WHAT LIES AHEAD: THE CHANGING LANDSCAPE OF CONDO
ASSOCIATIONS
By
Rafael Aquino
Published August 7, 2024
As
we look forward in the world of community association management,
it's becoming increasingly clear that the impacts of the past three
years of legislation are beginning to unfold. The combination of
mandatory Structural Integrity Reserve Studies (SIRS), skyrocketing
insurance costs, and overall inflation set the stage for significant
changes within condo associations.
One trend gaining attention is the growing interest in condo
terminations. This topic is making headlines more frequently, and at
the ground level, we're hearing firsthand how many buildings are
struggling to afford increased maintenance costs and necessary
repairs. For some, termination is becoming an unfortunate but
necessary option. I personally believe this trend will continue to
grow as associations grapple with these financial burdens.
My
biggest concern is that the situation will worsen if the real estate
market experiences a downturn. A decrease in property values can
lead to equity dilution, putting owners at a disadvantage and making
them question whether they should stay in their units. This is
reminiscent of 2008 when many homeowners walked away from properties
because they knew they had no equity. In such a scenario,
opportunistic buyers might circle like sharks, waiting for prices to
drop further before swooping in, leading to unpleasant situations
for current owners.
The legal framework around condo terminations does offer some
protection. Under Florida's termination statute, 718.117, a
termination plan must be approved by at least 80 percent of the
condominium's voting interests. However, if 5 percent or more of the
voting interests reject the plan through a negative vote or written
objections, the plan cannot proceed.
While the law provides some protection, it also has its drawbacks.
For instance, if a building is up for sale and 5 percent of owners
refuse to agree—either hoping for a better offer or simply holding
out—the consequences for the remaining 80 percent can be
significant. Those who wish to sell and move on may find themselves
trapped, unable to liquidate their assets or make necessary
financial decisions. This stalemate can lead to increased tension
within the community and financial strain for those eager to sell.
In a worst-case scenario, it could bankrupt a building that might
have been sold, all because a small minority chose to block the
process.
I
predict that we may see legislative changes to the termination
statutes if the market corrects significantly. If 80 percent of
owners decide they can no longer afford to maintain their property
and have minimal equity left, the pressure to amend these laws could
increase. A more flexible and responsive legal framework may be
needed to effectively address these financial and communal
challenges.
As
we begin navigating these challenges, staying informed and engaged
with our communities is crucial. With residents increasingly
struggling to manage rising costs and special assessments, boards
must proactively consider strategies to address these financial
burdens. What steps can you take to support your community and
ensure its long-term stability? This is an important question for
boards and residents to consider as we move forward.
While we're just at the beginning of this period of transition, I
believe it will take twelve to twenty-four months for the full
effects to become clear. In the meantime, maintaining open
communication with owners and staying vigilant about market trends
will be key to navigating the road ahead.
