Ward should not control here. The Bell cases reflect the principles of

Gautier, Leon County, and Old Port Cove and correctly state the rule applicable here: These ordinary leases convey no ownership interest to the lessees, and no ad valorem tax can be assessed.

D. There Is No Other Theory Of Equitable Ownership That Could Be Applicable To Petitioners

As demonstrated above, the absence of an option to purchase for nominal value and the absence of a perpetual lease preclude equitable ownership of the improvements by the plaintiff-lessees. But Florida case law does not limit

35 equitable ownership to just these two circumstances, so this section reviews the other possible fact scenarios for such a determination.

1. An Executed Contract for Sale Creates Equitable Ownership.

Merely entering into a written contract to purchase real property establishes the vendor as the equitable or “beneficial” owner of the property, with the vendor retaining only naked legal title as security for the vendee’s performance. B.W.B.

Corp. v. Muscare, 349 So. 2d at 184; Estate of Sweet.

This particular application by the courts of equitable ownership does not relate to the lease agreements here, for petitioners have no right to purchase the improvements, let alone any written agreement to do so.

2. A Trust Can Create Equitable Ownership

A trust can be created by a written document which specifies the trustee(s), the beneficiaries, the property to which it applies, and the purpose and duration. An example is found in Brevard County v. Ramsey, 658 So. 2d 1190, 1195 (Fla. 5th

DCA 1995), in which the trustees held the legal title and a corporation “held an equitable interest as beneficiary” of the trust.

The residential leases here are not trust documents, and the petitioners are not beneficiaries of a trust holding “an equitable interest” in either the improvements or the real property they are leasing. There also are no facts in this case which support the imposition of a constructive trust (see, Provence v. Palm

36

Beach Taverns, Inc., 676 So. 2d 1022 (Fla. 4th DCA 1996), or a resulting trust

(see, Wadlington v. Edwards, 92 So. 2d 629, 631 (Fla. 1957).

3. Hidden Control of Property Can Be Deemed Equitable Ownership.

The term “equitable ownership” is used when the law has recognized ownership interests in “X,” even thought the title appears to be in “Y.” Petitioners acknowledge that there are cases in Florida where this tool of the court’s power to do equity has been used, despite the absence of any of the circumstances discussed above. Careful analysis of each such case will show why the court below found none of them binding or authoritative regarding the facts in the present case. Two examples follow.

Mikos v. King’s Gate Club, Inc., 426 So. 2d 74 (Fla. 2d DCA 1983) involved mobile home park lots, on which mobile homes were permanently affixed. The nonprofit corporation operated the 331 sites for its 331 members, and although no member owned title to the site on which his/her mobile home was situated, each paid a specific price to purchase a membership certificate. Members paid no rent.

In that setting, the property appraiser assessed the mobile homes as real property and the members contended that they did not own the land and therefore could only be required to pay the mobile home licensing fees. The trial court agreed, but the Second District reversed on a determination that the plaintiffs held equitable

37 title in the mobile homes by their “proprietary interest” in the corporation which owned the fee. Id. at 76.

Mikos is clearly distinguishable from the instant case. Petitioners own no proprietary interest in the entity (Escambia County) which owns the fee. There is in the present case no effort by petitioners “to avoid the payment of real estate taxes” [Id.] through the erection of a corporate veil concealing the real ownership of the land or the improvements. Mikos provides no support for the decision below; and the First District did not express any reliance on it.

Another case previously cited by the respondents here is Service Metro

Corp. v. Bell, 786 So. 2d 1216 (Fla. 1st DCA 2001), in which a private company had leased property to the State Department of Health and Rehabilitation Services

(“HRS”). After the company transferred title to Escambia County, it argued the property was exempt from ad valorem taxes because the land and building were owned by the government and used for governmental purposes. The trial court disagreed, and its holding that Service Metro Corp. was the equitable owner was affirmed on appeal. Id. at 1217.

The appellate opinion provides very little explanation as to what “rights and duties” (Id.) the corporation had; but one can surmise that these likely included receiving rental payments and keeping the property maintained. But two facts stand out in clear contrast to the present case. First, the trial court had ruled that the

38 county’s acceptance of “bare legal title” from the corporation was “an unconstitutional accommodation to aid a private corporation.” Id. In that scenario, it was certainly appropriate for the court to exercise its authority, in equity, to essentially ignore the transfer.

The second clear distinction is that Service Metro Corp. was the lessor, not the lessee. It clearly had had the obligation to pay ad valorem taxes, as the holder of the title and all equitable interest in the property, before the transfer to Escambia

County. Petitioners here are lessees who never have, and never will, own title to the leasehold improvements. The Service Metro case simply cannot bolster the decision below.

II. THE DECISION BELOW CONFLICTS EXPRESSLY AND DIRECTLY WITH DECISIONS OF THIS COURT AND THE THIRD DISTRICT

A. The Opinion Conflicts With Leon County.

In its decision affirming final summary judgment in favor of the taxing authorities, the court below acknowledged that petitioner-lessees had no right to perpetual renewals, that they had no option to purchase the improvements from the

County, and that title to the improvements was vested in the County. Despite those facts, the First District declared that the lessees are equitable owners of the improvements.

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The leases here are ordinary, not beyond ordinary, not extra-ordinary. The benefits and burdens petitioners possess by virtue of the leases, are common to virtually every lease, as discussed in detail in Section I above.

Because the appellate court was unable to cite one feature that made these leases out-of-the-ordinary, its decision expressly and directly conflicts with this

Court’s decision in Leon County and should be quashed. Petitioners have “no equitable interest in the property,” Id., 698 So. 2d at 530, arising out of these very ordinary leases.

B. The Opinion Conflicts With Robbins.

As demonstrated in the discussion of a number of cases above, the leases here do not create equitable ownership of the improvements because petitioners have no right to obtain full ownership at any time, under any circumstances. The decision of the First District, finding equitable ownership to exist, runs contrary to each one of the cases; but it expressly and directly conflicts with the decision of the

Third District, in Robbins. v. Mt. Sinai Medical Center.

In Robbins, the non-profit lessee of certain medical equipment filed suit seeking a declaration that it was the equitable owner of the equipment, in the hope that the property could be found exempt from ad valorem taxation. The trial court accepted the argument, finding lessee to be the equitable owner of the equipment, because it insured the equipment, maintained and repaired it, was liable for taxes

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(under the leases), and had the option at the end of the leases to purchase the items for fair market value.

The Third District discussed the cases of Leon County, Brothers of the Good

Shepherd, and Hialeah. Making the point that the leases in Robbins did not allow the lessee to purchase the equipment for nominal value at the end of the term, the district court reversed the summary judgment, concluding that the leases did not convey equitable title to the lessee.

The decision below directly conflicts with Robbins, and, by indicating that

Leon County and Hialeah supported its ruling, it expressly conflicts with these correct statements of the law in Robbins:

…Florida courts have only granted a lessee equitable ownership of leased property when that lessee retained an option to purchase the leased property for nominal value. See Leon County Educational Facilities Authority, 698 So. 2d at 527 (lessee who could purchase a dormitory and food service project for one dollar deemed the project's equitable owner); First Union National Bank of Florida v. Ford, 636 So. 2d 523 (Fla. 5th DCA 1993) (lessee named equitable owner of leased property because title would pass automatically to lessee upon full payment of debt); Hialeah, Inc. v. Dade County, 490 So. 2d 998 (lessee deemed equitable owner because lessee could purchase the property for $100 upon full payment of debt).

Robbins, 748 So. 2d at 351.

Here, there is no option to purchase the improvements or the land at any price, let alone a nominal one. There is an express and direct conflict with Robbins that needs to be resolved. Robbins is supported by the cases it cites in the quotation

41 and discussion above, but also by Gautier, Old Port Cove, Hull, B.W.B. Corp.,

Estate of Sweet, Waldorff Ins., Bowman, and Barnett. Petitioners urge the Court to approve the statement in Robbins, quoted above, recognizing that equitable conversion, resulting in equitable ownership by the lessee, cannot result from ordinary leases, and to quash the decision of the First District in the present action.

III. THE DECISION BELOW DIRECTLY AFFECTS CLASSES OF CONSTITUTIONAL OFFICERS.

Article V, Section 3(b)(3) of the Florida Constitution grants discretionary jurisdiction to this Court to consider cases directly affecting classes of constitutional officers. This Court limits review under this particular language in

Section 3(b)(3) to district court decisions that directly and, in some fashion, exclusively “affect the duties, powers, validity, formation, termination or regulation of a particular class of constitutional…officers.” Spradley v. State, 293

So. 2d 697, 701 (Fla. 1974). It is appropriate for jurisdiction to be accepted by this

Court, if the decision generally affects the entire class in some way unrelated to the specific facts of that case. Id. The Court has previously held that a ruling that directly affects all the tax assessors within the state (now known as property appraisers), affects a class of constitutional officers, and that the Court has power to act under this provision to resolve the dispute. Tyson v. Lanier, 156 So. 2d 833,

835 (Fla. 1963).

In the instant case, the First District has ruled that an ordinary lease can be

42 determined to grant equitable ownership of the improvements to the lessee, subjecting the lessee to ad valorem taxation. The implication of this ruling is that the property appraisers in every one of Florida’s 67 counties now must study every ordinary lease (not just those involving government-owned land) to determine whether the benefits and burdens should be construed to constitute equitable ownership. But the ruling creates even more difficulty for the property appraisers, because there is no standard by which to judge when the line is crossed from a mere leasehold to equitable ownership.

Before the decision by the district court, it was well understood that, outside of a trust situation, there needed to be a perpetual lease or some financing arrangement allowing a lessee ultimately to become full title owner for a nominal sum. 1108 Ariola has untethered the concept of equitable ownership from these principles, leaving no guidance for property appraisers. The class of tax collectors, also constitutional officers, is likewise directly affected because that group has the obligation to collect the taxes which are assessed and placed on the tax roll by county property appraisers. See testimony of Janet Holley in her deposition (R 394-

96).

Petitioners urge the Court to quash the decision below because it erroneously gives these constitutional officers power to act outside the parameters of settled

43 law on the subject of equitable ownership.15

IV. AFTER AFFIRMING THE IMPOSITION OF AD VALOREM TAXES ON PETITIONERS, THE COURT IMPROPERLY DECLINED TO ADDRESS THE ENFORCEMENT ISSUE

The argument in this section of the brief will be rendered moot if the decision by the court below is quashed. Petitioners make no concession that the leasehold improvements are subject to ad valorem tax, but argue this point in the event the Court approves the First District’s ruling on the validity of the tax respondents have levied here.

In the trial court, petitioners asserted that if ad valorem tax is allowed to be collected on the leasehold improvements, no tax liens and no tax certificates are allowed under Florida law because the underlying property belongs to Escambia

County. On rehearing, the trial judge agreed, based upon §§196.199(8)(a) and

197.432(a), Florida Statutes, and cases applying those statutes. See, State Dept. of

Revenue v. Gibbs, 342 So. 2d 562 (Fla. 1st DCA 1977), and Bell I. The trial court’s order is at (R 6390-91; A:4, pp.1-2).

15 Also included in the trial court’s Judgment was the determination that the defendants have no standing to challenge the constitutionality of the taxing statutes involved here. See discussion at 1108 Ariola, 71 So. 3d at 897 (A:1, p.12), citing The Crossings, etc. v. Echeverri, 991 So. 2d 793 (Fla. 2008). The district court specifically did ‘not reach the issue” of standing. 1108 Ariola at 893 (A:1, p.2). If this Court reaches the issue, petitioners urge that the trial court’s Judgment be upheld on this point, on principles relied upon in The Crossings. 44

Respondents cross-appealed as to the foregoing order, but the district court declined to consider the issue because, it said, the injunction was premature. 1108

Ariola, 71 So. 3d at 898 (A:1, pp.14-15). Petitioners urge the Court to address the issue (if the decision below is otherwise affirmed) and approve the trial court’s injunctive order as a correct statement of the law regarding enforcement of ad valorem taxes levied on property leased from the government.

The First District cited four cases in support of its decision not to deal with the enforcement issue. In two of those cases, which were reviewed by this Court, the decision was made to consider the issues raised, despite the cautionary language in the body of its opinion: May v. Holley, 59 So. 2d 636 (Fla. 1952) and

Martinez v. Scanlan, 582 So. 2d 1167 (Fla. 1991). In Martinez, it was pointed out that in the declaratory judgment statute, the Legislature has expressed its intent that the act be “broadly construed.” Id. at 1171. The ultimate decision to accept jurisdiction and rule on the merits was made in part for the following reason:

“…considering the numerous parties…it is…an exercise of judicial economy…”

Id. at 1177, n.5.

The instant case involves 3,754 parties, who are leaseholders of more than

2,200 parcels on Pensacola Beach. If these individuals and entities are ultimately liable for ad valorem taxes, it is only logical to inform them and the Tax Collector as to the enforcement tools that are -- and those that are not -- available to her. We

45 know there is a genuine dispute on the enforcement issue, because respondents contended in the trial court that the tax lien and tax certificate mechanisms were available to the Tax Collector to force payment of the taxes. (R 6274-75). Martinez favors the Court looking at this issue if the taxes are approved, because of the number of persons who will be affected. To do so is a much better use of judicial resources than sending all of these petitioners back without certainty as to what the authorities can do if payments are not made.

The district court took much too narrow a view of the problem. As a practical matter, it is highly likely that if petitioners are required to pay these taxes, plus 12 percent annual interest,16 someone will have difficulty paying. For the tax year 2004, interest at 12 percent now has run for seven years, totaling 84 percent of the original tax bill. Respondent Holley has asserted that she can have tax certificates sold and, ultimately, the leaseholds themselves (through tax deeds), to satisfy the tax. Florida Statutes preclude these procedures with respect to property titled in the name of the government. See, Cason v. Florida Dept. of Management

Services, 944 So. 2d 306, 314 (Fla. 2006), which explains that the taxes shall be recoverable by legal action or by tax executions, creating liens on other property of the tax payer, but not on the government’s property.

16 See §194.192(2), Fla. Stat. 46

Petitioners believe this Court’s approach to the enforcement issue should mirror that taken in Godwin v. State, 593 So. 2d 211 (Fla. 1992). There, plaintiff continued to seek review of an order of involuntary commitment even after she had been released from the state mental health facility. An order dismissing the appeal for mootness was quashed by this Court because the patient remained at risk that

“HRS may attach a lien to her property in the future,” which was described as “a collateral legal consequence” of the commitment order she had appealed. Id. at

213-14.

Petitioners here are likewise at risk for the imposition of liens and sales of tax certificates on their property (i.e., leaseholds) in the future, “collateral legal consequences that affect the rights of a party [that] flow from the [taxation] issue to be determined.” 593 So. 2d at 212. On the authority of Godwin, this Court should fully address the enforcement issue.

The public policy concern about not issuing advisory opinions might be applicable if the enforcement statutes were the sole issue on review. That is what happened in both Santa Rosa County v. Administration Commission, 661 So. 2d

1190 (Fla. 1995) and State v. Florida Consumer Action Network, 830 So. 2d 148

(Fla. 1st DCA 2002), rev. den., 852 So. 2d 861 (Fla. 2003), cited by the court below. In the instant case, however, there is not a moot or hypothetical dispute between the litigants; instead, there is a genuine, hard-fought comprehensive

47 dispute over taxation of Pensacola Beach leaseholds. It would be a waste of judicial resources to send the parties away without this issue being resolved -- unless, of course, the Court rules in favor of petitioners and quashes the decision below.

Finally, this issue needs to be addressed because it was addressed at the trial court level in the companion case of Accardo v. Brown, 63 So. 3d 798 (Fla. 1st

DCA 2011) (jurisdiction accepted by this Court, Case No. SC11-1445, on February

29, 2012). Although the enforcement issue was not discussed in the appellate court decision, the trial judge there ruled that the Santa Rosa County Tax Collector is free to use tax certificates (which implies the use of tax deeds) to enforce payment of the ad valorem taxes. See p.6 of that order (A:5). If Accardo is not quashed by this Court, the Escambia Tax Collector, respondent Holley, will have judicial authority to ignore Sections 196.199(8)(a) and 197.432(a) and enforce tax liens and certificates on property owned by the government.

For this reason alone, if taxation is permitted, petitioners urge the Court to address the enforcement issue here and direct the district court to mandate an injunction to prevent the violation of those statutes by Escambia County’s Tax

Collector.

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CONCLUSION

The decision of the First District in this case should be quashed, and the certified question should be answered in the negative. In the absence of a perpetual lease or an option to purchase the property for nominal value, petitioner- leaseholders are not equitable owners of the leasehold improvements on the subject real property. They have ordinary leaseholds, granted by Escambia County, through its agency, Santa Rosa Island Authority. The decision below conflicts expressly and directly with both Leon County and Robbins. Petitioners are not equitable owners of the improvements; no ad valorem taxes are due from them; and the court below should be directed to mandate entry of a permanent injunction precluding the Property Appraiser and Tax Collector from assessing and collecting such taxes on said improvements. The trial court’s refusal to allow the Tax

Collector to challenge the constitutionality of the taxing statutes should, however, be approved.

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CERTIFICATES OF COMPLIANCE AND SERVICE

I hereby certify that this brief is prepared in Times New Roman, 14-point

font, pursuant to Fla. R. App. P. 9.210(a)(c).

I also certify that true and correct copies of this brief have been furnished by

electronic mail and by U. S. Mail on this 23rd day of April 2012 to:

Elliott Messer Katie L. Dearing Thomas M. Findley Robert B. George Messer, Caparello & Self, P.A. Liles, Gavin, Costantino, George 2618 Centennial Place & Dearing, P.A. Tallahassee, Florida 32308 25 Water Street, Suite 1500 [email protected] Jacksonville, Florida 32202 [email protected] [email protected]

/s/ Danny L. Kepner DANNY L. KEPNER TALBOT D’ALEMBERTE Florida Bar No: 174278 Florida Bar No.: 0017529 SHELL, FLEMING, DAVIS & MENGE PATSY PALMER Post Office Box 1831 Florida Bar No.: 0041811 Pensacola, Florida 32591-1831 D’ALEMBERTE & PALMER, PLLC Telephone: (850) 434-2411 Post Office Box 10029 Facsimile: (850) 435-1074 Tallahassee, Florida 32302-2029 Email: [email protected] Telephone: (850) 325-6292 Email: [email protected] [email protected]

Counsel for Petitioners

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