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Fractured Condominiums – Developer Liabilities Considerations
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Fractured Condominiums – Developer Liabilities Considerations

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  • 1. Florida Fractured & Busted Condominiums – Developer Liabilities Considerations Alex Dobrev Lowndes, Drosdick, Doster, Kantor & Reed, P.A. 215 North Eola Drive Orlando, FL 32801 Phone: 407-843-4600 x445 Direct Dial: 407-418-6445 Fax: 407-843-4444 email: alexander.dobrev@lowndes-law.com web site: www.lowndes-law.com
  • 2. Florida Condominium Act (Chapter 718 of the Florida Statutes) • Condominiums are creatures of statute: • Creation, operation/ownership, and termination are governed by statute. • A condominium is created when the declaration of condominium is recorded in the public records of the County where the property is located. • The Condominium Act sets parameters of what must be included, what must not be included, and what may be included in the condominium governing documents Alex Dobrev, Esq. (407) 418-6445 alexander.dobrev@lowndes-law.com
  • 3. Sources of law: – Condominium Act – Rules and Regulations promulgated by the Division of Condominiums, Timeshares, and Mobile Homes, (the “Division”) – Declaratory Statements issued by the Division – Arbitration Decisions issued by the Division – Case law (judicial decisions) Alex Dobrev, Esq. (407) 418-6445 alexander.dobrev@lowndes-law.com
  • 4. Some statistics (2004 through 2008): – 306,362 New Construction Condominium Units created – 179,686 Conversion Condominium Units created Alex Dobrev, Esq. (407) 418-6445 alexander.dobrev@lowndes-law.com
  • 5. • Different requirements apply to residential and non-residential condominiums, as well as to new construction vs. conversion type product, such as: – Disclosure and registration (filing with the Division) required with respect to residential condominiums – Different Warranties (scope and duration) may apply to new construction vs. conversion product. – Different Reserves requirements (new construction vs. conversion) Alex Dobrev, Esq. (407) 418-6445 alexander.dobrev@lowndes-law.com
  • 6. The Developer • Statutory Definition – catch all • a person who creates a condominium or offers condominium parcels for sale or lease in the ordinary course of business [F.S. 718.103(16)] • the statute does not differentiate, overtly, between different flavors of developer – that’s where the Regulations come in Alex Dobrev, Esq. (407) 418-6445 alexander.dobrev@lowndes-law.com
  • 7. Regulatory Refinements/Clarifications (61B-17.001, Florida Administrative Code – the “Rule”) – “creating developer” - any person who creates a condominium – “concurrent developer” - any person who acts concurrently with a developer in offering to sell or lease for more than 5 years condominium parcels in the ordinary course of business. – “successor” or “subsequent developer” - any person, other than the creating developer or concurrent developer, who offers condominium parcels for sale or lease for more than 5 years in the ordinary course of business. Alex Dobrev, Esq. (407) 418-6445 alexander.dobrev@lowndes-law.com
  • 8. Regulatory Refinements/Clarifications (61B-17.001, Florida Administrative Code – the “Rule”) – Cont’d • the term “person” includes natural persons, corporations, partnerships, limited liability companies, and any other legal entities. • “offering condominium parcels in the ordinary course of business” means the following: – (a) Offering more than 7 units, or for condominiums comprised of less than 70 units, where that person offers more than 5 units in the condominium within a period of 1 year; or, – (b) Participates in a common promotional plan that offers more than 7 units within a period of 1 year. Alex Dobrev, Esq. (407) 418-6445 alexander.dobrev@lowndes-law.com
  • 9. Regulatory Refinements/Clarifications (61B-17.001, Florida Administrative Code – the “Rule”) – Cont’d • Caveat: these definitions refer to developer filing requirements and do not exempt a developer from complying with other provisions of the Condominium Act Alex Dobrev, Esq. (407) 418-6445 alexander.dobrev@lowndes-law.com
  • 10. The Developer – cont’d • The Condominium Act does not explicitly differentiate between different types of developer, but (more stats): – The term “the developer” is used 270 times – The term “a developer” is used 53 times – Just “developer” is used 43 times – What does this mean? Alex Dobrev, Esq. (407) 418-6445 alexander.dobrev@lowndes-law.com
  • 11. Developer Status – general considerations: – Control – Voting – Warranties – Reserves – Assessment Liability/Exemptions – Deficit Funding – Filing required prior to offering units for sale Alex Dobrev, Esq. (407) 418-6445 alexander.dobrev@lowndes-law.com
  • 12. Developer Status – cont’d: – Reserved rights under the condominium documents • Leasing/sales office • Alteration of units • Excuse from payment of assessments • More control Alex Dobrev, Esq. (407) 418-6445 alexander.dobrev@lowndes-law.com
  • 13. Developer status – voting/control considerations – Regulatory assignment: • “assignment of developer rights” refers only to a written agreement whereby the current developer expressly transfers to the grantee or transferee all developer rights and existing obligations under the declaration of condominium, including any exhibits thereto; under Chapter 718, Florida Statutes, including the provisions of Section 718.203, Florida Statutes [dealing with statutory warranties] Alex Dobrev, Esq. (407) 418-6445 alexander.dobrev@lowndes-law.com
  • 14. Developer status – voting/control considerations – cont’d • If no assignment of developer rights, the acquired units count for Turnover purposes (50% and 90% trigger events) • If the transferee or grantee receives an assignment of developer rights, the transferee or grantee has the voting rights of the current developer as provided in the declaration, articles of incorporation or association bylaws and the Condominium Act. • If the transferee or grantee does not receive an assignment of developer rights and if the transferee or grantee is not and does not become a developer under the Rule, the transferee or grantee is entitled to vote for a majority of the members of the board of administration. Alex Dobrev, Esq. (407) 418-6445 alexander.dobrev@lowndes-law.com
  • 15. Developer status – voting/control considerations – cont’d – If the transferee or grantee does not receive an assignment of developer rights and if the transferee or grantee, at the time of such transfer or at a subsequent time becomes a developer (under the Rule), such developer is entitled to vote for a majority of the members of the board of administration so long as such developer is offering units for sale in the ordinary course of business. If, however, such developer is not offering units for sale in the ordinary course of business as defined in the Rule, such developer is not entitled to vote for a majority of the members of the board of administration. Alex Dobrev, Esq. (407) 418-6445 alexander.dobrev@lowndes-law.com
  • 16. Liabilities • Warranties, reserves, assessments, deficit funding and other obligations/liabilities dictated by the Condominium Act • Other obligations under the condominium governing documents (construction of future phases, recreational facilities, etc.) Alex Dobrev, Esq. (407) 418-6445 alexander.dobrev@lowndes-law.com
  • 17. Liabilities – cont’d • External liabilities based on structuring of the offering and behavior of the “creating” developer and its agents – Interstate Land Sales Full Disclosure Act liabilities » Complete vs. partial exemptions » Stiff penalties for failure to comply, including conveyance back to “the developer” for full refund or damages based on change in market value – Other (e.g., Florida Deceptive and Unfair Trade Practices Act) Alex Dobrev, Esq. (407) 418-6445 alexander.dobrev@lowndes-law.com
  • 18. Exit Strategies – Bulk sale – no filing required: » all of the units are offered and conveyed to a single purchaser in a single transaction. An example of such a transaction would be a financial lending institution receiving title to a number of condominium units through foreclosure or deed in lieu of foreclosure and then conveying all of such units to another person. In such circumstances, the lending institution would not be deemed to be a developer for filing purposes. Alex Dobrev, Esq. (407) 418-6445 alexander.dobrev@lowndes-law.com
  • 19. Exit Strategies – cont’d – Sale of less than all units (including sales to individual purchasers) – full successor developer filing required – Lease of units, possible de-conversion – Terminating the condominium regime – the “nuclear” option. – Combination of some of the above. Alex Dobrev, Esq. (407) 418-6445 alexander.dobrev@lowndes-law.com
  • 20. This presentation is intended for informational purposes only, does not constitute legal or investment advice and may not be relied on as such, nor does it create an attorney-client relationship. It is not intended to cover all the issues related to the topic discussed, and should not be used to replace the advice of your own legal counsel. The hiring of an attorney is an important decision that should not be based solely upon advertisements. Before you decide, ask us to send you free written information about our qualifications and experience. Alex Dobrev, Esq. (407) 418-6445 alexander.dobrev@lowndes-law.com