In a case that had potentially deleterious implications for all local governments in Florida, the state Supreme Court ruled Thursday in favor of the city of Largo in their dispute with a nonprofit affordable housing developer regarding the legality of PILOT (payment in lieu of taxes) agreements.
PILOT is a program where a municipality receives a payment in lieu of property tax revenue, either from a nonprofit organization or from another government entity that owns real property. That law has been applicable because under under Florida law, affordable housing projects owned by a nonprofit are exempt from property taxes.
Largo has been involved in litigation with RHF Brittany Bay, LLC since 2010, when they went to court, claiming that they were owned nearly $700,000 by another nonprofit.
The case begins in 2000, when Brittany Bay wanted to buy a residential apartment complex in Largo and convert it to affordable housing. To purchase the property, officials with the nonprofit came to city of Largo officials to finance the project through low-interest tax-exempt bonds, which carried a considerably lower interest rate than RHF could have obtained using traditional bank financing.
In exchange for the bonds, Brittany Bay agreed to a deal to pay the cost of what would’ve been its property taxes.
The PILOT agreement specified that it was binding on any subsequent owners of the subject property as long as certain conditions were met, though it made no mention of a covenant running with the land. The PILOT agreement was not recorded in the official public records. However, simultaneously with the execution of the PILOT agreement, the parties executed a memorandum of agreement that was recorded in the public records. The memorandum indicated that the PILOT agreement was available for inspection in the city clerk’s office and that it imposed certain covenants running with the land.
RHF made their payments to Largo up until 2005, when another nonprofit, AFH-Bay Fund, then came in and purchased $80 million of affordable housing developments that included Brittany Bay, effectively buying out RHF.
But AHF denied knowledge of either the PILOT agreement or the memorandum of agreement, asserting that neither had been shown to be an exception to coverage in its title insurance policy and that neither had been referenced in the special warranty deed by which AHF took title.
When AHF refused to pay up, Largo went to court to seek a summary judgment in 2010, and wound up being awarded $695,158.23 in damages and prejudgment interest. But the 2nd District Court of Appeal reversed the decision in 2015.
Largo appealed to the Florida Supreme Court, which ruled in favor of the city on Thursday.
“We are very pleased with the Florida Supreme Court’s decision in the case; one that has far-reaching implications for municipalities around the state,” said Largo City attorney Alan Zimmet. “The affirmation of allowing non-profit companies to make payments in lieu of ad valorem taxes can be an important driver in providing affordable housing in communities across Florida.”
Zimmet told SPB that he have heard from other cities around Florida that had outstanding agreements with various nonprofits who had stopped paying their PILOT obligations until the high court ruling came down.