2007 LEGISLATIVE UPDATES - Part 3 - Condominiums

2007 LEGISLATIVE UPDATE

PART 3 - CONDOMINIUMS

    The 2007 session of the Florida Legislature was extremely active with regard to legislation affecting community associations in Florida. In Part 1 and Part 2 of our 2007 Legislative Update, we covered some of the more important HOA topics, and while there are more new HOA laws to review, this Part 3 will address some of the major legislative changes to the condominium law.

Condominium Conversions (House Bill 7031)

    Conversion of existing property to a condominium is currently governed by Sections 718.604 - 718.622 of the Florida Statutes. Under those statutory provisions, a developer is required to provide to potential owners a conversion report prepared by an engineer or architect that discloses the condition of certain portions of the condominium. The idea behind this requirement is that a potential buyer will be informed as to the conditions present at the condominium in making a purchase decision, and will know whether expenditures will be required in the future to repair or replace portions of the common areas. The developer is also required to superfund reserves for particular components, which reserves are known as 'converter reserves.' If the developer fails to do so, it is deemed to grant a statutory warranty to the unit owners for certain portions of the common elements.
 
    In 2007, the Legislature made changes to these provisions, most of which are beneficial to owners. First, the conversion report must now address additional items, including pilings, docks, and irrigation systems. Also, it has been clarified that the condition of roadways and walkways must be disclosed under the existing 'pavement and concrete' provision, and 'fireproofing' has been replaced with a more specific 'fire protection systems' requirement. Secondly, a new provision has been added that provides, 'each unit owner and the association are third-party beneficiaries of the report.' This amendment will clarify that the architect or engineer retained by the developer is preparing the conversion report for the benefit of the owners and the association, and provide a cause of action against the architect or engineer for professional malpractice if the report does not accurately disclose conditions. While we have previously brought claims against architects and engineers under a third-party beneficiary theory, this amendment will make it easier.
 
    As stated above, when converting existing buildings to a condominium, a developer is required to establish converter reserve accounts. Converter reserves are based on calculations required by Section 718.618, Florida Statutes. The 2007 amendments to this provision now clarify that the architect or engineer retained to prepare the conversion report must determine the age of each existing component, and a developer cannot vote to waive or reduce the funding of reserves to avoid compliance with the converter reserve-funding requirements.
 
    The Legislature has also dramatically expanded the statutory warranty that a developer is deemed to have granted if it fails to properly fund converter reserves. Under these changes, the warranty that is granted to a conversion condominium association is the same warranty that is given to the unit owners of newly constructed condominiums. Finally, these amendments require that a developer disclose in the sales contract to a potential owner whether it has established converter reserve accounts, or whether it has instead opted to provide a statutory warranty.

Termination of Condominiums (Senate Bill 314)

    Although termination of the condominium form of ownership is a drastic and rare event, unfortunately the damage caused by recent hurricanes and tornados in Florida has raised the specter that it may be more common in the future.
 
    This bill makes substantial changes in the procedures available under Florida Statute 718.117 for termination of the condominium form of ownership. It applies to all condominiums in the state in existence on or after July 1, 2007.
 
    The new law provides two (2) additional ways to terminate a condominium. The first is termination because of economic waste or impossibility. Regardless of any provision to the contrary in a declaration, a condominium may be terminated by a plan of termination approved by the lesser of:
1) The lowest percentage of voting interest necessary to amend the declaration; or
2) As otherwise provided in the declaration of condominium for termination.
    These procedures apply where the total estimated cost of repairs necessary to restore the improvements to their former condition or bring them into compliance with applicable regulations, exceeds the combined fair market value of all units after completion of the repairs. It also applies where it becomes impossible to either operate or reconstruct a condominium in its prior physical configuration, because of land use laws or regulations. There are exceptions for timeshare condominiums.
 
    The second additional method is termed 'optional termination'. Unless the declaration provides for a lower percentage, a condominium can be terminated pursuant to a plan of termination approved by at least 80% of the total voting interest, if not more than 10% of the total voting interest have rejected the plan of termination by negative vote or written objection. Again there is an exception for timeshare condominiums.
 
The new law also provides:
1) The circumstances under which mortgage lienholder approval is required.
2) The powers granted to the condominium association after approval of the plan of termination, to include proceedings after a natural disaster.
3) The remedies available to any interested person where directors cannot be located, or where they refuse to act. These remedies include petitioning the Court for appointment of a receiver.
4) Specifies the required contents of a plan of termination, and provides for a termination trustee.
5) Provides for the allocation of proceeds from the sale of condominium property.
6) Grants to unit owners or lienholders the ability to contest a plan of termination under certain circumstances.
7) The procedures for distribution of assets, including the priority of such distributions. 8) The termination of the condominium does not prevent the termination trustee from creating another condominium affecting a portion of the same property.

Mortgagee Consent to Amendments (Senate Bill 902, Section 3)

    One of the more frustrating situations in operating a Florida condominium involves the requirement for mortgagee approval of amendments to the declaration. Some declarations require a super majority, or even 100% approval of mortgagees. Most of the amendments to a condominium declaration do not affect the interests of a mortgagee. The problem is not that mortgagees object, but they simply do not respond to requests for approval. This Bill amends Florida Statute 718.110 to address this problem.

    It is important to note that the amendment applies only to mortgages recorded on or after October 1, 2007. For such mortgages, any provision in the declaration, articles or bylaws that requires mortgagee approval of amendments will be enforceable only as to these items:
1) Amendments changing the size of a unit, appurtenances to the unit or the share of common expenses.
2) An amendment to create timeshares.
3) Amendments that adversely affect the priority of the mortgagee’s lien or its foreclosure rights, or that otherwise materially affect the interest of the mortgagee.
    This amendment also allows the association to rely on the public records to identify the holders of mortgages, and to obtain their address. The association must then request in writing from each unit owner any information regarding the name and address of the entity to whom mortgage payments are currently being made. If this address or name is different than that obtained from the public records, the association must also send notice to the new address. Where the notice to mortgagee is sent by a method which establishes proof of delivery, then if the mortgagee fails to respond within 60 days after the date of mailing, the mortgagee is deemed to have consented to the amendment. Finally, the new law establishes a 5 year statute of limitations for a mortgagee to challenge an amendment after the date of recording.
 
The firm of Taylor & Carls, P.A., with offices located in Maitland, Melbourne, Tampa and Palm Coast, Florida, was founded in 1981 and has practiced in the area of community association law since that date. This edition was prepared by Harry W. Carls and Patrick C. Howell of Taylor & Carls, P.A. The information contained in The Association e-Lawyer should not be acted upon without professional legal advice. The opinions expressed herein are as of the date hereof, and this law firm undertakes no obligation to advise the Association of subsequent changes in the law.

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