Spending Money in an Emergency

By Ryan D. Poliakoff / Published July 2017

Q

uestion:

I am on the board of a condominium near the ocean, and we are trying to get prepared for the hurricane season. Our board needs advice about our right to collect and spend money during an emergency. Obviously, in the event of a real disaster, we are going to need to clean up and repair the property as soon as the storm passes, and yet we haven’t put away funds for this purpose. Are there special financial rules that apply in the event of a natural disaster? Do you have any other recommendations regarding steps we can take to make sure we are not caught flat-footed?

Answer:

It is great that you are thinking about this now, because many of our clients, particularly at smaller, self-managed communities, forget to put their disaster planning in place until the last moment.

The Condominium Act, at Section 718.1265, Fla. Stat., grants associations special emergency powers in the event of a natural disaster. It states that, to the extent allowed by law and unless specifically prohibited by the association’s governing documents, the board, in the event of a declared state of emerg-ency, may exercise certain emergency procedures. These include conducting meetings with whatever notice is practicable (and with such notice given in whatever manner is practicable); naming assistant officers who are not also directors (some associations, of course, already have this power); implementing a disaster plan (including shutting off elevators and electricity); limiting the entry or occupancy of the property as needed to protect the health, safety, and welfare of residents; and contracting on behalf of owners for items or services for which they would be individually responsible, but which work is necessary to prevent further damage to condominium property (good examples might be hiring someone to board up windows or repair a plumbing leak caused by a storm).

In addition, the Act gives condominium boards broad financial powers, including the right to specially assess owners without a member vote (regardless of any provisions to the contrary in the governing documents) and the right to borrow money to fund emergency repairs (again, without owner approval).

However, these powers, while extremely useful, do not replace good planning and advance preparation. For example, even if the association can specially assess for funds or borrow money without a membership vote, those procedures take time. After passing a special assessment, it can take weeks for money to begin to flow, and loans are difficult to process on an emergency basis (and the association may have to settle for less than ideal terms). Even if the association is insured for the damage, getting insurance money is not instantaneous, either. A better way to handle these financial issues would be for the association to establish a line of credit in advance of an emergency. A line of credit is a type of loan where the borrower may, but is not obligated to, borrow up to a certain amount of money, as needed. For example, under typical terms, if an association secures a million-dollar line of credit, but it does not ever draw upon that money, nothing is owed to the bank. If the association requires money on an emergency basis, it can take out the exact amount that is needed, and it will only owe that amount (plus interest). A line of credit is an extremely useful tool for businesses. Some unit owners may be concerned that allowing a board to access a line of credit may encourage wasteful spending on non-emergency issues, but, where membership approval of the loan is required, that approval can always be conditioned on particular specified uses (such as in the event of damage caused by a natural disaster).

In addition to a line of credit, associations may consider keeping a limi-ted amount (hundreds of dollars, not thousands) of cash on hand to handle emergency expenses, perhaps enough to cover emergency clean-up efforts. Remember that, in the event of a hurricane, power may be a long-term concern, so it may not be easy to access cash when it’s needed. This need must be balanced against the risk of theft, so as always, the board should use its best judgment. 

Here’s another important tip, and this is a common pitfall for condominiums, particularly with respect to roofing repairs. After a storm, you will find dozens of contractors travelling from building to building offering emergency services, including roof repairs. Do not be pressured into signing these contracts! If you want to pay a contractor for a small project on an emergency basis, that is reasonable, but many associations get taken advantage of after storms by unscrupulous business people who prey upon the unprepared. Instead, line up your emergency contractors now, so that you know they will respond when you need them. Your insurance agent may be able to help you with companies that are pre-approved by your hazard and storm insurance provider. 

Ryan D. Poliakoff

Partner of Backer Aboud Poliakoff & Foelster

Ryan D. Poliakoff is a Partner of Backer Aboud Poliakoff & Foelster and serves as general counsel to condominiums, homeowners associations, and country clubs throughout South Florida. He is the co-author of New Neighborhoods—The Consumer’s Guide to Condominium, Co-Op, and HOA Living. In addition to representing associations, he is a frequent contributor at seminars and workshops for attorneys and board members, and he has written hundreds of articles for magazines and newspapers throughout the United States. He can be reached at rpoliakoff@bapflaw.com. For more information about his firm, visit www.bapflaw.com.