While the termination of a condominium may not be an everyday occurrence, it does happen from time to time. The situation occurs frequently enough that the Florida legislature dedicated an entire section of the Florida Condominium Act to it for ensuring that a formal process is in place to protect the interests of all those involved and affected. Specifically, Section 718.117, Florida Statutes, governs this termination of condominium process and provides various procedures to follow depending upon the circumstances causing the condominium’s termination. This Blog post is Part I in a series of posts on this topic and focuses on the termination of condominiums due to economic waste or impossibility of continuing. See Fla. Stat. §718.117(2).
While there are numerous reasons why a condominium may desire to terminate its existence, there are two situations that lead to most of the terminations: 1) the condominium is in a nearly uninhabitable condition and the cost of construction or repairs exceeds the projected fair market value of the condominium property (often due to natural disasters); or 2) the condominium is located on prime real estate and a developer has made an offer to purchase the property for alternative development. Regardless of the reason, the termination of a condominium will substantially affect the interests of all those involved – unit owners, tenants, mortgagees, board of directors, and the purchasers. As such, these events always include formal legal processes and often times will lead to legal disputes and litigation.
Section 718.117(2) of the Florida Condominium Act provides clear procedures for the termination of a condominium due to economic waste or impossibility to continue as condominium property. Therefore, these would be the procedures to follow if current land use regulations make it impossible to reconstruct a condominium to its prior configuration after a disaster, or even if reconstruction is allowed by current laws and regulations, it would be cost prohibitive to do so. See Fla. Stat. §718.117(2)(a)1; Fla. Stat. §718.117 (2)(a)2. First, a written plan of termination must be created. Second, the plan of termination must be approved by “the lowest percentage of voting interests necessary to amend the declaration,” which is a vote of at least 67% of all unit owners according to Section 718.110(1)(a), Florida Statutes. Fla. Stat. §718.117(2)(a). Alternatively, if the declaration sets the voting interest necessary to approve a plan of termination at a different rate then the declaration’s provision will govern. Id.
In a condominium where 75 percent or more of the units are timeshare units, the plan of termination must be approved by 1) 80 percent of the total voting interests of the association; and 2) the holders of 80 percent of the outstanding recorded mortgage liens of timeshare estates in the condominium. Fla. Stat. §718.117(2)(b). The declaration may provide for a lower voting percentage in this circumstance as well. Id.
The unit owners may also initiate and seek a termination of condominium if they desire. This can be done by the unit owners proposing a plan of termination and filing a petition in court seeking equitable relief. Fla. Stat. §718.117(2)(c). After filing their petition in court, the unit owners must then record the proposed plan of termination in the county records and mail a copy of the proposed plan to the following individuals:
- Each member of the association’s board of directors;
- The association’s registered agent;
- The managing entity if the condominium includes timeshare estates;
- Each unit owner and each timeshare estate owner; and
- Each holder of a recorded mortgage lien affecting a unit or timeshare estate. See Fla. Stat. §718.117(2)(c)1. – 4.
Any of those above-listed individuals may intervene in the legal proceedings to contest the proposed plan of termination. Fla. Stat. §718.117(2)(c). If no one contests the proposed plan within 45 days after the filing of the petition, the petitioners may move the court for a final judgment to authorize implementation of the proposed plan of termination. Id. If a party does intervene to contest the plan, a court can still enter a final judgment authorizing the plan’s implementation but only after the court has found that the plan is fair and reasonable under the circumstances. Id. Stay tuned for the second Blog post in this series, which will discuss the optional termination process contained within the Florida Condominium Act.