In Rebuttal: Another Take on Condo Termination Law
Commentary by Mark B. Schorr
Daily Business Review

I belong to a subcommittee of the condominium and planned development committee of the real property section of the Florida Bar, which is working on revisions to 718.117, the statute governing termination of condominiums in Florida.

It seems there are a lot of misconceptions about the current statute and how it fits into the scheme of Florida condominiums. For example, the current statute (which I also helped draft) was not enacted to help hurricane-damaged condominiums.

Termination has been provided for in declarations of condominium since the very beginning of condominiums in Florida. The original Condominium Act also authorized termination upon a 100 percent vote of the unit owners unless a lower percentage was required by the declaration of condominium.

Termination has typically been provided for in two places in a declaration. First, there is a section dealing with reconstruction after a major casualty event; i.e., if a hurricane blows away the building. The decision not to rebuild and to terminate typically required, as it does today, the vote of anywhere from a mere majority to 75 percent of the unit owners.

The second place termination is discussed in a separate section dealing with termination for any other reason. Some reasons for terminating might be because the building is functionally obsolete; major structural problems and excessive deferred maintenance result in a large special assessment, and the cost of repairs or retrofit may exceed the value of the units; developers might want to eliminate phantom units; condemnation; or a buyer is interested in redeveloping the condominium property. All of these will result in the sale of the condominium property, with the proceeds distributed among the unit owners. But too often this section required 100 percent approval for termination.

100 Percent Rule
A major effort to revise 718.117 began in 2003 following then-state Sen. Steven Geller's appearance at the annual seminar put on by the University of Miami Institute on Condominiums and Cluster Developments. He asked us to provide help for ancient condos which, in the course of considering the cost of repairs needed to bring the property up to current code, either could not afford it, found it didn't make financial sense, or found it impossible to bring the entire property up to current code as there was no land for additional required parking spaces. The problem was that their declarations required 100 percent approval to terminate for any reason other than a major casualty event.

In representing condominium unit owners and their associations for more than 37 years, it is my experience that it is impossible to get 100 percent of the unit owners to even agree that the sun rose in the east this morning! One or two will disagree because it technically rose in the south-southeast, another will be off trekking in the Himalayas, and one or two just want to exercise their right to say no.

The most important part of the 2007 amendments was the elimination of the provision that upon termination, the unit owners would become tenants in common, in favor of the creation of a termination trustee who would upon the termination become the titleholder and be able to convey the property on the trustee's signature alone.
In this way, the absence of even one unit owner would not be an impediment to conveying the terminated condominium property, as the signatures of 100 percent of the unit owners would not be necessary on the deed to the purchaser of the condominium property.

Otherwise, in the absence of even one signature, someone would have to file an expensive lawsuit for partition, joining and serving every unit owner and mortgagee. The rest of the 2007 amendments were simply guidance on what to do once there was a vote to terminate.

Bubble Burst

Since the burst of the real estate bubble in 2008, a new reason for termination has arisen: Developers, saddled with too many unsold units, or lenders who had taken back unsold units, sold them to bulk buyers who then want to operate the property as a rental without the expense or constraints of condominium ownership. In this latest set of circumstances the fly in the ointment is that there are some individual purchasers of units in these "failed" condominiums who they believe are being short changed by the developer or bulk buyer's decision to terminate the condominium and turn the building into a rental property.

As I understand it, all (or virtually all) of the condominiums that are in the news today due to high-profile suits by unit owners challenging terminations by bulk owners looking to convert the property to rental, involve either post-July 1, 2007, condominiums (i.e., after the current statute went into effect) or that had declarations providing for less than 100 percent approval. For example, Madison Oaks (which has been in the news in the Tampa Bay area) has a declaration of condominium allowing for termination by 80 percent of the unit owners.

As the Florida Supreme Court recognized many years ago, a declaration of condominium is a mutual agreement entered into by all of the unit owners. Certainly, if the declaration provided for less than 100 percent of the unit owners to approve termination of the condominium, no unit owner, in my opinion, can properly complain because this is what he bought into, as a matter of contract.

If a unit owner bought at the height of the real estate bubble, will he be compensated for his purchase price if the condominium is terminated? Most probably, not. He will get the current fair-market value for the unit, and perhaps a sweetener from the bulk owner above that.

In different economic climates, and in other projects, an offer to purchase was readily accepted by many unit owners, and they were happy to accept the offer. Even today, some owners of motel units on Sunny Isles Beach who paid $25,000 for their motel rooms are receiving more than five times their investment to make way for a high-rise tower.

You cannot condemn a statute for a few isolated instances of abuse or bad timing. If the Legislature comes down too hard on the bulk owners, the subcommittee believes that when the next downturn occurs, there will not be bulk buyers willing to step in and save the "failed" condo projects. If that happened, folks who purchased at the height of the next bubble might be in a worse position than they are in today.


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