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Not too long ago, Briny Beezes, Inc., a cooperative association (the “Association”) sought a declaratory statement from the Division of Florida Condominiums, Timeshares, and Mobile Homes (the “Division”) as to whether the Association’s Board of Directors (the “Board”) could use its more than adequate reserve funds to repair a seawall to prevent flooding where the Association’s Bylaws required a majority of the membership vote to approve any expenditure greater than $30,000.00. At the heart of the Association’s request was its engineer’s opinion that the expenditure was necessary for maintenance to the seawall to prevent further flooding. The orders of the Division do not have precedential value similar to district court of appeal cases, but rather its orders are specific to the parties involved in the arbitration petition. While the petitioner in this case is a cooperative, the Division’s resulting May 31, 2013 Order remains both useful and instructive to condominiums, and due to the Order’s logic and common sense approach, perhaps also to homeowners’ associations.

The arbitrator noted that the Florida Statutes regarding cooperative associations and condominium associations provide that the Association has the power to make and collect assessments and to maintain, repair and replace the common areas. (The author notes that so do homeowners associations.) The arbitrator looked to a bankruptcy case, In re Colony Beach and Tennis Club Association, Inc., where the court held that that, “in fulfilling the duty to maintain the common elements, the board may assess members for common expenses without a vote of the unit members.” It was noted that the Board’s statutory duty and authority to maintain the common elements trumps any provisions in the Association’s governing documents requiring member approval for expenditures that are necessary for maintenance. Then the arbitrator looked to state court cases.

In Tiffany Plaza Condominium Association v. Spencer, a 1982 Second District Court of Appeals case, the Court held that, “the board had the authority to authorize the construction of a rock revetment necessary to protect the common elements without the consent of unit owners.” In Ralph v. Envoy Point Condominium Association, Inc., another Second District Court of Appeals case, the Court stated, “[s]imply because necessary work for maintenance may also constitute alterations or improvements does not nullify a condominium board’s authority and duty to maintain a condominium common elements.” The arbitrator also noted that, as recognized in Ralph, “even if expenditures result in alterations or improvements to the common elements, it is within the board’s authority to authorize those expenditures without member approval when they are necessary to protect the common elements.” Finally, the arbitrator referred to guidance from A. N. Inc. v. Seaplace Association, Inc., a 1998 Division Arbitration Order that held, “expenditures which are reasonably necessary for maintenance do not require a vote of the members.”

The arbitrator wisely pointed out that “if the contemplated upgrades to the seawall constitute a material alteration to the common elements that go beyond the necessary repair to protect the common elements, the board’s decision is open to challenge an arbitration or court where the question of fact as to the extent of the changes may be determined.”

PRACTICE TIP: Prior to relying on these cases, if your association requires membership approval before spending thousands on necessary repairs, the board should at least explain the situation to the members at a properly noticed membership meeting and try to obtain the membership vote in favor of the repairs. If the membership does not approve the expenditure, then the board should consult with the association’s attorney to plan the proper course of action. Under no circumstances should the board decide, on its own, to circumvent the requirements of the association’s governing documents.

Did you know that, according to section 718.111(5)(a), Florida Statutes, your condominium association has “the irrevocable right of access to each unit during reasonable hours, when necessary for the maintenance, repair, or replacement of any common elements or of any portion of a unit to be maintained by the association pursuant to the declaration or as necessary to prevent damage to the common elements or to a unit?”

In Small v. Devon Condominium B Association, Inc. (a 4th DCA case), Small, suffering from a breathing disorder, discontinued her condominium association’s optional pest control services in 2005. In 2009, the association demanded to access the unit to perform pest control services. Small refused. The association filed a petition for condominium arbitration seeking access to her unit. A default judgment was entered in favor of the association which provided it with monthly access to her unit to perform pest control services. However, a condominium arbitration order is not final and binding until 30 days have passed from the date of the arbitrator’s order.

During this 30 day period, the losing party can appeal to the circuit court for a trial “de novo”, (which essentially means holding a new trial) and that is exactly what Small did. In response, the condominium association counterclaimed against her for injunctive relief, breach of contract and for a request to uphold the arbitrator’s award.

During the proceedings, the association argued that it had the irrevocable right to enter all units for necessary maintenance. In response, Small presented testimony from her physician who provided that “it would be deleterious to her health to be exposed to any chemicals.” Small also questioned whether the association’s demands were “reasonable and necessary”. Small’s arguments failed. The trial court’s order provided that, amongst other things, the association would have access to the unit on the third Monday of every month to perform pest control services.

Small appealed the trial court’s decision. In response, the association moved for contempt when she prevented the association from performing pest control services until she could have someone inspect the spray to be used. She continued to refuse access to her unit because her expert found that the spray was harmful to her breathing condition and that there was no evidence of insects. The Court then found Small in contempt of court. Thereafter, when Small was still not compliant, the association sought an enforcement order against her, which was decided in the association’s favor. By this time there was both an order of contempt and enforcement against Small.

Small appealed the enforcement order, but not the court’s contempt order issued against her. She argued that an issue of material fact existed as to whether the association’s demands were reasonable and necessary. The association argued that its actions were necessary and reasonable to prevent a pest infestation that may spread to the condominium’s common elements. The Court explained that for access to a unit, the association’s actions must be (1) within the association’s authority and (2) reasonable. Further, a mere “claim” of necessity is not sufficient.

The Court reversed the trial court’s enforcement order. However, the Court affirmed the contempt order because Small failed to appeal it, thereby waiving any challenge on the merits of the contempt order. Furthermore, the Court explained that “a contempt order may stand even if it is based on an erroneously entered order.”

As to Small, it would have been interesting to see if her situation would have turned out differently had she made a request for a reasonable accommodation to her association’s pest control policy under the Federal Fair Housing Act.

For those readers who are members of a homeowners’ association, you can breathe a sigh of relief (pun intended). Unlike condominium associations, homeowners’ associations do not have a statutory right to access an owner’s lot. However, a homeowners’ association’s declaration of covenants may grant the association a right to access an owner’s lot, but not the home, in emergency circumstances or for purposes of undertaking an owner’s maintenance obligations on the lot in the event the owner fails to properly maintain his or her lot.

Whether the revamping of the condominium termination procedures began in 2003 due to known problems in Florida’s termination procedures or whether the revamping occurred in 2007 as a result of several prior horrific storm seasons which led to distressed, fractured and unsustainable condominium projects throughout the State of Florida, the obvious fact is that, in 2007, the Florida legislature completely revamped the condominium termination process in an effort to simplify the termination process. But, is the cure even worse than the disease?

Prior to July 1, 2007, to terminate the condominium, a condominium association needed to obtain the approval of 100% of both the condominium unit owners and mortgage lienholders, unless otherwise provided in the declaration of condominium. In the off chance that such a vote was obtained, the condominium property became owned by the unit owners as “tenants in common” which would then require the filing of an “equitable partition” lawsuit – a lengthy process – so the condominium property could be sold and the proceeds distributed. At risk of pointing out the obvious, one sole disgruntled owner could prevent a justifiable and necessary termination necessitated by extreme damage to the condominium incurred as a result of casualty.

After the 2007 amendment, the new condominium termination procedures provide that the affirmative vote of only 80% of the unit owners, unless otherwise provided in the declaration of condominium, is needed to approve, what Chapter 718, Florida Statutes calls, a “plan of termination”, so long as not more than 10% of the unit owners vote to object the “plan of termination”. In this new termination regime, mortgage lienholders consent is not needed and thus irrelevant. According to attorney Martin A. Schwartz, “there is a lack of clarity in the statute on whether a mortgagee has to receive the full amount of its mortgage or only the value of the underwater unit. Lenders have generally accepted less than their principal amount since they are receiving the full current value of their collateral.” This could lead to continued liability for the borrower to satisfy the shortfall.

While these relaxed procedural hurdles to condominium termination have helped numerous real estate projects get back on their feet in one manner or another, a disturbing trend has arisen in which developers are using these termination provisions as a means of taking over condominiums and forcing unit owners out of their homes to turn these fledgling condominiums into rental properties, or to perhaps build newer, more dense condominium projects. After the condominium bubble burst and the condominium recession in Florida grew, investors, like sharks sensing blood in the water, sensed opportunities to purchase condominium units at incredibly low prices, sometimes purchasing the majority or all of the units in a condominium project, otherwise known as a “bulk purchase”. Having purchased a majority, if not all, of the units in a condominium, the developer, or “bulk buyer”, then had control over the condominium association. An owner of more than 50% of the units can legitimately control the board of directors and thus control the condominium association, too.

With control of the condominium association, the bulk buyer could commence the termination of the condominium. In this new termination process, governed by section 718.117, Florida Statutes, a termination trustee – typically, the condominium association itself – records a “plan of termination” which meets the requirements of Chapter 718, Florida Statutes. Once the “plan of termination” is recorded, title to all of the units automatically transfers to the termination trustee, and all liens automatically transfer to the sale proceeds. The “plan of termination” typically grants the termination trustee the power to sell the condominium property, including all of the units, at fair market value as determined by an independent appraisal, which amount can be below the amount borrowed by the owner.

The proceeds of the sale then get distributed in the following manner: (1) to the termination trustee for its reasonable fees and costs; (2) to any lienholders of liens recorded prior to the declaration of condominium; (3) to any purchase money lienholders, (aka, lenders- but the amount of their share could be less than the amount borrowed by individual owners); (4) to any lienholders of liens entered into by the condominium association which have been consented to by the unanimous consent of unit owners; (5) to any creditors of the condominium association; and finally (6) to the unit owners as set out in the “plan of termination”.

This trend of condominium take over and termination which, in today’s market, is likely the conversion of condominiums into rental properties, has the practical and real world possibility of forcing unit owners to sell their homes at depressed prices, likely for less than what is owed to their lenders, leaving them without a home, with the remaining debt on their mortgage liens, and with no money for a down payment on a new home. Can you think of worse situation?

This is a very unfortunate turn of events to what was created as a panacea to save otherwise defunct properties. In fixing the problem, the Legislature could at least ensure that no condominium owner will be left owing money to their lender as a result of their condominium’s termination when the termination is the result of a bulk buyer acquiring control as compared against a termination necessitated by a casualty event.

Although amendments to the condominium termination provisions of section 718.117, Florida Statutes, failed during the 2014 Florida Legislative Session, change must be made to avoid, or at the very least, curb, the incidences of abuse of its procedures. Will Floridians be harmed before the Legislature acts?