Category: Articles

Associations are charged with the duty to operate, maintain, repair and replace the common areas of the community. The question that often plagues the minds of members of a board of directors is, who is going to pay for that? The association? The owners? Which owners? An insurance carrier? Whose insurance carrier? Is it even the association’s responsibility to repair or replace? More often than not, the answer depends on a very similar question and which is typically answered in the community’s declaration of covenants – who is responsible to maintain, repair or replace the item in need of maintenance, repair or replacement? The answer may also depend on who created the need for the repair. For example, in the event repairs are needed in the recreation room because a member’s child attempted to do a skateboarding trick and instead put a hole in the wall, the association is likely responsible to conduct the repair, but the owner is likely responsible to reimburse the association for the cost of the repair. The answers to these types of questions rely heavily upon what is contained in your association’s governing documents and will have an important impact on the amount of assessments the owners will have to pay. These types of questions, along with the right answers, would have been very helpful to the parties in the March 6, 2015 Second District Court of Appeals case of Fern v. Eagles’ Reserve Homeowners’ Association, Inc.

In Fern, Ms. Fern, an owner of a newer townhouse, who was sued by her homeowners’ association for failure to pay special assessments for repairs made to the community’s older townhouses, challenged the association’s levy of such special assessments. When the townhouse community was developed, the first townhouses were poorly constructed and required extensive reconstruction. However, the newer townhouses were properly built and required few or no repairs. The association conducted the reconstruction of the older townhouses and minor repairs to the newer townhouses and levied a special assessment against all of the owners for all of the repairs notwithstanding the language of the association’s declaration which provided that the association was responsible for the maintenance, repair and replacement of the “exterior of the Dwelling Unit.”

In examining this phrase, it’s important to note a fundamental difference between owning a condominium unit versus owning a home in a homeowners’ association, even if it is a townhome as did Ms. Fern. Typically, in a homeowners’ association, the owner of a townhome, or perhaps all of the owners whose townhomes comprise a singular townhome building, are responsible for the exterior walls. So, even if the association is required to effectuate the repairs, only the owner of the repaired home pays for the repairs to that home. This is further evidenced by section 720.308, Florida Statutes, which allows different levels of assessments assessed against different owners based on the level of services provided by the association.

At trial, Fern asserted that the special assessments were improper expenditures of the association and were therefore unenforceable. Other owners who felt the same had previously sued the association in the case of Klak v. Eagles’ Reserve Homeowners’ Association, Inc., 862 So.2d 947 (Fla. 2nd DCA, 2004). In Klak, the Court held that the association’s obligation to repair the townhouses, and therefore its authority to assess the owners for such repairs, was limited to only the exterior surfaces of the exterior walls of the townhouses. This interpretation was based on language in the association’s declaration which provided that the association was responsible for the maintenance, repair and replacement of the “exterior of the Dwelling Unit” and is much narrower than what the association had hoped or believed. Hoping and wishing could be some very dangerous tools to employ in interpreting a declaration of covenants.

The Court provided that the owners should be assessed for their share of the expenses to repair the building exteriors but that the association would need to seek payment or reimbursement for the remaining expenses from the individually benefited owners and return money to those owners who paid more than their fair share of the repairs.

In the meantime, because of the terrible condition of the older townhouses, the association was ordered by the trial court to continue conducting the repairs. Due to the various lawsuits the association was facing as a result of this special assessment, many years passed, and the association filed for Chapter 11 bankruptcy. The bankruptcy plan permitted the Association to continue its collection efforts but did not address Ms. Fern’s asserted defense of whether the special assessments against her were actually unenforceable. The case against Ms. Fern was ultimately sent back to the trial court because of her asserted defense of whether the special assessments were actually enforceable was required to be determined by the trial court. What happened next? Well, it’s too soon to know. In reviewing the judicial decision, and to add another level of both complexity and absurdity, it does appear that while this case was pending in the appellate court, Ms. Fern actually lost her home as a result of the association’s foreclosure.

This case provides great insight into the importance of properly interpreting the maintenance, repair and replacement provisions set out in the declaration and the assessment authority that goes with it. While the questions may sound simple, the answers often require in depth analysis of your association’s governing documents and the application of Florida case law to reach the right conclusion.

At some point in time, every association is faced with a major maintenance and repair undertaking, whether it be concrete restoration, elevator refurbishment, new roofs or a similar monumental task, which requires the association to place their trust, and a large sum of their money, in the hands of contractors, engineers and architects.

The bid process begins, and all of the prospective contractors, engineers and architects tout their skills and expertise in the hopes that the association selects them for the work at hand. More and more, despite the professionals’ desire to win the job, the professional contractor does not want to take on the liability for their own work. This is evidenced by broad waivers of liability, disclaimer of warranties and terribly one-sided indemnity provisions that are set out in the contractor’s contract that is given to the association for review.

As a community association attorney who regularly reviews contracts for community associations, I have seen enough of these broad waivers and disclaimers of liability and one-sided indemnity provisions to last a lifetime. One such example of an attempt to limit liability follows:

In recognition of the relative risks, rewards and benefits of the project to both the Client and the Contractor, the risks have been allocated so that the Client agrees that, to the fullest extent permitted by law, the Contractor’s liability to the Client, for any and all injuries, claims, losses, expenses, damages or claims expenses arising out of this Agreement, from any cause or causes, shall not exceed $20,000.00 or the amount of the Contractor’s fee, whichever is greater. Such causes include, but are not limited to, the Contractor’s negligence, errors, omissions, strict liability or breach of contract.

The association is hiring the contractor, engineer and architect because of their professional expertise, yet the professional is, in essence, saying “I’m great, but I’m not responsible to the association if a make any errors.” This is absolutely absurd and an abhorrent practice. Sure there need to be a relative balance so that the professional is not sued by the client association for such matters beyond the control of the professional but to call yourself a professional and run from your own liability is insulting, at best.

Depending on the scope of the association’s maintenance, restoration or repair project, this limit on the contractor’s liability could be egregious. To put this language in a real-world context, let me provide you with an example of the application of this provision to a hypothetical scenario. An association undertakes a concrete restoration project for its entire building which is going to cost the association about $500,000.00. The professional makes a mistake in the waterproofing of the envelope of the building, exposing the building to water intrusion. Months after the project has been completed, residents begin to complain about the smell of the building. Tests are conducted and, sure enough, the condominium is riddled with mold which the association is responsible to repair to the tune of $250,000.00. The association’s insurance carrier is, no doubt, fighting them for coverage, and meanwhile the association is stuck with the bill. So, the association turns to the professional who did the work for answers. Pursuant to the language above, the contractor is only liable to the association for $20,000.00, or the contractor’s fee, whichever is greater. So the association has to come up with difference! Even though the contractor was clearly at fault, the contractor cannot be held liable for its own negligence, errors, omissions, strict liability or breach of contract above the limits as set out in the contract.

Provisions like this could be devastating to an association! While the details of the maintenance project itself, such as the time of the project and the materials used, are important, it is also important for the association to properly protect itself and its members in the event something goes wrong, which happens more often than I prefer. Contractor prepared agreements tend to be a minefield for associations because there are many liability related provisions which must be considered and re-drafted in order to protect the association.

While protecting the association, and its members and residents, is of the utmost importance, it is also important to consider the potential liability of the contractor because, realistically, no deals would be made if the association was fully protected, while the contractor is left completely exposed. There is a balance between protections for the association and protections for the contractor that must be struck in order for associations and contractors to have a mutually beneficial relationship. Finding that balance is easier said than done in many cases, but is entirely possible.

The simplest way to plan for your association’s maintenance, repair and restoration project, and avoid such pitfalls, is for the association to provide the requisite professional with the association’s own draft contract as a part of the bidding process. In that way you can hopefully avoid wasting countless hours in selecting the right professional only to have the deal fall apart because they refuse to stand behind their own work.

Any reputable professional, be it a contractor, engineer, or architect, should stand behind their work. If they won’t, then find one who will!

Florida’s 2015 Legislative Session began on March 3, 2015, and several bills regarding community associations were filed. An already paired set of such bills, House Bill 611 and its companion, Senate Bill 736, are creating great controversy among Florida’s community associations. Both bills propose significant changes to the laws regarding the issuance of estoppel certificates by community associations. To accomplish this, patently drastic and overtly draconian amendments are proposed to section 718.116, section 719.108 and section 720.30851, Florida Statutes, regarding condominium associations, cooperatives and homeowners associations, respectively.

A brief explanation of the term “estoppel certificate” is in order. An estoppel certificate is a certificate issued by a community association (or its manager or attorney), which provides the monies owed to the association as of a particular date, minimally including due and owing assessments, late fees and interest charges, by a current or prior owner. A prospective purchaser may then rely on the estoppel certificate, until its expiration date. Simply put, an estoppel certificate “estops” the association from asserting a greater amount due than what is provided by its estoppel certificate.

House Bill 611 and Senate Bill 736 propose very strict maximum estoppel certificate fees that may be charged. The legislation mandates that the fee for an estoppel cannot, under ordinary circumstances, exceed $100.00, plus $50.00 for a rush and plus another $50.00 if issued by an agent of the association or its attorney. So, these lowered fees will be made up for elsewhere. Likely it will be in higher management and legal fees passed on to the association which are then paid by each member in pro-rata share. No one other than the buyer and seller should share in these costs.

It is comical, in a tragic fashion, just how much attention is being paid to this issue in this year’s legislative session. Realtors typically earn a whopping 6% commission when the property sells. It doesn’t matter how long the property was on the market, the efforts expended by the realtor, or even the ultimate price of the property. Be it a $100,000.00 or $10,000,000.00 sale, the realtor’s commission is customarily 6%. The closing agents earn their fees, the appraiser charges their fees as does the surveyor, the lender and everyone else associated with the sales process. So, in the infinite wisdom of our Florida Legislature, they have decided to make the “association” the bad guy in this process by focusing on the, more often than not, insignificant estoppel fee.

House Bill 611 and Senate Bill 736 will also shorten the amount of time community associations have to respond to requests for estoppel certificates from 15 days to 10 days. If a community association fails to provide an estoppel certificate within the 10 day period, House Bill 611 and Senate Bill 736 provide that the community association will have effectively waived any claim for any amounts due and owing that should have been shown on the estoppel certificate. Furthermore, there is no mechanism provided in the proposed legislation which provides for an extended timeframe within which to respond should the estoppel certificate request be referred to an attorney or in the event an issue arises during the preparation of an estoppel certificate. At times, due to complications that are understood best by those who issue countless estoppel certificates, 15 days is barely sufficient time to issue an estoppel certificate. Under some circumstances, a 10 day window to do so is laughable. Who suffers as a result of the unissued estoppel? Every single member in your association, but for its newest owner, because it is the existing members who have to make up the financial shortfall.

While the amount due as reflected in the estoppel certificate is the maximum amount a community association is allowed to collect, the legislation also provides that it is the maximum amount due from anyone who relies in good faith on the estoppel certificate including successors and assigns. This provision which provides for a chain of never ending assignability is just plain wrong! An estoppel certificate should only inure to the benefit of the requesting party. If someone else wants one, they too should have to pay for it. Otherwise, it is no different than going to the grocery store demanding a free gallon of milk, because your neighbor bought one yesterday.

Additionally, estoppel certificates, under the new laws if made effective, must be effective for thirty (30) days from the date the estoppel certificate is received by the requesting party, which date must be provided on the estoppel certificate. There is no great justification to require the estoppel certificate remain valid for an entire 30 days. Essentially, the inability of the parties to timely close their deal is being held against the association. At times, budgets are amended and special assessments levied. If either is done after the estoppel certificate is issued, then that person may not have to pay their fair share. The longer period of time the estoppel remains valid, the greater the potential harm to the association.

Given the tens of thousands of association members in Florida who can be financially hurt by this legislation, it amazes me how silent this block of voters often remains. If you want good laws benefitting your association then let your legislators know that the terms of this proposed legislation are unacceptable.

Being a lawyer whose practice concentrates almost exclusively on the representation of community associations throughout the State of Florida, I thought I had seen it all. These days, it is becoming harder and harder to surprise me with stories about association living. But, every now and then, admittedly, I find myself shocked. Sadly, today’s column will describe one such event.

“Condominium living” – the term denotes living on top of one another, literally. It is the great social experiment of the Twentieth Century. Pragmatically, condominium living makes all the sense in the world. Instead of one person enjoying the beautiful ocean view in a single family home, the condominium allows sometimes hundreds of families to enjoy that same ocean view, albeit stacked on top of one another like sardines.

The condominium building is a complex building of various degrees. It can cost tens, if not hundreds of millions of dollars to construct. In many ways it could be compared to a cruise ship complete with HVAC systems, boilers, restaurants, elevators, swimming pools, and in South Florida, the building must weather ocean conditions and storms. Like any ship, the condominium needs a good crew. We call the condominium’s crew, the ever revered board of directors. It is a thankless and time consuming job. Everyone is an expert at what the board members should have done. The association member should be ever grateful to their board members for stepping up to the plate and giving themselves so selflessly.

Unless you yourself have served on the board, then you really can’t imagine the countless hours and aggravation you will sometimes experience. In the utopian association, members serve on the board because they truly care and want to help maintain what is no doubt a fabulous way of living. In the not so utopian association, members want to serve on the board for a whole host of other reasons such as ego, Napoleonic syndrome and power trips. It is to those board members that today’s column is directed.

Board members have a fiduciary duty to their association to exercise their reasonable business judgment. Over the past couple of weeks several regular readers of Rembaum’s Association Roundup have shared an exchange between themselves and their association’s president. The entire association is experiencing a troubling issue with a commercial neighbor. The association members are looking to their board president for information, guidance, support and peace of mind in knowing that their elected “captain” is guiding the ship through the turbulent waters. As you read the verbatim dialogue below between the members and the president, you should know that the association members live out of town most of the year and are a respected doctor and clergyman. Both are well published in their field and have national reputations.

Owner(s) to the President: “I recently sent an email to you and a follow up when I did not hear back. Could you let me know if you received them? I would be happy to meet with you directly regarding the ongoing issue if you prefer.”

President to the Owner(s): “If you want an update go to the board meetings like everyone else… or read the minutes of the meeting… That is what they are for… My job is not to respond on an individual basis to unit owners who make up stories of selling their apartment and are too lazy to attend board meetings!”

Having looked at the minutes from the past year and not seeing much about the issue, the owners write back to the president.

Owner(s) to the President: “I am not sure what to make of your recent email to me except to attempt to impune my character and avoid the issue about which we have previously communicated. Perhaps you are not aware that I reside in New York and work full time as, frankly, a nationally recognized physician… As the problem continued unresolved, as you know, we became stressed and frustrated to the point of considering a sale, of which we informed you. We indicated this to you in earnest… If you would take a moment to re-read your email to me and reflect on whether it went, let us say, overboard, I would appreciate your response.”

President to the Owner(s): “I REALLY DON’T CARE WHAT YOU DO OR ARE… YOUR ROOMMATE TOLD ME DAY ONE THAT YOU WOULD BE A PAIN AND HARASS ME. GO TO THE MEETINGS AND OR READ THE MINUTES!”

Owner(s) to the President: “Are you confusing me with someone else? I own the unit with my spouse of many years and we have never had a roommate…”

President to the Owners: “I DO NOT TAKE EMAILS FROM RESIDENTS… ALL YOURS WILL BE GOING TO SPAM… FOLLOW PROPER PROCEDURES… IF YOU WOULD HAVE ATTENDED THE MEETINGS YOU WOULD KNOW THIS. FEEL FREE TO READ ANY MINUTES OR COME TO ANY MEETING TO ASK QUESTIONS AND EXPRESS YOUR CONCERNS… I HAVE ALWAYS OPENED UP THE MEETINGS TO QUESTIONS AND STAYED UNTIL ALL WHERE ANSWERED!!!! BELIEVE ME I AM VERY PREPARED!!!!”

Clearly, this president is reacting… to what, we may never know. Why does this president feel the need to yell (evidenced by the all caps in the emails) at these members asking for information? Why won’t he take the time to be responsive to the members’ simple request for a status update? Why does a president not take emails from members? Why is this president so rude and callous? Maybe this president will do the ship a favor and disembark at the port!

A community association is a corporation, in many ways similar to any other corporation, be it a for-profit or not-for-profit company. In exercising decisions, for the most part, the community association’s board members must adhere to the “business judgment rule.” As I like to explain it, this means that the board member’s decisions might be right or might be wrong. However, the ultimate question is, “did the board member act reasonably?” In other words, did the board member exercise his or her discretionary decisions in a reasonable manner? It should be obvious that, in making such decisions, the director must owe some type of duty to the association, too.
In a recent case, McCoy v. Durden, decided on December 31, 2014, the Florida’s First District Court of Appeal had occasion to answer this question, albeit in a slightly different context than that of a community association. Nevertheless, in a generic sense, the First DCA examined the duty of care and loyalty owed by a director to his or her corporation that they serve and provided some interesting historical context, too.
The First DCA in McCoy quickly pointed out that Florida courts have long since recognized that corporate officers and directors owe both a duty of loyalty and a duty of care to the corporation that they serve. As early as 1907, in a case styled, Jacksonville Cigar Co. v. Dozier, the Florida Supreme Court recognized that, under the Florida common law, a director is in a fiduciary relationship with the corporation. In 1932, in Orlando Orange Groves Co. v. Hale, the Florida Supreme Court described the relationship between a corporation and its directors and officers. The Florida Supreme Court explained in the Orlando Orange Groves Co. case that “[t]hey are required to act in the utmost good faith, and in accepting the office they impliedly undertake to give to the enterprise the benefit of their best care and judgment, and to exercise the powers conferred solely in the interest of the corporation.”
Later, in 1980, in Snead v. U.S. Trucking Corp, the First DCA explained that “[a] director’s… acts are subject to be tested by the rules governing the relation of a trustee to his cestui que trust… He is bound to act with fidelity, the utmost good faith, and with his private and personal interests subordinated to his trust duty whenever the two come in conflict.” By way of explanation (and because I had to look it up, too) a “cestui que” is the person for whom a benefit exists, and a “cestui que trust” is a person for whose benefit a trust is created.

Under Florida’s common law, the Florida Supreme Court has defined the concept of fiduciary duties broadly reflecting its historical origin in equity. In other words, even if a legal duty was not codified in the statutory law, a common law duty exists, too. In 1927 in Quinn v. Phipps, a case involving allegations that a real estate broker had violated his fiduciary duty, the Florida Supreme Court explained the basis of the duty: “The term ‘fiduciary or confidential relation,’ is a very broad one. It has been said that it exists, and that relief is granted, in all cases in which influence has been acquired and abused – in which confidence has been reposed and betrayed. The origin of the confidence is immaterial. The rule embraces both technical fiduciary relations and those informal relations which exist wherever one man trusts in and relies upon another… Stripped of all embellishing verbiage, it may be confidently asserted that every instance in which a confidential or fiduciary relation in fact is shown to exist will be interpreted as such. The relation and duties involved need not be legal; they may be moral, social, domestic or personal. If a relation of trust and confidence exists between the parties… that is sufficient as a predicate for relief.” (Emphasis added.)
So, does a director of a community association owe his or her association a duty of care and loyalty? You bet they do! Now that we have established that a board member owes a duty of care and loyalty, what exactly are they? It is a fiduciary duty to act in the best interests of the association by acting with loyalty, honesty, and in good faith. Put simply, a director owes a duty to exercise good business judgment and to use ordinary care and prudence in the operation of the association. A director should perform his or her actions in good faith and in the best interest of the association, exercising the care an ordinary person would use under similar circumstances. A director’s decisions are typically protected under the “business judgment rule” unless they breach one of these duties. So, if you are a board member, remember the duty of care and loyalty that you owe to the association you serve.

Timing is everything – in love, in life and in lawsuits. Unlike timing in love and in life, timing in lawsuits is governed by certain laws including those referred to as the statute of limitations. Determining when the statute of limitations’ clock begins to tick can be tricky. For example, and as further discussed in today’s article, in Florida, a lender has five years from the date of default to foreclose on its mortgage and note. If the lender fails to file a foreclosure action within five years of the date of default upon which its lawsuit is based, the lender is barred from filing the foreclosure action.

This was the issue before the Third District Court of Appeal in the very recent case of Snow v. Wells Fargo Bank, N.A., decided on January 14, 2015. In this case, on May 25, 2007, the Snows executed a mortgage note with Wells Fargo for property located in Miami, Florida. Pursuant to the terms of the mortgage, Wells Fargo had the option to accelerate the debt in the event of a default.

Prior to accelerating the remainder of the debt upon default, Wells Fargo was required to provide the Snows with notice specifying the default, providing an opportunity for the Snows to cure the default within thirty days of the notice and informing the Snows that the failure to cure the default may result in acceleration of the mortgage debt. Upon the Snows’ default on October 1, 2007, Wells Fargo sent a notice to the Snows on December 6, 2007 which provided the Snows with thirty-five days to cure the default by paying off the amount of the default. However, the Snows failed to cure the default within the thirty-five day period (by January 10, 2008). It’s important to note that Wells Fargo’s notice did not provide notice that the remainder of the note would be accelerated if the default was not cured.

Then, on March 12, 2008, Wells Fargo filed a foreclosure action against the Snows. However, on June 28, 2011, Wells Fargo voluntarily dismissed their lawsuit against the Snows, without prejudice. The term “without prejudice” in a judgment of dismissal ordinarily indicates the absence of a decision on the merits and leaves the parties free to litigate the matter in a subsequent action, as though the dismissed action had never existed.

On March 5, 2013, Wells Fargo filed its second foreclosure action against the Snows. The Snows argued that the second foreclosure action was barred by the five-year statute of limitations because the limitations period began to run on January 10, 2008 (the date by which the Snows were required to cure the default). Therefore, the Snows asserted the statute of limitations expired on January 10, 2013, three months prior to the filing date of the second foreclosure action.

Wells Fargo argued that the date the statute of limitations began to run was not January 10, 2008, but rather March 12, 2008, the date the first foreclosure complaint was filed. Therefore, Wells Fargo asserted the five-year limitations period had not yet expired when Wells Fargo filed the second foreclosure lawsuit on March 5, 2013. The trial court agreed with Wells Fargo and determined that the second foreclosure action was filed prior to the expiration of the statute of limitations.

On appeal, the Third District Court of Appeal affirmed the trial court’s decision and held that the second foreclosure lawsuit was timely filed. In its discussion, the Court noted the difference in the calculation of the statute of limitations with regard to mortgage notes with an automatic acceleration clause and those with an optional acceleration clause.

When an acceleration clause is automatic, the entire indebtedness becomes due immediately upon default, and the five-year statute of limitations begins to run without notice. When an acceleration clause is optional, the lender must exercise this option and give notice to the borrower of the election, making the entire indebtedness due. It is when the lender exercises the acceleration option and notifies the borrower of its exercise that the five-year statute of limitations begins to run.

In this case, the statute of limitations began to run on March 12, 2008, when Wells Fargo filed its first foreclosure action. The Court found that the December 6, 2007 notice of default from Wells Fargo was not Wells Fargo’s exercise of its option to accelerate the mortgage note because the notice did not provide that the full amount of the indebtedness was immediately due nor did it demand payment of the full amount of indebtedness. Wells Fargo did not make such a demand for the full amount due (i.e., the accelerated amount) until it filed its first foreclosure complaint on March 12, 2008. Therefore, the Court determined that the statute of limitations would have expired on March 12, 2013, a week after the second foreclosure action was filed. Timing is everything.

In this December 3, 2014 case, Bethany Trace Homeowners Association, Inc. v. Whispering Lakes I LLC and Waterman-Pinnacle, Inc., the association’s subsequent developer, Waterman-Pinnacle, sold lands designated in the Bethany Trace HOA’s declaration as common areas. As a result, when the Bethany Trace HOA found out, it sued Waterman-Pinnacle to get its common areas back.

In 1990, Leigh Corporation started building out the Bethany Trace HOA. As a part of the initial development, Leigh Corporation drafted and recorded Bethany Trace HOA’s declaration. In the declaration, the common areas were identified as “those tracts, easements or areas of land shown on any recorded subdivision plat of the property which are intended to be devoted to the general common use and enjoyment of the Owners in the Property,” and included certain designated items such as “fences surrounding the property, a maintenance area, a conservation area, an entranceway along with all of the improvements located thereon.” There was one small problem, however. The plat was never recorded. (Does this mean that the common areas were never actually created?)

Eleven years later, Leigh Corporation sold its rights and obligations under the Bethany Trace HOA declaration to Waterman-Pinnacle, the subsequent developer. In the assignment, Waterman-Pinnacle agreed to convey the common areas to Bethany Trace HOA “for no further consideration and free and clear of any liens or encumbrances.” Nevertheless, Waterman-Pinnacle sold the lands designated as common areas to another developer which bulldozed them in anticipation of building additional homes. When Bethany Trace HOA learned of this, it sued to get its common areas back.

In summary, Waterman-Pinnacle argued that, because the plat was never recorded, the common areas identified in the declaration weren’t actually common areas and, therefore, the property could be sold. Bethany Trace HOA argued that the lack of a recorded plat did not affect its interest in the identified common areas as the common areas were identified by name and included metes and bounds legal descriptions in the declaration itself. Interestingly, the trial court agreed with Waterman-Pinnacle’s arguments. As a result, Bethany Trace HOA appealed.

When an appellate court reviews a trial court’s interpretation of a contract, the style of its review is referred to as “de novo.” This means that, because the interpretation of a contract is a question of law, the appellate court is free to reach a different interpretation than that of the trial court.

The appellate court found that the language of the Bethany Trace HOA, when taken in the entirety, provided that Bethany Trace HOA has ownership rights in its common areas. The appellate court further found that the interpretation adopted by the trial court resulted “in portions of the declaration being meaningless” in that the trial court ignored certain portions of the declaration that provided Bethany Trace HOA would own and maintain certain identified common areas. The appellate court held that Bethany Trace HOA’s interpretation of the provisions of the declaration was reasonable and gave meaning to all of the provisions in its declaration. The case was then remanded (returned) back to the trial court for further proceedings consistent with the ruling of the appellate court.

When the trial court proceedings take place Bethany Trace HOA will no doubt ask the trial court to order that its common areas be formally returned and to award it applicable financial damages.

The moral of this case is simple. At its core, an association’s declaration is a contract between the association and its members. When interpreting a contract, one sentence or phrase, when read in a vacuum, cannot be used in favor of one party when doing so is contrary to the remainder of the contract when read in its entirety.

Did you read that contract and fully understand your obligations before signing it? Almost every day, we are faced with new terms and conditions for the mobile app we can’t live without. Most people do not take the time to read every word before we hit “I agree” to those new terms and conditions. While the impact of these terms and conditions may not be felt on a daily basis, upon your acceptance, you are bound by these newer terms and conditions as if you read and understood them. While there are certain instances where the terms of a contract cannot be enforced, such as when a contract is unconscionable, when the terms of a contract are clear and unambiguous, the plain language of the contract will be enforced accordingly. This was the subject of a December 5, 2014 opinion of the Fifth District Court of Appeal of Florida in Thyssenkrupp Elevator Corp. v. Hampton Manor at Deerwood, LLC.

In this very recent case, Thyssenkrupp and Hampton Manor had entered into an elevator maintenance contract for a term of five years. Thyssenkrupp provided the services for the entire five-year term. At the end of the five-year term, the contract automatically renewed for an additional five years and continued to automatically renew for additional five year terms thereafter, which is when the trouble began.

During the second five year renewal period, Hampton Manor failed to pay for work performed by Thyssenkrupp in the amount of $1,157.14. The contract provided that upon failure to pay an overdue invoice, Thyssenkrupp could either: 1) suspend all service until all amounts due had been paid in full or 2) declare all sums for the unexpired term of the contract due immediately and terminate the contract. Thyssenkrupp selected option two and filed a lawsuit against Hampton Manor for the unpaid invoices and for all sums due for the unexpired term of the contract.

At summary judgment, Thyssenkrupp provided the elevator maintenance contract, the unpaid invoices and an affidavit of its corporate representative who testified as to all the amounts due and owing to Thyssenkrupp from Hampton Manor totaling $30,259.71, which included the remaining amount due for the unexpired term. Harbor Manor argued that Thyssenkrupp’s corporate representative’s affidavit did not comply with Florida Rules of Civil Procedure 1.510(e), which requires that affidavits must (i) be made on personal knowledge, (ii) set forth facts as would be admissible in evidence and (iii) affirmatively show that the affiant (the person providing the testimony) is competent to testify to the matters provided in the affidavit.

The trial court disagreed with Hampton Manor, finding that Thyssenkrupp’s corporate representative’s affidavit complied with Rule 1.510(e), and ruled in favor of Thyssenkrupp. However, the trial court only awarded Thyssenkrupp $1,157.14, the amount of the outstanding invoices and did not award damages for the unexpired term of the contract in the amount of $29,102.57. Disappointed with the result, Thyssenkrupp appealed the trial court’s award. The Fifth District Court of Appeal of Florida found that the clear and unambiguous language of the elevator maintenance contract entitled Thyssenkrupp to recover the monthly fee for the remaining term of the contract upon Hampton Manor’s default.

When the terms of a contract are clear and unambiguous, a court has no right to give it a meaning other than what is expressed. Quoting a Florida Supreme Court case, the Court provided that “[t]o hold otherwise would be to do violence to the most fundamental principle of contracts.”

Because Thyssenkrupp and Hampton Manor had contractually agreed that Thyssenkrupp could cancel the contract and accelerate the remaining term in the event Hampton Manor failed to pay an outstanding invoice, Thyssenkrupp was entitled to damages for the unpaid invoices in the amount of $1,157.14 and damages for Hampton Manor’s breach in the amount of $29,102.57.

The moral of this story is to make sure that, as an association board member, you read and understand every term of a contract before casting your vote in favor of that contract. To do otherwise can cause significant monetary damages.

A long, long time ago, in a land far, but not too far, away, England, there were two distinct court systems – the court of law, the Court of the King’s Bench, which followed the letter of the law, and the Court of Chancery, which was a court of equity and had the ability to do what was fair and equal. Although these two courts have had a sordid past, they continue to exist today in our very own court system; however, now the same judge may hear both legal and equitable claims. In general, when the law provides a remedy, the principles of equity cannot be employed by the court.

A core principle in the court of law is inclusio unius est exclusio alterius. It means that the inclusion of one thing is the exclusion of another, meaning that if the law says you can have apples, you can’t have oranges. While this is a general statutory interpretation principal, the Supreme Court of Florida held in the case of Granada Lakes Villas Condominium Association, Inc. v. Metro-Dade Investments Company that the enumerated instances in which a court could appoint a receiver for a condominium association as provided for by Florida Statutes did not limit the court’s power to appoint a receiver but actually expanded upon the court’s inherent equitable powers to do so, which turned out to be pretty good for Florida’s community associations.

In Granada Lakes Villas, the developer, Metro-Dade Investments Company, and the community’s master association, sued the condominium association, Granada Lakes Villas Condominium Association, Inc., for the its failure to pay the developer and the master association their share of the related expenses after collecting the fees and assessments from the condominium’s unit owners. As a result of the condominium association’s failure to pay, it was argued by the developer and the master association that they were unable to pay for utilities and maintenance expenses for the common areas, which resulted in ongoing health nuisances on the property.

At trial, the developer filed an emergency motion for the appointment of a receiver over the condominium association in order to facilitate the collection of the fees and assessments from the unit owners and to perform a proper accounting. Although the trial court had determined that a receivership would be helpful to the court, the trial court held that it had no power under Chapter 718, Florida Statutes, to appoint a receiver because Chapter 718, Florida Statutes, enumerates certain instances when the court may appoint a receiver, including failure of the association to elect enough directors to establish a quorum, failure of the association to act after a natural disaster and the need to liquidate and close a non-profit corporation as found in Chapter 617, Florida Statutes, which governs non-profit corporations. The trial court reasoned that because the statute itemized only these few grounds for appointment of a receiver, the court could not appoint a receiver unless one of these grounds was applicable.

However, on appeal, the Second District Court of Appeals reversed and remanded the case back to the trial court, concluding that the court’s power in these circumstances was “inherent in a court of equity, not a statutorily created right.” The Second District also found that the enumerated instances in Chapter 718 and Chapter 617, Florida Statutes, do not “restrict a trial court’s broad, equitable authority to appoint a receiver; rather, the statutes merely cite to specific instances when a receiver may be appointed.”

The Supreme Court of Florida, which took jurisdiction because of a conflicting ruling in a 2009 case in the Third District Court of Appeals, agreed with the Second District’s findings. The Supreme Court of Florida provides that the fact that the Florida Statutes lists certain grounds for the appointment of a receiver does not mean that appointment of a receiver is unavailable unless one of those grounds is applicable. The Supreme Court noted that the receivership remedy is available in equity – typically in cases of fraud, self-dealing, waste or destruction or loss of property – even without statutory authority, and that the principles of equity would authorize the court to appoint a receiver under a broader range of circumstances other than those specified by Florida Statutes. The Supreme Court also provided that “nothing in the statutory language of these sections expressly prohibits or even implies that these enumerated circumstances are the only instances in which a court may appoint a receiver in cases involving a non-profit condominium association.”

Many associations rely on these cases to seek appointment of a court appointed receiver in an effort to derive rental income over otherwise vacant and abandoned units where, but for the appointment of a receiver, the units would continue to be a drain on the association’s financial resources.

In Bank of America, N.A. v. Caulkett, the United States Supreme Court granted certiorari, and thus has agreed, to address whether the Bankruptcy Code permits a Chapter 7 debtor to “strip off,” or void, a junior mortgage lien in its entirety when the outstanding debt owed to a senior lienholder exceeds the current value of the collateral, an issue on which the Courts of Appeal are divided.

Imagine: Your association is owed thousands of dollars from a delinquent member who has not paid their mortgage either. The lender, being “on the ball,” begins to foreclose its mortgage. At some point, the board authorized an association assessment lien to be recorded against the property, too. Six to nine months later, the lender’s lawsuit is almost over. Then, without warning, the association is placed on notice that the debtor filed a Chapter 7 bankruptcy in Federal court. By operation of law, the lawsuit grinds to a screeching halt much like a racecar slamming into a concrete wall.

No further action can be taken until either the bankruptcy is discharged (the case is over) or the lender receives the express permission from the bankruptcy court to continue foreclosing the property in exchange for an agreement that the lender only seeks to acquire the delinquent member’s property and will not seek monies due and owing on the mortgage. Meanwhile, the association still has its assessment lien recorded against the property, meaning that there is still a chance the association can receive the monies it is still owed, especially if a third party purchaser acquires the property. Right? Well, not if during the bankruptcy the debtor “strips” the association’s assessment lien; a process referred to as “lien stripping.”

Lien stripping occurs when the court grants a request to wipe out all liens that are inferior to a superior lien. In the association’s case, it means that if the bankruptcy court were to allow lien stripping, the association would have no chance whatsoever of recovery of back assessments due and owing which, without going out on a limb, is extremely unfair to the association. Not all bankruptcy courts permit lien stripping. Some do, and some don’t. In such cases, where Federal Circuit Courts acting in their capacity as appellate courts disagree with one another, the United States Supreme Court has the right to examine the differing lower appellate court decisions; a process referred to “certiorari.”

Previously, the Supreme Court held that Section 506(d) of the Bankruptcy Code, which provides that a lien is not valid to the extent that it secures a claim against the debtor that is not an “allowed secured claim,” does not allow a Chapter 7 debtor to “strip down” a mortgage lien to the current value of the collateral. This will become VERY important for reasons explained below.

On the other hand, the Eleventh Circuit (with jurisdiction over the Middle District of Alabama, Northern District of Alabama, Southern District of Alabama, Middle District of Florida, Northern District of Florida, Southern District of Florida, Middle District of Georgia, Northern District of Georgia and Southern District of Georgia) held that a Chapter 7 debtor may “strip off” a valid junior lien on the debtor’s house when the debt owed to a senior lienholder exceeds the house’s current value, relying on controlling precedent that the Eleventh Circuit believed distinguishes its decisions from the Supreme Court’s rationale. Similarly, in other cases, the bankruptcy court, in unpublished decisions, entered orders voiding wholly unsecured second priority liens on residential property owned by the Chapter 7 debtors which, in unpublished orders, the district court has affirmed.

In its petitions for certiorari to the Supreme Court, a junior lienholder argued that the Eleventh Circuit’s position is irreconcilable with the Supreme Court’s decision that the Bankruptcy Code does not allow a Chapter 7 debtor to “strip down” a mortgage lien. The petition asserted that, because the junior lienholder had valid claims for the money loaned to the debtors, the Bankruptcy Code provided no basis for the debtors to “strip off” the subject liens. Furthermore, the petition continued, the fact that a mortgage is underwater matters only to the treatment of the creditor’s claim as “secured” or “unsecured” and has no effect on the treatment of the creditor’s lien under Section 506(d) of the Bankruptcy Code.

Hopefully, the United States Supreme Court will explain that lien stripping is not permitted, keeping association liens alive after bankruptcy proceedings and thereby providing the association a better chance of collecting past due assessments!