Utility Billing: 6 Things Property Managers Need to Know

If you’re a multifamily or HOA property manager, billing your residents or homeowners for their utility use has likely crossed your mind. Many properties have already started utility billing programs. The prevalence of this practice has grown as utility rates and fees continue to rise, impacting a property’s cash flow and bottom line. Whether you’re billing already or interested in starting a utility billing program, here are some important considerations to keep in mind:

1. Pick the Right Calculation Methodology

Choosing the right pricing methodology is one of the first and most important decisions you need to make when undergoing or updating your utility billing program. A flat fee for all residents would seem like the simple, safe choice, but it requires a lot of guesswork to figure out what that fee should be. Go too low and you’re leaving money on the table. Go too high and you may “profit” from utilities, which in some jurisdictions legally classifies you as a utility, creating legal and regulatory headaches. Another downside of the flat fee model is that it encourages overuse by residents due to the “all you can eat” model. As an alternative, Ratio Utility Billing Systems (RUBS) allocate utilities based on certain factors such as unit size, and are an attractive option as long as you live in an area where this is allowed. Finally, submeters are a great option for usage-based billing. If you’re using submeters, different rates may be charged based on your jurisdiction, which you’ll want to understand as they will impact your recovery.

2. Update Your Lease Language

As the contract between the owner and the resident, your lease is required to adequately disclose the existence of your billing program and any associated fees. Your jurisdiction will likely have specific legal and regulatory requirements you must meet.

3. Communicate With Your Residents Clearly

In addition to including utility billing program details in your lease, your bills and statements must be itemized, clear, and comprehensive. There may be legal and regulatory requirements here as well. Not reflecting a specific line item properly on your resident bill can expose you to risk.

4. Keep Up with Changing and Re-interpreted Regulations

You may feel comfortable that you understand the regulations in your area today; However, when regulatory agencies turnover, laws may be changed or re-interpreted. When running a utility billing program you must keep tabs on and follow new rules. As changes arise, these may also require more/different resident notifications and lease language.

5. Understand and Abide by Conservation Benchmarking Mandates

Some jurisdictions require multifamily owners to report their utility consumption data with the EPA Energy Star Tool.  According to the website “ENERGY STAR Portfolio Manager® is an online tool you can use to measure and track energy and water consumption, as well as greenhouse gas emissions.” This tools can be used to benchmark the performance of one building or a whole portfolio of buildings, and manage energy and water use.

6. Maximize Your Cost Recovery by Capturing All Ancillary Costs

Don’t leave money on the table. Capture your source documents throughout the year and analyze your different ancillary costs such as water and sewer bills from taxes and other sources to see what you may be able to bill back. Done correctly, this can result in increasing your recovery and reducing your tax burden.

The utility billing regulatory environment is dynamic and complex. Whether you’ve kicked this process off already, or are just thinking of getting started, working with a partner who offers expertise is important. They help you take the guesswork out of the equation, so you maximize your returns while minimizing risk. If you have any questions or need some advice, feel free to contact our Resident Billing experts at PayLease at any time. As always, we’d be happy to talk with you.

 

Originally posted on www.paylease.com written by Micheal Foote

FL Division of Condos Proposes Greater Financial Penalties on Associations

Florida condominiums, cooperatives and, to a lesser degree, homeowners’ associations are subject to the imposition of fines and penalties by the Division of Florida Condominiums, Timeshare and Mobile Homes (“Division”) for a variety of mistakes and missteps.  The Division plans to pass sweeping changes to Chapter 61B-21 of the Florida Administrative Code which may go into effect in the coming weeks.

Why is this important for your Board to know?  Because many of the actions listed below occur on a regular basis in many associations that can otherwise be described as high functioning communities.

The category of minor violations has been narrowed while the category of more egregious violations has been expanded. The following violations are considered minor violations for which a Notice of Noncompliance will be issued:

  • Failing to disclose the beginning and ending dates of the period covered by the proposed budget.
  • Failing to disclose periodic assessments for each unit type in the proposed budget.
  • Distributing candidate information sheets consisting of more than one page.
  • Verifying the outer envelope information BEFORE the date of the election.
  • Failing to disclose the amount required to fully fund each reserve account as of the end of the fiscal period covered by the annual financial statements.
  • Failing to disclose the method of allocating income and expenses in the annual financial statements or turnover audit.

The following violations will result in a MINIMUM total penalty of $10-$30 PER UNIT or $1,000 whichever amount is greater. In a high rise with 350 units, a penalty for one of the following violations could cost $10,500.  As you can see, some of the violations below are much more egregious than others.

  • Failing to maintain complete accounting records.
  • Failing to maintain separate accounting records for each condominium.
  • Not passing assessments sufficient to meet expenses.
  • Collecting assessments less frequently than quarterly.
  • Not apportioning assessments correctly amongst multiple condominiums.
  • Failing to charge interest on past-due assessments.
  • Improperly excusing the developer or other owners from paying assessments.
  • Improperly amending the Declaration of Condominium to change the percentage by which the unit owners share the common expenses.
  • Imposing improper use fees.
  • Imposing late fees, transfer fees or security deposits without proper documentary authority to do so.
  • Failing to maintain adequate fidelity bonding.
  • Compensating board members or officers without proper documentary authority to do so.
  • Improperly allocating reserve requirements.
  • Failing to include a separate budget for each condominium operated by the Association as well as a budget for the Association.
  • Failing to obtain competitive bids fore each contract that exceeds 5% of the association’s budget.
  • Imposing fines and suspending use rights without proper notice and an opportunity for a hearing.
  • Allowing an ineligible person to fun for the Board.
  • Failing to adopt a budget each year.
  • Commingling reserve funds with operating funds.
  • Using Association funds for items other than proper common expenses.
  • Contracting with a service provider owned by a board member.
  • Using an association debit card for any association expenditure.
  • Failing to hold an annual election. The caveat here is that if you do not have more candidates running than open seats or if you do not have at least 20% of your eligible voters cast a ballot you will not have an election.
  • Failing to use ballots or voting machines.
  • Failing to provide space for the name, unit number or signature of the outer envelope used for elections.
  • Failing to provide timely first and second notices of the election.
  • Using improper nomination procedures in the election.
  • Holding the election at a time and place other than the annul meeting.
  • Failing to provide a candidate with a receipt for written notice of his or her candidacy.
  • Permitting ineligible candidates to be listed on the ballot.
  • Allowing members to rescind or change their previously cast election ballots.
  • Including comments from the board about election candidates in the Second Notice of Election and accompanying documents.
  • Not using an impartial committee to count the ballots.
  • Altering or editing candidate information sheets. The caveat here is that if a candidate submits a double-sided candidate information sheet or a candidate information sheet that is more than one page long, that candidate must be told that only one side of a page will be distributed.
  • Failing to place the inner envelope in a separate receptacle before being opened.
  • Not using uniform ballots.
  • Not checking the outer envelopes against a list of eligible voters.
  • Counting ineligible ballots
  • Failing to count properly cast ballots.
  • Opening outer envelopes prior to the election meeting or opening outer envelopes outside the presence of unit owners.
  • Failing to maintain official records.
  • Requiring a unit owner to pay a fee for access to association records.
  • Failing to timely provide access to records or failing to allow scanning or copying of records.
  • Improperly purchasing a unit at a foreclosure sale.

The foregoing list of violations is not inclusive and, in addition to the penalties established by the rule chapter, the Division may also seek to recover any other costs, penalties, attorney’s fees, court costs, service fees, collection costs and damages allowed by law. . There are a lot of other areas where a volunteer board can unknowingly go astray and wind up being monetarily penalized as a result. The changes being proposed by the Division to 61B-21.003 F.A.C reflect a shift in the Division’s focus from education to enforcement. While both are important, education helps boards avoid the types of infractions which result in fines and penalties.

The Division has posted notice of a Public Meeting/Workshop Hearing for Monday, August 13th from 9:30-11:30 am in Tallahassee. I realize that most of you reading this blog are not likely to make it up to Tallahassee for this hearing.  However, you can submit a comment regarding the proposed rules by sending an email to the following email address which has been set up for this purpose:

fctmh.rulehearing@myfloridalicense.com

The imposition of fines against associations will have a financial impact and may result in the community looking for ways to hold individual board members accountable for the costs to the association. Do not expect insurance to cover fines or penalties.  Given these new enforcement parameters, I am urging associations to consult with their management professionals and experienced legal counsel to ensure that they are operating within the requirements of the Statute and Administrative Code.  Particular attention should be paid to fiscal operations (budgeting, calculating and handling of reserves, collection of assessments), imposing fees of any kind other than assessments, elections and board member conduct and the awarding of contracts.  Serving on your board of directors is almost guaranteed to be a thankless job but you should try to avoid it also becoming a costly job!

 

Originally posted on communityassociationlawblog.com and written by Donna DiMaggio Berger

Putting the Puzzle Together Regarding Insurance Coverage and Exclusions

In those pages and pages of insurance documents detailing your available insurance coverage you’ll also find exclusions explaining what is not covered in your insurance policy. There might, however, be some exceptions to those exclusions that should keep the claim from being excluded under the policy. Confused yet?

That knotted paradigm is illustrated in a case that was decided by the Florida Supreme Court. In John Robert Sebo v. American Home Assurance Company, 208 So.3d 694 (Fla. 2016), the Florida Supreme Court was asked to determine whether coverage existed under an all-risk policy when multiple perils combined to create a loss and at least one of the perils was excluded by the terms of the policy. The court concluded that coverage did exist in such a scenario. In other words, the Florida Supreme Court decided that insurance companies should not deny coverage for property damage just because it had more than one cause so long as the policy covers at least one of the causes.

Let me explain. John Sebo, the insured homeowner, had an insurance policy that covered rain and hurricane damage but not damage from construction defects. His house was damaged during Hurricane Wilma. The investigation showed the damage was because of the rain andconstruction defects.

The Florida Supreme Court noted that it was “confronted with determining the appropriate theory of recovery to apply when two or more perils converge to cause a loss and at least one of the perils is excluded from an insurance policy.” Two competing theories had to be analyzed in reaching a final decision. The first, the efficient proximate cause (EPC) theory provides that the peril that set the other one in motion is the cause to which the loss is attributable. This meant that in Sebo a trial would have been required to determine which peril was set in motion first.

However, the Florida Supreme Court rejected the application of the EPC theory, preferring the application of the concurrent cause doctrine (CCD).  Under this theory, coverage may exist where an insured risk constitutes a concurrent cause to the loss even when it was not the prime cause for the loss.

Ultimately, the Court in Sebo concluded that there was no reasonable way to distinguish the probable cause of the property loss since the rain and construction defects acted in concert to create the destruction. The Court then looked at the plain language of the insurance policy and found that the policy’s plain language did not preclude recovery.

This confusing paradigm is also illustrated in the case of Bartram, LLC v Landmark American Insurance Comp., 864 F. Supp. 1229, (N.D. Fla. 2012).  That case centered on a dispute between an apartment complex and several insurance carriers. The apartment complex sustained significant water damage caused by faulty workmanship in the building’s construction. While the apartment owners acknowledged that the costs to repair the faulty workmanship itself was not covered, the water (a Covered Loss) that infiltrated and damaged the building should be covered because of the exception. Of course, the insurance companies disagreed and argued that the apartment owners were not entitled to coverage. Ultimately, the Court disagreed with the insurance companies and concluded that the apartment owners were entitled to insurance coverage.

These cases (Sebo and Bartram) illustrate the importance of understanding not just your available insurance coverages but also your applicable exclusions. While you may have coverage for, say, property damage from a hurricane, the insurance company may argue that coverage does not exist as a result of some exclusion in your policy such as faulty workmanship or wear and tear. While the cases I’ve discussed here suggest that in a scenario like that you should be afforded coverage, the fact remains that your insurance company may deny coverage as a result of the exclusion contained in your policy and its “no” should not be readily accepted. Understanding what is and is not covered under a policy is key, as is having an attorney experienced in dealing with carriers in these situations.

Originally posted on floridacondohoalawblog.com and written by Hugo Alvearez ESQ

Board Must Allow Renewable Energy Devices

Q: I would like to install solar panels on the roof of my home, but I did not see any standards addressing this within my homeowners’ association’s documents or architectural review guidelines. Would I be allowed to install these in order to make my home greener? (K.L. via e-mail)

A: Probably. Under Section 163.04 of the Florida Statutes, homeowners’ association declarations may not prohibit owners from installing certain renewable energy devices on buildings located on lots or parcels that are subject to the declaration. These devices include “solar collectors, clotheslines, or other energy devices based on renewable resources.” In the event that an owner wishes to install solar collector devices on a roof, the statute allows the approving entity under the declaration (such as the architectural review committee) to determine the specific location where they may be installed, including positioning the solar collectors to the south or within 45 degrees east or west of due south, if this does not impair the effective operation of the solar collectors.
This law was first enacted in 1980, and the prevailing view is that covenants which predate the statute may still be enforced.

In the condominium context, the statute provides that owners may not be denied the ability to install the solar panels by the approving entity in the declaration, so long as the proposed installation is done within the unit boundaries. However, from a practical standpoint, these panels would rarely be located within the unit boundaries.
The Florida Condominium Act also allows the board of directors to install solar collectors, clotheslines, or other renewable energy devices upon or within the common elements or association property to benefit unit owners, without unit owner approval.

Q: My condominium association has historically had problems getting people to serve on the board. Two board members recently resigned and the remaining three board members cannot get volunteers to fill the vacancies. Some people in our community have suggested simply having the State come in and run the Association. Is that actually an option? (W.P. via e-mail)

A: Not really. The Florida Condominium Act does not provide a mechanism for the State to take over and handle the operation of the association. The Division of Condominiums, Timeshares, and Mobile Homes is the administrative agency in charge of regulating condominium associations. However, it does not have the authority to step in and run a condominium association.

You may be referring to the process of having a “receiver” appointed. Section 718.1124 of the Act provides that when an association fails to fill the vacancies on the board of administration sufficient to constitute a quorum, any unit owner can give notice of their intent to apply for a receiver to be appointed to manage the association’s affairs.

The statute outlines the process to have a court appoint a receiver, including providing notice to all owners, which must be given 30 days before filing the petition, in order to give the association sufficient time to constitute a quorum of the board of directors.

A receiver is typically a professional such as an attorney or an accountant who would run the association until such time as a quorum of the board can be sufficiently constituted. The association must pay the receiver’s salary, which could potentially be expensive. In my experience, appointing a receiver is not a desirable option for an association or your property values. Owners in your condominium need to step up and take their turn serving on the board. You should also look into professional management if your association does not currently use it.

Another option for the association would be to amend the bylaws to provide for a three-member board, which may make it easier to fill all the positions, and only requires two directors for a quorum.

Originally posted on floridacondohoalawblog.com and written by Joe Adams is an attorney with Becker & Poliakoff, P.A., Fort Myers. 

Who is Responsible for Electrical Wiring and Plumbing Repairs?

Disputes over maintenance, repair and replacement responsibilities are common in community associations and a well drafted declaration or amendment to the declaration can help prevent disputes over who (owner or association) is responsible for a specific item of maintenance.

Regarding how to interpret your existing condominium documents, the unit boundaries will be defined within the declaration and sometimes within the site plan. Any item/component including electrical wires and plumbing located within the unit boundaries is the unit owner’s responsibility to maintain, repair and replace (unless the declaration states otherwise). In contrast, any item/component located outside the unit boundaries is a common element (or a limited common element) and the association is responsible to maintain, repair and replace the common elements unless a given item is identified in the declaration as a limited common element (benefiting the subject owner) and also identified as being the maintenance, repair and replacement responsibility of the unit owner.

Originally posted on floridacondohoalawblog.com and written by David G Muller