Generally speaking, a contract that cannot be performed within one year must be in writing. The opposite is true, too. So, if the contract can be performed within one year, then it does not necessarily have to be in writing. In other words, it can be an oral contract. But, if the other party does not perform their obligations, then you’ll likely need the courts to help sort the mess out. You can guess what happens next. One party says they had a contract and the other party denies it. It sure would have been simpler if the parties took a few minutes to sign a contract. Let’s say, for example, a few board members decide to buy lottery tickets and split the winnings. Then, as fate would have it, they win, but two weeks prior they disagreed with each other over an association matter, are at each other’s throats, and the holder of the winning tickets refuses to share the proceeds. “Preposterous,” you say? Not so fast.
Fairly recently, the Supreme Court of Florida in the case of Browning v. Poirier, Case No. SC13-2416 (Fla. May 28, 2015), reviewed a very similar fact pattern. Browning and Poirier lived together as a couple between 1991 and 2009. In 1993, the couple orally agreed that they would split the winnings of any lottery tickets purchased by either of them while they remained in a relationship. In 2007, Poirier purchased the winning ticket and received $1 million dollars less taxes. Despite their agreement, Poirier refused to give Browning half of the proceeds. Browning in turn sued for breach of an oral contract and unjust enrichment, seeking his half of Poirier’s winnings. Poirier defended the claims by arguing that the agreement could not be enforced against her because it did not comply with the statute of frauds. Because the contract could have been completed within one year at the time the agreement was made, the Supreme Court of Florida decided in Browning’s favor and held that the oral agreement between Browning and Poirier fell outside the “Statute of Frauds” providing that unenforceable oral contracts are only those which cannot be performed within one year.
By way of summary, the Statute of Frauds, as set out in section 725.01, Florida Statutes, requires that, in addition to other types of agreements, contracts which cannot be performed within one year from the making of the contract must be in writing and signed by the party against whom the contract is being enforced. Thus, in Browning v. Poirier, the Court held that an oral agreement to share equally in the proceeds of any lottery winnings, which could have been terminated by either party at any time, was not required to be in writing in accordance with the “Statute of Frauds” where the agreement could have been performed within one year.
So, while this case is seemingly unrelated to community associations, condominium, cooperative and homeowners association are subject to their own version of the Statute of Frauds as set out in sections 718.3026, 719.3026 and 720.3055, Florida Statutes, respectively. Similar to the Statute of Frauds analyzed by the Supreme Court of Florida, these laws provide that all contracts described in these statutory sections and any contract that is not to be fully performed within one year after the contract is made for the purchase, lease or renting of materials or equipment to be used by the association in accomplishing its purposes must be in writing. In addition, these laws require that all contracts for the provision of services must be in writing, regardless of whether or not the contract could be performed within one year.
Remember, too, that in addition to the written agreement requirement as set out in sections 718.3026, 719.3026 and 720.3055, Florida Statutes, these statutory sections also require that an association obtain competitive bids for contracts for the purchase, lease or renting of materials or equipment, or for the provision of services, which require payment by the association that exceeds, in total, a certain percent of the total annual budget of the association, including reserves. For condominium and cooperative associations, the percent of the total annual budget at which competitive bids must be obtained is five percent. For homeowners associations, the percent of the total annual budget at which competitive bids must be obtained is ten percent. While an association is required to obtain competitive bids in these instances, the association is in no way required to accept the lowest bid and may select the winning bid using its reasonable business judgment.
Based on the interpretation by the Supreme Court of Florida of the Statute of Frauds as set out in section 725.01, Florida Statutes, a community association’s board of directors should be ever mindful of the oral promises they make.