Many condominiums in Florida have been
subject to bulk buy-outs, either due to poor sales from the great recession or,
in the case of older buildings, due to an aging ownership, high special
assessments or major future repairs (roof or concrete restoration). This issue has led the Florida
legislature to recognize that, in certain circumstances, continued operation of
a condominium “may create economic waste and areas of disrepair which threaten
the safety and welfare of the public or cause obsolescence of the property for
its intended use and thereby lower property tax values.”
To address this issue, the Florida
legislature amended Florida Statute Section 718.117 to create a termination
procedure outside the Declaration of Condominium process which generally requires
unanimous approval of all owners in order to terminate the condominium under
existing condominium documents.
Specifically, the termination under this new section is “not an
amendment subject to Florida Statute Section 718.110(4)” which sets forth that
“no amendment may change the configuration or size of any unit in any material
fashion, materially alter or modify the appurtenances to the unit, or change
the proportion or percentage by which the unit owner shares the common expenses
of the condominium and owns the common surplus of the condominium unless the
record owner of the unit and all record owners of liens on the unit join in the
execution of the amendment and unless all the record owners of all other units
in the same condominium approve the amendment.”
The procedure often raised by bulk owners is
known as an Optional Termination.
Specifically, this type of termination may be initiated pursuant to a
Plan of Termination of the Condominium as follows:
1. Must
be approved by at least eight (80%) percent of Unit Owners.
2. If
proposed by a Bulk Owner (an owner who directly or through affiliates controls
80% or more of the voting units), then, in addition, the following requirements:
a. Payment to owners of “at least 100
percent of the fair market value of their units.”
b. “Provide for payment of a first
mortgage encumbering a unit to the extent necessary to satisfy the lien, but
the payment may not exceed the unit’s share of the proceeds of termination
under the plan.”
c. Include special notice within any
proposed Plan that states:
i.
“The identity of any person or entity that owns or controls 25 percent or more
of the units in the condominium and, if the units are owned by an artificial
entity or entities, a disclosure of the natural person or persons who, directly
or indirectly, manage or control the entity or entities and the natural person
or persons who, directly or indirectly, own or control 10 percent or more of
the artificial entity or entities that constitute the bulk owner.
ii. The
units acquired by any bulk owner, the date each unit was acquired, and the
total amount of compensation paid to each prior unit owner by the bulk owner,
regardless of whether attributed to the purchase price of the unit.
iii. The
relationship of any board member to the bulk owner or any person or entity
affiliated with the bulk owner subject to disclosure pursuant to this
subparagraph.
iv. The
factual circumstances that show that the plan complies with the requirements of
this section and that the plan supports the expressed public policies of this
section.
Once the Plan of Termination is presented to
the owners, it must be approved by Bureau of Condominium within forty-five days
of presentation. If no owners object
(see below) and the division approves the Plan (or if no approval, no rejection
with forty-five days) then the termination may proceed as outlined within the
Plan.
Once the Plan is presented to owners, should
five (5%) percent or more of the total voting interests of the condominium reject
the plan of termination by negative vote or by written objection, the plan of
termination may not proceed. In
addition, if rejected by the required voting percentage, “a subsequent plan of
termination pursuant to this subsection may not be considered for 24 months
after the date of the rejection.”
By way of example, if a condominium consists
of one hundred units, then it would require the holder of not less than eighty
units to vote to proceed with a plan of termination, and five or more-unit
owners reject such plan, then termination will not be permitted. All such rejections should be made in writing
and if the plan has been submitted to the Bureau of Condominium, that the
written objection be filed therewith.
With the continuing strength in the rental
market and the ongoing failures at many condominiums, termination and
conversion thereafter into apartments will continue to be a viable process for
distressed condominiums and their owners.
Michael
Posner, Esq., is a partner in Ward Damon a mid-sized real estate and business
oriented law firm serving all of South Florida, with offices in Palm Beach
County. They specialize in real estate
and can assist associations in all legal matters including bulk termination.
They can be reached at 561.594.1452, or at mjposner@warddamon.com
