Author: rembaumlaw

Community association lawyers are often presented inquiries from their clients as to whether laws newly adopted by the Florida legislature apply to their governing documents, especially when the new law is contrary to their declaration’s existing provisions. A similar question was recently asked and answered by Florida’s Third District Court of Appeal in the case of The Tropicana Condominium Association, Inc. v. Tropical Condominium, LLC.

Before diving into the facts of the case, a brief explanation of the concepts mentioned by the Court is necessary. By way of summary, the “contracts clause” of the Florida Constitution establishes the general rule that the legislature is prohibited from enacting any law that impairs substantive rights of an existing contract. A declaration of covenants or declaration of condominium, as the case may be, is a contract, too. It is a contract between the members of the association and the association, itself. The declaration describes the contractual obligations of the members’ assessment and maintenance obligations and fully describes the association’s obligations to its members, too. Generally speaking, the laws in place at the time the declaration is recorded are essentially incorporated into the declaration as if they were initially drafted into it upon its creation. If a newly enacted or amended statute impairs a vested substantive right guaranteed by a declaration, the “contracts clause” operates to prevent it from being applied to the declaration. But, if the newly adopted law is of a procedural nature, then it more likely than not does apply.

Substantive laws are with regard to one’s rights and duties, and include, for example, in the condominium context, the configuration and size of a unit, the ownership share in the common expenses and common surplus, and the appurtenances to a unit. On the other hand, procedural laws are laws that dictate how such rights and duties are to be performed. A statute is procedural if it merely establishes how some right or obligation under the declaration is to be performed. For example, Chapter 720 of the Florida Statutes, more commonly referred to as the “Homeowners’ Association Act,” provides that, unless the bylaws of the association provide for a lesser percentage, the quorum requirement for a meeting of the members is 30%. Thus, if the HOA’s declaration requires 50% of the membership to establish a quorum, the quorum requirement is over-ruled by the statute and would be 30% (absent a court order holding otherwise).

While the “contracts clause” creates a general rule against new statutes impairing existing substantive rights as set out in a declaration, there are, of course, exceptions to the rule. In determining whether a statute may be applied to the declaration, the first determination must be whether the statute is procedural in nature or whether it creates, alters, or impairs substantive rights. Procedural statutes will apply to the declaration, whereas substantive statutes do not.

However, even if a statute is deemed substantive in nature, it may be still applied to a declaration if the statute in question contains language that clearly expresses the legislature’s intent that it is to apply retroactively or that the statute is remedial in nature and designed to clarify existing law. Of course, upon judicial challenge, the courts can hold that just because the legislature intended the new law to apply retroactively or be remedial that such application is unconstitutional or otherwise improper for one reason of another.

Another exception to the procedural/substantive argument is, what is often referred to as, “Kaufman” language. When “Kaufman” language is included in a declaration, the association never has to conduct the procedural/substantive analysis. An example of “Kaufman” language follows: “This Declaration is subject to Chapter 718, Florida Statutes, as it is amended from time to time.” The “Kaufman” language is the latter emphasized phrase. By inclusion of such language, all of the changes to the Florida Statutes, including changes to substantive rights, will apply to the declaration, without regard to whether the changes are beneficial or detrimental to the association.

With this general knowledge, we turn back to the facts of The Tropicana Condominium Association, Inc case. In this case, the declaration of condominium provided that the condominium could be terminated at any time by the written consent of all of the unit owners and all institutional mortgages holding mortgages on the units and that amendments to the termination process of the declaration of condominium required unanimous consent of the unit owners. The declaration of condominium was recorded in 1983 and it did not contain “Kaufman” language.

In 2007, the Florida legislature amended the termination provisions of Chapter 718 of the Florida Statutes, more commonly referred to as the “Condominium Act,” to provide that a condominium could be terminated upon the approval of 80% of the unit owners so long as not more than 10% of the unit owners oppose the termination.

The Tropicana Condominium Association made multiple attempts to amend the termination provisions of the declaration of condominium to reduce the threshold needed for termination. However, the amendments failed to receive the unanimous approval of the unit owners. Nevertheless, it appears as though the 2007 amendment to the Condominium Act, requiring the 80% approval to terminate was followed, in direct contravention to the terms for termination as set out in the declaration. Thereafter, the unit owners filed the lawsuit against their association for failing to obtain the unanimous approval of the unit owners.

On appeal, the condominium association argued that, notwithstanding the failure of the association to obtain the required approval for the amendment to the declaration of condominium, the 2007 amendment to the Condominium Act still applied because it provided that “[t]his section applies to all condominiums in this state in existence on or after July 1, 2007.” The Court, however, did not agree. It found that the retroactive application of the 2007 amendment to the Condominium Act “would eviscerate the Tropical’s owners’ contractually bestowed veto rights.”

In discussing the declaration of condominium’s termination provisions, the Court found that the declaration of condominium’s termination provisions created in each unit owner a vested right to veto a termination attempt with the intent of protecting the unit owners. Therefore, applying the 2007 amendment to the Condominium Act would “work a severe, permanent, and immediate change” to the unit owners’ protections against unwanted termination attempts. In other words, even though the termination process is procedural in that it describes how to terminate the condominium, the percentage of unit owner votes required to bring about the termination was considered to be a vested substantive right.

If nothing else, The Tropicana Condominium Association, Inc., case further demonstrates the lack of clarity that exists when making a determination as to the applicability of newly adopted laws when compared against the existing provisions of an association’s declaration, absent the inclusion of “Kaufman” language.

Thanksgiving is almost here, and you can feel the holiday cheer is in the air. The recent overabundance of political signs is giving way to holiday decorations and glittering lights. Many communities are in the process of putting up white lights and oversized red bows. But, how many communities are setting up Christmas and Hanukkah displays, complete with nativity scenes and menorahs? Can they even do this considering the religious implications?

Luckily, we have some guidance from the United States Supreme Court to help associations differentiate between secular and religious symbols. In 1989, in County of Allegheny v. American Civil Liberties Union, the U.S. Supreme Court held that “the determination of whether decorations, including those used to commemorate holidays, are religious or not, turns on whether viewers would perceive the decorations to be an endorsement or disapproval of their individual religious choices.” The constitutionality of the object is judged according to the standard of a reasonable observer.

Although Christmas trees once carried religious connotations, the Court found that a Christmas tree, by itself, is not a religious symbol because “[t]oday they typify the secular celebration of Christmas.” The Court also noted that numerous Americans place Christmas trees in their homes without subscribing to Christian religious beliefs and that Christmas trees are widely viewed as the preeminent secular symbol of the Christmas holiday season.

In contrast, the Court stated that a menorah is a religious symbol that serves to commemorate the miracle of the oil as described in the Talmud. However, the Court continued that the menorah’s significance is not exclusively religious, similar to a Christmas tree, as it is the primary visual symbol for a holiday that is both secular and religious. When placed next to a Christmas tree, the Court found that the overall effect of the display to recognize Christmas and Hanukkah as part of the same winter holiday season, has attained secular status in our society. Therefore, we can conclude that a Christmas tree and menorah, side by side, are of a secular nature.

A reader once asked, “If our community displays a Christmas tree and menorah, doesn’t the Board have to allow a nativity scene and the Ten Commandments, too?” Interestingly, the answer is most likely, “no.” As to the Ten Commandments, in a 1980 case, Stone v. Graham, the U.S. Supreme Court held that that the Ten Commandments are undeniably religious in nature and that no “recitation of a supposed secular purpose can blind us to that fact.” The Court stated that the Ten Commandments do not confine themselves to secular matters (such as honoring ones parents or prohibiting murder), but instead embrace the duties of religious observers.

If a member of your community wants to include their religious symbol in the association’s holiday display, remember to consider the types of symbols already being displayed by the association as compared to the member’s request. Once your community displays a religious symbol, then there is a good chance your community will need to allow other requested religious symbols to avoid a claim of religious discrimination. Use the guidance from the U.S. Supreme Court’s cases to differentiate between a secular symbol and a religious symbol. The rules of kindergarten work best: treat everyone fairly and treat them as you would want to be treated.

Another important holiday decoration issue concerns whether the decoration constitutes a material alteration of the common elements or common area? Generally, unless a homeowners’ association’s declaration provides to the contrary, the homeowners’ association’s board of directors decides matters pertaining to material alterations. On the other hand, as to a condominium association, unless the terms of the declaration of condominium provide otherwise, seventy-five percent of the unit owners must vote to approve material alterations of the common elements.

On October 21, 2016, after a three day trial in the U.S. Bankruptcy Court for the Southern District of Florida, one of the largest (if not the largest) residential developers in the Nation, D.R. Horton, Inc., and four employees of D.R. Horton who served as developer-appointed directors on multiple boards of directors received a devastating blow – a $16.3 million judgment against them for numerous violations that included, violations of the directors’ fiduciary duties, conspiracy to breach fiduciary duty and violations of Florida’s Deceptive and Unfair Trade Practices act being among them.

While this decision of the Court has no real precedential value (meaning that this decision is not mandatorily binding on other courts), because it is a federal bankruptcy trial court decision, it is certainly noteworthy and citable in that it provides guidance to attorneys and directors alike – that is, if the judgment is upheld during D.R. Horton’s appeal which will inevitably follow.

As to the facts of the case, in 2005, D.R. Horton began developing the master community of Majorca Isles Master Association, Inc. (the “Master Association”). The Master Association was created to administer a 681 condominium unit project in Miami Gardens for low to moderate income families. It was to be comprised of a total of nine other condominium sub-associations. As is quite typical with developer-controlled associations, D.R. Horton appointed its employees to serve on the various boards of directors. In fact, and quite notably, the four employees named as defendants in the bankruptcy case were appointed to serve on the Master Association’s board of directors and the condominium sub-associations’ boards of directors, too. As such, the directors owed a separate and individual duty of loyalty and care to each association they served.

By the time the housing crisis swept the Nation, only 355 units had been constructed and only five condominium sub-associations had been organized, after which construction halted. Due to the recession, unit owners stopped making their assessment payments. Along the way, and as provided for in the governing documents, the board opted for the condominium sub-associations to collect the assessments due to the Master Association directly from the unit owners within the condominiums. Although D.R. Horton was required to fund the $50,000 per month operating deficit of the Master Association, it stopped doing so. Further complicating the conditions, the individuals serving on both the condominium sub-associations and Master board decided to keep all the funds collected in the condominium sub-associations and did not pay the portions due to the Master Association. As a result, the Master Association was severely underfunded and became insolvent which led to its bankruptcy.

In determining where the assessment monies received by the condominium sub-associations (however little it was) should go, the developer-appointed directors were faced with a conflict as they were on the board of directors for not only the Master Association but also for the condominium sub-associations, too. The developer-appointed directors decided to favor the condominium sub-associations over the Master Association and, in so doing, diverted funds due to the Master Association to the condominium sub-associations. Additionally, in order to stop the bleeding of D.R. Horton, who was losing large sums of money fulfilling its deficit funding obligations, D.R. Horton prematurely turned the Master Association over to member control. This act would effectively terminate its deficit funding obligation. Prior to turnover, the developer-appointed directors opted to discontinue services and amenities which the owners were entitled to receive from the Master Association.

During the Court’s discussion of the evidence presented regarding the developer-appointed directors’ breach of fiduciary duties, the Court provided that the directors owed fiduciary duties to the Master Association, to the multiple condominium sub-associations and to their employer, D.R. Horton. The evidence showed that all of the directors were aware of their fiduciary obligations and testified as to having intentionally breached these duties in one way or another.

Among numerous violations as to what the Court described as outright fraud, the Court found that the developer-appointed directors breached their fiduciary duties of loyalty and care to the Master Association by favoring the condominium sub-associations and their employer. For their breach of fiduciary duties, the Court ordered just over $3.8 million in actual, consequential and special damages and $12.5 million in punitive damages intended to “deter future, unlawful, malicious conduct and otherwise fulfill the intent of punitive damages.”

In quoting Justice Cardozo, a revered Associate Justice of the U.S. Supreme Court in the 1930’s, the Court provided that:

Many forms of conduct permissible in a workaday world for those acting at arm’s length, are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior…

There are important lessons to be learned from this case. When serving on multiple boards of directors such as a master and sub-association which may have competing interests, if the interests of those entities become adverse to one another, then it may be best to, at a minimum, abstain from any decisions that favor one entity over the other if possible and/or appropriate. The conflicted director should also consider resigning from one of the entities to make room for a replacement director who will not be hamstrung in his or her decision making. Moreover, if three or more directors serve on the same multiple boards at odds with one another and make decisions together, then they leave the door wide open for allegations of “conspiracy to breach fiduciary duty,” too, which will serve to exacerbate the situation and resulting damages as occurred in the case against D.R. Horton.

When purchasing your home, you likely shopped for the lender that would provide you with the most favorable terms for your mortgage loan. While you may have found the perfect lender, it is quite typical for your mortgage loan to be bought and sold on the secondary market. As a result, you receive a letter informing you of the transaction along with new instructions detailing where your monthly payments should be sent. But, the fun does not stop there. Your loan could then be bundled with thousands of others to be serviced by another loan servicing company. If so, you will receive yet another letter with new instructions.

In fact, it is not uncommon for a homeowner with a mortgage loan to not even know what company actually owns their mortgage due to confusion with their loan servicer, which is the company that manages the day-to-day operations of the mortgage loan on behalf of the mortgage loan owner. Although the loan servicer may be perceived as your lender, the loan servicing company is not the owner of your mortgage loan.

Given the number of companies which may have their hands on your mortgage loan, who is considered the first mortgagee under Florida’s statutory safe harbor laws? According to a recent decision of Florida’s Second District Court of Appeal, it could be all of them!

In the very recent Second District Court of Appeals case of Brittany’s Place Condominium Association, Inc. v. U.S. Bank, issued October 5, 2016, U.S. Bank filed a foreclosure action against a homeowner who was delinquent in payment of his mortgage loan. The condominium association was named as a defendant in the foreclosure action, and the foreclosure action was ultimately decided in U.S. Bank’s favor. As a result, U.S. Bank obtained title to the unit at the foreclosure sale and sought limitation of its liability for past due association assessments.

However, U.S. Bank was not the owner of the foreclosed mortgage loan. Rather, U.S. Bank alleged that it was the “holder of the note and mortgage and the servicer for the owner of the note and mortgage, acting on behalf of and with the authority of the owner.” The association and U.S. Bank disagreed as to the amount owed for past due assessments, and the association sued to foreclose its assessment lien on the unit.

In defending against the association’s foreclosure action, U.S. Bank won its motion for summary judgment where it argued that it was entitled to the statutory safe harbor. Simply stated, the statutory safe harbor limits the past due assessment liability of a first mortgagee, or its successor and assignee, to the lesser of twelve months’ unpaid past due assessments or one percent of the original mortgage debt. Noticeably absent from the safe harbor legislation is a provision extending its application beyond the first mortgagee, its successors and assigns to that of the loan servicer. Nevertheless, on appeal, the association argued that the statutory safe harbor did not apply because U.S. Bank was not the owner of the foreclosed mortgage loan.

During the appeal, the Court analyzed the language of the statutory safe harbor provisions, which do not provide a definition for “first mortgagee.” Looking to other Florida Statutes and other Florida cases for guidance, the Court determined that “a first mortgagee is the holder of the mortgage lien with priority over all other mortgages.” Additionally, applying the clarification from the statutory provisions, the “successor or assignee” is “only a subsequent holder of the first mortgage.” Then, the Court looked to a dictionary definition for the term “holder,” which is otherwise defined as a person who “holds” as an owner or “a person in possession of and legally entitled to receive payment of a bill.”

Based upon its analysis of the term “first mortgagee,” the Court concluded that actual “ownership” is not essential to a first mortgagee’s successor or assignee’s entitlement to limited liability under the statutory safe harbor, and its conclusion “is bolstered by the fact that the legislature did not use the word “owner” to restrict limited liability to only owners of the first mortgage (or note).” Therefore, the safe harbor protections were extended to the benefit of the loan servicing company, too.

The Court’s decision provides additional clarity as to who may be considered a first mortgagee, or its successor or assignee, under the statutory safe harbor provisions. Certainly this decision heightens the necessity for community associations to carefully analyze the application of the statutory safe harbor provisions.

Of late, more and more first mortgagee lenders argue that they do not have to pay past due assessments which became due prior to their acquisition of title that occurred as a result of their foreclosure. Such argument results from recent appellate cases where it was found that the statutory assessment obligation which provides for joint and several liabiltiy for past due assessments, as set out in sections 720.2085 and 718.116, Florida Statutes, yields to the specific terms of the association’s declaration which often provides that the lenders do not need to pay the prior assessments and which fully eliminate the statutory safe-harbor, too.

By now, many board members and managers are familiar with at least two of these seminal cases: Coral Lakes v. Busie Bank, a 2010 Second District Court of Appeals case, and Ecoventure v. St. Johns, a 2011 Fifth District Court of Appeals case. But, are these cases and the principles for which they stand being too broadly construed by foreclosing lenders? In short, and to the delight of Florida’s community associations, “you bet”.

In a recent decision by the Florida Second District Court of Appeal (the “Court”) in the case of Ballantrae Homeowners Association, Inc. v. Federal National Mortgage Association, the Court, in reversing a trial court decision, held that the first mortgagee who obtained title to the two subject properties through foreclosure was NOT entitled to the limitation or elimination of liability for assessments that accrued prior to obtaining title where the declaration of covenants did not provide for such limited or eliminated liability and where the lender failed to name the association in the foreclosure action.

In this case, the lender foreclosed on two properties in the association’s community but failed to name the association in the foreclosure action. It is well established law that the lien of a junior lienholder (here, the association) is unaffected by a foreclosure judgment where the junior lienholder was not named in the foreclosure action. While the association’s assessment lien remained intact, the lender argued that it was still entitled to an elimination of past due assessments due to the subordination of the association’s assessment lien. However, although the declaration of covenants in this case provided that the association’s assessment lien was subordinate to the lender’s first mortgage, it did not contain language specifically limiting or eliminating the lender’s liability for unpaid assessments accruing prior to obtaining title.

Finally, the Court provided that, EVEN IF the lender had proven its entitlement to a limitation or elimination of past due assessments, the association’s assessment lien would still be effective. This is because, without foreclosure of the association’s assessment lien, the lien would remain effective and, if improperly extinguished, the association would be without the opportunity to bid on the properties, make claim to any surplus, or assert any available defenses. So, by Fannie Mae arguing that the terms of the declaration controlled rather than simply accepting the requirements of the statutory safe harbor, we once again learn that pigs get fed, and hogs get slaughtered.

A lender’s liability for past due assessments will fully depend on the specific language of the declaration which can both subtly and drastically differ. Therefore, careful examination of such terms is required.

When you examine the terms of your community’s declaration you should look to see (i) if there is text that provides that the association’s assessment lien is subordinate to a first mortgagee’s lien; (ii) if there is text that provides that the first mortgagee, upon foreclosure of its mortgage, is not responsible for past due assessments; and (iii) if there is text that provides for a subsequent owner’s assessment liability when title is acquired from the lender who recently foreclosed. In other words, from Ballantrae we learn that having just the subordination language (in (i) above) will not operate to fully extinguish the prior assessments due from the foreclosing first mortgagee.

Many, but not all, association declarations which have not been minimally amended to mirror the statutory safe harbor obligations to determine the first mortgagee’s liability for prior assessments upon foreclosure or deed in lieu of foreclosure, as set out in Chapter 718 and Chapter 720 of the Florida Statutes, governing condominium associations and homeowners’ associations, respectively (otherwise known as “safe harbor”), continue to provide the lender with a full elimination of liability for past due assessments. This language is generally included in declarations prepared by a community’s developer to entice lenders to approve purchaser loans.

As to the “safe harbor” statutory provisions, while the provisions for both condominium associations and homeowners’ associations are vastly similar, there is one great distinction. As to homeowners’ associations, the “safe harbor” provisions only apply if the first mortgagee initially joined the association as a defendant in the foreclosure action while there is no similar requirement for condominium associations.

What does your declaration say with regard to first mortgagee’s past due assessment liability? Does it provide the foreclosing first mortgagee lender with a full pass on assessments due prior to its acquisition of title, or does it only provide for subordination? Regardless, if you have not reviewed or amended your association’s declaration in regard to assessment liability provisions that result from foreclosure in the past 5 or so years, then the board should consult with the association’s attorney to both review these terms and propose an amendment to provide better terms in favor of the association.

There is a dangerous trend being established by the U.S. Department of Housing and Urban Development (“HUD”) under the Federal Fair Housing Act (the “Act”) and the enforcement of the Act of which community associations must be aware.

On April 4, 2016, HUD’s General Counsel issued guidance regarding the application of the Act on the use of criminal arrests and convictions by community associations to screen potential purchasers and renters. Pursuant to this guidance, HUD provides a three element standard by which criminal history-based screening provisions are evaluated: (1) whether the criminal history policy or practice has a discriminatory effect; (2) whether the criminal history policy or practice is necessary to achieve a substantial, legitimate, non-discriminatory interest; and (3) whether there is a less discriminatory alternative.

This HUD guidance comes less than a year after a June 25, 2015 decision of the Supreme Court of the United States in which it held that claims of racial discrimination under the Act may be based upon disparate impact, the case having been based upon the discriminatory effects of the allocation of housing tax credits. As a result, it is possible that a discrimination claim based on the theory of disparate impact may be brought under the Act due to credit score requirements where the application of the requirement causes a disproportionate effect on individuals of a protected class.

Now, community associations have another concern. On September 13, 2016, HUD released final regulations regarding the Act, which will become effective on October 14, 2016. Under this new regulation, community associations may be liable under the Act for the discriminatory actions of residents who harass or create a hostile environment for other residents.

In its Rules and Regulations set out in Chapter 24, Part 100 of the Code of Federal Regulations which further interprets the Act, HUD stated that it believes that, “we are long past the time when racial harassment is a tolerable price for integrated housing; a housing provider is responsible for maintaining its properties free from all discrimination prohibited by the Act.”

As everyone should already be familiar, the Act provides, in relevant part, that it is unlawful “to interfere with persons in their enjoyment of a dwelling because of race, color, religion, sex, handicap, familial status or national origin of such persons or of visitors or associates of such persons.” With that in mind, HUD believes that there has been significant misunderstanding among the public and private housing providers (such as community associations) as to the circumstances under which they will be subject to liability under the Act for discriminatory housing practices undertaken by others. (In other words, is a community association liable for third-party behavior that is not the board’s business to begin with? According to HUD, you bet.) To answer this question, HUD amended its Rules and Regulations. HUD maintains that these amendments only clarify existing law. But, in fact, HUD has created unnecessary and unwarranted liability for community associations, their boards of directors, and quite possibly their managers and management companies, too.

Until now, neighbor-to-neighbor disputes have largely been a private matter. Ending this notion, HUD maintains that a person is directly liable for “failing to fulfill a duty to take prompt action to correct a discriminatory housing practice by a third-party, where the person knew or should have known of the discriminatory conduct. The duty to take prompt action to correct and end a discriminatory housing practice by a third-party derives from an obligation to the aggrieved person created by contract or lease (including bylaws or other rules of a homeowners’ association, condominium or cooperative), or by federal, state, or local law.” HUD further maintains that “the power to take prompt action to correct the discriminatory housing practice by a third – party depends upon the extent of control or other legal responsibility the person may have with respect to the conduct of such third – party.” HUD commented that, “the duty to take prompt action to correct a discriminatory housing practice by a third – party derives from an obligation to the aggrieved person created by contract or lease (including bylaws or other rules and a homeowners association, condominium or cooperative), or by federal, state or local law.” And further, HUD notes that even if the governing documents do not expressly create obligations to act, the power to act may derive from other legal responsibilities or by operation of law.

HUD believes that the community association generally has the power to respond to third-party harassment by imposing conditions authorized by the association’s covenants, conditions and restrictions or by other legal authority and that community associations regularly require residents to comply with the covenants, conditions and restrictions and community rules through such mechanisms as notices of violations, threat of fines, and fines. Finally, HUD maintains that “the community association is required to take whatever actions they can legally take to end the harassing conduct.”

 As to when the community association is on notice that it should act, HUD maintains that “a verbal or written account from an aggrieved tenant [occupant] may be enough to provide notice to a housing provider that a hostile environment may be occurring, but whether it would be sufficient to establish that the conduct is sufficiently severe or pervasive to create a hostile environment depends upon the totality of the circumstances.” As to when the community association “should have known” of the harassment of one resident by another, it occurs when the “housing provider had knowledge from which a reasonable person would conclude that the harassment was occurring. Such knowledge can come from, for example the harassed residence, another resident, or a friend of the harassed resident.”

With all of the above in mind, your community association should review its governing documents to determine whether the association is authorized to curtail conduct that contravenes existing law and review other type of “nuisance” provisions. No matter how innocuous such a provision might seem, the liability for the community association to act can be demonstrated from the requirements of such a provision. But remember, the power to act can also be derived from other legal responsibilities or by operation of law, too.

So, what can a community association do to protect itself from a claim of discrimination brought by a member asserting that the association knew or should have known that the resident was being discriminated against by another member and failed to take action to protect them? Minimally, the association can amend its governing documents to provide it is not responsible to police neighbor to neighbor conduct under any circumstances. But, nevertheless, if the association becomes aware of discriminatory conduct as caused by one neighbor to another, the association should consider taking remedial action by having its lawyer send a cease-and-desist letter to the offending owner, employing such penalties as may be permitted in the governing documents, and notify local law enforcement of the situation.

Long before the Condominium Act, more specifically, section 718.110(13) of the Florida Statutes, was amended to include that “an amendment prohibiting unit owners from renting their units or altering the duration of the rental term or specifying or limiting the number of times unit owners are entitled to rent their units during a specified period applies only to unit owners who consent to the amendment and unit owners who acquire title to their units after the effective date of that amendment” there was Beachwood Villas Condominium v. Poor, et. al., a 1984 Fourth District Court of Appeals (4^th DCA) case where several owners challenged rules enacted by their association’s board of directors which regulated both unit rentals and occupancy of units by guests. The trial court invalidated the rules, while the 4^th DCA reversed the trial court’s ruling and reinstated the board adopted rules.

The 4^th DCA noted that there could be two sources of use restrictions, those set out in the declaration of condominium and those adopted by the board. As to the use restrictions set out in declaration, such restrictions are “clothed with a very strong presumption of validity,” as initially provided in Hidden Harbor Estates V. Basso, a 1981 4th DCA case. Since the rules that are set out in the declaration of condominium are recorded in the public records, all purchasers, prior to becoming owners, have notice of these rules. But this is not the case for board adopted rules.

In examining board adopted rules, the court first determines whether the board acted within its scope of authority, in other words, whether the board had the power to adopt the rule in the first place and, then if so, whether the rule reflects reasoned or arbitrary and capricious decision-making. The board’s exercise of its reasonable business judgment in adopting a rule is generally upheld so long as the rule is not “violative of any constitutional restrictions[] and does not exceed any specific limitations set out in the statutes or condominium documents.”

It is interesting to note that the 4^th DCA discarded an argument that use restrictions adopted by the board must be clearly inferable from the declaration of condominium. In so doing, the 4^th DCA decided that such a test would be too stringent. The resulting test to determine the validity of board adopted rules as applied by the 4^th DCA is relatively simple: “provided that a board-enacted rule does not contravene either an express provision of the declaration or a right reasonably inferable therefrom, it will be found valid, within the scope of the board’s authority. This… test safeguards the rights of unit owners and preserves the unfettered concept of delegated board management.”

In examining board adopted rules ask yourself:

1) Did the board have the power to adopt the rule?

2) Does the rule conflict with the declaration?

3) Is the rule reasonable as measured by being rationally related to the objectives of the association?

If the answer to these three questions is “yes,” then the rule is valid and would quite likely be found enforceable upon owner challenge.

Remember that rules 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 of the declaration of condominium and unit owners who acquire title to their units after the effective date of that amendment, the Beachwood Villas Condominium test to determine the validity of board adopted rule is still good law.

Florida’s next big real estate problem is that the covenants recorded against the commercial real estate comprising the commercial association are, in many instances, about to have no operative affect thanks to the unintended, yet very real,  consequence of Florida’s Marketable Record Title Act, Chapter 712, Florida Statutes, created in 1963 by an act of the Florida legislature. It is referred to as ‘’MRTA” in short.

Florida’s commercial associations are formed for a variety of reasons.  It could be to empower a board of directors to protect commercial property values of the real property subjected to the commercial association’s declaration of covenants, to create a single body to administer the surface water drainage permit, or to generally provide for the overall welfare of the entire commercial association, or a combination of above and more. Some commercial associations are as small as your local shopping center, others can be the size of a small city.

No good deed goes unpunished and MRTA is no exception.  It was created to help title examiners of real property determine which “interests, claims, estates, or other charges” whatsoever recorded against the real property being examined remain in effect. MRTA is used to help eliminate older title considerations which arose prior to what is referred to as the “root of title.” The “root of title” is determined by looking back at least 30 years to identify a deed that meets certain statutory criteria set out in Chapter 712, Florida Statutes. In other words, MRTA operates to eliminate older covenants to prevent real property from being so overly burdened that the property is no longer marketable. MRTA also helps shorten the period of review a title examiner must examine during the conveyance of real property.

As an overly simplistic explanation, MRTA operates such that covenants recorded more than 30 years earlier can begin to expire on a lot-by-lot basis unless such covenants fit squarely into one of the exceptions to MRTA or unless action is otherwise taken to preserve the covenants from being extinguished. That is, if an option to preserve the covenants is even available which is not the case in all instances. Exceptions to MRTA are both statutorily provided and have been developed through case law. Due to differing practices, and preservation language in MRTA, a declaration of condominium, a homeowners’ association declaration of covenants, and a commercial association’s declaration of covenants can have very, very different results. It is the latter category, the commercial association’s declaration of covenants, which is in great peril.

A declaration of condominium is never affected by MRTA because reference to the official record book and page of the declaration of condominium is clearly set out in every deed which conveys each unit of the condominium. This practice fits squarely into one of the exceptions to MRTA and amounts to an express preservation of the declaration of condominium. However,  this is not the case for a homeowners’ association declaration of covenants because the deed that evidences the conveyance of a lot in a homeowners’ association references the official plat book and page of the property, but rarely includes a reference back to the official record book and page of the homeowners’ association’s declaration. Nevertheless, under MRTA, the HOA has the ability to “preserve” it’s declaration of covenants prior to the expiration of 30 years from the date of its initial recordation in the county’s official records books. If the homeowners’ association misses its opportunity to follow the process to “preserve” its covenants, then it has an opportunity to “revitalize” its covenants through a time-consuming and expensive process, but nevertheless it is attainable, albeit with difficulty.

The problem facing the State of Florida is that there is no express statutory mechanism for a commercial association to “preserve” its declaration of covenants.  Moreover, if 30 years have already elapsed since its original date of recordation in the county’s official records, a commercial association’s covenants have already been extinguished under MRTA, there is absolutely no statutory process to revitalize those covenants.

If the commercial association’s declaration of covenants was recorded more than 30 years from the date you are reading this article, then it is quite likely those covenants have already begun to expire on a lot-by-lot basis. At times, there is an applicable exception which will act to prevent the covenants from expiring. It is as simple as a reference to the official record book and page of the commercial association’s declaration of covenants on a recorded plat. However, many commercial associations are comprised of tens or even hundreds of parcels all referenced to a different plat. So, only those very few properties whose plat references the official record book and page of the commercial association’s declaration would be saved from the effects of MRTA. But for that, or some other exception to MRTA, the commercial association covenants may no longer be enforceable starting as early as 30 years from the date of initial recordation of the declaration in the county’s official records. The fact that the commercial Association declaration may contain text which provides that the declaration remains valid for a period of years and is then self renewing thereafter, is completely meaningless in the context of a MRTA examination.

There is, however, an argument that, pursuant to section 712.05, Florida Statutes, “any ‘person’ (which term includes corporations) claiming an interest in the land that desires to preserve a covenant or restriction may preserve and protect the same from extinguishment by the operation of MRTA by filing, for record, during the 30 year period immediately following the root of title, a written notice in accordance with this Chapter, referring to the MRTA, Chapter 712, Florida Statutes.” The problem with this text is that it is not clear whether the association may do so on behalf of all owners, or does each parcel owner need to file the preservation notice? Obviously, the parcel owners who no longer opt for enforceability of the covenants would choose the latter argument. Furthermore, once 30 years have passed from the initial recording of the covenants, and the effects of MRTA begin to operate to extinguish the covenants on a lot-by-lot basis, there is no process for the commercial association to revitalize its covenants.

Florida’s commercial associations are charged with great responsibility. They are often responsible for the operation of the surface water drainage system pursuant to a permit from the local water management district, they have maintenance responsibility for conservation tracts and other common areas, and generally ensure each owner maintains their property consistent with the provisions of the commercial association’s declaration of covenants.  If the Florida legislature does not take immediate action to provide a legislative remedy from the deadly effect of the Marketable Record Title Act as it relates to Florida’s commercial associations, then who will ensure the properties are maintained to a consistent standard, who will ensure the surface water drainage permit is being properly maintained (which affects the Association’s neighbors as well), and who will ensure the common areas and conservation tracts are being maintained?

The 2016 Regular Session of Florida’s Legislature ended without any substantial piece of community association legislation becoming law. However, there are a few bills that passed into law that are of interest to community associations.

Every board and manager should be aware of new requirements in regard to an application for lease submitted by a servicemember, community residential homes, and private residential elevators.

Application for Tenancy by a Servicemember:

• If an applicant for lease is a servicemember, ALL Florida community associations must, within a seven-day period, notify the servicemember in writing of an application approval or denial and, if denied, the reason for denial. Absent a timely denial of the rental application, the landlord must lease the rental unit to the servicemember if all other terms of the application and lease are complied with. This requirement is not waivable under any circumstances whatsoever – even by the parties themselves! A “servicemember” is defined as “any person serving as a member of the United States Armed Forces on active duty or state active duty and all members of the Florida National Guard and United States Reserve Forces.”

Requirements for “Community Residential Homes”:

• A “community residential home” is a dwelling licensed to serve residents who are clients of the Department of Elderly Affairs, the Agency for Persons with Disabilities, the Department of Juvenile Justice, or the Department of Children and Families or licensed by the Agency for Health Care Administration which provides a living environment for 7 to 14 unrelated residents who operate as the functional equivalent of a family, including such supervision and care by supportive staff as may be necessary to meet the physical, emotional, and social needs of the residents. This new law establishes site requirements for community residential homes and provides that a community residential home may not be licensed within 1,200 feet of an existing community residential home.

Private Residential Elevators:

• All new elevators installed in private residences must have a clearance of no more than three (3) inches between the hoistway doors and the edge of a hoistway landing and must have certain doors and gates to withstand a specified amount of force and to reject a sphere of a specified size under certain circumstances.

Discharge of a Firearm:

• Any person who recreationally discharges a firearm outdoors in a residential area with a density of one (1) unit or more per acre commits a first degree misdemeanor, unless the discharge was to lawfully defend life or property, in performing official duties requiring the discharge of a firearm, the discharge does not pose a risk to life, safety, or property, or the discharge was accidental.

Repeal of Cohabitation Prohibition:

• Although not enforced in some time, the prohibition of cohabitation by unmarried men and women that was previously contained in Section 798.02, Florida Statutes, of the State’s criminal code, has been officially removed.

Changes Related to the Building Code and the Fire Prevention Code:

• Combined Local Appeals Board. Local boards created to address issues arising under the Florida Building Code or the Florida Fire Prevention Code may combine their respective appeals boards to create a single, local board. The combined local appeals board may grant certain alternatives or modifications through procedures outlined in NFPA 1, Section 1.4, but may not waive the requirements of the Florida Fire Prevention Code.

• Appealing Decisions. Any decision by the local fire official regarding application, interpretation, or enforcement of the Florida Fire Prevention Code or by the local building official regarding application, interpretation, or enforcement of the Florida Building Code, or the appropriate application of either code or both codes in the case of a conflict between the codes, may be appealed to a local administrative board.

• Joint Committee. All decisions of the local administrative board in regard to the application, enforcement, or interpretation of the Florida Fire Prevention Code, or conflicts between the Florida Fire Prevention Code and the Florida Building Code, are subject to review by a joint committee composed of members of the Florida Building Commission and the Fire Code Advisory Council, and decisions of the local administrative board related solely to the Florida Building Code are subject to review as set forth in Section 553.775, Florida Statutes.

• Minimum Radio Signal Strength for Fire Department Communications in High Rise Buildings. The local jurisdiction must determine the minimum radio signal strength for fire department communications in all new high-rise and existing high-rise buildings. Existing buildings are required to comply with minimum radio strength for fire department communications and two-way radio system enhancement communications by January 1, 2022.

• Minimum Fire Safety Standards for Existing Buildings. The local fire official may consider the fire safety evaluation systems found in NFPA 101A, Guide on Alternative Solutions to Life Safety, adopted by the State Fire Marshal, as acceptable systems for the identification of low-cost, reasonable alternatives. It is also acceptable to use the Fire Safety Evaluation System for Board and Care Facilities using prompt evacuation capabilities parameter values on existing residential high-rise buildings.

 

Each week, I receive a multitude of calls and e-mails from condominium association clients, and non-clients alike, regarding the fire safety retrofit requirements. The confusion arises because of a 2010 amendment to section 718.112 of the Florida Statutes which, prior to 2010, provided an opportunity to condominium associations whose condominium building was greater than 75 feet in height, to opt-out of the requirement to retrofit the condominium with fire safety sprinklers. Effective July 1, 2010, this legislation was amended to remove the 75 feet in height requirement, meaning that, at least insofar as Florida law is concerned, a plain reading of the legislation means that all condominium associations must either be prepared to undergo a fire sprinkler system retrofit, or opt-out of this requirement.

On the other hand, the Florida Fire Protection Code has continually provided that the Life Safety Code requires high-rise buildings (meaning buildings 75 feet in height or higher) to either undergo a fire sprinkler system retrofit or implement an Engineered Life Safety System.

While many learned association counsel, with whom I have discussed this matter, and I agree that the requirement to install the fire safety system retrofit and the ability to  opt-out was intended to apply to high–rise condominium buildings, the post 2010 legislation set out in chapter 718, Florida Statutes, more commonly referred to as the Condominium Act, requires all condominiums to be prepared to opt-out of the requirement to install the fire sprinkler system retrofit or initiate a permit application for the fire sprinkler system retrofit with local government showing that the retrofit will be complete by December 31, 2019. It is generally agreed that this was not the intended result.

Read the statute below and see what you think. Section 718.112(2)(l) of the Florida Statute provides, in relevant part, as follows:

Notwithstanding chapter 633 or of any other code, statute, ordinance, administrative rule, or regulation, or any interpretation of the foregoing, an association, residential condominium, or unit owner is not obligated to retrofit the common elements, association property, or units of a residential condominium with a fire sprinkler system in a building that has been certified for occupancy by the applicable governmental entity if the unit owners have voted to forego such retrofitting by the affirmative vote of a majority of all voting interests in the affected condominium. The local authority having jurisdiction may not require completion of retrofitting with a fire sprinkler system before January 1, 2020. By December 31, 2016, a residential condominium association that is not in compliance with the requirements for a fire sprinkler system and has not voted to forego retrofitting of such a system must initiate an application for a building permit for the required installation with the local government having jurisdiction demonstrating that the association will become compliant by December 31, 2019.

I have read articles on this subject whose authors take the position that condominiums below 75 feet in height need not be concerned with the requirement set out in section 718.112 (2)(l), above. Nevertheless, only judges have the ability to interpret Florida Statutes in this manner. Therefore, it is important for the board of directors of each condominium association to make their own decision as to whether they want to adhere to the requirements set out in Florida law. At a minimum, before a non-high-rise condominium (below 75 feet) decides that the relevant provisions of section 718.112, Florida Statutes, is not applicable to their condominium association, they should consult with both the association’s attorney and the local jurisdiction’s fire official. At the end of the day, there is no harm to the non-high-rise condominium choosing to take the opt-out vote. In the meantime, a committee of several attorneys is seeking clarification from the Division of Florida Condominium that the need to install the fire sprinklers or opt-out, etc., is applicable to only high-rise condominiums and not those below 75 feet.

IMPORTANT: Clearly, high-rise condominiums are affected by the requirement to retrofit or opt-out. But, here is what you may not realize and absolutely need to know: if your high-rise condominium votes to opt-out of the need to retrofit with a fire sprinkler system, then the Life Safety Code will require that condominium association to prepare an Engineered Life Safety System commonly referred to an “ELSS.” Therefore, before opting out of the need to retrofit the condominium with a fire sprinkler system, the association might consider comparing the costs.

Finally, some good news, according to the Life Safety Code, if your high-rise condominium building has exits from all of the units that lead directly to an outdoor corridor, then the condominium will not be required to install the fire sprinkler retrofit or an ELSS.