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Sunshine and Structure: Mastering HOA Board Meetings in Florida

In Florida, the successful operation of HOAs hinges on a crucial forum: the board of directors meeting. These gatherings, governed by Chapter 720 of the Florida Statutes and guided by the principles of Robert's Rules of Order, ultimately determine how the association is operated. To increase efficiency and reduce conflicts with members, HOAs can use both to their advantage.

Chapter 720 provides a basic framework for the conduct of directors’ meetings, and while 720 and the comments below apply broadly across most meetings and associations, it is always crucial to remember that your governing documents (especially your Bylaws) can create variations in procedural requirements and deadlines. This article is not meant to be a comprehensive guide to operating a board meeting, but it should include some general tips and tricks. Remember to consult your association’s documents and the association’s attorney before making any changes.

Chapter 720 ensures that most HOA board meetings are open to all members and are conducted in a transparent manner so that all members can view and understand what is going on (and why). The statute establishes, if not a minimum, at least a default framework for directors’ meetings. It mandates proper notice and other rights for owners, ensuring everyone gets a fair shot at participation. As discussed above, your individual documents may have unique characteristics, but Chapter 720 generally requires the board to provide notice of the meeting, an agenda outlining the items to be discussed at the meeting, and a fair chance for the members to attend and voice their opinions about those items.

As for the notice requirement, most associations only require the posting of a meeting notice at least 48 hours before a directors’ meeting. Notice is required to give members fair warning and the opportunity to attend, and must include the time, date, and location of the meeting (and Zoom information, if appropriate). Additional methods of providing notice are included in 720 and may also be included in your governing documents.

One of the newer requirements implemented by the “Homeowners Bill of Rights” law is the requirement to include an agenda with the meeting notice. The agenda should outline the topics to be discussed, from budget amendments to pet policies, and specifically identify any items that are to be voted on. Think of it as a roadmap for the meeting, allowing residents to prepare and engage meaningfully. A notice, without an agenda, would still allow a board to try to govern the association essentially in secret. Most owners probably do not want to go to a meeting where the board is discussing a landscaping contract or mundane day-to-day business operations, whereas owners are probably going to be more inclined to attend a meeting where amendments to the maintenance restrictions are being discussed. While owners can often make governance more difficult in the board’s eyes, it is their community, and they absolutely have the right to know what is going on and to speak up when allowed.

The right of owners to speak at a board meeting is also stated in Chapter 720. In general, owners have a right to speak for at least three minutes on any topic included on the agenda. That said, this right to speak is not limitless, and the Board may enact appropriate rules and regulations to provide more clarity in how the right to speak is administered, such as limiting the frequency, duration, and other manner of owner statements. Before enacting any such rules, a board should consult with a qualified attorney to avoid any improper restraints on an owner’s rights.

Once a meeting has been called and the owners have received their notice and agenda, the meeting itself can take place. For most associations, there is usually a clause in the Bylaws or other governing documents stating that the association will adopt Robert’s Rules of Order (“RRO”), which is a publication dealing solely with the practice and administration of meetings (including board meetings, members’ meetings, committee meetings, etc.).

Robert's Rules: A Compass for Orderly Discussion.

While Chapter 720 sets the stage for open meetings, Robert's Rules provide the framework for efficient and productive discussions. Think of it as a compass guiding the flow of conversation and ensuring everyone has a fair chance to be heard. As with everything else herein, there is no way to relate all key items of importance from Robert’s Rules, but below are some items that come up most often and may be of the most help.

The first requirement of RRO is to establish a clear agenda and stick to it. Your Bylaws almost certainly include a requirement concerning the order of business to be discussed at a board meeting. If not, or if your Bylaws have adopted RRO, the order of business will include approval of minutes, committee reports, old business, new business, and public comment. This is not necessarily an exhaustive list, and your documents may call for some additional items, but remember, structure keeps the meeting on track and prevents tangents.

Robert's Rules emphasizes civil discourse and encourages respectful dialogue. A board meeting should address concerns constructively and maintain a professional atmosphere throughout the meeting. If the board is the brain of the association, the board meeting provides an opportunity for the owners (perhaps the conscience of the association) to raise concerns and provide additional input which the board should reasonably consider.

That said, RRO is not necessarily the ultimate guide to meeting conduct, nor do all associations necessarily need to adhere to the typically very formal requirements contained therein. Recent editions of RRO have suggested that for smaller associations, less formality may be required. For example, the current version of RRO provides that small boards or committees may not always have to have a motion proposed and seconded before a vote takes place. That being said, again, please consult with legal counsel attempting to take shortcuts with your board’s parliamentary procedure.

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The First Amendment And Managed Communities

Homeowners associations often look like mini governments. If you ask a lot owner facing a fine or other violation, they will probably tell you that their HOA is an authoritarian regime oppressing the innocent owners in the community or that the Board of Directors is on a power trip. That said, Florida courts have consistently held that HOAs are not governments or “state actors” but are instead private corporations that derive their authority from contracts (as an HOAs Declaration is, at heart, just a contract between the lot owners and the HOA itself to do, or not do, certain things). This distinction is of key importance when it comes to determining what authority an HOA has to limit a lot owner’s Constitutional rights, such as the right to free speech found in the First Amendment to the Constitution. The First Amendment guarantees fundamental rights like freedom of speech, expression, and religion; however, these rights aren't absolute, and private entities like HOAs hold certain legal leeway to restrict them.

The First Amendment, principally, operates to prevent state actors (like local, state, or federal governments) from infringing on an individual’s right to speak – even if what is being said is offensive, hurtful, or even, to some degree, untrue. However, private entities that aren’t state actors are not required to observe First Amendment protections to the same degree. Florida courts have consistently found that HOAs are private creatures of contract and are, therefore, not bound by the First Amendment to the same extent as other authorities. Accordingly, HOAs can pass restrictions that abridge an individual owner’s right to what would otherwise be Constitutionally protected free speech. For example, HOAs can prohibit your expression of support for a local sports team by prohibiting the flying of team flags. (Otherwise, we would all certainly have large “Go Buccaneers” flags in our yards). In the eyes of the state, your right to express your support of a sports team is fundamental and cannot be abridged – but to an HOA, there is a risk of starting a feud between neighbors that could disrupt the peaceful feel of the neighborhood and is therefore subject to restriction.

Florida Statute Chapter 720 sets the baseline for HOA operations. While it emphasizes open meetings and resident participation, it also grants HOAs the authority to enact "reasonable restrictions" on speech that directly interferes with the use and enjoyment of the common areas and facilities. While some items of speech are protected under Chapter 720 (such as the right to display the United States and certain other flags), items that are not specifically listed in Chapter 720 may be subject to restrictions by an HOA. Determining what constitutes a "reasonable" limitation is where things get nuanced. Courts weigh individual expression against the legitimate interests of the HOA. For example, displaying a small political flag on your balcony might be deemed permissible, while an oversized banner blocking residents' balconies might be considered "interfering with their use and enjoyment." (The exact phrasing of the restrictions in your Declaration is going to have a heavy impact on how restrictions are interpreted by the courts and outcomes may vary wildly as a result).

An HOA's ability to limit speech is perhaps never more obvious than when discussing architectural review and approval. Depending on your covenants, your HOA may be able to tell you what color to paint your house specifically to deter individuality. Arguably, your right to paint your house is an act of free expression, something the First Amendment is specifically designed to protect. However, if you purchase a house subject to a Declaration that says houses can only be painted white – you have contractually waived your right to express yourself in that way. House color is only one of several typical restrictions on expression, with others including landscaping restrictions, yard sculptures/ornaments, house decoration, etc.

Since every situation is different, depending on the phrasing of the covenants, the exact act or statement being made by the owner, and the method in which the owner attempts to make a statement, there are no bright-line rules when it comes to determining if a restriction is going to be valid in the eyes of the courts. For the most part, aesthetic restrictions that seek to ensure a common appearance of the community are probably going to be held valid. Restrictions that target a specific idea are going to be harder to justify. For example, a restriction stating that only political signs featuring republican candidates will be permitted would almost certainly be found to be unenforceable. Accordingly, before attempting to amend your documents to include prohibitions on what may be considered free speech, you should consult with an attorney familiar with HOA governance and how the First Amendment applies. We can help ensure that restrictions on expression are content-neutral and are applied to protect the uniformity of the neighborhood.

Florida’s vibrant communities thrive on a delicate balance between individual expression and collective well-being. While HOAs have a certain freedom from First Amendment restrictions as non-state actors, that freedom has to be applied in a fair manner and should err on the side of allowing owners the right to speak freely amongst themselves. By fostering open communication, understanding the legal framework, and the need to involve owners in the restriction amendment process, owners and HOAs can develop a harmonious environment where both sunshine and diverse voices find their place, even within the boundaries set by the HOA itself.

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Florida Legislature Opens the Runway for Increased Use of Drone Delivery Services

Drones.  Love them or hate them, there are some compelling considerations for more widespread availability of drone delivery services.  With the explosion of home delivery by online retailers and grocery stores, it’s not unusual for condo and homeowners associations to see multiple daily visits by heavy delivery trucks.  Besides blocking roads, these vehicles place an increased burden on roads maintained through member assessments.  Drone delivery could alleviate some of this burden.

In order to make commercial drone delivery more widely available the Florida Legislature passed Senate Bill 1068, which took effect on July 1, 2023.  The new law removes restrictions on the construction of drone ports, which are structures used as a takeoff and landing location for multiple delivery-service drones.  Under the new law local ordinances may not outright prohibit construction of stand-alone drone ports not exceeding 1500 square feet and 36 feet in height in non-residential areas.  Local municipalities can continue to apply their typical zoning restrictions and requirements as to the location of these drone ports.  The law also generally exempts conforming drone ports from the requirements of the Florida Building Code and the Florida Fire Prevention Code.

Based on this new law it probably won’t be too long before Florida residents start seeing their home deliveries getting dropped off from the air, rather than by cargo truck.

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Don't Let the Florida Statute of Repose Catch Your Association by Surprise

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As of January 1, 2024, was the temporary or final certificate of occupancy for any of your buildings (condos, townhomes/duplexes administered by an HOA, HOA clubhouse, etc.) issued more than six years prior but less than ten years prior? Or, as of January 1, 2024, were any improvements at your development (paving, drainage structures, tennis courts, etc.) completed more than six years prior but less than ten years prior? If so, pay close attention.

The Florida Legislature in the 2023 legislative session reduced the statute of repose in Florida from ten to seven years, but with a limited savings clause for associations who act by July 1, 2024. A statute of repose is an artificial legislatively-created outside boundary for the pursuit of latent construction defects in a building or improvement. Here is the current statute with an important footnote:

95.11 Limitations other than for the recovery of real property.—Actions other than for recovery of real property shall be commenced as follows:
2(b) An action founded on the design, planning, or construction of an improvement to real property, with the time running from the date the authority having jurisdiction issues a temporary certificate of occupancy, a certificate of occupancy, or a certificate of completion, or the date of abandonment of construction if not completed, whichever date is earliest; except that, when the action involves a latent defect, the time runs from the time the defect is discovered or should have been discovered with the exercise of due diligence. In any event, the action must be commenced within 7 years after the date the authority having jurisdiction issues a temporary certificate of occupancy, a certificate of occupancy, or a certificate of completion, or the date of abandonment of construction if not completed, whichever date is earliest. . . . With respect to actions founded on the design, planning, or construction of an improvement to real property, if such construction is performed pursuant to a duly issued building permit and if the authority having jurisdiction has issued a temporary certificate of occupancy, a certificate of occupancy, or a certificate of completion, then as to the construction which is within the scope of such building permit and certificate, the correction of defects to completed work or repair of completed work, whether performed under warranty or otherwise, does not extend the period of time within which an action must be commenced. . . . Notwithstanding any provision of this section to the contrary, if the improvement to real property consists of the design, planning, or construction of multiple buildings, each building must be considered its own improvement for purposes of determining the limitations period set forth in this paragraph.
. . .
2Note.—Section 3, ch. 2023-22, provides that “[t]he amendments to s. 95.11(3)(c), Florida Statutes, made by this act apply to any action commenced on or after the effective date of this act, regardless of when the cause of action accrued, except that any action that would not have been barred under s. 95.11(3)(c), Florida Statutes, before the amendments made by this act must be commenced on or before July 1, 2024. If the action is not commenced by July 1, 2024, and is barred by the amendments to s. 95.11 (3)(c), Florida Statutes, made by this act, then the action is barred.” Paragraph (3)(c) was redesignated as paragraph (3)(b) by s. 3, ch. 2023-15.

As of January 1, 2024, if the temporary or final certificates of occupancy were issued for any of your buildings more than nine years prior but less than ten years prior, you may need to file an action very quickly to preserve your claims. Similarly, as of January 1, 2024, if any of the improvements at your development were completed more than nine years prior but less than ten years prior, you may need to file an action very quickly to preserve your claims. As of January 1, 2024, if the temporary or final certificates of occupancy were issued for any of your buildings more than six years prior but less than nine years prior, you risk being time barred to pursue such claims if you fail to file an action by July 1, 2024. Similarly, as of January 1, 2024, if any of the improvements at your development were completed more than six years prior but less than nine years prior, you risk being time barred to pursue such claims if you fail to file an action by July 1, 2024.

Confused? Seek advice from one of our construction claims’ attorneys.

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Innocuous Association Rule or Covert Discrimination?

One of the basic functions of homeowners' and condominium associations is to create rules governing member and guest behavior. In undertaking this role, homeowners' and condominium associations face the risk of acting in a manner that is discriminatory. The Fair Housing Act ("FHA") in 1968, and the additions to that Act since that time have codified protection for defined protected classes, specifically race, religion, color, sex, national origin, disability, and family status. What is surprising to many community association board of directors is that they can still be charged with claims of discrimination as to their rules and policies even when the board had not intended any such effect. It is therefore of primary importance that homeowners' and condominium association board of directors ensure that their rules and policies generally treat all owners the same, and not unjustly discriminate based on a protected class.

First, a community association that implements a discriminatory rule in good faith and without ill intent can still face direct liability for an FHA violation, if it knew or should have known about the discriminatory conduct, had the authority to act upon it, and failed to take prompt action to correct it. 24 C.F.R. § 100.7. Since it is not uncommon for community associations to unintentionally enact rules that discriminate based on familial status and disability, it is very important that they consult with counsel regarding any rules or policies for which there seems to be a potentially negative impact on families and/or the disabled.

For instance, many familial status discrimination claims filed against community associations are a result of amenity rules which restrict minors who are not small children, and/or require that such minors be supervised by an adult. As an example, a gym or pool rule that states "no patrons under the age of 15 may enter without an adult" could be found to be discriminatory on its face based on familial status for unreasonably restricting older minors based on their age when there is no practical based to presume that a 15-year-old would not be able to swim in a pool and/or use a treadmill without an adult watching over him or her. The logic reasoned by federal courts is that at the age of 15, or for any arbitrary "older child" age, that child is no less capable generally of using the amenity than an adult.

Community associations may also be found in violation of the FHA when discriminating against disabled persons, particularly for not providing reasonable accommodations when requested, such as a designated parking space or an emotional assistance animal. If a person has a disability-related need for the accommodation, Associations must provide the accommodation so long as it is reasonable, does not impose an undue financial and administrative burden, or does not fundamentally alter the nature of the association's operations. Parking rights will require a review of how parking was assigned or designated in each community and therefore will require specific legal guidance.

The bottom line: in order to avoid creating and/or enforcing a rule or policy that may discriminate against families and/or disabled persons, community association boards of directors should consult counsel to avoid potential liability rather than risk an FHA complaint. 

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Florida SB 154 - The Condominium Safety Legislation "Glitch Bill"

Alan Tannenbaum, Esq.:

My name is Alan Tannenbaum of the law firm of Tannenbaum, Lemole & Hill. And I have my partners, Jon Lemole and Cindy Hill, and our associates, Destinee Small and Jennifer Myers, are on with us today. Today's program is going to be run by Jon and Cindy, who have been more closely attending to the particular bills at issue, which have to do with the milestone inspection legislation applicable to building codes under Chapter 553 and the structural reserve studies and funding under Chapter 718 and Chapter 719. What's interesting from a legislative perspective is how reactive and not proactive state legislatures tend to be. It's a good example here. Historically, in 1981, there was the collapse of the Harbour Cay Condominium in Cocoa Beach. It was a condominium under construction. There were 11 workers who died, and that brought about a major change to the building code requirements in Florida as a result of that collapse in 1981.

Then in 1992, Hurricane Andrew hit South Florida. And what the experience was was that one community that was impacted by the storm had relatively minor damage and another community got destroyed. And there were investigations, major changes legislatively into the building codes that arose out of that. And then of course, in 2021, we had the horrendous Champlain Towers collapse, which again brought about a major legislative effort last year, in 2022, to react to that particular situation. Does it create an atmosphere for the best legislation to be created? Usually not, but that's symptomatic. And it's interesting, as we look at the events in Hawaii, the questions are asked, "Well, how did they let it happen?" and so forth. And unfortunately it takes a terrible tragedy sometimes for things to be improved, again, unfortunately. So at this juncture, I'm going to turn the program over to my partner, Jon Lemole, and he's going to start the discussion of what the legislature did this year to fill in some of the gaps and make some of the corrections to the hastily adopted legislation of 2021. Jon, take it on.

Jon Lemole, Esq.:

All right, thank you. Good morning, everybody. We've got a lot of ground to cover, but we want to make sure... I expect there will be a lot of questions, so we're going to hope to leave enough time and answer questions at the end of this. But the general format of today's agenda, if I want to try to distill the agenda today, the first two sections we're going to talk, basically I call it the who, what, when, and to some extent, where, of the two different inspection regimes. Number one, the milestone inspection regime, and then secondly the structural integrity reserve study process and the rules around that. And then in the third section, I'm going to flip it over to Cindy Hill and we're going to get a little bit more in detail about some reserve funding issues, reserve funding methods and things that you all will need to know as you head into budget season.

And then lastly, Cindy's going to touch on the fiduciary issues, the fiduciary duties question that these inspection regimes and reserve funding regimes raise for directors and managers of condominiums and co-ops. I want to just say that I'm primarily going to be talking about condominiums today. And so if there is a co-op person on here, understand that these are basically identical provisions in 718 and 719. And so if I don't mention co-ops, understand that that's just for ease of discussion but you can take away the same principles for your co-op communities. And as Alan said, for you HOA folks, first of all, if you're a manager, this will be for CEU credit. That's good. And secondly, you'll have some insight into how the legislative process works. So let's jump into the first topic, which is going to be the milestone inspection regime.

One of the main focal points of the legislation that came out last year was that over a two-day legislative session with what appeared not to be a whole lot of input from the architectural and engineering communities and the legal communities, the legislature created a regime for studying the structural integrity or the structure of condominium buildings in Florida. And so for a year now, we've been dealing with that legislation. And in a lot of respects it created a lot more questions than it answered, there were a lot of ambiguities in there.

And then in March, I think it was March, the governor signed a second round of legislation which tried to clear up, I think, some of those issues. It did, to some extent. I think there's still some questions that remain a little bit confusing and unanswered and we'll try to point those out today. But the first thing that they tackled was actual engineering inspections of certain condominium buildings in Florida, and they created this milestone inspection regime. And if you're looking for it, it's not in 718, it's in Chapter 553 of the Florida Statutes. That is the chapter that relates to the Florida building code. So if you're looking for it in 718, that's not where you're going to find it.

What the legislature did, and this is kind of interesting, in this Glitch Bill, they changed the focus a little bit of the legislative intent of this regime. So in the original statute, the overriding intent of the law referenced "maintaining the structural integrity of a building during the service life of the building." And that was a little bit confusing because service life is somewhat of an engineering term of art. And if you ask some folks, the service life of a building in Florida is limited, and a high-rise condominium may have technically a service life of 50 years, let's say. And so that created an open door, if you will, for some challenges to the law, and the legislature kind of took that on in this Glitch Bill and they closed that up. So now the overriding legislative intent of the milestone inspection regime is to "maintain the structural integrity of a building throughout the life of the building."

So however long this building is going to be standing, it made it clear that the obligation of owners of those buildings and associations who maintain those buildings is to maintain them for as long as they need to be maintained, and so theoretically, as long as as they're condominium buildings. So that was a very integral provision in the Glitch Bill. The other thing that they did right out at the opening is changed some of the wording about the professional practice standards for managers, and so you managers want to be aware of this. What they changed was previously the statute said, "If a community association manager or a community association management firm has a contract with a community association that has a building on the association's property." They've taken that phrase out, "That has a building on the association's property."

You'll see why in a minute because there's some provisions about mixed-use buildings. But what they've made clear here is that if you're a manager or you are a management company and that you have a contract with a community association that is now subject to 553.899, which is the milestone inspection regime, that you must comply with that section as directed by the board. Okay, so let's get into the meat of this. Mandatory structural inspections for condominium and cooperative buildings. The legislature has tinkered a little bit with the definition of a milestone inspection, and what it reads now is that it's "a structural inspection of a building, including an inspection of the load-bearing elements." They took out the word walls. So now they've made it pretty clear that they want engineers to look at any element in the building which impacts the load-bearing capacity of the building. So that can be slabs, it can be foundations, it can be pilings, it can be structural columns. It's not just walls, and so they broaden that.

And so it's "a structural inspection including an inspection of the load-bearing elements and the primary structural members and primary structural systems as those terms are defined in Florida statute 627.706, by an architect licensed under chapter 481, or an engineer licensed under chapter 471." So 481 and 471 are the sections of the Florida statutes that regulate architects and engineers operating and licensed in Florida. The purpose of it is to attest "to the life safety and adequacy of the structural components of the building, and to the extent reasonably possible, determining the general structural condition of the building as it affects the safety of such building, including a determination of any necessary maintenance, repair, or replacement of any structural component of the building."

Now, key thing at the end of this, "The purpose of such inspection is not to determine if the condition of the existing building is in compliance with the Florida building code or the fire safety code." That's important because this is not in a study which is directed at necessarily bringing buildings up to current code, but it is an engineering study to determine the safety of the building. Now, the current code may have to be complied with if there are changes and repairs that need to be made to the building, but it's not a code inspection.

We got a lot of questions after the first bill came out, and not only from owners, from associations, from managers, from directors. We got a lot of questions from engineers as to who can do these inspections. There was a lot of concern that the only folks that could actually do these inspections were the engineers themselves, the PEs. And so that was creating some confusion and frankly a lot of backlog. And I think the legislature responded to the concern about that there was not enough engineering services around to go around to complete these inspections on time. And so they address that in 553.899(2). And so now what they talk about in the new Glitch Bill is that these inspections can be performed by a "team of professionals." So, "The milestone inspection services may be provided by a team of professionals with an architect or engineer acting as a registered design professional in responsible charge with all work and reports signed and sealed by the appropriate qualified team member."

So what that practically means is that that engineer who's signing that report doesn't necessarily need to be onsite all the time, doesn't need to be the one who's going crawling around that building and dropping down on scaffolding or lifts and inspecting all of this stuff. They can come in with their usual team, but the engineer at the end of the day has to sign a report, sign and seal the report that is provided to him and based upon information that his team provides to him. So hopefully that provides a little relief for the engineering and architectural community to be able to meet these inspection deadlines, take on more of your communities and get the work done. Because there was a serious question as to whether there was enough folks, enough engineers and architects to go around the way the old statute was worded. So you should start to see some relief, I'm hoping, as you're trying to get these services taken care of in your communities.

The Glitch Bill also changed a little bit, slightly, the definition of substantial structural deterioration, because that is the essential element that the milestone phase one inspection is directed at. It's directed at determining whether there's substantial structural deterioration of a building. And they've opened that up a little bit and it used to say "substantial structural distress," full stop. They've now added this extra phrase, "or substantial structural weakness." From an engineering standpoint, I'm a lawyer, I'm an engineer, I don't know how an engineer looks at that and says, "Well, what's distress versus weakness?" In my mind, it makes it a little bit more expansive. In other words, distress is perhaps a little bit more extreme than weakness. And so the way I read this is that it gives an engineer or an architect a little bit more flexibility to say that there is an issue that may not rise to the level of distress, but does create some weakness in the structure.

So for example, you've got spalling concrete in support columns or in your foundation. Is that distress or is that weakness? Well, it may not be distress, but it may be weakness. So what you may see coming out of this Glitch Bill is that there are going to be more buildings flagged for phase two inspections. Maybe that's a good thing, I suppose all things considered, that is a good thing. That may not be a good thing when considering the financial impact of that on communities. But be prepared for that because I think it opens the door to some more engineering studies that may have to be done. But anyway, deterioration is distress, "substantial structural distress or substantial structural weakness that negatively affects a building's general structural condition and integrity." They've kept all the other stuff about what it doesn't mean: "surface imperfections, cracks, distortion, sagging, deflections, misalignment, signs of leakage or peeling of finishes, unless of course the engineer or architect determines that those surface imperfections are a sign of substantial structural deterioration."

So you've got maybe some water intrusion problems. That doesn't necessarily mean that your building is in distress or that it is structurally weak. You may have some stucco cracking. Again, that doesn't necessarily mean those things. It has to rise to a little bit of a higher level. So if you've got those concerns in your building, that may not be a necessary cause for alarm. But at the end of the day, it's going to be up to the engineer to decide whether those things are issues that need to be addressed or not.

Okay, so at the very beginning before we started the presentation, there was some discussion off the record, and we were talking about who's covered under these milestone inspections and who isn't. The gap that was closed in this Glitch Bill is that there was concern about mixed-use buildings, commercial condominiums, and how did they fall under this regime? Well, SB 154 has tackled that, and so now they refer to "an owner or owners of a building," first of all, so that may be a mixed-use type of situation. And the statute now says that "An owner or owners of a building that is three stories or more in height, that is subject in whole or in part to the condominium or cooperative form of ownership as a residential condominium or cooperative." So what that means is first of all, any commercial building is excluded. It has to be whole or in part residential.

And the primary responsibility is on the owner of the building. That may not mean that the condominium association is the primary party responsible for these milestone inspections and arranging them. So we're going to talk on the next slide a little bit about mixed=use condominiums and so I'm going to reserve for a second here. So owner or owners, three stories or more in height. And the DBPR, so you all know, seems to think that above-ground covered parking is a story, so be aware of that. Those are the buildings that are going to fall under the milestone inspection regime. Those folks, those buildings must have a milestone inspection, an initial one, done by December 31st of the year in which the building reaches 30 years of age. And that's going to be measured by when the certificate of completion of that building was issued by the local building official.

And then every 10 years after, it needs to be done again. Now, there's a huge change when it comes to the issue of coastline buildings because if you'll recall, in the original bill, there was a definitive 25-year first milestone inspection for buildings that were three years from the coastline. And the coastline was not really well-defined except it referred back to... There is a coastline definition in the Florida Statutes, but it was very, very unclear. And so you had a lot of confusion among folks that were on bays and bayous and canals and other things as to whether they were under a 25-year schedule or a 30-year schedule. So what the legislature has done is they've essentially eradicated that.

What they've done instead is they've made it essentially the discretion of the local building official. So if the local building official determines, for a variety of reasons, including the proximity to saltwater, if that local building official feels that a milestone inspection is required prior to 30 years, at 25 years, then the local building official can determine that, and then can obviously tell those buildings, "This is when you need to have your first milestone inspection done." So if you're in that category where you're not sure, you're going to have to probably wait for some clarification from the building official. I know that's kind of hard to predict where that's going to shake out for you folks, but everybody's on a 30-year schedule until told otherwise by the building official. That's the best we can do coming out of this legislation for now. There is an exception for one, two or three-family dwellings, or buildings that have one, two, or three-family dwellings with three or fewer habitable stories above ground.

So these are perhaps your villa-style condominiums. They may be three habitable stories above ground, but if there are three families in that building, three dwellings, separate dwellings in that building or less, those folks are not going to need to comply with the milestone inspection regime. All right, so we said we were going to talk about mixed-use buildings. Milestone inspections are now required of "whoever is responsible for the operation, maintenance and repair and replacement of the structural components, whether a condominium association or not." However, the condominium association that may be attached somehow or involved in the operation or maintenance of that condominium within that mixed-use building, that condominium association "is responsible for the costs associated with inspecting the portions of the building for which it is responsible to maintain under the governing documents."

So if you have a mixed-use building and there is a condominium association that is responsible for the maintenance and repair of the structure of the condominium portions of that mixed-use building, although it is the building owner's responsibility to arrange the milestone inspection, the condominium association is going to have to budget for its portion of those costs. So be aware of that for you folks in those situations.

They've given some relief in this bill to when the milestone inspections need to be completed. There was a lot of confusion about this. Because originally the statute said that any building that had a certificate of occupancy issued on or before July 1st, 1992, had to have their first milestone inspection performed before December 31st, 2024. That's still the case. But what happened to buildings that turned 30 after July 1st, 2022? There was some concern that they had a very short window to complete these studies. And so what the legislature has done is that they've created this kind of gap, and they've said that, "If a building reaches 30 years of age between July 1st, 2022 and December 31st, 2024, those first milestone inspections on those buildings is due before or by the end of 2025." So for some of those folks that turn 30 right after, let's say on August 1st, 2022, you've got a little bit of extra time to complete your milestone inspection.

They also gave a little bit of extra relief in that the local building official can extend the deadline for good cause, but only if you have an inspection contract signed. So if for some reason you have a contract signed, but the engineer's just overburdened, they can't get out there, they're running behind schedule, it's just not going to be able to be completed, the local building can issue an extension for good cause. There's some additional stuff -- in the interest of time, I'm going to jump ahead a little bit here -- about the local building enforcement agency providing notice, who they need to provide notice to, and how long you have after getting that notice in which you must complete the milestone inspection phase. That hasn't changed too much from the original bill, so I can answer some questions after we're done in the chat if anybody's got some questions about that.

Now, some of you may find yourselves in a phase two situation. The phase one study's been done, the engineer decides that you need to go to phase two because they found signs of structural distress or structural weakness. And so if you are in that and you have to go to phase two, that phase two inspection hasn't changed much in what it encompasses. It could involve destructive testing, it could involve other forms of inspection and testing of the building, but you're going to need to do it. And more importantly, what has been added is that that phase two progress report, a progress report must be reported to the local enforcement agency with a timeline for completion of phase two within 180 days after the engineer issued their phase one report.

So you can't drag your feet on this. If you got to go to round two, the engineer's got to report on progress in completing phase two within 180 days after they've issued their phase one report. So that could create some burden financially because you're going to have to get that engineer engaged to do that and pay them to do that. So be aware of that timeline. Disclosure, this is going to be very important. So, "Phase One/Phase Two reports must be submitted," and they've added this, "along with a separate summary of findings and recommendations." So the engineer has to issue the report and a summary. And they have to be issued to the association, the building owner and the building official. "Within 30 days of receiving the report, the association must distribute a copy of the separate summary."

You don't have to disclose the entire report, but you got to send around the separate summary to all of the unit owners. And it's got to be by mail or hand delivered. And if there's an email address, also by email or fax to those addresses that the association has on file for notice purposes. So everybody gets this summary. And if your association must maintain a website, within 30 days after you receive the separate summary, you have to post that summary and the full report on the website. So there's no hiding. This has to be fully disclosed to your unit owners.

So those are the main differences in the milestone inspection and we're going to now move on to structural integrity reserve studies. This is in 718. They've tweaked the definition of a reserve study, a SIRS, I'm going to call it a SIRS. It's now the study of reserve funds required for future major repairs and replacement. They took out common areas. There's a reason for that. It's "reserve funds required for future major repairs and replacement of condominium property as required under 718.112(2)(g)." Now there's a very big change in the SIRS regime. First of all, it only applies to residential condominiums again, and co-ops, not commercial. So commercial folks can disregard this. It doesn't mean they can disregard the old reserve requirements, but they can disregard this SIRS process. And the SIRS also no longer applies to "portions or components of a building that are not submitted to condominium or cooperative form of ownership, or any portion of a building that is maintained by someone other than the association."

So again, in those mixed-use situations, the SIRS doesn't necessarily need -- and I don't know how this is going to be done -- but it doesn't necessarily need to be performed on the entire building. That's going to create some questions, I think, but I want you to be aware that that's in this new SIRS regime under the Glitch Bill. Also, they've increased who can perform the SIRS. In the old bill, there was a lot of concern that really this had to all be done by engineers or architects, and that's no longer the case. Any person qualified to perform such studies can perform the studies. So your traditional reserve study professionals can do portions of the SIRS. Not the entire thing, because the visual inspection must be performed by an engineer or architect, or "a person who is certified as a reserve specialist or professional reserve analyst by the Community Associations Institute," they did some good lobbying there, "or the APRA," which is the American Professional Reserve Appraisers, or the Association of Professional Reserve Appraisers, I think is what it stands for.

So the visual inspection doesn't necessarily need to be done solely by an architect or engineer. If somebody's a reserve specialist certified by CAI or a professional reserve analyst by APRA, they can actually do the visual study. Then all the calculations in the funding in the reserve amounts that are done after the visual inspection can be done by other folks who are working with those engineers, architects, reserve specialists or professional reserve analysts, so that creates some relief. But the specialists must do the visual inspection. What does it contain? A SIRS, "At a minimum, it must identify each item of the condominium property." They took out common areas because these areas aren't always necessarily common areas.

"Each item of the condominium property being visually inspected, state the estimated remaining useful life and the estimated replacement costs or deferred maintenance expense of the common areas being visually inspected, and provide a reserve funding schedule with a recommended annual reserve amount that achieves the estimated replacement costs or deferred maintenance expense of each item of the condominium property being visually inspected." So not limited to common areas.

You're all familiar with this list in 718.112(2(g). They've changed it. They've taken some things out, they've added some things in. What must be inspected in the SIRS? "Roof, structure, including load-bearing walls and other primary structural members and primary structural systems, fireproofing and fire protection, plumbing, electrical systems, waterproofing and exterior painting, windows and exterior doors." They've added exterior doors, they've kept windows. I know that creates a lot of ambiguity. "And any other item that has a deferred expense exceeding $10,000. And the failure to replace or maintain such item negatively affects the above systems." However, they put in a big caveat here. "The SIRS may recommend that reserves do not need to be maintained for any item for which an estimate of useful life and an estimate of replacement cost, cannot be determined." It can recommend a deferred maintenance cost or the maintenance reserve. But if it can't be determined what the estimated useful life or replacement cost is, then you don't necessarily need to have a reserve for replacement in this study.

And the SIRS can also recommend that no replacement cost reserves for an item need to be maintained where the estimated remaining useful life is greater than 25 years. So that should provide some relief when you get to things like foundations and slabs and things like that. You don't have to replace the slab. Who's covered? Buildings three stories or higher, same as milestones. And the same exception applies here, but not one, two or three-family buildings with three or fewer habitable stories above ground.

For covered buildings, i.e., buildings that are three stories or higher, residential buildings that are three stories or higher, "The SIRS only needs to be performed on the portions of the building submitted to the condominium form of ownership or for any portion or component of a building that is maintained by the association." This is still going to create a lot of issues around windows, because windows may not be maintained by the association, they may be maintained by the unit owner, but they are submitted to the condominium form of ownership. So there's probably going to continue to be some arguments over windows, folks. I don't know that this bill has solved that. The SIRS is due within 10 years of the creation for covered buildings. It's due within 10 years of the creation of the condominium. You can read that as recording of the declaration. For condominiums turned over before July 1st, 2022, so if they were under owner control, unit owner control prior to July 1st, 2022, the first SIRS report is due by December 31st, 2024 on those covered buildings.

If, however, you have a condo that is not required to do a milestone inspection before December 31st, 2026, those folks can delay their first SIRS and coordinate it essentially with the milestone inspection and deliver those reports together at the same time. So that's going to help, folks, because you can basically have an engineer doing both and not having to have separately timed reports, which was a problem under the old statute. So those are the major changes. I know we ran through those really quickly so we could fit them in with some time to spare. I'm going to now send it over to Cindy, who's going to talk a little bit about the reserve funding issues, the actual funding issues that you all are dealing with. So go ahead, Cindy. You're on.

Cindy Hill, Esq.:

Thanks, Jon. Good morning to everyone. Before getting into the details, I do want to start with an issue that still seems to create some confusion generally with these new reserve requirements, and that is what is fully funding a reserve item? It is not funding the entire amount that's due within the upcoming statutory deadlines. So if you need $100,000 to replace your roof in 10 years, you don't need $100,000 by December 31st, 2024. What you need to do is start fully funding to have that $100,000 within the 10 years it's been estimated it's needed. So really what fully funded means is meeting the reserve funding schedule. It does not mean forcing everything up until December 31st, 2024. So those of you who don't yet understand that, don't have a panic attack over that, it's not that bad. That being said, this of course is a burden to associations that you are on this call because you want to know how to best to deal with this.

The new statute added an alternative funding method, which I don't want anybody to get excited about because I doubt anyone on this call is going to be able to use this. Specifically, the Glitch Bill now allows members of an association that are operating a multi-condominium to determine to provide no reserves or less reserves than required under the new laws if there's an alternative funding method that's been approved by the Division of Condominiums, Timeshares and Mobile Homes. Well, that sounds interesting, doesn't it? Until you look at the actual definition of alternative funding method they provided in the Condominium Act, and that is that it only applies to multi-condominium associations that are operating at least 25 condominiums. So that's pretty much a no deal for I would guess everybody on this call and most everyone who's not in a big metropolitan area. So don't let that term or addition create any sort of excitement or confusion. It really is only applicable to a small number of associations in the state.

The Glitch Bill did not help us with the component versus pooled funding, unfortunately. It has been the Division of Condominiums, Timeshares and Mobile Homes' position since the Building Safety Act was implemented in response to the Surfside tragedy that pooled funding is still allowed. Well, okay, that's great, but what does that mean? So the Glitch Bill did not help us with that either. Although the division still says pool funding is allowed, we have that, the industry's starting to lean toward maybe having two pools of funds, one for SIRS and not SIRS. But that's something really to discuss with your professionals and your counsel because, again, we unfortunately still don't have good answers on that.

So with the G components that Jon was just discussing, they're the ones that are mandatory under the SIRS. And of course then you have your funding reserve requirements that have existed since the Condominium Act. So what now can you waive or reduce and what can you not, and what are the deadlines that are coming? Associations are required to get a SIRS and maintain reserves for the G items, which they're responsible pursuant to their declaration. They can vote with a majority vote of the total voting interest for no or reduced reserves up until a budget adopted on or after December 31st, 2024.

So up until a budget that is adopted on or after December 31st, 2024, associations can vote for no or reduced reserves for the paragraph G items. But after that pumpkin appears on December 31st, 2024, you no longer have any discretion to do that. Those amounts have to be fully reserved, which means that it might not be in an association's best interest right now in that window that exists to be voting to waive or reduce, because once December 31st, 2024 happens, you have no discretion. And you also cannot vote to waive the interest on those funds, by the way.

That being said, you can still continue to vote to waive or reduce funding for the non-paragraph G items, but it has to be approved in advance by a majority vote of all the voting interests of the condominium. There was some availability before to just have the voting interests that were at a meeting at which a quorum was attained. Now it's everyone. If you have 100 units, you're going to have to get 51 people that agree to waive or reduce funding for any of your non-paragraph G funding reserves responsibilities. Just briefly, because I know we're coming up to the end of time here, developer reserve funding. Developers really have no discretion to -- lack of a better way put it -- to mess with reserves at this point. Before turnover control, a developer-controlled association may not vote to waive reserves or reduce funding reserves.

Also, they may not vote to use reserves for purposes other than those which they were intended. Which I should add, that's also starting December 31st, 2024 for these paragraph G items. Non-developer controlled associations are not going to be able to vote to use those funds for other than they were collected as well. So this is a deadline to be calendaring and to be budgeting accordingly. I know that there are a lot of questions about these issues. The Glitch Bill has helped with some, not with others. So again, do reach out to your counsel, get these issues resolved and have a plan.

The last item we had was the fiduciary duty. This was disconcerting when the Building Safety Act was released in that under standard law in Florida operating for decades, condominium association board directors and officers don't have liability -- personal liability, I should add. Not to mean the association itself isn't liable -- do not have personal liability unless they really created some egregious acts, such as theft, fraud, maliciously taking action against donors. It was a very high bar. So it was disturbing to see that the Building Safety Act suddenly threw in this provision that said if directors and association failed to complete a SIRS that failure could be a breach of their fiduciary duty. Well, the Glitch Act did soften that a little bit. It now states, as you can see in the slide, the additional language is underlined. If the officers or directors of an association willfully and knowingly fail to complete a SIRS, they can be liable under their fiduciary relationship to the unit owners.

So that's still a disconcerting provision to have in the act, but willfully and knowingly is a much higher standard than simply fails. Fails could arguably be an event where you thought you had a contractor lined up, you didn't get a contractor lined up, or miscommunication, something went wrong. Suddenly a board director's in a position where they're looking at personal liability just due to a set of bad facts. Willfully and knowingly is more along the lines of you know there's an obligation and you just do nothing about it. So that is some better news for volunteer board directors. And I believe we are at the time that we ask questions.

Alan Tannenbaum, Esq.:

Cindy, if I can add something on the breach of fiduciary duty part. There's going to have to be a reevaluation on your fiduciary insurance and some discussions with carriers about it, because one thing about fiduciary insurance, under the old statute, if there was an act of misfeasance and malfeasance, it wouldn't be covered under your policy. The insurance company would be required to defend you from a claim, but actually the payment of the claim wouldn't be covered. Now with this new language, where it's really negligence that somebody fails to get the study, whether that's going to be covered appropriately by your insurance policy. And so it's certainly worth having a discussion. The carriers are going to have to adjust those policies to potentially cover this specific liability.

Cindy Hill, Esq.:

I agree, Alan. That's a very good discussion to have with the insurance agent.

Alan Tannenbaum, Esq.:

Yeah. The other point, and I'm just curious, even by a show of hands out there, has anyone had a structural inspection under this legislative regime actually performed by an architect? And this is the anomaly, because architects are not licensed to do structural inspections. And it's a question of whether by the legislature including architects in these bills as being allowed, whether that's overcoming the restrictions under the licensing law. But I think more importantly is I'm pretty aware of what professional liability coverage is, again for architects, and I don't believe that most professional liability policies for architects covers them doing structural work, anything outside of their core architectural requirements. So even though legislature included architects in there, I think most architects won't be doing them. And if you get an architect to do them, they're probably bare without professional liability coverage, so it may not even be advisable to seek them out. But I would be surprised if you find architects doing that. So anyway, with that-

Jon Lemole, Esq.:

Alan, there's a question-

Alan Tannenbaum, Esq.:

Sure, go ahead.

Jon Lemole, Esq.:

... I want to address about the SIRS. The question is from Donna Childress. It says, "We had a reserve study professionally done before this statute passed for our own information. Is that acceptable as a structural integrity reserve study?" The answer to that question is maybe. One of the things that was added to 718.112, and it's subparagraph seven, I'm going to read it. It says, "If a milestone inspection or an inspection completed for a similar local requirement," so like in South Florida, some municipalities have building certification inspections. "If it was performed within the past five years and meets the requirements of this paragraph, such inspection may be used in place of the visual inspection portion of the structural integrity reserve study." I mean, the way I read that is if you've had within the last five years, a thorough structural engineering study of your building, you may be able to avoid having to do that part of it again to meet your SIRS responsibility.

That report can be taken by a reserve analyst, perhaps, and they can create a SIRS report that meets the requirements of the statute based on that. But if you just had a basic reserve study done in the last five years, I wouldn't say automatically that that would constitute a report that satisfies these requirements under the new statute. It's going to be a case by case situation as to whether that report meets all of those requirements. So it's possible, but you're really going to have to have a professional look at that report, general counsel or maybe the engineer that did that earlier inspection, to determine whether or not that would meet those requirements. So no easy answer on that question.

Alan Tannenbaum, Esq.:

Jon, there was a question from Donna about the reluctance of Pinellas County and the City of Tarpon Springs to accept reports. I don't really know what that means, accepting, but really the reluctance of building officials to be involved in this entire process. What would be our recommendations for dealing with building officials who say, "Nobody asked us about all this additional requirements that we have to be involved in. And no, thanks, legislature"?

Jon Lemole, Esq.:

It's imposing a tremendous burden on local building officials because now those municipalities have to deal with the enforcement regime that this statute creates. But at the end of the day, a statute is a statute and you have to comply with it. So I would say that even though your municipality may not be totally on board or up to speed, that's not where I would necessarily take my cues. I would be sure to comply with the statute because you have an independent duty to your owners. And the failure to discharge the duties that are required by the statute exposes the association to potential liability to an owner who says, "Hey, you're not complying with the statute." And I don't know that it's an acceptable defense to say, "Well, we haven't gotten any guidance from our local building official." That's my take on it.

Alan Tannenbaum, Esq.:

Yeah, I think it's really built into the statute now that if you make a good faith effort to comply, for instance, scheduling your engineer and there's delays on that, and then you apply to your building department for an extension and they don't respond, you've done all you have been able to do as a manager or a board member to comply, there probably in the end will be forgiveness. But one of the things that's important is with the engineers being as busy as they are, don't wait. The earlier you get started with the process, the better, and get on their schedule. If you start the process late and then expect that, well, we'll be excused, you're going to be subject to questions about why you waited so long to get that process started. So that adds to your burdens, but there's no way around that. So it looks like-

Jon Lemole, Esq.:

I'm still seeing some questions about one and two-story condominiums and reserve requirements there. If your buildings are not under the SIRS regime, in other words, they're not three stories or higher, you're still obligated under I'll call it the old, preexisting traditional reserve requirements that were in the statute and continue to be in the statute, as far as I know, Cindy.

Cindy Hill, Esq.:

Yeah, that's right.

Jon Lemole, Esq.:

Don't take the fact that you're not under the SIRS regime to mean that, "Well, I don't have to reserve anything anymore because my building isn't high enough." There are still reserve requirements, they still exist. Those reserve requirements for your buildings in the less than three stories or higher category are the same as they always were. So we'll leave it at that.

Cindy Hill, Esq.:

I agree. There's also a question in here about exterior doors. Do they include sliding glass doors? What if there's lanais? I have to say, that's all going to be dependent on your declaration of condominium. Because sometimes lanais are part of the units. Sometimes they're limited common elements. Sometimes the windows are part of the units. Sometimes the sliders are, sometimes they're not. I'm not trying to be facetious at all, this is literally a document-driven answer. So that unfortunately can't be answered without getting individual counsel to assist with that.

Alan Tannenbaum, Esq.:

Jon, the last question. There's a question, are there any changes on the timing of the full funding for SIRS items? Is it still January 1st, 2025?

Jon Lemole, Esq.:

Cindy can probably take that one, but I think the answer is going to be for a budget adopted after December 31st, 2024, that those SIRS items, the items in 718.112(g)(2), have to be fully funded going forward.

Cindy Hill, Esq.:

Correct. And it's actually on that date or after. So if you vote for a budget on December 31st, 2024, that date counts.

Alan Tannenbaum, Esq.:

Okay, folks, it's 11:59. Thanks for responding to our poll. Any of you managers who are concerned about your CEU credit, you'll contact Michelle Colburn of our office. Her email, I think, was presented at the bottom of the presentation. These materials will be available for anyone who wants them. Contact Michelle on that. And this program will be published on our website, probably within a week to 10 days. So you can always access our website under, I believe it says news and resources. Not only this particular presentation, but most of our others that have been previously recorded. Also contains a transcript of the preceding piece. You need some bedtime reading, that's available. And with that, we will see everybody next time. Thanks for filling out the poll. And any questions you have, keep sending them. We'll respond as best we can. Thank you.

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A Quick-Reference Guide to Complying with Florida’s New Condo Safety and Reserve Funding Legislation After SB-154 (2023) – The “Glitch Bill”*

The recent Florida condominium safety and reserve funding legislation has proved to be a source of confusion for many Florida condominium associations.The stakes are high since these statutes took effect as of July 1, 2022.In SB-154 (the "Glitch Bill"), the Legislature attempted to remove various ambiguities in the original legislation.For many condominium associations the clock is now ticking, and the professionals required to perform the new safety and reserve inspections are in very short supply.With that in mind, Tannenbaum Lemole & Hill has prepared a simplified "quick reference" educational guide for directors and managers.We recommend that boards and managers ultimately consult with association general counsel to ensure proper compliance with the new laws.

Milestone Structural Safety Inspection

What is it: A visual inspection of a residential condominium building for evidence of "substantial structural deterioration" or "substantial structural weakness."
By: A team of professionals under the direction of a Florida licensed engineer or architect.
For:Any building three-stories or higher that is subject, in whole or in part, to the condominium form of ownership as a residential condominium.
What's a "Story":Includes underground and/or ground floor covered parking levels.  Lofts and mezzanine levels may be included if defined as a "story" under the Florida Building Code.  Best to have an engineer or architect make that determination.
What's Inspected:For any residential condominium building three-stories or higher, at a minimum a Phase 1 visual inspection of the load-bearing elements and the primary structural members and primary structural systems as those terms are defined in Fla. Stat. 627.706.  If "substantial structural deterioration" or "substantial structural weakness" is found, a Phase 2 inspection (which may include destructive testing) and report will be required outlining the nature of the structural defects, whether the defects pose an unsafe or dangerous condition, and the professional's recommendations for remediating the defects.
When Due:Phase 1 reporting due by December 31 of the year in which the covered building reaches 30 years of age, measured from the date of issuance of the certificate of occupancy or completion.  Buildings completed prior to July 1, 1992 have until December 31, 2024.  Buildings reaching 30 years of age between July 1, 2022 and December 31, 2024 have until December 31, 2025.  The local building official can reduce the deadline to 25 years based on considerations such as "proximity to salt water."
Fequency:Every 10 years commencing with the initial Phase 1 Milestone Inspections
Report Disclosure:Every unit owner must get a copy of a report summary prepared by the engineer or architect performing the inspection, and it must be posted on the property.  If the condo is required to maintain a website, then the full report and summary must be posted on the website.  The report must be maintained in the official records for 15 years.

Structural Integrity Reserve Study (SIRS) 

What is it: A separate report from the Milestone report.  Its purpose is to define recommended reserves for replacement or major repairs of residential "condominium property" as set forth in Fla. Stat. 718.112(2)(g)
By: Must include a visual inspection of the "condominium property" by a Florida licensed engineer or architect, or a CAI certified Reserve Specialist, or an APRA certified Professional Reserve Analyst.  Actual reserve funding calculations can be made by other team members.
For:In buildings three-stories or high, the portions or components of the building that are submitted to the residential condominium form of ownership and which are maintained by the Association.
What's a "Story":Same definition as for Milestone Inspection.
What's Inspected: For any building three-stories or higher, a visual inspection of the "condominium property" to establish the estimated remaining useful life, the estimated replacement cost or deferred maintenance expense, and a recommended annual reserve amount for each item of the condominium property being visually inspected.  At a minimum, the SIRS must include a study of: roof, structure, including load-bearing walls and other primary structural members and primary structural systems as those terms are defined in Fla. Stat. 627.706, fireproofing and fire protection systems, plumbing, electrical systems, waterproofing and exterior paint, windows and exterior doors, and any other item that has a deferred maintenance or replacement expense that exceeds $10,000.00 and the failure to replace or maintain such item will negatively affect the other reserve items required to be included in the SIRS, as by the visual inspection portion of the structural integrity reserve study.
When Due:Effective July 1, 2022, by developers prior to turnover.  For owner-controlled associations which turned over prior to July 1, 2022, the first SIRS is due by December 31, 2024.  However, any Association required to complete the first Phase 1 Milestone Report by December 31, 2026 can also complete the first SIRS by the same date.
Fequency:Every 10 years measured from creation of the condominium.
Report Disclosure:Maintained in official records for 15 years.  If the condo is required to maintain a website, the SIRS must be posted on the website.

*This Quick Reference guide is for educational use only.It is not intended to provide legal advice and should not be used for that purpose.You should consult with an attorney to determine how these provisions apply to your specific condominium association. 

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Smart Board & Property Manager Legal Guide: Key Elements In A Repair Contract

Alan Tannenbaum, Esq.:

My name is Alan Tannenbaum, and our firm is Tannenbaum, Lemole & Hill, and we are giving a presentation today on key elements in a repair contract. Since the last Smart Board, we've had two lawyer additions to our firm. And you'll see today, Destinee Small and Jennifer Myers, who have joined our firm as associates and they'll be presenting a segment of today's presentation. So everybody, welcome Destinee and Jennifer to our team. As you can see on the screen, we're community association lawyers. We do general counsel work, but we also have specialization in the field of construction law. So for community associations, we both do general counsel work and we serve their construction needs, which include turnover claims and what we call repair consulting. And repair consulting is assisting groups in negotiating and perfecting contracts with both engineers and contractors and helping to enforce those contracts as your projects get completed.

We've been very busy on the construction side on the condo side, because of what happened in Surfside, the legislation that has emanated from that. Groups are getting their buildings inspected. Engineers are finding issues and major repair projects are being negotiated. The hurricanes from last year caused significant damage, which required a lot of repairs, both for HOAs and condominiums. So there's a lot of repair work going on. One of the things that occurred is that, especially in relation to the hurricane, is that there was a great influx of out-of-state contractors who came into Florida, some licensed, some not offering their services. There's also a significant group of, I call them brokers or marketers. They will sell you repair services, but actually somebody else is going to do the work. So there's been an issue there and one of the things that we're including today at the beginning, which is not on our list, is vetting your contractor.

So you may get a proposal from somebody who, may not be licensed in Florida, they may be assigning the work or subcontracting the work, and there's ways to vet them corporately. There's some great tools in Florida for determining licensing and sometimes an online search, you find lawsuits and so forth. So know who is coming in to do your work. So into the basic program, I'm going to turn it over to Jon Lemole who's going to talk about detailed and on-target plans of specification.

Jon Lemole, Esq.:

Thank you. I'd venture to say that there's not a more stressful situation in the life of a condominium or a homeowner's, say a townhome homeowner's association, than having to do a major repair project. It makes owners unhappy. They're unhappy with not being able to move about as freely as they may otherwise be able to do it. The loud noises, the activity, the parking, the trucks. And so what today is going to be about is really taking a hard look at how an association can manage that process right from the very beginning by having a very good repair contract negotiated with that contractor. I'm, I'm going to steal something that Alan says. He often says, "Imagine that when the contractor shows up on your project and these employees and subcontractors start walking onto the job. Imagine it's a group of 17-year-old boys that are showing up." And so if you've had 17-year-old boys or 17-year-old sons, which I've had, you know that you have to be very clear with them on everything.

So that's where we're going to start. The first item on the agenda is detailed and on target plans and specifications. Why is that important? Well, think about it. If you've ever not had clear communication with your kids, and I have a kid who's like this, they will find all manner of reasons to poke holes and find the gaps in the communication. So we want to start every project, every major project with an investigation of what the project's needs are going to be and some details about how the work is going to be done. Take an example of painting. You're going to paint all the buildings. Well, what is paint? What does painting mean? Have you selected the type of paint? Is there going to be some sort of treatment of the building exterior before the paint is applied? Is there going to be stucco crack repairs, is there going to be caulking done? Is there going to be power washing done?

Not only that, how are you going to protect shrubs and plantings and landscaping and cars from paint splatter? Is that going to be part of the contract or not part of the contract? You can bet that if you don't specify things that you're not going to have very strong protection when you find out that the contractor maybe didn't do stucco crack repair well or maybe didn't provide adequate protection for landscaping and vehicles in the area. So, you always want to have a detailed and on-target plan and specification. Now where does that start with? The best way for the most part in any major project, take a big re-roofing project or maybe a structural repair project, they're going around and they're fixing concrete, falling concrete, or facade, stucco. It always makes sense to have a consultant come in first, like an engineer or some other consultant who can prepare, not only investigate what needs to be done, the scope of the repairs that need to be done, but how it's going to be done and be very specific about it.

Why is that important? Well, number one, if you've ever been in the middle of a project and you get faced with a bunch of change orders because all of a sudden there's a bunch of conditions that the contractor didn't foresee, you know that that's a real pain in the butt. Price escalations. Contractors love to put price escalation clauses in their contracts and if they come across something that they didn't anticipate in their proposal, that they're going to have to fix, like a bunch of roof framing or roof sheathing, then you're going to get charged for that. And it may not be at the prices that you expected to be charged for it for the materials when you executed the contract many, many, many months ago.

Unforeseen conditions cause delays, always. So it's always a very good thing to have an independent consultant come onto the project before you hire the contractors, take a look at what are the conditions, what's causing the conditions. Because you may not always know that. Maybe that requires a little bit of invasive investigation. Maybe they take a couple of roof cores and see what's the condition of the framing underneath, and then provide a very detailed set of plans and specifications that not only address what work is going to be done, how it's going to be done, what materials are going to be used, how the community's going to be protected, what are the hours of the work, where's the contractor going to park their vehicles? How are you going to protect landscaping? How are you going to protect the safety of residents in the community? All of those things should be specified.

And by the way, if you do that, that creates a much more competitive bidding situation for the owner, for your associations. Because now you're getting three contractors, let's say, who are providing you price proposals and they're all looking at the exact same specifications. And so instead of just going out and having three contractors come in and tell you well we're going to do X, Y, and Z, and this one's going to do A, B, and C and here's what we're going to charge for that, you may not have a really truly competitive bidding environment and competitive pricing on that project.

So that is a critical first step in any major repair project. We get called in the middle of projects that have gone sideways and a lot of times we see A, a really poor contract, and B, that there has been no effort on the front end to control the work on the project by use of independent consultants and engineers who've determined what that should be. So with that, I'm going to turn it back over to Alan and he's going to talk about a balanced draw schedule.

Alan Tannenbaum, Esq.:

Money is power on a construction project. And what's the goal for an owner? It's pretty simple. Always have the contractor if you can have more invested in the job than they've been paid. And that's the greatest assurance that you're going to have your contractors stay on time and stay on goal and complete your project. The worst scenario is when the contractor is 60% completed with the contract and they've been paid 80% of the contract price. They will now look at your job or have the possibility of looking at your job as a loser. And they would prefer to send their crews out to another project that they're not ahead on. So that's the basic premise. I have a real problem with deposits. Contractors more and more are requiring deposits. They will tell you that it's to purchase materials, but most good contractors have good credit with the supply houses. They don't need your money to buy materials, but they say they will.

A lot of times I think they're just taking their profit upfront. So we either like to eliminate deposits or reduce them considerably. Retainage is holding money back until the end of the job. If you can negotiate that into your contracts, you're better off. And there's also a key, and sometimes the engineers are not really discerning about this, but it's making sure that draw schedule's balanced so that you're ahead of the game financially near the end of the project or at least it's an equal playing field. We see too many contracts where by three quarters through the project, the association is upside down and it's very difficult to get the contractor out under those circumstances.

I'm going to next talk about insurance requirements. Real problem these days in Florida. So here are some basics. Number one, when you're using industry contracts, industry form contracts, which frankly are intended for the construction of a 50-story high-rise in Chicago and New York and not intended for a Florida repair project, but because of the way those contracts are designed, they have owner insurance requirements that often require coverage that's not even available for condominium and homeowner associations in the Florida market. So be very careful on the requirements in the standard form contracts for the owner insurance that you don't sign a contract that has requirements that exceed what your agent is actually going to be able to secure coverage for.

On the contractor side, there's a whole slew of insurance that the contractor's going to need. Most of the standard contracts do contain decent insurance provisions, but it's really important, especially on the commercial general liability, GCL policy for the association to be named as an additional named insured. That gives you direct rights against the insurance company. It allows you to be notified if in fact coverage is being canceled as an additional named insured, you have protection on that. But in the current market, in order to be an additional named insured, there has to be an endorsement issued by the insurance company that's either a blanket endorsement that says anytime a contract requires it, that additional named insured status is granted, or it's a specific endorsement that names the owner or names the association as that additional insured. So you have to get that endorsement. Oftentimes a contractor has to pay at least a few hundred dollars to secure that endorsement. So they resist it, but it's really important to get.

The other part of it is making sure that the subcontractors who enter the job have workers' comp and that they have their own insurance that names you also as additional named insured if you can get that. So you want to include in your general contract that they're only bringing in insured subcontractors to your job. And again, sometimes we find laborers doing subcontracting work, it protects against comp claims, liability claims. So you have to look carefully at those provisions. So I'm going to move back to Jon who's going to talk about damages for delay.

Jon Lemole, Esq.:

So I want to start by dispelling a common myth that I run into quite frequently. People I think have this expectation that contractors are these well-capitalized companies that have many, many employees at the ready to go out and work on your project. It's just not true. You ought to assume in most instances that a contractor probably is going to sub out most of the work that is being done. They're probably relying on leased labor, leasing laborers. The people working on the job are not necessarily going to be direct employees of the company, of the contractor. And keep in mind that the contractor, they're a for-profit business, they're in business to make as much money as they can. And so every day when that owner of that business wakes up, he's got to decide how he's going to staff the projects that he's currently got underway. And those decisions are going to be influenced by a couple things. They're going to be influenced. Well, which one is he or she making the or most money on?

And secondly, if they're not making the most money on a particular project, the contractor/owner is going to think, well, what's my risk on any particular project? Am I getting a lot of headaches from this project versus another project? So one of the big things that you need to be thinking about when you're having any kind of major repair project is how am I going to stay on that contractor's radar? How am I going to position this project to be that project that that contractor wakes up every morning and says, "I got to make sure that I've got that one adequately staffed and on-target." And on-target for completion on time. And so there are two ways apart from the money aspects which Alan kind of talked about a second ago, but there are two other ways to control that.

Number one are damages for delay clauses. Folks, I get called into the middle of disputes all the time and a lot of times the disputes are the project was supposed to be completed in three months, we're now at five or six or seven or a year out, and this is a problem. And I look at the contract, and there's very, very little in the contract which provides any kind of hammer over the contractor to completed on time. And I scratch my head and I wonder, well, why wasn't that, and generally the reason is that nobody looked at the contract or they didn't have a lawyer look at the contract before they executed it, the owner didn't. So damages for delay clauses are important. You need to insist on them, but they have to be drafted correctly in order to be enforced.

If you want a damages for delay clause to have teeth in it, you have to know that if it goes to the mat and you have to bring a claim, a delay claim, that that damage for delay clause is going to be enforceable in court. And they're not all, they have to be drafted properly. So number one, make sure that you have a properly drafted damages for delay clause in your contract so that you know and the contractor knows that if I go to court over this thing, this thing is going to be enforced by the court.

Number two, and this is something we see all the time, and since COVID it's gotten way more prevalent. Contractors love to put these very broad force majeure clauses in their standard contracts. Now what's force majeure? Force majeure is like the act of God type of unforeseen situations where the contractor gets to A, increase the time for completing the project, or increase the price of the contract. And so your delay for damages clause will have no teeth in it if there's this broad... If the contractor can call anything force majeure. So weather, weather conditions in Florida. The contractors love to put in there unforeseen weather conditions. Well, that should be defined. What's an unforeseen weather condition in Florida? I mean Florida gets some rainy weather. Is that an unforeseen condition? If you allow it to be, it will be. And so every day it rains, the contractor will say, "Oh, that that's an excusable delay day." Well, if your project's going on in the summertime, it rains every day in the afternoon. So you can imagine that contractor saying, "Well, we couldn't work."

Now, sometimes they can't work in the rain and that's okay, but you have to be able to define that very carefully. So when we're negotiating contracts for owners, and you see me looking down, I'm looking at the time because Alan likes to remind me when I'm going on too long. Number one, we always want to put a damages for delay provision in there. We want to make sure that it's properly drafted, it has to say the right magic words in order to be enforceable. And secondly, we want to take a very, very, very good look at that force majeure clause and we want to carve out as many things as we can reasonably carve out that give the contractor the right to say, I couldn't work this day or I couldn't work this week or this month.

Look, contractors love to say we can't get materials. That's a force majeure issue. We had difficulty getting materials. Well, they may have difficulty getting materials from their regular supplier, but have you required them to look at other reasonable suppliers in the geography where they might be able to obtain the materials, and demonstrate to you that they've made that search and that they've looked at other suppliers and they still aren't able to obtain the supplies that they need for the project within a reasonable time to complete the project on time?

I've seen all of these things come up as reasons why a contractor has not been able to complete the job on time. And typically when I go look at that force majeure clause, I say to myself, "I wish I had drafted that before I've had to deal with this dispute." So very important, look at those things early on before you put your pen to the paper and the president of the board signs that contract. It is generally recommended to have a lawyer take a look at those issues because they're difficult issues, they're issues of contract interpretation, they involve how courts look at these things and interpret these things. And so sometimes legal counsel, legal review of that is going to be very important.

So moving on from there, I'm going to throw it back to Alan and he's going to talk about the right, I'm sorry. No, I'm wrong, I'm still up. We're going to talk about the right to inspect and reject work. Okay, so what I encounter, again when we get involved in a dispute is that the first time that the work is being inspected by the owner is when the work is complete. The owner has made all of the payments under the contract, and the only thing that has not been paid is the retainage, which is usually 10% of what the contract value was, what was supposed to be paid to the contractor. 10% is held back in retainage. And that's sometimes the first time that anybody looks at the work and determines whether or not the work was sufficient. Well, as you can probably imagine, that contractor has probably been paid most of their profit on the work. That 10% retainage may be relied upon the contractor to pay the last of its subcontractors, the last of its material supplies, bills for materials and supplies.

And so there's very, very little incentive for that contractor to jump on those issues. I've seen more projects get bogged down in the lengthy correction of work after the contractor's already delivered the certificate of substantial completion and they've been paid 90% of the contract price. And then all of a sudden the project drags out for months and months and months while the contractor is negotiating over what needs to be corrected, punch lists, all kinds of silliness. The best way to control that, and especially where you have a contract that is going, a bigger project where you're going to have progress payments made is that every time that contractor submits a payment application, your contract gives you the right to inspect and reject that payment application because the work is not right. If you want to get a contractor's attention, then you tell them, "Hey, I got your pay application, I'm going to have my consultant go out and look at this work."

And when the consultant goes out and looks at the work and determines that something isn't done right, you are writing back to the contract and your contractor and you're saying, "I'm not going to pay this payment application because A, B, C, X, Y, and Z need to be redone." That's going to get your contractors immediate attention. They need that payment. They have subs to pay, they have suppliers to pay. They may have credit terms that they're not really fond of that they need to take care of getting suppliers paid so that they're not incurring additional interest charges. And it also sets up a relationship where that contractor knows they need to deal with you every time they make an application to get paid on that project. But here's where the rubber hits the road. If that's not in your contract, that's a problem.

So you need to specify that. That definitely needs to be in there. And you need to be, and I mean it makes a heck of a lot of sense to make that determination about whether the work is done right and whether the pay application should be paid to make that determination be the province of a consultant, somebody other than the owner. So if you had the engineer or the consultant do that, those detailed plans and specifications, then you want to make it in the contract that that person is going to come back and do the routine project inspection. Does it cost you money? Yes, it does cost you money. Is it going to cost you way less than the dispute you'll have at the end of the project when you're arguing with that contractor to finish the job both in time and money? It's going to be far less to pay it upfront rather than doing it and waiting till the end. So reserve the right to reject and inspect and reject the work, and especially reserve the ability to do that with each pay application.

Alan Tannenbaum, Esq.:

Jon, somebody asked a question about having a separate owner's representative on a job. And let me answer that. So engineers, if they're doing inspections, most of them do periodic inspections. They're not on the job every day. So if you're doing a major project, you need somebody, a superintendent of the works, an owner's representative on behalf of the association. A lot of times boards say, "Well that's our manager's job." Well, management companies generally are not set up for that purpose. Some of them have maintenance crews that you can purchase services to act in that capacity. But it's a good idea, especially during a time when your board is going to be out of town, like over the summer to hire an owner's rep who can act on your behalf and be there to watch the project on a daily basis if it's a significant project. So that's definitely a good idea. I've had projects where there's a very experienced board member who knows construction well, but they go back to Indiana in May and the project is going on throughout the summer and nobody's watching the store anymore.

But let's switch to the next topic, which is the right to reject or replace subcontractors. I love this picture. I'm not quite sure how you get the car into that garage. But anyway, so people believe when they're hiring a contractor, that they're hiring this company that gave you the glossy brochure that has a nice website that gives you all these references. The people you're actually hiring to do your job is the superintendent and crew from the contractor and the subcontractor to show up at your property. And every contractor has, or many of them have superintendents who have been with them for 20 years, and they have superintendents who they hired last week. They have subcontractors who they're comfortable and used to dealing with, and your project's starting and that subcontractor's not available.

And they go into the marketplace and bring in a second tier subcontractor to staff your job. And as these folks walk towards you or towards your building, you really have to be proactive about who is it that's actually coming to our building? Do we know who the subcontractor is? Are they keeping discipline on the job? Are they following safety standards? And you need the ability to go back to the contractor and say, "This subcontractor needs to be taken off of the job. They're not following the specs, their employees are disrespectful, they're not following safety standards," and have the ability to reject them and have a new subcontractor brought in. So having control of the project that way is really important and understanding that you need to know.

And I learned this lesson a long time ago personally, I hired a friend of mine who was a commercial contractor. He had just got into home renovation work. And I hired him to do a renovation on my personal residence and I found out a month into the job that the superintendent who showed up had been hired a week before. So I literally had experience with that and there was a reason why the job wasn't going very well is because of who my friend happened to provide to me. So make sure you vet the people who are coming to the site. All right, with that I want to turn the session over to my partner, Cindy Hill, who's going to talk about protection against liens.

Cindy Hill, Esq.:

Thanks Alan. So the first step that needs to take place when you have a major project is to be sure that a notice of commencement is filed by the contractor. I do hear scuttlebutt about how contractors will say it's really not necessary or the project doesn't warrant it. Any big project, candidly, there's no good reason not to file the notice of commencement because what it does is it provides notice of record as to the project, the contractor and the owner. And it's that notice that when you have subcontractors or suppliers who are part of the project, they can use that notice of commencement to be able to send their notices that they have to send after providing their labor or services, their notices to owner to let the owner know, in this case your association, that they are part of the project. It's a statutory obligation that they have when the process is followed.

And when you get one of those, when you get a notice to owner from a sub or a materialman, it's best policies to reach out and even give them a call and say, we got your notice to owner. No, it wasn't exactly an invitation to a birthday party or anything, but it is notification that they're on your property, they're providing services, and if you reach out to them and call them and make some contact with them, you start a relationship that may benefit you if things do go south or if payments become an issue. Having a point of contact and making that friendly phone call can be a really good step to making sure that you got it, they know you got it, and everybody knows who everyone is.

So as the project proceeds, depending on the complexities you might have draws, it may be just a one lump sum. Regardless, you do want to get final or partial releases of lien as the project is progressing or when it completes. You want to get payment affidavits. You want to be sure that you get all of this from those who serve notices of owner to you, which is again why you want to make sure you reach out to them and keep them in contact, not just your contractor. And then your contractor will have to provide a final payment affidavit. And the final payment affidavit will have to include anyone who's not paid. So these are all very important documents that are part of 713 under the construction lien law. And it sounds self-serving, but I have to say it. It's best to make sure that you do have your association's attorney involved in these notices and keep them in the loop on them.

But if you're not going to do that at a minimum, again, make sure that these notices get put in a location where the board knows about them, can access them, reach out to the subcontractors and materialmen in a communication can go a long way to avoid problems. If in a worst case scenario you do get a lien on the property, first thing to do is take it to your attorney and let them look for some problems with it. There very well could be some problems. For instance, the deadline to file a lien is 90 days after the last furnishing of labor materials. If they've missed that deadline, that contractor or subcontractor, whoever it is, has a problem. The lien is good for a year. So you might even think, "Hey, we got a lien on the property but nobody's doing anything about it." But they've got up to a year to file a lawsuit. The lien does extinguish if a lawsuit isn't filed in a year though, so that's a good window to keep in mind.

You do have some options for contesting a lien if there are problems with it. One of them is notice a contest of lien in the statute which shorten shortens the lien period to 60 days. Now that's kind of a double-edged sword. You can get rid of the lien by contesting it in that manner, or the contractor might turn around and decide to sue. Again, conversations to have with your counsel. One last point for liens that's important to recognize is that when liens in a condominium for work on the common elements are on the entire condominium property. So they impact the units. And I have gotten some frantic phone calls from some of my association clients. We have a lien on the property, what do we do? We have an owner who's got a unit listed for sale. Well, there is a mechanism where those who want to refinance or sell their units can make a proportionate payment of that lien amount and continue with title transactions. It's not the end of the world.

That being said though, it does impact every unit owner when there is a lien on the condominium property and that's important to recognize. Whereas in homeowner associations, it will not. The work done on the clubhouse in the homeowner association, if that's liened, that's not going to impact the individual residences in the homeowner association. So I know we're running short on time, sorry to hit these issues so summarily, but they are important points to keep in mind with your counsel. So then I believe next we have Destinee.

Alan Tannenbaum, Esq.:

To clarify one point that Cindy brought up, in the significance of a notice to owner. Notice to owner, it has to be filed within 45 days of a subcontractor initiating work on your project or materialman supplying supplies for your project. And what the notice to owner is, it's a notice to you that they are prepared to perfect their lien rights against your building. So when we say, "Well, it's good to contact them." The contact is, we got your notice and we do not want a lien on our building or on our condominium property. So let's work together to make sure that doesn't happen. So if the contractor gets behind on paying you, we would like to know about it. Because you want to get paid and we don't want a lien. So I firmly believe it's good to have that conversation.

Jon Lemole, Esq.:

Alan, so the importance to get back to the notice of commencement and why that's so important, and correct me if I'm wrong, the notice of commencement is what basically then requires the subcontractor to serve a notice to owner in order to protect their lien rights.

So it all starts with that notice of commencement because now, if that subcontractor wants to potentially protect lien rights on the project, they have to give you the notice to owner. So now who the subs are who potentially have lien rights on your project. And if they don't give you that notice to owner, shame on them. But if you get it, then again, you have some A, knowledge, and B, you can establish that relationship.

Alan Tannenbaum, Esq.:

All right, next, let's get on to payment and performance bonds. And we're going to save some of the questions until after the session is over at noon. So hold our responses until then so we can get through with the substance of it. So payment and performance bond. A payment bond is basically a security that your contractor's going to pay their subcontractors and suppliers. So if your contractor doesn't pay their subcontractors and suppliers, you go to the surety, the surety's responsible for those payments. The other thing that a payment bond does is it takes your project out of the construction lien process. The subcontractors and suppliers need to look solely at the bond in order to perfect their rights, it's no longer a lien situation against your building. So it does have that benefit, at least as it relates to subcontractors and material suppliers. The prime contractor would still have the ability to lien your building under those circumstances.

A performance bond is security that the project is going to get completed. So if the contractor goes bankrupt mid-project, the surety comes in and either completes the project or pays you as the owner a sufficient amount of money so that you can contract for completion. So they're important protections. We definitely recommend them on larger projects. On smaller projects you may not even be able to find a surety to give payment and performance bonds. So they usually have minimum contract amounts that are involved. The hidden value of payment and performance bonds, especially the performance side is that the contractor never wants you to contact the surety. So they're going to pay extra special attention to that, a bonded job to make sure it's performed so you never make that call or contact the surety because that affects their ability to be on the amount of bonding that they can qualify for the next year.

So if a contractor is starting five jobs, and two of the jobs are bonded and the other three aren't, they're going to pay more attention to the two jobs that are bonded. So it's an incidental benefit to having payment and performance bonds and we definitely recommended it, and it's important that your performance bond extend at least a year after the contract completion to at least cover a portion of the warranty that you get. Usually they won't go more than a year, but there's some bonds that end upon completion and you have no protection under the warranty. Most sureties will extend that performance bond protection to a year. All right, so the next section is on dispute resolution procedures, and I'm going to bring in Jennifer Myers to talk about precautions relative to dispute resolution.

Jennifer Myers, Esq.:

Hi, like Alan said, today I'm going to talk to you about alternative dispute resolutions and contracts. You see these in almost every contract you sign. I see them in my lease contracts, I see them in my form contracts, they're everywhere, they're in everything. Relevant to today's topic, these are arbitration clauses that you really don't want to have in your contract. You want to have them removed from your contract. Instead, what you want to have is a contract that allows for, or that calls for a trial by jury. More specifically, you want to have a trial by a jury of your peers. You want to have people that own homes. You want to have people that understand the issues you might be going through, issues that your community might be going through, rather than an arbitrator. Arbitrators are primarily architects or engineers. They're lawyers. So they're not going to understand the plight of the everyday person, what you're really going through or you're really struggling with. So you want to make sure you have that clause in your contract that calls for a trial by a jury of your peers.

In addition to that, you want to make sure that your contracts match. So whatever contracts you have, you want to make sure that you have the jury trials in the same circuit court. So you want to make sure the circuit courts match where the property is. So this is going to make it easier for the parties to get together. So the takeaway, in the essence of time is that you want to remove the alternative dispute resolutions from the contracts, and you want to check to make sure that your contracts match, that they are going to allow for the same circuit for a jury trial. So you have everybody kind of working together in the same place where the property's located. And I'm going to move on to-

Alan Tannenbaum, Esq.:

Jennifer, before we leave that, where key conflict often occurs is you sign a contract with your engineer. I had one of these, where it says the dispute is determined in the state court but in Hillsborough County. And then the association was about to sign a contract with the contractor that said the dispute was determined in state court in Pinellas County. And that meant that if an issue on the project was emanated both from design and construction, that now you were forced to try different parts of the case or different cases in two different counties.

So look first at your engineer or owner consultant, owner/architect contract. Make sure that contract calls for disputes to be determined in state court and the jurisdiction where the project is. And then when you sign your owner/contractor contract, make sure the dispute resolution in that contract is also in that same county where the project is. And the other thing that Circuit Court gives you is really broad-ranging discovery. A lot of times in arbitration it is restricted that way. So with that, Destinee Small is going to talk about prevailing party attorney's fees and cost provisions in your contracts.

Destinee Small, Esq.:

Hi everybody. All right, in the essence of time, I'm going to wrap us up today so we can answer some questions and then get you all out of here. So as Alan said, the final piece of a repair contract involves attorney's fees. So associations want to ensure that their contracts include a provision allowing for the prevailing party's attorney's fees and costs. So practically this breaks down into one general idea, which is leverage. So for example, if a contractor files a claim against an association asking for unjustifiable, unreasonable damages, which happens less often, or if an association files claims against a contractor that isn't necessarily a high dollar or high damages amount, then that attorney's fee provision essentially evens the playing field, so to speak.

These provisions basically create that deterrence factor from nonsense contractor claims because if that contractor is responsible for your fees as well, it essentially ends up costing more to litigate the matter. In a similar way, these attorney's fees provisions provide leverage in negotiations that happen at the outset of the project as well. And the general idea is just to keep the contractor as interested as possible in your project, as Jon stated before, making your project a priority. Because they understand what bad behavior could cost them in litigation costs, attorney's fees, and court costs. So that's just a general summary of this essential provision, and we're going to go ahead and take any questions that we may have.

Alan Tannenbaum, Esq.:

All right, I see a question from Greg. Is it good to have a request for proposal and have that as an addendum to the contract? I think what Greg is getting to is what are the contract documents? So there's generally, and I'm looking at the form industry contracts, they generally have this provision that lists all of the contracts, well all of the documents that are comprised what the contract is. So one of the big problems that we find is that they're contradictory. There could be supplemental conditions that differ from the general conditions. And there could be items in the base contract that differ from those two. And then the engineer comes up with a project manual that has also general conditions in them that may conflict with something in the plans and specifications or in the industry form general conditions. So a lot of our time in drafting is spent on reconciling it.

And then what you do is you have a supremacy clause, which is really important, because there's going to be built in conflicts between some of your contract documents. You need to have a supremacy clause that says in the case of the conflict, which one governs? And so I find this strange thing that I've seen over and over again, when you list a supremacy clause, and the last thing in the supremacy clause are change orders, requests for information and so forth as having the last in the supremacy. And I always talk to the engineers and say, "You need to reverse that because obviously a change order should overcome the base contract and the specifications because it's a change in the field during the construction and should have requirement." Somebody asked a question about liens, which is, can a subcontractor who doesn't file a notice to owner within the 45 days of beginning work on the project, can they lien your project? And something we need to clarify is it doesn't take anything to file a lien other than going down to the courthouse or the clerk's office and recording a lien against your property.

It's not a valid lien if in fact that subcontractor didn't provide you with the notice to owner. And you have means under the construction lien law to have that lien removed, but liens are easily filed, even the ones that aren't valid. So when we have said that in the circumstance of a subcontractor that you didn't know about showing up at the project and eventually saying, "Look, I'm entitled to be paid or I'm going to lien your property." You could certainly tell that subcontractor that we filed a notice of commencement, we did not get a timely notice to owner from you, and you have no lien rights.

That doesn't necessarily stop them from doing that. And what we generally say to the general contractor is we don't even want the possibility of a lien being filed against the property. So before we issue the final payment, you need to get us a lien release from that subcontractor or material supplier even though it didn't comply with the statute because we don't even want to mess with having to go through the process of having that lien removed. So when they show up, it has to be dealt with, even though they may not have a valid lien.

Jon Lemole, Esq.:

Alan, that raises a good record keeping issue because I've come across this, you ask a client, "Well, did you get any notices to owner?" And they look at you like, "What?" If you get these notices to owner, have a process. Because if you have to go to court and demonstrate that you didn't get one, the absence of an entry in the association's business records is an exception to the hearsay rule.

So you want to have a process for when you get those that you're recording them, you're logging them in, you're putting them somewhere as business records on this project so that number one, you can prove the ones that you know, which ones you got. But also if you don't have a record of having one and that contractor says, that subcontractor says, "Oh no, we sent it." That failure to have that evidence is evidence, it's admissible. And so I can't stress enough that you need to keep accurate records relating to NTOs that you get on your projects.

Alan Tannenbaum, Esq.:

All right, well we're hitting the end here. I don't think we're going to carry over because I don't think there's any additional questions that we didn't answer. But if somebody thinks of a question, certainly email us if we can answer the question, we will. Michelle has put up a poll, it would be great if you could respond to it before you leave. For all you managers, make sure Michelle has your manager information so that she can converse with the state and get you appropriate credits. Again, for your other board members or other managers, this presentation will be on our website a week till to 10 days with a written transcript that goes along with it. Some people find that to be very helpful. So you can refer your board members to our website within the next couple of weeks if you want to have them see this presentation, you can have the slides for whatever value they have. If you want some funny cartoons, that's the greatest value on the slides we use today. That's not anything very substantive there.

We thank everybody for participating today. It was good having you on board. Everybody enjoy the rest of your summer, and anything we can help you with, you'll let us know. Until next time, next month, we'll see everybody later. Thank you.

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Demystifying Budgets & Assessments: Insights from Industry Leaders

Video Insights:

Importance of Reserve Studies

  • The Surfside tragedy in Florida highlighted the importance of saving funds for older buildings and brought attention to the lack of best practices in funding reserves.
  • The latest law on waiving reserves is increasing the threshold for waiving or partially funding reserves, encouraging boards to stop passing the buck and ensure they have enough money for necessary projects.
  • Getting a Reserve study from an independent qualified professional is crucial for homeowners to ensure proper maintenance and avoid potential issues.
  • Failure to conduct required studies can result in breaching fiduciary duty and voiding transactions in homeowners associations.
  • It is crucial for HOAs to regularly update their reserve studies and effectively communicate the reserve component list and funding plans to their constituents.
  • Potential homebuyers prioritize knowing the budget and the last Reserve study of a homeowners association to understand how it is funded before making a decision.
  • It is important for homeowners associations to have a reserve study and maintain at least 10% of their dues going into reserves.

Budgeting and Financial Planning

  • "Proper budgeting is one of the most important things you can do."
  • "Establishing a realistic budget is a key metric for homeowners, and the Community Association Institute provides a helpful step-by-step guide for budgeting."
  • It is important to establish a trend by using past budget and year-to-date data along with service provider information to make informed decisions.
  • Homeowners are encouraged to participate in a zero-based budgeting process, where every line item is challenged and prioritized by different committees, ensuring transparency and accountability.

Transparency and Communication

  • Transparency is crucial in the budget process and when implementing special assessments for homeowners.
  • Taking the temperature of the membership is crucial when making decisions about significant special assessments, such as a 400% increase in insurance on a Barrier Island.
  • The best thing homeowners can do is communicate and be transparent with their ownership, even if they may not like the answer they receive.

Summary of Video:

We would like to talk about the pivotal role of money management and budgeting in homeowners associations, particularly focusing on the recent changes in the Florida law that requires reserve funds for various building maintenance expenses. The importance of these provisions cannot be overstated, as they become mandatory for certain items by the year 2024.

Through our deep dive into this issue, we're aiming to empower homeowners by imparting crucial information about financial management within associations. With insights from our panel of industry experts, our guidance is based on a wealth of experience, allowing us to meet the needs of community associations and ensure robust financial health.

Legal changes in Florida have necessitated that condominiums and homeowners associations set up reserve funds for future expenditures. This legislation emerged in response to problems encountered by retirees who hadn't planned ahead adequately. The law now mandates reserves for structural integrity, fire protection systems, plumbing, electrical systems, waterproofing, exterior painting, windows, and exterior doors, depending on the building's age, size, and maintenance circumstances. It's also important to note that by December 31, 2024, the Condominium Associations' Structural Integrity Reserve study items must be fully funded, with no room for waiver or reduction by owners.

Homeowners are advised to take active roles in maintaining their condos and ensuring regulatory compliance by undertaking regular reserve studies and communicating the financial health of the community. Waiving reserves could lead to insufficiency of funds for necessary projects and may risk breaching fiduciary duty. Moreover, professional Reserve analysts and Reserve Specialists can now conduct Structural Integrity Reserve studies as per Senate Bill 154.

Also critical is homeowners' understanding of the reserve schedule, even for items not explicitly required. Proper financial management should discourage waiving reserves, which can leave the board with inadequate funds. Frequently obtaining a Reserve study from a qualified professional is encouraged for the correct repair and maintenance of buildings.

Homeowners' associations need to maintain transparency about their financial health, as it significantly impacts potential buyers. Failing to provide this information can result in fiduciary duty breaches and void transactions. Therefore, sound money management and open communication are paramount for associations.

On the topic of budgeting, homeowners should strive to understand reserve studies, funding methods, and how to create realistic budgets. Tools like the online Community Association Budgeting Basics can provide invaluable guidance. Preparing for potential increases in operating dues and special assessments is part of this learning process.

Budgeting should also involve interaction with service providers, trend establishment using past budget and year-to-date data, future project prioritization, homeowner involvement in decision-making, and budget amendment to manage unexpected expenses without needing special assessments. Homeowners are advised to consider all costs associated with a special assessment, including postage, printing, and follow-up payment notices, to avoid using the operating budget.

When exploring financial options, homeowners' associations should look at the community's budget, financial health, and potential engineering studies. They should be aware of interest and late fees for collections and consider the circumstances of a mortgage foreclosure before pursuing a lien foreclosure.

Lastly, homeowners need to maintain communication and transparency, update reserve studies, address delinquencies, and seek legal advice. Remember that while boards have limited options to handle delinquencies, they cannot indefinitely delay payments or show favoritism towards specific owners. Homeowners should also leverage professional help to navigate economic downturns, insurance challenges, and understand building funding requirements, using available resources to tackle homeownership challenges.

In conclusion, as homeowners and members of associations, being aware and knowledgeable about the financial aspects and responsibilities can ensure that everyone is prepared for future projects and possible economic downturns. This level of preparedness is what helps to build and maintain strong, prosperous communities.

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Unpacking the Legislative Changes Impacting Florida Community Associations


In the rapidly evolving world of community associations in Florida, new legislative adjustments have necessitated a swift and informed reaction from legal professionals. The legal landscape of community associations has been dramatically transformed, primarily due to two legislative areas: tort reform and construction defect claim reform. In light of these modifications, community associations, lawyers, and homeowners alike face unprecedented change.

Tort Reform and Its Impact on Community Associations

At the center of these modifications is House Bill 837, which has redefined the statute of limitations for negligence claims. Previously, a generous four-year window permitted the filing of such claims. However, this duration has been sliced in half, now restricting such cases to be presented within two years. This abrupt transition has set off an avalanche of lawsuits as lawyers rush to file cases beyond this two-year limit.

This limitation overhaul requires that board members and managers maintain a vigilant eye on the ticking clock when filing lawsuits or claims. It's essential to distinguish between a negligence claim filed by the association and a covenant enforcement action, both affected differently by these legislative changes.

Understanding Different Types of Claims

The importance of accurately identifying a claim's nature cannot be overstated. Depending on the circumstances, a provision in the Declaration may necessitate reimbursement from a negligent unit or lot owner. This repayment can be framed as a covenant enforcement action, bypassing the two-year statute of limitations.

It is highly recommended that associations consult with legal counsel, particularly a general or litigation attorney, to avoid missing out on potential claims. Security measures and claims related to third-party criminal acts on a property are equally noteworthy, as these issues are covered extensively in the new bill.

Navigating Liability with Intentional Torts and Criminal Acts

The new legislation has shifted the approach to intentional tort cases, compelling the court to assess everyone's fault involved, including the injured party, the association under the lawsuit, and the perpetrator of the act. This framework is particularly significant in cases of intentional torts, where earlier, certain damages weren't subjected to apportionment.

Simultaneously, the law introduces liability protections for associations operating multi-family residential properties, provided they have implemented specific security measures in response to criminal activity. This provision places associations in a powerful position to deny liability, provided they can demonstrate adequate security measures such as a robust security camera system, sufficient lighting, trained security staff, and key-card or code-controlled access gates.

Maintaining Safety: A Mandatory Expectation

Under the new guidelines, associations must adhere to strict safety procedures. These requirements include maintaining well-illuminated parking lots and walkways, installing lockable exterior doors complete with peepholes on each unit door, and securing pool areas with lockable gates that require a key or fob for access. The law also advocates for crime prevention through environmental design assessments, diligent employee training, and robust onboarding procedures for new hires.

Amid these safety procedures, the law stipulates that the number of dwelling units on a parcel determines the application of the 'smart board law,' creating confusion around townhome communities governed by HOAs. Furthermore, the law has potential profit implications for vendors, security companies, camera, and lock providers, and insurance companies.

The Transition to a Modified Comparative Negligence State

Florida's transition from a comparative fault state to a modified comparative negligence state has far-reaching implications. This change influences the compensation awarded in lawsuits involving accidents or injuries caused by negligence. In this new system, it is imperative for associations to document accidents promptly and establish thorough accident investigation procedures.

Associations must remember that documenting an accident could prove decisive in showing that the injured party was more than 50% at fault. This allocation of fault significantly affects the payout of claims and the injured parties' ability to recover from injuries. Furthermore, there's a significant focus on attorney's fees, especially on multipliers. It's important to note that the legislature has now put limits on this, stipulating that attorney's fees, in most cases, cannot surpass the total recovery amount.

Calculating Attorney's Fees in Legal Cases

As a key change in the legal landscape, attorney fees are now determined by the 'lodestar' method. This involves considering the time litigators have spent on the case and their hourly rates. While it is presumed that the lodestar fee is reasonable, challenging this could only occur under rare and exceptional circumstances.

Construction Defect Claim Reform: A Closer Look

Regarding construction defect claim reform, the changes have seen a four-year statute of limitations continue for actions related to design, planning, or real property improvements. However, the trigger point for this timeline now rests on when a temporary certificate of occupancy is issued. The deadline for latent defect claims has also been curtailed, reducing to seven years.

Navigating Construction Defects in Condominiums

Condominium situations present their unique challenges. For instance, 718 124 stipulates that a cause of action on behalf of a Condominium Association does not accrue until turnover. The seven-year time frame does not extend this statute in the case of latent defects. This creates a complex scenario, potentially leaving communities without recourse for construction defects.

Given this uncertainty, it's wise to conduct an engineering study as early as possible, preferably even before turnover. Homeowners, they might need to act before turnover to safeguard their claims. In addition, construction performed under a duly issued building permit may not extend the statute of limitations or repose. Interestingly, the legislature has included a clause providing a limitation extension for those who purchased the model home.

Understanding Statutes of Limitations for Property Management Legal Cases

Recent statutory changes have extended the deadline for filing access claims until July 1st, 2024. This is applicable even if the statute of limitations had previously expired. Each building is treated as a standalone for multi-building properties when determining a limitation period, leading to potential confusion. Lastly, introducing the term "material violation" in the Florida building code now requires engineers to highlight any code violation that may significantly impair a building's performance or systems.

Navigating the New Property Management Legal Guidelines

These newly adopted terminologies in property management legal guidelines pose challenges for engineers. Given the unfamiliar language in these guidelines, testifying in trials or depositions can become daunting. Moreover, engineers will now have to answer questions regarding every defect, further increasing the complexity of their role.

On a brighter note, these guidelines may provide some benefits by limiting owners' rights to pursue negligence charges. However, the industry will undoubtedly grapple with these changes' added complexities.

Confronting the Limitations of Pursuing Developers for Warranty Claims

Lastly, the limitations of pursuing a developer for warranty claims, especially in larger communities built over an extended time, are a noteworthy concern. For instance, a Master Association spanning 30 years with over 7,000 homes may find this a daunting task. While there are some routes for connected townhomes to recoup costs from the developer for negligent maintenance, financial claims, etc., the extended statute of limitations and warranty exit provisions in HOAs offer little consolation.

The bottom line is that while these legal changes have brought a mix of opportunities and challenges, staying well-informed and proactive is essential to navigating this new legal landscape successfully. It's always advisable to seek professional counsel when needed, and remember that the session will be recorded and available on their website for future reference. 

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On June 16, 2023, a number of news outlets reported that preliminary investigative reports of the Surfside condominium collapse have identified a latent structural design flaw at the building's elevated pool deck.According to the lead federal investigator, the design plan for the pool deck "fell well short of the applicable building code."More to the point, the investigator added that "from the beginning, the original structural design provided low margins of safety."

If this preliminary conclusion turns out to be validated, it will stunningly highlight a common misperception among condominium boards of directors who are coming out of turnover from developer control.That stunning misperception is that a certificate of occupancy is tantamount to conclusive proof that a condominium is free from life-threatening latent defects.This is certainly not a knock on local building inspectors, but it does shine a spotlight on a prudent decision frequently overlooked by new owner-controlled boards, namely the independent commissioning of a post-turnover engineering assessment of building conditions.

One must wonder whether a post-turnover engineering assessment would have prevented the horrible tragedy at Surfside.We'll never know.However, a thorough engineering assessment may have averted a disaster, and that is the point for future condo associations to consider.No doubt such engineering inspections are expensive.But the expense is a small price to pay to avert tragedy.Furthermore, when performed under the guidance and assistance of competent construction attorneys, those engineering studies can pave the way for recovering the costs of correcting any discovered defects from the developer, architects, engineers and contractors who constructed the building.

Notwithstanding the tragic example of Surfside, the Florida legislature recently caved to developer interests and substantially shortened the time for condominiums and other community associations to make claims against developers, designers and contractors for latent, undiscovered defects, from 10 years to 7 years.This seems to be at complete odds with the lessons coming out of the Surfside investigation.Nevertheless, it underscores the idea that prudent owner-controlled boards would do well to act quickly in having their buildings evaluated for hidden time-bombs and establishing a baseline for proper maintenance of those buildings over their life expectancy. 

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LEGISLATIVE ALERT – HB837 – Tort Reform and Building Security from Crime

HB837 was signed by the Governor on March 24, 2023.It presents one of the most significant legislative tort reform efforts in Florida over the last 50 years.Let's look at some of the key features which impact Florida condominium and homeowners' associations.

Statute of Limitations on Negligence Claims

HB837 shortens Florida's statute of limitation on lawsuits for negligence claims from four to two years.Negligence lawsuits are typically claims for personal injury or property damage resulting from things like car accidents, slips and falls, and construction site accidents.If either the association or someone else has been damaged or injured from an accident on association property, the time to commence a lawsuit on that claim is now much shorter.Unfortunately, associations might see a rush by others to file lawsuits against an association for accidents that have occurred on association property within the last two years.WHAT CAN YOU DO?If your association has sustained property damage due to the negligent conduct of someone else, you should confer with legal counsel right away.A lawsuit on your behalf may need to be filed quickly.In the case of any recent on-site accident, gather and preserve all records relating to the accident.Adopt procedures for future documentation of the date, place and circumstances of any accidents occurring on-site.

Modified Comparative Negligence

Florida was a pure comparative negligence state.This meant that in a typical accident case a jury could apportion fault between all of the parties, and a claimant's damages would be reduced by the proportionate share of the claimant's own fault for the accident.Now, however, if the claimant is found to be more than 50% at fault, the claimant cannot recover damages.WHAT CAN YOU DO?This is a situation where solid recordkeeping can be key.Inspection reports, video surveillance data, incident reports, and notes taken at or near the time of the accident can all be valuable and admissible evidence in demonstrating that an injured claimant was more than 50% at fault for an accident while on association property.Going forward, having solid procedures for routine grounds inspections and reporting, incident reporting and accident documentation is critical.

Multi-Family Residential Building Safety Against Crime

Associations with multi-family residential buildings with at least five dwelling units can now greatly increase their protection from lawsuits emanating from criminal conduct on-site.By instituting certain security measures, these associations can create a "presumption against liability" for personal injuries or property damage suffered by residents, guests and association employees as a result of crimes committed by anyone other than association employees and agents.The security measures include: (1) installing security cameras at all points of entry and exit which record and maintains 30-days of retrievable footage; (2) well-lit parking lots from dusk until dawn; (3) 1-inch deadbolts on each dwelling unit door; (4) locking devices on windows and sliders; (5) locked access to pools; (5) peephole viewers on solid dwelling unit doors; (6) obtaining a "crime prevention through environmental design assessment" performed by a qualified assessor by January 1, 2025; (7) by January 1, 2025, providing "proper" crime deterrence and safety training to all existing building employees; and (8) after January 1, 2025, providing such training to all new employees within 60 days of hire.WHAT CAN YOU DO?This new legislation puts significantly more power in the hands of association boards and managers to shield their communities from liability for injuries caused by criminal conduct.However, some of these measures, especially relating to locking devices and peepholes on unit windows and doors, do present some obstacles.Many associations exclude unit windows and doors from an association's maintenance obligation; therefore, some decisions may need to be made with regard to amending governing documents to either include these items or to require unit owners to implement and maintain these features themselves.Furthermore, since certain safety assessments need to be performed by independent assessors it is advisable to implement these safety measures and arrange for the inspections well before the deadline of January 1, 2025.


HB837 provides community associations with significant relief from claims for property damage or personal injuries resulting from accidents or criminal activity on-site.We've provided a general summary of the portions of this law which should be important to community associations.Like any legislation, the devil is in the details and we recommend that association boards and management consult with general counsel to gain a fuller understanding of how these provisions will impact the governance and operation of their communities. 

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LEGISLATIVE ALERT – SB360 – Turnover Claims – Statute of Repose

On March 14, 2023, the Governor signed SB-360 which addresses, among other things, a shortening of the statute of repose for construction defect claims.

A "statute of repose" or "repose period" is a hard deadline on bringing claims against a developer, design engineer, architect, builder or other contractor for defective design or construction.Until last week, the repose period in Florida was 10 years, generally running from completion of the building or actual possession by the owner, whichever was later.

SB-360 shortens the repose period to 7 years from the date of a temporary certificate of occupancy, final certificate of occupancy, certificate of completion, or the abandonment of construction of an uncompleted improvement, whichever is earliest.SB-360 also makes it clear that in a multi-building community, the repose period runs on a building-by-building basis, not from completion of the community.The law is effective immediately.However, for any community which has buildings or site improvements completed more than 7 years ago, but less than 10 years ago, it provides a grace period until July 1, 2024 to commence a claim for damages from defective construction against the responsible parties.

This new legislation presents difficult issues for existing Condo and HOA communities.Going forward, many communities may see situations where turnover is beyond 7 years from completion of the buildings or the site improvements.Thus, developers have an incentive to delay turnover to defeat future claims against them.Furthermore, since the repose period is measured building-by-building, an Association may have to front multiple lawsuits against a developer who builds a large multi-building community over a period of many years.

The immediate takeway for Condo and HOA managers and boards is to act now to preserve claims for the defective construction of your buildings or site improvements completed more than 7 years ago, but less than 10 years ago – you have until July 1, 2024 to investigate those claims, prepare and serve Chapter 558 Notices of Construction Defects, and commence a lawsuit.Communities in that bracket would do well to engage a forensic engineer to investigate your buildings and site improvements expeditiously. 

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The Addition of Charging Stations to Florida Condominium or HOA Properties: Requirements, Concerns & Challenges

Alan Tannenbaum, Esq.:

One of the things we're not going to be covering today is how local municipalities and counties have been responding to permit requests, and so forth for the installation of this type of equipment, and whether there are any local codes or ordinances that might apply. We're not going to go into depth on that because, obviously, it's going to be different all around the state.

This is an industry where the technology is fairly new. The companies are a little bit behind the eight ball in their maintenance facilities, their ability to perform maintenance. They've built far more than, apparently, they've been able to maintain. The legislature got involved, especially on the condo side, passing legislation that's somewhat confusing and contradictory, which Cindy's going to get into in a moment.

One of the things that we found, and we'll talk about it in-depth, is that some properties have the electrical capacity to support charging stations, some don't. Upgrading your electrical system in order to support a charging station is a significant project in and of itself, so we're going to talk about that. With no further ado, Cindy, why don't you talk a little bit about what the Florida Legislature did for condominiums in the area of charging stations?

Cindy Hill, Esq.:

Okay. Well, generally, those of you who have lived in condominiums, or managed them, or had familiarity with them over the years know that you can't make changes to common elements in condominiums without being concerned about what's called a material alteration. A material alteration has been a concept, even though it's not actually in the Condominium Act, it's been a concept that's been accepted by the courts in Florida for years as being any change that would palpably or perceptively appreciably affect or influence the function, use, or appearance of condominium property. That's a mouthful.

What that comes down to in the case law is that if you change the color of the building, if you change from asphalt to pavers, if you change a tennis court to a pickleball court, any of these types of changes are going to fall into your material alteration analysis, where you need to see if the statute's going to require an ownership vote for these changes, or if your documents are going to provide different guidance, because the statue says 75% of the owners are needed to approve a material alteration to a condominium, unless the condominium's declaration states otherwise.

Usually, making a change like we're going to discuss today, to install electric vehicle charging stations would be a big burden before you even started looking into the logistics of it, but that's not the case because the legislature decided to create a statute on point for this. For once, in many instances where I get asked questions about, "Can we do this? Can we do that?" I say, "Well, I don't really know what your documents say if you're not my actual client." In this case, this is statutory. You might have some practical logistical issues with this statute, but the requirements are going to be statutory, not document-driven, so you're going to want to pay attention to the statute if this is an issue for your condominium.

Why did the legislature do this? Well, they specifically put in the opening of the change to the statute, and it is quoted here on the page 718.113(8), that they found that the use of electric vehicles conserves and protects the state's environmental resources, provides significant economic benefit savings to drivers, and serves as an important public interest. It's under that hat, so to speak, that the legislature has deemed to make electric vehicle charging stations something that is outside of the normal requirements for installations that would normally impact material alterations to the common elements.

The next slide, I believe, is going to lay out the next part of what I'm going to discuss. Okay. The statute has basically two lists of what's going to apply when you go to request ... By the way, this is the part, the request from a unit owner to install. We are going to discuss a little later the part where the association itself wants to put in a public, or not necessarily public, but one for the use of all owners. This analysis is for when you get a unit owner who wants to install an electric charging station for their vehicle.

First of all, they have to have a limited common element or exclusively designated parking space. If you have open parking and no one has the right to a particular parking space, you might have to stop there. Next, the installation cannot cause irreparable damage to the condominium property. Some of these conversations about how your older condominiums maybe aren't outfitted for these changes, the analysis might have to stop there as well.

For those of you who have assigned parking, newer buildings, newer communities, let's get to the next hurdle for this. The unit owner's responsible for the cost of the installation of the station, as well as maintenance and repair, and that includes hazard and liability insurance. For those of you who are concerned that if someone puts in an electric vehicle charging station, there's not necessarily parameters for how that should be done, or who should pay for it, it's right here in the statute.

The unit owner has to pay for the installation of the station. The unit owner has to pay for the maintenance for it. The unit owner has to pay for the repair for it, and the unit owner has to pay insurance for hazard and liability for it.

Then the next question might be, what happens if they sell the unit and the next owner doesn't want it? Well, the statute's clear on that too. If the unit owner even decides him or herself that they no longer want it, or they sell the unit and the new purchaser doesn't want it, that owner is responsible for the cost of the removal of the electric vehicle charging station.

Just in case there was any doubt, the next portion of the statute does provide that the unit owner must comply with all applicable laws and governmental regulations. Going back to, Alan was saying earlier, we're not going to delve into those because they are going to be dependent on what area of the state you're in. There's no question though that the unit owner who wants to install electric vehicle charging station has to comply with whatever those local requirements are.

The next part of the statute says ... Those were all the must, you must do this if you're a unit owner. The next part is the condo association may require the unit owner do to the following: Comply with industry safety standards. I don't know why that's a may. I have no idea why the legislature thought that'd be a may. I would put that in the must category, but it says you may do it, which means I would recommend you do so.

The next may category is compliance with reasonable architectural standards, so to the extent there is a way to position an electric vehicle charging station in such a manner that maybe it doesn't stand out like a sore thumb, or that there may be some aesthetic barriers you could put around it. As long as those are reasonable, the statute does allow that.

The condominium association may also require the unit owner to engage the services of a licensed vendor who is familiar with electrical charging stations. That's a practical requirement that might be hard to meet based on some of the things I've been hearing about the industry, but that is something that they can require. I would recommend if you do that you have some vendors on your list that you recommend that they contact.

Also, you may require the owner to provide a certificate of insurance. I don't consider that a may. My clients that have had electrical vehicle charging stations installed pursuant to a unit owner request have required that certificate of insurance. Then I have advised, and they have done so, they've taken that to the association's insurance agent to ensure that the coverage is in fact applicable and appropriate for what the requirements need to be for the liability for the community.

The final may is that the unit owner can be required to reimburse the association for any increase in insurance premium costs. That's not something I've actually experienced with my clients, but that's another concern to discuss with the association's insurance agent. Is there sufficient insurance for the potential liability of what could happen with an electric vehicle charging station? If so, is the coverage adequate?

That's quite a long list of considerations. I have recommended that my associations that are going to allow unit owners, because they can, they have the feasibility to allow electric vehicle charging stations, create a board policy and a form for the owners to fill out so that these hurdles are clear from the start.

In my experience, unit owners putting in electrical vehicle charging stations really don't have any idea that the condominium even needs to be involved necessarily, much less whether or not the cost is going to be borne by them, they'd have to get insurance. These are all pieces of information that a unit owner should have in their hands before they go out and hire an electrician to put an electrical vehicle charging station in their garage, and then find out later that there's an issue. I give that example because it has happened with my clients.

One final point I want to make, and it's more of an academic point than a practical one, but it goes back to the fact the legislature decided to give this exception to the material alteration for electrical vehicle charging stations, and is that the legislature also creates an easement for the installation of the electrical vehicle charging station and hooking it up through the association's common elements. That practicality engineering part is covered by the legislature as well.

I know someone was asking for some good news. I will say, having brought up the owner who put the electrical vehicle charging station in their garage without association approval and without an electrician, my client made a demand that they rectify those issues. They were rectified and he now happily has an approved electrician-certified electrical vehicle charging station in his garage. That's one piece of good news I can offer in a world where it seems like we don't get too much of it.

That is that statute in a nutshell. Again, the citation for it, you can get it on the Florida Statute's website and start making a checklist for your board, for your community as to what these obligations are.

Alan Tannenbaum, Esq.:

Cindy, let me ask you a question. Are there circumstances where you would recommend a declaration amendment versus a board trying to govern the charging stations through just merely a board rule?

Cindy Hill, Esq.:

There could be circumstances where that'd be recommended. I would say if the community was particularly concerned with the aesthetics of it and wanted it in a particular area in a garage or a parking area, that would be a very good amendment to the declaration to be clear on that. Because the statute does say that you can put reasonable architectural standards on the installation of these chargers, but doesn't give any more guidance than that.

Alan Tannenbaum, Esq.:

One of the things with a certificate of insurance, and this applies to anytime the association desires to be an additional named insured, insurance companies have changed their policies. It used to be you got a certificate of insurance and in the bottom box, there was an indication from the agent that the association was now an additional named insured of the policy.

Several insurance companies are now requiring that there actually has to be an issued endorsement naming the association as an additional insured. Sometimes, the policyholder has to pay for that endorsement. If you're just getting a certificate without that endorsement, it may not qualify to make you an additional named insured, so ask for that endorsement also.

If you would turn the slide, I don't know if Jon or Michelle are controlling the slides. This is what ... Go back to the prior one just for a moment. This is the ... The prior one. Sorry. This is the statute that Cindy cited about there being an easement over the common elements. I want to talk about this for a moment because I'm not sure the legislature thought through this one.

The electrical service could be far afield from where the owner's residence is. Does this mean that an owner can bring a contractor in, do an open trench to create a new electrical line to bring the service over? We don't really know what the legislature intended with this, but there's going to be some interesting issues when somebody says that, "I'm entitled to have my own charging station. My meter won't support it, so I want to be able to utilize the association's electrical service in order to supply my personal charging station." How will that be charged for? All kinds of issues got created in the process, so big question mark.

Let me turn to my partner, Jon Lemole. Jon's going to talk about the installation of charging stations by the association itself and what happens with a homeowners association. Jon, take it away.

Jon Lemole, Esq.:

All right, thanks. In condo land, there's a wholly separate subsection, subsection 9 in 718.113 that's different from the subsection that Cindy was talking about, and there's some key differences. Number one, it's much shorter, but there's some other very key differences.

What Cindy was discussing, 718.113 sub 8, and that's where a unit owner wants to install a charging station, you'll notice that the operative word there is that the association must allow the installation. However, by the time you get through all of the different requirements that the association could put on that allowing a unit owner to install their own charging station, it probably makes a lot of unit owners not want to install the charging station, and so what do they do?

I've seen some questions in the chat already. They come to the association and the board, and they say, "We want you, we want the association to fund and install charging stations on the common elements of the condominium." What governs that situation where a condo is being asked to do that? That's the separate subsection 9 of 718.113. I'm going to flip to the next slide because I've got the statute written here.

Let's look at some of the key distinctions between what Cindy discussed and this section of the law. The first big, noticeable exception is that where the association itself ... We're talking about condo associations here. Where a condominium association is being asked or is considering whether to install a charging station on common elements, the board may make that available. The board does not have an obligation to make that available. It's a may not a must.

You can certainly say, "We're not going to do it. You can do it, unit owner, but here's all the hoops you have to jump through." That may make it unpalatable to the unit owner, or the board can decide, "Well, we're going to do it, and let's look at the statute and what requirements are imposed in the statute if we choose to do that," if the board chooses to do that. There's really not a lot in this statute when it comes to the board choosing to install charging stations on condominium property.

The two biggies are that the association has the ability to establish the charges or the manner of payments for the unit owners, residents, or guests who use the charging station or natural gas fuel station. It covers both. The board is well within its rights to pass those costs on to the owners who actually use this facility.

I've seen some questions in the chat where they've been asking, "Well, does everybody have to pay for this?" At least according to the statute, the board can decide that it doesn't need to be assessed to all unit owners. It can be assessed to the unit owners who use the station. Now, how do you determine those costs? I guess, you've got to figure out who's using the charging station and then determine those assessments accordingly. Certainly, that number may go up and down as people have electric vehicles, get rid of electric vehicles, and more people buy electric vehicles. You're allowed to do that as the board of a condominium.

Now, Cindy touched on this very early in her presentation. Is the establishment of a charging station or a natural gas station, is that a material alteration? Because those of you in condo land know that a material alteration is a very difficult thing to do, typically. You need to get a lot of approval for it. Statutorily, there's a very high bar to approving material alternations. That may be changed in your declarations, but that usually requires a vote of the unit members.

In this case, the legislature has made it very clear, explicitly clear in the statute that if the board decides to install charging stations on condominium property, that is not a material alteration or a substantial addition to the condominium property, so takes it out of that area where you'd have to go and meet the approval requirements either by statute or by your governing documents.

The board can do this. They don't need to get widespread approval of it. They don't need to comply with the material alteration voting requirements, and they can distribute the payment, the cost of this among the unit owners who use it. At the end of the day, it's a may not a must, and the board can choose to do it or not to do it.

Now, I want to talk about HOAs. We've been spending a lot of time talking about condominiums, but in homeowners associations, as is the case with a lot of things with homeowners associations, there's much less statutory authority around what a homeowners association can do versus a condominium association. In this case, there is no provision, statutory provision that guides homeowners association on the issue of electric vehicle charging stations.

At the end of the day, a homeowners association is not required to allow an owner to install a charging station, but let's think this through. Let's suppose that your governing documents don't say anything regarding electric vehicles charging stations. Can an owner then construe that silence as the ability to do it? Well, arguably, they could after complying maybe with whatever architectural review standards the homeowners association may have in place.

This is a case where silence may not be a very good thing for a homeowners association. If your governing documents do not address this issue of lot owners wanting to install their own charging station, this might be a good time to review whether you want to put some requirements in there. Because if you don't do that then, arguably, a lot owner can do what they want. They may be able to comply with some minimal architectural review standards, but then it's solely up to them.

Here's what the difficulty is. As you saw in the condo statute, there's a concern about insurance. There's a concern about maintenance costs. There's a concern about indemnification of the association if that charging station causes damage. You can imagine a townhome situation where one of the connected lot owners decides to put a charging station in their garage and it causes damage to the building, and damage to the common areas of that building that the association may have some other duty and obligation to maintain.

If this stuff is not specified in the governing documents, that may not be an optimal situation for a homeowners association. You folks in HOA land have a lot of things to be concerned about, but this is certainly an area where if you're starting to get lot owners who are requesting this, you may want to bite the bullet here and start thinking about putting some language and restrictions into your governing documents about it.

Probably, the condo statute is a good place to look for what those restrictions might be because it's very well-specified. Insurance, maintenance costs, reimbursing the association for its increased insurance charges as a result of that.

Now, what if the homeowners association wants to install charging stations on common property or common areas? It can do that. It can do that by a board vote, so that's an area where the association can decide to do that as well in a homeowners association. Those are the two big differences, if you will, between a homeowners association and a condominium in terms of electric vehicle charging stations. Certainly, I know there's probably going to be a ton of questions about this in the chat, so we'll try to get to those at the end.

One of the things we didn't cover, I don't know if there's any co-op folks on here, but I heard Alan, earlier today, asking Cindy whether there was a statute addressing this in co-cops. I think the answer was no, Cindy?

Alan Tannenbaum, Esq.:

There isn't. The co-op statute is silent.

Jon Lemole, Esq.:

Okay, so similar to the HOA statute with regard to co-ops. With that, we're going to pass it back to Alan, and Alan is going to discuss the challenges, the practical challenges with installing and operating charging stations.

Alan Tannenbaum, Esq.:

Jon, before we get off the last point, just to be clear, there are some HOA documents that restrict improvements to the property. Also, from a budgetary standpoint, some of them have limitations on what the association is able to spend on new improvements, so there could be some peculiarities in the CCRs of certain homeowners association that would not allow a board carte blanche to make, for instance, a $200,000 investment-

Jon Lemole, Esq.:

Certainly, yeah.

Alan Tannenbaum, Esq.:

... for an improvement without some approval mechanism, but some documents do require that. Okay.

Jon Lemole, Esq.:


Alan Tannenbaum, Esq.:

Challenges with installing and operating charging stations. A lot of the concerns and questions in the chat are about these topics. Again, probably not well-thought-out by the legislature. Again, I don't think the industry has ... Their sales department has greatly exceeded both their maintenance and their safety departments, and there have been some horror stories around the country.

The first challenge, and I'm sure the folks who are not necessarily supportive of green energy will understand the irony of this, that in order for a charging station to operate, it obviously has to have electrical power. You're making use of the electrical grid to support something that is green energy in mind, which is electric vehicles.

Again, we're not going to get into a political debate, but it is a practical issue, which is even if a condominium or a homeowners association desires to create a community charging station, it does draw substantial electrical power and then creates a capacity issue. What we have found on the ground is some developers have installed very sufficient electrical systems that could support capacity greatly in excess or substantially in excess of the normal electrical load for the condominium or for a homeowners association, and some don't.

We have a property on Longboat Key where they're all identical buildings, six of them. For some reason, one of the buildings has a very substantial power capability relative to the other buildings. Well, no problem with the one building with substantial capacity installing a power station. Whereas, the building nextdoor, which is the same building, but for whatever reason, has insufficient capacity, they would have to substantially upgrade their power system in order to support a charging station. Maybe what needs to happen is the one condo needs to put the charging station on its common elements and allow the other buildings to utilize its charging station for a cost.

I don't know what the solution's going to be, but upgrading the power capacity of a building could be a difficult process. It's certainly an expensive process, so the first inquiry for any HOA or condo who was thinking about doing a community charging station is to do that investigation and study to determine what the requirements will be from an electrical power capacity for that particular charging station. It may impact how many different stations can exist. It's certainly something to be looked into because it could be quite expensive.

All right. Problem and challenge number two, getting the electrical service to the station. Again, there's all different kinds of configurations in HOAs, and condos, and co-ops about where the main power source is for the community, what kind of lines are running from it, what paths they're taking. In determining the location, even if you have sufficient electrical capacity, in determining the location, is it a location that's appropriate relative to getting the power supply to that particular area?

The irony is, you would think about it, that you would put the common charging station in an area of somewhat open space. Well, that may be an area that nobody ever planned electrical service to go into that location and you have to, either through open trench, which means maybe upsetting some asphalt or they have different jetting systems that can create, or can place electrical service without disturbing the ground, but of course, then you get into the issue of all the other utilities that might be in the area.

I was at a mobile home park in Largo yesterday, where one of the energy companies came in about 10 years ago, jetted a new electrical service to a large part of the mobile home community, and they didn't take into account that they were jetting at the same level as the sewage system, and the sewage piping for the project, in some cases, actually jetted right through the piping, causing some problems. If you're adding electrical service or do electrical lines, then you always have the issue of, "Are we now interfering with other services?" Potable water, or sewage has to be looked at. That's a challenge and certainly part of the cost.

One of the things that's interesting that we have determined with the companies that install charging stations, they don't want to be involved, most of the time, in bringing the electrical service to the charging station. They will recommend contractors who they're comfortable with who do that service, but it's typically not included, so they're requiring that the association separately contract with a contractor who's going to bring the electrical service to the station.

They want that electrical service there in sufficient capacity, properly done to support the charging station which they're going to install, but they generally take no responsibility, even when they're recommending that particular contractor, for getting that electrical service. He may end up contracting with a company you don't know, you have not dealt with, and there may be electric companies that are local that don't understand the peculiarities of charging stations and what type of electrical service to bring, what type of material to utilize. There is definitely going to be some confusion in that marketplace.

All right. Maintenance. There's studies that have been done in California, which by far has the most installed charging stations probably in the world per capita. The anecdotal stories out of California is that you're on the highway, you go to a charging station. There's eight different pieces of equipment, and there may be four or five of them that are down at any given time. There's a big problem with the companies keeping up with the maintenance of the charging stations.

I reviewed a contract for a condominium with one of the national companies and it said that if there's a problem with one of the charging stations, that within 24 hours, they will do a diagnosis on their software of what the potential problem is, and if they can fix it remotely, they will do so. The paragraph on maintenance ended there.

I went back to the company and I said, "What if it can't be fixed remotely?" They refused to include any language in the agreement that had any requirement at that point for them to be out within any particular time to do any particular operation on that charging station. All they could offer was that they won't charge for the service while that particular station is down. This maintenance is very difficult, and equipment is technical enough that you can't find a local contractor who's going to touch it.

In fact, the contracts that these national companies have put out around the country indicate that it has to be an approved vendor who actually does the maintenance, although, "We can't promise when that vendor is going to be out, how much they're going to charge, and we can't promise, if it defaults again, that we'll be out within any particular time to do anything."

Maintenance is a big issue. This is another problem with the fact that the companies have been out selling this equipment. They do a pretty good job of getting there within at least a matter of a few months to install the equipment, but once they leave your property, you're kind of on your own and at the whim of the industry as to when they're actually going to get there to maintain it. That's a big, big problem nationwide.

Okay. Insurance. You take all the horror stories, you take the cars having fires. Obviously, there is electrical charge in this equipment. They could be run into. They could be abused. They could be vandalized, and it creates a big insurance risk for associations who are installing this type of equipment, so it's really essential that you go to your insurance agent and determine what additional coverage that you would need to purchase to cover a charging station. It's an atypical risk. There may be a separate policy that you could purchase. Certainly, an endorsement that covers that type of equipment, because I'm sure that most policies, right off the bat, have exclusions that would cover the installation of a charging station in an HOA or a condo.

The thought that, "Well, we have property and liability insurance, so we have no concern," both property and liability insurance, of course, have a multitude of exclusions and exceptions. Sometimes, they have limitations on the amount of coverage that might apply to a particular situation. Really essential that you contact your agent and make sure that either through a separate policy or through an endorsement on your current policy that the specific installation is charged, that there is sufficient coverage that's going to apply to the risk involved.

Station abuse and damage. It's really a problem. They're very attractive pieces of equipment. You can have teenagers in your community who are making use. You have people who don't know how to use the equipment, and there's always the potential of abuse and damage. Anytime you have vehicles driving up to be charged, you have the possibility of the equipment being run into and a multitude of abuses, so you got to think of security cameras that are focused on the facility. You have to have rules and regulations in place that are very strict and holding anybody who causes damage to be accountable for that damage. There's a lot of thinking and policymaking that needs to go in.

Now, there is some great literature on this. One of the places that you can look is there's a lot of public facilities. In the public facilities, they have adopted rules and regulations. Some of the municipalities have charging stations for their employees, so there's literature online that, let's say for a municipality that has installed this type of equipment, what conditions do they put on their employees who want to use the facilities? There's a lot of good literature online that you could pull, but you got to do some thinking because, think about it. It's an unusual use.

If you have a clubhouse, you have standard rules and regulations about use, and so forth, but nobody's really operating any equipment, unless you're talking about a common coffee maker or something. This is a piece of equipment, it could be damaged, abused, and so forth, and there needs to be conditions imposed.

User claims. This is really where associations got to think about, in your documentation, including indemnification. Which, think of all the things that people can claim. "My car was damaged. While I was trying to pull in, somebody else was pulling in and there was an accident." "My car doesn't work anymore because I hooked it up to the association's equipment and after I was done using the equipment, my car wouldn't start, so it must have drained my battery."

All kinds of potential, and your documentation needs to say that, "Look, if you're utilizing this equipment, you're on your own. We are not representing that it's going to charge to any certain level, that it's going to be effective, that it's not going to cause damage to your vehicle." There should probably ... I'm going to get into signage next. There probably should be signage that makes it very clear where you pull in, and so forth. Striping, things like that should be considered so people are actually pulling in straight to the charging station. Thinking of some sort of barriers between the parking bumper and the station itself, something to be considered.

The documentation that somebody is going to use it, they should be indemnified, the association, and releasing the association from any claims having to do with the capacity or the operation of the equipment. Signage, I talked about. Again, there's probably online, you could probably find, look up charging station signage, and there'll be a municipality or a public facility where they have an excellent set of signage. Sometimes, signage has to be pretty obvious, stating the obvious.

All right. This next part, which is passing the cost of installation and use on to the users. The companies that either lease or sell this equipment, as an additional profit center they also, they handle the accounting and the charges associated with the equipment. Some groups, rather than trying to account for all of this themselves, may want to, as an adjunct to their contract with either leasing or buying thee equipment, also buying the accounting package that the company sells.

They will actually take care of signing up all the users, assessing the appropriate charges, the rate charges, and so forth. It's a mechanism of including all the development charges in the cost so it's passed on to the users. I don't think any of the management companies are really jumping at the prospect of being the ones who set up the accounting for this type of equipment, so probably will default to utilizing the companies that regularly charge for this.

Again, there's a lot of good online research for how to charge, how to set up accounts, so that it really doesn't become the association's business. It really happens automatically that someone, in order to access the equipment, has to put in a particular code. The company somewhere records that usage, and has an arrangement with your management company or directly with the user to pass on the cost of the operation. That's, I believe, how most groups will be going, utilizing the accounting and software programs of the installation and leasing companies that lease the equipment.

The last point on user agreements. It's a really good idea that for anybody who's going to be utilizing the equipment that the association have a written document that they have to sign off on. Could be an online sign-off, but they have to sign off on that. If they're going to be utilizing the equipment, this is what the unit owner, or the lot owner in an HOA, or their guest have to agree to.

Now, that raises a question of whether you should even allow guests to utilize the equipment. There would probably, a pretty strong argument that the use of the equipment should be limited to owners and their tenants who have, before use, signed onto a written user agreement that binds them and that will have all the conditions of use, and the mechanism for charging for the facility, their agreements for indemnifying the association, and so forth.

I think the idea of associations opening up their equipment for use by the general public is a bad idea. I think even guests, it would be a bad idea. There may be certain type of guests. Potentially, if somebody's having a prolonged stay as a guest to the unit, maybe they can be made an exception for, but leaving the agreement or the use to owners and their tenants probably makes sense with a written user agreement.

Again, the agreements are online. You can check out a bunch of municipalities. Again, if an employee wants to use the municipality's charging station, there are user agreements that municipalities have adopted. Run it by your general counsel because there may be some things you need to ... Florida law, either in the Condo or HOA Act that have to be incorporated. There are prevailing party attorneys' fees, the venue for disputes. That would all have to be locally determined.

Let's look at some questions. I don't know, Jon and Cindy, while I've been talking, whether, hopefully, you've been glancing over the questions in chat, but if there's anything in particular that you want to take on, go ahead.

Cindy Hill, Esq.:

I have been trying to respond to answers in chat. There's been a lot of questions about people just plugging their ... Or unit owners I should say, plugging their electric vehicle stations into standard plugs either in a garage or a common element parking area. I'd advise that concerns about, electrical concerns need an electrician, but if they are plugging-in in a parking lot, those unit owners are using common element electricity for a purpose it was not intended. I would suggest that those associations with a concern like that consult their general counsel for some rules or prohibitions to put an end to that because that is not an appropriate use.

Alan Tannenbaum, Esq.:

All right. Anne says, "Great moneymaker," which is possible. Well, there's no restriction on what the association can charge for the use. There's nothing in the statute for condos that says that the charges have to be for actual use. Therefore, associations can pick up the development cost, the cost of bringing the electrical service to the charging station. There, in theory, could be a profit on top of that. I don't know, Cindy, if you have a thought about the taxable basis for anything that's greater than the cost coverage.

Cindy Hill, Esq.:

That's a really tricky subject. The Condominium Act is not intended to be a moneymaking endeavor, so where there have been, for instance, laundromats, vending machines, events in the past where associations tried to make some extra money, so to speak, the Division of Condominiums has come down pretty hard on that.

I would not advise at all pursuing that option without consulting with general counsel, because once you get down a path and then find out maybe you can't, as an association, do that act, you will have spent, arguably, more money finding that out, and then have to back up and lose more money. I highly recommend, anyone on here who's considering that, get with your general counsel before you pursue that option because that's a lot more tricky than you would think.

Alan Tannenbaum, Esq.:

All right. Steven has a recommendation of a particular company that he's liked. You can look at that in chat.

Cindy Hill, Esq.:

Oh, good. Right. Yeah, I did see a question about recommendations for electricians. I don't have a list of that, but I did say we'd try to come up with some folks that have been used by some of our clients.

Alan Tannenbaum, Esq.:

Well, the companies generally will recommend approved electricians in their market. Again, I don't know if they are remunerated for those referrals or not. What they'll tell you is, "We're recommending this company because our clients have had good experience with them. We can coordinate the schedule," and so forth, but you'll have to consider if in fact it would be better to go with a local company.

I don't know, and I haven't had conversations with the power companies about what their thoughts are, because they have capacity issues too. They may have something to say. I have not seen the power companies in our area, Duke Energy or FPL state their yay or nay on the idea of charging stations being installed and how it might impact. I don't think they're a huge draw on energy, so it probably wouldn't be sufficient. I see Michelle is putting out an evaluation form. I see a couple of companies are being mentioned in the chat. Anybody can make it. There's a term I haven't heard in a while, meter maid. Somebody's dating themselves.

Jon Lemole, Esq.:

The point is, it brings up a good point though. The issue is cars staying, folks leaving their cars at the charging station beyond when the charging is complete. There's really two issues. I think the charging ... The company that manages the charge and the billing for it can charge penalty fees for being hooked up to the charter past the vehicle being fully charged, but that doesn't solve the problem of, what do you do when the person comes down and unhooks the vehicle and still leaves it parked in the charging station parking spot?

I don't know that there's a very easy answer for that, except other than if you have a towing policy, then if that vehicle's parked there and not charged into the charging station, you tow it. I don't know that there's a more ready answer than that.

Alan Tannenbaum, Esq.:

Yeah, and I think, Jon, I think with the subject of security cameras that it would be a really good idea for multiple reasons, including to see if somebody's overstaying their stay, to have security cameras that's recording the use of the equipment. Would pick up vandalism, would pick up cars that are overstaying their use. If there happened to be a dispute between two different users, you would have some photo documentation of that.

Probably for groups that do have the capability of upgrading their security camera system, if they do install these, it would probably be a good place. Because, again, it's the unusual fact that this equipment operated by owners that's either owned or leased by the association and is unlike any other use that you might have considered with HOAs. Again, there's recreation use. There may be a kitchen, but this is a pretty unusual use. Legislature has-

Cindy Hill, Esq.:

I would add ...

Alan Tannenbaum, Esq.:

Yes, go ahead.

Cindy Hill, Esq.:

I would add to that that a lot of gated communities have cameras at their gates, particularly the gates that are, let's say the back entry gates that are just your arm gates, for the same reason that when the gates get damaged, they have video footage and they can try to determine who caused the damage and bill them accordingly. In that sense, the charging stations wouldn't really be any different, viewing them in terms of watching for damage on that issue.

Alan Tannenbaum, Esq.:

All right. Just some technical issues that are well beyond our expertise that are being asked about. At this juncture, we're going to conclude. We will look at some of the answers in chat. I think what we'll consider is that in a future session, we will bring in some technical experts, maybe electricians, maybe a representative of one of the companies, maybe a local official, and have an additional segment where some of the technical issues can be discussed.

We'll put it out there that in a few months, we'll come back and cover the subject from a more technical standpoint. Until then, we look forward to seeing you next month. Thank you for your participating. Any of the managers, be sure to be in touch with Michelle if you have any questions about getting your CEU credit for today. Our program will be on our website. The video and a transcript will be on our website, hopefully, within a week, and so you or your board members can then make access to it. Everybody have a great day. Thank you again.

Jon Lemole, Esq.:

Thank you, everyone.

Continue reading


Smart Board & Property Manager Legal Guide: Where Do We Find The Money?

Video Transcript

Alan Tannenbaum...: Good morning everybody. This is Alan Tannenbaum, of Tannenbaum, Lemole & Hill. I'm here with my partners, John LA and Cindy Hill.

Alan Tannenbaum...: And we ask everybody to put themselves on mute. If you have questions, send them through the chat feature. We will ultimately get to everybody's question. If you have questions after the program, you can email us. We're happy to respond to what we can as long as it's not two document specific.

So we're going to be talking money today. Big topic for every condominium and Homeowner Association in Florida. Financing was difficult to knock in past years, but today we have a series of added burdens, one that the legislature created primarily for three story condominiums, but also other condominiums in Florida. You've had the impact of two major hurricanes in the last season that have thrown the insurance markets into a tail spin, with greatly increased insurance premiums, not only for associations, but also for individual owners on their individual policies. Add to that increased construction costs and supply side problems in the construction industry, and you have a lot of financial pressure on associations.

We're going to be taking at 10,000 square foot view today of some of the things that you should be keeping in mind. We're not going to get into the weeds as far as the statutory changes on reserves for condominiums. We're not going to be tackling the depth of the insurance crisis. So this is a 10,000 square foot view of things that you should be keeping in mind, maybe some bullet points and recommendations for you as you approach next year's budget season on best practices. So for those who wanted to detail explanation of the new reserve statute of the condo, this is not going to be the seminar for that. You can go to some of our other seminars that we have put on in that topic and review those.

So let's get on it and we're going to cover first, and I'm going to ask Cindy to cover first the subject of reserves, but primarily from the standpoint of where do reserves fit in when you're looking at the financial health of an association and how to confront financial challenges. You're on Cindy.

Cindy Hill, Esq...: Well, as Alan was saying, we're not getting into the weeds with this, so for those of you who have some specific reserve questions, you might be a little frustrated by the overview I'm going to give, but again, the point of this seminar was to hit some more broad topics and as Alan was saying, some of these more specific reserve topics are previous conversations we've had on smartboards that are available on our website.

So with that caveat, reserves. Very different topics for condos and HOAs, but I'll try to briefly address each before we get going on how this can be part of the big financial problems that associations are seeing in our current economy. So ideally, both HOAs and condominiums should have been fully funding their reserves, whatever reserves they would have, but ideally we should all be saving a certain amount for our retirement every year and are we all doing that? No.

So if you're in an unfortunate position where you have not been fully funding and you're a condominium, you are looking at the upcoming deadline of December 31st, 2024 for the requirement that you fully fund certain structural reserves, and those include your roof, waterproofing painting windows, if the association's responsible for the windows. These are a statutory list that you should be consulting with professionals to make sure that you're going to be prepared for this because you will not be able to waive those reserves after that 2024 date unless the legislation changes, which I would not expect to change. There are some current bills up in front of the legislature now to adjust some of these issues that are in the new laws, maybe fix a little glitch here, put a bandaid there, but I'm not seeing substantive changes. So I would be still planning for that deadline and knowing that you're not going to be able to have owners who can waive reserves after that time on these structural issues. So those are your definitely mandated reserves.

I will briefly address the Division of Condominiums has taken the position that the condominiums under three stories still have to do this as well, that they will no longer be able to waive their reserves on structural issues either. That is one of the issues though, in some of the new bills that is proposed to be changed, so watch this space. For homeowner associations they might not have any mandated reserves at all depending on how they were set up. Regardless, I would say if you have structures that you reserve for such as a clubhouse or you have private roads, if you've not gotten a reserve study in the last few years, I think it's time to revisit that because inflation has raised the cost of everything and you might not be saving for the adequate amounts.

Moving on to discretionary. Condominiums will still be able to vote to waive non-structural reserves. Again, consult with professionals and your counsels to what that list would be for your community, but as an example, it would include paving the parking lot, resurfacing the pool. These are not going to necessarily be structural reserves which you can no longer waive. So it's important to remember that once the new law takes an effect on 2024 at the end of the year, you're going to have two categories. The category you cannot waive per statute and the category you can waive. So again, consult with your counsel, make sure that you know what those lists are and you're prepared. For homeowners associations if your reserves are discretionary and not mandatory, you may want to consult with your counsel because there is an option in the Homeowner Association Act where you can change that, where if you want to, you can make your reserves mandatory. There could be good fiscal responsibility reasons for doing that. On the flip side, there could be reasons why the community wouldn't do that, but I do want HOAs to know that they have that as an option, that if the majority of all the lot owners approve, a homeowner association can have mandatory reserves.

Moving on to what we experienced in this area last year with Hurricane Ian, looking at your reserves as you revisit them, think about damages that were not covered, both for condominiums and HOAs. I had an HOA that had a couple hundred thousand dollars worth of landscaping that was just eviscerated by the hurricane, and of course that was not covered. I know condominiums that lost landscaping. I know of condominiums that lost carports that were not covered. I've heard of condominiums and town homes losing lanai screens that were not covered. These are not necessarily issues that are going to be reserve items, but these are issues that could be reserve items and should be addressed as you think about how you're going to save funding going forward and the lessons that we've learned from Hurricane Ian, which relates to a similar issue, the insurance deductibles. Some of the insurance deductibles that my clients had after Hurricane Ian, before they even got coverage, were a shock to them. They honestly did not know what the deductibles were, and I think that's because we had all gotten pretty comfortable here in the greater Sarasota Tampa Bay area at least, that hurricanes weren't really a big concern for us. So our hurricane insurance was not something that we revisited with some sort of scrutiny.

So again, not directly related to reserves, but I do feel like when it comes to planning ahead, thinking about the lessons we've learned from Hurricane Ian and thinking about adding reserves for some of this funding is definitely worth a revisit. So with that in mind, I think that takes us to budgeting, Alan.

Alan Tannenbaum...: Jon, can go to the next slide. So the topic, establishing a realistic budget and just some things statutorily to keep in mind. First for condos, and again, this is a 10,000 foot level view, but remember some basics. The budget must be adopted at least 14 days before the start of your fiscal year. So if your a condo, and it's the summer season, it's good time to start the budget preparation because if your fiscal year starts January 1st, the budget must be adopted by the middle of December and there's a lot of things that proceed that. So it's actually the budget, the preparation for a condo where you're on a normal calendar fiscal year, your process actually needs to begin in the fall at the latest. The budget meeting, of course, has to be open to the owners. The proposed budget has to be presented to the owners at least 14 days in advance.

So again, look at the timing. If you have to adopt the budget by the middle of December and you're going to have the meeting right up at the deadline, you're going to have to get that notice out by at least December 1st, and we recommend that that occur earlier.

An owner has a right in a condominium to object to the budget, but they have to have 10% of the owners going with them on that challenge. If the budget assessments exceed 115% of the proceeding year, but remember that 115% does not include reserve increases, non-reoccurring expenses and betterments, those are excluded from that 115% calculation. So consider really, if normal operating expenses go up more than 15%, then that 10% can object to the budget. Then there's a procedure for adopting an alternative budget. I don't think that happens very much and there would be a lot to be ironed out, but just be aware that they have that right.

Really important, we're not going to go through it here, but if you're preparing the budget, you need to look very carefully at 718, 504 21, which actually is in the developer section of the statute, but gives a detailed recitation of what needs to be in a condo association budget, all of the line items that need to be accounted for are set forth in detail, and it's a requirement of 718 112 that your budget meet the requirements that are in 718 504 (21). We're not going to go through those here, but everybody should be aware.

But comparing that to HOAs and Jon, if you go to the next slide, this is one of the great distinctions between operating a condo association and operating an HOA. There's very little that 720 governing HOAs has to say about budgeting. There are some elements that have to be in the budget that's covered by 723 036 (a), but beyond that budget adoption is document driven. So you're not going to have the detailed requirements that are statutorily required for a condo for an HOA, but look carefully at your documents because they may have something to say about what needs to be in your budget. Also, the reserve requirements are far different. HOA doesn't actually need to have reserves unless it's mandated by your documents.

Now here's an important thing to consider and that is a line item in your budget, you could call it a contingency. I think that's a good description for it or call it the line item for surprises. So you can include in your adopted budget a contingency line item that would cover cost of overrides in any of the existing budgetary elements. So for instance, it certainly was possible for an association, if they were anticipating insurance increases, to include in the line item for insurance what they paid last year, but also either in the insurance line item or in a C line item, an additional amount of money to cover what might be potential increases.

Now, nobody in Florida expected that their insurance was going to go up 200 or 300%, so it was very doubtful that anyone was going to have a contingency that would've covered. But in an age where the legislature is acting, we can't control what's happening in the construction industry or the insurance industry, probably a good idea going forward to have a decent amount in that surprise or contingency line item going forward to cover the volatility that you may be seeing over the next four years.

So realistic budget means certainly determining through an intelligent process what the anticipated costs are going to be in each line item, but also incorporating in there something for surprises. So with that, Cindy is going to talk about budget amendments.

Cindy Hill, Esq...: So before we get to the discussions on special assessments and borrowing, which I know that many of you're going to have questions about, I can already see them showing up in the chat, I want to remind everyone that budget amendments are an option. Both condominiums and HOAs, unless there is some odd provision in their documents, can amend their budgets any time throughout the year for reasonable basis. So why would you want to amend rather than special assess or borrow? Well, some documents have some restrictions on the association taking out a loan that might present a hurdle. They may require a very high owner percentage, for instance, and the same concern may be there for a special assessment. Some older documents don't even mention special assessments in them. So you may have concerns about whether there could be a legal challenge and maybe you want to amend your documents and fix that, but in the meantime, you need the money right now.

So just remember that budget amendments are an option, and if they are looked into, you do need to make sure they're treated with the same notice provisions that your annual budget is, they have to follow the same, notice to the owners decided at open meetings, whatever provisions your documents provide or the statute, depending on if you're a condo or HOA. So I just want to put that reminder out there and now we'll get onto the topic that I'm seeing-

Alan Tannenbaum...: Let ask you a question first, Cindy, before we move on.

Cindy Hill, Esq...: Sorry?

Alan Tannenbaum...: Let me ask you a question first.

Cindy Hill, Esq...: Oh, okay. Go ahead Alan.

Alan Tannenbaum...: So with that 115% provision in a condo, let's say that three months into a new budget, there's a budget amendment that increases that year's budget above the 115% level. Do you think that owners would still have the right to, more than 10%, now challenge the amended budget?

Cindy Hill, Esq...: I think they arguably have the right to challenge because there's not a provision in the statute that makes an exception for a rise in insurance. I don't think the legislature saw anything like this coming. There is a provision that says if it's basically like a one-time expense, and I'm paraphrasing, it's written more detailed in the statute, that's not anticipated for future years, it can't be part of that assessment to be challenged, but I don't know how we could... and you could make the argument, maybe we could all hope that these high insurance premiums will be this year and not next year, but I don't think that that's an argument anybody can make with any real knowledge, that's too out in the ether, so to speak, but at the same time, ultimately the board has a fiduciary duty to ensure that the facilities are insured in condominiums, that's specifically in the statute. Governing documents for HOAs are likely to put a similar burden.

So if owners want to challenge insurance, they can challenge it, but at the end of the day, the associations are going to need to take the insurance actions they need to take, even if owners object to the high costs, just like FPL can raise their rates for instance, but we all can't just decide not to pay it because we don't like it, FPL will shut us off. It's not the same example, but it's a similar example, there's obligations that are not discretionary.

Alan Tannenbaum...: I think the dreaded special assessment is next. Why don't you take that on?

Cindy Hill, Esq...: I've never seen so many special assessment questions in a season as I've gotten this year, which tells me that a lot of condos and HOAs, condos in particular, imposing special assessments and understandably so, not just the insurance, but for condominiums of a certain size, the milestone and the servs inspections and reserve studies are really hitting their budgets hard with these tight timeframes legislatures put on us.

So one of the mistakes I see made, and I've seen it over all the years I've practiced, is that with a special assessments decided by a board, people don't necessarily realize that that means that at the same time the statutes for both HOAs and condos require that that board meeting be noticed to the owners. There's a disconnect there where there's kind of a presumption of it's a board meeting, all we have to do is post the meeting like we always do, and notice the board. No, both the HOA and the condo statutes, and I've got the sites up here on the PowerPoint, require 14 day notice to the owners. So if you make that fundamental error, your special assessment could be questioned right out the gate. So I cannot emphasize enough, reach out to your counsel, double check on your special assessment requirements because if you mess up the procedural part of them and you have an angry owner or someone who wants to be difficult, you've got a problem. So that 14 day notice is something I can't emphasize enough.

The other issue is you do have to put in that notice specific statutory requirements, and I've quoted them again on the PowerPoint here. For condominiums the notice must specifically state that assessments will be considered and provide the estimated cost and description of the purpose for the assessments. Now, that doesn't mean you need to provide a three page list of all of the changes that are going to be made in terms of what sort of materials are going to be used to change the roof, that's not what I'm saying. But what I'm saying is you make need to make a good faith effort to say, "This special assessment is going to be for roof replacement," so that everyone knows what the funds go to.

For HOAs, similar requirement, you must include a statement that assessments will be considered and the nature of the assessments. A little more vague there, but again, the requirement is to try to tell the owners in good faith what the funds will be spent on.

For condominiums, that's particularly important because the condominium statute requires that if you do end up with surplus special assessment funds and you don't need them for that particular cost anymore, again, let's just say a roof, you cannot just then use them for something else. You either have to credit the unit owners on the general assessments or return the funds. So it's very important that you say what these funds are going to be used for.

Something to consider also when voting at a board meeting to have a special assessment, and again, this conversation is for the board meetings for special assessments, think about having a formal resolution. I do encourage my clients to have that. It doesn't take a lot of attorney's time to present you with a formal resolution so that you have a document the board can sign and fill in the blanks, so to speak, at the meeting in terms of what the assessment will actually be, whether it's going to be one payment, multiple payments when they're due, when will they be late. That resolution sets all of that right there at the board meeting and again, solidifies that you have done the process correctly and that going forward, you're going to be able to collect on it without having procedural concerns. And if you don't do the resolution regardless, once the special assessment is imposed, you do have to let the owners know the amount and the due dates. It makes sense, doesn't it? But you really have to do that. You can't just presume maybe that somehow they'll get word or however it will go through. You need to have a specific procedure, and I recommend actually sending out a paper notice, even if you already have some sort of system with management that maybe wouldn't be as formal.

So I know we're going to have a lot of questions on special assessments, but I would say first, Alan, did you have something in the chat you're seeing or Jon, did you have something you wanted to bring up before?

Alan Tannenbaum...: Well, let's do this. Let's get through the program and we'll hopefully have at least 10 minutes at the end to go through all of the questions on that. We'll give you an opportunity to study them and pick some of the ones out that you think are appropriate.

Cindy Hill, Esq...: And I am trying to... when I look like I might be distracted, I'm not distracted. I do try to answer some of the questions on the chat. So yeah, that's the quick download of the importance of the notice and procedures for special assessments. So Jon, I believe you're up next.

Jon Lemole, Esq...: Yep, I am. So I represent the litigation side of the firm. So I get to talk about claims and despite your best practices and best efforts to create a very good and solid budget for your communities, sometimes things happen and those things can potentially throw a budget completely out of whack. So what we're talking about here is, for example, you have a repair project or an improvement project that goes wrong, it's not done correctly, or maybe it's even completed and sometime later you find out that the contractor did defective work or like we had last year, you have a major hurricane that comes through and creates a whole bunch of different expenses for your community. So there may be potential claims that you can bring, whether it's a first party claim against your insurance policies or whether it's an actual claim against a contractor for defective work, and one of the things, and this is really a philosophical, I guess, discussion or issue, one of the things that I see often is that communities and people in general, review the idea of bringing a claim of some sort as an expense item. And that's primarily because it's no secret that lawyers, litigation costs can be expensive.

So when evaluating whether or not you should bring a claim of some sort, I think there's a natural bias to be very wary of it because, "Oh boy, that's going to be expensive. Lawyers are expensive, court costs are expensive," and that may be true, but I think that if we turn that around a little bit philosophically and look at claims as a potential source of revenue, it makes the discussion a little bit easier to digest and a little bit easier to present to your owners as well for those situations, like in homeowners associations where you may need to have owner approval in order to go forward with a claim.

Folks, we handle a lot of litigation on behalf of community associations. We handle defects claims when repair jobs go wrong, we handle claims coming out of turnover against developers and builders, and our job and any lawyer's job is to achieve a net result for that association, which creates positive cash flow. Okay?

So let's break that up down a little bit. Let's suppose you put a new roof on your buildings and six months after the project is completed, your roofs are leaking and you realize that the contractor did a really bad job on these roofs. So you can look at that potential claim as an expense item, "It's going to cost us a lot of money to go after that contractor. Also, we're going to have to make repairs," and if you make those repairs, that's all going to come out a hundred percent funded by your association and your owners.

If you look at it as a source of revenue, even with the expense of going forward with a claim, and it doesn't matter whether it's a net positive result of 10%, 20%, 50%, whatever it is, that reduces the burden that has to be shouldered by the owners in your community or by your budget, frankly, whatever that number is, less than a hundred percent, that's a positive result for the association. Now, any lawyer hopefully is going to try to maximize that net result for their client and that's our goal, that's always our goal, but it doesn't have to be complete reimbursement or a hundred percent I've been made whole because anything less than a hundred percent is still a positive result for your association.

So whether it's pursuing a claim for defective, for defective repair work or a defective improvement work, or whether it's a potential first party claim because we've seen a lot of associations that have, maybe for a variety of reasons after the hurricane decided, "Well, we probably don't have a claim. It's probably not going to be in excess of our deductible. Whatever we do, we're going to have to pay a lawyer or it's going to come out of the recovery or if we get an adjuster involved, that's going to come out of the recovery. All of that stuff is expensive, we may not have a very valid claim." Don't think of it that way. Look at it as a potential source of revenue. Investigate that, talk to your general counsel, talk to a first party insurance, plaintiff's attorney, talk to a firm like ours that handles construction litigation.

The other area, which I want to just touch on really quickly for some of the newer associations, is when you come out of turnover. We've represented a lot of associations coming out of turnover, whether it's a condominium association or homeowners association and we've been able to bring revenue back to the association by pursuing claims against developers and builders for, whether it's defects in the buildings, even in a single family home homeowner's association, for site issues, pavement issues, drainage issues, your site improvements.

So for your associations that are coming out of turnover or approach or approaching turnover or going through the turnover process or recently having gone through turnover, look at the idea of getting engineering studies done and I know it's an expense, but typically when you do those studies, you may find that you have potential claims against the developer and the builders, which can, as I've said, be a source of revenue for your association if you pursue those.

So even after you've paid the engineering expense and the expense of lawyers and costs to bring those claims, the net positive or the net result of that is money being returned to the association to help offset the costs of maintaining those conditions, fixing those problems that may have been identified by the engineer or putting money back into reserves for fixing things down the road, which may not need immediate attention, but may result in a shortened life expectancy for those systems, components, roads, drainage systems, lift stations, whatever they are. All of that is a way of managing the future cost for the association in a way that creates less of a burden on the association itself and the owners and returns money into the reserves of the association to handle those things.

So that's it on claims as a source of revenue, but that's the takeaway here, look at claims as a source of revenue, not necessarily just an expense item. With that, I think I'm throwing it back unless anybody's got questions or comments. I'm going to throw it back to, I think, Alan on loans and lines of credit.

Alan Tannenbaum...: Yeah, one more addition to what John just said. In a turnover situation the other inquiry is, did the developer handle our money correctly during the period of developer control of the association? So getting an auditor in to make sure that the developer used association funds only for association purposes and not for developer purposes, that all of the contracts were market value contracts, that association funds were not spent incorrectly, those are additional inquiries and additional sources of claim possibilities. I think 2, 3, 9, 6, 3, 3, there you go. Thank you.

Okay, next topic. Loans and lines of credit. I'm a great proponent for associations to consider project loans and lines of credit. I've been around long enough to remember the time early in my career when a condominium association president would go to a bank to say, "I need a loan." The first thing the bank officer would say was, "Well, what property can you put up as collateral?" And the association president would tell the bank, "Actually, a condominium association doesn't own anything other than maybe the office furniture and the pool furniture," and the bank officer would say, "No problem, I just need your personal guarantee and I will be happy to give you this loan." And the association president would say, "I'm not quite paid enough to put my personal assets on the line for my condo association." But what banks have finally realized, and this occurred over the last decade, is that condominium associations and HOAs, as long as their default rated on their assessment collection is low, are excellent risks, and now there's a bunch of banks that are happy to assist associations with project loans and lines of credit.

Now, what are the benefits of borrowing? And I'm talking about specifically for unanticipated or non-reoccurring expenses. So your reserves are not sufficient, and you have a major repair roofing project to undertake. Your choices are include that cost of that extraordinary expenditure in your normal budget or do a budget amendment if it happens bid year or do a special assessment.

But there's a fourth possibility, which is to borrow the money, either through a line of credit or a project loan, to undertake that repair effort. And the benefits are you're now spreading the cost of that project over several years rather than paying for an assessment upfront, and if you think about it, in the commercial world, if a company is going to build a new warehouse or a new factory, they don't necessarily put that on their current balance sheet. They may, from a strategic standpoint, borrow the money that's necessary in order to undertake that major project, and it doesn't become a normal balance sheet item. So you're spreading it over several years instead of the assessment upfront.

Now, as John indicated that if there's a claim involved. So let's say that you're going to make a claim against a party. The process is going to take a year, a year and a half to get the recovery, but you need to spend the money now to repair it or to even study it. That gives you the opportunity, through a line of credit, to pay those expenses and then when the recovery's made, then you pay the line of credit off, and all the association has incurred in the process is the carrying costs on the loan rather than for the entire repair, knowing that recovery is coming in the future.

For turnovers. So let's say you've an HOA has just turned over, you're going to get an infrastructure study by an engineering firm that's going to cost $75,000. You're going to get an audit from an auditor that's going to cost $10,000, and you're going to pay some legal fees for the negotiation of those issues with the developer. So you get $150,000 line of credit, which you use for those extraordinary expenses and after a year of negotiations, after you have all those studies done with the developer, the developer says, "We'll rent a check for $200,000 back to the association to cover those issues." and you could then recover the cost of what has been spent on that engineering cost and the legal cost and so forth without having to hit the owners with an increase in assessments that they're normally going to get anyway after turnover because the developer has understated those claims. So it gives a significant amount of flexibility. Again, the debt service and not the project cost will be reflected on the balance sheet and you're spreading it over it.

But here's a real key of where a line of credit is really helpful. Let's say you have a roofing project and it's a combination of a fixed price, but there are some allowances, let's say how much decking may be removed from the roof in the process. There's going to be some fascia and soffit work that's done that until you get into the project, you don't know what that cost is going to be. The contractor has in their contract that if the price of materials goes up over a certain amount, that they're able to increase the project cost by the amount of the material increases.

So you really don't know what that roofing project is going to cost, but if you have a wider credit, instead of having to go back to the owners to say, "Well, we passed a special assessment for $100,00, but we're really going to need $110,000 or $120,000 to finish the project and then try to go back to the owners, amend the budget, go for another special assessment, is having a line of credit gives you the flexibility to pay for extras or increased cost of a project more so.

So consider it is as an additional source of funding that has more flexibility, is not necessarily governed by some of the restrictions that might apply to a special assessment or a budget amendment or a budget adoption. But Cindy is about to kick me under the table because she's going to tell me that, just be very careful that your documents actually allow you to borrow money. Some documents don't allow that, some documents have other types of limitations. So the first thing you need to do if you're considering either a project loan or a line of credit, is to make sure you have your general counsel review your documents. You might need an amendment to support your ability to borrow money, but it presents an excellent source of flexibility for associations, and frankly, it's something that most corporations for profit and frankly governmental entities, utilize as part of their fiscal management. And I think that associations should consider it as a tool, especially in a era of fluctuating expenses, unanticipated, you always should have that backup.

If you think about it from a hurricane situation, a hurricane hits, you have immediate costs that you need to spend, totally unpredictable and to have that line of credit available to take care of emergency situations is really important capability to have if there's any type of casualty loss, hurricane situation and so forth, really important for that too.

With that, I'm going to turn it back over to Cindy who's going to give us a little tutelage on collection before we get into your questions.

Cindy Hill, Esq...: Yeah, I can see that there's definitely a lot of questions, and I particularly like to try to answer the ones where I feel like maybe I didn't speak as clearly on something as I had hoped to do. So I do want to make sure we got question opportunity to clarify any statements I made that may have confused anyone. That's the downside of trying to do quick nuts and bolts is sometimes it can be confusing.

So with that being said, the last part of this piece is efficient assessment collection. With the special as assessments, I'm seeing my clients impose I can promise you there's going to now be some collection issues. People are not necessarily going to be able to pay all these special assessments, particularly if they need to pay them more quickly rather than more spread out, which is more likely to be the case considering that these special assessments are coming from a need for quick funding from associations.

So one of the best things you can do as an association is set up a collections policy, work with your counsel, work with management, set up a policy that puts the timeframes or the delinquent amounts for each step of the collection process and for HOAs and condominiums, you have to do a first letter now that people call it various friendly things, the friendly letter, the pre attorney fee letter, there's all kinds of names for it. It is a first letter that goes out before you can impose any attorney's fees on the collection process. So there needs to be a conversation about who does that letter, if it's management or the attorney. For reasons you can probably guess, I recommend the attorney do it, not at any criticism to manage it, but I feel like it's unfair to put the burden on management, that's a legal requirement such as that letter puts.

That being said, it's each board's decision, and then to have a policy for the next two letters that come after that. The first one, which is the pre lien letter, and then the second, which is the claim of lien on the property, and then if you need to proceed with a lawsuit on the lien. The reason I highly recommend you involve association counsel and that discussion is a lot of board directors are not aware of how that process actually plays out and what it means to file for lean foreclosure for assessment collection, and that community associations can actually take possession of a property in the same way that a mortgage can if you don't pay your mortgage. Too much information to delve into right now, but certainly things to think about.

A policy also helps you avoid arguments of selective enforcement because whether or not a board is trying to let somebody slide and somebody not slide, which is unlikely, it's more likely that the board maybe isn't aware that this person's just as behind as this other owner just because board members are volunteers, managers are overwhelmed, maybe you're even self-managed. So a policy will help avoid treating one owner a little differently than another when it comes to assessment collections.

My last piece of advice is a practical one on this. Make sure you're getting regular updates from management or counsel on collections. I can tell you as counsel, I have been frustrated by trying to reach out and say, "Okay, the next step in this process is," and I don't get an answer back, and it's not because anybody... Well, I don't know, maybe they don't like me. There's always that, but I'm going to presume it's not because they don't like me, it's because there's not really a process in place where on the board meeting for each month it's being discussed, what the status is and what the attorney needs to know to move forward. So I highly recommend having a process.

Then the last caveat to that is there are debt collection laws where associations can get into legal trouble if they appear to be disparaging someone who has a debt. So with that in mind, I highly recommend always referring to the unit number, the lot number, the address. Do not use people's names when you are going over these matters and board meetings. So that's my quick and dirty on collection processes.

Alan Tannenbaum...: All right, Cindy, let's get into some questions. The question I'll answer right away, doesn't take much. David asked, "Do we have permission to use the seminar videos and transcripts to educate our board members and association members?" The answer is yes. They're published on our website. Our website is open for public view, have at it. So Cindy, you said you saw a number of questions. What do you want to respond to?

Cindy Hill, Esq...: I saw a lot of questions about special assessing for not having sufficient reserves. This is an issue that is a new issue for a lot of associations because up until the statutory deadline has been imposed to fund reserves, there's never been a need to necessarily a special assess for any reserve issue. So I hope that my answer has helped make clear that generally the practice is to put your reserves in your budget and have them be part of the special assessments, even if that means amending your budget because you're now going to have to fund for fuller for larger amounts. But I also wanted to make clear that that special assessing for reserves can be a set of circumstances that could make sense in particular facts, scenarios, and documents.

So I cannot advise as to what that would be. You will need to get with counsel on that, but I can say it's best practices to go ahead and be planning in your budgets for these increased reserve amounts and doing so earlier rather than later. Even if you want to go ahead and amend your budget for this, you're arguably doing your owners a favor if you're starting to set those costs out sooner rather than with a shocking amount later.

Alan Tannenbaum...: Cindy, I see a question from Donna about whether loans or lines of credit can be used for a reserve shortfall, and I'll handle this and you can edify on it.

Cindy Hill, Esq...: Sure.

Alan Tannenbaum...: Right now, the statute Condo Act does not allow you to get a line of credit or in order to fund reserves, and several folks have imposed it, but the legislature's not acting on it yet. So reserves have to be fully funded, but what's interesting about having a line of credit is you can use a line of credit to cover a budget shortfall. There could be a situation where you use a line of credit, you fully fund the reserves, but if the association runs out of money by the end of the year, you use a line of credit to cover operating shortfall, which is not restricted by the statute.

Cindy Hill, Esq...: That's absolutely right, Alan, it's a tap dancing act to use the line of credit that way, but again, at the risk is selling like a broken record, that's why these issues have to be individually dealt with counsel. The lending restrictions in your documents and how you're going to handle are vital to be analyzed.

Alan Tannenbaum...: Okay, so Diane says, "I'm working on a $700,000 loan for an 18 unit renovation interest rate. The only lender who will lend for 125 units is 11.5%, which is $80,000 in interest for...

Cindy Hill, Esq...: Woo.

Alan Tannenbaum...: Diane. I'll do it for 10%. So... no, don't call me. I haven't heard that. I didn't realize, and if you maybe contact some of the lenders that are involved with, for instance, the CII chapters, run that by additional lenders, but maybe some underwriter has determined that for a smaller condo, there's a greater risk for them. But I had not heard anything like that quoted. It's good to know.

Cindy Hill, Esq...: I haven't heard that either, but I will say at least one of my small condos did get a small business loan from the government for the damages due to Hurricane Ian and the percentage rate on that was like four something, and it's payable off in 30 years. So I don't know the circumstances of the facts you read Alan. Unfortunately, I can't find that scenario in the chat, but I throw that out there as something that might be available to an association.

Alan Tannenbaum...: Okay. There's a question from Susan, "Can an association especially assess for the entire projected cost of a project and not draw down the reserve funds for that asset line item? Possible reasoning is to have funds on hand for overrides to start up the funding again for that asset." So if I understand the question correctly, let's say that an association condo has a roof reserve with $200,000 in it and they need to do a re-roofing project. Do they have to use the reserve in order to fund that re-roofing project or can they separately pay for that re-roofing project outside of the reserve process? Does that make sense?

Cindy Hill, Esq...: I'm still trying to process. I'm sorry.

Alan Tannenbaum...: Okay. So you have a $200,000 reserve for roofing and you have a re-roofing project. Do you have to use the reserve for the re-roofing project or can you just pay for that roofing project either by borrowing or out of regular assessments? I don't see any necessary restriction on that. There's nothing that says you have to use a reserve to pay for an ongoing project if you choose not to.

Cindy Hill, Esq...: Yeah, it's the flip side that you can only use the reserve money for the project it's reserved for.

Alan Tannenbaum...: But there's nothing requiring you use the reserve to fund a project, you can use other sources of [inaudible 00:51:20] a restriction on that.

Cindy Hill, Esq...: That's a question honestly, I haven't gotten before, and I would always, again, would want to look at someone's documents. But yeah, I guess if there was a reason to do it that way, and it sounds like there is a reason based on the question, I'm not aware of a restriction that would prevent that.

Alan Tannenbaum...: So you raised a specter of somebody on your opinion on windows, which we've got.

Cindy Hill, Esq...: Yes.

Alan Tannenbaum...: So there are some condos where the windows are actually the maintenance and repair responsibility of an owner, which is never a good idea, but some documents require that. So I've heard differing opinions on whether it's appropriate or necessary for the association to reserve for an item like that where the maintenance or repair obligation for the windows is actually on the unit owner.

Cindy Hill, Esq...: And I will say this for what I call maybe villa or town home style condos, which are small ones, it's not unusual to see that the windows are the responsibility owner because they are more single family style structures. But I agree with you, Alan, there's a bigger problem if windows are the responsibility owners on a 10 story building and I do see that on occasions. This unfortunately gets complex, which is why I advised in the chat, if the windows are not the association's responsibility for your condominium, get with your counsel and find out what the answer on whether or not that's an issue, first of all, that should be looked into and assessed whether it makes good sense and maybe the documents be amended and/or if it's an issue where you're going to need to fund for it or be able to say, "No, we don't because we are not responsible for those costs." So that's a very document driven issue if it's not a hundred percent clear that the association's responsible,

Alan Tannenbaum...: I think you answered this question, but Diane asked, "Is insurance an item that could be excluded from the 115% rule?" And I think you answered that can't be excluded. It cannot be excluded.

Cindy Hill, Esq...: Yeah.

Alan Tannenbaum...: So if the new budget contains a great increase in insurance and it does increase the assessments by going over the 115%, then 10% of the owners can object, but here's the problem with the statute and the legislature kind of like boxed associations in, it says that you have to maintain and repair your buildings, you have to have insurance, you have operate appropriately, but yet, owners can come in and say, "Well, we want this alternative budget." Well, what line item will these 10% of owners suggest that the association cut? They can't cut something that's necessary to repair maintenance. As Cindy said, they can't say, "Okay, we'll cut the electric bill out this year, so we'll do a year without electric."

So I see what the legislature's trying to do, which is give owners some control over the expenses that their association that's going to assess for in a condo, but the solution that they came up with frankly is not very workable, and we rarely actually see owners trying to pass an alternative budget, most of the time they don't even know how to prepare an alternative budget to be considered.

Cindy Hill, Esq...: Correct.

Alan Tannenbaum...: Yeah. Let's see. Anything else you see, Cindy, you'd like to respond to?

Cindy Hill, Esq...: There's unfortunately more questions than I can get to, and I see the concerns. Let's see. There's so many of them. My apologies, there's just not enough time to get to everyone.

Alan Tannenbaum...: Yeah. Somebody's asked whether the new reserve and structural requirements applied to hospitals and apartment buildings over three stories. That answer is no.

Cindy Hill, Esq...: Correct.

Alan Tannenbaum...: It's only condominiums. And let's see. The question from Claire, "Is there a rule of thumb for reserve percentage of total quarterly assessments or is that too dependent on the unique circumstances of each association?" And I think, Claire, that your instincts were correct. If an association has had underfunded reserves for 20 years, the reserve portion of the assessment may be several times what the regular assessment is. So they're really not tied together. Your reserve assessment calculation is an independent calculation from what your operating assessment is going to be.

Cindy Hill, Esq...: Alan, I did see a question where someone was frustrated they can't get amendments to their community documents because they can't get enough people to come to a meeting. Although that's not a so much a financial question, although it might be related to trying to amend documents for financial issues, I will say I advise my clients when you're trying to do any kind of amendment due to apathy of owners and landlords who don't necessarily pay attention, you're going to have to get a committee to do a lot of reach out, go door to door, make phone calls, emails, get those proxies. Another option is instead of trying to update the documents with several issues and people get confused and ask questions, update the documents only with a change of the threshold needed. So let's say you currently need 60% of the owners to agree, you change it to 60% of the owners present at the meeting. Lower your threshold, that's another option, but that's really just some practical advice for anyone seeking to get document amendments.

Alan Tannenbaum...: Cindy, and we'll go on for a few minutes, even though we've passed noon, Sarah asked, "What is the current requirement for the amount that needs to be in the reserves from an HOA?" She says, "All the items in their reserves were damaged by Ian and I guess, utilized for Ian, will either be fixed or replace. How low can we draw down the reserves and for the future, what is the percentage of replacement cost reserves we need to have?" So remember, it's HOA, it sounds like it's fairly document driven, that question.

Cindy Hill, Esq...: Unfortunately, all the HOA reserves are going to be document driven because you have to start with the analysis of whether they are going to be statutory reserves, which require certain notice notifications to the owners at the annual meeting if they're not fully funded or if they're non statutory reserves. HOAs can be in either category and it sometimes isn't easy to determine what that category is. So you're going to have to start with the documents on those questions to see what needs to be done. I will say that odds are you've got a lot more flexibility, is going to be the good news in terms of correcting that deficiency.

Alan Tannenbaum...: Kathy, ask a very interesting question. "Does anyone have all-encompassing list of potential reserve items, a list that is not related to a specific property style, but would be of value for most property types?" Well, let's take an HOA for example. Most HOAs have a significant amount of landscaping, they may have carports, and sort of applies to condos too. And one of the things that groups discovered, as we mentioned during the hurricane, was, you lose hundreds of thousands. Some groups lost over a million dollars worth of landscaping. There could be project fencing that is lost, carports, none of which are covered by insurance policies, and it's up to each particular association whether you want to reserve for those issues in mind and would be quite a sizable reserve for that purpose.

Again, I talk about borrowing capacity. One of the things that a homeowners association has that a condo association doesn't have is real estate that actually can be leveraged to support a loan. So an HOA, for instance, let's say they lost $500,000 worth of landscaping, you could reserve for that, but that's keeping a lot of money on the sideline for an habit eventuality that they never occurred. But if instead the association had a line of credit that was available, it could fund that $500,000 landscaping replacement project, spread that cost over several years and that actually may be a more intelligent approach than necessarily reserving for that item.

So again, the flexibility of loans versus reserves is really exemplified there. But really for a condo, most of the things that you need to reserve for are statutorily required, but then look to your common grounds that are not generally affected by reserve requirements because reserve requirements in the Condo Act are primarily tied to buildings and systems, not to project amenities, not to your pool and landscaping and so forth. So if you're going to create additional reserves over the statute, you can look at those. Carports is another good example.

Cindy Hill, Esq...: Alan, I-

Alan Tannenbaum...: Yeah, go ahead.

Cindy Hill, Esq...: I was going to say, I've also seen some questions about borrow repayment options where, for instance, can an owner pay the amount that's their portion of the loan, so to speak, and avoid interest? Those are all going to be document driven questions in terms of how the loan is established and again, how the special assessment was imposed. So you should have those questions answered before the board imposes a special assessment for a loan or before the board takes out a loan. Again, I hate to be a broken record and say really is document driven, but those are the loan documents that need to be coordinated with the board's authority and whether there can be, let's say, incentive for owners to maybe pay upfront if they can do so, but then give other owners the opportunity to pay off a special assessment in stages, but also have them pay the interest on that. So just to give a general answer to that, there are options.

Alan Tannenbaum...: There's a question about foundation reserves. One of my favorite questions because I haven't figured the legislature out yet, of how you do a reserve for a building foundation without excavating under the building to figure out how that building foundation is functioning, which doesn't make a lot of sense. You'll probably cause more damage in the excavation process than it was worth. And really the whole subject of structural reserve, how do you come up with a number of, when you talk about hidden columns in buildings, slabs foundations, unless it's... if that the balconies are deteriorated to the point that they're going to need to be replaced, you can certainly come up with a number for that. But the super structure of the building is really intended to exist for the lifetime of the building and not be replaced. But they call them replacement reserve.

Cindy Hill, Esq...: And Alan, that's part of some of the, I mentioned earlier, there are some band-aids and glitches to the bills and the legislature. That is one of the issues that looks like they're trying to give some more advice on, but until there's actually new legislation that's up in the air.

Alan Tannenbaum...: Cindy, I've been given the hook by our producer, he says that we need to close down, but she has invited me to ask you to give some closing remarks on this whole topic. So you're on.

Cindy Hill, Esq...: Oh, well, again, my apologies I couldn't get to everyone's questions and I hope that at least this gave you some sense of where to start when looking at these issues because really that's what the point of this was. We're not going to be able to give detailed answers to scenarios that we don't know enough about, but I hope this gives you some guidance and some red flags to watch for, some options that are out there.

I want to thank the couple of participants who told us, first of all, about the problem with funding less than 25 units. I was not aware of that. Another participant mentioned that they've been offered a line of credit that's going to be secured by reserves in a CD. I had not heard of that either. So we're learning from all of you too, is what I would say.

Your comments are welcome, your questions are welcome. We appreciate the challenges as we all face these new issues that have been brought by the hurricane, the new statutes, inflation, just this trifecta of issues that have been presented to all of us. And those of you who are volunteers on the boards, my sympathies to you and my kudos to you for being involved with your associations in these troubled times. And again, thank you for the managers who participate as well, because usually the managers are the first people that the boards talk to. The better managers are informed on some of these issues, the better they can help their boards. So I really do appreciate this opportunity. And again, I am sorry we could not get to everything, but I hope the bullet points really were helpful.

Alan Tannenbaum...: Yeah, any questions you didn't get answered, email us and we'll try to hit it after the session. Thanks everybody for attending. See you next month.

Cindy Hill, Esq...: Thank you. 

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Thinking of Adding Charging Stations to Your Condo or HOA? - There’s Much to be Considered

With electric cars becoming the trend, owners in Florida condos and HOAs are requesting that their Boards consider installing charging stations. Before as a Board that you act on the request, there is much that needs to be considered first.


For condominiums, adding charging stations to the common elements is authorized by Section 718.113(9), Florida Statutes, and a vote of the membership to approve the addition of charging stations as a material alteration is not required. Chapter 720 does not require an owner vote to add charging stations on HOA-owned property, but the CCRs for the development should be consulted as some restrict improvements by Board vote alone.

Bringing Electrical Service to the Charging Stations

Whether you lease or purchase the charging stations, you will need to get power to support the charging stations. An electrical engineer should be contacted to determine if your current electrical system can support the additional load and how best to bring the power to the charging stations. Obviously, the cost of extending the electrical service to the charging stations will have to be included in the budget for the project. Typically, the charging station vendors have preferred electrical contractors, but they don't otherwise involve themselves in that work.

Maintaining the Charging Stations

Charging station manufacturers and vendors have been very effective in meeting the demand for charging stations nationwide. However, the volume of charging stations installed in the last few years has outstripped the capacity of the charging station vendors to maintain them. In California, which has led the nation in the installation of charging stations, it is not uncommon for half the charging stations at any particular location to be out service, with the situation going unresolved indefinitely. Vendors in their contracts offer quick maintenance service if the problem is resolvable remotely. If not, there is typically no requirement for the vendor to send a crew out to repair a problem within x amount of days of a problem being reported. If leased, the best you might get is a credit against the lease obligation.


The association's insurance agent should be consulted to determine if existing property and liability coverage is sufficient to cover the risks associated with the operation of charging stations. It may be necessary for a special rider covering such a use to be secured.

Protecting Against Station Damage or Abuse, and Claims by Users

It is essential that the Board establish carefully conceived and drafted user rules and regulations and require that users sign documentation making them responsible for the damage they might cause to equipment and indemnify the association against potential claims by the users. Signage should be considered stating clearly that the association is not responsible for damage that might result to a vehicle or the user through the use of a charging station.

Passing the Cost of Use Through to the Users

There is a good argument that since the charging stations will only benefit a portion of the association membership, the fees charged to the users should be sufficient to cover the association's initial investment, electrical usage, maintenance, insurance riders, legal fees, and other incidental costs. For a cut, your charging station vendor will process user fees.


It is appropriate for HOA and condo boards to do their best to accommodate owners' needs, and installing charging stations falls into this category. However, boards should enter the venture with open eyes. What hidden costs have not been anticipated? Will we be able to get maintenance performed? How do we control potential user abuse? What should be charged for use? Consult your general counsel for assistance in negotiating the agreement with the vendor, establishing reasonable rules and regulations for use, and drafting appropriate user agreements.

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Surprise! ALL Florida Condominium Associations Must Fully Fund Reserves for Structural Components

When the additions to The Condominium Act requiring "Milestone" inspections and "Structural Integrity Reserves Studies" ("SIRS") were made last year, many condominium associations with buildings less than three stories in height breathed a sigh of relief as it appeared that they were not subject to these new obligations. That relief was short-lived. Not long after the new laws were enacted, The Division of Florida Condominiums, Timeshares & Mobile Homes took the position that condominium associations with buildings less than three stories in height are also obligated to fully-fund reserves for the statutory structural integrity and safety items of their buildings.

As a recap, beginning last year, the new SIRS obligations include list of structural integrity and safety reserve items added to the Condominium Act in Section 718.112(2)(g)1, Florida Statutes.Those items are:


Load-bearing walls or other primary structural members



Fireproofing and fire protection systems


Electrical Systems

Waterproofing and exterior painting


Any other item that having a deferred maintenance expense or replacement that exceeds $10,000 AND the failure to maintain or replace it will negatively impact any of the items listed above.

In order to distinguish these items from other non-structural integrity and safety items which also require reserves, such as for example, the repaving of roads and parking areas, these items are now commonly referred to as the "paragraph (g)" structural reserve items.

As part of these new laws, condominium associations are prohibited from waiving or reducing reserve funding for the paragraph (g) items listed above beginning December 31, 2024.Specifically, Section 718.112(2)(f)2a, Florida Statutes states that, "Effective December 31, 2024, the members of a unit-owner-controlled association may not determine to provide no reserves or less reserves than required by this subsection for items listed [in paragraph (g)]," above.

When these new laws were released, there was a presumption by many that such "fully-funded" reserve requirements for the "paragraph (g)" items listed above were only for condominium associations with buildings three stories or higher in height, since the new laws only require buildings of those heights to obtain SIRS studies.However, The Division subsequently took an inapposite position, specifically providing this answer on the "Frequently Asked Questions Related to SB 4-D" section of its website,, as follows:

Q: I live in a 2-story condominium. Is our association still permitted to waive reserves?

A: The Division does not consider this provision to base an association's ability to waive reserves on the number of stories that an association's buildings have.

As a result, it is The Division's position that beginning December 31, 2024, ALL condominium associations, regardless of height, will be prohibited from waiving or reducing reserve funding for any of the structural integrity and safety item listed in paragraph (g), above, and instead have to fully-fund all such items.

While the Legislature could change the law on this issue, we have not seen any indication that it intends to do so.So, while each condominium association should consult its legal counsel for how best to address this issue, the conservative approach would be to begin planning for the fact that as of December 31, 2024, no condominium association, regardless of height, will be able to waive its reserve funding for the structural components paragraph (g) items listed above. 

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New Insurance Laws Passed by The Florida Legislature Impact on Condo Associations and HOAs

Jon Lemole, Esq.:

Well, I want to welcome everybody today, and thank you for joining us. My name is Jon Lemole. I'm a partner at Tannenbaum Lemole & Hill. I'm joined today by my partner, Cindy Hill, and we have some distinguished guests, which I will introduce or actually let them introduce themselves in a second. Just by way of background, our firm is a full service community association firm. We handle general counsel representation for community associations as well as litigation. So our firm does both. Alan Tannenbaum and myself head up the litigation team where we handle covenant enforcement, collections, construction consulting, major repair, project consulting, construction litigation, construction defect litigation, turnover claims for any of your associations that are getting ready to or have recently gone through turnover. That's what I do. Cindy, why don't you tell us a little bit about what you do with our firm?

Cindy Hill, Esq.:

I'm Cindy Hill and I do general association representation. So your day in, day out, condominium homeowner association issues, that's what I address and I do it all day every day.

Jon Lemole, Esq.:

So I venture to say that there's not many things that are more vexatious to the management and operation of a condo association or HOA right now than insurance coverage. Within the last couple of years, it seems like there's been a perfect storm, and that is a pun very much intended, between spiraling premiums, non-renewals, hurricane claims, especially for community associations in southwest Florida. We've seen carriers pull up stakes. We've seen carriers make increasingly restrictive inspection demands. We've seen carriers requiring roof replacements on roofs with reasonable remaining life expectancy. Reinsurance rates have driven up premium costs exponentially. Property value is increasing. That's both a blessing and a curse. We've seen a tragedy in Surfside place a spotlight on building maintenance like it's never been placed before.

We've seen what some may believe is a runaway assignment of benefits regime, which drives out of control litigation against carriers and stress on insurance. And a series of devastating hurricanes have produced massive claims. We don't envy your position. You're dealing with a very stressful situation. Arguably with these concerns in mind, Florida legislature recently went into special session and produced what is supposed to be an insurance relief, some insurance relief legislation. So today we want to give you a very introductory overview of this new legislation. We have an hour, so this is going to be a very 30,000 foot view of this, but more importantly, we want to discuss how this new legislation affects you on the ground. Does it really help or is it just a bailout for carriers? And we want to provide you with some practical advice along the way to help you with your renewal efforts in making sound decisions when faced with potential claims as a lot of us are facing and have faced recently with the hurricane.

So we have a very distinguished panel. Cindy and I are going to not do too much talking today, so we're happy to sit back and let our distinguished panel here handle this. So carrying the ball today will be Dave McMahon who's a senior commercial advisor at Atlas Insurance. Mike Angers, who's a senior VP at Brown & Brown Insurance, and Kelly Fantetti who's a partner with Stockham Law Group. Stockham Law Group is a firm which focuses on first party insurance claims and litigations. Dave, why don't you start and tell us a little bit about what you do? And then we'll go to Mike and then Kelly.

Dave McMahon:

Hello and thank you. Welcome everybody. Appreciate the introduction, Dave McMahon with Atlas. Atlas Insurance has been around for 70 years, three divisions, the commercial, residential, and financial. In the commercial we serve hundreds of associations in the tri-county area of Manatee, Sarasota and Charlotte County and have a great staff that has over 100 years of experience and I rely on them. I might be the one in front of everybody, but quite frankly, they're the backbone of the business. Thank you. I'll turn it over to the next.

Jon Lemole, Esq.:

Mike, how about you? What do you do?

Mike Angers:

What I do. Well, Mike Angers. I've been doing condo association insurance for 27 years. That's all that I do. I'm with Brown & Brown. We have about 450 offices, I think 30 some in Florida. So I have a great pulse on the marketplace. So obviously you can see the gray hair here. That's from just years and years of working with associations, but we do it. We've been probably the largest writer of condos for the past 10 years in Florida.

Jon Lemole, Esq.:

Okay, thanks Mike. Kelly, can you tell us about Stockham Law Group and your practice?

Kelly Fantetti, Esq.:

Sure. As you mentioned before, our focus is almost exclusively on first party property issues. So we represent homeowners, business owners, condo associations, homeowners associations in claims against their insurance companies. If anything is improperly denied or underpaid, we deal with those and pursuing claims against the insurance company.

Jon Lemole, Esq.:

Okay, thanks. So Mike, let's start with you. We want to talk about how we got where we got and where we are in Florida and in particular with the Florida insurance market and property insurance market. So if you can talk to us a little bit about the storm that we're in, how we got here. Maybe you can tell us a little bit about the reinsurance process and some of the things that Citizens was facing, and kind of set up how we are where we are.

Mike Angers:

Yeah, definitely. Let me first start off by saying, please let's not shoot the messenger or messengers today, myself and Dave. We're just bringing the facts today. My insurance myself and not just associations are getting hit, but homeowners, anybody that owns property in Florida is getting hit. We're going to talk about associations today, but let you know that we feel free to, we've been doing this a long time. We understand this is a large budget item, so we both David and myself take that very seriously. So I want to make sure everybody understands because I hear things in the marketplace from my clients and it kind of bothers me sometimes that they really don't have an understanding of where we are and how we actually got here. The reality is this. Been doing this 27 years, the market goes up and down peaks and valleys. This is one of those big peaks and honestly, this is the worst peak that I've seen in 27 years, and I'm sure David will agree with that.

And it's getting worse by the day. Every day I open up my email, it's a little bit worse, but why is that? People say, I haven't had claims, we haven't got hit that hard in Sarasota, why are we being affected? What the heck's going on here? Well, the insurance companies are obviously doing many things. They protect you for the hurricanes and then they plan for that. What they did not plan for is all the lawsuits. So what's going on is if we all remember Irma in September 2017 hit. That went, came and gone, we dealt with the claims. Then all of a sudden we had an aftermath of a ton of claims, a lot of fraudulent roof claims probably two or three years after the fact. Carriers weren't ready for that. Since then, we've had continuous roof claims, fraudulent roof claims. And what I mean by that is to where there's people out there soliciting roofers, insurance agents, attorneys, engineers, hey, we can get you a new roof. Sign this assignment of benefits, we'll get it done for you.

Boom. They don't need it. It's not an insurable loss, it's just maintenance reserve, but they're going out and filing these million dollar claims. So all of a sudden the carriers are like, wait a minute, we weren't prepared for this. Okay, they're getting hit in the gut. Fast forward, all of a sudden, here comes Ian, this past year that was the final punch. So the carriers that were leaving the state already because of all these lawsuits, now it's just that final push. So people say, well, wait a minute. These people have been making money for years. Why are they leaving us? Think about this. If you're an investor in an insurance company and for every dollar you take in, you're paying out $2 and 50 cents. You can't make a business like that. So David's going to talk about some of the new changes that will hopefully help us.

It's not going to be a quick fix, which I'm sure he'll talk about, but until we get a hold on and these carriers are comfortable that they can come back and do business in not being sued left and right fraudulently, we're going to be in a tough boat. Where's that put us? So when the carriers leave the state, and we've been in this situation before, anyone that's been in Florida, I was born and raised here, we've been in this boat before. When the carriers leave the state, what do we got? We got Citizens, which is the state pool. State pool was formed. It was actually formed as the FWA back in '92 after Andrew. Then it became the JUA. It's now since I think 2002, I could be wrong on that date, it is now called Citizens, but they're out. Their setup is to provide temporary placement for people that can't find coverage elsewhere. Seven years ago, 10 years ago, tons of people were in Citizens. Then the market came back, the carriers came back and everybody left Citizens.

That was fine. But what we're seeing now, Dave and I talk all the time, is Citizens now when we need them, the state, a non-for-profit, unfortunately their guidelines are tougher than any carrier out there and they're actually declining people. So it's putting us in a very tough spot. Not only are they declining people, but the ones that they are looking at... Dave and I are coming in with these increases. I saw some of these comments before. What increases are you seeing? Shoot, I've seen anywhere from 25% to over 900%. Not only that, imagine Dave and I are having to go out there and deliver these increases the day before. We're not getting some of these numbers, so we need to get a fix to this. And Dave's going to talk about it himself, but I personally, the legislation is not going to do anything immediate for condo associations in my eyes, and Dave will talk about that.

I think it'll help out on the personal line side, but condos, it's going to be a long haul for all of us. So I know that was long winded, but that kind of sets the stage on where we are and then David can take it and tell you what the new legislation was and how that will help us out.

Jon Lemole, Esq.:

Mike, can I ask you though, before we go to Dave, can you talk a little bit about... Because it seems to me like a big component of the legislation is focused on the reinsurance market, and a lot of folks here may not understand what that really means. And how does the reinsurance market, or does the reinsurance market really drive a lot of the problems that we're facing? Is there an over-reliance on reinsurance carriers? And talk about maybe what's perceived to be the bailout via a reinsurance pool.

Mike Angers:

So let's think about this. You hear reinsurance. What is reinsurance? How does that work? So you may see a carrier, whether it be American Coastal, Centauri, Heritage or whoever on your policy for an association, but what you don't see behind the scenes is all the reinsurance. It's basically insurance for an insurance carrier. Let's just say in a typical loss like a Heritage or an American Coastal, their entire book of business may be through Ian gets hits, I'm just going to throw a number out there, a billion dollars. Out of that billion dollars, Heritage may only be on the hook for the first 5 million. The rest is shared between all these reinsurers. And they build these reinsurance treaties once a year, they negotiate them. And it's insurance for these insurance companies. What's going to happen here, Jon, is these reinsurance treaties are negotiated typically once a year, sometimes twice, but typically once, and it's typically somewhere around the beginning of the year.

So the rat that we've been feeling already that was just knee jerk, these are knee jerk increases and changes in terms and conditions. Once these reinsurers meet with these carriers and say, hey, we got killed last year with the hurricane. We got killed with all these lawsuits. We're in thousands of lawsuits from Irma still. Here's our offer going forward. Here's the cost of it. Here are the terms. And they give it to the insurance carriers, and that trickles through to us. Now we've got this new legislation that helps these carriers buy up to a billion dollars of reinsurance at a discounted rate, a billion dollars. I mean, realistically, that's nothing in the world of insurance in today's world. Think about it. I think, what are the numbers here in Ian? I'm hearing like $70 billion. So that fix that they're saying is a change in legislation that's going to help us, I don't see that doing anything.

Dave McMahon:

I'll just make a quick addition here. One thing that Mike and I talk about quite a bit is how it was too little too late for this particular crisis. In the past, in 2004 and five, after we had all those hurricanes, we were not only able to rely on Citizens, but the surplus, excess and surplus, the Lloyd's of London type markets to help support the risks that we insure. The problem with this one is the excess and surplus markets, they just walked away. They are frozen. They offer us nothing of value, and consequently we have to go to Citizens who's become more difficult to work with. So the combination of that reliance and when they made the decision not to participate in the market anymore, it really put us in a very difficult position in this crisis compared to the past. And part of it is, and again, too little too late, we know the lawsuit's going to be coming because of Ian. We still deal with them because of Irma years later. So years from now, net 2023, the rest of 2023, '24, we're going to see the lawsuits from Ian. And that tale of losses is something very difficult for the carriers to predict and is a part of the reason why they're basically have picked up the Santos and left.

Jon Lemole, Esq.:

One of the key aspects or main aspects of the new legislation is this $1 billion, and Mike, you hit on it a little bit, this $1 billion reinsurance pool. And based on the numbers that you were throwing out there before, Mike, it sounds like this is really a drop in the bucket. Is this going to have any impact really on rates on the ground for insurers? Or is this really just as some people said, a handout or a bailout for reinsurers?

Mike Angers:

No. I personally don't think it's going to have any effect at all. I mean, not even a smidge. And as Dave says, this problem, we've seen this coming. This didn't happen overnight. So I know that Dave's team lobbies, we lobby, and we actually have somebody on the board of directors at Citizens now. Nothing in the state or the legislation changes overnight, but it has me scratching my head that we are in this position. Dave and I are fighting on a daily basis. When I say fighting, I say fighting harder than I've ever fought in my 27 years to get the state pool, which was set up to help us in this situation to insure us, to insure something. Not a matter of get them a good rate, we just want to get them insurance and they're declining probably 50% of the risks that are out there.

And Dave will talk about the roofs and everything, but it's really tough to explain that to your client when their mission statement is to provide temporary housing to people in this type of environment. So everyone is frustrated. We're frustrated as agents because we are the front people trying to present this. We're trying to do the best job we can, but the tools that are out there as we are talking, all the carriers left. So now there may be only one carrier providing a quote, which is Citizens and the quote's astronomical with terms that are ridiculous

Dave McMahon:

That come days before the renewals do.

Mike Angers:

If it's Citizens... You want to hear something interesting? I was talking to the underwriter at Citizens, our underwriter, and she says she has about 50 submissions on her desk, 50 submissions that have an effective data one, one or prior that she's working. One, one. That was yesterday, that's 10 days into the policy. Citizens is overwhelmed right now and it's going to get worse because we're getting into what we call condo season. And Dave, I mean, it is overly frustrating that they're just not getting it.

Jon Lemole, Esq.:

So let's switch gears and talk about A, some of the provisions in the bill that relate to Citizens coverage because if I'm not mistaken, there are some new requirements, and what can we do? What can condo associations and HOAs do in this environment and in view of this new legislation? Dave, you want to tackle that?

Dave McMahon:

I think first and foremost, Mike introduced it with assignments and benefits. In one way attorney fees is the problem and I think stick with us on some of the minutia here of the bill, but I think everybody will be very interested in what Kelly has to say when it comes to talking about the assignments and benefits in one way attorney fees and whether it helps or not. You as an insurer, when it comes to some of the things that are going on, the $1 billion reinsurance pool, that might be nice, but keep in perspective the chaplain tower that went down, that was a billion dollar event. You can just imagine when we get hurricanes for 40, 50, 60 billion, it helps, but it's [inaudible 00:19:49] gesture in our opinion, what really needs to happen to create a more healthy market. But we'll take anything we can get and one billion reinsurance pool may help some of the emitted less financially secure people or carriers grab some additional money prior to building their tower of reinsurance that they need to protect them.

Reinsurance is just a shock absorber for these carriers that are not financially secure or do not have the financial wherewithal that you would typically see in other parts of the country. When it comes to some of the technicality, Citizens is requiring flood insurance now if you're a Citizen's policy holder. So if you're a residential policy holder for new policies with Citizens, if you're in a flood zone, you need to have a flood policy by April 1st. If you're entering Citizens for the first time and you're in a flood zone, you need to have a flood policy. If you are renewing with Citizens and you're in a flood zone, you will have to get a flood policy by July of 2023. For other zones, dependent upon the value of the property, they will glide path you in and require you to have a flood policy. So the question becomes was it wind or was it flood?

And at times there is a combination of damage, one by flood or one by wind, and Citizens is now going to require flood to manage that, their portion of the loss and they will manage the lesser portion of their loss dependent upon how the adjusters agree if it's a flood or a wind issue. Now, does it apply to condominiums associations? Not the master policy, but it does apply to the HO6 policy, the unit owners. If you have to get to Citizens, you'll have to go ahead and follow the path of what Citizens requires in terms of a flood policy. Now, further down-

Kelly Fantetti, Esq.:

Does that apply even if the unit owner is on the 25th floor?

Dave McMahon:

Great question. I would assume it would apply no matter what.

Kelly Fantetti, Esq.:

My reading of the bill is that there's no exceptions.

Dave McMahon:

That's right.

Kelly Fantetti, Esq.:

So it's kind of interesting the way that portion of the bill was written that these unit owners and these high-rise condos are going to have to have flood insurance.

Dave McMahon:

I think what it is, Kelly, it's the possibility that the building gets condemned because the erosion is so severe that you saw that on the East Coast with Nicole and that sooner or later if it did collapse because of the erosion on the beach, that when the corp engineers considering it's uninhabitable, you have to have a flood policy even if you're on the 10th floor. That's my gut when it comes to that, but I don't see an exception to that. They went ahead, and there was a time Mike and I dealt with this more in 2004 and five, and if there was a private carrier that was more expensive if you will, within a Citizens policy that you still had to go with a private carrier because Citizens was again, a last resort and you had a carrier that renewed you but at a higher rate than you can get with the state program. They don't want that. So basically they have a threshold of 20%. If the private market premium is within 20%, we cannot enter Citizens.

Again, comparable coverage. My feeling is Citizens will determine if that's comparable coverage, but if they are the last resort, a organization that had about 450,000 policies three, four years ago and are ballooning to 1.5 million finally by the end of this year, that's how dysfunctional the marketplace is. They don't want the business and they're going to have to figure out how to get rid of it, so they increase the threshold. If a private carrier gives you a renewal or a quote whatsoever, but it's more than Citizens but less than 20%, you have to take that quote.

Cindy Hill, Esq.:

Dave, there's a question in the chat that I think might be worth clarifying. One of the participants says, is flood insurance required by Citizens if you are not in a flood zone?

Dave McMahon:

If it's not in a flood zone, you will go ahead, and it's based upon insured property value and it will begin to phase in in 2024 through 2027. I do not know what the property valuation steer steps are. We talked about 500,000 plus, 50 plus, a million plus of property value. Then they'll go ahead and start demanding that you have a flood policy, but that's not until 2024.

Kelly Fantetti, Esq.:

My understanding is that at a certain point they're going to require every Citizens policy holder to have flood insurance regardless of flood zone, but it phases in slowly.

Jon Lemole, Esq.:

That is true.

Kelly Fantetti, Esq.:

So it's not going to be for several years until that kicks in for everyone.

Dave McMahon:

Yeah, there's a little bit of a budget.

Mike Angers:

And that's residential, Dave. I'm being clear, that's residential right now. That's not commercial residential which is the condo associations.

Dave McMahon:


Mike Angers:

So everybody's clear.

Dave McMahon:

That's correct. Thanks, Mike. Let's see here, what else? That was that behind. I think the biggest thing is, I think Mike and I continue to hammer this to everybody involved and that is what do you do? Right now I think everything we've provided you have no control of. So the question is what do you control if you're not an association board or even a unit, what do you control? And that is first understanding the history of the cycles. Understand that this history will soon pass like it did in 2004 and five. We have a lot to handle now, but it will take time. Cannot move this Titanic ship overnight. I don't anticipate, neither is Mike, anything will change in 2023. It's going to be a fight every day, every week, every month. Possibly in 2024 we see some stabilization if the reinsurers start to come back into the market or admitted carriers come back into the market.

But what you do control is the number one underwriting criteria, and that's roofs. You have to control roofs. That, regardless of a high rises or not, garden style communities two high rises, the roof is the number one underwriting criteria and they are demanding inspections. They're bringing the drones out to inspect. They're asking for updated reports, the engineers to give an inspection, roofing companies to give inspections. And you have to meet criteria of having a solid roof. And you've heard 15 years, you've heard 20 years. There is a lot to those dates, but they are becoming very severe in how they look at roofs and whether or not they will enter in an agreement to go ahead and insure you. Besides that, because of what happened in May or in the special session, we know the high rises have a burden now to be more well maintained, so they're asking for engineering reports.

Do you have an engineering contract with an engineering company? They're asking for more underwriting data on the concept of maintenance, not just the roofs. It could be the painting and water, it could be restoration. Anything and everything related to what was done in May in that special session, they are asking questions about. So you control maintenance, you control the roof, you control some of these investments and these are the things that Mike and I look for because we're trying to make you look good out there in the marketplace and we need every bit of information.

Jon Lemole, Esq.:

Hey Dave, let me ask you a question. Dave can I interrupt for a second? 'Cause you raised the issue of the safety legislation that was passed last year. I talk a lot about that. In fact, I did a presentation yesterday to a group of managers cams on the new legislation and one of the things I hear frequently obviously is that, oh my gosh, this is going to cost a lot of money to do these inspections and comply with this regime of milestone phase one, possibly phase two inspections. But can you flip it on its head and look at it as a blessing in disguise too? Because if you do those inspections and you do well and your buildings have a clean bill of health we'll say, after that phase one milestone inspection, do you think that that would affect underwriting rates for renewals? Is that a positive thing that will be looked at by carriers? I would think it would be.

Dave McMahon:

Yeah, it's definitely leaning that way. We thought when they provided mitigation reports, they were looking at increases or decreases based upon who you are at that address. It's even getting more intense granular underwriting. They are no longer flying at 10,000 feet saying this zip code we're going to have increases or decreases in rates. They are looking at building by building, association by association, what have you done? And unfortunately, I think kicking the can down the road for those associations that have done that, those days are over and you have to be on top of your game to go ahead and prove as they allocate capacity and they determine the rate, are you worth inuring? And if they don't look at those logs, maintenance logs, those engineering reports, those mitigation reports, they can say we're not offered insurance. And then the Citizens is going to be more strict and they're going to have the higher rate, there's no question about it over time. Right now they may be less expensive, but wait until Citizens catches up, they're going to get more expensive rather quickly.

Mike Angers:

Hey Jon, mind if I pigtail on that? I think that can go both ways because that inspection can help you out tremendously, but it could also hurt you. Obviously we all know these inspections are done by engineers. They're going to find issues just as Dave said, they're droning, they're getting more specific in a market like this and you're giving someone, an underwriter that's basically wanting to get out of off the risk anyway. They're basically teething. It's going to give them some ammunition to get off. So I'm being very cautious with those inspections if I [inaudible 00:30:18] because I don't want to hurt the association. There's going to be things in there, and remember this, here's somebody sitting at a desk, maybe everybody's got to know how the process works. There's somebody sitting at a desk with 1,000 at least applications on there. They've got enough business where they can pick and choose what they want, so they're just sitting there, yes, no.

So we want to help them try and get in yes column, but it just as easily we can get them in the no column with one of those engineers reports. If they look at them, they see something or I'm in inspection of the drones, oh my goodness, the drones, they're picking out the worst stuff on those drones. There's a little crack in a tile. I have a new roof two years ago and I've got cracks and they're saying, oh, we want a new roof or we want this. They are being so tough. So I think in the future it's going to help, but I'm also being cautious that it doesn't hurt my clients as well. So we have to. And I know David and I juggle that, it used to be mitigation forms weren't that important. You didn't want to get the new mitigation forms because they took away credits. Now you almost have to get them because you need them with Citizens. So there's a lot of underwriting and things that go on behind the scenes where we take the data you give us and we try and work with the carriers to make you look the best possible.

Dave McMahon:

Mike, don't you think it's probably the intensity of submissions are two to three times more difficult than they used to be four or five years ago?

Mike Angers:

I'd say they're 10 times as hard to get through right now. And it's again too, these guys are being tougher. Think to yourself, this what I was saying earlier, all the carriers left the state, so now we only have a handful. Well, where did all their business go? It went to the couple carriers that are remaining. So now their stacks are like this and they're cherry picking. And that's the reality of it. It's sad, but these guys can sit there and say, we only want the creme de la creme, so we have to make you look good. You have to make yourself look good. We don't want to make you not look good by sending in an engineer's report that may have, you'll look good in another year or two once you do these things. So it's a very fine line. Our job is very tough in the data that we have to give them right now. People think that, hey, just give us a proposal. The data that we have to provide Citizens is astronomical. Astronomical.

Dave McMahon:

One last comment. I'll give it back to Jon, I just want to make people understand this. A lot of question are asked. Dave, can we self-insure? Well, I don't know. Let's say the building's worth 20 million. I don't know how that association's going to come up with 20 million and then some, should there be multiple events. So a lot of times we hear questions of people getting creative or trying to get creative. The bylaws and docs, the Florida statute 718 box you in and they box you in for a purpose. Board of directors come and go, but there's standard things that need to be done on a regular basis and those are done by the bylaws and docs and the Florida statute and of course when we deal with a flood, NFIP, the professional flood insurance program. So it's not like you have a lot of leeway and that's done on purpose. I know you want, Jon, go ahead and take it from here. I know we have [inaudible 00:33:21]-

Jon Lemole, Esq.:

In the interest of time, I want to get to Kelly because in fact one of the comments in the chat is the elephant in the room is litigation and claims and litigation costs. And Kelly may be having a problem with her video, but hopefully she's there with audio. So one of the provisions as I understand it in the new legislation has to do with attorney's fees and claims litigation. So let's talk about that Kelly, and in particular there's some folks that are saying was is it retroactive? If I've got a claim now against my carrier, do I no longer have a right to recover attorney's fees? Take us through some of the legislative changes that are going to affect insured's rights.

Kelly Fantetti, Esq.:

You are correct, I am all of a sudden having an issue with my camera, so my apologies on that. Yes, this is a question I am getting a lot, is does the new legislation affect my claim? Now, it used to be traditionally in Florida, if you had to sue your insurance company to get your claim paid appropriately, if you recovered a dollar against your insurance company, they would have to cover your attorney's fees. They changed that a couple of years ago, I guess that was summer of 2021, they started requiring a pre-suit notice. So before you could sue your insurance company, you had to put them on notice that you were going to sue them and that had to include a demand for settlement. And that demand then became the bar that you had to meet at a trial in front of a jury in order to recover your attorney's fees. And there was this whole mathematical equation based on the percentage of the jury award versus the percentage of your pre-suit demand and the insurance companies pre-suit offer to determine what percentage of your attorney's fees would be covered. Then in the special session that we just had this year in December, they said, just kidding, we're going to get rid of attorney's fees altogether.

So the way that that is supposed to work based on the laws that our courts have set forth is your insurance claim is governed by the laws that are in place at the time that your insurance policy went into effect. So if there is a new law that goes into effect after your policy went into place, if they try to apply it to an existing policy then that is considered to be what we call retroactive. Things that are simply procedural in nature, for instance, this bill has requirements for how quickly they respond to communications, things like that, those may be arguably procedural and may apply retroactively. Things that are substantive rights such as your right to recover attorney's fees if you have to sue your insurance company, or your right to assign a portion of your benefits to a mitigation contractor, those are substantive rights. So those parts of the law definitely should not be applied retroactively to existing policies. Those should only apply to any new policies that are issued after these laws went into effect in December.

That said, I know of carriers that are already trying to apply those retroactively to things that are already in suit and already been litigated, so that isn't to say that the insurance company isn't going to try to argue that there is no right to attorney's fees on Ian claims. We'll see that shakeout in the courts the next couple of years, but the senator that sponsored the bill has said that he does not believe that the law should apply retroactively to Ian claims.

Jon Lemole, Esq.:

Are there any other provisions in the new legislation that affect insureds' rights? I know that there were some language in there maybe about assignment of benefits and burden shifting on claims. Can you talk about those, Kelly?

Kelly Fantetti, Esq.:

Yes. So as of January 1st of this year, insureds cannot assign benefits related to their claim to anyone else. So it used to be if you had a large water loss and you needed to get a water mitigation contractor in there right away, instead of having to pay that company directly and then submit all that to your insurance company, you could just say, hey contractor, I'm just going to sign this contract. I'm going to let you go after my insurance company directly, work it out directly with them and I'm going to take myself out of the process. There was good intent behind those assignment of benefits, and it was a way to allow the insureds to get the work they needed to be done at their home, especially in emergency situations without having them to come out of pocket significantly for these costs. Unfortunately, there were just abuses in that process as Dave and Mike referenced earlier, particularly on the roofing side. Where you had roofers taking assignment of benefits for roof replacements and not actually replacing the roof until they got a payout from the insurance company.

So these homeowners are sitting here with this leaking roof while their claim is in litigation on an assignment of benefits for two, three, four years and they can't do anything to control that. They have essentially lost control over what is going on with their own roof and their own property so that became very problematic. Also, the assignment of benefits gave the contractors the opportunity to kind of hold the insurance company's hostage. So whereas the normal course is you might go out and get several bids for the replacement of your roof and have some competitive advantage of choosing which roofer you want to do your property. Whereas these roofers, you're just, oh, okay, I don't need to get bids. I'll just sign this and you get paid by my insurance company and then they go to your insurance company and demand three, four, five times what the actual competitive market rate is. It became something where the insurance companies were really held behold into these assignment of benefit contractors in a lot of situations.

So it's one of those things where it was done with good intent, but became an abusive scenario. So the legislature has now said no more, we're not allowing that at all. So if you entered into an assignment of benefit contract before January 1st of this year, that should still be enforceable. If you try to enter into an assignment of benefit contract this year or anytime moving forward, it's not going to be enforceable against your insurance company.

Jon Lemole, Esq.:

Yeah, you have some information here about claims reporting and time limits on claims reporting. I would imagine that's pretty important, and probably more importantly because of that window that you now have. Investigation of your claim and your damage, there's a real spotlight on that so that you don't miss the boat. Can you talk a little bit about that?

Kelly Fantetti, Esq.:

Sure. The law did not use to articulate a specific timeframe for reporting an insurance claim. There was a timeframe for filing a lawsuit, it has always been five years, but there was never a timeframe for reporting. The policies always just said prompt notice or reasonable notice. Then after, I think it was primarily after Andrew, we were getting a lot of claims that were being reported three, four, five years down the road and then they were going straight into litigation because there wasn't any time for adjustment. So the legislature put into place at that point a three year limit for hurricane claims only. And so we operated within that three year limit for a while, and then I believe it was in the special session last year they changed that to two years for all claims, but they gave you three years for making supplements. And what a supplement was defined as is if you open a claim, you adjust it with your insurance company, and then once you start the actual repairs and you discover additional things you can resubmit that to your insurance company. They gave you three years for that.

They have now narrowed that window even further. In the most recent special session, you have one year to report all claims and 18 months to submit any supplements. So that may seem like a long time, a year and a half, but on a massive hurricane claim, especially on a condominium property or if you're a large home one, some people do not discover these damages for some time. Their roof may look like it's okay initially after the hurricane, and then a couple months later they realize it's leaking all over the place and they finally climb up there and realize, oh, I've got a lot of broken or missing tiles. So it may take some people some time to discover, but by the time it's investigated, you get engineers involved, you finally get a payout and then you start doing your repairs, a lot of times you're way outside of the 18 month time period. And so it's going to be really tight for a lot of people, and I think that is going to be one of the things that is going to hurt, that squeeze on the timeframe of making these claims to your insurance company.

Jon Lemole, Esq.:

So in a hurricane situation what we're saying is that time limit would be effectively measured from when the event happened?

Kelly Fantetti, Esq.:

It is from the date that the hurricane makes landfall in the state of Florida.

Jon Lemole, Esq.:

Okay. So then if you do have or suspect you may have hurricane damage going forward, you have a real interest in doing a thorough inspection investigation early on to ensure that you've captured all of the potential losses and damage that your community has incurred?

Kelly Fantetti, Esq.:

And we've been contacted by a number of condo associations, and I know that a lot of condo associations have taken on really high deductibles in the last couple of years to try to offset these premiums. So their hurricane deductibles are very high and they're thinking, oh, well, my damages aren't going to be above my deductible, so I don't need to report it. Report it. If you have any damage, report it because it may end up being worse than you initially thought and you are going to come outside of that one year window very quickly. So if there is anything going on at your property, report it, explore it, figure out exactly what's going on, because once you're outside of that one year it's going to be too late and you're going to be kicking yourself.

Jon Lemole, Esq.:

That's a very valuable piece of wisdom, Kelly. Let's in the next minute or two and then we'll do some question and answer. We've got a lot of stuff in the chat, but let me go back to Dave and Mike maybe 30 seconds each. To start with Dave, give us one takeaway here, in particular, what can associations do to put themselves in the best position to either get renewed or to control their renewal premium?

Dave McMahon:

I would say control the controllable variables, and that is really walking through and thinking about your property from a roof standpoint, from painting, from restoration, control what you can control and plan for it. The second thing is, and Mike and I don't see a white horse coming down with a few carriers saving the day. So you cannot have your head in the sand in this crisis, that's why you're on this Zoom call and I would say you have to plan out next year, two, three years in terms of what's really happening. Appraisals are going up. Rates are going up. This is not going to be settled in a year, maybe even in two years. Plan accordingly and control what you do so you can make us help you look good out there to the carriers that want to write your business. Mike?

Mike Angers:

Yeah, I would agree. I think the key is it's a lot of data. I know I'm causing a lot of managers and boards headaches asking for more data, but the more data we have on the roofs, updates, any kind of update information makes you look better. Obviously think about it, we're painting that picture for an underwriter sitting at the desk with thousands and thousands of applications. Yes, no pile and then they rate it up. You hear what are the rates going to be? I had somebody send me a table of rates today, hey, is this table right? No, I can't get my thumb on what the rate increases are. I know everyone that's a huge concern, I've seen a couple things pop across. What are my rates going to be? I don't know. They're going crazy. Citizens and the rest of the carriers, I don't know if we're going to get out of this if we don't fix the contractor's roof fraud. It's interesting, in May we had that legislation pass, I think it was bill 2(d) talking about putting the hammer on the people for contractor solicitation for roofs.

After Ian, the day after Ian I was out on Siesta and Longboat Key talking to some of my clients, and they had people soliciting, hey, I see Ian damage. Let's talk about a new roof. Let's talk. I went out to Siesta, they barely had any damage out there. I mean, I grew up on Siesta. So until we can curb that, the market is going to continue in the path that it's because that tale of all those lawsuits is building up. And as we know, anybody that's been in a lawsuit and Dave you see them every day like I do, it doesn't happen overnight. There's attorney's fees, there's investigations, and it's not just 10, 15, 20, you're talking thousands and thousands. Everybody wants something for nothing. They think the wind blows, they strike gold. That hurts us all. So-

Dave McMahon:

We have about five, 600,000 claims from Ian, I believe, but that's the right number. And you can just imagine the percentage that are going to be problematic from that to Mike's point.

Jon Lemole, Esq.:

Look, let's get to some questions with the time remaining. There's one here that Susan Brown asks about new roofs. I think the question is what is accepted as a new roof? Is it recoated roof or a new coating over the roof satisfy as new roof? Can anybody tackle that?

Dave McMahon:

Yeah, I think we smiled at the same time because this is one that we hear. Remember a coating in their eyes, and nothing against those that are doing this business. And at one time it was okay, but it's just not okay because they perceive it as a band-aid over an existing or an old roof that does not meet code. What Florida is recognized for is that new buildings meet code, and they're doing a darn good job. Well, you're putting a coating over an old roof system and that does not meet code and they're trying to get everybody to get to the code that they feel very confident in that that works.

Mike Angers:


Jon Lemole, Esq.:

Okay. There's a question, and maybe this is for you Cindy, there's a question about selecting an insurance agent and whether or not that can be done unilaterally by the president of an association. Maybe you can provide some perspective on what are good practices for a board in selecting an insurance agent or carrier and maybe being protected by the business judgment rule.

Kelly Fantetti, Esq.:

Well, as with any big business decision, the board should be making the decision. Now, it could be that an association, that the board could delegate to the president and specifically say at a meeting president, we want you to go out and research and choose our agent. But odds are that's not what's happened in this question. A board president, and candidly I see this with my volunteer boards, sometimes the president thinks that as the role of president they somehow have a higher power than the rest of the board members. But that's actually not accurate, the only real power the president has is to run meetings and even then the board can vote to have someone else run the meetings. So best protocol will be to have the entire board reviewing proposals from agents, interviewing agents and making these decisions. And these are very significant decisions. Not to put anybody down, but this is not a decision about who to hire to do the landscaping, which is also important, but these are very big decisions in terms of making sure that you're going to have coverage.

Which I've had a number of my associations after Ian come back and say, we trusted our agent, we signed onto this policy and then we found out we had this enormous deductible and we really didn't know. And I'm not blaming the agent in that scenario, everyone should be reading and asking questions and be involved with these decisions, but I'm using that as an example. The entire board really should be involved in these processes.

Jon Lemole, Esq.:

Mike, they're coming out to inspect your buildings because it's renewal time, talk about just some real practical things. I mean, you don't have time to maybe do a full maintenance protocol, but what are some just basic no-brainer type things that an association can do to give themselves a leg up here?

Mike Angers:

It's pretty simple. The idea is to try and make yourself look good, properly maintain your association. As Dave said earlier, the better you look, the better chances you are that you're going to be accepted. It's not a matter of rate difference, it's a matter of acceptance. The rates are the rates with these guys. It's a matter of being accepted and looked at that pile and put in the good pile. So whether it be just maintaining the exterior of it, painting on it, obviously the first question, Dave and you know this, and the first question we get ask is, when was your roof updated? Recoatings obviously don't count. Roof is number one, and then they go to the rest of the big updates, which is the plumbing and the electrical. So they just want to make sure that they're just not buying into a problematic associations. There's a lot of nice associations out there that do this, there's a lot that literally as we know it just will do whatever is necessary to keep the building standing. So you need to show them that you are one of the good associations and the budget is including in the way you reserve, so they just want to make sure you take care of the property.

Jon Lemole, Esq.:

Kelly, I got a question for you and maybe you covered this and I zoned out for a second, but given the new insurance fee provisions, is this going to put a real chill on associations wanting to pursue claims in litigation or even lawyers wanting to take on those claims? Provide some perspective on how this is going to affect that first party litigation where attorneys fees may not be available?

Kelly Fantetti, Esq.:

It will certainly put a chill, especially on smaller claims. So if you have a single family homeowner or condominium unit owner where there's less than $100,000 in damages in dispute attorneys will think twice about taking those claims. Especially because it used to be that we could get the insurance companies to pretty reasonably settle a strong claim quickly and then we don't need a lot of fee for that. We're getting it resolved for the insured, we can take the small claims and resolve them for the homeowner or the property owner fairly quickly. Now, the insurance companies are taking more and more of these all the way through to a trial. So if I'm considering taking a case, I have to consider I'm going to be working on this for possibly two years through a jury trial. If I'm taking it on a contingency fee, which is just a percentage of what the claim value is, as an attorney who has to feed my children and pay my mortgage, can I afford to take on this claim on a percentage? And the reality is by the time my percentage comes out, any costs and things of having to litigate this come out, there may not be anything left for the property owner to actually fix their property.

Even if I win, even if I get a jury to say, oh yes 100% of what you're asking for you deserve it. The homeowner may be left with nothing at the end of the day. So I do think there will be a significant chill, and that is what they wanted. They wanted to stop a lot of these lawsuits, but I think the people that get hurt here are the owners with the smaller claims for sure. I think the association claims the bigger things, those are still going to be able to be litigated where it's large enough to make it financially feasible. The smaller ones, people are going to get hurt.

Jon Lemole, Esq.:

Yeah, but you still have the same problem with the larger claims. If your claim value is, I don't know, just throwing a number out there $2 million, but at the end of the day, after paying your attorney's fees, you've got a much lower amount in your pocket and how do you get the repairs completely done? I understand the motivation is to reduce litigation and control litigation costs, but I think at the end of the day that may end up hurting, as you say, hurting insureds who have claims.

Dave McMahon:

Jon, and Mike and I talk about this and we don't disagree. It's going to be very interesting as the pendulum swung the other way to get to this point. Is there a chance in the future as they look at this to find a happy medium or some controllable arena to that? I don't know, but you make great points, Kelly did as well. I think it does put a lot of pressure on the insureds.

Mike Angers:

Jon, I got a question maybe for the attorneys real quick. And it's something that's going to happen, it's happening elsewhere, it hasn't happened to me yet thank goodness. Say you have an association that can't get full limits, can't get coverage, you got closings, you got board of directors that are sitting there, what do you all as attorneys... I know I had one that was really close. We had attorney involved, there was closings waiting to happen. This is going to happen. It's happening down south, I know Dave and I talked, it's going to happen where people either can't get coverage, can't get full limits, or the deductibles are over and beyond what's accepted. What are you all advising as attorneys for them? Because again, do I want to be the board if I don't have the proper insurance? What about the banks? What are the banks going to do? Are they going to fourth place coverage? What are you guys telling your clients and have you run into this? And if not, it's happening down south I know that because the bigger values down south, it's going to trickle up here because the capacity of these people, they only have so much that they can write. They're running out really quickly, so I'm just curious on your thoughts on that.

Cindy Hill, Esq.:

Well, I hate to say it, but everything that happens down south tends to be bellwether for what's coming our way. So thank you Mike for telling me that because if it's happening at that volume down in Miami area, it's definitely coming our way. There are no easy answers to that. And the reality is, if you can't get a carrier to write you coverage, well, you can't force them to write you coverage. So my general advice though, because I think we could talk another hour about this, is that the boards do need to be doing everything they can to show in the event that this becomes a problem they took reasonable steps to try to get coverage. That they've worked with their agent, that they've reached out, that they've tried to do what they can and they've documented they've tried to do what they can because again, you can't force an impossibility.

Dave McMahon:

I want to mention I just saw a real quick question regarding proposals from agents. I can't get proposals from agents. You won't. Your job as a board is to find the agent you want to work with and assign them to represent you. And I think that was mentioned earlier by interviewing an agent to go ahead to determine who you want to represent you because there's not enough carriers in the state of Florida to manage all the risk. It's only a small number of carriers. You're looking for experienced professionals like Mike, like myself, like the others that are out there that have years and years of experience dealing with these cycles and this stress. But it's not like you could get a phone book and start calling agents, that does not exist in Florida. Maybe it does up north, but not down here.

Jon Lemole, Esq.:

So folks it's 12:03, we'll probably hang out here for another five minutes or so to continue to go through some of these questions. You're obviously welcome to stay with us, but we recognize that some of you have other places to be. Dave, Kelly, Mike, are you guys okay for another couple?

Dave McMahon:


Jon Lemole, Esq.:

So there's a question here about carports. My insurance rep told me some companies are not covering Carports. Who wants to take that one?

Dave McMahon:

All you, Mike.

Mike Angers:

Well, it's pretty simple. Think about it. They're trying to eliminate the risk. Most of the carports you see out there are like kites. They're open sided structures, they're the first things to go so a lot of carriers already have been excluding them. More carriers are jumping on that boat. So yes, it's going to be tough to find coverage for carports. You may be self-insuring for those in the future. It's been going that direction for a while.

Jon Lemole, Esq.:

There's another question here. So if a condo building is 17 years old and roofs last 30 or more years and we coat with a sealant, that doesn't change the life or add value as a maintenance issue?

Dave McMahon:

I think everybody's starting up get their arms around or maybe becoming more understanding that whatever the warranties are when it comes to roofs and the suggestion that it lasts as long as they do, is not a reality. All that it was done in the past under old laws, old permitting, not modernized to today's ordinance of law features that we feel from a construction standpoint serve wind loads better. So you have an older roof, if the warranty or the roofing company says it will last 30 years, I'd really question that. We haven't seen that. We see 15, 20 years at best when it comes to roofs, it's just a very severe weather pattern here. So when it comes to recoating, they don't recognize that as well. As I mentioned earlier, it applies to an older roof system. Maybe they'll change as new roofs become updated. Maybe that recoating could be a mechanism to extend it, but right now it's not seen that way.

Jon Lemole, Esq.:

Kelly, there's been a couple questions about controlling roof fraud, which I'm not exactly sure what the question is specifically directed at, but I would suspect that's really ties into the AOB, the assignment of benefits issue. That was a source of some real problems, right? With spiraling roof replacement costs?

Kelly Fantetti, Esq.:

Yes. Traditionally like I said, you had a more competitive bid market and that kept the cost of roofs down, and the insurance company wasn't quite so beholden. By eliminating the assignment of benefits, we are kind of getting back into that bid market for the roofs. The other thing that they tried to do is they tried to limit the roofer's abilities to solicit, knocking on doors and talking to people about their roofs and telling people to file insurance claims. But then there was a roofing company that filed a lawsuit for an injunction on that law because they said it violated the First Amendment rights of the business and they've actually been successful in that argument. So the legislature actually backed down on that in the most recent legislation.

Mike Angers:

It has me scratching my head here because through Irma we talked about all the roof fraud and in our area there was one big roofer, an insurance agent and an attorney working together. Obviously this new legislation was passed in May, Irma comes along the same roofer, the same insurance agent and so forth is out there doing the same thing. So I guess the question, and I'm pigtailing off of the other one is how are they going to put a stop to it? It continues to happen. Literally the day after the storm, same people that are in litigation with tons of litigation with the carriers are still doing it. These people are costing us all money. It's killing us. I just don't understand it.

Kelly Fantetti, Esq.:

And that's kind of the sad thing about the changes that were made, is the people caught in the crossfire are the property owners, and they weren't able to find a tailored solution to really go after the bad actors. So they just got rid of everything for everybody, and the people who aren't going to have the resources they need to fix their property are going to be the property owners and it's really unfortunate. So as I think it was Jon who mentioned before, maybe as things shake out we'll be able to revisit some of this and make a more tailored solution, but the way it is now, they've just eliminated everything for everyone.

Dave McMahon:

Killed it. Yeah, killed it.

Jon Lemole, Esq.:

Well folks, I want to thank everybody for joining us. I want to thank our presenters, Mike, David, Kelly, for giving us some really, really helpful information. Cindy, for giving us some perspective from the general counsel seat. As I said at the beginning of this, this has been recorded so if you want to replay it'll be available probably in about a week or so on our website. And our website is You can also email, I know there were a lot of questions. We tried to get to some, we didn't get to all of them. If you still have some questions, you can email those to Michelle Colburn, This email address is being protected from spambots. You need JavaScript enabled to view it., and she'll pass those on to the appropriate person and we'll do our best to provide some answers via email. So I want to thank everybody for joining us today. I hope this helped a little bit. I know this is a very tough, tough issue to tackle in an hour. Maybe we'll continue to present some monthly programs on insurance issues as people get more comfortable with this new legislation and what's going on in the market, but please remember to join us every month. We have this smart board legal guide presentation, and we hope you'll continue to join us in the future. So I want to thank everybody and wish everybody a good remainder of their week and hopefully we'll see you all next month.

Dave McMahon:

Thanks, Jon, Cindy and Kelly.

Continue reading


Smart Board & Property Manager Legal Guide: Repair & Maintenance Obligations

Alan Tannenbaum, Esq.:

I'm Alan Tannenbaum, principal of Tannenbaum Lemole & Hill. I'm here with my partners Jon Lemole and Cindy Hill.

So let me tell you a little bit about our law firm. Prior to this year we were primarily construction lawyers and litigators working in the community association field. And Jon Lemole and myself led that practice and we have been representing in turnover claims, construction consulting, repair consulting, we have done covenant enforcement and we did that from the Space Coast across central Florida to the Tampa Bay area and down to Naples. We've stayed out of South Florida and stayed out of North Florida. And Jon and I, we're not doing general counsel work, but we've transitioned our practice. Jon and I are still leading our construction team and our claims team in all the markets I talked about from the Space Coast across the Tampa Bay and down to Naples, but we've also now become a general council firm and which is why Cindy Hill is here. We brought Cindy in experienced general counsel.

Now, to be clear on our boundaries the general counsel portion of our practice is from the northern reaches of Manatee County. We do some work also in East Bay and Hillsboro and down to Naples. We are practicing general council community association law, whereas, our construction practice is in the original market that I talked about. So the market has been a little bit confused about us, but here's the low down. Anybody on this call if you have a construction litigation or litigation issue or a turnover, we'd be happy to talk with you. If you have a general counsel issue and you're in from Manatee County Northline down or East Bay down, we'll be happy to talk to you about general counsel matters. If you're out of that market and have general questions, we're going to refer you to a great general council in St. Pete or Clearwater or Orlando or Melbourne, but we won't be taking on the general council work. So hopefully I haven't confused you, but we are a full service general council and a construction law firm but the region that we practice construction law in is broader than the region we do general counsel.

And I probably created more confusion with what I just said than clarity, but I did my best. Okay, so what we're going to be talking about today is Repair and Maintenance Obligations: Limits of Board Business Judgment. And one of the reasons we brought this topic back is that the legislature recently acted when it passed the Condo Safety Act, and passed two sections of that act that directly relate to individual board of director exposure on repair and maintenance activities. Which through all the lawyers in Florida [inaudible 00:04:08] because it was a diversion from where the law had been both from the common law, the court created law and what the legislature had said about breach of fiduciary duty. So part of the excitement of being a lawyer is that you think you have it all figured out and then either the judge or the legislature acts and you have to totally alter your thinking and your recommendations and your opinions because they threw you curve ball.

That's part of the excitement of the law, and then we have to try to explain it, what the court system and the legislature did which is not always an easy thing to do. So I'm going to talk first about the common law. So common law is literally the law that's created by the courts when a judge or an appellate court makes a determination and I'll give you an example. Many decades ago the Florida Supreme Court said that there's an implied warranty of fitness in merchantability that applies to the sale of new homes. It wasn't clear what the law was until the Florida Supreme Court decided that, and all of a sudden there's now based upon that decision an applied warranty in the sale of new homes. Now, the legislature has acted subsequently to that to alter things, but that's when a court says we're creating something new and making law in Florida, which courts do, that's the common law. So what was happening in, and especially in condo world in the early 1980s is there was a series of court decisions that were coming down.

Where a board of directors of a condo association decided that it was going to repair something in a certain way, and one of the owners challenged it. That you shouldn't do it that way, I have an engineer who says there's a different way to do, it'd be cheaper, it's going to last longer and it went to the trial court. The trial court's trying to decide which engineer was right, the association's engineer or the unit owner's engineer and the cases got up to the appellate courts. And finally the appellate court said, we're tired of hearing... I'm interpreting here, but we're kind of tired of hearing these disputes so we're going to establish a precedent. And the precedent ended up being the adoption of the Lamden Rule, which really clarified what a board's authority is to make decisions on repair and maintenance and what's challengable by an owner once the board has made those decisions. And it cut out a lot of that litigation when the courts adopted this Lamden Rule. And Jon, we can go to the next slide.

So this is the Lamden Rule, the basic court created law about board business judgment in Florida as it relates to repair and maintenance. So in order for the board business judgment to be a protection, the court system has said you have to meet these criteria. So the first criteria is a dually constituted community association board. That means that do your elections properly so that everybody who is sitting on the board where the decision's made is appropriately in a position as a board member. It also probably means, although it doesn't say it here, make sure your meeting notice is correct. So that when you make a decision about repairing maintenance and hiring an engineer or hiring a lawyer, whatever it is, then it's properly documented, was on the agenda for a board meeting, the board voted to go forward with and so forth. I think that would probably be subsumed within duly constitute community association board at a duly notice meeting. Now, the next criteria upon reasonable investigation.

So why do we as community association lawyers tell you that if you're going to do a major repair project you should involve an engineer? Well, the first reason is we think that there's a better opportunity under those circumstances to have a successful repair. But it also is applying this Lamden Rule. One of the things that allows board business judgment to be a protection is that the board has undertaken a reasonable investigation. Which means you've had professionals who have studied the problem, who have come up with a solution. We have groups where we have retired contractors and engineers who maybe are serving on the board, and they're out making decisions about how things should be repaired. Big mistake. We have former contractors who are doing supervision of jobs out in the field who are on the board. That's also a bad idea. So reasonable investigation is a key, and usually that involves some professional of some sort.

In good faith and with regard to the best interest of the community association and its members. So good faith means you're not entering into a repair project where you have a pecuniary interest, a board member has a pecuniary interest. You're hiring a board member's brother in law at a above market rate. Bad idea, that's bad faith for a board member. Or you're taking an action that's vindictive. You don't like a particular unit owner so you don't do repairs on their unit, you go to another building. You can't do that. That's not good faith and the best interest of the community has to be taken into account. Now, don't get confused, if you're in a condo for instance and it has 15 buildings and only one building's taking in water, you can't say, well, the best interest of the community is for us to ignore that building because most of the owners are not affected by the problem. You can't do that. You have to have the best interest of the community mind.

So if all those things are in place then if the board exercises discretion with the scope of its authority, does it have authority to make this maintenance and repair decision? And that selects among means for discharging an obligation in repair and the court should defer to the board's authority and presumed expertise. So what that means is if it's a duly constituted board, the investigation's been reasonable, it's acting in good faith in the best interest of the community, and it exercises discretion as to the extent of repairs that are necessary or how to undertake a repair it's not going to be challengable. An owner's not going to be able to come in and say, my engineer says it could be done a different way or a better way. Or I shouldn't have to pay this assessment because the board's spending too much money, it could have put off this repair another two years, it doesn't need to do it now.

None of those arguments are going to hold any weight in court applying the business judgment rule because of the adoption of Lamden rules. so just make sure all of the criteria are in place. Duly constituted, you've done a reasonable investigation, you're acting a good faith, and you have the authority to make the decisions that you're making about repair and maintenance. If all those things are in place, the court's not going to disturb it. The board's decision is protected. So that's the basic common law, courted created law. Now Jon Lemole is going to tell you how the legislature took that basic common law approach that the court system adopted and contorted it in all kinds of ways to create the dilemma that I talked about is how the heck do we advise people based upon now what the legislature has done? So Jon, tell us what our fine legislature over the years has done on the issue of fiduciary duty and board liability.

Jon Lemole, Esq.:

Thanks. So as Alan said, you have this weird commingling of common law, which is the business judgment rule under the Lamden test. And then the legislature has weighed in with various statutes that address primarily a director's fiduciary obligations. And so navigating that minefield of exercising business judgment while at the same time not doing things which may be statutory violations of your fiduciary duty can seem like a really difficult prospect or path to navigate for directors and officers and even managers because some of these statutes address managers as well. But let me stay at the outset and I think if you've been on these, you've heard Alan say it as well a couple of times, this is not to scare anybody. It's extremely rare for directors to find themselves in personal peril for their decisions as directors. Not only does the business judgment doctrine provide a strong layer of protection, the Florida statutes which actually address the fiduciary obligations of directors and officers are also in a way protective of a general level of immunity for directors from personal liability.

But that's not to say that there aren't circumstances where a director can face individual liability for their actions. There are instances where indiscriminate directors, officers can find themselves boxed in by their statutory fiduciary obligations. So what I'm going to talk about here is how that box gets created. Taking the box metaphor a little bit further, think of a wood crate, and what we're going to talk about is putting that wood crate together with hammer and nails. So let's talk about the hammer. Most of the penalties for violating your obligations as a director or officer or even manager are not self-executing. There are some rare instances where they can be, and we'll look at those in a minute, but they're not normally self-executing. And so the hammer, the thing that is held over everybody's head are provisions in both the condo statute and the HOA statute which authorize lawsuits by unit owners or by HOA members against either the association itself or in some instances a director or any one of the directors or even perhaps all of the directors.

So 718.303 in the condo statute, and 720.305 in the HOA statute both authorized member lawsuits against the association and/or directors and officers for failing to comply with the law, the statutes, and the governing documents of the association. Lawsuits can seek damages or they can seek injunctions. In other words, requesting a court to force the association to do something or to force a director to do something. And obviously, if you're faced with one of those lawsuits, they can be very expensive. But compounding the problem is that if you lose and if the member wins, both of these statutes also authorize the prevailing party in that case to recover attorney's fees and costs. So not only is the association or the director dealing with having to fund their own defense, the cost of defending the action, but if you lose, you may also be called on to pay the member's attorney's fees that they've expended in order to get the association or the director to do what they should be doing under the statute or under the governing documents.

Interesting thing to note about the condo statute, doesn't say this in the HOA statute, but a prevailing unit owner can also recover any assessments levied against them for the purpose of paying the defense of that lawsuit. So if the association gets sued and the association passes a special assessment in order to pay their lawyer to defend against the case and they lose, the assessments that unit owner incurred can also be reimbursable. So we can look at the statute and I've highlighted some of the relevant provisions. This is 718.303, the association shall be governed by and shall comply with the provisions of this chapter, the declaration, the documents creating the association, bylaws, all of the governing documents. And actions for damages or injunctive relief or both for failure to comply with these provisions may be brought by a unit owner against the association and/or any director who willfully and knowingly fails to comply with the provisions.

And you'll see that a little bit further down in that section of the condo laws where the prevailing party attorney's fee language appears. I'm going to run through this really quickly in the interest of time, but we talked about it. The prevailing party can recover their attorney's fees. And in the case of condos, if that prevailing party is the unit owner, they can also recover any assessments that were levied against them to pay for the association or the director's defense. Now, let's look at 720.305. Basically the same for HOAs. The language is essentially identical. The only thing missing here is that language about recouping assessments, and the HOA statute just says in the prevailing party in any such litigation is entitled to recover reasonable attorney's fees and costs. So those two sections are the hammer as this box is created, that's what provides the enforcement mechanism in situations where there's a potential breach of fiduciary obligation.

So let's talk about the nail. What is the nail? The nail are the fiduciary duties as their legislatively defined, and the breaches of fiduciary obligations as their legislatively defined in the condo law and in the HOA statute. So we're going to take a look at them broadly, condo, HOA and the general not-for-profit statute in 617 also comes to plain here because it's referenced and so there's some cross-reference to that statute as well. But taken together the condo law, the HOA law, the not-for-profit corporation statute impose on directors and officers of fiduciary duty towards owners. They impose that, they say that. And generally they define a breach of that fiduciary obligation in a series of things that you cannot do, and those things that you cannot do generally are receive kickbacks and freebies. Failure to perform your duties, and the failure is a knowing violation of criminal law. Or engage in self-dealing transactions directly or indirectly or act recklessly. Sorry, there's a typo in there. That recklessly should be at that last bullet.

Act recklessly or act or fail to act in bad faith or with a malicious purpose or in a manner exhibiting wanton and willful disregard human rights, safety or property. Let's take a little bit of a deeper dive into the statutory language. So first we'll start with the condo statute and the general parameters of the fiduciary duty of officers and directors is in 718.1 11. And in the section (1)(a), it provides that the officers and directors of the association have a fiduciary relationship to the unit owners. Now, here's what I want to look at next, is all the things that are deemed to be violations of that fiduciary duty. And notice I've highlighted manager here because while the duty, the fiduciary obligation refers to officers and directors, the things that cannot be done also include managers. So you may not solicit, offer to accept or accept anything or service of value or kickback for which consideration has not been provided for his or her own benefit or that of his or her immediate family from any person providing or proposing to provide goods or services to the association. Okay?

So that's pretty simple. You're going to hire a vendor to do something at the property, you can't hire that person or that company because they're giving you a tip or a kickback or some other money on the side as an inducement to hire them. That's pretty simple. I think we all get that. But the statute then goes on to say, and this is where it pulls in the not-for-profit corporate fiduciary obligation statute in 617 and it refers to it within the Condo Act and frankly repeats it. You're not going to see something similar in the HOA Act. In the Condo Act, it incorporates that into the statute. So in the condo statute a director, an officer who fails to perform his or her duties and the breach or failure to perform those duties either constitutes a violation of criminal law, constitutes a transaction in which the officer or director derived an improper personal benefit.

Now, don't confuse that with kickback. That can also include other forms of self-dealing like hiring a family member, steering a contract, a vendor contract to a family member. Or maybe you've got some a holding company somewhere that you've got a series of intricate corporate structures where you have a personal benefit, principle interest or financial interest, although it's not obvious. Those are the types of self-dealing acts which the condo statute prohibits. So self-dealing or the act constitutes an act of recklessness or an act or omission that was in bad faith with malicious purpose or in a manner exhibiting wanton or willful disregard of human rights, safety or property. We've heard that already. Now, these are the things that constitute violations. 

Jon Lemole, Esq.:

Okay. Now, obviously if you're acting within the business judgment rule, if you're applying the Lamden test then you're probably going to not have a problem with these. I mean, there is some overlap here where if you're following that Lamden test that Alan spoke about before, you're probably not going to run into these situations because you will already have been anticipating these types of breaches and avoiding them. But just good to know that the statute's there and they define what the fiduciary obligations are and how to violate them. Look, you can turn... I'm sorry, I've had this cold for three weeks and I can't get rid of the cough. Excuse me. The HOA Act is somewhat similar. 720.303 defines that officers and directors of a homeowner's association have a fiduciary relationship to the members who are served by the association. So that's similar to the condo statute, it tells us that we have that duty.

It then says that the officer or director or manager, and this is the anti-kickback language, you can't take kickbacks. Now, I talked about self-executing penalties, this is where you find one in the HOA statute. If the board finds that an officer or a director has violated this subsection, the board shall immediately remove the officer or director from office. So be aware of that. Thank you. Michelle just brought me a cup of water. The HOA statute also incorporates in it a director or officer charged by information or indictment with a felony theft, not convicted, charged with a felony theft or embezzlement offense involving the association's funds or property is removed from office. So that's another self-executing penalty under the HOA law. But then the HOA law goes back and refers instead of taking the language from the not-for-profit corporation statutes and repeating it in it, it refers to chapter 617.

So in HOA land, you've got to go back and look at the language in 617.0834 because that's where the same types of things that we talked about before in the condo law are referred to for the HOA folks. And so again, you'll see that a breach of a fiduciary obligation happens when the officer or director breached or failed to perform his or her duties, and the breach or failure to perform constitutes either a violation of criminal law. There is a little bit of a relief valve here unless the officer or director had reasonable cause to believe his or her conduct was lawful. Or had no reasonable cause to believe his or her conduct was unlawful. Or the transaction from which the decision constitutes the transaction from which the officer or director derived an improper personal benefit directly or indirectly. We talked about that in moments ago, self-dealing.

That's the classic example of approving a vendor contract to a family member for example. Or the act was reckless or an act or omission, failure to act, that was committed in bad faith or with malicious purpose or in a manner exhibiting wanton and willful disregard of human rights, safety or property. So those are the two statutory schemes which define A, fiduciary obligation that exists and then the ways that you can breach them. And as you can see, breaching those fiduciary obligations, you've done some pretty bad stuff if you've breached them. So you've really created the box for yourself with the hammer and nails. Now, the new condo safety legislation, and so this is just for condo folks. All of a sudden the legislature has thrown that scheme into a little bit of confusion, because what they've done is they've tacked on to the new condo safety legislation what may be an additional fiduciary obligation for officers, directors, and managers.

And so there are two different places where this appears. One in connection with the milestone inspections, the structural safety milestone inspections, and the other in regards to the structural integrity reserve studies. So in 718.112(2)(h), the legislature has now said that if an association is required to have a milestone inspection performed, you got to do it. And if the officers or directors of an association willfully and knowingly fail to have a milestone inspection performed when they're supposed to do it, such failure is a breach of the officers and director's fiduciary relationship to unit owners under 718.111(1)(a) which is the section we referred to earlier and we were looking at. And similarly, in 718.112(2)(g) it's essentially the same language and this time it's regarding the failure to conduct and arrange for and obtain a structural integrity reserve study if your condominium is required to have one of those. Now, as legislatures often do they put this here and it creates some confusion. We don't know and it's probably going to require a court to get a case and determine whether this is a whole new subsection for example of something that is a breach.

Or whether these sections are informed by or impacted by those other sections that we looked at, which talk about self-dealing, which talk about reckless acts, which talked about malicious purpose and bad faith, and whether those define the duties that are created in these two new sections. And we don't really know the answer to that, and we probably won't know unless we either get some clarification from the legislature or somebody gets sued for not doing this and the case goes up on appeal and we get some clarification from the court system. But from a conservative approach, I think a lot of lawyers looking at this language would say, look, the statute says what it says. If you've got to do this, you got to do it so do it because if you don't it's a breach. So that remains to be seen, and of course if you have some concerns about it, you should talk to your general counsel and get their opinion and recommendation of how they view the parameters of these two new sections addressing fiduciary obligation.

So with that, we're going to I think go to Cindy, and Cindy's going to talk about board liability for maintenance and repair failures versus association liability Because oftentimes there's this confusion as to who is really responsible? Is it the association or is it the directors or both? So Cindy's going to clarify that for us hopefully.

Cindy Hill, Esq.:

So this is an issue where Jon has discussed the incidents where personal liability for a board director can be an issue in terms of if you act in a self-dealing matter or fraudulent matter, all those bad faith actions. There's a difference between though a board member being individually liable or multiple board members being individually liable, and then the association itself being liable. So for instance, if a group of board directors decide they don't like their management company, I'll just give an example, and they decide that they're going to go ahead and fire their management company and they don't do so with the assistance council, they just tell them to go away. The management company had a contract that was good through the end of the calendar year and they fired them that year, and then they're surprised to find out the association gets sued to pay the remainder of the contract.

Well, that would be an example of a lawsuit where the association could be potentially liable. But it would also be an example where the board directors wouldn't be personally liable because maybe they made what could arguably be a bad corporate decision not consulting with counsel and following the terms of a contract and terminating the management company, but they didn't make a decision that was fraudulent, criminal, self-dealing, any of those higher standards of breach of fiduciary duty. So that being said, I cannot recommend that boards take that personal protection that the statute does offer them where they can make some arguably bad decisions and go ahead and make some arguably bad decisions. Because once the association is sued, those board directors are going to need to most likely attend depositions, answer discovery requests, be participants in the litigation to defend the actions they made although again, they will not be personally liable.

They won't have to be concerned about a judgment against them as a person, but they did have a fiduciary duty to act in the best interest of the association and now they have to defend their actions in a lawsuit. So I see board members who sometimes worry about being sued individually and then when I assure them that the standard is high and they're acting in good faith, they're going to be okay. But then they don't necessarily make that connection to, well, at the same time, going back to the point Alan made very early in the presentation, when a board reaches out to a professional such as an engineer, the attorney, the accountant, whatever the applicable issue is and gets guidance on certain issues it can be a very strong protection from liability. So that you don't as a board necessarily take steps that aren't in bad faith, aren't fraudulent, aren't self-dealing, but are still not the best corporate decisions because ultimately board directors are volunteers.

You are not trained professionals in all areas of the law that could in any time end up in a board meeting on the agenda that you need to discuss. So I always recommend best to reach out to professionals, get the advice that you need to go forward. It doesn't mean that you will not be sued either individually or as an association. Let me make that clear, no one can guarantee that. People can sue you for anything they want. I could be sued, I'm going to be a little facetious, but it's true somebody could sue me for having red hair. Does that mean the lawsuit will survive any sort of court proceeding and not be thrown out by a judge? No, but it does not mean that I could not get sued. So in acting in your best interest to your association, getting the advice of the professionals applicable to a situation can avoid that. And in the event that you do get an angry owner or I don't know how many of you might have encountered someone who is a lawyer in another state and now lives in Florida and is retired and is angry over certain issues.

If they decide to sue and don't follow the proper procedures and sue the board members individually, you have all your ducks in a row so to speak, in terms of defending yourself against what was a lawsuit that was not necessarily properly vetted before it got to the courts. Oh yeah, go ahead.

Alan Tannenbaum, Esq.:

Well, let me give a concrete example to highlight this difference between board liability and association liability. So let's say the board is making a decision, it has three buildings to reroof and the board makes a business decision that it's going to reroof the first building this year and the second building next year and the third building in the third year. And it's a business decision that the board can make, it may or may not require professional decision making. And then that third building has a major leak event and there's damage to the building and the interior units. It's not going to create personal liability on behalf of the director because of the high standard for breach of fiduciary duty. But when that owner sues the association for the maintenance failure, for not doing our building, the standard that's going to apply is a negligent standard. So let's say the board of directors had a report from an engineer that said all three roofs need to be replaced now.

So the owner finds that report or their lawyer finds that report, and the lawyer's going to go into court with that report and say they had an engineering report that said the roofs all had to be replaced today. It was not reasonable for the board to defer that third roof to two years from now, and therefore the association's liable for the damages that my unit suffered as a result of the decision to defer which was negligent. But that does not create individual liability, but the association and the association's liability carrier will need to respond to that claim. So what we're trying to portray is that the corporate liability of the association is a lower standard. It's a negligent standard. Whereas, individual board liability is this higher fiduciary obligation. And that's part of the reason why the legislature's addition of this new statutory language is concerning because all this was is to say, if the board has this obligation to have the reserve study and the engineering study under the Condo Safety Act. And if the board doesn't do it 'cause it wants to save the association money or wants a deferent or is concerned that we have a lot of owners who are already being lean for not paying their invoices and we just can't afford it, or insurance is too expensive and geez, we just can't comply with the statute.

All of which would seem to be at least arguably good faith decisions on a board of directors. The legislature said, if you make that type of decision relative to these two statutory provisions, it's a breach of fiduciary duty and you're going to get sued individually. So that's where in our view, it was an aberration for where the flow of the legislature had been before that and the common law. Which is you got to be really doing a really bad thing as a director in order to have personal liability and basically ignoring a statutory requirement for a reserve study or an engineering report on time now creates individual liability. That's concerning for us. What's our last segment, Jon? All right, in the last few minutes we're going to cover something that is really pertinent to post hurricane relief and some confusion that board directors have. So we are dealing with a number of groups in our market in South that have had substantial hurricane damage. They're working with public adjusters or first party insurance lawyers to try to get compensation to cover the repairs that are necessary.

And so we have communities that may have 50 roofs and half the roofs have a blue tarp on them. And the association has yet to hire a roofing contractor to replace the roofs that need to be replaced and the argument being that, well, we're waiting for our insurance claim to be processed. Interestingly in the Condo Act and in all of your documents, there's nothing that says that our repair responsibilities are suspended if we're waiting for an insurance company to respond. So it's really perilous for associations of board of directors in the face of having storm damage to really believe that you can wait too long of a period of time for an insurance claim to be resolved before you take action on the repair and maintenance front. And I was on a panel just a couple of weeks ago and with a couple of insurance agents, and the insurance agent said, well, don't go ahead with repairs because you want to make sure that the insurance company has documented all the problems. And I raised my hand and I said, well, I can't totally agree with that.

I definitely agree you have to protect the insurance claim, put the carrier on notice, let them know that you're going to be doing repairs and so forth, and make sure your engineers get in there and document the problems. But I said, I don't know how you would justify in a community with somebody whose roof is already tarped in October of 2022 that when May of 2023 comes on and our rainy season starts in Florida and that roof and that tarp doesn't hold up, which it's not intended to, and that unit now gets wet. It's going to be very difficult for the board to argue that we had to defer that work because we were waiting for an insurance company to respond. So that repair and maintenance obligation persists even in the face of that. And there some tough business decisions because the association says, well, where are we going to get the money from to fund this repair unless we have the insurance money? And what some groups do is they get a line of credit or they do a special assessment and they tell the owners, when we get the insurance company paid or the insurance claim paid, we'll come back and deal with it.

Cindy Hill, Esq.:

I would add many of my association clients who dealt with hurricane damage, storm damage, whether it was just landscaping or it actually damaged buildings have had to tap dance, so to speak, into a situation where they find that they're going to have to get funding 'cause the insurance companies are overwhelmed with the claims. They're not responding in a way that maybe everyone might have expected, and it's an issue that's been a learning curve actually for my associations down in Charlotte County and South Sarasota who are dealing with this problem. And it's something that going forward the area is no longer going to be able to assume that this is a Miami problem or a Fort Lauderdale problem, Sarasota is now on the radar for these problems. So these are things that definitely need to be thought about going forward before the next hurricane season.

Alan Tannenbaum, Esq.:

Let's take some questions. I'll go to our chat, and there's been a couple of really interesting questions asked. There's a question from Diane. What if a board member's relative is employed by a roofing company of questionable experience, but the board hires them in disregard and qualified roofing companies resulting in more leaks post storm than that there were prior? That's a very good question.

Cindy Hill, Esq.:

Answering that one in the chat just so you know Alan, and she clarified it's an HOA not a condo.

Alan Tannenbaum, Esq.:

Okay. Well, either way, hiring a relative is usually a bad idea so that should be avoided. If it's a relative who's qualified and that board member doesn't participate in the vote and the services are priced at a market rate, doesn't necessarily mean it's a violation but best avoid that whole situation. Especially if they're not qualified, that's another law, so not really a good idea.

Cindy Hill, Esq.:

Well, the Condominium Statute has a conflict of interest provision you have to follow for notifications and transparency to the ownership if a board director does recommend or wants to potentially hire someone who's family. So that's why I asked in the chat if it was condo or HOA, and I don't know if everyone's aware of that distinction. There is a specific conflict of interest statute in the Condominium Act.

Alan Tannenbaum, Esq.:

There's a question. Does reasonable investigations, this is from Lewis, require the board to obtain proposals from more than one expert? The answer to that would be no. If you have a qualified expert, you have vetted them appropriately those type of investigations are very expensive, there's really no reason for redundancy. Does it provide an additional protection if you get a second opinion? It would, but I wouldn't say at all that's required. But again, it's not only who you retain, but it's what you allow them to do. So if you have a high-rise building with major problems and you call an engineer in and say, we only want you to do a visual inspection we don't want to pay you to do any kind of destructive testing. And the engineer says, well, I can't really determine the problems without some level of destructive testing. You may have limited the scope, and limiting of the scope may be unreasonable. So it's not only hiring an appropriate engineer but also the scope.

Now, what's interesting about the Condo Safety Act is that there are provisions of the Condo Safety Act where the legislature's taking it outside of the board's discretion to limit the scope of what the engineer does. If they're going to do a phase two structural inspection, then it's up to the engineer who has total discretion as with the level of investigation they do. Which it's been joked about within the attorney community that if you have a child in college now, send them to engineering school or have them get an engineering degree because the Florida legislature has created enough work, especially for structural engineers in Florida to keep them all busy for the next five decades. So that may be something if you get a call from a college student who's trying to decide between a philosophy major and a engineering major, push them towards the engineering side, especially the structural end of it and you'll get there. I see Michelle has put a poll up. Thank you, Michelle, and I'm trying to see if there's any other questions we haven't answered yet.

Jon Lemole, Esq.:

Alan, there was a question about what does reckless mean? What is a reckless act? That's actually defined in 617.0834, the nonprofit corporation statute. Let me share my screen again because I actually have it here in the presentation so quickly you can see what it says there. And it says that for purposes of this section, the term recklessness means the acting or omission to act in conscious disregard of a risk that is known or so obvious that it should have been known to the officer or director. And known to the officer or director, or so obvious that it should have been known to be so great as to make it highly probable that harm would follow from such action or omission. So that's a pretty high standard, it really relates to knowing or a reasonable person would know that there's a risk and ignoring the risk makes it highly probable that some harm, and that could be personal harm or property damage or property harm, would follow from either the action of the failure attack. So you have a statutory definition for that, and I would argue that that applies in either the condo regime or the HOA regime.

Cindy Hill, Esq.:

I agree.

Alan Tannenbaum, Esq.:

One more question I see. Let's see, somebody has a question about one of the board members doing work. Let me see where it is again. Okay. Richard says, what minor repairs can members make or authorize an owner to make? Can a person with elevator controls reset or attempt to reset motionless elevator car? Does your answer change if people are stuck in it? Well, can owners and the board do simple screw tightening on hinges? I think moving propane tanks to secure a area would be okay. We have directors who are up on ladders today doing stuff at their property. I'm greatly in favor of maintenance work being done by either an employee of the management company or a hired maintenance company. I'm very much in favor of repair work being done by a contractor contracted for the association. Self-help by directors has several perils. Number one, if somebody performs negligently they can be held liable for it. So I've confronted an engineer from Illinois who's on the board of directors, and he's designing repair work at their condo. And I've said to this engineer from Illinois, I said, if you still have professional liability insurance I bet it doesn't cover unlicensed engineering in Florida.

And so you're undertaking an act that's completely uninsured. You're not licensed to practice engineering in Florida, so you're breaking Florida licensing laws. It's an unauthorized practice of engineering. Do you really want to volunteer your services under these circumstances? They would apply it to an accountant who was doing the association's books, or a lawyer who is second guessing their general counsel on giving legal advice. Really, really not a good thing. So there may be some really minor things that I could see a board member doing, certainly under an emergency circumstance. If you need to get somebody out of an elevator stuck in it, well, and ThyssenKrupp or the elevator company can't get out in time and you need to rescue somebody. I guess all holes you're open to take emergency action, but short of that I don't like to see board members or directors doing stuff. That's why you have a management company. That's why you have a maintenance person. That's why you have outside contractors and engineers. And it's virtuous 'cause you think you're saving the association money. Some folks just like to be handy and useful, but it's very perilous if you're undertaking it on behalf of the association.

Cindy Hill, Esq.:

And Alan, they may not also have insurance for that. Workers' comp can be a complicated issue, that's the insurance that covers people who are working. And it may be your volunteer falls off a ladder gets hurt and you find unfortunately, there's no insurance coverage for that for your community. So I also advise not to use volunteers for any dangerous circumstances. And do review with your insurance agent what your coverage is if you have volunteers doing much of anything 'cause people can get hurt crossing a room, holding something too heavy.

Alan Tannenbaum, Esq.:

I got a comment that I cut Cindy off before she was done with her portion of the presentation. So Cindy, is there anything you wanted to say that I didn't allow you to say?

Cindy Hill, Esq.:

Alan, you went ahead and gave an example that really just solidified the points I was making, which is that these decisions they're not get out of jail free cards. There's ramifications to the decisions the board make even when board directors are not personally going to be liable.

Alan Tannenbaum, Esq.:

Okay. There's a question from Tim. I will stay on for a few more minutes for the folks who want to hear some answers. What happens when boards alter replacement schedule for ruse, pavement, et cetera, delaying replacement by five years or so and leaving a community short on funding? Well again, if it's a condo, then under the provisions of the Safety Act that may cause the board some individual responsibility under the provisions that we talked about. Funding is a big problem with what's happened with the insurance premiums and boards have to look really closely at the rest of their budget. What can we defer in order to afford this exorbitant premium that we got to pay this year? And it's a really tough business decision, and again, the Condo Act and your documents don't say that the repair and maintenance obligation is suspended when the association doesn't have the funds to undertake the work.

Cindy Hill, Esq.:


Alan Tannenbaum, Esq.:

And that's why the whole subject of condo terminations is coming to the forefront because with what the legislature has mandated, you might have an older condo with multi-million dollars of repair responsibility with a membership that is not in the position to be specially assessed and pay a special assessment to undertake that. And there may reach a point where the appropriate thing for that board to do is push towards a termination rather than try to keep this old building in very bad shape going, especially where the membership can't afford it. I had a termination situation in a condo in Tampa, and they needed to assess the owners $30,000 each to do repairs. And there was a potential of each owner realizing $300,000 if the land was sold and the condo is terminated. And I confronted a woman who actually was handicapped at the condo meeting where termination was being discussed, and she said, "Where am I ever going to find a unit where I can wheel my wheelchair right into the first floor unit?"

So she voted against termination and then the board said to her, well you're going to have to pay the $30,000 assessment for repairs. And she said, "Well, how could I possibly do that? I'm handicapped with no income." And the dilemma for the board was that, well, there were only two possibilities. The repairs had to be done or the condo terminated, but there was no third alternative, and this owner didn't want either. I don't want to be assessed and I don't want to lose my unit and those are some very tough conversations. We've had other condos that the owner said, you can't terminate my beachfront condo 'cause I'll never be able to afford another condo on the beach. Well, that may be true, but unless you're willing to come up with the $150,000 necessary to do your repairs where are you going to be? So I think we basically covered. Somebody's asking about the reserve studies and so forth, and that's a little bit too in depth to get into here.

Jon Lemole, Esq.:

One comment, and this always comes up when we do a presentation on fiduciary duties and business judgment rule, and now the new condo safety legislation is why would anybody want to be a director at this point? Cindy always has a pretty good answer to that. So I'm going to paraphrase it real quickly, but Cindy will maybe jump in and provide her perspective. But at the end of the day, these provisions are not... You have to do something really bad. You have to disregard your duty significantly to face any kind of personal responsibility as a director. So you shouldn't look at these talks as something that it's a big scary thing. And there is a need for directors and there is a need for good people to manage communities, manage them effectively and that should not be a scary thing. Comply with the statutes, use due diligence, rely on experts, vet the vendors, don't engage in self-dealing, act in good faith and you're going to be fine. Cindy, do you have anything to add to that?

Cindy Hill, Esq.:

That's really the synopsis other than some people are not necessarily going to want to be the bad guy, so to speak, the one with the bad news. So I think that's a reality that the managers are dealing with. So at the same time, their counsel should tell them exactly what Jon just told you, what I would tell the group if John had not. There really is no reason for board directors to feel that they're going to be personally liable for their actions as long as they're acting in good faith and using professionals. And if they are concerned, checking with your insurance agent over the directors and officers liability coverage is always a good conversation to have.

Jon Lemole, Esq.:

Right. Generally you have coverage for that, for your actions.

Alan Tannenbaum, Esq.:

And John and Cindy, the only counter I would have to say is if you're in an older condo subject to the Condo Safety Act and you have to meet those requirements. And again, the thought process, well, let's delay the reserve study or let's delay getting the inspections that are required 'cause our group can't afford it or we are paying too much for insurance, so let's do it next year and you're at that deadline. The Florida legislature seems to be saying or may be saying that that's an exception. That even though your heart was in the right place, so to speak, you're still going to have personal liability, so that would be the only exception. And again, the whole premise of the presentation today is the legislature always takes us lawyers on a journey and the associations with us.

Cindy Hill, Esq.:

Well, now that's why I said a board working with professionals. If a board is working with their general counsel, working with engineers on these issues, doing their due diligence, that's going to be the protection that they are needed. As opposed to ignoring it, kicking the can down the road, which is of course what created this whole statutory provision.

Alan Tannenbaum, Esq.:

All right, the last question somebody's asking about every year, this comes up about a freebees include cookies, candies, or gift back from vendors. Are they bribes or are they considered not valuable? Isn't there a dollar limit, Cindy?

Cindy Hill, Esq.:

$25 is the statutory limit. A bit unreasonable with today's inflation to think that anybody getting a benefit more than $25 is somehow getting a kickback. But that's what's in the statute.

Alan Tannenbaum, Esq.:

So what if a big gift basket is delivered to a management company. If they share it among like 10 managers and it's under $25 each, is that okay?

Cindy Hill, Esq.:

Well, honestly there's not a lot of law out there on this being enforced, which doesn't mean it shouldn't be recognized. I'm not saying that, but I think you could make a good faith argument that if a basket was sent to a group of people that a management company with five, 10 managers and the basket's worth maybe let's say $75, you're not in violation of the statute. I find again, the $25 is really rather unreasonable because if you went out to lunch with a manager at let's say a little more on the water upscale location, $25 for lunch could run up quite easily if somebody had some snow crabs and a few things. And that wouldn't seem to be a kickback. What I advise in these situations is don't take what appear to be obvious kickbacks. I mean, if a company's trying to send a manager, hey, we want to give you this TV 'cause we really want you to encourage your board to hire us. Again, acting in good faith is going to keep you out of this, but I can't give full advice on this 'cause there's not a lot of pointers and $25 is not a good measure in today's economy.

Alan Tannenbaum, Esq.:

And one of the exceptions is if it's an educational presentation which is why when you go to vendor lunches that they give educational presentations as part of it, besides the CEU credit, it's an exception. It makes that lunch not a bribe because you're actually learning something. That's what the legislature has said that as long as there's an educational component. So if we take you out to lunch, we're going to have to bore you for 10 minutes with an education on some topic and then we're good. All right, we are going to conclude. I think we covered most of the questions. If anyone has a question that wasn't answered, you can contact us and we will answer it if we can.

We always get the question about co-ops and we always leave you out because it's such a small population in Florida, but I think that fiduciary obligation requirements of the co-op statute are very similar to what's in the Condo Act. And so yes, you're going to be facing the same restrictions. So we're going to close down for today. Thanks everybody for attending, and we will figure out a great topic for January. Everybody have a great holiday season. Merry Christmas and happy Hanukkah if you do that, and we'll see you all back in 2023. Goodbye everybody. 

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It's Not Too Early To Start Preparing Your Association For The Next Big One

Alan Tanenbaum, Esq.:

So I'm Alan Tanenbaum, and I'm here with my partner Jon Lemole. Cindy Hill, who is our third got called away at an emergency meeting. So you're just going to be hearing from Jon and myself today. And the subject of today's episode is Hurricane Ian's Legacy: It's Not Too Early To Start Preparing Your Association For The Next Big One. So we've got a lot of calls in the last few weeks. We're currently in Osprey, Florida, which is in the mid to southern part of Sarasota County. We've been hearing a lot from groups to the south of us in various stage of distress.

We heard their immediate issues and prize for help. We have been helping them work through their hurricane claims, their issues with their owners, a lot of confusion and a lot of stress. And we are pretty attuned to procedures and processes for groups that have done well in the face of enormous problems and groups that are not handling their issues quite as well. And we've developed this program today, which is to provide some tips for all associations based upon our experience in the last few weeks about things that probably should be cleaned up now, procedures that should be adopted now thinking that should be done at this juncture. So, Jon, if you can go to that first slide.

I'm not sure which storm this was. I think this was, yes, this was the recent one. And if you recall, when the storm was north of South America and south of the island, we were all under a threat. Nobody knew exactly where the storm was going to hit. And based upon the projections of the last couple of days, they really blew the forecast pretty substantially. I can recall a couple days before the storm hit in southwest Florida, one of the main predictions was it was going to be a category one storm hitting in the Tallahassee panhandle area. And what happened obviously is while it was a much stronger storm and stronger than they predicted, it made its turn to the east and surprised a lot of people in Collier Lee and Charlotte counties especially who many of whom were not prepared for what occurred. But one of the first things that we're going to talk about are the documents.

So with condos it's pretty basic. Under the statute it's pretty well defined what are common elements, there's some confusion about limited common elements and for some groups, but it's pretty obvious that the association for the most part is responsible for the common elements. The owners are responsible for their interiors from basically the drywall inward. Sometimes where there's some confusion after storm is whether there's interior unit damage, who's responsible to do the immediate cleanup, who needs to get in there and do the dry in, and so forth. I think what most condo associations do is despite what the documents say, they may get a remediation contractor in right away to do the dry out and then work on the common element issues. That's not the larger problem. The larger problem is in the world of multi-family homeowner associations talking about villas, duplexes, triplexes, and quads.

A really big problem. Number one, there's confusion about what a villa or a duplex owner or a quad owner is responsible for. Some of the documents look like condo documents where the associate, where the HOA is responsible for everything in a multi-family unit other than what's from the drywall in. Some of them have very little maintenance responsibility for exteriors. Maybe it says that the associational paint, maybe the association will be doing roof maintenance but not replacement. But there's HOA owners who do not understand those distinctions. So one of the things that could be done is really educate your owners on what those lines of distinctions are because there's a lot of confusion out there. And we recommend, and we have given presentations on this, consider amending your documents to create an intelligent maintenance and repair protocol. We have properties where there are six duplexes with a roof that spans all six units and the replacement of the roof is responsibility of the individual lot owner and the roof is destroyed across all six.

There's six insurance adjusters adjusting that claim. Maybe one of the homeowners doesn't even have insurance, maybe one of the homeowners is on a safari in Africa and not even contactable, maybe one of the homes is in an estate. How six individuals can make a decision about how they're going to replace an element is going to be going to be very difficult. And in a hurricane situation, the documents have created mass confusion. So our first point is if you're an HOA and there's any portion of your property which is multi-family and I'm including duplexes in that, think about logically from an insurability standpoint and a maintenance or repair standpoint, what's the best way to organize the maintenance and repairs so that especially at a crisis, things can be taken care of and make those adjustments by way of amendment.

And the second part is really the education, which is, I mean, we're confronting board members who don't understand their documents as far as where the line of demarcation is between the association and an owner as far as prepare who calls out the insurance adjuster, what does each of them cover? And whether it's in writing, whether it's at meetings, it's really important for the board to educate their owners because we have board members who in the face of the very difficult circumstances are dealing with basic confusion on the part of their membership about who's responsible for what. And those things need to be cleared up. So Jon, I'm going to turn it over to you. Is your association adequately insured? Why is that an issue?

Jon Lemole, Esq.:

Well, apart from the obvious, to touch on something that Alan was just saying about confusion among owners as to who's responsible for what, I think we find often that a lot of people don't understand exactly what's covered under the association's policies and in particular, unit owners or lot owners may have the biggest misunderstanding or misimpressions as to what may or may not be covered. And so that creates a lot of conflict and confusion. And so one of the most basic things that I think any association can do is to the extent that you can do that, educating your members about what might or might not be covered in a storm, what are the limits of coverage on the association's policies, what's covered in a hurricane event, what's not covered in a hurricane event? So those basic things are not a mystery to everybody. And in fact, often we see board members that may not know exactly what their insurance policies say.

So, for Ian, and in the wake of Ian, some of the biggest challenges we've seen are questions relating to coverage for water intrusion. And as a general proposition, hurricane insurance will cover water intrusion if the water intrusion is a result of storm damage. But you're all familiar with the idea of the storm having to create an opening in the building through which rain enters. Well, there's a lot of communities that weren't necessarily impacted that way and I'm going to talk about an extreme example of that in the next section that I take on, which is correcting building vulnerabilities. But associations need to understand and appreciate what water cover damage may be covered versus what water damage may not be covered because you don't want to find out after the event and have this rude awakening that some of this damage may not be fall under your insurance policies and it's going to be something that the association needs to take on.

Apart from that, there's just some generally good insurance practices that everybody on this presentation should be thinking about. Understand your deductibles. You may have great insurance and you may have a covered loss, but if the damage doesn't exceed your deductibles, again, that's another area where the association would have to appreciate what its potential financial responsibilities are after a big storm. And if you haven't discussed that and you don't have a contingency plan for that, that's going to be a big problem. So appreciating the financial or the potential financial burden of meeting deductibles should definitely factor into decisions around adequate storm contingencies. Another example is ensuring that your insurance covers up to date replacement costs. So obtain periodic insurance appraisals so you can ensure that your replacement coverage will be adequate. Finally, look, every renewal period, there's a couple of things that are going on. First of all, for those of you that just went through recently went through a renewal period, there's a huge surprise, right, because premiums went up drastically.

And some of you may have found that you weren't renewed because your carriers just not renewing certain policies in the state of Florida. But how can you impact that? I mean there are certain things that market forces that you're just not going to be able to influence to deal with or influence. But there are certain things that you can do to give your association a leg up. So this is an opportunity to be in the best position to continue to be offered insurance at as reasonable rates as you can get in consideration of the current market. So things like staying on top of maintenance and repair obligations and documenting those so that your carrier knows during renewal time that your buildings have been adequately maintained, well maintained. Believe it or not, one of the beneficial aspects that we've been talking about with regard to the safety legislation, the recent safety legislation in condo world is that this is an opportunity for buildings and condominiums that have buildings in good shape to demonstrate to their carriers with these milestone reports that, hey, our buildings are in good shape so we're a good risk.

So, when I've been talking to associations and they're upset about wondering why or how or when they're going to do these milestone inspections, and my gosh, the cost of this is going to be a burden, maybe turn that discussion and especially with your members, turn that discussion around or on its head and say, look, this is an opportunity to spend some money now, if we know that our buildings are in good shape and they've been well taken care of, this is a good opportunity for us now to spend this money, not wait because we've got a very difficult insurance market and if we've got a positive milestone report, certainly that's going to help us save money when it comes time to renew our property and casualty insurance.

So these are all just things that keep in the back of your mind that the more you document the condition of your buildings, the good condition of your buildings, you keep those buildings in good condition, that's going to provide you with the best coverage at the most affordable rates that the market can offer to you. So all of those things will put you in good stead for the next time something hits. And as I said at the beginning of this, communicate with your members so that they know that, and they have an understanding of what those policies cover as well.

Alan Tanenbaum, Esq.:

Jon, a couple points. Obviously, the flood insurance is going to cover the storm surges. Your liability and property coverage has more to do with the impact of wind and wind driven rain. So don't get those confused. Both are very necessary to have the coverages. And the first thing that the wind policies argue in defense is that it was a water and a storm surge event, it wasn't a wind event. And then the store federal flood insurance program will sometimes contend that it was a wind event and not a storm surge event. The storm surge insurance is somewhat a limited coverage, so you may have much more damage than that coverage is going to cover. Be aware of code requirements. So if a portion of a building is destroyed, the building department's going to require that you rebuild according to current code.

So if you have a condominium property where a lot of windows are blown out and you had older style windows, the replacement is going to have to be with the current hurricane resistant windows, which are much more expensive than your original configuration. So you need to have the coverage that will cover code requirements for new construction. And then obviously construction costs have gone up enormously. So if you're basing your amount of coverage based upon somebody who determined replacement costs five years ago, you're going to be way out of whack on the amount of coverage that you have. So be aware of that. Jon, let's go to the next slide, which is vendor relationships.

So needless to say, there's an extreme amount of competition right now to get capable remediators and remediation companies out to properties. If anyone noticed, and I'm sure it's much worse in Southwest Florida, I mean the amount of time that even a refuse, be it organic or otherwise, it takes for that to be all collected. You're talking about contractors that were way overburdened, and any of the remediation contractors have incredible burden right now. So what some of the remediation contractors offer is the opportunity for an ongoing relationship. So you sign onto their program and first of all they'll do an inspection of your property to assist you with locating vulnerabilities, things that you may be able to correct in the interim. They know your units, they inspect your units, they know your property, and they will assist in documenting before storm what the issues are. But probably the more important aspect of their programs is they're now a preferred customer.

So when the storm comes, you are on their list of properties, number one, that they'll come out and potentially on their own and see how you fared. And then if they have a hundred groups that are calling them for service and you happen to be among the 30 that are on their program, they are going to give a priority to you. So have those relationships in advance. I mean, for buildings that have roofs, you should already have a relationship with the roofing company that's potentially doing your annual inspections, but you have an opportunity during the quiet time to have your list of preferred vendors. Certainly the management companies fulfill that role, and make the relationships that you're going to need in advance because if the storm comes your way next time, you're going to want the people that you're able to call and assist.

So the planning is, okay, if come next season, and I'm presuming that there's not going to be another store this season, but come next season, if a storm impacts our area like Southwest Florida was impacted this time, who are we going to call? Who do we have relationships with that are going to help us out of a major mess? And you should know who those people are, who the companies are, have the conversations, get educated on the process. Because if you're trying to do that in the midst of a crisis, obviously it's a lot more difficult. So Jon is going to talk about correcting, building and site vulnerabilities.

Jon Lemole, Esq.:

So, again, another fairly obvious thing to think about is understanding where your buildings and your site may be vulnerable to a big storm. It's not always easy to implement that though in practice. I'll give you an extreme example because this came up, this is real world stuff that we've been dealing with in our office, for example. Our firm is aware of some newer condo communities with buildings that were built with these off ridge vents. So these are attic ventilation, but they're not at the peak of the roof, they're kind of like a little bit down from the peak of the roof and it's almost like a long cover that provides the venting.

And what happened in Ian is that these vents ended up and now there was no other damage that was done by the wind or the storm, but what happened is the rain ended up going right through these vents, and I'm aware of a couple of communities where that's created a significant amount of water damage into the units inside those buildings. And that's been a real problem for these communities because of the questions about whether that's covered or not, number one. Number two, what is the association now going to have to do in terms of repairing or contributing to repairs for those units because this was a water intrusion that came through and these are condos that came through a common element in the building.

So, I'm not saying that this would have been discovered, but this is an example of a situation where if you had, or this community had done, for example a turnover, these are newer communities, if they had done a turn turnover of engineering inspection, that condition may have been found and it's correctable, at least I'm told by engineers and contractors that it's correctable. The other part of it is if it were found, it's probably a potential designer construction defect, which arguably you would have a claim back to the developer and the builder for. And so you could have dealt with that, not only understood it, discovered it, but dealt with it and perhaps obtained money back in order to correct that condition. So that's just one example of understanding the vulnerabilities in your building that may not have been obvious. I mean we can walk around our communities and say, oh, we've got some obvious things that we ought to take care of.

Everybody does that during a storm, but there may be some things that you're just not aware of. And so frequent periodically it's a good thing to just have somebody come in, a professional, do a checkup of your buildings even if you're not in under safety legislation. A periodic inspection of where your buildings may be vulnerable to a big storm event is a good thing. What are some other areas? Because we tend to think in our communities of our buildings, but we don't always think about our site conditions. Is your community itself, the neighborhood, the site, is it well prepared for the massive amount of rain and storm water drainage that it will need to handle in an event like Hurricane Ian? So take a look at your drainage ditches and your swells and your retention ponds and other retention structures.

If they're not well maintained, you may not realize because in a normal storm event they're okay, but because they haven't been well maintained in a big storm event with a massive amount of water, even if you're not in a flood zone and you don't have flood storm surge, you may have surface flooding because you haven't stayed on top of controlling erosion into your ditches and swales and stuff that gets into the drainage systems, the underground.

And so those are all an opportunity to look at your drainage maintenance program and make sure that those drainage systems are in good order. And then there's just obvious things mean how many fences did we see blown down in the storm? And I'm not even talking, I'm talking about Sarasota and Manatee County, I mean fences were down all over the place. So take a look at your fences. Are they in good repair? Trees? You may not be able to stop a tree from falling over and being blown over, but a lot of branches came down, big branches came down on trees. Are those trees clear of your buildings? If a branch falls, is it going to fall on a roof and impact that building or some other common element structure? There are things you can do landscaping wise to make sure that the damage or the loss that's probably going to occur in the storm will where you can minimize the impact as much as possible to your buildings.

So these are all just basic maintenance issues. They're sometimes overlooked, you set it and forget it or add a sight out of mind, but a storm like this is a good opportunity for you to take stock in your communities. Go around before the next one comes and say, okay, have we been proactive about maintaining areas of our property, of our site that can be potential issues if we have another big storm. And I think we're going back to Alan who's going to talk about maintaining effective communications when communications otherwise have otherwise significantly broken down or are impossible.

Alan Tanenbaum, Esq.:

Yeah, what are the things to that, to Jon's point, as horrendous as the conditions in southwest Florida were, there's a tremendous body of information that has been developed. So when you see boats that are piled up, is there a better way to attach boats to protect boats? So that type of damage doesn't occur. And there're all kinds of studies now of buildings, how they subsisted during the storm, what did well and what didn't well. So just pay attention to the literature that's going to come out and the studies that are going to come out because every storm we learn a lot. This particular storm, number one, it was a very powerful storm as far as a wind forces were concerned. It moved very slowly, so you had sustained hurricane force winds for a much longer time than may have been for a typical storm.

It's also the path that it took where the storm surge was at its greatest. So there's a tremendous amount of lessons learned in a body of information that will be developed and study that and think, well, if that came to our community, what are the things that we could do now so that we could at least mitigate some of that damage. Jon, if you can go on to communications. So days after the storm, people were still being looked for, lost cell phone communications, couldn't contact people, were they even in the state of Florida? Had they left? Really a massive effort to find people. Owners could not find their board. Some of the management companies were down, board members couldn't find their managers.

So it's a huge challenge. But years ago, what we did as a law firm is we established a line of communication with a law firm or law firms on the east coast of Florida. And here was our arrangement. If the big one hits the east coast, you can have all of your clients, all and your management and so forth, contact us over here on the West coast and we will be the repository of communications because yours have been taken out of service. And we had the same arrangement in case form hit over here.

But if you think about it, the same arrangements can be made for condo and homeowner associations that if communications get knocked out, internet gets knocked out, that there is a fail stay, a place where any owner can contact who is out of the area and where they can expect that a communication is going to get through. So set does networks in advance so that if an owner in a southwest Florida property in this particular storm wanted to find a board member, it hasn't had a means of making contact with somebody in order to do that, certainly the owners need to know email addresses and phone numbers for people who they may need to contact. You need to know where your owners are. There are groups that did not actually know who was in residence at their community when the storm hit. So that's obviously a really important and set up mechanisms so that you know, knew who left town and who you would need to check on.

All those things have to be thought of in advance. And obviously information on how to make contact. And again, to have some sort of a network, and I'm sure there are people who are much more technologically adept than I am of establishing an out of area contact that individual owners or board members and so forth can contact. I think the management companies did a pretty good job of establishing groups that they can call so that their board members can be reached. But communication was a real serious problem. Jon, why don't you talk about access to emergency funds?

Jon Lemole, Esq.:

Yes, I just wanted to add one couple thought on the communication issue. Look, in Lee County and Collier County's, property managers were affected, lawyers were affected just as much as owners of condo unit owners and town homeowners. So, one of the things that I would advocate for, and as Alan said, management companies probably are doing this already, but it's really an opportunity now for the managers and their clients to sit down together and understand, okay, if we can't reach you, who's the backup? Who do we go to? What's the management company's contingency plan? What is your general counsel's contingency plan? Alan touched on that a little bit. Frankly, we had lawyers in Lee County who our office was assisting with helping their clients because they just didn't have the ability to do it. These lawyers were struggling with their own losses and in inability, no phone service, no cell phone service, no whatever.

And so we knew that and where we could, we pitched in and helped. But the takeaway here is be talking to those folks that help you manage your community, your management companies and your lawyers and understand where can you go if you can't reach them, if the communication has completely broken down, because you're going to have questions, you're going to need to talk to somebody. And so just know that beforehand. Now onto access to emergency funds. There's going to be in the immediate aftermath of a storm, things that need to get done, safety conditions are going to need to be dealt with.

Temporary emergency measures are going to need to be taken in order to prevent further damage, to mitigate losses is, but water removal companies are going to be very active and they're going to need to be brought in. Gaps in the roof are going to need to be fixed so that you don't have continued water coming in if it continues to rain after the storms. And you may not be able to have those conversations with your insurance carrier right away in order to figure out where you stand in all of this. If you haven't adequately planned for access to funds, that's going to be a pretty big burden for your community. So one of the things that communities can do, and I know that a lot of communities, they think about borrowing money as a bad thing, but having a line of credit available in these situations is something that I think every association should consider. You may not use it, but it's there and you have the ability to write some checks that desperately need to be written.

One of the other things that you can do, like look, communities do emergency management planning. When I say communities, I mean municipalities, right? Every municipality has an emergency management plan where your communities should have an emergency management plan as well. So you probably all realize or recognize that before most major storms, the governor issues an emergency order, which suspends compliance with a lot of requirements. And typically one of the things that gets suspended is your association's responsibility to strictly comply with rules and regulations and statutes that impact board decision-making. And so that's an opportunity for you folks to have a conversation ahead of time as to, okay, who's got authority in this community to make some emergency decisions, to write checks, to secure needed urgent work in the community? Who, who's going to be the person or people that do that? And again, that gets back to what Alan was saying earlier, you may have people, board members who are not there.

And so you need to know that. And you need to know what is the mechanism that the people who are here on the ground, the directors that are here on the ground can make these decisions and amongst themselves. Or maybe it's just one person who you're vesting with that ability to do that. But you've got to have those lines drawn clearly so that there's no confusion. And then after the fact, nobody's pointing fingers at why this was done or who did this. You've got to empower certain people in your community to be able to respond to these things when the means of communication may not be available for group decision-making and collective deliberation on those issues. So lines of credit and emergency management plan, just like municipalities do, is definitely a good thing. And then I think the last thing that we're going to talk about before answering some questions is dealing with first party insurance claims and repairs. This has been a really, really big area of contention in the aftermath of the storm. So, Alan is going to talk about that.

Alan Tanenbaum, Esq.:

Not very happy right now with the remediation industry and the public adjusting industry, we're really seeing horror stories on a day to day basis. And I hope I don't offend anybody here who's been a public adjuster, but we're saying some of the old problems come back again. So what's a public adjuster? A public adjuster is a company that has experience in adjusting insurance claims. They typically operate on a contingency basis. The contingencies are usually between 10 and 20%. So they come to your community and they in the aftermath of a storm and they say, look, we will get contractors in to document the damages. We will refer you to remediation contractors and we will make the claim with your insurance company. We'll get your insurance company out. And at the end of the day there will be a number that will be presented to the insurance company to cover your claim.

And usually a joint check will be issued and the public adjuster will take 10 to 20% of the overall claim. The incentive of a public adjuster is to increase the claim to its maximum, and obviously if you're on a percentage basis, that will mean the maximum financial recovery. Now, what does a public adjuster not do? First of all, a public adjuster generally won't scour your documents to see what the appropriate line of demarcation is between association responsibility and owner responsibility. So don't look at them as legal advisors who are going to make those distinctions. If they could include what should be owner claims against an owner's own policy in their claim, they will do so. Because again, it's going to increase the ultimate amount of their claim. So be sure you get independent legal advice, understanding your documents when you're working with a public adjuster so that they don't cross boundaries that are inappropriate.

So what's the immediate need? You need to stop water getting into your building. So there'll be roofers coming out and companies that coming out will do the roof tarping. We've seen that. There's good roof tarping, there's bad roof tarping. So you should have somebody knowledgeable making sure that the tarping that's done is appropriate. There needs to be appropriate dry out. So you need to get a company into and to do that. Your insurance company may give you some interim money to take care of things like that because it reduces their loss. But we've seen some real oddities where these remediation companies come in, the roof is tart and they're doing more than dry out. They're ripping out drywall, they're replacing drywall. It doesn't make a lot of sense in most cases to replace drywall when the roof hasn't been a permanent roof, hasn't been installed.

We've seen remediation contractors who just go around the community knocking on doors saying, I'm here to fix your drywall without having any contractor, any authority to do so. That's happening all over. That process has to be gain control over. One of the problems in a storm is that everybody wants everything fixed as quickly as possible and get the community back in operation. But it doesn't suspend the association's obligation either in HOA or a condo to make sure that repairs are administered in an appropriate fashion. So what happens in Florida, unfortunately it's happening now, is contractors are coming in from all over the country. They have flooded southwest Florida, many of them are not licensed in Florida.

Many of them are doing repairs that are outside the scope of their competence. Many are not seeking building permits for work that does require a building permit. So the rules about good contracting are not suspended during a hurricane. And we've included here some tips, you can go back through them, but you need a vet who's coming to your property, even under emergency circumstances. You need to have an appropriate contract with them. You need to have third party supervision of the work that they're doing. Will you be able to meet all the conditions for good repair protocol? Probably not. But we're saying instances where there's really no implementation of proper procedures contracting and so forth as an entity who's working on your property, are they insured?

Did they give you a certificate of insurance? We have people who show up, they have FEMA badges on, they're not with FEMA. There're all kinds of schemes and scams going on that you have to get control of. Now, one of the problem, we have villa communities where again, these folks are going door to door. They may be even telling them that they have the authority of the board of directors to be going in their unit. Well, maybe not, but who's watching this contractor as they're in a unit from issues like theft. I've seen some very loose criteria there. Who's watching what they're doing is, are they doing the work that's appropriate? Are they doing it correctly?

And again, very concerning when they're not under contract, they're just flowing into the buildings and doing repairs. And again, what they're looking for is, well, the insurance company's going to pay us, so they operate even without a contract. So there has to be a communication with the owners. And again, this is part of the advanced protocol, which is to let the owners know that in a case of a storm, this is what they're responsible this for. This is what the association's responsible for, this is who you should be opening your door for and who you should not.

Because if a storm occurs and somebody knocks on your door and they say they're authorized by the board to come in and do repairs, we have a whole group of owners in one community who contacted us and said, we have this contractor coming into our units and we don't even have damaged drywall in many of these units, and they're ripping the drywall out. Again, that's a company that is looking for some short-term profit to take advantage of the circumstances that exist. And it's really unfortunate. So, Jon, if you go to the next slide, I think there's another slide.

Yeah, here's some of the warning signs. You get people showing up FEMA badges who are not with FEMA. They have a fancy jacket on. Unsolicited offer of services. I don't know how many groups where a roofer has, this is during non-hurricane. A roofer shows up and says, I've noticed that there's some tile slippage here. You could have an insurance claim, best not to contract with them. Upfront payment. Not such an issue now. But if you hear that, that's a sign. And they're saying that they work with insurance companies and so forth, kind of being worried about that.

But again, the same processes at good times, which is having a good contract, knowing who you're dealing with, making sure they're licensed, making sure they've secured the appropriate permits, having third-party supervision, all those things even in a hurricane situation where the repairs being done, all those protocols should be in place. Now our bias is if it's a significant claim to hire a first party insurance lawyer, they're going to be more sensitive to the document restrictions on who's responsible for what. They will get the same remediation contractors in, but under better control. And in the end, hiring a first party lawyer is not going to cost the association anymore than dealing with a public adjuster, except you have a lawyer on your team versus a public adjuster who, some of them are good, but again, their accentuation or their attitude is really to increase, in most cases the amount of the claim to a maximum.

We had a situation where a group was ready to re-roof all of its roofs, had a contract for it, public adjuster came in after the storm and they tried to elbow the roofer out of the contract to say, and told them that we could get a lot more money from the insurance company than you were already contracted to pay, which was insurance fraud right up front that they didn't seem to have any problems admitting to. So really the key is to keep your protocols in place as best as possible for good relations with contractors and be aware of some of the unfortunate things that are going on in the industry. Jon, I think we can cover some questions at this point. There's a question, a little bit off topic, but about skipping the normal reserve study and go for the surge. What would you say about that?

Jon Lemole, Esq.:

I'm sorry, I'm looking for the question. What is the question?

Alan Tanenbaum, Esq.:

First question, would it be advisable to skip the normal reserve study and go for the serves?

Jon Lemole, Esq.:

Well, if you have to do a surge, just do the serves. I think at this point, because first of all, getting it done in a timely fashion, although it may seem like the deadline for that is a little ways away, these companies are very over stressed right now, scheduling them is difficult. It may be a while before they can get there. The engineers are really stretched thin. So you got to factor all of that in. So it's really a hard question to answer because it may be a while before you can get the surgery report done. And so then do you have to make some reserve decisions and so do you get an interim report? Or do you just work on getting the services done now? I mean, financially, I don't necessarily see a reason for spending money twice, because you're going to have to do that report anyway at some point if you're under that regime based on your building height. So I think that's really more of a financial question. Do we want to have two reports instead of one?

Alan Tanenbaum, Esq.:

Yeah, it's unfortunate. A lot of the reserve study companies are seven, eight, nine months out, maybe longer. So if you're starting now to do your budget for next year and you haven't gotten your reserve study done, you're going to have to figure out a way to calculate those reserves because you're not going to get a report within a month for your budget process. There's a question for communities that are in the middle of the inspections and the repair scopes, how would you recommend handling the conversations with the carriers during the bidding process? A very difficult question. Any conversation with an insurance carrier right now is a tenuous one.

You're lucky enough to establish coverage. I don't know what the insurance companies are asking by way of documentation. There are insurance companies that they've notified their underwriters to write as little as coverage in Florida as possible. So they're looking for reasons to reject you. So I'm not sure what you're going to tell them. I think in any other insurance situation, what you're trying to convince the insurance company is that you're a good rest. So certainly telling them that you're getting all the inspections done, you're meeting the statutory requirements, the association tends to repair the buildings to make them serviceable. Should make your insurance company feel a little bit better about ensuring your particular risk. There's a question about ordinance or law coverage, yes, that's necessary. That will cover an instance such as the code has changed and you have a replacement cost that's increased as a result of an order by the building department that you have to meet the current building code law and ordinance coverage will cover that. I think it's a good coverage to purchase, usually not that expensive.

There's a question in a multi-family multi-story building, how to determine when wind blow water damage to a unit is the responsibility of the owner and when it is the responsibility of the building. All right, I'm presuming this is a condo situation. So here's our typical response. No matter what the source of water, if there's interior unit damage, the homeowner or the condo owner should be advised to make a claim against their own carrier for that interior damage. And if that carrier wants to subrogate against the association's carrier, it can do so. The key, what the association's policy, condo associations policy is covering is typically damage to the common elements. And that's really what the claim should be. Now, some of them will carry some cover cemetery damage, but in every instance we would advise that the owner for any interior damage do their own repairs.

The other problem with that claim coming through the association is how is it adjusted? The board of directors and management don't want to be in the business of determining on a unit by unit basis how much of an insurance claim an owner's going to be entitled to and certainly doesn't want to be in the business of contracting for interior repairs beyond dry out because then you're going to have potential years of dispute over the adequacy of the work, did they get the finishes that they desired it? It's very problematic. So let the owners deal with their interior issues beyond dry out, which may be good to handle from an association standpoint. But let the owners make a claim against their own carriers for that interior damage and undertake the corrections with what they're able to recover. There will be a transcript and Michelle has already responded to that.

So let me see. I think somebody asked an esoteric insurance question. Differentiating between actual cash value versus replacement cost coverage. And Kirk, you had to go and answer a question that I don't have a specific answer to. Replacement cost coverage sounds like a policy that says whatever the actual cost bid for the work is what you're covered for, whereas actual cash value is a stated amount and even if it ended up costing you significantly greater than that, that's the limit of your policy. But that's what those words seem to me. But I could be corrected by somebody who's an expert on insurance jargon. Jon, do you have any closing thoughts?

Jon Lemole, Esq.:

When you know a storm is coming, prepare your community for the fact that there may be repairs that need to be done for a while and the community may not look very good. That's a thing I keep hearing from folks that we represent, is that the residents are getting really upset at seeing these tarps. When can we fix the tarps? When can we fix the roof? And it's a stressful enough situation to have to deal with the storm. Owners are confused, they don't exactly know what's going on. They get frustrated, they vent their frustration at management, they vent their frustration at directors, and you all sit there and say, well, there's really nothing we can do about it right now. And so it's probably a good idea before the storm to say to your folks, look, we don't know what's going to happen here, but if something does happen, we may be dealing with it for a while and you have to be patient with us as we work through the issues of insurance coverage, paying for it, paying for it at competitive rates, dealing with reputable contractors who are available.

And understand that you are going to see a lot of contractors come this community who may not be reputable. So don't assume that we're just not doing work. We may not be selecting folks that because they're available, they're available for a reason as opposed to reputable folks who may not be immediately available. It's just transparency, good communication.

Alan Tanenbaum, Esq.:

The thing I have to offer in closing, I've been around long enough to remember that we used to have civil defense drills. I was around long enough to remember when they said, look, if there's a nuclear blast, they were teaching the students to get under the desk would do any good anyway. But civil defense training is preparing a population by practicing. So it's a good thought, which is, okay, it's November, and there probably will not be a hurricane again until May or June of next year. And have a session within the next couple of months where you run through with the board and potentially the owners of what if we recreate the situation that occurred in southwest Florida that happens to our property? What are we going to do? Who do we know? Who do we contact? What education needs to occur? What are all of our protocols? And get them set now. And learn from the experiences of all the folks in who and the studies that are going to be coming out of this particular storm and use that body of knowledge in order to do some great planning.

That's what I'll leave everyone with. And somebody named Diane Shapiro has put in a very great comment to close on, which is anyone could register for CERT training, Community Emergency Response Team, and anyone who needs that information, we will get it from Diane and supply it to you. There's Diane, she even put her email address. So, has anticipated what we were going to say today and already knows of a program that offers training for community emergency response. So thank you Diane. So we're going to say goodbye at this point. Thanks for coming on. We're going to have another presentation next month. Any other questions that anyone has, you can send them to us, and we will provide a response. So we will see everybody next month. Thank you.

Jon Lemole, Esq.:

Thank you.

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