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Surprise Audits Not Authorized

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Q: Does Florida do unannounced audits of condominium or homeowners’ associations to see if they are conforming to the relevant statutes? For example, some of our board members don’t want bids for a contract even though it is required by statute. As President, the argument I got from some board members was: “who’s going to know?” (I.C., via e-mail)

A: No. The State of Florida does not conduct association audits, announced or otherwise. Community associations are private enterprises, and the desirability and extent of government regulation has been the subject of ongoing debate for nearly half a century.

Regulation is a two-edged sword. On one hand, it provides a forum for aggrieved owners to have their concerns reviewed without the expense of legal proceedings. On the other hand, it is also proven that the availability of an agency with investigative and punitive powers available at no cost and with no consequence for frivolous complaints can be abused. There is also the political/philosophical question of the proper role of the government’s police power in private.

Homeowners’ associations governed under Chapter 720 of the Florida Statutes, the Florida Homeowners’ Association Act, are virtually unregulated. While the State has a limited role in adjudicating election challenges, all other disputes must be adjudicated in court, sometimes requiring pre-suit mediation.

Condominiums are heavily regulated by Chapter 718 of the Florida Statutes, known as the Florida Condominium Act. The Division of Florida Condominiums, Time Shares and Mobile Homes of the Department of Business and Professional Regulation (“Division”) is the agency with oversight authority. Section 718.501 of the statute empowers the Division to conduct investigations, usually as the result of a complaint, to enforce compliance with the law. The Division may impose civil penalties of up to $5,000.00 per violation.

The Division’s investigative jurisdiction in unit owner-controlled associations is limited to elections, official records access, and “financial issues,” which is relatively broad. The law requires officers, directors and community association managers to reasonably cooperate with Division investigations. The Division is also authorized to remove directors from office under certain circumstances.

The apparent “ask for forgiveness and not permission” attitude of some of your directors will backfire. Directors owe a fiduciary duty to all owners, the highest duty in the law. Intentional violation of the law is often a breach of fiduciary duty. Directors who breach their fiduciary duty can be exposed to personal liability if they engage in reckless misconduct.

If your board members can’t be bothered with following straightforward and well-known laws because they find it inconvenient, I would recommend that you use your influence as President and as a community leader to find different directors.

Q: My condominium association recently turned over from the developer. Following turnover, three owners were elected to the board of directors. However, there has been discussion on the need to increase the size of the board from 3 to either 5 or 7. The board stated that such a change requires owner approval. However, couldn’t the board simply increase its size and fill the vacancies? (D.R., via e-mail)

A: It depends on the language of your condominium documents, typically the bylaws. Generally, the bylaws will fix the size of the board. Some bylaws provide for a “range” such as an odd number between 3 and 7.

Section 718.112(2)(a) of the Florida Condominium Act states that if the bylaws fail to fix the size of the board, the default size of the board is 5. Florida’s condominium arbitration program has ruled that in some instances, where there is a “sliding scale,” the statutory default of 5 directors kicks in. For this reason, I encourage clients to have their bylaws clearly set forth a fixed size for the board.

It would be necessary to review your bylaws to reach a final conclusion, but I would not be surprised if a bylaw amendment would be required. This is fairly simple and your association’s attorney should determine if an amendment is required, and if so, to prepare it.

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