Partial Termination, Good Things Can Happen to Bad Projects

In the past ten years, the real estate market has been crazy. First, prices went way up, and now they’ve fallen a lot and are slowly going back up. Lots of people, even some who weren’t experienced, didn’t realize the real estate bubble was about to burst. They built condos hoping to sell them as fast as they used to, but they couldn’t find buyers. Now, some of those condo projects are failing, and they might need to be changed or reorganized to be successful. One option is to cancel part of the project, which could help the people who own the units, the developers, and the local government. Condominiums are created and ended according to the Condominium Act. This law divides the property into individual units that can be owned separately and shared areas. When a developer records a declaration in the county’s public records, the units are created, even if they haven’t been built yet. These “phantom units” can cause financial problems for the association, as they need to pay common expenses but don’t contribute to them. This can lead to higher costs for other unit owners and legal action to collect the unpaid assessments. These phantom units also can’t be sold or used, causing long-term issues for the condominium property. The perception of a condominium project can be affected by unpaid assessments and taxes, especially if a developer fails to fund deficits. This can lead to tax certificates being sold and depress the value of other units in the project. This makes the project less desirable for potential buyers and can make it hard to get financing. The concept of terminating condominium properties was initially designed for natural disasters but has since been extended to other circumstances, although the focus has always been on total termination and not partial termination. In 2000, a new law allowed for partial termination of a condominium, which was successfully used at Grande Oaks Preserve in 2010 to get rid of phantom units. In 2011, the law was updated to clarify the procedures for partial termination. This process allows for parts of the condo property to be removed from the condo declaration and owned by a trustee. Any challenges to the plan must be made within 90 days of it being recorded. Once the plan is implemented, any liens on the removed property are transferred to the sales proceeds of the remaining property. This process was first used at Grande Oaks Preserve, and it’s important for the remaining units and land to be insurable by a title insurance company in the future. A title insurance underwriter first checks if the plan of termination was approved by enough unit owners. If the termination is for economic waste or impossibility, it must be approved by a certain percentage of unit owners. If it’s an optional termination, it needs approval from at least 80% of total voting interests, as long as less than 10% reject it. A partial termination doesn’t need approval from all unit owners if the ownership interest in the common elements remains the same. It actually benefits the remaining unit owners. Grande Oaks Preserve is a condominium with 125 units, created in three phases. Each phase has its own buildings and recreational facilities. The declaration of condominium for Grande Oaks Preserve was recorded on August 16, 2004, officially setting it up. Grande Oaks Preserve was a failing condo project in 2009. The developer didn’t have enough money to finish the project, and the current condo owners couldn’t get loans to sell their units. So, the condo owners took control of the association and worked with the developer to find a solution. They decided to partially end the condo and reached a written agreement to do so. The Grande Oaks Preserve Condominium Association, Inc. made a plan to make improvements to the Grande Oaks Preserve property. The developer agreed to give up control of the association, pay for legal fees, finish paving the roads, and pay overdue fees and taxes. The plan also changed the rules for owners of the condominium units and allowed owners of adjacent property to use the recreational facilities. The plan was approved by the majority of the association and the mortgage lenders. No one objected to the plan, and it was successfully completed. These are Florida laws that deal with condominium associations. They cover things like terminating a condominium, dealing with liens, and the rights of mortgage holders. There are also some court cases mentioned as examples. One specific case involved a condo association and a real estate company. Another case involved a condo association and a home builder. The laws also talk about the process of terminating a condominium and what happens to the property and debts. It’s important for condo owners and real estate professionals to understand these laws. These are four lawyers who are experts in real estate law in Florida. They are members of The Florida Bar’s Real Property, Probate and Trust Section and have lots of experience in different areas of real estate law.

Source: https://www.floridabar.org/the-florida-bar-journal/partial-termination-good-things-can-happen-to-bad-projects/