By Michael J. Gelfand, Esq. / Published August 2016
Rumors breed fear and panic, and rumors concerning Florida condominium law are no different. A perfect case in point involves recent commentary on Florida fire sprinkler retrofitting requirements, which created confusion as to whether every Florida condominium association must undertake a “retrofit installation” of automatic sprinkler systems throughout its building(s) or seek a unit owner vote “opt-out.”
Unfortunately, many shared the impression that every Florida condominium has to undergo expensive and destructive retrofitting. The impression is not true! While it may appear easier and less risky for some condominium associations just to seek an opt-out vote, each Florida condominium association is urged to undertake an analysis, starting with the statute. Then, some need confirmation with their local fire marshal, especially if obtaining a vote is anticipated to be difficult.
Let us step back from the precipice for a moment. The issue of retrofit installation has existed for more than a decade. In 2002, the Florida Fire Protection Code, §126.96.36.199, of the National Fire Protection Association 101 required existing “high-rise” buildings to be protected either by an automatic sprinkler system or by an engineered life safety system.
Shortly thereafter, recognizing the expense placed on high-rise condominiums, in 2003 the Florida Legislature amended the Condominium Act, §718.112(2)(l), Fla. Stat., allowing the owners of high-rise condominiums to vote to “opt-out” of the retrofitting requirements for unit installations; however, there was no opt-out for high-rise common areas, such as hallways and foyers.
The condominium opt-out law has been amended several times over the years. The deadline to comply had been pushed back. Voting procedures were changed. Also with great significance, the opt-out has been extended from unit to common area retrofitting! However, even with such changes, many communities may still find it difficult to obtain enough owners to participate by signing the necessary paperwork to qualify for the opt-out.
To determine whether retrofitting is required, the first question that a Florida association must ask is: does the retrofitting requirement apply to our condominium? Not necessarily! This requirement generally only applies to high-rise buildings that are greater than 75 feet tall. Often, that equates to a five-story building, but, condominium associations should confirm their building’s actual height. Most condominium buildings that have been recently constructed should be compliant with fire sprinkler requirements. The Condominium Act does not require a typical low-rise condominium to undertake a retrofit installation. Many Florida condominiums are only two- or three-stories tall. For these buildings which are under 75 feet, the Condominium Act does not require the association to take any action to opt-out of the retrofitting requirements. But, there is a second consideration discussed further on.
If your building is greater than 75 feet tall, a residential condominium that is not in compliance with the requirements for a fire sprinkler system must by December 31, 2016, comply with either of the following: (1) Opt-out of the requirement by vote of a majority of all members and record a certificate to that effect; (2) Initiate an application for a building permit for the required installation with the local government demonstrating that the association will become compliant by December 31, 2019. Note again that the affected associations must take one avenue of action or the other by the end of the year.
Nevertheless, there is a chance that your jurisdiction’s fire marshal will require a higher level of protection than the Condominium Act, a potential not addressed by rumors but uncovered by further analysis of the laws. Even if your condominium building is under 75 feet, despite the Condominium Act’s provisions, confirm with your fire marshal if the retrofitting requirements apply. Thus, even if you are not in a high rise, and you do not believe it is appropriate to rely on your fire marshal, then seeking an opt-out vote may be the safest route.
There are situations where the Condominium Act’s opt-out provisions do not or may not apply. If your condominium is operated for commercial use or is operated for transient occupancy, then you should confer with counsel on how to proceed. Generally, transient use is for rentals less than 30 days or more than three rentals per unit during a 12-month period. This is one more reason for condominium associations to enforce leasing and transient occupancy restrictions. Of course, as fire sprinklers are a life safety component, associations should consider whether there are safety circumstances that militate against opting out.
In a special twist, a Florida condominium association which opted out of retrofitting before July 1, 2010, may want to consider a new opt-out if the condominium still has not retrofitted fire sprinklers in units. Originally, the opt-out applied to only units but not common elements and association property. In 2010, the limitation excluding units was deleted (2010-174 Fla. Laws, Section 10). Thus, it appears on initial reading that the legislature may have provided these condominium associations one last chance.
Advance planning is necessary whatever your community’s intent. Last minute efforts may be doomed to failure because the opt-out procedure involves several detailed steps. A vote is not “effective” until a certificate is recorded, and then a unit owner mailing is required. Though December may seem a long way off, the deadline is rapidly approaching. The Condominium Act does not allow a quick “do over” if you do not obtain enough votes; thus, you are encouraged to contact your association counsel immediately! Remember, the deadline to opt-out or to start the permitting process is December 31, 2016.
What happens if an association finds itself owing money as a result of a former officer or director’s wrongful act? Will the association be able to collect under its Director and Officers (D&O) insurance policy? Maybe not.
A Florida appellate court recently ruled that an insurer was not required to pay a money judgment issued against a former director. The facts in Durant v. James, 41 Fla. L. Weekly D 837 (Fla. 1st DCA, April 4, 2016), indicate that as a result of his divorce, Durant was required to sell his shares in his company, Bonifay Holding Inc. Durant then bought the stock back, but at a higher price.
Durant prevailed in a lawsuit against James, the president of Bonifay Holding, alleging that James’ overvaluing the stock caused a loss during Durant’s buy back. The judgment was for more than $1 million. Durant sought to collect the judgment amount from Progressive Casualty Insurance Company, claiming that Progressive issued a Directors & Officers liability policy covering Bonifay Holding’s officers and directors. The trial court ruled that Progressive’s policy excluded claims by one insured against another.
The court focused on the fact that because Durant and James were both insured under the policy as directors, the “Insured vs. Insured Exclusion” provision of the D & O policy had to be examined. The policy stated:
The insurer shall not be liable to make any payment for loss in connection with any claim by or at the behest of the company or any insured person except:
1. Where such claim is brought by the insured person and arises out of the employment of the insured person; or
2. Where such claim is brought by an insured person in the form of a cross claim or third-party claim for contribution or indemnity which is part of and results directly from a claim which is not otherwise excluded by the terms of the policy.
Regardless of whether he was sued as a director or as an employee of the company, finding the language of the policy to be clear and unambiguous, the appellate court agreed with the trial court’s judgment for the insurer, holding that the policy exclusion applied and the insurer did not have to pay for a claim.
Just remember, suing a past director is not like winning the “jackpot.” Winning a judgment is one thing, collecting may be another. Further, as a practical, organizational issue, few will volunteer as a director or officer of your association if the association has a practice of suing former directors or officers!
Michael J. Gelfand, Esq.
Senior Partner of Gelfand & ARPE, P.A.