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Appellate Court Decision Results In The Need For Added Vigilance By Condominiums Undertaking Construction Projects

Legal Morsels | by Robert Kaye, Esq., B.C.S.

It is not unusual for the board of directors of a condominium association to take on construction projects within the condominium.  Many such projects involve updating and redecorating the common elements.  Quite often, projects can include necessary repairs or maintenance-related components along with material alterations or substantial additions to the common elements.  For such material alterations to the common elements, Section 718.113 of Florida Statutes has long contained a limitation on the ability to make these types of changes as either being in accordance with the requirements of the declaration of condominium or, if the declaration has no provision, then by a vote of not less than 75% of the eligible voting interests.  In a recent decision of the Florida Third District Court of Appeal, in Evelyn A. Bailey and Robert Farnik v. Shelborne Ocean Beach Hotel Condominium Association, Inc., Case Nos. 3D17–559 & 3D17-0767, July 15, 2020, the Court reviewed the actions taken by the Board of Directors of Shelborne Ocean Beach Hotel Condominium Association, Inc. (the “Association”) in extensive construction projects costing in excess of $30 million.  In reporting its decision, the Court has either inadvertently or intentionally created an issue of which condominium boards now need to be very familiar so as not to be negatively impacted after significant expenditures have been made on  construction projects.

In Shelborne, the Association had undertaken two rounds of construction projects, starting initially in 2010 and a second phase that began in 2013.  During the project, significant construction defect issues were discovered which not only added to the project, but also caused the condominium to be completely closed from July 2013 through September 2014.  The initial project and special assessments were approved by only the Board.  Subsequently, in 2014 and 2016, after the project was completed, over 75% of the unit owners voted to approve the material alteration part of the project.  Among the issues the Court addressed in Shelborne, was the timing of the approval by the unit owners to the material alterations.

In 2018, Section 718.113(2)(a) of Florida Statutes was amended to provide the following:

    Except as otherwise provided in this section, there shall be no material alteration or substantial additions to the common elements or to real property which is association property, except in a manner provided in the declaration as originally recorded or as amended under the procedures provided therein. If the declaration as originally recorded or as amended under the procedures provided therein does not specify the procedure for approval of material alterations or substantial additions, 75 percent of the total voting interests of the association must approve the alterations or additions before the material alterations or substantial additions are commenced. This paragraph is intended to clarify existing law and applies to associations existing on July 1, 2018. (emphasis added as the new language from 2018)

While the opinion in Shelborne does not specifically indicate whether the Declaration of Condominium contained a voting requirement for material alterations, the percentage of owners is the same as what the Statute indicates.  (We can only presume that the Declaration was silent and, if not, the issue may not have been raised by either party for the Court to consider.)  The Court determined that some of the items of construction did not have sufficient evidence in the trial record to determine whether the items were necessary maintenance and, therefore, concluded that a unit owner vote was necessary for those items.  The Court further found that since the unit owner approval did not occur before the material alterations or substantial additions were commenced, the Association was in violation of the Statute.  In that the construction was already completed and the owners have clearly approved it, this decision does not provide clear guidance as to what should then occur based upon this violation.

Normally, a statutory change in 2018 would not affect or be applicable to actions taken in 2014 and 2016.  However, by including the last sentence of the change to the Statute, it is considered to have been the intent of the Legislature that the Statute have retroactive application, meaning it applies to situations that pre-date the statutory change.

While the plain reading of the Statute leads to the conclusion that the requirement for the  approval of the owners to take place prior to the material alteration being commenced applies to those situations in which the declaration is silent on the issue, the Shelborne decision has clouded that issue by failing to mention that distinction.  Many declarations of condominium contain provisions that allow the board to make the determination to proceed with a material alteration or contains a triggering event, such as a minimum percent of the annual budget to be spent before the unit owner vote applies or a lower voting requirement of the unit owners then provided in the Statute.  As a result of this decision, it is likely that courts or administrative agencies will consider the requirement to obtain owner approval before the material alteration is commenced to apply to all material alterations requiring owner vote.

The key takeaway for board members of condominium associations in Florida is to have the declaration of condominium reviewed by its association counsel to make certain that the declaration clearly provides for the manner in which material alterations to the common elements are to be handled. It is likely that the vast majority do not currently specify the timing of the owner approval or contain an allowance for it to occur after the project has commenced.  Amendments to the declaration should be considered to provide clarity in the process for addressing material alterations or substantial additions to the common elements, including express authorization for the unit owner approval to occur subsequent to the commencement of the project.  Without such clarity in the declaration, the association can find itself facing the possibility of having to undue significant changes already made and paid for, and for the associated expenses.