Reserves Must Be Fully Funded Unless Waived

Q: Our condominium association just had a reserve study done for the first time in our twenty-year plus history. We learned that all of the funds we have set up are inadequate. The board said that to catch up the reserves would double our assessment, so they want to phase in the increase. Can they do that? Should the association have gotten a reserve study before now? (J.M., via e-mail.)

A: Although the Florida Condominium Act requires the association to obtain an insurance appraisal at least every 36 months, there is no requirement for a reserve study in the law. However, these studies are relatively inexpensive and are a good tool for boards in establishing reserve schedules, which are supposed to be updated annually based on changes in replacement cost and useful life assumptions, as well as expenditures from the fund.

Your situation is not unusual. A common mistake made by many associations is to simply use the reserve calculations inherited from the developer. In many cases, these schedules are overly optimistic on both useful life and replacement cost figures.

The board is legally obligated to prepare a budget that includes required reserves for roof replacement, pavement resurfacing, building painting, and any other item of deferred maintenance or capital replacement exceeding $10,000.00. These reserves must be “fully funded.” The board does not have the legal ability to “phase in” the full funding of reserves.

If a budget with fully funded reserves is going to impose an undue economic burden on the unit owners, the best choice for the board is to call an owners’ meeting and ask that the owners vote to “partially fund” the reserves. Certain procedures must be followed, but it is not complicated. If a majority of the owners voting at a meeting approve the partially funded reserve (which could include some “phased in catch-up” amounts if desired), that would be legally proper.

Q: Recently my condominium association board sent out notice stating that the board would be adopting a new set of rules. It was my understanding rule changes must be approved by the owners also. Is this correct? (G.B., via e-mail)

A: Not necessarily. The Florida Condominium Act grants authority to the board to adopt certain rules concerning the operation of the association. However, the statute does not specifically grant a board the authority to enact “use restrictions” regarding the condominium property. It is necessary to review the condominium documents, because these will be the source of the board’s authority.

Almost universally, the condominium documents will provide that the board has rule-making regarding common elements. Some documents grant the board the authority to make rules governing unit use, some do not.

Even if the condominium documents give the board authority to adopt rules for the “condominium property” (both units and common elements) there are limits on that authority. Case law in Florida requires that the rules adopted by the Board not conflict with rights contained within the declaration of condominium, nor rights which are “inferable” from the declaration. Also, board-made rules must be “reasonable,” whereas this is not a requirement for amendments to a declaration.

Rules must also be adopted in a procedurally correct manner. Any board meeting where rules which regulate unit use are to be considered must be noticed at least 14 days in advance to the unit owners by both delivery and posting on the condominium property.

Originally posted on floridacondohoalawblog.com. Written by Joe Adams is an attorney with Becker & Poliakoff, P.A., Fort Myers. Send questions to Joe Adams by e-mail to jadams@beckerlawyers.com

Enforcement Tool Belt – Fining/Suspension

In the proverbial “tool belt” of enforcement options available to an association for violations of the rules and regulations, the imposition of fines and suspensions is one that we frequently get questions about due to the procedures that must be followed.  If the process is not followed properly, it may result in invalidation of the fine or suspension, and can also result in potential legal exposure to the association.

Whether you live in a condominium, cooperative, or homeowners’ association, owners and their guests, tenants and invitees are bound by the association’s governing documents, which may include the declaration, articles of incorporation, bylaws and rules and regulations.  When owners or their guests, tenants or invitees violate the governing documents, associations have certain remedies available to it under Florida law.  In many circumstances, a friendly letter from the community association manager is sufficient to resolve the matter.  In other circumstances, a more formal “notice of violation” will bring an end to continuing violations.  However, in some instances further action is required to enforce a violation.

Florida law for condominiums, cooperatives, and homeowners associations authorizes an association to assess fines and to levy suspensions to enforce the governing documents of a community.  All three types of associations (condominiums, cooperatives, and homeowners associations) have the ability to impose reasonable fines, or to suspend for a reasonable period of time, the right to use common elements, facilities or association property for failure to comply with provisions of the declaration, the bylaws, or rules and regulations of the association.

Sections 718.303 (for condominiums), 719.303 (for cooperatives) and 720.305 (for homeowners’ associations) provide fining and suspension as a remedies available to the association, and also provides the procedures that the association must follow to enforce such remedies.

Generally, the board must appoint an independent committee (often called the fining committee or compliance committee). The committee cannot be comprised of officers, directors, or employees of the association, or the spouse, parent, child, brother, or sister of an officer, director, or employee. If a violation is to be considered for a fine or suspension, the board meets at a duly-noticed meeting, reviews the matter, and “levies” a fine or suspension, if deemed appropriate. After the board levies the fine or issues a suspension, the person to be fined is then entitled to a hearing before the committee. Notice must be received at least 14 days in advance of the hearing. If the association does not hear from the party to be fined or suspended, or the individual does not actually appear at the hearing, the hearing should still be held. At the hearing, the committee must afford basic due process and allow the accused to be heard, state their case, and challenge evidence against them. The committee must then either “confirm” or “reject” the fine or suspension. If the committee rejects the fine or suspension, the matter is over. If the committee confirms the fine or suspension, the board then “imposes” it. After the board has imposed the fine or suspension, a letter should be sent advising of the amount of the fine and the date due.  With regards to a suspension, a letter should be sent advising the length of the suspension.

Originally posted on floridacondohoalawblog.com. Written by Jennifer Horan

The Subrogation Situation

With increasing frequency, insurance companies that provide unit owner insurance are suing community associations to recover payments made to the unit owner that are related to water leaks in the unit. The problem with these lawsuits is two-fold. First, the insurance companies are waiting years to bring them, although still within the statute of limitations for the lawsuit, but nonetheless to the detriment of the community association’s defense of the case as records and memories fade overtime. Secondly, the cases are many times brought in small claims court as a result of the insurance company seeking at most $5,000.00 in “reimbursement” from the community association. The issue with defending a small claims court case is that the cost of defending the lawsuit can be more than the amount the insurance company is seeking which puts pressure on the community association to simply settle. The basis of the insurance company’s lawsuit against the community association is negligence; the insurance company claims that the association had a duty to take some action, failed to take the action and such a failure led to loss that resulted in the insurance payment to the unit owner.

What can be done to limit a community association’s exposure to such lawsuits? First, the community association should consult with its attorney to determine if an amendment to the declaration for the association should be adopted related to subrogation. Next, community associations need to promptly respond to complaints related to leaks and properly document repair work in a detailed manner so that the location and extent of work is easily understood. The documentation related to repair work should be kept for seven years and be readily accessible. Community associations should perform routine maintenance and inspections of property that the association is required to maintain in order to identify in advance of a water leak areas of needed maintenance. Lastly, anytime there is a water leak or other casualty to unit, the association must thoroughly document, in writing, what happened to cause the leak, what was done in response to the leak and all communications between the association, the unit owner and the unit owner’s insurance company and adjuster. Such documentation should be shared with the community association’s attorney and kept in the association’s official records.

Originally posted on floridacondohoalawblog.com. Written by Marielle Westerman

Association Cannot Restrict Board to Florida Residents

Q: The board of my condominium association seems to always be stacked with seasonal residents who want things nice for the few months they are there, and to cut costs for the rest of the year. A group of year-round residents would like to start a petition to change our bylaws to require that board members be Florida residents, or at least reside at the condo so many months a year. How would one go about this? (J.L., via e-mail)

A: Initiating a bylaw amendment by membership initiative typically requires a petition to the board requesting the call of a special meeting and presenting proposed amendment language for the bylaws. The number of signatures required on the petition will depend on the provisions of your specific condominium documents. Twenty-five percent seems to be a common number. If the bylaws are silent on petitioning for a special meeting, the default requirement of the state corporate statutes is five percent all voters.

However, it is my opinion that such a petition would be fruitless and even if you got enough signatures, the board would not be obligated to present the amendment, because it is contrary to law.

Section 718.112(2)(d)4 of the Florida Condominium Act states that every unit owner has the right to serve on the board. There are certain limitations in the statute itself. For example, two people from the same unit cannot serve on the board if there is a contested election. Certain convicted felons are ineligible for board service. Certain financial defaults to the association disqualify a person from running for or serving on the board. There are a couple of other exceptions including the requirement for “board certification,” being charged with certain crimes, and the ability of the state regulatory agency to remove directors for misconduct. There is also the recent 8-year term limit statute which has been discussed in a number of my recent columns.

Other than those conditions set forth in the statute, limitations on the right to serve on the board are not legally valid. The Division of Florida Condominiums, Timeshares, and Mobile Homes, the state agency which has specified regulatory oversight of condominiums, has ruled that “residency requirements” for board service contained in association bylaws are invalid.

Q: I am on the board of my homeowners’ association. We are confronting a very divisive issue about potentially expensive renovations to our common property. The community seems evenly split and things have gotten unpleasant. Our board recently had to take a vote on whether to continue with this matter. I suggested that due to the divisiveness in the community, and so that each director could vote his or her conscience without fear of alienating people, that we vote by secret ballot. I was told this is illegal. Is that true? (S.G., via e-mail)

A: Yes. Section 720.303(2)(c)3 of the Florida Homeowners’ Association Act states that directors may not vote by proxy or by secret ballot at board meetings, except that secret ballots may be used in the election of officers.

Q: The air-conditioning and heating for my condominium unit comes from a compressor which sits outside on a pad. It recently gave out. The manager told me I had to pay for a new one. I thought that owners only had to pay for what is inside the four walls of their apartment. What is the ruling on this? (F.C., via e-mail)

A: Air-conditioning compressors are usually part of the common elements of the condominium. Under current state law, they are insured by the association. Therefore, if the compressor was damaged due to an “insurable event” (such as a lightning strike), the association would generally be responsible to repair or replace it.

If this is simply a wear and tear issue, your declaration of condominium will dictate the answer. In most condominiums, the compressors are described as “limited common elements” and are the maintenance, repair, and replacement responsibility of the unit owner. However, this is not universal, and the language of your individual documents will control.

Originally posted on floridacondohoalawblog.com. Written by Joe Adams is an attorney with Becker & Poliakoff, P.A., Fort Myers. Send questions to Joe Adams by e-mail to jadams@beckerlawyers.com

Competitive Bidding Explained

Q: My condominium association recently solicited bids for major repairs to our condominium buildings. The cost of the project is several hundred thousand dollars. At the recent board meeting where the contractor was selected, the board discussed all of the bids and voted to proceed with a particular contractor. However, this contractor was not the lowest bid received. When the association must put out contracts for bid, isn’t it obligated to go with the lowest price? (C. J., via e-mail)

A: No. Section 718.3026(1) of the Florida Condominium Act applies to contracts for the purchase of materials or equipment and the provision of services. Any such contract that requires payment of an amount that exceeds five percent of the total annual budget of the association, including reserves, requires competitive bids.

People often ask if three bids are required by the statute. I believe the reference to “competitive” bids means that two bids are sufficient, though there is certainly nothing wrong with getting more. It is important that bids be for the same scope of work, however.

As to your specific question, the statute states that “nothing contained herein shall be construed to require the association to accept the lowest bid.”

It is also important to remember that certain contracts are exempt from the competitive bidding requirements of the statute. Exemptions include contracts for hiring association employees, as well as contracts with accountants, architects, association managers, engineers, landscape architects, and attorneys.

Section 720.3055(1) of the Florida Homeowners’ Association Act contains similar requirements for homeowners’ associations, although the obligation to obtain bids under this statute only arises when the proposed contract exceeds ten percent of the association’s annual budget, including reserves.

As with many issues in community association operations that are regulated by statute, it is also important to remember that the governing documents for an association can impose stricter requirements than regulations contained in the law.

Q: Our condominium has some different factions. I agree with one group and others are part of a second group. I recently ran for the board and lost by only a few votes. Right after the annual meeting, one of the people from the other group, who had not been up for election because she still had one year left on the board, resigned. The rest of the board then appointed one of their supporters to fill that seat. We think I should have been appointed to that seat and that this whole thing was rigged and underhanded. What do you think? (L.S., via e-mail)

A: Condo politics can be as rough as any. Unless there is a very unusual provision in your bylaws, candidates who run for the board but are not elected have no greater claims to vacancies that open up on the board than anyone else.

Section 718.112(2)(d)9 of the Florida Condominium Act states that vacancies occurring on a board are filled by majority vote of the remaining directors, even if they constitute less than a quorum. Vacancies are filled for the unexpired term of the seat being filled, unless otherwise provided in the bylaws.

Q: We just had the annual meeting for our homeowners’ association and I was elected to the board. Our manager said we have to now do an “annual MRTA review” but he was not exactly sure what that was, nor are we. Can you shed any light on this subject? (C.F., via e-mail)

A: MRTA is the common abbreviation used for Florida’s Marketable Record Title Act, which is Chapter 712 of the Florida Statutes. It is a rather complicated real estate statute, but of interest to you, it can extinguish your covenants after 30 years if certain steps are not taken to protect them by certain recordings. The Florida Homeowners’ Association Act was amended in 2018 to require the board of every HOA, at the first meeting of the board each year (excluding the organizational meeting) to review the association’s status under MRTA.

Originally posted on floridacondohoalawblog.com. Written by Joe Adams is an attorney with Becker & Poliakoff, P.A., Fort Myers. Send questions to Joe Adams by e-mail to jadams@beckerlawyers.com