Along the West Palm Beach waterfront, a familiar scene is repeating itself. Developers are offering to buy entire older condominium buildings in order to demolish them and build new luxury towers in their place. Owners at one complex on South Flagler Drive were recently weighing a $295 million offer, and a neighboring building that accepted a buyout has already been torn down.
This is not a prediction about any particular building. Between rising land values and repair costs many older buildings now face, termination has become a word every Florida condominium owner should understand.
What Termination Means
Terminating a condominium ends the condominium form of ownership. The property is typically sold as a whole, and each owner receives a share of the proceeds under a written plan of termination. The critical point is this: once a plan is properly approved, it binds every owner, including those who voted against it. It is not a series of individual sales.
The Protections Owners Have
In a voluntary termination of a residential condominium, Florida law requires approval by at least 80 percent of the total voting interests. If 5 percent or more reject the plan, it cannot proceed, and a new plan cannot be considered for 24 months. No owner’s vote may be suspended for this purpose, and the plan must be reviewed by the state’s Division of Florida Condominiums before termination may proceed. A declaration of condominium may require a higher approval percentage than the statute, and Florida courts have shown a willingness to enforce those provisions.
Additional protections apply when a single buyer and its related entities hold 80 percent or more of the voting interests. Here, every other owner must receive at least the full fair market value of the unit, set by an independent appraiser. An owner whose unit is homesteaded and who is current on assessments must receive no less than the original purchase price. Homesteaded owners also receive a relocation payment of 1 percent of their share, and owners living in their units may lease them for up to a year if the units are offered for rent. Before any owners vote, the plan must disclose under oath who controls the buyer and any relationship between board members and the buyer.
A separate and lower approval threshold may apply when the cost of necessary repairs would exceed the combined value of the units after those repairs are made. As older buildings confront expensive structural work, this provision deserves owners’ attention.
If an Offer Ever Arrives
Do not sign a consent to termination or joinder quickly. Ask for the full plan of termination, the appraisal, and the sworn disclosures, and take the time to read them. Understand how the proceeds will be divided and what will be deducted, including any unpaid assessments and the cost of satisfying your mortgage. If you are a homesteaded owner, confirm that the protections described above are reflected in the plan. Please speak with your family and an attorney who represents you to get advice, not the buyer or the association.
Board members, for their part, owe a duty to all of the owners, not to a prospective buyer. Any director with a connection to the buyer should disclose it and step aside from the decision.
An owner who believes a recorded plan is unfair has only 90 days to challenge it, and only on limited grounds. That is why the time to ask questions is before the vote, not after.
Although most condo owners may never see a termination plan, those who do should remember that the law gives them real protections. Yet, those protections only work best for unit owners who know they exist.
Michael E. Chapnick is a Partner at Sachs Sax Caplan Kaskel & Schner, PLLC in Boca Raton, Florida, and is Board Certified by The Florida Bar in Condominium and Planned Development Law.