What Owners Need to Know About Florida Condo Deconversion
What Condominium Deconversion Is
Condominium deconversion, a term often discussed in commercial real estate circles, refers to the process of converting a condominium back into individual units or a single-family home. This is a hot topic because condominium stock built in the 1970s and older requires updates, modernization, and capital improvements, and owners will continue to spend money on units that may not be appreciated as they have in the past. In addition, commercial real estate investors are seeking new ways to develop as construction prices increase, amenities become more expensive, and slow rent growth continues.
Combining these factors can lead to a beneficial deconversion process between Homeowners' Association (HOA)/Condominium Association members looking to sell and investors looking for value-added properties. This process can provide Florida condo owners with a way to maximize their property's value and potentially avoid the burden of costly updates and maintenance.
What Deconversion Means for Florida Condo Owners
Deconversion in Florida is considered a "termination" process. Recent changes in Florida law that affect the deconstruction process include:
New restrictions on reserves
Structural integrity reserve reports
Aging infrastructure
Additional requirements imposed by insurance carriers
Federal loan programs.
As a result, termination, which is essentially the end of the condominium's existence, has become a reasonable economic alternative when condominium maintenance is no longer economically feasible. This process can have significant implications for condo owners, as it may lead to the sale of the entire property and the end of their ownership.
How the Condominium Deconversion Process Works
When considering termination, it is crucial for the Florida association to first determine whether termination is regulated pursuant to the declaration of condominium or applicable Florida statutes, section 718.117. The association plays a pivotal role in this process, and understanding its obligations is key to a successful deconversion.
The most noteworthy changes to the statute occurred in 2007 when the legislature recognized termination because of economic waste or impossibility upon approval by 80% of the voting interests and 80% of the principal amount of mortgage liens. Exceptions can be made if the declaration provides for a lower percentage and optional terminations, which are terminations that are not required by law but can be initiated if certain conditions are met, requiring at least 80% approval of the total voting interest of the condominium if less than 10% of total voting interests rejected the plan of termination.
In 2017, the legislature recognized the need to preserve homestead property rights even in an optional termination of condominium declaration. Simultaneously, Florida amended the statute to retain the minimum 80% threshold for approvals but reduced the threshold for objections to 5% of the total voting interest. The county also requires a statutory termination plan. Objections to the termination process must be made by filing a petition for arbitration, which is a legal process for resolving disputes, within 90 days of recording the termination plan. This provides condo owners with a legal recourse if they disagree with the termination plan.
Understanding Florida Condominium Law
If a condominium's declaration does not incorporate statutory amendments, the association may not likely implement a termination pursuant to procedures outlined in the current statute. To ensure compliance and protect the association's interests, it is absolutely essential to have an attorney experienced in Florida condominium law review the governing documents. This attorney can provide invaluable advice on the law governing its termination process and the viability of amending its declaration to be consistent with current statutes.