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

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

Owner Vote Not Required to Purchase Unit in Foreclosure

Q: We have an owner who stopped paying their assessments to our condominium association. The association recorded a lien against the unit and foreclosed. The association was the only bidder at the foreclosure sale. Now some unit owners are saying that the board of directors acted inappropriately and there should have been a vote of the members before the association took title to the unit. They are saying that the association cannot purchase any kind of real estate without a vote of the members. Are they correct? (R.G., via e-mail)

A: Generally, a unit owner vote is required for the association to purchase real property. Section 718.111(7) of the Florida Condominium Act provides that the association has the power to acquire title to property and convey, lease or mortgage association property for the use and benefit of the members. However, the association may not acquire title to real property except as provided in the declaration and, if the declaration is silent, then the association must obtain approval of 75% of the total voting interests in the association.

There is a separate clause in the statute that addresses acquiring title to a unit following foreclosure of the association’s lien. Section 718.111(9) of the statute states that there is no limitation on an association’s right to purchase a unit at a foreclosure sale resulting from the association’s foreclosure of its lien for unpaid assessments.

Therefore, while, a membership vote may be required for the association to take title to real property generally (including purchasing a unit on the open market), there is an exception for when the association is foreclosing its lien for unpaid assessments.

Q: My homeowners’ association recently sent out the annual financial statement. The statement is a “compiled” financial statement for the previous fiscal year. I questioned the board why we didn’t get an audit. The board said it did not want to have an audit and that an audit has never been done in the past. This seems outrageous. Isn’t every association required to have an audit performed at least occasionally? (W.O., via e-mail)

A: For homeowners’ associations, the level of year-end financial reporting that is required is dependent on the total annual revenues of the association. Under Section 720.303(7) of the Florida Homeowners’ Association Act, if an association has total annual revenues of less than $150,000, the association is only required to prepare a “report of cash receipts and expenditures.” If the association has total annual revenues of more than $150,000 but less than $300,000, it must prepare a “compiled” financial statement. If the association has total annual revenues of more than $300,000 but less than $500,000, it must prepare “reviewed” financial statements. Finally, if an association has total annual revenues of more than $500,000, it must prepare “audited” financial statements.

The statute also provides that the members may vote to reduce the required level of the association’s year-end financial report for a given year. For example, if the proper vote was taken, an association that is required to prepare an audit could prepare a cash receipts and expenditures report, compiled financial statements or reviewed financial statements, in accordance with the members’ vote.

The Board is also authorized to order more thorough financial reports than the statutory minimum. Further, the association’s governing documents may impose requirements more stringent than the statute.

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

Subdivision Lots Subject to Easement Rights

Q: What homeowners’ association activity is allowed within “access easements” and “lake maintenance easements?” We own the title to our lots but these easements against our property are set forth in our documents. Does this give the association or other owners the right to come on our property? (J.S., via e-mail)

A: The answer to your question depends on several things, including the language contained within the subdivision plat’s dedication language, the language in your declaration of covenants, and what easement  across your property may  held by third parties, such as utility service providers.

The basic rule is that a third party (your neighbors, your association, or a utility company) can use your property for the purposes intended by the easements imposed against the property. For example, many plats impose Lake Maintenance Easements (often referred to as LMEs). The purpose of the LME is for maintenance of a lake and it is usually the association which is the beneficiary of that easement. So, for example, the LME would give the association the right to come on to your property to maintain the lake, but would not give your neighbor the right to fish in your back yard. Work by the association within these easement areas, consistent with the dedication language and the purpose and authority detailed in the governing documents, is generally permissible at reasonable times and in a reasonable manner, and no prior permission is needed to enter your property.

On the other hand, if a plat dedicates an Access Easement (often referred to as “AEs”) to all lot owners around the bank of a lake, this would likely mean that your neighbor would have the right to enter upon that portion of your lot for enjoyment of the lake. Therefore, a careful reading of the plats and the homeowners’ association’s governing documents is needed to determine what easement rights others have across your land. A title search is usually needed to ascertain easements to third parties, such as utility companies.

This is also an important issue for associations to understand and address as concisely as possible in their governing documents. For example, an easement imposed on a lot may be described in the declaration of covenants as part of the common areas, but not necessarily an area the association should be maintaining, such as mowing the grass on a LME. Detailed document provisions regarding these issues can avoid disputes and uncertainty.

Q: My condominium association has historically had problems with certain owners not paying their assessments on time. In an effort to avoid collection problems in the future, the association is considering requiring that assessments to be paid on a one-time, annual basis, rather than paid monthly, as is our practice now. Can the association require assessments to be paid annually? (R.B., via e-mail)

A:  No. Section 718.112(2)(g) of the Florida Condominium Act states that assessments may not be made against the unit less frequently than quarterly. Therefore, a condominium association can require assessments be paid on either a monthly or quarterly basis, but cannot require assessments be paid on an annual basis.

However, if a unit owner is delinquent in the payment of assessments and the association has recorded a claim of lien against the unit, the statute provides that the outstanding assessments for the remainder of the budget year may be accelerated. Again, this is only in the context of a delinquent owner where the association has recorded a claim of lien.

Otherwise, for a condominium association assessments may not be collected less frequently than on a quarterly basis.

There is no similar limitation in Chapter 720, Florida States, the Florida Homeowners’ Association Act. As such, it is not uncommon for homeowners’ associations to require that their assessments be paid on an annual basis.

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

Performing Rights for Organizations and Associations

So your community association has survived Hurricane Irma and completed all the repairs. In celebration of this milestone, the association decided to hold a community wide cookout with live music. The celebration was a success and thoroughly enjoyed by everyone. Now, two weeks later, you are in receipt of a certified letter from a Performing Rights Organization advising you that the band you hired performed copyrighted material from artists it represents, and that the association is in violation of federal copyright law and is threatening serious penalties unless you agree to purchase a license from the organization. What have you done and what do you do?

This scenario, in various forms, plays out for numerous community associations every year. If your community association displays copyrighted materials such as music, movies, or television programs, and even if only the owners or residents of your community attend such performances, the association is likely engaging in the public performance of copyrighted material and is therefore required to obtain the appropriate license. The key to understanding whether a license is required is first understanding whether the display of the copyrighted material constitutes a public performance. Typically, a public performance is any display or performance of copyrighted material at a place that is either open to the public or where a substantial number of persons outside a normal circle of family or social acquaintances are gathered. Further, performances in “semi-public” places such as private clubs, lodges, summer camps, and schools are considered “public performances” for the purposes of copyright law. Therefore, the display of copyrighted material in one’s home with family or friends is not considered a public performance, however, the display of the same material by a community association at a function that is only attended by owners or residents could possibly be treated as a public performance.

A community association that engages in the performance of copyrighted material, whether through hosting events with music, or otherwise, would either need to purchase its own licenses from the appropriate Performing Rights Organizations or ensure that any performers have acquired the necessary licenses. Examples of Performing Rights Organizations are BMI (Broadcast Music Inc.), ASCAP (American Society of Composers, Authors and Publishers) and SESAC (Society of European Stage Authors and Composers). Further, there are other organizations for musicians and composers, as well as additional organizations for visual media. While an association can protect itself by confirming that its performer has purchased all appropriate licenses, in the event that the performer does not have the appropriate license, even if their contract with the association requires them to do so, the association can still be found liable for the copyright violation.

Violations of copyright can carry significant monetary penalties. As such, this is an area where the association should tread cautiously.

The best course of action for a community association is to address the licensure issue prospectively before any performance. However, if the association receives a notice of a violation from a copyright holder or a Performing Rights Organization, the association should consult with its legal services provider to determine the best strategy moving forward to limit the association’s exposure.

Originally posted on floridacondohoalawblog.com. Written by James Robert Caves, III

Avoiding Defense of Selective Enforcement

A common defense raised by owners who find themselves on the wrong side of a covenant enforcement action is to allege an association’s failure to enforce the covenant at issue against all violators and instead only selectively enforcing it. The defense of selective enforcement is based upon a case decided by the Supreme Court of Florida in 1979. Essentially, an association cannot enforce the restrictions in the recorded documents or those contained in the rules and regulations in an inconsistent or arbitrary manner.  The issue is addressed by the courts and arbitrators frequently and as explained in Oceanside Plaza Condominium Association, Inc. v. Salussolia: the claim of “selective enforcement will succeed if the failure of the Board to enforce documents in other instances bears sufficient similarity to the case at issue as to warrant the conclusion that to permit the enforcement in the instant case would be discriminatory, unfair, or unequal.”

Nevertheless, even if certain provisions were not uniformly enforced in the past the association is not without options if it determines that such provisions should be enforced going forward. The process for “reviving” a provision that has not been previously enforced is derived from a condominium case called Chattel Shipping and Investment, Inc. v. Brickell Place Condominium Ass’n, Inc. In Chattel Shipping, the association’s declaration of condominium prohibited enclosing balconies without prior association approval. Despite this prohibition, multiple unit owners enclosed their balconies before the association announced its intent to prohibit future balcony enclosures. After the announcement, one unit owner, Chattel Shipping and Investment, Inc., enclosed its balcony and the Association thereafter demanded removal of the enclosure and sought injunctive relief to enforce the restriction. The trial court granted the injunction in favor of the association, and Chattel appealed. Chattel Shipping argued that in light of the association allowing other enclosures in the past, the association’s demand to remove Chattel’s enclosure constituted unequal and arbitrary enforcement of the restriction in violation of the principle of selective enforcement. The court rejected Chattel Shipping’s argument, holding that enforcing a uniform policy, under which a given building restriction will be enforced prospectively is not selective and arbitrary. The court noted that enclosures built before the association made its announcement protected other owners who had built their enclosures in reliance on the status quo, whereas Chattel Shipping had erected its enclosure following the association’s specific notice that subsequent violations would not be tolerated. Ultimately, the court affirmed the trial court’s holding in favor of the association.

Originally posted on floridacondohoalawblog.com. Written by John Stratton

Penalties for Financial Reporting Violations

In 2018, the Florida Legislature revised a provision within the Condominium Act concerning financial reporting.  Specifically, if a condominium association fails to comply with a request from the Division of Condominiums, Timeshares and Mobile Homes (the “Division”) regarding providing a unit owner with a copy of the annual financial report, the condominium association, as a punishment, may not waive the financial reporting requirement for the fiscal year in which the owner’s request was made, or the following year.  The new law clarifies the time frame, whereas the previous version of the law did not specify how long the association was prohibited from waiving the financial reporting requirement.  Note that despite what an owner may claim, the penalty only applies when the association fails to respond to a request by the Division to provide a copy of the financial report to a unit owner.

Originally posted on floridacondohoalawblog.com. Written by David Muller

Hurricane Insurance Claims for Condominium Associations

There is a lot of information on how associations can prepare for hurricanes but much less information as to what happens after the hurricane, particularly as it pertains to insurance claims. A question that managers and board members need to consider is, what is required after a hurricane to ensure compliance with your insurance policy and recover money which may be owed?

Click here to read Sanjay’s full article in FLCAJ Magazine.

Originally posted on floridacondohoalawblog.com. Written by Sanjay Kurian

Condos, HOAs, and Written Inquiries

Many times I see situations where an owner sends a community a certified letter seeking the answer to questions about various issues.  The nature and manner of the responses is dictated by the type of community. The Florida Condominium Act states that when a unit owner of a residential condominium files a written inquiry by certified mail with the board of administration, the board from the condominium association shall respond in writing to the unit owner within 30 days after receipt of the inquiry. The condominium association board’s response shall either give a substantive response to the inquirer, notify the inquirer that a legal opinion has been requested, or notify the inquirer that advice has been requested from the division. If the condominium association board requests advice from the division, the board shall, within ten days after its receipt of the advice, provide in writing a substantive response to the inquirer. If a legal opinion is requested, the condominium association board shall, within 60 days after the receipt of the inquiry, provide in writing a substantive response to the inquiry. There are penalties if these deadlines are not adhered to. It should also be noted that the condominium association may, through its board of administration, adopt reasonable rules and regulations regarding the frequency and manner of responding to unit owner inquiries.

In contrast, the Florida Homeowners’ Association Act contains no such similar provision.  As such, the HOA is not required under the statutes to respond to the certified inquiry. That being said, the HOA’s governing documents still need to be checked to confirm there is no requirement therein to respond to an owner’s certified inquiry. Even if not legally required, the HOA board should consider whether it is advisable to respond to the owner’s complaints in some manner as a proactive step to possibly help resolve a dispute rather than letting it escalate further.  This decision should come after seeking advice from the association’s counsel.

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

Special Assessment Leftover Funds Must Be Returned or Credited To Account

Q: Our condominium association board levied a special assessment for Hurricane Irma damage. Our insurance claim settled for more than we expected, resulting in an excess of funds due to the special assessment. What happens to this leftover money? (S.S., via e-mail)

A: Section 718.116(10) of the Florida Condominium Act provides that funds collected from a special assessment can only be used for the specific purposes for which the assessment was levied. Leftover funds are considered “common surplus” and may, at the discretion of the board, either be returned to the unit owners or applied as a credit toward future assessments.

Q: I am on the board of my condominium association. Several of the directors recently had a “workshop” session to understand the details of a major construction project that is coming up. The workshop was intended to be informational only. No votes were taken. Were we required to post notice of the workshop? (S.C., via e-mail)

A: The answer to your question depends on whether a quorum of the board was present at this gathering. While the law does not specifically address “workshops,” if there was a quorum of the board present, it was a “meeting” if association business was “conducted.”

It is widely accepted that votes need not be taken for a meeting to occur. In my opinion, the activity you describe involve the conduct of association business. On the other hand, if the majority of your directors attend an educational seminar, this is not a meeting as you are not addressing the business of your association.

Therefore, assuming a quorum of the board was present at this event, notice and an agenda should have been posted at least 48 hours in advance on the condominium property, and all unit owners should have been given the right to attend and speak, subject to any reasonable rules the board may have adopted governing unit owner statements at board meetings.

Q: My wife and I co-own a condominium unit. At the last election, we both ran for the board and were elected. Now, some of the directors say we both cannot serve at the same time, and have demanded that we choose which one of us will hold the seat. Is there a precedent on this? (J.O., via e-mail).

A: Section 718.112(2)(d)2 of the Florida Condominium Act states that in a residential condominium association of more than 10 units, co-owners of a unit may not serve as members of the board of directors at the same time, unless they own more than one unit or unless there are not enough eligible candidates to fill the vacancies on the board at the time of the vacancy.

Therefore, if your condominium consists of more than 10 units, if you and your wife only own one unit, and if there was a contested election, you both cannot serve on the board at the same time. Whichever of you received the greater number of votes would be the person who was actually elected, so you can’t simply choose between you. The person who received the next highest number of votes but was not considered elected, would take one of your seats.

It is also worthwhile to note that the law requires challenges to elections to be made within 60 days through an arbitration proceeding with a state regulatory agency. If the election was more than 60 days ago, I am not sure how that would play out since seating both you and your wife was what lawyers call “void ab initio,” meaning null and void from the start.

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