March 2004

MEMORANDUM TO CLIENTS

CONSTRUCTION & MAINTENANCE: INS & OUTS, WHAT CONSTITUTES THE INSIDE VERSUS THE OUTSIDE OF A HOME?

What happens when exterior walls of units are damaged due to defective construction? Does the community association have a responsibility to foot the repair bills? In a Florida homeowners’ community, the answer may be no.

A recent Florida appellate decision pointed out that a Florida homeowners’ association’s responsibility to repair defective walls is not the same as a condominium association’s responsibility. In Klak v. Eagles’ Reserve Homeowners’ Association, Inc., 28 Fla. L. Weekly D231 (Fla. 2^nd DCA, January 16, 2004), the court ruled the Eagles’ Reserve Homeowners’ Association did not have a responsibility to repair and reconstruct defective exterior walls. Eagles’ Reserve is a community consisting of townhomes and villas. It is not a condominium.

Ninety-eight homeowners in the Eagles’ Reserve community sued their homeowners’ association after the association decided to undertake the repair and substantial reconstruction of units that were affected by serious construction defects. The owners asserted that the Eagles’ Reserve Declaration of Restrictions did not authorize the association to undertake the reconstruction project. The owners sought a declaration concerning: the association’s duties and responsibilities; relief for breach of fiduciary duty; and, an accounting.

The owners felt that the association’s reconstruction effort would adversely affect the ability of individual owners to pursue insurance claims for the damages to their units. The owners argued they would have to pay increased assessments to pay for the repairs and reconstruction but would be unable to collect under their homeowner’s insurance.

After the first group of homeowners filed their lawsuit, a second group of homeowners filed a lawsuit seeking dissolution of the association and the appointment of a receiver! The second group contended the association failed to pursue the reconstruction project with sufficient diligence. To make matters even more bizarre, the board of directors changed hands. The new board aligned itself with the first group of homeowners.

The trial court judge found that the board of directors was "engaging in waste and misapplication of corporate assets by its refusal to proceed with collections of accounts receivable and with repairs and maintenance to the exterior of the dwelling units" as required by the declaration of restrictions and appointed a receiver. The judge also found that the association was liable for the cost of reconstructing defective walls of units.

On appeal, the first group of homeowners, those against association repairs, argued the association’s declaration of restrictions did not provide for the association to make structural repairs to the walls of the units. The relevant section of the Eagles’ Reserve Declaration of Restrictions, which provides for the responsibility of the association, states as follows:

The association shall have the right and obligation to maintain the exterior of the Dwelling Units, including the landscaping on the Lot, in good order and repair, including, but not limited to the following: painting exterior building surfaces; repairing and caring for roofs, gutter, down spouts; mowing, trimming and fertilizing trees, shrubs and lawns; maintaining and repairing walks, driveways, roadways, and any other exterior improvements; but not including exterior components of interior systems such as air conditioning compressors, spa filters and pumps, vents, etc.

(Emphasis added.)

To determine the meaning of the phrase "exterior of the Dwelling Units," the appellate court turned to the Random House Unabridged Dictionary which defines exterior as "the outer surface or part." The court concluded that the plain meaning of the phrase "exterior of the Dwelling Units" was only the outer surface of the dwelling units. The appellate court found that the trial court erred when it ruled the exterior of the unit included "everything from the interior coat of paint to the outside of the buildings." The appellate court explained that the trial court’s ruling incorrectly treated the unit as a condominium.

This case is an example of what can happen when the interests of two groups of homeowners are diametrically opposed to each other. It is important to note, however, that this case turned on one word in the association’s documents: exterior. Because not all associations’ documents contain the same wording, this case will not apply to all Florida associations. Nonetheless, to avoid entangling your association in a similar situation, it is important to read your documents carefully to determine what are the responsibilities of the association. If you have any questions, contact your association’s counsel.

ANNUAL REPORTS: DON’T FORGET TO FILE

As a reminder, the deadline for filing annual reports with the Secretary of State is rapidly approaching. To avoid a hefty fee increase, associations must file their annual reports before May 1, 2004. The Secretary of State is encouraging associations to file their reports online. If an association does not want to file online, remember to return the postcard received from the Secretary of State. After May 1, 2004, the filing fee will jump from $150 to $550. Please also remember to update address information if Gelfand & Arpe is your registered agent.

FIRM NEWS

On March 25, 2004, Michael Gelfand will be lecturing in Orlando at the Florida Bar’s Condominium and Planned Development Committee’s Continuing Legal Education Seminar on recent judicial decisions. To register, please contact the Florida Bar at www.flabar.org.

© 2004 by Gelfand & Arpe, P.A.