Vertical Subdivisions Receive Recognition in 2024 Amendments to the Condominium Act
This year’s extensive condominium bill CS/CS/CS/HB 1021 (“HB 1021”) containing amendments to the Condominium Act created a new Section 718.407 entitled “Condominiums created within a portion of a building or within a multiple parcel building.” It provides for, among other things, statutory recognition of what is known in the industry as a “vertical subdivision,” a building containing more than one type of primary use in a single structure. An example of a long standing vertical subdivision is the Four Seasons building on Brickell Avenue in Miami. The building contains, in a single structure, a hotel, an office building, a hotel condominium, a residential condominium and a spa. Vertical subdivisions occur in dense urban areas where land is expensive and multiple use buildings provide some synergies. The Four Seasons, as an example, allows visitors to the offices to book a hotel room if they are involved in a transaction requiring an overnight stay. Similarly, visitors to residents in the residential portion of the project can also provide for overnight stays at the hotel. Guests in the hotel, the residential condominium owners and office users can utilize the onsite spa.
Initially the problem with vertical subdivisions was that they could not obtain separate tax parcels for payment of real estate taxes. All of the separate parcels in the building received a single tax bill and had to find a way to allocate the building’s taxes. This was not a problem with condominiums since Section 718.120 of the Condominium Act required a separate tax parcel for each unit, but it created a nightmare for non-condominium portions of the building. This problem was eliminated in 2018 with the enactment of Section 193.0237 of Florida Statutes requiring separate tax parcel IDs for a multi-parcel building.
HB 1021 addresses the existence of a condominium in a limited portion of a building (Section 718.407(1)). There have been issues in the past as to whether a portion of a building used by multiple parcels (for example, elevators) but, outside of the description on the condominium property, should be deemed a common element of the condominium. HB 1021 clarifies these common building structures would not be part of the condominium.
HB 1021 requires the developer of a multi-parcel building containing a condominium disclose to condominium unit buyers, in the declaration of condominium and in the dedication creating the multi parcel building (typically a declaration of covenants and easements):
(a) the portions of the building which are not part of the condominium and those that are;
(b) the party responsible for maintaining the areas of the building which are shared but not part of the common elements;
(c) the manner of apportioning the cost of maintaining the shared facilities among all of the individual portions of the building utilizing such facilities;
(d) whether the condominium has the right to approve increases in the cost of maintaining the shared facilities utilized by the condominium;
(e) the allocation of cost of maintaining the shared facilities which may be based upon:
(1) the size of each component of the building in relationship to the size of the entire building;
(2) the initial estimated market value of each portion of the building in relationship to the total initial market value of each component of the building;
(3) the extent to which each component of the building is entitled to use the building’s shared facilities; or
(4) another method described in the recorded documents.
(f) the party responsible for operating the shared facilities and the party responsible for collecting the amounts and the party responsible for maintaining them; and
(g) rights and remedies of the parcel owner responsible for collecting shared expenses.
In order to alert potential condominium unit buyers to the fact that the building in which the condominium does or will contain shared facilities in a vertical subdivision, the statute imposes on condominium unit sellers, both developers and resellers, delivery of the following disclosure document in the purchase contract:
(1) THE CONDOMINIUM MAY HAVE MINIMAL COMMON ELEMENTS.
(2) PORTIONS OF THE BUILDING THAT ARE NOT INCLUDED IN THE CONDOMINIUM ARE (OR WILL BE) GOVERNED BY A SEPARATE RECORDED INSTRUMENT. SUCH INSTRUMENT CONTAINS IMPORTANT PROVISIONS AND RIGHTS AND IS (OR WILL BE) AVAILABLE IN PUBLIC RECORDS.
(3) THE PARTY THAT CONTROLS THE MAINTENANCE AND OPERATION OF THE PORTIONS OF THE BUILDING THAT ARE NOT INCLUDED IN THE CONDOMINIUM DETERMINES THE BUDGET FOR THE OPERATION AND MAINTENANCE OF SUCH PORTIONS; HOWEVER, THE ASSOCIATION AND UNIT OWNERS ARE STILL RESPONSIBLE FOR THEIR SHARE OF SUCH EXPENSE.
(4) THE ALLOCATION BETWEEN THE OWNERS OF THE COSTS TO MAINTAIN AND OPERATE THE BUILDING CAN BE FOUND IN THE DECLARATION OF CONDOMINIUM OR OTHER RECORDED INSTRUMENT.
Most surprising, the statute requires any condominium in a vertical subdivision building to bear a special name. The name “xyz condominium” or “xyz, a condominium” previously required has to include in its name at its end “a condominium within a portion of a building or within a multi parcel building.” This is quite a mouthful to use every time the name of the condominium is used.
This new legislation is important because it recognizes a form of development that has become common in urban areas but has undergone a substantial amount of litigation as to its viability. Hopefully, with the required disclosures, condominium buyers in a vertical subdivision will better understand that they are not purchasing units in a free standing condominium building but are part of a larger operation in which their control over certain elements may be limited or nonexistent.
