               NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING
                      MOTION AND, IF FILED, DETERMINED


                                             IN THE DISTRICT COURT OF APPEAL

                                             OF FLORIDA

                                             SECOND DISTRICT


AHF-BAY FUND, LLC,                           )
                                             )
              Appellant,                     )
                                             )
v.                                           )            Case No. 2D14-408
                                             )
CITY OF LARGO, FLORIDA,                      )
a municipal corporation,                     )
                                             )
           Appellee.                         )
________________________________             )

Opinion filed April 22, 2015.

Appeal from the Circuit Court for Pinellas
County; John A Schaefer, Judge.

Joseph H. Lang, Jr., and Christopher W.
Smart of Carlton Fields Jorden Burt, P.A.,
Tampa, for Appellant.

Elizabeth W. Neiberger of Bryant Miller
Olive P.A., Tallahassee, and Alan S.
Zimmet and Nicole C. Nate of Bryant
Miller Olive P.A., Tampa, for Appellee.


MORRIS, Judge.

              AHF-Bay Fund, LLC (AHF), appeals a final judgment entered in favor of

the City of Largo on its claims for breach of contract and enforcement of a covenant at

law. The underlying dispute involves a PILOT agreement entered into by AHF's

predecessor in interest, RHF Brittany Bay, LLC (RHF), and the City. A PILOT
agreement is an agreement which requires an entity that is otherwise exempt from ad

valorem taxation to make "payments in lieu of taxes" to a local government. AHF

purchased the property that was the subject of the agreement but failed to make the

payments as required. As a result, the City sued, and the trial court entered summary

judgment on the two claims, followed by entry of final judgment in the City's favor.1 AHF

raises three arguments on appeal. AHF first argues that the PILOT agreement was not

a covenant running with the land. We find no merit to that argument and do not address

it further. However, because we agree with AHF's second argument that the PILOT

agreement is contrary to Florida law, as well as Florida's public policy, we reverse.

Because our resolution of the second issue is dispositive of the case, we express no

opinion on the third issue raised by AHF relating to its liability under the final judgment.

                                  I.      BACKGROUND

              In December 2000, RHF acquired the subject property. RHF was a tax

exempt 501(c)(3) organization as defined by the Internal Revenue Code. See 26

U.S.C. § 501(c)(3) (2000). RHF planned to develop the property to provide affordable

housing for persons with low to moderate income pursuant to chapter 420, Florida

Statutes. As set forth in section 196.1978, Florida Statutes (2000), affordable housing

projects owned by a 501(c)(3) organization are exempt from ad valorem taxation.




              1
                In the complaint, the City also raised a claim of breach of contract as
against AHF's predecessor in interest, as well as claims of quantum meruit and unjust
enrichment as against AHF. The trial court did not enter a final judgment on the
quantum meruit or unjust enrichment claims on the basis that they were pleaded in the
alternative and were ultimately seeking the same relief as the other two claims against
AHF. The breach of contract claim as against AHF's predecessor in interest is not a
subject of this appeal.


                                             -2-
              To finance the project, RHF reached an agreement with the City wherein

the City would arrange for the issuance of tax-exempt bonds2 that carried a

considerably lower interest rate than RHF could have obtained using traditional bank

financing. In exchange for the issuance of the bonds, RHF entered into the PILOT

agreement, thereby agreeing to make annual payments to the City "in an amount equal

to the portion of ad valorem taxes to which the City would otherwise be entitled to

receive for the [p]roperty as if the [p]roject were fully taxable in accordance with

standard taxing procedures." The PILOT agreement provided that the amount of the

payments would be determined by multiplying the property's assessed value by the

millage rate established by the City each year. The PILOT agreement also provided

that "the City has and will provide services to [RHF] as a result of [RHF's] status as a

tax-exempt entity."

              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 the payments as required by the PILOT agreement for the

years 2001 through 2005. AHF, also a nonprofit affordable housing provider, acquired


              2
             The City entered into an interlocal agreement with the Capital Trust
Agency to permit the Agency to issue tax-exempt bonds.
                                             -3-
the property in November 2005. AHF has continued to own and operate the property as

an affordable housing community since the purchase. However, when the City did not

receive the annual payment that was due on December 31, 2006, it contacted AHF.

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.

              Based upon AHF's refusal to make payments under the PILOT

agreement, the City filed suit in 2010. The City sought a summary judgment and the

trial court granted the motion in part. Ultimately, the trial court entered a final judgment

in favor of the City, awarding $695,158.23 in damages and prejudgment interest.

                                     II.    ANALYSIS

              Where a trial court has granted summary judgment and there are no

disputed factual issues, our review "focuses on whether the court correctly determined

that the moving party was entitled to prevail as a matter of law." Damianakis v. Philip

Morris USA Inc., 155 So. 3d 453, 461-62 (Fla. 2d DCA 2015) (citing Volusia Cnty. v.

Aberdeen at Ormond Beach, L.P., 760 So. 2d 126, 130 (Fla. 2000)). Pure issues of law

are reviewed under a de novo standard. See Bosem v. Musa Holdings, Inc., 46 So. 3d

42, 44 (Fla. 2010).

              Exemptions from taxation are granted by the Florida Legislature when

they are deemed to be in the interest of the general welfare of the public. See Miami

Battlecreek v. Lummus, 192 So. 211, 216 (Fla. 1939). Such exemptions are to be




                                             -4-
strictly construed. See id. The exemption from ad valorem taxation as set forth in

section 196.1978 is applicable here.

              Section 196.1978 was the legislature's response to Southlake Community

Foundation, Inc. v. Havill, 707 So. 2d 361 (Fla. 5th DCA 1998). Prior to the Havill

decision, nonprofit entities typically enjoyed exemption from ad valorem taxation without

qualification. But in Havill, the Fifth District Court of Appeal called into question that

practice. After Havill was decided, the Florida Legislature enacted section 196.1978,

making it clear that all 501(c)(3) nonprofit entities that provide affordable housing for low

to moderate income families were entitled to the exemption. The legislative history of

section 196.1978 is particularly instructive:

                      A recent court ruling in Florida's Fifth District Court of
              Appeal[] (Southlake Community Foundation, Inc. v. Havill,
              (Fla. 5th DCA 1997)), held that non-profit housing
              organizations, qualified under 501(c)(3) of the Internal
              Revenue Code, cannot be considered "charitable" unless
              they provide affordable housing exclusively to persons who
              are Section 8 Housing and Urban Development voucher
              tenants. The court failed to recognize other non-profit
              housing organizations, qualifying under 501(c)(3) of the
              Internal Revenue Code, that provide affordable housing to
              persons under other state affordable housing programs such
              as the State Apartment Incentive Loan Program (SAIL).
              Consequently, the ruling financially undermines non-profit
              properties which provide housing to low or very low income
              working families under programs provided for years by the
              Florida Housing Finance Corporation or local governments.
              The ruling effectively makes such properties subject to ad
              valorem taxation for which they are presently exempt.

Fla. H. Comm. on Water & Resource Management, HB 17 (1999) Staff Analysis (Apr. 8,

1999).

              There is no dispute that AHF is a nonprofit 501(c)(3) organization or that it

owns and operates the property as an affordable housing option for low to moderate

                                                -5-
income families. Consequently, AHF is entitled to exemption from ad valorem taxation

pursuant to section 196.1978. But the dispute here centers on whether the payments

called for under the PILOT agreement are the equivalent of ad valorem taxes disguised

under another name. We conclude that they are. The payments were to be made in

amount equal to the amount of ad valorem taxes that would have been due but for

AHF's tax exempt status. The next question, then, is whether an agreement such as

the one involved here violates the Florida Constitution.3

              Because a municipality's taxing power is granted only by the Florida

Constitution or Florida Legislature, see art. VII, § 9(a) Fla. Const. (providing generally

that municipalities shall impose taxes as authorized by law); § 166.211(1), Fla. Stat.

(2000) (limiting power to levy ad valorem taxes "in a manner not inconsistent with

general law"),4 and because section 196.1978 expressly prohibits ad valorem taxation

on properties being used for affordable housing, a municipality cannot circumvent that

prohibition by seeking to recover ad valorem taxes merely by utilizing a different name,

see State v. City of Port Orange, 650 So. 2d 1, 3 (Fla. 1994) (applying that principle

where City sought to impose a tax under the guise of a transportation utility fee).

              This precise issue—involving PILOT agreements in place of ad valorem

taxation—appears to be one of first impression in this state. However, a Pennsylvania


              3
               The City contends that this issue was not properly preserved below.
However, we conclude that this issue was preserved through AHF's answer and
affirmative defenses as well as AHF's motion for reconsideration of the order granting
partial summary judgment. See LoBello v. State Farm Fla. Ins. Co., 152 So. 3d 595,
600 (Fla. 2d DCA 2014) (noting that trial courts may reconsider and modify interlocutory
orders—such as an order granting summary judgment—at any time prior to entry of a
final judgment).
              4
              See also State v. City of Port Orange, 650 So. 2d 1, 3 (Fla. 1994); City of
Miami v. Kayfetz, 30 So. 2d 521, 524 (Fla. 1947).
                                             -6-
court addressed a similar issue in School District of Monessen v. Farnham & Pfile Co.,

Inc., 878 A.2d 142 (Pa. Commw. Ct. 2005). That case involved a Pennsylvania Act

declaring certain areas to be exempt from ad valorem taxation on a temporary basis.

Farnham and Pfile's predecessor in interest had entered into a PILOT agreement with

the local school district whereby it agreed to make payments in lieu of taxes "for

municipal services and other services to be rendered for the property." Id. at 145. The

annual payments were based upon the millage rates, much like the payments in this

case. Id. When Farnham and Pfile purchased the property, it was informed the

property was temporarily exempt from ad valorem taxes, and Farnham and Pfile agreed

to abide by the terms of the PILOT agreement. Id. at 145-46. However, Farnham and

Pfile refused to make the payments as called for in the agreement, and the school

district, along with the City of Monessen, filed a complaint for declaratory judgment. Id.

at 146. Summary judgment was granted in favor of the school district. Id.

              On appeal, Farnham and Pfile argued that the PILOT agreement was

unenforceable, illegal, and invalid because it imposed "the substantive equivalent of real

property taxes" despite the fact that the property was exempt from such taxes. Id. at

150. The appellate court agreed, concluding that the payments violated the intent of the

Act delineating the property exempt from ad valorem taxes. Id. In reaching that

holding, the court noted that the payments were not correlated to any specific services

and that they did not "reflect the fair cost of any particular service provided to the

[p]roperty by the [s]chool [d]istrict." Id. at 151. Additionally, the court pointed to the

school district's complaint, wherein it alleged that the payments were being made in lieu

of taxes. Id. Thus the court concluded that "[b]ecause the PILOT[] [was] calculated and



                                              -7-
billed like taxes and [was] not linked to the taxing authority's supply of needed services,

. . . the PILOT[] [was] the equivalent of real property taxes, merely disguised as

payments for municipal services." Id. at 152.

              Beyond the holding that the payments violated the Act, the court also

concluded that Farnham and Pfile was not liable for the payments despite the fact that it

had agreed to abide by the PILOT agreement. Id. The court noted that parties are

generally free to contract as they wish, but relied on earlier case law for the proposition

that a contract may be found unenforceable on grounds of public policy. Id. at 152-53

(citing Cent. Dauphin Sch. Dist. v. Am. Cas. Co., 426 A.2d 94 (Pa. 1981)).

              We acknowledge that the Pennsylvania court did not hold that all PILOT

agreements are invalid. See id. at 152 n.6. Rather, the PILOT agreement was found

invalid there because the Act specifically provided a temporary exemption from ad

valorem taxation and the PILOT agreement in question was merely an attempt to

recoup the ad valorem taxes that would have otherwise been due. Id. at 152.

              Similarly here, the property in question is exempt from ad valorem taxation

pursuant to section 196.1978, but the PILOT agreement requires the owner of the

property to make annual payments that are the equivalent of the ad valorem taxes that

would have otherwise been due. Additionally, much like the PILOT agreement in

Farnham & Pfile Co., Inc., the agreement here does not specify any particular service

that the City will provide to AHF that is not provided to other properties. 878 A.2d at

151. There is no dispute that those services were enjoyed by other properties within the

jurisdiction and that those services would have been provided in the absence of the

PILOT agreement. And in the City's complaint, it alleged that AHF "fail[ed] to tender the



                                            -8-
Payments in Lieu of Taxes," and requested that the trial court enforce the PILOT

agreement by either awarding the ad valorem taxes that would otherwise have been

due or imposing an equitable lien on the property. The utilization of that language

supports the argument that the City was attempting to recoup the ad valorem taxes

under a different name. See Farnham & Pfile Co., Inc., 878 A.2d at 151-52 (citing

school district's allegations in its complaint as indication that school district was seeking

to recoup ad valorem taxes).

              We conclude that based on the statutory exemption from ad valorem

taxation as set forth in section 196.1978, the City did not have authority to collect ad

valorem taxes from AHF via enforcement of the PILOT agreement. The PILOT

agreement violates the public policy of promoting the provision of affordable housing for

low to moderate income families and is therefore void. See Am. Cas. Co. v. Coastal

Caisson Drill Co., 542 So. 2d 957, 958 (Fla. 1989) (noting that contracts that contravene

an established interest of society can be found void as against public policy).

Additionally, we hold that a PILOT agreement that requires a party to make payments

that are the equivalent of ad valorem taxes that would otherwise be due but for a

statutory tax exemption violates article VII, § 9(a) of the Florida Constitution, which

permits municipalities to impose taxes only as authorized by law. Accordingly, the final

judgment entered in favor of the City is hereby reversed.

              Finally, we recognize that PILOT agreements similar to the one in this

case abound in municipalities throughout Florida. Thus, the magnitude of our opinion

holding that these types of agreements violate Florida law may pose a significant

hardship on municipalities that rely on such payments to meet their budget



                                             -9-
requirements. We therefore certify to the Florida Supreme Court the following question

to be of great public importance:

             DO PILOT AGREEMENTS THAT REQUIRE PAYMENTS
             EQUALING THE AD VALOREM TAXES THAT WOULD
             OTHERWISE BE DUE BUT FOR A STATUTORY TAX
             EXEMPTION VIOLATE SECTION 196.1978, FLORIDA
             STATUTES (2000), AND ARTICLE VII, § 9(a) OF THE
             FLORIDA CONSTITUTION?

             Reversed and remanded.



SILBERMAN and BLACK, JJ., Concur.




                                         -10-
