Legislative Review Wrap-Up

This week we conclude our annual review of 2018 legislation affecting Florida community associations, with a review of the amendments to Chapter 712 of the Florida Statutes, the Marketable Record Title Act, or MRTA, which become effective on October 1, 2018.

MRTA is primarily intended to facilitate real estate transactions, by eliminating “stale claims” against real property. However, the courts have found that covenants and restrictions of a homeowners’ association can be extinguished by MRTA. The general yardstick for MRTA extinguishment is thirty (30) years from the “root of title.” Though usually not the exact extinguishment date for most parcels, the most prudent yardstick for determining potential MRTA extinguishment is 30 years from the recordation of the original covenants and restrictions.

MRTA includes a process that allows residential homeowners’ associations to preserve the covenants and restrictions to prevent extinguishment. There is also a process in the Florida Homeowners’ Association Act, Chapter 720 of the Florida Statutes, which allows a community to “revitalize” covenants and restrictions that have been extinguished by MRTA.

One of the most significant changes regarding MRTA is actually found in the Homeowners’ Association Act. The new law requires that at the first board meeting after the annual members’ meeting, excluding the organizational meeting, the board shall consider the desirability of filing notices to preserve the covenants or restrictions affecting the community or association from extinguishment under MRTA.

Therefore, pursuant to the new statute, the board of every homeowners association, must annually consider the impact of MRTA even if the 30 year deadline is not imminent, or even if a preservation notice has already been filed.

Updates to Definitions in Chapter 712

  • Creates a new definition for “community covenant or restriction” to mean any agreement or limitation contained in a document recorded in the public records of the county in which a parcel is located which:
  • Subjects the parcel to any use restriction that may be enforced by a property owners’ association; or
  • Authorizes a property owners’ association to impose a charge or assessment against the parcel or the parcel owner.
  • Changes the term “homeowners’ association” to “property owners’ association” and defines the term to include a homeowners’ association as defined in Section 720.301, a corporation or other entity responsible for the operation of property in which the voting membership is made up of the owners of the property or their agents, or a combination thereof, and in which membership is a mandatory condition of property ownership, or an association of parcel owners which is authorized to enforce a community covenant or restriction that is imposed on the parcels.
  • Amends the definition of “parcel” to mean any real property that is subject to any covenant or restriction of a property owners’ association (and no longer requires that the property be used for residential purposes).

Filing Notice to Preserve

  • A property owners’ association may preserve and protect a community covenant or restriction from extinguishment by the operation of MRTA by recording, at any time during the 30-year period immediately following the effective date of the root of title:
    • A written notice in accordance with Section 712.06 of MRTA; or
    • A summary notice in substantial form and content as required under Section 720.3032(2) of MRTA; or an amendment to a community covenant or restriction that is indexed under the legal name of the property owners’ association and references the legal name of the property owners’ association and references the recording information of the covenant or restriction to be preserved.
  • The new law also includes a form which satisfies the notice obligation and constitutes a summary notice sufficient to preserve and protect the referenced covenants and restrictions from extinguishment under MRTA.

Revitalization of Covenants and Restrictions by Parcel Owners Not Subject To A Homeowners’ Association

  • Creates a process for communities not governed by a homeowners’ association to revitalize covenants and restrictions to revive covenants or restrictions, with certain exceptions.

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

Board Members Can Be Recalled Without Cause

Q:        I have heard that a condominium board member can be removed from the condominium association board by a process called recall. What causes can be used to justify the recall? (C.Q. via e-mail)

A:        Section 718.112(2)(j) of the Florida Condominium Act states that any board member can be recalled and removed from office with or without cause by a vote or written agreement of a majority of all voting interests.

While cause could be specified to justify the recall of a board member, just cause does not have to be shown.

After a director is recalled, the law allows the board to fill the director’s vacancy by appointing a new director, pursuant to a majority vote of the remaining directors, even if it is less than a quorum. The appointed director then serves the remainder of the recalled director’s term. A different process is used if a majority of the board, or the entire board, is recalled.

Homeowners’ associations generally use a similar process for recall.

Q:        What happens if there is a tie between two candidates running for a board of directors’ seat at the annual meeting? Do both candidates win? (E.A. via e-mail)

A:        No. The Florida Administrative Code, Rule 61B-23.0021, states that if two or more candidates for the same position receive the same amount of votes, the association must conduct a runoff election.

At the runoff election, the only eligible candidates are the candidates who received the tie vote at the previous election. The runoff election cannot be held less than 21 days or more than 30 days after the date of the election where the tie vote occurred.

The Code also requires the association to send notice of the runoff election within 7 days of the election where the tie occurred. The notice must be mailed or personally delivered to the members, and must include the date of the runoff election, a ballot, required envelopes, and copies of any candidate information sheets previously submitted to the association by the runoff candidates.

Q:        The board of my condominium association is considering adopting new rules, including rules which change some of the restrictions contained in the condominium declaration. Can board rules change the declaration of condominium? (M.O. via e-mail)

A:        No. Board made rules cannot conflict with any right which is expressly granted or inferable from the declaration. Further, board rules must be “reasonable.” The rules must also be adopted in a procedurally correct manner.

Q:        Are reserve accounts supposed to be kept in separate accounts? In other words, should the roof reserve be in one account, the painting reserve be in another account, and so on. (D.R. via e-mail)

A:        No. There is no requirement in the law prohibiting the “comingling” of reserve funds, and they are most often kept in a single account (but should also be kept within federal insurance limits).

Section 718.111(14) of the Florida Condominium Act does prohibit “comingling” reserve and operating funds. However, for investment purposes only, a multicondominium association may commingle the operating funds of separate condominiums with the reserve funds of separate condominiums.

Q:        Can a candidate running for a homeowners’ association board of directors seek and hold proxies to vote for themselves? (T.M. via e-mail)

A:        Yes. Assuming that the bylaws permit proxy voting in the election of directors (which is prohibited in the condominium context) and absent a limitation on the number of proxies a particular person can hold, there is no prohibition in the law against this.

Most associations that use proxies in elections, however, use a “limited proxy,” so that the person soliciting the proxies would have no discretion on how the votes should be cast.

 

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

Owners Generally Do Not Have the Right to Approve the Annual Budget

Q:        Do condominium owners have a say in approving the annual budget? (D.J. via e-mail)

A:        Unit owners do not have the right to adopt or approve a proposed budget as a matter of law. The association’s bylaws will address how the budget is adopted, which is usually by the board. Some condominium documents, particularly older documents, require unit owner approval to adopt the budget. Such a provision is, in my opinion, lawful (though not recommended).

Section 718.112(2)(e) of the Florida Condominium Act, provides that any meeting where the proposed annual budget will be considered shall be open to all unit owners. Notice of the meeting must be provided to all unit owners 14 days in advance, along with a copy of the proposed budget. Owners also have the right to speak at board meetings regarding all designated agenda items.

The statute does provide unit owners with a process to propose an alternative annual budget under certain circumstances, typically when assessments exceed the prior year’s by more than 115%, excluding assessments for reserves and non-recurring items. Also, owners do have some say in the budget process, even where the bylaws give the board the authority to adopt the budget. Specifically, a board cannot adopt a budget without “fully funded” reserves unless a majority of the unit owners voting at a meeting have authorized a waiver or reduction of reserve funding.

Written by Joe Adams is an attorney with Becker & Poliakoff, P.A., Fort Myers. Originally posted on FL Condo HOA Law Blog

Notice of HOA Board meetings

Q:        Does notice of a homeowners’ association board meeting with an attorney require an agenda to be posted? (W.C. via e-mail)

A:        No. The Florida Homeowners’ Association Act does not require posting of an agenda for any board meeting, only posting notice. I do believe that a notice should be posted, even for properly closed meetings of the board with legal counsel.

In the condominium setting, notice and an agenda must be posted 48 hours in advance of board meetings. Again, I recommend posting a notice even for permissible closed meetings with association counsel. The state agency which enforces the condominium law has made at least one ruling to this effect.

The agenda for closed board meetings should be prepared or reviewed by the association’s attorney to avoid the risk of inadvertent waiver of the attorney-client privilege.

Written by Joe Adams is an attorney with Becker & Poliakoff, P.A., Fort Myers. Originally posted on FL Condo HOA Law Blog

Website Law Likely to Change

Q:        I have heard that there is a new law requiring condominium associations to have a website. Is that true? (J.L. via e-mail)

A:        Yes, although the law has somewhat limited application. First, it is worthwhile to note that the 2018 Florida Legislature passed a Bill on March 9 that would change the 2017 website law. As of this time, the Bill has not been signed by the Governor, but it is not expected that he will veto the legislation. Once the Governor has acted on the Bill, I will present my annual legislative update.

The 2017 law created a new requirement for any condominium having 150 or more units in total to have a website up and running by July 1, 2018. The new law will change this requirement in several important ways.

For associations which are obligated to comply with the law, the required implementation date will be pushed back to January 1, 2019. Perhaps more significantly, the scope of the law has been narrowed as to which associations it applies to. For example, a multi-condominium association that operates 10 condominiums with 50 units each would have had to comply with the website requirement under the 2017 version of the law. Under the 2018 changes, a multi-condominium association that operates 150 or more units does not need to comply with the mandatory website requirement unless at least one of the condominiums operated by the association contains 150 or more units.

The 2018 amendments also tweaked some of the posting requirements from the original law, allowing posting of summaries of certain documents rather than the documents themselves.

 

Written by Joe Adams is an attorney with Becker & Poliakoff, P.A., Fort Myers Originally appeared on the FL Condo HOA Law Blog

Associations Should Prepare for Disaster in Advance

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

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

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

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

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

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

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

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

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

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

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

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.

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.

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