What is “Cumulative Voting” and Is It Permissible?

Q: If the ballot sent to every homeowner states you may vote up to five candidates and no more, can you cast all five votes for just one person and have that ballot counted as five votes versus one vote? (S.D., via e-mail)

A: It depends on the provisions of your homeowners’ association’s governing documents. Your question is whether “cumulative voting” in elections of directors is permissible. Under cumulative voting, each member is provided with one vote for each seat open on the board and may split those votes as he or she sees fit, including casting all votes for only one candidate. Cumulative voting gives a member’s vote more weight than if the homeowners’ association does not allow for cumulative voting.

Section 720.306(9)(a) of the Florida Homeowners’ Association Act generally provides that elections of directors must be in accordance with the governing documents of the association. Section 617.0721(5) of the Florida Not For Profit Corporation Act, which also governs Florida homeowners’ associations, provides that the articles of incorporation or the bylaws may provide for cumulative voting; however, cumulative voting is not permitted unless it is expressly authorized in the articles of incorporation. Therefore, cumulative voting in only permissible in your homeowners’ association if its articles of incorporation specifically authorize same.

As a practical matter, few homeowners’ associations adopt cumulative voting. When considering whether to permit cumulative voting, it is recommended that associations first consult with a qualified and experienced community association attorney to discuss its benefits and challenges.

Q: My condominium unit is in an association that is part of a larger master association. The master association is made up of a number of other condominium associations. A question has arisen as to what law applies to the master association. (J.J., via e-mail)

A: Whether the master association is a condominium association governed by Chapter 718, Florida Statutes, the Florida Condominium Act, depends on whether master association’s membership is composed exclusively of condominium unit owners or their elected representatives. If there are single-family homes or non-condominium property within the master association, then it would not be a condominium association governed by Chapter 718.

Since January 1, 1992, the definition of “association” in Section 718.103(2) has been as follows: “means, in addition to any entity responsible for the operation of common elements owned in undivided shares by unit owners, any entity which operates or maintains other real property in which unit owners have use rights, where membership in the entity is composed exclusively of unit owners or their elected or appointed representatives and is a required condition of unit ownership.” The statute was amended to define an association in this manner following an appellate court decision that addressed when a master association is governed by the Florida Condominium Act.

Following the amendment to the statute, the test as to whether an association is a condominium association is based on this constituency test. Therefore, if all of the members of the master association are condominium unit owners, or their representatives, then the master association is a condominium association governed by Chapter 718.

However, there is a recent court case that held that the amendment to the Florida Condominium Act that changed the definition of “association” in 1992 does not apply to master associations which existed before the revision of the statute. As such, if your master association pre-dates 1992, you would need to consult with your legal services provider to determine if the master association is governed by Chapter 718. However, for master associations created after 1992, the statute would apply.

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

Can a Director Resign for Any Reason?

I have met with many boards over the years and often find that they are tireless volunteers who due to malcontents in the community being unappreciative and rude chose to resign from the Board rather than continue dealing with the drama.  The Florida Not For Profit Corporation Act (Chapter 617, Florida Statutes), which applies to most community associations in Florida, requires resignations to be in writing and delivered to the corporation.  There is no requirement however that the resignation include a reason or justification for the resignation.  Service on a community association board (in addition to often being thankless) is a completely voluntary undertaking. A Director cannot be required to remain in his position for the duration of his term.

 

Originally posted on floridacondohoalawblog.com. Written by David G. Muller

Raffles and Games of Chance: A Gamble for Community Associations

Historically, gambling was only illegal when it became a public nuisance. See Lee v. City of Miami, 121 Fla. 93, 163 So. 486 (1935). Today, although gambling is not generally prohibited, almost all forms of gambling are either prohibited by Florida law or heavily restricted. Given the potential for condominiums, co-ops, and homeowners associations or its members to ask to conduct raffles, games of chance, or other forms of gambling (e.g., 50/50 raffle drawings, “horse racing,” and bucket raffles/Chinese auction) on common areas, it is important for community associations to understand state gambling laws and how they operate in the context of their communities.

Chapter 849 of the Florida Statutes regulates gambling in Florida. Section 849.09 provides in pertinent part that it is unlawful for any person in the state to: set up, promote, or conduct any lottery for money or for anything of value; conduct any lottery drawing for the distribution of a prize or prizes by lot or chance, or advertise any such lottery; aid or assist in the setting up, promoting, or conducting of any lottery or lottery drawing in any other manner whatsoever, or be interested in or connected in any way with any lottery or lottery drawing; or attempt to operate, conduct, or advertise any lottery scheme or device. Any person convicted of violating one of these prohibitions is guilty of a third degree felony or first degree misdemeanor.

Section 849.11 also provides that “[w]hoever sets up, promotes or plays at any game of chance by lot or with dice, cards, numbers, hazards or any other gambling device whatever for, or for the disposal of money or other thing of value or under the pretext of a sale, gift or delivery thereof, or for any right, share or interest therein, shall be guilty of a misdemeanor of the second degree…”

While there are exceptions for drawings by chance or raffles conducted by certain charitable organizations under Section 849.0935, these exceptions generally do not apply to community associations because they are not exempt from federal income taxation under the provisions of Section 501(c)(3), (4), (7), (8), (10), or (19) of the Internal Revenue Code (“IRC”) as a religious or charitably club, civic organization, recreational club, fraternal society, or organization of past or present members of the Armed Forced of the United States, respectively. See §849.0935(1)(b), (defining the term “Charitable, Nonprofit Organization”). While a community association may be a not-for-profit corporation, this does not make it a nonprofit tax-exempt organization under the IRC. Federal regulations provide that to be tax-exempt, a corporation must operate for the benefit of the general public, not solely for the benefit of its members. In the case of most community associations, games of chance, raffles or lotteries for money or for anything of value being conducted on the premises would be for the private benefit of their members and not the public at-large and, accordingly, community associations are generally subject to the state prohibitions on same.

Most governing documents that regulate community associations also provide that association property must be used in accordance with all federal, state, and local laws and ordinances. They often further require that members not permit obnoxious, offensive, or nuisance activities, including illegal acts, in their units or on their lots.

Even where the board of directors or a manager of a community association does not conduct, authorize, or promote illicit games of chance, raffles or lotteries for money or for anything of value on common property, they may still be held liable for the illicit activities on association property conducted or promoted by its members.

In light of the foregoing, games of chance, raffles, or lotteries for money or for anything of value in the context of a community association violate Chapter 849, Florida Statutes, even to the extent that the community association does not receive a portion of the proceeds or a portion of the proceeds goes to a charitable “cause.” A community association sponsoring, conducting, promoting, advertising, or assisting with such unlawful activities – or even just having “fleeting knowledge” that members and their guests are independently attempting to sponsor, conduct, promote, or advertise them on association property and the community association failed to take steps to stop the illicit activities – may expose the community association, its employees, its managers, and/or its board members to criminal liability.  Criminal conduct by a corporation also presents additional potential problems, including, but not limited to, loss of the presumption of indemnification (hold harmless) entitlement in the event legal proceedings are brought and exclusions from coverage under most insurance policies, including Directors’ and Officers’ (D&O) Liability policies.

Accordingly, it is advised that community associations never seek to conduct or sponsor games of chance, raffles or lotteries for money or for anything of value on association property, and remind its members that these activities are unlawful and are not permitted anywhere on association property. To the extent members or their guests fail to comply with Florida law (and likely also with the community association’s governing documents) with respect to these activities, community associations should consult with their legal services providers.  The community association may have the authority to levy reasonable fines and/or suspend members’ rights to use the common facilities, or institute legal action to compel compliance with the governing documents.

 

Originally posted on floridacondohoalawblog.com. Written by Kathleen O. Berkey, ESQ, AICP

Is This a Conflict?

The board member in a homeowners association just hired the same pool company that is used by the association.  Conflict? Not necessarily.  There are provisions within the Homeowners Association Act which prohibit contracts between an association and a company when one of the board members from the association has a financial interest in the subject company.  There are also restrictions contained within the Homeowners Association Act which prohibit board members from receiving “kickbacks” for awarding contracts on behalf of the association.  That being said, there is no statutory prohibition which would prevent a board member from retaining, for their individual swimming pool, the same pool company which is under contract to clean the community swimming pool, as long as the subject board member is paying the going rate for the service and not receiving a quid pro quo discount as a result of their position on the board.

Originally posted on floridacondohoalawblog.com. Written by David G Muller