Q: Can the board of a condominium association take out a loan to pay for hurricane repairs? (M.D. via e-mail)
A: Yes. In fact, the only place the Florida Condominium Act speaks to an association’s authority to borrow money is in the section setting forth the association’s “emergency powers” after a disaster for which a state of emergency was declared. The statute grants associations certain emergency powers, including the power to borrow money and pledge association assets as collateral to fund emergency repairs without a membership vote, even if otherwise required by the condominium documents.
Outside of an emergency context, the association’s ability to borrow money depends on the language of the association’s condominium documents. The condominium documents, such as the bylaws, often speak to whether the association has the authority to borrow money.
Q: Can you explain what a voting certificate is? (T.L. via e-mail)
A: Some association documents contain the requirement for “voting certificates.” If a unit is owned by more than one person, or by an entity such as a corporation or partnership, a voting certificate designates the person who is authorized to vote for that unit. Voting certificates are typically filed with the secretary of the association. Once filed, the voting certificates remain valid until they are revoked and are part of the association’s official records.
I am not a proponent of voting certificates as more often than not, they disqualify much needed votes. The better approach is for the bylaws to establish voting protocols for units owned by multiple individuals or entities, and to allow any record owner or customary entity representative to vote.
Q: Can a homeowners’ association establish reserves in order to paint the community? How do reserves work? (M.M. via e-mail)
A: Homeowners’ associations can establish reserves in a few different ways. Unlike condominium reserves, reserves in homeowners’ associations are not required by statute, unless the developer created reserve funds during the time it controlled the association, or a majority of the membership affirmatively vote to establish mandatory reserves. Reserves can also be mandated by a requirement in governing documents.
Once established in the manner provided by law or the governing documents, reserve accounts must be fully funded annually, unless the membership votes to waive the funding. Such reserves can only be used for their authorized purpose unless a majority of the membership approves in advance to use the funds in a different way.
The law does not prohibit a homeowners’ association from establishing reserves within its budget, such as contingency accounts, and many governing documents recognize the board’s right to do so. In these situations, the reserve funds would not be restricted and are not required to be funded according to any specific formula, nor do the same limits on their expenditure apply.
Q: If a condominium association assesses for seawall replacement due to hurricane damage, is the assessment tax deductible on your federal income tax return? (R.J. via e-mail)
A: That is not a legal question, but I did reach out to Fort Myers CPA Steve Brettholtz of Myers, Brettholtz & Company.
His response was that to the extent capital assessments are or have been made against unit owners for repair or replacements, the individual owners’ basis in the unit, under Section 1016 of the IRS Code, will be increased. This will impact the amount of taxable gain when the unit is sold. However, these expenses are not deductible as a set-off against income.
Brettholtz further notes that if a unit owner recoups “loss assessment coverage” from their individual unit insurance policy, the basis increase would be limited to the actual out-of-pocket expense, so no “double dipping” when there is insurance reimbursement.
Joe Adams is an attorney with Becker & Poliakoff, P.A., Fort Myers. Send questions to Joe Adams by e-mail to firstname.lastname@example.org. Past editions may be viewed at floridacondohoalawblog.com