Bankruptcy Court Rejects 99 Year Lease
Bankruptcy Court Finds "the Unit Owners are Not a Bottomless Well, From which Water May be Drawn Eternally With No Consequences" and Grants Maison Grande's Motion to Reject Unexpired Lease.
As I mentioned in July in Bankruptcy An Option for Finally Distressed Condos & HOAs, the 99 year lease for certain recreational and parking facilities placed the most stress on Maison Grande Condominium Association's finances. Owners of the 502 units in the oceanfront condominium enjoyed the use of the pool, the pool deck and the parking spots leased to the association, but simply could not keep up with the increasing rent, taxes, insurance and maintenance of these amenities.
Rent for the leased parcel in 1971 was $20,160 per month ($241,920 per year). Now the association is required to pay $112,241 per month ($1,346,903 per year), regardless of whether all owners pay assessments on a timely basis. The association reported that as much as 25% of its members were delinquent in payment of assessments and since many lacked equity in the units, they were also subject to mortgage foreclosure proceedings.
The bankruptcy court found that the decision to pursue bankruptcy and reject the lease was a "sound exercise of the Debtor's business judgment". The decision contains a very comprehensive explanation of the business judgment rule, along with appropriate citations.
This is not the first time a Condominium Association pursued relief in the bankruptcy court. In 1984 the court approved rejection of a 99-year lease, indicating that "the Court will not second guess the business judgment of [the] ... Board of Directors unless there is a showing that their judgment is clearly erroneous". In re Condo. Ass'n of Plaza Towers South, Inc., 43 B.R. 18,22 (Bankr. S.D. Fla. 1984).
The Order is apparently being appealed. The parties in the case are expected to submit written argument and a hearing is scheduled for March 16th.
Is bankruptcy an option for your struggling association? For more information please refer to the Questions & Answers previously posted on this site.
our condominium association , chateau belleair of clearwater ,fl. is currently in the 34th year of a 99yr lease. this situation is presently a hardship on the condo owners. the value of the land has been realized many many times over.our association has inquired on the fair market value of this leased land. the current lease owners are not willing to talk to us.as the bankruptcy court finds "the unit owners are not a bottomless well" the unit owners would like to purchase the lease and mortage the cost of this lease to a bank, this would make the condos more tax able to the county. 4 condos have resently been in foreclosure. what can be done to break this inequitable and unfair situation?
Question:
Is it legal under Florida Statutes for a Home Owners Association to enter into a contract prior to the Board of Directors vote to approve the funds for services?