As the commercial real estate market continues to evolve after the pandemic, more and more building owners are looking to convert hotels, offices and other underperforming buildings into residential spaces.
Property owners are finding converting their underperforming property into a revenue stream, especially with the Biden administration pushing these types of conversions, offering billions in low-interest loans for developers to convert offices into residential units.
For some developers, looking at creating a mixed-use facility – instead of a full conversion – might be a creative way to convert an underutilized building.
For instance, an office skyrise may have floors of empty space in this commercial real estate market. However, the floors with office space are providing great revenue, so the property owner wants to keep some of the building as offices.
The owner wants to use some low-interest loans, so a few floors are apartments. Then, to create more revenue, the owner converts the top two floors to condominiums, selling them for a significant amount.
Starting October 1, a new law, HB 1021, covers converting a building into a mixed-use facility with condominiums with specific statutes property owners must follow when recording and selling the condominium units.
Property owners even considering condo conversions need to be prepared now.
The attorneys at The Orlando Law Group represent more than 100 communities and commercial real estate investors in Central Florida. If you live in Orlando, Winter Garden, Altamonte Springs, Kissimmee or anywhere throughout Central Florida, The Orlando Law Group is ready to help you.
What does a property owner have to disclose?
The new law covers what a property owner must disclose when converting a building partially into a condominium. The law is fairly straightforward and the disclosures must be in the documentation filed with the official records of a building.
They include:
- What parts of the building are included and not included in the condominium;
- Who is responsible for maintaining and operating shared parts of the buildings, such as the roof, the windows, elevators, the lobby and more;
- How much the property owner, tenants and condominium owners will contribute to the operations and maintenance of the shared facilities;
- Who collects the shared costs of operations and maintenance; and
- The rights and remedies that are available to enforce payment of the shared expenses.
While those are all to be filed with the local recording agency, the records must be open to inspection by any condominium owner.
Finally, the law ensures that the owner must submit an annual budget for those expenses to the association.
How to determine the costs associated with operations and maintenance
The legislature expanded on the third bullet point and outlined how much each entity – the association and the property owner – would pay to maintain the common areas.
The law is clear that the assessments are based on the following:
- The area or volume of each portion of the building in relation to the total area or volume of the entire building, exclusive of the shared facilities.
- The initial estimated market value of each portion of the building in comparison to the total initial estimated market value of the entire building.
- The extent to which the unit owners are permitted to use various shared facilities.
There were two other parts of this law that applied to the amount each entity pays for operations and maintenance.
First, any owner who is not part of the condominium association, such as someone who owns a separate office condominium, must approve any increases to the expenses of common area operations.
Second, if all parties agree, there can be a unique or alternate method of assessing fees, but any alternate way of collection must be entered into the official documents of the building.
New contract language is required for conversions
While much of the law discussed the structure of the condominium conversion, the statutes now have very specific language in any contract the owner will have with a buyer.
Here’s what is required for any contract to have conspicuously written:
DISCLOSURE SUMMARY
The condominium in which your unit is located is created within a portion of a building or within a multiple parcel building. The common elements of the condominium consist only of the portions of the building submitted to the condominium form of ownership.
Buyer acknowledges all of the following:
(1) the condominium may have minimal common elements.
(2) portions of the building which are not included in the condominium are or will be governed by a separate recorded instrument. Such instrument contains important provisions and rights and is or will be available in public records.
(3) The party that controls the maintenance and operation of the portions of the building which are not included in the condominium determines the budget for the operation and maintenance of such portions. However, the association and unit owners are still responsible for their share of such expenses.
(4) The allocation between the unit owners and the owners of the portions of the building which are not included in the condominium of the costs to maintain and operate the building can be found in the declaration of condominium or other recorded instrument.
This new statute can be complicated for real estate owners looking to change the usage of their building and maybe consider condominiums as an option for their investment properties.
Just like any real estate transaction, it is important to work with an attorney to ensure compliance with this statute and to have the proper contracts for any sales to condominium owners.
The attorneys at The Orlando Law Group can help association board members and managers in Orlando, Waterford Lakes, Altamonte Springs, Winter Garden, Lake Nona, St. Cloud, Kissimmee, and throughout Central Florida.
If you have questions about anything discussed in this article or other legal matters, give our office a call at 407-512-4394 or fill out our online contact form to schedule a consultation to discuss your case. We have an office conveniently located at 12301 Lake Underhill Rd, Suite 213, Orlando, FL 32828, as well as offices in Seminole, Osceola and West Orange counties to assist you.
The articles on this blog are for informative purposes only and are no substitute for legal advice or an attorney-client relationship. If you are seeking legal advice, please contact our law firm directly.
Last Updated on July 15, 2024 by The Orlando Law Group
