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Condo News Online Special Features Page

Rembaum's

Association

Roundup

By Jeffrey A. Rembaum, Esq.

Jeffrey Rembaum, Esq. is a community association lawyer with the law firm Kaye Bender Rembaum, in its Palm Beach Gardens office.  His law practice consists of representing condominium, homeowners, and cooperative associations, developers and unit owners throughout Florida.  He can be reached by email at JRembaum@KBRLegal.com or by calling 561-241-4462 or toll free: 1-800-974-0680.

Last Updated 08/31/2017

The Community Association News 

That You Can Use!

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(8-30-17)

PROJECT MANAGEMENT

What every board member and manager need to know

Your association is gearing up for a large project. Maybe it’s time to re-do the clubhouse or plan for that $2M dollar concrete restoration project that was put off for far too long. Other large scale projects can include painting, concrete restoration, interior restoration, deck/paver repair or replacement, and foundation repairs, and so much more.

Too often, associations rely on untrained personnel to handle these projects such as a board member or manager. Doing so, is penny wise but pound foolish. Sure, the Board feels as though they pay a manager so the manager should manage the project, too - but remember the qualifications for being a licensed community association manager have very little to do with construction project management. In fact, often times, management contracts have disclaimers that limit management company liability when the assigned manager finds themselves involved with project management.

Gary Pyott, LCAM, who was involved with association management for over 20 years, is now a principal at Association 1st LLC, a Professional Project Management/Owners Rep company and he has a lot to say about this subject. Pyott explained that in his 20 years of association management he has seen case after case where the Board’s perception of their manager or management company experience regarding project management was over estimated. Pyott says, "associations hire attorneys to do legal work, accountants to complete financial work, engineers to write specifications, why not hire professionally trained Project Managers to manage large scale projects in the interest of all of the owners especially when millions of dollars of unit owner funds are on the line."

All too often Pyott has witnessed the situation where an association allows their manager, and in some cases a board member or committee, to oversee large scale projects which, in the end, cost the association significantly more dollars in legal fees and remediation contractor fees to complete the project correctly. Without properly trained professionals to oversee and manage projects, the chances of having vendor and material issues increases, the time for project completion is more likely to far exceed the original timeline, and project budgets can experience significant overruns which can easily lead to another special assessment. By that time, the community is up in arms over the situation.

According to Pyott, a Project Manager/Owners Rep engaged by a community association has the responsibility to protect the association, its members and the board, too. He explained that there are three phases to project management of this scale.

1) Project Planning & Pre-construction Phase:

• Discuss project, construction methods & materials, and identify expectations from all parties.

• Prioritize the budget, schedule and project specific requirements.

• Identify any items which may not be included on permit/bid but which may impact cost, (municipal approvals, specialty trades, etc.).

• Coordinate with the association’s lawyer in regard to material alteration votes and loans.

• Provide preliminary schedule of values based on drawings from design team, and coordinate as needed with all parties (design team, contractors, vendors, specialty trades, etc.).

• Prepare preliminary cost estimates for specific line items or divisions for items beyond the scope of the general contractor, if applicable.

• Prepare formal comprehensive budget including items which may be excluded from the general contractor’s estimate.

2) Construction/Project Management Phase:

• Hold weekly meetings with contractors and project team, and provide report/minutes.

• Conduct regular scheduled and unannounced site visits.

• Require and monitor GC updates and maintain project schedule on a weekly basis, and identify any lags or delays in schedule

• Track contractor’s inspection progress

• Confirm status of long lead time orders

• Review and coordinate requests for information

• Review and coordinate change orders

• Track contractor deliverables such as shop drawings, submittals, and samples for approval.

3) Project Close-Out/Transition Phase:

• Monitor progress of final inspections.

• Confirm lender close-out requirements.

• Request and track subcontractor final release of lien.

• Track and confirm receipt of contractor’s close-out book to include: All as-built drawings. All equipment manuals. Warranties. Extra materials from project. Finish samples and identification of finishes used which are not identified in ID drawings.

These three phases have a multitude of additional items under each phase that a professional in the field of Project Management/Owners Rep will coordinate and oversee on behalf of the association. Spending time to evaluate and hire a Professional Project Manager/Owners Rep initially is a core responsibility of the board and should be the very first step in large scale project planning.

If your board has any specific questions or needs regarding project management you can contact Gary Pyott at Association 1st LLC, a Professional Project Management/Owners Rep, by emailing him at gary@association1st.com or by calling him at 305-588-7658.

 

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(8-16-17)

Did He Really Write That About Our Association on Facebook?

Freedom of the Press

An interesting question that arises from time to time is whether the protections of the United States Constitution (and the Florida Constitution) apply within the gates of a community association? In most circumstances, in order to begin a constitutional analysis the very first step is whether there is any governmental action taking place. Clearly, in the context of a homeowners’ association resident publishing their own opinions on a blog, there is no governmental action. Even so, insofar as freedom of the press is concerned, the First Amendment to the United States Constitution reigns supreme, though not without certain limitations.

In a recent Fifth District Court of Appeal case, Fox v. Hamptons at Metrowest Condominium Association, Inc., the Court had the opportunity to examine this issue. It should be noted that this opinion was filed by the Court on July 21, 2017 and is still subject to revision or withdrawal. In this case, association member, Fox, appealed the trial court’s order finding him guilty of civil contempt of court for violating a settlement agreement that he entered into with the association. He argued that portions of the trial court’s contempt order constituted a prior restraint on his protected speech rights under both the Florida Constitution and the United States Constitution. In short, the Court agreed.

The background of this case is a typical scenario where Fox failed to comply with the association’s declaration and its rules and regulations which caused irreparable harm to other owners and residents within the association. The association’s complaint also alleged that Fox was engaged in a continuous course of conduct "designed and carried out for the purpose of harassing, intimidating, and threatening other residents, the Association and its representatives." The trial court had entered a preliminary injunction and then the parties reached a settlement agreement in which Fox agreed to cease certain activities.

It did not take long for Fox to violate the terms of the settlement agreement. As a result, the association filed a motion for contempt and argued that Fox willfully and intentionally violated the terms of the settlement agreement, and thus the final judgment, too. The trial court found Fox in civil contempt and, in so doing, also ordered that Fox stop posting, circulating, and publishing any pictures or personal information about current or future residents, board members, management, employees, or personnel of the management company, vendors of the association, and any other management company of the association on any website, blog, or social media. He was further ordered to take down all such information currently on any of his websites or blogs. The trial court’s order also prohibited Fox from starting any new blogs, websites, or social media websites related to the association. If anyone reached out to Fox with inquiries regarding the association, pursuant to the court’s order, he was not allowed to post a response online. Instead, he would have to call the person to express his concerns verbally.

On appeal, Fox argued to the Court that the trial court’s punishment violated his right to speak freely. In the end, the Court agreed that the trial court’s blanket prohibition of Fox’s online speech constituted an unconstitutional prior restraint on his free speech rights. In so doing, the Court noted that "[i]t has been established that ‘[p]rior restraints on speech and publication are the most serious and the least tolerable infringement on First Amendment rights.’" The Court also noted that the United States Supreme Court has "consistently classified emotionally distressing or outrageous speech as protected, especially where that speech touches on matters of political, religious or public concern." The Court then cited other cases finding that statements on an individual’s blog constituted opinion speech protected by the First Amendment.

However, the Court wisely noted that "the right to free speech and the freedom of the press are not without their limits" and, in so doing, cited to prior United States Supreme Court opinions which reminds readers of that "[f]reedom of speech does not extend to obscenity, defamation, fraud, incitement, true threats, and speech integral to criminal conduct. Speech that does not fall into these exceptions remains protected." If the writer/publisher prints libelous, defamatory, or an injury story, the remedy does not lie with an injunction, but rather with a claim for damages or criminal action after publication.

With the aforementioned in mind, the Court determined that the trial court erred when it prohibited Fox from making any statements at all pertaining to the association on his websites, blogs, and social media. Therefore, the trial court order was reversed in part, but only in regard to the complete prohibition imposed on Fox on posting on any website, blog, or social media. However, the Court also opined trial court did not err in determining that the previously agreed-upon settlement agreement could be enforced and it affirmed the contempt order. The case was then remanded back to the trial court for determination of an order consistent with the opinions of the Court.

 

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(8-2-17)

VBRO & AirBnB: WHAT YOU 

NEED TO KNOW

The Business of Short-Term Rentals 

Is No Business at All

In a recent Rembaum’s Association Roundup article regarding Florida’s newest non-native invasion of overnight rentals through Vacation Rentals by Owner (VRBO) and AirBnB, we discussed what an association can do in order to protect its community from becoming the newest unnamed hotel/motel through the adoption of lease restrictions and lease approval requirements. Although these methods remain available to associations, one avenue of enforcement has been fully obliterated from the list of possible ways to rid the community of short-term, overnight and transient rentals as a result of a decision in a recent appellate case. In short, if your community’s governing documents prohibit commercial activity, this prohibition will NOT protect the association from VRBO and AirBnB rentals.

In Florida’s First District Court of Appeal case of Santa Monica Beach Property Owners Association, Incorporated v. Acord, the Acords owned two properties within the Santa Monica Beach community which they were renting on a short-term basis through VBRO. The association’s restrictive covenants provided that the properties can only be used for residential purposes and prohibited use of any property for business purposes. Upon learning of these transient rentals, the association sent letters to the Acords requesting that they stop their "vacation rental business." The association’s enforcement efforts lead to the litigation.

The association argued that the transient rentals of the properties violated its restrictive covenants because the properties were being offered and advertised for rent on the internet as transient public lodging establishments, the Acords were required to collect and remit state sales tax and local bed tax on the rentals, and the Acords had obtained a license to operate their properties as transient public lodging establishment under the name "Acord Rental."

The Acords argued that the short-term vacation rentals were residential uses, and not business uses, because the renters were using the properties for residential purposes.

Quite shockingly, the Court agreed with the Acords providing that the critical issue in determining whether short-term vacation rentals are residential uses of the property is whether the renters are using the property for ordinary living purposes (such as sleeping and eating), not the duration of the rental. Because the renters were using the Acords’ properties for residential purposes, the Court held that the use of the Acords’ properties as short-term vacation rentals is not prohibited by the association’s restrictive covenants.

Therefore, while an association may tackle the issue of transient rentals in its community by enforcing provisions of its governing documents, including for example, minimum lease term requirements and lease approval requirements, as discussed in our prior article, the association’s ability to enforce its residential use requirement and/or commercial use prohibition against short-term rentals has been obliterated as a result of this recent decision. To view our prior article please visit www.rembaumsassociationroundup.com.

Aside from the nuisance and safety issues which arise due to transient renters coming in and out of the community, another more sinister issue has arisen regarding the short-term rental of properties through websites. It seems as though scammers are creating fraudulent online listings through these websites for vacant properties. Through the online listing, these scammers rent the property and collect their fee. However, when the renters arrive at the property, no one is there. With the influx of people’s use of these vacation rental websites, both owners and associations alike need to keep an eye on the listings provided on these websites and the comings and goings within their communities to tackle this transient rental issue.

To ensure your association is properly protected against transient rentals, the association’s lawyer should be asked to review the governing documents to ensure the necessary language is included and to make recommendations to better protect the association from the likes of VBRO and AirBnB rentals.

 

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(7-19-17)

Community Association Liability For Dog Bites

Woof, Woof, Woof

Can a Florida condominium, homeowners’, and cooperative association have liability for its members’ dog bites? Apparently, the answer is yes, it surely can.

In 1996, the Fourth District Court of Appeal of Florida in Barrwood Homeowners Association, Inc. v. Maser, held that an association could be found liable where there was sufficient evidence from which a jury could determine that it was aware of a dog’s vicious propensities. In this case, there was a dog attack and bite to a minor child. The incident occurred on the Association’s common area. The issue in the case was whether or not the Association’s liability could be diminished due to the act of the dog’s owner, who was not named as a defendant in the case.

Thankfully, the court agreed that the Association’s liability could, in fact, be diminished even though the dog’s owner was not a party defendant in the litigation. In reaching its determination, the court affirmed a prior appellate decision reached in 1987 where a landowner could be held liable for damage caused by a dog on its property when there is sufficient evidence from which a jury could determine that the landlord had knowledge of the vicious dog’s presence and had the ability to control the premises. In the instant case, the court found that there was sufficient evidence for a jury to determine whether or not the defendant Association was aware of the dog’s vicious propensities.

In yet another 1996, Fourth District Court of Appeal of Florida case, Sanzare v. Varesi and Coconut Key Homeowners Association, Inc., the plaintiff sued the homeowners’ association after being bitten by a dog on a street owned by the Association. Procedurally, the appellate court initially affirmed the trial court’s summary judgment order reached in favor of the association. Shortly thereafter, the appellate court withdrew its opinion to be consistent with the Barrwood case.

In order for a trial court to grant a motion for summary judgment, there must be no material facts in dispute, and the moving party is entitled to judgment as a matter of the law. Furthermore, the court must draw every possible inference in favor of the party against whom the motion for summary judgment is sought. In fact, summary judgment cannot be granted unless the facts are so crystallized that nothing remains but questions of law.

In its reconsideration of its prior order, the appellate court determined that, in fact, there were factual issues remaining in dispute as to whether the homeowners’ association knew of the presence of and propensities of a vicious dog. In this case, the plaintiff was bitten by a dog owned by two people who leased the home within the homeowners’ association’s community. The bite occurred when the plaintiff was walking his own dog on a street running through the community. After being bit, the plaintiff filed a negligence action against the association. The association argued that it had no duty to the plaintiff. Initially, the trial court agreed, which is why the summary judgment was entered in favor of the homeowners’ association in the trial court. In reversing both the trial court’s summary judgment reached in favor of the homeowners’ association and the appellate court’s own initial ruling, the court noted, from a 1987 case, that a landowner may be liable for injuries resulting from an attack by a bad dog owned by a tenant, if the landowner knows of the presence of the animal and its vicious propensity and has the ability to control its presence.

The appellate court’s initial opinion was flawed because the appellate court had relied on a prior case where there were injuries caused by a dog on property not owned by landlord. In the instant case, the injuries occurred on the property owned by the Association. Therefore, the court relied on the reasoning set out in the Barrwood case.

The take away from all of this is that if a community association is aware that a dog who has a propensity for biting, takes no action and then, an incident occurs where someone is hurt as a result of that dog’s actions, such as a dog bite, then that association can share in the financial liability reached in favor of the victim.

 

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(7-5-17)

New Legislation Effective July 1, 2017 Affecting Florida’s Community Associations

While much of the 2017 legislation recently passed into law affects only condominium associations, Senate Bill 39 (a.k.a., the "Estoppel Bill") affects condominium, homeowners’, and cooperative associations. 

In regard to the Estoppel Bill, remember that in addition to the statutorily required information which must be provided in the association’s estoppel (the subject of prior articles which can be viewed at www.rembaumsassociationroundup.com), the association must provide the estoppel within 10 business days of receipt of the request, and if not so provided, a fee cannot be charged. The association must designate on its website a person or entity with a street or e–mail address for receipt of the estoppel certificate request. The estoppel certificate may be completed by any board member, authorized agent, or authorized representative of the association, including any authorized agent, authorized representative, or authorized employee of the association’s management company. While the fees for the estoppel, a rush estoppel, and a delinquent owner estoppel are set out in the legislation, the authority to charge a fee for the preparation and delivery of the estoppel certificate must be established by written resolution adopted by the board or provided by a written management, bookkeeping, or maintenance contract and is payable upon preparation of the certificate. On the face of it, it would appear prudent for every association to adopt such a resolution. At a minimum, doing so should be discussed with the association’s lawyer.

House Bill 6027 also applies to condominium, homeowners’, and cooperative associations. The requirement that an association may not waive the financial reporting requirements for more than three consecutive years was removed from the Statutes . In addition, the ability of an association comprised of fewer than 50 units, or lots, regardless of the annual revenues, to only prepare a report of cash receipts and expenditures in lieu of the more strenuous financial statement requirements was deleted.

Senate Bill 1520 addresses condominium terminations. Importantly, if 5% or more of the total voting interests of the condominium reject the plan of termination, then the termination may not proceed. This threshold used to be 10%.

House Bill 1237 pertains to condominium associations only. Criminal penalties are now in effect as to any officer or director or manager who knowingly solicits, offers to accept, or accepts anything of value or service of value or who receives a kickback. Similarly, criminal penalties are now available in the event of a forged ballot envelope or voting certificate provided, for theft or embezzlement of association funds, and for the destruction or the refusal to allow the inspection or copying of official records.

The association may not hire an attorney who represents the management company of the association.

In regard to suspension of use rights due to an owner’s failure to pay any fee, fund, or other monetary obligation to the association for a period of greater than 90 days, the amount of money due and owing must be at least $1,000 or more and proof of the obligation must be provided to the unit owner at least 30 days before the suspension may take effect.

Excluding timeshare condominiums, a board member, manager, or management company may not purchase a unit at a foreclosure sale resulting from the association’s foreclosure of its lien for unpaid assessments or take title by deed in lieu of foreclosure. In addition, the party contracting to provide maintenance or management services to a condominium association managing a residential condominium, post turnover, which is not a timeshare condominium association, or an officer or board member may not purchase a unit at a foreclosure sale resulting from the association’s foreclosure of an association lien for unpaid assessments or take a deed in lieu of foreclosure. If 50% or more of the units in the condominium are owned by a party contracting to provide maintenance or management services to an association managing a residential condominium after turnover, which is not a timeshare condominium association, or by an officer or board member of such party, the contract with the party providing maintenance or management services may be canceled by majority vote of the unit owners other than the contracting party for an officer or board member of such party.

As to which records comprise a part of the "official records" of the Association, "bids for materials, equipment or services" are now specifically included.

Renters now have a right to inspect and copy the association’s bylaws and rules. Oddly, this does not extend to other association records, such as the declaration of condominium and the articles of incorporation.

Insofar as providing unit owners a copy of the most recent financial report, the aggrieved unit owner may file a complaint with the Division of Florida Condominiums, Timeshares, and Mobile Homes (the "Division"). Then, the Division may notify the association of the complaint and provide the association five business days to provide the financial report, and if not, then as a penalty, the association may not waive the financial reporting requirements.

A condominium association and its officers, directors, and employees and agents may NOT use a debit card issued in the name of the association or billed directly to the association for the payment of ANY association expense. Doing so, can lead to criminal charges prosecuted as credit card fraud.

Clarification is provided that condominium association board members may serve two-year terms if permitted by the bylaws or articles of incorporation. In addition, a board member may not serve more than four consecutive two-year terms, unless approved by the affirmative vote of two-thirds of the total voting interests of the association or unless there are not enough eligible candidates to fill the vacancies.

There are even changes to the "recall" provisions. In the past, once served with a recall petition, the board is obligated to hold a board meeting within five days, and if it did not certify the recall, then the association was obligated to petition the Division. While the board meeting must still be held within five days, it is no longer incumbent upon the condominium association to notify the Division if it does not certify the recall. Still in effect is the requirement of the board to hold the board meeting within five days to consider whether to deem the recall successful, or not, and if not, then the recall will be deemed effective.

Except for timeshare condominium associations, the condominium association may not employ or contract with any service provider that is owned or operated by a board member or with any person who has a financial relationship with a board member or officer or a relative within the third degree of consanguinity by blood or marriage of a board member or officer. However, this does not apply to a service provider in which a board member or officer or relative within the third degree of consanguinity by blood or marriage of a board member or officer, owns less than 1% of the equity shares.

In order to better handle the ever-growing number of condominium association arbitration petitions facing the Division, new provisions are in effect for qualified attorneys to serve as arbitrators. The arbitrator must conduct a hearing within 30 days after being assigned. The failure of such an arbitrator to render a decision within 30 days of the final hearing can lead to the arbitrator’s removal as an arbitrator. There are various requirements to become certified to serve as such an arbitrator. 

While new requirements are provided for director and officer conflict of interest situations, they do not apply to timeshare condominium associations. A rebuttable presumption of such a conflict exists if:

1. a director or officer or a relative of a director or officer, enters into a contract for goods or services with the association; or 

2. a director or officer, or a relative of a director or an officer, an interest in a corporation, limited liability corporation, partnership, limited liability partnership, or other business entity that conducts business with the association of the process to enter into a contract or other transaction with the association.

If a director or officer or a relative of a director or an officer, proposes to engage in an activity that is a conflict of interest, as described above, the proposed activities must be listed on all contracts and transactional documents related to the proposed activity and must be attached to the meeting agenda. If the board votes against the proposed activity, the director or officer, or the relatives of the director or officer, must notify the board in writing of his or her intention not to pursue the proposed activity or to withdraw from office. If the board finds that an officer or director has violated this provision, then such officer or director shall be deemed to be removed from office vacancy is filled according to general law.

A director or officer or a relative of a director or an officer who is a party to, or has an interest in, any activity that is a possible conflict of interest, as described above, may attend a meeting at which the activity is to be considered by the board and is authorized to make a presentation to the board regarding the activity. After the presentation, the person with the possible conflict of interest must leave the meeting during the discussion of and the vote on the activity. In addition, a director or an officer who is a party to, or has an interest in, the activity must recuse themselves from the vote.

A contract entered into between a director or officer, or a relative of a director or an officer, and the association, that has not been properly disclosed as a conflict of interest or potential conflict of interest is voidable and terminates upon the filing of a written notice terminating the contract with the board of directors which contains the consent of at least 20% of the voting interests of the association.

The legislation also clarifies that the term "relative" means a relative within the third of consanguinity by blood or marriage.

A "receiver" may not exercise any voting rights of the unit owner whose unit is placed in receivership for the benefit of the association.

Importantly, by July 1, 2018, a condominium association with 150 or more units, which does not manage timeshare units, must post digital copies of many official records on the association’s website. The website must be an independent website or a web portal wholly owned and operated by the association. A recorded copy of the declaration of condominium, bylaws, articles of incorporation, and rules, as amended from time to time, must be posted on the website. In addition, the management agreement and all other contracts must be posted, most especially those contracts where a conflict of interest or possible conflict of interest is present. Bids for materials, equipment or services must be on the website for at least one year. The annual budget, financial reports, and proof of director certification requirements must also be on the website. Both unit owner meeting notices and agendas along with board meeting notice and agendas must be posted, too. Finally, the association has an obligation to ensure that those records which are not permitted to be accessible to unit owners are not posted on the website or are properly redacted.

For those following this year’s legislative process, House Bill 653 was vetoed by the Governor. As set forth in his letter vetoing the legislation, the reason for the veto had to do with fire safety opt-out provisions that he indicated appeared to be all the more dangerous given the recent overseas high-rise fire.

 

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(6-21-17)

When Express Maintenance Obligations in a Declaration of Condominium Are Not So Clear

When it comes to maintenance, repair, and replacement obligations of the unit owners and the condominium association, the terms of the declaration of condominium reign supreme. At times, there are instances where a unit owner is required to maintain, repair, and replace a portion of the owner’s unit which affects the exterior of the condominium building but that requirement is sometimes in conflict with a prohibition to make alterations to the exterior of the condominium building. An example is needed to bring clarity to this confusing dilemma.

For example, let’s examine the replacement of the unit’s windows. Pursuant to the maintenance obligations in the declaration of condominium, the unit owner is responsible to maintain, repair, and replace all parts of the unit and the fixtures and equipment of the unit, including windows. However, the declaration of condominium also prohibits the unit owner from changing the exterior of the condominium building in any way whatsoever. So, what is this unit owner to do when it comes time to replace the unit’s windows? How can the owner change the window, which requires bringing it up to current building code requirements, where it would result in a change to the exterior of the building?

The Department of Business and Professional Regulation, Division of Florida Condominiums, Timeshares, and Mobile Homes (the "Division") has addressed this particular scenario, and other similar scenarios, in multiple arbitration cases. While the arbitration decisions promulgated by Division are not binding precedent per se (meaning that other arbitrators or courts do not have to decide similarly when presiding over subsequent cases with similar issues or facts), such arbitration decisions are persuasive and relied upon for guidance.

In Ellis v. Phoenix Towers Condominium Association, Inc., Arb. Case No. 00-1236, Summary Final Order (October 27, 2000), a group of unit owners, which included Ellis, sought to have the association, Phoenix Towers Condominium Association, Inc., replace its windows that were damaged as a result of concrete restoration performed by the association. The association’s declaration of condominium did not provide whether the windows were conclusively part of the unit and therefore the responsibility of the unit owner to maintain, repair, and replace. The association’s declaration of condominium did provide, however, that the unit owner is responsible for "[t]o maintain in good condition and repair his unit… and to maintain and repair the fixtures and equipment therein, which includes but is not limited to the following, where applicable:… windows…" However, the association’s declaration of condominium also provided that the unit owner cannot "…make alterations, decorations, repair, replacement or change of the common elements, or to any outside or exterior portion of the building(s)." The arbitrator in this case determined that the provision prohibiting unit owners from replacing or changing the exterior of the building and the provision regarding the unit owner’s responsibility to replace a window to the unit were in direct conflict with one another. Therefore, the arbitrator decided, "[a]n owner cannot be held responsible for replacing a window to his unit when that owner is precluded from replacing or changing any outside or exterior portion of the building [without regard to] whether or not it is a part of the common elements or his unit."

While the maintenance, repair, and replacement of the exterior of the condominium buildings were found to be the responsibility of the association in the above case, even where such obligation was expressly that of the unit owner, there are instances where portions of the exterior of the condominium building are the responsibility of the unit owner, namely, where the unit owner has altered the common elements or limited common elements (such as the balcony), which are typically the obligation of the condominium association to maintain, repair, and replace. The Division has addressed this particular scenario in multiple arbitration cases, as well, and has found that the unit owner is responsible to maintain, repair, and replace those components that the unit owner altered – that is, unless the governing documents say otherwise or there is an written agreement for the association to take up such responsibility.

In Continental Towers, Inc. v. Nassif, Arb. Case No. 99-0866, Summary Final Order (November 24, 1999), the condominium association, Continental Towers, Inc., needed to conduct concrete restoration, waterproofing, and other repairs to the unit owners’ balconies. However, Nassif refused to allow the association access to his unit’s balcony to remove its tile flooring in order to effectuate those repairs. In relevant part, Nassif argued that that the association "accepted the tiles as a modification of the common elements or limited common elements and therefore assumed responsibility for maintenance of it" and demanded that the association replace the balcony’s tile. The arbitrator in this case provided and concluded, in pertinent part, that:

"The unit owner is responsible for the removal and replacement of unit owner installed additions to the common elements or limited common elements that are necessitated by the association’s maintenance efforts unless there is a specific agreement by the association, or a provision of the documents, providing that the association will be responsible for the removal and replacement of such improvements. [citation omitted] This is true even where the association may have approved or acquiesced to the addition. As noted by the arbitrator in Carriage House, in the absence of an agreement between the parties or a controlling provision of the documents, ‘it cannot be said from the mere fact of association permission that the association has assumed the perpetual obligation to remove and replace the personal property when necessary to repair and replace the common elements.’… Since… the tile was not part of the original construction, the unit owners are responsible for its removal and replacement."

Therefore, Nassif was required to remove the balcony tiles so that the association could conduct its repairs and was then responsible to replace the tiles once the repairs were completed.

Again, the arbitration decisions of the Division are specific to the parties and facts presented and are not binding precedent. Actually, these type of issues are one of the most confusing and convoluted parts of the entire body of condominium association law. So, if your association has questions regarding the maintenance and repair obligations and interpretation of your condominium association’s governing documents, you should contact a competent community association attorney for legal guidance.

 

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(6-7-17)

Two New District Court of Appeal Cases

Third Party Purchaser

Assessment Liability & Fining Notice Requirement

If your homeowners’ association has not updated its declaration’s assessment collection provisions, then your association might be giving away its otherwise collectable assessment revenue! The problematic declaration provisions are similar to the following: "The sale or transfer of any Lot pursuant to the foreclosure or deed in lieu of foreclosure shall extinguish the lien of such assessments as to all payments that came due prior to such sale or deed in lieu transfer." To the dismay of association practitioners everywhere, the appellate courts have continually held that such a declaration provision even controls over Florida Statutes that would otherwise require the purchaser who acquires title as a result of the first mortgagee’s foreclosure (or acquires title by deed in lieu) to pay all back assessments due and owing.

On May 24, 2017, the Third District Court of Appeal of Florida, covering Miami-Dade and Monroe Counties, ("3rd DCA") issued another assessment decision harmful to Florida’s homeowners’ associations. The 3rd DCA, in the case of Beacon Hill Homeowners Association, Inc., et. al., v. Colfin AH-Florida 7, LLC, decided in favor of the limited liability company who was a third party purchaser that acquired title to a lot as a result of a lender foreclosure. The 3rd DCA determined that the company’s liability for past due assessments for the property it purchased at a mortgage foreclosure sale was strictly based upon the language set out in the homeowners’ associations’ declarations (there were actually two homeowners’ associations involved in this case). Both declarations had provisions regarding subordination of the associations’ assessment lien to a first mortgage and provided that the sale of a lot pursuant to the foreclosure of a first mortgage extinguishes the assessment lien as to all payments to the associations which became due prior to the foreclosure sale. Based upon this language, the third party limited lability company purchaser argued that it did not owe any past due assessments accruing prior to its purchase of the property.

The associations primarily argued that the joint and several assessment liability provision as set out in section 720.3085(2)(b), Florida Statutes, enacted in 2008, was incorporated into the terms of their declarations. Nevertheless, the 3rd DCA rejected their argument and instead followed the prior decisions of the "4th DCA" (as defined below) in Pudlit 2 Joint Venture, LLP v. Westwood Gardens Homeowners Association, Inc., 169 So.3d 145 (Fla. 4th DCA 2015), holding that the joint and several liability of section 720.3085(2)(b), Florida Statutes, was NOT incorporated into the terms of the associations’ declarations, but rather, the text of the declaration controlled. Therefore, once again, the third party purchaser was fully excused for any past due assessments liability of the prior owner when it purchased the property at the mortgage foreclosure sale.

The best way to remedy this continual dilemma is amend the harmful text out of the association’s declaration and strictly require the third party purchaser who acquires title as a result of the lenders foreclosure to be fully liable for all past due assessments. Other remedies include incorporating the provisions of section 720.3085(2), Florida Statutes, into the declaration or to include a phrase that the declaration "is subject to Chapter 720, as it is amended from time to time" (a/k/a Kaufman language).

Also on May 24, 2017, the Fourth District Court of Appeal ("4th DCA") covering Palm Beach, Broward, St. Lucie, Martin, Indian River, and Okeechobee Counties decided in favor of an owner in the case of Dwork v. Executive Estates of Boynton Beach Homeowners Association, Inc., regarding the association’s attempt to collect fines from the owner. In this case, the owner continually failed to properly maintain his roof, driveway, and fence in good condition, despite the numerous written notices sent to the owner from the association and the association’s attorney. Due to the owner’s continued failure to comply with the association’s requests, the board of directors recommended the violations to the fining committee and provided the owner with 13-days’ notice of the hearing before the fining committee. The fining committee fined the owner $25 per day of the continuing violation for each of the three violations, which eventually totaled the maximum permitted by the association’s governing documents – $7,500. The owner failed to pay the fines, even after demand was sent to the owner from the association’s attorney for payment. The association eventually filed a lien against the owner’s property and filed a complaint against the owner for foreclosure of the lien and for money damages.

At the trial level, the association did NOT prevail on the foreclosure because it failed to provide the owner with the 14-day notice of a hearing before the fining committee as required by section 720.305(2), Florida Statutes, but did prevail on its claim for money damages. On the owner’s appeal of the award for money damages, the association argued that substantial compliance with the 14-day notice of a hearing before the fining committee as set out in section 720.305(2), Florida Statutes, was sufficient because the owner was not in any way harmed by the loss of a single day of notice.

While the 4th DCA agreed that equity would side with the association given the owner’s continued failure to comply with the association’s governing documents and numerous requests, the 14-day notice requirement as set out in section 720.305(2), Florida Statutes, MUST BE STRICLY COMPLIED WITH because there are no exceptions provided in the statute which would permit the trial court to consider substantial compliance with the notice requirement or the lack of prejudice on the owner.

Often times, board members ask, "if the owner in violation does not elect to attend the fining committee hearing to take place with not less than 14 days’ notice, must the hearing be held?" In the event of the violating owner’s legal challenge, if the association wants to ensure success on appeal, then you bet the hearing should actually take place without regard to whether the violating owner elects to attend or not.

 

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(5-24-17)

The New Estoppel Legislation

Better Be Prepared

Senate Bill 398 is on track to become the law of the land, effective July 1, 2017, unless Governor Scott vetoes it. While anything is possible, it is important that your community association be prepared to comply with this legislation. The changes to the estoppel certificate issuance process are cumbersome. The following information applies to condominium, homeowners’ and cooperative associations, too.

The amount of information that must be set out in the estoppel certificate is voluminous and must be provided in substantially the form as provided in the legislation itself. There are three parts to the estoppel certificate starting with the "general information," which includes the date of issuance, name of the owner as reflected in the books and records of the Association, the unit designation and address, the parking or garage space number as reflected in the books and records of the Association, the attorney’s name and contact information (if the account is delinquent and has been turned over to an attorney for collection), the fee for preparation and delivery of the estoppel certificate (see note that the cost of providing the certificate is included in the fee and cannot exceed the amounts set forth above), and the name of the requesting party. 

Part two of the estoppel certificate is the "assessment information," which must contain the regular periodic assessment levied against the property and frequency of assessment; the date that the regular periodic assessment is paid through; the date of the next installment of the regular periodic assessment that is due and the amount; an itemized list of all assessments, special assessments, and other monies owed on the date of issuance to the association by the owner for the specific property; and an itemized list of any additional assessments, special assessments and other monies that are scheduled to become due for each day after the date of issuance for the effective period of the estoppel certificate. In calculating the amounts that are scheduled to become due, the association may assume that any delinquent amounts will remain delinquent during the effective period of the estoppel certificate. In other words, if there is a delinquency it would appear that the provider of the estoppel needs to calculate the amount that will be due 30 days after the estoppel certificate is issued.

Part three of the estoppel certificate is the "other information," which must include the following: (i) whether there is a capital contribution fee, resale fee, transfer fee or other fee due and, if so, the type and amount of the fee; (ii) whether there is any open violation of a rule or regulation noticed previously to the owner of the property; (iii) whether the rules and regulations of the association applicable to the property being transferred require approval of the board of directors of the association for the transfer of the property and, if so, whether or not the board has approved the transfer of the property; and (iv) whether there is a first right of refusal provided to the members or the association and, if so, whether or not the members or the association have exercised such right of first refusal. Further, the association is obligated to provide a list and contact information for all other associations for which the owner is a member; the association must provide contact information for all insurance maintained by the association; and finally, the estoppel certificate must be executed by an officer or authorized agent of the association. Also, the association, at its discretion, may include any other additional information in the estoppel certificate.

An estoppel certificate that is hand-delivered or sent by electronic means is effective for 30 days from issuance. However, if sent by regular mail, then it has a 35 day effective period. If additional information or a mistake related to the estoppel certificate becomes known within this timeframe, then an amended estoppel certificate may be prepared and delivered and will be effective only if the sale or refinancing of the property has not been completed. No fee may be charged for the amended estoppel certificate and once delivered, a new 30 day or 35 day effective period begins to run.

If the association receives a request for the estoppel certificate from an owner (or the owner’s designee, the mortgagee of the property, or the mortgagee’s designee) and it is not delivered within 10 business days, then the association has waived its right to collect a fee for the preparation and delivery of that estoppel certificate. The association also waives the right to collect any monies owed in excess of the amount specified in the estoppel certificate which also applies to all successors and assigns of the property.

As to the fee an association may charge for the preparation and delivery of the estoppel certificate, if there is no delinquency, then the maximum amount that can be charged may not exceed $250. If the estoppel certificate is requested on an expedited basis and the association delivers the estoppel certificate within three business days after the request, then the association may charge an additional $100 fee. However, if there is a delinquency owed to the association an additional fee of up to $150 may be charged.

When there are multiple properties owned by the same owner and simultaneous estoppel certificates are requested, so long as there are no past due monies owed to the association, then the statement of monies due for those properties can be delivered in one or more estoppel certificates. However, the fee structure is based upon the number of properties at issue in ranges: (i) for 25 or fewer properties, a total of $750 (not for each property, but in the aggregate); (ii) for 25 to 50 properties, a fee of $1000; (iii) for 51 to 100 properties, a fee of $1500; and (iv) for more than 100 properties, a fee of $2500. All of the fees that can be charged by the association for the estoppel certificate are to be adjusted every five years in an amount equal to the total of the annual increases for that five year period in the Consumer Price Index, and the Division of Florida Condominiums, Timeshares, and Mobile Homes is to make such determinations.

In order for the association to charge a fee for the preparation and delivery of the estoppel certificate, such authority must be established by written resolution adopted by the board or provided by a written management, bookkeeping, or maintenance contract and is payable upon the preparation of the certificate. This being the case, does this mean the association cannot be paid in advance of providing the estoppel certificate? If the closing date does not occur within 30 days after the closing date for which the certificate was sought and a written request is made for refund, then the refund must be provided within 30 days after receipt of the request. While the refund is the obligation of recipient of the fee, the association may collect it from the owner in the same manner as an assessment.

The association must designate on its website a person or entity with a street or email address for receipt of a request for the estoppel certificate. The estoppel certificate, when issued, must bear the exact date of issuance. In other words, the estoppel certificate cannot contain a date other than the date it is actually issued.

In the event an association does not provide the estoppel certificate, then the requesting party may bring a summary proceeding in court to compel compliance and there are provisions for the award of prevailing party attorney’s fees.

The board of directors of every Florida community association should ensure that either the association has established a written resolution adopted by the board for the authority to charge a fee for the preparation and delivery of the estoppel certificate or that such authority is provided by written management, bookkeeping or maintenance contract. But, because, in all likelihood, the association’s management company, on-site manager, bookkeeper, and/or attorney will be involved in the estoppel issuance process, the association should consider working with its legal counsel to both prepare the form of estoppel certificate and a written resolution executed by the board to authorize the fee for the preparation and delivery of the estoppel certificate so that it is readily available.

 

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(5-10-17)

A BUSY 2017 LEGISLATIVE SESSION

Change Is In the Air

Recently, the Florida legislature has passed three bills set to become law on July 1, 2017, unless vetoed by Florida’s Governor Scott: Senate Bill 398, pertaining to estoppels that is applicable to condominium, homeowners’, and cooperative associations; House Bill 1237, applicable to condominium associations only which provides for numerous new requirements including criminal penalties and onerous and costly website requirements for those condominiums with 150 or more units and so much more; and House Bill 653, which brings more parity to laws governing different community associations, addresses fire sprinkler retrofit, perfects transferring developer rights absent obligations of failed condominium projects, and addresses the rights of board members to communication via email in a way you are sure to like. The far reaching scope of these three bills cannot be explained fully in this short article. Rather, this information is intended as a summary only. Future articles will provide more specific details.

Senate Bill 398 provides for an overhaul of the estoppel issuance process. It provides community associations a mere 10 days to issue an estoppel or forfeit payment for providing it later. Estoppel fees are strictly limited to the statutory limits. The massive amount of information that must be contained in the estoppel is unimaginable. Associations will need to work with their legal counsel to create a template for this massive amount of information that will need to be in the estoppel. This piece of legislation was clearly enacted to benefit realtors and purchasers, only.

House Bill 1237 pertaining to condominium associations only, is, in part, the result of a few bad board members in the Miami-Dade County area for which the entire rest of the state will suffer. Parts of this Bill, by way of analogy, is akin to going to the doctor for removal of a small wart on your finger and the doctor cuts off your entire arm. For instance, there are new criminal penalties for taking kickbacks, forging voting certificates or ballots, and embezzling association funds.

A condominium association, its officers, directors, employees, and agents may not use a debit card issued in the name of the association or building directly to the association for payment of ANY association expense. Doing so can be prosecuted as credit card fraud. These new criminal penalties should not be an impediment to serving on the board absent an individual with malicious intent.

Board members, managers, and management companies may not purchase condominium units at a foreclosure sale resulting from the association’s foreclosure of its lien for unpaid assessments or by taking title by deed in lieu of foreclosure. In addition to the existing requirement that bids for work to be performed be part of the association’s official records, bids for materials, equipment, or services are now required to be part of the association’s official records.

Effective July 1, 2018, a condominium association with 150 or more units must have a secure website for which each owner must be provided a login and password. The website must contain documents including the rules and regulations, the management agreement, all contracts to which the association is a party, summaries of all bids for materials equipment and services, the annual budget, the proposed annual budget, financial reports, proof of board of member certification, and notice of any unit owner meeting and the agenda no later than 14 days prior to the meeting and such notice must be posted in plain view on the front page of the website or a separate sub page of the website labeled notices which is conspicuously visible and linked from the front page. The association must also post on its website any document to be considered and voted on by the owners during the meeting or any document listed on the agenda at least seven days prior to the meeting at which the documents or information within the document will be considered. Also, notices of board meetings, agendas, and any other document required for the board meeting must be posted no later than the date of the regular meeting notice requirements, meaning either 48 hours for 14 days depending on the requirements of the meeting notice. Associations now have an affirmative duty to ensure that no protected information or information restricted from being accessible to unit owners is included in the documents that are required to be posted on the website, and if so, then the association has the duty to ensure such information is fully redacted.

Condominium associations that operate fewer than 50 units can no longer opt out of preparing a report of cash receipts and expenditures simply because they have 50 or fewer units. Rather, they will be minimally required to comply with the financial reporting requirements based upon the total revenues of the association.

Notably, a board member may not served for more than four consecutive two-year terms unless approved by an affirmative vote of two-thirds of the total voting interests of the association, unless there are not enough eligible candidates to fill the vacancies. While not addressed in the legislation, it is oddly apparent that any directors serving only one year terms can serve an unlimited number of such terms. Additionally, the recall provisions have been completely revised which is already causing confusion.

Condominium associations cannot employ or contract with any service provider that is owned or operated by a board member or with any person who has a financial relationship with a board member or officer or a relative within the third degree of consanguinity by blood or marriage of a board member or officer.

Directors and officers of a condominium board and the relatives of such directors and officers must disclose to the board any activity that may be reasonably construed to be a conflict of interest and there are a host of occurrences which gave rise to the need to make such a disclosures that are set out in the legislation.

Provisions are made for lawyers who are board certified in the area of community association law to be contracted by the Division of Florida Condominiums, Timeshares, and Mobile Homes (the ‘Division") to be arbitrators. This certification was recently approved by the Florida Supreme Court, and the process to become a board certified community association lawyer will begin this summer.

Finally, condominium associations must provide an annual report to the Division containing the names of all of the financial institutions with which the association maintains its financial accounts.

House Bill 653, in part, echoes a few of the provisions in House Bill 1237. It continues to make Chapter 719 of the Florida Statutes, otherwise known as the "Cooperative Act," more synonymous with Chapter 718 of the Florida Statutes, otherwise known as the "Condominium Act." Many readers will be happy to learn that board members of both homeowners’ and cooperative associations will be able to lawfully communicate via email, but not vote, as such is already provided for condominium association board members. Needed clarifications were provided to the fire sprinkler and engineered life safety systems requirements and retrofitting of condominiums and cooperatives for those buildings above the 75 foot threshold. For those that are less than 75 feet, it is made clear that they are exempt. The laws governing the transfer of developer rights saw a significant change. The "bulk buyer" laws, that were initially enacted to help rescue failed condominium construction projects by transferring developer rights but not prior developer obligations, were originally intended to "sunset." The automatic sunset provision of these "bulk buyer" laws were deleted, meaning that failed condominium projects may see a brighter future forever more. Chapter 720 of the Florida Statutes, otherwise known as the "Homeowners’ Association Act," was clarified to provide that a delinquent member cannot escape their assessment obligation by including a restrictive endorsement on their check, such as "paid in full".

As to what happens next, Governor Scott can sign these Bills into law, do nothing in which case the Bills become law on their effective date of July 1, 2017, or veto the Bills. Stay tuned for future articles and our upcoming legal update class schedule during which these Bills and others being considered by the Florida legislature will be discussed if and when they become law.

 

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(4-26-17)

Planning For a Construction Project

"Rip and Tear" Damages: Florida’s New Coverage Trend

Imagine this: your association has just completed its $2 million clubhouse modernization and retrofit. As a part of the project, an entire new roof system was installed, including new trusses. A short time later, the association learns that the new trusses are constructed incorrectly and must be replaced. To do that, the brand new roof must be entirely ripped and torn off. A claim is made against the general contractor’s commercial general liability policy. The good news is that the defective trusses are covered. The bad news is that the brand new and otherwise perfectly good roof that had to be removed to replace the bad trusses is not covered by the general contractor’s policy.

Think of the "rip and tear" costs as the cost of removing the good components to reach the bad components in order to replace them, and then replacing those good components. In other words, "rip and tear" refers to the costs of tearing out perfectly good parts of the building and after repairing the defective work, the costs of repairing/replacing those perfectly good parts (at least they were perfectly good until they were removed to get to the defective work). Traditionally, "rip and tear" damages caused to otherwise undamaged property to access and repair damaged property would not be covered under the standard form commercial general liability policy. While this result seems illogical to most people (myself included), this has been the standard for quite some time. On the bright side, this trend seems to be changing in Florida.

On April 7, 2015, the Eleventh Circuit of the United States Court of Appeals (a federal appellate court) issued a landmark opinion on "rip and tear" insurance coverage for construction defect occurrences in the case of Carithers v. Mid-Continent Casualty Company. In this case, an improperly pitched overhead balcony allowed water into the garage structure below causing damage to the garage’s ceilings and walls. The only way to repair the damage to the garage was to rip and tear through the overhead balcony slab. Under the traditional analysis, the repairs to the damaged garage would be covered by the contractor’s commercial general liability policy, but the repairs to the now-destroyed and unusable balcony would not be covered. However, the Eleventh Circuit held that the repairs to the balcony were, in fact, covered under the contractor’s commercial general liability policy. The Eleventh Circuit reasoned that, because the "rip and tear" to the balcony was necessary to repair the covered damaged property, the cost of the repairs to the balcony were part of the cost of repairing the garage.

After the Eleventh Circuit’s decision in Carithers, other courts have followed in their decisions and reasoning, finding that "rip and tear" damages are covered under a contractor’s commercial general liability policy. In the case of Pavarini Construction Co. (SE), Inc. v. ACE American Insurance Company, destabilization was occurring in some of the concrete masonry walls of a 63-story condominium project in Miami, Florida. The cause of the destabilization was the sub-contractor’s omission and improper installation of a significant amount of reinforcing steel (a/k/a re-bar) in the concrete walls (yikes!). The destabilization then caused the stucco to crack and begin to fall away from the wall, leading to water intrusion. While not all of the walls were experiencing this damage, they would eventually because they all contained the same construction defects. The United Stated District Court for the Southern District of Florida (a federal district court covering the counties of Broward, Highlands, Indian River, Martin, Miami-Dade, Monroe, Okeechobee, Palm Beach, and St. Lucie) held that the complete replacement of the defective work, even the defective work which was not yet damaged, was covered under the commercial general liability policy because the repairs were necessary to effectively repair ongoing damage to otherwise non-defective work, meaning the entire building had to be stabilized.

With all of this in mind, the next time your association is planning a construction project you might consider discussing "rip and tear" coverages with your association’s insurance agent

 

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(4-12-17)

Florida’s Newest Non-Native Invasion

Overnight Rentals

Brought to you by VRBO and AirBnB

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.

*VRBO: Vacation Rentals By Owner

*AirBnB: Air Bed and Breakfast

 

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(3-29-17)

Appellate Court Extends Association Protection Relative to Third Party Purchasers

by Robert L. Kaye, Esq.

Kaye Bender Rembaum is pleased to announce an-other appellate court ruling in favor of a client of the Firm, which is beneficial to all community associations in Florida. In its decision published on March 15, 2017, the Fourth District Court of Appeal has further confirmed and clarified that the lien of the association contained in the recorded declaration is sufficient to allow the association to pursue an independent foreclosure action when a lender foreclosure case is pending. 

In Fountainspring II Homeowners Association, Inc. v. Veliz, Case No. 4D-3408 (Fla. 4th DCA March 15, 2017), the Court was presented with a situation similar to what it had recently decided in Jallali v. Knightsbridge Village Homeowners Association, Inc., Case No. 4D15-2036 (Fla. 4th DCA Jan. 4, 2017) (reported by us after the original decision in October 2016 at http://www.kbrlegal.com/4th-dca-corrects-prior-ruling-clarifies-limited-application-quadromain-decision/), involving an association that had taken title to a property within its community by foreclosing on unpaid maintenance assessments which had been challenged over a technical jurisdictional issue in the lower court.

In Fountainspring II, the property in question was purchased by a third party at the Association foreclosure sale. That purchaser held the property for over two (2) years, had it occupied by a tenant, and never paid assessments to the Association. Before the Association commenced its own collection against the new owner/third party purchaser, the lender foreclosure case that had been pending when the Association completed its foreclosure case (allowing the new owner to take title to the property) concluded, and a foreclosure sale took place which resulted in title to the property being taken away from the third party purchaser. The third party purchaser then went back to the trial court in the Association foreclosure case to claim that the Association should have brought its claim in the lender case rather than in a separate case as had been done (this was some time before the Jallali decision was published). The trial court granted that motion and the appeal of that decision followed.

In reaching its decision, the appellate court reiterated that the claim of lien of the Association related back to the recording of the declaration of covenants, which predated the mortgage. As such, the Association had a prior recorded lien interest which did not require the Association to bring its claim in the lender foreclosure case. By this conclusion, the principle of Jallali that involved the former owner of the property has been extended to include third party purchasers as well.

Originally published in Legal Morsels, March 2017

 

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(3-15-17)

Senate Bill 1682

Every Good Deed Is Punished

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 the 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 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.

 

***

(3-1-17)

PROPOSED ESTOPPEL BILL 398

Unfair and Inequitable

To Community Associations

(Sorry folks, this is not fake news)

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 are 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 than 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 association 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!

 

***

(2-15-17)

Selective Enforcement: 

Common Sense Prevails

As often happens when a community association en-forces 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.

 

***

(2-1-14)

HOW TO GET THE VOTE

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.

 

***

(1-18-17)

ASSOCIATION

ASSESSMENT LIENS

The Importance of a "Relation-Back" Provision in Your Community’s Declaration

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.

 

***

(1-4-17)

RESERVE FUNDING OBLIGATIONS

HOA Developers Beware: 

No Good Deed Goes Unpunished

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 choose 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?

 

***

(12-21-16)

"All-Risk" Insurance Policies Are Not Always What They Appear to Be

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.

 

***

(12-7-16)

Retroactive Application of

Statute Amendments:

Does Your Declaration

Have "Kaufman" Language

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.

 

***

(11-23-16)

Decorating for the

Holiday Season:

Religious Symbol or Secular Adornment?

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.

 

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(11-9-16)

The Problem of Choosing One Association over Another When Serving on Multiple Boards:

The duties of loyalty and care

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

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

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

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

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

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

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

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

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

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

 

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(10-26-16)

Loan Servicers in the Post-Foreclosure World

Are They Entitled to Safe Harbor Protection?

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

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

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

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

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

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

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

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

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

 

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(10-12-16)

ATTENTION FIRST

MORTGAGEE LENDERS

Be Careful What You Wish For

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

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

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

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

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

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

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

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

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

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

 

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(9-28-16)

Community Association Liability Neighbor to Neighbor Discrimination

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

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

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

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

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

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

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

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

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

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

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

 

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(9-14-16)

Is That New Rule Adopted by the Board Really Enforceable?

Back to Basics

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

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

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

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

In examining board adopted rules ask yourself:

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

2) Does the rule conflict with the declaration?

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

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

Remember that rules prohibiting unit owners from renting their units or altering the duration of the rental term or specifying or limiting the number of times unit owners are entitled to rent their units during a specified period applies only to unit owners who consent to the amendment of the declaration of condominium and unit owners who acquire title to their units after the effective date of that amendment, the Beachwood Villas Condominium test to determine the validity of board adopted rule is still good law.

 

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(8-31-16)

Florida’s Next Big Real Estate Problem

It’s closer than you think

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

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

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

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

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

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

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

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

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

 

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(8-17-16)

2016 Legislation of Interest to Community Associations

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

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

Application for Tenancy by a Servicemember:

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

Requirements for "Community Residential Homes":

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

Private Residential Elevators:

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

Discharge of a Firearm:

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

Repeal of Cohabitation Prohibition:

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

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

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

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

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

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

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

 

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(8-3-16)

The Condominium Fire Sprinkler Retrofit

A Continuing Saga

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

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

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

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

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

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

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

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

 

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(7-20-16)

OFFICIAL RECORD REQUESTS

Back To Basics

In an all too familiar story, the association’s board of directors has decided to authorize repairs due to neglected maintenance. Of course, not every association member is happy with the board’s decision. The rumor-mill is all a flutter and accusations are rampant. While the board knows it is doing the right thing, the "members group and opposition" is up in arms and out for blood. An official record request is received by the association. A member of the opposition group demands copies of all engineering opinions which provide that the maintenance is required along with all contracts associated with the project. The member writes in his request that he will call for an appointment to come by and pick up these records. The member doesn’t call. The association does not provide the records. In response, the member sues the association for failing to provide the records within the statutorily required time. Has the association done anything wrong?

In a court case similar to the above facts, Ridge Groves Condominium Association v. Misserville, a 2016 Florida Second District Court of Appeal case, a condominium unit owner, Michael Misserville, requested an appointment to inspect and copy a roster of all residents as well as the association’s insurance policies and stated that he would call sometime within the next five days to set the appointment. However, he never called to set the appointment to inspect and copy the requested records, and the association did not send him a copy of the records requested. Nevertheless, Misserville sued the association claiming that the association violated Florida law, more specifically, section 718.111(12)(c) of the Florida Statutes, which provides that if the association fails to provide a unit owner with records within ten business days of the request, then a rebuttable presumption is created that the association willfully failed to comply and damages can be awarded in favor of the aggrieved member.

It should be noted that all associations have the lawful right to adopt reasonable rules and regulations governing the frequency, time, location, notice, and manner of record inspections and copying. In the Misserville case, the association had adopted an official records request form which provided that the member must call for an appointment.

During the trial court portion of this case, the trial court found that there was no evidence that the association had adopted the rule governing the need for the member to set the appointment and, rather shockingly, found that the association was legally obligated to deliver the records. How the trial court could reach such a conclusion is beyond words because it is rather elementary that an association is never required to provide copies of requested records in response to a member’s official record request unless, somehow, the association had obligated itself to do so. Rather, the association’s only obligation is to provide a reasonable opportunity for the member to inspect the official records and make available for copying those records specifically requested within the statutory time period. The appellate court took notice that the association had actually copied all of the records requested and set them aside in the association’s office in anticipation of Misserville’s call. Further, the appellate court found that the trial court’s conclusion that the association failed to comply with the official record request was unsupported by both evidence and law and, therefore, that portion of the judgment was reversed in favor of the association.

While the Misserville case analyzed official records requests under Chapter 718 of the Florida Statutes, more commonly known as the Condominium Act, there are a few subtle differences between the official record request provisions set out in the Condominium Act as compared to the Homeowners’ Association Act under Chapter 720 of the Florida Statutes.

As to condominium associations, the records of the association must be made available to a unit owner within 45 miles of the condominium property or within the county in which the condominium property is located and within five business days after receipt of a written request by the board or its designee. The records can also be made available to the member on the property or the association may offer the option of making the records available to a unit owner electronically via the Internet or by allowing the records to be viewed in electronic format on a computer screen and printed upon request. The failure of the association to provide the records within ten business days after receipt of a written request creates a rebuttable presumption that the association willfully failed to do so in which case the owner is entitled to actual damages or minimum damages for the association’s willful failure to comply in the amount of $50 per calendar day for up to ten days beginning on the 11th working day after receipt of the written request.

As to homeowners’ associations, section 720.303(5), Florida Statutes, requires that the records must be made available to a member for inspection or photocopying within 45 miles of the community or within the county in which the association is located. Similar to the Condominium Act, the official records can also be made available for inspection in the community or at the option of the association, by making the records available to the owner electronically via the Internet or by allowing the records to be viewed in electronic format on a computer screen and printed upon request. After receipt by the board, or its designee, of a written request for official records, the official records must be provided within ten business days (as opposed to five business days for condominium associations).

As to another point of distinction, in order for a homeowners’ association member to be entitled to a rebuttable presumption that the association willfully failed to comply with the requirements regarding official record requests, the member MUST make their request by certified mail, return receipt requested. Note that there is no similar requirement for "certified mail, return receipt requested" in the Condominium Act. Similar to the Condominium Act, the homeowners’ association member who is denied access to the official records is entitled to actual damages or minimum damages in the amount of $50 per calendar day for up to ten days, beginning on the 11th business day after the board’s receipt of the written request.

While the Condominium Act does not have statutorily set costs that a condominium association can charge for providing copies of official records to a unit owner, the Homeowners’ Association Act provides that a homeowners’ association may impose fees to cover the cost of providing copies of the official records including the cost of copying and cost required for personnel to retrieve and copy the records if the time spent retrieving and copying the records exceeds one half hour and if the personnel costs do not exceed $20 per hour. Personnel costs may not be charged for record requests that result in the copying of 25 or fewer pages. The association may charge up to $0.25 per page for copies made on the association’s photocopier.

Both condominium and homeowners’ associations allow a member, or their authorized representative, to use a portable device including smart phone, tablet, portable scanner, or other technology capable of scanning or taking photographs to make an electronic copy of the official records in lieu of the association providing the member, or the member’s authorized representative, with a copy of the records and, in such event, the association cannot charge a fee to the member or the member’s authorized representative for use of the portable device.

With all of the above in mind, remember that your community association has the lawful right to adopt reasonable rules and regulations governing the frequency, time, location, notice, and manner of record inspections and copying of its official records. If your association hasn’t, why not?! It is simple enough to do and typically not very expensive. Any association that hasn’t already done so should reach out to the association’s lawyer for further discussion.

 

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(7-6-16)

Associations Can Once Again Foreclose Their Assessment Lien After a Lender Commences Its Foreclosure

Kaye Bender Rembaum Crushes the Quadomain Decision

Like people, associations can have good days and bad days. Not too long ago, in December 2012, as a result of the Florida’s Fourth District Court of Appeal (4th DCA) decision in U.S. Bank National Association v. Quadomain Condominium Association, Florida associations experienced a very bad day. By way of an overly simplistic explanation, the Quadomain case has been applied to effectively block an association from initiating an assessment foreclosure after a lender’s recording of its lis pendens, a notice of a pending foreclosure, where the association had not yet recorded its assessment lien. This was disastrous because, in practical application, it means that if the association had not yet recorded its lien before the lender’s recording of its lis pendens, the association was barred from foreclosing its assessment lien. In plain English, the recording of a lis pendens places the world on notice of the litigation concerning real property such that, if the property is transferred, the buyer takes the property subject to the outcome of the litigation.

Then, on June 29, 2016, Florida community associations had a very good day because of the 4th DCA’s opinion in the case of Jallali v. Knightsbridge Village Homeowners Association, Inc., in which Kaye Bender Rembaum was instrumental as legal counsel for the appellee, Knightsbridge Village Homeowners Association, Inc. In Jallali, the 4th DCA recognized that the association’s recorded interest related back to the date the association’s declaration is recorded, and once again, perfected an association’s right to foreclose, in spite of the lender’s recordation of its lis pendens.

Although the 4th DCA’s judgment in Jallali is not yet final (because the appellant, Jallali, has 15 days to file a motion for rehearing), Kaye Bender Rembaum successfully argued that the association’s assessment lien foreclosure action was not barred by the lender’s pending mortgage foreclosure action, despite being commenced after the lender’s mortgage foreclosure action and thus, after the recordation of the lender’s lis pendens, because the association’s claim of lien relates back to the recordation of the declaration, which was recorded before the lender’s notice of lis pendens, and because the association’s assessment lien foreclosure action was against the owner and member of the association and not the superior interest of the lender.

In order to understand the 4th DCA’s discussion and determination in Jallali, it is necessary to know what happened in Quadomain. In Quadomain, the lender recorded its lis pendens and commenced foreclosure of its mortgage. While the lender’s mortgage foreclosure action was underway, the owner of the property died, and the unit transferred to the owner’s heirs. Once the lender found out about the owner’s passing, the lender recorded a supplemental notice of lis pendens to name the new owners in the mortgage foreclosure action. After the lender recorded the supplemental notice of lis pendens, the association recorded its assessment lien against the lender (who had obtained a certificate of title against the deceased owner) and commenced foreclosure of its assessment lien against the lender.

The 4th DCA in Quadomain held that the association’s assessment lien foreclosure action was barred due to the lender’s pending mortgage foreclosure action based upon the 4th DCA’s application of section 48.23 of the Florida Statutes, which provides that the recording of an active notice of lis pendens against a property constitutes a bar to the enforcement of an unrecorded interest in the property unless the holder of the unrecorded interest intervenes in the pending foreclosure action within 30 days after the notice of lis pendens is recorded. Because of the length of time it may take for lender mortgage foreclosure actions to reach final conclusion, the use of the decision in Quadomain has been problematic for associations whose assessments have gone unpaid during the lender’s mortgage foreclosure action.

However, to the sheer happiness of associations throughout this great State, the Quadomain decision was clarified (some folks might say, "corrected") by the 4th DCA in Jallali. Similar to the facts in Quadomain, in Jallali, the lender recorded a notice of lis pendens and commenced foreclosure of its mortgage. While the lender’s mortgage foreclosure action was pending, the association recorded its assessment lien against the owner and successfully foreclosed its assessment lien against the owner. On appeal, the owner, relying on Quadomain, argued that the association’s assessment lien foreclosure action was barred because of the lender’s pending mortgage foreclosure action. The 4th DCA, distinguishing the Jallali case from the Quadomain case, and rightfully so, held that the lender’s recording of a notice of lis pendens does not bar the association’s subsequent assessment lien foreclosure action against the owner where the association’s lien is imposed under the association’s declaration which was recorded before the lender recorded its notice of lis pendens. Additionally, the 4th DCA provided that section 48.23 of the Florida Statutes was intended to protect the lender, not the delinquent homeowner.

Germaine to the 4th DCA’s decision was language in the Knightsbridge Village’s declaration that all liens, once recorded, relate back to the date that the declaration was initially recorded. Not all declarations contain this relation back language. Does yours? If not, the board should discuss amending the declaration to include the "relation back" language with the association’s lawyer.

 

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(6-22-16)

Application for Tenancy by a Service Member and

The Statutory Limitation on Condominium Association Transfer Fees

Pursuant to section 83.683 of the Florida Statute, if an applicant for lease is a servicemember ALL Florida community associations must, within a seven-day period, notify the servicemember in writing of an application approval or denial and, if denied, the reason for denial. Absent a timely denial of the rental application, the landlord must lease the rental unit to the servicemember if all other terms of the application and lease are complied with. This requirement is not waivable under any circumstances whatsoever – even by the parties themselves! A "servicemember" is defined as "any person serving as a member of the United States Armed Forces on active duty or state active duty and all members of the Florida National Guard and United States Reserve Forces."

On a different note, Florida law is very specific in terms of a condominium association’s ability to charge an application fee to prospective owners and tenants. As of late, the news is reporting that, as to those condominium associations and management companies that have been charging more than allowable fee, they could find themselves a named defendant in a class action lawsuit in the not-too-distant future. Here is what you need to know.

Apparently, more than a few condominium associations believe that they can charge additional fees for such things as, to name just a couple, credit reports and criminal background checks. Even certain management companies, acting as the agent of the condominium association, believe that they can charge a separate fee, too. This is simply not the case, and such action violates Florida law.

Section 718.112(i) of the Florida Statutes is patently clear. No charge shall be made by a condominium association in connection with the sale, mortgage, lease, sublease, or other transfer of a unit unless i) the association is required to approve such transfer and ii) a fee for such approval is provided for in the declaration, articles, or bylaws. Any such fee may be preset, but in no event may such fee exceed $100 per applicant other than husband/wife or parent/dependent child, which are considered one applicant. However, if the lease or sublease is a renewal of a lease or sublease with the same lessee or sublessee, no charge shall be made. In addition, the condominium association may, if the authority to do so appears in the declaration or bylaws, require that a prospective lessee place a security deposit, in an amount not to exceed the equivalent of one month’s rent, into an escrow account maintained by the association.

If the condominium association’s expenses in obtaining credit and criminal history reports exceeds the $100.00, the association bears the additional expense. Adding insult to injury, some management contracts provide that any fee charged by the association in connection with the sale or lease application is fully earned by the management company. In those instances, the condominium association does not even gain the benefit of the $100.00 fee to offset its expenses. What does your association’s management contract provide?

 

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(6-8-16)

A Failure To Pay Assessments Will Negatively Affect Credit Scores

It’s about time and long overdue

Until now, failing to make timely assessment payments could lead to additional charges for late payment fees, interest charges, collection fees, and may even result in the filing of a lien against your property and foreclosure of the recorded lien. However, delinquent assessments rarely show up in the member’s credit report, unless the debt becomes a matter of public record (e.g., an assessment foreclosure) or the debt is reported to the credit bureaus by a collections agency.

While residential in character, operating a community association is still a business. In fact, the Community Association Institute reported in its 2014 Statistical Review that of the approximately 333,000 community associations in the United States, community associations and property management companies collect approximately $70 billion in assessment payments each year. Until now, a member could miss a $30.00 minimum credit card payment and be penalized with a lower credit score, but if that same member was thousands of dollars delinquent in his or her assessment payments, it would not negatively affect their credit score, unless formal collections actions are taken by the association, such as turning over the delinquent account to a collections agency which reports the debt to the credit bureaus or a judgment of foreclosure is ordered against the owner. Well, this great injustice is about to change.

Typically, reporting debts to credit reporting agencies requires membership to the credit bureaus. This is a strict and costly process. However, it is sometimes possible for community association related debts to appear on a member’s credit report because the credit reporting agencies have employees which comb the public records for this type of information, including accounts with collections agencies, civil money judgments, and foreclosures. Once this debt appears on the member’s credit report, their credit score is severely lowered by as much as 300 points in the case of an assessment foreclosure.

Until recently, late assessment payments did not affect a member’s credit report or credit score. However, non-traditional credit data sources, including community association assessment payments, will soon begin to regularly appear on credit reports, and a missed payment will negatively affect credit scores. Equifax Inc. ("Equifax"), one of the three major credit reporting agencies, has recently entered into an agreement with Sperlonga Data & Analytics ("Sperlonga"), a data aggregation business for non-standard credit data sources, and will soon take into account community association assessment payments.

Homeowners who are late on assessment payments should expect to see a negative effect on their credit report and credit score. Similarly, homeowners who make timely assessment payments may soon see a positive effect on their credit report and credit score. A test run of the new community association assessment reporting will begin in August 2016 with full reporting planned for October 2016.

As stated by Matt Martin, chairman and founder of Sperlonga, "Until now, HOA payments have gone largely unreported to the national credit reporting agencies. Our service will help elevate association payments to the same level of importance as the consumer’s other financial obligations like residential mortgages, auto loans and credit card payments. Property owners that pay HOA fees on time should begin to see the similar impact to their credit reports as they would with other payment obligations traditionally found in a credit report, while associations and property management companies should begin to see reduced delinquencies and improved cash flow. Our goal is to empower homeowner associations and management companies with the same credit reporting tool that banks and lenders already use to manage consumer debt and credit-related payments."

Mike Gardner, senior vice president and sales leader at Equifax, has stated, "Equifax is committed to providing consumers with additional means for building their credit histories. Introducing new sources of data beyond what has traditionally been found on credit files can provide additional insight into a consumer’s financial behavior and help deliver expanded credit access."

Critics of the new community association assessment reporting argue that assessments are not the same types of debt as mortgages or other loans because associations do not provide financing for purchased goods, they provide property maintenance and services only. In this instance, the critic’s arguments of this new aspect to credit reporting is completely meritless. Simply put, if a member does not want to see their credit score go down, then they should pay their assessments on time. This type of credit reporting is long overdue and should be welcomed by community associations throughout Florida and the rest of the United States.

 

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(5-25-16)

Florida-Friendly Landscaping vs Architectural Approval

Planting Flowers? Read This First!

Both Chapter 373, Florida Statutes, regarding Florida’s water resources, and Chapter 720, Florida Statutes, regarding homeowners’ associations, provide for the use of Florida-friendly landscaping in promoting the efficient and clean use of water resources. "Florida-friendly landscaping," otherwise known as "xeriscaping," means using low-maintenance plants and environmentally sustainable practices to save residents money and to protect Florida’s natural resources by creating quality landscapes that conserve water, protect the environment, are adaptable to local conditions, and are drought tolerant. The principles of Florida-friendly landscaping include planting the right plant in the right place, efficient watering, appropriate fertilization, mulching, attraction of wildlife, responsible management of yard pests, recycling yard waste, reduction of storm water runoff, and waterfront protection. Additional components include practices such as landscape planning and design, soil analysis, the appropriate use of solid waste compost, minimizing the use of irrigation, and proper maintenance. But this does not entitle a homeowner to ignore their community’s architectural approval provisions.

Both Chapters 373 and 720, Florida Statutes, provide that a covenant cannot prohibit or be enforced so as to prohibit any owner from implementing Florida-friendly landscaping on their land or create any requirement or limitation in conflict with any water consumption provision, rule, or regulation. Occasionally, a homeowner may interpret this language to mean that their homeowners’ association cannot enforce the landscaping covenants set out in their community’s declaration. However, this is simply not the case.

Let’s get something straight, the Florida-friendly landscaping provisions of Chapters 373 and 720, Florida Statutes, do not prohibit a homeowners’ association from enforcing its architectural review and approval procedures as proscribed by its declaration of covenants, nor do they prohibit a community association from limiting or prohibiting the use of certain landscaping materials, including the use of turf alternatives, for example, rock lawns and wooden decks, in furtherance of its obligations to promote the ascetic quality and value of its community.

In fact, the Florida-Friendly Landscaping Model Covenants, Conditions and Restrictions for New and Existing Community Associations, prepared by the University of Florida, Department of Environmental Horticulture for the Florida-Friendly Landscaping Program, in conjunction with the Florida Department of Environmental Protection, proposes model covenants, conditions, and restrictions which require owners to obtain the prior written approval of the homeowners’ association prior to the installation of any landscaping, including Florida-friendly landscaping.

This being the case, in a homeowners’ association which requires that an owner obtain the approval of the homeowners’ association to make architectural changes to their lot, an owner who wishes to install landscaping, even Florida-friendly landscaping, on their lot must first obtain the approval of the homeowners’ association. Failing to get the approval of the homeowners’ association before installing the landscaping could lead to the removal of the unapproved landscaping, fines, common area use right suspensions, and individual assessments, causing unnecessary grief and expense to both the owner and the homeowners’ association.

While the Florida-friendly landscaping legislation came into being in 2009, these laws apply retroactively. The law provides that conserving and protecting the state’s water resources is a "compelling public interest" and "that the participation of homeowners’ associations and local governments is essential to the state’s efforts in water conservation and water quality protection and restoration." When government relies on its "police powers" (a/k/a to protect the health, safety, and welfare of our citizens), then the law in question applies without regard to the otherwise necessary "impairment of existing contract" analysis.

Although the Florida-friendly landscaping laws have been effective for many years now, and have retroactive application, some homeowners’ associations have not yet adopted landscaping standards which take Florida-friendly landscaping principles into consideration. If your community has not done so, then the Board should consult its lawyer to further discuss incorporating Florida-friendly landscaping into your governing documents.

 

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(5-11-16)

SOBER HOMES

Are They Coming to Your Community? 

What You Need to Know

Most commonly, when a community association is faced with a Fair Housing Act complaint, it is with regard to "reasonable accommodation" issues such as a request for an emotional support animal. Less common are Fair Housing Act complaints based on failure to grant a "reasonable modification" such as the need for the construction of a ramp so a wheelchair bound person may have access to the clubhouse. While failure to grant both reasonable accommodation and modification requests continue to dominate the Fair Housing Act landscape, the presence of "sober homes" throughout South Florida, particularly in Palm Beach County, is becoming a great public concern as well.

In most instances, sober homes are afforded protection under the Fair Housing Act. They are known by other names, too, such as halfway houses, group homes, recovery residences, etc. Sober homes are homes located in single-family communities which house multiple recovering drug and alcohol addicts in, what is hopefully, their final steps to sober living. While a well-run sober home can go unnoticed, a poorly supervised sober home can cause severe disruption in an otherwise tranquil community association causing the board to deal with such issues as littering, noise, parking problems, break-ins, thefts, and even drug and suicide related deaths.

Although zoning ordinances and a community’s covenants may require that a community contain single-family residences only, these requirements are trumped by the federally legislated Fair Housing Act, which makes it unlawful for a housing provider, including community associations, to discriminate in the sale or rental of dwellings based on race, color, national origin, religion, sex, familial status, or disability. Because drug and alcohol addiction is classified as a disability, community associations may find themselves forced to make reasonable accommodations to their covenants to allow sober homes to exist within their communities.

The existence of sober homes in single-family communities, and the fear that sober homes may appear, has caused many residents to speak up and reach out to local government officials who are similarly restrained by federal laws. Although local government officials are restrained by the Fair Housing Act in this regard, hopefully the collective voices of Palm Beach County residents and government officials have been heard by the U.S. Department of Housing and Urban Development (HUD), the federal agency charged with the administration of the Fair Housing Act.

As published in the Palm Beach Post on Monday, May 2, 2016, by Staff Writer, Joe Capozzi, HUD’s Assistant Secretary, Gustavo Velasquez, recently toured some of the sober houses in Delray Beach and met with about 30 local government officials regarding the prevalence of sober homes. HUD plans to issue a Joint Statement together with the U.S. Department of Justice (DOJ) as early as August of this year to provide guidelines for towns and cities desiring to enact ordinances intended to regulate the presence of sober homes in their communities.

As reported in Mr. Capozzi’s Palm Beach Post article, Congresswoman Lois Frankel, who organized the meeting with HUD, said "We are hoping to get from them some further guidance that will allow the cities [and] local governments to craft ordinances or laws that can balance the legal protections for people with disabilities and the ability for people to live in safe healthy neighborhoods."

While the meeting between local government officials and HUD was not open to the public, some insight was given as to what may be set out in the forthcoming Joint Statement. As reported, the guidance provided by HUD and the DOJ may provide a distinction between occupants of a sober home and the companies that operate them and may provide clarification as to what is considered to be a "fundamental change in the character of a neighborhood." As always with Fair Housing Act issues, the determination of what is an appropriate action with regard to a sober home will likely be determined on a case-by-case basis. If your community is faced with dealing with a sober home, before taking any action, the board should discuss the situation with the association’s lawyer.

 

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(4-27-16)

The Right of Inspection of the Official Records of the Association

Members of a Florida community association have a statutory right to access their community association’s "official records", subject to limited exceptions, including for example, records protected by the attorney-client privilege and records containing a member’s medical information. Both Chapter 718 and Chapter 720 of the Florida Statutes, regarding condominium associations and homeowners’ associations, respectively, provide that association members have the right to inspect the official records of the association, which includes the right to make or obtain copies, often at the member’s expense. The failure to timely respond to such a request can lead to statutory damages.

In the event a community association fails to timely make its official records available to a requesting member within 10 days of the request, a rebuttable presumption of the association’s willful failure to comply with an official records request is created which can subject the association to a claim for damages, too. That said, many times the same mistake is made when seeking to obtain copies of desired official records – the member requests the association send them copies of the desired official records rather than requesting an inspection of the official records.

Imagine this scenario, a member of a condominium association sends a letter to the manager of their condominium association requesting copies of the association’s repair records regarding repairs which were recently conducted by the condominium association to the member’s balcony, be sent to him within the statutory timeframe. Weeks pass, and the unit owner never received the copies of the requested official records. Using the force of Chapter 718, Florida Statutes, as his sword, the member sends the manager of the condominium association another letter, this time erroneously demanding the copies be provided to him together with the full amount of statutory damages for failing to timely respond which can be $50.00 per day up to $500.00, or actual damages.

While the member’s frustration is understandable, because damages for the association’s failure to timely make its official records available to the member are statutorily provided, the language of the statute regarding the inspection and copying of an association’s official records must be "strictly construed," meaning that the statute is interpreted solely based upon the language of the statute.

Due to this strict construction of the statute, many arbitration decisions of the Division of Florida Condominiums, Timeshares, and Mobile Homes (the Division) have held that when request is only made for copies of official records, instead of requesting access to inspect the official records, then the request is not in compliance with the requirements of Chapter 718, Florida Statutes, and therefore, is not subject to the timing requirement and monetary penalty of the statute. A few examples of the Division’s arbitration orders follow:

• The demand by the unit owner’s attorney for minutes, accounting records, receipts and expenditures, and financial reports of the association was not a request for inspection; therefore, the arbitration case was dismissed. Franklin v. Village Square Condominium Association, Inc., Arb. Case No. 2012-02-1447, Final Order Dismissing Petition without Prejudice (May 16, 2012).

• The unit owner’s e-mail request to provide copies of specified documents was not a request for inspection of official records; therefore, the arbitration case was dismissed. Federico v. Mariner Pointe Condominium Association, Inc., Arb. Case No. 2011-04-1330, Final Order of Dismissal (Aug. 23, 2011).

• The plain language of the statute does not require condominium associations to provide copies on demand or any particular form of copies; it is limited to providing access upon request, with an opportunity for the requestor to make copies. Lee v. Winston Towers 100 Association, Inc., Arb. Case No. 02-4897, Final Order (Jan. 3, 2003).

• In order to fall within application of the statute, a unit owner must request an opportunity to inspect official records. The unit owner requested that certain documents be mailed to him which did not comply with the statute; therefore, the unit owner’s request for statutory damages was denied. Bolt v. Bayshore Terrace Condominium Inc., Arb. Case No. 2010-04-6107, Summary Final Order (November 10, 2010).

Further, an association is not required to research its official records and cherry-pick those records requested by members. Notwithstanding the form of the member’s official records request, an association may comply with a member’s request by having a copy of its official records available for inspection or copying within the community, within 45 miles of the community, or within the county in which the community is located, or the association may offer the option of making the records available to a member on the internet or by electronic format on a computer screen and printed upon request. Remember, too, that an association can adopt reasonable rules and regulations governing the inspection such as where the request must be delivered, and the length of a member’s inspection so long as the inspection is not limited to less than one, eight hour day per month.

 

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(4-13-16)

HAS "HUD" GONE TOO FAR?

The Rights of Criminals to 

Live in your Community

Anyone who believes that big government does not already intrude too far into the lives of the citizenry of the United States of America will be even more disgusted with the U.S. Department of Housing and Urban Development’s ("HUD") General Counsel’s April 4, 2016 advisory opinion where HUD most clearly provides felons more rights than non-felons under the Federal Fair Housing Act (the "Act"). That’s right, the same Federal Agency that has allowed an ever growing, over-abundance of assistance animals into your "no-pet" or otherwise restricted pet community has thrown us another curve ball aimed at further restricting the right of a community association to determine its newest residents.

Generally, the Act prohibits discrimination in the sale, rental, or financing of residences, and in other housing-related activities, on the basis of race, color, religion, sex, disability, familial status or national origin. As recently upheld by the United States Supreme Court, a claim for a violation of the Act based on "disparate impact" is permissible. Such a claim occurs where the application of a seemingly neutral policy or procedure has a discriminatory effect on a particular group of people on the basis of race, color, religion, sex, disability, familial status or national origin.

HUD’s most recent opinion begins by providing statistics such as "100 million U.S. Adults (1/3 of the population) have a criminal record of some sort, the prison population of 2.2 million is the largest in the world, 650,000 individuals are released from prison each year, and over 95% of those incarcerated will be released at some point. African Americans and Hispanics are convicted and incarcerated at rates disproportionate to their share of the general population." Therefore, HUD reasons that criminal record-based barriers to housing are likely to have a disproportionate impact on minority home seekers.

On April 4, 2016, HUD issued guidance from its Office of the General Counsel regarding the application of the Act on the use of criminal arrests and convictions by housing providers, which includes community associations, to screen potential purchasers and renters. This guidance issued by HUD provides, in its conclusion, that:

Because of widespread racial and ethnic disparities in the U.S. criminal justice system, criminal history-based restrictions on access to housing are likely disproportionately to burden African Americans and Hispanics. While the Act does not prohibit housing providers from appropriately considering criminal history information when making housing decisions, arbitrary and overbroad criminal history-related bans are likely to lack a legally sufficient justification. Thus, a discriminatory effect resulting from a policy or practice that denies housing to anyone with a prior arrest or any kind of criminal conviction cannot be justified, and therefore such a practice would violate the Fair Housing Act… Selective use of criminal history as a pretext for unequal treatment of individuals based on race, national origin, or other protected characteristics violates the Act.

In arriving at this conclusion, HUD discusses the three element standard by which criminal history-based screening provisions are evaluated:

1) Whether the Criminal History Policy or Practice Has a Discriminatory Effect: Under this element, an aggrieved person must show that the application of criminal history-based screening results in a disparate impact on a group of people based on their race or national origin. Typically, this is shown by the use of statistical data and is determined on a case-by-case basis.

2) Whether the Criminal History Policy or Practice is Necessary to Achieve a Substantial, Legitimate, Non-discriminatory Interest: A community association is responsible for promoting the health, safety, and welfare of its members. Most, if not all, board members would agree that keeping criminals out of their communities is in furtherance of this responsibility. However, in the event of challenge, HUD will require that the association present "reliable evidence that its policy or practice of making housing decisions based on criminal history actually assists in protecting resident safety and/or property." As such, HUD will require an association to prove a negative, meaning an association will have to somehow show that its community is safer because its criminal-history based screening has kept the criminals out. How HUD expects an association to prove this remains a mystery.

3) Whether There Is a Less Discriminatory Alternative: In this final element, an aggrieved person must show that the association’s interest (established in the second element) could be served by a less discriminatory practice, meaning is there a way the interest can be met by further limiting and qualifying the use of criminal history information? HUD provides that these qualifying factors may include, "the facts or circumstances surrounding the criminal conduct; the age of the individual at the time of the conduct; evidence that the individual has maintained a good tenant history before and/or after the conviction or conduct; and evidence of rehabilitation efforts."

An Exemption: A community associateon will not be liable under the Act for refusing a sale or lease to a person with a prior conviction for "drug manufacturing or distribution" regardless of any discriminatory effect it may create. Why? Because section 807(b)(4) of the Act does not prohibit conduct taken against a person who has done so. This exemption does not lend itself to mere "possession" crimes.

Practical Application of HUD’s April 4, 2016 Opinion: When drafting sales and leasing approval rights for an association, consider including a list of factors that "may" be considered. The word "shall" should be avoided to provide better decision making flexibility. As to convictions, to stay on the safer side of HUD’s latest opinion, boards of directors should only consider disapproving a sale or lease to recent convictions of only the most egregious crimes, otherwise known as crimes of moral turpitude, such as a felony involving violence to persons or property or a felony demonstrating extreme dishonesty. If your community’s governing documents assert an outright ban against approving a sale or lease for anyone with a criminal history, then such language should be amended as soon as possible.

Why HUD does not take into account the personal choices that led to the person’s incarceration will always be a mystery. We do not need HUD to go out of its way to protect the rights of convicted felons. What we need are criminal justice laws that make better sense.

 

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(3-30-16)

CONDOMINIUM FIRE SPRINKLER SYSTEMS

Clarity for a Confusing Situation

Which residential condominium associations are required to install a fire sprinkler system in their condominium building or, in the alternative, hold a vote for the members to opt out of the requirement to install the fire sprinkler system? Does the requirement to install the fire sprinkler system apply to all residential condominium buildings regardless of height, or does it refer to only those residential condominium buildings that are considered "high-rise" buildings? Rarely has there been so much confusion.

First, some background. The Florida Fire Prevention Code, as further discussed in Florida Statute Chapter 633, is based, in large part, upon the National Fire Protection Association Fire Code (referred to as "NFPA 1") along with the Life Safety Code (referred to as "NFPA 101"). Chapter 31, Section 3.5.11 of the Life Safety Code, as amended by the Florida Fire Prevention Code, requires all "high-rise" buildings to be protected by an approved, automatic fire sprinkler system no later than December 31, 2019. The Florida Fire Prevention Code allows an "Engineered Life Safety System" as an alternative to the fire sprinkler system.

The section of law that is causing confusion is Florida Statute section 718.112 (2)(l). As you read the following provision, ask yourself whether you believe it applies to all residential condominiums, or only to "high-rise" buildings. This section of Florida law provides, in relevant part that, "notwithstanding chapter 633 or of any other code, statute, ordinance, administrative rule, or regulation, or any interpretation of the foregoing, an association, residential condominium, or unit owner is not obligated to retrofit the common elements, association property, or units of a residential condominium with a fire sprinkler system in a building that has been certified for occupancy by the applicable governmental entity if the unit owners have voted to forego such retrofitting by the affirmative vote of a majority of all voting interests in the affected condominium. The local authority having jurisdiction may not require completion of retrofitting with a fire sprinkler system before January 1, 2020. By December 31, 2016, a residential condominium association that is not in compliance with the requirements for a fire sprinkler system and has not voted to forego retrofitting of such a system must initiate an application for a building permit for the required installation with the local government having jurisdiction demonstrating that the association will become compliant by December 31, 2019." Sadly, and candidly quite obvious given the number of reader emails I received on the subject, this section of the Condominium Act does not provide the necessary clarity to answer this question: Must every residential condominium either install fire sprinkler systems or hold a vote of the owners to opt out, or do the fire sprinkler requirements only apply to condominium associations whose residential condominium building(s) are considered "high-rise" buildings?

Simply put, while this section of the Condominium Act does not provide that it specifically applies only to "high-rise" buildings, the actual requirements, as set out in the Life Safety Code, more specifically the NFPA 101 Chapter 31, Section 3.5.11, only requires the installation of the fire sprinkler system in what is referred to as "high-rise" buildings. The NFPA 101 defines the term "high-rise building" as any building where the floor of an occupiable story is greater than 75 feet above the lowest level of fire department vehicle access. In other words, without directly saying so, it appears that Florida Statutes section 718.112 (2)(l) was designed to function in parity with the relevant provision(s) of the Florida Fire Prevention Code. When section 718.112(2)(l) is read together with Chapter 31, Section 3.5.11 of the Life Safety Code, it is pretty obvious that the fire sprinkler system requirements and the condominium association opt-out procedures only apply to "high-rise" buildings.

Adding to the confusion is that earlier versions of section 718 112 (2)(l) provided, "[f]or purposes of this subsection, the term ‘high-rise building’ means a building that is "greater than 75 feet in height where the building height is measured from the lowest level of fire department access to the floor of the highest occupiable story." Later, this text was amended out of the statute.

So, what is the bottom line? Does a condominium association whose buildings are not considered "high-rise" buildings have to install fire sprinkler systems or opt out by taking the necessary vote prior to December 31, 2016? While it seems clear that the fire sprinkler provisions do not apply to non -"high-rise" buildings, any unqualified person’s opinion may or may not be a correct opinion when later judicially challenged. Sometimes even the clearest points of law become all muddled up in the courtroom. Imagine a situation where a non-"high-rise" building experiences a catastrophic fire, and great harm is caused to both person and property. It would not be at all surprising for any resulting lawsuit brought by the injured’s attorney to include a claim for breach of fiduciary duty against the association and its board members for failure to install the fire sprinkler system or to have taken the requisite vote of the owners to opt out of the installation requirement. With that in mind, there is only one way to gain the clarity needed.

NON- "HIGH RISE" CONDOMINIUMS: In order to have certainty as to whether your non-"high-rise" condominium is required to install a fire sprinkler system or take the vote to opt out, an opinion of a quailed professional is needed. In this instance, it would be miraculously wonderful if the State Fire Marshall would issue a public statement. Absent that, an association should make inquiry to the Bureau of Fire Prevention, Division of State Fire Marshall, or their local Fire Marshall. Your association’s attorney should be able to assist in facilitating this communication for you.

"HIGH RISE" CONDOMINIUMS: By December 31, 2016, the "high-rise" condominium that is not in compliance with the requirements for a fire sprinkler system and that has not voted to forego retrofitting of such a system must initiate an application for a building permit for the required installation with the local government having jurisdiction demonstrating that the association will become compliant by December 31, 2019. The automatic sprinkler system is not required if the members voted to opt-out. It is also not required when every dwelling unit has exterior exit access which can include balconies, porches, and rooftop decks under certain circumstances. In addition, the automatic sprinkler system is not required in buildings having an approved engineered life safety system designed by a professional engineer that specializes in fire and life safety design. If a board believes their condominium is exempt for the forgoing reasons, then it should consult with a qualified fire safety engineer, State Fire Marshall or other qualified individual to render such opinion.

 

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(-3-16-16)

The Final Chapter of the 2016 Legislative Session

What started with a loud bang, ended on March 11, without so much as a fizzle.

The 2016 legislative session which ended on March 11, started out 60 days earlier with a flurry of activity insofar as Florida’s community associations are concerned. This year’s proposed legislation included such measures as capping estoppel fees, strict requirements as to when estoppels must be issued and how they were to be paid for, mandatory websites for condominium associations with greater than 500 units and homeowners’ associations with greater than 7,500 parcels, requirements for delinquent assessment agreements that served to only protect the deadbeat owner who failed to pay their fair share of assessments, new requirements for director and officer conflicts of interest, requirements for homeowners’ associations to notice all of its committee meetings, requirements that would have prohibited associations from enforcing speed limits on association property, new requirements that would have made it significantly more difficult for homeowners’ associations to regulate leasing of parcels, strict requirements for the time of day in which a homeowners’ association election could take place, requirements that all future legislative amendments to Chapter 718 would apply to all condominiums throughout the state, new certified written inquiry requirements for condominium associations, prohibitions against a condominium association’s approval of transfer of title unless there was evidence of a significant security interest, and finally, a massive bill which would have revamped all of the community association legislation presently in existence to mirror one another and which would have required homeowners’ associations to come under the jurisdiction of a Florida agency to be retitled the Division of Florida Condominiums, Homeowners’ Associations, Timeshares, and Mobile Homes.

Lawyers and lobbyists on both sides of the aisle worked to have these measures passed into law, to temper many of these unreasonable proposed legislative initiatives, and in many instances, to defeat these initiatives, too. Yet, during this year’s legislative session it seemed as though many of the aforesaid proposals were destined to become law. Surprisingly, Florida’s legislators, to the significant benefit of association members everywhere, got bogged down in other more pressing matters, such as the Governor’s proposed tax cuts, and none of the these community association initiatives were passed into law.

Yes, I’ll say it again, NONE OF THESE INITIATIVES WERE PASSED INTO LAW!

Of possible interest to condominium associations is a new law set out in House Bill 535 which provides that "the local fire official can consider low-cost reasonable alternatives" but it is debatable whether it is applicable to the already existing requirement that by December 31, 2016, a residential condominium association that is not in compliance with the requirements for a fire sprinkler system and that has not voted to forego retrofitting of such a system must initiate an application for a building permit for the required fire sprinkler system retrofit installation with their local government demonstrating that the association will become compliant by December 31, 2019. Associations should contact their legal counsel to discuss whether your association is required to address the fire sprinkler retrofit by December 31, 2016 because it likely will require a vote of the membership by December 31, 2016 to opt out of the retrofit requirement.

Your chance to make a difference: As to the 2017 Legislative Session, it is time to revisit a condominium association’s ability to require hurricane protection and the process governing such procedures. Please provide me with any comments you may have regarding the requirements legislating a condominium association’s ability to require hurricane shutters such as, for example, whether an owner can install different protection, whether an owner should be forced to pay for new protection if they already have code compliant protection where the association opts to install different code compliant protection, etc. Most especially, if your condominium association installed hurricane protection throughout the condominium, please provide me with any comments that you may have as to what would have made the process a better experience. Please direct all of your comments and suggestions directly to me at jrembaum@kbrlegal.com.

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(3-2-16)

Florida Law Requires A New Fire Sprinkler System for Your Condominium

Florida law is patently clear. By December 31, 2016, a residential condominium association that is not in compliance with the requirements for a fire sprinkler system and that has not voted to forego retrofitting of such a system must initiate an application for a building permit for the required fire sprinkler system retrofit installation with their local government demonstrating that the association will become compliant by December 31, 2019. So, if your condominium association does not want to incur this expense, then the association must act now, before it is too late, by presenting an option to its members to opt-out of this requirement by the December 31, 2016 deadline which will be here before you know it.

Section 718.112(2)(l), Florida Statutes allows an association to vote to forego the retrofitting of the fire sprinkler system upon the approval of a majority of the entire membership (not a majority of a quorum). The vote may be undertaken at a duly-noticed membership meeting or by the written consent process in lieu of having a membership meeting. Voting by written consents or written agreements may be utilized by an association regardless of whether the bylaws or the declaration specifically permit voting by written consents or written agreements. On the other hand, if a membership meeting is held, fourteen (14) day advance written notice must be sent to the entire membership by mail or hand-delivery. If the vote is successful, then the vote to forego the retrofit is only considered effective when the certificate attesting to the vote is recorded in the public records of the county where the condominium is located.

In addition, if the vote to forego the retrofit is approved by the unit owners, the condominium association must also send written notice to the entire membership of the outcome within 30 days of the vote. Further still, the providing of this notice must be evidenced by an affidavit executed by the person sending the notice and kept with the condominium association’s official records. As the last step to this process to opt out of the need to retrofit, the condominium association must also report the results of the vote and recording of the certificate to the Division of Florida Condominiums, Timeshares, and Mobile Homes (the "Division").

If by December 31, 2016, a majority of the members of the condominium association do not vote in favor of approving to forego the retrofit, the association must submit a building permit application with the applicable local governmental authorities on or before December 31, 2016 regarding its intent to comply with the applicable fire and life safety codes. Then, the retrofit of the condominium must be completed by December 31, 2019. In addition, if a condominium association undertakes retrofitting of its condominium, then the condominium association is also statutorily required to report the per-unit cost of the retrofit work to the Division.

In the event a condominium association has previously voted to forego the retrofit, and now wants to reverse that decision, the membership has the ability to vote to require the retrofit at a membership meeting. The affirmative vote of all of the members is needed in order to require the retrofit. The vote to require the retrofit may only be called once every three (3) years, and electronic transmission cannot be used to provide notice of the membership meeting.

In rendering your decision to retro fit or to not retrofit, ask yourself whether you would rather live in a condominium building with up-to-date life safety equipment. Even though it might be a costly project, in the rare circumstance it is needed, it is worth more than a billion dollars when your life is at stake. In fact, some might say that the decision to go ahead with the fire sprinkler retrofit is priceless.

 

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(2-17-16)

Another Fine Legislative Mess Only Problems and No Solutions With House Bill 1357

When Florida’s legislature is in session, there is never a shortage of topics to write about. House Bill 1357 ("HB 1357") is no exception. It is another overreaching piece of legislation that will only serve to make assessment debts harder to collect and will cause association assessments to increase in order to comply with its overreaching and micro-managing requirements. HB 1357 is inartfully conceived. There is no intent to criticize anyone that participated with HB 1357, but rather to point out the many problems that will be created should such an ill-conceived legislative effort be passed into law.

Statutorily Required Websites: Condominium associations with 500 or more units and homeowners’ associations with 7,500 or more parcels must create and maintain a legislatively required website which mandates stringent, onerous, and, quite candidly, obnoxious requirements as to what must be contained and continually updated therein. If a community desires to spend its assessment revenues in this manner, then that should be a decision for each individual community and not mandated by the State. Unnecessary litigation will ensue by every unhappy association member who believes that their association’s website does not contain the information as required by statute. This legislation will require associations to engage the service of yet another professional requiring significant payment for services rendered. In some instances, it could even require a full-time dedicated IT/website employee in order to maintain HB 1357’s ongoing posting requirements. If passed into law, it would only be a matter of time until some other legislature makes these requirements applicable to each and every community association in the State, regardless of their size.

Impediments to Collection of Past Due Assessments: Regarding the collection of past due assessments by condominium and homeowners’ associations, the decision of the association to take legal action to collect unpaid assessments or to use a third-party to collect unpaid assessments should not be dependent upon whether the Association has complied with new statutory obligations that require newly written collection policies that mandate when payment plans can be considered, their terms, inclusive of a mandated six month payment plan. The entire scope of the association’s collection regime should be set out in its declaration and not by way of a separate statutorily required written collection policy. The ability of a community association to offer a payment plan is unique as to each request made by an association member. The association must have complete flexibility in terms of structuring such payment plans and the factors for consideration of such plans and should not be subject to stringent requirements as would be required by this legislation which clearly removes the ability of an association to have the necessary discretion needed to create flexible payment plans. In and of itself, this legislation will impede the ability of an association to readily collect past due debts and will increase every association’s legal fees by requiring the adoption of yet another collection policy. It will create significant impediment to the collection of past due assessments.

Conflicts of Interest: Regarding condominium and homeowners’ association director and officer conflicts of interest, all sorts of new disclosures and procedures are creating conflicts of interest that may occur when the association may hire an officer, director or other relative of a director or officer. The use of the term "relative of a director or officer" is fully undefined and most problematic. Does this mean that a board member’s wife’s fourth cousin once removed on her grandmother’s uncle’s side of the family is included within the scope of the term "relative"? In terms of the board’s ability to remove a director or officer who violates the conflict of interest legislation, HB 1357 provides the board the unquestionable and incontestable ability to remove a sitting board member without any avenue of redress for that board member to dispute the findings of the board. This will create an unjust, unfair result. It is only a matter of time until an a board of directors majority, unhappy with a fellow board member, makes false accusations against such board member and removes them using this legislation as a pretext to do so.

HOA Committee Meetings: This part of HB 1357 completely revamps the homeowner associations’ need to notice committee meetings. At present, the need to notice committee meetings is quite different for condominium versus homeowner associations. In short, all condominium association committee meetings must be noticed unless there’s an exemption in the bylaws. This is not so for homeowner associations where it is only necessary to notice committee meetings when final expenditure of association funds are considered or architectural decisions are made. This has provided great flexibility to homeowner associations to operate more efficiently. For example the condominium association has to notice its bake sale committee meetings, while the homeowners’ association bake sale committee does not similarly need to do so. This legislation will change this requirement so that homeowners’ association committee meetings of every nature must be noticed, minutes taken, etc. This is just another example of bad, ill-conceived legislation likely caused by one or two unique circumstances rather than looking at the good of the whole.

Safety on the Roadways: There should be no impediment to an association’s ability to create a safe environment for its members. Rarely is speeding within a homeowners’ association not problematic. Yet, HB 1357 makes it unlawful for a homeowners’ association to enforce and impose statutorily imposed traffic laws as provided in Chapter 316, Florida Statutes. The ability of a homeowners’ association to take measures to reduce speeding within the community should not be prohibited. Oftentimes, community association roads have speed limits posted below the minimum speed that would otherwise be allowed by law and therefore, lower than that as would be enforced by law enforcement. As a result, community associations with speed limits, such as 15 miles per hour, need the ability to adequately control speeding on their roadways. This legislative initiative will cause serious injury and likely death if passed into law… it is just a matter of time.

Leasing: Investors’ leasing rights should not be paramount to owners’ rights to protect their community from becoming a rental community. However, the legislature wants to create an unfair regime for homeowners’ associations, as it did for condominium associations to protect the investors. As to a member’s rental of their property within a homeowners’ association, HB 1357 makes effort to mirror existing condominium association legislation that requires all rental restrictions to be set out within the declaration of condominium. What the legislature does not seem to understand is that community associations are not rental communities but rather are first and foremost communities for owners to live in. Therefore, it is extremely important for community associations to easily amend their community’s rental requirements. The fact that investors choose to gobble up homes in a homeowners’ association is the unique individual decision of the investor, but the investor does so with the understanding and risk tolerance that the board of directors or members could later change the rental requirements. Complete flexibility is needed to protect the lifestyle for those members who live within the community. In other words, the rights of the members living in the association’s community should be paramount to offsite investor owners seeking rental income.

HB 1357 requires homeowners’ association voting to take place from 7 AM to 7 PM. It is ridiculous. It is also diametrically opposed to the absentee balloting process.

The likely unintended consequence, yet very real occurrence, that will be created if this legislation is adopted will be significantly increased assessments for all association members in order to comply with the requirements of the legislation in terms of hiring requisite technology personnel to create and administer the association’s statutorily required websites and fees to legal counsel to create the necessary written collection policies for collection of assessments. Removing the ability of a community association to control speeding on its roadways is ill-conceived and, simply put, reckless.

 

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(2-3-16)

An Unfair Bar to Association Assessment Foreclosures

A Call to Action for Florida’s Legislature

Sometimes bizarre results occur from otherwise mundane laws. The arena of a lender’s mortgage foreclosure versus an association’s foreclosure of its assessment lien can certainly be characterized as one such example. Nothing is worse than a lender who refuses to take their foreclosure to final judgment and sale, or a litigious homeowner who knows how to use the legal system to stall the lender’s foreclosure case. In both cases, it is the association that suffers greatly because, more likely yet than not, the owner is not paying assessments during the pendency of the lender’s foreclosure action. Because of the owner’s failure to pay assessments, the association should be permitted to foreclose, especially when the lender’s foreclosure case is dragging on and on. Right? Well, not according to a few recent appellate cases.

As a prerequisite to filing a lawsuit over real property, a lis pendens is recorded in the county’s public records, the purpose of which is to place the public on notice of the pending litigation so that if the property is sold, the new owner knows that they have acquired the property subject to the outcome of the pre-existing litigation. According to section 48.23, Florida Statutes, once the lis pendens is recorded, any person with an unrecorded interest or lien against the property, must intervene in the lawsuit within 30 days of the recording of the lis pendens or else they are time barred from doing so. This can have a significant chilling effect on an association’s right to otherwise lawfully collect the past due assessments that accrued against the property through the date the lis pendens was recorded. Sadly, it gets worse.

The problem is not in the appellate court’s application of the law, but rather the problem lies within the law itself. As things stand today, if a lender forecloses and the association does not bring its assessment foreclosure case by intervening in the lender’s foreclosure within 30 days of the date of the lender’s filing of its lis pendens, then the association is barred from bringing its assessment foreclosure lawsuit that includes assessments due up to the time of the recording of the lender’s lis pendens.

Recall that an association must first send its intent to lien and intent to foreclosure letters to the non-paying owner before it can foreclose. What if the owner timely paid assessments right up until the commencement of the lender foreclosure? This means that the association cannot timely intervene in the lender’s foreclosure because it is statutorily prohibited from filing an assessment foreclosure until the time periods for both the intent to lien and intent to foreclose letters have fully run. The real world consequence of this "mishigas" (legal word for crazy nonsense) is that the association is left with no legal remedy, cannot foreclosure and must, at least for the time being, allow the dead-beat to remain in the association because it is legally prohibited from foreclosing the association’s assessment lien, unless it did so within 30 days of the lender’s recording of its lis pendens, which the association cannot do unless it sent both the intent to lien and foreclose letters and waited the statutory prescribed times by which time the 30 days in which to bring the association’s claim has expired.

In U.S. Bank National Association v. Quadomain Condominium Association Inc., decided in 2012 by Florida’s 4th District Court of Appeals, the Court held that the lower court presiding over the lender’s foreclosure action which created the lis pendens had exclusive jurisdiction to adjudicate any interest in the subject property from the date the lis pendens is recorded to the date it enters final judgment. Therefore, to foreclose the association’s lien, the association was statutorily required to intervene in the lender’s foreclosure case within 30 days of the lender’s recording of the lis pendens and not by way of foreclosing in a different court. Since the association had foreclosed in a different court, its previous successful foreclosure was reversed.

On January 27, 2015 the 4th DCA, in Jallali v. Knightsbridge Village HOA, Inc., again ruled against an association who did not move to intervene in a lender’s stalled foreclosure within 30 days of the lender’s recording of its lis pendens and reversed a different lower court’s judgment in favor of the association. That said, in this case, the association’s claims did not accrue for more than three years after the lis pendens was recorded, so how could the Association comply with the statutory requirement? Attorney Robert Kaye adds, "this is an unjust, inequitable result relative to innocent associations when lenders do not timely complete foreclosures."

It is hard to fathom that the legislature intended this strange and financially devastating consequence, especially when both the Condominium Association Act and the Homeowners’ Association Acts, Chapters 718 and 720 of the Florida Statutes, respectively, provide for joint and several liability for the recovery of assessments against a new owner that were not paid by the predecessor owner. A simple solution to this complex problem can be found by excluding association assessment lien foreclosures from the requirements of section 48.23, Florida Statutes. When Florida’s legislature takes the time to enact this simple cure, then associations will have the lawful right to once again foreclose their assessment liens without regard to the lender’s stalled foreclosure action pending against the same property.

 

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(1-20-16)

Mold: Is there a Fungus among Us?       Part 2 of 2

Rights of Inspection and Abandoned Units: What You Need to Know

Florida, with its warm winters and sandy beaches, is a refuge from the bitter cold. It is one of our State’s best attributes and is so very welcoming to our Northerly neighbors. But when you combine the heat with levels of high humidity, unwelcome guests arrive in the form of mold – some of it toxic, too! The likelihood of mold is even more so for those units which have been abandoned. With no power being supplied to the unit, the air conditioning cannot run and thus, the overall wetness factor can increase dramatically. In this situation, the condominium association is often left with the burden of remediating and repairing the damages caused by the mold.

Property insurance policies differ in kind and scope from insurer to insurer with regard to whether or not mold damage is a covered peril under the policy. Without a specific mold rider, the chances are slim that mold would be a covered peril. Whether mold contamination is covered under your association’s policy will depend on the specific policy language, the cause or causes of the mold contamination, and the timelines of notification to the insurance company. Today’s mold policies typically require notice within 14 days of the onset of the mold, and not 14 days from when the association discovered the mold. Therefore, it is important that the board of directors carefully read and understand their association’s insurance policy obligations. Generally, most insurers attempt to exclude coverage for mold damage associated with long-term leaks, water intrusion from a construction defect, normal wear and tear, deferred maintenance, or poor repairs. As such, some insurers may deny a claim for mold damage arguing that the damage took place over a long period of time, meaning greater than two weeks, rather than damage from a sudden and accidental water damage event, meaning a leak that happened within two weeks.

This being the case, Floyd Nichols, Vice President at Insurance Office of America, recommends that condominium association boards check each of their condominium units which are abandoned or unoccupied for extended periods of time on a biweekly basis. This is not only so the condominium association can timely remediate any mold damage before the remediation becomes extensive but also in an effort to avoid the association’s insurer’s denial of a mold damage claim.

While mold might begin to grow in the unit, it will quickly spread to the common elements. The duty to repair the condominium’s common elements will fall to the association without regard to the owner who may have caused the problem. This is not to say that the association might not be able to subrogate its claim against the owner, but because the Florida legislature removed the requirement for all unit owners to have force placed insurance, subrogation on claim could prove quite problematic.

Because mold typically develops in areas which are likely the condominium association’s responsibility to maintain, repair, and replace (for example, drywall), the condominium association may use its irrevocable right of access to a unit, found in section 718.111(5)(a), Florida Statutes, to enter the unit during reasonable hours to conduct the necessary repair or replacement. Advance notice should be provided whenever possible.

A condominium association has additional rights regarding access to an abandoned unit under relatively new provisions set out in section 718.111(5)(b), Florida Statutes. Pursuant to this section, a condominium association can enter an abandoned unit to inspect the unit and the adjoining common elements, to make repairs as needed, to turn on the utilities to the unit and to otherwise maintain and protect the unit and adjoining common elements. A unit is considered abandoned under the following circumstances: (i) the unit is under foreclosure and no tenant appears to have lived at the unit for four consecutive weeks without prior written notice to the condominium association, or (ii) no tenant appears to have lived at the unit for two consecutive months without prior written notice to the condominium association and the condominium association is unable to contact the owner or determine the owner’s whereabouts after reasonable efforts. Prior to entering an abandoned unit, the condominium association must send two days’ notice of its intent to enter the unit to the owner at their last known address.

Any expense incurred by the association in inspecting the unit and the adjoining common elements, in making needed repairs, in turning on the utilities to the unit and in otherwise maintaining and protecting the abandoned unit and adjoining common elements are chargeable to the owner of the abandoned unit. These expenses are also assessable against the abandoned unit. What will prove very interesting is what effect the lender’s safe harbor assessment benefits as set out in section 718.116, Florida Statutes, or other legal arguments which limit assessment recovery will have on the condominium association’s ability to recover its expenditures. As a different tact, the condominium association can request that the court appoint a receiver to lease the abandoned unit. The rent collected is credited against the monies due to the association and the receiver.

 

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(1-6-16)

Mold: Is there a Fungus among Us?

Part 1 of 2

Insurance: What You Need To Know

Welcome 2016! While the expression "out with the old and in with the new" comes to mind, remember, too, that this is a great time for review. Start off the new year by reviewing your association’s insurance policies to better understand the perils that it does, and does not, cover. Of particular concern to Florida’s community associations, especially condominium associations, is how casualties stemming from slow leaks and resulting mold are handled. Sadly, I see coverage denials for this type of damage as commonplace.

Absent a "rider," mold damage is typically excluded from today’s property and casualty insurance policies. While limited coverage may be available in the form of a "rider," they come with significant strings attached. Most mold riders provide for a strict period of time that if missed will forever bar the association’s recovery. More specifically, and according to insurance agent-broker, Floyd Nichols of the Insurance Office of America, commercial property insurance will not cover "continuous or repeated seepage or leakage of water or the presence or condensation of humidity, moisture, or vapor that occurs over a period of 14 days or more." It’s important to note that notice must be provided to the insurance company within 14 days of the beginning of the leak and not within 14 days of its discovery.

According to Nichols, "on a regular basis we see claims that occur because the unit owner has been away from their property for a period of time that exceeds 14 days. On many occasions we will see a denial of coverage due to the 14 day provision. Most frequently we are seeing the issue arise on older properties because, even though we want to think our buildings will last forever, leaks do occur for a variety of reasons although the problem can happen in newer properties as well (think of a leaking ice maker line, a toilet that continues to run or broken washing machine hoses). What could be mitigated as a small claim will many times become a claim that can cost tens of thousands of dollars to repair. Additionally, the association might very well find itself responsible to mitigate and repair the problem without regard to who must bear the ultimate responsiblity for the damages in order to protect other owners in the building from being exposed to mold, etc." In addition, an association can be required to effectuate the repair as a requirement set out in its declaration, too.

Nichols recommends to his association clients that the board ask their unit owners, especially snow birds and those on extended vacations, to provide for inspection of their units on a regular basis to avoid the 14 day exclusion. Although the inspection will not guarantee that the claim will be paid by the carrier, timely inspections will hopefully eliminate the implementation of this exclusion and hopefully save all parties much expense in the way of dollars and time.

An association could even develop a regular inspection schedule. Florida Statutes, section 718.111(5), provides that "the 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. Condominium associations can even require keys to all units be provided, but the association has a responsibility to ensure the keys are properly secured. Whenever possible, an association should always provide advance notice prior to entering an owner’s unit and always have at least two persons conduct inspections.

Whenever a casualty is suffered, Nichols recommends that their insured associations contact his office immediately. "We believe it is an agent’s responsibility to provide assistance and direction to them. Most often, they are not used to dealing with these types of issues and this is the time for the agent to help. We can meet with the adjusters and contractors on site and have a better understanding of the claim when it is time to deal with the insurance company." If you have a specific insurance coverage question, Floyd Nichols can be reached at 561-721-3771.

In Part 2 of this two part series, we will discuss how a condominium association can inspect abandoned units and obtain possession in order to lease them and collect rent in accordance with Chapter 718 of the Florida Statutes which governs Florida’s condominium associations.

 

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(12-23-16)

Secular Holiday Symbols versus Religious Symbols

In my homeowners’ association, we display an oversized, festive, gloriously secular, snowflake on our entry gates. It is quite charming and does not denote any type of religious connotation. Does your association display a secular holiday symbol, too or does it display a religious symbol? Are Christmas trees, menorahs, Nativity scenes, or the Kikombe Cha Umoja (The Unity Cup displayed during Kwanza) secular or religious symbols? How can you tell the difference?

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 Court held that the determination of whether decorations, including those used to commemorate holidays (which are or have been religious in nature), 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.

Thus, the Court found that a Christmas tree, by itself, is not a religious symbol; although Christmas trees once carried religious connotations, "[t]oday they typify the secular celebration of Christmas," the Court provided. 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, 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 Chanukah 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.

As to the Ten Commandments, in a 1980 case, Stone v. Graham, the Supreme Court held 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 Supreme Court’s cases to differentiate between a secular symbol and a religious symbol. With that in mind, if an association allows a Christmas tree and menorah, the board of directors, far more likely than not, would not have to allow a members request to display a Nativity scene and Ten Commandments display, too. The rules of kindergarten work best: treat everyone fairly and treat them as you would want to be treated.

Happy Holidays and Have a Sweet New Year.

 

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(12-9-15)

Three Pending House Bills Affecting All of Florida’s Community Associations

In anticipation of Florida’s 2016 legislative session, Representative John Cortes of Florida’s House of Representatives filed three bills affecting community associations and managers. Omnibus style House Bill 667 is massive in its scope. Its author begins by fully repealing Chapter 719 regulating Florida’s cooperatives and Chapter 720 regulating Florida’s homeowners’ associations and then amends Chapter 718 to include many of the provisions of the repealed Florida Statutes, albeit, at times, with many significant differences. A new term is created, "common interest community" which refers to all types of residential communities and makes them subject to the provisions of the significantly overhauled Chapter 718. This Bill is 441 pages long.

While all the changes are too numerous to mention, a few of the major changes which appear in the first 150 pages include:

• Without regard to constitutional protections against impairment of existing contracts, House Bill 667 makes all future legislative amendments to Chapter 718, which would regulate all common interest communities, applicable to your community whether you want it to or not.

• The transfer of homes (referred to as "units") cannot be restricted unless the transfer is likely to threaten the security of the residents, association property, and the financial status of the association or the ability of the association to qualify for institutional mortgage financing. This diminishes many associations otherwise existing broad approval rights.

• Upon receipt of a certified written inquiry from a member, the association’s obligation is to provide what is defined in this legislation as a "substantive response." Further, any substantive response must include, at a minimum, a restatement of the issue presented by the owner, the board’s written response to the issue, and the board’s actions or intended actions in response to the issue, in addition to all other facts, opinions, requests, and positions taken that are relevant to the issue. A unit owner who does not receive a substantive response within 15 days is entitled to the actual damages or minimum damages for the association’s willful failure to comply with this paragraph. The minimum damages will be $100 per calendar day for up to 20 business days, beginning on the 16th business day after receipt of the written request.

Thus, while the concept of one chapter of law to govern all types of residential associations may one day prove worthwhile, in its present form, House Bill 667 needs work. As yet, this Bill does not have a Senate sponsor.

While Representative Cortes’ House Bill 667 seeks to completely revamp all existing Florida community association legislation, he has also filed House Bill 653 which attempts to bring the statutes regarding homeowners’ associations closer to those which govern condominiums and cooperatives (i.e., requiring the use of limited proxies for votes of the owners and conducting elections in the same manner as condominium elections). As was attempted during last year’s legislative session, House Bill 653 also seeks to make homeowners’ associations subject to the oversight (and fees) of the, to be renamed, "Division of Florida Condominiums, Homeowners’ Associations, Timeshares, and Mobile Homes."

With regard to community association managers, Representative Cortes’ House Bill 665 creates liability on the part of a community association manager for damages incurred from offering incorrect advice. The Regulatory Council of Community Association Managers name is changed to the "Board of Community Association Managers" and additional new regulations regarding the membership and authority of the "Board of Community Association Managers" have also been amended and added in this Bill. House Bill 665 revises provisions relating to licensure of community association managers and community association management firms to require that a community association manager’s license expires on September 30th of even numbered years requiring renewal every two years.

House Bill 665 also requires community association manager pre-licensure education consisting of not more than 40 hours of in-person instruction by a department-approved provider which must cover all areas of the examination including a new list of 22 fundamental management skills and knowledge. This is 18 hours more than what is presently required. The odd part is the sentence structure. If "not more than 40 hours of in-person instruction" is required, does that mean the course can be taught in as little as 1 hour (not that it could)?

Based on these few bills, Florida’s 2016 legislative session, which was expected to be a quiet year as related to community associations, could turn out to be quite active.

 

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(11-28-15)

THE RESERVE PROCESS

To Fund or Not to Fund, That is the Question

As the end of 2015 nears, so too does the end of the fiscal year for many condominium associations throughout Florida. Most condominium association boards have begun to prepare their association’s annual budget for the upcoming year. Sometimes there is confusion amongst condominium association boards as to whether or not they must fully fund reserves as part of the budget adoption process and the timing as to when it is appropriate to present the opportunity to waiver or reduce the reserves to the unit owners. In short, the condominium association’s budget, with the reserves fully funded, must be presented to the unit owners. At that time, alternative budgets may also be presented that show the effects of waiving or reducing the reserves, too. At the sole discretion of the board, the unit owners can be presented the opportunity to waive or reduce the reserves before or after the board’s adoption of the budget.

A reserve must be established for roof replacement, building painting, pavement resurfacing and any other project that has an anticipated cost of greater than $10,000. Pursuant to section 718.112(2)(f) of the Florida Statutes and Rule 61B-22.005 of the Florida Administrative Code, Florida condominium associations must fully fund reserve accounts for deferred property maintenance and replacement projects. Only after the budget has been presented to the owners with fully funded reserves can the board, if it so desires, present to the unit owners the opportunity to vote to waive or reduce the reserves.

At the discretion of the board, the owners should be presented with the opportunity to waive or reduce the reserves based on the presented budget that establishes the reserves as fully funded. Pursuant to section 718.112(2)(f), Florida Statutes, in order for reserves to be either waived or reduced by the unit owners, at least a majority of those unit owners present, in person or by proxy, at the meeting at which a quorum of the unit owners is attained must approve the waiver or reduction of reserves. The amount or percentage of the reserve reduction that is presented for vote is set at the discretion of the board. Moreover, the vote to waive or reduce reserves can be with regard to all reserve items or for only select reserve items. It would not be correct for the board to present the budget without reserves and then provide the owners the opportunity to partially or fully fund the reserves. Remember, that the process requires the board present the budget with reserves fully funded and then the unit owners can have the opportunity to waive or reduce.

If voting by limited proxy is used, the proxy must include the following disclosure in bold, capital letters and in a font size larger than any other font used in the limited proxy:

WAIVING OF RESERVES, IN WHOLE OR IN PART, OR ALLOWING ALTERNATIVE USES OF EXISTING RESERVES MAY RESULT IN UNIT OWNER LIABILITY FOR PAYMENT OF UNANTICIPATED SPECIAL ASSESSMENTS REGARDING THOSE ITEMS.

If the unit owners do not approve the waiver or reduction of reserves, the reserves must be fully funded as presented in the budget. If the unit owners do approve the waiver or reduction of reserves, the waiver or reduction is only good for the budget year in question. If the following year the condominium association board would like to propose waiving or reducing reserves, the opportunity to waive or reduce reserves must be presented to the unit owners once again.

How much is needed for a reserve account will depend on several factors, including, for example, the estimated remaining useful life of the asset and its replacement cost. Additionally, the manner in which the reserve funds are to be maintained will depends on whether the reserves are keep as separate line-item reserve accounts or as "pooled" reserves. In any event, the budget adopted by a condominium association board must first and foremost include fully funded reserves.

A multicondominium association must adopt a separate budget of common expenses for each condominium the association operates and adopt a separate budget of common expenses for the association. This can accomplished as sub-parts of the same master budget.

Reserve funds and any interest accruing thereon must remain in the reserve account or accounts, and may be used only for authorized reserve expenditures unless their use for other purposes is approved in advance by a majority vote at a duly called meeting of the association. The only voting interests that are eligible to vote on questions that involve waiving or reducing the funding of reserves, or using existing reserve funds for purposes other than purposes for which the reserves were intended, are the voting interests of the units subject to assessment to fund the reserves in question. To pass any vote regarding waiving, reducing, pooling or using the reserves for a different purpose requires a majority of a quorum of the unit owners present, in person or by proxy, at a membership meeting. In the case of a multicondominium, a majority of a quorum of the unit owners comprising a particular condominium, in the same percentage as a quorum of the members is otherwise established, present, in person or by proxy, at a membership meeting may approve the waiver or reduction of reserves.

 

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(11-11-15)

The 2015 Estoppel Bill is Back and Ready to Hurt Florida’s Community Associations

A CALL TO ACTION

But for the abrupt ending of the 2015 legislative session, Florida’s government would already have caused another wrinkle in our free market economy by passing a law regulating the cost of goods in the stream of commerce. The worst bill to affect Florida’s community associations is back and could be become law unless you tell your legislators to "VOTE NO." Florida’s House of Representatives and Senate seek to regulate both the cost and process of the issuance of the "association estoppel". There are two bills at play: House Bill 203 and its companion, Senate Bill 722.

The "association estoppel" is a legally binding document that sets out the assessment monies that remain due and owing. There exists tremendous liability for its issuance. The buyer is only responsible for the monies set out as due in the estoppel letter. If completed incorrectly and a lesser amount due is stated, well, too bad. Apparently, lobbyists, title companies and other real estate professionals have just about convinced Florida’s legislators, albeit falsely, about the great harm being caused by Florida’s community associations, a state wide epidemic of disastrous consequence stemming from an association’s otherwise lawful right to create a process of issuance and to charge reasonable fee for providing its estoppel.

This atrocious legislation, that is expected to become law (unless you do something about it), dictates that the estoppel is due within ten business days of the request, no matter what. And, if it is issued after ten business days, no matter what the reason – good cause or otherwise – no fee may be charged! To make matters worse, the request for an estoppel can arrive via email. Based on a plain reading of these bills, rather than having to comply with standard procedures to ensure proper delivery of the request, the person requesting the estoppel can email a board member or manager at their personal email address to start the ten day clock.

According to the House version of the bill, the fee for the estoppel certificate may not exceed $200.00 if, on the date the certificate is issued, no delinquent amounts are owed to the association. If an estoppel certificate is requested on an expedited basis and delivered within three business days after the request, the association may charge an additional fee of $100.00. If delinquent amounts are owed to the association for the applicable unit, an additional fee for the estoppel certificate may not exceed $200.00. The Senate’s companion bill only mentions a reasonable fee.

In the past, an estoppel certificate only inured to the benefit of the party requesting it. Now, according to these bills, after issuance of the estoppel it is binding on every Tom, Dick or Harry who can be considered a successor or assign of the person who requested it. That means that Tom, Dick and Harry gets the benefit of the previously issued estoppel, and they do not even have to pay for it!

Pursuant to these bills, an association cannot require the payment of any fees as a condition for the preparation or delivery of an estoppel. Imagine going to the grocery store, loading up your friend’s car with your groceries to get them home and not having to pay the store until you eat the food. If you don’t eat the food, then you don’t have to pay for the groceries. But, your friend, whose car delivered the groceries for you must pay in your stead. This is exactly how the new estoppel legislation works.

No one who requests the estoppel has to pay for it when they receive it. In other words, the person or company who does the work for the association by preparing the estoppel has no lawful right to get paid at the time of performing their service. Rather, this decade’s worst association related legislative initiative provides that the fee can only be paid from the proceeds of the closing. If the closing does not occur, the person who requested the estoppel has no liability whatsoever. But, the burden for payment then shifts to the seller. How many months will that take?

It is expected that the estoppel legislation will become the law of the land with an effective date of July 1, 2016. This situation is the perfect example of a series of laws being adopted to fix a problem that only exists in the minds of a select few and even then for an extremely short period of time. Back during the uptick of the prior real estate crisis, there were a few bad apples who charged way too much for the issuance of the estoppel. Rather than going after these bad apples, the bad acts of the very few are being used to create hysteria and to hurt Florida’s community associations to the very real benefit of Florida’s realtors and title companies. It is shameful how easy our legislators are being deceived to believe that they are fixing a problem that, in reality, doesn’t even exist. Once again, our legislature to the rescue. Ugh!

To learn more visit, "smashthehometax.com"

 

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(10-28-15)

Managers, Did You Sign A Non-Compete Agreement?

Providing community association management services to community associations is highly competitive. Because of this competitiveness and the substantial financial investment made by a community association management company in its managers, many community association management companies require their managers to sign non-compete agreements as a condition of their employment. Often, once signed, the non-compete agreement is not thought of again until the manager decides to work for a different community association management company.

Under Florida law, non-compete agreements may be enforced by the prior employer so long as they are reasonable in time, geographical, line of business and are in place to protect a legitimate business interest of the employer as defined by section 542.335, Florida Statutes. Typically, non-compete agreements lasting up to two years in duration and covering geographical areas where the employer actually conducts business will be considered enforceable by a court. Further, pursuant to section 542.335(g)1., Florida Statutes, in determining the enforceability of a non-compete agreement, a court cannot take into consideration "any individualized economic or other hardship that might be caused to the person against whom enforcement is sought."

However, this express prohibition against considering the hardship created on the former employee may be losing its sting based upon the unpublished August 27, 2015 opinion of the Eleventh Circuit Court in TransUnion Risk and Alternative Data Solutions, Inc. v. MacLachlan, No. 15-10985.

In the MacLachlan case, the employee, MacLachlan, signed a non-compete agreement which provided that MacLachlan could not engage in the same or any similar business for one year. MacLachan was recruited by a rival company and began employment with this rival company three days after issuing his resignation to TransUnion Risk and Alternative Data Solutions, Inc. ("TRADS"). In an effort to enforce the non-compete agreement, TRADS then filed an action with the court for an injunction to prohibit MacLachlan from working for its rival company. During litigation, MacLachlan argued, among other defenses, that TRADS was not entitled to receive an injunction because the harm of the injunction to MacLachlan would outweigh any damage to TRADS. On appeal, the Eleventh Circuit Court, a Federal court with jurisdiction over Alabama, Florida and Georgia, found in favor of MacLachlan.

In doing so, the Eleventh Circuit Court analyzed the construction of section 542.335, Florida Statutes. The Court found that the express prohibition against considering the hardship which might be caused to the former employee as set out in section 542.335(g)1., Florida Statutes, was only with regard to determining whether or not a non-compete agreement is enforceable, and not with regard to the enforcement of the non-compete clause.

Once a non-compete agreement is deemed enforceable, the statute then sets out certain rules for enforcement. Because TRADS was seeking enforcement of the non-compete agreement and not a determination of whether or not the non-compete agreement was enforceable, the Court determined that it was permitted to take the hardship caused to the former employee into consideration when determining the manner of enforcement of the non-compete agreement.

While the MacLachlan case is not exactly binding on Florida state courts because it is a Federal court ruling and is an unpublished decision, it can be used as persuasion in other cases where the non complete agreement creates a hardship on the prior employee. In other words, if successful, this means that courts may begin to consider the financial and other hardships caused to the former employee through strict enforcement of a non-compete agreement. Whether this case will have significant impact on managers who sign non-compete agreements that prevent them from seeking employment with a competitor is something that only time will tell.

 

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(10-14-15)

The $12 Million Hedge:

A Warning to Community Associations and Their Managers

There can be real consequences if a community association and its manager overlook areas of the community that are in need of maintenance, as required either by the community association’s own covenants or by the local code of ordinances. Recently, the failure of a community association and its management company to properly maintain the association’s hedges led to a $12 million damage award. The story was the subject of an October 8th, Palm Beach Post article by Staff Writer Jane Musgrave.

Based upon a 2013 verdict by a Palm Beach County jury, a Town of Jupiter condominium association was found negligent for failing to properly trim its hedges contributing to the death of a 9 year old boy. As a result, the boy’s parents were awarded $12 million by jurors. As reported, the hedges located at the entrance to the condominium community were approximately 56 inches in height. However, the Code of Ordinances for the Town of Jupiter required that such hedges be no taller than 30 inches in height. Therefore, the hedges of this condominium association were nearly twice the height permitted by local code. In addition to the height of the hedges, a stop sign, which stood 37 inches tall, was nearly four feet shorter than the height required by the Florida Department of Transportation. The height of the hedges and the height of the stop sign together became a "fatal obstruction," the parent’s attorney told jurors during the trial, as report by Ms. Musgraves. As to the fatal incident, Ms. Musgraves report that:

The youth, who was riding bicycles on the sidewalk with his father, Andre Kovacs, was killed when an elderly condo resident, who couldn’t see over the hedges, plowed into him as she was driving out of the complex on U.S. 1 just south of Indiantown Road in 2011.

After the verdict of the trial court finding in favor of the boy’s parents was upheld by Florida’s Fourth District Court of Appeal, the jury found that the condominium association was 30 percent responsible, that the community association management was 60 percent responsible, and that the driver of the vehicle which struck the boy was 10 percent responsible for the death of the boy. While the parents settled with the driver for $100,000, the limits of the driver’s insurance policy, as reported by Ms. Musgraves, the parents may receive a total of $12.5 million in damages from the condominium association and its management. Sadly, the death of this young boy and the devastating financial hit to the condominium association’s owners and the condominium association’s manager could have been avoided.

Because the jury found the association’s management more responsible for the accident than the association, itself, this case may be quite troubling for management companies. Clearly, if the manager suggests action based on the community’s declaration or the local code of ordinances and the board ignores such advice, a record should be kept by management. In addition, board members need to understand and recognize their duty to ensure that their association complies with both its maintenance and repair obligations set out in the association’s declaration and the local code of ordinances, too.

To read Ms. Musgrave’s October 7, 2015 Palm Beach Post article, titled Parents to get $12M verdict in son’s 2011 bicycle death in Jupiter, in its entirety please visit http://bit.ly/1hstP8K.

 

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(9-30-15)

So Your Association Changed Attorneys… Now What?

An association has decided to change its legal counsel and transfer all existing matters to its new lawyer. The management company sends the request to the prior law firm only to be told that a retaining lien has been asserted. Until the lien is satisfied, the law firm refuses to transfer the files. Is that legal? Can the lawyer really do that? In short, you bet they can. A Florida attorney can enforce their rights to be paid before transferring the association’s files through asserting a retaining lien, a charging lien or both under the right circumstances.

A retaining lien is a passive lien and rests entirely on the right of an attorney to retain possession of the association’s documents, money and files as security for payment of the fees and costs earned by the law firm. A retaining lien covers the balance due for all legal work done on behalf of the client, regardless of whether the property is related to the matter for which the money is owed to the attorney. Further, a retaining lien cannot be impaired by the client securing the right to inspect and copy the papers or compelling their production by subpoena.

An attorney’s retaining lien was the subject of a recent condominium association case in Florida’s Third District Court of Appeal in the case of Conde & Cohen, P.L. v. Grandview Palace Condominium Association, Inc., 2015 WL 4637285 (Fla. 3d DCA 2015). In Conde & Cohen, the law firm was retained by the association over a period of years to represent it in a number of matters. Following a change in the association’s board of directors, new counsel was retained to represent the association. Upon learning of this action, the law firm asserted retaining liens in five lawsuits. Unable to convince the law firm to release its files in these five cases, the association filed an action against the law firm seeking injunctive relief and a declaration that the law firm’s retaining liens were invalid and that the association’s new counsel should be allowed to copy the law firm’s files.

The Court, squashing the order of the trial court which held in favor of the association, held that an attorney has a right to a retaining lien on all of the client’s property in the attorney’s possession, whether related to only one specific matter, until the attorney is paid where a valid retaining lien has been asserted. The attorney asserted it may retain the property subject to the lien until that attorney has been paid, or, if the client can demonstrate a pressing need for the property, then they can be required to post adequate security, such as a bond, for the amount in controversy. In this case, because the association did not provide any evidence as to the requisite showing of pressing necessity and did not post adequate security, the court held that the trial court’s order compelling the law firm to hand over its files was improper.

A different type of lien is referred to as a charging lien which attaches onto any monetary recovery due to the client at the conclusion of a lawsuit. Unless the client pays what is owed to the attorney prior to the conclusion of the lawsuit, the attorney will be entitled to recover such amounts from any monetary recovery received by the client in the lawsuit. To impose such a charging lien, the attorney must show the following four requirements:

1. An express or implied contract between the attorney and the client (in the case of a community association, this requirement will more likely than not be satisfied because Florida Statutes requires that all association contracts for services must be in writing);

2. An express or implied understanding for payment of the attorney’s fees out of the recovery;

3. Either an avoidance of payment or a dispute as to the amount of fees; and

4. Timely notice.

Often times a charging lien is asserted in a personal injury case where the client changes lawyers mid-stream. Because in this type of case, the attorney’s fees are typically only received when the client receives a settlement or wins at trial, if the client changes lawyers, the previous lawyer wants to be paid for their efforts. So, they assert the charging lien. In the context of a community association, a charging lien could result should the attorney prevail in one or more assessment collection cases, and they remain unpaid.

The easiest way to avoid a retaining lien and/or charging lien is to be sure to ask if any legal fees are due as a part of the attorney transfer process.

 

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(9-16-15)

Important Terms in

Construction Contracts

The older your association may be, the more likely it has engaged the services of a contractor, engineer, architect or other construction or design professional to perform a maintenance, repair, replacement or capital improvement project. The process can be very daunting. Even the smallest of projects can have unexpected and disastrous consequences, such as the electrician hired to make a small repair who accidentally started a fire caused by an electrical short. In any contract review, the lawyer’s job is to help the association plan for the unexpected. Because most contracts will be prepared by the contractor and then presented to the association for execution, they will favor the contractor. The association should always rely on its legal counsel to review the contract and minimally provide an addendum whose terms are superior to that of the contract prepared by the contractor. Following are few contract terms that should be addressed in the addendum if they are not already addressed in the contract:

Scope of Work. The scope of work section of the contract is the core of the contract itself. It describes the work to be undertaken. It should be supplemented with specific repair protocols prepared by the requisite professional. A carefully drafted scope of work can help the association avoid later disputes.

Change Orders. In the event a change in the work is needed, such as adding or deleting aspects of the project or changing the selected materials, the construction contract should provide a mechanism by which the association and the contractor can make these changes. Change order provisions should minimally require that a change order be in writing, approved and agreed to by the association and the contractor and specify the effect the change order will have on completion of the work. It should also provide for any additional fees that will be charged as a result.

Authorized Contact. The contract should provide for a specific individual to act as liaison between the association and the contractor.

Payments. Any payment provisions should include "retainage" which allows the association to withhold a percentage of the monies due to the contractor from each payment until satisfactory completion of the work including the punch list. On the one hand, the contractor deserves to get paid, on the other hand the contractor needs to be sufficiently motivated to come back at the end of then job to compete the punch list. Five to ten percent is a reasonable retainage.

Notice of Commencement Process. To protect the association from paying twice for the same work, a Notice of Commencement must be completed and recorded so that those contributing services or supplies for the work must first give notice to the association. Before a construction or remodeling project may begin, the association must require the contractor to assist it with completing the Notice of Commencement process. Only by doing this can the association protect itself from subcontractors and suppliers who claim they have not been paid. The Notice of Commencement must be recorded with the county clerk of court and posted at the job site in the form of a certified copy. Prior to filing a lien, a lienor who does not have a direct contract with the association, must serve the association with a Notice to Owner before commencing, or within forty five (45) days of commencing, the furnishing of services or materials. A lien cannot be enforced unless the lienor has served the Notice to Owner. In order to prevent the filing of a lien against your property and to prevent having to pay twice for the same work, before making any payment (partial or full), the association must be sure to receive a Partial or Full Release of Lien from whomever and for whatever the payment is being made.

Indemnification. Imagine if your construction contract provided for a full indemnity for any damage and injury whatsoever that the contractor or anyone employed or contracted by the contractor caused – This has to be too good to be true… It is! Pursuant to section 725.06, Florida Statutes, any construction contract where the contractor promises to indemnify or hold harmless the association for liability for damages to persons or property caused in whole or in part by any act, omission or default of the contractor arising from the contract or its performance is void and unenforceable UNLESS the contract provides a specific monetary limitation (often not less than $1 million per occurrence) on the indemnification which must bear a reasonable commercial relationship to the contract. You should also be aware that disputes over the enforceability of the indemnification clause do not include prevailing party attorney fees unless the indemnification provisions also specifically provide that, in the event of a dispute concerning the applicability of the indemnification, the prevailing party must indemnify the other for its attorneys’ fees, costs and expenses in enforcing the right to be indemnified.

Termination. While most construction contracts provide that an association may terminate the contract for cause by providing the contractor with reasonable notice and the opportunity to cure, the association should strive for a without cause termination provision. A without cause termination may require the association to pay the contractor liquidated damages, which is an amount the parties agree upon during the formation of the contract for the contractor to collect as compensation. Minimally, the contractor will want to be paid through the date of termination.

 

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(9-2-15)

Should the Board Put that Contract in Writing?

You Bet It Should

Generally speaking a contract that cannot be per-formed within one year, must be in writing. The opposite is true, too. So, if the contract can be performed within one year, then it does not necessarily have to be in writing. In other words, it can be an oral contract. But, if the other party does not perform their obligations, then you’ll likely need the courts to help sort the mess out. You can guess what happens next. One party says they had a contract and the other party denies it. It sure would have been simpler if the parties took a few minutes to sign a contract. Let’s say, for example, a few board members decide to buy lottery tickets and split the winnings. Then, as fate would have it, they win, but two weeks prior they disagreed with each other over an association matter, are at each other’s throats, and the holder of the winning tickets refuses to share the proceeds. "Preposterous", you say? Not so fast.

Fairly recently, the Supreme Court of Florida in the case of Browning v. Poirier, Case No. SC13-2416 (Fla. May 28, 2015), reviewed a very similar fact pattern. Browning and Poirier lived together as a couple between 1991 and 2009. In 1993, the couple orally agreed that they would split the winnings of any lottery tickets purchased by either of them while they remained in a relationship. In 2007, Poirier purchased the winning ticket and received $1 million dollars less taxes. Despite their agreement, Poirier refused to give Browning half of the proceeds. Browning in turn sued for breach of an oral contract and unjust enrichment, seeking his half of Poirier’s winnings. Poirier defended the claims by arguing that the agreement could not be enforced against her because it did not comply with the statute of frauds. Because the contract could have been completed within one year at the time the agreement was made, the Supreme Court of Florida decided in Browning’s favor and held that the oral agreement between Browning and Poirier fell outside the "Statute of Frauds" providing that unenforceable oral contracts are only those which cannot be performed within one year.

By way of summary, the Statute of Frauds, as set out in section 725.01, Florida Statutes, requires that, in addition to other types of agreements, contracts which cannot be performed within one year from the making of the contract must be in writing and signed by the party against whom the contract is being enforced. Thus, in Browning v. Poirier, the Court held that an oral agreement to share equally in the proceeds of any lottery winnings, which could have been terminated by either party at any time, was not required to be in writing in accordance with the "Statute of Frauds" where the agreement could have been performed within one year.

So, while this case is seemingly unrelated to community associations, condominium, cooperative and homeowners association are subject to their own version of the Statute of Frauds as set out in sections 718.3026, 719.3026 and 720.3055, Florida Statutes, respectively. Similar to the Statute of Frauds analyzed by the Supreme Court of Florida, these laws provide that all contracts described in these statutory sections and any contract that is not to be fully performed within one year after the contract is made for the purchase, lease or renting of materials or equipment to be used by the association in accomplishing its purposes must be in writing. In addition, these laws require that all contracts for the provision of services must be in writing, regardless of whether or not the contract could be performed within one year.

Remember, too, that in addition to the written agreement requirement as set out in sections 718.3026, 719.3026 and 720.3055, Florida Statutes, these statutory sections also require that an association obtain competitive bids for contracts for the purchase, lease or renting of materials or equipment, or for the provision of services, which require payment by the association that exceeds, in total, a certain percent of the total annual budget of the association, including reserves. For condominium and cooperative associations, the percent of the total annual budget at which competitive bids must be obtained is five percent. For homeowners associations, the percent of the total annual budget at which competitive bids must be obtained is ten percent. While an association is required to obtain competitive bids in these instances, the association is in no way required to accept the lowest bid and may select the winning bid using its reasonable business judgment.

Based on the interpretation by the Supreme Court of Florida of the Statute of Frauds as set out in section 725.01, Florida Statutes, a community association’s board of directors should be ever mindful of the oral promises they make.

 

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(8-19-15)

Fining and Suspending Use Rights

"Pursuant to the New Legislation Effective July 1, 2015"

On July 1, 2015, new provisions which clarify the procedures for fining and use right suspensions for non-monetary violations became effective. The term "non-monetary violations" refers to such things as failing to pressure clean roofs and driveways, to remove dead trees, to bring in the garbage cans and to pick up after your pet, etc., and obviously excludes delinquent monetary obligations.

These new provisions were put into place to clarify the manner in which an association’s board of directors and its fining and suspensions committee coexist. Prior to these provisions, there were some who were unsure as to whether the fining and suspensions committee would first meet and then the board of directors would levy the fine, or if the board of directors would first meet, determine the amount of the fine, and then the fining committee would meet to provide the offending owner with the opportunity to be heard. Now, it is patently clear. The board must take action first.

According to these recent amendments to Chapters 718, 719 and 720 of the Florida Statutes, regarding condominiums, cooperatives and homeowners’ associations, respectively, an association’s board of directors must first levy the fine or enact a use right suspension for a non-monetary violation at a properly noticed board meeting. After, the person who is to be fined or suspended must then be provided with at least fourteen days’ notice and an opportunity for a hearing before the fining and suspensions committee. If the fining and suspensions committee does not exactly agree with the board, then the fine or use right suspension may not be enacted.

With that in mind, the role of the fining and suspensions committee is strictly limited to determining whether to confirm or reject the fine or use right suspension levied by the board of directors. The committee cannot make any changes whatsoever to the fine or use right suspension enacted by the board as any such change would constitute a rejection of the fine or use right suspension levied by the board.

As a matter of practicality, if the fining and suspensions committee rejects the fine or use right suspension, the board could start its decision making process anew or the fining and suspensions committee could make a recommendation to the board as to what it would approve. In either event, it begins the fining and use right suspension process anew. This means that the offending member should also be provided another fourteen days’ notice and opportunity to appear in front of the fining and suspensions committee before the recommended fine or use right suspension becomes effective.

Condominium and cooperative associations can only file a lawsuit seeking a money judgment in order to collect unpaid fines. While homeowners’ associations can also similarly seek a money judgment, if the homeowners’ association’s declaration provides for fines exceeding a total of $1,000.00 and also allow a fine to become a lien, then the homeowners’ association may use the foreclosure process to collect an unpaid fine. In all cases, in any action to recover a fine, the prevailing party is entitled to recover their reasonable attorneys’ fees and costs from the non-prevailing party, as determined by the court.

Fines apply to the owner and, if applicable, to any tenant, licensee or invitee of the owner. Use right suspensions apply to the property’s occupant, licensee or invitee, which includes tenants, and still applies even if the violation that resulted in the suspension arose from less than all of the multiple properties owned by a member. Also, the terms of the association’s declaration likely provides that the owner is ultimately responsible for the acts of their tenants, guests and invitees.

For condominium and cooperative associations, the fining and suspensions committee is comprised of unit owners who are neither board members nor persons residing in a board member’s household. For homeowners’ associations, the fining and suspensions committee is comprised of at least three members who are not officers, directors or employees of the association, or the spouse, parent, child, brother or sister of an officer, director or employee.

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(8-5-15)

2015 Legislative Update

Although Florida’s 2015 Legislative Session ended earlier than expected when the House of Representatives abruptly adjourned prior to the scheduled end of the Session, some new legislation affecting community associations was passed and subsequently signed into law by the Governor and became, for the most part, effective July 1, 2015. Following is a brief summary of these new laws.

ELECTRONIC VOTING

Electronic voting is now available for condominium, cooperative and homeowners’ associations. Under these new provisions, an association, through resolution of the board, may conduct its elections and any other owner votes through an online voting system.

1) The advanced written consent of the owner is required in order to participate in online voting.

2) The association is required to provide:

(a) a method to authenticate the owner’s identity to the online voting system;

(b) a method to confirm, at least 14 days before the voting deadline, that the owner’s electronic device can successfully communicate with the online voting system;

(c) for condominium and cooperative elections of the board, a method to transmit an electronic ballot that ensures the secrecy and integrity of each ballot; and

(d) for homeowners’ association elections of the board, a method that is consistent with the homeowners’ association’s election procedures as set out in its bylaws.

3) The online voting system must be able to authenticate the owner’s identity and the validity of each electronic vote to ensure that the vote is not altered in transit.

4) A receipt for the vote received through the online voting system must be provided to the owner.

5) For board member elections, the electronic voting system must be able to permanently separate any authentication or identifying information from the electronic election ballot so that it is impossible to tie an election ballot to a specific owner.

6) The voting system must also be able to store and keep electronic votes accessible for recount, inspection and review purposes.

7) In order to use this voting procedure, the board of directors must adopt a resolution containing specific requirements, including notices to the owners of the option, requirement of their consent and opportunity to opt out. If the resolution is to be considered at a board meeting, written notice of that meeting must be mailed, delivered or electronically transmitted to the owners and posted at the property.

8) Once an owner consents to online voting, the consent is valid until the owner opts out.

FINING AND SUSPENSION OF USE AND VOTING RIGHTS

Clarification is provided to condominium, cooperative and homeowners’ associations regarding the order of the proceedings that are necessary for imposing a fine or use right suspension for non-monetary violations. First, the board must levy the fine or use right suspension, and then the offending owner must be provided at least 14 days’ notice of the fining/suspension committee’s meeting where it will hold a hearing to approve or disapprove the fine or use right suspension for non-monetary violations levied by the board. If the committee does not agree with the fine/suspension, then it cannot be imposed against the offending owner.

The legislation also clarifies that the role of the committee is only to confirm or reject the fine or use right suspension (non-monetary) levied by the board. This means that if the committee wishes to impose a fine of a different amount, it is powerless to do so. Rather, the modification of the fine would have to be done at a properly noticed board meeting first.

As to cooperative associations, the qualifications for those who serve on the fining committee must be "other owners who are neither board members nor persons residing in the board member’s household."

Both the Condominium Act and Homeowners’ Association Act were amended to clarify that:

1) the "monetary obligations" that qualify for suspension of use rights include a fee, fine or other monetary obligation;

2) when the voting rights of an owner are suspended, the total number of eligible units is reduced for the purpose of calculating the necessary percentage to pass a proposal;

3) any authorized suspension applies not only to the member, but also to the tenants, guests or invitees, and even if the delinquency or failure that resulted in the suspension arose from less than all of the multiple units or lots owned by a member. This means that if an owner owns three units and is delinquent more than 90 days on one of the units, the voting rights on all three units may be suspended.

PROXIES

As to condominium, cooperative and homeowners’ associations, a complete copy, facsimile transmission or other reliable reproduction of the original proxy may be used instead of requiring the original proxy. This change appears to formally legalize a process already in existence by many associations and applies to all not-for-profit corporations, which includes condominium, cooperative and homeowners’ associations.

INSURANCE

As to condominiums, if there is no insurable casualty event that caused the damage, the maintenance provisions of the governing documents are to be used to provide for the determination of responsibility for the repairs caused by events other than casualty.

OFFICIAL RECORDS

As to condominiums, relative to the "catch-all" provision of what is identified as the Official Records of a condominium association, open to inspection to owners or their authorized representatives, has been modified to add the word "written" regarding such records.

MEETING NOTICES

It is no longer required to have the authority in the association’s bylaws to use electronic mail (e-mail) for association notices. As a result, all meeting notices, including for condominium, homeowners’ and cooperative board and committee meetings, may be provided by e-mail. However, the requirement that owners provide their advanced written consent to receive such notices by e-mail, remain. So, the owners must still opt-in to receive electronic notices.

ANNUAL BUDGETS

As to condominiums, statutory provisions regarding the annual budget have been revised to clarify that minimally, the items listed in section 718.504(21), Florida Statutes, must be included in a proposed budget. Although no substantive provisions were made, the provisions addressing reserves have been split into two parts, with subsection (a) addressing the reserves in general, and subsection (b) addressing reserves before the turnover of control of the association by the developer to the non-developer owners. Subsection (b) further clarifies the ability of the developer to vote its units to waive reserves.

ASSESSMENT PAYMENTS

As to condominium and cooperative associations, a legislative fix was provided in response to St. Croix Lane Trust v. St. Croix at Pelican March Condominium Association, Inc., 144 So.3d 639 (Fla. 2d DCA 2014) regarding the application of accord and satisfaction to a restrictive endorsement placed on an assessment payment. These sections have been revised to clarify that the application of payments made on a delinquent account are to be applied in the manner specified within the Florida Statutes, notwithstanding any purported "accord and satisfaction" or settlement agreement claimed by the payer by delivery of the payment. These provisions also state that they are intended to clarify existing law, which makes the application of the change retroactive. Noticeably lacking is a similar amendment to the Homeowners’ Association Act.

BULK BUYERS

This legislation applies to the condominium bulk assignee or bulk purchaser of units, and extends the period of time for qualification from July 1, 2016 to July 1, 2018. In plain English, this means an investor can acquire seven or more condominium units without concern of acquiring the predecessor developer’s liability for such things as construction defects and other obligations.

HOA RULES AND REGULATIONS

The rules and regulations of the homeowners’ associations are now included within the definition of the "governing documents."

CHAPTER 720, FLORIDA STATUTES

This new statute appropriately names Chapter 720, Florida Statutes, as the "Homeowners’ Association Act."

TENANT PROTECTION

A new section 83.561, Florida Statutes, has been added, entitled "termination of rental agreement upon foreclosure." This new Statute creates certain rights and entitlements in tenants following the foreclosure sale.

The tenant is allowed to remain in possession of the premises for a 30 day period following the date that the purchaser at the foreclosure sale delivers the 30-day notice of termination. The Statute also provides a form of suggested language that the 30-day notice should include. A writ of possession may only be applied for after the expiration of the 30-day period.

 

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(7-22-15)

Florida’s New Service Animal Laws

A Nail without a Hammer

When it comes to service dogs and assistance animals, people often confuse the Federal American with Disabilities Act (ADA) with the Federal Fair Housing Act (FHA). The ADA laws apply only to commercial (non-residential) settings. They apply to specifically trained service dogs (and the very occasional miniature horse). The ADA laws specifically exclude emotional support animals of any kind. On the other hand, the FHA laws apply to residential communities and apply to pretty much all domestic animals, including dogs, cats, pot belly pigs, etc. The FHA laws allow a person living in a residential community access to both specifically trained and untrained animals and, importantly, include the sub-category of the much beloved emotional support animal, especially when they might be otherwise prohibited by the community’s governing documents. While the ADA uses the term "disability" and the FHA uses the term "handicap", these two terms are, for all intents and purposes, interchangeable.

What is missing from both the FHA and the ADA are penalties to prevent against fraudulent misuse of both acts. In trying to create conformity with FHA and the ADA protections and greater protection against fraud, the Florida Legislature has brought the definition of an "individual with a disability" as set out in Chapter 413, Florida Statutes, into conformity with both the definitions for the terms "disability" and "handicap" as set out in the ADA and FHA, respectively. Florida’s newest legislation also defines the term "service animal" similar to the ADA legislation to mean an animal that is trained to do work, or perform tasks, for an individual with a disability and clarifies that the crime- deterrent effect of an animal’s presence and the provision of emotional support, well-being, comfort, or companionship do not constitute work or tasks for purposes of this definition. But, a service animal does include a dog (or miniature horse) trained to assist mentally and emotionally disabled individuals with such tasks as helping an individual with a psychiatric or neurological disability by preventing or interrupting impulsive or destructive behaviors, reminding an individual with mental illness to take prescribed medications or calming an individual with posttraumatic stress disorder during an anxiety attack. The important distinction is the dog’s training.

It is important for community associations to remember that, although this new State law exists, community associations must ensure that they do not run afoul of the Federal Fair Housing Act by requiring that an "assistance animal" be a dog or be specifically trained to assist with the disability. If so, then FHA penalties will apply.

Chapter 413, Florida Statutes, also provides that a disabled person is entitled to rent, lease or purchase any housing accommodations offered for rent, lease or purchase in this state as any other member of the general public would be entitled and is entitled to full and equal access to all housing accommodations and cannot be required to pay an extra fee for the service animal, which is in conformity with its Federal counterparts, the ADA and the FHA.

What has really gotten people talking is that this new law makes it a second degree misdemeanor offense for a person to knowingly and willfully misrepresent herself or himself, through conduct or verbal or written notice, as using a service animal, being qualified to use a service animal or as a trainer of a service animal. Those who are found to have done so may serve up to 60 days imprisonment or pay a fine of $500.00 and must perform 30 hours of community service for an organization that serves individuals with disabilities or for another organization selected by the court to be completed in not more than six months. So, what does all this mean? It means that while there is a penalty for misrepresentation where it concerns a trained service dog or miniature horse, there is still no penalty ascribed for the one major area where the most abuse occurs, that of the qualification to own an emotional support animal! In summary:

• As to residential settings inclusive of Florida’s community associations, if the dog is specifically trained to assist its owner with a handicap or disability, then the FHA and the laws set out in Florida’s Chapter 413 apply. Fraudulent penalties apply.

• If an animal is not trained and otherwise qualifies as an emotional support comfort animal, then only the FHA applies. No fraudulent penalties apply.

• As to non-residential settings, if the animal is a dog or miniature horse and is specially trained, then the ADA and Florida’s Chapter 413 apply. Fraudulent penalties apply.

With all that in mind, I’m still waiting to see a miniature horse riding in the elevator of a commercial condominium who is specially trained to alert its owner to take his or her medications. One day, I fully expect the elevator doors to open and a miniature version of Mr. Ed to look up and say, "Hello Willllllbur."

 

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(7-8-15)

New Provision Regarding Fining and Use Right Suspensions

Prior to recent amendments to the procedures for fining and use right suspensions for non-monetary violations, which amendments became effective on July 1, 2015, there was a gap in the Florida Statutes regarding the manner in which a community association’s board of directors and its fining and suspensions committee coexisted, meaning there was no clear guidance with regard to whether the fining committee would first meet and then the board would levy the fine or if the board would first meet, determine the amount of the fine and then the fining committee would meet to provide the offending owner his opportunity to appear. That said, it was clear that if the fining committee did not agree with the fine, then the board could not authorize its levy against the offending owner. Well, now there is great clarity as to the procedural requirements.

Pursuant to the recent amendments to Chapters 718, 719 and 720 of the Florida Statutes, regarding condominiums, cooperatives and homeowners’ associations, respectively, the association’s board of directors must first levy the fine or use right suspension for non-monetary violations at a properly noticed board meeting. After the board of directors has levied the fine or use right suspension for non-monetary violations, the person who is to be fined or suspended must be provided with at least fourteen (14) days’ notice and an opportunity for a hearing before a fining and suspensions committee. The fining and suspensions committee must be comprised of other owners who are neither board members, nor persons residing in a board member’s household. The role of the fining and suspensions committee is limited to determining whether to confirm or reject the fine or use right suspension for non-monetary violations levied by the board of directors.

If the fining and suspensions committee does not approve the fine or use right suspension for non-monetary violations EXACTLY as levied by the board of directors, the fine or use right suspension for non-monetary violations cannot be imposed. If the fining and suspensions committee does approve the fine or use right suspension for non-monetary violations, which must be done by a majority vote, the association must then provide the person to be fined or suspended with written notice of the fine or use right suspension by mail or hand delivery.

Although the association may suspend the right to use the common areas, common elements, common facilities and association property, generally a use right suspension, whether for monetary or non-monetary violations, does not apply to that portion of common areas, common elements, common facilities and association property used to provide access or utility services to the owner’s property.

With specific regard to homeowners’ associations, prior to the recent amendments to the fining and use right suspensions for non-monetary violations provisions, a suspension of use rights could not impair the right of an owner or tenant to have vehicular and pedestrian ingress to and egress from their property, including, but not limited to, the right to park. However, as of July 1, 2015, this language has been revised to provide that a use right suspension may not prohibit an owner or tenant from having vehicular and pedestrian ingress to and egress from their property, including, but not limited to, the right to park.

The change from "impair" to "prohibit" in the Homeowners’ Association Act is significant in that the 2015 statute suggests that a homeowners’ association can impair vehicular and pedestrian ingress to and egress from the owner’s or tenant’s property so long as such impairment does not prohibit such access. For example purposes only, in gated communities, this new language lawfully allows a homeowners’ association to force the owner or tenant to use the guest lane, instead of the resident’s lane, at the community’s entrance gate.

For condominiums and cooperatives, a use right suspension does not apply to limited common elements intended to be used only by that unit, parking spaces, or elevators. Additionally, as of July 1, 2015 for condominium associations only, a use right suspension applies to a unit owner who owns multiple units even if the delinquency or violation that resulted in the use right suspension arose from less than all of the multiple units owned by that owner. This means that if an owner, who owns three units, has his use rights suspended due to a continued delinquency associated as to only one of the units, then, nevertheless, the suspension would apply to all of the units and not just the unit associated with the delinquency.

 

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(6-24-15)

Terminating the Condominium Terminator; Rembaum’s Association Roundup’s First Ever Award of Excellence

On Saturday, June 20, 2015, Palm Beach Post staff-writer, Tony Doris, reported that condominium owners in Century Village’s "Sheffield O" condominium are under the very real threat of a condominium termination from an investor who is continually purchasing units in the condominium. Century Village is a 600 building, 55 and older (better) community. Century Village was developed in the 1970s by H. Irwin Levy, a real life condominium superhero. Not only did he develop the community that combines affordable home ownership and community based activities for seniors, but 40 years later, he is ready to don a red cape and be a superhero by defending those seniors who chose to purchase units in his community and cannot afford the battle that may need to be fought to continue to live there.

Imagine moving to the Sunshine State and purchasing what you hope is your last home in an affordable community geared for seniors. Then, imagine being told your home is being sold against your will and you’ll receive only the present fair market value of your home, likely leaving you in debt to your mortgage company. How can such a thing happen you ask? Florida’s legislation regarding termination of condominium, section 718.117, Florida Statutes, –that’s how.

The condominium termination legislation was primarily enacted to deal with several problems which include destruction due to casualty and circumstances which may create "economic waste, areas of disrepair, or obsolescence of a condominium property for its intended use and thereby lower property tax values." Nowhere in the legislation does it address terminating the condominium for the benefit of a private investor. But, like any other piece of legislation, there are always unintended consequences. And, such an unintended consequence is why owners in the Sheffield O Condominium are justifiably worried.

All that it takes to terminate a Florida condominium is 80% of the owners to vote in favor of a plan of termination and not more than 10% of the owners to formally object to it. This process is referred to as an "optional termination."

In the present version of the condominium termination legislation there is no requirement for the owners to be made, at least minimally, financially whole. So, the condominium termination plan could be put into effect and an owner could be forced to move out and still be on the hook for thousands of dollars still owed to their lender. One small silver lining is that, effective July 1, 2015, if the condominium is terminated under the optional termination process, all mortgages for those who homesteaded their home must be fully satisfied. While that won’t solve every problem, such as securing a new home for those forced out and coming up with a new down payment, at least the unfortunate owners being forced out against their will who are homesteaded in Florida will not end up upside down to their lender while having to find a new home. But there is no such benefit if the owner has not homesteaded their home.

According to the Palm Beach Post, the investor, "a Palm Beach Gardens resident who owns 15 of the 24 units in Sheffield O and has an interest in two more, wrote to the remaining owners in the Sheffield O Condominium that he plans to dissolve its condominium association and force them to sell to him at the price the Palm Beach County Property Appraiser puts on the units." H. Irwin Levy was quoted as saying, "We’re going to take on this man, have a letter written to him, and whether he backs off..., we’ll see what happens but we’ll take on the cost so these people aren’t penalized for trying to protect their interests."

To prevent problems, such as what may occur to the owners in the Sheffield O Condominium, the condominium termination legislation needs further amending to provide clear authority to the court to deny the optional termination when it’s clear that the termination is being undertaken to inure to the benefit of a private investor to extreme detriment of existing owners, unless the investor undertakes financial responsibility to secure new housing equal to or better than the terminated condominium plus moving costs for the powerless minority opposing the termination. In addition, the same benefits should be available to those who have homesteaded their property as to those who have not done so.

Here is a real brain teaser to consider: Recently, the Fourth District Court of Appeal in Pudlit 2 Joint Venture, LLP v. Westwood Gardens Homeowners Association, Inc., Case No. 4D14-1385 (Fla. 4th DCA May 27, 2015), held that the safe harbor legislation (section 720.3085, Florida Statutes) adopted in 2008, which was before a borrower entered into its mortgage and before a third party investor acquired the property, did not take priority over the language set out in the homeowners’ association’s declaration, which provided that neither the lender nor a third party purchaser who acquires the property as a result of the foreclosure has any assessment liability for past due assessments. So, reasoning by analogy, given that condominiums are purely creatures of the legislature, meaning that without Chapter 718, no condominium would exist, how can the condominium termination legislation, which is relatively recent legislation, disturb the rights of condominium unit owners by terminating the condominium in a way not foreseen by the purchaser upon acquiring the unit and certainly not foreseen when the condominium was created? This is the point Levy was making when he was quoted by Tony Doris as saying "[the investor] certainly can’t change people’s rights to their homes retroactively."

By now, it should be self-evident why H. Irwin Levy is deserving of Rembaum’s Association Roundup’s very first Award of Excellence. Not only did he develop the Century Village community over 40 years ago, but, more importantly, he is standing by its residents some 40 years later to try to prevent what he sees as an extreme injustice and apparently willing to fund it, too.

Kudos to Tony Doris for writing the story that appeared in the June 20, 2015 edition of the Palm Beach Post; kudos to the editors who not only published this story, but put it on the first page; and most of all kudos to H. Irwin Levy for standing up for and standing with the owners of Sheffield O.

 

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(6-10-15)

The Safe Harbor Statute Is Not So Safe After All

On May 27, 2015, Florida’s Fourth District Court of Appeal entered its whirlwind decision in Pudlit 2 Joint Venture, LLP v. Westwood Gardens Homeowners Association, Inc., Case No. 4D14-1385 (Fla. 4th DCA May 27, 2015). This case rocks the boat in what was considered the "safe harbor," referring to the limitation of a first mortgagee’s liability for assessments which result from the first mortgagee obtaining title as a result of its mortgage foreclosure action or by deed in lieu of foreclosure as set out in section 720.3085, Florida Statutes (the "Safe Harbor Statute").

Most, if not all, homeowners’ associations throughout Florida take the position that the Safe Harbor Statute takes priority over any conflicting terms set out in the association’s declaration. However, at odds with this notion is that the declaration is a contract between the members of an association and the association itself. The substantive law in effect at the time a contract is made is a part of the contract as if it were written therein. Associations take the position that the Safe Harbor Statute is a procedural law and therefore controlling over any provisions to the contrary set out in the declaration, especially to mortgages entered after July 1, 2008 which was when the present Safe Harbor Statute became law. Lenders and third party bidders who acquire property as a result of the lender’s mortgage foreclosure take the position that the Safe Harbor Statute is substantive, and therefore, to apply the Safe Harbor Statute to a declaration that provides otherwise is an impairment of contract prohibited by the Constitution itself.

In this case, which will no doubt muddy third partly assessment liability quite a bit, Pudlit 2 Joint Venture, LLP ("Pudlit") purchased two properties at foreclosure sales that were located within communities maintained by Westwood Gardens Homeowners Association, Inc. ("Westwood Gardens HOA"). As a result, Westwood Gardens HOA then demanded that Pudlit pay all assessments, including all assessments which came due before Pudlit acquired title to the properties. Pudlit paid the assessment arrearage amounts demanded, however it did so "under protest and with full reservation of all rights and remedies." After which, Pudlit sued Westwood Gardens HOA seeking recovery of the monies paid, asserting breach of contract, referring to Westwood Gardens HOA’s declaration of covenants which is in and of itself a contract between the owners and the association, and for declaratory relief. In the end, the Court ruled in favor of Pudlit and, in so doing, held that the terms of Westwood Gardens HOA’s declaration controlled over the Safe Harbor Statute.

Had Pudlit not clearly and overtly established that it paid the assessment arrearage under protest and with a full reservation of rights, then it very well may have not been in a position to file its lawsuit. This is because when a person, the payor, freely pays an alleged debt due, without a reservation of rights of any kind and later files a lawsuit seeking a recovery of its monies from the payee, the payee can defend the case by arguing that the payor voluntarily paid the debt freely and voluntarily and thus waived any later right of protest. (We will have to see how these competing arguments resolve themselves in future court battles.)

Of relevance to the Pudlit case, Westwood Gardens HOA’s declaration of covenants provided that:

"The personal obligation for delinquent assessments shall not pass to [an owner’s] successors in title unless expressly assumed by them.

Sale or transfer of any Lot which is subject to a mortgage as herein described, pursuant to a decree of foreclosure thereof, shall extinguish the lien of such assessments as to payments thereof which become due prior to such sale or transfer."

Such language is in conflict with the Safe Harbor Statute, which provides that a first mortgagee’s liability for assessments which accrued prior to the first mortgagee obtaining title as a result of its foreclosure action or by deed in lieu of foreclosure is limited to one percent of the original mortgage debt or twelve months assessments which accrued prior to the first mortgagee obtaining title. The Safe Harbor Statute, additionally provides that all other successors in interest are jointly and severally liable for all past due assessments, with exception for assessments charged during an association’s ownership of the property.

Applying a constitutional principal which prohibits the impairment of contracts, the Court held that the Safe Harbor Statute, could not impair (meaning, override) the provisions of Westwood Gardens HOA’s declaration of covenants, unless the plain language of the statute requires such application or the declaration of covenants contains "Kaufman" language, which has the effect of making amendments to the Florida Statutes automatically applicable to an association’s declaration of covenants as the Florida Statutes are "amended from time to time." The Court further held that the provisions of Westwood Gardens HOA’s declaration of covenants expressly created rights for third party purchasers who are "intended third party beneficiaries" to such provisions which rights cannot be impaired pursuant to the same constitutional principal.

Although the Pudlit case is with regard to a third party’s liability for assessments which accrued prior to the third party obtaining title at a foreclosure sale, this decision will impact the manner in which assessments due on a property are analyzed in the "safe harbor" context. Pudlit essentially provides that, unless the statute provides for automatic application or unless the declaration contains "Kaufman" language, the terms of the declaration will prevail over the provisions of the statute.

As with many declarations which have not been amended since their creation by the community’s developer, declarations may provide for a wipe out of all assessments that accrued prior to the first mortgagee obtaining title as a result of its foreclosure action or by deed in lieu of foreclosure. The Pudlit case further emphasizes the importance of reviewing and updating your association’s declaration to ensure that it provides for necessary and available protections for the association and its members which includes the importance of including "Kaufman" language.

If your association’s declaration does not contain language similar to the following sentence, then the board should consider further discussing this important matter with the association’s legal counsel:

This Declaration is subject to Chapter 720, Florida Statutes, as it is amended from time to time.

 

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(5-27-15)

The Unlicensed Practice of Law:

What It Is, What It Isn’t and What it Might Be

On May 14, 2015, the Supreme Court of Florida issued an Advisory Opinion regarding which activities of community association managers are and are not considered the "Unlicensed Practice of Law" (UPL). The Advisory Opinion is No. SC13-889. In the Advisory Opinion, the State’s highest Court adopted the position of the Florida Bar’s Standing Committee on UPL which in part i) reaffirmed the Court’s 1996 advisory opinion of Florida Bar re Advisory Opinion-Activities of Community Association Managers, 681 So.2d 1119 (Fla. 1996), ii) expanded on certain activities that are considered UPL, iii) explained that certain activities may or may not be UPL depending on the circumstances, and iv) may have created some confusion which will be cleared up for the readers of this article. By way of background, Court’s adoption of the Advisory Opinion has the same force and effect of an order issued by the Court, and readers should take note that the Florida Legislature enacted laws in 2014 pertaining to this very subject that in a few instances are contrary to the Court’s adoption of the Advisory Opinion. To clear up the potential confusion, know this – the Court’s May 14, 2015 adoption of the Florida Bar’s Standing Committee Advisory Opinion on UPL trumps the 2014 legislation.

New legislation adopted on July 1, 2014 to section 468.431, Florida Statutes provided additional activities that a community association manager may perform. Of relevance to the Court’s adoption of the Advisory Opinion, section 468.431(2), Florida Statutes, provides that a community association manager may determine the number of days required for statutory notices and may calculate the votes required for a quorum or to approve a proposition or amendment. While such activities may be within the community association manager’s ability to perform, the Advisory Opinion provides that these activities may constitute the unlicensed practice of law depending on the specific factual circumstances.

Further, the changes to section 468.431(2), Florida Statutes, also adopted on July 1, 2014, provides that a community association manager may negotiate monetary or performance terms of a contract subject to approval by an association and may complete forms related to the management of a community association that have been created by statute or state agency, which includes release of lien, pre-lien notice and pre-foreclosure notice forms. However, because the Supreme Court of Florida has now ruled that the drafting a claim of lien and satisfaction of lien form and that the preparation, review, drafting and/or substantial involvement in the preparation/execution of contracts (construction contracts, management contracts, cable television contracts, etc.) constitute the unlicensed practice of law when performed by a community association manager, the related activities as provided by section 468.431(2), Florida Statutes adopted, are greatly abridged and are abrogated by the Court’s adoption of the Advisory Opinion.

The following activities when performed by a community association manager are NOT considered UPL and may be properly conducted by a community association manager:

• Completion of the change of registered agent or office for corporations form and the annual corporation report form as provided by the Secretary of State,

• Drafting certificates of assessments,

• Drafting first and second notices of the date of an election,

• Drafting ballots,

• Drafting written notices of annual or board meetings,

• Drafting annual meeting or board meeting agendas,

• Drafting affidavits of mailing, and

• Drafting a pre-arbitration demand letter required by section 718.1255, Florida Statutes.

On the other hand, the following activities are considered UPL when performed by a community association manager (or other non-lawyer):

• Completing a frequently asked questions and answers sheet (DBPR Form 33-032),

• Drafting a claim of lien, satisfaction of lien and notice of commencement form,

• Determining the timing, method and form of giving notice of meetings,

• Determining the vote necessary for certain actions which would entail interpretation of certain statutes and rules,

• Answering a community association’s questions about the application of law to a matter being considered or advising a community association that a course of action may not be authorized by law, rule or the association’s governing documents,

• Drafting amendments to the association’s governing documents,

• Preparing, reviewing, drafting and/or substantial involvement in the preparation/execution of contracts, including construction contracts, management contracts, cable television contracts, etc., and

• Any activity which requires statutory or case law analysis to reach a legal conclusion.

Those activities that may or may not be considered UPL and fall into a gray area depending on the specific factual circumstances are:

Modification of limited proxy forms created by the state or drafting a limited proxy form – Modifying the limited proxy form to include the name of the association or to certain "yes" or "no" voting questions would not be considered the unlicensed practice of law; however, modifications which are more than ministerial in nature require the assistance of an attorney (i.e.: drafting questions which requires discretion in the phrasing or involves the interpretation of statute or legal documents).

Drafting documents required to exercise the community association’s right of approval or right of first refusal on the sale or lease of a property – A community association manager may prepare these documents but cannot advise the association as to the legal consequences of taking a certain course of action, which can only be performed by an attorney.

Determining the number of days to provide statutory notice – If this requires the interpretation of statutes, administrative rules, an association’s governing documents or the rules of civil procedure, then it must be done by an attorney; otherwise, it may be performed by a community association manager.

Determining the affirmative votes needed to pass a proposition or amendment or the owners’ votes needed to establish a quorum – If this requires the interpretation and application of statutes and an association’s governing documents, then it must be done by an attorney; otherwise, it may be performed by a community association manager.

Identifying, through review of title instruments, the owners to receive pre-lien letters – The community association manager may make a list of all records owners, however, the community association manager cannot then use the list to determine who needs to receive a pre-lien letter.

 

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(5-13-15)

Survivors of Florida’s 2015 Legislative Session: Waiting to Become Law, Unless Vetoed

Sometimes the right thing happens for the wrong reasons. This is one of those times. Much of our prior discussion regarding Florida’s 2015 Legislative Session was centered on the overtly draconian Estoppel Bill (House Bill 611 together with its companion, Senate Bill 736) and the financial harm it would have caused to community associations throughout Florida if passed into law. While the Estoppel Bill showed all signs of becoming law, because Florida’s House of Representatives walked out of the 2015 legislative session several days early due to a disagreement with the Senate over Medicare and the State’s overall budget, the Estoppel Bill never made it to the House Floor for final vote meaning that the rumored two million dollars of lobbying efforts expended by the title and real estate lobbies was a huge, colossal waste of money. Candidly, it serves them right for failing to meaningfully cooperate with Florida’s community associations which overwhelmingly opposed the Estoppel Bill, albeit to no avail.

Let us turn our attention to those bills as related to community associations which have survived the 2015 Legislative Session and are on their way to the desk of Governor Rick Scott to become law or vetoed, although a veto is considered by most to be unlikely.

Senate Bill 748 and House Bill 791, an Omnibus Bill: These bills provide various amendments which affect condominium, homeowners’ and cooperative associations. These bills address the following changes:

• Provides that a copy, facsimile or other reliable reproduction of a proxy is valid for the purposes of the proxy. (This makes sense, but strange in that this was already quite obvious.)

• Revises the "catchall" provision of what constitutes the official records for condominium and cooperative associations to include only written records of the association, as already provided for homeowners’ associations.

• Removes the requirement that electronic notice be authorized by the bylaws in order to use e-mail rather than U.S. Mail for official notice purposes.

• Allows associations to implement online voting through a board resolution. (This should prove to be very interesting.)

• Clarifies that partial payments may be applied to outstanding amounts due. (This makes sense, but strange in that this was already quite obvious.)

• Clarifies that the role of the fining committee is to confirm or reject the fine levied by the board.

• Clarifies that if voting rights are suspended, the voting interest allocated to the unit is subtracted from the total number of voting interests. (This makes sense, but strange in that this was already quite obvious.)

• Applies the suspension of voting rights or the right to use common elements to member and tenants and guests, regardless of number of units owned by the member.

• Extends the "Distressed Condominium Act" until July 1, 2018. (This is good for Florida’s economy in that it encourages "white knight" investors to invest in fractured condominium projects by shielding them from liability caused by their predecessor.)

• Titles Chapter 720, Florida Statutes, the "Homeowners’ Association Act."

• Adds a homeowners’ association’s "rules and regulations" to the term "governing documents."

• Clarifies that the failure to timely provide notice of recording an amendment in a homeowners’ association does not affect the validity or enforceability of the amendment.

House Bill 643 and Senate Bill 1172, The Condominium Termination Bill: House Bill 643 and its companion, Senate Bill 1172, address condominium termination and change the voting requirements and procedures for optional termination of a condominium. These bills provide that optional termination cannot be used until five years after the recording of a declaration of condominium, unless there is no objection to the plan of termination. Additionally, a bulk owner who owns at least 80 percent of the units must ensure that each first mortgage is fully satisfied when a condominium is terminated. In addition, all unit owners, other than the bulk buyer, must be compensated for 100 percent of the fair market value of their unit. However, if an original unit owner, who purchased their unit from the developer, together with additional conditions, votes against the termination plan, the bulk owner must promise to pay them no less than the same amount they purchased their unit.

House Bill 71 and Senate Bill 414, The Service Animal Bill: These bills, among other things, provide that a person who knowingly and fraudulently represents himself or herself through conduct or verbal or written notice as requiring the need for a service animal or as being the trainer of a service animal is guilty of a misdemeanor in the second degree, punishable in the same manner as other second degree misdemeanors, and requiring the performance of 30 hours of community service for an organization which serves disabled individuals to be completed within six months. It is important to note that that these bills do not address "assistance animals" governed by the Fair Housing Act. In order to trigger the Americans with Disabilities Act (ADA) in a residential association, the association must have a nexus to the public. For example if a homeowners’ association rents out its clubhouses to the public for weddings, etc., then that association would be subject to ADA requirements as far as its clubhouse is concerned. The overwhelming majority of Florida’s community associations are subject only to the Fair Housing Act, and not the ADA. Sadly, there is no companion bill that would make such fraudulent activity unlawful as applied to fraudulent "assistance animal" requests… yet.

 

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(4-29-15)

Speak Now or Forever Hold Your Peace ~ An Association’s Right to Surplus Foreclosure Proceeds

As today’s real estate market continues to strengthen and the economy continues to grow, lenders are foreclosing against delinquent borrowers with more and more haste. Bargain hunters continue to monitor foreclosure sales, often bidding an amount greater than the amount of the foreclosure deficiency. This result leads to surplus funds. For example, a delinquent borrower defaults on their mortgage owing a remaining $300,000 on their home whose market value is closer to $500,000. The lender forecloses. At the foreclosure sale, the highest bid is $400,000, leaving a $100,000 potential profit for the highest bidder when they ultimately sell the property. As a result of the foreclosure sale, the foreclosing lender first receives its deficiency, in this case $300,000 dollars, and the remaining $100,000 dollars is placed into the Registry of the Court as "surplus funds." If no one claims the surplus funds within 60 days, then the defaulting borrower can claim the overage, meaning that, as applied to this example, the defaulting homeowner could receive a $100,000 windfall.

Pursuant to Chapter 45, Florida Statutes, "[t]here is established a rebuttable legal presumption that the owner of record on the date of the filing of a lis pendens is the person entitled to surplus funds after payment of subordinate lienholders who have timely filed a claim." A lis pendens is recorded in the county’s public records by the foreclosing lender. Once recorded, it means that should anyone else take title to the property, it is subject to the outcome of the present foreclosure litigation.

Also pursuant to Chapter 45, Florida Statutes, "[i]f any person other than the owner of record claims an interest in the proceeds during the 60-day period or if the owner of record files a claim for the surplus but acknowledges that one or more other persons may be entitled to part or all of the surplus, the court shall set an evidentiary hearing to determine entitlement to the surplus."

So, what happens if a junior lienholder, who would otherwise be entitled to the surplus foreclosure proceeds, files their claim for the surplus after the expiration of 60 days? In the recent Fourth District Court of Appeal case, Saulnier v. Bank of America, N.A., decided March 25, 2015, a junior lienholder made their claim past the 60 day period. The trial count found in favor of the junior lienholder based on a theory of excusable neglect, but the appellate court reversed the trial court’s judgment in favor of the homeowners.

The junior lienholder argued, amongst other things, that its untimely claim for the surplus proceeds should be excused because it did not receive a copy of the final judgment or certificate of disbursements and that that the homeowners’ claim did not acknowledge the subordinate lienholder’s claim to the surplus. However, these arguments were found to be without merit by the appellate court. Rather, the statutory 60-day window to claim the surplus funds was strictly construed by the appellate court.

In reversing the trial court’s decision, the appellate court stated, "[w]hile we recognize the subordinate lienholder’s argument before the [trial] court that the homeowners ‘should not be permitted an inequitable windfall simply because [the subordinate lienholder] missed the 60-day deadline by a few weeks,’ we agree with the homeowners that ‘equity follows the law and cannot be used to eliminate its established rules.’" This statement from the appellate court means that when the statutory law clearly addresses an issue, the courts are not free to apply principles of equity to right an otherwise unjust situation. Simply put, the statutory law provides for a 60-day window for a junior lienholder to make a claim for the surplus funds. If the junior lienholder misses that deadline, then it has no right to claim the surplus funds.

As applied to Florida’s community associations, once the association records its assessment lien in the county’s public records, it has perfected its lien rights. This means that the association’s lien relates back to the date of the recording of the association’s declaration! While the association’s lien remains subordinate to the lender’s mortgage, it is ahead of almost every other lien. But, if the association does not timely record its motion for surplus funds within the 60-day window then, it too will miss out on any surplus proceeds and the excuse that the association was not aware of the foreclosure sale and resulting surplus carries no merit whatsoever. So, if you snooze, you lose.

 

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(4-15-15)

Misinterpreting Declaration Leads To Financial Disaster

Don’t Let This Happen in Your Community

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.

 

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(4-1-15)

Contractor and Engineer Liability: How to Better Protect Your Association

If Your Association is Planning a Maintenance, Repair or Restoration Project, You Better Read This First!

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 professional’s 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!

 

***

(3-18-15)

The 2015 Legislative Session

Association Estoppel Certificates

The Devil is in the Details

Florida’s 2015 Legislative Session began on March 3, 2015, and several bills regarding community asso-ciations 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 benefiting your association then let your legislators know that the terms of this proposed legislation are unacceptable.

 

***

(3-4-15)

If You Think Your Community Has Enforceable Landscape Standards, After Reading This, You Might Think Again!

If ever there was a need to appeal a decision, the Florida Fifth District Court of Appeal’s February 6, 2015 deci-sion in Bendo v. Silver Woods Community Association, Inc., Etc. might be it. After reading the following architectural provision of the Silver Woods Community Association’s Declaration of Covenants, the 5th DCA held that the Association did not have the power to approve or deny an owner’s non-structural landscaping plan, which, in this case was denied because the landscaping plan did not include a grass lawn. At issue was the following section of Silver Woods Declaration:

"Section 1. Approval of ARC. No building, fence, wall or other structure shall be commenced, erected or maintained upon the Property, nor shall any exterior addition to or change or alteration therein be made, unless it is in compliance with the zoning code of Orange County, Florida, and other applicable regulations and until the plans and specifications showing the nature, kind, shape, height, materials, and location of the same shall have been submitted to and approved in writing as to harmony of external design and location in relation to surrounding structures and topography by the Board of Directors of the Association, or by the Architectural Review Committee (ARC)." [Bold in the original; underline added.]

While the trial court held that the Association had the power to approve or deny the "soft" landscaping portions of Bendo’s landscaping plans, the 5th DCA did not. The facts of this case are pretty straightforward. The installation of a new septic drain field in Bendo’s front yard destroyed the existing landscaping. Bendo’s new landscape plans did not include any grass. Rather, he included a new retaining wall, vegetation and mulch. After the Association approved the wall, Bendo submitted additional plans for the "soft" landscaping which failed to include grass. So, the Association rejected the landscape plan and litigation ensued. As reported in the 5th DCA’s decision, "[t]he trial court concluded that the ‘plain’ language of the covenant requires… approval and ordered [Bendo] to submit a new plan for approval in accordance with [the Association’s] directives." Bendo challenged this conclusion, contending that the applicable provision is, at the very least, ambiguous, and the 5th DCA agreed with him.

Admittedly, there is a long line of precedent that stands for the notion that ambiguous covenants must be construed in favor of the land owner. But, is Section 1 (above) ambiguous? While it is pretty clear that Section 1 is not at all ambiguous and that the plain meaning of the sentence should be applied, the 5th DCA did not ask me and rather chose to deeply examine, and quite possibly misinterpret, the sentence structure. WARNING: As a result of reading this article, flashbacks and nightmares of your elementary school English grammar class may result (as happened to me while writing it). But, I digress.

The decision in this case turns on how the reader applies the word "therein," underlined above. The 5th DCA explained that the subject of the sentence is the phrase "building, fence, wall or other structure." Therefore, the 5th DCA reasoned the word "therein" applies to this phrase and not the word "Property" (referring to the owner’s lot). The 5th DCA found that the word "Property" was merely a reference to the land upon which the "building, fence, wall or other structure" could be erected or maintained. Therefore, the 5th DCA reasoned that the Association’s power to approve and deny an owner’s landscaping plans only pertained to the structural aspects of a landscape design and not the non-structural aspects of a landscape design. As I recall from prior grammar lessons, the modifying phrase inserted after a series of subjects applies to the last in the series, not the former subjects.

Simply put, there are five, not four, subjects in the relevant section of the Silver Woods Declaration at issue. The subjects of the sentence are "building, fence, wall or other structure" and the term "Property." The phrase "nor shall any exterior addition to or change or alteration therein be made" at the very least applies to the last subject mentioned, "Property," and likely applies to the entire series because the "building, fence, wall or other structure" are included as a part of the "Property." Having participated in the drafting of countless declarations, to apply the term "therein" to only the "building, fence, wall or other structure" is to fully misinterpret the Association’s otherwise clear ability to approve or deny an owner’s requested landscaping improvements.

Just because a contrary argument was made, it doesn’t mean that the phrase is ambiguous, or does it? School is dismissed.

 

***

(2-18-15)

How to Be an Ineffective Board Member

You Know It’s Time to Resign When…

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!

 

***

(2-4-15)

Do Board Members Owe a Duty of Care and Loyalty to their Association?

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.

 

***

(1-21-15)

Statute of Limitations in Foreclosure Action:

Timing is Everything

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.

***

(1-7-15)

Developer Sells HOA’s Common Areas

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.

***

 


 

 

Jeffrey Rembaum, Esq. is a community association lawyer with the law firm Kaye Bender Rembaum, in its Palm Beach Gardens office.  His law practice consists of representing condominium, homeowners, and cooperative associations, developers and unit owners throughout Florida.  He can be reached by email at JRembaum@KBRLegal.com or by calling 561-241-4462 or toll free: 1-800-974-0680.

 

 

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