Partial Termination of Condominium – How Does It Work?

February 4th, 2014

Posted in Business & Corporate Law

Today’s real estate landscape shows a substantial improvement and a large increase in development of new communities throughout Northeast Florida.  However, prior to or at the time of the “bubble burst,” many condominium developers began projects either too ambitious or which were just poorly timed.  Condominium communities were planned, buildings were started and some completed, and then the market for condominiums fell out.  This has resulted in some instances the creation of “phantom condominium units” which technically exist in law even if the units are not physically created.  In fact, a phantom unit can exist without construction having started at all.  The difficulty is that these units are treated the same as other units in the condominium – their owners are required to pay assessments, they have voting rights, and they otherwise own a share of the common elements.  Of course, as most of these units are owned by typically defunct developers, assessments are subsequently unpaid and the owners of units that have been completed who reside in or utilize the condominium property are forced to carry the burden.  Further, the developer’s debt to the Association would continue to grow and it would be tied into what usually is a no longer viable project.  Florida condo associations and owners of these phantom units alike had limited recourse until 2011 when the Florida Legislature adopted changes to Florida Statute 718.117 which allowed for a partial termination of a condominium, resulting in the developed units to remain as part of the condominium and allowing for the undeveloped units to be removed from condominium ownership and thus subject to alternative forms of use.

Section 718.117 of the Florida Statutes sets forth two ways in which a condominium may be partially terminated, either (1) due to economic waste/ impossibility or by (2) optional termination.  Economic waste is defined as being when the total cost of constructing or repairing the units exceeds the current market value of the condo units once they are constructed or repaired.  Impossibility is defined as an instance the developer cannot finish the project because land laws or regulations have changed.  In cases of economic waste or impossibility, the ownership of the undeveloped condominium property can be terminated by the lesser of the lowest percentage of voting interests necessary to amend the declaration or as otherwise provided in the declaration for approval of termination.

Optional termination is available when it may be difficult/costly to establish economic waste or impossibility.  This route entails obtaining a larger amount of owners approving,  requiring an affirmative vote of at least eighty percent (80%) of the total voting interest and no more than ten percent (10%) of the total voting interest rejecting the plan.  Importantly, the condominium may be partially terminated even if the cost of constructing or repairing the remaining units.

Once the termination plan is approved by the voting interests and recorded, unit owners and lien-holders have 90 days to contest the plan.  If there are no objections to the plan within the 90 day period, title to the property is given in trust to the trustee, usually the association, to sell or otherwise convey the property in accordance with the terms of the termination plan.  Approval of the termination plan does not affect the association or its powers, and the association continues on to serve the property and units that will remain part of the condominium.

The above is a summary of the partial termination process and does not go into detail regarding the requirements of the termination plan and the options available to individual associations and unit owners.  The amended statute allowing for partial termination is extremely helpful to condominium developments that are being weighed down by phantom units and the financial burden imposed on the owners of occupied units.  Associations and developers that believe partial termination may be beneficial are advised to contact a Florida attorney with experience in Condominium and partial terminations to further discuss the termination requirements and whether it may serve the interests of all parties involved.

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