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

Attention HOA and other home owners, board members and CAMs:

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Last November I posted a blog ( Homeowners' Associations: New Ruling Supports Compensation for Construction Defects)  alerting readers to an important appellate decision holding that buyers and homeowners' associations are entitled to a common law implied warranty of fitness and merchantability with respect to the roadways, drainage systems, retention ponds and underground pipes in a residential subdivision.  Florida Condominium Law provides condominium purchasers with implied warranties of fitness and merchantability with respect to the roof and structural components of buildings as well as mechanical, electrical and plumbing systems serving the common elements, but homeowners' associations do not have the same protection.

The Lakeview Reserve Homeowners v. Marondo Homes, Inc., case is now pending before the Supreme Court of Florida.  Oral arguments took place on December 6.

This case is truly important - so important that advocacy groups filed amicus briefs in support of the appellate ruling.   So important that the Florida Home Builders Association (FHBA) and National Association of Home Builders (NAHB) also filed briefs in opposition to implied warranties.

FHBA and NAHB contend that since roads and drainage areas are owned by an association, not individual homeowners, defects in these structures generally have no direct effect on home habitability.  In my opinion that doesn't really make sense.  How can you live in a home without access to the home over a safe roadway?  The roadways, underground plumbing, retention ponds and drainage facilities are essential.  In fact, the residential dwellings probably couldn't qualify for a Certificate of Occupancy without these improvements.  

CALL submitted a brief on behalf of its 4,000 +/- member communities in the State of Florida since the issue of whether a developer of a residential subdivision provides common law implied warranties for the roadways, retention ponds, underground pipes, and drainage systems throughout that subdivision is one of great importance to hundreds of thousands, if not millions, of Florida residents living in homeowners’ associations. CAI likewise submitted a brief contending that developers owe a duty to the homeowners and their homeowners’ association to turn over common area structures that are fit for use and do not impair the habitability or merchantability of the homes. 

We will report on the outcome of this appeal when the Supreme Court publishes its decision.

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Condominium conversions became tremendously popular (because they were profitable) during the housing boom.  Many old tired apartment buildings were converted to condominium ownership, remodeled and then the units sold.  In some cases the developer substantially remodeled the building and improvements by updating plumbing and electrical systems, replacing the roof, replacing or modernizing elevators and "gutting" the interiors.  In other cases the developer merely installed tile where there was carpet, upgraded the kitchen with fancy cabinets, stainless steel appliances and granite counter tops then painted before selling the units. If the developer of the conversion project funded converter reserves, unit purchasers are left without statutory warranties.

When an apartment building is being converted to a condominium, Section 718.616, Florida Statutes requires the developer to provide each prospective buyer, as part of the Prospectus or Offering Circular, with certain inspection reports from professionals. These reports focus on the physical condition of various portions of the building and improvements. With respect to certain aspects of the building (such as the roof, structure, heating, plumbing and electrical systems), the owner must disclose the age of the component, the estimated remaining useful life of the component, the estimated current replacement cost, and the structural and functional soundness of the component. The specific purpose of the disclosure requirement is to protect the prospective purchaser by allowing them to make an informed decision whether to purchase a "new" unit in what may be an old building.

We are all guilty of not reading the "fine print" from time to time.  That was especially true when purchasers found what seemed to be an affordable price for a condominium unit in the hot real estate market.  Unfortunately for many of those buyers, some of those buildings needed substantial work.  Levying assessments to repair elevators, perform concrete work, repair damages from roof leaks and other expenses in a "new" condominium is stressful for the members of the board of directors and causes friction between the owners and the board. 

If the developer is out of the picture, bankrupt, no longer in business, etc. is there any recourse for the association and its members? 

There is, especially if the building disclosures weren't accurate. Florida Courts have found that the engineers and other professionals preparing these disclosures supplied expert information which was intended to and did guide and inform prospective purchasers on the condition of the building. Accordingly, if engineers or other professionals provide false information which reaches and is relied upon by people who are expected to receive and rely on the information, they may be held liable for expenses incurred by the association to repair or remedy the undisclosed defects.  There was an effort by the legislature this year to vitiate remedies against design professionals.  That bill was vetoed by Governor Crist.

This is not to say every statement of false information in an inspection report in a condominium conversion will lead to a potential claim. It will, however, open the door for those associations where purchasers were truly harmed by the misrepresentations of professionals who are supposed to be providing honest, objective evaluations of the condominium property.
 

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Amendment to SB 880  approved by Community Affairs Committee intends to encourage purchase of remaining inventory by limiting liability.

Last week the Community Affairs Committee advanced SB 880 with a significant amendment entitled the “Distressed Condominium Relief Act”.

If the bill becomes law, new Section 718.702, Florida Statutes sets forth the legislative intent for the protections afforded to “bulk assignees” and “bulk buyers” of condominium units.

“Bulk assignees” are defined as purchasers of more than 7 units who receive an assignment of some or all of the rights of the developer of the project. “Bulk buyers” are also defined as purchasers of more than 7 units, but have not obtained an assignment (other than rights to conduct sales, leasing and marketing activities within the condominium).

Bulk assignees are not responsible for implied warranties, the obligation to fund converter reserves for units owned by others or honor conversion warranties. Bulk assignees will not have to provide the Association with a full transition audit and will not have to fund developer guarantees or assessment obligations, unless they receive an assignment of the right to guarantee assessment levels and therefore take on the obligation to fund budget deficits.

This section of the proposed bill provides for three distinct methods of assignment of development rights, to wit:

• By the Developer;
• By a previous Bulk Assignee; or
• By a Court.

While bulk assignees are required to deliver any of the documents identified in Section 718.301(4), Florida Statutes in their possession or control to the association upon transition, they are not liable for production or delivery of documents and other materials normally required as part of the transition process, if they cannot obtain them after a “good faith” effort.

Both bulk buyers and bulk assignees need to update the prospectus, the Frequently Asked Questions and Answers Sheet, the required form of escrow agreement (if applicable) and financial information pertaining to the Association.  Disclosure statements, identifying the rights assigned and warranty limitations, are also required.

The legislative history suggests these provisions are necessary to encourage the purchase of remaining inventory in failed projects. 

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