Managers Report newsletter

Distinguishing between Statutory and Non-Statutory Reserves under the Florida Homeowners’ Association Act

Considering the fiduciary responsibilities officers and directors have to the homeowners’ association’s members, it is important to understand not only the importance of including reserve accounts in an association’s budget, but also to understand when reserve funding is mandatory under the Florida Homeowners’ Association Act. Unlike condominium associations, maintaining fully funded reserve accounts is not always mandatory for homeowners’ associations.

Reserve accounts allow the association to set aside funds for deferred or long-term maintenance of common areas or for capital expenditures, so as to eliminate the need for special assessments.

Although Homeowner Associations may collect periodic assessments from homeowners for the regular operation and maintenance of these common areas, such as routine pool cleaning, a large repair or replacement due to deterioration, such as pool remarciting or replacement of a clubhouse roof, will not typically be covered by these periodic assessments. Deterioration of common elements is unavoidable, and can be accounted for over years, rather than upon needing replacement. Akin to a safety net savings account or a rainy-day fund, reserves can also cover large and unexpected expenses, which will inevitably arise.  Without a reserve fund, the association may have no choice but to raise assessments or levy a special assessment on homeowners. Even if homeowners may initially be reluctant to pay more to fund reserves, they usually will be more displeased with a large, unexpected bill due to the association’s lack of planning. This also results in an uneven penalization of current homeowners, who are now responsible for deterioration that occurred over the years but was not paid for by prior owners. Additionally, delay in collecting on special assessments may delay repair, cause further deterioration, and result in a loss of property value.

Because of their significance in running a financially healthy community, the Homeowners Association Act was amended to provide for reserves. However, the statute does not mandate reserve accounts for all homeowners’ associations. Reserve accounts thus fall into two categories: statutory reserves, which are mandatory and must follow the requirements of the statute, and non-statutory reserves, which are board-created and limited by the association’s governing documents.

Statutory Reserves

The Homeowners Association Act was amended to provide for reserve accounts, but has only made reserves mandatory if they fall into the following two categories: reserves initially established by the developer or mandatory reserves affirmatively elected by members of the association. A reserve account established in one of these two ways means that the association must determine, maintain, and waive the reserves in accordance with the statutory requirements laid out in section 720.303(6) of the Homeowners Association Act.

If the developer initially established reserves, the developer has an obligation to fund the reserves while it maintains control of the homeowners’ association.   In the event that the developer fails to fund or properly waive the reserves, homeowners will have a cause of action against the Developer for recoupment of such funds. That type of action is beyond the scope of this article. The statute further requires that the budget reflect in what manner developer created reserves will be used. While the developer still controls the association, it will not be able to vote to use the reserves for other than intended purposes, unless approved by a majority of non-developer voting interests. Once the developer has turned control over to the association, the developer may still vote its interest to waive or reduce the funding of the reserves for the units it owns. It is therefore recommended that a community approaching turnover from developer control double check that the developer is properly funding its reserves or properly waived or reduced the funding.

In associations where reserve accounts are not initially provided for by the developer, the members may elect to establish statutory reserve accounts by a majority of the total voting interests of the association at a duly noticed meeting where the item is on the agenda. This can be done either by a vote at a duly called meeting or by written consent. Like developer-established reserve accounts, under this method, the vote must designate the components for which the reserves are to be used. In the years following the approval, the board must include the required reserve accounts in the budget and continue to do so every year after that.

Once established either by the developer or by the membership, statutory reserves must be funded, or must be waived. To waive or decrease funding for such reserves, a majority vote at a meeting with quorum present must be taken. Notably, this vote to waive or reduce the reserves applies to only one budget year. The association, if it so chooses, may terminate such a reserve account by approval of the majority of the voting interests of the association. The Homeowners’ Association Act also explains the formulas for properly calculating the funding of these reserve accounts, and the accounting must be done as provided. For those who are familiar with condominium reserves, statutory homeowner association reserves generally must be treated in the same manner as condominium reserves.

Non-Statutory Reserves

As noted above, funding reserves for homeowners’ associations is only mandatory under the statute if the developer has established reserve funding or if the owners have voted to establish statutory reserves. However, an association may choose to maintain a “non-statutory reserves.” Essentially, these accounts are board-created and their funding is limited by the governing documents of the association. The most significant difference is that these accounts are not mandatory and do not have be maintained or waived according to the Homeowners’ Association Act (as required in the Condominium Act).

Subject to document-based limitations on assessment increases, the board decides how much to include in the reserve account as part of its regular budgeting process. The association is obligated to prepare an annual budget reflecting annual operating expenses, including estimated revenues and expenses for the year. The association should endeavor to accurately calculate its estimated expenses and revenues as overstating anticipated expenses to put into a reserve account is not consistent with the statute’s budgeting requirements. As with calculating statutory reserves, it is recommended that the association consult  a reserve professional.

Because the reserve accounts are not bound by the statutory requirements, the board may choose to waive, reduce, or even eliminate the reserves. Further, the board may also decide to use the reserves for other than intended purposes. Although this means that the board may have more leeway in how to spend the reserves or in deciding to underfund the reserves in times of hardship, it is important to remember that the board still owes a fiduciary duty to the association’s members. Underfunding reserves or waiving reserves altogether may lead the association to rely on special assessments, as described above. An association that decides not to provide for reserves but is responsible for repair and maintenance that may result in a special assessment is obligated to include specific statutory language addressing this conspicuously in its annual financial report.

Since the amending of the Homeowners’ Association Act, a distinction between statutory and non-statutory reserves has arisen. Because the board may not have to fund reserves at all, or may have to strictly follow statutory requirements to fund such reserves, it is important to understand how the reserve accounts were initially set up. If reserves are not mandatory, it is recommended that the association nevertheless set up reserve funds to ensure a continuing healthy financial future for the community.

 

Karyan San Martano

Karyan San Martano

Attorney, Becker Ft. Lauderdale | bio

 

political signs

Political Signs

Increasingly, I am being asked by clients about whether they can prevent residents from displaying political signs from their units or lots. These clients all have restrictions against signs in their governing documents. The main concern, and response to enforcement, relates to the First Amendment: the right to free speech. 

Importantly, the First Amendment to the United States Constitution prevents state actors from limiting the right to freedom of speech unless such limitations are narrowly tailored and otherwise proper. This is especially true when the speech that is the subject of regulation is political in nature. 

The First Amendment applies to “state actors.” In Quail Creek Prop. Owners Ass’n, Inc. v. Hunter, 538 So. 2d 1288, 1289 (Fla. 2nd DCA 1989), the Second District Court of Appeal in examining an association’s sign restriction found that “neither the recording of the protective covenant in the public records, nor the possible enforcement of the covenant in the courts of the state, constitutes sufficient “state action” to render the parties’ purely private contracts relating to the ownership of real property unconstitutional.

To be a “state actor,” the Eleventh Circuit Court of Appeal has held that a “Court must conclude that one of the following three conditions is met: (1) the State has coerced or at least significantly encouraged the action alleged to violate the Constitution (‘State compulsion test’); (2) the private parties performed a public function that was traditionally the exclusive prerogative of the State (‘public function test’); or (3) ‘the State had so far insinuated itself into a position of interdependence with the [private parties] that it was a joint participant in the enterprise[ ]’ (‘nexus/joint action test’). Rayburn ex rel. Rayburn v. Hogue, 241 F.3d 1341, 1347 (11th Cir.2001). “Like the Eleventh Circuit, the state courts of Florida have also determined that homeowners’ associations existing under the laws of the State of Florida, are not state actors for purposes of fulfilling the “color of state law” element.” Murphree v. Tides Condo. At Sweetwater by Del Webb Master Homeowners’ Ass’n, Inc., No. 3:13-CV-713-J-34MCR, 2014 WL 1293863 (M.D. Fla. 2014).

While an association may turn to the courts for enforcement of an anti-sign restriction, which arguably involves “state action,” the Eleventh Circuit Court of Appeal has limited the context in which judicial enforcement of a private covenant would involve sufficient state action to implicate the First Amendment to the enforcement of racially restrictive covenants. Id.

While there are risks in enforcing an anti-sign restriction in the context of political signs, it is likely that an association can have restrictions against political signs, that such restrictions do not involve state action, and that their enforcement would not be prohibited by the First Amendment.

 

Marielle E. Westerman

Marielle E. Westerman

Community Association Law, Becker Tampa | bio

 

Electric Vehicle Charging Stations

“Sit Back and Enjoy the Ride:

Practical Considerations for Condominium Boards Regulating Electric Vehicle Charging Stations”

On July 10, 2020, Governor Ron DeSantis announced over $8 million of the state’s budget this year will be dedicated to strengthening Florida’s electric vehicle infrastructure. The intent of what Gov. DeSantis described as a “long-term investment” is to “promote reduced emissions and better air quality” and to “improve mobility and safety for the ever-increasing number of Floridians that drive electric cars.” Undoubtedly, many of these electrically mobile Floridians also reside in one of the thousands of condominium associations located throughout the state. And while many Tesla enthusiasts await with bated breath the latest and greatest in electric powered vehicles, many condominium boards are fearful of how their condominium property may be negatively impacted by this latest Jetson-inspired craze.

What Your Association CANNOT Do.

In sum, s. 718.113(8)(a), F.S., prohibits any declaration or Board-rule or policy from prohibiting a unit owner from installing an electric vehicle charging station within the boundaries of the unit owner’s limited common element parking area. Importantly, unit owners do not have a unilateral, unrestricted right to install EV stations anywhere they please. The right is specifically limited to the owner’s limited common element (LCE) parking area.  In other words, owners do not have the right to install EV stations on the Common Elements, within their units, or anywhere outside of the boundaries of their designated limited common element parking areas as outlined in the Association’s Declaration.

What Your Association CAN Do.

Where the Declaration does provide an LCE parking space for units, the Association can do the following:

  1. The Association can obligate the installing owner to pay for the costs of installation, operation, maintenance, and repair, including the costs to obtain hazard and liability insurance to cover the charging station.
  2.  

    Because the EV station will be located on limited common elements, the Association can also require the Owner to provide to the Association proof that it is named as an additional insured on the Owner’s policy within 14 days of Association approval for the EV installation.

  3. The Association can also require the Owner to:
    1. Comply with bona fide safety requirements, consistent with applicable building codes or recognized safety standards, for the protection of persons and property.
    2. Comply with reasonable architectural standards adopted by the association that govern the dimensions, placement, or external appearance of the electric vehicle charging station, provided that such standards may not prohibit the installation of such charging station or substantially increase the cost thereof.
    3. Engage the services of a licensed and registered electrical contractor or engineer familiar with the installation and core requirements of an electric vehicle charging station.
    4. Reimburse the association for the actual cost of any increased insurance premium amount attributable to the electric vehicle charging station within 14 days after receiving the association’s insurance premium invoice.
  4. The Association can place a lien on the Unit in order to enforce payment of costs associated with the Owner’s installation and use of the EV station.
  5.  

    The language of s. 718.113(8)(d), F.S. allows the Association to enforce payment of EV costs using the lien collection provisions provided in s. 718.116, F.S.. What is not clear is whether the Association is required to specially or individually assess the owner for the EV costs prior to filing a lien for the same. It is best to consult your Association’s Governing Documents and your Association attorney for further guidance on this process.

     

  6. The Association can deny an EV installation, if there is proof that it will cause irreparable harm to the Association property.
  7. This is best determined by an electrical engineer or other expert who can assess the Association property’s optimal electrical capacity and usage.

 

What Your Association SHOULD do.

  1. Amend Governing Documents to provide express easement and obligations for Unit Owners related to the installation and maintenance of EV stations.
  2. Because most condominium declarations recorded prior to the statute change will not reference an owner’s statutory right to install an electric vehicle charging station, the language of Section 718.113(8)(g), F.S. provides a statutory “implied easement” across the condominium’s common elements for this purpose regardless of the easement language contained in the Association’s governing documents. 

    If the Association is able to obtain the necessary votes to amend the Declaration, it should do so to specifically include an express easement to Unit Owner’s for the installation, maintenance and repair of electric vehicle charging stations.   The amendment should also outline the costs and liability responsibility of Unit Owners for their stations.

     

  3. Amend Governing Documents to address subsequent Unit Owner obligations and responsibilities for charging station maintenance and removal.
  4. Section 718.113(8)(d), F.S. makes the “unit owner who is installing” the station responsible for the costs of installation as well as removal and repair. This language, as it is currently written, can be interpreted to impose this responsibility only on the installing owner and does not specifically impose any continuing maintenance responsibility on any subsequent owners who may purchase the unit (and the appurtenant charging station) from the installing owner.

    Any amendment to the Declaration or Board policy related to EV stations should make sure to specifically impose maintenance and costs responsibility upon the installing owner and any subsequent owners.

     

  5. Engage an engineer or professional to assess the Association’s electric capacity prior to an influx of EV installation requests.
  6. Although every Unit Owner is technically entitled by the Condo Act to install an electric vehicle charging station within their LCE parking area, it is practically impossible for any condominium association to grant every owner’s request given the energy constraints of the condominium property. The Association should consult with an electrical engineer or other professional to conduct an independent assessment of the Association’s capacity to safely accommodate EV stations at the condominium property.

 

Shayla J. Mount

Attorney at Law, Becker
Orlando | bio

 

Budgets

With budget season approaching, Florida community associations must consider their capital expenditures and long-term maintenance needs. Community associations set aside a portion of their budgets for capital expenses and deferred maintenance, frequently referred to as “reserves.” The reserves are for expenses that do not occur on a regular basis and reserves are designed to ensure that funds will be available for repairs and maintenance without the need for special assessments. Different components will have varying useful lives; for example, a roof may have a useful life of several decades, whereas a building may require painting every few years. Community associations can either reserve, specially assess, or borrow funds to pay their capital expenditures and long-term maintenance needs. When preparing your annual budget, reserve requirements will depend on whether your association is a condominium, cooperative, or a homeowner’s association and the assets your association maintains.

Condominiums & Cooperatives

Condominiums and Cooperatives share similar concepts and reserve requirements. The Condominium Act and the Cooperative Act, and the corresponding Florida Administrative Code sections, have important nuanced differences. You should consult your Association attorney for him or her to review the relevant Act and Administrative Code sections in determining your association’s obligations when reserving for future expenses.

The Condominium Act and Cooperative Act requires that reserves include at least roof replacement, building painting, pavement resurfacing, and any other item that has a deferred maintenance expense or replacement cost that exceeds $10,000. The association may consider each asset separately when determining if a deferred maintenance expense or the replacement cost of an item exceeds $10,000. Alternatively, the association may group similar or related assets together. The condominium portion of the Florida Administrative Code give the example of an association that is responsible for two swimming pools, each with less than $10,000 in deferred maintenance expenses but together require more than $10,000 in deferred maintenance expenses, may establish a reserve for the pools. The reserves must be maintained in a separate account from the operating account unless they are commingled for investment purposes. In that case, the reserves must be separately accounted for in the combined account. Combining the accounts requires the Association to account for the reserves separately from the operating account and the Association must be very cautious to insure there are no mistakes in this regard.

Reserves are calculated using a formula based upon the estimated remaining useful life and estimated replacement cost or deferred maintenance expense of each reserve item that can be found in the statutes and/or Florida Administrative Code. The association may adjust replacement reserve assessments annually to take into account any changes in estimates or extension of the useful life of a reserve item as a result of deferred maintenance. The formula must provide funds equal to the total estimated deferred maintenance expense or total estimated replacement cost for an asset or group of assets over the remaining useful life of the asset or group of assets. The formula must be based on either a separate analysis of each of the required assets, “straight-line method,” or a pooled analysis, “pooled method,” of two or more of the required assets. Associations should periodically obtain a reserve study to determine the useful life and replacement costs of its reserve items and make adjustments to its reserve funding based on changes. Both the straight-line and pooled reserve methods require setting aside funds based on the cost to repair and replace the capital assessments and remaining useful life of the assets. The projected annual cash inflows may include estimated earnings from the principal’s investment, although the reserve funding formula may not include any balloon payments. The method of calculating each is beyond the scope of this article. The association’s accountant or attorney should be consulted for questions regarding each method.

When adopting a budget, the association must send every unit owner a proposed budget, including full funding of reserves. At the members’ meeting, reserves may be waived or partially funded by a vote of the membership. Limited proxies may be used for the vote to waive or partially fund reserves and the limited proxies must conform to the form adopted by the Division of Florida Condominiums, Timeshares, and Mobile Homes. The limited proxies must include specific statutory capitalized and bold language. If a vote to waive reserves is not conducted, if the vote falls short of a majority, or a quorum is not present, the budget with full reserves goes into effect. Your governing documents may provide a different threshold to waive or partially fund reserves, so your governing documents must be referenced to determine if a different threshold must be met.

Reserve funds must be used for the purpose that they were reserved. This means there is no such thing as “borrowing” from reserves. Any use of reserves for other than the intended purpose must be approved by the membership.

Homeowners’ Associations

Unlike condominiums or cooperatives, homeowners’ associations are not required to establish reserves unless initially established by the developer or the membership of the association affirmatively elects to provide for reserves. Member approval to establish reserves requires approval from a majority of the total voting interest. When establishing reserves by a membership vote, the approval must state that reserves shall be provided for in the budget and must designate the components for which the reserve accounts are to be established. Once the membership provides for reserve accounts, future budgets must include reserve accounts unless waived or partially funded by a majority vote of the members at a meeting where a quorum is present.

If the association maintains reserves, but those reserves were not initially established by the developer or a vote of the membership, then funding of such reserves is limited to the extent that the governing documents limit increases in assessments, including reserves. The annual budget may include reserves that are not required by staute.

Computation of the reserve accounts may be either via a pooled or straight-line method similar to that used by condominium and cooperative associations. If the developer initially established reserves or the membership elected to establish reserves, the reserves must be funded unless a majority of the members present at a members’ meeting votes to waive or partially fund.

If reserves were not initially established by the developer or by a vote of the membership and the association maintains improvements that may result in a special assessment if reserves are not provided, the association must include in its financial report the language mandated by Section 720.303(6)(c)1, Florida Statutes. Additionally, if the association maintains reserves, but those reserves were not initially established by the developer or by a vote of the membership, then the association must include in its financial report the language mandated by Section 720.303(6)(c)2, Florida Statutes.

Marielle E. Westerman

Michael​ Casanover

Attorney at Law, Becker
Ft. Lauderdale | bio

Association Loans/Lines of Credit

In this time of growing financial crises, associations are increasingly considering loans/lines of credit in order to have sufficient cashflow in the event of  budget shortfalls caused by increasing delinquencies or in order to pay for projects that cannot be funded through the operating budget alone but cannot be postponed.

In considering loan/line of credit terms as well as structuring repayment options for owners, associations must be aware of documentary limitations on borrowing and owner assessments as well as legal limitations on borrowing and owner assessments.

Loan/Line of Credit Terms

Associations must be aware of typical loan terms that can run afoul of common provisions in association documents if not handled properly. Such typical terms include the pledging of reserves, real property, personal property, and insurance payments.  In many instances, the inclusion of such terms requires membership approval rather than board approval alone by statute. For instance, the pledging of statutory reserves requires the same approval of the membership as is needed for using reserves for a purpose other than the specified purpose of the reserve account(s).   the Boards must also be aware that the governing documents can restrict the right to borrow money in ways different than the statutes, and such limitations must be addressed.

Repayment Options

In obtaining a loan/line of credit, the repayment of same must always be a consideration. Typical repayment options involve special assessments or the inclusion of payments in future operating budgets. Consideration must be given to the financial climate that is likely during the term of the loan/line of credit. For instance, if during the life of the loan/line of credit, financial instability or crises is likely, then the association needs to plan for the possibility that units/homes may go into foreclosure.  In such a circumstance, if the association has levied a special assessment, the payment obligation to pay the special assessment could be wiped out in the event of a bank foreclosure. Care must be taken to draft special assessments so as to avoid such a scenario.

In terms of repayment of a special assessment, the following cases are relevant. In a 2003 “Declaratory Statement” entitled In Re: Petition For Declaratory Statement, Walter Grover, Unit Owner, Portofino Condominium Apartments of Pompano Beach, Inc., DBPR Final Order No. BPR-2003-02688 (November 15, 2003) was issued. In this matter, the condominium association levied a special assessment and adopted a payment plan. It was determined that it was permissible for a condominium association to permit some owners to prepay a special assessment levied by the Board, while other owners paid over time at a stated rate of interest, where all of the owners were given the same option to either pay a lump sum or to pay in installments. Accordingly, to the extent that an association desires to levy a special assessment in connection with a loan, this statement would stand for the proposition that an association can give the owners the option to either pay up front or over time at the stated interest rate. It should be noted, however, that Declaratory Statements are, as a matter of law, only binding between the parties involved. However, they are at least persuasive authority as to the interpretation of the law from the state agency which has jurisdiction to enforce the condominium laws. However, these pronouncements are not “the law” in the same manner as specific statements in the statutes nor rulings from appellate courts. The second case that is problematic for association is a Fourth District Court of Appeals case entitled Gallagher v. Seagate of Gulf Stream Condominium Ass’n, Inc., 423 So.2d 640 (Fla. 4th DCA 1983). In the Seagate case, the lessor of a recreation lease offered an optional buyout proposal to all unit owners. The non-purchasing unit owners were then assessed a reduced monthly rent and purchasing unit owners were not assessed any portion of the rent. Because the Condominium Act provides that rent on a recreation lease is a common expense, and because common expenses are shared by all unit owners, the Court concluded that excusing one unit owner from payment of his share of the common expenses violated the statute unless all owners were likewise excused from payment. This case could be argued for the proposition that excusing any unit owners from their payment of interest is likewise unlawful.

Lastly, some associations desire to include a “due of sale” provision as to the payment of special assessments. Such a provision is likely not enforceable as it would create two different assessment collection categories which would likely be in conflict with the statutes and most governing documents. It is not to say, a “due on sale” provision of a special assessment would always be invalid but such provisions must be thoroughly reviewed by counsel.

In many instances, if possible, the inclusion of repayment of a loan/line of credit is best handled through inclusion in the regular annual budget of the association. This is so, because the pitfalls and risks of special assessments as to subsequent title holders is reduced since only the past assessments are, in some cases, limited or extinguished through mortgage foreclosure.

Conclusion

In this climate of fast changing economic conditions, associations must thoroughly consider the options available for financing their needs and how they can repay such obligations in order to best position themselves for financial stability.

Marielle E. Westerman

Marielle E. Westerman

Community Association Law, Becker
Tampa | bio

Not All Approaches are “Created Equal” When Getting Rid of Old Discriminatory Covenants

One of the most important and valuable aspects of a property owners’ rights is that owner’s ability to market and sell their property and to do so free from the fear of “hidden” or outdated restrictions or claims which may have previously burdened their property. What to do when a person raises a claim of a 50-year old unrecorded and unused easement agreement between neighbors executed by way of a “gentleman’s handshake”?  Or, what about the long lost great-grandnephew who arrives home from sea with an unrecorded quit claim deed to the property executed and delivered to him personally by his deceased beloved aunt 40 years earlier?  Chapter 712, Florida Statutes, or the “Marketable Record Title Act” (“MRTA”), was first introduced by the Florida Legislature in 1963 with the goal of protecting owners from certain types of stale and undocumented claims against property which are more than 30 years old from the property’s “root of title” (ie: deed).   Since its introduction, the application of MRTA in helping to clear title to property by automatically extinguishing potentially troublesome real estate claims has done much to provide stability and peace of mind to buyers and sellers alike. (Not to mention the cost and time savings for title companies in conducting and reviewing a 30-year title search as opposed to a 100-year title search!)

For years, state legislatures have struggled with balancing the need to protect an individual’s valid property rights while facilitating the removal of outdated, irrelevant and potentially illegal burdens or claims which undermine the free transfer of property.  This year, the Florida Legislature passed a comprehensive housing anti-discrimination bill (SB 374), which, among other changes, seeks to simplify the state-level administrative process for persons affected by housing discrimination.  In addition to removing the requirement that persons alleging housing discrimination must first exhaust their administrative remedies prior to filing a lawsuit for the same in state court, this bill also specifically amends the provisions of Chapter 712 to automatically extinguish any “discriminatory restriction,” defined to mean  “a provision in a title transaction […] that restricts the ownership, occupancy, or use of any real property in this state by any natural person on the basis of a characteristic that has been held  […] by the United States Supreme Court or the Florida Supreme Court be protected against discrimination under the Fourteenth Amendment [to the US Constitution] or under s. 2 Art. I of the State Constitution, including race, color, national origin, religion, gender or physical disability.”

Unfortunately, the existence and influence of discriminatory use restrictions in real estate transactions were at one time common place, not just in the Florida but throughout the country. For example, the 1948 United States Supreme Court case, Shelley v. Kraemer, 334 U.S. 1 (1948), involved the attempted and unsuccessful purchase of a home by an African American couple in St. Louis, Missouri, in which a neighboring property owner sued to enforce a 1911 race-based restrictive covenant which specifically prevented purchase of the property by “people of the Negro or Mongolian Race.”  In that case, the U.S. Supreme Court found that any state court action to enforce such a blatantly discriminatory restriction was in violation of the Equal Protection Clause under the Fourteenth Amendment of the U.S. Constitution.  

The Shelley case made it clear that state courts cannot enforce discriminatory covenants, however, the case did not go so far as to invalidate the existence of discriminatory covenants in the first place.  In other words, even after the Shelley case, community associations and individual neighbors (in lieu of a community association) were still free to create, impose and abide by such discriminatory restrictions, as long as they did not bring a claim to enforce those restrictions in a state court.   Although rare, the reminders and remnants of this period in American history are still evidenced today.  More specifically, some older associations may have provisions in their Declaration or other governing documents which contain obviously discriminatory restrictions based upon a person’s racial, national, ethnic, or religious identification.  To the extent that these restrictions exist in an association’s governing documents, even if they are not enforced, it leaves an association open to liability for claims of discrimination under the Federal and Florida Fair Housing Acts.

The intention of the proposed amendments to Chapter 712 are commendable and long overdue. However, legislators must be careful not to “throw the baby out with the bath water.”  In other words, the attempt to deal with the rare instances in which these discriminatory restrictions still exist should not have the affect of invalidating other restrictions which may be objective, yet unintentionally discriminatory. For example, does a declaration provision restricting holiday decorations to a particular time frame or holiday season diminish or infringe upon a person’s equal protection rights based upon their religion if that person wants to maintain Christmas decorations year-round?  Or is a pet restriction which prohibits or limits the number of pets a person may have in their unit, automatically subject to extinguishment under MRTA because, on its face, the restriction discriminates against a disabled person claiming to need a service or emotional support animal?

Other states have taken more narrowly tailored approaches to address old restrictions which are blatantly discriminatory. For example, in California, a restriction is found to be discriminatory and thus void as a matter of law after notice, review and confirmation by the county attorney.  In Washington state, the law includes a specific list of examples within the statute of potentially discriminatory provisions which are considered void.   The language of SB 374 as passed provides neither a preliminary or subsequent objective review process, by a court or county attorney, nor a list of examples which would help identify or more specifically define a “discriminatory restriction” which would be subject to automatic extinguishment under the new MRTA provisions.  A more narrowly tailored approach would help curb potentially disingenuous claims from owners that an otherwise legitimate and reasonable restriction is “discriminatory” just because it in some way restricts that owner’s use of their property.  Without further direction from the legislature in the first instance as to the type of provisions that are considered “discriminatory,” an Association’s Board is left to wonder whether they may be enforcing a provision that may ultimately be challenged as “discriminatory” and thus void and unenforceable under MRTA.

 

Shayla J. Mount

Attorney at Law, Becker
Orlando | bio

 

PLEASE NOTE:  THE COMMENTS IN THIS ARTICLE MAY REQUIRE MODIFICATION DUE TO THE FAST MOVING EVENTS IN REGARD TO THE COVID-19 OUTBREAK.  NEW DIRECTIVES AND ORDERS ARE BEING ISSUED ON THE FEDERAL, STATE AND LOCAL LEVEL DAILY.  PLEASE CONISDER THE MOST RECENTLY AVAILABLE INFORMATION WHEN REVIEWING THE BELOW ARTICLE.

 PLEASE CONTACT YOUR ASSOCIATION ATTORNEY IN REGARD TO ACTIONS TAKEN IN REGARD TO AN ASSOCIATION’S EMERGENCY POWERS AND OTHER ACTIONS IN THE INTERESTS OF THE HEALTH, SAFETY AND WELFARE OF ASSOCIATION RESIDENTS.

Our society is facing a unique threat from the SARS-CoV-2, better known as the Covid-19 outbreak, and community associations are on the forefront. Community association boards are questioning what they can do, what they should do, and what can’t they do. The Condominium Act, Cooperative Act, and Homeowners’ Association Act provides certain emergency powers under certain conditions (see Sections 718.1265, 719.128, and 720.316, Florida Statutes). The President, Governor and multiple local municipalities have issued emergency declarations, so there is no question that a state of emergency exists. While the community association emergency powers were created in anticipation of a hurricane, many of the emergency powers apply to an infectious disease outbreak and the Director of the Division of Condominiums, Timeshares, and Mobile Homes has confirmed that Boards may utilize their statutory emergency powers pursuant to the Governor’s Emergency Orders.

The emergency powers allow meetings with reduced noticed and allow notice by any practicable manner, including publication, radio, United States mail, the Internet, public service announcements, and conspicuous posting on the condominium property or any other means the board deems reasonable under the circumstances. Additionally, an association may cancel or reschedule any meeting, name non-directors as assistant officers who shall have the same authority as the officers during the state of emergency. Associations may levy a special assessment without an owner vote. Based upon the advice of emergency management officials, an association may determine any portion of the property is unavailable for entry or occupancy by unit owners, family members, tenants, guests, agents, or invitees to protect the health, safety, or welfare of such persons. However, the association may not restrict owners from their units or parcels.

In the event of an infectious disease outbreak, nearly everyone has heard the term “social distancing,” but how does that term relate to the operation of a community association? Associations should take proactive measures to limit the gathering of large groups of people. Associations should cancel meetings unless the meeting is required to take emergency action, and then to the extent possible, attendance by the board and membership should be made available through telephone or teleconferencing. If the community association must conduct an election, the board should allow and encourage electronic voting. To the extent that physical ballots are necessary, the board should make remote viewing of the counting available by live video feed if possible. Large gatherings can be further limited by canceling social events, including common element or area rentals by owners who conduct social gatherings, and closing common area recreational facilities such and a clubhouse, community gym, and community dining. Elections or meetings may be held outdoors to limit the number of persons in a particular room and to facilitate social distancing.

Your association must consider the health and welfare of its staff and employees. The association should consider granting employees additional emergency paid time off. While not required to grant such paid time off, unless required by contract, the association should weigh the potential cost verse the risk of a sick employee showing up for work out of fear of missing pay. In light of the risk-reward, many associations may find the additional cost well worth the benefit and peace of mind provided to the whole community. Your association should seek to limit physical contact not only between the residents but also the residents and the staff. The association should consider closing the management office and requiring appointments with the manager and conducting appointments by via telephone or teleconferencing whenever possible.

It is likely associations cannot prohibit owners and their guests from visiting or occupying a unit or parcel, although, you should consult with your attorney regarding what limits can be placed on guests or visitors. Your association can implement specific procedures and limit the number of persons in a common areas or elevators, providing hand washing or hand sanitizer stations in high traffic areas. The association should also consider suspending or postponing optional maintenance or repairs to limit the number of persons visiting the property. The association may also place reasonable restrictions on the owner’s contractors. The board should analyze its current situation to evaluate what measures are necessary to protect persons at the property and continually reevaluate its measures to determine the needs of the community. The association can work with its attorney to determine how best to implement rules and procedures to accomplish the association’s needs.

Keeping your property clean is important during normal times but is imperative during an infectious disease outbreak. The Center for Disease Control and the Florida Department of Health has published recommendations for cleaning and disinfecting common facilities, and your association should consult those resources. Your Association should continually review recommendations by the Centers for Diseases Control and the Florida Department of Health.

What Do I do If An Infected Person Resides Or Has Visited My Community?

A major infectious disease outbreak, such as Covid-19, has not occurred since the adoption of the community association concept, so associations are navigating uncharted waters. If the association becomes aware that an infected person resides or has visited the property, the association will ask, do we tell the residents, and do we disclose the name of the infected person. While there is no guidance from the Division, Florida Statutes, or case law, an association should make its residents aware of the infection so that its residents may exercise caution. However, the association should not disclose the identity of the infected person without that persons written approval. While an association may be concerned that persons in contact with the infected person may need to know as to allow themselves to take appropriate measures, your association should be cognizant that disclosing the identity of the infected person may lead to stigmatizing that person or other negative consequences. If your association becomes aware of an infected resident, the association should notify the Florida Department of Health, or other relevant government authority, to apprise it of the situation. The association should heed the advice and instruction of the Florida Department of Health or other government authority. Discuss any situations regarding cases of the virus in your association with your association attorney.

Infectious diseases and its fallout is a novel challenge for Florida community associations. Your association should keep itself apprised of best practices and advice disseminated from the Florida Department of Health, Centers for Disease Control, or other pertinent authority. Additionally, Becker maintains a free website to aggregate information relevant to Covid-19 at https://beckerlawyers.com/covid-19/ I encourage all community associations to visit the website for the latest information and developments for Covid-19 information relating to the community association. As you have heard many times keep WASHING YOUR HANDS!

 

Howard J. Perl, Esq.

Shareholder, Becker
Fort Lauderdale | bio

 

No Time Limit to Record Amendments

Q After the unit owners in a condominium association vote to approve an amendment, is there a time limit or deadline by which the amendment must be recorded with the county? (M.A. via e-mail)

A Chapter 718 of the Florida Statutes, known as the Florida Condominium Act, extensively regulates amendments to condominium documents. However, the Act does not contain a specific deadline for when properly adopted amendments to the condominium documents must be recorded.

Section 718.110(3) of the Act states that amendments to the declaration are effective when properly recorded in the public records of the county where the declaration is recorded. Similarly, Section 718.112(1)(b) of the Act states that amendments to the articles of incorporation or bylaws are not valid unless recorded in the public records of the county where the declaration of condominium is recorded. Further, Chapter 617, the Florida Not For Profit Corporation Act, provides that amendments to the articles of incorporation must be filed in the office of the Department of State.

In my opinion, the recording of such amendments is a ministerial act that the board would be required to undertake within a reasonable time of the approval of the amendment. While there is room debate what is reasonable, I would say absent unusual circumstances (such as an intervening legal challenge or some after-discovered error), 30 days from approval would be a reasonable time frame.

However, there is also no specific prohibition in the statute preventing an association from recording an amendment long after the owner vote. I occasionally see situations where an association failed to record an amendment due to changes in the board or management or other circumstances, and records an amendment a year or longer after its approval. This is obviously not an ideal situation since you might have new owners who did not get a chance to vote on the amendment and who could claim that they bought there unit based on what was in the public records.

Q Can you explain what a “material alteration” is? We have a constant argument in our condominium association, usually driven by one particular owner, over what the board can and cannot do. (J.F., via e-mail)

A This is one of the most common areas of disputes in condominiums. As you probably know, Section 718.113(2) of the Florida Condominium Act provides that there can be no material alterations or substantial additions to the common elements except as authorized by the declaration of condominium. If the declaration is silent, then 75 percent of all voting interests must approve the alteration or addition (there is usually one voting interest per unit).

The standard still used by the courts today comes from a decision from a Florida appeals court rendered almost 50 years ago. In ruling that a unit owner’s closing in a screened lanai with windows was a material alteration, the court stated that the term means “to palpably or perceptively vary or change the form, shape, elements or specifications of a building from its original design, or current condition, in such a manner as to appreciably affect or influence its function, use or appearance.” Using this test, appellate courts have ruled that changing the exterior color scheme of condominium buildings is a material alteration, as is changing mansard roof shingles made of cedar to tile type shingles.

As with most rules, there are exceptions, one being the so-called “necessary maintenance exception,” which originates from a series of appellate court cases from the Second District Court of Appeals (which includes southwest Florida). These cases basically say that certain changes can be made without and owner vote when necessary to comply with law or when necessary for the proper maintenance and preservation of the condominium property.

 

Joseph E. Adams

Office Managing Shareholder, Becker
Fort Myers | bio

 

Special Assessments in Condo

Special assessments happen. The unfortunate reality is that during the life of a condominium building some unexpected expenses are going to arise and the association must take steps to fulfill its obligations to the membership.  If the operating budget cannot handle these expenses, and there is not a funded reserve account which can dray the cost, then it is likely that a special assessment will need to be levied.  In Florida, there is a right way and a wrong way to levy special assessments. Levying a special assessment without following the proper procedures could end up costing the association unneeded legal expenses and heartburn; SO DO IT RIGHT THE FIRST TIME!

Levying a special assessment in Florida requires knowledge of certain provisions of the Condominium Act (Chapter 718, Florida Statutes) and your association’s governing documents.  Section 718.112(2)(c)1, Florida Statutes, provides (in material part)

…written notice of any meeting at which nonemergency special assessments, or at which amendment to rules regarding unit use, will be considered must be mailed, delivered, or electronically transmitted to the unit owners and posted conspicuously on the condominium property at least 14 days before the meeting. Evidence of compliance with this 14-day notice requirement must be made by an affidavit executed by the person providing the notice and filed with the official records of the association….Notice of any meeting in which regular or special assessments against unit owners are to be considered for any reason must specifically state that assessments will be considered and provide the nature, estimated cost, and description of the purposes for such assessments.

Breaking down that statutory language amounts to the association having to take the following actions to properly notice a meeting where special assessments will be considered (1) notice of the proposed meeting must be sent to all owners not less than 14 days prior to the meeting; (2) the notice must also be posted in a conspicuous place on the condominium property not less than 14 days prior to the meeting; (3) the notice must explain what the special assessment will be used for and the amount of the expected special assessment; and (4) the person who mailed or delivered the notice to the owners must execute an affidavit which attests to the fact that the notices were mailed or delivered to all owners and the date that the notices were sent.

It is very likely that your association’s governing documents also address special assessments.  It is important to know whether the board of directors has the sole authority to levy special assessments or whether the membership has to approve special assessments.  Regardless of whether the board or the membership approves the levying of special assessments, the notice procedure stated above must be met.  The board of directors needs to be sure that there are no additional procedural measures that the must be followed when special assessments are being considered.  Usually, but not always, any additional measures will be located within the association’s bylaws.

A critically vital, yet often overlooked, aspect of the special assessment levying process is making sure the special assessment purpose is a proper common expense.  Proper common expenses are defined in Section 718.115, Florida Statutes, but can, and usually are, defined within the association’s governing documents.  It is important to review the governing documents prior to embarking on the special assessment path to ensure that what the association would like to raise the funds for is appropriate (if it is not, an amendment to the governing documents may be required prior to levying the special assessment).

If attention is not properly given to the issues discussed in this article, negative consequence may occur.  These consequences may include unit owners refusing to pay the special assessment because they claim that the association did not follow the proper procedure for levying the special assessment or that the special assessment was not levied for a proper common purpose.  Either argument could lead to costly litigation.  Also, many associations use special assessments as collateral for loans taken from institutional lenders.  Those lenders will very likely require the association’s attorney to verify in writing that the special assessment was properly levied, which he or she will refuse to do unless/until the special assessment is properly adopted.

Hopefully special assessments are rare due to prudent financial planning by the association during the budget process.  Ensuring that the association takes the proper steps to levy a special assessment the first time will ease the headache, stress, and cost associated with having to deal with those owners who refuse to pay or lending institutions which require the special assessment lien rights as collateral for a loan to the association.

 

Jay Roberts

Shareholder, Becker
Ft. Walton Beach | bio

 

HUD’s Guidance on Application of Fair Housing Act Standards to the Use of Criminal Records: Where Do We Stand?

A client recently came to me about amending the declaration of the homeowner’s association to prohibit certain specific violent felons, and, in particular, sexual predators from residing in the association. The client posed the question as to whether the proposed amendment would be discriminatory since they had heard that the use of criminal background checks was no longer allowed. The client’s question rose from HUD’s Guidance on Application of Fair Housing Act Standards to the Use of Criminal Records which was issued in April of 2016.

The guidance stated that “[b]ecause of widespread racial and ethnic disparities in the U.S. criminal justice system, criminal history-based restrictions on access to housing are likely disproportionately to burden African Americans and Hispanics. While the Act does not prohibit housing providers from appropriately considering criminal history information when making housing decisions, arbitrary and overbroad criminal history-related bans are likely to lack a legally sufficient justification. Thus, a discriminatory effect resulting from a policy or practice that denies housing to anyone with a prior arrest or any kind of criminal conviction cannot be justified, and therefore such a practice would violate the Fair Housing Act.” Office of General Counsel Guidance on Application of Fair Housing Act Standards to the Use of Criminal Records by Providers of Housing and Real Estate-Related Transactions, https://www.hud.gov/sites/documents/HUD_OGCGUIDAPPFHASTANDCR.PDF, April 4, 2016.   

It is important to note that the HUD guidance was issued under the Obama administration. Under the current administration, the Department of Justice, which can enforce the Fair Housing Act in court, does not appear to have focused its enforcement efforts on the guidance as evidenced by the lack of any significant number of cases on the issue. It is also important to understand that the guidance is not law. Rather, it is “an interpretive rule” which clarifies how disparate impact claims  . . . apply to situations where a housing provider takes an adverse action based on an individual’s criminal history.”  Connecticut Fair Hous. Ctr. v. Corelogic Rental Prop. Sols., LLC, 369 F. Supp. 3d 362, 371 (D. Conn. 2019) citing Jackson v. Tryon Park Apartments, Inc., 2019 WL 331635, (W.D.N.Y. Jan. 25, 2019). 

In terms of creating occupancy restrictions related to criminal activity, the following excerpt of the guidance is important:

“In most instances, a record of conviction (as opposed to an arrest) will serve as sufficient evidence to prove that an individual engaged in criminal conduct.29 But housing providers that apply a policy or practice that excludes persons with prior convictions must still be able to prove that such policy or practice is necessary to achieve a substantial, legitimate, nondiscriminatory interest. A housing provider that imposes a blanket prohibition on any person with any conviction record – no matter when the conviction occurred, what the underlying conduct entailed, or what the convicted person has done since then – will be unable to meet this burden.

***

A housing provider with a more tailored policy or practice that excludes individuals with only certain types of convictions must still prove that its policy is necessary to serve a “substantial, legitimate, nondiscriminatory interest.” To do this, a housing provider must show that its policy accurately distinguishes between criminal conduct that indicates a demonstrable risk to resident safety and/or property and criminal conduct that does not.” Id.

In a brief that was filed in October of 2016 in a Fair Housing case, the Department of Justice wrote that “[a]lthough the FHA does not forbid housing providers from considering applicants’ criminal records, it does require that providers do so in a way to avoid overbroad generalizations that disproportionately disqualify people based on a characteristic protected by the statute, such as race or national origin. To that end, the FHA bars criminal records bans that have a disparate impact on applicants based on race or national origin unless they are supported by a legally sufficient justification.” The DOJ went on the write that “[a]lthough maintaining safety and security at a property is an important duty for housing providers, simply invoking the need to ensure “safety” or “security” cannot justify a screening policy that categorically excludes any tenant who has a criminal conviction. A ban on tenants with convictions without consideration of factors like the conviction’s nature, severity, and recency is over-inclusive and lacks any principled way to assess who, if anyone, poses a risk to safety or security in the property.” United States of America’s Statement of Interest, The Fortune Society, Inc. v. Sandcastle Towers Housing Development Fund Corp.  (E.D. N.Y. 2016).  

In a recent case involving this topic, the court found that “[t]here is no evidence that the PHA’s criminal history policy violates state or federal fair housing laws or the Constitution.” The policy at issue in this case was a provision which stated “[a]n applicant would be mandatorily denied if:

Any household member has been convicted of a homicide-related offense, i.e. the killing of one human being by another. This includes murder, manslaughter (voluntary or involuntary), and conspiracy to commit murder. Mandatory denial is required if the homicide related conviction is within the time frames, as described in Appendix D.” Hall v. Philadelphia Hous. Auth., 2019 WL 1545183  (E.D. Pa. 2019).

In another case, involving an individual that was convicted of rape, the court found that “[t]he exclusion of applicants with criminal records exhibiting previous violent conduct is rationally related to this goal. Indeed, the Fair Housing Act states that an individual may refuse to rent to an applicant that would pose a health or safety risk. 42 U.S.C. § 3604(f)(9). Talley v. Lane, 13 F.3d 1031 (7th Cir. 1994).

The takeaway from the guidance and cases is that it remains possible to restrict occupancy in associations based on criminal activity but, critically, in order to have an occupancy restriction based on criminal activity, the restriction must only restrict based on criminal convictions, be limited to specific crimes that reasonably bear on the purpose of an association in “promot[ing] the health, happiness, and peace of mind[1]” of the residents of the association and that takes into account the nature, severity and time since the conviction.

” = “3” “” “” ACTIVE 13324691v.1

[1]  Hidden Harbour Estates, Inc. v. Norman, 309 So. 2d 180, 182 (Fla. 4th DCA 1975).

[1]  Hidden Harbour Estates, Inc. v. Norman, 309 So. 2d 180, 182 (Fla. 4th DCA 1975).

 

Marielle E. Westerman

Marielle E. Westerman

Community Association Law, Becker
Tampa | bio