REMBAUM'S ASSOCIATION ROUNDUP | The Community Association Legal News You Can Use

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New Legislation Effective July 1, 2017 Affecting Florida’s Community Associations

While much of the 2017 legislation recently passed into law affects only condominium associations, Senate Bill 39 (a.k.a., the “Estoppel Bill”) affects condominium, homeowners’, and cooperative associations.

In regard to the Estoppel Bill, remember that in addition to the statutorily required information which must be provided in the association’s estoppel (the subject of prior articles which can be viewed at www.rembaumsassociationroundup.com), the association must provide the estoppel within 10 business days of receipt of the request, and if not so provided, a fee cannot be charged. The association must designate on its website a person or entity with a street or e–mail address for receipt of the estoppel certificate request. The estoppel certificate may be completed by any board member, authorized agent, or authorized representative of the association, including any authorized agent, authorized representative, or authorized employee of the association’s management company. While the fees for the estoppel, a rush estoppel, and a delinquent owner estoppel are set out in the legislation, the authority to charge a fee for the preparation and delivery of the estoppel certificate must be established by written resolution adopted by the board or provided by a written management, bookkeeping, or maintenance contract and is payable upon preparation of the certificate. On the face of it, it would appear prudent for every association to adopt such a resolution. At a minimum, doing so should be discussed with the association’s lawyer.

House Bill 6027 also applies to condominium, homeowners’, and cooperative associations. The requirement that an association may not waive the financial reporting requirements for more than three consecutive years was removed from the Statutes. In addition, the ability of an association comprised of fewer than 50 units, or lots, regardless of the annual revenues, to only prepare a report of cash receipts and expenditures in lieu of the more strenuous financial statement requirements was deleted.

Senate Bill 1520 addresses condominium terminations. Importantly, if 5% or more of the total voting interests of the condominium reject the plan of termination, then the termination may not proceed. This threshold used to be 10%.

House Bill 1237 pertains to condominium associations only. Criminal penalties are now in effect as to any officer or director or manager who knowingly solicits, offers to accept, or accepts anything of value or service of value or who receives a kickback. Similarly, criminal penalties are now available in the event of a forged ballot envelope or voting certificate provided, for theft or embezzlement of association funds, and for the destruction or the refusal to allow the inspection or copying of official records.

The association may not hire an attorney who represents the management company of the association.

In regard to suspension of use rights due to an owner’s failure to pay any fee, fund, or other monetary obligation to the association for a period of greater than 90 days, the amount of money due and owing must be at least $1,000 or more and proof of the obligation must be provided to the unit owner at least 30 days before the suspension may take effect.

Excluding timeshare condominiums, a board member, manager, or management company may not purchase a unit at a foreclosure sale resulting from the association’s foreclosure of its lien for unpaid assessments or take title by deed in lieu of foreclosure. In addition, the party contracting to provide maintenance or management services to a condominium association managing a residential condominium, post turnover, which is not a timeshare condominium association, or an officer or board member may not purchase a unit at a foreclosure sale resulting from the association’s foreclosure of an association lien for unpaid assessments or take a deed in lieu of foreclosure. If 50% or more of the units in the condominium are owned by a party contracting to provide maintenance or management services to an association managing a residential condominium after turnover, which is not a timeshare condominium association, or by an officer or board member of such party, the contract with the party providing maintenance or management services may be canceled by majority vote of the unit owners other than the contracting party for an officer or board member of such party.

As to which records comprise a part of the “official records” of the Association, “bids for materials, equipment or services” are now specifically included.

Renters now have a right to inspect and copy the association’s bylaws and rules. Oddly, this does not extend to other association records, such as the declaration of condominium and the articles of incorporation.

Insofar as providing unit owners a copy of the most recent financial report, the aggrieved unit owner may file a complaint with the Division of Florida Condominiums, Timeshares, and Mobile Homes (the “Division”). Then, the Division may notify the association of the complaint and provide the association five business days to provide the financial report, and if not, then as a penalty, the association may not waive the financial reporting requirements.

A condominium association and its officers, directors, and employees and agents may NOT use a debit card issued in the name of the association or billed directly to the association for the payment of ANY association expense. Doing so, can lead to criminal charges prosecuted as credit card fraud.

Clarification is provided that condominium association board members may serve two-year terms if permitted by the bylaws or articles of incorporation. In addition, a board member may not serve more than four consecutive two-year terms, unless approved by the 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.

There are even changes to the “recall” provisions. In the past, once served with a recall petition, the board is obligated to hold a board meeting within five days, and if it did not certify the recall, then the association was obligated to petition the Division. While the board meeting must still be held within five days, it is no longer incumbent upon the condominium association to notify the Division if it does not certify the recall. Still in effect is the requirement of the board to hold the board meeting within five days to consider whether to deem the recall successful, or not, and if not, then the recall will be deemed effective.

Except for timeshare condominium associations, the condominium association may not employ or contract with any service provider that is owned or operated by a board member or with any person who has a financial relationship with a board member or officer or a relative within the third degree of consanguinity by blood or marriage of a board member or officer. However, this does not apply to a service provider in which a board member or officer or relative within the third degree of consanguinity by blood or marriage of a board member or officer, owns less than 1% of the equity shares.

In order to better handle the ever-growing number of condominium association arbitration petitions facing the Division, new provisions are in effect for qualified attorneys to serve as arbitrators. The arbitrator must conduct a hearing within 30 days after being assigned. The failure of such an arbitrator to render a decision within 30 days of the final hearing can lead to the arbitrator’s removal as an arbitrator. There are various requirements to become certified to serve as such an arbitrator.

While new requirements are provided for director and officer conflict of interest situations, they do not apply to timeshare condominium associations. A rebuttable presumption of such a conflict exists if:

1. a director or officer or a relative of a director or officer, enters into a contract for goods or services with the association; or

2. a director or officer, or a relative of a director or an officer, an interest in a corporation, limited liability corporation, partnership, limited liability partnership, or other business entity that conducts business with the association of the process to enter into a contract or other transaction with the association.

If a director or officer or a relative of a director or an officer, proposes to engage in an activity that is a conflict of interest, as described above, the proposed activities must be listed on all contracts and transactional documents related to the proposed activity and must be attached to the meeting agenda. If the board votes against the proposed activity, the director or officer, or the relatives of the director or officer, must notify the board in writing of his or her intention not to pursue the proposed activity or to withdraw from office. If the board finds that an officer or director has violated this provision, then such officer or director shall be deemed to be removed from office vacancy is filled according to general law.

A director or officer or a relative of a director or an officer who is a party to, or has an interest in, any activity that is a possible conflict of interest, as described above, may attend a meeting at which the activity is to be considered by the board and is authorized to make a presentation to the board regarding the activity. After the presentation, the person with the possible conflict of interest must leave the meeting during the discussion of and the vote on the activity. In addition, a director or an officer who is a party to, or has an interest in, the activity must recuse themselves from the vote.

A contract entered into between a director or officer, or a relative of a director or an officer, and the association, that has not been properly disclosed as a conflict of interest or potential conflict of interest is voidable and terminates upon the filing of a written notice terminating the contract with the board of directors which contains the consent of at least 20% of the voting interests of the association.

The legislation also clarifies that the term “relative” means a relative within the third of consanguinity by blood or marriage.

A “receiver” may not exercise any voting rights of the unit owner whose unit is placed in receivership for the benefit of the association.

Importantly, by July 1, 2018, a condominium association with 150 or more units, which does not manage timeshare units, must post digital copies of many official records on the association’s website. The website must be an independent website or a web portal wholly owned and operated by the association. A recorded copy of the declaration of condominium, bylaws, articles of incorporation, and rules, as amended from time to time, must be posted on the website. In addition, the management agreement and all other contracts must be posted, most especially those contracts where a conflict of interest or possible conflict of interest is present. Bids for materials, equipment or services must be on the website for at least one year. The annual budget, financial reports, and proof of director certification requirements must also be on the website. Both unit owner meeting notices and agendas along with board meeting notice and agendas must be posted, too. Finally, the association has an obligation to ensure that those records which are not permitted to be accessible to unit owners are not posted on the website or are properly redacted.

For those following this year’s legislative process, House Bill 653 was vetoed by the Governor. As set forth in his letter vetoing the legislation, the reason for the veto had to do with fire safety opt-out provisions that he indicated appeared to be all the more dangerous given the recent overseas high-rise fire.

WHEN EXPRESS MAINTENANCE OBLIGATIONS IN A DECLARATION OF CONDOMINIUM ARE NOT SO CLEAR

When it comes to maintenance, repair, and replacement obligations of the unit owners and the condominium association, the terms of the declaration of condominium reign supreme. At times, there are instances where a unit owner is required to maintain, repair, and replace a portion of the owner’s unit which affects the exterior of the condominium building but that requirement is sometimes in conflict with a prohibition to make alterations to the exterior of the condominium building. An example is needed to bring clarity to this confusing dilemma.

For example, let’s examine the replacement of the unit’s windows. Pursuant to the maintenance obligations in the declaration of condominium, the unit owner is responsible to maintain, repair, and replace all parts of the unit and the fixtures and equipment of the unit, including windows. However, the declaration of condominium also prohibits the unit owner from changing the exterior of the condominium building in any way whatsoever. So, what is this unit owner to do when it comes time to replace the unit’s windows? How can the owner change the window, which requires bringing it up to current building code requirements, where it would result in a change to the exterior of the building?

The Department of Business and Professional Regulation, Division of Florida Condominiums, Timeshares, and Mobile Homes (the “Division”) has addressed this particular scenario, and other similar scenarios, in multiple arbitration cases. While the arbitration decisions promulgated by Division are not binding precedent per se (meaning that other arbitrators or courts do not have to decide similarly when presiding over subsequent cases with similar issues or facts), such arbitration decisions are persuasive and relied upon for guidance.

In Ellis v. Phoenix Towers Condominium Association, Inc., Arb. Case No. 00-1236, Summary Final Order (October 27, 2000), a group of unit owners, which included Ellis, sought to have the association, Phoenix Towers Condominium Association, Inc., replace its windows that were damaged as a result of concrete restoration performed by the association. The association’s declaration of condominium did not provide whether the windows were conclusively part of the unit and therefore the responsibility of the unit owner to maintain, repair, and replace. The association’s declaration of condominium did provide, however, that the unit owner is responsible for “[t]o maintain in good condition and repair his unit… and to maintain and repair the fixtures and equipment therein, which includes but is not limited to the following, where applicable:… windows…” However, the association’s declaration of condominium also provided that the unit owner cannot “…make alterations, decorations, repair, replacement or change of the common elements, or to any outside or exterior portion of the building(s).” The arbitrator in this case determined that the provision prohibiting unit owners from replacing or changing the exterior of the building and the provision regarding the unit owner’s responsibility to replace a window to the unit were in direct conflict with one another. Therefore, the arbitrator decided, “[a]n owner cannot be held responsible for replacing a window to his unit when that owner is precluded from replacing or changing any outside or exterior portion of the building [without regard to] whether or not it is a part of the common elements or his unit.”

While the maintenance, repair, and replacement of the exterior of the condominium buildings were found to be the responsibility of the association in the above case, even where such obligation was expressly that of the unit owner, there are instances where portions of the exterior of the condominium building are the responsibility of the unit owner, namely, where the unit owner has altered the common elements or limited common elements (such as the balcony), which are typically the obligation of the condominium association to maintain, repair, and replace. The Division has addressed this particular scenario in multiple arbitration cases, as well, and has found that the unit owner is responsible to maintain, repair, and replace those components that the unit owner altered – that is, unless the governing documents say otherwise or there is an written agreement for the association to take up such responsibility.

In Continental Towers, Inc. v. Nassif, Arb. Case No. 99-0866, Summary Final Order (November 24, 1999), the condominium association, Continental Towers, Inc., needed to conduct concrete restoration, waterproofing, and other repairs to the unit owners’ balconies. However, Nassif refused to allow the association access to his unit’s balcony to remove its tile flooring in order to effectuate those repairs. In relevant part, Nassif argued that that the association “accepted the tiles as a modification of the common elements or limited common elements and therefore assumed responsibility for maintenance of it” and demanded that the association replace the balcony’s tile. The arbitrator in this case provided and concluded, in pertinent part, that:

“The unit owner is responsible for the removal and replacement of unit owner installed additions to the common elements or limited common elements that are necessitated by the association’s maintenance efforts unless there is a specific agreement by the association, or a provision of the documents, providing that the association will be responsible for the removal and replacement of such improvements. [citation omitted] This is true even where the association may have approved or acquiesced to the addition. As noted by the arbitrator in Carriage House, in the absence of an agreement between the parties or a controlling provision of the documents, ‘it cannot be said from the mere fact of association permission that the association has assumed the perpetual obligation to remove and replace the personal property when necessary to repair and replace the common elements.’… Since… the tile was not part of the original construction, the unit owners are responsible for its removal and replacement.”

Therefore, Nassif was required to remove the balcony tiles so that the association could conduct its repairs and was then responsible to replace the tiles once the repairs were completed.

Again, the arbitration decisions of the Division are specific to the parties and facts presented and are not binding precedent. Actually, these type of issues are one of the most confusing and convoluted parts of the entire body of condominium association law. So, if your association has questions regarding the maintenance and repair obligations and interpretation of your condominium association’s governing documents, you should contact a competent community association attorney for legal guidance.

TWO NEW DISTRICT COURT OF APPEAL CASES – THIRD PARTY PURCHASER ASSESSMENT LIABILITY AND FINING NOTICE REQUIREMENT

If your homeowners’ association has not updated its declaration’s assessment collection provisions, then your association might be giving away its otherwise collectable assessment revenue!  The problematic declaration provisions are similar to the following: “The sale or transfer of any Lot pursuant to the foreclosure or deed in lieu of foreclosure shall extinguish the lien of such assessments as to all payments that came due prior to such sale or deed in lieu transfer.” To the dismay of association practitioners everywhere, the appellate courts have continually held that such a declaration provision even controls over Florida Statutes that would otherwise require the purchaser who acquires title as a result of the first mortgagee’s foreclosure (or acquires title by deed in lieu) to pay all back assessments due and owing.

On May 24, 2017, the Third District Court of Appeal of Florida, covering Miami-Dade and Monroe Counties, (“3rd DCA”) issued another assessment decision harmful to Florida’s homeowners’ associations. The 3rd DCA, in the case of Beacon Hill Homeowners Association, Inc., et. al., v. Colfin AH-Florida 7, LLC, decided in favor of the limited liability company who was a third party purchaser that acquired title to a lot as a result of a lender foreclosure. The 3rd DCA determined that the company’s liability for past due assessments for the  property it purchased at a mortgage foreclosure sale was strictly based upon the language set out in the homeowners’ associations’ declarations (there were actually two homeowners’ associations involved in this case). Both declarations had provisions regarding subordination of the associations’ assessment lien to a first mortgage and provided that the sale of a lot pursuant to the foreclosure of a first mortgage extinguishes the assessment lien as to all payments to the associations which became due prior to the foreclosure sale. Based upon this language, the third party limited lability company purchaser argued that it did not owe any past due assessments accruing prior to its purchase of the property.

The associations primarily argued that the joint and several assessment liability provision as set out in section 720.3085(2)(b), Florida Statutes, enacted in 2008, was incorporated into the terms of their declarations. Nevertheless, the 3rd DCA rejected their argument and instead followed the prior decisions of the “4th DCA” (as defined below) in Pudlit 2 Joint Venture, LLP v. Westwood Gardens Homeowners Association, Inc., 169 So.3d 145 (Fla. 4th DCA 2015), holding that the joint and several liability of section 720.3085(2)(b), Florida Statutes, was NOT incorporated into the terms of the associations’ declarations, but rather, the text of the declaration controlled. Therefore, once again, the third party purchaser was fully excused for any past due assessments liability of the prior owner when it purchased the property at the mortgage foreclosure sale.

The best way to remedy this continual dilemma is amend the harmful text out of the association’s declaration and strictly require the third party purchaser who acquires title as a result of the lenders foreclosure to be fully liable for all past due assessments. Other remedies include incorporating the provisions of section 720.3085(2), Florida Statutes, into the declaration or to include a phrase that the declaration “is subject to Chapter 720, as it is amended from time to time” (a/k/a Kaufman language).

Also on May 24, 2017, the Fourth District Court of Appeal (“4th DCA”) covering Palm Beach, Broward, St. Lucie, Martin, Indian River, and Okeechobee Counties decided in favor of an owner in the case of Dwork v. Executive Estates of Boynton Beach Homeowners Association, Inc., regarding the association’s attempt to collect fines from the owner. In this case, the owner continually failed to properly maintain his roof, driveway, and fence in good condition, despite the numerous written notices sent to the owner from the association and the association’s attorney. Due to the owner’s continued failure to comply with the association’s requests, the board of directors recommended the violations to the fining committee and provided the owner with 13-days’ notice of the hearing before the fining committee. The fining committee fined the owner $25 per day of the continuing violation for each of the three violations, which eventually totaled the maximum permitted by the association’s governing documents – $7,500. The owner failed to pay the fines, even after demand was sent to the owner from the association’s attorney for payment. The association eventually filed a lien against the owner’s property and filed a complaint against the owner for foreclosure of the lien and for money damages.

At the trial level, the association did NOT prevail on the foreclosure because it failed to provide the owner with the 14-day notice of a hearing before the fining committee as required by section 720.305(2), Florida Statutes, but did prevail on its claim for money damages. On the owner’s appeal of the award for money damages, the association argued that substantial compliance with the 14-day notice of a hearing before the fining committee as set out in section 720.305(2), Florida Statutes, was sufficient because the owner was not in any way harmed by the loss of a single day of notice.

While the 4th DCA agreed that equity would side with the association given the owner’s continued failure to comply with the association’s governing documents and numerous requests, the 14-day notice requirement as set out in section 720.305(2), Florida Statutes, MUST BE STRICLY COMPLIED WITH because there are no exceptions provided in the statute which would permit the trial court to consider substantial compliance with the notice requirement or the lack of prejudice on the owner.

Often times, board members ask, “if the owner in violation does not elect to attend the fining committee hearing to take place with not less than 14 days’ notice, must the hearing be held?” In the event of the violating owner’s legal challenge, if the association wants to ensure success on appeal, then you bet the hearing should actually take place without regard to whether the violating owner elects to attend or not.

THE NEW ESTOPPEL LEGISLATION – BETTER BE PREPARED

Senate Bill 398 is on track to become the law of the land, effective July 1, 2017, unless Governor Scott vetoes it. While anything is possible, it is important that your community association be prepared to comply with this legislation. The changes to the estoppel certificate issuance process are cumbersome. The following information applies to condominium, homeowners’ and cooperative associations, too.

The amount of information that must be set out in the estoppel certificate is voluminous and must be provided in substantially the form as provided in the legislation itself. There are three parts to the estoppel certificate starting with the “general information,” which includes the date of issuance, name of the owner as reflected in the books and records of the Association, the unit designation and address, the parking or garage space number as reflected in the books and records of the Association, the attorney’s name and contact information (if the account is delinquent and has been turned over to an attorney for collection), the fee for preparation and delivery of the estoppel certificate (see note that the cost of providing the certificate is included in the fee and cannot exceed the amounts set forth above), and the name of the requesting party.

Part two of the estoppel certificate is the “assessment information,” which must contain the regular periodic assessment levied against the property and frequency of assessment; the date that the regular periodic assessment is paid through; the date of the next installment of the regular periodic assessment that is due and the amount; an itemized list of all assessments, special assessments, and other monies owed on the date of issuance to the association by the owner for the specific property; and an itemized list of any additional assessments, special assessments and other monies that are scheduled to become due for each day after the date of issuance for the effective period of the estoppel certificate. In calculating the amounts that are scheduled to become due, the association may assume that any delinquent amounts will remain delinquent during the effective period of the estoppel certificate. In other words, if there is a delinquency it would appear that the provider of the estoppel needs to calculate the amount that will be due 30 days after the estoppel certificate is issued.

Part three of the estoppel certificate is the “other information,” which must include the following: (i) whether there is a capital contribution fee, resale fee, transfer fee or other fee due and, if so, the type and amount of the fee; (ii) whether there is any open violation of a rule or regulation noticed previously to the owner of the property; (iii) whether the rules and regulations of the association applicable to the property being transferred require approval of the board of directors of the association for the transfer of the property and, if so, whether or not the board has approved the transfer of the property; and (iv) whether there is a first right of refusal provided to the members or the association and, if so, whether or not the members or the association have exercised such right of first refusal. Further, the association is obligated to provide a list and contact information for all other associations for which the owner is a member; the association must provide contact information for all insurance maintained by the association; and finally, the estoppel certificate must be executed by an officer or authorized agent of the association. Also, the association, at its discretion, may include any other additional information in the estoppel certificate.

An estoppel certificate that is hand-delivered or sent by electronic means is effective for 30 days from issuance. However, if sent by regular mail, then it has a 35 day effective period. If additional information or a mistake related to the estoppel certificate becomes known within this timeframe, then an amended estoppel certificate may be prepared and delivered and will be effective only if the sale or refinancing of the property has not been completed. No fee may be charged for the amended estoppel certificate and once delivered, a new 30 day or 35 day effective period begins to run.

If the association receives a request for the estoppel certificate from an owner (or the owner’s designee, the mortgagee of the property, or the mortgagee’s designee) and it is not delivered within 10 business days, then the association has waived its right to collect a fee for the preparation and delivery of that estoppel certificate. The association also waives the right to collect any monies owed in excess of the amount specified in the estoppel certificate which also applies to all successors and assigns of the property.

As to the fee an association may charge for the preparation and delivery of the estoppel certificate, if there is no delinquency, then the maximum amount that can be charged may not exceed $250. If the estoppel certificate is requested on an expedited basis and the association delivers the estoppel certificate within three business days after the request, then the association may charge an additional $100 fee. However, if there is a delinquency owed to the association an additional fee of up to $150 may be charged.

When there are multiple properties owned by the same owner and simultaneous estoppel certificates are requested, so long as there are no past due monies owed to the association, then the statement of monies due for those properties can be delivered in one or more estoppel certificates. However, the fee structure is based upon the number of properties at issue in ranges: (i) for 25 or fewer properties, a total of $750 (not for each property, but in the aggregate); (ii) for 25 to 50 properties, a fee of $1000; (iii) for 51 to 100 properties, a fee of $1500; and (iv) for more than 100 properties, a fee of $2500. All of the fees that can be charged by the association for the estoppel certificate are to be adjusted every five years in an amount equal to the total of the annual increases for that five year period in the Consumer Price Index, and the Division of Florida Condominiums, Timeshares, and Mobile Homes is to make such determinations.

In order for the association to charge a fee for the preparation and delivery of the estoppel certificate, such authority must be established by written resolution adopted by the board or provided by a written management, bookkeeping, or maintenance contract and is payable upon the preparation of the certificate. This being the case, does this mean the association cannot be paid in advance of providing the estoppel certificate? If the closing date does not occur within 30 days after the closing date for which the certificate was sought and a written request is made for refund, then the refund must be provided within 30 days after receipt of the request. While the refund is the obligation of recipient of the fee, the association may collect it from the owner in the same manner as an assessment.

The association must designate on its website a person or entity with a street or email address for receipt of a request for the estoppel certificate. The estoppel certificate, when issued, must bear the exact date of issuance. In other words, the estoppel certificate cannot contain a date other than the date it is actually issued.

In the event an association does not provide the estoppel certificate, then the requesting party may bring a summary proceeding in court to compel compliance and there are provisions for the award of prevailing party attorney’s fees.

The board of directors of every Florida community association should ensure that either the association has established a written resolution adopted by the board for the authority to charge a fee for the preparation and delivery of the estoppel certificate or that such authority is provided by written management, bookkeeping or maintenance contract. But, because, in all likelihood, the association’s management company, on-site manager, bookkeeper, and/or attorney will be involved in the estoppel issuance process, the association should consider working with its legal counsel to both prepare the form of estoppel certificate and a written resolution executed by the board to authorize the fee for the preparation and delivery of the estoppel certificate so that it is readily available.

A Busy 2017 Legislative Session – Change is in the Air

Recently, the Florida legislature has passed three bills set to become law on July 1, 2017, unless vetoed by Florida’s Governor Scott: Senate Bill 398, pertaining to estoppels that is applicable to condominium, homeowners’, and cooperative associations; House Bill 1237, applicable to condominium associations only which provides for numerous new requirements including criminal penalties and onerous and costly website requirements for those condominiums with 150 or more units and so much more; and House Bill 653, which brings more parity to laws governing different community associations, addresses fire sprinkler retrofit, perfects transferring developer rights absent obligations of failed condominium projects, and addresses the rights of board members to communication via email in a way you are sure to like.  The far reaching scope of these three bills cannot be explained fully in this short article. Rather, this information is intended as a summary only.  Future articles will provide more specific details.

Senate Bill 398 provides for an overhaul of the estoppel issuance process. It provides community associations a mere 10 days to issue an estoppel or forfeit payment for providing it later. Estoppel fees are strictly limited to the statutory limits. The massive amount of information that must be contained in the estoppel is unimaginable. Associations will need to work with their legal counsel to create a template for this massive amount of information that will need to be in the estoppel. This piece of legislation was clearly enacted to benefit realtors and purchasers, only.

House Bill 1237 pertaining to condominium associations only, is, in part, the result of a few bad board members in the Miami-Dade County area for which the entire rest of the state will suffer. Parts of this Bill, by way of analogy, is akin to going to the doctor for removal of a small wart on your finger and the doctor cuts off your entire arm. For instance, there are new criminal penalties for taking kickbacks, forging voting certificates or ballots, and embezzling association funds.

A condominium association, its officers, directors, employees, and agents may not use a debit card issued in the name of the association or building directly to the association for payment of ANY association expense. Doing so can be prosecuted as credit card fraud. These new criminal penalties should not be an impediment to serving on the board absent an individual with malicious intent.

Board members, managers, and management companies may not purchase condominium units at a foreclosure sale resulting from the association’s foreclosure of its lien for unpaid assessments or by taking title by deed in lieu of foreclosure. In addition to the existing requirement that bids for work to be performed be part of the association’s official records, bids for materials, equipment, or services are now required to be part of the association’s official records.

Effective July 1, 2018, a condominium association with 150 or more units must have a secure website for which each owner must be provided a login and password. The website must contain documents including the rules and regulations, the management agreement, all contracts to which the association is a party, summaries of all bids for materials equipment and services, the annual budget, the proposed annual budget, financial reports, proof of board of member certification, and notice of any unit owner meeting and the agenda no later than 14 days prior to the meeting and such notice must be posted in plain view on the front page of the website or a separate sub page of the website labeled notices which is conspicuously visible and linked from the front page. The association must also post on its website any document to be considered and voted on by the owners during the meeting or any document listed on the agenda at least seven days prior to the meeting at which the documents or information within the document will be considered. Also, notices of board meetings, agendas, and any other document required for the board meeting must be posted no later than the date of the regular meeting notice requirements, meaning either 48 hours for 14 days depending on the requirements of the meeting notice. Associations now have an affirmative duty to ensure that no protected information or information restricted from being accessible to unit owners is included in the documents that are required to be posted on the website, and if so, then the association has the duty to ensure such information is fully redacted.

Condominium associations that operate fewer than 50 units can no longer opt out of preparing a report of cash receipts and expenditures simply because they have 50 or fewer units. Rather, they will be minimally required to comply with the financial reporting requirements based upon the total revenues of the association.

Notably, a board member may not served for more than four consecutive two-year terms unless approved by an affirmative vote of two-thirds of the total voting interests of the association, unless there are not enough eligible candidates to fill the vacancies. While not addressed in the legislation, it is oddly apparent that any directors serving only one year terms can serve an unlimited number of such terms. Additionally, the recall provisions have been completely revised which is already causing confusion.

Condominium associations cannot employ or contract with any service provider that is owned or operated by a board member or with any person who has a financial relationship with a board member or officer or a relative within the third degree of consanguinity by blood or marriage of a board member or officer.

Directors and officers of a condominium board and the relatives of such directors and officers must disclose to the board any activity that may be reasonably construed to be a conflict of interest and there are a host of occurrences which gave rise to the need to make such a disclosures that are set out in the legislation.

Provisions are made for lawyers who are board certified in the area of community association law to be contracted by the Division of Florida Condominiums, Timeshares, and Mobile Homes (the ‘Division”) to be arbitrators. This certification was recently approved by the Florida Supreme Court, and the process to become a board certified community association lawyer will begin this summer.

Finally, condominium associations must provide an annual report to the Division containing the names of all of the financial institutions with which the association maintains its financial accounts.

House Bill 653, in part, echoes a few of the provisions in House Bill 1237. It continues to make Chapter 719 of the Florida Statutes, otherwise known as the “Cooperative Act,” more synonymous with Chapter 718 of the Florida Statutes, otherwise known as the “Condominium Act.” Many readers will be happy to learn that board members of both homeowners’ and cooperative associations will be able to lawfully communicate via email, but not vote, as such is already provided for condominium association board members. Needed clarifications were provided to the fire sprinkler and engineered life safety systems requirements and retrofitting of condominiums and cooperatives for those buildings above the 75 foot threshold. For those that are less than 75 feet, it is made clear that they are exempt. The laws governing the transfer of developer rights saw a significant change. The “bulk buyer” laws, that were initially enacted to help rescue failed condominium construction projects by transferring developer rights but not prior developer obligations, were originally intended to “sunset.” The automatic sunset provision of these “bulk buyer” laws were deleted, meaning that failed condominium projects may see a brighter future forever more. Chapter 720 of the Florida Statutes, otherwise known as the “Homeowners’ Association Act,” was clarified to provide that a delinquent member cannot escape their assessment obligation by including a restrictive endorsement on their check, such as “paid in full”.

As to what happens next, Governor Scott can sign these Bills into law, do nothing in which case the Bills become law on their effective date of July 1, 2017, or veto the Bills. Stay tuned for future articles and our upcoming legal update class schedule during which these Bills and others being considered by the Florida legislature will be discussed if and when they become law.

Florida’s Newest Non-Native Invasion – Overnight Rentals

With little doubt, purchasing a home is one of the most significant investments you can make. In order to help protect that investment, many purchasers choose to buy homes within community associations that include homeowners’, cooperative and condominium associations. Behavior within community associations is governed by a declaration of condominium or declaration of restrictions, along with the bylaws, articles of incorporation and, importantly, and more often than not, the rules and regulations generated by the board of directors. Those of us living within community associations, for the most part, did not sign up to live in a community with transient overnight housing. Yet, if left to the vices of VRBO and AirBnB that is exactly what can happen in your community. Do you know what to look for? Do you know how to prevent this from occurring? What if it is occurring in your neighborhood? What can your community association do about it?

For a variety of reasons, none which are the subject of today’s column, local governments may have difficulty in promulgating local ordinances prohibiting overnight housing offered by VRBO and AirBnB. Therefore, it is left up to your community association’s board of directors to ensure proper measures are in place to prevent homes in your community from becoming the newest unnamed hotel/motel.

At the end of the day, renting property for one night, or six months, should be subject to the covenants and conditions set out in the association’s declaration. In terms of more quickly regulating overnight transient housing, homeowners’ associations have many advantages over that of the condominium association in that there are many circumstances in which the homeowners’ association can adopt rules and regulations prohibiting the transient activity. That said, covenants set out in a declaration which have been adopted by the members have a much stronger presumption of validity and enforceability as compared against rules and regulations adopted by a board of directors. In fact, the condominium association has no choice but to include such prohibitions against transient housing in its declaration of condominium.

More specifically, section 718.110(13) of the Florida Statutes, governing condominium associations, provides, in relevant part, that:

“An amendment prohibiting unit owners from renting their units or altering the duration of the rental term or specifying or limiting the number of times unit owners are entitled to rent their units during a specified period applies only to unit owners who consent to the amendment and unit owners who acquire title to their units after the effective date of that amendment.”

Therefore, if your condominium association does not have covenants already in place to protect against use of any of the condominium units as overnight housing for transient rental purposes, then a vote of the members will be necessary in order to adopt the necessary restrictive covenant(s) to insert into the association’s declaration of condominium to protect against such activity. In the long run, because provisions set out in the declaration of condominium have a greater presumption of validity, the condominium association stands a good chance of prevailing in the event a unit owner challenges the lease covenant. In fact, provisions of a declaration will not be invalidated absent a showing that they are wholly arbitrary in their application, are in violation of public policy, or that they abrogate some fundamental constitutional right.

Nevertheless, as to a homeowners’ association that does not have the necessary covenants set out in the homeowners’ association declaration of covenants to protect against transient housing, rather than having to take a vote of the members to amend its declaration, the board of directors, upon a 14 day board of directors meeting notice mailed to all of the members and posted in a conspicuous place in the community, is able to adopt rules and regulations governing the use of any home subjected to the declaration for transient housing. But, because the rules and regulations are adopted by the board and not adopted by the members of the entire community, then, upon a member’s legal challenge, the outcome is not as clear. Upon such a challenge, the court will analyze whether the board acted within its scope of authority, whether the board exhibited arbitrary or capricious decision-making, and whether the new rule contravenes either an express provision of the declaration or a right reasonably inferred therefrom. Therefore, at the first available opportunity, the membership of the homeowners’ association should be provided the opportunity to approve an amendment to the association’s declaration so that the leasing restrictions are set out in the associations’ declaration of restrictions.

When the association is considering adopting either a declaration amendment or new rule and regulation governing a prohibition against transient housing, the association should also consider at that time updating its entire owner/rental approval process to include prohibitions against purchasers and renters who have committed crimes of moral turpitude, have a history of significant financial irresponsibility, who lie on their sale/lease application, or who do not meet the other requirements such as length of tenancy (e.g., no rentals for less than six months and only one lease per year). These types of issues, and more, should be discussed with the association’s lawyer.

Importantly, the time has come for every community association to regularly monitor VRBO and AirBnB listings to see if homes in your community are being advertised for overnight rental purposes. If so, this should be brought to the attention of the association’s board of directors and manager.

Senate Bill 1682 – Every Good Deed Is Punished

Filed with the Florida Senate on March 3, 2017, is Senate Bill 1682. This bill which amends Chapter 718, Florida Statutes (a/k/a, the Condominium Act) is so noxious that it will further dissuade members of condominium associations to run for their board of directors, if allowed to become law.

Of the changes which make the position of being a director even more unappealing is the possibility of being charged and even convicted of a misdemeanor for willfully failing to provide access to the condominium association’s official records within the statutory time period, 10 business days from the date the request is received, on more than two occasions within a 12 month period. While this provision on its face may seem reasonable to a few, the Condominium Act makes no provision whatsoever as to how such a request to inspect the official records of the association is to be provided. Thus, imagine the situation where a member at a cocktail party scribbles a request to inspect the pool contract on a napkin and hands it to a director who happens to be at the same party or where a member requests access to a record via email to a director and the director’s term is up the next day.

Criminal charges and punishments of the felony variety are also proposed with regard to election balloting. Additionally, Senate Bill 1682 seeks to prohibit ALL contracts between a condominium association and a director or a company that is owned or operated by a director or anyone who has a financial relationship with a director, despite the disclosure and approval requirements for director contracts already provided for by Florida law.

It is likely that these proposed changes are due to a very few instances where the very few bad acts of condominium directors were sufficiently egregious as to warrant criminal prosecution. But, to place this type of punishment on all volunteers to their condominium associations across the state will cause more harm than the good. Let us be reminded that for the most part, that board members are self-sacrificing laypeople who are not required to be experts in the field of condominium association laws.  It is already far too  difficult, not to mention, at times impossible, to find owners willing to volunteer their valuable time serve on the board of their condominium association which during trying times, such as the levy of an unexpected special assessment, has the effect of unwarranted scrutiny by one or more members. The last thing needed is the threat of being charged with a crime for what are often simple oversight and mistakes.

An association attorney neither represents the unit owners nor association’s board members, but represents the corporate entity itself, otherwise known as the “association”. As further evidence that the drafters and contributors to Senate Bill 1682 are clearly not knowledgeable as to the practice of condominium association law, the bill proposes a change that will prohibit an attorney from representing the “board” if the attorney also represents the management company of the association. An association’s lawyer never represents them board in the first place! Therefore, this proposed language would have no effect on an attorney’s ability to represent both a condominium association and the association’s management company. As an aside, due to the inherent possibly of a later arising conflict of interest, competent association lawyers should not represent management companies in the first place.

In addition to these proposed changes to the Condominium Act, Senate Bill 1682 will open up access to the Association’s official records to renters where such access was once limited to association members or their authorized representative. It will prohibit directors from serving more than four consecutive two year terms unless approved by two-thirds of the unit owners, and remove the requirement that recall attempts be certified by the board of directors. Also, the requirement for condominium associations with 500 or more units to publish a website and maintain certain official records online is being proposed again in this year’s legislative session.

Given the number of Florida residents that reside in condominium and homeowner’s associations, it is astounding that of late, there is such misunderstanding amongst several of our legislators. While there is still time, please contact your State Representative and Senator and demand they vote “NO” to Senate Bill 1682.

PROPOSED ESTOPPEL BILL 398 – UNFAIR AND INEQUITABLE TO COMMUNITY ASSOCIATIONS (SORRY FOLKS, THIS IS NOT FAKE NEWS)

Senate Bill 398 (“SB 398” or “Bill”) sponsored by Senator Passidomo is making its way through the Florida legislature and is a step closer to being passed into law. This Bill puts the needs of Florida’s community associations behind that of its member-sellers (especially those who are delinquent in their  assessment obligations, those who have existing fines and those who are in violation of the covenants), plus, real estate brokers and realtors, lenders, and everyone else involved in the purchase sale process.  It’s truly amazing with over one million condominium units in the state, let alone the shear number of homes within homeowners’ associations, that the needs of the association are in last place.

As to the contents of the estoppel, in addition to providing information regarding whether or not the owner is delinquent in their assessment obligation, an association will be required to also include:

  • information regarding parking spaces and storage lockers,
  • whether special assessments and other monies are scheduled to become due after issuance of the estoppel during the effective period of the estoppel which is required to be either 30 or 35 days, depending on the delivery method of the estoppel,
  • whether there is a violation of the rules and regulations,
  • a list of utilities provided with the unit,
  • a list of all recreational or land leases,
  • a description of all active litigation or administrative proceedings,
  • contact information for all insurance maintained by the association,
  • a list and contact information for all other associations for which the seller is a member.

In other words, the association is required to perform the role of the closing agent and not get properly paid for it.

The most an association can charge for all of the above information is $200 and up to $400 if the owner is delinquent.  If a request is made for a “rush,” then, so long as the association provides all of the above information within three days from the date of the rush request, the association can charge an additional paltry $100. There also specific unfair limitations on the amount that can be charged when an owner owns multiple units, too. To add insult to injury, the association is provided only ten days to provide this information. If the estoppel is issued between days 11 and 15, then the association is not allowed to charge any fee whatsoever estoppel’s issuance. If greater then 15 days have passed since the request was received and estoppel issued, then the buyer becomes fully immune from all back assessments obligations, plus full immunity for new assessments of any kind that become due during the effectiveness of the estoppel (that being at least 30 or 35 days from issuance), plus full immunity for all existing violations against the unit. The association is prohibited by Senate Bill 398 from being prepaid for providing all of this information. Rather, the association must wait to get paid from the closing. But, if the closing does not occur, then the seller becomes responsible to pay the estoppel fee.

There are certainly unforeseen consequences of SB 398 should it be passed into law. Let’s say a seller, who is delinquent in their assessment obligations, owes fines, and has pending violations for failure to abide by the governing documents, is trying to sell their property, and their buyer requests an estoppel. For one reason or another, the estoppel does not get issued by the associaiton until 20 days after the request was made and ultimately, the deal fails to close. Does this mean that, because the estoppel was untimely issued, the seller is not responsible for the estoppel fee and the seller is no longer responsible for the delinquent assessments, fines and violations? Moreover, if an owner is already delinquent in their assessment obligations, and the closing falls through, then even though Senate Bill 398 would make the owner responsible for the estoppel fee, from a practical perspective, the chances of the delinquent owner actually paying this new obligation is, pretty much, ZERO. Senate Bill 398 also fails to provide that when the seller fails to pay the estoppel fee, that the failure to pay is a lienable expense. This works to the extreme detriment of the association, too.

Albeit, there are problems with the already existing estoppel legislation, but Senate Bill 398 will create even more problems. Let’s put this proposed legislation into proper context. Our government cannot see fit to regulate prescription drug costs that can make a difference to a senior citizen who must decide between food and medicine yet, our government is willing to price fix the cost of an association estoppel. Even a lobotomized angle-worm could figure out that Senate Bill 398 is bad for Florida’s community associations.

Please speak up now and speak up loudly. Demand your legislators vote NO to Senate Bill 398!

SELECTIVE ENFORCEMENT: COMMON SENSE PREVAILS

As often happens when a community association enforces its covenants and rules and regulations against an owner, the owner responds to the association saying, “The house down the street is in violation with the rules and regulations, too! Why aren’t you sending them a demand letter?” When this happens, the owner is invoking the defense known as “selective enforcement”.

Selective enforcement is a claim made by the defending-owner that the association is unequally and arbitrarily enforcing the association’s restrictions against them. Ultimately, should the matter proceed to litigation, the defending-owner has the burden to their selective enforcement defensive.

A common mistake in proving the selective enforcement defense is that the defending-owner fails to make an apples-to-apples comparison. For example, an owner defending themselves against a violation for failing to park their car head-in in the association’s parking spaces cannot claim that the association is selectively enforcing the restrictions against the owner because the association has allowed trucks, which are otherwise prohibited, to park in the association’s parking spaces.

While the owner in the January 25, 2017 decision of Florida’s Third District Court of Appeal in the case of Laguna Tropical, A Condominium Association, Inc. v. Barnave did not make this common mistake, common sense and proper enforcement of the association’s restrictions prevailed.

At issue in the Barnave case was the enforcement of two restrictions: (1) a requirement to obtain the prior written consent of the association’s board of directors prior to altering, modifying, or replacing the interior of a unit, and (2) a prohibition on the installation of any type of flooring except carpeting, unless otherwise approved by the association and with the required installation of noise and sound abating materials.

The unit owner in this case, who owned an upstairs unit in a two story condominium, leased her unit to a pet owner, whose pet damaged the carpeting. In preparing the unit for a new tenant, the unit owner replaced the damaged carpeting with laminated flooring. Not long after the laminated flooring was installed, the resident in the unit located directly below the new tenant complained about the noise coming from the upstairs unit. The association then sought enforcement of the abovementioned restrictions against the unit owner and the new tenant. After unsuccessful enforcement attempts, the association filed a lawsuit against the unit owner and the new tenant seeking injunctive relief against the owner and the new tenant.

At trial, the unit owner successfully defended against the association’s enforcement efforts by claiming selective enforcement of the flooring restrictions. The association then appealed the trial court’s decision. (In and of itself, this author finds it troubling that the trial court could reach such a decision given the findings presented by the appellate court, discussed below.)

On appeal, the unit owner argued that the association selectively enforced the flooring restriction on only 11 of the condominium’s 94 total units. However, as explained by the appellate court, the association could only enforce the flooring restriction on these 11 units because these were the only upstairs units within the condominium for which the noise created by improperly insulated flooring would be an issue. The remaining units were either downstairs units or two-story units for which noise abating flooring is not an issue.

Further, the appellate court found that of the prior noise complaints received by the association from residents of downstairs units, the association had successfully enforced the flooring restriction upon the offending upstairs units, and that there was no evidence to show that the association had declined to enforce a noise complaint from a resident of a downstairs unit based upon replacement of carpeting with tile or wood flooring.

Based on common sense and responsive enforcement by the association, the appellate court reversed the trial court’s decision and held in favor of the association. This case, although in the win category for community associations, is a reminder to boards of directors to uniformly and fairly enforce the covenants, restrictions, and rules and regulations of their association.

Hot to Get the Vote

Your association’s board has worked for six months to amend and restate the association’s governing documents, including the declaration, articles of incorporation, bylaws, and even the rules and regulations. The board has met with the association’s lawyer on several occasions, reviewed and provided comments on multiple drafts, and even arranged for multiple meetings with the membership to solicit comments and generate enthusiasm. There are two methods of obtaining the votes. The first is to notice a meeting of the members and use proxies for those who cannot attend. The other is to use, the often neglected, but still effective, written consent in lieu of a meeting process.

The time is finally come – the notice package to be sent to the members is in the mail. A week goes by, and very few proxies are returned. Worse still, on the night of the membership meeting, where it is hoped that the amended and restated governing documents will be approved, only several owners personally attend. Needless to say, not only are there an insufficient number of votes, but there isn’t even a quorum. What is the board to do?

All is not lost, and there is still plenty of time to solicit the necessary member votes so long as the meeting for which the proxies were intended is not concluded. Once the membership meeting is concluded, any and all proxies die an immediate death! But, if the membership meeting is continued to a “time, date, and place certain” then, all of the proxies continue to live for 90 days from the date of the meeting for which they were initially intended.

If a quorum is attained, but not the number of necessary votes, then, any member in attendance can make a motion to suspend the meeting to a time, date, and place certain, so long as the meeting is resumed within 90 days of the date of the initial meeting. Then, the motion should be seconded. A vote of those in attendance, in person or by proxy, should follow such that the majority cast their vote in favor of the continuance. If neither a quorum is attained, nor the number of necessary votes, then the one item of business that can occur, even without a quorum, is a motion to continue the meeting to a “time, date, and place certain.” Again, the motion should be seconded and a vote of those in attendance, in person or by proxy, obtained.

This “continuance” process can be used as many times as necessary, so long as 90 days from the date of the initial meeting have not expired. Once the 91st day is reached, then all of the proxies are as good as dead. Because the meeting is continued, there is no need to re-notice the meeting each time it is reconvened. However, minutes should be taken so that there is an accurate record.

When describing the continued meeting in the minutes, the word “adjourned” could be interpreted to mean that the initial meeting concluded or it could be interpreted to mean that the meeting was continued, therefore it is advisable to not use the word “adjourned” in the minutes to reflect that the meeting was continued. If the meeting is continued, then use the word “continued.” This will avoid any confusion whatsoever. For example, the minutes might include, “Upon motion and second, a majority the members in attendance, in person and by proxy, votes to continue this membership meeting on February 28th, 7:00 P.M. in the community clubhouse.”

Remember, too, that a “general proxy” allows the proxy holder to vote as they so choose, while a “limited proxy” directs the proxy holder to vote as the giver of the proxy instructs.

Utilization of the written consent in lieu of a meeting process will fully avoid the need to have the membership meeting but will still require that the necessary votes are obtained within 90 days. The written consent in lieu of a meeting process is described in Chapter 617 of the Florida Statutes, more commonly known as the “Florida Not For Profit Corporation Act,” and not Chapter 720, Florida Statutes, more commonly known as the “Homeowners’ Association Act.”

Unless otherwise provided in the articles of incorporation, an action required or permitted by the Florida Not For Profit Corporation Act to be taken at a meeting of members may be taken without a meeting, without prior notice, and without a vote if the action is taken by the members having at least the minimum number of votes necessary to authorize the action.

To be effective, the action must be evidenced by one or more written consents describing the action taken, dated, and signed by approving members having the requisite number of votes and entitled to vote on such action, and delivered to the association.

Written consent to take the action referred to in the consent is not effective unless the consent is signed by members having the requisite number of votes necessary to authorize the action within 90 days after the date of the earliest dated consent. Importantly, within 30 days after obtaining authorization by written consent, notice must be given to those members who are entitled to vote on the action but who have not consented in writing. The notice must fairly summarize the material features of the authorized action. Remember, too, that once the necessary written consents are obtained, there should be official recognition of such approval by the board.

Both the proxies and written consents constitute official records of the association and therefore should be stored with the official records of the association.