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

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Author: rembaumlaw

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CONSTRUCTION PROGRESS PAYMENTS: The Hidden Trap

originally published in the Florida Community Association Journal, February 2020 edition

The owner of real property can end up paying twice when they pay their general contractor who, in turn, fails to pay the subcontractors and suppliers. However, this very real consequence can be avoided, too. While drafted to protect contractors and suppliers, Florida law also provides substantial protection  in favor of  the consumer (a.k.a, the “property owner”) from having to pay twice for construction supplies and for the work itself. However, the property owner only has the protection if the process outlined in section 713.13, Florida Statutes (2019), is strictly followed. While the statutory regime can be difficult for the layman to interpret, it is not an overly complicated process to follow once understood.  That said,  even if an owner strictly follows the statutory regime to protect themselves from having to pay twice, many general contractors and their attorneys  have found a way to dilute the consumer protection afforded by the statute and, thus, still expose the the owner of the property to the risk of having to double pay for the work. To understand the problem at hand, the overall payment process from the owner to the general contractor as contemplated by Florida’s legislation must be understood.

To start the process, the owner is required to file what is referred to as a “Notice of Commencement.” Amongst other things, the Notice of Commencement identifies the general contractor and the legal description of where the work is to be performed. It is recorded with the local county clerk’s office so that it is a part of the county’s official records. The purpose of the Notice of Commencement is to inform all subcontractor’s 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, that the subcontractor and supplier must serve a “Notice to Owner” to the owner.

Most importantly, the Notice to Owner informs the property owner of all subcontractors working under the general contractor and all suppliers who provide supplies and materials to the job site under the direction of the general contractor or a subcontractor. In this way, the owner is informed of all of the subcontractors and suppliers working under the direction of the general contractor.

In exchange for payments to the general contractor, the general contractor provides the owner 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 owner “partial releases” for the payments received from the general contractor using the general contractor as the delivery conduit to deliver the partial release to the owner.

Because the owner enters into contractual “privity” (meaning, “a close connection”) with the general contractor, but not the subcontractors and suppliers, the owner provides all payments due to the subcontractors and suppliers to the general contractor who is responsible to pay all subcontractors and suppliers. But, how does the owner have assurances that the money paid to the general contractor is properly provided to the subcontractors and suppliers? Well, that is where the Notice to Owners received by the owner come in very handy. Since the Notice to Owner informs the owner of all subcontractors and suppliers hired by the general contractor expecting payment, the owner can, and most certainly should, contractually require that the general contractor provide the owner with partial releases from those subcontractors and suppliers as proof of payment. In fact, section 713.06(3)(c)2., Florida Statutes (2019), provides that “[l]ienors [referring to and meaning the subcontractors and suppliers] receiving money shall execute partial releases… to the extent of the payment received.”

Sounds simple, right? Pay the general contractor and receive partial payment releases (a.k.a, a receipt) from the subcontractors and suppliers so that they cannot later claim they are unpaid and thus, be in a position to record a lawful lien against the owner’s property. The question is when should the subcontractors and suppliers provide their partial releases? Should the subcontractors’ and suppliers’ partial releases be provided by the general contractor to the owner contemporaneously with a progress payment, or should the subcontractors and suppliers provide  their partial releases only after payment is received meaning the partial releases will only be at least one progress payment behind.

In order to be fully protected from the risk of double payment, the general contractor must obtain the partial releases from the subcontractors and suppliers in advance of payment from the owner. It is as though the statutory process at hand contemplates that either the subcontractors and suppliers trust the general contractor to the extent that they provide their partial release to the general contractor in advance of payment so that the partial releases can be provided to the owner in immediate exchange for payment from the owner. Or, the statutory process implies that the general contractor has sufficient funds to pay the subcontractors and suppliers prior to payment from the property owner so as to be in a position to obtain the partial releases from the subcontracts and suppliers to provide to the owner in exchange for a partial payment. With the partial releases in hand, in the event the general contractor does not pay the subcontractors and suppliers, the owner is fully protected. It is important to understand that without the partial releases in hand, even if the owner paid the general contractor and received a partial payment affidavit from the general contractor, if the general contractor did not pay the subcontractors and suppliers, then they have a lawful right to demand payment from the owner and to record a lien against the owner’s property. Hence, without the partial releases from the subcontractors and suppliers, the owner remains in danger of paying twice for some or all of the work.

Some general contractors insist on providing the owner with the partial releases from the subcontractors and suppliers one payment behind the payments from the owner to the general contractor. Right off the bat, that should be a significant concern to the owner because it means if the general contractor fails to pay the subcontractors and suppliers for any reason whatsoever, be it due to bankruptcy, closing up shop, or running off to the Canary Islands with the money, the owner will still have to pay the subcontractors and suppliers and thus pay twice. In fact, the legislature has even gone so far as to warn the public of this danger.

Section 713.06(3)(c)1, Florida Statutes (2019), provides in relevant part that, “…[t]he owner may require, and, in such event, the contractor shall furnish as a prerequisite to requiring payment to himself or herself, an affidavit as prescribed in subparagraph (d)1., on any payment made, or to be made, on a direct contract, but the furnishing of the affidavit [by the general contractor] shall not relieve the owner of his or her responsibility to pay or cause to be paid all lienors [a.k.a., the subcontractors and suppliers] giving notice.” [Emphasis added.]

There are three methods to protect the owner from this problem:

  1. The safest method is to ensure that the contract between the owner and general contractor contains a provision that the owner is to be provided the contemporaneous and immediate partial release of lien from the subcontractors and suppliers in immediate exchange for payment to the general contractor.
  2. Hire a different general contractor.
  3. Purchase a payment and performance bond which act as an insurance policy where, among other protections, the insurer will pay the subcontractors and suppliers in the event payment was made by the owner to the general contractor but the general contractor failed to pay the subcontractors and suppliers. If the general contractor is not bondable, that should serve as a warning in and of itself to look for a different contractor. The performance and payment bonds will add three to five percent to the overall project cost and are, one way or the other, paid by the owner. If this route is selected, the owner must make absolutely certain the policy will provide the necessary coverage for this concern as not all insurers may provide this coverage.

Whether an owner decides to enter into contractual privity with a general contractor who insists on providing the subcontractors’ and suppliers’ partial releases only after the owner pays the general contractor and then the general contractor pays the subcontractors and suppliers is risky because there will always remain financial exposure of paying for all or part of the work, twice. If you, your company or community association are considering hiring a general contractor then you need to be aware of this issue. It is suggested that an owner never ever put themselves into a position where there is risk of paying more than once for the same work. Ask yourself this: if the general contractor cannot not afford to pre-pay their subcontractors and suppliers or the subcontractors and suppliers will not trust the general contractor with their partial releases to be provided to the owner upon payment, then should you be doing business with that general contractor in the first place?

Personal experience has demonstrated that some general contractors will tell property owners that delayed receipt of the partial releases is customary and quite ordinary. If you find yourself in that position be sure to tell the general contractor of the beachfront property for sale in Arizona, and go find yourself a different contractor.

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New CEU Requirements for Licensed Community Association Managers

Effective August 15, 2019, the Regulatory Council of Community Association Managers changed the requirements for continuing education for license renewal. The number of hours required have been reduced from 20 to 15 hours each license period. The new requirements are:

  1. All community association manager licensees must satisfactorily complete a minimum of 15 hours of continuing education per biennial renewal cycle. No license shall be renewed unless the licensee has completed the required continuing education.
  2. Only continuing education courses approved by the Council shall be valid for purposes of licensee renewal.
  3. The required 15 hours of continuing education shall be comprised of courses approved pursuant to Rule 61E14-4.003, F.A.C., in the following areas:

(a) Three-hours of legal update seminars. The legal update seminars shall consist of instruction regarding changes to Chapters 455, 468, Part VIII, 617, 718, 719, 720, and 721, F.S., and other legislation, case law, and regulations impacting community association management. Licensees shall not be awarded continuing education credit for completing the same legal update seminar more than once even if the seminars were taken during different years.

(b) Three-hours of instruction on insurance and financial management topics relating to community association management.

(c) Three-hours of instruction on the operation of the community association’s physical property.

(d) Three-hours of instruction on human resources topics relating to community association management. Human resources topics include, but are not limited to, disaster preparedness, employee relations, and communications skills for effectively dealing with residents and vendors.

Three-hours of additional instruction in any area described in paragraph (3) (b), (c) or (d) of this rule or in  any course or courses directly related to the management or administration of community associations.

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Protecting Tenants at Foreclosure Act of 2009: Resurrected and Here to Stay

On May 20 2009, just after the peak of the national foreclosure crisis, a federal statute was enacted to help protect a residential tenant who was renting a unit subject to foreclosure from being evicted without being afforded a reasonable amount of time to find alternative housing.

The federal law was known as “Protecting Tenants at Foreclosure Act of 2009”.  It generally provided that a bona-fide tenant was authorized to remain in a residential unit that was acquired by a new party through foreclosure for the balance of the unexpired term of the lease, unless the unit was acquired by a party that intended to occupy the unit, in which case the tenant was authorized to remain in the unit for ninety days after receiving a notice to vacate.

For purposes of the federal law, a “bona fide tenant” was a tenant who was not the mortgagor or the parent, spouse, or child of the mortgagor and who was under a lease that was the result of an arms-length transaction where rent was not substantially lower than fair market value.

The federal law assured that residential tenants would have a reasonable amount of time to plan and find alternative housing after the unit they were renting was foreclosed and acquired by a new party. However, it also assisted community associations in finding desirable tenants to rent units they owned through the foreclosure of the association’s assessment lien for a fair market value, which then helped the association recoup unpaid assessments and bad debt otherwise attributable to the unit.

The protections of the federal law were intended to “sunset”, which is a term meaning ”to expire”, on December 31, 2012. However, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) later extended the sunset date to December 31, 2014. Once the federal law finally expired on January 1, 2015, tenants of residential property in Florida no longer had any special protection from eviction by parties acquiring such units by foreclosure.

Then, approximately six month later, the Florida legislature adopted its own version of the law as part of the Florida Residential Landlord and Tenant Act. Specifically, section 83.561, Florida Statutes, became effective on June 15, 2015, and provides that “if a tenant is occupying a residential premises that is the subject of a foreclosure sale, the purchaser named in the certificate of title is permitted to give a tenant a thirty day notice to vacate and the tenant must comply”. Therefore, as of June 15, 2015, residential tenants had a much shorter time frame of thirty days’ notice to vacate a unit acquired by foreclosure.

Finally, on June 23, 2018, the federal Protecting Tenants at Foreclosure Act became effective again. It no longer contains any sunset or expiration date; so it is here to stay. Since a federal law will supersede a Florida law when it is more stringent, the provisions of the Federal Protecting Tenants at Foreclosure Act giving tenants more time to vacate residential property after it is acquired by a new party through foreclosure will apply to transactions in Florida despite the shorter time frame provided by state statute.

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The Lurking Danger of Association Websites; Accusations of Discrimination

Very recently, more and more condominium and homeowner associations find themselves as potential defendants in Federal Fair Housing Act (the “FHA”) discrimination litigation due to the association’s website. It is alleged that the failure to make the website easily accessible to those with visual impairments or who are blind is discriminatory. In short, the FHA prohibits making, printing or publishing, with respect to the sale or rental of a dwelling, anything that indicates any preference, limitation, or discrimination based on a handicap, or the intention to make such preference, limitation, or discrimination. Thus, the FHA covers all written and oral notices or statements by a person engaged in the sale or rental of a dwelling. Therefore, as the argument presented is explained, if the association’s website is providing information regarding the sale or rental of units or lots, and proper precautions are not taken to ensure that the website can be “listened to” rather than “read” by an individual who is visually impaired or blind, then that association could be a prime target for the threat of a federal discrimination lawsuit.

Victim’s Awareness, Inc. is a national not-for-profit corporation whose membership consists of persons with disabilities and others who are committed to equal access, equal opportunity and equal rights for protected classes. Employees of this company, along with its constituent members, troll the internet searching for websites offering housing for sale or lease that do not provide a mechanism for those who are visually impaired or blind to have the  content of the website automatically read to them. In order to have this functionality, what is technically referred to as a “widget” must be installed by the website host.

Typically, organizations such as Victim’s  Awareness, Inc. will send a demand letter including a letter of explanation, demand for evidence preservation, and a draft copy of the to-be-filed federal lawsuit and complaint demanding that the association immediately retrofit its website to ensure equal access by the visually impaired and blind. Failure to do so guarantees a lawsuit will be filed in Washington, D.C. against the association. Typically, this type of lawsuit is extremely expensive to defend.  If liability results, the damages can easily be in the tens, if not hundreds, of thousands of dollars.

Sadly, even immediate compliance may not be sufficient to avoid monetary penalties.  Because the demand brings about the desired change, the would-be plaintiff, in this case, Victims Awareness, Inc., argues that they are entitled to their attorneys’ fees and costs for their preparation of the demand letter, preservation of evidence demand, and draft complaint. Therefore, even if an association complies with the demand by making its website accessible to those who are visually impaired, Victims Awareness, Inc.’s asserts that its attorneys’ fees and costs will need to be satisfied. If an association refuses, then, even though the website is now FHA compliant, Victim’s Awareness, Inc. suggests that they can still file the lawsuit to collect its attorney’s fees and costs.

Because discrimination lawsuits is one of the few areas where board members can have individual liability it is likely that most associations will fold their hand and agree to the would-be plaintiff’s demands. It will be interesting to see the results should an association decide to fight such demands on the basis that the FHA also provides that reasonable modifications must be granted by an association in response to a handicapped person’s request so long as the modification is paid for by the person making the request. It remains to be seen whether such an argument pierce the demands made by groups such as Victim’s Awareness, Inc.?

A community association risks being in harm’s way when it operates a website that promotes sales and leasing activities and is open to the public at large. In this instance the ol’ adage remains true- “an ounce of prevention is worth a pound of cure”. Thus, to find additional  information on the “widget” to bring your website into compliance and to learn more about this issue you can visit www.userway.com.  In addition,  consider discussing this important matter with your association‘s attorney.

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New Rules for FHA Financing – What Board Members Need to Know

For some home buyers, financing the purchase of their new home can be a barrier to entry. Many home buyers need the benefit of an FHA backed loan for their lower interest rates. The Federal Housing Authority (FHA), a part of the Department of Housing and Urban Development (HUD), has provided mortgage insurance on loans made by FHA-approved lenders since its inception in 1934. Until a recent FHA rule change, any buyer interested in purchasing a condominium unit backed by an FHA loan faced the additional hurdle requiring that the condominium project itself must be FHA approved.

The FHA approval process for condominium projects can be complex and time-consuming. Prior to the recent FHA rule change, if the condominium project was not approved by the FHA, then prospective condominium purchasers could only obtain conventional loans, making it more difficult to secure financing. In fact, according to the FHA, only 6.5 percent of the country’s more than 150,000 condominium projects are approved to participate in the FHA’s mortgage insurance program. However, a new FHA rule that goes into effect on October 15, 2019 will change the approval process for condominium units and allow more buyers to receive approval for an FHA loan.

The new rule introduces several changes to the FHA approval process. The most notable is that the FHA will now allow an individual condominium unit owner to be eligible for an FHA backed mortgage even if the condominium project as a whole is not approved. However, the FHA will only approve a limited number of units in any condominium project. For projects with 10 or more units, no more than 10 percent of the individual units can be FHA-insured, and for projects with fewer than 10 units, no more than two individual units can be FHA-insured. Board members, owners, managers, and anyone else can access HUD’s database to find the number of FHA backed loans in a condominium project at https://entp.hud.gov/idapp/html/condo1.cfm.

The following are some of the essential requirements for a condominium project to be FHA approved, which have not been changed by the new rule:

• The condominium project must consist of two or more units
• No more than ten percent of the units can be owned by one investor or entity in a project with more than 10 units. In a project with 10 or fewer units, an investor may not own more than one unit. Unsold units are not considered investor-owned.
• No more than fifteen percent of the total unit owners can be in arrears of association fees.

While the FHA allows limited restrictions on leasing, a condominium project will not be approved if the declaration or by-laws require that a prospective tenant be approved by the association. However, the association may require leases to be in writing and subject to the declaration and by-laws of the condominium, request a copy of any sublease and the name of all tenants who will occupy the unit, and establish a maximum allowable lease term and maximum number of rental units within the project. The FHA leasing requirements are the same for condominium and homeowners associations, but the new rule changes apply only to condominium associations.
The new FHA rule requires that approved condominium projects have a minimum of 50 percent of the units occupied by “owners” for most projects. In 2015, the FHA clarified that a condominium unit is considered to be owner-occupied provided that it is not: (i) tenant occupied, (ii) vacant and listed for rent, (iii) vacant and listed for sale, or (iv) under contract to a purchaser who does not intend to occupy the unit as a principal residence or secondary residence. For approved projects, the FHA will insure up to 50 percent of the units in the project.

The new FHA rule has extended the allowable amount of commercial/non-residential space for an approved condominium from 25 percent to 35 percent of total floor space. It also extended the re-certification deadline for approved condominium projects from two years to three years. An approved condominium project may request renewal of its approval by submitting a request no earlier than six months prior to the expiration or no later than 6 months after expiration of the approval.

Getting your condominium project approved by the FHA allows more buyers the opportunity to purchase units in your community utilizing FHA backed loans. However, the approval process is complex, and may require that your declaration and by-laws be amended to conform with FHA requirements – most especially in regard to leasing. Each association will have to balance the benefit of FHA backed loans versus having lease approval powers. If an owner’s neighboring tenant turns out to be previously convicted of rape, murder, or other heinous crime, then there is a great probability that such owner would have preferred stringent lease approval requirements as compared against providing for FHA backed loans in the community. Your association’s legal counsel can be of great benefit in navigating issues concerning the FHA approval process.

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You Get What You Pay For – Assistance Animal Application Packages

The complaint heard often from condominium and HOA board members is in regard to the influx of assistance animals in their “no pet” or pet restricted communities. Few other topics within the body of community association law cause more consternation then the application of the Federal, State and local Fair Housing laws. In fact, one relatively minor misstep from a board member or manager can cost an association tens of thousands of dollars in damages, as well as attorney’s fees and costs. Not only that, but this is one of the very few areas where board members could potentially face individual liability for their actions. Under most circumstances, board members will have protection from liability under the “business judgment rule,” but this is not necessarily the case in the Fair Housing arena.

I have read applications for assistance animal requests, believed to be prepared by lawyers with knowledge in this field, which are used as a method to obtain new community association clients by selling the applications for a very low cost, even below several hundred dollars. Unfortunately, these application packages, while seemingly inexpensive, can expose the association to significant monetary penalties.

One such application package is a nightmare waiting to happen to an unsuspecting board because it requires the application to be completed in order for the board to review the matter. While Fair Housing laws encourage a uniform policy be implemented, an association’s assistance animal application package cannot be made a prerequisite. It can be suggested that providing a completed application will assist in expediting the review process, but it cannot be mandated to be considered for approval. Also, without good cause, an association cannot demand regularly updated medical information concerning a claimed disability, regardless of the use of an application created by an association demanding otherwise.

Recent decisions point out the legal exposure to an association when board members or other agents of the association attempt to curtail the rights of assistance animal owners in an apparent effort to placate the rest of the community.

In a recent Fair Housing consent order entered September 28, 2018 by and between an applicant for an assistance animal and Hudson Harbor Condominium Association, Inc., located in New Jersey, the association was ordered to pay $30,000 to the assistance animal applicant for failing to grant a reasonable accommodation to its policy of requiring the animal be carried in a crate or carrier in the common elements and that the owner of the animal only use a service door when accompanied by the animal.

In another case, Pekiun v. Tierra Del Mar Condominium Association, Inc., 2015 WL 8029840, the association’s motion for summary judgment was denied where the plaintiff’s estate sued the association due to its failure to allow an assistance animal and argued that the association caused the intentional infliction of emotional distress and violations of both Florida and Federal Fair Housing Acts. In this case, the association demanded an assistance animal be removed from the premises due to another individual’s allergies and required, not only that a specific application be completed by a particular time. After the assistance animal was approved, the association’s management company changed and the new management company required the owner to “recertify” his assistance animal. Later, the owner committed suicide. Had the Association not given the owner such a hard time, would the owner still have committed suicide? We will never know. The damage award could easily exceed six figures given these occurrences and resulting suicide.

Remember, when considering an assistance animal request, all that is necessary is that the applicant has a disability recognized by the Fair Housing laws and that the animal helps ameliorate the symptoms or effects of the disability. This information can come to the association from a doctor, psychiatrist, social worker, mental health worker or any other qualified individual.

If the association desires a uniform application for assistance animals to assist in trying to streamline request procedures, the board should be looking to work with an attorney/law firm familiar in this area of law, and not simply go for the low cost option.

Unless and until the Federal, State, and local laws are modified to address this ever-growing situation, when considering assistance animal applications, the association would be wise to seek legal counsel before taking any action. This is particularly true if the association is going to request additional information, implement limitations or restrictions on the owner or assistance animal within the community, or perhaps deny the request.

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Electric Vehicle Charging Stations – Condominiums Going Green

While gasoline powered vehicles are still dominant on Florida’s roads, the ever-growing presence of electric vehicles cannot be ignored. The number of electric vehicles on our highways and streets continue to climb as they become more and more affordable. As consumers continue to embrace a greener lifestyle, Florida’s lawmakers have paved the way for condominium unit owners’ need to have access to electric vehicle charging stations. Effective July 1, 2018, new legislation, section 718.113(8) of the Florida Statutes, became effective which facilitates a unit owner’s ability to install and use an electric vehicle charging station within the unit owner’s limited common element parking space.

This new legislation prohibits the condominium association’s board of directors and a declaration of condominium provision or other restrictive covenants from prohibiting (or being enforced to prohibit) any unit owner from installing an electric vehicle charging station within the boundaries of the unit owner’s limited common element parking space, subject to certain conditions as laid out in this new legislation.

It is important to note that the right of installation of an electric vehicle charging station is ONLY applicable to the “limited common element” parking space and does not apply to a “common element” parking space. There is an important difference between a common element and a limited common element parking space. While all unit owners own an undivided interest in both, the limited common element parking space vests an individual use right to the owners of the unit to which the limited common element is appurtenant (connected to). Therefore, associations may prohibit the installation of electronic vehicle charging stations within the common elements or other portions of the condominium property that are maintained for the general use and benefit of all unit owners, but not as applied to a limited common element parking space, subject to the limitations and conditions of the legislation.

Thus, section 718.113(8) of the Florida Statutes, provides that, in considering a unit owner’s request to install an electric vehicle charging station, the association first must determine whether the charging station is to be installed within the boundaries of the requesting unit owner’s limited common element parking space. Whether a parking space is a limited common element is determined by the provisions of the declaration of condominium designating the parking space for the exclusive use and benefit of the owners of a specific unit.

If it is determined that the parking space is a limited common element, the unit owner may have the electric vehicle charging station installed subject to the requirements of the new legislation. These requirements provide that:

1) The installation cannot cause irreparable damage to the condominium property.

2) The unit owner is responsible for the costs of installation, operation, insurance, maintenance, repair, and removal of the charging station.

3) The electricity for the electric vehicle charging station must be separately metered and payable by the unit owner.

All of the above costs, if left unpaid by a unit owner, are enforceable by the association as any other assessment due pursuant to section 718.116, Florida Statutes, meaning if left unpaid their condominium unit can be foreclosed.

Additionally, as provided by the new legislation, the association can and should require that the unit owner:

1) comply with bona fide safety requirements, consistent with applicable building codes or recognized safety standards, for the protection of persons and property;

2) comply with reasonable architectural standards adopted by the association that govern the dimensions, placement, or external appearance of the electric vehicle charging station, provided that such standards may not prohibit the installation of such charging station or substantially increase the cost thereof;

3) engage the services of a licensed and registered electrical contractor or engineer familiar with the installation and core requirements of an electric vehicle charging station;

4) provide a certificate of insurance naming the association as an additional insured on the owner’s insurance policy for any claim related to the installation, maintenance, or use of the electric vehicle charging station within 14 days after receiving the association’s approval to install such charging station; and

5) reimburse the association for the actual cost of any increased insurance premium amount attributable to the electric vehicle charging station within 14 days after receiving the association’s insurance premium invoice.

Although your condominium association may not have received a request for the installation of an electric vehicle charging station as yet, your board of directors should be prepared for such a request. After all, it is only a matter of time. Therefore, condominium boards should consider adopting rules and regulations governing the process by which a unit owner is required to make such a request and provide for procedures by which the board of directors is to conduct its review and approval of the request.

While a unit owner desiring to install and use an electric vehicle charging station within his or her limited common element parking space will be able to do so by way of this new legislation, the association still has the authority to govern certain aspects of the installation and use and should be proactive in making rules and regulations in line with this authority. Your association’s legal counsel can be of great benefit to the board in creating a clear and concise process governing the electric car charging stations installation and use.

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Your Association’s Contractor Walked off the Job – Now What??

As happens far too often, contractors bid on an improvement project, start the work, only to later walk off the job. The contractor might do this for one of many reasons: the job was not bid correctly, prices go up, the laborers demand more money, and anything else that leads the contractor to believe they will make less in profits than expected. Now, the association is left with a partially completed project, leaving the property unusable, with no contractor to complete the work. What should the board do in this situation? How does the association evaluate its damages against the contractor who walked off the job? Such questions were forced to be addressed by single family homeowners in the case of Forbeses v. Prime General Contractors, Inc., decided by the Second District Court of Appeal of Florida in an opinion filed on September 7, 2018.

In this case, the Forbeses contracted with Prime General Contractors, Inc. (“Prime”) for the complete renovation of their home. The contract required that the Forbeses pay Prime the total amount of $276,000 in separate payments due at five defined milestones of the project: (1) 25% due upon signing the contract; (2) 25% upon completion of demolition; (3) 25% upon completion of the “dry-in” stage of construction; (4) 15% after roofing and siding installation; and (5) the remaining 10% upon completion of construction. The construction contract also provided that “any alteration or deviation from the contract must be made in writing and signed by both Forbeses and Prime.”

The construction contract was signed, and Prime began the necessary demolition, requiring the Forbeses to pay the first two milestone payments in the total amount of $138,000. After demolition was completed, Prime informed the Forbeses that the cost of the materials needed for the project had increased requiring an increase in the cost of the project to $550,000. Prime demanded that the Forbeses immediately pay the third milestone payment and an additional $31,450 for the work Prime had already completed and provided the Forbeses with a written change order for the increase in costs to modify the construction contract. Relying on the costs quoted by Prime, the Forbeses refused to sign the change order, resulting in Prime walking off the job. Because the property had only reached the demolition phase, the property was left uninhabitable.

Needing a place to live, the Forbeses rented a home and began the search for another contractor to complete the work. Five contractors later, the Forbeses could not find a contractor willing to complete the work. The Forbeses ultimately purchased another home to live in and were not able to pay both the mortgage on the project home and the mortgage on the residence home. As a result, the project home fell into foreclosure.

The Forbeses sued Prime for breach of contract, seeking the following damages: (1) payments they made to Prime under the contract; (2) payments they made for updated architectural plans; (3) certain other expenses, including rent for alternate housing; and (4) a loss of equity in their home they had prior to contracting with Prime. At trial, the Forbeses argued that Prime materially and completely breached the construction contract by demanding payments it was not entitled to under the contract and then walking off the job. Prime defended by arguing that, among other things, the Forbeses were also in breach and failed to mitigate their damages. The trial court found that Prime did in fact materially breach the contract but only awarded damages for rent of alternative housing because the trial court took the position that damages in this case were to put the Forbeses in as good a position as if the contract had been fully performed, of which the Forbeses provided no evidence, and that the Forbeses did not engage in mitigation efforts.

The Forbeses appealed the trial court’s decision for two reasons: (1) the trial court used the incorrect method of calculating damages by taking the position that damages in this case were to put the Forbeses in as good a position as if the contract had been fully performed; and (2) the trial court’s finding that the Forbeses failed to mitigate their damages is unsupported by evidence. The Second District Court of Appeal of Florida agreed with the Forbeses.

The Court explained that, in the event of a party’s material breach, the non-breaching party may treat the material breach as a breach of the entire contract, at which time the non-breaching party can suspend their own performance of the contract and seek damages to either:

1. return the non-breaching party to the position the non-breaching party was in prior to contracting with the breaching party, or

2. put the non-breaching party in the position the non-breaching party would have been in had the contract been fully performed.

Based upon the damages sought by the Forbeses, the trial court should have concluded that the Forbeses were seeking damages to restore them to the position they were in prior to contracting with Prime. Because the trial court did not do so, the Court held that the trial court used the incorrect method to calculate damages in this case.

As to mitigation of damages, the Court explained that there is no “duty to mitigate” in contract cases but that the non-breaching party is prevented from recovering damages that the non-breaching party could have reasonably avoided. A reduction in contract damages should only be considered where the Forbeses failed to undertake measures to avoid damages that were available to them without undue effort or expense. Given the circumstances of the Forbeses with an uninhabitable home and unable to find a willing contractor, the Court found that there was no competent substantial evidence to support a damage reduction.

Due to the trial court’s failure to apply the correct method of calculating damages and its improper application of a reduction of damages for failure to mitigate, the Court reversed the decision of the trial court so that the Forbeses would be awarded the full amount of damages to which they were entitled.

This case is a classic example of the need to purchase both performance and payment bonds to accompany the construction project at hand. While doing so will cost the association an additional 2% to 5% of the project costs, these bonds ensure that, if the general contractor does not pay the sub-contractors and suppliers and/or walks off the job, the bond surety, pending the terms of the bond, will be obligated to step in. In this author’s opinion, payment and performance bonds are worth their weight in gold… and then some.

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Hurricane Season Is Here – If you Suffer a Casualty, You Need to Know About This New Law

A good reason why society provides for prevailing party attorney fees and costs is to make a potential plaintiff think twice before filing a lawsuit. Imagine being able to sue your adversary in court without worry that if you lose you will NOT have to pay prevailing party attorney fees and costs to the other side. Such a situation could lead to an avalanche of lawsuits, and that is exactly what happened when Florida laws permitted contractors holding an “assignment of benefits” in their favor, who were unhappy with the award from the insurance company, to sue the insurance company with nothing to lose but to pay for their own attorney. Simply put, an assignment of benefits is an agreement transferring a homeowner’s insurance benefits to a contractor who may then file a claim against the homeowner’s insurance policy without the involvement of the homeowner. Notwithstanding the assignment of benefits, the homeowner is still responsible to pay the insurance premium and deductible. If the contractor then makes a claim against the insurance policy and is unhappy with the insurance proceeds received, the contractor can sue the insurance company with no threat of having to pay prevailing party attorney fees if the contractor lost its lawsuit against the insurance company. Without the fear of a prevailing party attorney fees award, these types of lawsuits became very prevalent. Insurers claim that this led to ever increasing insurance premiums. Not anymore!

Due to the passage of House Bill 7065 (“HB 7065”), officially taking effect on July 1, 2019, consumers may begin to notice a decrease in their insurance premiums as HB 7065 creates liability for the contractor for attorney fees and costs based upon the difference between the amount recovered and the amount offered during settlement negotiations as compared to the disputed amount. When HB 7065 takes effect, if the contractor holding the assignment of benefits sues and the difference between the judgment obtained by the contractor and the presuit settlement offer by the insurer is less than 25% of the disputed amount, the insurer is entitled to an award of reasonable attorney fees. On the other hand, if the difference between the judgment obtained by the contractor and the presuit settlement offer by the insurer is at least 50% of the disputed amount, the contractor is entitled to an award of reasonable attorney fees. Finally, if the difference between the judgment obtained by the contractor and the presuit settlement offer by the insurer at least 25%, but less than 50%, of the disputed amount, no party is entitled to an award of attorney fees.

Insurers claim that the old system resulted in abuse of property insurance claims, as contractors were inflating repair costs and essentially operating without significant financial risk during insurance litigation, thus allowing contractors to assert numerous claims in hopes that one would stick. As a result, insurance companies were left bearing the costs of these lengthy litigations, and thus, sought to recover their litigation expenses through the consumer – the homeowner – by increasing insurance premiums. While a homeowner is still able to enjoy the benefits of the one-way attorney fee privilege, this right is no longer transferable to the contractors through assignment of benefits. Clearly, this is a drastic change that will affect contractors around the entire State.

With hurricane season approaching, in the event you experience a casualty, before signing an assignment of benefits in favor of the contractor who shows up, often uninvited, not only do you need to read the fine print, but it is strongly suggested you have an attorney review the assignment of benefits contract first.

If you have any questions regarding the impact of this new law, please discuss them with your association’s attorney.

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Can Master Condominium Associations Revitalize Covenants?

Excluding certain covenants, including a condominium association’s declaration of condominium, Florida’s Marketable Record Title Act (MRTA) may begin to extinguish covenants not sooner than 30 years after they are initially recorded. At times, a master condominium association may administer its declaration of condominium and other covenants recorded against non-condominium property. Therefore, it is crucial to determine whether these “other covenants” can be preserved or revitalized by the master condominium association. In addition, under current law, certain master condominium associations are governed by Chapter 718, F.S., (the “Act),” while others are not. There is great debate as to whether or not master condominium associations should be regulated by the Act, or Chapter 617, F.S., the Florida Not For Profit Corporation Act, or Chapter 720, F.S., the Homeowners’ Association Act.

Where it all began – a history lesson of the genesis of the master condominium association. Raines v. Palm Beach Leisureville Community Association, decided in 1982 by the Florida Supreme Court (the “Court”), was the first significant court decision regarding the definition of “association” as relates to a master condominium association. The Court ruled that a master condominium association was not an “association” governed by the Act because it is not the entity responsible for the operation of a condominium. Similarly, in the 1985 case of Department of Business Regulation, Division of Land Sales v. Siegel, the Court ruled that the Act does not apply to a master condominium association when the development is not complete and the developer could add non-condominium units to the development.

Then, in the 1988 case of Downey v. Jungle Den Villas Recreation Association, Inc., decided by Fifth District Court of Appeals created a two-pronged test where both prongs must be met to determine whether a master association is a master condominium association subject to the Act: the “constituency test,” requiring that an “association” consist exclusively of condominium unit owners; and the “function test,” requiring the court to look at how an association was being managed. If the functions and actions of an association are “in substance and in equity” those of a condominium association, then the entity would meet the “function test” regardless of the intent behind its formation.

With the apparent intent of codifying the Jungle Den decision, the Florida Legislature addressed master condominium associations in 1991 by broadening the definition of “association” in the Act. Though, fundamental differences between traditional condominium associations and master condominium associations were left unaddressed. Sadly, today, the definition of “association” is substantially similar to its 1991 counterpart.

Then, in 2012 in the case of Heron at Destin West Beach & Bay Resort Condo Association, v. Osprey at Destin West Beach, it was determined that a master condominium association meets the definition of an “association” as defined in the Act, “if it is primarily responsible for the operation of real property or facilities that are not common elements of an individual condominium or property of a condominium association and i) condominium unit owners have user rights in the master association’s property; ii) the voting membership is exclusively condominium unit owners; iii) membership in the association; and iv) the master association is authorized to assess its members for assessments and has lien rights.”

Prior to recent amendments to the Florida Statutes to broaden the abilities of all property owners’ associations to preserve and revitalize covenants from the effects of MRTA, such abilities were limited to a “homeowners’ association” as defined in MRTA to mean “a homeowners’ association as defined in s. 720.301, or an association of parcel owners which is authorized to enforce use restrictions that are imposed on the parcels.” This left a question in practitioners’ minds as to whether the covenants of a statutory master condominium association may be preserved and revived if it is deemed subject to the Act but not saved by any exception to MRTA as would a traditional declaration of condominium.

Finally, an answer: in the January 2019 case of Eastwood Shores Property Owners Association v. Florida Dept of Economic Opportunity, the master condominium association was subject to the Act and operated pursuant to its covenants which did not fall under any exception to MRTA. Because the non-condominium declaration covenants were being extinguished by MRTA, the master condominium association undertook revitalization efforts to save them. However, the revitalization was disapproved by the Department of Economic Opportunity (a necessary step in revitalization) because of the condominium form of ownership. Essentially, the Department substituted the term “condominium parcel” as defined in the Act for the term “parcel” as defined in MRTA, resulting in the inability of the master condominium association to revitalize its covenants. However, the case was decided in favor of the master condominium association finding that the Department “erroneously interpreted the applicable sections of MRTA and chapters 718 and 720.” As such, master condominium associations can take advantage of revitalization when necessary.