Editor’s note: This article is reposted with permission by The Real Deal. Click here to view the original article.
By ALEXANDER BRITELL
Gov. Charlie Crist signed into law a significant change to Florida’s condominium statute late last night, giving bulk buyers a leg up in future purchases.
The highlight is a provision that protects bulk buyers from the liabilities they had been assuming by purchasing more than seven units in a condo.
Prior to the passage of the Distressed Condominium Relief Act, the Florida Department of Business and Professional Regulation’s Division of Florida Condominiums deemed anyone who sold or leased more than seven units in a condo in one year a developer, meaning bulk buyers assumed the liabilities typically associated with developers, like construction warranties, along with issues of association control.
"Condominium law defines a developer as anyone who creates a condo, but also creates or offers units for sale or lease in the ordinary course of business," said Mark Grant, a partner at Ruden McClosky in Fort Lauderdale who helped draft the bulk-buyer provision.
"With the new law, it’s very clear that a bulk buyer does not fit into the definition of the developer — they’re exempt."
The provision, which will go into effect July 1, has a limited two-year time window.
Supporters hope the new law will spur bulk buyers who no longer have to worry about potential liabilities. But many of the bulk deals that have been transacted this year, led by a wave of buyers in downtown Miami, involved private equity investors who weren’t fazed by potential liability, and factored in that risk to their prices, said Condo Vultures Founder Peter Zalewski.
He predicted the law could have a stabilizing, if not upward, effect on bulk condo prices.
"The successor developer liability issue has been a concern and a stumbling block for institutional buyers," he said. "But it has not been a stumbling block for private-equity buyers. Private equity is going to be based on fundamentals, with some wiggle room for variances, while institutional buyers don’t have that wiggle room."
Zalewski said the problem with the bill is that much of the inventory had already been spoken for.
"The people who would have been put off by this already bought the product; they factored into their price some sort of risk, and that’s why these bulk buyers were willing to pay whatever they paid. They assumed if something happened with (a building’s) defect, they could cover it based on their original purchase price. Here, it’s almost like coming up with a solution after the problem has occurred," he said.
The new law had several other major provisions, including one that doubles the amount of condo assessments lenders have to pay for units they take title to in foreclosure, from six months to 12 months.
Payments to condo associations have been one reason some banks have been reluctant to foreclose on condo units, leading one attorney at the end of last month to devise a strategy called "mortgage termination," where condo associations force banks to release their mortgages on condo units when they stall on foreclosures.
Another section of the law was intended to help struggling condo associations. Some of the changes included a change to the law that previously required an average of almost $2,000 per unit in high-rise condos to pay for new sprinkler systems.
Now condo associations can decide for themselves whether to make these changes, without being required by a rigid code, said Donna Berger, managing partner at the statewide law firm of Katzman Garfinkel & Berger.
Berger, one of the drafters of the law, said it was written to create more similarities between the law governing homeowner associations and that of condo boards.
Under the provisions of the new law, condos can suspend use of the common areas when owners fail to pay their assessments, something that has long been one of the powers delegated to homeowner associations.
"We’ve been saying this for two years," Berger said. "We want to achieve more parity between the two statutes, as much as possible. Why should an HOA have tools to deal with delinquent owners that a condo board does not? While it won’t put money in their pockets to keep Mrs. Smith out of the pool, it will probably make them feel better if she hasn’t paid for it in two years."
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