It's the Law: Condominium disclosure required for all sales

Q: I thought I had my condominium sold with a cash contract. On the day of closing, the buyer terminated the contract, claiming he did not receive all of the condominium documents required by Florida law. What is he talking about?

A: Florida has been in the forefront of statutory regulation concerning condominium sales. Statutes specifically dealing with condominiums have been on the books for more than 40 years.

In part, this has been motivated by the state's effort to avoid fear of buying swamp land in an unregulated environment. It also is due to the legislature's serious concern with condominium purchasers and the apparent belief that a condominium buyer needs a lot of information before finalizing a purchase decision.

Initially, the legislature mandated disclosure by developers of new residential condominiums. The Condominium Act has substantial and detailed requirements for everything from escrow of deposit money through contract disclosures language.

The Act requires developers of most residential condomini-ums to prepare a prospectus which must be approved by the Division of Florida Land Sales, Condominiums and Mobile Homes of the Department of Business and Professional Regulation before a developer can enter contracts for sale.

The prospectus must be provided to purchasers and each purchaser has 15 days from the receipt of the prospectus to cancel their purchase contract.

In 1992, the legislature extended disclosure requirements to non-developers, which would include your sale. Non-developers do not have to obtain approval from the Division or file any documents with the government before contract. However, the statute does provide that each buyer entering contract for purchase of a condominium unit is entitled — at the seller's expense — to a current copy of the declaration of condominium, articles of incorporation of the association, bylaws and rules of the association, financial information required by Section 718.111, Florida Statutes and the document entitled "Frequently Asked Questions and Answers," (Q & A sheet) which statute requires associations to prepare on an annual basis.

Other provisions of the Act require that condominium association maintain all of the required documents as part of the official records of the association. By statute, the official records of the association must be made available to unit owners within five days of written request.

The Act requires all contracts for resale of residential condominiums contain specific language notifying the buyer of the buyer's right to the condominium documents and of the buyer's right to cancel the contract within three business days of receipt of all required documents.

From a seller's perspective, it is important that the documents be provided to the buyer as soon as possible so that the three-day right of rescission will terminate. If even one of the documents is omitted, the buyer retains right to cancel at any time.

Since the statute was amended to require non-developer disclosure, many sellers and even Realtors have misunderstood the statute. As a result, they have provided buyers with less than a complete set of documents and many of those buyers have used that mistake to cancel contracts.

One mistake has been relying on title companies to provide condominium documents. Title companies generally provide an abstract of the documents that have been placed on record with the recording office of the Clerk of Courts. Many of the required documents are not usually placed in the public records, including the rules, Q & A sheet and financial information.

Over time, most Realtors have learned that they cannot rely on title companies to provide the condominium documents from public records. But many sellers still do not know what is required.

The most common error in providing documents involves financial information. Often, only the association budget is provided in the belief that it meets the financial information requirements of the statute. However, the disclosure requirement references "financial information required by Section 718.111." Many think that means the condominium's budget. However, Section 718.111 requires much more.

It requires an annual financial statement, with different criteria based upon annual income of the condominium.

Interestingly, the budget is not even referenced in 718.111, but addressed at 718.112.

There is another category of official records that must be maintained by a condominium under Section 718.111 that I have never seen produced in connection with a condominium resale. At 718.111(12)(a)(11), official records of the association include "accounting records for the association and separate accounting records for each condominium which the association operates. All accounting records shall be maintained for a period of not less than seven years."

This statute goes on to explain that the accounting records must include detailed records of receipts and expenditures, a current account and a monthly, bi-monthly or quarterly statement, all audits, reviews and accounting statements and all contracts for work to be performed.

If you think that seems like a lot of documents, you are correct. But, since they appear to be financial information required by Section 718.111, they are arguably included in documents to be provided to a buyer.

The statute contains alternative disclosure paragraphs that must be inserted into contracts.

One of the alternatives appears to list all of the documents that must be provided. That alternative does not list the budget nor the other financial information referenced in 718.111 other than the most recent year-end financial information.

Implicitly, the legislature intended to limit the financial information to that statement.

But, the statute can be interpreted otherwise.

If the disclosure language is not included in the contract, the contract is voidable by the buyer at any time, even if the buyer receives all of the referenced documents.

I suggest you discuss the details of your particular situation with an experienced attorney as soon as possible.

William G. Morris is a lawyer with offices at 247 N. Collier Blvd., Marco Island.

The information in this column is not intended as legal advice and, of necessity, is generalized. For questions about specific circumstances, the reader should consult a qualified lawyer.

Questions for this column can be sent by e-mail to wgmorrislaw@earthlink.net or by fax to (239) 642-0722. Read other columns at http://www.wgmorris.com.