Changes to bulk buyer law offer stronger protections, clearer definitions

From top left: Attorneys Martin Schwartz and Mark Grant, and a recent Miami bulk deal, NoBe Bay

Last year’s landmark Distressed Condominium Relief Act, signed by then-Gov. Charlie Crist, was hailed as a contributor to a series of bulk deals, but changes to the bill approved last week by Gov. Scott give bulk buyers and condo associations additional security in Florida’s bulk market.

The changes include an amendment to the definition of bulk buyer and a new ability for associations to collect rent directly from tenants. The latter means associations are able not just to pay future obligations to the unit but also to offset all past due monetary obligations.

“What we did in the past year was that we clarified mistakes in the way the law was written,” said Mark Grant, a shareholder at Ruden McClosky who was one of the original bill’s drafters and worked on the revision. “It wasn’t the way I composed it, but it was the way it came out of the legislature.”

The major change in the new version is the way bulk buyers are defined by the law. Under the original act, bulk buyers were defined as anyone who bought more than seven condo units — but it never said in a single condo building, Grant said.

“If you bought two units in a condo in Broward, and three in a condo in Dade and another four in Palm Beach County, you’d be considered a bulk buyer, but now you’re not,” he said.

The bill also clarified that mortgagees that foreclose and take title through foreclosure would be considered bulk buyers, and would not assume the liabilities of a developer.

This situation, which is called successive developer liability, previously meant that those who bought a condo project in bulk would be responsible for liabilities usually associated with developers — everything from original construction quality to mismanagement of the association.

“There was a group of people pushing to make [these] changes, because the original was screwed up,” said Martin Schwartz, a partner at Bilzin Sumberg in Miami who also worked on both drafts of the bill. “In the process [of going through the legislature] it became very unworkable in a number of instances — so the fix that we worked on was making it more friendly, and to express what was originally intended to be in the bill to start out with.”

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Successive developer liability had been a deal breaker for many potential bulk buyers before the law went into effect last year, and its amendment helped lead to a wave of bulk sales — up to $1 billion by some estimates

“I think you can see [that sales] have happened,” Schwartz said. “There has been a whole bunch of purchases since the statute was adopted, and the units are really getting absorbed. I think it’s fulfilled the original expectation of the people that did this statute.”

Grant said a Florida Bar committee will propose a five-year extension for the bill to the Florida legislature, which will go before the house next year.

“The reason we agreed on five years is that this law has been successful,” he said. “I’ve spoken to brokers, and they attribute the number of bulk sales to this law — where they said a lot of people stood on the sidelines until this happened, and now they’re buying up these units, which is very good for the people that originally bought in these condos.”

The other significant change to the law gives condo associations the right to offset cash due obligations using rent collected from delinquent owners.

“To be able to set off cash due obligations, it sounds like just a couple of words, but it’s very powerful for associations,” said attorney Daniel Kaskel, a partner and chair of the real estate group at Sachs Sax Caplan in West Palm Beach.

He said the shortcoming of the original bill was that associations couldn’t apply rental payments to existing assessments. “What do you do if you have a monthly rent of $1,000 and a monthly assessment of $200? What do you do with the extra $800?” he said. “Even if they owed $20,000, the building couldn’t apply it to existing assessments. The bill was changed to allow that.”

The modified bill is set to take effect this Friday.