Most condo owners keep their property as long as they wish, until they sell or bequeath it on their own terms. Howard Fellman, though, is being told to sell — by the investment company that wants his Florida condo unit.
Three decades back, Fellman bought the condo, in the Crystal Palms property at Boca Raton. Recently, the Pennsylvania-based Scully Company bought all the units at Crystal Palms. Except one. While all the other unit owners agreed to sell, Howard Fellman wanted to stay put.
Crystal Palms’s condo declaration was on file with the county recorder of deeds for all to see. It said all unit owners would have to greenlight any proposal to terminate the condo and sell the property.
But that’s not quite how things are playing out.
Corporate Investor Versus Condo Owner: Who Wins (and How)?
As we were saying, the Scully Company was able to buy out all the units but Fellman’s. This put the company in a position of strength — a position to grab majority control of the condo board. And so it did.
Can you guess what happened next? Once it had packed the board, the company could simply vote to change the 100% rule. And so it did.
The Scully Company voted to allow termination and sale of Crystal Palms if just 80% of the unit owners agreed. (Eighty was the minimum allowed by Florida law. Scully made the new rule match the state minimum.)
By 2021, the Scully Company was in the position to terminate the condominium. This forced Fellman to sell to Scully. Fellman sued.
In 2022, a county court handed a win to the company. The judge schooled Fellman:
[A]nyone purchasing a condominium unit goes into the relationship with their “eyes wide open” that their rights under the Declaration, including the percentage vote required for termination, could be altered by an amendment.
Fellman has appealed.
Meanwhile, Fellman’s story tells us something important about condo living. It illustrates the limits of what a condo deed conveys to the buyer.
Like Eminent Domain — But It’s Not the Government Forcing the Sale
In the last decade, hundreds of Florida condo communities have been sold. Sometimes, the sale is for the public good. For example, rising sea levels may put condos in the way of hazards. Increasingly, though, sales are done at the behest of private companies.
In some of the most sought-after U.S. markets, corporate investors are buying up homes. In 2021, nearly one in four home buyers were investors. That was a remarkable year for corporate real estate buyers. According to research by Stateline cited in the New York Times, for a whole decade prior, just 15% of the buyers were investors.
The sudden rise in corporate competition made the U.S. housing market all the tougher for first-time buyers to navigate.
While a company can’t take property by eminent domain (that’s when the government takes private property), they’re nevertheless taking some peoples’ choices away. Evan McKenzie, a professor in Illinois, spoke to the New York Times about corporate buyers that gain control of condos and turn them into apartment buildings. McKenzie calls it “a private form” of eminent domain.
And Florida law does allow for forced sales in situations like this. The state wants to keep holdout unit owners from halting a productive property sale — especially when buildings become run-down.
That would seem reasonable enough. But each unit has its own story. One of the most disturbing elements of this story is that Fellman’s unit has a renter — a cash-strapped and disabled mother who’s been there for more than a decade.
Do Corporate Buyers Pay Unit Owners Fair Market Value?
As this story shows, it’s actually the corporate buyer who sets the property’s purchase price. Yes, really. Under Florida law, the termination trustee gets to choose the real estate appraiser. The Scully Company is the condo property’s termination trustee. That’s one reason Fellman isn’t a happy unit seller.
The Scully Company’s appraiser says Fellman’s unit is worth $200K. That’s quite a bit lower than what Fellman believes the unit is worth.
Florida seems awfully accommodating to a big, multi-state company like Scully. And it looks like the trend will continue.
You might remember the tragedy of the Surfside condo units that collapsed in 2021. Regulations followed. From 2025 on, Florida condo buildings of a certain age will need to be inspected on a recurring schedule. Condo boards will, by law, have to budget for inspections and repairs. Such costs are always passed to unit owners in the form of homeowners’ association (HOA) fees.
That could price numerous older condos out of reach for some Florida residents. These owners might therefore be more likely to sell to a corporate buyer. And the more units a corporation can buy, the more easily the business can find angles to convert whole properties.
Against These Market Forces, Can Condo Owners Stay in Control?
This question points to another lesson in today’s deed story. Condo owners need to speak at board meetings. They might want to run for positions on the board. In any case, they need to take the time to understand their state laws, read their condo rules and declarations, and be clear on how they will influence the course of the entity they’re buying into.
Imagine a community filled with active participants, whose board had decided to set rules to prevent owners taking majority stakes. Such a community could resolve to fend off corporate buyers. But in many condo communities, that engagement is lacking.
Another approach is the co-op model. In a co-op, all the unit owners would need to green-light any aspiring buyer. The more active role of the co-op owners can keep investor buyers out of the community.
Granted, it’s not always easy to find a place to live where the right co-op exists. But where they do exist, they carefully vet new owners, as co-ops are run by their shareholders. In short, all owners manage the property… co-operatively.
And the Moral of the Deed Story Is…
Buying a condo unit can be much cheaper than buying a freestanding home. But it does involve a tradeoff. A condo deed reflects absolute ownership of the airspace within the four walls of the unit. It conveys only joint ownership, though, of the common property. And each buyer signs a contractual agreement to abide by the condo board’s decisions and rules.
It might come as some surprise that the condo unit’s deed only transfers what’s within those four walls. The unit owner does not control the structures or land. So, when the condo board is willing and ready to terminate the condominium and sell the property, it might find a legal way to do so. And it might do it, despite any particular unit owner’s objections.
Condo buyers — or their attorneys — should keep their “eyes wide open.” They should review the condo property’s documents carefully and understand their rights and risks.
Supporting References
Anna Kodé for The New York Times: Their Retirement Plan Did Not Include Being Forced to Sell Their Condo (updated Feb. 25, 2023).
And as linked.
Photo credits: energepic.com and Alex Green, via Pexels.