Homeowners Associations

Homeowners Associations

Screening prospective tenants and purchasers is important

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With the ever-increasing influx of new visitors and residents coming to Southwest Florida, it is becoming even more important that new people coming to your condominium or neighborhood are adequately screened or vetted before they become residents.

We have found, along with all the good folk moving to the area, there are few bad characters mixed in. If your association does not background screen to keep the bad ones out, some undesirables will move in. Once they purchase or lease and are then in your community, it will be extremely difficult, if not impossible, to get them out.

To keep out the bad guys, many condominium and homeowners’ associations will require prospective purchasers and tenants to fill out applications that require references and financial and criminal background checks. The problem with some associations is that their governing documents (Declaration of Condominium or Declaration of Covenants) do not have any language permitting the association to require such application screening. They may also be charging a $100 application fee when their governing documents do not provide for such.

Without language in a community’s governing documents providing for screening of prospective lessees and purchasers and also allow for the charging of a fee to do so, the association has no legal right to screen these people and therefore cannot deny them the right to lease or purchase no matter how bad they may be.

So it is critical, in order to keep bad actors out of your community, that you have requisite language in your governing documents giving the association the right to screen applicants and charge a fee for doing so. With the correct language, you can then check references and perform criminal and financial background checks.

If the background checks reveal certain bad characteristics of the applicant, the association can then deny the applicant. Before you deny though, you should get a legal opinion that you have sufficient legal grounds to deny.

Included as sufficient grounds can be that the person has been convicted of a felony involving violence to persons or property, sale of a controlled substance, or demonstrating dishonesty or moral turpitude. Grounds could also include a record of financial irresponsibility, including prior bankruptcies, foreclosures or bad debts. A history of disruptive behavior or evidence of an attitude of disregard for association rules or the right or property of others by past conduct may also suffice.

In no uncertain terms, you cannot deny approval of an applicant based upon the person’s race, religion or sex as such would of course be illegal discrimination. However, with correct screening language in your governing documents, it is perfectly legal to discriminate against seriously bad people and deny them entry into your community. Such bad guys or gals have no legal right to purchase or lease in your community if you have the right language in your Declaration.

Condominium Associations

New law accommodates service members in communities

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It was a good legislative session this year when it comes to condos, HOAs and co-ops if your idea of good is that nothing much at all was passed. All of the bills, that would have had major direct affects on community associations that were filed, died in committees. This was probably a good thing because the content of most of these bills did not look favorable for associations.

One bill that did pass and became effective July 1 was Senate Bill 184 adopting a new Section 83.683, Florida Statute. This bill to accommodate service members which include ‘any person serving as a member of the United States Armed Forces on active duty or state active duty and all members of the Florida National Guard and the United States Reserve Forces.’

Military personnel many times get change of orders and their family must then relocate to a new place quickly. What this new Florida Statute does to accommodate the quick moves required by our armed forces personnel is to say that if a condominium association, homeowners association or cooperative association requires a perspective tenant to complete a rental application before residing in a unit or parcel, the association must complete processing of the rental application submitted by a service member within seven (7) days and must notify the service member within that seven (7) days of approval or denial. If denial, the reason for the denial must be given. Absent a timely denial, the association must allow the unit or parcel owner to lease to the service member.

Most condos, HOAs and co-ops in Florida require a rental application, and most of their governing documents give the associations 20 to 30 days to process the applications once the applications have been fully completed and all information requested by the prospective tenants have been provided.

Because military personnel have to move many times on a moment’s notice, it could be very expensive for the service members to have to relocate to a temporary place such as a hotel or motel while waiting for association approval. This expensive inconvenience to our dedicated men and women in uniform should not have to happen now in Florida under the new law.

As background checks can be done quickly now electronically, seven days should usually be sufficient to weed out any military persons with questionable backgrounds sufficient to legally support grounds for denial.

Remember, although you cannot discriminate based on race, religion, sex or color, you still can discriminate against bad actors and keep bad characters out of your community. This includes keeping out persons convicted of a felony involving violence to persons or property, a felony involving possession or sale of a controlled substance, or a felony demonstrating dishonesty or moral turpitude. Also, possible reasons for denial include a history of financial irresponsibility such as prior bankruptcies, foreclosures or bad debts, a history of disruptive behavior or evidences an attitude of disregard for association rules or the rights of others by past conduct.

It is not very often when an association runs into a prospective tenant that should be denied, but when a background check does come back with a lot of red flags, associations must review the facts closely and should consult with legal counsel before deciding to deny.

With the sacrifices made by our servicemen and women and their families, it is great to see that our Legislature has found another way to accommodate their upended way of life by providing for prompt review and approval of the vast majority of their rental applications so there is no unnecessary delay in the relocation as they carry out their duty to country.

Condominium Associations

Boards who snooze over the summer may lose

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Well just about all of the remaining snowbirds have flown back North until next season. During last season there were many rules and restrictions violations at our local condominium buildings and gated neighborhoods ranging from late night pool parties, unlawful pets, too many guest and rental visits, smoking and noise violations, parking violations, failure to maintain homes and yards and various forms of obnoxious behavior causing nuisance to others.

Some violation letters were written to tell the inconsiderate perpetrators to knock it off but their violations continued. We got to the end of season and most of the board members went back up North and with their leaving the ‘out of sight/out of mind’ phenomenon is kicking into gear.

While those who left are no longer bothered by the violations, the members who live here year-round may still be suffering from the violations that continue on. As the board is gone and not planning to have any meetings until late fall or next winter, nothing further happens to enforce the violations.

The directors come back in December or January and get an earful from the permanent residences of what nefarious things continued to go on over the summer and fall and demand that something be done about it.

We will then get calls from the president or manager asking us to immediately bring legal action against the violators so the members can get some relief. Well guess what? It’s too late.

There are legal defense concepts called waiver and estoppel which provide that once you know of a legal right for which you can sue, you have to bring legal action within a timely manner or you will be time barred from having a legal claim because you ‘sat on your hands’ in light of your rights to bring a legal action. You waived your rights and are ‘stopped’ from bring suit because of your inaction once you were aware of the violations.

Reported Florida case have said anywhere from six months to one year of inaction is enough time to waive your rights and another just sending another letter within six months to a year is not enough to preserve your right to sue. You must actually file a legal arbitration, mediation or court action within the six months to one year.

So, because you waived your rights and are therefore stopped from bring suit on the past violations, you must start all over again. You must first wait for a new violation, send a new enforcement letter and then bring legal action after a reasonable period of time has passed since the letter and the violation continued uncured — about 30 to 60 days.

We see some associations do this over and over season after season and many violators know how this works and are counting on the association just sending them another letter and taking no further enforcement action.

Directors must realize that it is their ‘duty’ to enforce the rules and regulations of the association. If the board operates in the manner discussed herein and fails to bring suit in a timely manner, the directors may find themselves at the other end of a lawsuit against them from one or more owners for their failure to carry out their fiduciary duty to all the owners of their community.

Homeowners Associations

Should a vote be put to association owners to waive yearly financial auditing requirement

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Pursuant to Florida Statutes, Condominium and Homeowners’ Associations have to each year report the financial health of the Associations to their members. Such requirements are contained in Section 718.111(13), Florida Statutes for Condominium Associations and Section 720.303(7), Florida Statutes for Homeowners’ Associations.

For Condominiums with less than 50 units, or for Neighborhoods with less than 50 parcels, all that is required to be provided to the members is a ‘report of cash receipts and expenditures’. If communities have 50 or more units or parcels but the Associations total annual revenues are less than $150,000, they also only need to provide their members with a report of cash receipts and expenditures. Reports of cash receipts and expenditures can be prepared by an Association’s bookkeeper.

However, for Associations with annual revenues of $150,000 to $299,999, they must annually prepare ‘compiled’ financial statements. For Associations with annual revenues of $300,000 to $499,999, they must annually prepare ‘reviewed’ financial statements and for Associations with annual revenues of $500,000 or more, they must annually prepare ‘audited’ financial statements. Compiled, reviewed and audited financial statements are prepared by Certified Public Accountants (CPAs).

As it costs extra money for an Association to pay a CPA every year to prepare the required higher level of reporting financial statements, the statutes allow the members to vote to ‘waive’ the compilation, review or audit and instead just have prepared a report of cash receipts and expenditures. Such a vote to waive must be approved by a majority of the voting interests at a properly called meeting.

In Homeowners’ Associations there is not limit as to how many years a vote to waive the complication, review or audit can be taken or any limit on when the vote can be taken. However, in Condominium Associations, the vote must be taken before the end of the fiscal year and is effective only for that fiscal year or for that year and for the next fiscal year. Also, in a Condominium Association the members cannot vote to waive for more than three consecutive years. So, if a Condominium Association waives for three years, it must every fourth year engage a CPA for a compilation, review or audit.

A board of directors can always decide not to put to the members a vote to waive if the Directors believe waiver is not in the Association’s best interest. In addition, a Board can always decide to perform a greater level of auditing than is minimally required in the statutes. A greater level may be decided if the Directors want assurance that the Association’s books and finances are property being administered or have believe that maybe they are not being administered correctly.

As you can see there are some protections to Association members per Florida Statutes to either prevent, or quickly catch, any foul play with Association funds. However, there is also the ability for an Association to realize cost savings by only periodically paying for more costly financial reporting when there is no evidence of, or hint of, any monkey business going on with the member’s monies. Therefore, a board of directors, with the Association’s Treasurer’s input, should then each year make a knowledgeable decision as to whether to put the wavier question to a vote of its members or not.

Homeowners Associations

When do associations have to get competitive bids?

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When it comes to condominium and homeowners’ associations contracting for services and supplies for their communities, the associations are all over the map on the procedures they use to find a provider. Some will go get competitive bids on each and every contract and always take the lowest bid while others will obtain no bids and just contract with whoever they want. Neither of these extremes would be following the applicable laws and good business practices as an association’s contracting policy.

Let’s first look at what kind of contracts do not require competitive bids. As professional services are considered unique and each professional provide their services in an individual manner, according to Section 718.3026(2), Florida Statutes, for condominium associations, contracts with employees of the association, and contracts for attorney, accountant, architect, community association manager, time-share management firm, engineering, and landscape architect services do not require competitive bids. An association is free to find the unique professional they like and hire them.

There are two other situations where competitive bids are not required. If an association needs to obtain products and services in an emergency or if there is only one source of supply in the county of the product or service, an association can go ahead and just sign a non-bid contract.

In contrast, competitive bids must be obtained by condominium associations, pursuant to Section 718.3026(1), Florida Statutes, for all other contracts that are for the purchase, lease, or renting of materials or equipment, or for the provisions of services and which require payment by the association on behalf of any condominium operated by the association in the aggregate that exceeds 5 percent of the total budget of the association including reserves.

So, for contacts for low amounts where the price does not reaches 5 percent of the total annual budget (including reserves), competitive bids are not required.

If bidding is required, nothing in the statute requires an association to accept the lowest bid and a minimum of only two bids are required. For some reason, many think that you have to get at least three bids.

There are very similar contract provisions concerning when competitive bids are needed for homeowners’ association (HOA) contracts under Section 720.3055, Florida Statutes. One major difference is that the threshold requirement for competitive bids for HOAs is 10 percent of the total annual budget of the association including reserves.

So there really are not that many contracts that an association gets involved with that require competitive bids. The scope is limited to large cost contracts for goods or services that will exceed 5 percent or 10 percent of the annual budget and that won’t be provided by one of the listed excepted professionals. There is nothing wrong with getting competitive bids from professionals if an association wants to make sure they are getting a good deal for their money. However, many times when it comes to the listed professionals, you will be comparing apples to oranges as each professional provides its services in their owner unique way. Therefore, the differences in how the professionals operate need to be understood when you are putting out, and then reviewing, bids from different professional.

Last, it is important to point out that all contracts with the association for the acquisition of materials that will not be fully performed within one (1) year and all contracts for the provision of services must be in writing. If they are not in writing you probably won’t be able to hold the provider to whatever terms may have been agreed to verbally.

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.