Ocean Palm Golf Club Partnership v. City of Flagler Beach, 2014 WL 2217255 (Fla. App.) was an inverse condemnation act involving two tracts—one of 34 acres on which a 9-hole golf course existed and the other consisting of 2.94 acres completely surrounded by the first. At one time, these tracts were in common ownership and used as a golf club with the smaller tract being used as a driving range. The former owner threatened the City with a taking suit because the land use designations, in the owner’s view, were insufficient to provide a viable economic use. To resolve the dispute, the owner entered into a Development Agreement with the city in 1989, whereby the golf course use would remain on the larger tract, which would be designated as open space, and the smaller tract would be used for condominium development for 84 units. By its terms, the Development Agreement would remain in force until 2003.
In 1999, before any development applications were made, the original owner sold both tracts to different corporate entities in which there was the same principal. The design of the condominium development uses were rejected on two occasions by the City. That tract was then sold to different owners, but the purchasing entity contained many of the same principals as had an interest in the golf course property. After the second proposal was denied in 2002 for the development of the condominium tract, the current Plaintiff, as purchaser, sought a further approval and an extension of the Development Agreement. While the city approved the design of the proposal, it denied an extension. The conditions placed on the design approval would not accommodate the applicant’s restaurant, pro shop and other amenities it was required to undertake according to the Development Agreement. When the Development Agreement expired, the owners of the condo tract sought approval of yet another plan, which required the owner to purchase a 1-acre piece of land from the golf course site, which they were unable to do, so the plan lapsed. The owners of the property originally designed for condominium development then sought to change the designation on both tracts to allow for a single-family development on both tracts to single-family residential. The City denied the proposal and, on appeal, that decision was affirmed.
The owners of the condominium tract brought a takings claim, alleging no viable economic use of that tract could occur and that the City’s actions resulted in a partial or total taking. At trial, Plaintiff introduced evidence to the effect that the golf course could not operate without the development of a condominium tract to support it, noting that the original golf course use never realized profit. The golf course had closed in 2008 and the owners of that tract were unable to meet its mortgage payments so that tract was foreclosed upon and there was a $1.6 million mortgage outstanding. As to the condominium property, there was testimony that it could not yield sufficient return that was economically feasible in the current condominium market. The owners of that tract accused the City of rejecting its proposals as a way of “running out the clock” on the Development Agreement.
The expert testimony before the trial court focused on the economic viability of the tracts either together or separately. Plaintiff addressed the two tracts separately due to the different ownership and uses. Plaintiff’s expert testified that the economic viability of the golf course was untenable as it was too small to compete with nearby 18-hole golf courses, especially in such a small local market and valued the golf course tract at $170,000, assuming that the City would never re-designate that tract. However, Plaintiff’s expert also said that if that tract were re-designated as low-density residential, it would be worth $8.125 million (as the resulting lots could be proximate to the ocean and near coastal waterway). However, Defendant’s appraiser valued the golf course tract at $560,000 under current zoning regulations. That appraiser admitted he had not considered whether it were economically feasible to rehabilitate and operate the now closed golf course and had no opinion as to what the difference in value would be if that tract were developed for single family use. Defendant also presented evidence on the economic viability of the two tracts combined, notwithstanding objections to that evidence by Plaintiff. That testimony concluded there was no appreciable difference between the two tracts as currently zoned and as zoned in the matter requested by Plaintiffs. That appraiser also testified that a higher value would result if the owners of the two tracts would work cooperatively. On cross-examination, the City’s expert testified the most likely development scenario was that the owners of the residential property would acquire the golf course and operate it as a loss but as an amenity to the residential use, adding that it made no economic sense for the golf course to sit idly otherwise. That expert also testified that, given the costs already incurred, it was unlikely that the golf course would ever generate a profit.
In this non-jury trial, the judge found for the City and concluded that, whether the property was treated as a single or dual tracts, there was an economically beneficial use as a golf course, finding the losses for the last ten years were the result of the use of basis costs, which would be omitted in calculating economically beneficial use— thus, deducting interest and depreciation costs, there was a viable economic use of this tract.
Plaintiff contended the refusal to amend the plan in 2008 constituted a total taking of the golf course tract and that there was no competent substantial evidence to support a contrary conclusion because Defendant’s appraiser treated the two tracts as a single unit. The Court turned first to the “relevant parcel,” i.e., to determine of the two tracts in this case should be treated as a single economic unit. The Court used three factors to make that determination: physical contiguity, unity of ownership, and unity of use. In addressing the unity of use issue, the Court considered
(1) intent of the owner, (2) the adaptability of the property, (3) the dependence between parcels, (4) the highest and best use of the property, (5) zoning, (6) the appearance of the land, (7) the actual use of the land, and (8) the possibility of tracts being combined in use of the reasonably near future.
(citing Town of Jupiter v. Alexander, 747 So. 2d 395, 400 (Fla. App. 1998)).
While the condominium and golf course tracts are two legally distinct lots and were both now undeveloped and unoccupied, there was a rebuttable presumption of separateness. However, in this case, the unity of use rebutted that presumption, noting that the two tracts were one historically until 1989 when the Development Agreement first treated them as two tracts. For development purposes, even after they were made separate, the two tracts were developed symbiotically. The Court also noted that though the two tracts were in different ownership, principals in both had a substantial overlap. Finally, there is a physical contiguity of the two tracts (the residential tract being within the golf course). The presumption of separateness that thus has been rebutted and the Court upheld the analysis by Defendant’s appraiser which treated the tracts as one in concluded that Plaintiff was not deprived of all viable economic use.
The Court agreed that a regulatory taking could result from a public agency refusal to reclassify property, particularly in the light of changed conditions, but noted that the character of the area surrounding these uses has not changed. All that changed was the real property market for golf courses. There is no requirement that a public agency guaranty a profit for a landowner faced with a changing market.
Nor did the Appellate Court find grounds for a partial takings claim in the application of the three-factor test of Penn Central Transportation Co. v. New York City, 438 U.S. 104 (1978). Plaintiff admits it did not meet the investment-backed expectations factor as it had purchased the tract with knowledge of its land use designation, but argued that the other two Penn Central factors weighed in favor of a partial taking. The Court disagreed, for while the third factor, the character of the governmental action, favored Plaintiff because the burden of the regulation fell disproportionately on Plaintiff, the first factor, the economic impact of the regulation, was not met because, as the Defendant’s appraiser concluded, the two tracts, taken together, retained an economically beneficial use. Thus, the Trial Court dismissal of the inverse condemnation claim is affirmed.
This case illustrates the point that a Court will not find a regulatory taking by focusing on a single tract if that parcel is really part of a larger parcel and no regulatory taking exists against the parcel as a whole.
Ocean Palm Golf Club Partnership v. City of Flagler Beach, 2014 WL 2217255 (Fla. App.)
We regularly update clients about changes in real estate law and on industry trends. This includes briefing clients on legislative proposals in the federal tax, housing and other legal areas affecting their businesses. Staying current enables you to anticipate and prevent legal problems as well as capitalize on new developments.