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Association Board Decisions Presumed Valid in New Third DCA Case

The business judgment rule is a legal concept dating back hundreds of years. Basically, this rule means that a court will not question a business decision of a manager or other decision maker, absent a showing that the decision was made in bad faith, or was arbitrary or capricious. The business judgment rule has always operated as a defense when community association is sued by a homeowner for any given decision. On February 23, 2022, the Florida Court of Appeals, 3 rd DCA issued a decision in New Horizons Condo. Master Ass’n v. Harding, No. 3D20-1471, 2022 Fla. App. LEXIS 1224 (3d DCA Feb. 23, 2022), which took the business judgment rule one step further.

In New Horizons, the 3 rd DCA stated not only was the business judgment rule a defense, it was a presumption. Companies do not have to plead business judgment rule as an affirmative defense or else waive that defense. In most cases, if you do not raise a defense at the beginning of your case, you cannot take advantage of that defense later on. Not so with the defense of business judgment rule. The 3 rd DCA held that the business judgment rule was a presumption for the suing homeowner to overcome, and
that the Association does not need to plead it as a defense. This holding will make it much easier for associations to prevail and have their decisions go unquestioned, and much more difficult for homeowners who will have to affirmatively plead and prove facts that an association’s decision was arbitrary,
capricious, or in bad faith.

If you are interested in speaking to a Kistemaker Business Law Group lawyer or want general information about the firm, our practice areas, lawyers, publications, or events, please contact us via email or telephone information contained on our website at www.daytonabusinessalawyers.com.

Disclaimer Content




HOW MARKETABLE RECORD TITLE ACT (MRTA) EFFECTS COMMUNITY ASSOCIATIONS

It is important that property associations/community associations (like HOAs/Condos/POA/s) know the age of their association documents, including the declaration, covenants, and restrictions, to ensure that they have not expired or been extinguished by MRTA. Extinguishment of such covenants and restrictions means that the association is no longer able to enforce its restrictions and generally manage the community (collect assessments). The good news for property associations is that MRTA provides methods to both preserve these documents before they are extinguished and revitalize these covenants even after extinguishment. §§ 712.06, 712.11 Fla. Stat. MRTA often poses more of a concern for homeowners’ associations as the deed and consequently the chain of title generally does not reference these recorded covenants and restrictions. This differs from the chain of title in a condominium, where the face of the deed will specifically reference the declaration, the book, and the page where it is recorded.

IMPACT ON CONDOS

They are unique cases whereby the Condo documents could be effected by MRTA. While MRTA rarely impacts condominium communities due to the unique nature of their chain of title, when the declaration, covenants, and restrictions are not mentioned in the “muniments of title” they are subject to extinguishment under MRTA. Typically a CONDO deed contains a legal description which makes reference to the declaration specifically by its recorded book and page numbers, therefore protecting the CONDO documents from extinguishment under MRTA. However, where the deeds do not make such references, these documents are subject to extinguishment after 30 years under MRTA.

Prior to a 2018 amendment to MRTA and a 2019 decision in Eastwood Shores Property Owners Association, Inc., v. Department of Economic Opportunity, 264 So.3d 264 (Fla. 2d DCA 2019), a condominium could not revive its covenants under MRTA. This is because the section of MRTA governing revitalization referred specifically to homeowners’ associations or an association of parcel owners. § 712.01(4), Fla. Stat. (2016). This created a problem for the association in Eastwood Shores.

The Eastwood Shores Decision

In Eastwood Shores, the condominium association’s covenants were extinguished under MRTA because they were not referenced in the deeds of each unit. The association applied for revitalization of its covenants and was denied by the Florida Department of Economic Opportunity because it was not a homeowners’ association. Eastwood Shores, 264 So.3d at 265. Therefore, amendments were made to the MRTA statue in 2018 (see above).

These amendments are significant for condominium associations because they are now specifically included in the definition of associations that are covered by MRTA. This is means that in situations similar to Eastwood Shores, the condominium association will more simply be able to revitalize its covenants in accordance with the procedures set forth in § 720.403-720.407. § 712.11-12, Fla. Stat.

If your community has not reviewed your governing documents and discussed the possibility of extinguishment under MRTA please contact a lawyer to do so. Our office specializes in all areas of community association law.

If you are interested in speaking to a Kistemaker Business Law Group lawyer or want general information about the firm, our practice areas, lawyers, publications, or events, please contact us via email or telephone information contained on our website at www.daytonabusinessalawyers.com.