Condominium Conversions Face Obstacles
A new law passed during the last week of the Florida Legislative session in May will create obstacles for investors seeking to terminate and convert condominiums to rentals. Under the old law, a condominium could be terminated upon the vote of 80% of the owners of the units within the condominium. Therefore, bulk condominium investors could purchase enough units within a condominium to unilaterally decide to terminate the condominium. While owners in distressed condominiums would be bailed out, minority owners not wanting to sell or move would be forced out of their homes, sometimes for below the value of their property or without the ability to repay their mortgage.
The new law adds protections for minority unit owners as follows:
- Where there is a bulk owner owning 80% or more of the units, each resident’s first mortgage must be satisfied regardless of the value of the first mortgage.
- The bulk owner must pay each original owner who has homestead rights and votes against termination at least the original purchase price no matter the current value.
- Homestead owners also will receive up to 1% of the value of their units to be applied to moving expenses.
- Although 80% of the unit owners must vote in favor of termination, no more than 10% of the unit owners may vote against it. A veto right is thereby created.
- If the termination is rejected, a new resolution for termination nay not be proposed for 18 months.
These new requirements could have a chilling effect on the conversion market as they will add additional expense to the conversion development budgets. While the conversion market has already somewhat cooled, the new strategy might be to acquire higher than the 80% minimum threshold of units before proceeding to termination vote. If a developer can acquire more units pre-termination vote at below market price, they can limit liability for the additional expenses imposed by the new law.