On June 16, 2015, Florida Governor Rick Scott signed into law H.B. 643, which made significant changes to Section 718.117 of the Florida Condominium Act. While these changes were made to protect unit owners, they make the optional termination of condominiums more difficult and may deter potential investors.
During the economic downturn, condominium developers that still owned a majority of condominiums in a development terminated the condominiums and converted the units into rentals or attempted to sell the development for a buyer to convert to apartments. As a result, the existing unit owners complained that they were forced to sell their units for less than market value. While this new law is aimed at protecting such owners, it may have an unintended chilling effect on investors looking to buy distressed property in Florida or owners who are looking to terminate the condominium.
Among other things, the new law provides for the following:
- At least 80 percent of the total voting interests of the condominium must approve a plan of termination. If 10 percent or more reject the plan, then the plan cannot proceed, and a subsequent plan of termination cannot be considered until 18 months after the date of rejection.
- All unit owners, including those who are delinquent in the payment of assessments to the association, are entitled to vote on the plan of termination.
- If at least 80 percent of the total voting interests are owned by a "bulk owner," a single holder of voting interests, then there are additional requirements that must be met:
- If a former unit owner was granted homestead as of the date of the recording of the plan of termination, then such owner shall be paid a relocation payment of one percent of the termination proceeds allocated to that unit.
- All unit owners other than the bulk owner must be compensated at least 100 percent of the fair market value of their units.
- For an original purchaser from the developer who rejects the plan of termination and whose unit was granted a homestead exemption, or was an owner-occupied operating business, and is current in all assessments and obligations to the association and any mortgage encumbering the unit, the fair market value must be at least the original purchase price paid for the unit.
- All outstanding first mortgages must be satisfied with the plan of termination.
- Before a plan of termination is presented to the unit owners, the bulk owner must provide the following disclosures: (1) the identity of the person or entity that owns or controls 50 percent of the units, and if owned by an artificial entity, then a disclosure of the individuals who own or manage the entities; (2) the date each unit was acquired by the bulk owner and the compensation for such unit; and (3) the relationship of any board member to the bulk owner.
- If the former condominium units are offered for lease, then each unit owner may lease his or her former unit for 12 months after the termination on the same terms as similar units are being offered to the public.
Despite the foregoing new limitations, the new bill did limit a unit owner's right to contest a plan of termination. A unit owner may only contest: (1) the fairness and reasonableness of the apportionment of the proceeds of the sale; (2) if the liens of the first mortgages will not be adequately satisfied; or (3) if the required vote was not obtained. Unit owners may only contest for a period of 90 days, and now, only through a petition for mandatory nonbinding arbitration.
Through the enactment of this new law, condominium terminations will be more difficult and expensive. While unit owners (and the mortgagees of such unit owners) now have some additional protection from being forced to sell their properties, the new law has caused concern among investors and may have the unintended affect of deterring investment in distressed properties in Florida.