On June 16, 2015, Governor Rick Scott signed into law a Bill that amends Section 718.117, Florida Statutes, to grant a slew of new protections to condominium unit owners who are forced to sell their units pursuant to a condominium termination plan.
Before this amendment, bulk owners of more than 80% of the units in a condominium could, subject to certain conditions, terminate the condominium. The incentives for the bulk owner to terminate the condominium were plentiful. Particularly after Florida’s 2008 real estate meltdown, where institutional investors were able to bulk-buy units at depressed prices and then were able to terminate condominiums and force buy-out any remaining unit owners at the depressed “fair market value” which was presumably only a fraction of the price the unit owners paid for the condominiums. To add insult to injury, the unit owner would still be responsible for any deficiency owed to the lender resulting from the forced sale of the unit.
This amendment helps mitigate this issue by making it more difficult and more expensive for the buyer assigned by the termination plan to buy-out the condominium units from dissenting unit owners. The new law requires the buyer to pay unit owners who purchased the condominium unit from the developer, who object to the condominium termination, and whose units have been granted homestead exemption status, the greater of “fair market value” or the purchase price paid for the condominium, subject to the unit owners being current with their mortgages and association assessments. In addition, if the condominium unit is a homestead property, the buyer must also pay an additional 1% of the termination proceeds to the unit owners. These changes undoubtedly help condominium unit owners who are being forced out of their units against their will, and who are not receiving at least what they paid for their unit in return.
Although this amendment was met with overwhelming support, its potential negative impact, if any, will likely not be felt until the next real estate down cycle. There is no question that a termination of a condominium brought with it negative consequences to certain condominium unit owners, but it also helped others, particularly those in failing or failed condominiums. This amendment may make it economically unfeasible for investors in a down market to “rescue” failing condominiums because they will no longer have the incentive of purchasing the condominium units at the lower fair market value. This creates a serious problem for unit owners in these types of condominiums given that they may be subject to special assessments depending on the state of their condominium or may be unable to sell their condominium units at all, depending on the ratio of rental to owned units in their building. Whether the advantages of this amendment outweigh its disadvantages is a question that remains to be answered.
Whether you are an association considering a condominium termination or a home owner opposing one, it is appropriate to consult with an attorney regarding the specific facts of your case and their applicability to the amendment discussed in this post.