Florida’s Next Big Real Estate Problem – it’s closer than you think

Florida’s next big real estate problem is that the covenants recorded against the commercial real estate comprising the commercial association are, in many instances, about to have no operative affect thanks to the unintended, yet very real,  consequence of Florida’s Marketable Record Title Act, Chapter 712, Florida Statutes, created in 1963 by an act of the Florida legislature. It is referred to as ‘’MRTA” in short.

Florida’s commercial associations are formed for a variety of reasons.  It could be to empower a board of directors to protect commercial property values of the real property subjected to the commercial association’s declaration of covenants, to create a single body to administer the surface water drainage permit, or to generally provide for the overall welfare of the entire commercial association, or a combination of above and more. Some commercial associations are as small as your local shopping center, others can be the size of a small city.

No good deed goes unpunished and MRTA is no exception.  It was created to help title examiners of real property determine which “interests, claims, estates, or other charges” whatsoever recorded against the real property being examined remain in effect. MRTA is used to help eliminate older title considerations which arose prior to what is referred to as the “root of title.” The “root of title” is determined by looking back at least 30 years to identify a deed that meets certain statutory criteria set out in Chapter 712, Florida Statutes. In other words, MRTA operates to eliminate older covenants to prevent real property from being so overly burdened that the property is no longer marketable. MRTA also helps shorten the period of review a title examiner must examine during the conveyance of real property.

As an overly simplistic explanation, MRTA operates such that covenants recorded more than 30 years earlier can begin to expire on a lot-by-lot basis unless such covenants fit squarely into one of the exceptions to MRTA or unless action is otherwise taken to preserve the covenants from being extinguished. That is, if an option to preserve the covenants is even available which is not the case in all instances. Exceptions to MRTA are both statutorily provided and have been developed through case law. Due to differing practices, and preservation language in MRTA, a declaration of condominium, a homeowners’ association declaration of covenants, and a commercial association’s declaration of covenants can have very, very different results. It is the latter category, the commercial association’s declaration of covenants, which is in great peril.

A declaration of condominium is never affected by MRTA because reference to the official record book and page of the declaration of condominium is clearly set out in every deed which conveys each unit of the condominium. This practice fits squarely into one of the exceptions to MRTA and amounts to an express preservation of the declaration of condominium. However,  this is not the case for a homeowners’ association declaration of covenants because the deed that evidences the conveyance of a lot in a homeowners’ association references the official plat book and page of the property, but rarely includes a reference back to the official record book and page of the homeowners’ association’s declaration. Nevertheless, under MRTA, the HOA has the ability to “preserve” it’s declaration of covenants prior to the expiration of 30 years from the date of its initial recordation in the county’s official records books. If the homeowners’ association misses its opportunity to follow the process to “preserve” its covenants, then it has an opportunity to “revitalize” its covenants through a time-consuming and expensive process, but nevertheless it is attainable, albeit with difficulty.

The problem facing the State of Florida is that there is no express statutory mechanism for a commercial association to “preserve” its declaration of covenants.  Moreover, if 30 years have already elapsed since its original date of recordation in the county’s official records, a commercial association’s covenants have already been extinguished under MRTA, there is absolutely no statutory process to revitalize those covenants.

If the commercial association’s declaration of covenants was recorded more than 30 years from the date you are reading this article, then it is quite likely those covenants have already begun to expire on a lot-by-lot basis. At times, there is an applicable exception which will act to prevent the covenants from expiring. It is as simple as a reference to the official record book and page of the commercial association’s declaration of covenants on a recorded plat. However, many commercial associations are comprised of tens or even hundreds of parcels all referenced to a different plat. So, only those very few properties whose plat references the official record book and page of the commercial association’s declaration would be saved from the effects of MRTA. But for that, or some other exception to MRTA, the commercial association covenants may no longer be enforceable starting as early as 30 years from the date of initial recordation of the declaration in the county’s official records. The fact that the commercial Association declaration may contain text which provides that the declaration remains valid for a period of years and is then self renewing thereafter, is completely meaningless in the context of a MRTA examination.

There is, however, an argument that, pursuant to section 712.05, Florida Statutes, “any ‘person’ (which term includes corporations) claiming an interest in the land that desires to preserve a covenant or restriction may preserve and protect the same from extinguishment by the operation of MRTA by filing, for record, during the 30 year period immediately following the root of title, a written notice in accordance with this Chapter, referring to the MRTA, Chapter 712, Florida Statutes.” The problem with this text is that it is not clear whether the association may do so on behalf of all owners, or does each parcel owner need to file the preservation notice? Obviously, the parcel owners who no longer opt for enforceability of the covenants would choose the latter argument. Furthermore, once 30 years have passed from the initial recording of the covenants, and the effects of MRTA begin to operate to extinguish the covenants on a lot-by-lot basis, there is no process for the commercial association to revitalize its covenants.

Florida’s commercial associations are charged with great responsibility. They are often responsible for the operation of the surface water drainage system pursuant to a permit from the local water management district, they have maintenance responsibility for conservation tracts and other common areas, and generally ensure each owner maintains their property consistent with the provisions of the commercial association’s declaration of covenants.  If the Florida legislature does not take immediate action to provide a legislative remedy from the deadly effect of the Marketable Record Title Act as it relates to Florida’s commercial associations, then who will ensure the properties are maintained to a consistent standard, who will ensure the surface water drainage permit is being properly maintained (which affects the Association’s neighbors as well), and who will ensure the common areas and conservation tracts are being maintained?

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