Home

rental-agreement

Are HOA Owners “Grandfathered” In from New Rental Restrictions?

The Florida Condominium Act states that an amendment prohibiting unit owners from renting their units or altering the duration of the rental term or specifying or limiting the number of times unit owners are entitled to rent their units during a specified period applies only to unit owners who consent to the amendment and unit owners who acquire title to their unit after the effective date of the amendment.

There is no similar provision contained within the Florida Homeowners’ Association Act. The amendment to the condominium statute was the legislature’s reaction to a Florida Supreme Court case which held that because condominiums are a “creature of statute”, unit owners take title to units knowing that most of the legal rights under their condominium documents can be changed by amendment. Homeowners’ associations are subject to slightly different legal principles including how courts review amendments to covenants and restrictions. I am of the opinion that there are generally no “grandfathered rights” in the HOA context, but the language of individual governing documents plays a large role in the analysis of this issue. This means an HOA should always have an attorney review the governing documents for that community if rental restrictions are being considered.

David G. MullerDavid G. Muller – Board Certified Condominium and Planned Development Law Attorney, Naples  

 

 

construction-deposit

Construction Deposits, A New Reality to be Managed

For many condominium and homeowners’ associations, 2019 will be a year to consider long overdue construction projects.  The 2018 legislature made it clear to condominium associations that if the project resulted in a modification of the common elements, a prior vote of approval by the membership is required.  Also, some projects will require bids per statute, while most associations will attempt to seek bids as a matter of good business practice.  Unfortunately, the construction industry is dealing with a labor shortage that may result in fewer contractors willing to bid on your project and many contractors seeking an “up front” payment in the form of a “deposit”.

Anyone seeking construction services in today’s expansionary period knows well that contractors are in high demand, and are taking liberties with respect to what they can require as a condition to entering into a construction contract.  There is no doubt that contractors have taken advantage of the lack of supply and the high demands for construction work.  In that regard, the demand for payment of initial deposits has resurfaced as a reoccurring theme.

The last time the construction industry experienced a boom, contractors were asking for advance payments for everything from materials to excessive and increasing labor costs.  Associations, often times, plagued with little options, have succumb to the contractors’ demands for deposits. Although, deposits, that are often well planned and based on logical procedural requirements, they can be minimized as a risk to the association, deposits are still nonetheless susceptible to difficulties.

In the context of a condominium or homeowner association, the issues with deposits are no different.  As practitioners who represent such entities, we have seen a significant uptick in the demand for deposits.  Often times, the deposits are substantial demands, seeking upwards of prepayment of 20% of the contract sum.  When contracts are in the hundreds of thousands of dollars, this could mean significant upfront cash that is given to a contractor with little to no protections often being provided in exchange.

Such unprotected at risk spending can lead to difficulties.  Often times, it is difficult for an association to know whether or not a contractor is financially solvent.  Even in the most expansive and lucrative economies, there are still contractors who have managed to fail in their ability to control the purse, and often fall prey to needing cash from one project to pay another.  Quite often, associations negotiating with such contractors have no idea of the financial straits of the contractor, and are prone to agree to such deposits without appreciating the risk.  Unfortunately, once funding for a deposit is provided to an insolvent contractor, there is typically little recourse or means of recovering those funds from the insolvent contractor.  Unless the association implements certain guidelines protecting such deposits, the associations can often find themselves having to pay twice for such work.

The payment of advance deposits also place havoc with associations’ obligations to make proper payments under the Florida Construction Lien Law.  Although the Lien Law does not specifically address the issue of deposits, the Lien Law does impose certain obligations on associations to assure payment to those subcontractors who may have performed work and improvements on the associations’ property, under a general contractor.  In those cases, where a subcontractor issues its Notice to Owner, the contractor has obligations to assure payment is made to the subcontractor while making payments to its general contractor.  In the case of a deposit, the association has no idea who the subcontractors may be who are looking toward the contractor and the associations’ payments for funding.  When deposits are issued preliminarily on a project, the association has no idea which subcontractors will be performing the work, and how to protect those funds from not being absconded from the subcontractors.  Hence, there may be certain circumstances where the issuance of a deposit violates the association’s obligation to see that the subcontractors are paid, and may open the door to the association having to pay twice for the same work.

Often times, associations need to use the power of the purse to control the contractor and to bring about compliance with the construction contract.  However, in situations where a substantial deposit is issued, the association’s leverage is eroded by the amount that it pays over and above the value of work in place.  As a result, a deposit typically represents an initial overpayment to the contractor.  As more and more cash is provided to the contractor, the contractor gains leverage over the association.  This is a situation an association must avoid, as the association’s control over the purse is the primary power an association has over the contractor.  Therefore, a substantial deposit at the beginning of the project could essentially prevent an association from having the leverage needed to bring about compliance by the contractor at the end of the project.

The foregoing does not mean that deposits are completely out of the question.  Deposits can be managed, as long as the use of those deposits are memorialized in the parties’ contract.  Often times, construction attorneys add provisions that specifically address how the deposits will be used and accounted for.  In such cases, the deposits could be earmarked to be used strictly for the payment of advance material purchases.  In those circumstances, the contract can dictate specific procedures on how the contractor contracts for the materials, while the association makes direct payment to the supplier.  This type of arrangement alleviates any concerns of liens or suppliers not being paid, and provides the association assurances that once the payment are paid, the materials are owned by the association and therefore liens are of no further concern.  The issue becomes more complicated when the contractor seeks a deposit for advance manpower costs or similar expenses.  Since manpower is a much more nebulous issue for the association to oversee, it is advisable that the association does not agree to such advance payments, as there are few means of effectively controlling same.

Notwithstanding the above, there are means other than deposits to relieve the contractor’s concern of being the bank.  Mobilization line items in a schedule of values in the contract can provide the interim relief that contractors seek.  In some cases, construction contracts allow a more frequent submission of applications for payment at the early stages of the project, so as to compensate the contractor for upfront costs.  Such costs can be compiled in a mobilization line item.  Notwithstanding, there should be some limits as to the amounts that will be paid for mobilization, and they should be somewhat aligned with the expenditure of the materials or labor that is being protected.

In conclusion, deposits may be a part of our present reality when dealing with construction contracts.  Although, deposits are fraught with risk, there are means to control that risk.  An association that is confronted with a demand for a sizable deposit, should contact its construction attorney for advice so that the procedures to protect the association are incorporated in the association’s contract with the contractor.  Absent taking such safeguards, an association could expose itself to significant risk, some of which may cause the association to pay twice for the same work, and other events that may cause a complete forfeiture of deposits if provided to insolvent contractors.

 

Conrad J. LazoConrad J. Lazo – Board Certified Construction Law Attorney, Tampa
. 

 

 

 

 

Steven H. Mezer – Board Certified Condominium and Planned Development Law Attorney, Tampa
. 

 

 

emotional-support-animal

Emotional Support Animal

The following is a paraphrased example of the one question that we are asked most frequently:

“I live in a condominium, which has had a “no pet amendment” since it was built.  A person recently purchased a unit and has been seen with a dog that barks all the time.  The owner signed all the disclosure forms that stated “no pets,” but later gave the board a note from a nurse practitioner stating that the dog is an emotional support animal.  What can we do?”

The Federal Fair Housing Act (42 U.S.C. §§3601-3619) and the regulations promulgated thereunder require ‘housing providers,’ – including entities such as condominium or homeowners associations to make reasonable accommodations to disabled persons in rules, policies, practices or services when such accommodations may be necessary to afford a person with a disability the equal opportunities to use and enjoy a dwelling.  Florida’s version of the Fair Housing Act, Section 760.23, Florida Statutes, similarly requires accommodations for disabled persons.  Decisions of federal and state courts in interpreting the Federal Fair Housing Law and Florida’s Fair Housing laws have held that in certain instances housing providers, including a condominium or homeowners association, must accommodate those with a legitimate physical or emotional disability requiring the support or assistance of an animal.

Notwithstanding, simply providing a note from a nurse practitioner or a letter and certificate purchased from the Internet, stating that the dog is an emotional support animal does not provide the governing body of a condominium or a homeowners association the reasonable opportunity to establish that the resident suffers from a disability defined by law; and further, that the applicant requires the physical assistance or emotional support of a dog to reasonably accommodate his or her disability.  Thus, in this instance, it likely would not be unreasonable for the association to carefully request additional information to allow its governing body to evaluate the reasonableness of the request.  The courts and agencies have required that the housing provider open a “dialogue” to allow for a meaningful review of the request.

For example, the association may reasonably request that the resident provide a statement from a medical professional explaining that the requesting party: (a) has a physical or mental impairment (b) explains which major life activities are substantially impaired by the disability or handicap; (c) a description of the accommodation requested; (d) and an explanation of how the accommodation alleviates or mitigates the disability or handicap. If, upon receipt of such additional information, the association concludes that the resident is disabled under the law and that the emotional support of the identified animal is reasonably necessary to accommodate the disability, then approval of the accommodation is required by law.

Where an accommodation is required by law, the resident is still required to maintain the animal in accordance with existing rules and regulations; which among other requirements often include, that residents permit no activity that creates a nuisance or annoyance to other residents.  Such rules require to take all actions necessary to prevent the animal from making a noise that may unreasonably annoy or disturb the peace of neighboring residents.

Keep in mind that where an accommodation is required to be made by law, the animal is not considered a “pet.” Rather, it is an animal that the resident is entitled to have per the law for the physical assistance or emotional support for the disability that the resident is afflicted with. Therefore, the governing board of a community association should always seek the advice of legal counsel before denying the request of a resident for an emotional support animal.  The association’s legal counsel is best suited to advise and assist the governing board with the implementation of appropriate procedures should the board receive such a request.

 

Steven H. MezerSteven H. Mezer – Board Certified Condominium and Planned Development Law Attorney, Tampa  

 

 

 

JoAnn Nesta Burnett, Esq. JoAnn Nesta Burnett, Esq.

 

 

Telecommunication Contract Issues

Telecommunication Contract Issues

Other than possibly insurance, the largest single expense for many associations is the cost of bulk telecommunication service. Further, bulk telecommunication service agreements often have multi-year terms, some even going as long as ten years. Therefore, whether your association has a bulk telecommunications agreement or is looking at entering into a bulk telecommunications agreement, there are a number of legal and practical issues that the association should consider in moving forward with such a decision.

With regard to bulk agreements for telecommunication services, both the Florida Condominium Act and Homeowners’ Association Act provide that the costs associated with providing bulk telecommunication services are proper common expenses of the association. Further, both contemplate the authority of an association to provide a range of communication services on a bulk basis. The most common services provided on a bulk basis are television service, bulk internet service and telephone service. Additionally, associations often provide multiple services on a bulk basis from the same provider (such as receiving both cable television and internet service from the same service provider on a bulk basis.)

Further, both statutes also contemplate that the cost for services pursuant to the bulk agreement be allocated on a per unit basis rather than on a percentage basis if there is other than equal sharing of common expenses contemplated in the documents. If your association allocates expenses on something other than an equal per unit basis, you would want to review the allocation of the expenses of the bulk services agreement carefully.

While associations generally have the legal authority to enter into agreements to provide bulk telecommunication services to the owners, such agreements should be carefully negotiated by the association. Issues the association should address in the agreement include but are not limited to:

  • How the distribution system is defined and who will own the wiring once the agreement is concluded.
  • What type of work will the provider have to do within the community to provide the service, whether excavation or other construction will be necessary and what protections are in place for the association and its members?
  • If the provider is using subcontractors to install portions of the distribution system that the association and the owners are protected from any liens recorded by suppliers or subcontractors.
  • What type of insurance does the provider carry and whether that insurance protects the association?
  • What is the term of the agreement, how term is determined and is the termination date of the agreement apparent on the face of the agreement?
  • What are the service standards that the provider must meet and how is the association protected if the provider fails to meet those standards?
  • What type of easement must the association give the provider and does that easement interfere with any third parties’ existing rights?
  • Are the association’s damages against the provider limited in the event a provider breaches the agreement or fails to provide the services that are contemplated?

These are just a few of the issues that the association must address in negotiating a bulk services agreement. Any time an association is considering entering into a new bulk agreement, it should review that agreement carefully and seek appropriate guidance from its attorneys, accountants and insurance agents.

James Robert CavesJames Robert Caves, III is an attorney with the law firm of Becker & Poliakoff, P.A., which represents community associations throughout Florida, with offices in Ft. Myers, Naples and 11 other Florida cities. The firm focuses a substantial amount of its practice on condominium and homeowners association law. 

 

 

What are Pooled Reserves and How Do We Implement Them?

Cash flow funding of condominium reserves, often referred to as the “pooling” method of reserve funding, is a concept that was introduced many years ago through an amendment to the state’s administrative rules regulating condominium finances.

Under the traditional, straight-line method, required reserve contributions are calculated by using a formula that divides the cost of replacing a particular item by the number of useful years that item has left, minus the reserve funds on hand for that item, with the result being the amount to fully fund that item for the next fiscal year. Each reserve component must be separately funded and must appear as a separate line item in the reserve schedule, which is part of the budget. Absent a majority vote of the unit owners, monies for each separate reserve item can only be used for that particular reserve item.

Under the pooling or cash-flow method, each reserve item is still separately funded but the money is put into one account. The reserve schedule computation is a bit more complicated and typically needs to be prepared by an accountant or reserve consultant. The basic theory is that the association attempts to predict the year a particular asset will require deferred maintenance or replacement, and a mathematical formula is then applied to calculate required contributions for each year. In theory, the money should be available when needed, with a lower contribution than required using the straight-line method.

A pooled reserve fund can then be used for any reserve item as the need arises, creating more flexibility for the board, which most associations see as the main benefit, as opposed to having to take an annual owner vote for inter-fund spending when the straight line method is used. In other words, the board can use any money in the reserve fund for an earmarked item that is within the “pool.” Conversely, with straight-line funding, the board could not, for example, use money in the painting reserve to pay for re-roofing, unless a successful vote of the unit owners is obtained.

The main benefit of pooled reserves is greater flexibility in how the money is spent. However, the same result can be accomplished by taking a yearly vote to permit the use of reserves for a non-scheduled purpose.

There are a few negative aspects of pooled reserves, however. First, the formula is complicated and most volunteer board members, community association managers and lawyers do not possess the analytical skills necessary to compute the required charts. Second, since the funding is predicated on anticipated asset failure many years into the future, an imprecise science at best, there can be substantial underfunding if the actual cash flow deviates from the assumptions in the formula. As a result, there may be a greater likelihood of the need to adopt a special assessment.

If your association currently uses straight-line reserve accounts, you would need approval of the unit owners (i.e. a majority of the owners who vote at a meeting where a quorum is attained) to put that money into the “pool.” Once the vote to switch to pooled reserves is successful, no further votes would be required in future years and the association could continue to operate under the pooling method.

 

David MullerDavid G. Muller is an attorney with the law firm of Becker & Poliakoff, P.A., which represents community associations throughout Florida, with offices in Naples, Fort Myers and 11 other Florida cities. The firm focuses a substantial amount of its practice on condominium and homeowners association law. 

 

 

 

Condominium Association Statutory Required Websites – Facts and Myths

Condominium Association Statutory Required Websites – Facts and Myths

Section 718.111(12)(g), Florida Statutes, was added to Chapter 718, Florida Statutes in 2017, requiring that by July 1, 2018, an association with 150 or more units which does not manage timeshare units is required to post digital copies of the documents specified in the section on its website, and lists specific documents that are required to be posted on the association website. In 2018 the section was amended to change, among other things, the effective date to January 1, 2019, as well as changes as to what must be posted.

The website must be an independent website or a web portal wholly owned and operated by the association, or a website or web portal operated by a third-party provider with whom the association owns, leases, rents, or otherwise obtains the right to operate a web page, dedicated to the association’s activities and on which required notices, records, and documents may be posted by the association. The purpose of this requirement is that in the event of a change in management companies or manager, the association must maintain control of the website.

The website must be accessible through the Internet and must contain an area that is inaccessible to the general public, accessible only to unit owners and employees of the Association.

While the statute provides that “upon an owner’s written request” the association must provide the owner with a username and password to access the protected areas of the website, obviously it makes sense to notify all owners of the manner in which to obtain their username and password.

Some of the requirements that must be posted on the association website include:

  • The association’s governing documents (Declaration, Articles of Incorporation, Bylaws and Rules and Regulations).
  • A list of all executory contracts or documents to which the association is a party or under which the association or the unit owners have an obligation or responsibility (this was changed from “Any management agreement, lease or other contract”).  An association is not required to post entire contracts on its website.  Only a listing of such contracts is now required.
  • After bidding for the related materials, equipment, or services has closed, a list of bids received by the association within the past year.
  • The association’s annual budget and any proposed budget to be considered at the annual meeting.  While the statutes only technically requires the posting of “any proposed budget to be considered at the annual meeting”, as a practical matter many, if not most, budgets are not considered at the annual meeting but at a separate budget meeting.  I suggest the association post any proposed budget, even one not to be considered at the annual meeting, on the website.
  • The association’s annual financial report for the preceding year and any monthly income or expense statement proposed financial report to be considered at a meeting.  This appears to require the posting of an association’s monthly financial statement if it is to be considered at a meeting.
  • The board member certification of each director.
  • All contracts or transactions between the association and any director, officer, corporation, firm, or association that is not an affiliated condominium association or any other entity in which an association director is also a director or officer and financially interested.
  • Any contract or document regarding a conflict of interest or possible conflict of interest as provided in ss. 468.436(2)(b)6., and 718.3027(3).
  • The notice of any unit owner meeting and the agenda for the meeting, no later than 14 days before the meeting.  The notice must be posted in plain view on the front page of the website, or on a separate subpage of the website labeled “Notices” which is conspicuously visible and linked from the front page. The association must also post on its website any document to be considered and voted on by the owners during the meeting or any document listed on the agenda at least 7days before the meeting  at which the document or the information within the document will be considered.
  • Notice of any board meeting, the agenda, and any other document required for the meeting, which must be posted no later than the date said notice is required to be posted on the condominium property pursuant to statute.

In addition to the above requirements, an association is also required to insure that official records that are not releasable to owners are not posted on the association website.  However, the association is not is not liable for disclosing information that is protected or restricted pursuant to this paragraph unless such disclosure was made with a knowing or intentional disregard of the protected or restricted nature of such information.

If an association does not post any of the required information, such failure will not invalidate any action or decision of the board.  In other words, if an association does not post meeting minutes or meeting notice as required, such failure, in and of itself, will not act to invalidate any board actions taken at such meeting.

If you have any questions concerning the website requirements, you should contact your association attorney.  Of course your association attorney should review any association website contract before the association executes such contract to insure the contract complies with the statutory requirements.

 

Howard PerlHoward J. Perl is an attorney with the law firm of Becker & Poliakoff, P.A., which represents community associations throughout Florida, with offices in Ft. Lauderdale, Miami, and 11 other Florida cities. The firm focuses a substantial amount of its practice on condominium and homeowners association law. 

 

 

 

alligator

Tragic Alligator Attack Should Cause Community Associations to Consider Alligator Dangers

The recent and devastating death of Shizuka Matsuki, a Florida woman attacked by an alligator, has alarmed and dismayed Floridians while raising many questions for community associations and their residents about alligator safety measures. Floridians are understandably fearful of alligator attacks due to the widespread prevalence of alligators in our state (similar considerations apply to less common and more localized crocodile populations in coastal areas). The disturbing details about the attack bring to mind the horror experienced in 2016 when a child, Lane Graves, was killed at a resort lagoon. While these types of attacks may not happen very often, even a single person or pet taken by an alligator is far too many.

For community associations maintaining the areas abounding bodies of water that are known possible alligator habitats (or at least areas they may occasionally frequent), safety is the primary concern. Associations do not and should not assume a duty to act as protectors and insurers of resident and/or invitee safety when it comes to wildlife; however, associations should, with advice of counsel and in consideration of insurance coverage requirements, take reasonable measures to warn residents and invitees by posting signage regarding the presence of alligators. In addition to signage, associations can, but are not required to, provide barriers (such as fencing) that prevent access to known areas of alligator habitation, while taking care to comply with requirements in the governing covenants and restrictions applicable to any “material alterations” or improvements of the property administered by the association.

Association directors and management personnel should educate themselves and can adopt policies to address the presence of alligators (and other dangerous wildlife). These policies can include contact information for appropriate agency hotlines, such as the nuisance alligator hotline of the Florida Fish and Wildlife Conservation Commission (“FWC”), the administrative agency that handles alligator conservation and removal. The hotline can be reached at 866-FWC-GATOR (866-392-4286). The policy can provide for appropriate animal sighting protocols, such as a requirement that residents and guests report sightings to management in writing, mass notification to residents of alligator sightings, immediate calls to the FWC hotline, strict rules against engagement by unqualified residents, owners, invitees, or association or management personnel, etc. The association can also provide educational materials to new owners and residents regarding the potential or known presence of alligators, including a link to the website for the FWC (www.myfwc.com). Associations with websites should strongly consider including links to these resources. Again, legal counsel should be consulted to discuss the best way to enact these types of policies.

Legal authorities concerning an association’s duties and liabilities relating to this issue are scarce. For example, there are no Florida statutory duties governing or requiring association signage relating to this issue (an issue the Florida Legislature may wish to address), and case law regarding alligator attacks has generally concerned itself with liability to invitees, a group that may be treated differently than residents. Under a longstanding doctrine concerning animals ferae naturae (wild animals) various cases hold that property owners do not have a general duty to invitees to anticipate the presence of alligators (or other dangerous wildlife) or to take extraordinary measures to protect invitees from wildlife, especially when that wildlife is in its natural habitat. However, this doctrine does not necessarily override competing negligence doctrines concerning a reasonable duty of care to maintain the premises in a reasonably safe condition in light of knowledge of a foreseeable risk of harm. Accordingly, there is a potential duty to warn (and possibly a duty not to actively encourage or invite access to areas where alligators are known to frequent) if there is knowledge about the ongoing presence of dangerous wildlife.

For example, in a 2011 appellate case in Georgia that addressed the liability of an association to a house sitter attacked by an alligator, the appellate court permitted the plaintiff to survive a summary judgment motion by the association (i.e. – their case had legal merit and sufficient factual evidence that they could go to trial). The appellate court was then reversed in a Georgia Supreme Court decision that found that the house-sitter assumed the risk in walking by the lagoon at night with knowledge of the potential presence of alligators. While based upon specific local Georgia statutes and doctrines and not necessarily binding on Florida Courts, the decision illustrates a situation in which a jury could potentially find a breach of the association’s duty to warn in relation to an alligator attack and the type of knowledge of the threat that would prevent such a case from going to a jury. The association at issue did in fact have a policy for frequent alligator removal, but did not have signage that could have warned the house sitter. Notwithstanding these issues and uncertainties, associations should work with counsel to focus on reasonable policies to attempt to avoid these types of tragedies, by establishing a plan in the event of alligator sightings, education and notice, and signage that warns residents and invitees of potential alligator dangers.

Jonathan Goldstein

Jonathan Goldstein is a partner with Haber Slade P.A. Goldstein’s practice includes community association law, real estate, construction, and commercial litigation. His email is email hidden; JavaScript is required.

 

Florida Supreme Court’s Latest Construction Defect Decision

Florida Supreme Court’s Latest Construction Defect Decision: Triggering the Insurer’s Duty to Defend in the Pre-Suit Process

The issue of whether a chapter 558 notice serves as a “claim” under a commercial general liability (“CGL”) policy, such as the one issued by Crum & Forster Specialty Ins. Co. (“C&F”) in Altman Contractors, Inc. v. Crum & Forster Specialty Ins. Co., No. SC16-1420, 2017 WL 6379535 (Fla. Dec. 14, 2017), has finally been resolved and construction defect claimants can expect earlier participation from their carriers.

Prior to the Altman decision, homeowners and/or condominium associations were frustrated during the chapter 558 process after sending a notice of claim because insured construction parties could not get insurers to become involved in pre-suit negotiations.  Such a result was antithetical to the purpose of chapter 558 – which was instituted specifically to streamline the construction defect claims process and encourage early alternative dispute resolution.

In Altman, the following question was presented to the Florida Supreme Court: “Is the notice and repair process set forth in chapter 558, Florida Statutes, a ‘suit’ within the meaning of the CGL policy issued by the insurer, C&F, to the general contractor, Altman Contractors, Inc. (“Altman”)?”  The Florida Supreme Court recently answered in the affirmative and held that the notice process set forth in chapter 558 does indeed constitute a “suit” within the meaning of the CGL policy at issue – which in turn means that insurance carriers can no longer sit back following receipt of a chapter 558 notice and must instead take an active role earlier in the process. 

‘Duty to Defend’

The Altman case stems from defects in the construction of Sapphire Condominium, a high-rise residential condominium in Broward County. C&F insured Altman for the Sapphire project through a policy that provided, in pertinent part, as follows: “[w]e will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.  We will have the right and duty to defend the insured against any ‘suit’ seeking those damages.” Altman sought a declaratory judgment that C&F owed it a duty to defend and indemnify as part of the chapter 558 pre-suit process to resolve claims for construction defects, and that C&F breached the liability insurance policy by refusing to initially defend Altman in the suit against Sapphire. C&F denied that Sapphire’s chapter 558 notices invoked its duty to defend Altman under the policy because the notices did not constitute a “suit.”  The insurance policy defined the term “suit” as follows:

“Suit” means a civil proceeding in which damages because of “bodily injury,” “property damage” or “personal and advertising injury” to which this insurance applies are alleged. “Suit” includes:

  1. An arbitration proceeding in which such damages are claimed and to which the insured must submit or does submit with our consent; or
  2. Any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent.

The policy neither defined the term “civil proceeding” nor defined the term “alternative dispute resolution proceeding” within the context of the definition of the term “suit.”  Notwithstanding, the Florida Supreme Court held that the chapter 558 process is included in the policy’s definition of “suit” as an “alternative dispute resolution proceeding.” [Emphasis added]

It is also noteworthy that since the Notice of Claim under chapter 558 is included in the policy’s definition of “suit” as an “alternative dispute resolution proceeding,” the insurer’s consent appears to be required in order to invoke its duty to defend the insured throughout the pre-suit process.  In Altman, the Florida Supreme Court noted that “chapter 558 does not place any obligation on the insured to participate in the chapter 558 process. The chapter 558 framework has never been anything other than a voluntary dispute resolution mechanism on the part of the insured, despite its requirement that the claimant serve the insured with a notice before initiating a lawsuit.”  Given that involvement in the chapter 558 pre-suit process is voluntary as opposed to mandatory on the part of the insurer, it remains to be seen whether insurance carriers will provide consent to participate in the process. 

Nevertheless, upon receipt of a chapter 558 notice, it behooves contractors and subcontractors to tender the notice to their insurance carriers.  It is in the insured-contractor or insured-subcontractor’s interest to encourage its insurance carrier to engage in the chapter 558 pre-suit process.  Absent the insurance carrier’s involvement in the chapter 558 pre-suit process, the insured will be forced to incur its own costs and fees if the insured chooses to participate in the process without the consent of its insurance carrier.  In the event that the insurance carrier fails to provide consent to engage in the chapter 558 pre-suit process and defend the insured, it may be in the insured-contractor or insured-subcontractor’s interest to litigate the matter because the insurance carrier’s duty to defend is then triggered and the insurance carrier will be forced to investigate the construction defect claims – shifting the financial burden from the insured-contractor or insured-subcontractor back onto the insurance carrier.  In light of the foregoing scenario, it is more likely that the insurance carrier will be inclined to give consent to avoid the costs of litigation and to attempt to expeditiously settle the matter – but that is yet to be determined. 

Settling Construction Defect Claims Now More Likely

Moreover, the insurance policy at issue in Altman is a standard commercial general liability policy and as such it is likely to have a profound impact on future chapter 558 construction defect litigation.  Accordingly, defense carriers are more likely to be engaged in construction disputes, particularly during the pre-suit stage after a chapter 558 notice is received – or at least they should in light of this decision.  As such, the chapter 558 process, unlike in many past years, is now likely to encourage the claimant and insured to attempt to settle construction defect claims prior to expending time and resources litigating those claims.  Such a notion is consistent with the legislature’s aim in creating chapter 558 as an effective alternative dispute resolution mechanism, intended to curb construction defect litigation.  Indeed, the Florida Supreme Court in Altman even stated, in dictum, that chapter 558 provides for a “statutorily required presuit process aimed to encourage the claimant and insured to settle claims for construction defects without resorting to litigation.”

In light of the foregoing, it is imperative that individual homeowners, homeowner associations and/or condominium associations, along with their experts, prepare detailed inspection reports that set forth the various construction defects affecting their property, what resulting damage is occurring as a result of those defects, the locations of the defects throughout the property, and determine compliance with the applicable building code, plans, and specifications.  By virtue of more detailed reports in compliance with the requirements of chapter 558, it seemingly becomes more likely that construction defect disputes will result in settlements at an earlier stage – thereby saving the parties exorbitant amounts of money that otherwise would be expended in litigation.

 

David Haber David B. Haber is the founding partner of Miami-based Haber Slade, P.A. He is a commercial litigator with 30 years of experience who has handled multiple complex commercial disputes throughout Florida, including complex commercial litigation, construction, and condominium and homeowners’ association disputes. David can be reached at email hidden; JavaScript is required

 

 

David T. Podein Frank Soto is a partner with the firm. He focuses on construction litigation. Frank can be reached at email hidden; JavaScript is required.

 

 

 

Brett Silverberg is a JD/MBA student at the University of Miami and a law clerk at Haber Slade. The firm is on the internet at www.haberslade.com.

 

hurricane irma

Hurricane Irma: Tips for Navigating Your Way Through the Insurance Claim Process

Hurricane Irma has made a significant impact on many properties and people throughout Florida. The insurance claim process for condominium and homeowner associations can be complicated and frustrating. As soon as possible, associations should coordinate the claim process with their property management and legal counsel. These five issues are critical to that process: 

Review and Document the Damage

You (the association and its management team) must promptly survey the properties for potential and/or actual damages that need to be reported and addressed. Document all actual and potential damage with photographs and video. This documentation should be accompanied by confirmation of the time, specific locations, and the person taking the photographs and video. Additionally, this documentation should be compared against the pre-storm documentation in order to prove that the damage did not exist prior to the storm. The “before” and “after” documentation is critical to fighting against insurers’ potential defenses. Associations should also gather any applicable maintenance records, vendor and repair records, and related documentation in order to establish the condition of the property pre-hurricane and the association’s regular maintenance practices and procedures. This helps prove that the damage caused by a hurricane (or similar insurable event) was not a “pre-existing condition” and/or a result of “lack of maintenance” at the property.

Associations should work with their legal counsel to review the Declaration and property boundaries in order to distinguish any reported unit owner property damage from the association’s property and common elements/limited common elements. These distinctions are important for both the insurance claim process and identifying the party responsible to repair.

Duties Under Your Insurance Policies

Make sure the association has updated copies of all applicable policies (part of the official records). Consult with your legal counsel in order to evaluate if the damage might apply under the flood policy, wind policy, and/or property policy. Depending on the type of damage, your claims may apply to multiple separate insurance policies. For each policy, create a checklist of the requirements for making a claim and the insurer’s deadlines that must be strictly complied with. Locate the section(s) in your policies titled “Duties of the Insured” a/k/a “Duties in the Event of Loss.” Add these items to your claim checklist and make sure to calendar all time deadlines.

After the storm event, associations must provide written notice to their insurance companies as soon as possible. Notice merely to your insurance agent is not  notice to the insurance company. No association wants an otherwise legitimate claim to ultimately be denied because it  failed to timely notify the insurance companies in writing. Your claim checklist for each policy should include the name, address information, and policy specific requirements for providing written notice of the claim.

Additionally, notify the owners/residents to promptly document and file their own individual insurance claims for their own insured property (finishes, property, and other items within the unit boundaries).

Communications with Adjusters and Insurance Companies

All too often, an association’s property management and/or directors erroneously believe the adjuster from the insurance company is on the association’s team in this process. Wrong! The adjuster sent by the insurance company does not work for you and is not a neutral party. The adjuster is paid by the insurance company and is often a third party contractor. Keep in mind the adjuster is primarily attempting to assist the insurance company to limit the loss/exposure of the company.

All-important communications with the adjuster and insurance companies should be timely documented in writing. Internal emails and other communications between the board of directors, property management, and the association’s legal counsel should not be inadvertently shared with the adjuster and/or insurance company. Consult with your legal counsel before responding to information requests and have your legal counsel instruct the adjuster and insurance companies to direct all communications about the claim to legal counsel.

Interim Repairs

You may need to make some interim repairs at the property before your claims are fully resolved. After the damage to the property has been evaluated and documented, it is important for associations to take the necessary steps to mitigate further damages and losses – – without prejudicing your rights under the applicable insurance policies. Make sure to provide written notice to your insurers regarding: (i) your proposed interim repairs and mitigation steps; (ii) the estimated costs; and (iii) confirmation that the insurer consents to you proceeding with the interim repairs even though your claim is still under review. Document the interim repairs with photographs, videos, estimates/bids, purchase order, invoices, as well as proof of payments. Emergency mitigation should always be performed as soon as possible (i.e., covering open windows and/or roof openings).

For non-emergency repairs/remediation, you should solicit at least three bids/estimates for each scope of work (unless you cannot find three bidders or in an emergency). The Board is not required to select the lowest bid – – and should be weary of bids that are unusually low compared to the others. For larger repair projects, it is important to coordinate the bid and contract requirements with your legal counsel before sending it to prospective bidders. Including the association’s contract requirements and standard clauses in the request for bids will help reduce contract negotiation and preparation time.

Additional Factors

There are related issues that are also very important to consider, such as: (i) does your association have a loan with a lender and thus have borrower specific duties under the loan documents? Associations should carefully review their loan documents with legal counsel in order to ensure compliance with the lender specific issues; and (ii) many management companies include a provision in their standard management contract that the association is required to pay the management company additional compensation in the event of significant repair projects after insurable events (a/k/a Hurricane Irma). This is an important factor for the Board to consider when preparing repair budget(s).

 

David Haber David B. Haber is the founding partner of Miami-based Haber Slade, P.A. He is a commercial litigator with 30 years of experience who has handled multiple complex commercial disputes throughout Florida, including complex commercial litigation, construction, and condominium and homeowners’ association disputes. David can be reached at email hidden; JavaScript is required

 

 

David T. PodeinDavid T. Podein is a partner at the law firm of Haber Slade. He concentrates his practice in the areas of real estate leasing, financing, and acquisitions/closings, real estate development, condominium and community association law, and construction law. David can be reached at email hidden; JavaScript is required. The firm is located on the internet at www.haberslade.com.

 

Unit Owners, Beware: The Developer May Have Stacked the Board Against You

Condominium and HOA Board Members May be Neglecting the Duties You are Owed

Are you concerned that the developer of your condominium did not deliver on the promises made to you when you purchased your condominium unit? Are you concerned with the construction of the condominium in which you live? For most individuals, the purchase of a condominium unit can be their most important investment. However, many of the decisions impacting this investment are not up to the owner of the unit, but rather, are left up to a board of directors controlling the association.

At a specified time, the developer of a condominium is required to relinquish control of the association’s board of directors in favor of the unit owners. The turnover of an association from developer to the unit owners presents the first opportunity for the association’s board to hire a lawyer, an accountant, and an engineer to perform important and time-sensitive inspections of the condominium. These inspections will identify construction defects and other concerns that may exist. As such, it should not be surprising that a developer would want a “friendly” association board of directors following turnover. But imagine the havoc an unscrupulous developer could inflict if the association’s newly elected board members—or the attorney and engineer working for the unit owners—have financial ties to the developer.

 A recent Miami-Dade Grand Jury report found that there was extensive fraud, mismanagement, stacking of boards, and conflicts of interest among condominium association boards.[1] Such misconduct is not limited to Miami-Dade, however. Perhaps surprisingly, one of the largest public corruption cases set in the fast-paced, scheming neon desert notoriously dubbed “Sin City” did not involve the usual Las Vegas suspects, but rather a contractor, a lawyer, and a stacked board of condominium directors. In 2015, Leon Benzer, a construction company boss, was sentenced to 15 ½ years in federal prison for orchestrating a scheme to take control of association boards for the purpose of channeling construction defect repairs to Benzer’s company. Benzer’s scheme involved a network of recruited purchasers and real estate agents who would get elected to association boards, hire Benzer’s attorney, and award lucrative contracts to Benzer’s construction company. Through these unethical practices, these individuals violated the duties owed to the association and its unit owners.

Condominium unit owners who serve on the board of directors are considered shareholders of the association, and act in a fiduciary relationship to each owner. In such relationships, the law demands a higher than ordinary degree of care from each director and officer, with Florida law specifically demanding directors to discharge their duties in good faith. Simply put, directors should act to protect the best interests of the association and its unit owners, rather than their personal interests or those of affiliated third parties. The actions of the board members in Benzer’s scheme were in complete disregard of the unit owners’ rights, as they participated in rigging elections and seeking only personal gain. In order to avoid a Benzer-type scheme, it is critical for unit owners to exercise due diligence in selecting truly independent individuals to become board members to represent the best interests of all the unit owners at the time control of the association is transferred from the developer. Since Florida law permits condominium association boards to settle claims concerning monies owed from the developer and matters of common interest to the owners, including construction defect claims, it is even more vital to ensure that an association’s board, their attorney, and engineer are not being led by ill-intended individuals to unscrupulously settle claims for pennies of their real worth, accept cosmetic repairs that do not fully address the underlying defective condition, and waive association claims for latent defects.

In order to ensure that meritorious claims of unit owners are adequately protected, unit owners must get involved and confirm that independent board candidates without financial ties to the developer or contractor are seeking election to the association’s board. Additionally, steps should be taken to confirm that the association’s officers and directors hire independent, knowledgeable attorneys and engineering firms, not attorneys and engineers affiliated with the developer or contractor. Unit owners should be cautious when dealing with an attorney that was selected, hired, and paid by the developer-controlled board prior to the unit owners taking control of the association. Unit owners must ask critical questions of management, those seeking election to the board, and the attorneys and engineers being interviewed to represent the association, as to their involvement or affiliation with the developer or contractor that built the condominium. Protect your investment, and avoid a Benzer “stacked board.”

For further information regarding the turnover process, self-dealing, conflicts of interest, and the duties of your board of directors, please submit your questions on our website and get the information you need to make sure you are safeguarding your investment.

 

David Haber

Nicholas Siegfried is a partner with the South Florida law firm of Siegfried, Rivera, Hyman, Lerner, De La Torre, Mars & Sobel, P.A. who has focused on community association and construction law since 2006. He is based at the firm’s office in Coral Gables, and the firm also maintains offices in Broward and Palm Beach counties, representing more than 800 associations throughout Florida. He may be reached at email hidden; JavaScript is required and at (305) 442-3334.

[1] Final Report of the Miami-Dade County Grand Jury Spring Term 2016, Addressing Condo Owners’ Pleas for Help: Recommendations for Legislative Action, at 1-31(Fla. Cir. Ct. Feb. 6, 2017). A copy of such grand jury report may be found at: http://www.miamisao.com/wp-content/uploads/2017/02/Grand-Jury-Report-Final.pdf.