|February 26, 2014|
Previously published on February 18, 2014
Florida’s Condominium Statutes provide unit owners with express statutory warranties from a Project Developer and Contractors that perform construction services. See F.S. 713.203. Such warranties have been the source of much litigation in Florida over construction defects. Many Developers have begun develop multifamily projects as rental properties with the intent to convert into condominiums. This process can eliminate the statutory warranties and facilitate initial construction financing.
A Developer can exempt itself from the statutory condominium warranties applicable to the construction of a residential condominium by converting an existing structure into a condominium and then funding “conversion” reserves equal to the amounts specified in an Engineer’s Conversion Report. See F.S. 718.618. An Engineer’s Conversion Report considers the age of specified components in a structure and their remaining useful life. The Engineer then determines the cost of replacement of the specified components and determines the required conversion reserve sums in accordance with the formulas provided in F.S. 718.618. The required conversion reserves for a new building will be relatively low because most of the useful life remains for the specified components of the building. If such conversion reserves are funded, then the Developer provides no implied warranties to unit purchasers as occurs in the sale of a building constructed as a residential condominium. The statute states:
718.618 Converter reserve accounts; warranties.—
(1) When existing improvements are converted to ownership as a residential condominium, the developer shall establish converter reserve accounts for capital expenditures and deferred maintenance, or give warranties as provided by subsection
(6), or post a surety bond as provided by subsection (7). The developer shall fund the converter reserve accounts in amounts calculated as follows:
... [Method of establishing reserve by Engineer based on age of component and remaining useful life]
(6) A developer makes no implied warranties when existing improvements are converted to ownership as a residential condominium and reserve accounts are funded in accordance with this section. ...
While the language of the conversion statute makes no reference to Contractors, no warranties would appear to apply to a Contractor in any case. A Contractor has no privity with any unit owner and is subject to suit only through a statutory cause of action such as the condominium warranty provisions of 718.203. Such warranty should not apply to a converted building since the structure was not built as a condominium to trigger the statutory warranty.