REVIEW OF 1991 AND 1992 ASSOCIATION LAW AMENDMENTS

The Legislature adopted many laws in 1991 and 1992 directly affecting associations. Adopted last year was Chapter 91-103, Florida Laws, commonly referred to as the "1991 Condominium Act Amendments." On April 2, 1992, the Governor signed into law Chapter 92-49 which substantially altered the 1991 Condominium Act Amendments. These laws bring sweeping changes in the operation of all condominium, cooperative and other associations.

This Memorandum is intended to highlight these recent changes, and anticipate the probable effect of the amendments on post-turnover association clients. The amendments' impact will differ depending whether your association is a condominium, cooperative, or is structured otherwise. For condominiums, some of the most egregious problems of the 1991 amendments have been reduced. For cooperatives, most of the changes to the Condominium Act are now applicable to cooperatives. A new scheme of regulations for homeowner associations is effective October 1, 1992. The checklist attached at the end of this review is provided for your assistance.

The extent to which a new law affects a particular association depends upon the association's "governing documents." Certain governing documents will incorporate a new law, others will not or will do so only on a limited basis. Even associations with documents which do not incorporate material changes in the law will be affected by new procedural requirements.

Unless otherwise indicated, amendments for condominium associations (referenced as "718.____") and amendments for cooperative associations (referenced as "719.____"), are now effective. The homeowner association amendments (referenced as "617.____", see page 11) are effective October 1, 1992.

This information is provided only for public information purposes and is provided without obligation or fee. It is distributed to the firm's association clients to provide a general notice of recent changes in the law. This information is not to be considered as legal advice. The changes in the law have not been reviewed by any courts and may be subject to challenge. Before taking any action you are urged to consult with counsel to ensure that your legal rights are being protected.

Sections 718.103(6) and 719.103(5) define a "committee" as directors and/or owners appointed by the board or a board member, selected to make recommendations to the board concerning budget matters, or to take action on behalf of the association. Noticeably the definition is limited and does not include all committees. The definition of a "committee" is important when considering record keeping and open meeting requirements (discussed in paragraph "7"). The recent changes will permit, under certain circumstances, private committee meetings for litigation strategy and settlement purposes.

2) Declaration Amendments. Sections 718.110(11) limits the rights that a mortgage holder (the "mortgagee") may have to block a declaration amendment. To assist condominium associations seeking to adopt amendments, there is now a presumption that amendments do not materially affect mortgagees. Exceptions to the presumption exist for amendments changing either the configuration of units and appurtenances, or adding time-shares. When mortgagee consent is required, the mortgagee's consent may be shown by an affidavit of an association representative.

Sections 718.110(1)(a) and 718.110(11) provide that in general the minimum vote to amend a declaration of condominium recorded after April 1, 1992, is not less than a majority nor more than eighty percent of an association's votes. Developers' amendment rights are severely limited. This provision should make it easier for owner-controlled associations to amend their documents.

3) Management and Kickbacks. Sections 718.111(1)(a) and 719.104(8)(a) prohibit condominium and cooperative association officers, directors and managers from accepting any service or thing of any value from persons providing goods or services to association, except services and items provided in connection with trade fairs and educational programs. This provision is intended to ensure that association decision making is free of improper influences. [The 1992 amendments deleted the $100.00 value threshold, and the short lived requirement that licensed managers owed a fiduciary duty to unit owners.]

4) Director Voting. Sections 718.111(1)(b) and 719.104(8)(b) prohibit secret votes at board meetings and require any director's abstention to be recorded in the minutes. Secret voting by directors when electing officers is one exception to this prohibition.

The importance of accurate minutes is now emphasized. Directors who do not abstain or who do not vote against a measure are considered as voting for an item. The law provides directors guidance as to how votes should be reflected if a conflict of interest exists.

5) Property Rights. Section 718.111(7) expands condominium association powers to convey, lease and mortgage association real property, as provided in a declaration of condominium, or if the declaration of condominium is silent, then with seventy-five percent of the association's votes. This will increase a condominium association's range of options when the sale or purchase of property is necessary for meeting owners' needs.

6) Insurance. Section 718.111(11)(b) provides that unless an condominium association is required to maintain the items, or unless the declaration of condominium provision recorded before October 1996 requires otherwise, condominium association insurance policies entered into after July 1, 1992 shall not cover damage to the following property if located within a unit: electrical fixtures, appliances, air conditioning and heating equipment, water heaters, and built-in cabinets. This provision may result in lower insurance costs or may slow the rate of increase in association insurance costs; however, individual owners should make certain that their policies cover these items. As a result of this law, owners' policy premiums may increase.

Section 719.104(3) provides that cooperative associations may obtain directors and officers liability and flood insurance policies.

7) Records. Sections 718.111(12) and 719.104(2) require that all condominium and cooperative association records "related to the operation of the association" are deemed official association records open to inspection and review by owners. Records are to be located in the state of Florida, not necessarily in the county of the property. Records must be provided to owners and prospective purchasers making a written request for records within five working days.

If the records are not timely provided, the owner is entitled to damages of at least $50.00 per day of delay from the association. This places a considerable burden upon associations to save nearly every document created by or given to an association, and provide records to owners with no delay. Excepted from owners inspection rights are medical records, attorney-client privileged and litigation documents, and records obtained by an association concerning a unit's transfer. Excepted items, especially those concerning attorney's fees should filed separately to avoid accidental disclosure

8) Financial Information. Section 718.111(14) provides that for condominium associations, and Section 719.104(3)(b) provides for cooperative associations a change in financial reporting. For associations with over fifty units, which have not been turned over by the developer, but which have been in operation for two years, non-developer owners shall determine whether the association shall prepare and disseminate appropriate financial statements. This provision should encourage proper record keeping and payments by developers.

Sections 718.111(13) and 719.104(3)(a) require condominium and cooperative associations to furnish financial reports to the Division of Land Sales when the report is furnished to members. Section 719.104(3)(b) allows for regulations permitting cooperatives with more than fifty units to provide members financial statements in lieu of a report, and to permit members to waive certain accounting requirements.

9) Fund Accounts. Sections 718.111(15) and 719.104(7) requires condominium and cooperative association funds to be maintained in accounts in the association's name. Reserve and operating funds may be commingled for investments purposes only, but separate ledgers must be maintained. Accounts in the names of others, such as management companies or bookkeepers are prohibited. These provisions are intended to provide owners added financial protection by requiring basic bookkeeping safeguards.

10) Proxies. Sections 718.111(2)(b)(2) and 709.106(b)(2) prohibits condominium and cooperative associations from using proxies other than limited proxies approved by the Division of Land Sales. Proxies may not be utilized for elections. Limited proxies may be utilized for most other matters. These provisions will require considerable advance planning for elections, and will encourage associations to disseminate as much information as possible about elections before a meeting to ensure an educated electorate.

For associations with twenty-five or fewer units, this provision may be overridden by a bylaw amendment approved by a two-thirds vote of the members. This amendment does not affect timeshare condominiums. Effective January 1, 1992.

11) Directors and Committee Meetings Procedures. Sections 718.112(c) and 719.106(c) require condominium and cooperative association directors' and committee meetings to be open to all unit owners, and provides that owners may tape record and videotape meetings. Meeting notices including specific agenda items must be posted in a conspicuous location at least forty-eight continuous hours before a meeting. Notices of meetings at which non-emergency special assessments and rule amendments are to be considered must be mailed or delivered to owners no less than fourteen days prior to the meeting at which such assessments and rules are to be considered.

Emergency matters may be added to the agenda at a directors' meeting by a vote of a majority of directors, plus one. Emergency action must be ratified at the next directors' meeting, after proper notice. There is no definition provided for what is an "emergency"; however, common sense would generally require that an emergency would be a situation requiring immediate action to avoid a loss, or to take advantage of an opportunity.

Associations are required to adopt a rule designating a specific location on the condominium property for the posting of notices of board meetings. Owners may speak at meetings concerning all designated agenda items; however, the association may adopt rules concerning the frequency, duration and manner of unit owners participation. These provisions apply very strict guidelines for the conduct of association meetings. Failure to comply with these provisions may invalidate association decisions. To ensure that association meetings are run with the least amount of controversy and disturbance, associations are urged to immediately consider rules concerning unit owner participation and the posting of notices.

12) Members' Meetings. Sections 718.112(2)(d) and 719.106(1)(d) requires that notices of condominium and cooperative association members' meetings identify separate agenda items. The notice must be posted continuously on association property at least fourteen days before a meeting at a location designated by an association rule, unless in a condominium there is no suitable location for posting.

13) Elections. Sections 718.112(2)(d)(3) and 719.106(1)(d)1 require that condominium and cooperative member voting occur by a written ballot or a voting machine. For associations with twenty-five or fewer units, this provision may be defeated by a bylaw amendment approved by a two-thirds vote. At least sixty days before an election, an association must provide a notice of the election to all owners. Five days after the deadline for a candidate to be nominated, the association directors must meet to accept other nominations.

If an eligible person desires to be a candidate and provides notice of their candidacy to the Association's secretary then the Association shall provide that person's name in a second notice to the owners and in a ballot not less than thirty days before the meeting. If a candidate requests, then the candidate may provide the Association for distribution to owners with the second notice and ballot, an information sheet not larger than one letter sized page. An association bears no liability for the information sheet provided by the candidates.

Elections are not required if there are no more candidates than positions open. At least twenty percent of the members must vote for an election to be valid. Ballots marked by a person who is not the owner of the unit for which the ballot was provided shall be considered invalid. Intended to increase the power of each owner, this provision raises many technical requirements for elections which will require advance planning.

14) Limited Common Elements. Section 718.112(2)(f)(1) provides that condominium associations which maintain limited common elements should specifically identify in the budget the cost of this maintenance. Owners who are entitled to use the limited common elements shall pay for maintenance of those items. This provision may make the budget process more difficult; however, it will allocate the costs of maintaining property to those entitled to utilize the property.

15) Reserves. Sections 718.112(2)(f) and 719.106(1)(j) require associations, regardless of the amount of deferred maintenance or replacement costs, to itemize reserve amounts for roof replacement, building painting and paving resurfacing. If the anticipated life of a reserve item changes from what was originally anticipated, then an association may change the reserve assessment to meet the actual life span. Interest from reserves as well as the funds themselves must be kept in a segregated reserve account for their designated purpose unless a majority of the members designate otherwise at a meeting. For associations which have not been turned over, the developer may waive reserves only during the first two years of an association's existence. This section specifies the proper method of calculating future maintenance costs, and seeks to ensure that reserve funds are properly handled.

16) Bonding. Sections 718.112(2)(j) and 719.106(1)(k) provide that regardless of the size of an association, condominium and cooperative associations shall obtain fidelity bonds for those individuals controlling or disbursing funds. The bond shall be not less than $50,000.00 if the association's annual gross receipts exceed $300,000.00, a bond of $30,000.00 if the receipts are between $100,000.00 and 300,000.00, and $10,000.00 if the receipts are less than $100,000.00.

17) Hurricane Shutters. Section 718.113(5) requires condominium associations to adopt hurricane shutter specifications. The association cannot deny the installation of shutters to be installed in conformance with the association's rules. Care should be undertaken providing appropriate specifications; thus, an architect or engineer may be required to assist the association in drawing specifications.

18) Alterations. Section 718.113(2) has been amended to provide condominium associations direction concerning approving additions or alterations to common elements. If the declaration of condominium is silent, then seventy-five percent of the members' votes must be cast in favor of the change.

19) Cable Television. Sections 718.115(1)(b) and 719.107(1)(b) provide that condominium and cooperative bulk cable television agreements may be considered an association common expense if contained in a written contract for a term of two years or more. Owners have the ability to veto a new bulk cable contract at the owners' meeting following the signing of the contract. Hearing or visually impaired owners who do not occupy a unit with non-impaired persons may discontinue the service and not be responsible to pay the cable television expenses as a common expenses or otherwise. This provision is seen as a method of ensuring responsible contract negotiations and equitably allocating cable television costs.

20) Mortgagee Assessment Rights. Section 718.116(1)(a) limits mortgage holders' special dispensation concerning condominium assessments in the case of a foreclosure. Lenders holding first mortgages recorded on or after April 1, 1992 will be liable for delinquent assessments due before the lender took title. There are many limitations on lender liability: the maximum amount due is for six months of delinquent assessments, which cannot exceed one percent of the first mortgage principal.

Liability does not start until thirty days after the lender last received a mortgage payment. There is an unresolved question of whether lenders holding mortgages signed before April 1, 1992 will loose some rights by virtue of this law. There is no dispensation for other than specified first mortgages. This section may force lenders to swiftly move forward with foreclosure actions, thus reducing assessment write-offs.

Pursuant to Section 718.115(1)(c) and 719.107 (1)(c), unpaid condominium and cooperative association delinquent assessments shall be reallocated to be a charge against all other owners.

21) Late Charges. Sections 718.116(3) and 719.108(3) provide that the condominium and cooperative associations may levy a late fee not to exceed the greater of $25.00 or five percent of an assessment installment for an owner not timely paying assessments, rather than allowing a charge for each month or quarter a payment is delinquent. This provision may encourage more owners to swiftly pay assessments.

22) Assessment Payments. Sections 718.116(3) and 719.108(3) provide that regardless of an owner's directions assessment payments to a condominium or cooperative association shall be first applied to interest, second to late fees, third to costs and attorneys' fees, and fourth and finally to principal. The statutory allocation shall apply notwithstanding any restrictive endorsement on or accompanying a payment. This provision will prevent disputes concerning how payments are allocated.

23) Liens. Section 718.116(5)(a) provides that condominium association assessment liens shall be effective as of April 1, 1992 or the recording of the original declaration, whichever is the latter date. In the short run this will force an association's assessment lien to be inferior to many encumbrances, limiting the association's ability to foreclose junior interests acquired by judgment or second mortgages, and reducing the potential that an association can sell a foreclosed unit. In the long run, as second mortgages and judgments are recorded after April 1, 1992, a lien will have higher priority.

24) Special Assessments. Section 718.116(10) provides that when a condominium association has excess funds after the purpose of a special assessment is completed, then the association has the choice of either returning the excess funds to owners or crediting the excess towards the owners' liability for future assessments. This provision should facilitate association bookkeeping.

25) Disputes. Sections 718.1255 and 719.1255 have been rewritten to require condominium and cooperative associations to resolve disputes through binding arbitration except for questions concerning title to a unit, a building warranty, or an assessment levy. The Division of Land Sales is required to create rules for binding arbitration. This provision is intended to avoid lengthy litigation concerning covenant matters; however, the division does not have the staff to process arbitration claims; thus, these provisions may not be effective.

A significant effect of arbitration will be to transfer the risk of liability for litigation expenses. If the looser in arbitration disagrees with the arbitration order, then within thirty days he or she may seek a trial. If the person seeking the trial does not obtain a more favorable resolution than that obtained from arbitration, then that person pays the other party's attorneys' fees and costs. If the person seeking the trial obtains a more favorable result, then the other side pays the attorneys' fees and costs.

Sections 718.112(2)(a)(2) and 719.106(1)(a)(2) require condominium and cooperative associations to respond within thirty days to unit owner complaints delivered by certified mail. The response must be "substantive" in nature, actually responding to the complaint, and state either that a legal opinion has been sought, or that advise was requested from the Division of Land Sales. If such a response is not made, and there is litigation in which the association prevails, the association cannot collect its attorney's fees.

26) Warranties. Section 718.203(2) provides that warranties concerning the fitness of a condominium's construction must be provided by design professionals; however, architects and engineers were deleted from those who must provide a warranty. This provision should encourage the proper construction of improvements and allow associations a better chance of recovery if a problem develops with the exception of claims against architects and engineers.

27) Turnover. Sections 718.301(2) and 719.301(2) now require that condominium and cooperative associations be turned over to non-developer control no later than seven years after the recording of a Declaration of Condominium. Turnover meetings shall be scheduled within seventy-five days of the date turnover is required, upon sixty days notice. Section 719.301(4)(g) now parallels the turnover disclosures required from the condominium developers, to require cooperative developers to disclose the names and addresses of the developer's contractors, subcontractors, and suppliers.

28) Audit. Sections 718.301(4)(c) and 719.301(4)(c) require the turnover audits for condominium and cooperative associations to be undertaken from the date the association was incorporated through the date of turnover, unless there has been a prior audit.

29) Contracts. Sections 718.3026 and 719.3026 require condominium and cooperative association contracts for amounts in excess of five percent of the association's annual budget and reserves, or which have a term of one year or more, be obtained only after competitive bidding. The lowest bid need not be accepted. This provision supplements the anti-kickback law (see paragraph 3).

There are exceptions for competitive bidding. For example, bids are not required if there is an emergency, or a need for professional accountancy, engineering, architects, or legal services. Renewal contracts are exempted if originally executed before January 31, 1992. Other renewals do not have to be competitively bid if the original contract was awarded through the competitive bid process and the contract has a thirty day cancellation provision. A competitively bid manager's contract may be for up to three years in length.

30) Leases and Lessees. Sections 718.303(1) and 719.303(1) provide that the provisions of condominium and cooperative associations' governing documents are deemed incorporated in any lease, that tenants and other invitees must follow the provisions of the Act, and that an association may recover attorneys' fees against tenants who violate the Condominium Act or restrictions in association documents. This provision will make it easier to obtain tenants' compliance with use restrictions. Associations are not provided a right to evict a lessee.

Sections 718.106(4) and 719.105 provide that when a condominium or cooperative unit is leased, then the owner gives up any rights concerning use of association property, except as a guest of the tenant. To enforce this provision, associations may enact rules to prevent duel usage of association property by owners and their tenants.

31) Attorneys' Fees. Section 718.303(1) and 719.303(1) provide that if a condominium or cooperative association owner should prevail in litigation against an association then the owner is entitled to also recover the amount the owner must pay for increased assessments so the Association can pay the fee award. This provision avoids the unfairness of requiring a prevailing owner to pay a pro rata portion of the losing association's attorney's fees and costs.

32) Fines. If an association's documents allow, sections 718.303(3) and 719.303(3) permit fines to be levied up to $100.00 per violation of a condominium or cooperative use restriction, but that no more than one fine may be levied per day for each violation, and fines may not exceed $1,000.00 per continuing violation. The levy of a fine must be approved by a committee made up owners other than directors. A fine cannot be the basis of a lien. For those few associations in which fining has been successful, this will limit the extent of the fining process.

33) Division Fines. Sections 718.501(1)(d) and 719.501(1)(d) provides that the Division of Land Sales may undertake enforcement proceedings against condominium and cooperative association officers and directors, including imposing civil penalties. Liability must be based upon "willfully and knowingly" violating a provision of the Condominium Act, the association's documents, a rule of the Division of Land Sales or a Final Order. "Willfully and knowingly" is now defined in subpart "4" of the section as an intentional wrongdoing. A ten day compliance period allows an officer or director to avoid fines. The Division can now require developers to reimburse money to an association. Enforcement authority may make officers and directors leery of breaking the law, especially as a fine is a personal matter and probably is not covered by insurance. A director's potential liability creates a need for special emphasis upon directors confirming the proposed actions with retained professionals and documenting association activities.

34) Legal Update. Sections 718.501(1)(h) and 719.501(1)(h) require the Division of Land Sales to provide notice to associations of changes to the Condominium Act on an annual basis. This will allow association members to remain cognizant of changes in the law.

35) Investigations. Sections 718.501(1)(k) and 719.501(1)(m) permits the Division to undertake random investigations without reasonable cause and to charge the Association for the costs of an investigation. The so-called "no-knock" investigation rule adopted last year was deleted.

36) Fees. Sections 718.501(2)(a) and 719.501(2)(a) quadruples condominium and cooperative association fees paid the Division of Land Sales to $4.00 per unit. Originally, the fee was to be reduced in 1993; however, the reduction was repealed and the $4.00 fee will remain in 1993. With these fees, the Division is required to provide training programs for directors and owners and a toll-free telephone number for inquiries and complaints by unit owners. There is no mention of any telephone assistance for directors.

37) Ombudsman. Repealed by the legislature was section 718.5015 which provided for the creation of an Office of Condominium Ombudsman. The Ombudsman was designed to be independent of the Division of Land Sales, to act as a liaison between the Division and unit owners and provide reports concerning condominium affairs.

38) Council. Section 718.5019 has been created to provide for a state-wide advisory council on condominiums representing a cross-section of persons, chosen geographically and by size of community. The council is to receive public input concerning condominium issues, evaluate the Division and Division's process, and recommend to the Division improvements concerning both.

39) Re-Sales Disclosures. Sections 718.503(2) and 719.503(2) provide that prospective purchasers of a condominium or cooperative unit are entitled to review the Association's governing documents and minutes, and allows a resale purchaser three days to cancel a contract. A condominium or cooperative association is required to provide the prospective purchaser a "Questions & Answers Sheet" identifying significant areas of association concern including assessments, special assessments, the period for an assessment, liabilities in excess of $100,000.00, mandatory membership requirements and other matters deemed necessary by the Division.

This provision places a very heavy responsibility on associations to inform potential purchasers of the condominium's faults. Failure to provide this information in a timely or complete manner could result in litigation. If not completed, condominium and cooperative associations should immediately prepare the information necessary to be provided prospective purchasers including the "question and answer report" and a receipt for receiving these items. To provide appropriate information an association should undertake a title search confirming that their documents are complete.

HOMEOWNER ASSOCIATION AMENDMENTS

Sections "33" through "40" of the 1992 law concern non-condominium and non-cooperative associations, either commercial or residential. These new provisions take effect October 1, 1992. They apply only to post-turnover homeowners (including "master" associations whose assessments are greater than $150.00 per year, and who have over fifty units or lots). Notably, there is no provision in the law to enforce these provisions, except for the right of access to common areas and the right of access to records.

40) Duty. Section 617.303(1) provides that homeowner association officers and directors hold a fiduciary relationship to the owners.

41) Meetings. Section 617.303(2) requires that homeowner association directors' meetings shall be open to the membership. Notices must be posted on a conspicuous place in the development at least forty-eight hours before a meeting. If an assessment is to considered at the meeting, then the notice of meeting should specify that matter as one to be considered.

42) Official Records. Section 617.303 (3 - 4) requires homeowner associations to keep many records, including minutes and other governing documents, and all financial items in a manner paralleling the Condominium Act. Owners have a right to inspect records.

43) Rules. Section 617.304(1) provides that homeowners associations have the right to promulgate common area rules; however, an owner's right to peaceably assemble shall not be disturbed. This provision may limit fees charged by an association for specific use of common areas, such as for reserving a clubhouse.

44) Receivership. Section 617.305 provides for homeowner association governance if the number of directors required to serve cannot be found. After a last chance notice, an owner may petition the courts for the appointment of a receiver.

45) Elections. Section 617.306 prohibits general proxies in homeowner association meetings. Ballots are required for all director's elections.

46) Sales. Section "40 " of the law requires disclosure in a contract for the sale of a unit or lot of all recreation facilities available for use. The disclosure must state the full description and charges of the facilities. This provision may be a trap for the unwary because there is no limitation as to the extent of the disclosure required.

REVIEW LIST

To help ensure that your association is in compliance with the new legislative dictates, the following are matters which such associations should immediately prepare or address before the end of the year. If we can be of assistance to your association, please call me.

1)^* Prospective Purchaser Question and Answer Sheet.

2) Association record keeping and access to records rule.

3) Association annual meeting and election package

4)   Agenda format

5)  Rules concerning frequency, duration and manner of owners participation at directors' meetings.

6) Rule concerning posting of agendas.

7)^* Hurricane shutter specification rule.

8) Review of cable television agreements.

9) Amendment of documents to provide for late charges.

10) Amendment of documents to remove mortgagee assessment dispensations.

11) General form of contract bid specifications for contracts

12) Uniform lease form.

13) Fining policy and amendments.

In addition, associations are urged to review documentation and consider the following topics:

1) Amendment opportunities.

2)^* What is prohibited under the "Kickback Law".

3) Methods of minute keeping.

4) Handling real estate.

5) Changes in association meeting requirements.

6) Association record keeping.

7) Reserve accounts, budgets, and financial meeting preparation.

8) Elections.

9) Higher bonding requirements.

10) Hurricane preparations.

11) Cable television negotiations.

12) Assessment collection procedures.

13)^* Enforcement of covenants in light of arbitration.

14) Contract requirements.

15) Interview and screening processes.

16) Lease provisions and common area deposits;

17) Fines.

18) Association obligations to potential purchasers of units.

(^* Note: Refers only to condominium or cooperative associations.)