Florida legislature approves bill making condo terminations more difficult [5-15-15]

Article Courtesy of The South Florida Business Journal

Published May 8, 2015

The Florida legislature approved sweeping changes to condominium association rules that could make it more difficult for a developer to terminate a condo.

Dozens of bills plus the state budget were left out to dry when the Florida House adjoined three days early, but Senate Bill 1172 and House Bill 643 were easily approved. Greenberg Traurig shareholder Gary Saul, the co-chair of its Miami real estate department, said all indications are Governor Rick Scott will sign the bill.

“It has been a hotbed issue for months and has attracted a ton of attention,” Saul said. “That was mostly because of the negative side of terminations, although most of them were responsible for putting South Florida back on its feet as the market recovered.

A condo termination often occurs when a developer that owns the majority of the units wants to sell the property for conversion to rentals, often after a previous condo conversion failed to sell enough units. It has also happened in older, beachfront buildings where the unit owners get an offer to sell their entire building to a developer and split the proceeds between them. Under the current law, some unit owners complained that it forced them from their condos without the ability to let the value of their property fully recover or to repay their mortgage in full.

Among the changes to condo termination law in the bill:

• In the case of a bulk owner (one who controls at least 80 percent of the units), each resident’s first mortgage must be satisfied no matter the value of the unit.

• If an original unit owner in a homestead property votes against termination, the bulk owner must pay them at least the same amount they purchased the unit for, even if it’s considerably less than the current value.

• Homestead unit owners would receive an additional 1 percent of their unit value as moving expenses.

• At least 80 percent of unit owners must vote in favor of termination.

• No more than 10 percent of unit owners can vote against termination.

• Unit owners can vote on a termination even if they aren’t current on association fees.

• If a vote for termination is rejected, it can’t be brought up for 18 months.

A conflict concerning a termination should head to non-binding termination before resulting in litigation.

Jennifer Drake, a shareholder and real estate practice chair at Becker & Poliakoff, said there will be a constitutional question raised about whether this bill should apply retroactively to existing condo association agreements that contain different provisions, such as a higher or lower voting percentage and various terms of compensation. Bulk owners could argue that they never would have purchased units in the buildings under the termination rules of the new law, she said.

“By putting a standard that you have to pay a homestead owner the original price, it could impact the market significantly,” Drake said. “That is a huge burden that many developers can’t afford.”

Saul said the bill would make it more expensive to take fractured condos with underwater units back on the rental market, and that is what is often best for those properties because they failed as condos. Another consequence of the law is that original unit owners will get a larger piece of the building sales proceeds when the sum is divided up than other owners, who could lose out on their values, he said.

“The bill is an overreaction to something that wasn’t a problem in the first place,” Saul said.