2017 LEGISLATIVE UPDATE
This shall serve as Wasserstein, P.A.’s newsletter to our clients regarding recent legislative changes of which you should be aware. Please note that the following is only a summary of the key changes and updates that went into effect July 1, 2017 (along with some color commentary):
CONDOMINIUMS, COOPERATIVES and HOMEOWNERS ASSOCIATIONS:
Estoppel Letters: The time that a preparer has to issue an estoppel letter is now 10 business days (reduced from 15 calendar days) and the fee may not be charged if the estoppel letter is not timely provided. The estoppel letter fee charged by the preparer must be established either by board resolution or by contract, and the fee that a preparer may charge is now statutorily capped at $250, with an additional $100 that can be added if a rush 3 business day turnaround is requested, and another $150 that can be added if the account is delinquent. If a requesting party is seeking estoppel letters for more than one property in the same association, then there are further fee caps associated with that type of request. All statutory fees will be adjusted for inflation every 5 years. If an estoppel letter is requested in conjunction with a closing that ultimately does not occur, the requesting party shall be entitled to a refund of the estoppel fee so long as they request the refund in writing and do so within 30 days of the failed closing date. The refunded fee then becomes an unpaid assessment owed by the owner of the property. The estoppel letter that is ultimately provided must be drafted such that its content is valid for 30 days (if sent electronically to the requesting party) or 35 days (if sent by regular mail). The estoppel letter must now contain not only a breakdown of the debt owed, but it must also include “other information” such as:
· the existence of a capital contribution, resale fee, transfer fee or other fee due;
· the existence of any violations associated with the property;
· the association’s right to approve or disapprove of a transfer of the property;
· the existence of a right of first refusal;
· contact info for other associations of which the property is a member (sub-associations, master, recreational); and
· the contact info for all insurance maintained by the association.
The association must designate on its website a person or entity who is authorized to receive and process estoppel requests.
NOTE: The title agents and realtors had been lobbying for years for this legislation and 2017 was the year it finally passed. The legislature added significant content to the estoppel letters, and therefore, increased liability and exposure for preparers while simultaneously reducing turnaround time and capping fees. Ugh!
NOTE: Going forward please note that for estoppel letters requested in connection with our firm clients, we will be charging requesting parties the dollar amounts indicated by these new statutory provisions.
Fire Sprinklers and Engineer Life Safety Systems: This is the one section of this legislative update concerning legislation that was not passed. House Bill 653, which was vetoed by Governor Rick Scott, would have pushed back deadlines for retrofitting high rise residential condominiums with either fire sprinklers or an engineered life safety system (“ELSS”) from 2019 to 2022 and would have also allowed high rise condominiums to opt out of having to install an engineered life safety system. The reason this bill was important for high rise condominiums is that many voted last year to opt out of retrofitting their building(s) with fire sprinklers. However, in the absence of a fire sprinkler retrofit, high rise condominiums are required to alternatively install an ELSS, which could be just as costly, if not more costly than fire sprinklers. Since this legislation was vetoed, high rise residential condominiums cannot opt out of installing an ELSS and will instead need to focus on having their work completed by end of 2019.
NOTE: Governor Scott justified vetoing this bill based upon the recent fire at Grenfell Towner in London that killed dozens of people, along with a general goal of promoting and protecting life safety. While this reasoning is both admirable and understandable, the vetoing of this bill is going to result in sizable special assessments for high rise condominiums, which in turn will mean some unit owners, especially those on fixed incomes, will no longer be able to afford their home.
NOTE: If you manage or reside in a high rise condominium, please do note that per the current fire code, high rise residential condominiums are not required to retrofit the building(s) with fire sprinklers or an ELSS if all units have exits to an outdoor corridor. However, the fire code is always changing, as are local requirements, which may be more stringent, and if your condominium is a high rise it is HIGHLY recommended that you speak to your local/county fire marshal and/or a fire safety engineer to determine your condominium’s obligations.
Criminal Penalties: Forgery of a ballot envelope or voting certificate, theft or embezzlement of funds, and the destruction or refusing to allow inspection or copying of official records (in the furtherance of any crime) are now punishable as crimes. If charged with such a crime, a board member must be removed from office and the vacancy filled. If the charges are resolved without a finding of guilt, the board member must be reinstated for the remainder of their term, if any. Also, any officer, director or manager accepting “kickbacks” could face criminal penalties.
NOTE: It was already challenging enough to find volunteers willing to serve on condominium boards and then this legislation gets passed. Let’s take a thankless, unpaid position and make it even less appealing by adding potential criminal liability! Hooray! I can tell you that these penalties were advocated against due to the potential chilling impact they may have on the pool of willing volunteers, but nonetheless, a few horror stories, primarily out of Miami-Dade County, drove the legislation to pass. Board members beware!
NOTE: Managers and board members will want to consult with their association’s insurance agent to make sure that their directors and officers/errors and omissions coverage provides a defense not only for civil matters, but also for criminal charges that could be brought under these new statutory provisions.
Conflict of Interest (Attorney): An association cannot hire an attorney who represents the association’s management company.
NOTE: This is going to create unintended consequences as often times the management contract requires the association to indemnify and therefore, defend, the management company and property manager in lawsuits brought against them while working for the association. This legislation would seem to require that the same attorney could not represent both the association and the management company/manager in such actions.
Conflict of Interest (Service Providers): An association may not employ or contract with any service provider that is owned, or operated by a board member or with any person who has a financial relationship with a board member or officer or relative with the third degree of blood or marriage of a board member or officer. This does not apply if the officer, director or relative owns less than 1% of the company.
Conflict of Interest (Directors): Directors, officers, and their relatives must disclose conflicts of interest. There is a rebuttable presumption that a conflict exists if a director, officer, or relative within the third degree of blood or marriage either enters into a contract with the association or holds an interest in company that conducts business with the association.
Purchase of Units: A board member, manager or management company cannot purchase a unit at the association’s lien foreclosure sale or accept a deed in lieu of foreclosure resulting from unpaid assessments (except in a timeshare condominium).
NOTE: Unfortunately, this was a well-intentioned but poorly executed provision of the legislation. It has a loophole the size of Lake Okeechobee as any individual (or company) who is now personally precluded from purchasing a unit in foreclosure can still very easily execute the purchase of the unit either in the name of a limited liability company or through a “strawman” who would only hold title temporarily and then deed it over to the individual. A for effort. F for effectiveness. Try again next year legislature!
Management: A party providing maintenance or management services to a residential condominium may not purchase a unit at the association’s lien foreclosure sale. If the maintenance or management company owns 50% or more of the units in a condominium, then a majority of the other unit owners can vote to cancel the contract.
Official Records (Bids): Bids for materials, equipment or services are to be kept as official records for 7 years.
Official Records (Access by Renters): A renter of a unit now has the right to inspect and copy the association’s bylaws and rules.
NOTE: The legislature missed the mark here almost entirely. The intention was obviously to allow renters to see exactly what restrictions they would be subject to as residents in the condominium and as most everyone (except the drafters of this legislation) knows, the key document in this regard is the declaration of condominium. I don’t believe that renters will care to look at the bylaws to see what constitutes a quorum for a membership meeting or how much notice needs to be given to have a special board meeting. Naturally, they would want to look at the declaration to see if they are allowed to have pets, if the association can tow improperly parked vehicles, the nuisance provisions, and the other use and occupancy covenants that may actually have an impact on their tenancy.
Financial Reporting: An association that operates fewer than 50 units must prepare a financial statement based on its total annual revenues and not just a report of cash receipts and expenditures.
Financial Reporting: An association shall provide an annual report to the Department of Business and Professional Regulation (the “DBPR”) containing the names of the financial institutions with which it maintains accounts and a copy of such report may be obtained from the DBPR upon written request of any association member.
Debit Cards: An association and its officers, directors, employees and agents may not use a debit card issued in the name of the association or billed directly to the association, for the payment of any association expense. Use of such a card for purposes other than legitimate association expenses may be deemed credit card fraud.
NOTE: The statute is silent on credit cards so for those associations that previously used a debit card for certain purchases, a credit card may be a viable way to go.
NOTE: As with the enactment of criminal penalties, it seems like this is another piece of this year’s legislation driven by a few bad apples. Even so, what is the message being sent here? That it’s not ok to use a debit card because it allows an authorized individual to spend money the association actually has in its bank account, but it’s perfectly fine for that same person to use a credit card and potentially incur charges for which the association may not have the funds to repay? Once again, a well-intentioned but poorly executed provision.
Website: By July 1, 2018, an association with 150 or more units must post digital copies of certain official records on its website (except in a timeshare condominium). The website must contain a section accessible only to unit owners and the association must provide a username and password upon request. Notices of unit owner meetings must also be posted on the first page.
NOTE: Hooray for forced technology!
Term Limits: A board member may not serve more than four consecutive 2 year terms unless approved of by 2/3 of the total voting interests or unless there are not enough eligible candidates to fill the vacancies.
NOTE: From the plain reading of this provision, it would seemingly not apply to board members serving 1 year terms so a board member who has served for 20 consecutive 1 year terms would be eligible to continue to serve in perpetuity whereas a board member serving 4 consecutive 2 year terms is limited. Also, there is uncertainty as to whether this legislation applies retroactively to prior service accrued before July 1, 2017 or if this is a going forward restriction that won’t need to be addressed until 8 years from now. Additionally, there is the argument that at the end of the 8th year (or really at any other time during their tenure) a board member could resign (and possibly even be re-appointed) and then contend that they did not serve 4 consecutive 2 year terms in full, thereby making them eligible to continue to serve. Finally, there is a question as to how the 2/3 voting exception would work. Would it have to be voted on before the election materials are sent out? Is it voted on by proxy or in person at a meeting of the membership, or by written consent, or is the individual permitted to appear on the ballot and if 2/3 of the owners cast votes for the individual then they can serve? Does the individual have to fund the voting effort to allow them to continue to serve or does the association pay for the mailings and other costs? Lots of questions that are sure to result in further disputes. Just what you wanted to hear, right?
Recalls: The board is still required to hold a meeting within 5 business days after receipt of a recall but is longer required to certify or not certify the recall.
NOTE: There are differing interpretations on what this change means. Some practitioners believe that the board is still permitted to file a recall arbitration petition with the DBPR when challenging a recall, some believe that the burden to file a recall arbitration petition with the DBPR falls on the owners voting for the recall, and others contend that the recall is automatically deemed effective and that the board members who were recalled would have to fund a recall arbitration petition with the DBPR themselves. Once again, lots of uncertainty over procedure that is sure to result in disputes. Fantastic.
Suspension of Voting Rights: Voting rights can now only be suspended if the unit owner owes the association more than $1,000 and the debt is unpaid for more than 90 days. Proof of the debt must be provided to the unit owner at least 30 days before the suspension can take effect.
NOTE: The statute allows for suspension of both voting rights and amenity access for delinquencies over 90 days past due. Interestingly, the legislature decided to only add these new requirements with regard to suspension of voting rights and not with regard to suspension of amenity access. Apparently, the legislature views an owner’s right to vote as more important to protect than their right to use the swimming pool, exercise facility or other amenities. While voting is definitely an important aspect of condominium living, in my experience unit owners are usually more concerned with losing their amenity access.
Receivers: A receiver may not exercise voting rights of any unit that is placed in receivership for the benefit of the association.
Ombudsman: The ombudsman has the express power to review secret ballots cast in a vote of the association.
Arbitration: Arbitrators must be attorneys licensed for at least 5 years and have mediated at least 10 disputes involving condominiums within the past 3 years, mediated at least 30 disputes of any nature in the last 3 years, or they must be board certified in real estate or condominium law. Arbitration certification is valid for 1 year. An arbitrator must conduct a hearing within 30 days of being assigned a case and arbitration decisions must be rendered within 30 days of the hearing. Failure to render the decision in 30 days can result in loss of certification.
NOTE: Wow, I actually like this one!
Termination: A termination must now be approved by the DBPR after it is approved by at least 80% of the unit owners. The DBPR must approve the plan of termination within 45 days of filing. The minimum percentage of owners needed to defeat a termination is now 5% (reduced from 10%). The ability to vote to terminate again after a failed vote is now 24 months (increased from 18 months). Any owner of homestead property objecting to a successful termination must now receive at least his or her purchase price regardless of party from whom the unit was purchased. The definition of "bulk owner" for which special disclosures are required is reduced to those owning 25 percent of the units (reduced from 50 percent of the units) thereby increasing the pool of parties needing to make such disclosures.
NOTE: Don’t terminate your condominium! What else am I going to do with my time?
Financial Reporting: The prohibition against waiving the financial reporting requirement for more than three years in a row has been eliminated and exception that cooperatives with fewer than 50 units are exempt from preparing a compilation, review or audit, regardless of revenues, has been removed.
Financial Reporting: The exception that associations with fewer than 50 lots are exempt from preparing a compilation, review or audit, regardless of revenues, has been removed.