Deconversion is the common name for the termination of a condominium. When a condominium is terminated, the condominium form of ownership ends, title to the property is transferred to a termination trustee, and the property is usually sold as a whole. Owners receive a share of the proceeds instead of keeping their units.
This article is general information and is not legal advice. The association's attorney should be consulted.
Why Deconversion Is Being Discussed
Many Florida condominium buildings are several decades old. Recent changes in state law require milestone inspections and structural integrity reserve studies for many buildings, and reserves for key structural items can no longer be waived in associations that must have a study.
When the cost of keeping a building in service becomes very high, an investor may offer to buy the entire property, and termination may be weighed against large special assessments. The rules are set out in section 718.117 of the Florida Statutes.
Termination Because of Economic Waste or Impossibility
One path to termination applies when repairing or rebuilding is no longer practical. Under section 718.117(2), a plan of termination may be approved by the lesser of the lowest percentage of voting interests needed to amend the declaration or the percentage the declaration provides for termination, if either of these is true:
- The total estimated cost of construction or repairs exceeds the combined fair market value of the units after the work is completed.
- It becomes impossible to operate or reconstruct the condominium in its prior physical configuration because of land use laws or regulations.
Optional Termination
The second path, called optional termination, does not depend on economic waste. Under section 718.117(3):
- The plan must be approved by at least 80 percent of the total voting interests before it is submitted to the state division that regulates condominiums.
- If 5 percent or more of the total voting interests reject the plan, by a negative vote or by written objection, the plan may not proceed.
- After a rejection of that size, another optional plan may not be considered for 24 months.
- Voting interests may not be suspended for any reason when a termination vote is taken.
The plan is reviewed by the division for procedural sufficiency, and it must be approved by the division before it can be carried out.
Protections When One Buyer Holds Most Units
Many deconversions involve an investor who has purchased a large share of the units. When at least 80 percent of the voting interests are owned by a bulk owner at the time the plan is recorded, added protections apply under section 718.117(3). Among them:
- Owners other than the bulk owner must be paid at least 100 percent of the fair market value of their units, as set by an independent appraiser.
- An owner whose unit had a homestead exemption, or was an owner-occupied operating business, and who is current on assessments must receive at least the original purchase price.
- A homestead owner must receive a relocation payment equal to 1 percent of the termination proceeds allocated to the unit, paid by the bulk owner.
- If former units are offered for lease to the public, an owner in occupancy may lease the former unit for 12 months after termination, if a written request is made within 90 days after the plan is recorded.
- If the board is elected by the bulk owner, other owners may elect at least one-third of the board before any plan is approved.
The Trustee, Notice, and the Right to Contest
The association serves as termination trustee unless another person is named in the plan. Title to the property is vested in the trustee.
Within 30 days after the plan is recorded, notice must be sent by the trustee by certified mail to all owners and lienors. A unit owner or lienor may contest the plan by filing a petition within 90 days after the plan is recorded. A contest is limited to the fairness of how proceeds are divided, whether required mortgage payoffs will be made, and whether the required vote was obtained. Claims that are not raised within the 90-day period are barred.
What Owners Should Do
- Every notice and ballot should be read carefully and kept.
- The declaration should be reviewed with an attorney, because its terms can affect the approval percentages.
- An independent appraisal and tax advice may be useful before an owner votes.
Owners who want a better grasp of the financial side may also find
the consequences of not having cash reserves useful.
Talk With Us
Records, meetings, and owner communication are handled for the communities managed by Condominium Associates, including associations facing major structural decisions. To talk about your association's situation,
contact us.
