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Why Condominium Associations Must Obtain Approval Before Work Begins and A Plea To The Florida Legislature For A Remedy by KBR Legal

Why Condominium Associations Must Obtain Approval Before Work Begins and A Plea To The Florida Legislature For A Remedy by KBR Legal

  • Posted: Jan 12, 2022
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Why Condominium Associations Must Obtain Approval Before Work Begins and A Plea To The Florida Legislature For A Remedy

 

When it comes to material alterations, some might say that homeowner associations have it easy compared to condominium associations. For a homeowners association, because Chapter 720, Florida Statutes is silent on the issue, unless otherwise provided in the governing documents, decisions regarding material alterations are made by the board. But, as to condominium associations, and as their board members should know, §718.113(2), Florida Statutes, requires advance membership approval for material alterations to the common elements and association real property. In this regard, there is no parity between the Condominium Act versus the Homeowners Association Act.

Before explaining further, a reminder of the Florida’s Fourth District Court of Appeal  definition of what constitutes a “material alteration” from the seminal case Sterling Village Condominium, Inc. v. Breitenbach,  251 so.2d 685, 4th DCA (1971) is in order. As explained in Sterling,  “as applied to buildings the term ‘material alteration or addition’ means to palpably or perceptively vary or change the form, shape, elements or specifications of a building from its original design or plan, or existing condition, in such a manner as to appreciably affect or influence its function, use, or appearance.”

Prior to July 1, 2018, §718.113(2)(a), Florida Statutes, provided that no material alteration or substantial addition can be made to the common elements or association real property without the approval in the manner provided for in the declaration, or if the declaration is silent, then by 75 percent of the total voting interests of the association. As adopted by the 2018 Florida legislature, (effective July, 1, 2018), §718.113(2), Florida Statutes was amended to provide that approval of the material alteration or substantial addition must be obtained before the work commences.

 

The current language of §718.113(2)(a), Florida Statutes, provides as follows:

Except as otherwise provided in this section, there shall be no material alteration or substantial additions to the common elements or to real property which is association property, except in a manner provided in the declaration as originally recorded or as amended under the procedures provided therein. If the declaration as originally recorded or as amended under the procedures provided therein does not specify the procedure for approval of material alterations or substantial additions, 75 percent of the total voting interests of the association must approve the alterations or additions before the material alterations or substantial additions are commenced. This paragraph is intended to clarify existing law and applies to associations existing on July 1, 2018. [Emphasis added]

Prior to the 2018 amendment, §718.113(2), Florida Statutes, did not expressly provide that the approval must be obtained before the material alteration or substantial addition was commenced. However, in a recent decision by the Third District Court of Appeal, the Court held that approval was required before the material alteration or substantial additions were commenced even before the language of §718.113(2), Florida Statutes, was amended to include the advance approval requirement!

In Bailey v. Shelborne Ocean Beach Hotel Condominium Association, Inc., Nos. 3D17-559, 3D17-01767 (Fla. 3d DCA July 15, 2020), unit owners brought a claim against their association alleging that the association violated §718.113(2), Florida Statutes, by failing to obtain the approval of the membership before commencing a large construction project which, they argued, constituted a material alteration to the common elements. Later, both parties agreed that all but two of the alleged “material alterations” actually constituted necessary maintenance that the association was authorized to commence without a vote of the membership.

The association alleged that the remaining two construction items were also necessary maintenance, which was an allegation the unit owners disputed. The trial court held that the remaining two alleged material alterations were valid notwithstanding whether they were necessary maintenance or material alterations because the association eventually obtained the approval of the membership (presumably after the fact). Therefore, the trial court reasoned it did not need to make a determination as to whether the two items were material alterations since the membership approved them, albeit in a tardy fashion.

On appeal to the Third District Court of Appeal, the unit owners challenged the trial court’s decision arguing that the statute required the association to obtain approval for material alterations before it commenced the work. Therefore, the plaintiff unit owners argued that the membership could not provide their consent and approval posthumously. As the construction project at issue took place between 2010 and 2016, the applicable version of §718.113(2) did not include the express requirement that approval be obtained before material alterations are commenced. However, the Court still held that the portions of a construction project that do not constitute necessary maintenance must be approved prior to commencement.

The court explained that “based on the structure of the statute, the 75 percent approval requirement is a condition necessary to overcome the statute’s clear prohibition, insofar as any of the construction work amounts to material alteration or substantial additions.” However, because the trial court did not rule on whether the two items at issue were material alterations or necessary maintenance, the Court was unable to determine whether a vote of the members was pre-required and remanded the case to the trial court for further proceeding to determine the nature of the two construction items.

Because the Court did not make a final determination whether the two construction items constituted necessary maintenance, the Court did not address the remedy for the association’s failure to obtain the advance approval of the membership. Additionally, the law fails to address the remedy when an association does not obtain membership approval before commencing a project.

In cases of material alterations already completed which required the advance approval of the membership, the present version of §718.113(2), Florida Statutes leaves no room whatsoever for the court to order an association to posthumously acquire the membership vote or put things back the way they were. Rather, the only remedy that appears available to the court would be to restore the common elements to its pre-existing state (or as close as can be accomplished under the circumstances), which explains why a legislative fix to §718.113(2), Florida Statutes, to provide for additional remedy would be helpful.

There is a very important lesson to be gleaned from the Bailey case. If your association is considering a material alteration of any kind, then the association would be wise to attain the required approval before commencing the project to avoid a successful legal challenge. If the association fails to obtain the required approvals before commencement of the project, in the event of a legal challenge, the association may well be required to undo whatever alterations were made to the common elements as Bailey suggests this was the case even before the relevant statute was amended. This can result in significant expense to the association, not to mention having to explain what happened to many irate unit owners.

 

Remember, prior to commencing any material alteration or substantial addition, be sure to consult your association’s attorney to ensure you comply with the requirements of the Florida law and your association’s governing documents.

1200 Park Central Boulevard South, Pompano Beach, FL. Tel: 954.928.0680
9121 North Military Trail, Suite 200, Palm Beach Gardens, FL. Tel: 561.241.4462
1211 N. Westshore Boulevard, Suite 409, Tampa, FL. Tel: 813.375.0731

 

 

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Selective Enforcement: A Grossly Misunderstood Concept by KBRLegal

Selective Enforcement: A Grossly Misunderstood Concept by KBRLegal

  • Posted: Jan 06, 2022
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Without exception, the affirmative defense of “selective enforcement” is one of the most misunderstood concepts in the entire body of community association law. How often have you heard something like this: “The board has not enforced the fence height limitation, so it cannot enforce any other architectural rules”? Simply put, nothing could be further from the truth.

When a community association seeks to enforce its covenants and/or its board adopted rules and regulations, an owner can, under the right circumstances, assert an affirmative defense such as the affirmative defense of selective enforcement. An affirmative defense is a “yes I did it, but so what” type of defense. In civil lawsuits, affirmative defenses include the statute of limitations, the statute of frauds, waiver, and more. However, it’s just not as simple as that. For example, a fence height limitation is a very different restriction than a required set back. Under most if not all circumstances, the failure to enforce a  fence height requirement is very different from the failure to enforce a setback requirement. Ordinarily, the affirmative defense of selective enforcement will only apply if the violation or circumstances are comparable, such that one could reasonably rely upon the non-enforcement of a particular covenant, restriction, or rule with respect to their own conduct or action.

In the seminal case of Chattel Shipping and Investment Inc. v. Brickell Place Condominium Association Inc., 481 So.2d 29 (FLA. 3rd DCA 1986), 45 owners had improperly enclosed their balconies. Thereafter, the association informed all of the owners that it would thereafter take “no action with respect to existing enclosed balconies, but prohibit future balcony constructions and enforce the enclosure prohibition.” As you might have already predicted, nevertheless, thereafter an owner of a unit, Chattel Shipping, enclosed their unit; and the association secured a mandatory injunction in the trial court requiring the removal of the balcony enclosure erected without permission. The owner appealed. In the end, the appellate court disagreed with the owner who argued that the association decision to enforce the “no enclosure” requirement only on a prospective basis was both selective enforcement and arbitrary. The court held that the adoption and implementation of a uniform policy under which, for obvious reasons of practicality and economy, a given building restriction will be enforced only prospectively cannot be deemed “selective and arbitrary.”

In Laguna Tropical, A Condominium Association Inc. v. Barnave, 208 So. 3d 1262, (Fla. 3d DCA 2017), the court again used the purpose of the restriction in its determination of whether the association engaged in selective enforcement. In Laguna Tropical, a rule prohibited floor covering other than carpeting unless expressly permitted by the association. Additionally, the rule provided that owners must place padding between the flooring and the concrete slab so that the flooring would be adequately soundproof. In this case, an owner installed laminate flooring on her second floor unit and the neighbor below complained that the noise disturbed his occupancy. As a result of the complaint, the association demanded that the owner remove the laminate flooring. However, the owner argued selective enforcement because the association only enforced the carpeting restriction against the eleven exclusively upstairs units in the condominium. The court noted that the remaining units in the condominium were either downstairs units only, or were configured to include both first-floor and second-floor residential space within the same unit.

Again, the court looked to the purpose of the prohibition on floor coverings other than carpet and found that the prohibition was plainly intended to avoid noise complaints. Therefore, no selective enforcement was proven because no complaints were shown to have arisen regarding any units except the eleven exclusively upstairs units.

What about cats and dogs? In another case, Prisco v. Forest Villas Condominium Apartments Inc., 847 So. 2d 1012 (Fla. 4th DCA 2003), the Fourth District Court of Appeals heard an appeal alleging selective enforcement regarding the association’s pet restrictions. The association had a pet restriction which stated that other than fish and birds, “no pets whatsoever” shall be allowed. In this case, the association had allowed an owner to keep a cat in her unit, but refused to allow another owner to keep a dog. The association argued that there was a distinction between the dog and the cat. However, on appeal, the court found that the restriction was clear and unambiguous that all pets other than fish and birds were prohibited. Therefore, the court reasoned that the facts which make dogs different from cats did not matter because the clear purpose of the restriction was to prohibit all types of pets except fish and birds. In other words, the court held that the plain and obvious purpose of a restriction should govern any interpretation of whether the association engaged in selective enforcement.

If an association has a “no pets” rule and allows cats, must it allow dogs, too? There is a long line of arbitration cases that have distinguished dogs from cats and other pets for purposes of selective enforcement. For example, in Beachplace Association Inc. v. Hurwitz, Case no. 02-5940, a Department of Business and Professional Regulation Division of Florida Condominium Arbitration case, the arbitrator found, in response to an owner’s selective enforcement defense raised in response to the association’s demand for removal of a dog, that even though cats were allowed, that comparison of dogs to cats was not a comparative, like kind situation. Further the arbitrator found that cats and dogs had significant distinctions such as barking versus meowing, and therefore the owner’s attempted use of the selective enforcement argument failed.

But, in Hallmark of Hollywood Condominium Association Inc. v. Andrews, Case 2003-09-2380, another Department of Business and Professional Regulation Division of Florida Condominium Arbitration case, the learned arbitrator James Earl decided that because the association has a full blown “no pets of any kind”  requirement and since cats were allowed, then dogs must be allowed, too. In other words, the defendant owner’s waiver defense worked. But, the arbitrator wisely noted in a footnote as follows: “The undersigned notes that there is a long line of arbitration cases that have distinguished dogs from cats and other pets for purposes of selective enforcement. However, the fourth district court of appeal has ruled that where the condominium documents contain particular language prohibiting all pets, any dissimilarity between dogs and cats is irrelevant and both must be considered. See Prisco.” The distinction between the two arbitration cases could be explained because of timing in that the 4th DCA’s decision in Prisco was not yet published when Hurwitz was decided.

From these important cases, it can be gleaned that

(i) even if an association has ignored a particular rule or covenant, that by giving written notice to the entire community that it will be enforced prospectively, the rule or covenant can be reinvigorated and becomes fully enforceable once again (though of course, prior non-conforming situations may have to be grandfathered depending on the situation),

(ii) if an association or an owner is seeking an estoppel affirmative defense, they must be sure all of the necessary elements are pled,

(iii) at times a court will look to the purpose of the rule itself where it makes sense to do so, and

(iv) dogs and cats are different, but they are both considered “pets.”

Remember to always discuss the complexities of re-enforcement of covenants and rules and regulations that were not enforced for some time with your association’s legal counsel in an effort to mitigate negative outcomes. The process (commonly referred to as “republication”) can restore the viability of a covenant or rule that may have been waived due to the lack of uniform and timely enforcement.

 

Kaye Bender Rembaum

We are dedicated to providing clients with an unparalleled level of personalized and professional service regardless of their size and takes into account their individual needs and financial concerns. Our areas of concentration include

1200 Park Central Boulevard South, Pompano Beach, FL. Tel: 954.928.0680
9121 North Military Trail, Suite 200, Palm Beach Gardens, FL. Tel: 561.241.4462
1211 N. Westshore Boulevard, Suite 409, Tampa, FL. Tel: 813.375.0731
  • Assessment collections
  • Construction defect claims
  • Contract drafting and negotiation
  • Cooperatives
  • Covenant enforcement
  • Fair Housing
  • Land Use and Zoning
  • Litigation and Arbitration
  • Master/ Sub Association Issues
  • Pre and Post Turnover Planning
  • Real Estate and Title Concerns
  • Review and amendment of covenants
Kaye Bender Rembaum is a full service commercial law firm devoted to the representation of more than 1000 community associations throughout Florida. Under the direction of attorneys Robert L. Kaye, Esq., Michael S. Bender, Esq., and Jeffrey A. Rembaum, Esq. Kaye Bender Rembaum is dedicated to providing clients with an unparalleled level of personalized and professional service regardless of their size and takes into account their individual needs and financial concerns.your interest in Kaye Bender Rembaum.

 

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DECONSTRUCTING THE CONSTRUCTION CONTRACT A Plain English Explanation by Kaye Bender Rembaum

DECONSTRUCTING THE CONSTRUCTION CONTRACT A Plain English Explanation by Kaye Bender Rembaum

  • Posted: Dec 19, 2021
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DECONSTRUCTING THE CONSTRUCTION CONTRACT A Plain English Explanation

by Kaye Bender Rembaum /  Rembaum’s Association Roundup

If your community association 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, you know the process can be overwhelming. No matter the mad rush to execute the contract as soon as possible, when beginning such projects, no matter how big or small, the board needs to ensure the contract adequately protects the association. Even the smallest of projects can have unexpected, disastrous consequences. A few of the more common provisions which every board member should understand follow.

The Indemnity Provision

In today’s extremely litigious world, it is important that your association does what it can to protect itself against unforeseen claims that can arise out of the contractor’s performance of the work. For example, assume a crane fell on the building being repaired, the contractor accidentally damaged the elevator shaft, or worse still, a life is lost. An indemnity provision provides that the contractor will indemnify, defend, and hold harmless the association from and against claims arising out of or resulting from the performance of the work by the contractor or any of its employees, subcontractors, suppliers, etc.

Indemnification provisions can be tricky to understand. The general contractor, engineer, and design professionals (aka the architect) may seek to avoid and/or cap their overall liability. Even a small contract can have significant consequences if the negligence of the contractor causes significant damage or injury.

Rarely does the inclusion of a single word have disastrous consequences; however, a recent trend we have seen in many contracts is the contractor requiring the indemnity obligation to be limited only to damage caused by the contractor’s “sole” negligence. As events which cause loss or damage rarely occur by the “sole” actions of an individual, this provision significantly diminishes the contractor’s responsibility to indemnify the association. The association should look out for any indemnity provision which provides that the contractor is only responsible to indemnify for its “sole” negligence. Without getting into too much complexity, Florida is a “contributory negligence” state. This means each party is responsible to satisfy a judgment against them in proportion to their responsibility for the blame. So, if the contractor is found to be 33 percent responsible for an accident, then it pays 33 percent of the final judgment award. But, if the contract indemnity provision required sole negligence, the contractor would pay nothing at all because the accident was not “solely” caused by the contractor. Youch!

Another trend we see is the contractor limiting its liability to damage caused by its “gross negligence,” which by definition excludes “simple negligence.” As a brief explanation, simple negligence is when a person fails to take reasonable precautions that any prudent person would take in similar circumstances and their actions cause harm (for example, a driver who runs a stop sign and causes an accident). Gross negligence is extreme indifference or reckless disregard for the safety of others (for example, driving 100 mph in a parking lot and injuring a pedestrian). As any claims arising out of the work are likely to result from the contractor’s simple negligence, this heightened standard is not favorable to the association.

If the contractor is insistent on limiting its liability, the association may consider limiting the contractor’s indemnification obligation to the maximum payable under the contractor’s insurance policy. This way, the contractor is not on the hook for unlimited liability, but the association has some decent protection as claims can be covered up to the maximum amount payable under the insurance policy. However, in the event of a catastrophic loss or casualty event, even the amount payable under the insurance policy may not be enough to protect the association.

In addition to these limitations, “design professionals” have the added benefit of statutory authority to further limit their liability in a contract (they must have better lobbyists). Section 558.0035, Florida Statutes, provides a procedure by which a design professional can exclude any “individual liability” for damages resulting from negligence occurring within the course and scope of a professional services contract. In other words, the design professional will not be personally liable to the association for any negligence in its design if the contract includes a provision that excludes such personally liability. Section 558.002(7), Florida Statutes, defines a “design professional” as a person who is licensed in the state of Florida as an architect, landscape architect, engineer, surveyor, geologist, or a registered interior designer. Therefore, if your association is contracting with any of the foregoing design professionals, you will likely need to negotiate this provision.

You should also be aware that disputes over the enforceability of the indemnification clause do not automatically include prevailing party attorneys’ fees unless the indemnification provision specifically provides that, in the event of a dispute concerning the applicability of the indemnification, the prevailing party must be indemnified for their attorneys’ fees, costs, and expenses incurred in enforcing their right to be indemnified.

Insurance Provisions

To ensure there are sufficient funds to satisfy an indemnity judgment in favor of the association, it is important that the association require the contractor to carry certain minimum insurance. Therefore, the contract should contain a clause which provides that the contractor will maintain such general liability insurance as will protect the contractor and the association from claims that may arise out of or result from the contractor’s operations under the contract documents in the amounts set out in the contract. Additionally, the association should ensure that the contractor obtains sufficient workers’ compensation coverage.

There are a couple of terms with which you should be familiar:

  • Certificate Holder: The certificate holder is merely entitled to the proof of insurance, nothing more. When the policy holders have their insurance agents issue a certificate of insurance to the entity that hired the contractor to do the work, that entity becomes a certificate holder. It is simply the contractor’s way of saying, “I have insurance.” Certificates show that the contract has the insurance policies in the limits shown on such certificate. It also provides that the certificate holder is entitled to know if the policy lapses.
  • Additional Insured: An additional insured is provided the same coverage and rights under the policy as the named insured. In other words, when you become an additional insured, you are entitled to the same insurance protections as the original policy holder. Therefore, in the event of loss, the association may file a claim on the contractor’s policy through its status as an additional insured.

Thus, the contract should not only require that the contractor carry insurance but also provide that the contractor is obligated to provide a certificate of insurance evidencing the insurance coverage and containing an endorsement listing the association as an “additional insured.”

In addition to the insurance requirements for the contractor, your association may consider purchasing builder’s risk insurance for the project. Builder’s risk insurance is designed to protect the owner of a construction site from loss and damage. This should be further discussed with the association’s insurance agent.

Paying the Contractor

During a major construction project, the association’s contractor will likely be working with several subcontractors to complete the work. The process for payments in such projects is set out in §713.13, Florida Statutes. (For a more detailed discussion on the construction payment process, you can read my prior article, “Construction Progress Payments: The Hidden Trap,” at rembaumsassociationroundup.com, originally published in the Florida Community Association Journal, February 2020 edition.)

By way of brief explanation, when the project commences, the association records a “Notice of Commencement” identifying the contractor and the legal description of where the work is being performed. The purpose of the Notice of Commencement is to inform all subcontractors and suppliers that if they intend to provide goods and/or services to the property, and if they want to have proper legal standing to record a lien against the property in the event they are not paid, the subcontractor and/or supplier must serve a “Notice to Owner” to the association. The Notice to Owner informs the association of all subcontractors working under the general contractor and all suppliers who provide suppliers and materials to the job site.

In exchange for payments to the general contractor, the general contractor provides the association with “partial payment affidavits” for each payment and a “final payment affidavit” upon conclusion of the work at hand. The subcontractors and suppliers provide the association “partial releases” for the payment received from the general contractor using the general contractor as the delivery conduit to deliver the partial release to the association. This method ensures that subcontractors and suppliers cannot later claim that they were not paid. However, in order to ensure this protection, it is important that the contract requires the contractor to provide the subcontractors’ and suppliers’ partial releases contemporaneously with the association’s progress payment. With the partial releases in hand, in the event the contractor does not pay the subcontractors and suppliers, the association is fully protected.

Some general contractors insist on providing the association with the partial releases from the subcontractors and suppliers one payment behind. This should be a red flag to your association because it means if the contractor fails to pay the subcontractors and suppliers after receiving payment from the association, the association will still have to pay the subcontractors and suppliers. In such event, the association will end up having to pay twice for all or part of the same work.

Prevailing Attorney’s Fees

Another important consideration is the prevailing party attorneys’ fees provision of the contract. An attorneys’ fee provision generally provides that in the event of litigation to enforce the terms of the contract, the prevailing party is entitled to recover their attorneys’ fees. However, this provision must be carefully worded to ensure that your association will be able to recover its attorneys’ fees.

Termination

Most contracts provide that the association may terminate the contract for cause. The termination for cause provision should include examples of conduct by the contractor which would entitle the association to terminate the contract for cause. In addition to termination for cause, we recommend the inclusion of a “without cause” termination provision. This provision gives the association an out in the event the contractor is not working out, but the contractor’s conduct does not rise to the level which would allow dismissal for cause.

Generally, if an association terminated an agreement without good cause, and unless otherwise spelled out in the contract, the contractor would likely be entitled to approximately 15 to 22 percent of the contract price for its anticipated lost profit and overhead.

Payment and Performance Bonds

Another way the association can protect itself is by requiring the contractor to obtain “payment and performance bonds,” which are most often purchased together as a set. While doing so typically adds three to five percent to the total contract price, it is well worth it. In addition, if the contractor is not able to provide such a bond because the bonding companies will not bond the contractor, it is very telling because not every contractor is bondable.

A “performance bond” is a surety bond issued by a bonding company or bank to guarantee the satisfactory completion of the work by the contractor. It acts to protect the association in the event the contractor fails to complete its contractual obligations.

A “payment bond” guarantees the contractor will pay all laborers, material suppliers, and subcontractors engaged by the contractor for the work. In the event the association pays the contractor, but the contractor fails to pay the laborers, material suppliers, and/or subcontractors, the surety will step in to pay same.

Force Majeure

Many contracts contain force majeure language which provides that the parties will not be responsible to the other if they are unable to fulfil the terms of the contract due to events beyond the control of the parties. Most often, a force majeure event adds delay to the targeted project completion date and avoids claims for breach of contract due to the delay. Such events may be acts of God, flood, fire, hurricanes, war, invasion, terrorist acts, government order or law, actions, embargoes, or blockades, etc. Of late, for reasons that need no explanation, pandemics are added to this list, too.

The above discussion is not meant to be all inclusive. There are so many other important provisions to consider, but space is limited. To ensure your association is protected, the association should always rely on its legal counsel to review the association’s contracts and make the necessary revisions to assist in the  protection of the association.

The Kaye Bender Rembaum Team Remains Available To You and Your Community Association

Happy Holidays from all of us at Kaye Bender Rembaum

 

Kaye Bender Rembaum

We are dedicated to providing clients with an unparalleled level of personalized and professional service regardless of their size and takes into account their individual needs and financial concerns. Our areas of concentration include

1200 Park Central Boulevard South, Pompano Beach, FL. Tel: 954.928.0680
9121 North Military Trail, Suite 200, Palm Beach Gardens, FL. Tel: 561.241.4462
1211 N. Westshore Boulevard, Suite 409, Tampa, FL. Tel: 813.375.0731
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It’s the Manager’s Fault…Or Is It? by rembaumlaw

It’s the Manager’s Fault…Or Is It? by rembaumlaw

  • Posted: Dec 13, 2021
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It’s the Manager’s Fault…Or Is It?

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Few professions have more demands placed upon them than that of the Florida licensed community association manager (CAM). Depending on whom you ask, the CAM is the organizer, rules enforcer, keeper of secrets (meaning confidential and statutorily protected information not limited to the medical record of owners and attorney-client privileged information), best friend, the “bad guy” (a frequent misconstruction), and the first person in the line of fire when things go wrong; in other words, the one who takes all the blame and gets little credit when things go right.

When things at the association go wrong, what comment is most likely heard? “It’s the manager’s fault!” But, is it? Unless the manager failed to carry out a lawful directive from the board, breached a management contract provision, or violated a Florida statute, then in all likelihood, the manager has no culpability. CAMs are licensed by the State of Florida pursuant to Part VIII of Chapter 468 of the Florida Statutes, and there are statutory standards by which CAMs must conduct themselves.

Pursuant to §468.4334, Florida Statutes, “[a] community association manager or a community association management firm is deemed to act as agent on behalf of a community association as principal within the scope of authority authorized by a written contract or under this chapter. A community association manager and a community association management firm shall discharge duties performed on behalf of the association as authorized by this chapter loyally, skillfully, and diligently; dealing honestly and fairly; in good faith; with care and full disclosure to the community association; accounting for all funds; and not charging unreasonable or excessive fees.”

As set forth herein, statutory standards provide guidance to CAMs as to how they should conduct themselves. They must discharge their duties with skill and care and in good faith. They must act with loyalty to their association employer and deal with the association both honestly and fairly. They must provide full disclosure, which can be interpreted as both keeping the board informed of current events and providing disclosures of any conflict of interests. They must be able to account for all funds, too, which means both assessment income and expenditures; in other words, they must mind the budget.

Best practices for CAMs include becoming extremely familiar with the governing documents of the association (including the declaration, articles of incorporation, bylaws, and rules and regulations) and the financials of the association, walking the physical property, engaging with their team and residents, as well as providing weekly status updates to the board regarding all ongoing association business. If you are a CAM and do these things, then you have an opportunity to shine and stand head and shoulders above your peers and competition. This weekly status report is an excellent communication tool yet seems to be a rarity. CAMs should also make themselves available to owners. However, when an owner becomes offensive or insulting, the CAM should politely and firmly request that the owner communicate respectfully and in a professional manner. A CAM should always be financially transparent and should be extremely familiar with the management contract to fully understand her obligations and authority; for example, the limitation to spend association funds. Finally, the CAM should strive to keep a written record of her activities.

The two most obvious and biggest ways to get in trouble include committing acts of gross misconduct or gross negligence in connection with the profession or contracting on behalf of an association with any entity in which the CAM has a financial interest that is not disclosed. Disciplinary actions against a CAM fall under the purview of the Florida Department of Business and Professional Regulation (DBPR). Section 455.227, Florida Statutes, governs grounds for discipline, penalties, and enforcement.

For example, the following activities constitute grounds for which disciplinary actions may be taken by the DBPR (this list is not all inclusive):

(i) making misleading, deceptive, or fraudulent representations in or related to the practice of the CAM’s profession; (ii) intentionally violating any rule adopted by the DBPR; (iii) being convicted or found guilty of, or entering a plea of guilty or nolo contendere (“I do not wish to contend”) to, a crime in any jurisdiction which relates to the practice of, or the ability to practice, a CAM’s profession; (iv) having been found liable in a civil proceeding for knowingly filing a false report or complaint with the DBPR against another CAM; (v) attempting to obtain, obtaining, or renewing a license to practice a profession by bribery, by fraudulent misrepresentation, or through an error of the DBPR; (vi) failing to report to the DBPR any person who the CAM knows is in violation of the laws regulating CAMs or the rules of the DBPR; (vii) aiding, assisting, procuring, employing, or advising any unlicensed person or entity to practice a profession contrary to law; (viii) failing to perform any statutory or legal obligation; (ix) making or filing a report which the licensee knows to be false; (x) making deceptive, untrue, or fraudulent representations in or related to the practice of a profession or employing a trick or scheme in or related to the practice of a profession; and  (xi) performing professional responsibilities the licensee knows, or has reason to know, the licensee is not competent to perform.

The Florida Administrative Code, in Rule 61E14-2.001, also provides standards for professional conduct which are deemed automatically incorporated as duties of all CAMs into any written or oral agreement for community association management services. A CAM must adhere to the following standards:

  1. comply with the requirements of the governing documents by which a community association is created or operated
  2. only deposit or disburse funds received by the CAM or management firm on behalf of the association for the specific purpose or purposes designated by the board, community association management contract, or the governing documents of the association
  3. perform all community association management services required by the CAM’s contract to professional standards and to the standards established by §468.4334(1), Florida Statutes
  4. in the event of a potential conflict of interest, provide full disclosure to the association and obtain authorization or approval; and
  5. respond to, or refer to the appropriate responsible party, a notice of violation or any similar notice from an agency seeking to impose a regulatory penalty upon the association within the timeframe specified in the notice.

In addition, during the performance of community association management services pursuant to a contract with a community association, a CAM cannot withhold possession of the association’s official records or original books, records, accounts, funds, or other property of the association when requested in writing by the association to deliver the foregoing to the association upon reasonable notice. However, the CAM may retain those records necessary to complete an ending financial statement or report for up to 20 days after termination of the management contract. Additionally, a CAM cannot (i) deny or delay access to association official records to an owner, or his or her authorized representative, who is entitled to inspect and copy the association’s official records within the timeframe and under the applicable statutes governing the association; (ii) create false records or alter the official records of an association or of the CAM except in such cases where an alteration is permitted by law (e.g., the correction of minutes per direction given at a meeting at which the minutes are submitted for approval); or (iii) fail to maintain the records for a CAM, management firm, or the official records of the association as required by the applicable statutes governing the association.

How do you know if your association requires a licensed community association manager? Pursuant to §468.431, Florida Statutes, if the association has 10 or more units or has a budget of $100,000 or more and the person is conducting one or more of the following activities in exchange for payment, the person must be a licensed CAM:

  1. controlling or disbursing funds of a community association
  2. preparing budgets or other financial documents for a community association
  3. assisting in the noticing or conduct of community association meetings
  4. determining the number of days required for statutory notices
  5. determining amounts due to the association
  6. collecting amounts due to the association before the filing of a civil action
  7. calculating the votes required for a quorum or to approve a proposition or amendment
  8. completing forms related to the management of a community association that have been created by statute or by a state agency
  9. drafting meeting notices and agendas
  10. calculating and preparing certificates of assessment and estoppel certificates
  11. responding to requests for certificates of assessment and estoppel certificates
  12. negotiating monetary or performance terms of a contract subject to approval by an association
  13. drafting pre-arbitration demands
  14. coordinating or performing maintenance for real or personal property and other related routine services involved in the operation of a community association, or
  15. complying with the association’s governing documents and the requirements of law as necessary to perform such practices.

However, a person who performs clerical or ministerial functions under the direct supervision and control of a CAM or who is charged only with performing the maintenance of a community association and who does not assist in any of the management services described above is not required to be licensed.

So, whose fault is it when things go awry? A CAM’s role is far different than that of a rental complex manager who often has decision-making authority. The CAM does not have that same type of decision-making authority. The CAM must take direction from the board and perform pursuant to the obligations set out in the management agreement and Florida law. It is the board of directors of the community association that actually makes the decisions. So, while the uninformed might blame the CAM, you now know that the buck stops with the board of directors. If you have further questions regarding a CAM’s responsibility, then please discuss this with your association’s lawyer.

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Financial Screening of Purchasers: How Far Is Too Far? by KBRLegal

Financial Screening of Purchasers: How Far Is Too Far? by KBRLegal

  • Posted: Dec 03, 2021
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Financial Screening of Purchasers: How Far Is Too Far?

A few months back a case came before the county court in the 20th Judicial Circuit for Collier County, wherein a prospective buyer challenged the validity of a board-adopted rule which required that all prospective buyers provide two years of tax returns with their application for ownership approval. This requirement was in addition to the background check and credit check that were also required. While this is only a county court case and, therefore, has no precedential value other than to the parties themselves, there are principles addressed of which associations and managers should be aware; even though many learned attorneys would opine that the conclusions of the court are legally flawed under the facts of the case and, if appealed, would likely be overturned. Nevertheless, there are still nuggets of knowledge that can be gleaned from this case.

In this case, Mech v. Crescent Beach Condominium Association, Inc., Case No. 19-SC-3498, decided June 2020, the purchaser, who was the plaintiff, was seeking to buy a unit at Crescent Beach Condominium for $400,000, which was to be paid in cash. The purchaser purportedly had a clean background and a credit score of 800. Nonetheless, the board required that, like all other prospective purchasers at the condominium, this purchaser needed to produce his tax returns in order for the association to approve the transfer. The purchaser refused to provide his tax returns and cited his good credit score and clean background as evidence enough for approval. Eventually, an impasse was reached, and the purchaser canceled the contract. Then he brought the county court lawsuit challenging the requirement. (Generally speaking, typically under current Florida law, the purchaser would not have legal standing to even bring the claim against the association; but it does not appear that this legal infirmity was raised by the association, which allowed the case to proceed.)

The purchaser challenged the rule, arguing that the rule was not within the scope of the association’s authority to adopt, nor did it reflect reasoned decision-making. (It is noteworthy to point out that, after the initiation of the lawsuit, the association amended its declaration of condominium to provide that the association may require tax returns in an application for approval of a sale. However, this is not relevant to the conclusions of the Court in this case since it occurred after the litigation was filed.)

The association argued that the tax returns are necessary because they provide more information than a credit report and could help ensure that the potential purchaser is “a good credit risk.” The Court, however, did not agree, calling the argument “nonsensical.” The Court goes on to identify what this judge considers to be the best indicator of a person’s financial history, and as a result, it is the only information the association is allowed to seek. (We note that this conclusion is also without a stated legal basis.)

In the final judgment, some might argue that the Court goes way beyond what proper judicial consideration and conclusions typically contain and indicates that she could find “NO justification for the invasive requirement that a full, or even partial, return would be required when, in fact, the board already requires a full background check and credit check.” While no legal support for the conclusion was provided, the Court held that the request for tax returns was invasive and unnecessary and that the requirement was “shocking.”

The Court objected to the blanket requirement that applied to every applicant regardless of the results of their background and credit checks. Had the tax returns only been required when an applicant’s credit history showed a history of financial instability or delinquencies, the rule may have been upheld by the Court. How-ever, the Court held that “to take a position that ‘every person’ who applies to be a member at [the association] is patently unreasonable and shall be stricken.” Lastly, also without a legal basis or ability, the Court ordered the association to strike all reference in its condominium documents which require potential purchasers to produce tax returns unless the association can show good cause to request the information.

A brief discussion regarding the adoption of rules and regulations is necessary to highlight lessons that can be learned from this case. Generally, both condominium and homeowners association governing documents will typically provide that the board of the directors has the authority to adopt rules and regulations for the community. While some governing documents may contain restrictions requiring a membership vote to approve new rules, it is common for the governing documents to provide the board with the authority to adopt rules and regulations. (Careful review of the documentary authority for each community is recommended as some may limit the rule-making authority to common areas only and not to the residential property within the community.)  Although the board is generally authorized to adopt rules and regulations, those rules and regulations must not conflict with any provision expressly set out in the governing documents or reasonably inferred from them, and they must be reasonable. (This should be contrasted with covenants recorded in the County’s official records, which may be unreasonable and still be legally enforceable under long-standing Florida case law.)

In Beachwood Villas Condominium v. Poor, et. al., a 1984 Fourth District Court of Appeal (4th DCA) case  in which several owners challenged rules enacted by their association’s board of directors, the Court noted that there could be two sources of use restrictions: (i) those set out in the declaration of condominium and (ii) those adopted by the board. As to the use restrictions set out in the declaration, the court held that 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).

In examining board-adopted rules, the court first must determine whether the board acted within its scope of authority—in other words, whether the board had the express authority in the documents to adopt the rule in the first place. If the answer is “yes,” the second question to determine is whether the rule conflicts with an express provision of the governing documents or one that is reasonably inferred. (If the documents are silent on an issue, the inference is that it is unrestricted. Adopting a rule to restrict a topic that the declaration is otherwise silent about would conflict with the inferred unrestricted use and therefore be unenforceable.)  If these first two issues are found to exist, the court will then determine if the rule is reasonable. 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.”

In examining your own board-adopted rules, ask the following:

  • Did the board have the power to adopt the rule?
  • Is the rule in accord with with the declaration, articles of incorporation, or bylaws?
  • Is the rule reasonable under the circumstances? (While ultimately only a court can make this final determination, the board should use its best judgment, with assistance of its counsel, to reach this decision.)

If the answer to these three questions is “yes,” then the rule should be found to be valid and enforceable by the court upon an owner challenge.

Ultimately, what can be gleaned from Mech v. Crescent Beach Condominium Association Inc. is that even if the association acts reasonably when adopting rules and even when amending the declaration, a lower court judge can reach almost any decision it wishes. Had the provision at issue only required tax returns when the background or credit checks revealed that the prospective purchaser had a history of financial irresponsibility, the provision may have withstood judicial challenge by this particular judge. Additionally, had the provision requiring tax returns been set out in the declaration before the initiation of the lawsuit, the outcome may have been different under existing, well-established case law.

Bottom line, whenever the board is considering new rules, it is recommended that the board consult with the association’s legal counsel before adopting them.

(Reprinted with permission from KBR Legal)

Jeffrey Rembaum’s, Esq. of Kaye, Bender, Rembaum attorneys at law, legal practice consists of representation of condominium, homeowner, commercial and mobile home park associations, as well as exclusive country club communities and the developers who build them. Mr. Rembaum is a Certified Specialist in Condominium and Planned Development Law. He is the creator of ‘Rembaum’s Association Roundup’, an e-magazine devoted to the education of community association board members, managers, developers and anyone involved with Florida’s community associations.  His column appears monthly in the Florida Community Association Journal. Every year since 2012, Mr. Rembaum has been selected to the Florida Super Lawyers list and was also named Legal Elite by Florida Trends Magazine. He can be reached at 561-241-4462.

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Don’t Want Your Association to Be the Next Rental Community? by KBRLegal

Don’t Want Your Association to Be the Next Rental Community? by KBRLegal

  • Posted: Nov 16, 2021
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Don’t Want Your Association to Be the Next Rental Community?

Many community associations throughout Florida struggle to deal with the increase in overnight and short-term rentals caused by the proliferation of online websites such as VRBO and Airbnb. As such, many communities fear being turned into “rental communities,” especially with so many large corporations buying homes in the South Florida area for the express purpose of renting them. These transient rentals can present nuisance and safety issues and can easily change the composition of your community. The good news, however, is that there are steps your association can take to help protect the community from becoming the next transient rental community by having the necessary language in the declaration of restrictions, as further discussed below.

 

There are two types of restrictions which work together to help achieve this goal. First, corporate (or business entity) ownership must be fully addressed. Second, specific criteria for approval of purchasers, tenants, and occupants residing in the community for longer than 30 days (or such other time period) must be adopted. Finally, a brief discussion regarding the applicability of the statutory provisions set out in Chapter 718 of the Florida Statutes, more commonly referred to as the Condominium Act, and Chapter 720 of the Florida Statutes, more commonly referred to as the Homeowners Association Act, is in order.

 

To avoid ownership for purely investment purposes, an amendment to the declaration that prohibits ownership by a corporation, limited liability company, partnership, trust, or other entity or company should be considered. However, certain carve-outs are recommended to ensure that the owners can use these types of entities for their estate planning purposes, to ensure that the rights of mortgagees are not adversely affected, and to ensure the association still has the authority to purchase units as a result of foreclosure or in other appropriate circumstances. In addition to restrictions on ownership, the association can consider adopting an amendment restricting the number of units that can be owned by a person or entity.

 

The association must ensure that its authority to approve transfers of title to lots and units is not an “unreasonable restraint on alienation.” In other words, the association must have the express authority to deny transfers of title, and the restrictions on such sales must be reasonable.

 

In Aquarian Foundation v. Sholom House, 448 So.2d 1166 (Fla. 3d DCA 1984), Florida’s Third District Court of Appeal considered the validity of a condominium association’s transfer restrictions. In its analysis, the court noted that “restrictions on a unit owner’s right to transfer his property are recognized as a valid means of insuring [sic] the association’s ability to control the composition of the condominium as a whole.” The court explained that while an association can adopt restrictions on transfers, that right must be balanced with the individual owner’s right to transfer his property. In Aquarian Foundation, the association had the right to deny a sale “arbitrarily, capriciously, and unreasonably” with no obligation to provide an alternate purchaser in the event of such denial. The court held that the association’s authority to deny for any reason whatsoever without the obligation to provide an alternate purchaser was an unreasonable restraint on alienation. However, the court explained that while a condominium association has “considerable latitude in withholding its consent to a unit owner’s transfer, the resulting restraint on alienation must be reasonable.” Therefore, we can glean from this case that a provision authorizing the association to approve or disapprove transfers is acceptable where the restraint is reasonable.

 

In 1993 Florida’s Fourth District Court of Appeal considered another challenge to an association’s approval authority. In Camino Gardens Association, Inc., v. McKim, 312 So.2d 636 (Fla. 4th DCA 1993), the declaration prohibited the sale, lease, or occupancy of any lot in the subdivision to anyone other than a duly admitted member in good standing of the association. The court held that because the restriction prohibited transfer to anyone except existing owners, the restriction was an unreasonable restraint on alienation and was invalid.

 

In Coquina Club v. Mantz, 342 So.2d 112 (Fla. 2d DCA 1977), Florida’s Second District Court of Appeal considered an age restriction contained in the declaration (which was lawful at the time). The applicant did not meet the age requirement and was therefore “facially disqualified.” The court held that, in light of the facial disqualification, the association did not have an obligation to provide the otherwise required substitute purchaser.

 

In light of the foregoing case law, any provision which grants the association limitless power of denial is likely invalid. If the association has the right to deny a purchaser, but the declaration is void of any standards by which such decisions should be made, the restriction can still be easily found to be invalid. However, if the declaration requires the association provide a substitute purchaser or allows for denial based on “good cause,” the provision is likely valid and enforceable. If an association has the right to deny “for good cause,” then to withstand judicial scrutiny, the governing documents, preferably the declaration, should provide standards as to what “for good cause” means.

 

As discussed above, the first step is to ensure that the declaration provides authority for the screening and approval process. The second step is to ensure there is meaningful written criteria by which to evaluate prospective purchasers, tenants, and even occupants residing for longer than 30 days (or other time period). If the declaration contains general language for purchaser and tenant approval but does not provide the standards and procedures necessary to make such a decision, then the association’s approval authority is vulnerable to judicial challenge and likely faces an uphill and expensive court battle. The association may be interested in adopting criteria, allowing rejection based on “good cause,” such as the following:

 

  • A record of financial irresponsibility
  • A guilty plea or conviction of a crime of moral turpitude
  • A history of being a “bad tenant”
  • A false statement on the application
  • Failure to comply with the request of the board of directors for a personal interview

 

(Please note this abbreviated list was provided for example purposes only and should not be utilized by any association without consultation with the association’s lawyer as additional language is necessary.)

 

Providing specific written criteria on which the association can base its denial of a proposed sale, lease, or other transfer helps protect the association from claims that it is not acting reasonably in denying a transfer. However, before disapproving a proposed sale or lease, the association should be sure that the disapproval does not run afoul of the provisions of the Fair Housing Act at the federal, state, and county levels. The federal Fair Housing Act prohibits discrimination in the sale, rental, and financing of dwellings, and in other housing-related transactions, based on race, color, national origin, religion, sex, familial status, and disability. State law and, sometimes, local ordinances provide additional protected classes.

 

While the authority to approve lessees is an important step, adopting additional leasing restrictions addressing the frequency and type of leases permitted in the community should also be included in the declaration if these issues are a concern for the community. Associations that would like to minimize the number of short-term leases might consider amendments to the declaration limiting leasing as follows:

 

  • No lot or unit may be rented or leased for a 12-month period (o longer) following the closing date (or date of recorded deed) of a sale of that lot or unit.
  • Owners are restricted to one rental or lease per calendar year.
  • After approval by the association, only entire lots or units can be rented, provided occupancy is only by the lessee and those individuals listed as occupants in the lease agreement.
  • No rooms may be rented, and no transient tenants may be accommodated.
  • No owner may list the owner’s lot or unit on any website (e.g., and without limitation, Airbnb, VRBO), print or online publication advertising the owner’s lot or unit for short-term rental
  • No lot or unit may be subleased.

 

Statutory provisions must be considered as well regarding whether a new lease restriction amendment will apply to all owners or only those who vote in favor of the amendment or who acquire title to their unit or home after the effective date of the amendment (these issues will need to be reviewed with association counsel). For instance, we note the following:

 

  • As to condominium associations, effective on October 1, 2004, the Florida legislature first adopted §718.110(13), which has since been amended, and this section provides that “[a]n 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.”
  • As to homeowners associations, effective on July 1, 2021, the Florida legislature adopted §720.306 (1)(h) which provides that, “[e]xcept as otherwise provided in this paragraph, any governing document, or amendment to a governing document, that is enacted after July 1, 2021, and that prohibits or regulates rental agreements applies only to a parcel owner who acquires title to the parcel after the effective date of the governing document or amendment, or to a parcel owner who consents, individually or through a representative, to the governing document or amendment. …Notwithstanding… an association may amend its governing documents to prohibit or regulate rental agreements for a term of less than 6 months and may prohibit the rental of a parcel for more than three times in a calendar year, and such amendments shall apply to all parcel owners.”

As you have likely discerned, the leasing restrictions of the Homeowners Association Act are broader than those set out in the Condominium Association Act. However, the real issue is whether these provisions apply to all associations that are already in existence or only to those that have adopted “Kaufman language” into their declaration and those declarations that are recorded after the effective date of the statute.

 

Kaufman language refers to having a provision in the declaration that it is subject to the relevant Chapter “as it is amended from time to time.” If the declaration contains such language, then there is no question that the statutory leasing provisions do apply. On the other hand, if there is no Kaufman language set out in the declaration, then what? There are those who take the position that these statutory leasing provisions are “procedural;” if so, then they would apply to an existing declaration. But, if the statutory leasing provisions are changing existing “substantive rights,” then, absent Kaufman language, the statutory provisions likely do not apply to the declaration at issue. By way of an oversimplified explanation, this is because the declaration is a contract, and the legislation in effect at the time a contract is executed is the law to which the contract is subjected.

 

Thus, we must ask the question, are the statutory leasing provisions disturbing existing substantive rights? Likely so, though it may take an appellate court decision to bring needed clarity. Clearly, this is an issue which must be discussed with the association’s legal counsel.

 

To ensure your association is properly protected against unwanted transient rentals, you should consult with association’s legal counsel who can review the governing documents to ensure necessary language is included and make recommendations to better protect the association from the likes of VRBO, Airbnb, and other short-term rentals, and at the same time shore up the association’s approval powers over owners, tenants, and occupants.

 

Electronic Board of Directors and Membership Meetings in a Post-Covid-19 World

Electronic Board of Directors and Membership Meetings in a Post-Covid-19 World

  • Posted: Oct 26, 2021
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Electronic Board of Directors and Membership Meetings in a Post-Covid-19 World

 

Well, it is not quite a post-COVID-19 world yet, but hopefully, it will be one day soon. We are, however, living in a post-governor-ordered-state-of-emergency world, meaning that the emergency powers granted to condominium, cooperative, and homeowners’ associations’ boards of directors by virtue of the governor’s emergency orders have come to an end, with this caveat: The emergency authority granted to community association boards of directors after the expiration of the governor’s emergency orders is, generally speaking, “limited to that time reasonably necessary to protect the health, safety, and welfare of the association and the owners and their family members, tenants, guests, agents, or invitees, and to mitigate further damage and make emergency repairs.” As such, each passing day diminishes the arguments supporting a board’s reasonable reliance on the utilization of these emergency powers. However, given the recent uptick in Covid cases plus ever evolving CDC guidance issued towards the end of July, 2021, some community associations may consider relying on the continuance of the emergency powers provision. If so, it is strongly recommended that such a community association receive proper guidance from its legal counsel.

 

Interestingly, until July 1, 2021, electronic meetings of community association members and boards of directors were not specifically addressed in the legislative grant of emergency powers which could be used during a governor-declared state of emergency. Rather, the emergency powers of days gone by provided that association boards of directors could conduct board meetings and membership meetings with notice given in as practicable a manner as possible, including publication, radio, United States mail, the Internet, public service announcements, and conspicuous posting on the common property or any other means the board deems reasonable under the circumstances. Notice of board decisions may be similarly communicated. In addition, the board could cancel and reschedule any association meeting. Under certain circumstances, decisions could be made on the spot, so to speak, without the need for a noticed meeting. The legislative emergency powers can be found in §718.1265, §719.128, and §720.316 of the Florida Statutes for condominium, cooperative, and homeowners’ associations, respectively. Nowhere in the pre-July 1, 2021 version of the emergency powers legislation did these powers set forth the clear right of the association to conduct solely electronic board and membership meetings, though due to life safety reasons, such power was inferred. However, it should be noted that effective July 1, 2021 the emergency powers legislation was significantly revised to provide for the use of electronic meetings during a governor declared state of emergency.

 

BOARD MEETINGS

With this as our backdrop, without a declared state of emergency can community associations continue to hold electronic board  meetings via platforms such as zoom? Let us examine the relevant legislation that bears on this important inquiry. As to condominium board meetings,

[a] board or committee member’s participation in a meeting via telephone, real-time videoconferencing, or similar real-time electronic or video communication counts toward a quorum, and such member may vote as if physically present. A speaker must be used so that the conversation of such members may be heard by the board or committee members attending in person as well as by any unit owners present at a meeting… Meetings of the board of administration at which a quorum of the members is present are open to all unit owners… The right to attend such meetings includes the right to speak at such meetings with reference to all designated agenda items… [§718.112(2), Fla. Stat. (2020), Emphasis added]. Note that similar provisions are provided for cooperative associations in §719.106), Fla. Stat. (2020).]

 

As to homeowners’ association board meetings,

[a] meeting of the board of directors of an association occurs whenever a quorum of the board gathers to conduct association business. Meetings of the board must be open to all members, except for meetings between the board and its attorney with respect to proposed or pending litigation where the contents of the discussion would otherwise be governed by the attorney-client privilege. A meeting of the board must be held at a location that is accessible to a physically handicapped person if requested by a physically handicapped person who has a right to attend the meeting… Members have the right to attend all meetings of the board. The right to attend such meetings includes the right to speak at such meetings with reference to all designated items. [§720.303(2), Fla. Stat. (2020), Emphasis Added.]

In addition, the “Florida Not For Profit Corporation Act,” set out in Chapter 617, Florida Statutes, which applies, in large part, to condominium, cooperative, and homeowners’ associations, so long as not in conflict with Chapters 718, 719, and 720 of the Florida Statutes (and certain other exceptions not relevant to this analysis), provides that,

Unless the articles of incorporation or the bylaws provide otherwise, the board of directors may permit any or all directors to participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all directors participating may simultaneously hear each other during the meeting. A director participating in a meeting by this means is deemed to be present in person at the meeting. [§617.0820(4), Fla. Stat. (2020).]

Mixing all of these ingredients together so that they all have meaning clearly implies that the community association board can conduct its board meetings via electronic means, like Zoom.  However, in our opinion, a more prudent approach is to also make on-site accommodations available to those who wish to attend in person. This can be easily accomplished by ensuring the meeting is noticed in a physical location where the non-board member owners can listen and participate through use of an on-site speaker phone or computer that is preferably provided or otherwise arranged for by the association. (Reminder that Zoom also has a call in feature for those who do not access to, or are not comfortable with, a computer).

 

MEMBERSHIP MEETINGS

As to all community association membership meetings, members have a right to speak at meetings of the membership. Pursuant to §718.112(2)(d)7 and §719.106(1)(d)4, Florida Statutes, members of condominium and cooperative associations, respectively, have the right to participate in meetings of the unit owners with reference to all designated agenda items. Pursuant to §720.306(6), Florida Statutes, members of a homeowners’ association have the right to speak with reference to all items opened for discussion or included on the agenda. During elections and other meetings where a vote of the membership is at issue, members should be able to observe the tallying of ballots.

 

As to condominium associations, membership meeting requirements include the following:

An annual meeting of the unit owners must be held at the location provided in the association bylaws and, if the bylaws are silent as to the location, the meeting must be held within 45 miles of the condominium property… [§718.112(2)(d)1, Fla. Stat. (2020).]

 

As to cooperative associations, membership meeting requirements include the following:

There shall be an annual meeting of the shareholders… The bylaws must provide the method for calling meetings, including annual meetings… [§719.106(1)(d), Fla. Stat. (2020).]

 

As to homeowners’ associations, membership meeting requirements include the following:

The association shall hold a meeting of its members annually for the transaction of any and all proper business at a time, date, and place stated in, or fixed in accordance with, the bylaws. The election of directors, if one is required to be held, must be held at, or in conjunction with, the annual meeting or as provided in the governing documents… [§720.306(2), Fla. Stat. (2020).]

 

Furthermore, and of great importance, there is the following provision from the Florida Not For Profit Corporation Act, a/k/a Chapter 617, Florida Statutes:

If authorized by the board of directors, and subject to such guidelines and procedures as the board of directors may adopt, members and proxy holders who are not physically present at a meeting may, by means of remote communication participate in the meeting and be deemed to be present in person and vote at the meeting if:

1)    the corporation implements reasonable means to verify that each person deemed present and authorized to vote by means of remote communication is a member or proxy holder; and

2)    the corporation implements reasonable measures to provide such members or proxy holders with a reasonable opportunity to participate in the meeting and to vote on matters submitted to the members, including an opportunity to communicate and to read or hear the proceedings of the meeting substantially concurrent with the proceedings, and

3)    if any member or proxy holder votes or takes other action by means of remote communication, a record of that member’s participation in the meeting must be maintained by the corporation in accordance with §617.1601.

[§617.0721(3), Fla. Stat. (2020); internal numbering, punctuation, capitalization, and formatting removed; emphasis added.]

 

Therefore, the members at a membership meeting can participate electronically so long as the board has authorized it and has adopted appropriate procedures. Consultation with the association’s attorney is strongly encouraged, most especially if there will be any “live” voting at the membership meeting.

 

How members vote at an electronic membership meeting when the member attends virtually is an interesting question. Presently, there is no definitive procedure set out in the law for the member to cast their vote “live” during a zoom meeting. Rather, §617.0721(3) Fla. Stat. (2020), places the burden on the board of directors to adopt procedures in this regard.   Obviously, if your association has 400 members who all appear virtually at the membership meeting, live voting for all 400 members will prove to be logistically difficult, if not impossible. It may be far easier to have the members  vote i) in advance by proxy, limited proxy, absentee ballot as the case may be, or, ii)  if adopted by the association, vote electronically pursuant to the procedures as set out in §718.128, §719.129, or §720.317 (Fla. Stat. 2020). A hybrid approach could also be utilized where the association provides for electronic voting and proxy voting prior to the meeting and then only the remaining few voters who have yet to cast their ballot could cast their vote “live” during the meeting, subject to the requirements of §617.0721(3).

Practice tip 1: Remember, electronic voting can be used whenever a membership vote is needed, even if the meeting does not have a zoom type option for attendance so long as the association has followed the requirements to provide for electronic voting.

Practice tip 2 (For Homeowners’ Associations): If your association’s governing documents require or otherwise allow nominations from the floor of the election meeting, consider amending and removing this provision from the governing documents to clear the way for an electronic membership meeting and election.

 

IN SUMMARY

Perhaps the initial questions phrased above could be better asked as follows: Absent a declared state of emergency can a community association hold board and membership meetings exclusively via an electronic platform, such as Zoom? Unfortunately, this question has not been satisfactorily addressed by the legislature or the Florida Courts. However, in our opinion, the safer approach, and the one that will avoid the potential for a successful legal challenge by an owner, is to avoid holding meetings exclusively via Zoom when there is no declared state of emergency. Consider using the hybrid approach discussed above where both a physical location is provided along with an electronic component such as Zoom and where members are strongly encouraged to attend and participate electronically.

Can community association board meetings and membership meetings be both electronically and at a physical location for those that want to attend in person even if the business is primarily conducted electronically? The answer is “yes”, so long as certain procedural safeguards are put into place. e.g., the ability of the membership watching via Zoom to fully observe the counting of ballots.

Another approach is to consider amending the association’s bylaws to provide for electronic only board and membership meetings. However, doing so has not yet been legally tested in the Florida courts. Also, remember, too, that a homeowners’ association must provide for a physical location for its board meeting, if requested by a handicapped individual. Also, as these matters are not fully settled in the law, your association’s lawyer may have a different opinion and advise that the association may have electronic board and membership meetings without the need for a physical location.

This journey into the foray of electronic meetings demonstrates a clear need for the Florida Legislature to adopt legislation to make clear that both board and membership meetings may take place electronically without the need to also simultaneously provide for a physical location, most especially so long as the association provides a communal device on association property for not-so-tech-savvy members to observe and participate in the meeting. After all we are blessed to be living in the 21st century. Let’s take advantage of it and add a few tech savvy legislative provisions to our laws governing community associations.

It is recommended you consult with your association legal counsel on the adoption of reasonable rules to ensure your virtual/electronic meetings run smoothly while also ensuring that they are in compliance with the association’s governing documents and Florida Statutes, and for further discussion regarding amending the governing documents of the association to provide clear authorization for electronic board and membership meetings.

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Is Your Association Prepared? Expect Supply Shortages – KBR Legal

Is Your Association Prepared? Expect Supply Shortages – KBR Legal

  • Posted: Oct 16, 2021
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Is Your Association Prepared?

Expect Supply Shortages  

There’s news once again reporting food and product supply shortages are on the horizon, if not already here, due to what can only be described as a logistics disaster. This morning’s news reported that there are thousands of shipping crates snarled in a logistical nightmare waiting to be off loaded with no relief in sight. One news source reported 250,000 crates are waiting to off load.  While no one is yelling “fire in a crowded theater,” (yet) it likely makes sense to get ahead of your association’s inventory needs. That said, hoarding is never a good idea. But, keeping extra inventory on hand may make sense until the supply chains are working correctly again.

   Sources for the following include CBS News, the Wall Street Journal and Axios:

“American families are going to face a two-pronged assault:

1. Empty shelves at toy and grocery stores
2. Inflated prices on the toys and groceries that are available

  At this very moment, there are 250,000 shipping containers stuck at sea off the east and west coasts, waiting to be unloaded and it could be months before they get to store shelves. But Biden is presiding over one of the biggest supply chain bottlenecks since WWII: [via CBS News]

  • Ships cant dock because ports are full
  • Ports are full because there aren’t enough truck drivers to take the shipping containers away
  • When truckers do arrive, the ports are poorly staffed and they can’t offload fast enough, resulting in truck drivers who used to pick up 20 loads/week, now only able to take six
  • The cost of shipping a container from China to the U.S. is now $20,000, four times higher than this time last year.

  It’s already begun: Stores across the country are already restricting supplies. Try not to have flashbacks to March 2020, but Costo and Walmart have announced they are limiting sales of toilet paper in some stores. And around the country, there are shortages of goods on shelves in Target, Costco, Home Depot, and Sears.

 Warning about your Christmas feast: Axios is reporting that food supplies will also be impacted: “Grocery stores could have limited quantities of a number of products heading into the holidays after some of the country’s biggest food manufacturers say they’re short on supply.”

The Boy Scout motto “Be Prepared” comes to mind!

 

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New Requirements For Collection of Delinquent Assessments

New Requirements For Collection of Delinquent Assessments

  • Posted: Oct 08, 2021
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Requirements For Collection of Delinquent Assessments

Robert L. Kaye, Esq., BCS | Legal Morsels

The Florida Legislature has revised the procedures for collecting delinquent assessments, which add additional steps and delays for the owner to pay before legal action can commence and/or attorney’s fees can be recovered. Senate Bill 56 has revised Sections 718.116 and 718.121 for condominiums; 719.108 for cooperatives; and, Section 720.3085 for homeowners’ associations. With these changes, the collection procedures for all of these types of communities will be substantially the same. The new laws are effective July 1, 2021.
Initially, the new provisions have revised the time for the notices sent by the association attorney for condominiums and cooperatives to 45 days for both the pre-lien first letter and the post-lien notice of intent to foreclose. (Homeowners’ associations were already at 45 days.)
The most important and significant addition to this statutory change is the addition of a new notice requirement by associations before they may refer a matter to the association attorney for collection and recover the attorney’s fees involved. This written notice is required to be mailed by first class mail to the address of the owner on file with the association. If the address on file is not the unit or parcel address, a copy must be sent there as well. The association is also required to keep in its records a sworn affidavit attesting to the mailing. The new statute contains a form for that notice which is required to be substantially followed.
As the respective statutory provisions now indicate, associations must incur a minimum of 120 days of collection efforts before a foreclosure action can begin, with a total of three (3) separate required statutory notices. This includes the: (i) initial 30 day notice of the intent to refer the matter to the association attorney (for which no attorney’s fees can be charged to the owner); (ii) 45 days for the pre-lien notice period; and, (iii) 45 days for the pre-foreclosure lien period. As such, in order to best protect the interests of the association, it is recommended that the first 30-day notice be sent at the earliest possible date in the association collection process. This will typically be when the governing documents indicate the assessment to be “late”. Careful review of the governing documents by legal counsel should be undertaken to determine whether there is a specific “grace period” indicated in the documents before the assessment is considered late. Once that determination is made, the board should adopt a formal collection policy that incorporates these new statutory requirements, which will also need to be mailed to all owners. A new provision has also been added that begins with “If an association sends out an invoice for assessments. . .” to unit or parcel owners, such notice is to be sent by first class mail or electronic transmission (email) to the respective addresses for the owners that are in the association official records.
Moreover, if the association wishes to change the method of delivery of an invoice, the new Statute creates specific steps that must be followed precisely in order for the change to be effective. Specifically, a written notice must be delivered to the owner not less than 30 days before the change of delivery method will be implemented. The notice must be sent by first class mail to the address on file with the association. If the address on file is not the unit or parcel address, a copy must be sent there as well. In addition to the notice requirement, the owner must “affirmatively acknowledge” his or her understanding of the new delivery method. The written acknowledgment can be sent electronically or by mail, and must be maintained in the Official Records (although it is not available for inspection by other owners). However, without this acknowledgment, the association may not change the method of delivery. The Statute does not presently include a time frame for the owner to provide that acknowledgment or offer any remedy to the association if none is forthcoming. This can be particularly daunting or problematic when the association changes management companies, when the new company’s procedures differ from the prior company.
Before the association attorney can commence any collection work for an association, it will be necessary for the association to provide all of the backup documentation of the compliance with each of these new statutory requirements, as well as the information previously required (such as a current account ledger). If any of the documentation is missing with the initial turnover information, there will be delays in the collection process, which can be detrimental to the association operation. It is therefore imperative that these new procedures are fully integrated into the association operation without delay.
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It’s the Manager’s Fault, Or Is It? by KBR Legal

It’s the Manager’s Fault, Or Is It? by KBR Legal

  • Posted: Oct 05, 2021
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It’s the Manager’s Fault, Or Is It?

by KBR Legal

 

Few professions have more demands placed upon them than that of the Florida licensed community association manager (CAM). Depending on whom you ask, the CAM is the organizer, rules enforcer, keeper of secrets (meaning confidential and statutorily protected information not limited to the medical record of owners and attorney-client privileged information), best friend, the “bad guy” (a frequent misconstruction), and the first person in the line of fire when things go wrong; in other words, the one who takes all the blame and gets little credit when things go right.

 

When things at the association go wrong, what comment is most likely heard? “It’s the manager’s fault!” But, is it? Unless the manager failed to carry out a lawful directive from the board, breached a management contract provision, or violated a Florida statute, then in all likelihood, the manager has no culpability. CAMs are licensed by the State of Florida pursuant to Part VIII of Chapter 468 of the Florida Statutes, and there are statutory standards by which CAMs must conduct themselves.

 

Pursuant to §468.4334, Florida Statutes, “[a] community association manager or a community association management firm is deemed to act as agent on behalf of a community association as principal within the scope of authority authorized by a written contract or under this chapter. A community association manager and a community association management firm shall discharge duties performed on behalf of the association as authorized by this chapter loyally, skillfully, and diligently; dealing honestly and fairly; in good faith; with care and full disclosure to the community association; accounting for all funds; and not charging unreasonable or excessive fees.”

 

As set forth herein, statutory standards provide guidance to CAMs as to how they should conduct themselves. They must discharge their duties with skill and care and in good faith. They must act with loyalty to their association employer and deal with the association both honestly and fairly. They must provide full disclosure, which can be interpreted as both keeping the board informed of current events and providing disclosures of any conflict of interests. They must be able to account for all funds, too, which means both assessment income and expenditures; in other words, they must mind the budget.

 

Best practices for CAMs include becoming extremely familiar with the governing documents of the association (including the declaration, articles of incorporation, bylaws, and rules and regulations) and the financials of the association, walking the physical property, engaging with their team and residents, as well as providing weekly status updates to the board regarding all ongoing association business. If you are a CAM and do these things, then you have an opportunity to shine and stand head and shoulders above your peers and competition. This weekly status report is an excellent communication tool yet seems to be a rarity. CAMs should also make themselves available to owners. However, when an owner becomes offensive or insulting, the CAM should politely and firmly request that the owner communicate respectfully and in a professional manner. A CAM should always be financially transparent and should be extremely familiar with the management contract to fully understand her obligations and authority; for example, the limitation to spend association funds. Finally, the CAM should strive to keep a written record of her activities.

 

The two most obvious and biggest ways to get in trouble include committing acts of gross misconduct or gross negligence in connection with the profession or contracting on behalf of an association with any entity in which the CAM has a financial interest that is not disclosed. Disciplinary actions against a CAM fall under the purview of the Florida Department of Business and Professional Regulation (DBPR). Section 455.227, Florida Statutes, governs grounds for discipline, penalties, and enforcement.

 

For example, the following activities constitute grounds for which disciplinary actions may be taken by the DBPR (this list is not all inclusive): (i) making misleading, deceptive, or fraudulent representations in or related to the practice of the CAM’s profession; (ii) intentionally violating any rule adopted by the DBPR; (iii) being convicted or found guilty of, or entering a plea of guilty or nolo contendere (“I do not wish to contend”) to, a crime in any jurisdiction which relates to the practice of, or the ability to practice, a CAM’s profession; (iv) having been found liable in a civil proceeding for knowingly filing a false report or complaint with the DBPR against another CAM; (v) attempting to obtain, obtaining, or renewing a license to practice a profession by bribery, by fraudulent misrepresentation, or through an error of the DBPR; (vi) failing to report to the DBPR any person who the CAM knows is in violation of the laws regulating CAMs or the rules of the DBPR; (vii) aiding, assisting, procuring, employing, or advising any unlicensed person or entity to practice a profession contrary to law; (viii) failing to perform any statutory or legal obligation; (ix) making or filing a report which the licensee knows to be false; (x) making deceptive, untrue, or fraudulent representations in or related to the practice of a profession or employing a trick or scheme in or related to the practice of a profession; and  (xi) performing professional responsibilities the licensee knows, or has reason to know, the licensee is not competent to perform.

 

The Florida Administrative Code, in Rule 61E14-2.001, also provides standards for professional conduct which are deemed automatically incorporated as duties of all CAMs into any written or oral agreement for community association management services. A CAM must adhere to the following standards:

 

  1. comply with the requirements of the governing documents by which a community association is created or operated
  2. only deposit or disburse funds received by the CAM or management firm on behalf of the association for the specific purpose or purposes designated by the board, community association management contract, or the governing documents of the association
  3. perform all community association management services required by the CAM’s contract to professional standards and to the standards established by §468.4334(1), Florida Statutes
  4. in the event of a potential conflict of interest, provide full disclosure to the association and obtain authorization or approval; and
  5. respond to, or refer to the appropriate responsible party, a notice of violation or any similar notice from an agency seeking to impose a regulatory penalty upon the association within the timeframe specified in the notice.

In addition, during the performance of community association management services pursuant to a contract with a community association, a CAM cannot withhold possession of the association’s official records or original books, records, accounts, funds, or other property of the association when requested in writing by the association to deliver the foregoing to the association upon reasonable notice. However, the CAM may retain those records necessary to complete an ending financial statement or report for up to 20 days after termination of the management contract. Additionally, a CAM cannot (i) deny or delay access to association official records to an owner, or his or her authorized representative, who is entitled to inspect and copy the association’s official records within the timeframe and under the applicable statutes governing the association; (ii) create false records or alter the official records of an association or of the CAM except in such cases where an alteration is permitted by law (e.g., the correction of minutes per direction given at a meeting at which the minutes are submitted for approval); or (iii) fail to maintain the records for a CAM, management firm, or the official records of the association as required by the applicable statutes governing the association.

 

How do you know if your association requires a licensed community association manager? Pursuant to §468.431, Florida Statutes, if the association has 10 or more units or has a budget of $100,000 or more and the person is conducting one or more of the following activities in exchange for payment, the person must be a licensed CAM:

 

  1. controlling or disbursing funds of a community association
  2. preparing budgets or other financial documents for a community association
  3. assisting in the noticing or conduct of community association meetings
  4. determining the number of days required for statutory notices
  5. determining amounts due to the association
  6. collecting amounts due to the association before the filing of a civil action
  7. calculating the votes required for a quorum or to approve a proposition or amendment
  8. completing forms related to the management of a community association that have been created by statute or by a state agency
  9. drafting meeting notices and agendas
  10. calculating and preparing certificates of assessment and estoppel certificates
  11. responding to requests for certificates of assessment and estoppel certificates
  12. negotiating monetary or performance terms of a contract subject to approval by an association
  13. drafting pre-arbitration demands
  14. coordinating or performing maintenance for real or personal property and other related routine services involved in the operation of a community association, or
  15. complying with the association’s governing documents and the requirements of law as necessary to perform such practices.

However, a person who performs clerical or ministerial functions under the direct supervision and control of a CAM or who is charged only with performing the maintenance of a community association and who does not assist in any of the management services described above is not required to be licensed.

 

So, whose fault is it when things go awry? A CAM’s role is far different than that of a rental complex manager who often has decision-making authority. The CAM does not have that same type of decision-making authority. The CAM must take direction from the board and perform pursuant to the obligations set out in the management agreement and Florida law. It is the board of directors of the community association that actually makes the decisions. So, while the uninformed might blame the CAM, you now know that the buck stops with the board of directors. If you have further questions regarding a CAM’s responsibility, then please discuss this with your association’s lawyer.

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