Editorial: A Relief For Florida Commercial Condos

by Bilzin Sumberg Baena Price & Axelrod LLP
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Law360 - May 13, 2014

Most provisions in the Florida Condominium Act (Chapter 718 of Florida Statutes) apply equally to residential and commercial condominiums. But anyone attempting to draft operating procedures for commercial condominiums can be stymied by the procedures for meetings, elections, service on the board of directors and dispute resolution currently existing in the act.

The inclusion of such provisions in the statute arose from abuses in residential condominiums that had occurred when individuals, with no knowledge of the law and a particular personal bent, ran residential condominiums as their personal fiefdoms.

In the commercial arena, there was little or no evidence of abuses, but drafters of commercial condominium documents were faced with limitations on the manner in which the board of directors could be elected, term limitations on the board, certification of familiarity with the act and other provisions dictating how the condominium would operate. Many of these provisions were difficult to apply in a commercial venture and frequently openly ignored.

The Real Property, Probate and Trust Law Section of The Florida Bar sponsored a bill introduced in the 2014 session that, with some tinkering, passed the Legislature as SB 440. As of the date of this writing, it has not been signed by Gov. Rick Scott but, based on the absence of any currently expressed objections (it passed the Florida House 116-0 and the Senate 40-0), signature by the governor is expected.

This bill operates by either limiting certain existing provisions of the act to residential condominiums or by carving out from a number of provisions of the act an exception for "nonresidential condominiums." The term "nonresidential condominium," unfortunately, is nowhere defined in the statute; it was left on the cutting room floor in the passage process. However, the definition of "residential condominium" is very extensive, excluding condominiums primarily commercial or industrial. We can assume therefore that if the project does not qualify as a residential condominium, it can be characterized as a "nonresidential condominium" by default.

The passage of this bill could encourage developers to utilize commercial condominiums more and therefore spur more development in the commercial area. It may also serve to increase financing for commercial development if developers can raise some of the cost of their commercial projects with presale deposits as is currently being done with residential condos.

Discussed below are some of the more significant provisions of SB 440.

Proxies. The act does not permit general or limited proxies to be used in voting for the board of directors. SB 440 now permits them to be utilized in voting for the board in a nonresidential condominium. In addition, in other voting action by unit owners, regarding waiving or reducing reserves, waiving financial reporting requirements or amending the declaration or the articles or bylaws of the condominium association, general proxies can be used by unit owners in a nonresidential condominium. Under existing law, unit owners could only express their vote on these other matters by a voting ballot or by a limited proxy.

Election of Directors. The existing limitation on directors to a one- or two-year term (depending on the bylaws) has been lifted for nonresidential condominiums. Directors in such condominiums may serve for an unlimited number of terms or years.

In addition, if there is more than a single owner of a unit, all owners can serve simultaneously on the board of directors in a nonresidential condominium. Prohibitions on multiple owners of a single unit serving concurrently remain in residential condominiums.

Furthermore, the limitation on the manner of election, only by ballot or voting machine, no longer applies in a nonresidential condominium. Finally, the "loyalty oath" required for any board member, a certification that the member is familiar with the condominium documents and will uphold the documents and discharge his or her duty as a fiduciary, is omitted for directors in a nonresidential condominium.

Arbitration/Mediation. The act contains a provision requiring arbitration or mediation for disputes. The arbitration or mediation is handled by the state agency overseeing only residential condominiums, the Division of Florida Condominiums, Timeshares and Mobile Homes. However, no distinction was made between residential and nonresidential condominiums in such alternate dispute resolution provisions.

Therefore, a dispute in a nonresidential condominium would have to be arbitrated or mediated before the division, but the division had no jurisdiction to conduct such arbitration or mediation. This Catch-22 has been remedied by reason of exclusion of nonresidential condominiums from the arbitration and mediation requirements.

Hurricane Protection. The Condominium Act has elaborate provisions relating to the installation of hurricane shutters, impact glass or other hurricane protection. While this may make sense in a residential development, it makes little sense in a shopping center; nonresidential condominiums are now excluded from the operation of these provisions.

Phased Development. Many projects are built in phases. The act provides protection for owners purchasing in early phases by requiring that future phases must adhere to certain limitations on the manner of development. These limitations prevent a developer from being able to change the character of the development by building a different product in future phases.

While this generally worked well for residential development, it put a straitjacket on commercial projects, which may contain different types of uses in different phases. Almost all of the phased restrictions have been lifted for nonresidential condominiums in SB 440.

Distressed Condominium Relief Act. While almost all of SB 440 deals with nonresidential condominiums, this bill also carried an extension of the Distressed Condominium Relief Act for one year or to 2016. The Relief Act, adopted as Part VII to the Condominium Act, was enacted in 2010 as a way to promote the absorption of a substantial unsold condominium inventory arising from the downturn in the real estate market starting in 2008.

Originally enacted for a two-year term, Part VII was previously extended for three years to 2015. It was generally credited with assisting in the absorption of a substantial amount of the unsold inventory. While inventory in South Florida has generally been absorbed, the absorption rate in other areas has been slower and this latest extension is a welcome addition to this bill.

This article is reprinted with permission from Law360.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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