Remember The Champlain Towers South condominium in Surfside, Florida? Probably haven’t heard that name in a while, but it was the very shocking collapse of the tower with loss of the building and loss of life. The event profoundly impacted the condominium market in the state and is still having an influence on the condo market.
A condo termination, also known as a condominium deconversion, refers to the process in which a condominium association legally dissolves. Condo terminations occur for several reasons including economic, aging or the desire of unit owners to capitalize on the real estate market. It can also happen when a developer gradually buys up units within the association in an effort to gain the number of condo units necessary to control the future of the building.
Typically, because of a lack of prime property, usually waterfront, developers are pursuing older buildings, taking control and tearing them down. Although this can happen anywhere in the state, it is more common on the east coast where there are many more older buildings and very little land left.
These buildings have become targets for developers after the state passed a law that requires certain older buildings to undergo safety inspections that often require special assessments that can run to more than $150,000 per unit, making it impossible for the majority of owners to pay.
Many of the older buildings have elderly residents who have lived there for many years and have not voted, along with their board members, to perform the necessary maintenance due to the high costs. Because of this deferred maintenance, it is leading to deteriorating building conditions and failure of the Florida state inspections.
The only way for residents to continue living in their units is to pay special assessments for work required to pass the state inspections. In addition, insurance costs have increased due to the increased risk of natural disasters, adding to the financial burden on owners and associations and leaving an opening for more condominium terminations.
Condo owners frequently welcome the price developers are willing to pay to sell, which are generally above market value. Savvy owners also understand they likely will not be able to afford the special assessments necessary to maintain the buildings and are happy to get out from under the albatross that can become an older condo building.
However, in March of this year, a small group of residents refused to sell their units, preventing a developer takeover, and they were upheld in the appeals court. This was a stunning outcome for Florida east coast developers who have borrowed funds to buy the buildings. They will, of course, appeal the decision and bring it to the Florida Supreme Court if the appeals court does not reconsider.
Nevertheless, until this is settled, there is a hold on condo terminations unless the owners all agree based on their condominium documents, or until the developers are successful in purchasing enough units to change the documents.
With land value along Florida’s coastline exceeding the value of the buildings, don’t expect this to end soon. It’s a sad situation for older residents who have to find a new home, but the reality is they may have no other option and accepting a developer’s offer will save them years of stress.
