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Review of Legislation continues – Part 4

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2017 Statute Changes Impose New Conflict Of Interest Rules

Today’s column is the fourth installment of our annual review of legislation affecting community associations.

So far, we have reviewed Senate Bill 398, dealing with “estoppel certificates,” and parts of House Bill 1237, pertaining to board member term limits, the use of debit cards, recalls, mandatory websites for certain associations, suspension of voting rights, year-end financial reporting, and the imposition of criminal penalties pertaining to certain conduct involving condominium elections and finances. Today, we will finish up our review of HB 1237, which applies only to condominiums. HB 1237 became effective July 1, 2017.

A primary area of focus in HB 1237 involves “conflicts of interest” between condominium association board members, officers, managers, and outside vendors.

There are now at least 8 separate conflict of interest provisions found in, or incorporated into, the condominium statute:

  • S. 617.0832 This is the long-standing corporate law which provides that contracts between corporations and directors with a financial interest are not void if they are fair and reasonable, and the financial interest is properly disclosed.
  • S. 718.111(1)(a) This new law introduces the term “kickbacks” into the condominium statute and forbids, directors, officers or managers from soliciting or accepting kickbacks or other things of value from vendors or proposed vendors of the association
  • S. 718.111(3)(b) This new law provides that an association may not hire an attorney who represents the management company of the association.
  • S 718.111(9) This new law prohibits officers, directors, managers, and management companies from purchasing units at lien foreclosure sales or taking deeds in lieu of foreclosure.
  • S. 718.112(2)(p) This new law states that a condominium association may not “employ or contract with” a “service provider” that is “owned or operated” by an “officer or director” or any person that has a “financial relationship” with an officer or director or is “related by blood or marriage” to an officer or director “within the third degree of consanguinity.” This law is an outright prohibition against such contracts.
  • S. 718.3025(5) This new law also prohibits board officers and directors, as well as management companies, from purchasing a unit at a sale foreclosing the association’s lien for unpaid assessments or taking deeds in lieu of foreclosure. There are also certain requirements imposed where “bulk owners” own more than fifty percent of the units in the condominium
  • S. 718.3026(3) This is a preexisting law which incorporates the corporate law mentioned above, requires additional disclosures in the condominium context, and allows unit owners to vote to cancel related-party contracts at the first meeting of the association after the contract is entered into.
  • S. 718.3027 This is also a new law. While the statute is far from easy to understand, it is a disclosure oriented provision and appears to apply to contracts for “goods and services.” The law sets forth several scenarios where a “rebuttable presumption” of conflicts of interest arise. The penalty for failure to make the proper disclosures is that 20% of the unit owners can sign a written consent to cancel the contract.

It remains to be seen how the courts or an agency with jurisdiction will interpret certain parts of the statute which appear to directly conflict with each other. For example, one part of the new law expressly prohibits contracts with officers, directors, and related parties as described, while other portions of the statutes (including those which were not amended) permit such contracts subject to proper disclosures and other legal requirements.

Next week, we will wrap up our annual legislative by reviewing House Bill 6027, which changes the laws regarding year-end financial reports for condominiums, cooperatives, and homeowners’ associations.

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  • Mike E
    July 30, 2017

    How do the new laws re: conflict of interest apply to existing contracts as of 7/1/2017? Do they have to be immediately cancelled or just not renewed once they expire?

  • Pat Roberts
    July 30, 2017

    I think these laws mean nothing if there is enforcement?

    • Pat Roberts
      July 30, 2017

      The laws mean nothing if there is No enforcement.

  • Madeline
    July 31, 2017

    We are often told that the laws applicable to condominiums also apply to cooperative (719). Should cooperative assume these changes also apply?