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Distressed Condominium Act: Mitigating the Legislative Risks

February 12, 2018

By: Alexander Dobrev

The Distressed Condominium Relief Act (“DCRA”) is currently set to expire on July 1, 2018. More specifically, effective July 1, 2018, acquirers of distressed condominium units will no longer be eligible for the “bulk buyer” or “bulk assignee” classifications.

Here’s a quick refresher on why this is significant. The DCRA was introduced in 2010 in an effort to address the massive downturn in the condominium market during the Great Recession. One of the main objectives of the DCRA is to limit certain risks and liabilities which may otherwise be imposed on acquirers of units distressed condominium projects. The DCRA accomplishes this by creating two new non-developer classifications, a “bulk buyer” and a “bulk assignee”.

Each of these classifications explicitly protect the acquirer (whether a lender enforcing its loan rights or a third party investor) against some significant liabilities which could be inherited from the original developer (a.k.a. "successor developer" liabilities), while allowing the new owner to retain certain useful and valuable rights with respect to the development, operations, and eventual disposition of the asset.

Allowing the DCRA to “sunset” as currently scheduled will likely have an adverse effect on the valuations of distressed condominiums in the state. There is currently an effort in the legislature to remove the “sunset” provision of the DCRA (and therefore keep it in place indefinitely), in the form of House Bill 841 and Senate Bill 1274. There have been prior unsuccessful attempts to remove the “sunset” provision of the DCRA, so it is by no means a done deal that this effort will get through the finish line.

Regardless of the legislative outcome, there are steps that both investors and lenders can take to mitigate against the risk of legislative failure and/or to position a distressed condominium asset so as to fully take advantage of a possible legislative success. These steps will largely depend on the current structure of the condominium documents establishing the condominium regime in question, and on careful evaluation of how recent administrative and judicial interpretations of the DCRA can affect its applicability to a particular condominium community.

If you have any questions about the DCRA and how it may affect you, please contact Alex Dobrev or any member of the firm’s Distressed Condominiums Group.

This article is informational only. You should consult an attorney before acting or failing to act. The law may change rapidly and no warranty is given. LOWNDES DISCLAIMS ALL IMPLIED WARRANTIES AND WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE. ALL ARTICLES ARE PROVIDED AS IS AND WITH ALL FAULTS. Consult a Lowndes attorney if you wish to establish an attorney/client relationship.

Alex Dobrev works with investors, developers and lenders on the acquisition, disposition, development and financing of multifamily, condominium and other commercial real estate projects, often involving distressed properties. He has significant experience evaluating, structuring and negotiating large-scale mixed-use development projects.

Chair of the firm's Multifamily & Condominium Group, Alex frequently handles "broken" or "fractured" condominium projects in connection with lenders, bulk investors, and receivers to evaluate and implement exit strategies, including possible unwinding of the condominium regime, while identifying and minimizing potential successor developer liabilities and related risks.

Alex also counsels clients regarding Interstate Land Sales Full Disclosure Act (ILSA) compliance matters, including full and partial exemptions from the Act and overall offering structure.

An active member of the Real Property, Probate and Trust Law Section of The Florida Bar, Alex serves on the Section’s Executive Council and as co-chair of the Condominium & Planned Development, Information Technology, and Professionalism & Ethics Committees. He is also chair of the Commercial Real Estate Committee’s Blockchain & Digital Assets Task Force.

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