What are the changes made to the condominium association laws and when did they go into effect?

Q: What are the changes made to the condominium association laws and when did they go into effect?

A: Kaye & Bender, P.L. provided a report to its clients notifying them of the legislative changes.  The Legislative Session for 2008 produced significant changes to the Condominium Act (Chapter 718 F.S.).  Portions of the act went into effect July 1, 2008 and the remainder was effective on October 1, 2008.  The following is a summary of these changes 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 the changes nor is it to be considered complete legal advice on the subject,” said Michael Bender of Kaye & Bender.  It is recommended that if you have any further questions regarding any of these changes, you contact an attorney at Kaye & Bender for further discussion.

EFFECTIVE JULY 1, 2008

House Bill #601 was approved by Governor Crist on June 30, 2008 and contains numerous revisions.  Section 718.111(11), dealing with insurance, has again been substantially revised by this particular Bill, deleting the previous provisions and replacing them with the new insurance scheme.  Adequate hazard insurance is required and defined to be the replacement cost as determined by an independent insurance appraisal (or update) on the building(s).  The replacement values are required to be determined at least once every 36 months.  Self insurance and pooling of at least 3 communities with specified minimum coverages is authorized, subject to the prior approval of the Office of Insurance Regulation.  Developer-controlled associations must also have adequate hazard insurance.

In the new subsection (c), deductibles under the insurance policy are to be determined by the Board, but subject to the statutory standards.  They must be consistent with “community standards”, but may be based upon available funds, including reserves, or pre-determined assessments.  The Statute now requires the board to set the level of deductible at a duly-noticed meeting, with the specifics of that issue indicated on the notice.  This may be done in conjunction with the budget meeting.

The new subsection (f) provides that for policies as of January 1, 2009, the association is to provide primary coverage for (1) all portions of the condominium property as originally installed or replacement of like kind and quality; and, (2) all alterations or additions made to the property pursuant to Section 718.113(2)F.S.  Expressly excluded from such coverage is all personal property within the unit or limited common elements; floor, wall and ceiling coverings; electrical fixtures; appliances; water heaters; water filters; built-in cabinets and countertops; and, window treatments, including curtains, drapes, blinds, hardware and similar window treatment components.  These exclusions also apply to replacements of any of the foregoing.

The new subsection (g) requires individual unit policies that are placed after January 1, 2009, to be excess coverage and must include special assessment coverage of no less than $2,000 per occurrence.  Improvements that do not benefit all are to be insured by the benefitted unit owner or by the association at the cost of the benefitted unit owner.  Proof of coverage can be required annually by the association and, if not provided, acquired by the association for the benefit of the unit owner.  Most importantly, all reconstruction work after a casualty loss is to be undertaken by the association.  If the unit owner is to undertake any of the reconstruction work, it is to be only with the prior approval of the board.  However, the unit owner is responsible for the reconstruction of the portion of the condominium that the unit owner insures.  For multi-condominium associations, they may consolidate their insurance requirements by a majority vote of the collective owners.

The new subsection (h) addresses fidelity coverage.  All persons who control or disburse funds of the association must be included, to the maximum amount of funds that will be in the custody of the association or management at any one time.

The new subsection (I) allows associations to amend their documents to incorporate these changes without concern for mortgagee approval.

The new subsection (j) further provides for the reconstruction efforts of the association to be a common expense.  All hazard insurance deductibles, uninsured losses and other damages in excess of coverage are also considered common expenses of the association.  The exceptions to this provision are that the unit owner is responsible when there is no insurance proceeds and the damage is caused by intentional conduct, negligence or failure to comply with the governing documents.  The association is also not obligated to pay for repair or reconstruction of casualty losses as a common expense if the casualty losses were known or should have been known to a unit owner and were not reported to the association until after the insurance claim is settled.

The new subsection (k) allows associations to opt out of the provisions of subsection (j) (requiring the association to reconstruct as common expense, including deductibles), and to allocate the expenses in the manner indicated in the declaration, if approved by a majority of the total voting interests of the association.  No mortgagee consent is required. Subsection (m) requires the decision to opt out be recorded in the Public Records.  If an association decides to opt out, that decision can be reversed by the same voting requirement.

The new subsection (n) provides an additional exception to what the association is required to pay for reconstruction or repair.  These would be improvements installed by the current or former owner or developer, if the improvement benefits only the unit for which it is installed and is not part of the standard improvements installed by the developer on all units as part of the original construction.

The new subsection (o) provides that these insurance changes do not apply to timeshare condominiums.

Section 718.115 has been revised to provide that common expenses are expanded to include any items or services required by any federal, state or local governmental entity to be installed, maintained or supplied to the condominium.  Examples are fire safety equipment or water and sewer service where the master meter serves the condominium.

Section 718.116(8) has been revised to add the phrase “designee to the unit owner or mortgagee” as individuals who may request estoppel certificates.  A new subsection (d) has been added, requiring the authority to charge a fee for the estoppel certificate to be contained in a written resolution or by a written management, bookkeeping or maintenance contract.  The fee for the preparation is required to be set forth in the estoppel certificate as well.  Under certain conditions, the fee may be required to be refunded and then assessed to the selling unit owner.

Under this Bill, the name of the Division has been changed in a number of places, to the Division of Condominiums, Time Shares and Mobile Homes.  It is no longer the Division of Land Sales, Condominiums and Mobile Homes.  Section 718.501 has been revised to provide additional authority to the Division in its investigation and enforcement efforts.

House Bill #697 includes a provision that adds a new subsection (6) to Section 718.113, indicating that the board may install energy-efficient devices, such as solar collectors on the common elements, without the requirement to seek the approval of unit owners.  It also revised Section 163.04 to clarify the entitlement of a unit owner to install solar collectors or other energy devices and the ability of the association to approve the location of such devices.

House Bill #1105 was passed this year, which made pertinent changes to Chapter 718 relating to the manner in which the unit owners would go about obtaining the appointment of a Receiver in the event there was no active board in place.  Section 718.1124 has been substantially revised, creating new subsections.  Prior to any action being taken, any member of the association is to give notice to the community of his or her intent to apply for the receivership and the Statute contains the specific notice that is to be sent.  The notice is required to be sent to all owners by certified mail and be posted in the community at least 30 days prior to filing a petition seeking receivership.  The association has the 30 day time period to fill the vacancies on the board.  Thereafter, the court may make the appointment and the association is responsible to pay a salary to the receiver, as well as court costs and attorney’s fees.  Section 718.117 has been revised for receiver requirements in the event of a natural disaster, requiring the receiver to provide notice to all unit owners of the appointment within 10 days.  A new Section 718.127 provides for the obligation of the Receiver to notify the individual members of the Association of his or her appointment.  This notice is required to be sent within 10 days of the appointment.

This Bill also includes a revision to Section 718.121, adding subsection (4), that is technically out of place in the Statutes.  This provision belongs in Section 718.116, as it relates to collection practices of condominium associations.  Under this new provision, condominium associations must now provide a 30-day written notice to any delinquent unit owner, by certified and regular mail, before a lien may be placed against the unit.  Specific mailing requirements are included in this provision.

EFFECTIVE OCTOBER 1, 2008

House Bill #995, which was approved by the Governor in May, is not effective until October 1.  The changes contained in this Bill are equally as extensive as those discussed above.  Although they are not yet effective, we are including the summary of these changes so that you will be familiar with them well in advance of their application to your operation.

Section 718.111(1)(b) has been revised to provide that if a director is present at a meeting but abstains from voting, it is presumed that the director has taken no position with regard to the action at issue.  A new subsection (d) has been added, which provides for definition of director responsibilities in performing fiduciary obligations, as well as a clearer definition of what could constitute personal liability for improper conduct.  There is a specific reference to Sections 617.0830 and 617.0834, which were already applicable but are now reiterated.

Section 718.111(12)(a)11 has been revised to add a provision of personal liability for any individual who knowingly or intentionally defaces or destroys accounting records or who knowingly or intentionally fails to create or maintain accounting records required to be maintained by an association.

Section 718.111(12)(a)16 is new, adding to the Official Records of the Association a copy of the inspection report now required to be obtained pursuant to Section 718.301(4)(p), which is further discussed below.

Section 718.111(12)(b) has been revised relative to Official Records.  All of the Official Records (other than the election materials) are required to be kept for a period of seven (7) years.  They must now be made available for inspection within 45 miles of the condominium property, or within the county in which the property is located.  (The location provision does not apply to timeshares.)  Associations may comply with a record inspection request by providing the records electronically via the internet or on a computer screen, printed upon request.

Section 718.111(12)(c) has included a provision which repeats what has been added to Section 718.111(12)(a)11, identified above, placing civil penalties on anyone who knowingly or intentionally defaces or destroys accounting records or who knowingly or intentionally fails to create or maintain accounting records required to be maintained by an association.

Section 718.111(12)(c) has also been revised to add a new subsection (4), which provides for additional exceptions to what is to be made available as part of the Official Records for inspection and copying.  These new exceptions are: social security numbers; drivers license numbers, credit card numbers and other personal identifying information on any person.

Section 718.111(13) has been revised to require the Division to include in its rules adjusted financial reporting requirements.  Under this change, the rules should provide for uniform accounting principles and standards for stating the disclosure of at least a summary of reserves including information as to whether they are sufficient to prevent the need for a special assessment and, if not, the amount of assessments needed to bring reserves up to such a level to avoid a special assessment.  The person preparing the report is entitled to rely upon the inspection reports discussed elsewhere in this memo.

Section 718.111(13)(d) has been revised relative to the waiver of financial reporting requirements.  Under these changes, such waivers may cover two (2) years (this year and next), but cannot be waived for more than three (3) consecutive years.  Developers are required to pay for financial reports prior to turnover.

Section 718.112(2)(b)2 has been revised to prohibit associations from voting the units it owns for any purposes (including quorum).

Section 718.112(2)(c) has been revised to require the board to include on its meeting agenda an item that has been requested upon a petition submitted by at least 20% of the voting interests of the association.  This requires the item to be considered at the next regular or special meeting of the board, but not more than 60 days following the receipt of the petition.  However, there is no requirement that the board act on the item requested in the petition.  Meeting notice requirements have also been clarified relative to special assessments and, when appropriate, the notice will also have to include estimated costs and description of purpose.

Section 718.112(2)(d) has been revised for the annual meeting requirements, indicating that it is to be held at the location set forth in the bylaws.  If the bylaws are silent on this issue, then it must be within 45 miles of the condominium.  These restrictions do not apply to timeshare condominiums.

The election provisions also have been changed to provide that if no individual submits themselves into candidacy to run for the board by the deadline date, the current sitting board automatically rolls over for another term of service.  For condominiums of more than ten (10) units, the Statute has been revised to prohibit service on the board by co-owners at the same time.  Staggering of terms is limited to no more than two (2) years.  The Statute requires the staggering to be contained in the bylaws and to receive the approval of a majority of the total voting interests (even if the bylaws already have such a provision).  The Statute has also been amended to provide for clarification on eligibility requirements to serve on the board for certain individuals.

A significant change for newly elected boards is the requirement of the submission of a certification form.  This form is to be created by the Division and is to provide that a proposed candidate for the board has read and understands, to the best of his or her ability, the governing documents of the association and the provisions of Chapter 718 of Florida Statutes and any applicable rules.  However, there is no indication of any negative affect if this form is not submitted.  Associations operating 10 or fewer units may opt out of the election procedures set forth in the Statute.

Section 718.112(2)(f) regarding the annual budget adoption process has been revised as it relates to the waiver of reserves.  For future votes, the proxy form used must contain a specific disclaimer regarding the affects of waiving reserves and/or using reserves for alternate purposes.

A new Section 718.112(2)(n) has been added to the Statute.  This provision indicates that any director who is 90 days delinquent in assessments is deemed to have abandoned his or her seat on the board.  There is also a new Section 718.112(2)(o), which provides that a director or officer that is charged with a felony theft or embezzlement offense involving association funds or property shall be removed from office.  That seat is considered vacant, to be filled according to law.  While that individual has such criminal charge pending, he or she may not be appointed or elected to a position as director or officer.  If the charge is resolved without a finding of guilt, the director or officer shall be reinstated for the remainder of his or her term of office, if any.  As indicated, this provision does not contemplate a finding of guilt, only a charge of the crime.  It requires the removal of the individual from whatever seat is involved for the duration of the process.  If the association fills the vacancy, that seat may be subject to having to allow the removed individual retake the seat if the charges are resolved.

Section 718.1124 has been revised regarding the appointment of a receiver.  These changes are the same as those indicated in House Bill 1105 discussed above.

Section 718.113 has been revised regarding hurricane protection, which goes beyond just shutters, as it was previously.  Impact resistant glass now clearly comes within the provisions of the Statute.  The revisions attempt to further clarify the maintenance responsibilities between the association and unit owners for such hurricane protection items.  This revision further indicates that it was intended to clarify existing law, not revise it.

A new subsection 718.113(6) has been added, requiring boards of condominiums greater than three (3) stories in height, at least every five (5) years, and within five (5) years if not available for inspection on October 1, 2008, to have the building inspected to provide a report under seal of an architect or engineer authorized to practice in Florida, attesting to required maintenance, useful life and replacement costs of the common elements.  This requirement may be waived upon a vote of a majority of the voting interests present at a properly called meeting of the association.  The meeting must occur prior to the end of the 5-year period and only applies to that 5-year period.

A new subsection 718.113(7) has been added, requiring the approval of a request of a unit owner to attach on the mantle or frame of the door of the unit a religious object not to exceed 3 inches wide, 6 inches high and 1.5 inches deep.

Section 718.115 has been revised regarding hurricane protection in a manner that is much the same as Section 718.113 as it relates to the apportionment of maintenance and installation costs between the association and unit owners.

Section 718.117 has been revised in the identical fashion as in House Bill #1105, discussed above, relative to receiver notification to unit owners, if appointed.

Section 718.121 has had a new subsection (4) added, which is the same as that contained in House Bill #1105, discussed above, regarding the requirement to send a 30-day notice to a delinquent unit owner before a lien can be filed.

A new Section 718.1224 has been added, which is a prohibition against “SLAPP suits”.  A “SLAPP suit” stands for “strategic lawsuits against public participation.”  The intent is to prohibit an association from bringing a law suit against a unit owner that complains in a public way about the association.  The specific language of the Statute refers to law suits relative to a unit owner exercising the right to instruct his or her representatives or the right to petition for redress of grievances before the various governmental entities of this state.  In all likelihood, this would apply to instances when the association is dealing with what it considers to be frivolous complaints to the Division, which are now further protected.

Section 718.1265 has been added to the Statute, which contains Association emergency powers.  These will apply in response to damage caused by an event for which a state of emergency is declared pursuant to Section 252.36 of Florida Statutes in the locale that the condominium is situated.  Among the emergency powers that are contained in the Statute are: conduct board and/or membership meetings, with notice given, as practicable  (alternative means of notice are provided which are not typical);  cancel and reschedule any association meeting; name assistant officers persons who are not directors; relocate principle office; enter into agreements with local governments; implement a disaster plan; determine portions of the property to be unavailable to the unit owners; require evacuation, with immunity from liability from those who do not leave; determine when property can be safely inhabited or occupied; mitigate further damage; contract, on behalf of any unit owner or owners, for items or services for which owners are otherwise individually responsible, but which are necessary to prevent further damage.  The unit owner must reimburse the association as an assessment; levy assessments; without owner approval, borrow money and pledge association assets to fund emergency repairs and carry out duties.  The emergency powers are limited to the time reasonably necessary to protect the health, safety and welfare of the condominium.

Section 718.127 has been revised in the same fashion as House Bill #1105, discussed above, relative to receivership notification.

Section 718.301 has been revised to add certain situations when the transition of control from the developer can be compelled.  Section 718.301(4)(p) has been added, which identifies an inspection report required to be prepared and delivered by the developer upon turnover of control.

Section 718.3025 has been revised regarding contracts, adding a new subsection (f), which requires disclosure in a contract with the association, of any financial or ownership interest a board member or any party providing maintenance or management services to the association holds with the contracting party.

Section 718.3026 has been revised to limit those condominiums which may opt out of the bidding process to only those with 10 or fewer units (it deleted the reference of less than 100 units).  The provisions of subsection (2)(a) have been deleted and replaced with a new subsection (3), that provides for contracts or other transactions between an association and one or more of its directors or any other corporation, firm, association, or entity in which one or more of its directors are financially interested.  Among the requirements are appropriate disclosure, super-majority approval of the board (2/3rds of directors present), and disclosure to membership at the next regular or special membership meeting.  At the membership meeting, upon motion of any member, the contract or transaction is to be brought up for vote and may be canceled by a majority vote of the members present.

Section 718.303(3) has been revised to clarify that a fining committee is to consist of unit owners who are neither board members nor persons residing in a board member’s household.

Section 718.501 has been revised regarding the authority of the Division to investigate certain types of complaints.  For post-turnover condominiums, the jurisdiction is limited to investigate complaints related to financial issues, elections and unit owner access to association records.

A new subsection 718.501(1)(d)7 has been added relative to a record inspection request.  If a unit owner presents the Division with proof that a request for access to the Official Records was presented by certified mail, and that after 10 days the unit owner made the same request for access to the records in writing by certified mail, and that more than 10 days elapsed since the second request without the association granting such access, the Division shall issue a subpoena requiring the productions of the records at the location where the records are kept.

A new subsection 718.501(1)(n) has been added, under which directors, officers, employees, developers, community association managers, and community association management firms have imposed upon them all an “ongoing duty” to reasonably cooperate with the Division in any investigation within its jurisdiction.  The Division is empowered to refer to local law enforcement authorities any person whom the Division believes has altered, destroyed, concealed, or removed any record, document, or thing required to be kept or maintained by Statute with the purpose to impair its verity or availability in the investigation.

Section 718.5012 was revised relative to the Ombudsman, adding a new subsection (9) to the powers and duties.  Under this provision, the Ombudsman powers and duties also include assisting with the resolution of disputes between unit  owners and the association or between unit owners when the dispute is not within the jurisdiction of the Division to resolve.

Section 718.50151 has been revised to eliminate the Advisory Council and replace it with a “Community Association Living Study Council”.  This Council is to be created on October 1, 2008 for a six month term, and thereafter every 5 years.  It’s mandate has been expanded beyond condominiums, to include cooperatives and homeowners associations.

Section 718.503(2) has revised the nondeveloper disclosure requirements to be given to any prospective purchaser, after January 1, 2009.  The Division is required to create a “governance form” that will be required to be delivered by a perspective seller.