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.
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
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?”