by Gary A. Poliakoff, J.D. and Ryan Poliakoff / Published July 2014
Our board is considering taking a loan against a unit in our condominium to reduce the amount of a special assessment. This unit is owned by the association and is used for an on-site property manager. I would guess it is considered a limited-use common area. There is a reserve set up for it. I feel that a vote by all the owners is required to get a loan using this property as collateral. I have looked through the condominium documents, and I cannot find anything that addresses this situation. Can this be done?
First, if the unit is now owned by the association, it is probably association property and not defined as a common area. Normally, a condominium is owned jointly by all of the unit owners, but the corporation itself can also own property.
Condominiums, in addition to being governed by Florida Statute Section 718 (the Condominium Act), are also governed by Florida Statute 617 (the Not for Profit Corporation Act). And, assuming there is not a specific bar found in the association’s governing documents, the association has broad powers to borrow money and pledge collateral—Florida Statute section 617.0302 states that every corporation not for profit has the power to “make contracts and guaranties, incur liabilities, borrow money at such rates of interest as the corporation may determine, issue its notes, bonds, and other obligations, and secure its obligations by mortgage and pledge of all or any of its property, franchises, or income.” Typically, a condominium association will pledge its assessments as collateral (as most associations do not own property), but there is no reason it could not pledge an association-owned unit, instead. As with any other general corporate decision, unless otherwise provided by statute or the governing documents, the decision of whether to borrow money and pledge collateral is made by the board of directors.
Is there a statute that dictates the amount of time before which an association must provide notice of an election meeting? Or is this governed by the bylaws and/or covenants? We just received a notice of our annual election and a form for proxy voting. The mailing was dated the 14th of this month, and the election meeting is to take place on the first day of the next—so this allowed just over two calendar weeks (or around ten business days) for owners to respond. I had intended on campaigning, but at this point, I don’t think I will have enough time to get a campaign flyer out and expect a prompt response.
Also, do the owners have the right to inspect the proxy forms submitted by other owners for the vote? I would not put it past the current regime to simply claim they have a majority vote because of proxy submissions granting the board authority to vote on the owners’ behalf.
Given that you say that your association sent out a proxy for voting, you must live in a homeowners association and not a condominium (proxy voting in elections is prohibited by the Condominium Act). Unlike the Condominium Act, which provides for 60-days’ notice
of the annual election, the HOA Act leaves the organization of elections up to the governing documents. It is very common for an HOA election to be conducted on 14 days’ notice, just like any other membership meeting. There was a bill this year that would have brought condominium-style elections to HOAs (complete with secret ballots), but it wasn’t passed by the legislature.
However, the HOA Act does provide that all written records related to the operation of the association must be kept for seven years and are open to inspection and copying, and this includes election records and proxies. Proxies are, by definition, not secret documents, as they must be signed and dated. So, you absolutely have the right to inspect the proxies and to do your own recount.
I always enjoy reading your column. I have a question regarding whether recent changes to my HOA Declaration of Covenants, Restrictions, Conditions, and Easements were done in a legal fashion. There was no notice of a pending amendment, vote, or board meeting to address the amendments whatsoever. Board members put together changes (when and where is a mystery), hand carried the amendments to selected individuals doors, and obtained the necessary 30 percent signatures. Some of the homeowners that signed said that they were told by the board member that approached them that each board member had taken a list of names to contact and that everyone would be contacted. This did not happen. The changes that were made had to do with renting, who could live in a home, deposits, and fines. Our documents state “the covenants and restrictions of this declaration may be amended by an instrument signed by not less than 30 percent of the lot owners.” There is no specific mention of notification of amendments to the homeowners. Can the board act like this without notice?
I found the following Florida Statute: State of Florida 720.303(2)(c)(2)
An assessment may not be levied at a board meeting unless the notice of the meeting includes a statement that assessments will be considered and the nature of the assessments. Written notice of any meeting at which special assessments will be considered or at which amendments to rules regarding parcel use will be considered must be mailed, delivered, or electronically transmitted to the members and parcel owners and posted conspicuously on the property or broadcast on closed-circuit cable television not less than 14 days before the meeting.
Does the Florida statute prevail?
The homeowners that were not included in this door-to-door effort had no inkling that an amendment was being considered and no opportunity to vote. No one was given a copy of the amendments to read beforehand.
We found out about this because a homeowner had a sale contract cancelled because of the changes, which were found on the Palm Beach County website. These had been rushed through days before and after the sales contract was written. This homeowner raised the alarm. She lived next door to the association president and was not given these amendments to see or sign. The president said that she did not notify that homeowner for the homeowner’s own protection. An add-on to this question. If it takes 30 percent to pass an amendment and 30 percent of the residents vote for the amendment, what if 35 percent would have voted against it? No one was given the opportunity to vote against the amendment.
The form was just to sign to agree with the amendments. This is a new HOA (recently taken over from the developer), and we have gotten off to a very rough start. There has been a lack of ‘transparency and communication, and initially, inadequate notice of any board meetings.
The procedure you described is called an amendment by written consent. The Florida Not for Profit Corporation Act, which applies to the majority of condominiums and HOAs, allows decisions to be made, in lieu of a meeting, by collecting sufficient written consents, representing the votes needed to act on behalf of the association members.
There are several important points to make. First, the statute you identified applies to decisions made at a board meeting, not at a membership meeting. It is intended to address notice of board meetings where rules regarding parcel use will be considered, not membership meetings where amendments to a declaration are passed. And, as you identified, when a written consent procedure is used, no membership meeting is required. So, that particular statute does not control.
You state your declaration allows an amendment to be passed by written consent of 30 percent of the membership. That is a low number and is somewhat unusual. You’ve identified a problem with the language of your declaration—it is extremely simple for a minority of association members to amend the declaration without any input from the membership at large, and without notice.
But, there is one very important and essential procedure that your association did not follow, and that may, in and of itself, invalidate their amendment procedure. The Not For Profit Corporation Act, at 617.0701, Fla. Stat., establishes the procedure for approving membership action by written consent, which includes that “within 30 days after obtaining authorization by written consent, notice must be given to those members who are entitled to vote on the action but who have not consented in writing. The notice must fairly summarize the material features of the authorized action.” It does not sound as if the non-voting members of your association received this notice, and as such, we would argue that the amendment was not valid and may not be applied to your neighbor.