THE SUPREME COURT OF FLORIDA Case No.: SC 11- 1445

LEONARD J. ACCARDO and LYNN M. ACCARDO, et al.,

Petitioners,

vs.

GREGORY S. BROWN, Property Appraiser for Santa Rosa

County, Florida, and STAN C. NICHOLS, Tax Collector for Santa Rosa County,

Respondents.

AMICUS CURIAE BRIEF

ON REVIEW FROM THE FIRST DISTRICT COURT OF APPEAL OF FLORIDA

Case Below: 1D10-4072

EDWARD P. FLEMING Florida Bar No.: 615927 R. TODD HARRIS Florida Bar No.: 651931 MCDONALD FLEMING MOORHEAD 25 West Government Street Pensacola, Florida 32502 Telephone: (850) 477-0660 Email: epfleming@pensacolalaw.com rtharris@pensacolalaw.com Counsel for Amicus Curiae Beach Club Towers Homeowners Association, Inc.

i

TABLE OF CONTENTS

TABLE OF CONTENTS ……………………………………………………… i TABLE OF AUTHORITIES …………………………………………………. iii AMICUS CURIAE’S IDENTITY AND INTEREST ……………………….. 1 SUMMARY OF ARGUMENT ………………………………………………. 2 ARGUMENT ………………………………………………………………….. 4 I. ACCARDO RECOGNIZES DURATION AS ESSENTIAL …… 4 IN DETERMINING TAX CLASSIFICATION OF LEASEHOLDERS’ INTEREST IN GOVERNMENT PROPERTY II. THE OPTION TO NEGOTIATE FOR A RENEWAL ………. 6 IS NOT A RIGHT TO RENEW AND DOES NOT EXTEND THE RIGHT OF POSSESSION A. An Option to Negotiate Lease Terms is an ……………… 7 Unenforceable Agreement-to-Agree B. At Lease End Government Receives Valuable …………. 10 Property II. FLA. STAT. 196.199(2)(b) ESTABLISHES THE ……………. 11 ELEMENTS THAT MUST BE PRESENT FOR LEASHOLD INTEREST IN GOVERNMENT PROPERTY TO BE CLASSIFIED AS INTANGIBLE PERSONAL PROPERTY A. The Legislative Direction of How a Thing is …………… 12 To Be Done Prohibits it Being Done Another Way B. Equity May Intervene to Give Statute Full …………….. 13 Effect and Meaning C. No Part of Statute Allows Lessee Ownership of Land … 15

ii

IV. AD VALOREM ASSESSMENT OF LEASEHOLD ………… 16 INTERESTS THAT MEET THE REQUIREMENT OF STATUTE AND ARE OTHERWISE OF LIMITED DURATION IS NOT EQUITABLE A. Equity Must Be Applied Equally for the Protection ….. 17 of The Government and Taxpayer Alike B. Leases Must Be Given a Reasonable Construction …… 18 That Avoids an Absurd Result CONCLUSION……………………………………….……………...………. 20 CERTIFICATES OF COMPLIANCE AND SERVICE ………………….. 21

iii

TABLE OF AUTHORITIES

Page

Accardo v. Brown, 63 So.3d 798 (Fla. 1st DCA 2011) ……………... 1, 2, 5, 19 Alsop v. Pierce, 19 So.2d 799 (Fla. 1944) …………………………………….. 13 Bancroft Inv. Corp. v. City of Jacksonville, ……………………………………. 13 27 So.2d 162 (Fla. 1946) Edgewater Enters., Inc., v. Holler, 426 So.2d 980 (Fla. 5th DCA 1982) ……. 7, 8 Escudero v. Hasbun, 689 So.2d 1144 (Fla. 3d DCA 1997) ………………... 17 Gilles v. Department of Human Resources Dev., …………………………… 16 521 P.2d 110 (Cal. 1974) Gomez v. Vill. of Pinecrest, 41 So.3d 180 (Fla. 2010) ………………………. 14 Hialeah, Inc. v. Dade County, 490 So.2d 998 (Fla. 3d DCA 1986) …………. 14 Ideal Farms Drainage Dist. V. Certain Land, ………………………………. 12 19 So.2d 234 (1944) James v. Gulf Life Ins. Co., 66 So.2d 62 (Fla. 1953) ………………………… 18 Jones v. Neibergall, 42 So.2d 443 (Fla. 1949) ………………………………. 17 Jones v. Portofino Tower One Homeowners Association at ………………… 19 Pensacola Beach, Inc., 77 So.3d 242 (1st DCA 2012) LaFountain v. Estate of Kelly, 732 So.2d 503, (Fla 1st DCA 1999) ………….. 7, 8 McLaughlin v. State, 721 So.2d 1170 (Fla. 1998) ………………………….... 14 Muscle Shoals Aviation, Inc. v. Muscle Shoals Airport Authority …………… 8 508 So.2d 225 (Ala. 1987) Parker v. Hertz Corp., 544 So.2d 249 (Fla. 2d DCA 1989) …………………. 15

iv

Pro-Art Dental Lab, Inc. v. V-Stategic Group, LLC …………………………. 16 986 So.2d 1244 (Fla. 2008) Robbins v. Mt. Sinai Medical Center, Inc., …………………………………... 14 748 So.2d 349 (Fla. 3d DCA 1999) Sheffield v. Barry, 14 So.2d 417 (Fla. 1943) ………………………………... 17 State, Dept. of Corrections v. C & W Food Service, Inc. ……………………. 9 765 So. 2d 728 (Fla. 1st DCA 2000) Velez v. Miami-Dade Cnty. Police Dep’t, 934 So.2d 1162 (Fla. 2006) ……… 14 Ward v. Brown, 99 So.2d 462 (Fla. 1st DCA 2005) ………………………. 5, 18 Williams v. Jones, 326 So.2d 425 (Fla. 1975) ……………………………….. 13 Statutes Fla. Stat. §199.023(1)(d) Fla. Stat. (2005) ………………………………. 11, 18 Fla. Stat. §196.199(2)(b) ………………………….. 3, 4, 6, 11, 12, 13, 17, 19, 20 Fla. Stat. §196.199(7) ………………………………………………………… 5 Other Authorities 17 C.J.S. (Contracts) § 319 ……………………………………………………. 18 Blacks Law Dictionary 540 (6th ed. 1990) ……………………………………. 16 Richard A. Lord, Williston on Contracts § 4:26 (2005) …………………….. 7, 8

1

AMICUS CURIAE IDENTITY AND INTEREST

Beach Club Towers Homeowners Association, Inc. (“Beach Club”) is a 92

unit condominium complex on Pensacola Beach located on Santa Rosa Island in

Escambia County, Florida.1 Beach Club’s master lease and subleases (“Beach

Club Lease”) terminate in 37 years.2

In Accardo v. Brown, 63 So.3d 798 (Fla. 1st DCA 2011), the First District

Court of Appeal has ruled that leaseholders on Navarre Beach in Santa Rosa

County are the equitable owners of their leased improvements and the underlying

land. The decision of the First District and this Court’s review of that decision

broadly and significantly impact the rights of the taxpayers and leaseholders on

Pensacola Beach including those who are members of the Beach Club association.

There is no right to renew the lease. Beach

Club pays rent to Escambia County. At the end of the Beach Club lease, the

possessory interest in the Beach Club land and improvements, built by the tenant

taxpayers, reverts to Escambia County.

1 Beach Club currently has pending in the First Circuit a case in which it has

challenged the legality of the Escambia County Property Appraiser’s assessment of the land underlying the Beach Club improvements. Beach Club Towers Homeowners Association, Inc. v. Jones, 2011 CA 002415 in the Circuit Court of Escambia County. Said case will undoubtedly be impacted by this Court’s ruling.

2 Beach Club was constructed on Pensacola Beach in or about 2007. Its

lease right originates with a 1985 “Restated and Amended” lease. The lease term began on April 25, 1960. By its express terms, Beach Club’s lease of the land and improvements expires on April 25, 2049. [Amicus Appendix – 1] Every Beach Club sub-lessee expressly acknowledges the government holds title to their improvements. [Amicus Appendix – 2]

2

Specifically, the property appraiser of Escambia County (based, in part, on

the ruling of the First District in Accardo) assesses leasehold interests in both land3

SUMMARY OF ARGUMENT

and improvements on Pensacola Beach as if the leaseholders were owners,

regardless of the duration of the leasehold interest. As a result, the members of

Beach Club are required to pay lease fees as if they are tenants and ad valorem

taxes as if they are owners of property in which they will have no enforceable

rights of any kind in 37 years.

As recognized by the First District in the case under review, the duration of

the leasehold interest in government property is crucial for purposes of determining

how the leasehold interest should be classified for tax purposes. It is duration of

the estate in property that separates a leasehold estate from a fee simple estate.

The Florida legislature recognized that at some point (100 years) duration can be

so lengthy that a leasehold estate should be taxed as if it were fee simple. Yet,

property appraisers in Escambia and Santa Rosa counties assess leasehold interests

on Santa Rosa Island as ad valorem without regard for duration, and without regard

to the legislature’s authority to draw the line between leaseholds and fee simple

estates for purposes of taxation.

3 The assessment of land also includes unimproved or “raw” land.

3

Fla. Stat. §196.199(2)(b) and related statutes establish with specificity the

circumstances under which leasehold interests in government property are to be

taxed as intangible personal property and not assessed as real property owned by

the lessee. A crucial element of the statutory classification is duration of the

leasehold interest (i.e. 100 years or greater). Furthermore, the legislative direction

as to how the leasehold interest in government should be taxed is, in effect, a

prohibition against that interest being taxed in any other way.

The option for a leaseholder to obtain a renewal upon terms and conditions

to be negotiated at the end of the lease is not an enforceable renewal right. Rather,

it is an unenforceable “agreement to agree.” At the end of the lease term, the

leaseholder has no more right than any other citizen would have to negotiate a

lease with the government.

Leases, like Beach Club, require that the leased property be maintained in

good and undamaged condition, and turned over to the government in such

condition at lease-end. Accordingly, the “useful life” of the improvements will not

be consumed prior to the government taking possession. Furthermore, it cannot

reasonably be disputed that where the leasehold interest is in raw land, the

government will certainly retake the land at lease-end without any loss of “useful

life.”

4

Equitable ownership is founded on principles of equity. Equity should not

be employed to increase the financial burden of leaseholders who have complied in

both form and substances with the requirements established by the legislature for

classifying their leasehold interests as intangible personal property.

Each lease on Santa Rosa Island must be interpreted to create a reasonable

and probable contract that avoids an absurd result. Where the leasehold interest

meets the requirements of Fla. Stat. §196.199(2)(b) and does not otherwise create a

perpetual right of ownership, it should be reasonably construed as a true lease

rather than a document which effectively conveys ownership.

simple by the government meets the requirements of Fla. Stat.

§196.199(2)(b) and does not otherwise have the right to convert its possessory

interest of less than 100 The Court should find that where a leaseholder of real

property held in fee years into a perpetual right of ownership, that leaseholders’

interest in the property must be taxed as intangible personal property, just as the

statute provides.

ARGUMENT

I. ACCARDO RECOGNIZES DURATION AS ESSENTIAL IN DETERMINING TAX CLASSIFICATION OF LEASEHOLDERS’ INTEREST IN GOVERNMENT PROPERTY

In the opinion under review, the First District acknowledges that duration of

the leaseholders’ possessory interest in the government property is an essential

5

factor in determining how the leaseholders’ property interest is to be classified for

tax purposes. Basing its analysis on Ward v. Brown, 919 So.2d 462 (Fla. 1st DCA

2005), the Accardo court states:

Although Appellants are correct that their leases contain no option to purchase, Escambia County is, as Appellants argue on appeal, prohibited through the Deed of Conveyance from selling the property. Thus, instead of having an option to purchase at the end of their lease terms, the majority of Appellants have the option to renew their leases for additional ninety-nine-year terms. Accardo v. Brown, 63 So.3d 798 (Fla. 2011)

Put another way, the Accardo court acknowledges that for a lease interest to

be assessed ad valorem, the lease must either grant a right to possession of 100

years or more (see Fla. Stat. 196.199(7)), or an option to purchase at the end of the

lease. As the court correctly notes, there can be no “option to purchase” on Santa

Rosa Island. Therefore, the duration of the possessory interest granted by the lease

is a critical question for determining how the leaseholders’ interest in the land and

improvements should be classified for tax purposes.

Despite recognition by both Ward and Accardo that duration of the

possessory interest is crucial to determining the tax classification, property

appraisers for both Santa Rosa and Escambia Counties assess ad valorem taxes on

leasehold interests on Santa Rosa Island without regard for duration. For example,

the lease for Beach Club (constructed in 2007) is for an original term of 99 years,

and (having commenced in 1960) expires by its express terms in 37 years. Yet, the

6

Escambia County property appraiser now assesses the leasehold interests in both

the improvements and land as ad valorem, rather than intangible personal property.

While leaseholders and property appraisers may differ regarding the exact

duration of the possessory right granted by certain leases, there should be no

argument that if the leasehold interest otherwise meets the requirements of law, as

discussed below) and the right to possession is truly limited to less than 100 years,

the leasehold interest in government property “shall be taxed only as intangible

personal property.” See Fla. Stat. §196.199(2)(b). (emphasis supplied)

II. THE OPTION TO NEGOTIATE FOR A RENEWAL IS NOT A RIGHT TO RENEW AND DOES NOT EXTEND THE RIGHT OF POSSESSION

The right to retain possession should not be confused with an option to

negotiate for a renewal – i.e. an “agreement to agree.” For example, the Beach

Club lease [Amicus Appendix – 1] states as follows:

SECTION IV-OPTION TO RENEW Lessee shall have the option to renew this lease for an additional ninety-nine (99) years, terms and conditions to be renegotiated at such time. In order to exercise said option, the Lessee shall give notice six (6) months prior to the expiration date of this lease. (emphasis supplied)

In other words, in 37 years Beach Club will have the opportunity to

negotiate terms and conditions for renewal. Escambia County has no obligation to

renew and not even the obligation to negotiate exclusively with Beach Club.

7

Beach Club’s rights in 37 years are no greater than the right of any other person or

entity to approach Escambia County and negotiate a lease.

A. An Option to Negotiate Lease Terms is an Unenforceable Agreement-to-Agree

As the emphasized language above indicates, the renewal provisions do not

establish the rent or other terms and conditions for prospective renewals and do not

provide a method for negotiating rent or other terms, such as arbitration, mediation

or the Consumer Price Index. In construing leases which contain renewal clauses

that fail to specify the renewal rent or a method for calculating the renewal rent,

Florida law follows the line of cases which hold

“that the amount of rental is an essential element of a lease, if not the basis for a lease, and an agreement to make a lease, or to renew or extend a lease, that fails to specify either the amount of the rental or a definite procedure to be followed to establish the amount of the rental, is too indefinite to be legally binding and enforceable.”

LaFountain v. Estate of Kelly, 732 So. 2d 503, 505 (Fla. 1st DCA 1999) (quoting

Edgewater Enters., Inc. v. Holler, 426 So. 2d 980, 982 (Fla. 5th DCA 1982)).4

4 Williston characterizes an open-ended contract provision such as the

renewal clause at bar, as an unenforceable “agreement to agree”:

Although a promise may be sufficiently definite when it contains an option given to the promisor or the promisee, if an essential element is reserved for the future agreement of both parties, as a general rule the promise can give rise to no legal obligation until such future agreement. Since either

8

Similar to the Beach Club lease (and many other leases on Pensacola

Beach), the lease in LaFountain gave the lessee an option to renew under the

following terms: “In the event Lessee exercises its option to renew, the lease

payment for the renewal period will be negotiated between the parties.”

LaFountain, 732 So. 2d at 503. Because the renewal option “did not specify the

rental amount or a method for reaching agreement on the rent,” the First District

agreed with the trial court that “the option was thus unenforceable once the parties

failed to agree to an essential element of the lease.” Id. at 505. See also Muscle

Shoals Aviation, Inc. v. Muscle Shoals Airport Authority, 508 So. 2d 225, 228 (Ala.

1987) (where the renewal provision provided that “Lessor [the Authority] gives to

the Lessee [Aviation] an express option of renewal of the Contract at the end of the

term hereof with the rate of rental and other terms and conditions to be negotiated,”

the court held, citing Edgewater, that the renewal provision was “void for

uncertainty and therefore unenforceable”).

party in such a case may, by the very terms of the promise, refuse to agree to anything to which the other party will agree, it is impossible for the law to affix any obligation to such a promise. . . . On this ground, courts have traditionally refused to enforce agreements to agree in contracts dealing with real property; thus, leases containing renewal covenants leaving the renewal rental for the future agreement of the parties have generally been held unenforceable for indefiniteness and uncertainty.

Richard A. Lord, Williston on Contracts § 4:26 (2005).

9

Similarly, in State, Dept. of Corrections v. C & W Food Service, Inc., 765

So. 2d 728 (Fla. 1st DCA 2000), C & W Food entered into a one-year contract with

the Department of Corrections to provide food storage and delivery services. The

contract contained a provision authorizing two additional one-year renewals “based

on mutual agreement.” When the Department unilaterally declined to renew, C &

W Food brought suit and argued that the Department breached its duty to negotiate

the renewal in good faith. The First District rejected that argument based on the

following rationale:

The obligation to negotiate renewal in good faith is, at most, an agreement to agree on something in the future. Because the parties have not yet agreed on the essential terms for the period in which the contract could be renewed, they do not have an enforceable contract for that period. An agreement to negotiate the terms of a renewal does not create a contractual right to renew.

C & W Food Service, 765 So. 2d at 729 (emphasis supplied).

The “agreement to agree” language of the Beach Club lease is typical of

many leases on the Pensacola Beach side of Santa Rosa Island. Based on well-

established law, the language creates no obligation of any kind to renew and does

not vest Beach Club with a right greater than any other person or entity – i.e. to

negotiate with the government for lease rights. Such language is insufficient to

grant a right of possession greater than the 99 year term of the lease.

10

The right to renew which results in a possessory interest of 100 years or

greater must be distinguished from the option to negotiate – i.e. an illusory

“agreement to agree.”

B. At Lease End Government Receives Valuable Property

In response to the inescapable conclusion that the possessory interests of

leases like Beach Club do not exceed 99 years, property appraisers in both Santa

Rosa and Escambia County have argued that leaseholders will enjoy and

effectively “use up” the “useful life” of the improvements and that the government

will receive little or nothing of value at lease end. This argument ignores the

obligation of leaseholders, such as Beach Club’s sub-lessees, to maintain their

improvements in “good, safe and substantial” condition and to prevent “waste” of

the property. [Amicus Appendix – 2, Section IX] Leaseholders like Beach Club

have the contractual obligation to turn over to Escambia County property that is in

good and undamaged condition. In the case of Beach Club, Escambia County will,

therefore, receive improvements in 37 years that have not exceeded their “useful

life.”

The “useful life” argument is even more inapplicable where there are no

improvements to the land. Of course, numerous leaseholds of raw and unimproved

land exist on Pensacola Beach. At the end of the lease, if there are no

improvements, the government will get the same raw land that exists now without

11

any arguable loss of “useful life.” 5

III. FLA. STAT. 196.199(2)(b) ESTABLISHES THE ELEMENTS THAT MUST BE PRESENT FOR LEASEHOLD INTEREST IN GOVERNMENT PROPERTY TO BE CLASSIFIED AS INTANGIBLE PERSONAL PROPERTY

Yet, the property appraisers for Santa Rosa and

Escambia counties assess raw land the same as improved land for ad valorem tax

purposes.

In the Amicus Curiae brief filed by Portofino Tower One Homeowners

Association at Pensacola Beach, Inc. (“Portofino”) in Case No. SC11-2231, the

Amicus provided a detailed analysis of Fla. Stats. §§196.199(2)(b) and

199.023(1)(d), Fla. Stat. (2005) which establish the elements that must be present

for a leasehold interest in government property to be classified as intangible

personal property. That analysis is incorporated by reference here and need not be

repeated. In summary, those statutes require leasehold interests in government-

owned property be deemed intangible personal property where (1) the leaseholds

are owned by Escambia County, a political subdivision of the state of Florida; (2)

the property is predominantly used for residential or commercial purposes; (3) the

sub-sublessees make rental payments to the governmental authority; (4) the

possessory interest of the tenant is less than 100 years exclusive of options to

5 Even the property appraisers of Escambia and Santa Rosa Counties must

concede there is no “useful life” limitation for sand.

12

renew; (5) and the property is not financed by certain bonds issued pursuant to

chapter 159, Florida Statutes.

A. The Legislative Direction of How a Thing is to Be Done Prohibits it Being Done Another Way

In the present case, the First District certifies a question of whether Section

196.199(2)(b) applies where the property is equitably owned. With due respect to

the lower court, the question does not take into account the purpose of the statute.

Section 196.199(2)(b) specifically address what characteristics a leasehold interest

must have for that interest to be deemed “ownership” for ad valorem tax purposes.

The statue assumes the government holds fee title to the property being leased,6

This Court should presume that if the legislature had intended for these

statutory elements to be nullified simply because the lessee holds some of the

benefits and burdens of ownership during the life of the lease, it could have and

would have made such provision. See Ideal Farms Drainage Dist. v. Certain Lands,

19 So.2d 234, 239 (1944)(holding that if a statute enumerates the things on which

and then establishes how the leasehold interest in such property is to be taxed. If

the leasehold interest meets the five elements discussed above, the interest is

intangible personal property and taxed accordingly. If it does not meet the

elements, it is classified as ad valorem and taxed accordingly.

6 If the government did not hold fee title, then there would be no reason for

the statute.

13

it is to operate, or forbids certain things, it is ordinarily construed as excluding

from its operation all those matters not expressly mentioned). Further, and more

particularly applicable to the statute now under consideration, a legislative

direction as to “how a thing shall be done…is, in effect, a prohibition against its

being done in any other way.” Alsop v. Pierce, 19 So.2d 799, 805-06 (Fla.1944).

In this case, there is a clear legislative direction on how leasehold interests in

property in which the government holds fee title are to be classified for tax

purposes.

B. Equity May Intervene to Give Statute Full Effect and Meaning

The legislature has “broad powers of classification for taxation purposes”

and, absent violation of the Florida Constitution, those powers should not be

infringed. See Williams v. Jones , 326 So.2d 425, 432 (Fla. 1975). Beach Club

does not suggest, however, that courts must be bound to a literal interpretation of

the law where the intent of the law is clearly violated. In such cases, equity can

intervene to ensure that legislation is given its full meaning and effect. See

generally Bancroft Inv. Corp. v. City of Jacksonville, 27 So.2d 162, 171 (Fla.

1946)(holding that where “law and justice” require, a court is not necessarily

limited to a “literal interpretation” of statute).

Traditionally, however, where courts have gone “outside” the literal

statutory requirements to find equitable ownership for tax purposes, the common

14

theme is a transaction which seeks to convey infinite duration under the guise of a

leasehold. For example, in Hialeah, Inc. v. Dade County, 490 So.2d 998 (Fla. 3d

DCA 1986), the court found that the government was holding legal title “as

security” for the taxpayer and, therefore, the taxpayer should be taxed as the

owner. In other cases, courts have found equitable ownership where the lease

gives an “option to purchase the leased property at the end of the lease term.”

Robbins v. Mt. Sinai Medical Center, Inc., 748 So. 2d 349, 351 (Fla. 3d DCA

1999). The option to purchase must be for a “nominal value.” Id.

While exceptions do exist to ensure the intent of the statute is not violated,

the rules of statutory construction as established by this Court are clear. Courts are

“without power to construe an unambiguous statute in a way which would extend,

modify, or limit, its express terms or its reasonable and obvious implications. To

do so would be an abrogation of legislative power.” McLaughlin v. State, 721

So.2d 1170, 1172 (Fla.1998)[citation omitted]. Likewise, when a court interprets a

statute, “it must give full effect to all statutory provisions. Courts should avoid

readings that would render part of a statute meaningless.” Gomez v. Vill. of

Pinecrest, 41 So.3d 180, 185 (Fla.2010) (quoting Velez v. Miami–Dade Cnty.

Police Dep't, 934 So.2d 1162, 1165 (Fla.2006)).

15

Fla. Stat. §196.199(2)(b) directs the tax classification for leasehold interests

in government owned property. That legislative framework should govern and be

interpreted and applied by this Court so as to the give the statute meaning.

C. No Part of Statute Contemplates Lessee Ownership of Land

The last sentence of section 196.199(2)(b) acknowledges there may be

instances in which improvements to real property are owned by the lessee:

Nothing in this paragraph shall be deemed to exempt personal property, buildings, or other real property improvements owned by the lessee from ad valorem taxation.

For example, if improvements are legally titled to the lessee and the lessee

does not pay rent, then the lessee may be assessed ad valorem even though

the improvements rest on government land. Parker v. Hertz Corp., 544 So.

2d 249 (Fla. 2d DCA 1989)(holding improvements titled to lessee for which

lessee did not pay rent could be taxed ad valorem).

While addressing the possibility for lessee ownership of

improvements, the statute makes no provision for government land to be

owned by a lessee for ad valorem purposes. The concept of the lessee

owning and leasing the same land simultaneously defies definitions and

common sense7

7 At least one circuit judge has questioned what the government is leasing if

everything is deemed owned by the leaseholder. See infra page 19

and is not contemplated by the statute. Under the cannons

of statutory interpretation, the mention of one thing (improvements) implies

16

the exclusion of another (land). Pro-Art Dental Lab, Inc. v. V-Strategic

Group, LLC, 986 So.2d 1244, 1258 (Fla. 2008).

Because the statute mentions lessee ownership of improvements for

ad valorem tax purposes, but not land, it should be interpreted to exclude

lessee ownership of land for ad valorem tax purposes. The legislature

provides the one exception in which a tenant is to be assessed ad valorem tax

on government owned land -- when the lease is more than 100 years. This

provision recognizes that duration can extend so long as to blur the

distinction between a leasehold and fee simple estate, and thus creates the

legal fiction of ownership for tax purposes.

IV. AD VALOREM ASSESSMENT OF LEASEHOLD INTERESTS THAT MEET THE REQUIRMEENT OF STATUTE AND ARE OTHERWISE OF LIMITED DURATION IS NOT EQUITABLE

“Equity” should not be employed to allow the government to tax

leaseholders with limited rights of possession in government property as if they are

owners while also collecting lease fees as if they are tenants. Or, to put it in the

vernacular, the government cannot “have its cake and eat it too.”

Equitable ownership is, of course, a doctrine of equity and is, by nature,

grounded in fairness. The term “equity” denotes “the spirit and habit of fairness,

justness, and right dealing…” Blacks Law Dictionary 540 (6th ed. 1990) quoting

Gilles v. Department of Human Resources Dev., 521 P.2d 110 (Cal. 1974). Equity

17

“regards that as done which ought to have been done” E.g. Sheffield v. Barry, 14

So.2d 417 (Fla. 1943). It will see past the form of a transaction and look at the

facts and substance of the transaction. E.g. Escudero v. Hasbun, 689 So.2d 1144,

1146 (Fla. 3d DCA 1997) (holding “[t]hat equity regards substance and not form is

a time-honored maxim by which the true ownership of property may be pursued,

even though a deed or grant would bar the way at law”).

A. Equity Must Be Applied Equally for the Protection of The Government and Taxpayer Alike

In essence, equitable ownership in the context of ad valorem taxation

ensures that a taxpayer does not get to enjoy the ownership benefit of infinite

possession while avoiding its tax burdens. Equity should intervene to ensure that

what is right and fair is accomplished and that, in the case of taxation, a citizen

does not avoid his or obligations under law by cleverly manipulating the form in

which real property is conveyed. However, equity must be applied equally. It

must protect both the government and the taxpayer. See e.g. Jones v. Neibergall,

42 So.2d 443 (Fla. 1949)(holding “equity delights in equality”).

Equity should not be employed to increase the financial burden of

leaseholders who have complied in both form and substances with the

requirements established by the legislature for classifying their leasehold interests

as intangible personal property. In the case of Santa Rosa Island, a leaseholder

who has entered a lease that: 1) complies with Fla. Stats. §§196.199(2)(b) and

18

199.023(1)(d), Fla. Stat. (2005); and 2) does not in substance convey a possessory

interest in the leased property of 100 years or more, should not be required by

“equity” to pay lease fees as if he or she were a tenant and ad valorem taxes as he

or she were the owner.

B. Leases Must Be Given a Reasonable Construction That Avoids an Absurd Result

The leases on Santa Rosa Island are contracts between the leaseholders and

the government.8

Following the First District’s ruling in Ward in regard to equitable

ownership of improvements, the property appraiser of Santa Rosa County took the

next step, in the case now before the Court, to obtain judicial approval for

assessing leasehold interests in land. The Escambia County property appraiser has

This Court has said that the words of a contract will be given a

“reasonable construction” and not an unreasonable one. Furthermore, courts will

“endeavor to give a construction most equitable to the parties” and one which will

not give “one of them an unfair or unreasonable advantage over the other.” An

interpretation resulting in a reasonable and probable contract should be adopted

and “a construction leading to an absurd result should be avoided.” James v. Gulf

Life Ins. Co., 66 So.2d 62, 63 (Fla. 1953) quoting 17 C.J.S. (Contracts) § 319,

pages 739-41.

8 Obviously, there are also subleases and sub-subleases, but all flow back

to a master lease with the government.

19

followed suit. In sum, the property appraisers for both counties now deem the

leaseholders of Santa Rosa Island to “own” their land and improvements, begging

the question of what exactly is being leased on Santa Rosa Island. As one

Escambia County circuit judge said:

If the improvements are equitably owned by the taxpayers rather than leased, then the only thing that could be subject of the lease is the government owned land. It is certainly assumed that the government had something of value for which it has received millions of dollars in lease fees, and that “something” is the government owned land.9

(emphasis added)

The point of the circuit judge is well taken. If leaseholders like Beach Club are in

substance the owners of the improvements and land, then what is the government

leasing to the citizens of Santa Rosa Island?

Each lease on Santa Rosa Island must be interpreted to create a reasonable

and probable contract that avoids an absurd result. Where the leasehold interest

meets the requirements of Fla. Stat. §196.199(2)(b) and does not otherwise create a

perpetual right of ownership, it should be reasonably construed as a true lease (and

taxed accordingly) rather than a document which effectively conveys ownership.

9 Portofino Tower One Homeowners Association at Pensacola Beach, Inc. v.

Chris Jones, Case No. 2004 CA 2288 in the Circuit Court in and for Escambia County (July 1, 2011), affirmed by Jones v. Portofino Tower One Homeowners Association at Pensacola Beach, Inc. 77 So.3d 242 (1st DCA 2012)(but citing Accardo v. Brown)[Amicus Appendix – 3]

20

CONCLUSION

Thirty-Seven years from now, the government of Escambia County has the

right to take possession of the Beach Club land and improvements. At that point,

the government will have collected 99 years-worth of lease fees from the Beach

Club property10 and reaped the benefit of a variety of tax revenues generated both

directly and indirectly by the improvements (and land).11

The Court should find that where a leaseholder of real property held in fee

simple by the government meets the requirements of Fla. Stat. §196.199(2)(b) and

does not otherwise have the right to convert its possessory interest of less than 100

years into a perpetual right of ownership, that leaseholders’ interest in the property

must be taxed as intangible personal property.

It is not only contrary to

the statutory classification established by the legislature but also offensive to the

principles of equity for the government to pretend that leaseholders with interests

in government property (properly limited in duration) are owners for tax purposes.

10 Prior to Beach Club, the property was improved by a motel. [Amicus

Appendix – 1, Section I]

11 The Amicus Curiae brief of Portofino (pg 17) in Case No. SC 11-2231, provides a summary discussion of the monies generated for the public coffers by Pensacola Beach leaseholds.

21

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 7th day of May, 2012 to:

Elliott Messer, Esq Thomas M. Findley, Esq. Messer, Caparello & Self, P.A. 2618 Centennial Place Tallahassee, Florida 32308 emesser@lawfla.com tfindley@lawfla.com Counsel for Respondents

Benjamin K. Phipps, Esq. Phipps & Howell Post Office Box 1351 Tallahassee, FL 32302-1351 bkp@thephippsfirm.com Counsel for Florida Association of Property Tax Professionals

Danny L. Kepner, Esq. Shell, Fleming, Davis & Menge Post Office Box 1831 Pensacola, Florida 32591-1831 Telephone: (850) 434-2411 Facsimile: (850) 435-1074 dkepner@shellfleming.com Counsel for Petitioners

Talbot D’Alemberte, Esq. Patsy Palmer, Esq. D’Alemberte & Palmer, PLLC Post Office Box 10029 Tallahassee, Florida 32302-2029 Telephone: (850) 325-6292 dalemberte@dalemberteandpalmer.com palmer@dalemberteandpalmer.com Counsel for Petitioners

/s/Edward P. Fleming__________________ Edward P. Fleming

Counsel for Amicus Curiae