Tuesday, May 30, 2017

2017 Legislative Update


What's the deal with HB1237/SB1682?

“No man's life, liberty, or property are safe while the legislature is in session.”Gideon J. Tucker

With the Florida legislative session coming to an end on Monday, it’s time to start looking at some of the actions taken that will affect community associations. I’m already getting questions about HB1237/SB1246 and the potential criminal penalties now associated with being a condominium association director. To put it bluntly, this is not good legislation. This law comes straight out of south Florida and reaffirms why its so important for our north Florida interests to be represented in Tallahassee. With that said, the bill is set to be signed into law by Governor Scott and will in all likelihood become effective July 1, 2017. Here’s a quick guide to the bill.  Below is a summary version and further below is a more detailed analysis. 

Summary
  • Strikes the 50 unit minimum for condo association financial reporting requirements. Now the reporting requirement is strictly based on the association’s total annual revenue. The revenue numbers did not change.
  • Creates new section that requires every association with 150 or more units to establish and maintain a website containing certain Association records accessible only to current owners and Association employees by July 1, 2018.
  • Expands the conflicts of interest provisions for directors.
  • Prohibits Association for hiring law firm that represents the management company.  
  • Criminalizes directors getting “kickbacks,” committing theft or embezzlement of Association funds, or destroying official Association records.
  • Narrows the Association’s right to suspend delinquent owners from voting. Now an owner must be 90 days delinquent AND owe more than $1,000 before the Association may suspend their voting rights.
  • Limits the terms a Board Member may serve to no more than four consecutive two-year terms, unless approved by a 2/3 affirmative vote of the total voting interests of Association, or if there are not enough eligible candidates to fill vacancies on the Board. 
  • Changes the recall procedure.
  • Prohibits condominiums using debit cards.
  • Expands the pool of DBPR Artibrators into currently practicing attorneys who meet certain qualifications.  
  • Important note – these changes ONLY apply to condominiums. This bill did not change the law for HOAs. None of these changes apply to HOAs.
More information and analysis on these items is below.

History
These changes were strongly supported by condo owners in areas like Miami-Dade County, where electoral fraud within condominium associations runs rampant. To date, few prosecutors have pursued such charges of fraud against these Associations because Chapter 718 does not currently provide for explicit criminal penalties.

The language of SB 1246 makes very clear that Association board members, officers and directors who violate their duties to the Association could face serious criminal penalties, up to and including felony charges. It is important to note that these changes, which will go into effect on July 1, 2017, will only affect condominium associations, despite rumors circulating that the same criminal penalties may be applied to homeowners’ associations. Nonetheless, the bill represents a trend toward greater owner protections and harsher penalties for failings of the administration in Florida’s governed communities.

In addition to giving teeth to Chapter 718, the bill also creates additional reporting obligations for many condominium associations that were hitherto exempt, either as a result of their size or annual revenue. Associations must ensure they understand the new requirements or risk serious legal consequences. The following is a more detailed overview of the changes you will need to understand to ensure your Association continues to abide by the rules going forward:

Important Pending Changes to Florida Condominium Law: 

Criminal Penalties For Violations Of Chapter 718
  • The following violations of Chapter 718 now carry explicit criminal penalties, up to and including felony charges for the following acts:
    • An officer, director or manager accepting, offering to accept, or soliciting any thing or service of value (in addition to “kickbacks,” which are a new addition to the language of 718.111);
    • Forgery of a ballot envelope or voting certificate (pursuant to F.S. section 831.01);
    • Theft or embezzlement of Association funds (pursuant to F.S. section 812.014);
    • Destruction of official Association records (pursuant to either F.S. section 918.13 – tampering with evidence, or F.S. section 843.02 - obstruction of justice).
  • Any officer or director charged with any of these crimes must be removed from office and may not be appointed or elected to serve elsewhere, and may not have access to official Association records, unless and until the charges have been resolved without a finding of guilt, in which case they MUST be reinstated for the remainder of their term of office.

Authors note – believe it or not, it’s always been criminal to steal money from the Association! In our area, we don’t see much election fraud or kickbacks, but this law reiterates the importance of not doing those things. For 99.99% of the local communities this will have no practical impact, except for certain owners trying to throw around these allegations against serving directors. My suggestion is to be mindful of it but understand that unless there are some serious misdeeds going on, this likely will not impact your community. 

Heightened Financial Reporting Requirements
  • Every Association with 50 or more units, (*regardless of annual revenue), must now abide by the financial reporting requirements contained in section 718.11.
    • Associations with less than 50 units are required to prepare a financial statement based on total annual revenues (a report of cash receipts and expenditures is not sufficient).
  • Section 718.71 requires that an Association shall provide an annual report to the department containing the names of ALL of the financial institutions at which the Association maintains an account.
    • A copy of such report may be obtained from the department upon the written request of any Association Member.

Author’s Note – if you are part of a condo with less than 50 units, this will most likely impact you. In you are in that situation, I would make sure to budget money for whatever financial report you will need to have prepared. I think this is likely a good change (and it makes the CPAs happy). Also, make sure that you report all of your banking relationships to DBPR when the time comes. I will keep you posted when the means for doing that becomes available. 

New Association Website Requirements
  • Every Association with 150 or more units is required to establish and maintain a website with a password-protected subpage accessible only to current owners and Association employees by July 1, 2018.
  • The following documents must be posted and available for review by any owner on the password-protected section of the website:
    • All governing documents, as recorded, including the Declaration, By-laws, and Articles of Incorporation;
    • Association Rules and Regulations;
    • Annual and proposed budget;
    • Financial reports as required by section 718.11;
    • ANY management agreement, lease, or contract to which the Association is a party, or under which an obligation or responsibility is created for either the Association or its owners;
    • ALL contracts or transactions between the Association and any director, officer, corporate entity, firm, or Association that is not affiliated with the Association, or with any other entity in which an Association director is also a director or an officer with financial interests;
    • ANY contract or document regarding an actual or possible conflict of interest, as defined by the newly drafted section 718.3027.
      • *It is important to note that, although it is Association’s responsibility to comply with these posting requirements, the Association is also legally required to redact any protected or restricted information contained therein prior to posting these documents.
  • Notices and agendas of meeting must also be posted on the website pursuant to the requirements of Chapter 718, either on the website front page or under conspicuously labeled ‘Notices’ subpage.
    • All notices and agendas of owner meetings (at least 14 days before meeting).   
      • Any document to be considered and voted on at owners meeting must be posted no less than seven (7) days before the meeting.
    • Notice of any Board meeting as required pursuant to section 718.112.
Author’s note – Again, unless your community has at least 150 units, this will not affect you. I think this is generally a good idea. More and more management companies and third parties are providing this service. 

Expansive Definition Of Conflicts Of Interest
  • An Association may not hire an attorney who represents the management company of the Association.
  • An Association, (which is not a timeshare condominium 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 a close relative thereof (unless they own less than 1 percent of the equity shares).
    • A Board Member, manager, or management company may not purchase a unit at a foreclosure sale resulting from the Association’s foreclosure of its lien for unpaid assessments or take title by deed in lieu of foreclosure.
    • A party contracting to provide maintenance or management services to an Association after transfer of control of the Association, (which is not a timeshare condominium Association), or an officer or Board Member of such party, may not purchase a unit at a foreclosure sale resulting from the Association’s foreclosure of its lien for unpaid assessments or take title by deed in lieu of foreclosure.
  • If 50 percent or more of the units in the condominium are owned by a party contracting to provide maintenance or management services to an Association managing a residential condominium after transfer of control of the Association, (which is not a timeshare condominium Association), or by an officer or Board Member of such party, such contract may be cancelled by a majority vote of the unit owners other than the contracting party or an officer or Board Member of such party.
  • The new definition of conflicts of interest contained in section 718.3027 creates a rebuttable presumption of a conflict of interest in the following scenarios:
    • Any director, officer, or close relative thereof enters into a contract for goods or services with Association.
    • Any director, officer, or close relative thereof holds interests in a corporate entity that conducts business with Association or proposes to conduct such business.
  • However, a proposed activity defined as conflict of interest pursuant to section 718.3027 may be voted on and approved by the Board.
    • The proposed activity and all related contracts and transactional docs must be attached to the meeting agenda and voted on by Board at a duly noticed meeting.
    • The party seeking to engage in the activity may attend Board meeting and give a presentation prior to vote, but must be recused from the discussion and ultimate vote, along with any other director or officer who is a party to or has an interest in proposed activity.
      • If Board votes against the proposed activity, the party seeking to engage in it must notify Board in writing of his or her intention not to pursue it further or withdraw from office.
        • Violations of this subsection will result in removal.
  • Any contract entered into by director, officer, or relative thereof that has not been properly disclosed as a conflict of interest is voidable upon notice of at least a 20 percent vote of the total voting interests of Association to void such contract.

Author’s Note – the main take away is that it will be difficult for condo associations to enter into service agreements with companies related to a director. 

Expansion Of Right To Inspect
  • Right to inspect official Association records is extended to ‘authorized representative’ of owners.
    • Bids for materials, equipment or services are an official record.
  • Renters are granted the specific right to inspect and copy the Association’s By-laws and Rules, regardless of whether or not they are the authorized representative of the Member from whom they rent.

Author’s Note – most Associations are already keeping bids are part of the official records. If you’re not, you should start doing so. Giving access to certain records for renters is fine. Always keep in mind though that these inspections are subject to the “reasonable rules and restrictions” of the Association. So, if it becomes a problem, you can create rules limited the duration, frequency, form, etc. of the requests. 

Narrowing Of Association’s Right To Suspend Owner Voting Rights
  • An owner must be 90 days delinquent AND owe more than $1,000 before the Association may suspend their voting rights.
  • Voting rights may not be suspended without at least 30 days notice and proof to the owner of the delinquency.

Limitations On Board Member Terms
  • Board Members may not serve more than four consecutive two-year terms, unless approved by a 2/3 affirmative vote of the total voting interests of Association, or if there are not enough eligible candidates to fill vacancies on the Board.  

Author’s Note – This is not a great change in my opinion. Our area already has trouble getting enough people to serve and this requires those with the more institutional knowledge to leave the board after 8 years. 

Removal of Board Recall Certification
  • The specific requirement that the Board must certify a recall has been removed from Chapter 718, although specific procedure must still be followed when a recall takes place.
  • It imperative that any Board faced with a recall immediately retain legal counsel, as the proposed changes to the process are a source of great confusion. While the liability and legal remedies available to recalled Board Members under the new laws remain unclear, but the Board is nonetheless obligated to take certain immediate steps when notified of a recall.   
    • Under the amended statutes, a recall approved by a majority of all voting interests, (by vote at a meeting or in writing), is now sufficient to recall a Board Member effective immediately.
    • After an effective recall, the period of time within which recalled Board Members must turn over to the Board any and all records and property of the Association in their possession has been extended from five (5) to ten (10) full business days from the date of the recall.
  • Although the Board is still required to hold a meeting within five (5) full business days after receipt of a written recall agreement or after adjournment of a recall meeting, the purpose of such meeting is unclear now that Board certification is no longer required. Owners are nonetheless empowered to file a petition pursuant to section 718.1255 challenging the Board’s failure to act if such meeting is not duly noticed and held within the required time period, making it very important that the Board meet with its legal counsel as soon as as possible after notice of a recall.
    • Despite the elimination of the Board’s power to certify a recall, a recalled Board Member may still challenge the validity of a recall by filing a petition pursuant to section 718.1255.

Author’s Note – there are few times when I say you must call your attorney, but when you get a recall petition, it’s one of those times. This change takes a poorly drafted law and makes it worse.  Do not try to figure it out, just know that any signs of recall equals a call to your attorney.  

Association Debit Card Use
  • The use of a debit card either issued in the name of the Association or billed directly to the Association, for any expense that is not a lawful obligation of the Association may be prosecuted as credit card fraud pursuant to s. 817.61.
  • The 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.

Author’s Note – I believe credit cards are still ok, just not debit cards. 
Changes to Mandatory Pre-Litigation Arbitration
  • In addition to loosening of the requirements for arbitrator certification (which is valid for one year), the statute provides that the Division may, but is not required to employ arbitrators. If a certified arbitrator is not available within 50 miles of the dispute, the division may employ a qualified attorney to serve as arbitrator.
  • Hearings shall be conducted within 30 days of entering into a contract with arbitrator or upon assignment of an arbitrator.
  • Decisions must be rendered by arbitrator within 30 days of hearing.

Author’s Note – this is secretly one of the more troubling aspect of this bill. The DBPR arbitration decisions are not always consistent and don’t always follow the law. I don’t think expanding the pool of arbitrators into practicing attorneys is going to help that. I think this will add more uncertainty to the arbitration process and in the meantime will likely lead to some conflicting decisions.