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Florida Condo & HOA Legal Blog

News & Updates on Condo & HOA Laws & Legislation in the State of Florida

Key Security For Condominiums Should Not be Compromised by Using a Lockbox

Posted in Liability, Reader Q&A

486648687Question: The board of directors of the condominium where I live is considering placing a lockbox which contains a key to all of the units somewhere on the property. The idea being that if someone gets locked out of their unit, they can use a combination to open the lockbox to get a key and gain access to their unit. What is the potential liability the condominium association could be exposed to by taking such action? S.P. (via e-mail)

 Answer: This is a very bad idea. It is not uncommon for condominium associations to have individual unit owner keys that allow the association to access a unit for required maintenance or in an emergency situation. Section 718.111(5) of the Florida Condominium Act provides that the association has the irrevocable right of access to all of the units for specific purposes, including the maintenance of the common elements and the prevention of damage to the units or the common elements. The association’s right of access is not to assist owners who lose their keys.

I can envision any number of bad outcomes from placing a key to the units in a publicly accessible location, even if protected by a combination. The association should keep keys in a secure location and keep a log of when a key is used to access a unit and the purpose of entry. Such practices can protect the association from a claim by a unit owner that the keys were used to improperly access their unit.

Pooling Condominium Reserves Offers Greater Flexibility

Posted in Budgets, Reserves & Financial, Operations, Reader Q&A

200556773-001Question: Our condominium association recently hired a new manager. She tells us that we should set up our reserve accounts in a “pool”. Can you explain what this means to us?  J.E. (via e-mail)

Answer: “Cash flow” funding of condominium reserves, sometimes also referred to as the “pooling” method of reserve funding, has been around for about ten years. The concept was introduced through an amendment to the state’s administrative rules regulating condominium finances.

“Pooled” or “cash flow” reserves are to be distinguished from money accumulated under the “straight line” method of reserve funding, which has been recognized in the condominium statute for several decades. Under “straight line” funding of reserves, the board must set up a separate account for roof replacement, building repainting, pavement resurfacing, and any other item of deferred maintenance or capital expenditure exceeding ten thousand dollars. Then, each of these reserve accounts must be “fully funded” (unless the unit owners vote to reduce or waive funding) based upon a formula which takes into account the remaining useful life of the asset, the fund balance, and the replacement cost. For example, if a roof would cost one hundred thousand dollars to replace, had a twenty year original useful life, ten years of remaining useful life, and fifty thousand dollars in the roof reserve account, the association would need to put five thousand dollars per year into the roof account for the next ten years to “fully fund” that account. Monies that are set aside in straight-line reserve accounts can only be used for the specified purpose unless the owners vote to permit the use of that money for a non-scheduled purpose.

Pooled reserves differ in two fundamental respects. First, the board is not restricted in expenditures by line-item. In other words, the board can use any money in the reserve fund for an item that is within the “pool.”  Conversely, with straight-line funding, the board could not (for example) use money in the pavement resurfacing account to pay for re-roofing, unless a vote of the unit owners is taken.

The second major difference is the manner in which yearly contributions are calculated. Calculating straight-line funding is fairly simple arithmetic. Conversely, calculating the required yearly contributions under the pooling method is more complicated. Basically, the funding for the pool will differ each year, and is keyed to what particular asset may require replacement or deferred maintenance in a given year. The theory of pooled reserves is that the required monetary contribution will be less than what is necessary under the straight-line method, while still avoiding special assessments. In my experience, this is probably wishful thinking, because the replacement/deferred maintenance cycle of various assets is unpredictable, owners may vote to reduce or waive the pooled reserves in a particular year (which totally throws the schedule off), and inflation and increases in building costs also play a factor (although this concern is also applicable to straight-line funding).

The main benefit of pooled reserves, at least as I perceive it from the discussions I have had with my clients, is greater flexibility in how the money is spent. However, the same result can be accomplished by taking a yearly vote to permit the use of reserves for a non-scheduled purpose.

If your association currently has straight-line reserve accounts, it is my opinion that you would need approval of your unit owners to put that money into a “pool.”  The board would need to include with the voting materials the projected reserve contributions on both the straight-line and pooled method for the fiscal year that is relevant to the vote. Once the vote to switch is taken, no further votes would be required and the association could continue to operate under the cash flow method.

I would also recommend your reading an 86-page manual promulgated by the Florida Department of Business and Professional Regulation, last updated July, 2010, called “Budgets & Reserve Schedules, A Self-Study Training Manual.”  It is available online, free of charge at www.myfloridalicense.com/dbpr/lsc/documents/BudgetsandReserves.Master06092010.pdf. Check out Chapter 3 (Page 31) and Chapter 4 (Pages 47 through 49) for a more detailed discussion of pooled reserves.

New Law On Condo Board E-mails Leaves Important Questions Unanswered

Posted in Meetings, Official Records, Reader Q&A

Finger touching screen of a digital tabletQuestion: I read your recent blog about directors conducting business by e-mail. I do not really understand how this new law changes the previous law. Can you shed any light on this? L.A. (via e-mail)

Answer: Good question. The Florida Condominium Act was amended July 1, 2014, to add the following language to the statute:  “Members of the board of administration may use e-mail as a means of communication but may not cast a vote on an association matter via e-mail.”  For reasons I do not know, the Legislature did not similarly amend the statutes applicable to cooperatives and homeowners’ associations (the desirability of uniform laws governing the procedural aspects of the various types of housing associations in Florida is a topic for another day).

Let’s break the new law down into its basic components. First, the law says that directors can use e-mail “as a means of communication.”  I am not aware of anyone ever having argued otherwise, so I would say this part of the new law is simply a statutory codification of generally accepted practices. The law now specifically states that directors “may not cast a vote on an association matter via e-mail.”  While I would have also thought that the law to have been generally accepted on this point, I suppose there is benefit in a statutory confirmation that e-mail voting is specifically prohibited for condominium association boards.

Where does this leave us?  Probably, with many of the same unanswered questions that existed before the new law was passed.

For example, the new law does not specify whether e-mail communications between directors are, or are not, “official records” of the association, and thus open to inspection by unit owners. Does it matter if only the directors’ personal devices are involved in the transmission and reception of the e-mails?  If e-mails are official records, how are they to be kept and made available for inspection?  Must e-mails be made available if they contain protected information under the statute?

Another issue that is often encountered is whether a particular thread of e-mails collectively constitutes a “vote”, or whether the e-mails are simply a series of communications to obtain input and support for an intended course of action. One is illegal, one is not.

Let’s consider some examples. If the board of directors wants to terminate the management contract with ABC management company and hire XYZ management company, a board vote would typically be required. While the board members can debate to their hearts’ content the relative merits of ABC versus XYZ through e-mail, they cannot vote on either firing ABC or hiring XYZ by e-mail. This can only be done at a meeting.

On the other hand, let’s say that the pool pump at the community swimming pool burns out. A new pump needs to be purchased. This would typically be an item that would not require board approval, but would likely be a decision for the manager, perhaps in consultation with the board president, to make. Let’s also say that the pool contractor tells the manager that he can replace the existing pump for a thousand dollars, or provide a much superior, state-of-the-art type of pump for an extra five hundred dollars. This judgment would probably be within the manager’s decision-making authority, but the manager decides to get the input from all of the board members by e-mail, to make sure they would support whichever course is chosen. In this case, at least in my opinion, no “vote” has been taken, but much like the first example (changing management companies), the decision-making process was conducted solely by e-mail. Is this a distinction with a difference?

Undoubtedly, these are issues that will play out in the courts, the condominium administrative agency, and perhaps through legislative tweaks in the coming years. In the meantime, remember that e-mails are “forever”, and to never hit “send” if you are writing something that you would not want the whole world to see.

Tampa Seminar: Hurricane Amnesia – Disaster Planning & The Reality of Insurance Claim Outcomes

Posted in Education, Events, Hurricane/Disaster Issues, Insurance

It has been years since Florida has been impacted by a major windstorm event, which is fortunate for us as property and business owners but does nothing to remind board members and managers of the importance of proper disaster planning before it is needed.

Tut_logo.1The statewide community association law firm of Becker & Poliakoff and Tutwiler & Associates Public Adjusters are holding a special joint class entitled Hurricane Amnesia – Disaster Planning & The Reality of Insurance Claim Outcomes, which reinforces necessary disaster planning and recovery techniques to maximize your community’s speedy recovery should you be impacted this hurricane season or in the years to come.

In addition to the proper planning steps you need to take, we will provide you with the tools needed to navigate the often complex and unlevel playing field when it comes to filing an insurance claim post casualty.

Please join us for this very important class on Thursday, September 18, 2014 from
9:00 AM – 12:00 PM.

There is no fee to attend, refreshments will be served but advance registration is preferred as space fills up quickly.

Location
Pinellas Education Foundation
12090 Starkey Road, Largo, FL 33773
[MAP]

Provider #PVD269, 2.0 Credits – IFM, Course #9626816

Insurance Claim Seminar in Ft. Lauderdale on September 18, 2014

Posted in Events, Hurricane/Disaster Issues, Insurance, Uncategorized

The Most Common Community Association Directors & Officers Claims

mcgowan_logoInsurance industry Expert, Joel Meskin, VP of Community Association Insurance & Risk Management at the McGowan Companies will be making a special guest appearance in Florida to discuss the do’s and don’ts of properly insuring and protecting your board of directors from lawsuits and losses.

The law firm of Becker & Poliakoff will be hosting Mr. Meskin’s free class- The Most Common Community Association Directors & Officers Claims on Thursday, September 18, 2014 from 10:00 am – 12:00 pm at:

Becker & Poliakoff
1 East Broward Blvd., Suite 1800,
Ft. Lauderdale, FL 33301

Registration will begin at 9:30 am, call 954-985-4119 to reserve your spot today, space is limited.

 

Condo Terminations Criticized

Posted in Operations

magill_120x93_2Condominium terminations have received much negative press lately. The uprising of condominium owners fighting termination of the condominium and the anguish of owners of former condominium units has not fallen upon deaf ears. Those pleas prompted Governor Scott to write to the Secretary of the Department of Business and Professional Regulation on Thursday, September 4, 2014 requesting the Department to come up with suggestions on how to revise the law to better protect condominium owners.

See, the law regarding termination of a condominium changed dramatically in 2007. It almost always took the agreement of 100% of the owners to terminate the condominium before the new law was enacted. The current law contains two different procedures:

Termination for Economic Waste or Impossibility:

If the cost associated with rebuilding the condominium would exceed the fair market value of the sum of all units in the event there was a substantial casualty or extreme deterioration of the building, the vote required to terminate would be the same vote required to amend the declaration. So, something as important as terminating the condominium could be approved the same way as the imposition of a one-year waiting period before an owner could lease the unit. The same vote is required if the building cannot be rebuilt after a casualty loss as a result of zoning or building regulations. However, this is not the controversial part of the statute. There needs to be some flexibility for terminations when it just wouldn’t make sense to sink all the money in that is required to bring the building up to code. People could wind up paying huge assessments for something practically no one wants anymore. Actually, it is more likely that those owners will abandon the units and skip out on the assessment. Then how would the association even obtain the funds to rebuild?

Optional Termination:

This is the provision utilized by investors to essentially convert condo buildings into rental apartments. Eighty percent of the owners could effectuate a termination, so long as not more than 10% of the owners objected.

Governor Scott’s letter recognizes the plight of the owners of less than 10% of the condominium units. It says:

I am deeply concerned about a matter affecting Florida condominium owners throughout the state. It has come to my attention that a law passed in 2007, under the previous administration, changed the requirements of optional condominium terminations. The law appears to have negatively impacted a number of families throughout the state, leading to the loss of their homesteaded property, and in many instances, resulting in the financial burden of remaining mortgage debt after the sale of their condominium.

The change in the law back in 2007 was in reaction to the hot real estate market and the difficulties in realizing the benefit of the underlying property. Unfortunately, there were unintended consequences once the market changed. We are likely to see proposals to change the law in the next legislative session and there are lawsuits pending regarding these terminations throughout the state. We will report on these developments as they happen.

 

Condo and Co-op Budgeting Basics

Posted in Budgets, Reserves & Financial

magill_120x93_2It goes without saying that every association must adopt a budget each year reflecting the estimated income and expenditures of the association. The Florida Administrative Code requires the budget adopted by the Board of Directors to contain some basic features.

The budget must contain the beginning and ending dates. Adopting a budget for the “2015” calendar year does not comply with the technical requirement of the code. Saying the budget is applicable for the “year ending 12/31/2015” doesn’t cut it either.

The budget must show the total assessment on a monthly or quarterly basis for each unit type according to the allocation of assessment liability. For condominiums and cooperatives, the statutes require the budget adopted by the board to include fully funded reserves for capital expenditures and deferred maintenance, so that means the monthly or quarterly amount reflected on the budget, as adopted by the board, must contain the total payment. Reserve funding may only be waived or reduced by a membership vote.

Associations operating more than one condominium must prepare a separate budget for each of the condominiums, in addition to a budget reflecting expenses paid by all condominium owners, unless the members have voted to consolidate financial operations. Consolidating financial operations, however, is only available to associations where at least one of the condominiums was created before 1977. Section 718.111(6), Florida Statutes says:

 … an association may operate two or more residential condominiums in which the initial declaration of condominium was recorded prior to January 1, 1977, and may continue to so operate such condominiums for purposes of financial matters, including budgets, assessments, accounting, recordkeeping and similar matters, if provision is made for such consolidated operation in the applicable declarations of such condominiums or in the bylaws.

Consolidating the financial operations can make handling your financial affairs much easier. It may be less costly as well, especially when considering accounting fees for the year-end financial statements. Is your community eligible to consolidate its financial operations? Speak to your community association attorney to find out.

Limited common elements may have to be identified in the budget. According to Section 718.113(1), Florida Statutes, the costs associated with maintenance and care of limited common elements may be specifically allocated to the owners having the use of those limited common elements. Sometimes the declaration simply requires the unit owner to attend to the maintenance and repair. In other cases the association is still responsible for effectuating the maintenance and repair and bills the owners separately. In the latter case, the Administrative Code requires the budget to include a separate schedule (or schedules) reflecting the expenses associated with those limited common elements. You may need separate reserve schedules as well.

Calculating reserve contributions depends on the method selected by the Board of Directors. In the past, associations were required to keep separate line-item reserve accounts for roofing, paving, painting and any other item of deferred maintenance or replacement cost expense that would exceed $10,000. 2003 amendments to the Florida Administrative Code allow an association to calculate the funds necessary based on a group of assets. This is referred to as “pooled” or “cash-flow” reserves.

Switching from the straight-line method of reserve funding to the cash-flow or pooled reserves requires membership approval. Many associations have both at the same time since they failed to transfer the straight-line funds into the pooled fund. This will typically result in a calculation that requires a larger contribution so it is worthwhile to work with counsel to ensure all the funds are properly in the pool.

As mentioned above, the budget adopted by the board must contain fully funded reserves. The funding can only be waived or reduced by a vote of the members. Does your association include the required disclaimer in the waiver vote? Section 718.112(2)(f), Florida Statutes requires very specific language on the proxy or the ballot.

I encourage you to review your budget and reserve funding or waiver procedures with your association attorney, as these issues remain within the enforcement jurisdiction of the Division of Florida Condominiums, Timeshares and Mobile Homes.

 

Special Assessment Issues in Condominium Associations May Require Legal Counsel

Posted in Assessment Collection, Owner Payment Responsibility, Reader Q&A

iStock_000008570644SmallQuestion: Our condominium association is undertaking a very large repair project involving the structure of our building. It is a several million dollar job, and would involve a huge special assessment. There has been talk of taking out a bank loan. Can the association borrow money for this purpose? Can the association allow some owners to pay a lump sum and allow others to pay in installments? A.L. (via e-mail)

Answer: Your question raises a number of important and potentially complex legal issues which should be discussed with competent legal counsel. Typically, a “structural restoration project” will have many aspects that require advance knowledge and decision-making, including “who pays for what” (as between the unit owner and the association), the responsibility for “incidental damages” (who has to pay for repairs when the association has to destroy or disassemble a unit owner installation, such as balcony tile), whether any of the work involves a “material alteration” (which may independently trigger a unit owner vote requirement) and the like.

Your association’s assessment authority and procedures also need to be carefully reviewed. It is also strongly recommended that your association’s legal counsel be involved in the negotiation and drafting of the essential contract terms, including warranty provisions, how progress payments are made, and protection against liens and personal injury claims, to name a few.

The Florida Condominium Act does not confer  the specific right to borrow money except after certain catastrophic events, such as hurricanes. However, the statute does not prohibit or restrict association borrowing either. The Florida Not For Profit Corporation Act specifically empowers a corporation to borrow money. Most legal practitioners (myself included) are of the opinion that a condominium association can borrow money for proper common expenses, so long as the condominium documents (declaration of condominium, articles of incorporation, or bylaws) do not contain any limits on the association’s borrowing authority.

Assuming your association can legally borrow money and plans to do so, I would recommend that the association obtain competitive bids for loan terms (interest rates, prepayment penalties, and the like) and select the lender it chooses to work with. Every lender is a little different in terms of what type of association actions they want to see in connection with the loan. Some require a special assessment to be levied and pledged as security for the loan. Others do not.

For a variety of administrative and legal reasons, I am not a huge fan of letting some owners pre-pay and others not. There are questions whether those who do not pre-pay can do so later (and then how interest is re-allocated), the opportunity for mistakes in estoppel letters, and the like. However, such programs are common these days and have arguably become the norm.

While there is no court case directly on point, there is an administrative ruling on point from  2003. The Division of Condominiums, Timeshares and Mobile Homes (as it is now known) issued a “declaratory statement” involving the Portofino Condominium Apartments of Pompano Beach, Inc. and unit owner, Walter Grover. The condominium association levied a special assessment and adopted a payment plan. Owners were permitted to pre-pay the whole amount up-front, or they could pay in installments (with interest) and their payments would be used to pay off the loan. It was determined that this arrangement was permissible under the condominium statutes.

As you can see, there are many important questions the board should have answered legally as part of its due diligence in undertaking a project of this scope, which will undoubtedly be a significant financial investment for all concerned. It is equally important for the association to enlist the services of a qualified engineer to be part of the association’s team in this project. One prescription for disaster in major construction contracts is not having your own consultant generate the specifications, and later inspect the work to ensure that it conforms to them. Good luck.

Interior Shell Or Box Of Air Often Defines A Unit

Posted in Reader Q&A

Question: In one of your recent blogs, you referred to the condominium “unit”. What is a “unit”?  I understand that it is “paint in, ceiling down, and slab up.”  Is this correct? L.G. (via e-mail)

Answer: The “unit” is the portion of the “condominium property” that the “unit owner” holds legal title to. The unit, when combined with its “appurtenances” (membership in the association, ownership of a share of the common elements, and certain other fundamental rights) are known as the “condominium parcel.”

All portions of the condominium property (the land and improvements subjected to condominium ownership by the declaration of condominium) not included within the “units” are part of the “common elements.”  Common elements are subdivided into two sub-sets, “limited common elements” (common elements reserved for the use of a specific unit or group of units) and other common elements, sometimes referred to (though not in the statute) as “general common elements.”

The distinction between “units” and “common elements” is important in many important respects. For example, unless otherwise stated in the declaration of condominium, the unit owner maintains the unit, and the association maintains the common elements.

Sections 718.104(4)(d) and (e) of the Condominium Act require the declaration of condominium define the “unit” by letter, name, or number, and further through a graphic description of the improvements in which the units are located, that, together with the declaration, are in sufficient detail to identify the common elements in each unit and their relative locations and approximate dimensions.

Most declarations use what is often referred to as the “interior shell”, or “box of air” method of defining unit ownership, which is the same as the “paint in, ceiling down, slab up” configuration you described. I would say about 75 percent of the condominiums I deal with use the “interior shell” definition.

Other condominium buildings have more expansive unit boundaries. Particularly for condominiums developed in Lee County in the 1970’s and 1980’s, we see many condominiums where the unit boundaries include the exterior elements of the buildings, and sometimes the structural slabs as well. Additionally, the condominium statute permits almost any types of real estate interests to be subdivided into condominium units. For example, in RV Park condos, it is usually the lot of land which is the “unit”. There are other types of “land condos” as well. I have seen boat docks and contiguous columns of water created as condominium units, and know of cases where horse boarding stalls have been subdivided into condominium units.

So, the precise answer to your question is that the definition of the boundaries between the unit and the common elements will be described in your declaration of condominium. In most cases, it is the “interior shell” concept you described, but that is not always the case.

Condominium, HOA, and Cooperative Association App Launches on iPhone and Android Devices

Posted in Education, Operations

bp_app_design_20140610_coopFT. LAUDERDALE, FL, August 28, 2014 – Volunteer boards and property managers responsible for the operation of condominiums, homeowner’s associations and coops will find their jobs a little easier thanks to a new Smartphone app from the Becker & Poliakoff Community Association Law Practice group.

The new “Pocket Condo, HOA and Coop Guide” is now available for free download on iPhone and Android devices. It can be found in the Apple store for iPhones and iPads by typing in “Condominium, HOA, Cooperative Law,” and in the Google Play store for most Android devices by typing in “Condominium, HOA, Coop Law.”

The app allows residents to search the laws governing their communities using simple key words or browsing the frequently asked questions and answers section with answers provided via video. Board members and managers in condominiums and cooperatives will appreciate the annual meeting calculator, designed to make the strict guidelines for scheduling annual meetings, as set forth by statute, easy to understand and follow.

Other features include the ability to create Board meeting minutes with detailed information about attendance, voting, and agenda items.

“We are committed to providing clients with the technology they need to make their jobs as voluntary board members as productive as possible,” said Ken Direktor, chair of the Community Association Law Practice group at Becker & Poliakoff. “Our app is designed to provide answers to commonly asked questions and help clients gain better access to the information they are seeking.”

The app is available to the public; however, clients of Becker & Poliakoff can also access proprietary information regarding accounts they have in collections through a client log-in portal.

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