Attorneys David B. Haber and Jonathan S. Goldstein Authored Article Published in the Florida Community Association Professionals (FCAP)

Substantial Compliance With the Distressed Condominium Relief Act: The Next Battleground in the Feud Between Condominium Bulk Purchasers and Associations

By David B. Haber, Esq. and Jonathan S. Goldstein, Esq.

With every year that passes since the “Distressed Condominium Relief Act” (“DCRA”)(§§718.701-708, Florida Statutes, Et. Seq.), Part VII of the Florida Condominium Act, took effect, there is the increased possibility that the novel issues that it raises will become the subject of significant and impactful legal disputes as many associations grapple with the protections and requirements for bulk purchasers of condominium units under the DCRA. The DCRA was a law enacted in 2010 to encourage bulk purchasers of distressed condominium projects, while balancing consumer protections that have long been present in the Florida Condominium Act to protect new condominium unit owners at “Turnover” — the time when control of a condominium association is transferred to the non-developer voting interests. The DCRA creates two new classes of condominium bulk purchasers, the “Bulk Buyer” and “Bulk Assignee,” each with their own level of responsibilities and protections from the assumption of Developer obligations and liabilities. The DCRA alleviated uncertainty for bulk purchasers regarding their classification and obligations, most notably whether they were a “Developer” as defined by law and whether they were obligated to provide those statutory warranties for condominium property provided by a Developer pursuant to Section 718.203(1), Florida Statutes. The DCRA typically protects Bulk Assignees from such warranties for all work not performed by or at their behest. The DCRA also protects Bulk Buyers from any and all Developer liabilities and responsibilities, including statutory warranties, not expressly assumed in writing by the Bulk Buyer.

However, Bulk Assignee status involves significant duties and responsibilities. Pursuant to Section 718.704(1), a Bulk Assignee is responsible for all duties and responsibilities of a Developer except for those duties and obligations specifically set forth in the DCRA. It remains to be interpreted whether this catch-all includes a Bulk Assignee’s responsibility for any and all actions and violations of a pre-turnover association pursuant to Section 718.301(5), Florida Statutes, and a Bulk Assignee’s obligation to indemnify an association for pre-turnover actions of the association under the control of the Bulk Assignee, pursuant to Section 718.301(6), Florida Statutes, though the language strongly suggests that this is the case.

Pursuant to Section 718.706(3)(a) and (b) of the DCRA, Bulk Assignees are required to fund mandatory reserves unless a waiver of reserves is approved by the non-Bulk Assignee controlled units. Bulk Assignees are required to provide various turnover records in a timely fashion and conduct reasonable due diligence to attempt to locate same pursuant to Section 718.705(3), Florida Statutes. Additionally, pursuant to Section 718.704(2), Florida Statutes, a Bulk Assignee that is not assigned the right to guarantee a level of assessments and fund budgetary deficits is required to pay maintenance for all of their unsold units. Bulk Assignees are also responsible for transferring control of the condominium association in the manner required by Section 718.705(2), Florida Statutes.

While Bulk Buyers are perhaps provided with fewer specified obligations in the DCRA as Bulk Assignees, Bulk Buyers still can assume liabilities and responsibilities voluntarily. Bulk Assignees and Bulk Buyers must both comply with various pre-sale disclosure and administrative filing requirements pursuant to Section 718.706, Florida Statutes, including requirements to include certain conspicuous disclosures related to their status. Pursuant to Section 718.706(4), Florida Statutes, the DCRA does not allow Bulk Assignees or Bulk Buyers to run afoul of the prohibition in Section 718.302(4), Florida Statutes, against unreasonable “Pre-Turnover” contracts entered into by the Association.

The failure to meet these respective obligations could have significant consequences upon the Bulk Assignee or Bulk Buyer’s rights to avoid Developer liabilities. Tucked into the DCRA is a provision that all associations dealing with Bulk Assignees and Bulk Buyers must take heed of, because it is a trap for the unwary Bulk Assignee or Bulk Buyer that can drastically overturn the dynamics of their obligations to the association. Specifically, section 718.705(5), Florida Statutes, states in pertinent part: “(5) Failure of a bulk assignee or bulk buyer to substantially comply with all the requirements in this part results in the loss of any and all protections or exemptions provided under this part.” This language refers to all of the requirements and protections or exemptions of “this part,” which seemingly refers to the DCRA as a whole.

The stakes of such substantial compliance are likely very high. Forfeiture of these DCRA exemptions and protections due to non-compliance could potentially expose a Bulk Assignee or Bulk Buyer to unexpected liability for any and all statutory warranties pursuant to §718.203(1), Florida Statute, which the DCRA would typically protect Bulk Assignees from for all work not performed by the Bulk Assignee. In addition, there are other obligations and responsibilities of Developers from which Bulk Buyers and Bulk Assignees are generally exempt, including certain financial obligations of the Developer that a Bulk Assignee or Bulk Buyer could become exposed to. This concept of “substantial compliance” with the DCRA still awaits judicial clarification, and it is likely to be the next major battleground between both types of bulk purchasers and condominium associations.