Google “Florida Condominium Crisis” and you will find no shortage of news stories detailing the challenges facing condominium associations. Rising assessments, scarcity of insurance, and costly mandatory maintenance have condominium owners, and their boards of directors, understandably nervous about future operations.

With cost increases caused by the implementation of additional maintenance, inspections and reserve reforms mandated by legislative initiatives SB-154 and SB-4D, and an insurance crisis driving up premium costs, owners who were once fairly certain of their costs of living are now faced with substantial assessment and cost increases. Add in a strong real estate market and you could have a perfect storm of circumstances leaving many owners contemplating sale and an optional termination of the condominium.

There are two types of terminations regulated by the Condominium Act: (1) Termination because of Economic Waste or Impossibility and (2) Optional Termination. The former sets forth the steps an association can take in circumstances of catastrophic loss or when the condominium improvements require such costly renovations that the construction itself will cost more than fair market value of the Association’s total property. The latter, an Optional Termination, is exactly what it sounds like; the members, collectively, choose to pursue a plan releasing the units from the condominium shared interest ownership structure. As of February of 2023, according to Florida’s Department of Business and Professional Regulation (DBPR), over 360 condominiums, containing over 26,500 units total, have been approved for termination since 2012. In 2022, 23 terminations were approved, encompassing nearly 550 units. Given the current circumstances, we could very well start seeing a marked increase in proposals to terminate.

The process for termination of a Condominium is regulated both by an association’s governing documents and Fla. Stat. 718.117. It is a process by which members of a condominium association collectively sell their interests in the association to a third party, who is usually, but not necessarily always, an investor. Often what will happen is a buyer will start buying up multiple units, until that buyer becomes what is called a “Bulk Owner” who can obtain control over the Association and its Board of Directors. From there, the Bulk Owner, if needed, can amend the association’s governing documents to create a more favorable process in which to propose the termination.

Terminations are multi-step processes. In order to terminate the condominium structure, a membership vote is required. Per Fla. Stat. 718.117, to be successful, 80% membership approval of a written termination plan is required. Additionally, as a safeguard, if more than 5% of the members object and vote against the termination, the termination fails and cannot proceed. In some cases, if the Declaration’s terms differ from the statute, an approval rate of up to 100% may be required. Once approved by the membership, terminations also require the written plan of termination, which provides the specific termination details, to be approved by the DBPR’s Division of Condominiums, Timeshares and Mobile Homes. The plan must include certain disclosures, specifically those concerning Bulk Owners, as well as the terms of payment to ensure first mortgagee lien holders are fully paid and their liens satisfied. When a Bulk Owner exists, the Statute provides certain protections for non-Bulk Owners, ensuring that they are paid full market value, have the opportunity under certain conditions to remain in their unit as a tenant, and the opportunity to receive a relocation payment.

To some owners shocked by additional expenses, termination may be a viable option. Take for example the owners of a condominium association in Lakewood Ranch, a master planned community in the Tampa Bay area. The Association struggled to find a carrier that would offer them condominium insurance, and when they finally did, it came with an increase in premium costs of almost 1000%! For the 56-unit condominium, the owners used to pay approximately $56,000 a year for insurance premiums. The new cost with the increase was more than half a million dollars. Although Lakewood Ranch ultimately did not pursue termination, similar circumstances could be a tipping point for some Florida condominium associations.

Despite recent legislative attempts to strengthen Florida’s insurance market, including a 2022 special legislative session, a bounce back does not appear to be on the immediate horizon and so owners may not soon see a reduction, or even stabilization in insurance rates. The requirements, and extra costs, to fully fund certain reserves and perform additional inspections and maintenance are likely here to stay. Bulk buyers may capitalize on this moment by scooping up reasonably priced condominium units with an eye to remove the restrictions of condominium structured ownership in hopes of greater profits from rentals or the possibilities of new development. Owners may start to have questions about the viability of the option to terminate. Boards of Directors and Community Association Managers need to have a plan in place before circumstances become dire. Strategies aimed at stabilizing assessments, cutting costs where appropriate, mitigating risk to remain insurable, and appropriately planning for reserves will be key in preventing unnecessary terminations; and as always, communication with members is a top priority.