Find Blog Articles for Florida’s Condo, HOA and the Management Industry.
Tags: Board of Directors, Tax Planning
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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 |
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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 |
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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:
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 |
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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 |
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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 |
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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 |
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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 |
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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. |
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Tags: Board of Directors, Management News, Pest Control Articles
by Ned Bassen, Jamie B. Dokovna of Becker Lawyers
Senate Bill 1532 amending §409.2576, Florida Statutes went into effect. Previously, only employers with 250 or more employees were required to report newly hired and re-hired individuals to Florida’s State Directory of New Hires within 20 days of hiring. Independent contractors were excluded. Now, as of October 1, any employer, regardless of the number of employees that is a “service recipient” defined as “a person engaged in a trade or business who pays an individual for services rendered in the course of such trade or business” must report all new hires and re-hires to the State’s database. Additionally, employers must report their independent contractors who are paid $600 or more during a calendar year.
The purpose of the statute is to provide information to the Florida Child Support Program to facilitate the collection and disbursement of child support payments and to monitor and enforce child support payments. The statute, however, is silent regarding penalties for failing to report. That said, employers with less than 250 employees should update their onboarding process to include the new reporting requirements and all employers regardless of size should determine whether reporting requirements exist for any independent contractor used by them, update onboarding policies to reflect the changes in the law and provide training for those who perform onboarding and payroll, so they are aware of these changes.
by Ned Bassen, Jamie B. Dokovna ( Learn more click our V Cards )
Very involved community associations often have large contentious meetings when there is a hot button issue.
We’ve created the following guidelines for meetings so everyone participating knows what to expect.
It’s only a “meeting” if it is organized and a good meeting conduct is important regardless of purpose. There should be an opening statement by the chairman (or a selected member) as to the main purpose (topic) of the meeting.
The ground rules for the meeting; address the chair, the chair decides who speaks, and for how long.
Many community associations start their meetings with their Association Pledge & Basic Meeting Protocol. See an example below:
The Board encourages all to abide by this pledge of conduct: While we might disagree, we will be respectful of one another. We will direct our comments to the issues, avoid personal attacks and abstain from acts or remarks which may interfere with the work of association management, employees, support, and board officers.
Owners are asked to submit questions on topics before the meeting and the presiding hosts will answer those questions. Observers will be afforded 3-minutes per comment to add anything missed in discussion. Only agenda topics will be discussed.
With our File Sharing feature, you can securely store and share your Association Pledge document with permission-based access.
Owners should be notified about upcoming meetings ahead of time either via your newsletter, community calendar or display screens installed in the elevators or/and lobbies. Owners should be able to submit questions before the meeting so they can be answered during the presentation. If anyone want to “add” something, they can ask unanswered questions or make a new point during the meeting.
You should always record the meetings and you should always prepare minutes.
We recently had a webinar with our friends at GetQuorum titled What It Takes to Run a Great Hybrid Meeting.
We shared insight on how to navigate the complex nature of hybrid meetings, and shared tips & tricks for more effective hybrid meetings.
Tags: Board of Directors, Management News
by Steven J. Weil, Ph.D., EA, LCAM, President
Royale Management Services, Inc.
Your maintenance fees cover many of the same things you would need to pay for as a homeowner.
What’s included? As a condo owner, it’s useful to know how your maintenance fees are determined. No one is profiting from these fees. They are determined by the board of directors who are elected by the owners and charged with responsibility for operating the association. They represent your share of the common expenses as agreed to in the governing documents.
What you pay is determined by estimating the costs for operation and maintenance for the budget year. These costs include controllable costs — those over which the board can exercise control, e.g., wages of association employees, improvements, along with the cost services offered to owners and residents — as well as non-controllable costs, e.g. insurance, water, garbage collection, electricity, repairs, and existing long-term contracts such as bulk cable agreements.
Each year the board and management review the prior year’s costs and do everything in their power to project the cost for the coming year. These costs become the budget’s expense line items; and once they are calculated, any income from other sources (such as laundry and outside rental income) is taken into account. The total projected expenses are then reduced by the outside income, and whatever is left becomes the maintenance for the coming year. After that, it’s a simple matter of calculating each unit owner’s share of this amount based on the formula set forth in the governing documents.
In many associations, non-controllable expenses make up the majority of the expenses, with insurance often being more than a quarter of the total expenses. Add to this, utilities (which varies), long-term contracts, and required repairs and upkeep, and you can see that the expenses the board can control can be limited often to less than 20% of the total expenses.
The board must also fully fund reserves based on the current replacement cost of reserve items. Reserves may not be waived or reduced by the board. They can, however, be reduced or waived by a vote of the owners. Reserve funding is added to the cost of the maintenance fees already calculated and becomes part of the regular maintenance payment. Reserves cover the wear and tear on items with a useful life of more than one year, such as roofs, painting, and paving, along with other major items that will wear out over time.
Each association’s budget is different. Accordingly, maintenance fees generally reflect things that are unique to each association. For example, associations with 24-hour security personnel, bulk cable contracts that include the internet, and expensive-to-maintain lobbies will have higher maintenance fees than those that provide fewer services and amenities.
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Tags: Board of Directors, Budgets, Building Maintenance, condo maintenance fees, Condo Reserves, Finance and Collections, Royale Management Services
DEVELOPERS ARE ON THE PROWL
I got a call this week from The Miami Herald. They asked if I had heard about the prominent developer who approached the owners of the other Champlain Towers buildings that are still standing, offering to buy out all of their units. I had not, but I’m not surprised in the least about it. In fact, it’s going to be happening more and more. Developers are going to be approaching lots of owners in condominiums that are distressed.
Why approach the owners in the remaining Champlain Towers condominiums? I’m sure the developer is thinking that these owners may now have a hard time selling their condo units on the open market because there may not be many buyers interested in purchasing a unit in a condominium by that name. The Champlain Towers will forever be remembered as the building that collapsed and where nearly a hundred innocent people died. I think the developer is right. It will be tough to sell your units in the remaining Champlain Towers condominiums.
The truth is……if that’s the case…and it is next to impossible to now sell your condo unit in these buildings, the developer can look like a knight in shining armor, if the price they offer is fair and reasonable. It may very well make sense for the owners to seriously consider the developer’s offer. At the remaining Champlain Towers buildings, the developer’s offer is contingent upon 95% of the owners agreeing to sell to the developer. If less than 95% of the owners agree to sell, the deal is off the table. That’s because if at least 5% of the owners vote against a plan of “termination” the developer’s plan to “terminate” the condominium, knock it down and build a more expensive one fails. So, the developer needs to acquire at least 95% to ensure their plan succeeds.
We know that it’s about to get more expensive to live in a condominium because it looks like it will become more difficult to waive reserves and buildings will be undergoing more frequent inspections. Repairs will be needed more than ever before which means money will be needed like never before. When unit owners don’t have the money or don’t want to spend the money on a building that’s already old, rest assured that developers will be there ready to make an offer to everyone so that the property can be bought, knocked down, rebuilt and sold.
Over the last few years the law has made it more difficult to terminate a condominium. As a result of the tragedy at The Champlain Towers I certainly expect the pendulum to swing back the other way. Terminations will become easier. Developers will use their eyes and airs searching for the most vulnerable properties, meaning the ones that will require the greatest cost to repair. The laws regarding termination continue to evolve, but if I am a developer I may want to be cautious about buying units in a condominium that requires 100% of the owners to agree to termination and that does not have Kaufman language or “as amended from time to time” language. In these types of condominiums, one owner who refuses to sell may wind up screwing up the developer’s grand plans.
Tags: Board of Directors, Condo and HOA, Management News
1- The absence of uniform maintenance standards outside of boards should be established.
2- Efforts to make condo repairs of life safety issues should no longer require a full vote of the association membership.
3- Thorough and consistent inspections should be required.
4- Boards should be empowered to borrow money to pay for life safety repairs.
5- Local governments can no longer rely upon sovereign immunity to protect themselves from civil claims.
6- The Florida legislature can no longer raid the $4 door tax trust fund by diverting that money to the general fund.
7- Thirty percent of that money should go towards educating boards and owners about repairs to make buildings safe
[dropcap style=”default”]A[/dropcap] task force report prepared by a section of the Florida Bar recommended that lawmakers overhaul the state’s condominium laws following the Surfside building tragedy that killed 98 people, urging a process to address inspections and ensure proper reserves are in place to make major safety repairs, among other issues.
The task force was formed by The Real Property, Probate and Trust Law Section of the bar, convening lawyers who deal with condominium and association laws. Its purpose was to recommend ways to prevent future failures, not to investigate or place blame for the 12-story building collapse.
“The lack of uniform maintenance standards or protocols, and the unguided discretion given to boards of directors to determine when, how, and if life safety inspections should be performed, requires legislative intervention,” concluded the 179-page report that was released earlier this week.
Champlain Towers was 40 years old and in need of major repairs when it collapsed on June 24. It’s led to officials looking at the need to ensure other aging structures are safe. The task force said 912,376 Florida condo units housing more than 2 million people are at least 30 years old, including more than 105,000 older than 50 years and nearly 328,000 built between 40 and 50 years ago.
Overall, Florida has more than 1.5 million condo units operated by 27,599 condo associations, the report said.
Among recommendations are giving association boards the right to make special assessments for major repairs to protect resident safety without a full association vote. It also requires associations to build up reserves for such projects as recommended by engineers in order to be able to pay for repairs. Those would be in addition to accounts in place for routine maintenance.
While the report said the vast majority of condominium associations are operating in a reasonably safe manner, there needs to be more consistency with inspections and the information provided in them needs to be available to residents.
“Unit owners and boards may also resist such maintenance because of cost, lack of reserves, disruption and inconvenience,” the report said.
The report also recommended allowing condominium boards to borrow money to pay for life safety repairs so the cost could be spread out over years.
Local governments should also have a higher level of accountability for inspection reports, including stripping them of sovereign immunity protections, which limit civil claims against government agencies to $200,000.
“Condominium residents should be entitled to rely on the inspections and reports performed by or on behalf of local governments, and local governments should not be able to avoid responsibility for the content and conclusion of building inspection reports,” it said.
Current law has limitations on associations and unit owners to take civil action against developers for design and construction flaws. Those limitations should be lifted, the report said.
The state division that oversees condominium education and compliance is largely funded by a trust fund built on a $4 per unit fee. The task force recommends the Legislature not be able to “sweep” the trust fund for other state budget purposes.
It also recommends that 30 percent of the trust fund be used to educate association boards and residents about obligations to make repairs to ensure buildings are safe.
Thank You, for the Article:
Tags: Assessments, Board of Directors, Management News, Reserves
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Every association board I know want’s the owners in the community they serve to be informed and involved. That is why we send out notices of board meetings and offer owners the ability to take part in those meetings by Zoom or in person.
The association’s board represents the owners of your association and has the important job of making decisions on behalf of the association. The board has a duty to protect the property value of the association’s owners along with the safety of visitors and residents to the association. They have a responsibility for oversite of association funds and association management.
The board is also charged with complying with and enforcing the associations governing documents, to do this they have the ability to hire professionals and advisors, including; managers, engineers accountants, attorneys and contractors and while in some cases the law requires then association to seek bids, it never requires the association to hire the low bidder. Instead, it is the board’s responsibility to choose the vendor and bid they feel fits the needs of the association best.
In many cases owners only take notice of board’s action when it effects their pocketbook; for example, when they receive a notice of special assessment, or their maintenance fees are increased. By that time the vote has most certainly been cast, as the meeting to discuss and approve the project or budget have already been held. The best time to get involved, so that you understand why an increase or assessment is necessary, and have a chance to provide input, is early. Attend board meetings, especially those to discuss projects, review contractor recommendations, and make decisions about what needs to be done.
The recent events at Surfside serve to point out what happens when important projects and/or maintenance are delayed due to unit owner objections to costs or project necessity. These delays are often caused by a small group of very vocal unit owners that think they speak for the owners, when in fact it is the board that speaks for the owners, as they are the sole elected representatives of the owners.
At best the delays caused by these small vocal groups cost additional time and money, at worst they can be catastrophic. It’s important for owners to support the board when the time comes to proceed and that they participate early in the process, providing input and asking the questions they feel should be addressed before decisions are made and not after.
Royale Management Services, Inc. has been serving South Florida since 1984. The company was founded to provide high quality management and accounting services for business and individuals, Royale Management Services, Inc. expanded to the Community Association and Home Owner’s Association Management business in 2000.
Our team members are highly trained in all aspects of community association management and customer service. We take pride in delivering property management services that work!
Royale Management Services, Inc.
2319 N Andrews Avenue
Fort Lauderdale, FL 33311
Phone: (954) 563-1269
Toll Free: (800) 382-1040
Email: cam@rmsaccounting.com
Tags: Board of Directors, Management News
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]
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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Tags: Board of Directors, Florida Rising Magazine, Management News