Reserves and Their Necessity

While operating costs require monitoring, obtaining competitive bids, etc., it is the major replacements and projects that can overwhelm community finances. Reserves are by far the best way to pay these major expenses. A big mistake some communities make is by waiving reserves and therefore the money for future projects are not being accumulated over time.

Future owners- including some current owners, will have a special assessment or require a bank loan when the association needs a lump sum of cash all at once.

In My opinion, not funding reserves is a bad idea because it’s a shock to owners when the only way to pay is a special assessment or a bank loan, which in most cases cause the project to cost more than it should.

New boards should understand their responsibility to maintain and preserve their communities for the benefit of current and future owners. Reserves are not for “future” expenses. Instead, they are for the portion of wear and tear on the common elements that our communities experience each day.

Providing adequate reserves will help secure the financial health of any community, fulfill the fiduciary duty of the board and provide peace of mind for their homeowners.

New buyers have a keen eye and attention on reserves funding in communities and smart buyers are waiting to see reserves studies and financial information before buying because they do not want to pay more than their fair share or be stuck with a special assessment.

With adequate reserves, there is a smaller chance of work not being done.

How do you Know if your Board’s Rules are Real?

A large aspect of being an Association Board member is enforcing a variety of rules. Common rule enforcement includes limiting the number and types of pets in a unit, not allow short-term lease agreements, and limiting commercial activity. Although many of these restrictions are appropriate and the board has the power to enforce them, it is sometimes discovered that an “established” rule or restriction doesn’t exist. This is a situation in which boards are enforcing fake rules.

Sometimes, but not always, when boards are elected, new directors do not review the association’s declaration, bylaws, and rules (known as the governing documents) and regrettably, instead, rely on the practices of past boards.

What we eventually then see is that at some point an owner or occupant challenges the board’s action and requests that the board provide where and in what document this rule exists. If/when a board cannot establish the authority to enforce a certain restriction, it may inevitably be paying attorney’s fees and costs to the opposing party as well as seeing a steep decline in membership confidence.

Every board of directors would be well advised to undertake an annual rules and regulation audit to determine which restrictions are currently enforceable pursuant to the association’s governing documents as well as current law.

Violating Architectural Rules and Regulations Can Get Expensive:

Most association’s Governing Documents require that the Association must review construction plans/permits and then issue written consent for construction of improvements or modifications to properties – especially if those improvements or modifications will be visible to other owners, involve the common elements or association property and/or impact utility services to the property.

Therefore, Single-Family homeowners give up freedoms they might otherwise enjoy, if they did not live in a planned community. However, the purpose of the restrictions are to protect the common good. Nevertheless, often, property owners negligently and purposefully ignore the architectural control provisions of the governing documents.

When timely and consistent enforcement action is taken by the Association against an owner who has made unapproved changes, the appropriate remedy awarded by the court is a mandatory injunction. The courts have broad discretion to fashion an appropriate remedy, but usually a court’s order requires the offending owner to remove unauthorized changes and to restore the original condition of the property.

In several cases, the courts have required removal of balcony enclosures, storm shutters, decorative features, fences, patios, landscaping and newly painted colors. Some examples of common violations are as follows:

  • A homeowner thought that since he obtained a permit for the installation, HOA approval was not necessary – not true.
  • Another homeowner thought that since the HOA didn’t own the property underneath the dock that HOA approval was not necessary – not true.
  • Another homeowner thought that approval by the Environmental Protection Agency (EPA) overruled the HOA – not true.

Property Owners need to be cognizant of Section 720.3035, Florida Statutes, which became effective on July 1, 2007. This law does not eliminate an association’s ability to regulate alterations to a lot but does require that authority be specifically stated or reasonably inferred from the written covenants or other published guidelines and standards authorized by the declaration of covenants. Home or Unit Owners need to learn and understand what procedures are in place in their community association to avoid costly problems.

Condo Associations and What to Do with Rentals

For the New Year and the 2017 legislative session, community associations should be reviewing their current rental provisions and deciding whether to propose any amendments to address minimum rental terms.

If your association has a problem with short term rentals in the community and would like to adopt amendments to the governing documents to address those issues, the amendment should be approved and recorded as soon as possible.

For example, some governing documents require rentals to be for a minimum of 6 months, or 12 months, so that the residential nature of the community may be maintained.  The documents could also be amended to clarify that the listing of a property in the community on a hotel-lodging type site constitutes a violation in addition to the short-term occupancy being the violation.

In addition, there has been a bill filed, SB 188, that would prohibit local governments from adopting ordinances limiting the duration of vacation rentals. This bill would primarily impact community associations without minimum lease terms, as it will limit the ability of your local government to offer your association much help.

Recalling a Director from a Condominium Association

Please note, recalls can be complicated. The required procedure to recall a director from a condominium association is specifically outlined in Florida Statutes and the Florida Administrative Code and are available on-line. Recalls can be pursued through a vote of the members at a membership meeting or through a written agreement. A majority of all the unit owners must vote to approve a recall for it to be effective against a director or multiple directors.

Please seek assistance from a qualified condominium attorney. Kistemaker Business Law Group would be happy to assist.

 

Requirement for HOA and Condo Board of Director Certification

Florida laws require that new directors complete an approved education course within 90 days of election or appointment (718.112(2)(d)4b Fla. Stat. for Condos and 720.3033(1)(a) Fla. Stat. for HOAs).

Both laws allow the alternative of filing a certificate that a new director has read the association’s governing documents and policies, but this is not recommended. Florida’s association laws are complex and constantly changing.  Understanding the fiduciary duties imposed on a director and the unique requirements for condominium and homeowner association boards regarding open meetings and membership access to records is critical for new directors.

Kistemaker Business Law Group provides training sessions for the necessary certifications for condominium and homeowners association board members and CAMs.

 

Issues for Home and Condo Owners Who Want to Rent Their Places?

For those who own condos, townhouses, or single family homes, there are pros and cons to short term renting services like Airbnb.

There are important issues to consider before using one of these online rental services as a real estate owner in Florida. Things like:

1. Taxes?

For one thing, there is the question of taxes (sales tax, etc.). Short term rentals by home owners puts them in the business of providing lodging, like a hotel. Which means taxes be expected to be paid lodging related taxes.

However,Airbnb provides an on-site list of jurisdictions that impose these taxes, and Airbnb also collects and remits the taxes on behalf of its hosts.  Florida (and some of its municipalities) expect to be paid these lodging taxes, and no – they aren’t the same as income tax. (Hosts may have to pay federal income taxes on their rental revenues in addition to the lodging tax (which may be deductible). Check with your tax advisor.

2. Do Condo Boards Like It?

Depends on the board and the Association.  However, your neighbors may not like the idea of strangers traipsing through the condo complex using the common elements.

Whether or not you are allowed to sublet your condo in short term online rentals is covered by the condo’s governing documents.

Condo owners who jump onto Airbnb and start renting out their Florida condo may be surprised to find themselves subject to fines and other negative ramifications from their association.

3. Who Bears The Risk of Injury Claims?

Host, renter or the Association?

It is likely that Airbnb will not take on liability for the injury in the Airbnb rental.

Florida hosts and Associations need to understand the risk of someone being hurt or killed while renting their place.  It needs to be evaluated carefully. Airbnb is offering a free $1,000,000 liability insurance policy to cover its U.S. hosts under its “Host Protection Insurance Program.”

However, this is insurance coverage that will take effect only after the home owner’s primary coverage has been used. It is “secondary” coverage.

A big concern for Florida home owners: the host’s homeowner’s policy needs to be checked, too. Many homeowner’s insurance policies will not cover commercial uses of the home, and these short-term rentals can be considered lodging for profit.

A good piece of advice if you have a question about Airbnb is to at least speak with an experienced Florida real estate and condo/HOA lawyer to learn about your rights.

 

Dissolution Of Homeowners’ Association (HOA)

The dissolution (or dissolving or termination) of a homeowners’ association (HOA) can happen for a variety of reasons. Maybe the individual unit or home owners in the HOA aren’t happy with the way the HOA is spending, or not spending, the fees and assessments the members pay. Or, maybe the HOA isn’t enforcing, or is over-enforcing, the covenants, conditions, and restrictions (CC&Rs) that are supposed to ensure a certain standard of quality for the community.

Regardless of the reason, there typically are rules or some procedure that must be followed to dissolve your HOA, which usually are found in:

  • The HOA’s governing documents, like its bylaws
  • The laws of the state where the HOA is located

If you’re a member of a HOA, it’s a good idea for you to understand how your HOA can be dissolved.

 

Airbnb and Third-Party Rentals

Online third-party rentals have become quite popular in recent years. Many unit owners see these companies as an opportunity to bring in additional income by renting out their unit on a short-term basis, sometimes even just for a weekend.

Most condominium communities do not want short-term rentals of units. Short-term rentals can reduce property values, impair the security of the community, cause headaches for rules enforcement, and negatively impact compliance with the Federal Housing Administration’s (FHA) Condominium Project Approval and Processing Guide, which requires at least 51 percent of the units to be occupied by the owner.

The rise of Airbnb and similar online third-party rentals can create problems for condominium associations, but there are ways that associations can protect themselves.

 

Closed Board Meetings Requirements

It is important to note that every meeting, whether it is a closed board meeting or a board meeting open to unit owners, must be posted.

A meeting regarding the selection of a management company is not a personnel meeting, it is a meeting to discuss a contract. A personnel meeting deals with specific issues regarding a specific employee not contract issues with a management company.

The board should consult with its legal counsel for advice as to clarification of this often misinterpreted provision. It was not the intent of the law that the open meeting requirement be circumvented by the board to discuss contract issues.

The only time the board can prevent the membership from attending a meeting is when the board is meeting with legal counsel regarding threatened or pending litigation or when the board is addressing a specific employee’s personnel issue. If the board refuses to address your concerns or to seek an opinion from counsel a request for clarification to the Division of Condominiums may be in order.

 

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