Pull and Push

Pull and Push

By Michael J. Gelfand, Esq. / Published November 2022

Photo by iStockphoto.com/lemono

This month has seen a number of Florida appellate court decisions addressing the pull and push between the authority of a board of directors to make decisions and the desire of unit owners to retain the power to say “No!”

Good v. Evil? Why Directors Make Decisions for Owners—Decision-Making after a Casualty 

     Tragedy strikes! The unthinkable does strike close to home. What happens if tragedy strikes your community? Is your community prepared to rebuild? Whether or not you have concerns over another building collapse, you know that there are other catastrophes that will strike near, if not at, your doorstep.

     After all, why do you pay for casualty and windstorm insurance? It is not because you believe you are invincible, immune from casualty. You usually pay for insurance because there is a risk of loss when the tragedy strikes.

     In Florida, condominium and homeowners associations approach casualties in different manners. In large part this is because the two types of communities have different degrees of reliance. In a condominium, unit owners depend on each other for proper maintenance and reconstruction of common elements which are normally necessary for safe occupancy. In homeowners associations there is frequently a more relaxed approach because common areas, while convenient, usually are not necessary for an owner’s occupancy.

     Of course, action usually depends upon money. When money is necessary, there is frequently a dispute of who pays what. Ah, but what of insurance? Insurance almost always has significant deductibles, and frequently the coverage amount is not sufficient to rebuild to current building codes in today’s costs.

     So how is the shortfall allocated? Let us complicate the scenario to meet modern Florida housing trends and include in the problem that the association administers many separately declared condominiums. That is where the question of who is best able to make decisions for the community arises, owners or directors. This is where the question arises whether owners can be trusted to vote for the long-term community interests, or whether owners will just vote for their short-term parochial interests praying they can wait out the need for expensive repairs. Good v. Evil!

     Recently a Florida appellate court faced this scenario and ruled that after fire damage to one condominium building, the condominium association’s board of directors was authorized to special assess all members to restore the one damaged building. The facts in Lecorps v. Star Lakes Association, Inc., 47 Fla. L. Weekly D 1136 (Fla. 3rd DCA, May 25, 2022), indicate that Star Lakes Estates was a multi-condominium development operated by a single association. This means that the one condominium association administers many buildings, each building with its own declaration of condominium.

     In 2017 one of Star Lakes’ buildings was destroyed by fire. The insurance proceeds were insufficient to cover the costs for restoring the building; thus, the board of directors approved a special assessment payable by all owners.

     Several owners sued the association alleging the special assessment violated the association’s governing documents. Initially, the trial court ruled that the special assessment was invalid, issued an injunction to stop the construction, and allowed all unit owners to vote on the special assessment. About three weeks later, the trial court reviewed the initial decision and corrected itself, granting the association’s motion to dissolve the injunction and allowing the construction to proceed.

     The Florida appellate court agreed with the trial court’s revised decision to allow the special assessment to proceed, dissolving the injunction. The appellate court explained that Florida’s Condominium Act provides that a Florida condominium association may levy a special assessment upon all owners to pay for common expenses. “Common expenses” are defined by the Condominium Act to include “the expenses of the operation, maintenance, repair, replacement, or protection of the common elements and association property, [and the] costs of carrying out the powers and duties of the association.”

     The appellate court rejected the plaintiffs’ argument that the special assessment was invalid because all owners did not vote to approve the special assessment. In this community, the condominiums were merged for financial purposes.

     The appellate court twice remarked that the repairs were “urgently” needed after the fire. “A well-developed body of decisional authority holds that an association need not conduct a vote of unit owners before levying assessments for urgently needed repairs to the common elements,” the court stated. “Instead, all that is required is a properly noticed meeting declaring the amount of the proposed assessment and its intended purpose.”

     Homeowners associations in Florida generally do not have a critical role in post-casualty repairs as do condominium associations and are not governed by the Condominium Act. Nevertheless, homeowners associations generally have duties in their “governing documents” to maintain and repair common areas.

     Homeowners associations will face the same deductible and coverage limit issues as condominium associations, albeit the numbers are usually lower, which in turn suggests that homeowners associations consider how they fund casualty repairs and whether to amend their documents to facilitate decision-making. This is especially true as mortgage lenders are also looking at homeowners association finances when evaluating whether to fund a loan.

     Returning to the Star Lake decision, the appellate court caught the essence of the necessity for a board of directors to make the hard decisions necessary for community governance: 

Indeed, a procedure to the contrary would presuppose that unit owners are incentivized to vote for the collective good, rather than in their own financial interests. This is precisely why there is a board of a directors with a fiduciary duty to all unit owners.

     In other words, the collective good requires a group legally charged with guarding the collective good because individual owners are likely to vote only their self-interest. Thus, if an association sustains damage to its common elements, the board of directors can vote to impose a special assessment, at least as the Star Lake condominium documents allowed. Remember, how-ever, that the board meeting in which the special assessment will be voted on must be noticed to all members, and governing documents may have additional requirements!

No Unit Owner Vote: Association Must Remove Changes

     In another recent case where an association took action without conducting a vote of the unit owners, the opposite result seemingly occurred. There are some important distinctions in this matter, perhaps the most significant being that this was an alteration, not the result of a casualty.

     Here a Florida appellate court ruled that the association violated its governing documents when it removed a wallyball court and dog park without first obtaining unit owner approval. If you are wondering if there a typographical error, wallyball is not a misspelling. Wallyball was defined as “volleyball played on a racquetball court where the players can hit the ball off of the walls.”

     In Lexington Place Condominium Association, Inc. v. Flint, 47 Fla. L. Weekly D 1375 (Fla. 5th DCA, June 24, 2022), after the association’s board of directors voted to eliminate an existing dog park and wallyball court, the owner of several units filed a petition with the Department of Business and Professional Regulation Division of Florida Condominiums, Timeshares and Mobile Homes (DBPR) alleging the association violated its governing documents by not first obtaining a vote of the unit owners.

     The state arbitrator ruled in favor of the owner. The association then sued the owner in court. The trial court agreed with the arbitrator and ruled in favor of the owner.

    The Florida appellate court agreed with the decision in favor of the owner. In this case, the association did not have the power to make “material alterations” to common elements. The court pointed out that the association’s Declaration of Condominium specifically provided:

6.4 Material Alterations or Substantial Additions. The Association shall not make any material alterations or substantial additions to the Common Elements or to real property which is Association Property, without the approval of a majority of the voting interests of the Unit Owners.

     The court found that the association did not have the authority to eliminate the dog park and wallyball court without first obtaining the approval of the unit owners.

     Not only did the appellate court order the association to restore the dog park and the wallyball court, but the court also granted the owner’s motion for attorney’s fees! The lesson to be learned is that it can be quite costly if an association materially alters common elements without first obtaining the approval of the owners.

     Backing up a bit further, perhaps before commencing an alteration or even contracting for the work is the need for an association to clearly understand what the threshold requirements for action are—before taking action!

Michael J. Gelfand, Esq.

Senior Partner, Gelfand & Arpe, P.A.

     Michael J. Gelfand, Esq., the senior partner of Gelfand & Arpe, P.A., emphasizes a community association law practice, counseling associations and owners how to set legitimate goals and effectively achieve those goals. Gelfand is a dual Florida Bar board certified lawyer in condominium and planned development law and in real estate law, a certified circuit and county civil court mediator, a homeowners association mediator, an arbitrator, and parliamentarian. He is a past chair of the Real Property Division of the Florida Bar’s Real Property, Probate & Trust Law Section, and a Fellow of the American College of Real Estate Lawyers. Contact him at ga@gelfandarpe.com or (561) 655-6224.