Thursday, April 29, 2010

Community Association Bill, 1196, Passes the House 107-4!


When the 2010 Legislative Session in Florida started back in March there were dozens of community association bills filed covering everything from lender reform to making it easier for buyers of bulk units to invest in failed or floundering condominium projects.

As typically happens, most of those bills were eventually folded into one fast-moving legislative “train” which would up being SB 1196 (sponsored by Sen. Mike Fasano and Sen. Jeremy Ring) and HB 561 (sponsored by Rep. Ellyn Bogdanoff and Rep. Matt Hudson). This 102-page bill does the following:

• The amount of past due assessments that condominiums could collect from foreclosing lenders would be doubled from 6 months to 12 months!

• Condominium boards would be able to suspend the common area use rights and voting rights of delinquent owners subject to notice and hearing requirements.

• Troublesome provisions regarding H0-6 individual unit policies (including the requirement that the association be allowed to force place missing policies and that the association be named an additional insured/loss payee) would be removed.

• The condominium candidate certification requirements would be clarified to require such form be submitted after an election not before so any confusion as to whom should be included on the ballot would be removed.

• Expensive retrofits for sprinklers, elevators and smoke detectors would be delayed and, in certain instances, removed through exemptions or membership approvals.

• A time-limited bulk buyer provision would encourage investors to purchase abandoned units in failed and floundering communities.

• Condominium boards would be able to collect rent from tenants in delinquent units.

The bill is expected to make its way over to Governor Charlie Crist as early as today or tomorrow. The Governor then has 15 days to either sign the bill, veto the bill or allow it to pass into law without any action on his part. Given the fact that this bill contains language which would DOUBLE the amount of past due assessments that the banks must pay to condominium associations when they foreclose on a property in the community, it is imperative that Governor Crist sign this bill! How often do the bankers agree to pay more? How many owners are one special assessment away from being put on the path to foreclosure after paying for months for owners who preceded them on that path?

Notwithstanding the pressure being put on the Governor by the Fire Sprinkler Industry to veto this bill, this time the stakes are too high. Rather than just alienating the folks living in 6,000 sprinkler-impacted buildings, if he kills 1196, the Governor will, in fact, alienate every single person living in a condominium association by removing their ability to pursue double the amount of past due assessments owed by lenders. Governor Crist has several big decisions to make tomorrow and this is one of them.

Tuesday, April 27, 2010

Does having a lawyer present mean you can always close your meetings?

I recently received a call from a client asking me to send over one of my attorneys for a board meeting that night. When I asked what the purpose would be for the attorney to attend, the answer was: “So we can hold a closed meeting of course!”

Well there are a few problems with this request. Boards can close their meetings if they are meeting with the association’s attorney regarding pending or proposed litigation when the meeting is held for the purpose of seeking or rendering legal advice. In other words, you can’t ask your association attorney to sit and listen to regular board discussion on a variety of matters for the sole purpose of closing the meeting to your members.

Meetings of a committee to take final action on behalf of the board or make recommendations to the board regarding the association budget also must be held in an open forum unless the attorney is present to discuss proposed or pending litigation and legal advice is being sought or rendered. Meetings of a committee that does not take final action on behalf of the board or make recommendations to the board regarding the association budget can be closed to member participation only if the bylaws of the association provide for same.

Even when your board or committee is within its rights to close a meeting to member participation, notice for such meeting must still be posted with an agenda line item indicating that a closed meeting to discuss proposed or pending litigation with the attorney will take place. There are legitimate reasons to close a meeting with counsel to protect legal strategy and preserve the attorney-client privilege. On the other hand, the membership’s right to be informed about the business of the association compels as much transparency as necessary to balance and protect both goals.

Thursday, April 22, 2010

What do you need to know about Amendment 4?

Amendment 4, the Florida Hometown Democracy Land Use Initiative is a proposed amendment to our State’s Constitution which voters will be asked to approve on November 2, 2010.

The overall effect of this amendment, whether good or bad, is going to ultimately depend on the particular proposed individual land use issue at any given time and whether a particular association is in favor of or in opposition to that new development or change.

Amendment 4 requires that before a comprehensive land use plan is adopted by a local government it must go before the electorate as a referendum. According to the ballot summary, the goal of such a requirement is to encourage “public participation” in decisions regarding Florida’s natural resources and surroundings that may impact the lives of our citizenry. Actually, it may be argued that it all but precludes any change in land use classification without voter approval with the intent to make such changes difficult if not altogether impossible.

The positive aspects of Amendment 4 include:

•The public would have a direct role in passage of land use plans that impact their communities

•The proposed amendment will protect the public from land use plans that are unwelcome and pose quality of life or environmental concerns.

•Government corruption in the land use arena would be much more difficult and end the notion of “pay to play”.

The negative aspects of this amendment include:

•Economic development would be stalled at a time that the State can least afford it.

•The proposed amendment undermines the whole proposition of electing public officials to vote on behalf of their constituencies as it takes away their discretion in many instances with regard to land use.

•The costs of conducting elections for every proposed land use plan would be huge.

•It will be nearly impossible for voters to approve such changes and government officials to approve such elections absent the most extraordinary circumstances, essentially freezing current land use.

In many respects this proposed amendment is really a backlash against some of the political scandals we’ve seen over the last few years involving local commissioners and their voting records on land use changes. However, this amendment pushes the pendulum too far when attempting to deal with that problem.

Wednesday, April 21, 2010

Listen to WLRN-NPR program on pending Florida Condo & HOA legislation


Click the image at left to listen to my April 19th appearance on "Topical Currents," the daily current affairs radio talk show of local South Florida NPR affiliate WLRN 91.3 FM.

Interviewed by Topical Currents host Joseph Cooper about currently pending condo and HOA legislation in Florida's 2010 Legislative Session, I was joined on the program by Florida State Senator Jeremy Ring (D-Margate) -- co-sponsor of SB 1196, which passed the Senate in a unanimous vote on Friday April 16th.

You can also listen to the program directly on the Community Advocacy Network home page.

The program runs to about an hour, so sit back, relax and join what was a lively discussion with listeners about pending Condo and HOA legislation and how its outcome could impact the lives of millions of homeowners living in Florida community associations.

Tuesday, April 20, 2010

Florida cases that address the issue of what is or is not a material alteration.

Is your board planning to repaint the condominium corridors, change the carpeted areas to tile or tear down a large tree in the common area park? Were you planning to seek membership approval before doing so?

There are scores of decisions and even appellate cases dealing with the extremely contentious issue of what constitutes a material alteration of the common elements and therefore requires membership approval. The primary definition is any change that “palpably or perceptively [changes the building] in such a manner as to appreciably affect or influence its function, use, or appearance.” This definition was laid down by one appellate court over 35 years ago, and frankly, in my view, is absurd as it could be read to suggest almost anything needs an owner vote. The case is Sterling Village Condominium, Inc. v. Breitenbach, found in the law books (or these days on computer legal search engines) at 251 So.2d 685 (Fla. 4th DCA 1971).

In apparent recognition that the above definition is perhaps too broad, or required owner votes in too many instances, courts and arbitrators through the decades have carved out various exceptions to the membership approval requirement. One such exception is that “In addition, if there has been a technological advance since the material that was originally used, the association can take advantage of the newer, better material and a material alteration vote would not be triggered.” That general exception evolved from what has become known as the “necessary maintenance doctrine.” In short, allowing associations to use their business judgment to determine (subject to the arbitrator or judge agreeing if someone challenges) that if the project (or change) was necessary to prevent further damage to the common elements, or perhaps even to preserve the common elements for a longer period of time, the Association could make the decision to change the common elements without owner approval. This principle was first enunciated in Tiffany Plaza Condominium Association, Inc. v. Spencer, et al., 416 So.2d 823 (Fla. 2d DCA 1982). In Tiffany, the condominium association found that the construction of a rock revetment was necessary to protect the beachfront, a common element, from erosion and damage. That court held that condominium unit owners could be assessed for the cost of the rock revetment (an obvious material change) without their consent, and an owner vote was not necessary.

If one were to type into the legal search engines the words “material alteration” and include decisions rendered by the Division of Condominiums, over 200 cases would come back. For this reason, boards would be well advised to consult their association attorney before embarking on a particular project for an opinion as to whether or not the project constitutes a material alteration requiring membership approval.

Here are some significant material alteration cases:

Cottrell v. Thornton, 449 So.2d 1291, 1292 (Fla. 2d DCA 1984)—Permitting the canals to be drained, scraped, demucked and lined with sea bags to make the seawalls secure.
George v. Beach Club Villas Condominium Ass’n, 833 So.2d 816 (Fla. 3d DCA 2002)—-refusing to allow a change from cedar shingles to terra-cotta tiles on roof mansards without owner approval.

Islandia Condominium Assoc., Inc. v. Braun, 501 So. 2d 741 (Fla. 4th DCA 1987). A change in the color scheme of the exterior of a condominium is a material alteration of the common elements requiring owner approval.

A.N. Inc. v. Seaplace Association Inc., Arb. Case No. 98-4251, Summary Final Order, (October 29, 1998) is probably the most often cited decision out of the state, as many projects were at issue. The arbitrator ruled in favor of the Association on one, and held that replacement of damaged windows with an upgraded version of windows was within the board’s business judgment and did not need an owner vote. The arbitrator went further and actually stated that the Board can and “should take advantage of changes in technology,…and improved designs…” However, the arbitrator in that same case refused to allow the tennis court and clubhouse projects to proceed without unit owner approval. The arbitrator found that the primary purpose of the tennis court project was to change it from asphalt to clay, and that required owner approval. Similarly, the arbitrator found the clubhouse project was not an upgrade or necessary to maintain it, and prevented the Board from continuing without owner approval.

Loveland v. Harbor Towers and Marina Condominium Association, Inc., (Arb Case No. 03-08-0632). Arbitrator relied on the above decision and determined that “replacement [garage] doors” that “varied substantially in design and color from the original” were permitted because the exact original doors were no longer available or code compliant and the new doors were of galvanized steel, code compliant, and of better quality. Thus, the arbitrator permitted the color change.

Wolfenson v. Huntington Lakes Section Three Association, Inc., Arb. Case No. 97-2446 Summary Final Order (May 22, 1998)— The arbitrator permitted resurfacing a pool deck when doing so returned the deck to the condition it was originally in when the condominium was constructed, even though the completed project was a material change to what existed now. In other words, if a prior board improperly performed a material alteration that should have required owner vote, but did not receive it, a future board can restore the area without an owner vote.

Not all of the results above are truly consistent, which makes it just as frustrating for lawyers as it does for boards. That being said, a clear pattern can be ascertained from the decisions. Specifically, most changes are material changes requiring an owner vote UNLESS you can make a cogent argument that 1) the common element at issue is in need of repair (i.e its not just an aesthetic change or a change made due to perceived desire of the community or the Board with regard to an area), and 2) the change is necessary due to either the code, to protect the common elements, or is a substantially superior product than what was once there before, meaning that the common elements will last longer and not need to be replaced as quickly. Alternatively, if the “change” is not truly a change, but the correction of a prior improper material alteration that was performed without owner vote, no vote will likely be needed. Otherwise, odds are any change is going to be considered material and require an owner vote.

Monday, April 19, 2010

Join me today, 1 pm ET on WLRN 91.3 FM (http://live.friendsofwlrn.org)

Join me today, Monday, at 1 pm (Eastern) on 'Topical Currents', the daily current affairs radio talk show of South Florida NPR affiliate WLRN, for an on-air discussion of current Condo and HOA legislation pending in the Florida State Legislature.

WLRN Listeners in South Florida can tune-in to Topical Currents at 91.3 FM on the radio dial, from the Palm Beaches throughout Broward, Miami-Dade and the Florida Keys.

Internet listeners can tune-in live to the Topical Currents program by pointing their web browsers to: http://live.friendsofwlrn.org.

I will be interviewed by Joseph Cooper, host of Topical Currents, along with fellow program guests Sen. Jeremy Ring (D-Margate) -- whose Senate Bill 1196 dealing with condo issues passed the Florida Senate in a unanimous vote on Friday -- and Rep. Julio Robaina (R-Miami).

Listeners are encouraged to call in during the program to +1 305-995-1800 with questions and comments about community association legislation pending in the current 2010 Legislative Session in Tallahassee.

Again, that's WLRN 91.3 FM on Monday April 19th from 1-2pm or live on the Internet at http://live.friendsofwlrn.org.

Sunday, April 18, 2010

Proper Protocol for a Board’s Use of Emails


Several years ago the concern was that board members were discussing association business at the pool or in the clubhouse out of earshot of the association members. These days the greater concern is that the board is discussing and making important decisions regarding association business via email. Any time there is a quorum of the board “present” and discussing association business that gathering is a de facto board meeting which must be properly noticed and open to the unit owners.

There is no doubt that chat sessions where a quorum of board members are communicating simultaneouslyabout association matters is, in reality, an unnoticed board meeting which is not permissible. The more difficult question is whether or not board members can email each other about association matters either before or after board meetings. It is unrealistic to expect board members to not communicate via email. Email and text messages have become our most prevalent mode of communication these days. Unfortunately, our statutes have not kept pace with technology and do not adequately address board member use of email. Here are a few common sense tips to keep in mind:

• Do not put anything in email that you would not want to have blown up and used as an exhibit in a trial or mediation down the road. Remember there is no expectation of privacy on the internet. I recall an email that was forwarded to me several years ago when a board member was lamenting to the manager that something had to “be done” about the renter whose wheelchair was damaging the carpeting in the clubhouse. Imagine the tone that email set for the judge in the discrimination trial that ensued.

• Face to face meetings and/or phone calls are still preferable when dealing with high emotion topics. There is no way to discern tone or intent via email. In addition, many people are much bolder in their sentiments in an email which often leads to a dispute escalating unnecessarily.

• Board members should not be polling each other via email on how they are going to vote on a particular upcoming matter. Those kinds of discussions need to take place in the open forum of a duly noticed meeting in front of the owners. If your board is simply ratifying items that have previously been voted upon amongst the directors via email, you are doing a disservice to your owners as well as being in violation of the statutes.

• Email content should always be courteous, respectful and professional if they are being sent in your capacity as a representative of the association. Overuse of emoticons and a too casual tone can send the wrong message at times. Boards are well advised to adopt an email policy which all directors and the manager must follow.

Email overuse and abuse is something we are all guilty of at times. How many of you have clogged inboxes because you were copied on emails that did not require your input? How many of us have sent hasty emails and later regretted it? Sending emails in your capacity as a director is even more fraught with peril then simply forwarding an ill-advised chain email to a distant relative!

Wednesday, April 14, 2010

Holiday Bonuses, Farewell Dinners and other Niceties.

I am often asked whether or not it is appropriate (particularly at holiday time) to acknowledge a job well done by an association employee with a bonus or other gift. I am also asked whether or not it is ok to have a farewell dinner of sorts for long-standing board members who are leaving the board (by choice not by recall!).

While these sorts of social niceties are routine in the regular world, in association-land they can draw the ire of members who do not agree that such expenditures are a proper common expense. In fact, Chapter 718, the Condominium Act, is very clear about what is or is not a proper common expense; it must be defined as such by the statute or the governing documents.

Condominium and other community associations wishing to have the flexibility for the discretionary spending described above would be well advised to amend their governing documents to allow them to do so.

In the absence of such an amendment, the only other proper manner to give that employee a holidaygift or to host that farewell dinner would be to allow owners wishing to donate funds to underwrite the costs involved. It might seem burdensome to do so but it is important to remember that common funds are just that: funds that have been contributed by all members and they must be spent in accordance with statutory and documentary guidelines or the board risks censure.

Saturday, April 10, 2010

Create Sources of Ancillary Revenue for Your Community


This is a perfect time to start thinking about different sources of revenue that might be available to you. This can include leasing out space on your in-house cable and community channels to advertisers as well as selling space on your community association website to businesses interested in advertising to your community. This is especially true of realtors who might be willing to pay you a certain amount each month to advertise on your website or your tv channel.

There might also be opportunities to advertise in other high-traffic areas subject to documentary and statutory constraints. In addition, there are still cell phone and broadband companies out there willing to lease your unused rooftop space.

According to a local accounting company, any avenues that the association feels might bring in additional revenue would be worthwhile even considering the potential taxability of such revenue. It is important to remember that there will more than likely be expenses which may be allocated against such revenue to reduce any tax effect.

We hope this information has given you some food for thought, and will assist your community’s discussion regarding ways to weather the current economic storm.

Friday, April 9, 2010

Find Out Who Owes Your Association Money


This is perhaps the most overlooked area by most community associations. The first step in uncovering money that was owed to you, but may not have been collected, is to determine whether or not your community suffered any storm damage over the last 5 years. If you did, you may have left thousands or millions of dollars still owing to you on the table. Insurance companies typically pay cents on the dollar. Combine that with the fact that many boards may have been too intimidated to file claims or were made to believe that their claims did not meet their deductible or that they would be canceled or their rates raised if they did file a claim, and it is not surprising that money was left behind. Perhaps now is the time to get a little bolder about your claim while you still have time left?

In addition, take a look at any construction defect claims that may still be viable. If a developer owes your community money as a result of construction defects or financial improprieties, now is the time to investigate those claims.

Lastly, make sure you own your common areas. Some communities are shocked to find out that the developer never deeded over the swimming pool or clubhouse and that property has been liened and/or taxed at rates other than the nominal rates at which common areas are taxed.

Wednesday, April 7, 2010

Financial Sense For Your Community

If you have an association website, it makes sense to encourage as many of your owners to use that site in order to cut down on printing and postage costs associated with notices, copies of the governing documents, etc.

It also makes sense to have a line of credit established now before the number of delinquencies in your community rises to a level that makes you ineligible for same.
Consult with your insurance agent to determine if your insurable value and coverage is correct given the current market conditions.

If you are one of the unfortunate few that are still subject to a recreational or land lease on your common areas now might be the time to attempt to buy out that lease. A lump sum might be more attractive to a lessor in this climate than it would have been in years past.

Lastly, it makes sense to help your owners who are struggling to stay in their homes. Some lenders are offering free foreclosure seminars and other useful tips to help your owners regain their financial health, stay in their homes and start paying their association fees once again. Older owners with equity in their units may be able to secure a useful reverse mortgage.

Tuesday, April 6, 2010

Insulate Your Association From Unnecessary Liability

Now is not the time to make costly and avoidable mistakes. Make sure your association is following proper protocol in terms of association operations to avoid the costs and headaches associated with Division complaints, arbitrations and recalls.

Even though you may be looking to cut back on services to save money, do not cut back on essential common area maintenance as it may result in even more costly repair projects.

Periodically check the Association’s records with the Secretary of State to ensure that you have filed your annual corporate report and paid your annual fee in order to continue enjoying certain corporate protection from individual liability.

Periodically check to see who is authorized to sign your association checks and remove any individuals who are no longer on the board or who are otherwise unauthorized to be signatories. Along those lines, make sure that all persons who control or disburse association funds are properly bonded in an amount that is equal to or greater than the maximum funds that will be in the custody of the association or its management company at any given time.

Make sure your association’s official books and records are properly organized. Organization is key to avoiding additional stress in already stressful times.

Monday, April 5, 2010

Scrutinize Those Contracts!

Now is an excellent time to have your contracts reviewed by legal counsel to determine if (a) those contracts are cancellable at will and (b) whether a better deal can be negotiated. You should be earmarking all contracts coming up for renewal to make sure they do not automatically renew without you first negotiating either a better rate, a different, and perhaps scaled-down, set of services, etc.

This is especially true for your cable contract. Many of you have asked whether or not you can simply cut off the cable service to delinquent owners. The answer is that the cable company will not readily do that and you may not be able to do that under the terms of your contract, the statute and/or your governing documents. Instead, you may be able to change from a bulk to a retail contract so only those paying for the services will be able to use them.

Not only should you scrutinize existing contracts but you should be more careful when entering into future contracts. Negotiating the best deal possible will save you money in the long run. If, in the past, you did not feel the need to have your contracts reviewed and you have ever been burned by that practice, please reconsider investing an hour or two of attorney time to ensure you avoid costly mistakes and include language in your contracts that protects your interests. A recent case on point, is a balcony restoration contract that was properly prepared by a member of my Transaction Team to include language that the contractor’s contract price included all work necessary to complete the project. This was later found to include the cost to remove individual sunshades from the balconies; a significant savings to the association.

Even though you are only required to obtain competitive bids on certain contracts, it is a good business practice in this environment to obtain several bids, if possible, on all contracts of any significance.

Friday, April 2, 2010

Spend $$’s to Recoup More $$’s

I know the last thing many of you want to think about is spending money right now but sometimes it makes sense to do just that. The first thing you want to do is to make sure that your governing documents provide you with all the right tools to deal with your foreclosure and other issues. The following are some amendments to consider:

1. Adding late fees (if you don’t already have them) and increasing the amounts you can charge for late fees and interest to the “highest amount permitted by law”. Some documents only allow you to charge interest and late fees in amounts much lower than what you can currently charge under the statutes;

2. Removing any harmful lien subordination language. Typically, your association lien is only inferior to a first mortgagee’s lien or a federal tax lien. However, some governing documents contain harmful language which subordinates your association lien to ALL other lien holders. If you have this language it should be removed in order to allow you to recover more money owed to the association;

3. Adding language which would allow the association to specially assess a particular unit or lot for any amounts paid to maintain or secure that unit or lot. This is especially important now when many properties have been abandoned and the association wants to do minimal maintenance and/or change the locks to keep out unwanted occupants;

4. In a homeowners’ association, you can suspend a delinquent owner’s common area use rights and voting rights IF your declaration or bylaws so provide. If you are not taking advantage of this very useful tool to deal with delinquencies you should be;

5. Smaller associations should consider amending their documents to restrict multiple unit or lot ownership by any one person or entity. If one individual or entity owns a significant percentage of the units in a small community, that person’s financial reversal could spell doom for the association’s cash flow. The only downside to this type of amendment right now would be if your community is actually courting bulk purchasers of your units;

6. Add an acceleration of payments clause in the event installments are not timely paid. This gives the association a larger hammer to collect for the whole year which obviously benefits cash flow; and

7. An amendment requiring a uniform lease form or lease addendum to be used whenever a unit or lot owner wishes to lease out their home is very useful right now. Such a uniform lease form or lease addendum would require that the tenant pay rent directly to the association in the event the owner becomes delinquent in the payment of assessments as well as provide the association with eviction rights in the event that the tenant(s) become a nuisance.

Thursday, April 1, 2010

Time to Tighten Up Your Current Collection Policy


As a Managing Shareholder of Katzman Garfinkel & Berger (KG&B), I have witnessed the dramatic effect that the downturn in the economy has dealt many communities here in South Florida and across the state. Unfortunately, many experts are predicting that a full economic recovery is still many months or even years away.

History has taught us, however, that there are always those who survive and even thrive in tough times! My team of community association attorneys and I started to ask ourselves: What should communities be thinking about right now in terms of saving money, recouping lost money and even making money?

Over the next few blogs, I will be discussing a few tips ranging from basic to innovative to often-overlooked, to help your community weather the current economic climate.

Rethink your traditional collection policy in light of today’s economic realities. If your collection policy was to typically send three courtesy demand letters before sending the file off to the attorney for collection, think again. The longer the delay in commencing collection efforts these days, the greater the chance that the delinquency will balloon to an unmanageable size;

If your governing documents require three courtesy letters be sent, amend that provision (more about amending your documents in the next blog);

If you traditionally stopped all collection efforts once a mortgage foreclosure was filed, think again. Many lenders are starting foreclosure actions but taking years to finish them. The reason for this is quite simple; as soon as the bank takes title it must pay the statutorily required past due amounts and start paying assessments from that day forward. For a bank, it is much better to allow you to simply maintain their collateral for them while they pay nothing in to the community;

Be aggressive with your foreclosure actions. This accomplishes several things: it sends a message to the rest of the paying members that you are doing something; it warns those who might be tempted to stop paying their assessments that you will do something, it allows the association (once it takes title) to either sell the property or lease it out short term to recoup some or all of the money owed and it allows the association to control who occupies the property and its condition.