The Condo as Legal Entity Foundations & Fundamentals

The Condo as Legal Entity

In South Africa, it’s called a “sectional title.” In Quebec, it’s a copropriété divise or “divided co-property.” In Italy, they call it “condominio,” derived from Latin. Regardless of location, a condominium—commonly referred to as “condo”—is generally defined as a form of housing and other “real property” identified as a parcel of real estate that is individually owned among a collective.

“There are many forms of common interest ownership throughout the world,” says Attorney Lisa A. Magill, a shareholder with the Fort Lauderdale-based law firm of Becker & Poliakoff. “You may not see condominiums in rural areas, but you’ll find them anywhere there is a high concentration of people and demand for housing in limited space. One of our firm’s founders consulted with post-communist countries on the transfer of housing from public to private ownership. Dubai reportedly has some of the most expensive and beautiful condominiums in the world, and China reportedly has something like over 60 million unoccupied condominiums.”

Historical Reference

According to Condominium Homeownership in the United States: A Selected Annotated Bibliography of Legal Sources(Law Library Journal), there are records dating back to Babylon (present day Iraq) indicating that residential buildings were sold as separate units. Centuries later in Europe, shared housing was also gaining traction. “This ownership of floors of houses, and even rooms, in the hand of different persons was common in various parts of Europe,” the journal notes.

But if there was a first condo craze, it happened in the French city of Rennes. In 1720, a catastrophic fire destroyed most of the city, which forced inhabitants to rebuild build under a system of wider streets and taller, multifamily buildings. The experiment was so successful that the “condominium” system was widely adopted, notes the journal.

The Current Condo Movement

Whether it was a great, great, great grandparent or a new friend, everyone—Floridians especially—knows somebody that lives or has lived in a condominium. Condo properties can be built high toward the sky or spread out across a bucolic expanse. But even for longtime condo-dwellers, the history of the industry and its governing practices are obscure, which often leaves more questions than answers. In Florida, the state fills in a number of blanks.

Condominiums are “creatures of statute,” explains Attorney Elizabeth A. Bowen, a shareholder with Siegfried, Rivera, Hyman, Lerner, De La Torre, Mars & Sobel, P.A., a law firm with three offices in South Florida, “and in Florida they are governed by Florida Statutes Section 718, commonly known as the Condominium Act.”

The Condominium Act, Bowen notes, is a standard set of documents approved by the Florida Department of Business & Professional Regulation (DBPR) Division of Florida Condominiums, Timeshares, Mobile Homes and recorded in the public records for each condominium.

“These recorded governing documents,” says Bowen, “consist of the Declaration of Condominium, which establishes the condominium form of ownership for a particular multiunit dwelling; articles of incorporation for the association, which establish the association as the corporate entity responsible for the operation of the condominium; the bylaws of the association, which set forth the manner of governance of the association; and the rules and regulations for the condominium, which generally set forth the ‘do’s and don’ts’ of living in the condominium property.”

Unlike a cooperative, a condominium unit is real property, akin to a single-family home with shared amenities. “If you own a condo, you have a deed to a parcel of real property (land— even if that 'land' is air-space), just like you do if you own a single-family home,” says Magill.

“In a cooperative, you have share of stock in the corporation or a membership certificate evidencing your ownership interest, along with a proprietary lease or occupancy agreement that provides you with the exclusive right to use and occupy the cooperative unit,” Magill continues. “The ownership itself is very different, but in Florida cooperatives are treated as real property for many purposes.”

Rules of the Game

When a purchaser agrees to the sale and becomes a deed holder, he or she are considered residents, who are to obey the rules of the condo board. Often the rules cover issues such as leasing the unit for shorter periods than stipulated in governing documents, leasing to a commercial business, or failure to pay association dues. If unit owners fail to abide by the bylaws, they can be subject to litigation, often at their own expense.

“It can be a tricky situation. If it is in the rules pertaining to the common elements and the functioning of the association within the parameters provided in the condo docs, then residents are obligated to obey,” says Moises Kaba, a senior partner with the Doral-based Kaba Law Group PLLC. “Residents can be assessed penalties and attorney fees, late fees and fines.”

Bowen further explains that condominiums are fee simple interests in real property. According to the Law Trends & News, a fee simple property interest is the broadest estate described under law. The construct has some distinguishing features, including that a fee simple property owner has the sole power to dispose of such property interest; upon the current owner’s death, and in the absence of instruction (i.e., a will), the property interest automatically transfers to an owner’s heirs; and (iii) the property interest continues until the current holder dies without heirs.

Along with these fee simple interests, the purchaser is also subject to the declaration and bylaws, which have been recorded prior to the deed being given. Bowen explains that each unit owner is a member or shareholder of the condominium association. In Florida this requires the condo to be a corporation for profit or a Florida corporation not for profit.

“The Florida Statute 718.303, entitled obligations of owners and occupants; remedies, provides that each unit owner, each tenant and other invitee, and each association is governed by, and must comply with the provisions of, this chapter, the declaration, the documents creating the association, and the association bylaws which shall be deemed expressly incorporated into any lease of a unit,” says Bowen. “The statute also provides for remedies, including filing lawsuits, the levying of fines and suspension of use rights to the common properties for violations of the provisions of the statutes and/or governing documents.”

The Conversion Process

In regions like metropolitan New York, cooperatives are more common than in areas like greater Miami. Florida, by and large, is considered a condominium state. While there have been conversions from cooperatives to condominiums, the Floridian real estate market generally deals with conversions from rental apartment to condos.

“There is a procedure for the owner of an apartment building to notify existing tenants of the intent to convert the property into a condominium. The current tenants are allowed to extend their leases under certain circumstances to enable them to find alternative housing if they do not choose to purchase the units after the conversion,” says Magill. The enactment of the Roth Act ( 718statVI.html), named in memory of James S. Roth, director, Division of Florida Land Sales and Condominiums, 1979 to 1980, is a section of the Condominium Act that exhaustively details this conversion process.

“With a condo conversion, existing tenants have the right of first refusal to buy their units,” says Kaba. “By the law, they are required to have six months’ notice before the conversion. It’s a very different animal than setting up a brand-new condo association.”

Understanding Condo Ownership

For many new condo owners, there's a learning curve to the purchasing process. Becoming an owner of a condo is generally an easier passage than petitioning a co-op board. Whereas a co-op board can turn down an applicant for various reasons, condos have less control over the process. To this end, the bylaws would have to grant the board with non-discriminatory, legal powers of oversight.

“Boards do have the right to accept or reject buyers and normally it is for legitimate reasons,” says Kaba. “It should not be for discrimination, which runs the gamut from age to sexual orientation to nationality or religion. These are Title 7 discrimination (Title VII of the Civil Rights Act of 1964), but assuming you have a legitimate reason to not to want to approve a buyer, then the condo docs will dictate what direction the board can take.”

Bowen explains that some condominium documents provide the association with an approval right in regard to the sale or lease of a condominium unit. And since the association is responsible for the operation of the condominium, such approval rights, she notes, are generally related to supporting the safety and welfare of the residents of the community.

“It is important to note that such rights are still subject to the Florida and Federal Fair Housing Act statutes, which prohibit discrimination in housing, and the grounds upon which someone could be denied the right to purchase a unit are generally very few,” says Bowen. “In the case where a sale is subject to approval of the association, the association will typically have a ‘right of first refusal,’ which provides the association with the option to purchase the unit upon the same conditions as are offered by the unit owner to a third person.”

Bowen adds that in her experience, it is rare that an association is provided the right to refuse a purchaser without being obligated to provide an alternate purchaser. “Or to purchase the unit on behalf of the association, as such restrictive covenants would likely be determined to be an unreasonable restraint on alienation, or the ability of a unit owner to freely sell his property.”

While an association must adhere to governing documents and Florida and Federal Fair Housing laws, there are circumstances where an association can flex its collective muscles to evict an unruly unit owner.

“If a condominium unit owner doesn’t fulfill his or her financial obligations to the association, the association may file a lien and foreclose against the unit through the courts,” says Magill. “When the foreclosure is complete, the unit is offered for sale at auction and ownership is conveyed to the successful bidder. If the association acquires title through this process it is entitled to obtain a Writ of Possession, forcing the previous unit owner to leave.”

In Closing

When a buyer purchases a single-family home, the deal closes, the ink dries, and that's pretty much the end of it. With a condo however, ownership includes membership in a community, as well as involvement in a larger legal entity. Understanding what that means, even in broad terms, is part of what makes a responsible, conscientious condo owner.     

Brad King is a freelance writer and a frequent contributor to The South Florida Cooperator.