The Legislative Session for 2010 has produced a number of significant changes to the Condominium Act (Chapter 718 F.S.), as well as other Chapters of Florida Statutes that affect condominiums, as found in Senate Bill (SB) 1196, which become effective July 1, 2010. The following is a summary of changes most relevant to the operation of the association and an identification of the particular affected sections. Please note that this summary is not intended to be an exhaustive explanation of the intricate detail of all of the changes nor is it to be considered complete legal advice on the subject. It is recommended that if there are any questions regarding any of these changes, you contact this office for further discussion. (All Section references below are to Florida Statutes.)
Among the most important revisions, SB 1196 incorporates changes to the developer requirements with the new protections and procedures for bulk purchasers of units for development; further clarification for amendment restrictions on renting; insurance requirements of associations and unit owners, once again attempting to clarify these complex issues; exemptions from what constitutes Official Records are expanded; portions involving Board member qualifications and other election-related issues, including revising the required certification for each director as a qualification to serve; an extension for retrofitting for fire sprinkler or other engineered lifesafety systems previously scheduled to be completed by 2014 to 2019; expanded cable television contracts to include information services or internet services; adjusted lender liability to the association after taking title in its foreclosure sale; obligating tenants to pay rent directly to associations under specified circumstances; and, allowing the suspension of use rights for delinquent owners.
By way of clarification, changes were made to Sections 617.0721 (member voting), 617.0808 (removal of directors) and 617.1606 (access to records) in the Florida Not-For-Profit Corporations Act, to specifically state that the provisions of these Sections do not apply to condominium associations.
Section 718.110(13) was revised to clarify what amendments to declarations regarding rental restrictions will apply to only those owners who consent or subsequent acquirers of title. Only an amendment that prohibits unit owners from renting the unit, alters the duration of the rental term, and/or specifies or limits the number of times a unit owner is entitled to rent the unit during a specified period of time will have this requirement. A new (14) has been added to this Section, allowing for reclassification of certain portions of the common elements as limited common elements upon the vote required to amend the declaration, and shall not be considered an amendment that changes the configuration of the ownership interest of the common elements.
You may recall that in 2008, many substantial changes to the insurance requirements were incorporated into the Statute, primarily in Section 718.111(11) of Florida Statutes. In 2010, the Legislature has attempted to “fix” some of the problems that legislation created. The first substantive change is to add a new Section 627.714 F.S., which is in the general insurance statutes, and provides for specific coverage that residential condominium unit owner policies must contain. (It is important to recognize that this does not mean that unit owners must purchase insurance, only that if they do, the policy must contain what this Section indicates.) Among the requirements are property loss assessment coverage of at least $2,000 for all assessments made as a result of a direct loss to property covered by the policy, with a maximum deductible of $250 to be applied against all covered losses for the same casualty; and, that the policy indicate that the coverage is excess coverage for any other policy covering the same property. Section 633.0215 F.S. was revised to add a new subsection (13) to exempt a condominium that is less that four (4) stories in height with an exterior means of egress corridor from installing a manual fire alarm system under the most recent edition of the Life Safety Code.
Throughout Section 718.111(11), the word “hazard” was changed to “property” relative to the type of insurance a condominium is required to have in order to maintain adequate coverage. In subsection (a), for what the association is required to determine at least once every 36 months, “full insurable value” has been changed to “replacement cost”.
Subsection (c)3 was revised to remove certain provisions from 2008 regarding deductibles. Some of the changes are clarification, such as the removal of the specific reference to requiring the board meeting at which the deductibles are to be established being open to unit owners (although most board meetings are required to be open elsewhere in Chapter 718). More significantly, the oddly-worded notice requirement regarding the deductibles for that meeting be set forth in the notice of the meeting, as well as the portion indicating that this issue could be considered in conjunction with the budget meeting, have also been removed.
Subsection (f)3 has been revised regarding the items that are excluded from being within association coverage. Additional language was added at the end, relative to window treatment components, or replacements of any of the foregoing, indicating that these apply to items “which are located within the boundaries of the unit and serve only such unit.” It further indicates that the excluded property and any insurance thereon is the responsibility of the unit owner.
Subsection (g) addresses the individual unit owner coverage. The first two sub-subsections have been deleted and replaced with the requirement that condominium unit owner policies conform to Section 627.714 F.S. (discussed above). Among the portions deleted is the requirement of associations to inquire of unit owners as to their insurance coverage, and the right to purchase coverage for them if they do not provide such proof. The former sub-subsection 4 (now renumbered to 2) has been revised to delete the requirement of the association being a named insured on the owner policy.
Section 718.111(12) regarding the Official Records of the Association has been revised to enlarge exceptions to what is accessible to unit owner inspections. Subsection (a)(7) was revised to allow for removing from the Records email addresses and telephone numbers of owners if requested by the unit owner. Section 718.111(12)(b) has created an indemnification for associations for the use or misuse of information provided by the association to a member unless the association has an affirmative duty not to disclose the information.
Section 718.111(12)(c) has additional exceptions to the records that are required to be accessible to a unit owner inspection, adding personnel records of association employees, including disciplinary, payroll, health and insurance records; personal identification information of unit owners has been expanded to include email addresses, telephone numbers, emergency contact information, and any addresses of a unit owner other than as provided to fulfill association notice requirement; any electronic security measures used to safeguard data, including passwords; and, software and operating system used by the association which allows manipulation of data.
Section 718.111(13) has been revised to require the Division to adopt rules relative to financial reporting to include standards for presenting a summary of association reserves, including a good faith estimate disclosing the annual amount of reserve funds necessary to fully fund each item on a straight line accounting method. (This does not apply to reserves funded via the pooling method.) This Section has been further revised to increase the number of units in a condominium from 50 to “fewer than 75″ under which a board can elect to undertake a report of cash receipts and expenditures in lieu of the financial reports required by the Statute.
Section 718.112(2)(d), regarding unit owner elections, has been revised once again. Among the revisions is an attempt to “clarify” board member qualifications and the election process. When the number of candidates is less than the number of board member seats that are expiring at the next meeting, this section was revised to remove the “automatic reappointment” of the former directors and changed it to an “eligibility for reappointment”. For condominiums of more than 10 units or one that does not include timeshare units or timeshare interest, co-owners are not allowed to serve on the board at the same time unless they own more than one unit or there are not enough eligible candidates to fill the vacancies on the board at the time of the vacancies. In addition to delinquent owners who are delinquent with their regular assessments being ineligible to serve on the board, those who have outstanding fines or special assessments are also now ineligible.
Section 718.112(2)(d)3 has been split into (a) and (b) subsections with the addition of (b). In (a), changes were made relative to the Candidate Certification Form requirement. The first notice of the election no longer must include this form nor must it be returned by candidates with their notice of intent to run. The new (b) provides that within 90 days of being elected to the board, each newly elected director must certify in writing that he or she has “read the association’s declarations of condominium, articles of incorporation, bylaws, and current written policies;” and that he or she will work to uphold the documents, and “will faithfully discharge his or her fiduciary responsibility to the association’s members.” Alternatively, they may submit a certificate of satisfactory completion of the educational curriculum administered by a division-approved condominium education provider. If the director fails to timely file the written certification or educational certificate, he or she is suspended from the board until coming into compliance with this subsection. There is also a requirement to retain these documents in the Official Records for a 5 year period.
Section 718.112(2)(l) has been amended to delete language which prohibited owners from voting to forego retrofitting of a fire sprinkler system for common areas in a high rise building, meaning one greater than 75 feet in height. The new language now permits, upon a vote of a majority of the voting interest, to forego retrofitting in the common elements, association property and units of residential condominiums of any size. It further prohibits local authorities from compelling retrofitting until 2019 for those who did not vote to forego it. Additionally, if it is to be required, an application for a building permit must be filed by December 31, 2016, demonstrating the intent to become compliant by 2019. A new subsection 2 has been added to provide that if there had been a vote to forego retrofitting, a vote to require retrofitting will have to be called upon a petition of at least 10% of the voting interests. Such a vote may only be called once every 3 years. No electronic transmission of notice of this type of meeting is allowed. A new subsection 4 has been added to allow associations to vote to forego retrofitting elevators for generators pursuant to Section 553.509(2), with a vote of a majority of the voting interest in the affected condominium.
Sections 718.112(2)(n) and (o) have been revised regarding director or officer offenses which may disqualify them from serving and clarified the term of suspension.
Section 718.115(1) has been revised to include communication services defined in Chapter 202 F.S., information services or internet services and delete “a master antenna television system or duly franchised cable television service” for bulk contracts. This is a more expansive definition and includes cable television.
Section 718.116(b) has been revised regarding the potential liability of a lender after a foreclosure sale, raising the monthly amount to 12 months of unpaid common expenses and regular periodic assessments from 6 months. However, it remains the lesser of the monthly amount or 1% of the original mortgage debt (which was typically less than 6 months, so raising it to 12 months is actually no help at all in most cases).
A new subsection (11) has been added to Section 718.116, which provides for the authority of an association to collect rent from a tenant occupying a unit that is delinquent to the Association in any monetary obligation. The association is required to make written demand on the tenant, with a copy to the unit owner, and may only collect rent to the extent of the unpaid monetary obligation to the association. If the tenant does not pay, the association may evict the tenant as if the association was the landlord. However, the statute does not provide for the ability of the association to assess the costs involved against the unit. It also contemplates the possibility of a receiver collecting the rent.
Section 718.303 has been revised to allow for the suspension of use rights to common elements, common facilities or any other association property if a unit owner is delinquent for more than 90 days in pay a monetary obligation to the association. The suspension would not apply to limited common elements for that unit, common elements that must be used to access the unit, utility services provided to the unit, parking spaces or elevators. There is a conflict in the way the statute has been adopted in that subsection (3) requires notice and a hearing for the suspension, like with fines, but the new subsection (4) states that the notice and hearing requirement of (3) do not apply to suspensions because of failing to pay monetary obligation. The Legislature will need to resolve this conflict at the next session. A new subsection (5) has been added to allow the association to suspend the voting rights of a member that is more than 90 days delinquent in any monetary obligation until the full payment of all such obligations.
A new Part VII to Chapter 718 has added which includes Sections 718.701 – 708, entitled the “Distressed Condominium Relief Act.” These Sections acknowledge the massive downturn in the condominium market in the state and the impact that it has had on all facets of condominiums. Special status is being afforded to two different classifications, “bulk assignees” and “bulk buyers” of units. Both types are purchasers of multiple units (more than seven) and which classification will depend upon whether or not the purchase is without an assignment of developer rights other than to conduct sales, leasing and marketing activity and a few other entitlements. By this special status, the bulk buyer will not be considered a successor developer for the purpose of taking on the liabilities of the original developer for warranties for construction defects, funding, financial reporting issues and other such claims. The bulk buyer will be exempt from paying working capital contributions in connection with the bulk purchase and be exempt from the right of first refusal in the documents. This special status will apply to qualified purchasers through July 1, 2012 (unless extended by the Legislature in a later session). Specific filing requirements with the Division are also included for such a purchaser.
We understand that there are numerous and significant changes made for 2010 and that the synopsis set forth herein is to simply provide an overview of the changes that most appreciably affect association operations. If you have further questions regarding any of the new provisions, please contact this office.
