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

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Author: KBRLegal

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Deconstructing the Construction Contract | A Plain English Explanation

If your community association has engaged the services of a contractor, engineer, architect, or other construction or design professional to perform a maintenance, repair, replacement, or capital improvement project, you know the process can be overwhelming. No matter the mad rush to execute the contract as soon as possible, when beginning such projects, no matter how big or small, the board needs to ensure the contract adequately protects the association. Even the smallest of projects can have unexpected, disastrous consequences. A few of the more common provisions which every board member should understand follow.

The Indemnity Provision

In today’s extremely litigious world, it is important that your association does what it can to protect itself against unforeseen claims that can arise out of the contractor’s performance of the work. For example, assume a crane fell on the building being repaired, the contractor accidentally damaged the elevator shaft, or worse still, a life is lost. An indemnity provision provides that the contractor will indemnify, defend, and hold harmless the association from and against claims arising out of or resulting from the performance of the work by the contractor or any of its employees, subcontractors, suppliers, etc.

Indemnification provisions can be tricky to understand. The general contractor, engineer, and design professionals (aka the architect) may seek to avoid and/or cap their overall liability. Even a small contract can have significant consequences if the negligence of the contractor causes significant damage or injury.

Rarely does the inclusion of a single word have disastrous consequences; however, a recent trend we have seen in many contracts is the contractor requiring the indemnity obligation to be limited only to damage caused by the contractor’s “sole” negligence. As events which cause loss or damage rarely occur by the “sole” actions of an individual, this provision significantly diminishes the contractor’s responsibility to indemnify the association. The association should look out for any indemnity provision which provides that the contractor is only responsible to indemnify for its “sole” negligence. Without getting into too much complexity, Florida is a “contributory negligence” state. This means each party is responsible to satisfy a judgment against them in proportion to their responsibility for the blame. So, if the contractor is found to be 33 percent responsible for an accident, then it pays 33 percent of the final judgment award. But, if the contract indemnity provision required sole negligence, the contractor would pay nothing at all because the accident was not “solely” caused by the contractor. Youch!

Another trend we see is the contractor limiting its liability to damage caused by its “gross negligence,” which by definition excludes “simple negligence.” As a brief explanation, simple negligence is when a person fails to take reasonable precautions that any prudent person would take in similar circumstances and their actions cause harm (for example, a driver who runs a stop sign and causes an accident). Gross negligence is extreme indifference or reckless disregard for the safety of others (for example, driving 100 mph in a parking lot and injuring a pedestrian). As any claims arising out of the work are likely to result from the contractor’s simple negligence, this heightened standard is not favorable to the association.

If the contractor is insistent on limiting its liability, the association may consider limiting the contractor’s indemnification obligation to the maximum payable under the contractor’s insurance policy. This way, the contractor is not on the hook for unlimited liability, but the association has some decent protection as claims can be covered up to the maximum amount payable under the insurance policy. However, in the event of a catastrophic loss or casualty event, even the amount payable under the insurance policy may not be enough to protect the association.

In addition to these limitations, “design professionals” have the added benefit of statutory authority to further limit their liability in a contract (they must have better lobbyists). Section 558.0035, Florida Statutes, provides a procedure by which a design professional can exclude any “individual liability” for damages resulting from negligence occurring within the course and scope of a professional services contract. In other words, the design professional will not be personally liable to the association for any negligence in its design if the contract includes a provision that excludes such personally liability. Section 558.002(7), Florida Statutes, defines a “design professional” as a person who is licensed in the state of Florida as an architect, landscape architect, engineer, surveyor, geologist, or a registered interior designer. Therefore, if your association is contracting with any of the foregoing design professionals, you will likely need to negotiate this provision.

You should also be aware that disputes over the enforceability of the indemnification clause do not automatically include prevailing party attorneys’ fees unless the indemnification provision specifically provides that, in the event of a dispute concerning the applicability of the indemnification, the prevailing party must be indemnified for their attorneys’ fees, costs, and expenses incurred in enforcing their right to be indemnified.

Insurance Provisions

To ensure there are sufficient funds to satisfy an indemnity judgment in favor of the association, it is important that the association require the contractor to carry certain minimum insurance. Therefore, the contract should contain a clause which provides that the contractor will maintain such general liability insurance as will protect the contractor and the association from claims that may arise out of or result from the contractor’s operations under the contract documents in the amounts set out in the contract. Additionally, the association should ensure that the contractor obtains sufficient workers’ compensation coverage.

There are a couple of terms with which you should be familiar:

  • Certificate Holder: The certificate holder is merely entitled to the proof of insurance, nothing more. When the policy holders have their insurance agents issue a certificate of insurance to the entity that hired the contractor to do the work, that entity becomes a certificate holder. It is simply the contractor’s way of saying, “I have insurance.” Certificates show that the contract has the insurance policies in the limits shown on such certificate. It also provides that the certificate holder is entitled to know if the policy lapses.
  • Additional Insured: An additional insured is provided the same coverage and rights under the policy as the named insured. In other words, when you become an additional insured, you are entitled to the same insurance protections as the original policy holder. Therefore, in the event of loss, the association may file a claim on the contractor’s policy through its status as an additional insured.

Thus, the contract should not only require that the contractor carry insurance but also provide that the contractor is obligated to provide a certificate of insurance evidencing the insurance coverage and containing an endorsement listing the association as an “additional insured.”

In addition to the insurance requirements for the contractor, your association may consider purchasing builder’s risk insurance for the project. Builder’s risk insurance is designed to protect the owner of a construction site from loss and damage. This should be further discussed with the association’s insurance agent.

Paying the Contractor

During a major construction project, the association’s contractor will likely be working with several subcontractors to complete the work. The process for payments in such projects is set out in §713.13, Florida Statutes. (For a more detailed discussion on the construction payment process, you can read my prior article, “Construction Progress Payments: The Hidden Trap,” at rembaumsassociationroundup.com, originally published in the Florida Community Association Journal, February 2020 edition.)

By way of brief explanation, when the project commences, the association records a “Notice of Commencement” identifying the contractor and the legal description of where the work is being performed. The purpose of the Notice of Commencement is to inform all subcontractors and suppliers that if they intend to provide goods and/or services to the property, and if they want to have proper legal standing to record a lien against the property in the event they are not paid, the subcontractor and/or supplier must serve a “Notice to Owner” to the association. The Notice to Owner informs the association of all subcontractors working under the general contractor and all suppliers who provide suppliers and materials to the job site.

In exchange for payments to the general contractor, the general contractor provides the association with “partial payment affidavits” for each payment and a “final payment affidavit” upon conclusion of the work at hand. The subcontractors and suppliers provide the association “partial releases” for the payment received from the general contractor using the general contractor as the delivery conduit to deliver the partial release to the association. This method ensures that subcontractors and suppliers cannot later claim that they were not paid. However, in order to ensure this protection, it is important that the contract requires the contractor to provide the subcontractors’ and suppliers’ partial releases contemporaneously with the association’s progress payment. With the partial releases in hand, in the event the contractor does not pay the subcontractors and suppliers, the association is fully protected.

Some general contractors insist on providing the association with the partial releases from the subcontractors and suppliers one payment behind. This should be a red flag to your association because it means if the contractor fails to pay the subcontractors and suppliers after receiving payment from the association, the association will still have to pay the subcontractors and suppliers. In such event, the association will end up having to pay twice for all or part of the same work.

Prevailing Attorney’s Fees

Another important consideration is the prevailing party attorneys’ fees provision of the contract. An attorneys’ fee provision generally provides that in the event of litigation to enforce the terms of the contract, the prevailing party is entitled to recover their attorneys’ fees. However, this provision must be carefully worded to ensure that your association will be able to recover its attorneys’ fees.

Termination

Most contracts provide that the association may terminate the contract for cause. The termination for cause provision should include examples of conduct by the contractor which would entitle the association to terminate the contract for cause. In addition to termination for cause, we recommend the inclusion of a “without cause” termination provision. This provision gives the association an out in the event the contractor is not working out, but the contractor’s conduct does not rise to the level which would allow dismissal for cause. 

Generally, if an association terminated an agreement without good cause, and unless otherwise spelled out in the contract, the contractor would likely be entitled to approximately 15 to 22 percent of the contract price for its anticipated lost profit and overhead.

Payment and Performance Bonds

Another way the association can protect itself is by requiring the contractor to obtain “payment and performance bonds,” which are most often purchased together as a set. While doing so typically adds three to five percent to the total contract price, it is well worth it. In addition, if the contractor is not able to provide such a bond because the bonding companies will not bond the contractor, it is very telling because not every contractor is bondable. 

A “performance bond” is a surety bond issued by a bonding company or bank to guarantee the satisfactory completion of the work by the contractor. It acts to protect the association in the event the contractor fails to complete its contractual obligations. 

A “payment bond” guarantees the contractor will pay all laborers, material suppliers, and subcontractors engaged by the contractor for the work. In the event the association pays the contractor, but the contractor fails to pay the laborers, material suppliers, and/or subcontractors, the surety will step in to pay same.

Force Majeure

Many contracts contain force majeure language which provides that the parties will not be responsible to the other if they are unable to fulfil the terms of the contract due to events beyond the control of the parties. Most often, a force majeure event adds delay to the targeted project completion date and avoids claims for breach of contract due to the delay. Such events may be acts of God, flood, fire, hurricanes, war, invasion, terrorist acts, government order or law, actions, embargoes, or blockades, etc. Of late, for reasons that need no explanation, pandemics are added to this list, too.

The above discussion is not meant to be all inclusive. There are so many other important provisions to consider, but space is limited. To ensure your association is protected, the association should always rely on its legal counsel to review the association’s contracts and make the necessary revisions to assist in the  protection of the association.

(Reprinted with permission from the December 2021 edition of the Florida Community Association Journal)

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Don’t Want Your Association to Be the Next Rental Community? Then You Better Read This

Many community associations throughout Florida struggle to deal with the increase in overnight and short-term rentals caused by the proliferation of online websites such as VRBO and Airbnb. As such, many communities fear being turned into “rental communities,” especially with so many large corporations buying homes in the South Florida area for the express purpose of renting them. These transient rentals can present nuisance and safety issues and can easily change the composition of your community. The good news, however, is that there are steps your association can take to help protect the community from becoming the next transient rental community by having the necessary language in the declaration of restrictions, as further discussed below.

There are two types of restrictions which work together to help achieve this goal. First, corporate (or business entity) ownership must be fully addressed. Second, specific criteria for approval of purchasers, tenants, and occupants residing in the community for longer than 30 days (or such other time period) must be adopted. Finally, a brief discussion regarding the applicability of the statutory provisions set out in Chapter 718 of the Florida Statutes, more commonly referred to as the Condominium Act, and Chapter 720 of the Florida Statutes, more commonly referred to as the Homeowners Association Act, is in order.

To avoid ownership for purely investment purposes, an amendment to the declaration that prohibits ownership by a corporation, limited liability company, partnership, trust, or other entity or company should be considered. However, certain carve-outs are recommended to ensure that the owners can use these types of entities for their estate planning purposes, to ensure that the rights of mortgagees are not adversely affected, and to ensure the association still has the authority to purchase units as a result of foreclosure or in other appropriate circumstances. In addition to restrictions on ownership, the association can consider adopting an amendment restricting the number of units that can be owned by a person or entity.

The association must ensure that its authority to approve transfers of title to lots and units is not an “unreasonable restraint on alienation.” In other words, the association must have the express authority to deny transfers of title, and the restrictions on such sales must be reasonable.

In Aquarian Foundation v. Sholom House, 448 So.2d 1166 (Fla. 3d DCA 1984), Florida’s Third District Court of Appeal considered the validity of a condominium association’s transfer restrictions. In its analysis, the court noted that “restrictions on a unit owner’s right to transfer his property are recognized as a valid means of insuring [sic] the association’s ability to control the composition of the condominium as a whole.” The court explained that while an association can adopt restrictions on transfers, that right must be balanced with the individual owner’s right to transfer his property. In Aquarian Foundation, the association had the right to deny a sale “arbitrarily, capriciously, and unreasonably” with no obligation to provide an alternate purchaser in the event of such denial. The court held that the association’s authority to deny for any reason whatsoever without the obligation to provide an alternate purchaser was an unreasonable restraint on alienation. However, the court explained that while a condominium association has “considerable latitude in withholding its consent to a unit owner’s transfer, the resulting restraint on alienation must be reasonable.” Therefore, we can glean from this case that a provision authorizing the association to approve or disapprove transfers is acceptable where the restraint is reasonable.

In 1993 Florida’s Fourth District Court of Appeal considered another challenge to an association’s approval authority. In Camino Gardens Association, Inc., v. McKim, 312 So.2d 636 (Fla. 4th DCA 1993), the declaration prohibited the sale, lease, or occupancy of any lot in the subdivision to anyone other than a duly admitted member in good standing of the association. The court held that because the restriction prohibited transfer to anyone except existing owners, the restriction was an unreasonable restraint on alienation and was invalid.

In Coquina Club v. Mantz, 342 So.2d 112 (Fla. 2d DCA 1977), Florida’s Second District Court of Appeal considered an age restriction contained in the declaration (which was lawful at the time). The applicant did not meet the age requirement and was therefore “facially disqualified.” The court held that, in light of the facial disqualification, the association did not have an obligation to provide the otherwise required substitute purchaser.   

In light of the foregoing case law, any provision which grants the association limitless power of denial is likely invalid. If the association has the right to deny a purchaser, but the declaration is void of any standards by which such decisions should be made, the restriction can still be easily found to be invalid. However, if the declaration requires the association provide a substitute purchaser or allows for denial based on “good cause,” the provision is likely valid and enforceable. If an association has the right to deny “for good cause,” then to withstand judicial scrutiny, the governing documents, preferably the declaration, should provide standards as to what “for good cause” means.

As discussed above, the first step is to ensure that the declaration provides authority for the screening and approval process. The second step is to ensure there is meaningful written criteria by which to evaluate prospective purchasers, tenants, and even occupants residing for longer than 30 days (or other time period). If the declaration contains general language for purchaser and tenant approval but does not provide the standards and procedures necessary to make such a decision, then the association’s approval authority is vulnerable to judicial challenge and likely faces an uphill and expensive court battle. The association may be interested in adopting criteria, allowing rejection based on “good cause,” such as the following:

  • A record of financial irresponsibility
  • A guilty plea or conviction of a crime of moral turpitude
  • A history of being a “bad tenant”
  • A false statement on the application
  • Failure to comply with the request of the board of directors for a personal interview

(Please note this abbreviated list was provided for example purposes only and should not be utilized by any association without consultation with the association’s lawyer as additional language is necessary.)

Providing specific written criteria on which the association can base its denial of a proposed sale, lease, or other transfer helps protect the association from claims that it is not acting reasonably in denying a transfer. However, before disapproving a proposed sale or lease, the association should be sure that the disapproval does not run afoul of the provisions of the Fair Housing Act at the federal, state, and county levels. The federal Fair Housing Act prohibits discrimination in the sale, rental, and financing of dwellings, and in other housing-related transactions, based on race, color, national origin, religion, sex, familial status, and disability. State law and, sometimes, local ordinances provide additional protected classes.

While the authority to approve lessees is an important step, adopting additional leasing restrictions addressing the frequency and type of leases permitted in the community should also be included in the declaration if these issues are a concern for the community. Associations that would like to minimize the number of short-term leases might consider amendments to the declaration limiting leasing as follows:

  • No lot or unit may be rented or leased for a 12-month period (o longer) following the closing date (or date of recorded deed) of a sale of that lot or unit.
  • Owners are restricted to one rental or lease per calendar year.
  • After approval by the association, only entire lots or units can be rented, provided occupancy is only by the lessee and those individuals listed as occupants in the lease agreement.
  • No rooms may be rented, and no transient tenants may be accommodated.
  • No owner may list the owner’s lot or unit on any website (e.g., and without limitation, Airbnb, VRBO), print or online publication advertising the owner’s lot or unit for short-term rental
  • No lot or unit may be subleased.

Statutory provisions must be considered as well regarding whether a new lease restriction amendment will apply to all owners or only those who vote in favor of the amendment or who acquire title to their unit or home after the effective date of the amendment (these issues will need to be reviewed with association counsel). For instance, we note the following:

  • As to condominium associations, effective on October 1, 2004, the Florida legislature first adopted §718.110(13), which has since been amended, and this section provides that “[a]n 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.”
  • As to homeowners associations, effective on July 1, 2021, the Florida legislature adopted §720.306 (1)(h) which provides that, “[e]xcept as otherwise provided in this paragraph, any governing document, or amendment to a governing document, that is enacted after July 1, 2021, and that prohibits or regulates rental agreements applies only to a parcel owner who acquires title to the parcel after the effective date of the governing document or amendment, or to a parcel owner who consents, individually or through a representative, to the governing document or amendment. …Notwithstanding… an association may amend its governing documents to prohibit or regulate rental agreements for a term of less than 6 months and may prohibit the rental of a parcel for more than three times in a calendar year, and such amendments shall apply to all parcel owners.”

As you have likely discerned, the leasing restrictions of the Homeowners Association Act are broader than those set out in the Condominium Association Act. However, the real issue is whether these provisions apply to all associations that are already in existence or only to those that have adopted “Kaufman language” into their declaration and those declarations that are recorded after the effective date of the statute.      

Kaufman language refers to having a provision in the declaration that it is subject to the relevant Chapter “as it is amended from time to time.” If the declaration contains such language, then there is no question that the statutory leasing provisions do apply. On the other hand, if there is no Kaufman language set out in the declaration, then what? There are those who take the position that these statutory leasing provisions are “procedural;” if so, then they would apply to an existing declaration. But, if the statutory leasing provisions are changing existing “substantive rights,” then, absent Kaufman language, the statutory provisions likely do not apply to the declaration at issue. By way of an oversimplified explanation, this is because the declaration is a contract, and the legislation in effect at the time a contract is executed is the law to which the contract is subjected.   

Thus, we must ask the question, are the statutory leasing provisions disturbing existing substantive rights? Likely so, though it may take an appellate court decision to bring needed clarity. Clearly, this is an issue which must be discussed with the association’s legal counsel.

To ensure your association is properly protected against unwanted transient rentals, you should consult with association’s legal counsel who can review the governing documents to ensure necessary language is included and make recommendations to better protect the association from the likes of VRBO, Airbnb, and other short-term rentals, and at the same time shore up the association’s approval powers over owners, tenants, and occupants.

(Reprinted with permission from the November 2021 issue of the Florida Community Association Journal)

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Is Your Association Prepared? Expect Supply Shortages

There’s news once again reporting food and product supply shortages are on the horizon, if not already here, due to what can only be described as a logistics disaster. This morning’s news reported that there are thousands of shipping crates snarled in a logistical nightmare waiting to be off loaded with no relief in sight. One news source reported 250,000 crates are waiting to off load.  While no one is yelling “fire in a crowded theater,” (yet) it likely makes sense to get ahead of your association’s inventory needs. That said, hoarding is never a good idea. But, keeping extra inventory on hand may make sense until the supply chains are working correctly again.

Sources for the following include CBS News, the Wall Street Journal and Axios:

“American families are going to face a two-pronged assault:

1. Empty shelves at toy and grocery stores
2. Inflated prices on the toys and groceries that are available.

At this very moment, there are 250,000 shipping containers stuck at sea off the east and west coasts, waiting to be unloaded and it could be months before they get to store shelves. But Biden is presiding over one of the biggest supply chain bottlenecks since WWII: [via CBS News]

  • Ships cant dock because ports are full
  • Ports are full because there aren’t enough truck drivers to take the shipping containers away
  • When truckers do arrive, the ports are poorly staffed and they can’t offload fast enough, resulting in truck drivers who used to pick up 20 loads/week, now only able to take six
  • The cost of shipping a container from China to the U.S. is now $20,000, four times higher than this time last year.

It’s already begun: Stores across the country are already restricting supplies. Try not to have flashbacks to March 2020, but Costo and Walmart have announced they are limiting sales of toilet paper in some stores. And around the country, there are shortages of goods on shelves in Target, Costco, Home Depot, and Sears.

Warning about your Christmas feast: Axios is reporting that food supplies will also be impacted: “Grocery stores could have limited quantities of a number of products heading into the holidays after some of the country’s biggest food manufacturers say they’re short on supply.”

The Boy Scout motto “Be Prepared” comes to mind!

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It’s the Manager’s Fault…Or Is It?

It’s the Manager’s Fault…Or Is It?

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Disclaimer: In January 2022 the The Division of Florida Condominiums, Timeshares, and Mobile Homes of the Department of Business and Professional Regulation issued an opinion which drastically alters the information provided herein. Please consult with an attorney of your choosing to obtain the latest guidance in this ever evolving area.

Few professions have more demands placed upon them than that of the Florida licensed community association manager (CAM). Depending on whom you ask, the CAM is the organizer, rules enforcer, keeper of secrets (meaning confidential and statutorily protected information not limited to the medical record of owners and attorney-client privileged information), best friend, the “bad guy” (a frequent misconstruction), and the first person in the line of fire when things go wrong; in other words, the one who takes all the blame and gets little credit when things go right.

When things at the association go wrong, what comment is most likely heard? “It’s the manager’s fault!” But, is it? Unless the manager failed to carry out a lawful directive from the board, breached a management contract provision, or violated a Florida statute, then in all likelihood, the manager has no culpability. CAMs are licensed by the State of Florida pursuant to Part VIII of Chapter 468 of the Florida Statutes, and there are statutory standards by which CAMs must conduct themselves.

Pursuant to §468.4334, Florida Statutes, “[a] community association manager or a community association management firm is deemed to act as agent on behalf of a community association as principal within the scope of authority authorized by a written contract or under this chapter. A community association manager and a community association management firm shall discharge duties performed on behalf of the association as authorized by this chapter loyally, skillfully, and diligently; dealing honestly and fairly; in good faith; with care and full disclosure to the community association; accounting for all funds; and not charging unreasonable or excessive fees.”

As set forth herein, statutory standards provide guidance to CAMs as to how they should conduct themselves. They must discharge their duties with skill and care and in good faith. They must act with loyalty to their association employer and deal with the association both honestly and fairly. They must provide full disclosure, which can be interpreted as both keeping the board informed of current events and providing disclosures of any conflict of interests. They must be able to account for all funds, too, which means both assessment income and expenditures; in other words, they must mind the budget.

Best practices for CAMs include becoming extremely familiar with the governing documents of the association (including the declaration, articles of incorporation, bylaws, and rules and regulations) and the financials of the association, walking the physical property, engaging with their team and residents, as well as providing weekly status updates to the board regarding all ongoing association business. If you are a CAM and do these things, then you have an opportunity to shine and stand head and shoulders above your peers and competition. This weekly status report is an excellent communication tool yet seems to be a rarity. CAMs should also make themselves available to owners. However, when an owner becomes offensive or insulting, the CAM should politely and firmly request that the owner communicate respectfully and in a professional manner. A CAM should always be financially transparent and should be extremely familiar with the management contract to fully understand her obligations and authority; for example, the limitation to spend association funds. Finally, the CAM should strive to keep a written record of her activities.

The two most obvious and biggest ways to get in trouble include committing acts of gross misconduct or gross negligence in connection with the profession or contracting on behalf of an association with any entity in which the CAM has a financial interest that is not disclosed. Disciplinary actions against a CAM fall under the purview of the Florida Department of Business and Professional Regulation (DBPR). Section 455.227, Florida Statutes, governs grounds for discipline, penalties, and enforcement.

For example, the following activities constitute grounds for which disciplinary actions may be taken by the DBPR (this list is not all inclusive):

(i) making misleading, deceptive, or fraudulent representations in or related to the practice of the CAM’s profession; (ii) intentionally violating any rule adopted by the DBPR; (iii) being convicted or found guilty of, or entering a plea of guilty or nolo contendere (“I do not wish to contend”) to, a crime in any jurisdiction which relates to the practice of, or the ability to practice, a CAM’s profession; (iv) having been found liable in a civil proceeding for knowingly filing a false report or complaint with the DBPR against another CAM; (v) attempting to obtain, obtaining, or renewing a license to practice a profession by bribery, by fraudulent misrepresentation, or through an error of the DBPR; (vi) failing to report to the DBPR any person who the CAM knows is in violation of the laws regulating CAMs or the rules of the DBPR; (vii) aiding, assisting, procuring, employing, or advising any unlicensed person or entity to practice a profession contrary to law; (viii) failing to perform any statutory or legal obligation; (ix) making or filing a report which the licensee knows to be false; (x) making deceptive, untrue, or fraudulent representations in or related to the practice of a profession or employing a trick or scheme in or related to the practice of a profession; and  (xi) performing professional responsibilities the licensee knows, or has reason to know, the licensee is not competent to perform.

The Florida Administrative Code, in Rule 61E14-2.001, also provides standards for professional conduct which are deemed automatically incorporated as duties of all CAMs into any written or oral agreement for community association management services. A CAM must adhere to the following standards:

  1. comply with the requirements of the governing documents by which a community association is created or operated
  2. only deposit or disburse funds received by the CAM or management firm on behalf of the association for the specific purpose or purposes designated by the board, community association management contract, or the governing documents of the association
  3. perform all community association management services required by the CAM’s contract to professional standards and to the standards established by §468.4334(1), Florida Statutes
  4. in the event of a potential conflict of interest, provide full disclosure to the association and obtain authorization or approval; and
  5. respond to, or refer to the appropriate responsible party, a notice of violation or any similar notice from an agency seeking to impose a regulatory penalty upon the association within the timeframe specified in the notice.

In addition, during the performance of community association management services pursuant to a contract with a community association, a CAM cannot withhold possession of the association’s official records or original books, records, accounts, funds, or other property of the association when requested in writing by the association to deliver the foregoing to the association upon reasonable notice. However, the CAM may retain those records necessary to complete an ending financial statement or report for up to 20 days after termination of the management contract. Additionally, a CAM cannot (i) deny or delay access to association official records to an owner, or his or her authorized representative, who is entitled to inspect and copy the association’s official records within the timeframe and under the applicable statutes governing the association; (ii) create false records or alter the official records of an association or of the CAM except in such cases where an alteration is permitted by law (e.g., the correction of minutes per direction given at a meeting at which the minutes are submitted for approval); or (iii) fail to maintain the records for a CAM, management firm, or the official records of the association as required by the applicable statutes governing the association.

How do you know if your association requires a licensed community association manager? Pursuant to §468.431, Florida Statutes, if the association has 10 or more units or has a budget of $100,000 or more and the person is conducting one or more of the following activities in exchange for payment, the person must be a licensed CAM:

  1. controlling or disbursing funds of a community association
  2. preparing budgets or other financial documents for a community association
  3. assisting in the noticing or conduct of community association meetings
  4. determining the number of days required for statutory notices
  5. determining amounts due to the association
  6. collecting amounts due to the association before the filing of a civil action
  7. calculating the votes required for a quorum or to approve a proposition or amendment
  8. completing forms related to the management of a community association that have been created by statute or by a state agency
  9. drafting meeting notices and agendas
  10. calculating and preparing certificates of assessment and estoppel certificates
  11. responding to requests for certificates of assessment and estoppel certificates
  12. negotiating monetary or performance terms of a contract subject to approval by an association
  13. drafting pre-arbitration demands
  14. coordinating or performing maintenance for real or personal property and other related routine services involved in the operation of a community association, or
  15. complying with the association’s governing documents and the requirements of law as necessary to perform such practices.

However, a person who performs clerical or ministerial functions under the direct supervision and control of a CAM or who is charged only with performing the maintenance of a community association and who does not assist in any of the management services described above is not required to be licensed.

So, whose fault is it when things go awry? A CAM’s role is far different than that of a rental complex manager who often has decision-making authority. The CAM does not have that same type of decision-making authority. The CAM must take direction from the board and perform pursuant to the obligations set out in the management agreement and Florida law. It is the board of directors of the community association that actually makes the decisions. So, while the uninformed might blame the CAM, you now know that the buck stops with the board of directors. If you have further questions regarding a CAM’s responsibility, then please discuss this with your association’s lawyer.

(Reprinted with permission from the October 2021 edition of the Florida Community Association Journal)

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Electronic Board of Directors and Membership Meetings…In a Post-Covid-19 World

Well, it is not quite a post-COVID-19 world yet, but hopefully, it will be one day soon. We are, however, living in a post-governor-ordered-state-of-emergency world, meaning that the emergency powers granted to condominium, cooperative, and homeowners’ associations’ boards of directors by virtue of the governor’s emergency orders have come to an end, with this caveat: The emergency authority granted to community association boards of directors after the expiration of the governor’s emergency orders is, generally speaking, “limited to that time reasonably necessary to protect the health, safety, and welfare of the association and the owners and their family members, tenants, guests, agents, or invitees, and to mitigate further damage and make emergency repairs.” As such, each passing day diminishes the arguments supporting a board’s reasonable reliance on the utilization of these emergency powers. However, given the recent uptick in Covid cases plus ever evolving CDC guidance issued towards the end of July 2021, some community associations may consider relying on the continuance of the emergency powers provision. If so, it is strongly recommended that such a community association receive proper guidance from its legal counsel.

Interestingly, until July 1, 2021, electronic meetings of community association members and boards of directors were not specifically addressed in the legislative grant of emergency powers which could be used during a governor-declared state of emergency. Rather, the emergency powers of days gone by provided that association boards of directors could conduct board meetings and membership meetings with notice given in as practicable a manner as possible, including publication, radio, United States mail, the Internet, public service announcements, and conspicuous posting on the common property or any other means the board deems reasonable under the circumstances. Notice of board decisions may be similarly communicated. In addition, the board could cancel and reschedule any association meeting. Under certain circumstances, decisions could be made on the spot, so to speak, without the need for a noticed meeting. The legislative emergency powers can be found in §718.1265, §719.128, and §720.316 of the Florida Statutes for condominium, cooperative, and homeowners’ associations, respectively. Nowhere in the pre-July 1, 2021 version of the emergency powers legislation did these powers set forth the clear right of the association to conduct solely electronic board and membership meetings, though due to life safety reasons, such power was inferred. However, it should be noted that effective July 1, 2021, the emergency powers legislation was significantly revised to provide for the use of electronic meetings during a governor declared state of emergency.

BOARD MEETINGS

With this as our backdrop, without a declared state of emergency can community associations continue to hold electronic board meetings via platforms such as Zoom? Let us examine the relevant legislation that bears on this important inquiry. As to condominium board meetings,

[a] board or committee member’s participation in a meeting via telephone, real-time videoconferencing, or similar real-time electronic or video communication counts toward a quorum, and such member may vote as if physically present. A speaker must be used so that the conversation of such members may be heard by the board or committee members attending in person as well as by any unit owners present at a meeting… Meetings of the board of administration at which a quorum of the members is present are open to all unit owners… The right to attend such meetings includes the right to speak at such meetings with reference to all designated agenda items… [§718.112(2), Fla. Stat. (2020), Emphasis added]. Note that similar provisions are provided for cooperative associations in §719.106), Fla. Stat. (2020).]

As to homeowners’ association board meetings,

[a] meeting of the board of directors of an association occurs whenever a quorum of the board gathers to conduct association business. Meetings of the board must be open to all members, except for meetings between the board and its attorney with respect to proposed or pending litigation where the contents of the discussion would otherwise be governed by the attorney-client privilege. A meeting of the board must be held at a location that is accessible to a physically handicapped person if requested by a physically handicapped person who has a right to attend the meeting… Members have the right to attend all meetings of the board. The right to attend such meetings includes the right to speak at such meetings with reference to all designated items. [§720.303(2), Fla. Stat. (2020), Emphasis Added.]

In addition, the “Florida Not For Profit Corporation Act,” set out in Chapter 617, Florida Statutes, which applies, in large part, to condominium, cooperative, and homeowners’ associations, so long as not in conflict with Chapters 718, 719, and 720 of the Florida Statutes (and certain other exceptions not relevant to this analysis), provides that,

Unless the articles of incorporation or the bylaws provide otherwise, the board of directors may permit any or all directors to participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all directors participating may simultaneously hear each other during the meeting. A director participating in a meeting by this means is deemed to be present in person at the meeting. [§617.0820(4), Fla. Stat. (2020).]

Mixing all of these ingredients together so that they all have meaning clearly implies that the community association board can conduct its board meetings via electronic means, like Zoom. However, in our opinion, a more prudent approach is to also make on-site accommodations available to those who wish to attend in person. This can be easily accomplished by ensuring the meeting is noticed in a physical location where the non-board member owners can listen and participate through use of an on-site speaker phone or computer that is preferably provided or otherwise arranged for by the association. (Reminder that Zoom also has a call-in feature for those who do not access to, or are not comfortable with, a computer).

MEMBERSHIP MEETINGS

As to all community association membership meetings, members have a right to speak at meetings of the membership. Pursuant to §718.112(2)(d)7 and §719.106(1)(d)4, Florida Statutes, members of condominium and cooperative associations, respectively, have the right to participate in meetings of the unit owners with reference to all designated agenda items. Pursuant to §720.306(6), Florida Statutes, members of a homeowners’ association have the right to speak with reference to all items opened for discussion or included on the agenda. During elections and other meetings where a vote of the membership is at issue, members should be able to observe the tallying of ballots.

As to condominium associations, membership meeting requirements include the following:

An annual meeting of the unit owners must be held at the location provided in the association bylaws and, if the bylaws are silent as to the location, the meeting must be held within 45 miles of the condominium property… [§718.112(2)(d)1, Fla. Stat. (2020).]

As to cooperative associations, membership meeting requirements include the following:

There shall be an annual meeting of the shareholders… The bylaws must provide the method for calling meetings, including annual meetings… [§719.106(1)(d), Fla. Stat. (2020).]

As to homeowners’ associations, membership meeting requirements include the following:

The association shall hold a meeting of its members annually for the transaction of any and all proper business at a time, date, and place stated in, or fixed in accordance with, the bylaws. The election of directors, if one is required to be held, must be held at, or in conjunction with, the annual meeting or as provided in the governing documents… [§720.306(2), Fla. Stat. (2020).]

Furthermore, and of great importance, there is the following provision from the Florida Not For Profit Corporation Act, a/k/a Chapter 617, Florida Statutes:

If authorized by the board of directors, and subject to such guidelines and procedures as the board of directors may adopt, members and proxy holders who are not physically present at a meeting may, by means of remote communication participate in the meeting and be deemed to be present in person and vote at the meeting if:

1)    the corporation implements reasonable means to verify that each person deemed present and authorized to vote by means of remote communication is a member or proxy holder; and

2)    the corporation implements reasonable measures to provide such members or proxy holders with a reasonable opportunity to participate in the meeting and to vote on matters submitted to the members, including an opportunity to communicate and to read or hear the proceedings of the meeting substantially concurrent with the proceedings, and

3)    if any member or proxy holder votes or takes other action by means of remote communication, a record of that member’s participation in the meeting must be maintained by the corporation in accordance with §617.1601.

[§617.0721(3), Fla. Stat. (2020); internal numbering, punctuation, capitalization, and formatting removed; emphasis added.]

Therefore, the members at a membership meeting can participate electronically so long as the board has authorized it and has adopted appropriate procedures. Consultation with the association’s attorney is strongly encouraged, most especially if there will be any “live” voting at the membership meeting.

How members vote at an electronic membership meeting when the member attends virtually is an interesting question. Presently, there is no definitive procedure set out in the law for the member to cast their vote “live” during a zoom meeting. Rather, §617.0721(3) Fla. Stat. (2020), places the burden on the board of directors to adopt procedures in this regard.   Obviously, if your association has 400 members who all appear virtually at the membership meeting, live voting for all 400 members will prove to be logistically difficult, if not impossible. It may be far easier to have the members vote i) in advance by proxy, limited proxy, absentee ballot as the case may be, or, ii) if adopted by the association, vote electronically pursuant to the procedures as set out in §718.128, §719.129, or §720.317 (Fla. Stat. 2020). A hybrid approach could also be utilized where the association provides for electronic voting and proxy voting prior to the meeting and then only the remaining few voters who have yet to cast their ballot could cast their vote “live” during the meeting, subject to the requirements of §617.0721(3).

Practice tip 1: Remember, electronic voting can be used whenever a membership vote is needed, even if the meeting does not have a zoom type option for attendance so long as the association has followed the requirements to provide for electronic voting.

Practice tip 2 (For Homeowners’ Associations): If your association’s governing documents require or otherwise allow nominations from the floor of the election meeting, consider amending and removing this provision from the governing documents to clear the way for an electronic membership meeting and election.

IN SUMMARY

Perhaps the initial questions phrased above could be better asked as follows: Absent a declared state of emergency can a community association hold board and membership meetings exclusively via an electronic platform, such as Zoom? Unfortunately, this question has not been satisfactorily addressed by the legislature or the Florida Courts. However, in our opinion, the safer approach, and the one that will avoid the potential for a successful legal challenge by an owner, is to avoid holding meetings exclusively via Zoom when there is no declared state of emergency. Consider using the hybrid approach discussed above where both a physical location is provided along with an electronic component such as Zoom and where members are strongly encouraged to attend and participate electronically.

Can community association board meetings and membership meetings be both electronically and at a physical location for those that want to attend in person even if the business is primarily conducted electronically? The answer is “yes”, so long as certain procedural safeguards are put into place. e.g., the ability of the membership watching via Zoom to fully observe the counting of ballots.

Another approach is to consider amending the association’s bylaws to provide for electronic only board and membership meetings. However, doing so has not yet been legally tested in the Florida courts. Also, remember, too, that a homeowners’ association must provide for a physical location for its board meeting, if requested by a handicapped individual. Also, as these matters are not fully settled in the law, your association’s lawyer may have a different opinion and advise that the association may have electronic board and membership meetings without the need for a physical location.

This journey into the foray of electronic meetings demonstrates a clear need for the Florida Legislature to adopt legislation to make clear that both board and membership meetings may take place electronically without the need to also simultaneously provide for a physical location, most especially so long as the association provides a communal device on association property for not-so-tech-savvy members to observe and participate in the meeting. After all we are blessed to be living in the 21st century. Let’s take advantage of it and add a few tech savvy legislative provisions to our laws governing community associations.

It is recommended you consult with your association legal counsel on the adoption of reasonable rules to ensure your virtual/electronic meetings run smoothly while also ensuring that they are in compliance with the association’s governing documents and Florida Statutes, and for further discussion regarding amending the governing documents of the association to provide clear authorization for electronic board and membership meetings.

(Reprinted with permission from the September 2021 edition of the Florida Community Association Journal)

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The Champlain Towers South Condominium Collapse | Initial Interim Lessons Learned From This Tragedy

Just after midnight on Thursday, June 24, 2021, tragedy struck Surfside, Florida, when 55 of 136 units of the 12-story Champlain Towers South Condominium tragically crumbled to the ground. Just prior, a sleepless sixth floor owner notices a two-finger-wide separation in her drywall and, fearing the worst, scrambles downstairs as the building begins to collapse around her. Miraculously, she barely escapes. So many others were not as fortunate. Today, as this article is being written on June 27, 2021, sadly there are nine confirmed dead and over 150 persons still listed as unaccounted for.

By way of background, a prior building collapse in 1973 led Miami-Dade and Broward Counties to institute a city ordinance requiring a 40-year residential building recertification. The 40-year-recertification requirement is the absolute maximum period of time for the association to inspect the building for structural, electrical, and other critical component failure posing a threat to life safety. Champlain Towers South, built in 1981, was in the process of complying with its building recertification when disaster struck. Likely, months from now the cause will be identified. Do not be surprised if it is discovered that there were multiple causes leading to a perfect storm type of event.

When concrete is subjected to moisture, it causes the steel rebar to rust, which causes further expansion of the concrete surrounding the rebar, which ultimately, if not treated, leads to failure. This is commonly referred to as “spalling.” In addition, when concrete is exposed to moisture, it causes the concrete to separate into its constituent parts, and it will leach lime [calcium-containing inorganics]. Many condominium balconies experience concrete spalling and require repair. So, too, do the support columns and other parts of the foundation responsible to bear and pass the building load on to other structural components. What we know so far, from multiple sources, follows:

An engineering report issued on October 8, 2018, by Morabito Consultants to Champlain Towers South Condominium Association, Inc., concluded in its Structural Field Survey Report that

“[T]he waterproofing below the pool deck and entrance drive… is beyond its useful life and therefore it must be completely removed and replaced. The failed waterproofing is causing major structural damage to the concrete structural slab below these areas. Failure to replace the waterproofing in the near future will cause the extent of the concrete deterioration to expand exponentially… The main issue in this building structure is that the entrance drive, pool deck and planter waterproofing is laid on a flat surface. Since the reinforced concrete slab is not sloped to drain, the water sits on the waterproofing until it evaporates. This is a major error in the development of the original contract documents prepared by the [initial architects and engineers]… It is important to note that the replacement of the existing deck waterproofing will be extremely expensive as removal of the concrete topping slab to gain access to the waterproofing membrane will take time, be disruptive, and create a major disturbance to the occupants of this condominium building. Please note that the installation of deck waterproofing on a flat structure is a systemic issue for this building structure… Regarding the parking garage consultant’s review revealed signs of distress/fatigue as described below: abundant cracking and spalling of varying degrees was observed in the concrete columns, beams, and walls. Several sizable spalls were noted in both the top side of the entrance drive ramp and the underside of the pool/entrance drive/planter slabs, which included instances with exposed deteriorating rebar. Though some of the damage is minor, most of the concrete deterioration needs to be repaired in a timely fashion… Morabito Consultants is convinced that previously installed epoxy injection repairs were ineffective in properly repairing the existing cracked and spalled concrete slabs.”

(The entire 2018 Morabito Consultants report can be found at kbrlegal.com. Click “resources” at top of the page, then click “links” from the dropdown menu.)

Reports from local and national news indicated the following information. The swimming pool built atop a parking garage was leaking for an unknown period of time into the garage area below. Ocean water often intruded into the below-grade parking structure. At least one owner on the ninth floor was experiencing repeated pipe leaks. A report from the 1990s indicated the building was sinking approximately two millimeters per year. Significant roof repairs were underway for at least one month prior to the collapse. Lime was leaching out of the concrete deck causing damage to the cars in the parking garage below. Just south of the Champlain Towers South Condominium, a new building was being constructed that caused residents of the Champlain Towers South Condominium to complain about the constant shaking of their condominium building caused by blasting and digging activity. The concrete waterproofing associated with the foundation was failing as noted in the 2018 engineering report. Naturally, all of this combined could eventually lead to a weakened overall support structure.

Based on this information, ask yourself this important question: Was the Champlain Towers South Condominium collapse foreseeable? While some people, most especially with the benefit of hindsight, may believe that to be the case, bear in mind that there are also reports that the board had meetings with City of Surfside officials after the 2018 Morabito Consultants report was issued. If so, this may be very telling and bear on the board’s decision-making process. Details of such meetings are not presently known.  Are there other engineering reports not yet discovered that bear on this issue? All of this may be very telling and bear on the board’s decision-making process. In any event, it is too early to reach conclusions.

Notwithstanding this horrible tragedy, there are interim lessons that can be gleaned from this disaster that every board member and manager of a high-rise condominium should heed, as follows:

  1. If your county does not have a 40-year-recertification requirement, and even if it does, obtain a recertification engineering report every 25 to 40 years, anyway. Remember that the 40-year requirement set out in the Miami-Dade and Broward ordinances is a maximum period that the association can go without having complied with the re-certification process. The 40 years is not a minimum, meaning an association can certainly have the recertification-type studies performed as often as reasonably necessary under the circumstances.
  2. When it comes to building maintenance and repairs that are life-safety recommendations, should the association’s retained engineering expert make recommendations regarding the building’s foundation, implement them in a timely manner. Do not consider making temporary patch repairs in lieu of proper repair. In other words, do not be penny wise and pound foolish. Do not let the need to obtain unit owner votes to either approve the work and/or the needed assessments or loans to fund the project be a factor in any way. There is a long line of Florida appellate case law that supports the board’s right to effectuate repairs and take out loans when necessary for protection of life and property. Your association’s attorney will be a necessary component of this process to provide legal opinions based on the controlling appellate cases.
  3. Fund the reserves appropriately and make sure the association has a specific reserve for concrete repair and restoration. If the association is pooling reserves, be sure to include concrete repairs in the pooled reserve. Do not even consider waiving or reducing reserves until a considerable nest egg is saved up.
  4. Update the association’s reserve schedules at least every five years. It should be based on empirical and objective evidence.
  5. Do not be afraid or otherwise hesitant to special assess the membership for required maintenance and repairs. Remember, the units have more financial value when the building is properly maintained.

Oddly, Florida Statutes have three significant failures that could help prevent a residential building collapse similar to the Champlain Towers South Condominium.

  1. The relevant statutes do not specifically require condominium associations to have a concrete restoration reserve though it should be easily included as a required reserve pursuant to “catch all” language set out in §718.112 (2)(f)(2), Florida Statutes (see below).
  2. Despite what you may hear on the news, there is not a statewide mandatory residential building recertification required after a certain number of years.
  3. There is no statutory requirement to have a reserve study or engineering study performed on a regular basis.

Regarding reserves, §718.112 (2)(f)(2), Florida Statutes (2020), provides, in relevant part, that

In addition to annual operating expenses, the budget must include reserve accounts for capital expenditures and deferred maintenance. These accounts must include, but are not limited to, roof replacement, building painting, and pavement resurfacing, regardless of the amount of deferred maintenance expense or replacement cost, and any other item that has a deferred maintenance expense or replacement cost that exceeds $10,000. The amount to be reserved must be computed using a formula based upon estimated remaining useful life and estimated replacement cost or deferred maintenance expense of each reserve item. The association may adjust replacement reserve assessments annually to take into account any changes in estimates or extension of the useful life of a reserve item caused by deferred maintenance. [Emphasis added.]

Remember, too, the board is absolutely required to pass the budget each year with reserves fully funded. Only then can the board decide to present to the owners the opportunity to waive or reduce reserves. Ask yourself, are our condominium association’s reserves properly funded?

As a result of this horrific tragedy, the 2022 Florida Legislature should consider requiring  a recertification engineering report  for all high-rise residential condominiums  every 30 years or so and should require all community associations to update the reserve schedules at least once every five years.

Also remember that each board member should exercise his or her own individual reasonable business judgment when rendering decisions, except for the purchase of insurance, where the much higher standard of “best efforts” is applied as required by §718.111(11), Florida Statutes (2020). With the reasonable business judgment standard in mind, ignoring advice of engineers and other requisite professionals could be considered by others to be negligent or even rise to a reckless act or an omission conducted with bad faith, with malicious purpose or in a manner exhibiting wanton and willful disregard of human rights, safety, or property, any one of which can lead to exposure to liability. But, if the association received two different reports where the opinions drastically differ, then in that situation, each board member should use his or her reasonable business judgment to decide which report should be relied upon. The fact the board chose to follow one expert’s guidance over the other, whose guidance turned out in the end to be wrong, is not too likely to result in an award for damages as a result of legal challenge.

If you live in a high-rise condominium and are fearful of collapse due to the Champlain Towers South Condominium tragedy, please remember that this building’s failure was certainly not an everyday occurrence and is best described, for the time being, as a tragic anomaly.

(Reprinted with permission from the August 2021 edition of the Florida Community Association Journal)

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The Subtle and Not-So-Subtle Differences Between Homeowners and Condominium Associations

Florida has created an abundance of legislation governing homeowners’ and condominium associations. You would think that, by now, laws affecting both types of communities would have more parity than they actually do. (Please note that that commercial condominiums are not addressed in this article.)

Perhaps the most appreciative difference between a homeowners association and a residential condominium association is that the homeowners association exists in common law, but the condominium only exists because of legislation adopted by the Florida Legislature. That said, homeowners associations are subject to Chapter 720, Florida Statutes, and condominium associations are subject to Chapter 718, Florida Statutes. There is both parity and significant differences between these two Acts, the latter of which are further addressed below. We begin by examining bidding.

 Bidding: A homeowners association is only required to obtain bids if the aggregate cost of the project (referring to the materials, work, and/or services) exceeds 10 percent of the total budget including reserves, if any. On the other hand, condominium associations are required to obtain bids if the aggregate cost of the project exceeds 5 percent of the total budget including reserves, if any. Please note, there is no requirement in the legislation for a community association to obtain a definitive number of a bids. Therefore, at least two would be appropriate. Also remember, there are exceptions to the bidding requirement for professional services such as attorneys, accountants, and landscape architects.

Certified Written Inquiry: A condominium association owner has the right to send a certified written inquiry to the board, and the board is obligated to answer it within 30 days (or 60 days if the certified written inquiry is provided to the community association’s lawyer to respond to). A failure to respond means that if the owner files a legal action over the item for which certified written inquiry was provided and loses, the owner will not be responsible to pay for the association’s prevailing party attorneys’ fees. There is no similar provision for a homeowners association.

Common Areas: Common areas in a homeowners association are owned by the association itself. In other words, no owner can claim an ownership interest in a homeowner association’s common areas. However, as to condominiums, the equivalent of the homeowner association’s common area is referred to as “common elements”. All of the unit owners of the condominium association own an indivisible interest in the common elements.

Disputes: In a homeowners association, disputes between an association and a parcel owner regarding use of or changes to the parcel or the common areas and other covenant enforcement disputes, disputes regarding amendments to the association documents, disputes regarding meetings of the board and committees appointed by the board, membership meetings not including election meetings, and access to the official records of the association must be the subject of a demand for pre-suit mediation served by an aggrieved party before the dispute is filed in the local court. Before a homeowners association can commence litigation where the amount in controversy is in excess of $100,000, the approval of a majority of a quorum of the membership is required. There is no similar provision as applied to condominium associations.

In a condominium association, prior to the institution of court litigation, a party to a “dispute” (as such term is hereinafter defined) must petition the Division of Florida Condominiums, Timeshares, and Mobile Homes of the Department of Business and Professional Regulation for non-binding arbitration or, as of July 1, 2021, avail themselves of the presuit mediation process as set out in Chapter 720.  “Disputes” subject to mandatory arbitration or presuit mediation include 1) the authority of the board of directors, under this chapter or association document to: i) require any owner to take any action, or not to take any action, involving that owner’s unit or the appurtenances thereto ii) alter or add to a common area or element; or 2) the failure of a governing body, when required by this chapter or an association document, to: i) properly conduct elections ii) give adequate notice of meetings or other actions iii) properly conduct meetings iv) allow inspection of books and records; and 3) a plan of termination pursuant to §718.117, Fla. Stat.

Elections: Elections in a homeowners association take place as per the bylaws, while elections for condominiums take place following the regime set out in chapter 718, Florida Statutes, more specifically §718.112, Fla. Stat., and the provisions of the Florida Administrative Code. In order to hold a homeowners association election, a quorum must be attained unless the bylaws provide otherwise. No quorum is required to hold a condominium election, but rather 20 percent of the eligible voters need to cast a ballot in order to hold the election. In a condominium association of more than 10 units, co-owners of a unit cannot serve on the board at the same time unless there are not enough candidates, or they own more than one unit. Commencing July 1, 2018, condominium association board members cannot serve more than eight consecutive years absent certain exceptions (note, this statute is not retroactive in its application). There is no similar co-owner prohibition and term limit restriction for homeowners associations.

Elections by acclimation: In a condominium association if the same number of candidates, or less, run for the board as the number of seats available, then there is no need to have the election. This is referred to as an “election by acclimation” which means, those candidates will comprise the present board upon the annual meeting. If the election is contested because there are more candidates than seats available and at least 20 percent of the eligible voters do not cast a ballot, then last year’s board rolls over.

As to homeowners associations, if the election process allows candidates to be nominated in advance of the meeting, the association is not required to allow nominations at the meeting. An election is not required unless more candidates are nominated than vacancies exist. If an election is not required because there are either an equal number or fewer qualified candidates than vacancies exist, and if nominations from the floor are not required pursuant to the statute or the bylaws and write-in nominations are not permitted, then the candidates who nominated themselves in advance shall commence service on the board of directors regardless of whether a quorum is attained at the annual meeting. Otherwise, if those conditions are not met and a quorum is not attained for a homeowners association’s election, then last year’s board rolls over to this year’s board.

Elections, Voting: Unless otherwise set out in the bylaws, homeowners association members vote in the election for the board by proxy and/or ballot. On the other hand, condominium association owners cannot vote for the election of directors by proxy but rather must vote themselves by secret absentee ballot using the the inner and outer envelope system. A homeowners association only needs to use the inner and outer envelope system when the bylaws call for secret absentee ballots.

Fines: A condominium association cannot levy a fine greater than $1,000 for any one violation and cannot lien and foreclose the fine under any circumstances. In a homeowners association, an association can foreclose to collect a fine if both i) the fine is $1,000 or more and ii) the authority to lien is set out in the declaration.

Frequently Asked Questions and Answers Sheet: As to condominium associations §718.504, Fla. Stat., requires that a “Frequently Asked Questions and Answers” sheet be made available to prospective purchasers and to owners who request it. It must be updated annually and must include the following questions along with the answers to these questions: 1) What are my voting rights in the condominium association? 2) What restrictions exist in the condominium documents on my right to use my unit? 3) How much are my assessments to the condominium association for my unit type, and when are they due? 4) Do I have to be a member in any other association? If so, what is the name of the association and what are my voting rights in this association? Also, how much are my assessments? 5) Am I required to pay rent or land use fees for recreational or other commonly used facilities? If so, how much am I obligated to pay annually? 6) Is the condominium association or any other mandatory membership association involved in any court cases in which it may face liability in excess of $100,000? If so, identify each such case. There is no similar provision or requirement for homeowners associations.

Leasing Restrictions: Effective July 1, 2021  as to HOA leasing restrictions, any restriction that prohibits or regulates rental agreements applies only to (i) an owner who acquires title to a parcel after the effective date of the governing document or amendment, or (ii) an owner who consents, individually or through a representative, to the governing document or amendment.  As to condominium associations, according to §718.110(13), Fla. Stat., 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 the amendment.

Liens and Foreclosures: In a homeowners association, prior to recording a lien against a delinquent owner’s lot, the owner must be provided a statutorily compliant warning letter at least 45 days prior to recording the lien, warning the homeowner that if the assessment is not paid a lien may be recorded. Then, the owner must be provided a second letter at least 45 days prior to filing the foreclosure lawsuit warning that if the lien is not satisfied (paid-off), then a lawsuit to foreclose the lien may be filed anytime thereafter. For a condominium association the warning/waiting periods for both letters was 30 days. Effective July 1, 2021 this was changed to 45 days.

Material Alterations: Unless otherwise provided in the declaration of covenants and restrictions, a material alteration to a homeowners association’s common area is decided by the board. In condominium associations, material alterations require 75 percent approval of all unit owners unless the declaration provides otherwise.

Official Records Requests: In a homeowners association, official record requests must be made by certified U.S. mail to create the rebuttable presumption the association willfully failed to respond. There is no similar requirement for a condominium association. Every community association should adopt specific rules governing official records requests, how often they can be made, and where they must be delivered. If your association has not done so, you are urged to discuss this with the association‘s lawyer.

Quorums: A quorum of the membership for a homeowners association membership meeting consists of 30 percent of the entire membership unless a lower number is provided for in the bylaws. A quorum for a condominium association membership meeting occurs when there is a majority of the voting interests present unless a lower number is provided for in the bylaws.

Reserve Accounts: A homeowners association only has restricted reserve accounts if initially created by the developer or voted on and approved by a majority of the entire membership. In a condominium association, the budget must include reserve accounts for capital expenditures and deferred maintenance. These accounts must include, but are not limited to, roof replacement, building painting, and pavement resurfacing, regardless of the amount of deferred maintenance expense or replacement cost, and any other item that has a deferred maintenance expense or replacement cost that exceeds $10,000. Condominium boards and homeowners association boards with restricted reserves may propose lower or no reserves to the membership which is subject to approval by a majority of a quorum of the members. However, neither board is obligated to propose lower reserves. A condominium association board and a homeowners association board with restricted reserves must fully fund those reserves in the budget each year as must homeowners association boards whose association has adopted restricted reserves.

Transfer Fees: As per §689.28, Fla. Stat., transfer fees when buying and leasing a home in the state of Florida are prohibited. But, there are exceptions for both homeowners and condominium associations with this caveat. There is no cap, per se, that a homeowners association can charge a prospective member as a part of acquiring their property, but such fee must be authorized in the declaration (or other recorded document). However, as per §718.112 Fla. Stat., a condominium association can only charge up to $150 per applicant. A husband/wife or parent/dependent child are considered one applicant. A condominium association can only charge a transfer fee if it has the authority to approve transfers, and the authority for the transfer fee, specifically, must be set out in the declaration or bylaws (and as set forth above, as of July 1, 2021 it is presently limited to a maximum $150.00).

Warranties: A developer and general contractor of a condominium provides statutory warranties to buyers of units as further detailed in Chapter 718, Fla. Stat. There are no similar statutory warranties set out in Chapter 720, Fla. Stat., for buyers of a home within a homeowners association. A developer of a condominium, pursuant to relevant law, also provides an implied warranty of habitability. As to a homeowners association, §553.835, Fla. Stat., provides in relevant part that there is no such warranty for off-site improvements (i.e., the common areas) with a small exception for the shared components of a townhome type community.

Websites: A condominium association that has a condominium with 150 or more units must host an association website and post certain official records to it. Homeowners associations have no similar requirement.

If you have any questions in regard to these matters be sure to discuss them with an attorney of your choosing.

(Reprinted with permission from the April 2021 edition of the Florida Community Association Journal and updated to reflect  recent legislation effective July 1, 2021)

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Kaye Bender Rembaum