Florida Condo & HOA Legal Blog : Florida Condo Lawyer & Attorney : Becker & Poliakoff Law Firm : Condominium & HOA Law Blog

You may wonder why the distinction is important. There are different laws for each type of association. The rights and responsibilities of owners are different in each type of community and procedural operations are likewise different. Here are a few examples:
 

Election Procedures:

Proxy wars in condominiums led to substantial revisions of the Condominium Act - one of those revisions eliminated use of proxies for elections and created a balloting procedure requiring advance nominations (no nominations from the floor) and a 2 envelope system for casting election ballots. Once an election ballot is received by a condominium association, it cannot be revoked. Most HOAs use general proxies for most matters, including the election of directors. In an HOA nominations are allowed from the floor. The proxy holder would then consider the nominees and vote in the manner they believe is appropriate without consulting the voter (proxy giver). Proxies can be revoked and a later dated proxy will control, leading some HOA owners to solicit proxies multiple times if they want to control the outcome of an election.

Quorum Requirements:

A quorum is not necessary to hold a condo election. The Condominium Act only requires participation (ballots) by 20% of the members in order to hold a valid election. This provision ensures that the members (owners) have a say in association leadership even if the majority of the members don't care and don't vote. HOA owners do not enjoy that benefit as there must be a quorum to hold an election. Many owners do not participate in association affairs. They ignore mailings, do not attend meetings and do not send back proxies. That number rises when homes are abandoned, in some stage of foreclosure, bank owned and the like. The lack of participation can prevent an election from being held and the existing board members stay in office which leads to owner complaints from time to time.
 

Dispute Resolution:

The State’s mandatory, non-binding arbitration program has been in place since 1992. The Court system became overburdened with condominium cases and litigation is highly procedural, creating a substantial disadvantage to pro-se defendants (homeowners without legal counsel). The purpose of the statutorily-mandated arbitration procedure is to provide a more informal and cost-effective forum for resolution of condominium disputes. HOAs don't have access to the arbitration system with 2 exceptions: election and recall issues. Thus, a homeowner frustrated because the board ignores all requests for records has to file a lawsuit after he or she sends a statutory offer to participate in pre-suit mediation. That HOA owner does not have an enforcement agency to call to get help obtaining the records and doesn't have the option of filing a user-friendly petition for arbitration. 
 

There are many other differences between condominium and homeowners' association operations and some associations turn to the Division of Florida Condominiums, Timeshares and Mobile Homes for guidance.  We will discuss one recent declaratory statement that addressed leasing office space in a future post.

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Board members at the Village of Doral Place have been embroiled in a legal battle involving the community pool for years. Clever investors bought the pool parcel at a tax sale in 2003. Condo owners didn’t even know about any property tax delinquency until the investor put up a locked chain link fence and a “no trespassing” sign, blocking entry. Finally, after years and years of litigation, the appellate court ruled that the swimming pool was a common element of the condominium, and the statute barring separation and partition of common elements prevented a tax deed sale even though the condominium association failed to pay the property taxes assessed against the parcel. The condominium association regained control after the court set aside the tax deed and it reimbursed the investors for the amount paid for the parcel, plus interest.

This case should remind community leaders of some basic due diligence tasks.

Many developments (whether HOA or condominium) contain property that for one reason or another is not categorized by the Property Appraiser as common element or common area. In some cases the property was not officially deeded to the association. Often, the tax collector will continue to utilize the developer’s prior address or an old management company address for all tax notices, since no one updated the records. If taxes remain unpaid, the county will hold a tax certificate sale. Whoever bids for the lowest interest rate for a particular property, and the taxes which are in arrears, will obtain the tax certificate. Once a tax certificate is outstanding for a period of two years, the tax certificate holder may apply for a tax sale to occur. Unfortunately, failure to update records maintained by the Property Appraiser can lead to issuance of tax certificates and then tax sales can take place without any real notice to the association. 

The distressed real estate market increases the chances that issues like these will ‘slip through the cracks’. Some developers went bankrupt or lost the property as a result of foreclosure before transferring title or completing the development. Simple title searches will often reveal whether all property subject to the covenants or declaration of condominium has been categorized properly for tax purposes.

Community leaders should be aware that under Florida Statute §193.0235, ad valorem taxes or non-ad valorem assessments by a county, municipality, special district, or water management district may not be assessed separately against common elements utilized exclusively for the benefit of lot owners within a subdivision, regardless of ownership. Any subdivision property that is designated on the plat or plan as a common element is included in this definition. Therefore, recreational facilities or property actually and exclusively used by the lot owners, regardless of ownership, and designated as such on the plat, approved site plan, or otherwise as a common element for the exclusive benefit of lot owners should not result in a separate tax bill, but many associations pay these taxes for years and years since they didn’t take the appropriate action. The same is true with respect to the common elements of a condominium. Valuation of the units for property tax purposes takes into account the common elements.

Don’t let this happen to you – make sure the community common elements or common areas are categorized and assessed properly before you pay years of tax bills or face similar disputes.

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One of the principles I learned when I first became a member of this Law Firm has now been called into question, at least somewhat, by a new ruling issued by the Fourth District Court of Appeal. 

I initially learned that the obligation of the association to maintain and care for the property is completely independent of and not contingent upon the obligation on the part of the owners to pay assessments.  I also learned that, conversely, the obligation to pay assessments (pursuant to a properly levied budget or properly levied special assessment) was likewise independent of and not contingent upon claims that the Association failed to maintain the property or otherwise failed to meet expectations.

Associations have become embroiled in litigation over the past several years.  Many times the response to a foreclosure lawsuit comes in the form of an attack against the board. Nonpaying owners have tried to justify their actions due to claims of neglect of the property, inefficient management or wasteful spending.  In the past those claims were not considered a proper defense in the foreclosure case.  The owner may, in fact, have a viable claim against the association (however, in many cases there is a non-actionable difference of opinion) and those claims would need separate consideration by the Court, but those allegations would not serve as an excuse for non-payment.

Recently the appellate court overturned a summary judgment ruling in favor of an association.  The ruling in E. Qualcom Corp. v. Global Commerce Center Association, Inc. is not final yet.  If the ruling becomes final then associations may have to jump through another hoop and avoid another obstacle to collect delinquent assessments.

Qualcom owned a unit in a commercial condominium and stopped paying assessments.  One of its defenses to the association's foreclosure included a claim for set-off.  The owner alleged that the association's failure to fix the roof led to damages to its property and loss of revenue.  The owner claimed it should be entitled to a reduction (or set-off) in the amount owed based on its losses.  How many times have you heard something similar?

The appellate court found it was improper to grant a summary judgment for the association in light of these unrefuted allegations.  The court said the association should have been required to refute these allegations or to show that the defense was legally insufficient.  What is odd is that prior case law found those types of defenses (the lobby isn't clean, the pool is shut down, there is water leaking into my unit) legally insufficient.

I'm sure community leaders and managers would agree that associations already face too many obstacles.  Let's hope this case does not create an additional one.

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The Cohn decision follows long-standing precedent in Florida regarding the applicability of statutory amendments to condominium or community association operations.  If the governing documents of the association contain "magic language"  incorporating statutes (in this case, the Condominium Act) as amended from time to time, statutory changes impact operations, rights and obligations of owners, the association governing the owners and, in some cases, third party vendors or service providers.  

With this recent ruling by the Florida Supreme Court you've probably heard statements similar to those below over the past month or so:

"Florida legislators cannot impair contract rights.  Since the declaration for my condominium doesn't limit co-owners from serving on the board together, my wife and I are entitled to both serve at the same time if we are elected." 

"Since the declaration for my condominium does not allow the board to suspend my use rights, I am entitled to use any part of the common areas.  It doesn't matter whether I pay assessments or not."

"The declaration doesn't include amendments to the law, therefore this board doesn't need to bother with the so called 'mandatory' arbitration process, we go straight to a lawsuit to address owner violations."

I've thus far refrained from providing an analysis of the case on this blog.  Since the ruling seems to have created somewhat of a panic among community leaders and managers, a discussion of the broader issue is appropriate.

Article I, Section 10, of the Florida Constitution prohibits the legislature from passing a law “impairing the obligation of contracts”. The U.S. Constitution does pretty much the same.  Declarations of community associations are considered, for most purposes, to be contract. So, the general rule is new laws cannot change the specific rights and obligations set forth in community association Declarations.  However, like all general rules in the law, there are exceptions.  The three major exceptions (that come into play most often with respect to community associations) are:

The "Magic Language" Exception:

This is basically an agreement to be bound by future changes to the law.  The Florida Supreme Court explained that both state and federal court cases in Florida have held that parties to a contract (declaration) voluntarily decide whether the details are protected or allow for future changes to the law.  By incorporating the law "as amended from time to time" in the governing documents, the parties (owners, the declarant, the association) agree that the declaration is subject to future changes in the law.

The Procedural/Remedial vs. Substantive Exception:

This provision in the constitution has been interpreted, by the courts, to only prohibit legislative changes to pre-existing “substantive” contract right. In very general terms, substantive laws address rights and obligations, while procedural laws describe the manner in which those rights and responsibilities are exercised (procedure) and enforced (remedy).   The analysis necessary to determine what is considered "substantive" and what is considered either "procedural" or "remedial" is often tricky.  Disagreements whether something is substantive or procedural/remedial often wind up in the courts (including the dispute in the Cohn case over allocation of voting rights).  This new case reminds us to conduct the analysis before automatically acting as if the new law controls, especially when the governing documents do not contain the "magic language" referenced above.

The Compelling Public Purpose Exception:

Just because a law impairs a substantive contract right doesn't mean it is always unconstitutional (either on a state or federal level).  If it can be shown the law is necessary or appropriate to achieve some compelling public purpose, it will trump pre-existing contracts.  Think about minimum wage or child labor laws.  Think about housing discrimination laws or life and safety regulations.  It was not unusual for early deed restrictions to prohibit people of color (not stated that way) from buying property or living in a community.  It was and still is not unusual for state and local governments to adopt new building codes for life and safety purposes that apply to existing buildings.

Now, think about the ruling from the other end of the spectrum.  If new laws didn't apply to existing communities (unless there was "magic language") many owners would not have the right:

• to attend or participate at board meetings
• to review financial records
• to display the U.S. flag
• to invite public officials or candidates to speak
• to prevent the board from materially altering or substantially changing condominium common elements
• to install hurricane shutters and much, much more

Consequently, there is no reason to be overly alarmed as a result of this Florida Supreme Court ruling.  Yes; you may want to discuss the pros and cons of adding language to the governing documents to incorporates future statutory changes with counsel.  Yes; you should consult with counsel before taking action solely in reliance on the language contained in new laws.   However, you should not automatically assume none of the laws apply to you (as owners, community leaders, managers, etc.) simply because you cannot find the "amended from time to time" language in the documents governing your community.

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Appellate Court Allows Homeowners to Build and Maintain Structure on Lot Despite Recorded Restrictions. 

We've discussed the Marketable Record Title Act (MRTA) on this site in the past in the post entitled:

HOA Leaders Need to Understand MRTA.  Please refer back to that post for background information concerning this important issue.

There are several appellate decisions involving MRTA issues, including at least two cases decided by the Florida Supreme Court.  Nonetheless, association practitioners continued to debate whether certain actions prevented MRTA from extinguishing restrictions and covenants found in a community declaration.  The Second District's recent decision in Matissek v. Waller addresses one of the debated issues.

Hidden Lakes Estates is a deed restricted community in Pasco County, Florida.  It was developed as an airpark community that would include its own airport and permit residents to build and maintain airplane hangars on their lots.  The declaration of restrictions specifically required homeowners to use "masonry or similar materials" in the construction of any buildings - including airplane hangars.  There were amendments to these restrictions recorded several years later, but none of the amendments changed the masonry building construction requirement.  In fact, the masonry construction requirement was re-stated in a recorded amendment.

Mr. and Mrs. Matissek bought some property in the community in 1995 and in 2007 started to build a steel framed airplane hangar with steel paneled walls.  One of the neighbors notified Mr. Matissek that the restrictions prohibited steel framing and required the use of masonry construction.  That didn't stop Mr. Matissek - he built his hangar they way he originally intended.

The neighbor, Mr. Waller, did not appreciate this violation of the deed restrictions, so he filed a lawsuit to enforce the masonry requirement.  His lawsuit contended the building was in violation and therefore must be removed.  Mr. Matissek responded by saying the restrictions could not be enforced against him due to MRTA.  The restrictions were originally recorded in 1971.  Mr. Matissek claimed that his property was not bound by those restrictions, since 30 years had come and gone long before construction began.

The trial court somewhat agreed with Mr. Matissek and somewhat agreed with Mr. Waller.   It said that the 1971 recorded restrictions were extinguished by MRTA, but since the masonry requirement was re-recorded in 1977 (in an amendment), the amendment was still enforceable.  The trial court ordered Mr. Matissek to remove the hangar based on the 1977 amendment, but he wasn't ready to give up just yet so he filed an appeal. 

The appellate court agreed with Mr. Matissek - it found that the 1977 amendments could not stand on their own - those amendments were revisions (or re-statements) of the 1971 document.  The amendments were not "muniments" of title.  These amendments did not change or modify the title to the property and were not considered a "vital link in the chain of title".  It didn't matter that the amendments were recorded within 30 year period.  The appellate court reversed the order requiring Mr. Matissek to remove the steel hangar and ruled that his property was free and clear from the Hidden Lakes Estates restrictions. 

Community leaders can prevent this type of situation from happening in their communities.  Florida law allows homeowners' associations to extend the restrictions if they haven't expired.  The law also allows homeowners' associations to breath new life into restrictions that have inadvertently expired.  Discuss these issues with your counsel before problems result.

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What if a situation can’t wait for arbitration to run its course?
The Florida legislature intended arbitration to operate as tool for obtaining resolution to a dispute that was both more cost effective and time efficient than traditional litigation. [§718.1255(3)]. The intent of the legislature however does not always come to fruition as arbitration decisions are not binding unless the parties fail to seek a trial de novo within 30 days of the arbitrators ruling. [§718.1255(4)(k)] Even before the resolution phase, parties may delay the progress of the arbitration by seeking discovery and conducting motion practice which can delay the final arbitration hearing. After the decision is issued, further delays can abound by a party seeking trial de novo in a judicial setting.

Some situations cannot wait for an arbitration proceeding to conclude even though the Statute requires arbitration as condition precedent to filing suit. For example if an association is undergoing a concrete restoration project and an owner refuses to allow the contractor to inspect the unit to determine the extent of the restoration required, the appropriate course of action is to file a petition for arbitration. The problem is filing for arbitration would delay the entire project, place the association at risk of breaching the restoration contract, place the remaining units and/or common elements at risk of additional damage and so forth. In such a situation the association could file a motion to stay the arbitration. [§718.1255(4)(c) and 61B-45.011 F.A.C.] In seeking the stay, the association must provide the arbitrator with a petition that is verified (signed by a board member and not simply the attorney) and which alleges facts which would support the entry of an injunction. Upon review of the motion, the arbitrator may stay the arbitration to permit the association to obtain an injunction through traditional legal means. It is important to know that the stay is at the discretion of the arbitrator such that the motion and verified petition should succinctly set forth the emergent nature of the situation (emphasizing the harm which will result), the likelihood of success on the merits, argument that the granting of the stay would not be adverse to the public interest and further that no other remedy at law exists.

Should the arbitrator grant the stay, the association would then file a claim for injunctive relief with the court. If the injunction is granted, the order is filed with the arbitrator and the association can then move for legal fees and costs for the arbitration. Should the injunction be denied, the prevailing party could seek to have the matter returned to the arbitrator and could seek legal fees and costs for prevailing on the injunction issue.
 

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Is arbitration binding?
Under §718.1255, arbitration is not binding unless the parties agree to be bound by the decision or a party fails to seek a trial de novo within 30 days of the arbitrators ruling. Trial de novo is a fancy way of saying new trial. In essence, the parties go before a trial court as if the arbitration had never happened, filing a complaint, responding to it, seeking discovery, and then resolving the case through motion practice or a trial.

Are arbitration rulings binding on Courts?
No and yes.

In a trial de novo setting, the decision of the arbitrator is not binding. In Davis v. Condo. Ass’n of Plaza Towers South, Inc. a dispute arose between the owner and the association involving an air conditioner installed by the owner. After non-binding arbitration and a request by the owner for a trial de novo, the trial court granted the association's motion for summary judgment based on the arbitrator’s findings. The Appellate Court reversed holding that while the arbitrator’s decision was admissible in the Trial Court proceeding, it could not be used to bind the Trial Court in making a decision. In other words, the issues of fact resolved by the arbitrator still needed to be resolved by the Trial Court as part of the case. and summary judgment could not be granted solely because the arbitrator had had otherwise.

After the time for a trial de novo has lapsed, yes. Remember, if no one has sought a trial de novo, the arbitrator’s decision becomes binding. At that point, if there is a filing for enforcement and the party fighting enforcement tries to argue the merits of the case, the Trial Court can do nothing to change the ruling. It must simply proceed with enforcement.

How is an arbitration award enforced?
A party may seek to enforce an arbitration award once it is issued. This is done by filing a petition in court. The court however cannot grant the petition until such time as the time for a trial de novo has expired without such a request being made. Once granted, the failure of the losing party to comply with the award could result in a finding of contempt of court and sanctions against the party.

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There are times when a person’s “day in court” is not immediately available in the condominium setting in light of the arbitration provision in the Condominium Act [§718.1255]. This post is one of three which will be address different aspects of arbitration (1) general information; (2) binding nature and enforcement; and (3) time sensitive disputes.

In General
In the condominium setting, parties must go through arbitration before a case can be filed in court when the disagreement (i.e., dispute) concerns the Board’s authority (i) to require any owner to take/not take a specific action regarding the unit or its appurtenances or (ii) to alter/add to the common areas/elements; or the failure of the Board to (i) conduct elections and meetings properly; (ii) adequately notice meetings; or (iii) allow inspection of records.

Before filing an arbitration petition, one must review both the governing documents and the Condominium Act to ensure all conditions precedent to the filing of the petition have been met. For example, §718.1255(4)(b) requires the petitioner (plaintiff) to provide the respondent (defendant) with notice of the dispute. This notice must specifically state the nature of the dispute, advise what it would take to resolve the dispute, provide a reasonable time for the resolution to occur, and advise of the consequences for failure to resolve the issue. There is no hard and fast rule as to what time frame is deemed reasonable but common sense would dictate the deadline should take in to consideration the nature of the remedy sought and the nature of prior notices (verbal or written) to the violator. A statement that arbitration or other legal action will be pursued serves as information regarding the consequences for failing to remedy the violation (there is no requirement you disclose legal strategy or the “smoking gun”). The notice should also include a statement that legal fees and costs will be sought as part of the action, to further place the violator on notice of the repercussions of continued non-compliance.

The petition itself should follow the format put forth by the Division in Form ARB 6000-001 and must assert an entitlement to legal fees and costs and the basis for that entitlement. The petition must be accompanied by a filing fee at that time it is filed with the Division. On receipt of the petition, the Division will first determine if it has jurisdiction to hear the case. This means nothing more than the Division will determine if a dispute exists as defined by the statute. If one does exist, the Division would then require a response from the respondent. The arbitration then proceeds with discovery if merited, motions and/or a final hearing. FYI, discovery if permitted by the arbitrator can be conducted in the manner set forth by the Florida Rules of Civil Procedure and the arbitrator can also issue subpoenas requiring witnesses to appear and the production of documents. The Florida Administrative Code [61-B45] also provides guidelines for handling discovery and other arbitration processes.

Once the case is ready, the parties can seek to resolve the case via motions (similar to motions for summary judgment) and/or through a final hearing (similar to a trial before a judge). At the conclusion of the proceeding, the arbitrator’s decision must be in writing.

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Parton v. Palomino Lakes Property Owners Association, Inc.
 

While the legal process may seem slow and involve a significant amount of paperwork, this case shows what can happen if owners and directors decide to take enforcement matters into their own hands.

The Partons owned a lot within the Palomino Lakes Community, subject to the governance by the Palomino Lakes Property Owners Association, Inc. The governing documents prohibited mobile homes. The Partons decided to install a modular home and attempted to have it delivered to the homesite. Four (4) owners, (three [3] of which being members of the board of directors of the association) blocked the delivery by blockading the entrance to the subdivision. This happened on three (3) separate occasions.

As a result, the Partons filed suit against these owners and the Association and immediately obtained injunctive relief, as the Court apparently agreed that the modular home to be permanently attached to a concrete slab, was not a mobile home. The Partons amended their complaint to add counts for damages based upon tortuous interference with contract and civil conspiracy. A jury awarded the Partons $5,000.00 in compensatory damages and further awarded punitive damages against Larry Vinson in the amount of $60,000.00, Ila Vinson in the amount of $40,000.00 and against Linda Drielbelbis in the amount of $50,000.00! The Court also awarded the Partons prevailing party attorney’s fees and costs.

The Partons actually appealed from the Final Order, primarily on two grounds claiming:

1. The compensatory damage award should not be divided as an award of $1250 against each individual defendant. Instead, the individual defendants should be jointly and severally liable for the compensatory damages; and
2. The award of attorney’s fees didn’t explain how the Court calculated the fees and why they were reduced for the work associated with the tort claims. Moreover, the Partons claimed that all the individual defendants should be jointly and severally liable for the fee award.

The Court agreed with both contentions and instructed the trial court to revise the judgment to reflect that all four (4) individual defendants were responsible (jointly and severally) for both the compensatory damage award of $5,000.00 and the attorney fee award for that portion of the work was likewise the responsibility of all of them, jointly and severally.

Having those portions of the judgment reflect joint and several liability enables the Partons to collect the entire sum from one or less than all defendants, leaving those payors responsible for seeking contribution from the other defendants.

The extreme personal liability in this case could have easily been avoided by consultation with legal counsel when the problem first arose. Proper interpretation of the deed restrictions, as well as counseling regarding the procedures by which to enforce the deed restrictions is crucial to successful association operations. The reported decision doesn’t explain how the board members were held personally liable, but resorting to self-help under these circumstances was clearly wrong, leaving an undesirable outcome.
 

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Fourth District Court of Appeal Enunciates Two-Pronged Test to Evaluate Decisions Made by the Board of Directors of a Community Association.

The officers and directors of community associations have a fiduciary relationship to the members (owners), as stated in §718.111(1)(a) and §720.303(1), Florida Statutes.  The directors are obligated to discharge their responsibilities in good faith.  Board decisions are generally protected by the "business judgment rule".  The theory behind this rule is that Courts should not substitute their judgment for the judgment of the elected or appointed board members, so long as the members of the board acted in compliance with established standards of conduct.   Florida Statutes, Section 718.111(1)(d), provides:

 (d) As required by s. 617.0830, an officer, director, or agent shall discharge his or her duties in good faith, with the care an ordinarily prudent person in a like position would exercise under similar circumstances, and in a manner he or she reasonably believes to be in the interests of the association. An officer, director, or agent shall be liable for monetary damages as provided in s. 617.0834 if such officer, director, or agent breached or failed to perform his or her duties and the breach of, or failure to perform, his or her duties constitutes a violation of criminal law as provided in s. 617.0834; constitutes a transaction from which the officer or director derived an improper personal benefit, either directly or indirectly; or constitutes recklessness or an act or omission that was in bad faith, with malicious purpose, or in a manner exhibiting wanton and willful disregard of human rights, safety, or property.

The new test to determine whether the board's decision should be protected by the business judgment rule comes from a case where an owner prevented the association from extending balcony concrete repairs into her unit.   The engineer for the project said to remove the concrete four inches beyond the corrosion, which necessitated work in the unit, not just the balcony.  The owner hired her own engineer who said the extra work wasn't necessary.

The association sued to gain access to the unit to perform the repairs recommended by the project engineer.  The appellate court explained that its review of the board's decision was limited by the business judgment rule and held:

...courts must give deference to a condominium association's decision if that decision is within the scope of the association's authority and it is reasonable - that is, not arbitrary, capricious, or in bad faith [emphasis added]

The case was sent back to the trial court for analysis pursuant to the new test, to wit:

• Does the board have authority to invade the unit to perform common element repairs?
• and, if so
• Is the decision to do so reasonable or, in other words, was the board decision to invade the unit arbitrary, capricious or made in bad faith?

This case is hot off the press and therefore not final if the parties file motions for rehearing.

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I talked about the distinction between a carrier's duty to defend and the duty to indemnify early in the year in connection with the U.S. District Court's ruling that a D&O policy did not provide coverage for claims of breach of fiduciary duty, breach of contract and negligence. In Eastpointe Condominium I Asn. Inc. v. Travelers Casualty & Surety Company an owner sued the association claiming the board of directors failed to adequately maintain the roof and other portions of the property.  The carrier took the position that the "property damage" exclusion in the policy controlled.  The Court agreed.

The 11th Circuit Court of Appeal recently affirmed that decision in an unpublished opinion issued on May 20, 2010.

These types of claims are pretty typical.  A unit owner (or several unit owners) feels that the board is not "doing its job" and files suit seeking various remedies often including:

• injunctive relief (demanding that work, repairs, maintenance or improvements, be performed);
• reimbursement for costs sustained as a result of damages to property that would not otherwise exist if the board appropriately attended to the needs of the property;
• damages for the loss in property value, loss of enjoyment of the property, loss of use and the like; and
• reimbursement of attorney's fees and costs for bringing the claim.

Many of these cases involve differences in opinion as to whether maintenance/repairs were or are necessary, what products and methods to use for the repairs or maintenance, which contractor is better, etc.  In many cases the amount of money sought by the unit owner or owners is less than what it costs to defend the claims.   Defense costs can easily eat into the association's cash flow.

Isn't the association's board of directors protected against claims of negligence or breach of fiduciary duty?  If the D&O policy has a similar property damage exclusion, maybe not.

The Traveler's D&O policy excluded coverage for loss in connection with any claim "for or arising out of any damage, destruction, loss of use or deterioration of any tangible property including ... mold, toxic mold, mildew, fungus, or wet or dry rot."

The Eleventh Circuit departs from an earlier ruling that required a carrier to cover claims brought by homeowners against the association.  In Lumbermens Mutual Casualty Co. v. Dadeland Cove Section One Homeowners Asn. Inc., the District Court found that the D&O policy covered property damage losses based upon claims of breach of fiduciary duty, regardless of the tangible property exclusion.

What does your policy cover?  What does it exclude?  If you're not sure, please speak to your agent and/or have your attorney review and compare the policies before you renew because it seems coverage denials (and disputes) are becoming more prevalent.

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Fourth District Court of Appeal Rules that Lender Cannot be Compelled to Pay Assessments Prior to Acquisition of Title.

Deutsche Bank National Trust v. Coral Key Condominium Association (at Carolina), Inc. and Luna, Opinion April 14, 2010.

An earlier post discussed the Third District's appellate ruling in the U.S. Bank National Ass'n v. Tadmore case which held that the Court cannot require a lender to pay condominium assessments before its completes its foreclosure case and obtains a Certificate of Title or otherwise acquires title to the unit.  The Fourth District ruled the same way in a case involving the Coral Key Condominium Association.  The ruling is hot off the press, so its not final yet.  If anything changes we will report it on this site.

Do these rulings mean the Association is powerless when a bank is foreclosing against a property within the community?  No - not at all.

The Motion to Compel filed in both cases asked the Court to require the lender to pay assessments immediately, reportedly since the mortgage foreclosure cases were taking so long.  The Associations supported their request for relief upon notions of equity and fairness.  Sure, it is unfair.  The Association has to insure the property, pay for common utilities, pay for maintenance and repair of the property, etc. all while the unit owner isn't paying assessments.  The lender derives a benefit from the Association's actions - its collateral is preserved and insured at the expense of all the paying unit owners. But, as my Dad used to say, life just isn't fair sometimes.

That doesn't mean Association's are without options when a bank is foreclosing against a property in the community, especially when there is a feeling that the bank is 'dragging its feet'.  The Florida Rules of Civil Procedure allow the Courts to establish deadlines or schedules for certain actions to take place.  Any party is entitled to request a case management conference at which the judge may (among other things):

• Set deadlines for service of motions, pleadings or other papers;
• Limit, schedule, order or expedite discovery;
• Require preliminary stipulations to narrow the issues; and
• Set a date for trial.

Any party to the case can advise the Court that the case is ready for trial.  Basically, once the pleadings are closed (all motions concerning the pleadings have been resolved or withdrawn or 20 days after the last pleading is served), the case is eligible for placement on the Court's trial calendar.   

The Court has the power to award sanctions against a party that fails to comply with its scheduling orders and our Firm has had success showing that the lack of action on the part of the bank (and/or its counsel) justified sanctions.  

That is not to imply that every bank in every case has done something wrong, even if the case takes what seems to be an extraordinarily long time. There are legitimate reasons that a foreclosure case can be on 'hold'  Owners/borrowers may be trying to modify their mortgages, there may be an offer for a short sale on the property, and/or a bankruptcy filing may prevent the bank from moving forward, etc.   You know, there is a pretty big load on the Courts right now as well.

Nonetheless, we have learned that some lenders deliberately allow some foreclosure cases to linger for various reasons.  Those are the cases that Associations should address - first with the lender (actually, lender's counsel) and then with the Court.  It is important to discuss your options in each of the cases involving property in your community with counsel.  The board can't be expected to make reasonable strategy decisions unless it is fully advised.

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Appellate Court sides with Homeowner in Parking Enforcement Litigation.  Owner Permitted to Park Large Pick-Up Truck in Driveway.

Eagles Master Association, Inc. v. Vizzi - link to Summary Judgment Ruling.

Interpreting governing documents of condos & HOA is tricky sometimes.  While there is an emphasis on the 'plain meaning' of the words - sometimes the exact meaning of the words doesn't make sense in the context or is otherwise unreasonable for one reason or another.  The Second District Court of Appeal found that the plain meaning of one of the sentences of the Eagles Master Association's Declaration didn't make sense on its own.  After considering several factors, it found that the Association's interpretation of the Declaration was simply unreasonable, inconsistent with other provisions and therefore incorrect.  The result?  Victory for the homeowner after reportedly spending two hundred thousand ($200,000) dollars in legal fees - some or all of which to be reimbursed by the Association.

Like any case, this case involved several legal issues.  The homeowner challenged the legitimacy of the Master Association's board.  There was the issue of whether the Master Association declaration of covenants had priority over the Sub-Association documents in the event of a conflict.  There were amendments to analyze as well.

The Master Declaration said (in part) the following:

Vehicles and Parking.  No vehicles shall be regularly parked in The Eagles except on a paved driveway or inside a garage.  No trucks or vehicles which are used for commercial purposes, other than those present on business may be parked in The Eagles unless inside a garage and concealed from public view. Pick-up trucks, boats, trailers, campers, vans, motorcycles and other recreational vehicles ... shall not be permitted in The Eagles except while loading or unloading the contents thereof or while parked inside a garage and concealed from public view.

 The Sub-Association Declaration said (in part):

Vehicles.  No motor vehicles shall be parked on the Properties except on paved or concrete driveway or in a garage.  No motor vehicles which are primarily used for commercial purposes, other than those present on business, nor any trailers, may be parked on the Properties unless inside a garage and concealed from public view. Boats, trailers, commercial trucks, commercial vans, motorcycles and other recreational vehicles shall be parked inside of garages and concealed from public view.

Seem pretty similar, right?

The Master Association took the position that its declaration required all pick-up trucks, vans, etc. to park in an enclosed garage (concealed from view), except for short periods of loading and unloading.  This truck was too large to fit inside the garage.  The Court disagreed.  It said:

1. Interpreting the declaration was a matter of law;
2. If at all possible, any inconsistent provisions should be reconciled;
3. All of the terms & provisions should be read together with the goal of making each term meaningful; and
4. Any doubts must be resolved in favor of the free use of the property (against the party seeking to enforce the restriction).

In the end, the Court found that the better interpretation of both documents lead to the conclusion that while commercial trucks and commercial vans were banned from parking on the driveways unless garaged or there for business purposes, other trucks (including pick-up trucks and SUV's registered as trucks) used for personal transportation were allowed.

Community leaders should analyze the current documents and consult with counsel to ensure that the restrictions and covenants are written in a way that supports the common interpretation.  Remember, any ambiguity is resolved against the person/entity trying to enforce the document.  Thus, review your existing practices and consider amending the documents to create enforceable rules and regulations that fit your community's goals and residents' needs.

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Fourth District Court of Appeal Affirms Ruling Invalidating Amendments to Master Declaration of Covenants, Conditions and Restrictions Governing the Ironhorse Community. 

With the economy the way it is, country clubs are losing members while costs continue to rise.   The costs associated with maintaining and operating a golf course and related club facilities, including the clubhouse, restaurant, etc., as well as the staff salaries and administrative expenses are enormous.  Over the past several years country clubs have relied on homeowners in the community(ies) to fund these expenses. While all owners are automatically members of the homeowners association, typically membership in the county club was not mandatory. The Declarations of Covenants and Restrictions frequently made membership voluntary.  In order to capture new memberships (and additional sources of revenue) several communities amended their governing documents to require all homeowners to join the country club (with the attendant responsibility to pay dues, initiation fees, restaurant charges, etc.).  Others adopted amendments require all new purchasers to join the club.

Many of these amendments resulted in litigation.  The Hamlet community reportedly resolved several lawsuits by waiving membership requirements and fees for homeowners that participated in the lawsuit.  Similar settlements were reached in connection with a case against the Willoughby Golf Club after the trial court ruled that the amendments were invalid.

Appeals were pending in two other cases involving challenges to amendments creating mandatory memberships - that is until the court affirmed the ruling in the Ironhorse case this week. 

The trial court ruling in the Ironhorse case found that amendments imposing mandatory membership in the club, the levy of membership fees and dues were invalid and unenforceable. It said:

[Homeowners] who had once justifiably relied upon the recorded covenants and restrictions, were now required to obtain membership and pay more dues and fees in the form of common assessments to Association, originally set at $2,500.

The Court also found:

An amendment, or a covenant ... is unreasonable as a matter of law if it destroys or substantially impairs the scheme of the development.  Since this Court hereby finds that mandatory membership in the Club destroys and impairs the scheme of the Ironhorse community as originally intended by the developer and relied upon by the [homeowners], then no question need be reserved for the trier of fact.  While the developer may have has its best intentions in providing for amenities and recreational facilities, such considerations must not, and should not, trump an individual's right to rely on previously recorded documents and promises as was done here.

A Motion for Reconsideration and Rehearing of a Final Judgment entered against the Aberdeen Property Owners Association, Inc. is still pending.  In that case a sub-association (Bristol Lakes) challenged an amendment requiring new purchasers of homes to join the country club.  Aberdeen sought to disqualify the trial court judge after entry of the Final Judgment and recently obtained that relief from the appellate court.

The Ironhorse ruling creates questions about the enforceability of amendments adopted by other communities.  These amendments (and actions taken as a result of the amendments) may become a source of potential exposure to liability.  I encourage community leaders to undertake a comprehensive analysis of potential claims with Association counsel.  Perhaps a second opinion from 'fresh eyes' is worthwhile as well.

We will report on the Aberdeen case when more information becomes available - as well as any developments in the Ironhorse case.  Although the Fourth DCA issued its ruling, there are still opportunities for rehearing and/or other actions.

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Appellate Court Allows Owner to Seek Injunctive Relief and Reverses Award of Attorney's Fees and Costs.

In Mitchell v. Beach Club of Hallandale Condominium Association, Inc., 17 So.3d 1265 (Fla. 4th DCA 2009), the Fourth District Court of Appeal ruled that a condominium owner has the right to proceed with a lawsuit aimed at preventing the association from collecting a special assessment.

The association levied an assessment for close to $1.3 million and sought to collect $4,194 from each unit owner.  One of the unit owners objected to the process and filed a lawsuit to prevent the association from collecting the assessment.  The association's attorney filed a motion to dismiss the case and ultimately convinced the trial court to rule in its favor.  The trial court later awarded the association attorney's fees and costs as the 'prevailing party' in the lawsuit.

The appellate court totally disagreed and reversed the trial court ruling.  It found:

1. Mandatory non-binding arbitration pursuant to Section 718.1255, Florida Statutes was not necessary, as the statute itself excludes any disputes relating to the imposition or collection of an assessment;
2. The Court had jurisdiction to address the claim even though the amount of the assessment against this particular owner was less than $5,000, since the owner sought injunctive relief, not any monetary relief; and
3. Injunctive relief was appropriate to prevent or to challenge a violation of the Condominium Act pursuant to Section 718.303, Florida Statutes.

The complaint filed by the owner alleged that the association failed to give proper notice of the meeting, failed to obtain a quorum and it used expired proxies.  Since the special assessment would be invalid if those claims were true, the complaint was sufficient "to warrant a permanent injunction".

This case shows that every association needs to maintain the records necessary to prove it adopted assessments (whether special or annual) properly.  Otherwise it may lose the ability to collect those assessments and create expensive, time consuming and acrimonious legal disputes if some owners pay and others do not.  Thus, records indicating which and how many owners participated in a meeting (in person or by proxy) are important, as is a verifiable registration procedure.  All voting documents, ballots, proxies and sign-in sheets must be retained for at least one (1) year and notices, affidavits or proof of mailing and the minutes of those meetings retained for seven (7) years. 

Please contact us if your association needs assistance creating a records retention policy or procedures governing unit owner inspection and photocopying of official records.

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Just how far can a Board go in placing restrictions upon an owner’s ability to smoke in a condominium association? Many Boards want to prohibit smoking in or upon the common elements. Some Boards want to prevent owners, tenants and guests from smoking within the units.

With several states (including Florida) having recently banned smoking in public places, this issue has been the topic of much conversation among condominium directors. There is no appellate case decision in Florida to guide us here. However, this author believes that an association can, through an amendment to the Declaration of Condominium, prohibit smoking within the condominium common elements and the units. In fact, the Board could probably do it by adopting a rule which, in most cases, wouldn’t even require a membership vote.

The Florida Clean Indoor Air Act (“the Act”), contained within Chapter 386 of the Florida Statutes, provides a uniform state-wide code to keep public places and public areas reasonably free from tobacco smoke. The Act prohibits people from smoking, except in designated smoking areas contained within the common elements. However, association’s can never permit smoking in the common element hallways, corridors, lobbies, aisles, water fountain areas, restrooms, stairwells, entryways, or conference rooms. All other indoor “common areas” are also “no smoking”, unless the Board has specifically designated the area as a smoking area. Smoking may occur outdoors unless the Board has adopted a no smoking policy with respect to outdoor areas.

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Developer's Challenge to Notice of Meeting not Proper Defense to Construction Defect Claim

Lake Forest Master Community Association, Inc. v. Orlando Lake Forest Joint Venture, et al., Case No. 5D08-2096

Lake Forest Master Community Association, Inc. ("Lake Forest") filed a lawsuit for construction defects against the Developer, after the membership voted in favor of doing so as required by Section 720.303(1), Florida Statutes. 

The Developer claimed that Lake Forest shouldn't be permitted to continue its lawsuit since it failed to properly notice the meeting.  The trial court agreed and entered Summary Judgment against Lake Forest.

Section 720.303(1), Florida Statutes, provides, in relevant part:

After control of the association is obtained by members other than the developer, the association may institute, maintain, settle, or appeal actions or hearings in its name on behalf of all members concerning matters of common interest to the members, including, but not limited to, the common areas; roof or structural components of a building, or other improvements for which the association is responsible; mechanical, electrical, or plumbing elements serving an improvement or building for which the association is responsible; representations of the developer pertaining to any existing or proposed commonly used facility; and protesting ad valorem taxes on commonly used facilities. The association may defend actions in eminent domain or bring inverse condemnation actions. Before commencing litigation against any party in the name of the association involving amounts in controversy in excess of $100,000, the association must obtain the affirmative approval of a majority of the voting interests at a meeting of the membership at which a quorum has been attained.

Lake Forest appealed the ruling.  While it could have re-filed, re-filing would have impacted its case tremendously due to a change in Section 95.11(c)(3), Florida Statutes, which is the statute of repose.  The statute of respose changed from 15 to 10 years.  Re-filing the lawsuit would have eliminated any claims associated with latent construction defects that existed in excess of ten (10) years.

The appellate court evaluated the procedures utilized by Lake Forest to call the annual meeting, as well as the procedures utilized to recess and reconvene the meeting. The court noted:

• Notice of the annual meeting was furnished by mail to all owners and posted as required by law.  The mailing included a general proxy;
• Minutes of the annual meeting indicated that the members agreed to recess the meeting and reconvene it for specific date. There was testimony indicating that the President likewise announced the time and place for reconvening the meeting;
• At the reconvened meeting, the President announced the annual meeting would be reconvened again at a specific date, place and time.  That information is reflected in the minutes;
• A Motion was made, seconded and the majority of members participating voted in favor of filing legal action against the developer when Lake Forest reconvened the meeting the second time.

The Court relied on both Section 720.306(7), Florida Statutes and the Association's bylaws when concluding it was not necesary for Lake Forest to send written notice of reconvening the meeting to the entire membership, since the date, time and place were announced before it went into recess.  

Moreover, the Court also concluded that dismissal of the case by Summary Judgment was not appropriate even if the Association failed to comply with technical procedural rules.  Rather, it said the case should have been abated for a period of time to enable the Association to correct procedural deficiencies.

This case clarifies several important points of law for community associations.

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Court Rules in Favor of Association After Board Requests More Information Regarding Need for Service Animal

U.S. District Court, Northern District of Florida
Case No.: 3:07-cv-97-RV/EMT

On March 12, 2009 the United States District Court for the Northern District of Florida entered Summary Judgment in favor of a condominium association sued for purportedly violating the Fair Housing Acts. Summary Judgment was also granted in favor of the association on a claim of Intentional Infliction of Emotional Distress.

The issue? A request to keep a pet, oops, not a pet, but a certified service animal, on the condominium property.

Shoreline Towers Phase I had a long-standing “no pet” policy. Mr. Hawn knew that at the time he purchased his unit in 2004. However, in 2005, he urged the Board to allow owners to keep pets on the property after he adopted a puppy. The Association took no action in response to that plea.

Over a year later, Mr. Hawn requested permission for a reasonable accommodation due to a disability. As noted elsewhere, the Fair Housing laws require community associations to make reasonable accommodations in policies or practices and allow reasonable modifications to the physical property if necessary to afford a disabled person the equal opportunity to use and enjoy the dwelling. Mr. Hawn claimed he was disabled (within the meaning of the law) and his dog ‘Booster’ was a trained, certified service animal. He also provided the Board with two (2) letters, one from a psychologist who indicated Mr. Hawn suffered from severe panic attacks and prescribed a service animal to help him cope with his disability. The other letter was from a chiropractor who said a service animal would assist Mr. Hawn with mobility issues.

Mr. Hawn likewise addressed this issue again with the board at a meeting, describing how important ‘Booster’ was to him.

The Board requested documentation to support Mr. Hawn’s claim. It also asked for the qualifications of the medical providers that supplied the two letters. There was no response.

A few weeks later the Board requested more information specifically about 1.) the nature of the impairments; 2.) how the pet was necessary to overcome the impairments; and 3.) whether there were other corrective measures that would serve the same or functionally equivalent purpose. The request for permission to keep the pet was denied pending receipt of further information.

Instead of providing additional information, Mr. Hawn filed a complaint with the Florida Commission on Human Relations (FCHR). The investigator issued a finding of “Reasonable Cause” to believe a discriminatory act occurred which prompted Mr. Hawn to file a lawsuit in Federal Court for discrimination in violation of both the Federal and Florida Fair Housing Acts. Mr. Hawn also sought damages for Intentional or Reckless Infliction of Emotional Distress and Injunctive Relief.

Someone is entitled to damages, injunctive relief, or both, from a housing provider for discrimination if they show:

1. They are disabled (as defined by the law) & the housing provider knew or should have known of the disability; and
2. An accommodation (or modification) is necessary to afford the disabled person the equal opportunity to use and enjoy the dwelling; and
3. The requested accommodation (or modification) is reasonable; and
4. The housing provider denied or refused to make the requested accommodation.

The Court found that the Board was perfectly well-within its right to question the disability claim, especially since Mr. Hawn obtained the dog a year earlier, lobbied to change the rules without any mention of a disability and failed to provide further information upon request. Once discovery took place, the Association learned that Mr. Hawn only had two appointments each with the psychologist and chiropractor that wrote the initial letters. The Court found that the information initially provided was not sufficient to prove that the Board “knew or should have known” that Mr. Hawn was disabled and therefore failed to show that the Board knew the accommodation was reasonably necessary. The Court stressed the requests for additional information and the temporary nature of denial, concluding that Mr. Hawn could not show the Board wouldn’t make an accommodation if he was able to show the accommodation was necessary to ameliorate the effects of the disability.

Community associations should learn important lessons from this favorable case. First, it is important for all community leaders and members of the management team to be aware of the obligations of housing providers pursuant to Federal, State and local fair housing laws. Second, requests for reasonable accommodations or modifications cannot be ignored and must be addressed in a logical way. Finally, it is important to consult with legal counsel as these are highly charged and sensitive issues.

We will report on any updates or appellate decisions regarding this case. If you haven’t done so already, please consult with your Community Association Attorney about creating fair housing policies and procedures for consideration of requests for accommodations and/or modifications.

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A.    Facts:
In this case, the Cypress Bend IV Condominium Association (“Association”) filed a petition for arbitration against unit owners Cheryl Pepper and Richard Frisbie (“Respondents”). The Association alleged that the Respondents violated Article XIII, Section E of the Declaration of Condominium (“Declaration”) and Federal Law by installing a satellite dish on the common element roof of the condominium building. As relief, the Association sought the removal of the satellite dish from the common element roof. The Respondents admit they have installed the satellite dish upon the common elements, however, they claim that the Association has allowed other unit owners to install satellite dish antennas on the roof. Thus, the Respondents assert several defenses, including the affirmative defenses of selective enforcement and estoppel. The Respondents also argued t hat the Association, in prohibiting the placement of the satellite dish upon the common element roof, frustrated the purpose and intent of the Federal Telecommunications Act of 1996. The Association denied that it has ever allowed satellite dish antennas to be placed upon the condominium roof and submitted photographs of the roof showing no such satellite dishes. The Respondents claimed that satellite dish antennas did previously exist but that the unit owners had removed them in response to the Association’s attorney’s demands for removal.

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