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Merger of Associations: Rationale and Procedures

Why Consider Merging Multiple Associations in a Community?

Often developers will create communities with multiple associations operating multiple condominiums without any thought given to the administrative realities of administering those separate associations. One would be hard pressed to come up with rational arguments as to why, for example, three or more associations need to operate one community as opposed to one association administering that same community. In fact, community associations are not-for-profit Florida corporations and as such, must comply with certain requirements set forth both by Statute and by the Florida Division of Corporations.

Each association must take the following steps:

-Maintain a fully functioning board of directors;

-Pay an annual corporate report;

-Have a registered agent;

-Have a corporate office;

-Prepare end-of-year financial report;

-Maintain a Directors’ and Officers’ Policy;

-Maintain a checking account for operations with attendant bank fees;

-Hire, Fire and Manage Employees;

-Engage in communications with and give directions to a professional manager if a professional manager is utilized;

-Engage in communications with and give directions to other professional service providers such as accountants, attorneys, engineers, etc.;

-Comply with statutory notice requirements for meetings and inspection of books and records;

-Complete Estoppel Certificates as requested; and

-Take all other necessary steps for the proper administration and operation of the community.

Many times once a developer has departed from the community, new boards will consider whether or not it is advisable to merge their associations into one association operating multiple condominiums. It is also possible to merge condominiums but doing so is much more difficult since such a process involves changing the percentage by which owners own the common elements and, as such, approval must be obtained from 100% of the unit owners as well as from all lien-holders of record which is an arduous task at best. Merging associations is much easier to accomplish and, from an economy of scale perspective, makes sense in terms of streamlining operations (i.e you only need one board, one set of corporate documents, one set of employee procedures, etc.) and costs (only one annual corporate report, one registered agent fee, one D & O insurance policy, etc.). If there are more than three associations created for one community, the decision is often made to merge those associations.

What does the Merger Process Entail?

1. Each merging corporation must adopt a plan of merger setting forth the names of the corporations proposing to merge and the name of the surviving corporation into which the other corporations plan to merge; the terms and conditions of the proposed merger; a statement of any changes in the Articles of Incorporation of the surviving corporation resulting from such merger; and any other provisions with respect to the proposed merger which are deemed necessary or desirable.

2. The board of directors of each merging corporation must adopt a resolution approving the proposed plan and directing that it be submitted to a vote at a meeting of the members which may be either an annual or special members’ meeting.

3. Written notice setting forth the proposed plan or a summary thereof must be given to each member entitled to vote at such members’ meeting. The proposed plan of merger will be adopted upon receiving at least a majority of the votes which members present at such meeting or represented by proxy are entitled to cast.

4. A board of directors may, in its discretion, abandon such planned merger (subject to the rights of any third parties under any contracts relating to the planned merger) at any time prior to the filing of articles of merger by any corporation party to the merger without any further action or approval by the members.

5. Articles of Merger must be executed by each merging corporation.

What is the Legal Effect of a Merger?

The separate existence of every other corporation which was party to the merger ceases to exist and only the surviving corporation exists. For example, when dealing with subassociations and a master association the decision is often made to merger the subs in to the master with only the master association as the surviving association. The title to all real estate and other property owned by each corporation that was a party to the merger becomes vested in the surviving corporation; remember that this refers only to association-owned property and NOT to common elements since only the associations are being merged and not the condominiums. The surviving corporation may be substituted in any proceeding that was pending against any of the corporations that were party to the merger. The Articles of Incorporation of the surviving corporation will be amended to the extent provided in the Plan of Merger (i.e. to take into account specific election procedures to accommodate each separate condominium, to acknowledge that the surviving corporation is an association operating multiple condominiums, etc.).

What are the Budgetary Requirements for a Multicondominium Association?

All of the budgetary requirements found in Section 718.112 of the Condominium Act will apply to your newly created multicondominium association. However, there are a few additional nuances: Funds for payment of the common expenses of a condominium shall be collected by assessments against the units in that condominium in the proportions or percentages provided in that condominium’s declaration. Funds for the payment of common expenses of a condominium within a multicondominium association shall similarly be collected in this manner.

-In a multicondominium association, the total common surplus owned by a unit owner consists of that owner’s share of the common surplus of the association plus that owner’s share of the common surplus of the condominium in which the owner’s unit is located, in the proportion or percentage set forth in the declaration as required by s. 718.104(4)(h) or s. 718.110(12), as applicable.

-While the multicondominium association must maintain separate budgets for each of the condominiums it operates, the multicondominium association may commingle the operating funds of separate condominiums or the reserve funds of separate condominiums. Furthermore, for investment purposes only, a multicondominium association may commingle the operating funds of separate condominiums with the reserve funds of separate condominiums.

It is difficult enough at times to convince community members to serve on one board and to fulfill all of the attendant duties that board membership entails. Imagine replicating those same hurdles, requirements and functions for numerous boards all serving the same community purpose and goals. It is for this reason that many communities decide it is ultimately in their interests to have one board serving their community and they follow the procedures outlined above to make that vision a reality.

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