The Window May Be Closing for Condominium Terminations

Daily Business Review
June 27, 2017

Since changes in the termination statute in 2007 permitting optional terminations, several hundred condominiums have been terminated in Florida. Most of these were as a result of the Great Recession where many condominium conversions, from rental apartments to condominiums, were reverted to rentals by terminations. Although the great majority of these terminations were without incident, and in many cases resulted in improvements to the property, there were a few high profile and well publicized terminations in which the concept of termination became an anathema. In these cases, homeowners lost their homes and wound up with a bill from their lenders as a result of the deficiency between their proceeds from the termination and the amount of their mortgages. Efforts were made by changes in 2014 and 2015 to the termination statute (Section 718.117 of Florida Statutes) to address those unfortunate results.

Notwithstanding the lack of experience to determine whether the prior "fixes" were working, the 2017 legislative session enacted two bills, HB-653 and SB-1520, both having almost identical provisions, intended to tighten the screws against further termination of condominiums. HB-653 was recently vetoed by the governor but SB-1520 was signed into law as 2017-122 on June 19. There is no doubt that the legislature has succeeded in the goal of making terminations more difficult, if not almost impossible. Rather than seeking some additional surgical goal, as was previously provided, the Legislature appears to have adopted an almost nuclear option. Ignoring the beneficial effects of terminations in restoring Florida housing stock during a difficult period, the Legislature has trashed the bushel because of a few bad apples. This may be the equivalent to eliminating the federal food stamp program because of some notorious cheaters.

The new laws lower the threshold of voting interests needed to defeat a termination plan from at least 10 percent to at least 5 percent. It also requires, for the first time, approval by the Division of Florida Condominiums, Timeshares and Mobile Homes of a termination plan.

The statute, however, lacks specifics on the division's standards for such approval other than a requirement that the termination plan disclose "factual circumstances" that indicate that the plan "supports the expressed public policies of this section." These added after the fact "public policies" do not include a termination by 100 percent of the owners who decide it would be advantageous to them personally to terminate their condominium. The new law also increases the waiting period necessary to resubmit a plan of termination upon failure to adopt a prior plan from 18 months to 24 months. Furthermore, it increases the lockout period for a termination from five years after the declaration of condominium was filed to 10 years. This requirement would have made it impossible to revert unsuccessful condominium conversions to rental housing during the Great Recession.

The new law also provides that any owner of homestead property objecting to a successful termination must receive at least his or her purchase price regardless of party from whom the unit was purchased. Existing law only requires such 100 percent recovery if the unit was purchased from the developer. Essentially, the bill may make a termination economically impossible in a down market as we experienced during the Great Recession.

The new law also changes the disclosure requirements contained in a plan of termination. The definition of "bulk owner" for which special disclosures are required is reduced from an owner of 50% of the units to one owning 25 percent of the units thereby increasing the pool of parties needing to make such disclosures. Why an owner of 25 percent of the units in a termination requiring 95 percent of the units needs to make special, perhaps personally damaging, public disclosures, is not clear.

Finally, the new law attempts to make the changes to the statute retroactive to apply to all existing condominiums perhaps based on the addition of new "public policies." A provision in the current termination statute adopted in 2007 applying to declarations in existence prior to adoption of amendments to the statute has previously been challenged in several cases which uniformly held that termination provisions could not be given retroactive effect based on constitutional restraints.

The 2007 termination provisions in the Condominium Act were responsible following the Great Recession to returning to the rental housing stock sorely needed multifamily housing which should never have become condominiums. These "reversions" were responsible, in most cases, for improving and preserving such housing for the benefit of the communities in which they were located. This new legislation is likely to make it impossible to achieve similar results in the next downturn.

This article is reprinted with permission from the Daily Business Review.

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