IS A TRUSTEE OR BENEFICIARY OF A TRUST ELIGIBLE TO RUN AND/OR SERVE ON AN ASSOCIATION’S BOARD OF DIRECTORS?

One of the questions we receive over and over from our clients is the question “is a trustee or trust beneficiary eligible to run for and/or serve as an association
board member?”

While the question is not directly addressed in either Chapter 718, Florida Statutes (the “Condominium Act”, Chapter 719, Florida Statutes (the “Cooperative Act”)
or Chapter 720, Florida Statutes (the “Homeowners Association Act”), Chapters 607 and 617, Florida Statutes (the “Florida Business Corporation Act” and the “Florida
Not for Profit Corporation Act”, respectively) do provide some guidance.

Section 607.0802(2), Florida Statutes, provides as follows:

In the event that the eligibility to serve as a member of the board of directors of a
condominium association, cooperative association, homeowners’ association, or
mobile home owners’ association is restricted to membership in such association and membership is appurtenant to ownership of a unit, parcel, or mobile home, a grantor of a trust described in s. 733.707(3), or a qualified beneficiary as defined in s. 736.0103(14) of a trust which owns a unit, parcel, or mobile home shall be deemed a member of the association and eligible to serve as a director of the condominium association, cooperative association, homeowners’ association, or mobile home owners’ association, provided that said beneficiary occupies the unit, parcel, or mobile home. (Emphasis added.)

Similarly, Section 617.0802(2), Florida Statutes, provides:

In the event that the eligibility to serve as a member of the board of directors of a
condominium association, cooperative association, homeowners’ association, or
mobile home owners’ association is restricted to membership in such association and
membership is appurtenant to ownership of a unit, parcel, or mobile home, a grantor of a trust described in s. 733.707(3), or a beneficiary as defined in former s. 737.303(4)(b) of a trust which owns a unit, parcel, or mobile home shall be deemed a member of the association and eligible to serve as a director of the condominium association, cooperative association, homeowners’ association, or mobile home owners’ association, provided that said beneficiary occupies the unit, parcel, or mobile home. (Emphasis added.)

The above sections of the Florida Business Corporation Act and the Florida Not For Profit Corporation Act provide that the grantor of a Trust, or the beneficiary of a trust that occupies the unit is eligible to serve on an association’s board of directors.

Additionally, the Division has ruled in several cases regarding trustees serving on a board of directors. A trustee of the trust that currently owns the unit is eligible to serve on the Association’s board of directors. See McWilliam v. Maya Marca Condo. Ass’n, Inc., Arb. Case No. 2003-09-4468, Amended Summary Final Order (April 12, 2004)(Where an association’s by-laws provide that a board member must be the owner of a unit, “have an interest therein” or be an officer or designated agent of an owner corporation, it is reasonable to interpret this language to apply to current, legal interests, such as trustees or life estate holders.); see also, Spevack v. Plaza Del Prado Condo. Ass’n, Inc., Arb. Case No. 2004-00-2794, Summary Final Order (March 30, 2004) (Where the documents required that board members be unit owners, the arbitrator held that a board member who was a co-trustee with a life estate in a unit was eligible to sit on the board.); see also Mark Stern v. Playa Del Mar Association, Inc., Arb. Case No. 2007-06-6957, Order (May 5, 2008)(As trustee of the trust that currently owns the unit, Petitioner is eligible to serve on the Association’s board of directors.)

Is a trustee or trust beneficiary eligible to run for and/or serve as an association board member? As you can see from above, the answer is yes.

Written by Howard J. Perl Esq. for Florida Condo HOA Law Blog

Special Assessments May Provide Insured Cash Flow After Storm

Two weeks ago today, Hurricane Irma tore through in Southwest Florida. All things considered, it could have certainly been much worse. However, it was as bad as it gets for those who lost their lives, and some communities suffered relatively substantial property damage. So, over the next several weeks, this column will focus on legal issues commonly confronted by associations dealing with disaster recovery.

Most associations do not have sufficient cash on hand to meet immediate post-disaster needs. In my opinion, restricted reserves should not be used without an owner vote. There are several options that are available, including lines of credit and advances from insurers. Under no circumstances should an association finance any kind of work by assigning insurance policy rights to a vendor.

For condominium associations, there may be the ability to use special assessments to get some additional insurance contributions, albeit in a roundabout way. Section 718.111(11)(g) of the Florida Condominium Act states that “a condominium unit owner policy must conform to the requirements of Section 627.714.”

Section 627.714 of the Florida Statutes provides that every condominium unit owner’s insurance policy, commonly referred to as the “HO-6” policy “must include at least $2,000 in property loss assessment coverage for all assessments made as a result of the same direct loss to the property, regardless of the number of assessments, owned by all members of the association collectively if such loss is of the type of loss covered by the unit owner’s residential property insurance policy, to which a deductible of no more than $250 per direct property loss applies. If a deductible was or will be applied to other property loss sustained by the unit owner resulting from the same direct loss to the property, no deductible applies to the loss assessment coverage.”

While HO-6 insurance is no longer mandatory for condo unit owners in Florida, my experience has been that the vast majority of unit owners carry it. So, simply stated, an association can get some of the funds necessary for certain aspects of hurricane damage from the unit owners’ insurance companies, by levying a special assessment and then having the owners turn to their private insurers for reimbursement.

Such assessments should not be imposed without the guidance of legal counsel, as there are some technicalities involved, and the nature and extent of your community’s damage may play a role, as well.

Further, given that a state of emergency was declared, the “emergency powers” granted to boards in Section 718.1265 of the Florida Condominium Act are applicable. Among other extraordinary powers granted to boards, this law states that regardless of any provision to the contrary and even if such authority does not specifically appear in the declaration of condominium, articles, or bylaws of the association, the board of directors may levy special assessments without a vote of the owners. Whether the board can skip the statutorily required 14-day notice requirement under the emergency exception in the statute will depend on the severity of the damage and other factors.

Next week, I will pass on some tips to avoid making your hurricane damage repair project a bigger disaster than the storm itself, a situation I saw over and over after the 2004-05 hurricanes. One quick and perhaps obvious tip: Don’t feel pressured to sign contracts involving significant expenditures or undertakings without proper review, including asking your attorney to look them over. While there are many reputable vendors who specialize in post-disaster services, there are unfortunately charlatans who show up after these events. Remember, the term “con man” derives from the word confidence, so you probably won’t see it coming. There are attorneys, engineers, managers, and insurance professionals who have done business in your community for years, and aren’t just here for the quick buck. People sometimes forget that when they are in a state of panic, and that is not a good place to be when making decisions that affect one of your most significant investments, not to mention the investment of your neighbors to whom board members owe a fiduciary duty.

Written by Joe Adams is an attorney with Becker & Poliakoff, P.A., Fort Myers. Origianally posted on Florida Condo HOA Law blog.

Community associations need to be hurricane-proof, too

As Mike Tyson said, “Everybody’s got a plan until they get hit.” This hurricane season is confirming the need for community associations to develop the right plans, learn from their experiences and continually refine their plans.

Many volunteer community association boards and their managers already know they should have date-stamped videos of their properties and enough money on hand (fully funded reserves or lines of credit) for storm repairs. Some highly prepared boards also have pre-negotiated debris removal pricing from landscapers, have adopted and tested emergency plans and have recently reviewed their insurance policies with their insurance agents and association attorneys to ensure they properly understand their coverage limits and deductibles.

Prepared communities will fare better in direct strikes from major storms than unprepared communities in less fearsome storms. Boards can best protect their communities by taking key steps:

  • Separate the urgent from the important: After storms, boards should immediately secure buildings from water intrusion, clear debris, and dry out units. Florida condominium, cooperative and homeowners’ associations have emergency powers whenever the governor declares a state of emergency, including the right to enter units, remove water-soaked items, dry out units and lien owners who fail to reimburse the association.

 

Selecting contractors and others to repair long-term storm damages require the same due diligence as do regular renovations or repairs. Boards must avoid signing full repair contracts and assigning insurance benefits to contractors under pressure and without taking the steps they would ordinarily take when hiring contractors.

  • Don’t rely solely on insurance company adjusters. They are not there to protect associations’ claims. Boards should consult association counsel to help retain independent adjusters and/or engineers or architects to fully evaluate and compile claims.
  • Wait for high-quality contractors who would ordinarily be hired for nonemergency projects. Don’t settle for unlicensed and/or out-of-state contractors.
  • Maintain up-to-date emergency contact information. Websites, emails, texts, phone calls, and postal mail are important channels to keep members and residents informed of the condition of buildings, when they can safely return to their homes and expect repair work to start. Proof of consistent, informative communications can defuse potential negligence claims levied against boards.
  • Prepare for an avalanche of scare tactics and misinformation after the storm , including from associations’ own insurance companies. Some insurance companies are advising policyholders that retaining independent adjusters and/or attorneys for their claims will delay their claims. Clearly, this is false.
  • Continue addressing daily business. Boards that had units in collections pre-Irma might be tempted to postpone collections efforts and focus on more pressing matters. However, it is critical to continue collections, as the ability to make storm repairs depends on assessments. Abating or delaying collections activities sends the worst possible message when boards have to assemble resources to cover repairs.
  • Learn from experience. As Hurricane Maria confirms, there will always be another hurricane. Hurricane plans should be updated continuously based on the problems and best practices identified in prior storms. Boards that lacked funds to address urgent matters should begin funding reserves or pursuing lines of credit before the next storm season begins. Those whose landscapers removed debris late and/or charged exorbitant prices should pre-negotiate these services and pricing. If residents expressed confusion, frustration, or anger regarding board communications, boards should confirm what went wrong and establish effective communications channels.

While we will never control Mother Nature, we can take the right steps before and after storms strike to help ensure our communities recover quickly and efficiently.

Written by Donna DiMaggio Berger is a shareholder at the law firm of Becker & Poliakoff. Originally posted on Florida Condo HOA Law blog.

 

D&O Insurance

Congratulations! You have decided to donate your time and energy to serve
on the board of directors for your community and have convinced your neighbors that you are the right person for the largely unthankful role. Guess what? In addition
to the time and energy you will spend as a director, you have also taken on legal liability. In other words, you can be sued for merely being a member of your association’s board of directors. Yikes! Before you run to submit your
resignation, let’s discuss what your protections are when you serve as a director.

Florida appellate law is replete with holdings that community association directors will not be held personally liable for decisions made in their official capacity absent fraud,
criminal activity or self-dealing/unjust enrichment.

While it is great that Florida law protects directors who are trying their best to fulfill their obligations to their community and their neighbors, it cannot prevent someone filing a lawsuit that names individual directors. Even if the lawsuit is ultimately without merit, litigation is expensive and time consuming. This is where director and officer insurance policies (“D&O”) come into play. In its most general sense,
D&O insurance is purchased so that an insurance company will provide a defense for the association and its policy makers acting in their official capacity. There is nothing
within the community association statutes which mandate that associations carry D&O insurance (although there may be such a requirement in your community’s governing
documents). There are several things you need to be aware of with respect to D&O insurance:

  • Not all policies are the same: Policies can vary with respect to what claims are exempted (e.g. claims of breach of contract are usually excluded from the D&O
    insurance policy) and vary with respect to who is covered by the policy (e.g. most D&O insurance policies will cover not only the directors, but also the manager or other employees or agents of the association).
  • Settlement: Ultimately, the parties to a lawsuit control settlement. However, most (if not all) D&O insurance policies contain a clause explaining what happens
    if the insurance company recommends settlement but you disagree with that recommendation.  In some policies, the D&O insurance carrier can refuse to
    pay for any further legal costs if you disagree with its recommendation to settle; in other policies there may be a split in the legal costs going forward if you
    refuse to settle.
  • Timing on claims reporting: All D&O insurance policies require the insured to timely place the insurance underwriter on notice of any claims made so that the
    insurance underwriter can take actions to protect its position. Additionally, it is important that if you switch insurance carriers that you put the new carrier on
    notice of any potential claims that may exist at the time of the carrier change.

From this practitioner’s perspective, D&O insurance is an important protection for community associations to purchase for its leaders so that they may be able to serve
the best interest of the association without fear of legal reprisal. However, please READ the D&O policies and know your rights and obligations contained therein.

 

Written by Jay Roberts, Esq and originally posted on Florida Condo HOA Law Blog.

New Condo Laws Have Potential to Increase Litigation

During the 2017 legislative session, new laws were adopted
which significantly change the way condominium associations are managed
and operated. Many of the new provisions are well-intentioned, but raise a
number of questions that remain unanswered and have the potential
to increase litigation in some condominiums. This article will address two particular issues—term limits and recalls—and provide suggestions for fixing them
during the next legislative session, which is scheduled to begin
in January 2018.

Term Limits
The new law provides that a board member may not serve more than four consecutive twoyear terms, unless approved by an affirmative vote of two-thirds of the total voting interests of the association or unless there are not enough eligible candidates to fill  the vacancies on the board at the time of the vacancy. One of the unanswered questions raised by this new law is whether it applies to boards with one-year terms.
The plain language of the statute suggests that it does not apply to one-year terms. Another unanswered question is whether the law is intended to be applied retroactively or prospectively beginning with terms starting after July 1. In other
words, if prospective, the earliest that a board member would be prohibited from running because of term limits is 2025. If retroactive, many directors may be
“termed out” now or at the next election. Interestingly, when Floridians
voted to amend the Florida Constitution to impose term limits on state office holders, it was implemented prospectively. The constitutional amendment was adopted in 1992 but became effective in 2000, thereby allowing sitting legislators to serve an additional eight years. The Division of Condominiums, Timeshare, and Mobile Homes has not announced its interpretation, although only an interpretation by an appellate court would be binding in the legal sense. As such, associations face uncertainty and will need to consult with counsel to decide how the law applies to them.
Another issue with the new law is that it allows a “term-limited” board member to continue to serve if approved by two-thirds of the total voting interests of the
association (i.e., two-thirds of all members). Assuming this means that the two-thirds vote is determined in conjunction with the election, (which is also debatable), it is my experience that the chance of getting two-thirds of the members to vote in a condominium election is slim to none. Further, the condominium law only requires 20 percent of the members to cast a ballot in order for there to be a valid election, acknowledging that it is hard to get condominium owners to vote. I suggest changing
the two-thirds threshold to twothirds of those who vote, and to allow an omnibus “opt out” from the statute to be included in the association’s bylaws. The “twothirds
of those who vote” threshold will still allow an incumbent director to be defeated if owners are truly opposed to the director continuing to serve on the board, or if enacted through the bylaws, would require super-majority support for an “opt out.”

Recalls
Under the “old” recall law, when the board was served with a petition for recall, the board was required to “certify” or “not certify” the recall. This gave the board the opportunity to review the recall petition to make sure it was actually signed by a majority of the owners. If the board did not certify the recall, the board was required to file a petition for arbitration with the Division of Condominiums, Timeshare, and Mobile Homes, and the arbitrator would decide whether the recall was valid or not. The old law was criticized because owners argued that boards were using their power to not certify a recall, even if clearly valid, just to stay in control of the association for as long as possible. The intent of the “new” law appears to be to make recalls effective immediately upon receipt by the board of directors of a recall petition. The intent also appears to be to require the individual board members who are recalled to file a petition for arbitration if they believe the recall to not be effective. However, the law leaves in the provision which requires a board meeting to be held when the board is served with a petition for recall arbitration, but removes the provision requiring the board to certify or not certify the recall. So, what is the board supposed to do at the
board meeting? Also, what is the board’s responsibility or duty with respect to a recall that is on its face is invalid, or that clearly is not signed by a majority of the owners?

In my opinion, the law should require the board to make an initial determination as to whether the recall petition is facially valid. The law should be amended to list the things that would make a recall petition facially valid—the most important being that it was signed by a majority of the owners. If the legislature wants to place the burden of challenging a recall petition on the board members being recalled, it should at least require that the petition be facially valid. Otherwise, the law could be easily abused, and would have the unintended consequence of undermining the integrity and reliability of the election process.

Written by Yeline Goin and originally posted on Florida Condo HOA Law Blog.

The All-In-One or Best-of-Breed Dilemma: Which Technology is Best for Your Property Management Company?

In the property management industry, there is a technology to solve almost every problem.  From paying rent online to managing packages, the industry is bursting with solutions that tackle all the tedious aspects of being a property manager. But first, you have to find the vendor that’s right for your company, and that can be a tough task.

The best way to whittle down your choice of vendors is to determine if you want to use an all-in-one or a best-in-breed solution. You may not be sure which one is the best fit for your business, so we’re here to give you all the pros and cons.

First, let’s take a look at all-in-one solutions. All-in-one providers catering to the property management industry offer a combination of management, investment, marketing, leasing, and resident tools.

All-In-One Pros

An all-in-one solution can be an easy sell for some property management companies. The idea of a single platform being able to solve multiple challenges at once sounds very appealing, especially if you have limited internal resources. The IT requirements required to use an all-in-one provider may be reduced when a single vendor is used because there are fewer programs to maintain.

If your team is not particularly tech savvy, only having to learn one platform can help avoid confusion among users of the software and shorten the learning curve. Plus, users will only need a single login to manage each application.

Only having one technology vendor to juggle can be convenient, too. You’ll only have one vendor to make payments to, and call when problems arise.

All-In-One Cons

One suite, one purchase, one vendor to work with. It’s a powerful case, so what are the drawbacks?

The most widespread complaint property managers have about all-in-one solutions is that each product in the suite lacks in-depth functionality needed to do a particular job well.  Essentially a Swiss Army knife for property managers, you’ll get several tools compiled into one offering, most of which have limited capabilities compared to a standalone version of that service.

If you’d like to enhance the functionality that’s offered, don’t count on being able to customize features with an all-in-one solution.  All-in-one solutions tend to be more rigid in the functionality, and therefore offer little to no ability for customization. If you have specific requirements, you are probably better off with a best-in-breed solution.

You’ll likely also have access to tools you don’t need or don’t want, and in most cases, this makes all-in-one providers more expensive. Software to manage your business shouldn’t always come down to price. But when you compare dollar for dollar what you get out of an all-in-one solution and the adaptability it has, some find it hard to justify the cost for what you get back.

You may also find that components of an all-in-one solution don’t integrate as seamlessly as you’d expect. That’s because all-in-one providers often fill gaps in their product offerings by acquiring companies, then rebranding those products as their own. Getting the two components to “talk” to each other can be just as challenging as selecting software from different vendors.

Adding new products through acquisition also affects the support you receive. Support teams for all-in-one platforms won’t have as much in-depth knowledge about each specific part of their offering like best-of-breed providers have. The result of this is that it could in fact take more, not less time to identify and resolve the issue.

Now let’s take a look at best-in-breed providers for property management companies. They eat, live, and breathe their area of expertise and only focus on a handful of specialized services.

Best-in-Breed Pros

Companies opt for best-of-breed solutions because they offer power-packed systems that address a specific issue. The features offered are more extensive than what is offered through an all-in-one, but can also usually be tailored to the client’s needs. While assembling a best-of-breed technology stack means dealing with several providers, it also means upgrades are much easier, and the company has a unique system that is at the top of its industry.

If your goal is to reduce costs, choosing best-of-breed solutions will be the way to go. Because you can pick and choose which solutions your company needs, you are able to save by opting for best-of-breed software versus unified solutions.

Another advantage of using a best-of-breed over an all-in-one, is that it prevents companies from “putting all their eggs in one basket.” Using numerous products from a single vendor tightly locks you into their system. Breaking away from a unified solution can be a painful transition, something most all-in-one providers count on. If you become unsatisfied with a best-of-breed platform, there’s more leverage to negotiate a solution to the problem. And if you choose to move to another vendor, the transition will be less complicated without several aspects of your business tied to one provider.

Best-of-breed vendors usually deliver a shorter implementation time, particularly if you are using a web-based solution. With faster implementation and ease of adoption, you can achieve a quicker ROI by selecting a best-in-breed solution.

Best-In-Breed Cons

As you’d expect, picking best-of-breed solutions means you have more vendor relationships to manage.

While best-of-breed vendors work tirelessly to strengthen their integrations, some may not provide a flawless experience. If you choose vendors who do not have strong partnerships with one another, integration with your property management software may not always be the best.

Best-of-breed solutions are not a one-size-fits-all technology. Therefore, you will need to have a good idea about the kinds of features you want, and be vocal about your needs. The end result will be a solution that is tailored to your business’ specific needs.

At the end of the day, implementing any kind of technology is meant to help you streamline your processes, better run daily operations and make your team’s job easier. All-in-one and best-in-breed solutions each have their own unique value propositions so it’s important to evaluate your company’s needs, not only today, but as you will grow in the future.

 

Written by Jennifer Stahlman and originally posted on PayLease

ELSS Bill Vetoed, Condominium Bill Approved, & Final Report on Community Association Bills for 2017 Session

Governor Rick Scott has now taken action on all of the community association bills that passed during the 2017 legislative session.

HB 653, Relating to Community Associations, was Vetoed.  Among other things, the bill would have allowed high rise buildings to opt out of an engineered life safety system (ELSS) with a vote of two-thirds of the owners.  The lead lobbyist in this effort to change the law for high rise condominiums and cooperatives is former State Senator Ellyn Bogdanoff, who is now an attorney and lobbyist with Becker & Poliakoff.  Here is a note from Ellyn:

I received a call last night from Rep. George Moraitis to let me know that Governor Scott vetoed the bill. The London fire clearly played a role in this decision. The loss of life there was a tragedy that gave all of us pause but it should not have had an impact on the opt out for ELSS. Our opposition seized the moment and in an abundance of political caution, Governor Scott vetoed the bill. We lost the battle but we have not lost the war. We will regroup and press on.”

If your association is a high-rise, please reach out to your association attorney for the next steps and advice regarding an ELSS.

HB 1237, Relating to Condominiums, was Approved and the effective date is July 1, 2017.  Please read a summary of the bill here.  As you will note, it will require some significant changes in the operation of condominiums with respect to the following subjects:  term limits, conflicts of interest, websites for official records (for condominium associations with more than 150 units), the use of debit cards, recalls, arbitration of disputes, and suspension of voting rights.  Condominium associations will want to consider updating its policies and procedures to ensure compliance with the new laws.

HB 6027, Relating to Financial Reporting, was Approved and the effective date is July 1, 2017.  The bill removes the provisions in the Condominium, Cooperative, and Homeowners’ Association Acts that allow an association that operates fewer than 50 units, regardless of the association’s annual revenues, to prepare a report of cash receipts and expenditures in lieu of the required financial statement.  The bill also removes the provisions from the Condominium and Cooperative Act which state that associations may not waive the financial reporting requirements for more than 3 consecutive years.  Therefore, all associations, regardless of size, must have prepared the appropriate financial report, based on the association’s revenues, unless waived in advance by the members.

SB 398, Relating to Estoppel Certificates, was approved and the effective date is July 1, 2017.  Please read a summary of the bill here.  Associations should update their Estoppel Certificate Resolution and their Estoppel Certificate Form to ensure that it is compliance with the new statute.  We have already developed the necessary forms, so please contact your association attorney to assist you with that process.

SB 1520, Relating to Condominium Terminations, was approved and the effective date is July 1, 2017.  This new law will increase the thresholds necessary for an optional termination.

Now that the Governor has taken action on all of the bills, we will be putting our finishing touches on our 2017 Legislative Guide, including important action items for the Association to take in light of the new laws.

Thank you for all of your support during this Legislative Session!

Written by Yeline Goin and originally posted on Florida Condo HOA Law Blog.

Let Them Pay For Their Own Long Hot Showers: How Property Manager’s are Lowering Their Property’s Utility Expenses

Do you include utilities in your rent? Whether you do or you don’t, the million dollar question is why? Why not include it?

The answer is rent growth. To elaborate, operators are realizing that with rapid rent growth comes a growth in supply. However, coupled with stagnant wage growth, there is a hesitancy these days as operators are starting to wonder if the good times are coming to an end. If they are, how do you as an operator grow your property’s NOI if raising the price of rent is no longer an option?

Sadly, rent growth is no longer moving up and to the right. Over the entire country we are now starting to see rent growth decrease. Hopefully this is not a trend that continues, but it is scary to compare the supply hitting the market with the fact that wage growth has not increased in quite a while. We all know that you typically look for three times the amount of monthly rent in an applicant’s income. Therefore if incomes don’t rise, and supply continues to grow, it will be tough to continue lean on rent revenue to increase NOI.

Don’t fret! There is another way to recoup costs that is currently being overlooked by management companies all over the country. Why not turn your focus on expense management? Think of it this way, when early engineers built the Transcontinental Railroad or dug the tunnel for the English Channel, they didn’t start from one point without considering the other end. They worked from both sides and met in the middle.

In the past decade we’ve seen a huge focus on the revenue side of property management, particularly when you consider revenue management systems like The Rainmaker Group or YieldStar. Obviously, the revenue side of the house is the primary concern, but the expense side is curiously out of focus. It’s not that operators don’t recognize the importance of expense management, it’s just that the revenue side is more… sexy. The expense side is like Marla Hooch from A League of Their Own. She’s overlooked because she’s not pretty, which (in this case) makes PayLease Geena Davis. We are calling Marla (expense management) out and saying ‘hey, this girl can actually play ball!’

In other words, let’s focus on expense and revenue if we’re trying to drive NOI.

Can you relate to this next scenario? You’re traveling for work, and the first thing you do once you enter your hotel room is crank the AC because (guess what?) you’re not paying the electric bill. While you’re at it, you go ahead and take a nice long shower because you’re not paying for the water bill either. Which brings us to an important question – why do properties include utilities in the price of rent?

One reason, some might say, is the cost of water. Why not include it? After all, water is not that expensive compared to gas and electricity, except that in recent years the cost of water has been drastically rising. This may be obvious in states like California where we experienced that biblical drought that had us swapping our green grassy lawns for desert rocks and cacti.

What’s surprising though, is that we’re also seeing a 130% increase in the cost of water over the past four years in states like Georgia where there’s no hint of a drought.

Moral of the story is, even if your property is in a state with an abundance of readily available cheap water, if you’re including it in your rent, then we can guarantee your residents are using more than they should. Hello! That means it’s affecting your bottom line.

Including utilities in the rent is like giving your residents access to an all-you-can-eat buffet. It is wise to consider switching to a consumption-based billing method instead. You might be thinking, ‘but residents prefer the all-you-can-eat method, I’ll lose them if I switch.’ For many years this was true, but recently consumers’ mindsets have started to shift. Every year, more and more organizations are adopting these sustainable strategies not only to reduce expenses, but because consumers are aligning themselves with products and services that have adopted such initiatives.

Just look at the following stats from SolarCity:

  • 72% consumers want to learn more about corporate sustainability initiatives
  • 75% of consumers would be more likely to buy a product or service if the company is making an effort to be sustainable
  • 82% of consumers are more likely to purchase a product that represents Corporate Social Responsibility than one that does not
  • 93% of Americans have done something to conserve energy in the past two years

What does all this mean? It means sustainability is the tie-breaker. They won’t choose your property because you’re conserving, but if a potential tenant is debating between two properties that are very similar except for the fact that one is ‘green’ and the other is not, conservation will win the battle.

From an NOI standpoint, it makes more sense to separate the utilities so that you can use more of your rent revenue towards the bottom line of your property as opposed to paying off high utility bills.

Let’s say property ‘A’ includes water in the rent price, and the residents of this property have a leaky faucet, or their toilet is running. They decide not to report it because, why would they? They’re not paying for the wasted water, they don’t want the maintenance guy coming into their apartment, and they don’t own this property, so they just don’t care. Because of that, property ‘A’ is giving (on average) an extra $100 a month from their rent revenue to the water company. To make up for some of the cost, property ‘A’ decides to increase the rent by $50.

Property ‘B’ installs sub-meters and decides to charge each unit for their individual usage. So instead of increasing the rent, they keep the rent price as is and charge the resident back for the utilities they actually use. Because the residents in property ‘B’ are now conscious of this, they start using less water, gas, and electricity and pay around $50 a month out of their own pocket for their personal utility bills.

Because of the $50 rent increase at property ‘A’ and the $50 utility charges at property ‘B,’ the total out-of-pocket expense for both residents is about the same. However, the owner of property ‘A’ is still handing money over to the water company every month, while the manager at property ‘B’ is using those recouped costs to increase their NOI.

When you take the utilities out of the rent and don’t increase the rent price, three things happen. One, the resident will use less electricity, less gas, and less water, saving the planet little by little. Two, the resident will be happy their rent was not raised, and will consider this when the time comes to renew their lease again. Make your property sticky, people! Three, you are no longer paying the utility bills, which will result in a higher NOI for your property. It’s a win-win-win!

Hopefully now you are at least entertaining the idea of billing back your utilities to your residents, and if that’s the case, then the next question is, ‘how do I get started?’

Click here to learn the two different ways you can bill back utilities to your residents, and find out which is right for your property.

 

Written by Victoria Ress and originally posted on PayLease

Can the Association Board Fill a Vacancy Without an Election?

Question: Recently, one of the members of our board of directors resigned from the board and sold their unit. When he announced his resignation, I expected the association to schedule an election to fill the vacancy. However, at the most recent board meeting, the board voted to fill the vacancy. Aren’t the members of the board of directors required to be elected by the unit owners? (W.O. via e-mail)

Generally, the members of the board of directors of a condominium association are elected by the members of the condominium association. However, in the event that a vacancy occurs on the board of directors, the remaining members of the board of directors likely have the authority to appoint a replacement to complete the term. Section 718.112(2)(d)9., Florida Statutes, states “[u]nless otherwise provided in the bylaws, any vacancy occurring on the board before the expiration of a term may be filled by the affirmative vote of the majority of the remaining directors, even if the remaining directors constitute less than a quorum, or by the sole remaining director.”

However, some condominium documents contain alternative requirements and may require that the vacancy be filled by election, rather than board appointment. Therefore, while it would be necessary to review the condominium documents to confirm, pursuant to the statute, the board would typically have the authority to fill a vacancy on the board of directors without an election.

Similarly, for homeowners’ associations and cooperative associations, unless alternate provisions are provided for in the governing documents, the remaining board members would have the authority to appoint a person to fill a vacancy created on the board of directors.

Written by Joseph Adams and originally posted on Florida Condo HOA Law Blog

Infographic: Fun Facts about Recouping Rent, HOA Dues and Utilities

We’re so excited about the upcoming release of our annual Market Survey, that we couldn’t keep quiet about the results. This year, 1,300 HOA, multifamily and single family firms participated in our survey, answering questions about resident payments, utility billing, utility expense management, and Accounts Payable. We’ll soon be releasing the results in a white paper called, A Property Manager’s Guide to Payments, Billing and Utility Management.

Until then, we rounded up some juicy tidbits from the survey that you can see in this infographic.

 

Written by Jennifer Stahlman and originally posted on PayLease