Condo Conversions: Scrutinize the Disclosures

Condominium conversions became tremendously popular (because they were profitable) during the housing boom.  Many old tired apartment buildings were converted to condominium ownership, remodeled and then the units sold.  In some cases the developer substantially remodeled the building and improvements by updating plumbing and electrical systems, replacing the roof, replacing or modernizing elevators and “gutting” the interiors.  In other cases the developer merely installed tile where there was carpet, upgraded the kitchen with fancy cabinets, stainless steel appliances and granite counter tops then painted before selling the units. If the developer of the conversion project funded converter reserves, unit purchasers are left without statutory warranties.

Bermuda Dunes Condo Conversion, MetroWest, Orlando

When an apartment building is being converted to a condominium, Section 718.616, Florida Statutes requires the developer to provide each prospective buyer, as part of the Prospectus or Offering Circular, with certain inspection reports from professionals. These reports focus on the physical condition of various portions of the building and improvements. With respect to certain aspects of the building (such as the roof, structure, heating, plumbing and electrical systems), the owner must disclose the age of the component, the estimated remaining useful life of the component, the estimated current replacement cost, and the structural and functional soundness of the component. The specific purpose of the disclosure requirement is to protect the prospective purchaser by allowing them to make an informed decision whether to purchase a “new” unit in what may be an old building.

We are all guilty of not reading the “fine print” from time to time.  That was especially true when purchasers found what seemed to be an affordable price for a condominium unit in the hot real estate market.  Unfortunately for many of those buyers, some of those buildings needed substantial work.  Levying assessments to repair elevators, perform concrete work, repair damages from roof leaks and other expenses in a “new” condominium is stressful for the members of the board of directors and causes friction between the owners and the board.

If the developer is out of the picture, bankrupt, no longer in business, etc. is there any recourse for the association and its members?

There is, especially if the building disclosures weren’t accurate. Florida Courts have found that the engineers and other professionals preparing these disclosures supplied expert information which was intended to and did guide and inform prospective purchasers on the condition of the building. Accordingly, if engineers or other professionals provide false information which reaches and is relied upon by people who are expected to receive and rely on the information, they may be held liable for expenses incurred by the association to repair or remedy the undisclosed defects.  There was an effort by the legislature this year to vitiate remedies against design professionals.  That bill was vetoed by Governor Crist.

This is not to say every statement of false information in an inspection report in a condominium conversion will lead to a potential claim. It will, however, open the door for those associations where purchasers were truly harmed by the misrepresentations of professionals who are supposed to be providing honest, objective evaluations of the condominium property.

1 Comment

  1. Good article. Engineering reports on condo conversios have been written in many instances by firms whose unethically close relationship with large developers has lead to “did-not-see-it/does-not-exist” reports that did not fully investigate potential problems at older buildings. These problems may now be coming to light during times when associations can least afford them and an experienced condo conversion/construction defects attorney is the only recourse.

Leave a Reply

Your email address will not be published. Required fields are marked *