Florida Community Associations are Obligated to Provide Financial Reports to Owners

Question: At the recent annual meeting for my condominium association the owners were presented with a question asking whether the association should waive the requirement to have an audit of the association financial records conducted. The same question has been asked for the past few years. I looked and our bylaws specifically require an audit to be conducted every year. Is my condominium association following the law? D.T. (via e-mail)

Answer: Florida community associations are statutorily obligated to provide owners some type of year-end financial report. There are different types of financial reports which can be prepared: (i) a statement of cash receipts and expenditures, (ii) a compilation, (iii) a review, and (iv) an audit. The type and level of year-end financial report a community association is required to prepare is dependent on the size of the association, the language of the governing documents, and the association’s annual revenue.

The first place to start the analysis is your governing documents. If your condominium association’s governing documents specifically require that an audit be prepared each year, you must comply with this requirement and your association doesn’t have the option to vote to “waive down” to a “lower level” financial report, such as a review or compilation. I recommend you confirm that the yearly obligation to conduct an audit is, in fact, contained in your association’s governing documents. Such a mandatory, yearly requirement can impose a financial burden on an association. Many of my community association clients who had similar requirements contained within their governing documents have sought my assistance to have this requirement “amended out” of the governing documents.

If your governing documents do not mandate an audit be conducted every year, then the type of financial report your association must perform each year will depend on the association’s total annual revenues and number of units. As an example, a condominium association with 50 or more units with annual revenues of $500,000 or more is required to prepare audited financial statements.

Regarding the vote to “waive down” the association’s financial reporting requirement, the law states that the meeting to vote on whether to “waive down” the level of required financial report must occur before the end of the fiscal year and is effective for either the fiscal year in which the vote is taken or the following fiscal year, depending on how the question is structured. For homeowners’ associations, there is no statutory or administrative guidance on point, and presumably no requirement that the vote take place prior to the end of the fiscal year.
Additionally, the Florida Condominium Act states that condominium associations cannot “waive down” year-end financial reporting requirements for more than three consecutive years. For homeowners’ associations, there is no statutory limitation on the number years the owners can “waive down” financial reporting requirements.

Originally posted on Florida HOA Law Blog

 

HOA Reserve Accounts: What Are You Missing?

Maintenance, repair and upgrade of the common areas of a community can be costly, and reserve accounts can be a great planning tool for large projects. In 2007, Section 720.303(6) of the Florida Statutes was added to the Florida HOA Act establishing procedures and rules related to reserves if a) they were originally established by the developer prior to turnover; or b) a majority of the homeowners voting to establish specific reserves.

Local governments are now requiring reserves for gated communities. Orange County, as well as cities such as Winter Garden and Ocoee, require developers to fund reserve accounts for the gated communities that are developed  within those jurisdictions. This is because gated communities have private roads and sidewalks, which are the maintenance responsibility of the HOA, and not the local government. Repairing or replacing this infrastructure can be pricey, and a community that has failed to plan for these costs could find itself in a predicament that only a huge special assessment could rectify.

Locally-required reserve funds include funds for roads, sidewalks, drainage areas, storm-debris cleanup, and similar anticipated expenses, and vary as to the amount that must be funded. In the case of roads, typically the largest reserve fund, 1/12 of the total amount needed to resurface the community must be put into reserves every year.

Annual deposits into  reserve funds must begin upon receipt by the community of its “certificate of completion”, which is very early in the development of a community. In at least one locality, Orange County, developers must “superfund” the reserve accounts by placing a full year of funds into the association’s reserves prior to turnover.

Many communities that have turned over discover that  their developer did not adequately fund the association’s reserve accounts, either by paying too little into the reserve accounts, or by attempting to “waive” the funding of reserves prior to turnover. An Orange County Circuit Court Judge recently ruled that a developer may not “waive” the funding of these mandatory reserve accounts prior to turnover.

The Fifth District Court of Appeal, in the case of Meritage Homes of Florida, Inc. v. Lake Roberts Landing Homeowners Ass’n, Inc, 2016 WL 830440 (Fla. 5th DCA 2016), affirmed that decision, and further held that a) once a developer establishes a reserve account, the reserves must be fully funded each year, unless reserves are waived or reduced at a member meeting (a board meeting will not do); and b) the developer may not vote its interests at the member meeting – only the non-developer owners may vote.

Further, a shortchanged HOA is able to recoup the attorneys’ fees and costs expended, should they prevail in an action against a developer.

An HOA that believes it has been shortchanged should immediately contact its community association law firm for advice.

Patrick C. Howell concentrates his practice in the area of community association law providing a variety of legal services to condominium, homeowner, cooperative and timeshare associations, with particular emphasis on construction litigation and specifically, construction defects litigation. 

Originally posted in Florida Condo HOA Blog

 

Associations Can Suspend Rights of Delinquent Owners Only by “Properly Noticed Board Meeting”

Question: My condominium association board is looking at ways to address owner assessment delinquency. We are interested in suspending use rights and voting rights. Our board does not meet frequently, and we do not want the additional administrative hassle of holding meetings just to suspend delinquent owners. Can’t we just issue a standing order that owner rights are suspended when the account goes delinquent?  N.R. (via e-mail)

Answer:  No. Suspension of voting rights and common facility use rights for an owner’s failure to pay assessments is governed by Sections 718.303(4) and (5) of the Florida Condominium Act. The statute provides that an owner who is more than ninety days delinquent in the payment of a fee, fine or other monetary obligation to the association, may have their use rights in the common elements, common facilities or other association property suspended until the amounts outstanding are paid. However, this suspension does not apply to limited common elements intended to be used only by the subject unit, common elements needed for access to the unit, utility services provided to the unit, parking spaces, or elevators. Voting rights can also be suspended for accounts more than ninety days delinquent.

The association can impose the non-payment suspensions without notice and hearing. However, the law provides that suspensions of use and voting rights for non-payment must be approved at a “properly noticed board meeting.”  Following such approval, the association must then notify the unit owner, and if applicable of a unit’s occupant, of the suspension by mail or hand delivery.

Section 720.305 of the Florida Homeowners’ Association Act imposes similar requirements for homeowners’ associations seeking to impose such suspensions. Both statutes also permit suspension for violations or governing documents, but require a hearing process.

 

 Originally appeared in the Florida Condo HOA Blog