Fractured Condominiums – Developer Liabilities Considerations

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

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

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

Some statistics
(2004 through 2008):

– 306,362 New Construction Condominium Units
created
– 179,686 Conversion Condominium Units created

Alex Dobrev, Esq.
(407) 418-6445

• 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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Fractured Condominiums – Developer Liabilities Considerations

Recommended

Recommended

More Related Content

Similar to Fractured Condominiums – Developer Liabilities Considerations

Similar to Fractured Condominiums – Developer Liabilities Considerations (6)

Recently uploaded

Recently uploaded (20)

Fractured Condominiums – Developer Liabilities Considerations