Monday, June 18, 2018

Know what you are getting into before your Board agrees to an Indemnification Clause

Many boards focus on only a few provisions of the contracts they sign. What service or materials are they getting? What are they paying? When will the contract commence? Far too many other crucial provisions are overlooked as boilerplate.

Indemnification clauses are often seen as part of the standard boilerplate provisions in most contracts and have become commonplace in all types of association contracts. To indemnify someone means to compensate him or her for a loss, sometimes even for a loss caused by the person being indemnified.  The first question to ask is why the association should be indemnifying another party.  The second question is to inquire about the extent of the indemnity obligation.

Let's look at how these indemnification provisions are treated in a variety of contracts your board might sign.


MANAGEMENT AGREEMENTS:

With your manager, the first question is easy to answer. Your manager is on the front lines daily, takes direction from the board and acts as the agent for the association.  It would be foolhardy for any manager or management company to serve in that capacity without an adequate indemnification clause.  However, even easy solutions can become complicated when you are faced with an overly broad indemnification clause.  For instance, some indemnification clauses in management contracts have the association agreeing to indemnify the management company even for their own gross negligence or willful misconduct. Other clauses are drafted to require the manager or management company to be found 100% liable before their reciprocal obligation to indemnify the association kicks in.  In a wrongful death case, personal injury or premises liability case, that means your manager or management company could be found 99% liable for the damages and your association would still be indemnifying them.

Fairness would dictate that each party (the Association and Management Company/Manager) agree to indemnify the other.  Since the manager is typically an additional insured on the association's liability policy, the manager and management company are typically indemnified for their negligence but should not be indemnified for gross negligence, criminal acts or willful misconduct or for damages attributable to a direct breach of the management contract.  The management company should indemnify the association for its gross negligence, criminal acts, willful misconduct or for its breach of the management contract.

SECURITY CONTRACTS:

Agreements with vendors who provide security services to your community require close scrutiny of the indemnification provisions given the potential for something to go awry.  If your guards are armed, the potential for liability increases even more.  If your security company requires an indemnification from the Association, that indemnification should be very limited because the security company should be responsible for the conduct of its employees on your property.  Moreover, if you are relying on security services to avoid a negligent security claim, be sure to have your security company provide recommendations of what is needed to properly secure your community.  Security companies often attempt to limit their liability to not exceed the contract sum; naturally, such limitation often does not come close to covering the damage they might actually cause.


ELEVATOR, LAUNDRY AND OTHER SERVICE CONTRACTS:

Similar to security contracts, there are other service contracts where the contractor is independent from the association and the association has little to no impact on the services or products being provided.

It is very important that these contractors carry their own insurance, name the association as an additional insured and indemnify the association for claims brought against the association because of the actions of these service providers.  Do not count on the association's insurance to protect the association in the event of an indemnity claim by one of your vendors or contractors. If you sign  the agreement with an indemnity clause, you have taken on a contractual liability and your insurance will likely not provide coverage. It is important to verify coverage or the lack thereof before you sign contracts requiring the association to provide an indemnification to another party.

Lastly, you must remember that your vendors' insurance policies cover not only your potential claim but the potential claims of all other associations with whom they have contracted. In a wrongful death or personal injury cause of action, awards or settlements can quickly exceed a $1 million coverage limit.  As such, sufficient umbrella coverage is needed.









Monday, May 21, 2018

What are your Board's Rights and Obligations with regard to Sales and Financing in Your Community?

On any given day in any given Florida community association, a manager or director may receive a frantic call from a real estate or title agent about an upcoming closing. These frantic calls typically include an immediate request for information in the form of affidavits, estoppel information, lender questionnaires or other records and information. Naturally, if there is any delay or a refusal to provide certain information, the next call or email contains threats of dire legal consequences should the closing not occur on time or at all.

Responding to inquiries about the monetary amounts owed to the Association on a particular property (also known as estoppel certificate requests) are relatively easy. The shared ownership statutes mandate a certain form be used and outline the maximum fees your Condominium, Cooperative or Homeowners' Association board may charge to provide those estoppel certificates. However, when it comes to other information being demanded these days from lenders and their title/closing agents, the waters are not so clear.


Just how much does your association need to facilitate sales and refinancing activity in your community?


Owners living in mandatory community associations are entitled to expect a certain amount of cooperation from the Board as it pertains to sales or financing transactions.  However, owners are not entitled to expect the association to expose itself to potential liability in doing so.  Boards need to strike a balance between not overextending themselves by providing information of which they are uncertain and not holding up sales and financing transactions by refusing to engage altogether.

The requests for information other than estoppel requests usually involve one or more of the following items:


1.    Lender Questionnaires. These forms are typically overly broad and require the board or manager to confirm information that might not be accessible to them.  For example, many communities are not certain of the exact number of units currently being leased because some owners hide leasing activity from the board. These forms require the board to function as a quasi loan risk officer to help the lender determine whether or not a loan in a particular community is a good risk.  There is little upside to the board or its manager in attesting 100% to answers for which there is not 100% certainty.  Any questionnaire which does not frame the information being provided as being done so "to the best of the signer's knowledge" is a big no-no.  If your board is inclined to fill out a lender questionnaire, work with association counsel to modify the language as needed to best protect the association's interests.


2.    Litigation Information.  Far too many associations are sued in routine "slip and fall" and water leak cases.  Those cases are then usually turned over to insurance defense counsel to handle.  Closing agents may want certain assurances from the board or the association's general counsel that the amount of potential loss or damage is known and can be covered by the association without the need for a special assessment or a loan from the reserves.  Also, they will want to confirm that the litigation has no impact on the safety, structural soundness, habitability or functional use of the building and that the amount of the litigation is covered by the association's insurance policy. Unfortunately, it is often not possible to fully assuage those concerns particularly if settlement negotiations are ongoing with no immediate end in sight. If you are confronted with this issue in your community, see if defense counsel can prepare a brief statement about insurance coverage for the claim(s) in question. While this option is rarely if ever used, counsel for the purchaser or the seller is also able to pull and read the court pleadings and draw their own conclusions about the potential impact in order to facilitate the closing.


3.   Public Records Concerns.  There are items recorded in the Public Records which can delay or complicate closings until they are resolved.  A classic example of this is a Notice of Commencement which was recorded by a contractor with regard to a construction project in the community.  Closing agents will want an Affidavit of Sufficient Funds confirming that the association has the funds on hand to pay for the work contemplated by the Notice of Commencement.  Providing such an Affidavit is fine, however, if the project has ended it is preferable to record a Notice of Termination in the Public Records to remove this concern for future transactions.  Even better, be sure that when you have ongoing construction projects in your community, you work with association counsel to ensure that all proper contractor documents are recorded in the Public Records to evidence in a timely manner both the commencement and the completion of these projects.


Naturally, gathering and providing all of the foregoing information takes time that volunteer boards and time-strapped managers cannot spare.  The shared ownership statutes confirm that your board is not expected to provide this information at no charge.

Sections 718.111(12)(e), 719.104(2)(d) and 720.303(4)(d), F.S. all provide that the association is not required to provide any information to a prospective purchaser or lender other than estoppel information but, if it chooses to provide other information, it can charge $150 plus any reasonable photocopying costs and attorney's fees incurred in responding to those requests as follows:

"The association or its authorized agent is not required to provide a prospective purchaser or lienholder with information about the condominium or the association other than information or documents required by this chapter to be made available or disclosed.  The association or its authorized agent may charge a reasonable fee to the prospective purchaser, lienholder or the current unit owner for providing good faith responses to requests for information by or on behalf of a prospective purchaser or lienholder, other than that required by law, if the fee does not exceed $150 plus the reasonable cost of photocopying and any attorney's fees incurred by the association in connection with the response."


Some of my clients have passed Board Resolutions confirming what information they are willing to provide to lenders and closing agents pursuant to the pertinent statutes.  Others are happy to provide any and all information requested and they are charging for the costs do so including my time to assist them with a response.  The foregoing sales and financing requests will confront every community association on a regular basis.  If your Board has been handling these requests on an ad hoc basis up until now, it is best to have your attorney craft a reasonable policy for you to enforce from this point forward.  Your first answer to that next urgent phone call or email should be "here is our policy on these kinds of requests".







Monday, April 30, 2018

Should Your Association Eliminate Some of Your Outdated Rules?

Many of my conversations with my association clients involve an evaluation of their rules and regulations and their available enforcement tools.  We regularly discuss how previously overlooked rules can be revived through a process known as republication so the Board can once again enforce them prospectively.  We also discuss how rules must complement rather than contradict the provisions in the recorded Declaration or Bylaws.  There are times, however, when I raise a question that some of my clients have never considered:  are there current rules that need to be updated or eliminated altogether?

Some of the following restrictions may need to be updated to be more relevant to your residents' lifestyles these days and, an added bonus to doings so, is that it is much easier to secure voluntary membership compliance with relevant, reasonable rules.


1.    Almost every set of governing documents I've read over the least two decades restricts the use of the unit or the home to "single family use".  Many of these restrictions were drafted decades ago when a single family resembled the family in "Leave it to Beaver". These days a single family unit can be comprised quite differently and your documents should be revised to reflect that reality by defining a family in more contemporary terms.  Since federal and state law is subject to further change in this area, I prefer to amend this section to ensure that the unit or home is used for residential purposes. Defining the term family is also important if you wish to impose and enforce meaningful restrictions on guest occupancy.

2.    The opposite of a residential purpose is a commercial purpose which most association documents seek to prohibit. However, in the strictest sense of the words, many of your owners are already violating this provision if your documents have a broad prohibition against "commercial use".  Many people these days telecommute which means they are earning a paycheck out of their unit by conducting their company's business from home; this would constitute a commercial use of the property.  Others may be tutoring, counseling or advising paying customers online which would also fall within a commercial use description.  The restriction against commercial usage was drafted, in many cases, by developers' counsel many years or decades ago before the advent of the personal computer, tablet or the ubiquitous cell phone, all of which are frequently used for business purposes.  The typical prohibition on commercial use was designed to prohibit business activities which would detract from the residential character of the community or create a nuisance for neighboring owners; a typical example would be an owners operating a hair salon out of his or her unit or home which would bring both customer traffic as well as noxious odors and noise to the property.  Clearly, the use of typical digital devices rarely impacts the residential character of the community nor does it create  an actionable nuisance; attempting to enforce an archaic commercial use prohibition under those circumstances is likely impossible. Associations should revise older commercial use restrictions to define the types of commercial activity which are prohibited and which are not.

3.    Once upon a time, trucks were a bugaboo in community associations; seen as something that vendors and contractors drove but certainly not residents.  These vehicles were seen as eyesores which detracted from the overall aesthetic of the community. These days, many trucks are coveted, expensive vehicles which are driven by a wide cross section of the population. If your community's documents have a blanket restriction against "trucks" or "commercial vehicles" without proper specificity, it may be time to rethink why these vehicles are being prohibited.  If your parking spaces cannot accommodate these larger vehicles that is a legitimate reason for the restriction to remain in place or to impose size limitations or designate appropriate parking areas for larger vehicles but if the restriction is borne out of aesthetic concerns alone this may be a restriction that is unnecessarily narrowing your pool of eligible purchasers as well as creating dissension in your community.

4.  Nothing stirs the blood as much these days in community associations as the topic of pets.  Some communities believe that they are "no pet"  communities. They rely on older restrictions which impose a blanket prohibition on any and all pets but, when asked, many of these boards cannot confirm with any degree of confidence that there is not a goldfish in a bowl or a hamster running on a wheel inside one of their units.  Overly broad pet restrictions may be one of the factors fueling the proliferation of fraudulent assistance animal requests in community associations. Revising those blanket restrictions to impose moderate, reasonable boundaries, prohibiting only those pets or animals your board would be prepared to pursue legal action to remove might stave off certain unintended consequences, particularly assertions of selective enforcement without negatively impacting the quality of lifestyle in the community.

5.    Rules that pertain strictly to children expose an association to potential liability. Families with children are a protected class under both Federal and Florida law and rules which single out families with children by making their experience in the community more restrictive than families without children are often seen by the courts as driving a discriminatory agenda.  Your board has to strike the right balance  between protecting your residents and your common areas and not creating and enforcing rules which have a disproportionately negative impact on one set of residents. For example, rules which permit the pool to be used only during the typical hours when children are in school might be viewed by a trier of fact to be a transparent attempt to keep children out of the pool altogether. Rules which use words like "toys", "running" and "playing" similarly expose a preconceived notion of which segment of the association's population engages in those activities.  It is important to remember that some adults cannot accurately assess the risks associated with the use of the pool or weight equipment, are incontinent, and like to engage in horseplay in the pool so age alone is not the best barometer for drafting rules related to conduct.


The foregoing list is by no means all-inclusive.  Your community might have old rules which are no longer legally enforceable regarding satellite dishes and religious objects affixed to the door frames of condominium units or rules which impose fees triggered by the transfer of a unit which are not permitted by the applicable statute or your governing documents
. I recommend to my clients that they engage in a regular rules audit with me to confirm which rules are effective, which can be improved or updated and which are well past their expiration date.


Tuesday, April 3, 2018

Mental Health Issues in a Community Association Context

Over the years, I've met thousands of people living in shared ownership communities and without fail, at least one person in every community questions the mental health of someone in their community. Sometimes the suspect serves on the board, other times it is the person living next door, and other times it is simply a resident who behaves in an unusual or offensive manner.

The National Alliance on Mental Illness (NAMI) confirms that approximately 1 in 5 adults in the U.S. (43.8 million or 18.5%) experiences mental illness in any given year.  NAMI further confirms that approximately 1 in 25 adults in the U.S. (9.8 million or 4.0%) experiences a serious mental illness in any given year that substantially interferes with or limits one or more major life activities.  In light of the current national discussion about mental health and its potential impact on public safety, it is worth examining how mental illness can impact the operations of your association and the quality of life of the residents of your community.

Dealing with mental illness is one of the most difficult issues confronting boards and managers in a shared ownership community.  Mental illness in community associations can manifest in varying forms, including elderly owners who are experiencing dementia, Alzheimer's or other significant mental decline, as well as residents of all ages who have illnesses such as bipolar disorder, manic depression and schizophrenia.  The overarching concern for boards is to prevent these residents from injuring themselves or others while dealing with the problem humanely.  Some residents suffering from mental illness present only a risk to themselves in the form of engaging in inappropriate behavior-in one of my communities it was an elderly man who forgot to wear clothing from time to time in the common areas. Other residents grappling with mental issues present real danger to their neighbors including threatening to assault others and creating dangerous conditions in the common ares. One board met with me to discuss an owner who was setting small fires on the catwalks.

Clients are often disheartened to learn that the legal intervention which can often successfully resolve parking, pets and other violations is limited in its ability to quickly resolve issues related to an association member's mental illness.  While it is possible to fine, suspend use rights or pursue alternative dispute resolution or litigation every time a violation is committed, those measures do not solve the underlying problem as the person committing the violations may not be able to stop his or her behavior.

The Florida Mental Health Act, commonly known as the Baker Act enacted in 1971, has not been terribly useful in combating the problem of mental health risks in shared ownership communities because the law is predicated on a very narrow definition of what constitutes imminent danger to one's self or to others.  It is a challenge to balance due process and liberty considerations with the need to protect the health and safety of the public.  In a shared ownership community, the often delicate threads of civility can unravel more quickly due to the pressures of living in close proximity to others.  The layers of government red tape offer little assistance and family members may be unavailable or unwilling to get involved. Some family members assume, wrongfully of course, that the association will provide some level of assistance to their family member and even view that as a less expensive alternative to proper assisted care or nursing facilities.  No association is licensed or otherwise qualified to provide such care and should not endeavor to do so.

There are a few things that can assist your attorney when dealing with the issue of mental illness in your community.

1.    Have up to date records for all residents which includes an emergency contact list.

2.    Discuss with association counsel whom you should contact on that list when a resident's decline becomes a serious concern.

3.    If monitoring a situation involving suspected mental illness, document any incidents by taking witness testimony as soon after an incident as possible.

4.    Contact local authorities if you suspect any possibility that the person experiencing mental issues poses a risk to himself or herself or others.

5.    Be aware of all state and local government and non-governmental agencies that provide assistance to persons who are experiencing mental illness and can no longer care for themselves.

The Florida Bar has created a 13-member special committee which has been tasked with examining existing mental health laws and civil commitment standards.  This committee is scheduled to conclude its work with a report and a proposed set of recommendations to present to the Florida Bar of Governors at its May, 2019 meeting. In the interim, mental health problems will continue to pose challenges for volunteer board members and managers in residential communities.

Monday, March 26, 2018

Summer Shut-Down Considerations for Seasonal Communities

If your community is a seasonal one that tends to thin out over the summer months, what rules or policies do you have in place to ensure that your association continues to operate smoothly and transparently over the summer months?

The less crowded summer months in some communities provide an optimal time to pursue important projects related to maintenance, capital improvements and updating your documents. In addition, there are concerns that need to be addressed given the fact that our 6-month hurricane season typically coincides with an increase in the number of absentee owners in your community.

Some of the items your board should consider as the summer approaches include:


1.      Rules Related to Absentee Owners.  These rules may require owners who leave their units vacant for many consecutive weeks or months to:

  • Keep their AC on at a certain level to avoid conditions which would encourage mold growth.
  • Shut off water to the unit to avoid leaks.
  • Engage a caretaker to check on the unit at regular intervals to ensure that the unit's condition is maintained and to afford access to the association for pest control and other services/inspections as needed.
  • Engage a caretaker to close up the unit in the advance of a storm which should include removing all items from the balcony or patio, putting up shutters or other storm protection and returning the unit to its pre-storm condition in a reasonable period of time after the storm passes.
  • Provide updated contact information which the association may use in case of an emergency.
2.      Capital Improvement Projects.  Large projects which impact the common areas, limited common elements and/or the units can be very difficult in a fully occupied building.  The summer months can provide an ideal time to undertake some of these projects when fewer residents are around. Painting, roof replacement, concrete restoration, pool deck renovations, ELSS and other Life Safety installations and lobby/corridor renovations are all projects which naturally involve varying degrees of impact to the quality of life for owners while they are underway. You can stage these projects with your contractors to take into account which units are vacant and when.

3.      Summer Projects.  The summer months often provide an optimal time for long-delayed projects such as a document rewrite. You can establish a Committee of residents who can work with your association attorney to discuss desired changes and the summer months afford you enough time to allow for review of several iterations of the language in order to prepare for a membership vote in the fall or winter months.

4.      Maintain Routines.   Even though the summer months may be quiet in your community, you must maintain a schedule of meetings and steady communication to your members. This is particularly important to ensure that the year-round residents continue to benefit from a fully functioning association. This means that monthly board meetings can and should continue. Out of town board members can attend by speaker phone or Skype.  While your summer meetings may briefer and content for your newsletter may be lighter during these months, maintaining consistent communication is what counts.


If all or some of your board members are gone for the summer, it is important that the Directors delineate duties amongst themselves and not overload the one or two board members who may be full-time residents. Even though summer months meant a break from responsibility for many of us when we were students, being a board member is a year-round job so take the proper steps needed to continue to serve your community even during the summer.

Monday, March 12, 2018

When construction occurs next door, your Board needs to get involved early!

It's likely that at some point during your community's lifespan, new construction will occur nearby and the impact on your residents will vary both short and long-term depending on the steps your Board takes early in the process. Sometimes new construction is welcomed enthusiastically by the members of an established community but more often than not, nearby construction strikes dread in the hearts and minds of many residents and board members who fear noise, disruption, debris, impaired views and incidental damage.


Communities facing the prospect of new construction next door should not go "on the attack" but should engage experienced counsel to help them navigate the construction process, set realistic expectations for their residents, reach agreement on protective measures to be provided by the contractor/developer, and receive compensation where appropriate.  If handled properly, the new construction can do much to enhance your community's value. If mishandled, you could wind up with new construction that encroaches on your land, damages your landscaping and exterior amenities, adversely impacts drainage, and, in severe cases, causes structural cracks in your buildings.

Naturally, the individuals or corporate entity driving the new construction want your community's support to sail through the governmental approval process. Boards who feel that their concerns and issues have been properly addressed by the developer next door will be much more likely to provide that support.

There are many factors to discuss and consider with the developer including the intensity of the proposed use, traffic, compatibility issues, construction management, easement agreements, rezoning, and other material issues.  Municipal Land Developer Codes usually require public participation so starting a dialogue early in the process affords your Board with an opportunity for your community and the developer to speak with a unified voice and to address major issues and concerns before being heard in a public hearing.  The developer will certainly want to address your concerns in private rather than face them at a public hearing.


Some common issues that should be addressed include:

  • Debris
  • Nuisance
  • Structural impact
  • Encroachments (both on their side and yours)
  • View Impairment
  • Buffering and noise mitigation measures
  • Trademark Infringement (depending on the name of the new community, shopping center, etc.)
  • Security
These kinds of negotiations may take six months to well over a year and will include your counsel attending and speaking at multiple Board meetings, Developer Town Halls, Municipal Public Hearings, researching City Zoning and Land Use, reviewing Mas6ter Plan Design guidelines, clarifying construction issues/timelines and negotiating the design to take into account view-lines, setbacks, traffic, loading, etc.


If you serve on an association board, you well know that directors are sometimes held responsible by some community members for issues completely outside your control. Don't let neighboring construction become another boiling point in your community.


If you currently have construction proposed or underway near your community and you wish to learn how to best protect your community's rights, please email me at dberger@beckerlawyers.com or call 954-364-6031.



Monday, February 12, 2018

Getting A Mulligan (Do-Over) for Your Board in 2018

Whether we call them mistakes, oversights, slip-ups or boo boos, we all make them including volunteer board members who are often hamstrung by both operational and time constraints.

The new year provides an optimal opportunity to correct items from 2017 or even earlier.  The law allows a corporation which has taken authorized actions but which were done in a procedurally incorrect manner to ratify those actions by approving them again, but this time following proper procedure.

Have any of the following occurred in your community?

1.    You made alterations to the common elements or association property but failed to obtain the requisite membership approval.

2.    You did not hold your annual meeting on the date specified in the documents and a member called you out on it.

3.    You had to discard several election ballots because you did not have voting certificates on file for those units.


4.    You were challenged when you attempted to enforce a rule or restriction because a prior board failed to enforce or failed to properly adopt that same rule or restriction.

5.    You took a Board action (filled a vacant seat, signed a contract, fired an association employee, levied a special assessment or adopted a budget, etc.) outside the scope of a duly noticed Board meeting and vote.


6.    Your members passed an amendment and you failed to record it or an amendment was prepared and never presented to the membership for a vote.


Here are the solutions to the foregoing problems:


1.    We can prepare and pass a membership vote which would allow your members to approve of and ratify all prior changes, additions and modifications made by the Association to the Common Elements and Association property or any other action that required a membership vote which was not taken.


2.    We can amend your documents to give your Board more flexibility when setting the date and time for the annual members' meeting and election so you do not risk a technical violation in the future.


3.    We can amend your documents to eliminate the requirement for a voting certificate for husband and wife and other co-owners of units other than units owned by corporations or business entities.  Doing so will eliminate most of the confusion and time-consuming fuss at your meeting to determine whether or not the outer envelopes were properly signed by the voting certificate holder.  Along those lines, implementing online voting will also eliminate these outer envelope judgment calls at your election.


4.    Just because a prior board has not strictly and uniformly enforced certain provisions of your governing documents does not mean your board is forever prohibited from doing so.  We can undertake a process known as republication which will allow you to breathe new life into those unenforceable restrictions and once again allow you to successfully enforce them.


5.    Prior unauthorized or procedurally improper actions require a discussion regarding the nature of those actions and preparation of the necessary materials to ratify same.


6.    If the membership vote was within a relatively recent period of time, we can proceed with recording that amendment or amendments; if not we may need to start the process over again. If you have been sitting on an amendment which was prepared but never voted upon, depending on the age of the amendment, we may need to review and revise that language.


This list is not comprehensive.  There may be other items where a transition in management or in the composition of the Board may have resulted in items falling through the cracks. If you have questions about how to correct any of these problems in your community, you can email me at dberger@bplegal.com or by phone at .1-844-CAREBP1.