Condominium and homeowners’ association officers and directors need to be careful when negotiating and entering into contracts with vendors such as construction contractors, interior decorators, architects etc. because if the association and the vendor are not on the same page (legally have a meeting of the minds), the contract can be nullified based upon what is called a unilateral mistake of one of the parties.

This unilateral mistake concept is well set out in a recent appellate case out of the east coast of Florida, DePrince v. Starboard Cruise Services Inc., Case No. 3D16-1149 (Fla. 3rd DCA, August 1, 2018). In this Case, a Thomas DePrince was on a cruise and visited the ship’s jewelry boutique and said that he was interested in purchasing a 15- to 20-carat loose diamond. He said he wanted an emerald cut, high quality, color D, E, or F diamond with a GIA certificate.

The sales associate at the boutique electronically mailed Mr. DePrince’s request to Starboard’s corporate office. An employee at the corporate office reached out to Starboard’s vendor in California, Sophia Fiori. The employee from Sophia Fiori, who had reservations because he did not believe a sale of this magnitude should take place aboard a ship, called a diamond broker in New York, Julius Klein, for its available inventory.

Two diamonds were selected from the inventory listing and the following information was emailed to the ship and the information was presented to Mr. DePrince, and his partner, Mr. Crawford.

“These prices are ship sailing prices based on the lowest tier diamond margin we have. Let me know if you have any questions. EC 20.64 D VVS2 GIA VG G NON selling price $235,000, EC 20.73 E VVS2 GIA EX EX FNT selling price $245,000.”

The Starboard’s corporate employee and the sales associate on board at the ship’s boutique had never sold a large loose diamond before and did not realize the quote price was per carat. Mr. Crawford, who was a certified gemologist, asked the opinion of DePrince’s sister, a graduate gemologist. She warned that something was not right because the price for a diamond of that size should be in the millions and recommended not buying the diamond (in this case the price should have been $4,850,400 for the diamond with the quoted selling price of $235,000).

Disregarding his sister’s advice, Mr. DePrince contracted to purchase the 20.64 carat diamond for the quoted $235,000 price and paid with his American Express credit card.

Shortly after the sale, Starboard discovered that the $235,000 price was per carat and immediately notified DePrince of the error and reversed the charges to his credit card. DePrince then sued to enforce the parties’ contract.

The trial court first ruled in favor of Starboard in Summary Judgment based upon Starboard’s defense of unilateral mistake. A panel of the 3rd DCA reversed in favor of DePrince. The case then went to trial and the jury found that Starboard should be excused from performing under the contract because it committed a unilateral mistake. On the second appeal, another panel of the 3rd DCA reversed again in favor of DePrince and so upon Starboard’s Motion for Rehearing En Banc the 3rd DCA revisited the facts and pertinent law.

The 3rd DCA sitting, En Banc looked to see if “inducement” is an element of a unilateral mistake as there had been conflicting cases – some saying yes and some saying no.

The 3rd DCA finally said that inducement is not an element of unilateral mistake. The Court held that: “A contract may be set aside on the basis of a unilateral mistake of material fact if: (1) the mistake was not the result of an inexcusable lack of due care; (2) denial of release from the contract would be inequitable; and (3) the other party to the contract has not so changed its position in reliance on the contract that rescission would be unconscionable.

The 3rd DCA said that the jury was properly instructed and that there was competent substantial evidence supporting the jury’s finding that all three (3) required elements for a unilateral mistake had been met. Starboard received incorrect information from its home office, which caused the company to quote a price that was a fraction of the company’s cost to purchase the diamond wholesale. The mistake was not “inexcusable” and DePrince did not detrimentally rely on the mistake such that it would be unconscionable to rescind the sales contract. Starboard won.

It is interesting to note that Mr. DePrince had been informed from his sister and his partner (who were gem experts) that something was wrong with the extremely low price for the diamond and that he never shared this knowledge with the sales associate on the ship but rather appeared to try to “get a steal” and quickly close the sale with his American Express. Courts do then take into consideration the apparent demeanor and intent of the parties which in this case finally resulted in a just outcome.

Unilateral mistake can sometimes come up in community association contracts, especially when the contract is based upon time and materials. An example would be when the association is looking for say a $100,000 social room redo and the architect and/or interior designer has in mind a $400,000 job. The contract based upon payment by the amount of time and materials chosen should state estimated maximums or not to go over a certain cap to prevent a unilateral mistake which could nullify the contract and leave either contract party in a place they did not contemplate being when entering into the contract or maybe even in a lawsuit.

Rob Samouce, a principal attorney in the Naples law firm of Samouce & Gal, P.A., concentrates his practice in the areas of community associations including condominium, cooperative and homeowners’ associations, real estate transactions, closings and related mortgage law, general business law, estate planning, construction defect litigation and general civil litigation. This column is not based on specific legal advice to anyone and is based on principles subject to change from time to time. Those persons interested in specific legal advice on topics discussed in this column should consult competent legal counsel.

There has been some very heavy Hurricane Irma cleanup and repair costs for many Southwest Florida condominiums and neighborhoods. Of course none of these unexpected costs were in the association’s budget for this year. So, how are associations going to pay the Irma damage and repair bills coming due?

There are basically three ways to pay these bills: Borrow from the bank, raise the regular assessments in the 2018 budget, or levy special assessments.

As most associations don’t want to pay bank interest unless necessary, and they also don’t want to raise regular assessments that much year to year, the most chosen method we are seeing associations using is levying special assessments.

After Hurricane Wilma in 2005, the state Legislature enacted broad emergency powers for association boards to use after hurricanes to address these types of issues. For condominium associations, it is Section 718.1256, Florida Statutes; and for homeowners associations, it is Section 720.316, Florida Statutes. The emergency language is almost identical for both types of associations.

Section 718.125(1)(l), Florida Statutes provides that: “To the extent allowed by law … in response to damage caused by an event for which a state of emergency is declared … in the locale in which the condominium is located, may, but is not required to, exercise the following powers: … (l) Regardless of any provision to the contrary and even if such authority does not specifically appear in the declaration of condominium, articles, or bylaws of the association, levy special assessments without a vote of the owners.”

Section 718.125(2), Florida Statutes goes on to provide that this power “shall be limited to that time … reasonably necessary to mitigate further damage and make emergency repairs.”

So association boards can levy such special assessments at a board meeting to cover the cleanup and repair costs from the hurricane.

For condominium unit owners that have unit insurance, this special assessment can be a bonus to them because under their regular HO-6 Unit Insurance Policy, they have $2,000 loss assessment coverage, which they can recover from their insurer less any applicable unit deductible. Usually, all the insurer requires to pay off such coverage is a copy of the association’s notice of the special assessment levied and maybe a copy of the minutes from the board meeting at which the assessment was levied.

Some unit owners may have purchased higher loss assessment coverage than the $2,000, and some homeowners may have purchased such coverage in their homeowner’s policy.

So if you get a special assessment for hurricane damage, check your unit or home policy to see if you can collect some or all of the special assessment from your unit or home insurance carrier.

Rob Samouce, a principal attorney in the Naples law firm of Samouce & Gal, P.A., concentrates his practice in the areas of community associations including condominium, cooperative and homeowners’ associations, real estate transactions, closings and related mortgage law, general business law, estate planning, construction defect litigation and general civil litigation. This column is not based on specific legal advice to anyone and is based on principles subject to change from time to time. Those persons interested in specific legal advice on topics discussed in this column should consult competent legal counsel.

Condominium and homeowners’ associations, that have been around for a while, usually at some point want to upgrade their common elements or common areas to stay up with the times.

That 90’s paint color scheme of the buildings is no longer in fashion, pavers are now preferred over asphalt in the parking and roadway areas, or that social room carpeting needs to go and be replaced with low maintenance tile. Such upgrades are considered material alterations under the law and may require a membership vote.

A material alteration is a change in the look or function of the item being upgraded. Typically, if you are changing out association “personal property” that is not attached to the “real property” land or building, you do not need a membership vote and just the board can decide. This would include changing out the chairs, table, lamps and ashtrays in a social room.

However, if you are changing part of the building (paint color-inside or out), or attached property such as carpeting, tile, window coverings or other attached fixtures, you made need a membership vote to do so.

In a homeowners’ association, the answer as to what vote is required to make a material alteration is usually pretty straight forward as its governing documents normally require only the board or architectural review committee (ARC) approval for such alterations.

However, determining whether a membership vote will be required in condominium associations can be more complicated. Section 718.113(2)(a) Florida Statutes provides that: “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 the material alterations or substantial additions, 75 percent of the total voting interests of the association must approve the alterations or additions.”

Many original developer-drafted documents are silent on this issue so 75 percent approval of the membership will be required. As this is a very high hurdle to obtain, many associations will amend their documents to require say 75 percent or 66 ⅔ percent of only those who vote will be required to approve material alterations and only for alterations over a certain dollar amount say $30,000 to $50,000. This allows the condominium board to approve less expensive alterations but will require the board to go to the members for proposed high dollar changes.

Some think that minor changes in paint color of buildings do not need a membership vote, but a court in Florida has held that even going from white to beige is considered a material alteration requiring in membership vote. There are some noted exceptions Florida courts have found that do not require a membership vote for material alterations.

These include alterations or modifications that are incidental to the repair, preservation or replacement of existing improvements, such as installing a new sea wall to protect the property or if an engineer finds the alteration is a better replacement for longevity and protection of the property, such as replacing river rock with tile, replacing asphalt with pavers or replacing real cedar shake roof shingles with faux shake shingles.

As you can see, there are nuances when it comes to which material alterations require membership votes and which do not. So, if you are not sure, you should check with legal counsel before entering into contracts for such alterations or upgrades to avoid running the risk of having to spend the same amount of money twice to convert the material alteration back to the old look if you are successfully challenged for not obtaining a membership vote first when you should have.

Rob Samouce, a principal attorney in the Naples law firm of Samouce & Gal, P.A., concentrates his practice in the areas of community associations including condominium, cooperative and homeowners’ associations, real estate transactions, closings and related mortgage law, general business law, estate planning, construction defect litigation and general civil litigation. This column is not based on specific legal advice to anyone and is based on principles subject to change from time to time. Those persons interested in specific legal advice on topics discussed in this column should consult competent legal counsel.

Last year the Florida Legislature was silent when it came to passing any laws affecting community associations. Not this year.

This year four bills were approved and signed by the governor and one was vetoed. SB 398 applies to condos, cooperatives and HOAs and prescribes a “form” for estoppels certificates. We discussed that bill last month.

This month we will look at HB 1237 affecting condominium associations only, and HB 6027, which puts all associations (condos, cooperatives and HOAs) on equal footing so that required yearly financial reports are based upon total income of associations and the 50-unit financial reporting exception is removed.

SB 1520 tweaks how condominiums can be terminated. As terminations rarely happen, we won’t get into discussing SB 1520.

These new laws became effective July 1, 2017.

HB 1237, called the “Miami-Dade Grand Jury Bill” was the result of a Grand Jury Report filed by the Miami-Dade Grand Jury last February in reaction to a “parade of horribles” dealing with some large condominium associations in Miami. It is intended to get at supposed widespread criminality, fraud and abuse apparently seen only in Miami. However, the whole state now gets to suffer the arguably ill-written law resulting from the bad facts coming out of Miami.

For condominium associations only, HB 1237 now says:

Condominium fraud. Committing fraud and taking kick-backs in a condominium association is now a crime in Florida instead of just a civil infraction. Forgery of a ballot envelope or voting certificate used in condominium elections is now punishable as a felony in the third degree as is theft or embezzlement of association funds, destruction of, or the refusal to allow inspection or copying of an official record accessible to unit owners in furtherance of any crime is considered tampering with physical evidence.

If an officer or director is charged by information or indictment with a crime, he or she must be removed from office. While the charge is pending, the person may not be appointed or elected or have access to the official records. If the charges are resolved without a finding of guilt, the officer or director must be reinstated for the remainder of his or her term of office, if any remains.

Association attorney cannot represent management. To prevent conflicts of interest between associations and their management companies, it has now specifically been stated that an association may not hire an attorney who represents the management company of the association.

Purchases at foreclosure sales. To prevent another possible conflict of interest, 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.

Official records. Bids for material, equipment or services are not listed as official records of the association and members may now designate an authorized representative to obtain copies of association records and unit renters have a right to inspect and copy the association’s bylaws and rules.

Large associations – website. It appears all associations with 150 or more units must have a website established by July 1, 2018. The following documents must be posted on the website: Association’s governing documents (declaration, articles, bylaws, house rules and amendments), management and other agreements, budgets and financial reports, director certifications and in lieu of other forms of providing notice of meetings, notices of meeting may be given by posting on the website.

Financial reporting. Associations of fewer than 50 units are no longer exempt from the financial reporting requirements of larger associations. If an owner requests a copy of the most recent financial report and is denied, the owner can notify the Division of Condominiums in Tallahassee, who can then remove the right to waive a more expensive financial report if the association fails to provide the requested report to the owner after notice. In HB 6027, the exemption for associations of fewer than 50 units in cooperatives and HOAs has also been removed. In addition, per HB 6027 for condos and cooperatives, the limitation that associations could not waive the financial reporting requirements for more than three (3) consecutive years has been removed so condo, cooperatives and HOAs can all now waive financial reporting requirements each and every year if they wish.

Debit cards: Association officers, directors, employees and agents may not use a debit card issued to an association for the payment of association expenses, and if such persons use such a card for any expenses that are not a lawful obligation of the association, they may be prosecuted as credit card fraud. Looks like no way to have an association debit card. Apparently an association credit card is still OK.

Board of directors term limits, recall. Now going forward from July 1, 2017, a director cannot serve on the board for more than four (4) consecutive two-year terms unless the term limit is waived by at least two-thirds of the total voting interests or there are not enough eligible candidates to fill the board positions. Any board service before July 2, 2017 should not count towards the new term limits. The bill also eliminates board certification of a vote to recall board members. So a board member being recalled cannot dispute the recall prior to removal but would need to contest by petition to the Division after recall and perhaps replacement and apparently at his or her own expense.

Conflicts of interest. There are extensive new provisions dealing with conflicts of interest. However, some of the provisions conflict with each other. One provision prohibits contracts with service providers if such a provider has a financial relationship with a director or officer or someone related to the director by blood or marriage. However, another provision appears to permit such contracts if the conflict is disclosed, the director recuses himself or herself on the voting for such contract and the board then approves the contract.

Arbitration: There are new certification requirements by the Division of Florida Condominiums, Timeshare, and Mobile Homes for arbitrators and new time limits in the arbitration process apparently to speed up arbitrations.

Voting rights. In order to suspend voting rights of an owner, in addition to the owner being at least 90 days delinquent in assessments, the delinquency must now be more than $1,000 and a 30-day notice must be given to the member before the suspension takes effect. A receiver of a unit cannot exercise voting rights now.

Financial institution reporting. Condominium associations are now required to report to the Department of Business and Professional Regulation an annual report containing the names of all of the financial institutions with which it maintains accounts and any association member can get a copy of the report from the department.

Rob Samouce, a principal attorney in the Naples law firm of Samouce & Gal, P.A., concentrates his practice in the areas of community associations including condominium, cooperative and homeowners’ associations, real estate transactions, closings and related mortgage law, general business law, estate planning, construction defect litigation and general civil litigation. This column is not based on specific legal advice to anyone and is based on principles subject to change from time to time. Those persons interested in specific legal advice on topics discussed in this column should consult competent legal counsel.

This is the time of year when most condominium and homeowner associations have their annual meeting. When there is something to vote on, such as amending the governing documents, approving a property enhancement project, or waiving the annual audit, proxies are sent to the owners so that the requisite vote can be obtained to approve the amendments or alteration project or to save money by waiving the audit.

What many associations face at the meeting is the apathy of owners, who will not be at the meeting and also fail to mail in their proxy, resulting in a lot of owners views not being heard. Usually it is not an intentional act for owners to not send in their proxy. Rarely is the reason they did not send their proxy in is because they are against the questions being asked. Usually they don’t believe their vote is really needed or they just forget to send in their vote.

Many owners, who regularly invest in company stocks and bonds, get proxies from their invested companies all the time and lots of those proxies go to the circular file rather than being completed and sent back to the company. The same thing seems to happen with community association proxies.

If an amendment to the governing documents went out with the annual meeting documents, a lot of time, effort and consideration went into preparing the amendment by the board or a committee and the association’s attorney. The amendment may have been requested by a lot of owners or the board believed the owners would want to consider the amendment.

If proxy questions were included to waive the annual audit or roll over any excess funds, and if the requisite approval of those questions is obtained, then the association will save a lot of money in CPA expenses and possibly in taxes.

So you have good things that will probably result from obtaining the necessary approval of proxy questions, but many times these good things will not happen because not enough proxies are returned because of apathy.

In order to avoid this downside of not obtaining enough “yes” proxy votes, we suggest that associations form a committee to get the vote out. They should open the proxies as they are returned. A few days before the meeting, they should get on the phone or email owners, who have not yet sent in the proxy and ask them to do so. Owners can email or fax back copies of their signed proxies and the copies can be counted the same as the originals.

If you get to the meeting and such a committee was not formed, and therefore the requisite number of “yes” proxies was not obtained before the meeting, there is still a way to salvage the time and effort that went into the proxy votes.

At the meeting, it should be noted that many owners did not have the chance to vote yet, and that in order to give the chance to chime in on the proxy questions, the meeting should be adjourned to be reconvened at a date, time and place (within 90 days) for the purpose of the proxy votes only. If the date, time and place for the reconvened meeting is specified at the meeting, then no additional notice of the reconvened meeting, neither mailed nor posted, is required.

The remaining agenda items can then be addressed in the normal course of business at the original meeting.

Once the reconvened meeting date has been set, a committee can be formed to get the vote out so that enough approval votes will be in hand at the reconvened meeting for the questions to pass.

Rob Samouce, a principal attorney in the Naples law firm of Samouce & Gal, P.A., concentrates his practice in the areas of community associations including condominium, cooperative and homeowners’ associations, real estate transactions, closings and related mortgage law, general business law, estate planning, construction defect litigation and general civil litigation. This column is not based on specific legal advice to anyone and is based on principles subject to change from time to time. Those persons interested in specific legal advice on topics discussed in this column should consult competent legal counsel.