MEMORANDUM TO CLIENTS

CONTRACTS: KNOW WHAT YOUR WARRANTY COVERS

What happens when a machine or appliance fails? Many community associations seek warranties to avoid unexpected repair costs, but will the "fine print" extend coverage to the repair? Maybe so, of course depending on the language of the warranty.

Recently, a Florida appellate court ruled that a warranty to cover engine repairs resulting from "defects in material or workmanship" was not limited to defects in material or workmanship of major components. In Detroit Diesel Corp. v. Atlantic Mutual Ins., 34 Fla. L. Weekly D1217 (Fla. 4^th DCA, June 17, 2009), the facts indicated that a third party consumer, SDF, purchased a product powered by engines manufactured by Detroit Diesel. Detroit Diesel replaced both engines in 1999. A limited written warranty covered the engines for the first 24 months and major components for the last 36 months.

In 2003, one of the replaced engines malfunctioned, destroying several major components. SDF’s insurer paid for the cost of the repairs and filed a warranty claim with Detroit Diesel. Detroit Diesel declared that a major component was not the primary cause of the failure and denied the claim. The insurer sued Detroit Diesel for breach of warranty and breach of contract.

Detroit Diesel argued that the warranty only applied to damage to the engine which resulted from a defect in material or workmanship of a major component. The trial court disagreed, finding that the warranty covered repairs to major components of the engine that malfunctioned as a result of defects

in material or workmanship. The trial court granted judgment for the insurer.

The District Court of Appeal affirmed. The appellate court pointed out that "[t]he plain language of the warranty states that the warranty covers engine repairs to correct any malfunction resulting from defects in ‘materials or workmanship’." "The second warranty period does not limit the scope of coverage to merely defects resulting from a ‘major component,’ nor does it require that a ‘major component’ must be the primary cause of the engine malfunction," the court stated. "The second warranty period merely defines the ‘major components’ that are specifically covered during that period, should they be damaged as a result of defects in material or workmanship, without limitation."

This decision shows how important it is to know what your warranty covers. Whether an engine for transportation of a vehicle, or to power pumps or other products, or when a machine or appliance needs repair, and is covered by a warranty, check out the "fine print" with your association counsel.

TAXATION: WHEN CAN LOT OWNERS BE ASSESSED TAXES FOR A 
GOLF COURSE LOCATED IN THEIR COMMUNITY?

With the certainty of taxes increasing with the decrease in economic indicators, many community associations are finding themselves the target of property appraisers and tax collectors. This is particularly true in golf course communities. When the course is designated as a common element or area for the benefit of a community’s owners, the question which has been arising is when can the lot owners be assessed taxes for the golf course?

This issue was actually raised recently by the property appraiser for Seminole County. The appraiser requested the Florida Attorney General to provide an opinion on the following two questions:

(1) Whether a golf course that is located within a platted residential subdivision can be taxed or assesses as a "common element" pursuant to section 193.0235, Florida Statutes, if the golf course, which continues to be owned and controlled by the developer (or a successor developer) of the subdivision, has been designated on the plat, approved site plan, or otherwise as a "common element for the exclusive benefit of lot owners?"

(2) To qualify as a "common element" for purposes of section 193.0235, Florida Statutes, must the property be actually and exclusively used by the lot owners of the subdivision or simply be designated on the plat, approved site plan, or otherwise as a "common element for the exclusive benefit of lot owners?"

In answer to the first question, Attorney General Bill McCollum opined, in Opinion 2009-23, May 14, 2009, that so long as the golf course is not included within the lots that constitute inventory for the developer, the golf course property would appear to qualify as a "common element" for proration of taxes pursuant to Section 193.0235, Florida Statutes.

As to the second question, Attorney General Bill McCollum explained that before a golf course can be assessed on a prorated basis and that assessment imposed on all of the individual lot owners, it must be shown that the golf course is used exclusively for the benefit of the lot owners. To qualify as a "common element" under Section 193.0235, a golf course must be both designated on the plat as a common element for the exclusive benefit of lot owners and be used exclusively by those lot owners. "My reading of this language would consider the use of such property by the guests and relatives of lot owners as a benefit to the lot owners without jeopardizing the exclusivity of such use," the Attorney General opined.

Thus, it is anticipated that a two part test will be developed. First, is the course for common use by association members or is it really open to the public for a fee? Second, is the course for the exclusive use of the appurtenant lot owners? Unanswered is whether courses will have to drop non-lot owner members to retain tax exemptions!

FIRM NEWS

The firm's s offices will be closed Monday, September 7, 2009 in observance of Labor Day.