The 2017 Fla. Legislature Returns To CondoLand
Law360
Publication
June 01, 2017
Once again, after a one-year hiatus, the Florida Legislature has produced several condominium bills. Typically, the Legislature passes a single condominium bill into which other approved bills have been merged. This year, perhaps to make up for the failure to enact any condominium legislation, four bills were passed: CS/CS/CS/HB653 (HB653), CS/CS/HB1237 (HB1237), (CS/CS/CS SB398 (SB398), and CSSB1520 (SB1520) were passed by both houses of the Florida Legislature and are awaiting approval or disapproval by Governor Scott.
The HB653 and HB1237, as typical, run 69 and 51 pages respectively and deal with a potpourri of issues for Florida condominiums. SB398 deals only with estoppels and SB1520 deals only with condominium terminations which also appears verbatim in HB653. The principal changes are summarized below. HB653 and HB1237 share many of the same provisions and the references below to "both bills" are to these two bills.
Fire Sprinklers. There has been a long-running battle between older mid-rise and high-rise condominiums and the state and county fire marshals regarding installation of fire sprinkler systems. The fire marshals claim sprinkler installation is a life safety issue and will save lives while the older condominiums do not want to bear the substantial cost of installing new sprinklers. HB653 clarifies that an opt-out from fire sprinkler requirements is permitted with a two-thirds vote of the voting interests in buildings more than 75 feet high and that no requirement exists for fire sprinklers in existing buildings of 75 feet or less in height. It also moves the required outside date for sprinkler installation compliance from Jan. 1, 2020. to Jan. 1, 2022. However, if the building is three stories or more, this bill requires the installation of on-premises signage in a form approved by the state fire marshal warning of the lack of sprinklers in the common areas.
Condo Fraud. After a series of articles in the Miami Herald regarding improper elections, fraud and kick-backs by officers and directors of condominiums in Miami-Dade County, there has been a push to criminalize such improper conduct. Criminal penalties are imposed for forgery of election materials, embezzlement of condominium funds, destruction of condominium records and refusal to permit inspection of such records. Both bills specifically include "kickbacks" as prohibited conduct. Moreover, if an officer or director is charged with misconduct, such person is automatically removed from office and not subject to re-election unless he or she is ultimately cleared of the charges. Another way of describing this procedure is "guilty until proven innocent." Criminalization had generally been opposed by the Condominium Bar on the theory that it is difficult to obtain volunteers to serve on the board of directors and the imposition of criminal penalties might make it impossible to fill a position which most people already think is a thankless one. Both bills also prohibit directors, managers and management company from acquiring condominium units in any proceedings to enforce the condominium association's lien rights either at a foreclosure sale or by acquiring title by deed in lieu of foreclosure. The acquisition of title by one of the prohibited parties by deed in lieu is difficult to conceive unless accomplished in a two-step process in which title is first acquired from the association.
Access to Condominium Records. Currently only condominium owners have inspection rights over condominium documents. Both bills add to existing document inspection rights inspection by a designated representative of a unit owner and by a tenant. A tenant, however, has only limited authority to inspect and copy the association's by-laws and rules. Both bills also provide that condominiums with 150 or more units will need to establish a website by July 1, 2018, to post the association's governing documents: the declaration of condominium and articles, by-laws and rules of the association (together with all amendments), management and other agreements made by the association, budgets and financial reports, certifications supplied by directors regarding their familiarity with the Condominium Act. In lieu of other forms of providing notice of meeting, notices of meeting may be given by posting on the association's website.
Financial Reporting. Both bills eliminate the exemption of smaller condominiums containing less than 50 units from providing financial statements of the type prepared by an independent accountant but allow a majority of voting interests in such condominiums to waive such financial statement requirements. HB653 eliminates the requirement that an association cannot waive the statutes' financial reporting requirements for more than three consecutive years. Both bills add an enforcement mechanism for owners to obtain financial reports of the association by allowing an owner to report such failures to the Division of Florida Condominiums, Timeshares and Mobile Homes. If the association fails to deliver the statements to the division and the owners it is thereafter barred from electing out of reporting requirements for financial statements. While well intentioned, such enforcement mechanism appears rather toothless. In addition, HB1237 requires associations to provide an annual report to the division of the financial institutions in which the association maintains accounts. It is not clear the purpose of such requirement but such reports do allow owners access to such information.
Assessments. HB653 requires that notice of a board meeting at which regular or special assessments will be considered must state that assessments are on the agenda and include the estimated amount and purpose of such assessments. While current law requires that notice of special assessments appear on a meeting notice, the requirements for regular assessment and the amount and purpose of such assessments is new.
Board of Directors. HB1237 imposes term limits for serving on the board to four consecutive two-year terms unless the term limit is waived by at least two-thirds of the total voting interests or there are not enough eligible candidates to fill the board positions. Furthermore, this bill also eliminates board certification of a vote to recall board members. It therefore appears that a board member being recalled cannot dispute the recall prior to removal but would need to contest by petition to the division after recall and perhaps replacement and apparently at his or her own expense.
Conflicts of Interest. HB1237 contains extensive provisions dealing with conflicts of interest. However, some of these provisions are inconsistent with each other. One provision prohibits contracts with service providers if such a provider has a financial relationship with a director or officer or someone related to the director by blood or marriage. However, another provision appears to permit such contracts if the conflict is disclosed, the director recuses himself or herself on the voting for such contract and the board approves the contract.
Estoppel Certificates. Existing law contains a provision for the issuance of estoppel (or status) certificates by the condominium association. SB398, however, greatly expands the scope of this provision. The bill allows requests to be made by electronic means (i.e., email) and requires the association to designate an email address for such requests. It also specifies the contents of the certificate to be produced by the association which includes the date of the certificate, name of owner, unit number, any owned parking spaces, the association's attorney if payments are delinquent, the charge for the certificate, the name of the person requesting the certificate, the amount of the periodic assessment with a paid through date, the date the next installment is due, an itemized list of charges, a list of scheduled additional or special assessment not currently due, transfer fees, open violations by the existing owner, whether board approval is necessary for a transfer of the unit and, if so, if such approval has been provided, whether a right of first refusal exists and, if so, whether it has been exercised and contact information for other associations governing the unit and for the association's insurance carriers. The bill indicates an estoppel certificate remains effective for 30 days from issuance or for 35 days if mailed. The bill limits the charges for an estoppel certificate to $250 but permits an additional charges of $150 if the owner is delinquent and $100 for expedited service within 3 business days. Otherwise the bill requires delivery within 10 business days and prohibits any charges by the association for certificates delivered beyond such period. In cases where certificates for multiple units owned by the same party are requested, there is a sliding scale per unit starting at $750 for up to 25 units increasing to $2,500 for more than 100 units. If someone other than the unit owner requests the certificate and the closing for which it was requested fails to occur, the association has to return the fee. The bill also contains an adjustment mechanism to increasing the amount of permissible fees every 5 years based on increases in the Consumer Price Index.
Terminations. Perhaps the most controversial area in HB653 is the changes to the provisions allowing condominium terminations. These provisions also appear as a freestanding bill in SB1520. Since changes in the termination statute in 2007 permitting optional terminations, several hundred condominiums have been terminated. Most of these were as a result of the Great Recession where many condominium conversions, from rental apartments to condominiums, were reverted by termination to rentals. Although the great majority of these terminations were without incident, and in many cases resulted in an improvement of the property, there were a few high profile and well publicized terminations in which the concept of termination became an anathema. In these cases, homeowners lost their homes and wound up with a bill from their lenders as a result of the deficiency between their proceeds from the termination and the amount of their mortgages. Both of these bills were intended to make terminations of condominiums much more difficult. There is no doubt that the legislature has succeeded in this goal. The bills lower the threshold of voting interests needed to defeat a termination plan from at least 10 percent to at least 5 percent. They also require division approval of a termination plan but lacks specifics on the division's standards for such approval. The bills also increase the waiting period necessary to resubmit a plan of termination upon failure to adopt a prior plan from 18 months to 24 months. Furthermore, they increase the lockout period for a termination from 5 years after the declaration of condominium was filed to 10 years. The bills also provide that any owner of homestead property objecting to a successful termination must receive at least his or her purchase price regardless of party from whom the unit was purchased. Existing law only requires such 100 percent recovery if the unit was purchased from the developer. The bills also change the disclosure requirements contained in a plan of termination. The definition of "bulk owner" for which special disclosures are required is reduced from 50 percent of the units to 25 percent of the units thereby increasing the pool of parties needing to make such disclosures. A requirement is added that the termination plan disclose "factual circumstances" that indicate that the plan "supports the expressed public policies of this section." This is an amorphous standard at best. It is not clear what "public policies" would be supported if 100 percent of the owners decided it would be advantageous to them personally to terminate their condominium. Finally, the bills attempt to make the changes to the statute retroactive to apply to all existing condominiums. Such a provision in the current termination statute has previously been challenged in several cases which uniformly held that termination provisions could not be given retroactive effect based on constitutional restraints.
Alternate Dispute Resolution. HB1237 imposes additional qualifications for people to serve as arbitrators. It requires at least five years of Florida Bar membership and at least mediation or arbitration of 10 disputes involving condominiums and 30 disputes overall within the three years immediately prior to the application for certification. Alternatively one may qualify if certified in real estate or condominium and planned development law. The bill also mandates that an arbitrator conduct a hearing on an appropriate dispute, as determined by the division, within 30 days after being assigned by the division and render a decision within 30 days after such hearing. These requirements represent in a widespread dissatisfaction with the current arbitration process.
Voting Rights. HB1237 modifies the ability of the association to suspend voting rights for nonpayment of monetary amounts by requiring at least a delinquency of $1,000 and a 30 day notice prior to suspension. It also denies a receiver of a unit the ability to exercise voting rights.
Bulk Purchases. Part VII of the Condominium Act was enacted in 2010 with a limited life of 2 years. Adopted during the Great Recession, its purpose was to shield bulk purchasers of condominium units from potential developer liability thereby encouraging absorption of unsold units. This legislation has been largely credited with reducing the absorption of inventory originally estimated at 5 to 10 years to 2 to 3 years. Part VII was extended by the legislature several times and currently was set to expire on July 1, 2018. HB653 removes the sunset and Part VII will now be a permanent part of the Condominium Act.
These bills, as with previous condominium legislation, seem to have something for everyone. And, as in the past, appear to have provisions desirable to some constituents and undesirable to others. As we prepare for the 2018 legislative session, we can expect another annual tinkering with the Condominium Act with similar results and an expansion of a statute that already runs considerably more than 100 pages.
The HB653 and HB1237, as typical, run 69 and 51 pages respectively and deal with a potpourri of issues for Florida condominiums. SB398 deals only with estoppels and SB1520 deals only with condominium terminations which also appears verbatim in HB653. The principal changes are summarized below. HB653 and HB1237 share many of the same provisions and the references below to "both bills" are to these two bills.
Fire Sprinklers. There has been a long-running battle between older mid-rise and high-rise condominiums and the state and county fire marshals regarding installation of fire sprinkler systems. The fire marshals claim sprinkler installation is a life safety issue and will save lives while the older condominiums do not want to bear the substantial cost of installing new sprinklers. HB653 clarifies that an opt-out from fire sprinkler requirements is permitted with a two-thirds vote of the voting interests in buildings more than 75 feet high and that no requirement exists for fire sprinklers in existing buildings of 75 feet or less in height. It also moves the required outside date for sprinkler installation compliance from Jan. 1, 2020. to Jan. 1, 2022. However, if the building is three stories or more, this bill requires the installation of on-premises signage in a form approved by the state fire marshal warning of the lack of sprinklers in the common areas.
Condo Fraud. After a series of articles in the Miami Herald regarding improper elections, fraud and kick-backs by officers and directors of condominiums in Miami-Dade County, there has been a push to criminalize such improper conduct. Criminal penalties are imposed for forgery of election materials, embezzlement of condominium funds, destruction of condominium records and refusal to permit inspection of such records. Both bills specifically include "kickbacks" as prohibited conduct. Moreover, if an officer or director is charged with misconduct, such person is automatically removed from office and not subject to re-election unless he or she is ultimately cleared of the charges. Another way of describing this procedure is "guilty until proven innocent." Criminalization had generally been opposed by the Condominium Bar on the theory that it is difficult to obtain volunteers to serve on the board of directors and the imposition of criminal penalties might make it impossible to fill a position which most people already think is a thankless one. Both bills also prohibit directors, managers and management company from acquiring condominium units in any proceedings to enforce the condominium association's lien rights either at a foreclosure sale or by acquiring title by deed in lieu of foreclosure. The acquisition of title by one of the prohibited parties by deed in lieu is difficult to conceive unless accomplished in a two-step process in which title is first acquired from the association.
Access to Condominium Records. Currently only condominium owners have inspection rights over condominium documents. Both bills add to existing document inspection rights inspection by a designated representative of a unit owner and by a tenant. A tenant, however, has only limited authority to inspect and copy the association's by-laws and rules. Both bills also provide that condominiums with 150 or more units will need to establish a website by July 1, 2018, to post the association's governing documents: the declaration of condominium and articles, by-laws and rules of the association (together with all amendments), management and other agreements made by the association, budgets and financial reports, certifications supplied by directors regarding their familiarity with the Condominium Act. In lieu of other forms of providing notice of meeting, notices of meeting may be given by posting on the association's website.
Financial Reporting. Both bills eliminate the exemption of smaller condominiums containing less than 50 units from providing financial statements of the type prepared by an independent accountant but allow a majority of voting interests in such condominiums to waive such financial statement requirements. HB653 eliminates the requirement that an association cannot waive the statutes' financial reporting requirements for more than three consecutive years. Both bills add an enforcement mechanism for owners to obtain financial reports of the association by allowing an owner to report such failures to the Division of Florida Condominiums, Timeshares and Mobile Homes. If the association fails to deliver the statements to the division and the owners it is thereafter barred from electing out of reporting requirements for financial statements. While well intentioned, such enforcement mechanism appears rather toothless. In addition, HB1237 requires associations to provide an annual report to the division of the financial institutions in which the association maintains accounts. It is not clear the purpose of such requirement but such reports do allow owners access to such information.
Assessments. HB653 requires that notice of a board meeting at which regular or special assessments will be considered must state that assessments are on the agenda and include the estimated amount and purpose of such assessments. While current law requires that notice of special assessments appear on a meeting notice, the requirements for regular assessment and the amount and purpose of such assessments is new.
Board of Directors. HB1237 imposes term limits for serving on the board to four consecutive two-year terms unless the term limit is waived by at least two-thirds of the total voting interests or there are not enough eligible candidates to fill the board positions. Furthermore, this bill also eliminates board certification of a vote to recall board members. It therefore appears that a board member being recalled cannot dispute the recall prior to removal but would need to contest by petition to the division after recall and perhaps replacement and apparently at his or her own expense.
Conflicts of Interest. HB1237 contains extensive provisions dealing with conflicts of interest. However, some of these provisions are inconsistent with each other. One provision prohibits contracts with service providers if such a provider has a financial relationship with a director or officer or someone related to the director by blood or marriage. However, another provision appears to permit such contracts if the conflict is disclosed, the director recuses himself or herself on the voting for such contract and the board approves the contract.
Estoppel Certificates. Existing law contains a provision for the issuance of estoppel (or status) certificates by the condominium association. SB398, however, greatly expands the scope of this provision. The bill allows requests to be made by electronic means (i.e., email) and requires the association to designate an email address for such requests. It also specifies the contents of the certificate to be produced by the association which includes the date of the certificate, name of owner, unit number, any owned parking spaces, the association's attorney if payments are delinquent, the charge for the certificate, the name of the person requesting the certificate, the amount of the periodic assessment with a paid through date, the date the next installment is due, an itemized list of charges, a list of scheduled additional or special assessment not currently due, transfer fees, open violations by the existing owner, whether board approval is necessary for a transfer of the unit and, if so, if such approval has been provided, whether a right of first refusal exists and, if so, whether it has been exercised and contact information for other associations governing the unit and for the association's insurance carriers. The bill indicates an estoppel certificate remains effective for 30 days from issuance or for 35 days if mailed. The bill limits the charges for an estoppel certificate to $250 but permits an additional charges of $150 if the owner is delinquent and $100 for expedited service within 3 business days. Otherwise the bill requires delivery within 10 business days and prohibits any charges by the association for certificates delivered beyond such period. In cases where certificates for multiple units owned by the same party are requested, there is a sliding scale per unit starting at $750 for up to 25 units increasing to $2,500 for more than 100 units. If someone other than the unit owner requests the certificate and the closing for which it was requested fails to occur, the association has to return the fee. The bill also contains an adjustment mechanism to increasing the amount of permissible fees every 5 years based on increases in the Consumer Price Index.
Terminations. Perhaps the most controversial area in HB653 is the changes to the provisions allowing condominium terminations. These provisions also appear as a freestanding bill in SB1520. Since changes in the termination statute in 2007 permitting optional terminations, several hundred condominiums have been terminated. Most of these were as a result of the Great Recession where many condominium conversions, from rental apartments to condominiums, were reverted by termination to rentals. Although the great majority of these terminations were without incident, and in many cases resulted in an improvement of the property, there were a few high profile and well publicized terminations in which the concept of termination became an anathema. In these cases, homeowners lost their homes and wound up with a bill from their lenders as a result of the deficiency between their proceeds from the termination and the amount of their mortgages. Both of these bills were intended to make terminations of condominiums much more difficult. There is no doubt that the legislature has succeeded in this goal. The bills lower the threshold of voting interests needed to defeat a termination plan from at least 10 percent to at least 5 percent. They also require division approval of a termination plan but lacks specifics on the division's standards for such approval. The bills also increase the waiting period necessary to resubmit a plan of termination upon failure to adopt a prior plan from 18 months to 24 months. Furthermore, they increase the lockout period for a termination from 5 years after the declaration of condominium was filed to 10 years. The bills also provide that any owner of homestead property objecting to a successful termination must receive at least his or her purchase price regardless of party from whom the unit was purchased. Existing law only requires such 100 percent recovery if the unit was purchased from the developer. The bills also change the disclosure requirements contained in a plan of termination. The definition of "bulk owner" for which special disclosures are required is reduced from 50 percent of the units to 25 percent of the units thereby increasing the pool of parties needing to make such disclosures. A requirement is added that the termination plan disclose "factual circumstances" that indicate that the plan "supports the expressed public policies of this section." This is an amorphous standard at best. It is not clear what "public policies" would be supported if 100 percent of the owners decided it would be advantageous to them personally to terminate their condominium. Finally, the bills attempt to make the changes to the statute retroactive to apply to all existing condominiums. Such a provision in the current termination statute has previously been challenged in several cases which uniformly held that termination provisions could not be given retroactive effect based on constitutional restraints.
Alternate Dispute Resolution. HB1237 imposes additional qualifications for people to serve as arbitrators. It requires at least five years of Florida Bar membership and at least mediation or arbitration of 10 disputes involving condominiums and 30 disputes overall within the three years immediately prior to the application for certification. Alternatively one may qualify if certified in real estate or condominium and planned development law. The bill also mandates that an arbitrator conduct a hearing on an appropriate dispute, as determined by the division, within 30 days after being assigned by the division and render a decision within 30 days after such hearing. These requirements represent in a widespread dissatisfaction with the current arbitration process.
Voting Rights. HB1237 modifies the ability of the association to suspend voting rights for nonpayment of monetary amounts by requiring at least a delinquency of $1,000 and a 30 day notice prior to suspension. It also denies a receiver of a unit the ability to exercise voting rights.
Bulk Purchases. Part VII of the Condominium Act was enacted in 2010 with a limited life of 2 years. Adopted during the Great Recession, its purpose was to shield bulk purchasers of condominium units from potential developer liability thereby encouraging absorption of unsold units. This legislation has been largely credited with reducing the absorption of inventory originally estimated at 5 to 10 years to 2 to 3 years. Part VII was extended by the legislature several times and currently was set to expire on July 1, 2018. HB653 removes the sunset and Part VII will now be a permanent part of the Condominium Act.
These bills, as with previous condominium legislation, seem to have something for everyone. And, as in the past, appear to have provisions desirable to some constituents and undesirable to others. As we prepare for the 2018 legislative session, we can expect another annual tinkering with the Condominium Act with similar results and an expansion of a statute that already runs considerably more than 100 pages.
This article is reprinted with permission from Law360.
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