On June 7, 2006, Governor Bush vetoed Senate Bill 1556 which substantially amended Florida law pertaining to the termination of condominiums. Currently, Chapter 718, Florida Statutes, requires consent of all unit owners and lien holders to terminate a condominium, unless the condominium declaration provides otherwise. It also grants a unit owner the right to petition the court for equitable relief, including termination, if all or a substantial part of the condominium property is destroyed or substantially damaged. Senate Bill 1556 (Appendix A) would have significantly changed current law by reducing the required vote for termination not related to natural disasters or change in land use regulations to 80 percent of the unit owners. The bill also addressed termination due to economic waste and change in land use regulations, allowing such terminations to occur by a simple majority vote of the unit owners.

While expressing approval of the bill’s treatment of termination in the context of natural disasters and change in land use regulations, Governor Bush enumerated several concerns in his veto message:

1. The bill allowed optional termination if 80 percent of unit owners vote to approve or, failing 80 percent approval, if fewer than 20 percent of unit owners vote to disapprove, thus permitting termination by a small fraction of total voting interests. 

2. The lowered approval requirement made it possible for a developer to terminate a condominium, with the goal of redevelopment, by purchasing 80 percent of the units.

3. The bill provided only minimal procedural safeguards for objecting unit owners.

4. The majority voters could be prejudiced by a court-determined termination plan and apportionment of proceeds without the ability to retract their votes.

5. Service of process by publication for absentee owners who live outside Florida did not provide sufficient notice of termination-related litigation.

6. Requiring objecting unit owners to shoulder the costs of contesting apportionment would have been unduly burdensome for the many residents on fixed incomes living in older condominiums likely to be terminated under the new law.

7. The bill would have diminished owners’ existing rights because it retroactively applied to all condominiums already in existence.

Governor Bush directed the Department of Business and Professional Regulation’s (DBPR) Division of Land Sales, Condominiums and Mobile Homes to conduct a series of meetings to obtain public input regarding the issue of condominium termination. The Governor further directed the department to provide its findings to the Condominium Ombudsman, Danille Carroll, for review and comment, and to include her comments, along with proposals to improve the bill, in a report the Governor, the President of the Senate and the Speaker of the House by October 1, 2006.

The department conducted eight town hall meetings in condominium-populated areas across the state. The meetings were publicized in a variety of ways, including press releases, newspaper articles and radio announcements, and through the department’s web site. An email address was also created so that citizens could easily submit their comments via the internet.

The department received a total of 86 comments from the public between July 2, 2006, and September 15, 2006. This includes 51 comments received by email.

Further, 35 citizens offered testimony at the town hall meetings. The written comments from the public are attached to this report (Appendix C), as are the minutes of the town hall meetings (Appendix D) and a summary of citizen comments (Appendix E).

Senate Bill 1556, amended section 718.117(3), Florida Statutes, to provide for optional termination not related to changes in land use regulation or substantial damage to the condominium. Under these provisions, 80 percent of the unit owners could choose to terminate the condominium for any reason. Additionally, in changes to section 718.117(4)(a), Florida Statutes, even if 80 percent approval is not obtained for a plan of termination, the plan may be approved unless more than 20 percent of the unit owners vote against it.

This provision would, as indicated in the Governor’s veto message, permit a developer to enter a condominium, purchase 80 percent of the units, and terminate the condominium, thereby forcing the non-consenting 20 percent of the residents to vacate their homes.

In general, public input was not favorable regarding this provision. Many individuals opposed optional termination with a vote of less than 100 percent of the owners, and others suggested that the percentage needed for optional termination should be somewhere in between 80 percent and a 100 percent of the total voting interests. Much of the input also acknowledged the difficulty of obtaining 100 percent approval of the unit owners. Questions were also raised as to whether any optional termination provision could be applied to rights under existing declarations that typically require 100 percent approval for termination.

Public input regarding the part of the bill that allowed for optional termination as long as less than 20 percent of the voting interest were opposed to the termination was mixed, and not all fully understood this portion of the bill language. Some citizens acknowledged the Governor’s concern that the optional termination provision could allow a small minority of the unit owners to control the fate of the condominium.

The department recommends that Legislature not permit optional termination under either of the terms provided in SB 1556: when 80 percent of the voting interests approve the termination or when less than 20 percent of the total voting interests vote against it.

When unit owners object to a plan of termination, the bill provided minimal procedural safeguards and restricted the owners’ right to contest the plan to the distribution of proceeds of the sale. The bill provided that unless otherwise stated in the declaration, the association must first allocate the proceeds between the aggregate value of the units and the value of the common elements, based on their respective fair market values immediately before the termination. It also provided that the portion of the proceeds allocated to the units is “deemed” fair and reasonable if it is determined by the unit owners approving the plan of termination and based on any of the following methods:

1. The respective values of the units based on the fair market values of the units immediately before the termination, as determined by one or more independent appraisers selected by the association or termination trustee.

2. The respective values of the units based on the most recent market value of the units before the termination, as provided in the county property appraiser’s records.

3.  The respective interests of the units in the common elements specified in the declaration immediately before the termination.

Finally, the bill provided that a unit owner contesting the plan had the burden of

proving the plan was not fair and reasonable.

The bill attempts to provide the courts with a set of conditions by which the distribution of proceeds is “deemed” reasonable. However, there may be circumstances in which one or more of the three methods provided is not fair and reasonable. For example, if one person owns a substantial number of units as might be the case with a developer takeover, that person would likely control the process and select the method that best suited their interests while also selecting the appraiser. If the law provides that the method is “deemed” fair and reasonable, it would be more difficult for the contesting owners to overcome the presumption.

DBPR did not receive any direct public input on this issue.

The department recommends that the presumption of reasonableness be removed from proposed legislation, but the three factors mentioned above remain as required criteria for the court to consider in determining the reasonableness of the termination plan. These factors should not be “deemed” reasonable as a matter of law because it removes the court’s discretion and presents a difficult legal hurdle for a contesting unit owner to overcome.

Additional criteria might include the submission of expert testimony or a determination as to whether the plan works a manifest injustice on any of the parties.

The department also recommends that the unit owners should be given the right to contest any aspect of the plan, including distribution of proceeds, which affect their substantial interests without having to meet an additional burden of proof that the plan was not fair and reasonable.

As discussed above, the bill would have allowed a judge to modify a plan of termination and to apportion the proceeds in a manner that he or she deemed fair and reasonable. This provision could prejudice the rights of a majority of the owners by permitting the court to apportion a greater amount of the proceeds to the holdouts. The court is also authorized to modify or void the plan if it is found to not be fair and reasonable.

The department received no direct public input on this issue. While the bill does require the plan of termination to conform to certain objective criteria, in the final analysis it is the judge who is given ultimate authority to approve, reject or modify the plan.

The department does not have further recommendations regarding this issue. By allowing unit owners to contest all aspects of the plan and removing the presumption of reasonableness burden as stated in recommendation three, the department believes the interests of all persons can be adequately addressed by the court.

Under changes in the bill to section 718.117(4)(b), Florida Statutes, where a plan of termination is disputed by an owner or owners, the association or any unit owner may file a petition in court seeking approval of the plan of termination.

The lawsuit must name all non-consenting owners, and the bill provides that service of process on the unit owners may be by publication.

Public input received on this issue rejected service of process by publication in newspaper, and favored requiring personal service of process (by sheriff or process server) on the unit owners. The use of certified mail was also favored as an additional option due to the fact that many unit owners are part-time residents who live abroad or in other states where personal service of process may be difficult, expensive, or perhaps impossible for the association to obtain. In the latter case, service by certified mail – return receipt requested at the last known address of record provided by the unit owner should be available as an option.

Service of process by publication allows a notice to the unit owners regarding the plan of termination to be placed in a local newspaper. This is the type of notice that is least likely to get to the unit owners. Due to the substantial interests at stake with respect to unit owners, the department recommends that service of process by publication be removed from future legislation. Personal service or service via certified mail to the last known address or emergency contact address provided by the unit owners should be included.

Under proposed changes to section 718.117(17), Florida Statutes, the unit owner who contests the plan has the burden of proving that apportionment of the proceeds from the sale is not fair and reasonable. This burden of proof may have to be met by hiring economists, certified public accountants, appraisers, and other expert witnesses to testify in the court action.

These costs would be borne initially by the owners seeking to contest the plan and could be recouped along with attorney’s fees if the unit owner prevails in the action. However, many unit owners in older communities are on a fixed income and may not be able to bear the initial burden of these expenses. If they lose the case, they cannot pay the association’s and other parties’ costs and fees. This burden could be substantial, if the litigation involves joining numerous lien holders and other unit owners as parties in the lawsuit. No public comments were received regarding this issue. However, the economic interest of unit owners, especially those on fixed incomes, is so important that a recommendation for judicial apportionment of costs is included below.

The department recommends that future legislation be revised to require the judge to apportion costs and fees in an equitable manner, taking into account certain factors including the merits of the case, the financial status of the parties in relation to each other, the outcome of the case, and other factors deemed relevant.

All proposed amendments to section 718.117, Florida Statutes, including the optional termination provisions, would apply to pre-existing condominiums. Governor Bush noted that individuals who purchased their units prior to the effective date of the changes in the law would have their existing rights under their current declarations diminished. The Governor’s veto letter further indicated that retroactivity should only apply in the case of hurricane damaged facilities.

The public input on this issue was varied, but a number offered comments that optional termination not involving hurricane damaged properties should be extended only to new condominiums.

The department recommends that the Condominium Act be amended to allow termination-for-cause based on change in land use regulation or substantial destruction of the property as provided in the bill. This means that all condominiums, regardless of when they were created and whether or not the declaration requires the consent of 100 percent of the voting interests may be terminated under the conditions for cause as provided in the bill.

Optional termination provisions, if adopted at all, should apply only to condominiums created after the effective date of the bill. This would remove constitutional objections that may arise as a result of a potential impairment to the vested rights of unit owners.

In Governor Bush’s veto letter for Senate Bill 1556, he directed the Department of Business and Professional Regulation, Division of Florida Land Sales, Condominiums and Mobile Homes (the department) to conduct a series of town hall meetings to discuss Senate Bill 1556, the Governor’s concerns and proposals to improve the bill. The department was also directed to provide a copy of its findings to the Condominium Ombudsman for comment.

The department invited me to attend and participate in the eight town hall meetings conducted throughout Florida. I was able to attend all but one of the town hall meetings, which gave me the opportunity to hear and ask questions of those who provided input on Senate Bill 1556 and the Governor’s comments. As directed, the department provided me with a copy of its findings.

Although many condominium unit owners believe that termination of hurricane damaged properties should require less than a 100 percent vote of the units in a condominium; a majority of the public input was strongly opposed to the idea of allowing optional termination. Many condominium unit owners feared that allowing termination for situations other than a catastrophic event would open the door for possible abuse by developers. Many of the public also felt that allowing service of process by publication for absentee owners was an unacceptable solution for notifying unit owners regarding condominium termination.

After reviewing the department’s findings, I agree with the recommendations made because the division appears to adequately address and protect the unit owners property rights unless or until such time as a true representative proportion of condominium unit owners weigh in on this subject.

There was a concern about the lack of publicity regarding the town hall meetings and the requested public input for Senate Bill 1556. Although I know that the department publicized the town hall meetings, turnout for the meetings was sparse and public input was minimal for the number of condominium unit owners that live in Florida. Many condominium unit owners appeared to have not been aware of the meetings and/or the existence of the bill or knowledgeable regarding all of the language in the bill. Most comments focused on the optional termination portion of the bill. There was also a concern that many of Florida’s part time residents did not return to Florida until after Labor Day and therefore did not have the opportunity to comment.

Since the department had an October 1, 2006, deadline to submit its report, it did not have any flexibility to allow an extension of time to gather public input.

However, I recommend that the department continue gathering public input through the department’s website and, at a future date, provide an addendum to this report. As this bill affects every condominium unit owner in the State of Florida, it is very important to ensure that as many people as possible have been given an opportunity to have a voice in the process.

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