Condominium Associations can Require Unit Owners’ Keys

Q:        I am a new owner in a condominium. The board has asked me for a key to my unit, but I am hesitant to give it to them. Can they require me to provide a key? (M.R., via e-mail)

A:        Probably. Section 718.111 (5)(a) of the Florida Condominium Act states that an association has the irrevocable right of access to each unit during reasonable hours when access is necessary to maintain, repair, or replace the common elements or any portion of a unit that the association maintains, or if it is necessary to prevent damage to the common elements or another unit.

While the statute does not specifically address a board’s right to obtain keys, numerous rulings from the state agency which regulates condominiums have upheld key requirements if contained in the declaration of condominium or a properly enacted board rule. The association should have a policy addressing appropriate security protocols to secure unit keys when they are not in use.

Q:        I live in a development with a homeowners’ association. I would like to attend the meetings for our association’s architectural review committee. However, I do not know when this committee has meetings and am not sure whether I am permitted to attend. Do committees have to post notice of their meetings? (G.G., via e-mail)

A:        Sometimes. Committee meetings may be subject to the same requirements as board meetings. However, it depends on the type of committee involved.

Section 720.303(2)(a) of the Florida Homeowners’ Association Act states that “meetings” of the board of directors occur when a quorum of the board gathers to conduct association business. Board meetings are subject to certain “sunshine” regulations (the Florida Government in the Sunshine law does not apply to homeowners’ associations, so this is a bit of an industry slang term). The sunshine regulations applicable to board meetings also apply to committees where a final decision can be made to spend association funds, as well as committees that approve architectural decisions. These two types of committees are often loosely referred to as “statutory committees.”

Legal requirements include posting 48 hours’ advanced notice of the meeting in a conspicuous place in the community and keeping minutes of the meetings. Members have the right to attend these committee meetings, and can also speak at such meetings with reference to any designated agenda item. Members who wish to speak at such meetings may be subject to reasonable rules governing the frequency, duration, and manner of members’ comments, if the association has adopted such policies. There are no sunshine law regulations applicable to other committees of a homeowners’ association, sometimes called “non-statutory committees.”

The Florida Condominium Act has similar requirements. However, there are different “statutory committees” in the condominium context. For condominiums, statutory committees are those committees empowered to take final action on behalf the board and committees which make budget recommendations to the board. Unlike the law for homeowners’ associations, non-statutory committees in condominiums must also follow the sunshine requirements, unless the association’s bylaws exempt them.

Because the meeting you want to attend is an architectural review meeting, it is a “statutory committee” under the Florida Homeowners’ Association Act. Notice of the meetings must be posted and members are permitted to attend and speak.

 

Written by Joe Adams and originally posted on the FL Condo HOA Law Blog

Delinquent Board Members May be Required to Leave Positions

Q:        Our annual meeting and election is coming up and our board has been discussing the relevant procedure. Is it possible for us to go through simpler procedure because we are a smaller condominium association? (S.W. via e-mail)

A:        Possibly, if your association is comprised of 10 or less units and the unit owners vote to amend the bylaws in order to “opt out” of the election requirements in the Condominium Act.

The Condominium Act sets out the procedures for noticing and holding the annual meeting and election of directors. Generally, condominiums must follow certain notice requirements as required by the Act, such as providing for first notice sent to members 60 days in advance of the annual meeting.

However, if your condominium association is made up of 10 or less units, the association can amend its bylaws to provide for different voting and election procedures than provided by Section 718.112(2)(d)10, Florida Statutes. For example, the alternate procedures may provide for elections to be conducted by limited or general proxy.

In order to “opt out” of the statutory election requirements, a majority of the total voting interests must vote to adopt different voting and election procedures in the bylaws, even if the bylaws contain different amendment procedure.

Q:        In a homeowners’ association, can a board member be suspended from office for late payments? (L.B. via e-mail)

A:        Possibly, but it will depend on how delinquent the board member’s payments are.

Both the Condominium Act and the Homeowners’ Association Act provide similar remedies to address the issue of delinquent directors.

The Condominium Act, Section 718.112(2)(n), states that a director or officer who is more than 90 days delinquent in the payment of any monetary obligation due to the association shall be deemed to have abandoned the office, creating a vacancy in the office to be filled according to law.

The Homeowners’ Association Act, Section 720.306(9)(b), contains a similar requirement, but the restriction applies to board members, and the person serving as a board member who becomes delinquent is deemed to have abandoned his or her seat on the board, creating a vacancy on the board to be filled according to law.

Therefore, in the homeowners’ association context, if a director is more than 90 days delinquent on any payment to the association, the director is deemed to have abandoned their board seat. If this occurs, the director’s seat may be filled by an affirmative vote of a majority of the remaining board members.

Q:        I own a home in a small homeowners’ association with 24 lots. At a recent meeting, there was a statement made that because we are a small association, we are not subject to the Homeowners’ Association Act. Is this correct? (S.I. via e-mail)

A:        There is no minimum size requirement in the Homeowners’ Association Act. Rather, Section 720.301(9) defines homeowners’ association, which are subject to the Act, as a corporation responsible for the operation of a community or mobile home subdivision in which the voting membership is made up of the parcel owners or their agents, or a combination thereof, and where membership in the association is mandatory as a condition of ownership, and where the association has the right to impose assessments that, if unpaid, may become a lien on the parcel. If your association meets the definition of an “association” as defined by the Act, then your association is subject to the provisions of Chapter 720. It does not matter if your association is 10 lots or 1,000. In my experience, some older communities have governing documents which do not contain all of the requirements of Section 720.301(9), particularly if the documents do not provide the association with a right to impose a lien. Therefore, in order to determine if your association meets the definition as provided in the statute it may be necessary to have legal counsel review your governing documents. However, the size of your community would not be relevant.

 

Written by Joe Adams and originally posted at the FL Condo HOA Law Blog

Conflicts of Interest – Is it time for a new Code of Conduct?

It has always been the obligation of Board members to serve for the benefit of the entire community.  Doing so requires that they carry out their duties in good faith with the care of ordinarily prudent people.  To safeguard and promote the welfare of the community, The Condominium Act provides for personal liability if a director or officer breaches their duty and as a result there is a violation of criminal law, an improper personal benefit or their act “constitutes recklessness or an act or omission that was in bad faith, with malicious purpose, or in a manner exhibiting wanton and willful disregard of human rights, safety, or property.” §718.111(1)(d), Fla. Stats.  That does not however stop claims that Board members act in their own self-interest rather than for the community as a whole.  As a result many communities adopt a Code of Conduct to further promote confidence amongst the members.  The Code serves as a specific promise on the part of Board members to serve the community and not their self-interest.

Conflicts of interest are a huge bone of contention between members and the Board.  In 2017 the Legislature added a new section to The Condominium Act (§718.3027) aimed at providing full disclosures whenever a transaction or contract could be reasonably construed to be a conflict of interest.  It could be said that §718.3027 is directed not at avoiding conflicts of interest but rather at ensuring that conflicts are properly disclosed and that the proper votes are taken to permit an otherwise beneficial agreement to come into existence even if a Board member could receive a benefit from that contract.  In light of the new provision, communities rifled with allegations of improper conduct or those with an existing Code of Conduct should consider an updated promise from their Board and Committee members.  The new Code of Conduct should incorporate the provisions of §718.3027 as well as other legislative changes which took effect in 2017 such as those prohibiting a Board member from purchasing a unit at an association’s foreclosure. The Code of Conduct should also incorporate the expanded understanding of the relationship between the Board Member and the company with whom the association will contract given the 2017 changes reference relationships by blood or marriage up to the third degree of consanguinity which covers more people than just parents, children and spouses.

The goal of a Code of Conduct is to promote knowledge and awareness on the part of the Board as to what it truly means to comply with the fiduciary duty of the office while also provide members a sense of comfort that the Board is, as it should be, working for the benefit of the entire community.

 

Written by Marilyn Perez-Martinez and originally posted on FL Condo HOA Law Blog

Year End Surplus Treatment in Board’s Hands

Q:        What must be done with a condominium association’s operating surplus at the end of the year? Is it true that it must be returned to the owners in the form of payment or a credit to next year’s budget or assessment? (J.S. via e-mail)

A:        Condominium associations levy assessments against the unit owners for their individual share of funds required to pay for “common expenses.” When all of the receipts or revenues, including assessments, rents, or profits collected by an association exceed the common expenses, this is referred to as the “common surplus.”

The Florida Condominium Act generally provides that funds for the payment of common expenses are allocated in the percentages set forth in the declaration of condominium. For condominiums created after January 1, 1996, the Act provides that each unit will have identical shares for sharing common expenses and owning common surplus.

However, the statute does not state what associations must do with the common surplus (including year-end operating surplus), nor does it require associations to refund surplus operating funds to the owners (and few, if any, associations do so). In my opinion, the proper treatment of the surplus operating funds is to accrue them as revenue for the next fiscal year, and apply the revenue to offset expense items contained in the budget. This does not necessarily mean that the money has to be spent, as a reasonable accumulation of working capital is a proper budget line item.

Although only applicable in somewhat limited tax reporting situations, there is an IRS Revenue Ruling that requires a vote of the owners to authorize the “rollover” of surplus funds to avoid taxation of excess operating income. An appropriate accounting professional should determine if a particular association is subject to the IRS Revenue Ruling (most aren’t), and assist with the manner in which the “rolled over” funds are accounted for in such situations.

Q:        How are “voting interests” defined? (J.R. via e-mail)

A:        Voting interests are the voting rights distributed to the association members, which are described in the governing documents of the association.

Most frequently, each assessable unit or parcel is assigned one voting interest, no matter how many people actually own the property (sometimes called “one door – one vote”). Occasionally, particularly in older condominiums where the sharing of assessments is weighted based on unit size, the voting interests may also be weighted.

Q:        At a recent meeting of my condominium association’s board, there was discussion about voting down an audit. Is this allowed?  (O.A. via e-mail)

A:        Condominium associations with revenue in excess of $500,000 are required to prepare an annual audit. Associations with revenues between $300,000 but less than $500,000 must prepare reviewed financial statements annually. Associations with more than $150,000, but less than $300,000, in revenue must prepare an annual compiled financial statement. Associations with less than $150,000 in revenue are only required to prepare a report of cash receipts and disbursements. Owners can vote to “waive” these requirements by majority approval.

Effective July 1, 2017, the legislature made a few of changes to this law. There is now no limitation on the number of times an association may waive the statutory financial reporting requirements (it used to be limited to three consecutive years). The statute also removed the exemption for associations with less than 50 units. Now, the statutory financial reporting requirement applies regardless of the size of the community, and solely based on revenue. Although found in different statutes, these rules apply to both condominium and homeowners’ associations.

 

Written by Joe Adams and originally posted on FL Condo HOA Law Blog

Associations Should Prepare for Disaster in Advance

We are now over a month past Hurricane Irma.  While it certainly could have been significantly worse for Southwest Florida, many community associations are still working  through a variety of difficult issues, including processing insurance claims, continuing clean-up, and property restoration. While immediate attention must be paid to those issues, now is also a good time for associations to work on developing disaster preparedness and response plans for the future, or refining current plans based on what has been learned from this hurricane.

The steps that community associations can take to prepare for major casualties such as hurricanes, tornados, and fires, include review of what coverage is actually provided by your insurance policies, consideration of having flood insurance, and preparation of disaster preparedness and response plans. Now is the time. I have found that when years go by with no major hurricanes, people tend to lose focus on the importance of good planning. Human nature, I guess.

Section 718.111(11)(d) of the Florida Condominium Act requires a condominium association to use its best efforts to obtain and maintain “adequate insurance” to protect the association, the association property, the common elements, and the condominium property. The condominium statute does not specifically require flood insurance.  In fact, the law states that a condominium association “may also obtain … flood insurance,” implying that flood insurance is permissive, rather than legally required.

For condominiums located within designated flood hazard areas, flood insurance could be considered mandatory by the “adequate” insurance requirement of the statute. If flood damage occurs, not only the structure of the building may be damaged, but the electrical system, plumbing, and other utilities may have to be replaced in their entirety. In a high rise condominium building, unit owners on higher floors often forget that they also own a share of the lower floors. Further, windstorm insurance does not cover damage due to flooding, and vice versa. This could result in associations being underinsured in the event of damage due to both wind and flood. Further, a high percentage of flood claims occur outside of flood zones, so every association should take a hard look at this issue.

The Florida Homeowners’ Association Act, Chapter 720 of the Florida Statutes, imposes almost no insurance requirements on homeowners’ associations. The scope of required coverage and types of insurance required will be dictated solely by the governing documents. For attached structures, such as townhouses or villas, the difference between good and bad documents can mean the difference between financial success and disaster. Talk to your insurance agent and attorney to make sure the documents actually say what you want them to say, and are consistent with how you are insuring.

Associations should develop guidelines as to what actions will be done both before and after a disaster occurs. Before a disaster, associations should ensure that important documents such as insurance policies and association records are secured in a safe place, including having such documents on-line, designating an out of state contact for the association, and taking photographs and videos to document property conditions for insurance purposes.

After a disaster occurs, associations should rely on established relationships with contractors to perform emergency repairs. Associations should assemble a list of post-disaster contacts such as board members, management, attorneys, engineers, insurance agents, insurance adjusters, and so forth. There are, unfortunately, some opportunists and charlatans who chase these storms.

Associations should develop a program to keep owners informed regarding the status of association matters, for instance by email updates or posting on a website. Many association-owner disputes arise from these events. Some could be avoided with a little communication.

Hopefully, it will be a long time before we have to deal with these issues again. However, we certainly cannot count on it and should let Irma serve as a wake-up call that an ounce of prevention is often worth a pound of cure.

Written by Joe Adams and originally posted on FL Condo HOA Law Blog