Court Opinion

ID: 9905457
Source: CourtListenerOpinion
Date Created: 2023-11-29 16:05:17.122166+00
Date Added: 2024-06-11T09:23:36.333881
License: Public Domain

DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
                              FOURTH DISTRICT

                 PALM BEACH POLO HOLDINGS, INC.,
                        a Florida corporation
                              Appellant,

                                      v.

                 ETHRENSA FAMILY TRUST COMPANY,
                    as Trustee of Saskia Land Trust,
                                Appellee.

                             No. 4D2022-3003

                            [November 29, 2023]

  Appeal from the Circuit Court for the Fifteenth Judicial Circuit, Palm
Beach  County;    Maxine    Cheesman,       Judge;   L.T.    Case    No.
2021CA005560XXXXMB.

  Larry A. Zink of Zink, Zink & Zink Co., L.P.A., Hillsboro Beach, for
appellant.

   Robert J. Mansen, David Stone and Ronnie Bronstein of Mansfield
Bronstein & Stone, LLP, Fort Lauderdale, for appellee.

WARNER, J.

    Appellant, Palm Beach Polo Holdings, Inc., the third-party defendant
and counter-plaintiff (Polo Holdings), appeals the final judgment finding
that its right of first refusal and option to repurchase in its contract for
sale of a lot in its development was an unreasonable restraint on
marketability, because the right/option was of unlimited duration and
based upon a fixed price which was far less than market value. The
contract contained two provisions setting forth circumstances that would
trigger the right/option. We reverse, because under the reasonableness
test of Iglehart v. Phillips, 383 So. 2d 610 (Fla. 1980), we conclude that the
right/option was not an unreasonable restraint on alienation.

                                   Facts

   In 2014, Polo Holdings, the developer of Palm Beach Polo and Country
Club, entered into a contract to sell an unimproved residential lot to Saskia
Land Trust, of which Ethrensa Family Trust Company, appellee, was a
trustee. A material term of the contract provided that the purchaser
agreed to commence construction of a home on the lot within twenty-four
months of closing. In the event of a default on this provision, the seller
could exercise its option to repurchase the property at a set price. In
addition, the contract provided in another section that Ethrensa agreed
not to sell the property to a third party prior to construction of a home on
the lot.

   These material terms of the contract are as follows:

      5. CONSTRUCTION BY PURCHASER:

      A. Purchaser agrees to construct a single family detached
      residence upon the Lot and agrees that commencement of the
      construction of said residence shall begin within twenty-four
      (24) months of Closing. . . .

      B. Prior to construction Purchaser shall have secured the
      written approval of Seller and the Architectural Committee of
      the plans and specifications and landscaping of the residence
      which Purchaser proposes to construct on the Lot. . . .

         ....

      D. In the event Purchaser does not meet any or all of its
      obligations under this Article 5, . . . Seller is hereby granted a
      Right of First Refusal and Option to purchase the Property
      upon the terms and conditions as set forth in Exhibit “B”
      attached hereto and incorporated herein by this reference (the
      “Right”). Purchaser acknowledges and agrees that the Right is
      a material part of this transaction without which Seller would
      not have entered into this Agreement with Purchaser.

      E. The provisions of this entire Article 5 shall survive Closing.

      6. RESTRICTION ON CONVEYANCE:

      A. Purchaser agrees that it will not transfer, sell, convey or
      assign its interest in the Lot to any person or entity, following
      the Closing of this Agreement until a single family detached
      residence, approved as provided in Article 5(B) hereof, has
      been completed upon said Lot, as evidenced by the issuance
      of a certificate of occupancy issued by the Village.

                                      2
     B. Notwithstanding anything to the contrary in this
     Agreement, in the event Purchaser defaults in its obligation
     set forth in this Article 6, Seller shall be afforded any and all
     right and remedies set forth in the Right.

     C. The provisions of this entire Article 6 shall survive Closing.

   The right/option which was an exhibit to the contract stated in
pertinent part:

     (a) The purchase price shall be the lesser of the price
     Purchaser desires to sell the Property to a buyer (documented
     by such evidence as Seller may require) or ninety percent
     (90%) of the purchase price paid by Purchaser to Seller for the
     Lot.

        ....

     (c) Closing [on the Right/Option] shall occur sixty (60) days
     after Seller notifies Purchaser in writing that (1) a default has
     occurred, and (2) Seller elects to exercise this right of first
     refusal.

     (h) Provided Purchaser fulfills all of its obligations hereunder,
     upon receipt of (1) Seller’s approval of Purchaser’s plans and
     specifications as provided in Article 5(b) hereof and (2) the
     request of an Institutional Lender who has issued a written
     commitment to finance the construction of a residence upon
     the lot which requires as a condition of such financing that
     the Right be released, Seller shall thereupon execute a release
     of the right upon the lot. . . .

     (i) If not released as provided in (h) above, upon completion of
     construction of the residence upon the Lot, in accordance with
     the terms and conditions as set forth in this Agreement, as
     evidenced by the issuance of a Certificate of Occupancy by the
     Village, Seller shall deliver to Purchaser, in recordable form, a
     release of this right.

   The lot’s purchase price in the contract was $800,000. Thus, ninety
percent (90%) of the purchase price would be $720,000 should the
right/option be exercised. The Palm Beach County Property Appraiser’s
assessed value of the lot was $845,745.00 as of 2021.

                                    3
   Ethrensa did not construct a residence on the lot and in 2021 entered
into a vacant land contract with Wilmot Realty Co., LLC, who was
succeeded by Wellington Acquisition, LLC after an assignment of the
contract. The agreed purchase price was $1,200,000, but the agreement
required Ethrensa to obtain a release of the right/option.

    Ethrensa became aware that Polo Holdings intended to assert its
right/option. When Ethrensa failed to close, Wellington Acquisition, LLC
filed a suit against Ethrensa for breach of contract and specific
performance.

    Because Polo Holdings would not release the right/option, Ethrensa
filed a third-party complaint in June of 2021 against Polo Holdings.
Ethrensa sought a declaratory judgment against Polo Holdings that “the
Right of First Refusal and Option is unenforceable because it is for an
indefinite duration and includes a fixed repurchase price far below market
value, which is far below even the original purchase price Plaintiff paid for
the Property in May of 2014.”

   Before filing an answer, Polo Holdings sent a notice of default and an
“Exercise of Right of First Refusal.” The notice stated that a residence had
not been built on the lot in violation of and default of section 5 of the
contract. Also, the notice stated that Ethrensa had entered into a contract
to sell the lot to a third party in violation of and default of section 6 of the
contract. The notice further stated that Polo Holdings was exercising its
right/option to purchase the lot from Ethrensa for $720,000.

   Polo Holdings then filed an answer, affirmative defenses, and
counterclaims to Ethrensa’s third-party complaint. Polo Holdings alleged
a counterclaim for breach of the contract and a counterclaim for specific
performance demanding that Ethrensa comply with the right/option.

    Ethrensa responded to the counterclaims with an answer and
affirmative defenses, asserting that Polo Holding’s claimed right/option
was unenforceable as an unreasonable restraint on alienation. Ethrensa
also raised the statute of limitations, waiver, and laches as affirmative
defenses.

   Polo Holdings moved for summary judgment both as to Ethrensa’s
third-party complaint as well as its counterclaim for specific performance
and breach of contract. Polo Holdings contended that both sections 5 and
6 of the contract granted it the right/option to repurchase the property
and were enforceable. According to Polo Holdings, Ethrensa’s action of

                                       4
entering into the agreement to sell the lot to Wellington Acquisition, LLC
“triggered” Polo Holdings’ ability to exercise its’ right/option under Section
6 of the contract and the failure to accept Polo Holdings’ exercise of the
right/option was a breach of contract. Polo Holdings further argued that
specific performance of the right/option at the “agreed upon price of
$720,000” was appropriate based on the breach of both sections 5 and 6.

   In support of its motions for summary judgment, Polo Holdings filed
the affidavit of Glenn Straub, president and principal stockholder in Polo
Holdings. Straub testified that the purpose of the right/option in the
contract, sections 5 and 6, was “to encourage the Purchaser to construct
a residence on the Lot, because having vacant lots for extended periods of
time is not good for the development.” He also testified that the
right/option’s purpose here and in other contracts was “to encourage the
construction of residences on the lots and to discourage the mere
speculation on the lot by purchaser[.]”

    Ethrensa filed a competing motion for summary judgment as to both
its third-party complaint and Polo Holdings’ counterclaims. Ethrensa
argued that the right/option was unenforceable “because it is for an
indefinite duration and includes a fixed repurchase price far below market
value, which is far below even the original purchase price which was paid
for the Property in May of 2014 according to the face of the Contract.”
Ethrensa also argued that Polo Holdings’ claims were barred by the statute
of limitations.

    In granting summary judgment in favor of Ethrensa, the trial court
relied on Iglehart v. Phillips, 383 So. 2d 610 (Fla. 1980), to find that the
right/option constituted an unreasonable restraint on alienation, because
it was a fixed price repurchase option of unlimited duration. The price
was the lower of ninety percent of the original purchase price or the price
of sale. Because the proposed sale price was substantially higher than the
market price, the court determined that the option price of $720,000 was
well below market and unreasonable. Alternatively, the court found that
the statute of limitations barred enforcement of the option, because the
one-year limitation for a specific performance cause of action for violation
of Article 5, the obligation to commence construction within twenty-four
months of the closing of the contract, had already run.

                                   Analysis

    From this final summary judgment, Polo Holdings takes this appeal. A
trial court’s entry of summary judgment is reviewed de novo. Blind Monk,
LLC v. USO Norge Whitney, LLC, 368 So. 3d 980, 983 (Fla. 4th DCA 2023).

                                      5
“Summary judgment is appropriate where the movant shows no genuine
disputes as to any material facts remain and the movant is entitled to
judgment as a matter of law.” Id. (citing Fla. R. Civ. P. 1.510(a)). A trial
court’s interpretation of a contract is also reviewed de novo. Inlet Colony,
LLC v. Martindale, 340 So. 3d 492, 494 (Fla. 4th DCA 2022).

   In determining that the right/option to repurchase the lot in the
contract violated the rule against unreasonable restraints on alienation,
the trial court relied on Iglehart. We conclude, however, that under the
contract in this case, the general rule in Iglehart does not apply.

    We first examine Iglehart. There, the grantor conveyed over 300 acres
of land to the grantee, by deed containing a right of repurchase in the event
the grantee sought to sell the property, which according to the deed was a
covenant running with the land. 383 So. 2d at 611–12. According to the
documentary stamps attached to the deed, reflecting a tax, the
consideration was between a dollar and one hundred dollars for the land
worth two hundred dollars at that time. Id. at 612. The repurchase price
in the deed was set as the original amount paid by the grantee plus the
cost of any improvements made on the land. Id. at 611. During the twenty
years after the purchase, the grantee and his family improved the land,
including the construction of a house and fences. Id. at 612.

   The plaintiff in Iglehart was the son of the original grantee. Id. at 611.
He sought a declaratory judgment to determine the restrictive covenant
invalid; the grantor counterclaimed to have the repurchase option be
declared valid, or the entire transaction rescinded. Id. According to the
plaintiff, the purchase price for the land was ten dollars. The defendants
contended that the sole consideration was the repurchase option. Id. at
612.

   The suit was filed in federal court, and the district court granted
summary judgment for the plaintiff, holding that the restriction was void.
Id. The court “expressly found the option restraint was unreasonable
because (1) there was no purpose for which the restraint is imposed; (2)
the duration of the restraint was unlimited; and (3) the method of
determining the price to be paid was unreasonable in light of the value of
the land today, thus creating a substantial restraint on the alienation.” Id.
On appeal, the Fifth Circuit certified questions to the Florida Supreme
Court to resolve the issues in the case, which included whether the
covenant violated the rule against perpetuities and the rule against
unreasonable restraints on alienation. Id. at 613.

                                     6
   In this case, while we consider only the rule against unreasonable
restraints, the Iglehart court noted:

      Although distinct entities, these rules share a common public
      interest and purpose. They each came into existence to
      facilitate the marketability and continued utilization of
      property. In simple terms, their purpose is to ensure that
      property is reasonably available for development by prohibiting
      restraints that remove property from a beneficial use for an
      extended period of time.

Id. (emphasis supplied). In discussing the rule against unreasonable
restraints, the supreme court explained:

      While the rule against perpetuities invalidates interests which
      vest too remotely, the rule against unreasonable restraints is
      principally concerned with the duration of a restraint on the
      property rather than the time of vesting. The test which
      should be applied with respect to restraints on alienation is
      the test of reasonableness. The validity or invalidity of a
      restraint depends upon its long-term effect on the
      improvement and marketability of the property. Once that
      effect is determined, common sense should dictate whether it
      is reasonable or unreasonable.

Id. at 614. The court noted that the general rule allows a market priced
option for unlimited duration and analogized it to an option contained in
a long-term lease. Id. at 615–16.

   Iglehart quoted with approval from Wing, Inc. v. Arnold, 107 So. 2d 765
(Fla. 3d DCA 1958), where the court found an option to purchase
contained in a ninety-nine-year lease with the price to be determined by
appraisal was not violative of the rule against perpetuities. Iglehart, 383
So. 2d at 615. The supreme court noted that the rationale rejecting
application of the rule against perpetuities was “equally” applicable in an
unreasonable restraint case:

      The reasoning given to the majority view is that improvement
      of the land is stimulated rather than retarded by the presence
      of an option to purchase in the lessee, and substantial
      improvements may be made by the lessee with impunity.
      Without the benefit of such an option it would not be good
      business for a lessee to make improvements which would have
      substantial value at the end of the lease term; and a contrary

                                    7
      rule would defeat the policy favoring free alienation and use
      of property, . . .

Id. (emphasis supplied) (citing Wing, 107 So. 2d at 769). The supreme
court then noted: “It is the generally accepted rule that a fixed price
repurchase option of unlimited duration, independent of the lease, is an
unreasonable restraint.” Id. (emphasis supplied).

      An option for a fixed price clearly discourages any
      improvements of the land by the existing property owner
      because he could never recover the value of the improvements
      should the optionee exercise the option. It is important,
      however, to distinguish this type of option from a dependent
      fixed price option contained in a lease. In the latter instance,
      the option is reasonable because it encourages improvements
      by the optionee-possessor, as they would inure to him at no
      increase in price upon the exercise of the option. These two
      situations illustrate the necessity to determine the effect of the
      option on the use and improvement of the property in order to
      determine its reasonableness.

Id. (emphasis supplied). The court invalidated the option after concluding
that the option was for a fixed price and of unlimited duration, thus
impeding the sale of the property because the increased value of the
property and improvements would never be realized on a sale. Id. at 616.

   Analyzing Iglehart and how it has been applied by various courts, the
First District aptly noted:

      While the outcomes of these cases have varied considerably,
      each analysis was contingent upon whether the restraint (1)
      undermined the marketability of the land and/or (2)
      discouraged improvement to the land. Iglehart, 383 So. 2d at
      614. To the contrary, appellant and the trial court incorrectly
      concluded an analysis of these types of provisions requires a
      court make a determination based solely on (1) the restraint’s
      duration; (2) the fixed nature of the price term; and (3) the
      purpose for the restriction. While these factors may bear on
      the crucial question of whether the restriction negatively
      affects the marketability and improvement of the property, the
      factors do not dictate an outcome independent of a resolution
      as to the ultimate questions of alienability and developability.

                                      8
Smurfit-Stone Container Enters., Inc. v. Zion Jacksonville Ltd. P’ship, 52 So.
3d 55, 58 (Fla. 1st DCA 2010). Similarly, in this case the trial court
focused on the duration of the restraint and the fixed price. The court
even rejected Polo Holdings’ president’s affidavit, regarding the purpose of
the restriction as irrelevant.

   In applying Iglehart to the contract’s provisions in this case, we first
note that while the trial court construed both contract sections 5 and 6
together, those sections are two separate rights/options. The first required
the purchaser to commence construction of a residence within two years
(with certain extensions), and upon failure to do so, the seller could
exercise its right to repurchase the lot for ninety percent of the original
sale price. This was an option of limited duration, because when the time
period for commencement of construction passed, the seller would have
only one year to declare a default and bring a specific performance claim
to exercise its right/option. See § 95.11(5)(a), Fla. Stat. (2016); see also
Wing, 107 So. 2d 765 (lessor did not have right to cancel lease and declare
a forfeiture where lessor breached provision requiring it to reconstruct
destroyed buildings, where breach occurred, and lessor failed to enforce
provision for over two years).

   We agree with the trial court that the statute of limitations period to
enforce the right/option based upon the purchaser’s breach of the
contract’s provision regarding construction of the residence began after
the two-year period for construction expired without the purchaser
commencing construction of the residence. Therefore, the first contractual
provision in section 5, providing for exercise of the right/option, is of
limited duration but sets an option price which is generally well below
current market value.

   The second right/option, dealing with the sale of the lot, is of unlimited
duration and permits Polo Holdings the right to repurchase the lot should
Ethrensa decide to sell the lot without constructing a residence on it. That
gives rise to Polo Holding’s right/option to repurchase the lot, again for a
price well below market value.

    However, in contrast to Iglehart, where the option did not apparently
serve any purpose but to benefit the grantor, the right/option in this case
was a material term of the contract and crafted to require its development,
not hinder it. As Polo Holdings’ president testified in his affidavit, land
lots that remain vacant for a long period of time have a detrimental effect
on a development. As well, the right/option discourages the purchaser
from land speculation. If the restriction’s validity depends upon the long-
term effect on the improvement and marketability of the property, as

                                      9
Iglehart stated, then this restriction which compels improvement of the
property has that valid effect.

    Furthermore, in the original contract of sale, the purchaser agreed to
construct a residence on the property. The two contract provisions are in
place to compel the performance of that agreement. The purchaser can
avoid entirely the application of the right/option simply by doing as agreed
in the contract. Pursuant to the contract, the right/option would have
been released even before commencement of the residence’s construction
if an institutional lender had requested the release in connection with a
construction loan, or the right/option would also have been released upon
completion of the residence.

    Thus, the right/option is more like a dependent covenant in a long-
term lease, which allows the lessee to purchase and secure the benefits of
its improvement to the property. Just as with the lease option, the use
and improvement of the property is enhanced by the presence of the
right/option, which clearly provides an inducement for the purchaser to
improve the property and not to speculate on vacant land. The value of
the improvements, if made by the purchaser, inures to the purchaser’s
benefit, not to the developer’s benefit.

   We find that the long-term effect of the right/option in this case is to
require the improvement of the property, which does not unreasonably
restrict alienation. The purchaser agreed to improve the property as a
material term of the contract of its purchase; the right/option assured that
improvement. Both contract provisions served to encourage improvement
of the lot. Pursuant to Iglehart, “common sense dictates” that the
right/option contractual provisions are reasonable.               Thus, no
unreasonable restraint on alienation exists.

    This conclusion is reinforced by Sandpiper Development and
Construction, Inc. v. Rosemary Beach Land Co., 907 So. 2d 684 (Fla. 1st
DCA 2005). There, the land sale contract included a requirement to
commence construction of a residence on the property within three years
and to complete construction within six years. Id. at 685. If the owner
failed to comply, the seller could exercise an option to repurchase the
property for the original cost plus the cost of any improvements made. Id.
The court distinguished Iglehart and found that the option of limited
duration for a fixed price was not unreasonable:

      On balance, we do not find that the repurchase option here is
      an unreasonable restraint on the alienation of property, as
      defined in Iglehart. The court in Iglehart did not disavow the

                                    10
      legitimacy of fixed price options. The purpose of the option
      here is legitimate, the duration is of a reasonably short period,
      and the price alone does not invalidate the overarching
      legitimate rationale to control the pace of development of the
      community.

Id. at 687.

    Sandpiper directly supports the determination that the first option in
this case is not an unreasonable restraint on alienation. We also find that
the decision supports the finding that the second option, which can be
exercised should Ethrensa seek to sell the property, is not unreasonable,
because there is a “legitimate rationale to control the pace of development
of the community.” Id. In fact, the right/option gives Ethrensa practically
unlimited opportunity to improve the property and obtain the benefits of
any improvement. Even if the two-year term for commencing construction
passes, and Polo Holdings does not exercise its first right/option, Ethrensa
can construct a residence and the second right/option is released, as
Ethrensa completely controls whether that right/option can be exercised.
The second option does not constitute an unreasonable restriction on the
alienation of property.

   As an alternative to holding the options invalid, the court also found
that Polo Holdings’ counterclaim for specific performance was barred by
the statute of limitations. While we agree that the enforcement of the first
option was barred by the statute of limitations, see Wing, specific
performance of the second option did not accrue until Ethrensa entered
into a contract to sell the property without having constructed a residence
on it. Polo Holdings filed suit within the applicable statute of limitations
to exercise the second right/option.

                                 Conclusion

    The two restrictions contained in the contract of sale between Polo
Holdings and Ethrensa’s principal did not violate the rule against
unreasonable restraints on alienation, because both restrictions
encouraged development of the property which would enhance its
marketability. The court erred in holding the restrictions void as violative
of that rule as set forth in Iglehart. While the court correctly found that
the statute of limitations barred enforcement of the first right/option to
repurchase based upon the failure to construct a residence within two
years of closing, Polo Holdings’ suit for specific performance of the second
right/option did not violate the statute of limitations. As to all other issues

                                      11
raised, we affirm. We thus reverse the final summary judgment and
remand for further proceedings.

  Affirmed in part and reversed in part.

GROSS and DAMOORGIAN, JJ., concur.

                          *         *      *

  Not final until disposition of timely filed motion for rehearing.

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