Author: rembaumlaw

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Generally, liens, like any other recorded instrument, are deemed effective upon their date of recording. In other words, in Florida, lien priority is based on the notion of “first in time, first in right”. This means that the older liens have priority over more recently recorded liens. The older lien can “wipe out” junior, inferior liens – which are those liens which were recorded after the superior lienholder recorded its lien.

For example, should an unpaid electrical contractor record a lien against a lot within an association, then absent “relation–back” language set out in declaration (discussed below), the electrical contractor’s lien could have priority over the later recorded association assessment lien (which ultimately depends upon language within the documents). Hence, the need for inclusion of a very special provision in every declaration which will make the association’s lien superior to every other recorded lien, except to that of the first mortgagee. Of course, the only reason to give the first mortgagee’s lien superiority over that of the association’s lien is because, without such superiority, the lender would not loan its money to a purchaser of property within the association.

With the inclusion of special language in your community’s declaration, referred to as a “relation–back” provision, an assessment lien can relate all the way back to the date of the initial recording of the declaration. Such a provision, should it exist, is usually found within the section of the declaration pertaining to assessments and foreclosures.

The “relation–back” doctrine was crucial to the analysis of the very recent Fourth District Court of Appeal case, Jallali v. Knightsbridge Village Homeowners Association, Inc., decided January 4, 2017, which fully supplanted the prior appellate decision issued earlier in the same case and in which I am pleased to report that Kaye Bender Rembaum represented the Knightsbridge Village Homeowners Association, Inc. To understand the Jallali decision, we must first examine a prior appellate decision to provide the necessary context.

An earlier case decided in 2012, by the same District Court, U.S. Bank National Association v. Quadomain Condominium Association, Inc., stood for the principle that once a first mortgagee initiated its foreclosure proceeding against its borrower, an association was fully divested of its opportunity to foreclose an assessment lien, unless the association intervened in the lender’s foreclosure action within 30 days of the recording of a particular document in the public records, known as a lis pendens. The consequence of this decision was tantamount to a “death blow” to Florida’s community associations because it meant that, should the lender’s foreclosure litigation case stall for any reason, the association would be fully prohibited from filing an independent lawsuit to foreclose its own assessment lien, even if the assessment obligation did not exist until after the time to file a claim had expired – a very unfair result.

Well, with the issuance of the January 4, 2017 Jallali decision, the Quadomain decision was finally, fully and forever distinguished and quashed meaning that Florida’s community associations can once again bring their own assessment foreclosure cases at any time, even if there is a pending first mortgagee foreclosure lawsuit pending against the same owner. The lawyers at Kaye Bender Rembaum are very proud to have helped make this possible for the benefit of all community associations in the State.

In Jallali, in 2007, the first mortgagee filed its foreclosure action and then several years later, the Knightsbridge Village Homeowners Association filed its lien foreclosure lawsuit against the same owner. The association was first successful in its foreclosure and, later, the lender was successful in its foreclosure. Thereafter, the owner, relying in part, on the Quadomain decision, argued that the association’s foreclosure should be vacated. The District Court disagreed and also noted that it was because the association’s lien related back to the date that the Knightsbridge Village declaration was initially recorded, the association was not trying to foreclose an interest that did not exist when the lender initiated its foreclosure. It was because the association’s lien related back to the date that its declaration was initially recorded that was used as the justification to prove that the association was foreclosing its already existing lien interest in the property.

With all of the above in mind, should your association find itself in need of foreclosing its own assessment lien when a lender has already commenced its mortgage foreclosure action against the same owner, then absent the “relation–back” language set out in the association’s declaration, the association might likely not be in a position to be able to do so. Therefore, it is extremely important that every community association’s declaration contain a provision which makes it patently clear that all association assessment liens relate back to the date of the initial recording of the declaration.

To verify whether your association has this necessary and important language, the board should discuss this with its legal counsel. In addition, amongst the many other provisions which should be reviewed when amending and restating the declaration of covenants, a relation-back provision should be included, if not otherwise already present.

Unlike condominium associations, homeowners’ associations (HOAs) do not have reserves mandated by statute. Instead, pursuant to Chapter 720 of the Florida Statutes, more commonly known to as the “Homeowners’ Association Act,” reserves in an HOA are either initially created by the community’s developer or by a vote of the majority of the entire membership. Once reserves are established, the reserves must be included in the HOA’s annual budget as fully funded, unless the reserves are later waived, reduced, or terminated by a majority of a quorum at a members’ meeting.

While reserves can be established by the HOA’s developer, the Homeowners’ Association Act also provides that during the time the developer controls the HOA, the developer can be excused from paying “operating expenses and assessments” which are attributable to the lots the developer owns so long as the developer obligates itself to pay any operating expenses incurred by the HOA which exceed the assessments received from non-developer owners. This developer assessment obligation is more commonly referred to as deficit funding. (In lieu of the deficit funding model, the HOA’s developer can also chose to provide a stated guarantee of assessments which is not the subject of today’s article.)

Considering what we know about the establishment and funding of reserves and the developer assessment obligation for deficit funding, a question recently arose whether the HOA’s developer is excused from paying its share of reserves for the lots it owns during developer control of the HOA when the developer has opted for deficit funding? This question was recently asked and clarified by Florida’s Fifth District Court of Appeal in the case of Mackenzie v. Centex Homes, by Centex Real Estate Corporation, et al., decided December, 2016.

In this case, the developer, Centex Homes, built a community with multiple HOAs. Centex Homes prepared the governing documents for all of the HOAs. In so doing, Centex Homes opted to create reserves and to provide for deficit funding. By obligating itself to pay the deficit in operating expenses, Centex Homes was lawfully excused from paying “operating expenses and assessments” for the properties it owned during the time Centex Homes controlled the HOA. But, does that mean Centex Homes was not obligated to fund the reserves, too?

Although Centex Homes paid a nominal sum into the reserves during the first year of development, it discontinued paying into reserves for the remaining years of its control of the HOA. However, Centex Homes continued to collect reserves from all of the non-developer owners. Had Centex Homes paid reserves, its reserve payments would have equaled almost $1 million dollars. After Centex Homes relinquished control of the HOA to the non-developer owners, upset owners, the Mackenzies, brought a complaint against Centex Homes seeking a judgment from the court that Centex Homes failed to meet its reserve funding obligations and an order compelling Centex Homes to make the payment.

The Court, deciding in the Mackenzies’ favor, held that notwithstanding Centex Homes’ exemption from paying the “operating expenses and assessments” attributable to the properties owned by Centex Homes while it controlled the HOA in exchange for deficit funding, Centex Homes was still required to fund the reserves once they were established.

Due to the ambiguity created by the Homeowners’ Association Act in referring to the developer’s exemption from “operating expenses and assessments” under deficit funding and the requirement to fund reserves once they are established, the Court was required to interpret the reserves provisions and the deficit funding provisions of the Homeowners’ Association Act to give both meaning within the intent of the legislature that created them. If the Court were to agree with Centex Homes’ argument that it was excused from paying its share reserves because it was deficit funding, the obligation to fund reserves upon their establishment would be meaningless. Therefore, the Court reasoned that Centex Homes was not excused from its obligation to fund reserves attributable to the properties it owned during its control of the HOA as a benefit of deficit funding.

The moral of this story is that if a developer creates reserves in the HOA’s declaration, then, notwithstanding the deficit funding obligation and the financial relief it provides to the HOA’s developer, the reserves will still require funding. If the reserves are not properly funded, and there is no waiver or reduction accomplished by a vote of the members, then, according to the Mackenzie v. Centex Homes case, the developer is on the hook to fund the reserves.

This case could certainly lead to a chilling effect in that, in spite of a developer’s careful planning for its community and its desire to ensure success for the newly created HOA by ensuring reserves are created for future maintenance and repairs, after reading the Mackenzie v. Centex Homes case, why would any HOA developer create HOA reserves?

Your board of directors has diligently met with the association’s insurance agent. After many meetings and protracted negotiations, the association purchases an “all-risk” insurance policy. Not too long after, the association’s clubhouse is damaged by hurricane force winds, water intrusion, and possibly some faulty construction, too. Will the damage be covered by the association’s insurer? This is what was recently addressed on December 1, 2016 by the Supreme Court of Florida in Sebo v. American Home Assurance Company, Inc.

Sebo purchased a home in Naples, Florida in April, 2005, when it was four years old. He insured it for over $8,000,000.00 with an “all-risk” insurance policy which was specifically created for his residence. Shortly after he bought the home, major water leaks caused by rainstorms occurred and were reported to the property manager. Soon it was apparent that the house suffered from major design and construction defects. In fact, after one rainstorm “paint along the windows just fell off the wall.” The residence could not be repaired and was eventually torn down. On two separate occasions, Sebo filed claims which were denied, except for coverage in the amount of $50,000.00 for mold damage.

After a jury trial, the jurors found in favor of Sebo, and the trial court entered a judgment against American Home Assurance Company, Inc. However, the appellate court disagreed with the trial court and reversed and remanded for a new trial. The appellate court’s disagreement with the trial court had to do with how the court should examine the causation of loss. Due to a difference in rulings from different appellate courts, the matter was decided by the Supreme Court of Florida.

The main issue examined is when there are multiple perils combined to create a loss and where at least one of the perils is excluded by the terms of the policy, must the insurer provide coverage under an “all-risk” policy? Should the court have applied the “Efficient Proximate Cause” theory, which provides that where there is a concurrence of different causes, the one that set the others in motion (the “efficient cause”) is the cause to which the loss is to be attributed, or should the court have applied the “Concurrent Cause Doctrine,” which provides that coverage may exist where an insured risk constitutes a concurrent cause of the loss even when the non-excluded cause is not the prime or efficient cause of the peril?

In this case, Sebo argued that his insurer was required to cover all losses under the “Concurrent Cause Doctrine.” In making its determination, the Court noted that both rainwater and hurricane winds combined with the defective construction which caused the damage to Sebo’s property. Ultimately, in reliance on and quoting an earlier case, the Court found that “[w]here weather perils combine with human negligence to cause a loss, it seems logical and reasonable to find the loss covered by an all-risk policy even if one of the causes is excluded from coverage.” Ultimately, the Court found that because the insurer did not explicitly avoid applying the “Concurrent Cause Doctrine,” the Court found that the plain language of the insurance policy did not preclude Sebo’s coverage under his “all-risk” policy.

The ever important “take away” from this case is that if your association has a policy that excludes the “Concurrent Cause Doctrine,” then in the event there are multiple perils that caused the casualty and one of the perils is excluded from coverage, then the association’s insurance company may, in fact, be able to deny coverage based on the singular exclusion, notwithstanding the coverage which may have been available for the other perils had the excluded peril not been part of the casualty causing event.

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.