Florida Condominium Terminations: A Comprehensive Guide

Florida’s condominium terminations can be complex and multifaceted, governed by specific statutes and association governing documents. Understanding the legal framework, types of terminations, and the procedural steps involved is crucial for condo owners and associations navigating this path.  While the current South Florida climate, terminations are on the rise, not only sought out by developers, but associations as well.

What is a Condo Termination?

A condominium termination refers to the legal process of dissolving a condominium association and removing it from the condominium form of ownership. This can occur for various reasons, such as economic infeasibility, substantial damage, or the strategic interests of investors or owners. The current governing statute for condo terminations in Florida is Section 718.117 of the Florida Statutes, which must be reviewed in connection with the condominium’s declaration, by-laws and articles of the association. The language contained within the “Termination Statute” has been amended over time, and which version applies depends on the terms in the association’s recorded documents. Condominiums interested in terminating their association should seek guidance from their association’s attorney to analyze what options are available to terminate the condominium status. If a condominium’s governing documents do not incorporate amendments to Condominium Act, Courts have held that the version of the Condominium Act in existence as of the date of the recording of the association’s declaration would apply.

Types of Condo Termination

There are two primary types of condo terminations in Florida:

1. Optional Termination: This occurs when the owners decide to terminate the condominium status voluntarily, often due to a lucrative offer from an investor or changing economic conditions. Under the current version of the law, an optional termination requires 80% approval from the total voting interests, with no more than 5% of the total voting interests objecting to the termination. Things to consider pertaining to optional terminations:

• Assess Interest: Communities may have differing opinions when faced with termination. It is important to determine if there is interest within the community in terminating the condominium, considering upcoming expenses that might necessitate such action and owners desire to retain their property.
• Bulk Purchase: Developers often purchase individual units from owners and include pre-purchase conditions in contracts, allowing them to rescind an offer if insufficient owners agree to sell. Developers may also include lease-back options and payment of closing costs to make these deals more lucrative to unit owners. Negotiating contracts collectively with an investor may result in better bargaining power.
• Continued Maintenance Obligations: While a termination is being considered by a community, maintenance obligations and reserves must be maintained, even when an investor is a majority owner.

2. Termination Due to Economic Waste or Impossibility: This type of termination is initiated when the cost of maintaining or repairing the property becomes prohibitively expensive or if the property is significantly damaged (e.g., by a natural disaster) and cannot be feasibly restored.

Applicability of the Statute

The current version of the Condominium Act does not automatically apply to every termination. A legal analysis is necessary to determine whether the current statute, the statute in effect when the association was created or the association’s documents govern the termination process. Associations must carefully review these documents and seek legal advice to ensure compliance.

Governing Documents and Statutes

Condominium governing documents often discuss termination procedures. These documents sometimes override the statute or may contain limitations on future amendments. It is important to carefully review and understand the options available to an association and its owners.

Offers and Disclosure

If the board receives an offer to purchase the property, disclosing this to the association members and discussing available options is key. Transparency ensures that all owners are informed and can participate in the decision-making process. When a board is presented with an offer, they should keep an open communication with owners, providing avenues for owners to meet and discuss the potential sale. Additionally, boards of directors should avoid self-dealing and should act with good faith and loyalty throughout the entire process.

Distribution of Assets and Service Contracts

Upon termination, the association’s assets, including common areas and equipment, are sold, and proceeds are distributed among the owners. Existing service contracts must be reviewed to determine termination clauses and financial obligations.

Current Trends and Considerations

Developers are increasingly interested in older, waterfront properties, offering over market value due to the limited availability of oceanfront space. Some associations proactively approach brokers to market their properties, although this can incur additional costs through commissions, some brokers are able to secure competitive offers for desirable properties.

Casualty Loss Provisions

Governing documents often mandate termination if a significant portion of units become uninhabitable and insurance payouts are insufficient for restoration. Associations must act swiftly in such scenarios, as overlooking these provisions can lead to mandatory or automatic terminations.

Challenges and Legal Recourse

Owners who resist selling can challenge the termination through arbitration or legal action, although success is unlikely if the required percentage to terminate has already been agreed to. In some cases, compelling an investor to pay fair market value can be sought with the DBPR.

Financial Considerations and Operations During Termination

Termination contracts typically include drop-out or contingency clauses to protect investors. Developers might reconsider the project if property values fluctuate, or financing issues arise. During the termination process, the association must continue operating and fulfilling its obligations until the process is complete.

Conclusion

Condo terminations in Florida are complex and require thorough legal and procedural understanding. Associations and owners must navigate statutory requirements, governing documents, and potential investor negotiations. Stakeholders can effectively manage and benefit from the termination process by staying informed and seeking appropriate legal counsel.