United States: Condominium Terminations Updated

Last Updated: December 11 2015
Article by Alexander Dobrev

By Alex Dobrev, Esq., of Lowndes, Drosdick, Doster, Kantor & Reed, P.A., Orlando, Florida; Steven H. Mezer, Esq., of Becker & Poliakoff, Tampa, Florida; and Christopher N. Davies, Esq., of Cohen & Grigsby, P.C., Naples, Florida

Condominium terminations are governed by Fla. Stat. §718.117, which allows for termination in cases of economic waste or impossibility, as well as "optional" terminations upon requisite approval of the membership. The law was substantially re-written in 2007 and amended by CS/CS/CS/HB 643, now known as Chapter 2015-175, Laws of Florida. The Condominium & Planned Development Committee of the Section was substantially involved in these efforts.

The most significant substantive changes involve "bulk owners" in residential condominiums. A bulk owner is defined as a single holder of voting interests or an owner together with a related entity or entities that would be considered an insider1 holding such voting interests. If at the time the plan of termination is recorded at least 80 percent of the total voting interests are owned by a bulk owner, additional conditions and limitations are placed on any such termination in an effort to protect minority owners.

Changes Specific to Bulk Owners Right to Lease Former Unit

If the former condominium units are offered for lease to the public after termination, each unit owner in occupancy immediately before the recording of the termination plan is entitled to lease his or her former unit and remain in possession of the unit for 12 months following the termination (on the same terms as the units are being offered to the public). Note that in order to take advantage of this provision, the unit owner must make a written request to the termination trustee within 90 days of the recording of the termination plan, and must sign a lease within 15 days of being presented with such lease. Failure to do either of the foregoing will result in a waiver of the right to retain possession.

Relocation Payment for Homestead Property

If a unit is granted homestead exemption status as of the date of the recording of the plan of termination, the unit owner must be paid a relocation payment in an amount equal to one percent of the termination proceeds allocated to the owner's former unit. Such relocation payment is to be paid by the entity or related entities owning at least 80 percent of the total voting interests (i.e., to be paid by the bulk owner). The relocation payment is in addition to the termination proceeds a unit owner will receive for such owner's former unit.

Fair Market Value Compensation

All unit owners (other than the bulk owner) must be compensated for their units at no less than 100 percent of the fair market value.2 Fair market value is to be determined by an independent appraiser selected by the termination trustee and as of a date not more than 90 days prior to the recording of the plan of termination.

Certain Original Purchasers Entitled to Price Paid

If a unit owner: (1) is an original purchaser (i.e., the owner who purchased from the creating developer); (2) rejected the plan of termination; (3) has been granted a homestead exemption for the particular unit or is an owner-occupied operating business; and (4) is current in payment of assessments and other monetary obligations to the association and any mortgage encumbering the unit as of the date the plan of termination is recorded, then the fair market value paid to the unit owner must be at least the original purchase price paid for the unit.

Mortgage Satisfaction

A plan of termination must provide for the payment of a first mortgage encumbering a unit to the extent necessary to satisfy the lien, but the payment may not exceed the unit's share of the proceeds of termination under the plan. If the unit owner is current in the payment of assessments, other monetary obligations to the association, and any mortgage encumbering the unit, then the receipt of the unit's share of the termination proceeds or the outstanding balance of the mortgage, whichever is less, shall satisfy the first mortgage in full.

The statutory language distinguishes between satisfaction of a first mortgage lien, subject to a cap of moneys allocated to the unit per the plan, and a full satisfaction of the mortgage (not just the lien against the unit) when certain additional conditions are met (essentially in instances where the owner in question "did everything right"). Presumably, in the first instance, the lender will still have a claim against the owner for any deficiency, whereas in the second, the lender will be deemed to have accepted the distribution allocated to it pursuant to the plan in full satisfaction of its borrower's obligations. In either case, the payout would be limited to the fair market value of the unit as previously addressed above or the original purchase price amount for certain homestead owners.

Disclosures

When a plan of termination is presented to the unit owners for consideration, the plan must contain certain disclosures in a sworn statement: (1) the identity of any person or entity that owns or controls 50 percent or more of the units and, if owned by an entity, a disclosure of the natural person or persons who manage or control the entity, and/or the natural person or persons who own or control 20 percent or more of the bulk owner; (2) the dates on which each unit was acquired by the bulk owner, and the total amount of compensation paid to each prior owner (regardless of whether or not it was attributed to the purchase price of the unit); and (3) the relationship of any board member to the bulk owner or to any person or entity affiliated with the bulk owner. Additionally, if the required disclosures are not made or are misleading, incomplete or inaccurate, then the plan will automatically be voided.

Board of Directors

If the board members were elected by the bulk owner, the unit owners other than the bulk owner may elect at least one-third of the members of the board before the approval of any plan of termination.

Changes not Specific to Bulk Owners

The 2015 revisions also introduced some technical changes applicable to all terminations:

10 Percent Rejection

The threshold of the rejection needed to thwart a termination is changed from "no more than 10 percent" to "10 percent or more" of the voting interests. This small change means that going forward exactly 10 percent opposition will be sufficient to stop a termination attempt.

Termination Following a Conversion

A residential condominium that was created by conversion may no longer undertake an optional plan of termination until 5 years after the recording of the declaration of condominium unless there are no objections to the plan of termination.

Post-Rejection Waiting Period

If 10 percent or more of the voting interests reject a plan of termination, another optional plan of termination may not be pursued for 18 months, which is an increase from 180 days.

Voting Interests and Termination

The total voting interests of the condominium include all voting interests. No voting interest of the condominium may be suspended during the consideration of a plan of termination.

Condominiums that are 75 Percent Timeshare

Condominiums in which 75 percent or more of the units are timeshare units (which were formerly exempted from these provisions) are now subject to the optional termination provisions discussed herein.

Objecting to Plan of Termination

A unit owner desiring to reject a plan of termination must do so in person or by proxy or by delivering a written rejection to the association at or before the meeting. If a plan of termination is approved by written consent or joinder without a meeting of the unit owners, any unit owner desiring to object must do so in writing within 20 days after the association has notified the non-consenting owners that the plan has been approved by written action in lieu of a unit owner meeting.

Right to Possess After Termination

Unless the plan of termination expressly provides otherwise, all leases, occupancy agreements, subleases, licenses, or other agreements for the use or occupancy of any unit or common elements of the condominium shall automatically terminate on the effective date of the termination. If the plan expressly authorizes a unit owner or other person to retain possession of any portion of the former condominium property, the plan must specify the terms and conditions of the possession.

Amendment or Withdrawal of Plan of Termination

Unless otherwise provided in the plan of termination, at any time before the sale of the condominium property a plan may be withdrawn or modified by the affirmative vote or written agreement of at least the same percentage of voting interests in the condominium as that which was required for the initial approval of the plan. A plan that is withdrawn will not be subject to the same waiting requirements as a rejected plan. If a scrivener's error is discovered, the termination trustee may also unilaterally record an amended plan or amendment to the plan of termination to correct such error.

Allocation of Proceeds

Unless the declaration provides for the allocation of proceeds, the plan of termination may require separate valuations of the common elements. Absent provisions to the contrary in the plan of termination, it is presumed that the common elements have no independent value but rather that their value is incorporated into the valuation of the units.

The holder of a lien that encumbers a unit at the time the plan is recorded must deliver a statement confirming the outstanding amount of any obligations within 30 days of the written request made by the termination trustee requesting such information.

The termination trustee may setoff the termination proceeds of any unit by the following amounts including attorneys' fees and costs:

  • Unpaid assessments, taxes, late fees, interest, fines, charges and other amounts associated with the unit and which are owed to the association.
  • Costs of clearing title to the owner's unit (including locating lienors, obtaining statements, paying mortgages and other liens, judgments and encumbrances and filing suit to quiet title).
  • Costs of removing the owner or the owner's family, guests, and occupants in the event that such person or persons fail to vacate a unit as required by the plan.
  • Costs related to any owner's breach of the plan.
  • Costs related to the storage or removal of any property remaining in a unit so that the unit may be delivered vacant.
  • Costs related to the appointment and activities of a receiver or attorney ad litem acting for any owner in the event that the owner is unable to be located.

Right to Contest a Plan of Termination

The "right to contest" provision is amended such that a unit owner or lienor may contest a plan of termination by initiating a petition for mandatory nonbinding arbitration (in lieu of a summary proceeding in court). Such contest is limited to: (1) the fairness and reasonableness of the apportionment of the proceeds from the sale among the unit owners, (2) that the liens of the first mortgages of unit owners other than the bulk owner have not or will not be satisfied to the extent required by law (see Mortgage Satisfaction above), or (3) that the required vote to approve the plan was not obtained. A unit owner or lienor who does not contest the plan within 90 days is barred from asserting or prosecuting a claim against the association, the termination trustee, any unit owner, or any successor in interest to the condominium property.

If the arbitrator determines that the plan was not properly approved, or that approval procedures were not followed, the arbitrator may void the plan or grant other relief that it deems just and proper. If the arbitrator finds that the required disclosures were not made or are misleading, incomplete or inaccurate, the plan will automatically be voided. Any challenge to the plan, other than a contention that the required vote was not obtained, does not affect title to the condominium property or the vesting in the trustee, but rather will only be a claim against the proceeds of the plan.

Finally, the bill expands the definition of "dispute" in Fla. Stat. § 718.1255(1), to include a disagreement regarding a plan of termination, so that such disputes may be handled through the Division of Condominiums, Timeshares and Mobile Homes' arbitration process including a complaint being filed for a trial de novo.

Originally published by ActionLine Magazine.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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