The Smart Board & Property Manager Legal Guide: Repair & Maintenance Obligations
Alan Tannenbaum, Esq.:
We take homeowners associations and condo associations through turnover, help set up their engineering and accounting studies, post turnover for the groups that are interested in pursuing claims, both for HOAs and condos. We're involved heavily in that. We also do repair consulting as construction lawyers, so on major repair projects. We'll be involved in reviewing the contracts, revising the contracts, both with the engineer and the general contractor. We help administer those agreements and any projects that don't go well, we are heavily involved in cleaning up some issues that may follow either bad work or change order claims and so forth. So, those are our two capacities. I personally have done that work for now over four decades, and my current firm has been operating for 26 years.
We have offices in Orlando, Clearwater, Sarasota, and Fort Myers, so our market is from... The space goes across Central Florida to Tampa Bay and above, and then down to Naples. We stay out of South Florida, unless it's a really great case that somebody wants to co-counsel with us and we don't go to North Florida because it's too difficult to get there. So, that's what we do. We don't do general counsel work. We stay within the construction realm. So, let me introduce today's topic. So, everybody is aware of what happened in the Surfside situation.
You had an older condo, a lot of engineering reports about problems over the years. The board had difficulty inspiring the owners to pay a special assessment to do the repairs, and they finally did pass the special assessment, and before the repair could be implemented, the buildings came down horrifically where the building did. A very drastic situation, probably unlikely to be repeated, but it did spark a number of issues. First of all, number of condo boards have gone out and gotten the prepared review by an engineer. There's a lot of remedial work that's being planned or implemented at this juncture as a result, and it's brought into focus the whole issue of what is the obligation of a condo board or an HOA board to undertake or to direct repairs and maintenance on their properties, what leeway does a board have in making decisions in that regard, what's required, what's not required, we're going to cover all that today. And, I'm going to ask Brian Tannenbaum, our associate, to put up the Lamden rule, if you can, Brian. Am I going to be able to see it, Brian?
Brian's going to get up the Lamden rule, but while he's getting it up, let me read it. This is the current rule in Florida concerning the board business judgment. We're a dually constituted community association board. Upon reasonable investigation, in good faith and with regard for the best interest of the community association and its members, exercises discretion within the scope of its authority under relevant statutes, covenants and restrictions to select among means for discharging an obligation to maintain and repair a development's common areas. Courts should defer to the board's authority and presume expertise. So, let's break that down.
The end of the Lamden rule is, where should courts defer to a board's authority and presumed expertise? There it is, and Brian, can you bring it up so we can see the whole thing? Well, that's not it. Well, we're having little technical problems with our visual, but the end result of the Lamden rule is, where should a court defer to the board's authority and expertise? There it is, and then it sets forth all the conditions that precede it. So, what the courts of Florida have said is, we don't want to hear the disputes between condo associations and homeowners associations and their owners about the wisdom of how a board is approaching repair and maintenance. Under certain conditions, the court's going to say, "Look, we're not going to hear this dispute, we're going to defer to what the board's authority and expertise is, but what are the conditions for a court to defer to that?
And, that's what's preceding it in the Lamden rule. So, the board has to be duly constituted, so you have to have a board that was duly elected. Upon reasonable investigation, Jon Lemole is going to deal with that in a few minutes. So, in order for the court to defer to the board, there has to be a reasonable investigation supporting the board's decision making. Good faith is obvious. The best interest of the community association and its members, but one important exception to that is if you have 300 owners in a condo and there's only one owner who is getting leakage, it doesn't matter if the other 299 owners don't want to repair the roof on that building.
The obligation to protect that owner from that damage, even if the rest of the community doesn't want to do it is overwritten by statutory requirements. Then, does the board have the authority to make the decision? Which we're going to go through, so all those things need to be in place. So, I'm going to ask Jon Lemole to talk about investigation because that's one of the requirements of the Lamden rule for the court to defer. So Jon, take it away on the issue of investigation.
Jon Lemole, Esq.:
Thanks, Alan. That's probably the heart of the Lamden rule is that the board's decision in regards to maintaining and repairing the common elements in a condo association, or the areas where it has duty to maintain and repair in a homeowner's association, the heart of the Lamden rule is that the board's judgements and decisions are protected as long as they're based upon reasonable investigation, and so anytime the board is determining a course of action to take in regards to discharging its maintenance and repair obligations, there has to be in the back of the board's mind and board members' minds, the idea of what investigation have we taken in order to discharge this fiduciary duty, this obligation that we have?
One of the things that we've discovered lately, I guess, as a result of what we've seen over in South Florida with Champlain Towers and some other things that I'll hit upon in a second, is whether inaction is okay. If you don't know of a particular issue that needs to be addressed, you don't have a roof problem, you don't have a problem with roads or other drainage systems or things like that, what is the board entitled to do or to rely upon in not performing any kind of investigation of the community and the things which it has maintenance and repair obligations for?
And as we go forward in time, I think what we're going to see is that boards are going to be held and associations are going to be held to a much higher standard in terms of not only discharging their duties with regard to things that they know about, but also discharging their duties in regards to continuing almost like wellness of the buildings and the grounds in their communities. We go to the doctor periodically for checkups. There may be nothing wrong with us that we know of at least, but yet we go for an annual physical. We want to know how we're doing, we want to know how our cholesterol is, we want to know how our blood pressure is. Well, I think that's kind of a, an area of the board's duties that's been a bit overlooked and is going to be much more, or increasingly under a microscope as we go forward in time.
I don't know whether there's going to be some legislative activity that comes out of this that's going to affect that or not, but let's talk about what is the typical situation for a condo association or homeowners association in assessing the health of their communities, the health of their buildings, the health of the systems that they maintain. Sometimes associations get reserve studies, sometimes. Maybe they do, maybe they don't. In condo land, there's an obligation to fully fund reserves, and...
Alan Tannenbaum, Esq.:
They produce a budget with fully funded reserves.
Jon Lemole, Esq.:
Produce a budget with fully funded reserves, and so from time to time, a condo association may get a reserve study done, and in fact, at turnover, there's typically a developer's inspection report, which includes a reserve calculation for the things that the developer is supposed to include in that turnover report.
But that may be it, that may be the last time that a condo association board or condo board does any kind of real significant stem to stern type of investigation of the community. And in an HOA, it's really driven by whether the documents require that. There's no statutory requirement as there would be in the condo act and it's purely document driven. So, you may have associations, which are proceeding year to year with very little information about the health of their buildings, the health of the systems that they maintain and are obligated to maintain, and that's a problem.
As we've discovered from recent events, buildings have a finite lifespan, systems have a finite lifespan, and especially in Florida where we have a very difficult environment and difficult climate that takes a toll on buildings and takes a toll on systems, it's very important that going forward associations and association boards start to think about routine investigations, routine forensic investigations, and a board may not be able to rely going forward. I'm not saying that this is law. This is something that may come out of legislation, but at some point we may see case law statutes start to align to impose a stricter requirement on boards to assess the health of the things that they have maintenance and repair obligations over.
What's reasonable? What's a reasonable investigation for a board to not take action with regard to its maintenance and repair obligations over the structure of a building, let's say? Is the board entitled to rely on the mere fact that they don't see anything, that they're not noticing any problems or does reasonable investigation mean that you should have some sort of engineering evaluation of your buildings? And if it comes out that there's nothing that needs to happen, great. Obviously, if it comes out that there's something that needs to be addressed, then the board will have to address that, but can the board just re eye on not seeing anything, not noticing anything, not hearing any complaints, not having any patent visual things that are staring at it and jumping out at it to not take steps in terms of evaluating health of their buildings, or their grounds, or their site improvements?
Alan Tannenbaum, Esq.:
Jon, let me ask you a question. So, Lamden rule, would you agree that it's really a minimum standard, it's talking about where a court is not going to interfere, but not necessarily the best practices for an association? So, my question always to a group is whether you have building problems or not, how can you make decisions about the long term repair maintenance of the building, unless you have a proper investigation that you can rely upon to make those decisions? So, there's a minimum standard, which in order for a court not to overturn what a board does, there has to be an investigation, but the depth of the investigation really is the best practice for an association in proceeding with this obligation to lead the maintenance and repair, you see that?
Jon Lemole, Esq.:
Yeah, absolutely.
Alan Tannenbaum, Esq.:
All right. Jon, let's move to the issue of neglecting repair and maintenance in its entirety. So the question is, you have a board of directors and the owners are really opposed to any kind of special assessment. There's problems with the building, but the consensus of the owners is, look, I'm only going to be here for a few more years, or I'm selling. We don't want to really fund a major special assessment to do the repairs, and the inquiry is whether for either a condo association or a homeowner association, the decision to not do anything in the face of problems that may exist, is that ever a justifiable position? And, we're going to have Brian Tannenbaum at this point take us through the statutes, and show us whether the decision to do nothing is actually something that a board of directors of a condo association or a homeowner association in Florida is authorized to do, to do nothing. Brian, what say you?
Brian Tannenbaum, Esq.:
What say I, I say no. Well first and foremost, 718, which governs condos, 718 111 1A, and what's important here is that the officers and directors of the association have a fiduciary relationship to the owners, so they're responsible to the owners.
Alan Tannenbaum, Esq.:
What's a fiduciary relationship, Brian?
Brian Tannenbaum, Esq.:
Say that again?
Alan Tannenbaum, Esq.:
What does that mean? What's a fiduciary relationship?
Brian Tannenbaum, Esq.:
It means that they're liable to the owners. They have a relationship. It's the next sentence in here, an officer, director or manager may not solicit or accept anything of service or value or kickback for which consideration has not been provided.
Alan Tannenbaum, Esq.:
But, a fiduciary duty is a higher standard than a typical duty that one person in society would have for another, correct?
Brian Tannenbaum, Esq.:
Well, right. It's in the statute, so it's codified in the statute specifically, and if you look at C, it says that the unit owner does not have any authority to act for the association by reason of being a unit owner. So, it's especially heightened because a unit owner can't act for the association on their own. The only way for the association to act is through the officers and directors.
Alan Tannenbaum, Esq.:
So, if on a condo the roof is leaking and the penthouse owner stays in their ceiling, can they hire a roofer go up and fix that roof?
Brian Tannenbaum, Esq.:
They cannot.
Alan Tannenbaum, Esq.:
And, specifically 718 111 C provides that they can't do that. So, if the board doesn't act and get a roofer out there, they're really setting the association efforts of liability. Go ahead, Brian.
Brian Tannenbaum, Esq.:
Right, so that brings us to 718 113 1, which basically defines the maintenance or repair obligations of a condo association, and the maintenance of the common elements are the responsibility of the association. Where this comes into play with inaction some of the time is when there's a project that might be classified as a material alteration, which under the statute says that there shall be no material alteration without 75% of the voting interest of the association.
However, if you have something that falls under your repair and maintenance responsibilities, such as a roof or a failing balcony or windows, where the only way to repair that common element is to make a material alteration, so for example, if you have a roof that was-built maybe 20 years ago, 30 years ago, and the material that was used to build the roof is no longer available, it doesn't allow the board to say, well, because it's a material alteration to use a different material, we have to have 75% of the vote. The maintenance and repair responsibility of the common elements is above and beyond the material alteration section. Now, if there is a similar material or the same material, then there would be an obligation to use that material.
Alan Tannenbaum, Esq.:
Let me ask you a question, Brian, what's the significance of the beginning of that section using the word responsibility? Is that different than may or could? How is that significant?
Brian Tannenbaum, Esq.:
Right, there's no way out of it basically. You have to maintain the common elements. There's no exceptions, there's no excuses, there's nothing you can do. The main maintenance of the common elements is the responsibility of the association.
Alan Tannenbaum, Esq.:
So, would you agree that that sentence alone, standing alone would make the idea in the face of an existing problem, make the concept of a board not doing anything a violation of that provision of the statute?
Brian Tannenbaum, Esq.:
Correct, if there's no maintenance of the common element, then there is a dereliction of duty by the association to maintain the common elements.
Alan Tannenbaum, Esq.:
All right. What's the significance of 718 113 3 at the bottom?
Brian Tannenbaum, Esq.:
So, 718 113 3, it kind of goes with C up here where a unit owner cannot do anything within their own unit through a common element that would adversely affect the safety of the common elements or any portion of association property. So again, a unit owner cannot do anything on their own [crosstalk 00:29:06]-
Alan Tannenbaum, Esq.:
Both within the unit or in the common element?
Brian Tannenbaum, Esq.:
Right.
Alan Tannenbaum, Esq.:
So again, you can't have individual owners in a condo doing anything to the outside of a building, even though there's water intrusion or other damage being caused. The statute says that that owner cannot act and they would be in violation of the act if they did so, correct?
Brian Tannenbaum, Esq.:
Right, so moving on to the remedies, 718 303, what this says is that the association is governed by and must comply with the provisions of this chapter, as well as the declaration of documents creating the association. There are actions for damages or injunctive relief for failure to comply with the provisions, and they can be brought by the association against a member or by a unit owner against the association, or any director who willfully and knowingly fails to comply with the provisions of chapter 718.
Alan Tannenbaum, Esq.:
Now, just to assuage directors, even though that's what it says in 1B, that doesn't necessarily bring about liability upon directors because the director also in addition to that will have had to have acted it with their own [inaudible 00:30:33] gain in mind, or with some malicious or illegal purpose. So, it's not enough to say, well, the board didn't act, it saved that board member of the assessment that would've been assessed against all of the owners, and therefore they're liable personally under 1B. There isn't an additional requirement in another section of the statute, which requires that in order for there to be individual liability that it almost has to rise to the level of a criminal act, not just neglect. I don't want anyone to get overly nervous about 1D because it's a very, very narrow field of potential liability for a director. Even if they fail to undertake the repair process or administer it, but the association does have significant liability. Go ahead, Brian, sorry.
Brian Tannenbaum, Esq.:
And, then the last part of 718 303 that we have highlighted here is that there are attorney's fees that are recoverable as well as reimbursement of any assessments that were used to fund the litigation. So, the owner's assessments are not being used to pay for the litigation against them. They will be reimbursed and they will recover attorney's fees that they spent themselves.
Alan Tannenbaum, Esq.:
What about homeowners association?
Brian Tannenbaum, Esq.:
Homeowners associations are governed by chapter 720. The officers and directors of a homeowners association have a fiduciary relationship to the members, so it's the same as in the condo statute. They also have a fiduciary relationship to the members. The difference is the powers and duties of the association are those that are set forth in the governing documents, beyond what is already in the statute. And again, here it says a member does not have the authority to act for the association by virtue of being a member, so the same thing.
Alan Tannenbaum, Esq.:
Before you pass on that though, just to make it very clear, for condominium associations there's a statutory obligation to maintain and repair on the part of the association the common elements. It's also required in the documents what Jon Lemole is going to go over. In a homeowners association, the obligation to maintain and repair the association owned property or connected town homes within an HOA really comes from the documents. There's no specific statutory obligations to maintain and repair like there would be for a condo. It all comes from the documents. Go ahead, Brian.
Brian Tannenbaum, Esq.:
And, then 723 05, again, are the remedies for homeowners association, and it has the same remedies as the condo statute. The refusal to comply with these provisions may be brought by any member against the association or any director or officer of the association who willfully and knowingly failed to comply with these provisions, and it again, has the prevailing party of attorneys [crosstalk 00:34:02].
Alan Tannenbaum, Esq.:
The key is there's severe repercussions for the association, either in HOA or condo if there's failure to undertake the maintenance and repair responsibility in the face of ongoing problems. Obviously, it will be responded to by the association of insurance carrier, but you have too many of those claims, and all of a sudden the association's not going to be able to get coverage in next year. So, there's a real impetus to thoughtfully undertake the investigation and the repair and maintenance obligations, again, and this answers the question. Statutorily, doing nothing is not an authorized act. That's not going to protect a board under the Lamden rule because doing nothing is not an authorized act of an association in the face of ongoing problems. So, what we're going to do now, because we talked about documents, I'm going to switch it over to Jon Lemole, who's going to give some examples of how condo declaration provision and HOA declaration provisions impact repair and maintenance. Go ahead, Jon. Brian, go to the next slide there.
Jon Lemole, Esq.:
I'm going to jump into that in a second. Christopher Carter asked a great question right now that I think is something that this is a good point to address. He says, does the business judgment rule absolve incompetence? Here's my take on that. First of all, you have to define incompetence. Is incompetence just not making the right call? Sometimes boards don't make the right call, but if they've done their due diligence, if they've done their investigation, go back to the Lamden rule, if they've done their reasonable investigations and they're making a decision in the best interests of the community, it may not always be the perfect decision, it may not always be the absolute right decision, but typically the business judgment rule is going to is going to provide cover for that. Now, if incompetence is that they didn't make a reasonable investigation of the issue that they're dealing with, and they just decided a course of action out of the blue that had no real connection to what the problem may be, that is the heart of the Lamden rule, that is the heart of what the business judgment rule protects and doesn't protect.
So, I think that was a good question, and that'll be kind of the theme that we see as we go forward. Anyway, jumping to some typical governing document provisions. So, you know you have statutory obligations and in the condo act, you've got a very robust statutory scheme and in the homeowner's association act not quite as much. And so for a homeowner's association, much of the association board's obligations are going to be driven by the declaration. And so, it's very key that both board members and managers understand what the governing documents say or the declaration says about these association's duty to maintain a repair.
So, let's look at section 2.24 in this particular declaration, and I'll tell you that this is a town home community, but where you start with, and this is a section that would apply probably to town homes or even single family HOA, but you can see all of the areas, and if you follow my cursor, you'll see that the association shall, not may, shall in its sole discretion install, maintain, repair, and replace any and all improvements within the common area. Such maintenance shall include, without limitation, you all know these things, electrical wiring up to the meters, water pipes up to the meters, cable television lines up to the cable box, sewer lines, landscaping, lighting, irrigation, if that's something that is included in your community, amenities, pools, parks, entry gates, roadways, sidewalks, walkways, paths, trails.
That's pretty common for most HOAs. Now, Brian, if you'll scroll down to the next section, 2.25, because this is a town home community, you'll typically have a second area of maintenance responsibility for town home buildings. Now, this is where it gets a little crazy in town home world, folks. In connected town home world, these provisions run all over the map. They can be very vague, they can be very, very detailed. Now, this one's fairly detailed, painting of exteriors, maintenance and repair of exterior cladding and walls, party walls, roofing, and related components, waterproofing elements, gutters, downspouts, that's, as we've seen a pretty, a pretty robust and well-defined maintenance and repair obligation. Here's an opportunity for each of you to go back if you're in a town connect to town home community and look at what it actually says in your declaration because we've seen declarations where it may say the roof covering.
Now, think about that, think about a town home community, where the association only has an obligation to maintain the roof covering. Well, as you probably all know, sometimes when you do a roof repair, a roof replacement, you may need to repair some of the roof structure, decking, trusses, rafter tails. Is that included in roof covering? Maybe, maybe not, and that creates a lot of problems for an association when they have to make those calls, and it's not really well specified in the declaration. That's always an opportunity for a smart board to go back and consider really defining, maybe there's an amendment that's needed, to define exactly what the association's duties and obligations are in that community because when it's ambiguous, that's where a lot of problems arise. The board is not clear what it's supposed to do, lot owners are not clear about what the board's duties are, and that creates a lot of opportunities for litigation. [crosstalk 00:40:57]-
Alan Tannenbaum, Esq.:
Jon, to clear up the point, because there's no statutory obligation like there is in the condo for the common elements of a condominium, which would be the exterior walls of a roof's structure, it was really left to developer lawyers in connected town homes and HOAs to define the maintenance and repair, and they did it to the developer's benefit, not to the owner's benefit, so that has to be cleared up, but Jon, it's 11:39, I need you to do the condo declaration quickly [crosstalk 00:41:32]-
Jon Lemole, Esq.:
Run through the condo real quick. All right. Folks, condo declarations are pretty typical because they generally would track the statute and there's a statutory obligation as well, but generally you're looking at all of the common elements. So, here you see all drainage and storm warm water systems, driveways, private courts, all water and waste water lines and piping serving unit, which are not contained within the physical boundaries of the unit, landscaping, gates, walls, fencing. I'm not going to go through this and read it in the interest of time, but it's in our handouts, you can take a look at it, but this is a pretty standard condominium declaration provision relating to the condo association's duty to maintain and repair common elements. [crosstalk 00:42:26] specify some other areas where they have limited common elements or other areas where separate condominium property that may fall under that, but I think if you look at what we have here in materials, you'll see something that for those of you that deal with condos, you're pretty familiar with.
Alan Tannenbaum, Esq.:
All right, but Jon, let's emphasize, again, the first line of 7.1, it says... Well first of all, under section seven, you use that word responsibility again.
Jon Lemole, Esq.:
Right.
Alan Tannenbaum, Esq.:
And, then in the first line of 7.1, which is very typical, the association shall, doesn't say may, it says shall, so for condos, you got a statutory obligation that's unambiguous to maintain and repair the common element, and it's backed up by the declaration, which also makes it a mandatory obligation. So, a board of directors of a condo association or an HOA burying their head in the sand or yielding to owners who were complaining about assessments and not taking is a statutory violation and a violation of the documents at the same time will get an association in a lot of trouble. So, let's move into the cases. We have about 15 minutes.
We're going to go through these quickly. Coronado versus Scher, a condo association did not take care of its common element sewage problem. The owners had sewage in their unit. They won a major judgment against the association at an injunction requiring the association to correct it, and you can see in the decision that section 718 113, which we talked about, was cited as a basis to also award attorney's fees. So, that's a very important... It's a one page case Coronado, but it really backs up everything that we've said about what the association exposure is. Go on to the next case, Brian. And, these are excerpts. If you want the whole case, just let Michelle know and she'll get it to you. Coconut Key, this is an HOA, there was a flooding problems in the area owned by the association affected this owner's lot and the association wasn't correcting it.
She was able under 7200, even though they decided 718... Go further in the case, Brian. And if you look at it, you see what the court did. After careful review, three days of testimony, the trial court had issued the injunction. The owner approved a clear legal right. It says the association violated discovering documents by failing to properly maintain the surface border management system. Go on the next page, Brian. She proved the harm, how the flooding problem was impacting her, and she didn't have an adequate remedy and she was entitled to the injunction and then they awarded attorney's fee. So, that's an HOA case, a more recent event. The association did not properly maintain and repair the association-owned property. It caused flooding on this lot, and the owner was able to get a judge to force them to do the repair, and also to pay her attorney's fees.
Go on the next case, Brian. All right, Colony. This is a bankruptcy decision, not necessarily precedent, but a very interesting case. So, the Colony was a hotel condominium and the condo association still had the obligation to maintain and repair the common elements. The owners got to stay in their units one month a year, and for the other 11 months of the year, their unit was in the hotel full for rental to the population at large. Very interestingly, George W. Bush had 150 rooms reserved on September 11th, 2001 at the Colony the day he was speaking at an elementary school in Sarasota, and that's the same Colony that was involved here. So, they got into a dispute with the hotel operator and the board of directors chose not to repair the common element, and there's really great language in here that goes through all the older cases about the association's obligation and basically this was the appeal from the bankruptcy court. It basically said that the association's decision not to do repairs was not authorized.
There's also an interesting ending to it though, which is... Brian, if you go down a little bit. All right, it starts at 563 on the bottom left, further by allowing the Colony to... Go up. Well, to deteriorate. Impermissibly,, altered the common elements to the detriment of a minority of the members. It talks about material alteration. So, what this court said was, very interestingly, that deterioration of the common elements is an alteration that without an owner vote was not an authorized act by of the board. So, it basically said by neglecting it, it altered the common elements and an additional means for the court to act was that was a material alteration that was not approved, very interesting court decision. So, Colony is a very interesting case. By the way, the colony no longer exists because in the end, the buildings went into total disrepair and had to be raised by order of the town of Monroe Key, so that was the result. All right, let's get to Miller, and yes, Miller... Jon, talk about Miller.
Jon Lemole, Esq.:
Miller is a 2019 case, so it's very recent. It's an interesting case. In Miller, a homeowner wanted to build a garage and there were height restrictions, and there was also a restriction against the use of flat roofs. He submitted an application to the architectural review committee, it was approved by the committee, the design, but in construction the design was changed and it appeared very much like it may have been too high and it may have been a flat roof. So, the association notified the owner that it was going to seek covenant enforcement against him. The owner came back and said, look, I've got a statement here from the contractor and from the building department. The contractor says this is not a flat roof as that term is commonly understood in construction and engineering, number one.
Jon Lemole, Esq.:
Number two, the building department verified that the height was X, which meant it was in compliance with the height restriction in the CCRs. Five years after the fact, the association permitted or approved of the as-built garage, relying upon that contractor's statement, relying upon the information from the building department. A neighboring lot owner sued the association and said, you didn't enforce the covenants, and you failed to exercise proper business judgment as a board. The court said no, and the thing that's interesting about this case, the court said, yes, the board's actions after the fact approving this was okay, and the reason why is because the board made a reasonable investigation, they exercised due diligence, they considered the statements of the contractor.
They considered the statements of the municipal building department, and they came to the conclusion that the as-built was compliant with the CCRs and the restrictions on height and flat roofs. And so, the takeaway there is that in some instances the board doesn't have to go out and pay its own people to go make these determinations from them. The board can rely on professional advice, even if it's coming from the lot owner or the unit owner or whatever the case may be. So, that's kind of an interesting wrinkle on the board business judgment rule.
Alan Tannenbaum, Esq.:
All right, Brian, why don't you talk about ho Hollywood Towers?
Brian Tannenbaum, Esq.:
Sure, so Hollywood Towers was a condo case. It involved an association that wanted to perform repairs on balconies of certain units, and the association's engineer said, in order to repair the balconies, we need to demolish three feet into the interior of the unit where the repair needed to start. The unit owner sued to not have that done in the interior of their unit. They hired their own engineer who came out and said it's not necessary for them to be three feet into the unit, and what the court said was that basically in applying the business judgment rule of condo associations, that they limit their review to whether the association has a statutory authority to perform the act, and if the board's actions are reasonable, and this is where they cite the Lamden rule from the California Supreme Court and the court adopts the test court in Lamden to give deference to the condo association decision if that decision is within the scope of their authority and is reasonable.
Alan Tannenbaum, Esq.:
Brian, just to give a little history. So in the 80s, what the court system allowed, if an owner objected to the way the board was doing a repair, the owner got their engineer, the association's engineer, and the battle of experts, and I think the court system got tired of the battle of the experts as it applied to condo repairs, and it metamorphasized into the Hollywood Towers decision where it said, look, as long as the board of directors has appropriate investigation and an engineer supporting the repair approach that the board wants to undertake, we're not going to give any credence to the fact that the unit owner's engineer thinks it to be done a different way. As long as a board's position is supported by a proper engineer, that ends the case, and that's where the Lamden rule actually was developed. It was part of the decision adopted in this Hollywood Towers case, I believe in 2010. So Brian, what about Scher? That's the next one.
Brian Tannenbaum, Esq.:
Scher's a very recent case, and this involved the structuring of assessments levied on different parts of an association, and basically they just reaffirm what it's said in Miller, and they talk about how the court presumes that the directors acted in good faith and the court must give deference to the association's decision if that decision is within the scope of their authority and is reasonable.
Alan Tannenbaum, Esq.:
Well, let's focus on that because this is a good ending point. So, this is a 2021 case decided by the Fourth District Court, which is Broward County across the state, and that one phrase, courts must give deference to the association's decision and look at the requirements. If that decision is within the scope of the association's authority, again, doing absolutely nothing in the face of a problem is not a decision within the scope of the association's authority because both the statute and the documents, do not allow non-action in the face of problems. The second part is reasonable. Well, in order for a board of directors' decision on maintenance and repair to be reasonable there has to be an appropriate investigation. It's not just a willy-nilly decision by the board maybe working with a contractor to fix something that really requires an engineer's overview.
Alan Tannenbaum, Esq.:
It's not reasonable if it's a half solution. It may not be reasonable. I've seen board of directors where they have five buildings, they get an opinion that all the roofs on the five buildings need to be replaced, and a board comes back with a decision that, well, we'll do one roof a year and we'll have a five year plan. It's always interesting that none of the board members ever have their units in that fifth building, but the owner in that fifth building says, wait a second, the engineer's report says our roof is shot today. It's unreasonable to delay the replacement of our roof for five years ahead. So, you could argue that the only reasonable thing that a board of directors can do, when it has an opinion from an engineer that all the roofs are shot, they all need to be replaced, is to figure out a way to do that in one project and not delay it over five years, which may include getting some financing and so forth.
So again, that's a really short recitation, but a good recitation. Arbitrary, capricious, or in bad faith, if the repair request or the need comes from the most obnoxious owner in the community, and the last thing the board wants to do is take care of that person's problem because they've been really a difficult owner for the board, the board can't sit there and say, well, we're not going to do the repair because that's the obnoxious owner that's been showing up all the meetings making our life miserable. So, that also would not be a supportable decision.
Brian Tannenbaum, Esq.:
I see a couple good questions in the chat. I don't know if you want me to read them to you, but [crosstalk 00:58:20]-
Alan Tannenbaum, Esq.:
Go ahead, Brian.
Brian Tannenbaum, Esq.:
So George asked, for amenities such as tennis courts, pools that are under an HOA's responsibility, can they shut them down in order to make those repairs?
Alan Tannenbaum, Esq.:
I think that would be very difficult to justify under the current case law. It's that part of the amenity package. If they are repairable, probably just shutting them down wouldn't be justified. Now [crosstalk 00:58:50]-
Brian Tannenbaum, Esq.:
I think shutting them down to make the repairs was the question.
Alan Tannenbaum, Esq.:
Oh yes, obviously in order to do a safe repair you need to shut them down, but what you don't want to do is, and unfortunately with the delays right now it's difficult, but you might not be able to get that pool repaired until nine months from now. The question is, do you have to try to keep it alive until then? Difficult questions, no clear answer to that. There's a question about material alterations. Yes, the case law says that the material alterations will be trumped by the need to do a repair, and there are cases from the 80s that will support that. Jon, do you have any ask parting word? You're muted right now, Jon.
Jon Lemole, Esq.:
Sorry. Look, always go back to the Lamden rule if there's any question. Look at what the board and the association's duty is, and then if you have a decision to make over how to discharge that duty, make sure that you're doing a reasonable investigation. It all comes down to due diligence, and if you do those things, if you make a decision [crosstalk 01:00:15] reasonable investigation as to something that is in the repair and maintenance authority of the association, the courts, as they are trending, will back that decision up.
Alan Tannenbaum, Esq.:
Brian, any thoughts?
Brian Tannenbaum, Esq.:
No, just doubling down on the attempts to investigate the issue are very important in the court sentence. You just can't do nothing.
Alan Tannenbaum, Esq.:
All right. Well, I have a final thought and the thought is a little bit off point, but any of you managers or board members who are getting proposals from engineers, be very wary of the general conditions that they're attaching, very restrictive general conditions, limitations of liability. So, they're handing you a certificate of insurance for liability coverage of $1 million and they're handing you a contract that limits their liability to maybe the amount of fees that they're going to get paid under the contract, and if you're doing a $1 million repair, $2 million repair, that's not going to cut it, so be very wary of what their insurance companies are requiring that they put in their contracts now before you allow your board to sign that. You need to look that over, so we are very much involved in that issue.
Alan Tannenbaum, Esq.:
We'll stay on to answer a few questions. We've officially hit noon, and I'm going to scroll up to see if there's anything that we can particularly answer. And so, thanks for the people who have to get off now, but we'll answer some questions. What if the maintenance issue is cosmetic versus structural based upon an engineer's report? Obviously, the structural issue should be given priority, but I don't know what cosmetic means. If it's just aesthetic, probably it's not a repair that's going to be number one on your list, but based upon what they said in the Colony, if it's an aesthetic item that will make the property look different than it did originally, you probably do have to get it corrected. Somebody's got a long question about a fence, which I would rather answer offline.
All right, in condos, what remedies are available owners outside of litigation? You're probably not going to get the Bureau of Condominiums to act on... It's now called something different, but to act on a repair issue. So, your circuit court may be the only place you're going to get some relief.
Jon Lemole, Esq.:
Alan, here's one. Is the Lamden rule ever used as a way to move forward with material alterations without getting the needed 75% vote?
Alan Tannenbaum, Esq.:
If it's a necessary repair, you could probably get outside the vote, but there was a key case back to the 80s where a group wanted to go from wood shakes to a more reliable roof system. They didn't get the approval. The engineer said the replacement would last longer and be cheaper, and that association got sanctioned by the court for not getting the vote. So, you got to be very careful where that applies. What sort of direction or action would have been taken if an owner paid for and caused to be installed insulation in an elevator shaft? So, it sounds like they went into the common element, put in insolation. If it was probably a condo, that would've been a violation.
So, that was a self-help opportunity by an owner that was not allowed by the statute, probably not allowed by the documents, and you can take action to have that altered. Frankly, if it doesn't cause a problem, would it be worth it to pursue that? The problem is you don't want to establish a precedent where you've allowed that to occur, didn't take action, then all of a sudden another owner is trying to do something to the common element and they're citing the fact that the board allowed that. So, you may be obliged to take some action there, maybe reach settlement with the owner, so as not to make a precedent for other owners.
Aaron asked a question about cooperatives. I believe you do have similar provisions in the Cooperative Act, Aaron, yes. Somebody asked what common elements were. In a condo, the common elements, it's usually everything outside the unit, unless it's a limited common element. In a homeowners association, you don't use the term common element. There's two types of elements in a homeowner's association. Either you have association owned property, which could be the roadways, the waterway so forth, or you have connected town homes, which are actually still owned by the owners, but maintained to some degree by the homeowners association. So, technically you don't have common elements in HOAs, only in condos.
Yes, 718 needs to be stronger. We are going to see some alterations there. We answered that one. Is a structural inspection only visual or destructive? Well, Ronald, your question kind of answers that. If you have a structural issue and you're only doing a visual inspection, you may not be able to get to the bottom of what's really wrong, and what the engineer will probably recommend is there to be some level of destructive examination in order to actually figure out the problem, so that's a good question.
The Fannie Mae and Freddie Mac condo lending restrictions, I'm not directly familiar with those, but they're going to cause groups to get their engineering and inspections done and do repairs and have adequate reserves in order for their owners to qualify to get Fannie Mae or Fred Mac financing. I think we covered it, so we're going to sign off. If anyone has any questions, you can contact us directly. We'll answer some questions for anybody who has it [crosstalk 01:07:52]-
Brian Tannenbaum, Esq.:
Where do they send their license numbers in?
Alan Tannenbaum, Esq.:
The license numbers are going to go to Michelle M. Colburn at tannebaumscro.com and she has that. You could see that she's highlighted that in the chat. You'll find it there, and again, we hope that you found this helpful. It's a big discussion that's going on right now throughout the state and we look forward to presenting next month to you, so see you next time.
