The condo market is entering a free fall.
Unit owners are running out of time — and options. Meanwhile, Florida's 3rd District Court of Appeals sits on a case that could unleash new opportunities for unit owners … or make today's condo crisis a real catastrophe.
New opinions were issued today, but there was no word on the Biscayne 21 case.
For months, stakeholders in Florida's condo market have been watching Florida's 3rd DCA and waiting for a decision. The Biscayne 21 case impacts more than just the owners and former owners of the 60-plus-year-old building on North Bayshore Drive in Miami.
It could have ramifications for every condo owner in Florida, from the Panhandle to the Keys.
"While this ruling centers around just one building, its ramifications impact the entire state," said Rep. Vicki Lopez, who lives in a condo unit and represents Miami-Dade in the Florida House. "If the ruling in Miami-Dade on Biscayne 21 stands, Florida condo owners are left with fewer rights and even fewer options. Without options, condo owners across the state will be saddled with financial burdens and obligations, and even the possibility of foreclosure."
Like many condominiums built in the 1960s, Biscayne 21's charter required 100% homeowner approval to terminate the homeowners' association (HOA). This outdated model gave veto power to any one unit owner, putting the best interests of the vast majority of unit owners in jeopardy. In the more than six decades since Biscayne 21 was built, the state has revised condo laws multiple times to preserve and strengthen the property rights of unit owners. Once such modification reduced the termination threshold to 80%.
The state has made other modifications to condo laws over time to increase the safety and protection of unit owners and their properties. After the tragic collapse of the Champlain South in Surfside, the Legislature implemented new requirements for integrity inspections and the necessary financial reserves to support structural repairs.
Condos must meet the new requirements by Jan. 1.
As the deadline approaches, some unit owners are learning through inspections that their buildings require significant structural reinforcements, forcing them to pay exorbitant fees just to meet safety standards. Naturally, owners are looking to explore their options, including selling their units for redevelopment. For many, redevelopment is a best-case situation to protect their investments and safety.
At Biscayne 21 in Miami, owners were in search of options. The HOA had invited developers to bid on the site. After selecting a proposal from Two Roads through a real estate broker, 96% of the 192 units at Biscayne 21 opted to sell their unit. The HOA began the process of termination.
However, 10 holdouts — 5% of residents — were unwilling and argued the current state law does not apply. With the help of a trial attorney who has found a niche market stalling developments, those owners took the case to court. Over the last few months, this case has been a pendulum that first swung in favor of the building owner and then toward the holdouts.
As it currently stands, the ruling sets a new precedent in condo law that favors the interests of any one condo unit owner over the vast majority of owners.
"Allowing a single unit owner to compel the economically infeasible and potentially hazardous continuation of a condominium at great financial cost to the majority is contrary to this important form of property ownership in Florida," according to the Castle Beach Club Condominium Association and Miami Beach Club Motel Condominium Association.
The defendants have called for a rehearing. Business leaders worry about the economic impact.
"By departing from decades of precedent to rewrite the contract in this case, the opinion will destabilize the development industry, which will in turn impact housing, jobs and all of Florida's economy," warned the Florida Chamber of Commerce in an amicus brief.
As predicted, Florida's condo market is collapsing. The number of condos on the market in Miami has more than doubled, up 60% in July compared to last year. The number of closed condo sales is down 11% in Broward County and 14% in Palm Beach County.
While more and more condos come on the market, sellers are left with fewer options. Developers, along with the investors, financial institutions and property insurers that back them, are growing skittish while they watch and wait for a decision from the 3rd DCA.
No one is ready to pursue a multimillion-dollar project until they see how the Biscayne 21 case plays out.
"This [case] will greatly impact the risk analysis a developer must undertake in pursuing an acquisition of one of these older condominiums," said Matt Allen, a developer at Related Group, a real estate company that has terminated multiple condominiums in Florida.
The Legislature has made clear that there are no current plans for a Special Session to address the growing condo crisis.
"Some have suggested a Special Session be called to address or alter existing safety and reserve funding requirements and other related issues," said Senate President Kathleen Passidomo in a memo to Senators. "I have no intention at the present time of utilizing my authority as Senate President to convene a Special Session."
One governmental body that could relieve the pressure, however, is the 3rd DCA. Allowing HOAs to continue operating under current state law would bring options back to the table for unit owners and help stabilize the market at an extremely difficult time.
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