Condo industry investors unhappy about new consumer protections

New Florida statutes make it more difficult to force condo termination and apartment conversions upon unwilling owners

By Deborah Goonan, Independent American Communities


Part of the mission here at IAC is to educate housing consumers by exposing the true agenda of the real estate industry. Hint: it is not to serve the needs of housing consumers, be they homeowners or tenants. The real estate industry serves the needs of its stakeholders – well-funded developers, home builders, real estate investment corporations, and business enterprise that serves those stakeholders.

Today I share with the reader an article written for The Daily Business Review, and picked up by Cyber Citizens for Justice (CCFJ) for its weekly email newsletter. The online journal is primarily written for and by attorneys and real estate professionals in Florida, and keeps a close eye on litigation and legislation affecting the real estate industry.

So, of course, the articles are often written from the industry point of view, not the consumer or homeowner point of view.


Industry spin on condo takeovers and apartment conversions

Martin A. Schwartz is a partner at Bilzin Sumberg. He represents commercial real estate developers, and has been an active participant in writing and promoting legislation to benefit his clients. So it comes as no surprise that Schwartz remains in favor of terminating struggling condominium associations and redeveloping them as lucrative rental properties.

But are we supposed to believe that the practice of exploiting condo owners who purchased their units from the wrong person, at the wrong place, and at the wrong time has somehow benefitted the community at large?


The Window May Be Closing for Condominium Terminations

Article Courtesy of The Daily Business Review
By Martin A. Schwartz
Published July 3, 2017

Since changes in the termination statute in 2007 permitting optional terminations, several hundred condominiums have been terminated in Florida. Most of these were as a result of the Great Recession where many condominium conversions, from rental apartments to condominiums, were reverted to rentals by terminations. Although the great majority of these terminations were without incident, and in many cases resulted in improvements to the property, there were a few high profile and well publicized terminations in which the concept of termination became an anathema. In these cases, homeowners lost their homes and wound up with a bill from their lenders as a result of the deficiency between their proceeds from the termination and the amount of their mortgages. Efforts were made by changes in 2014 and 2015 to the termination statute (Section 718.117 of Florida Statutes) to address those unfortunate results.

Notwithstanding the lack of experience to determine whether the prior “fixes” were working, the 2017 legislative session enacted two bills, HB-653 and SB-1520, both having almost identical provisions, intended to tighten the screws against further termination of condominiums. HB-653 was recently vetoed by the governor but SB-1520 was signed into law as 2017-122 on June 19. There is no doubt that the legislature has succeeded in the goal of making terminations more difficult, if not almost impossible. Rather than seeking some additional surgical goal, as was previously provided, the Legislature appears to have adopted an almost nuclear option. Ignoring the beneficial effects of terminations in restoring Florida housing stock during a difficult period, the Legislature has trashed the bushel because of a few bad apples. This may be the equivalent to eliminating the federal food stamp program because of some notorious cheater.

The 2007 termination provisions in the Condominium Act were responsible following the Great Recession to returning to the rental housing stock sorely needed multifamily housing which should never have become condominiums. These “reversions” were responsible, in most cases, for improving and preserving such housing for the benefit of the communities in which they were located. This new legislation is likely to make it impossible to achieve similar results in the next downturn.

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Of course, there may come a time when condo owners decide it is no longer worth investing money in their property. But the problem with the current system is that the statute makes no distinction between institutional investors and condo owners who purchased with the intention of occupying their units as a primary residence, living in them seasonally, or holding onto the unit as a personal investment.

Investment corporations, real estate investment trusts, and opportunitistic developers have a clear economic advantage over housing consumers who have invested their own money in the purchase of a condo as a place to retire, or a vacation home that they can someday pass onto their children. To real estate developers and investors intent on generating profit and future revenue streams, thousands of condo owners experience collateral damage in each economic recession.

So if the legislative intent of a condominium termination statute is to help condo consumers, then the decision-making process must rest with those consumers.

Condo owners must be the ones to take the initiative of placing their building or condo complex on the market, deciding upon the best purchase offer, and winding up the affairs of their association. (And even in that case, 80% of condo owners can force the remaining 20% to sell, even if they would prefer not to do so.)

Although the industry would have us believe this is how most terminations take place, the reality of the situation is that real estate investors and developers acquire condo units over time, and then take over the board by default. It is a matter of accumulating sufficient voting interests to overrule the wishes of remaining condo owners.

Current legislation does nothing to prevent this process, but the best way to prevent a hostile takeover of the condo board is to prevent predatory investment in the first place.

So here is a proposal for change that can be accomplished by amending the governing documents of an association: Require existing condo association members – except the Declarant/Developer or affiliates  – to vote on whether or not to approve any single buyer seeking to purchase 10% or more of the association. For smaller associations of 20 or fewer units, require a vote of membership approval for any purchaser of more than one unit.

Giving condo owners the option of blocking the purchase of multiple units by one person or entity puts the consumer in control of the destiny of their association.

Incidentally, we know this policy already works for many cooperative associations, who routinely review and approve shareholders.


For more details on new Florida statutes, read on.


Summary of new Florida Legislation pertaining to condominiums

Since this article has been published, Governor Scott has signed HB 1279, making criminal penalties and conflict of interest provisions part of Florida’s condominium statutes.

Will new laws protect condo owners from apartment conversions and rogue associations?

The Tampa Bay Times
By Susan Taylor Martin
Published June 27, 2017

Danny Di Nicolantonio has lived in St. Petersburg’s Calais Village Condominiums for 33 years. Annoyed at times by the actions, or inaction, of the condo board and property managers, he has complained to the state agency that is supposed to investigate.

That has left him even more annoyed.

The Department of Business and Professional Regulation “is about as useless as a snowball in Florida,” Di Nicolantonio says. “I’m sick and tired of filing complaints with them only to continuously be told it is out of their jurisdiction, my file has been closed or to go hire an attorney.”

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