Can you really own a piece of real estate if someone else can force you to give it up? Apparently not, if what you thought you owned is a condo unit in Florida.
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Melissa and Howard Fellman stand in front of their condo at Crystal Palms Apartments on Friday, July 15, 2022 in Boca Raton. They are the last owners in the 176-unit condo complex who are fighting an investor's bid to terminate the condominium's covenants and force the couple to sell. |
According to the Department of Business
and Professional Regulation, terminations of 336
condominiums encompassing 24,761 units were approved by the
state Division of Condominiums, Timeshares, and Mobile Homes
over the decade beginning July 1, 2012. They ranged in size
from two units to 544. Thirty-nine were in Broward County,
86 were in Miami-Dade County, and 24 were in Palm Beach
County.
Between 2013 and 2019, the annual number of terminations
ranged from 32 to 43. During the pandemic, as eviction
moratoriums were imposed, the number of terminations fell to
19 in 2020 and 22 in 2021. Eleven terminations have been
approved by the division so far in 2022.
Termination uptick expected
But real estate experts predict that terminations will
increase in Florida as condo associations seek to avoid
strict and costly requirements enacted in May in the wake of
the Champlain Towers collapse last year in Surfside. The new
laws require associations with buildings at least 30 years
old and over three stories high to, before 2025, conduct
structural inspections and amass enough money in their
reserves to fund necessary structural repairs.
Attorneys who specialize in condominium law predict that
owners in scores of older condo buildings won’t have the
money to comply with the new requirements and pay rising
insurance costs. For many, termination will become the most
feasible option.
Investors in South Florida are looking for new
opportunities, the Daily Business Review reported this
month. They’re looking for aging condos so they can buy out
unit owners, terminate the covenants and sell the real
estate to developers. Some will earn serious profits by
tearing down the older structures and building new condos or
apartment complexes with larger, pricier units.
Faced with costly fixes, many unit owners will decide that
selling to an investor and buying a new home with the
proceeds will be in their best interest, analysts say.
Owners in desirable waterfront properties could realize a
tidy profit.
But in less valuable complexes, the trend will displace
long-time residents, often elderly and on fixed incomes, who
thought they would own their units for the rest of their
lives, said Lauren Manning-Hudson, an attorney specializing
in condominium law and construction litigation for the Coral
Gables firm Siegfried Rivera.
Some will be left without enough money to find comparable
housing in today’s high-priced Florida property market,
Manning-Hudson said.
“A lot of people who live in these condos are on Social
Security,” she said “Even if they’re bought out, where would
they go now? They don’t want to lose their homes.”
Many won’t have the resources or fortitude to fight back, as
the Fellmans did when notified in February 2021 that the
investor had decided to terminate the condo and acquire
their unit in a forced sale.
Owners who do fight back could find themselves in an uphill
battle against deep-pocketed investors determined to
prevail.
In a termination, remaining unit owners are required to
sell. In the Fellmans’ case, the appraiser has said their
unit is worth only $200,000. The Fellmans say the actual
market value is more than $300,000, based on estimates by
the real estate website Zillow. The Palm Beach County
property appraiser determined the condo’s market value was
$206,000 in 2021, but that value will likely increase when
2022 values are posted.
The last holdouts
Howard Fellman originally bought his unit in 1992 for
$65,000 when Mission Viejo was still a condominium complex.
Shortly after his purchase, a Michigan investor bought every
unit except Fellman’s. The investor offered to buy Fellman’s
unit, but he declined, saying he liked the property’s
amenities and its location near his computer business.
By 1998, the Michigan investor sold the 175 units to The
Scully Company, a Jenkintown, Pennsylvania apartment complex
owner with holdings in several states. An attorney for The
Scully Company, which operates the complex under the name
Crystal Palms Apartments, did not respond to a request for
comment for this story.
For 27 years, Fellman coexisted peacefully with the majority
owners, he said. He paid all dues and assessments on time
and never argued with the governing board or disputed its
rules. After marrying Melissa in 1999, the couple stayed in
the unit until 2005, then bought a house to accommodate
their growing family. For the past 17 years, they’ve been
leasing the unit to tenants.
Their current tenant, a single mother with three children,
will likely be forced to relocate if the termination is
finalized.
The couple always planned to keep the unit and move back
after their children were grown, Melissa said.
“We don’t want to sell it,” Howard says. “We like our unit.
It’s in a beautiful location, central to the community.”
The Fellmans filed suit against the association last
September to try to stop the termination and forced sale of
their unit.
In their complaint, they contended that the 1980 declaration
of covenants in place when Howard first purchased the unit
was a binding contract that required 100% approval of all
unit owners to terminate the condominium or even to amend
the covenants to reduce the percentage of unit owners
required to approve termination.
The covenants, the suit states, were adopted in accordance
with the 1979 version of the Florida Condominium Act, which
stated that condominium property can be “removed from the
provisions” of the act “only by consent of all of the unit
owners.”
The covenants also lacked language automatically adopting
future revisions of the Florida Condominium Act. That meant,
the Fellmans contended, that their rights were still
protected under the 1979 version of the act and not a 2007
revision that reduced the percentage of unit owners needed
to approve termination from 100% to 80%.
A court loss and appeal
After seven months of litigation, Palm Beach County Circuit
Judge James Nutt issued a ruling that disagreed with the
Fellmans’ position. The ruling found that the termination
could proceed because the covenants did not expressly
prohibit future amendments reducing the voting threshold for
termination.
The Fellmans’ attorney, Jeff Rembaum, a partner in the
Pompano Beach-based firm Kay Bender Rembaum, said his
clients believe the judge based his ruling on “flawed”
logic.
“The covenants are a contract between the association and
the unit owners,” he said in an interview. In the Fellmans’
case, without language automatically adopting future
revisions of state law, the covenants give unit owners a
“vested right” that’s “sacrosanct” and cannot be amended
without approval from 100% of unit owners.
The judge “didn’t rule it wasn’t a vested right,” Rembaum
said. “He said, ‘No, I’m taking that right away.’”
In May, the couple appealed Nutt’s ruling to the Fourth
District Court of Appeal in West Palm Beach. Rembaum said
he’s confident about the couple’s chances that the appellate
court will reverse the ruling.
Douglas Jeffrey, a Miami Lakes attorney whose area of
practice includes contracts and construction law, disputed
Rembaum’s assertion that Nutt’s logic was flawed.
The 1979 version of the Florida Condominium Act, he said,
“defines a Declaration of Covenants broadly and contemplates
amendments by specifically stating, ‘as amended,’” Jeffrey
said in an email. And the Declaration itself, he added,
“clearly states that it ‘may be amended at any regular or
special meeting of the unit owners’ that is duly scheduled
in the manner required in the bylaws.’”
Ultimately, Jeffrey said, the Fellmans’ argument “that they
had a vested property right is belied by the fact that the
Declaration was always subject to a duly passed amendment.”
The Fellmans’ chances of winning would have been stronger,
he said, if the original covenants had language expressly
prohibiting an amendment changing the number of votes
necessary to terminate the condominium.
“The law in Florida has always been broadly constructed so
as to permit amendments to condo declarations,” Jeffrey
said. “Condominiums are corporations which exist in
perpetuity unless terminated by law. Why wouldn’t an
entirely new group of unit owners, many decades later, not
be able to make changes they deem fit when the original
owners are all long gone?”
The Fellmans argue that majority owners should not be able
to force owners like themselves to relinquish their property
rights, as long as the buildings, amenities and property are
habitable and structurally sound.
It’s not like they’re being forced to sell to a government
using its power of eminent domain to create a public good,
such as a road or bridge, they say.
Whether The Scully Group is seeking to free itself of having
to comply with state condominium regulations or sell to a
developer with plans to build something new, the termination
is strictly for the investor’s gain — and that’s not right,
the Fellmans argue.
“It comes down to, ‘We want your property. You can’t have
it. We have deeper pockets and you don’t,’” Melissa said.
The couple say they are pushing forward with their appeal
not only to protect their property rights, but also those of
other unit owners who stand to be displaced by future
terminations.
“The vast majority of time, people fold. They don’t have the
resources to go after big investors and big law firms,”
Howard said.
Asked Melissa, “Why should they be able to make us leave?”