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Reserving Funding Requirements and the Procedures for Waiving Reserves in Florida Condominium Associations

Posted on March 4, 2014 | 108 Comments

Florida law is very clear: every association must fully fund reserves unless a vote to waive reserves is obtained. This post will review the reserve funding requirements detailed in the Florida Statutes/ Florida Administrative Code and the process for waiving reserves.

Reserve Funding Basics

NOTE: There are specific requirements for developer-controlled condominiums and multicondominiums that are not discussed here.

Section 718.112(2)(f) of the Florida Statutes and Rule 61B-22.005 of the Florida Administrative Code require ALL Florida condominium associations to fund reserve accounts for deferred property maintenance and replacement projects. Specifically, a reserve account must be established for roofing replacement, property painting, asphalt paving, and any other project that has an anticipated cost of greater than $10,000.

For each identified project, the association must identify the anticipated date and cost of the project. For example, a community’s roof may have an estimated remaining useful life of 10 years and replacement cost of $50,000. Therefore, in 10 years, the association will need to have $50,000 in the roof reserve account to pay for the replacement.

The association must calculate annually the amount it needs to contribute to its reserve accounts and include this amount in the budget. Generally, associations will collect one maintenance fee payment from each unit owner monthly or quarterly and deposit it into an operating account. From there, the percentage of maintenance fees allocated to reserves per the budget is transferred into a separate reserve account. Reserve and operating funds may not be commingled for more than 30 days from the date of receipt of a maintenance fee payment. As such, if an association receives maintenance fees monthly (quarterly), they must contribute the appropriate amount to their reserve funds monthly (quarterly).

NOTE: There are two ways to look at monthly or quarterly reserve funding. Let’s look at an example. An association has a $100,000 annual budget with $20,000 (20%) allocated to reserve funding. The association requires maintenance fee payments monthly. In a given month, the association should received $8,333 in maintenance fees ($100,000/12) of which $1,667 is allocated to reserves ($8,333*20%). Let’s say in January the association actually received $7,000 in maintenance fees (several units failed to pay). The association could choose to fully fund the reserve account that month by transferring $1,667 dollars of the maintenance fees received to a reserve account. Or, the association could choose to only transfer $1,400 ($7,000*20%) to a reserve account, as they have not yet received the maintenance fees that would have contributed the remaining $267 ($1,667-$1,400) in reserve funds. The majority of associations (and management companies) choose the first option, ensuring that reserves stay fully funded. Both are acceptable per the law in my opinion. While the first option is preferable, if there is a situation where a large percentage of unit owners fail to pay maintenance fees and contributing the full budgeted monthly amount to the reserve account would hinder the association’s operations, then the second option may be best.

Florida law specifies two acceptable methods for calculating the necessary annual reserve contribution: pooling or straight line (component). We have discussed these two methods as well as the pros and cons of each here.

Recap: So, we know that condominiums must budget for sufficient reserve funds to pay for all long-term maintenance and replacement projects greater than $10,000. Further, we know that the annual reserve contribution necessary is based on the expected timing and cost of each project using one of two calculation methods (pooling or straight line). Great. But how does a board know exactly what projects greater than $10,000 will need to be done, when they will need to be done, or how much they will cost?

This is where a reserve study comes in. A reserve study is a professional engineering survey of your property. The reserve study firm will examine the property and determine what major capital maintenance and replacement projects will need to be done in the next 30 years. The study will provide expected costs of each project and expected timeframe for completion. While there is no specific requirement in Florida law that associations obtain a professional reserve study, I don’t see any way for a board to properly determine annual reserve contributions without one. I recommend a reserve study be completed every 2-3 years. Prices generally range from $3,000 – $6,000 for an initial study with a reduction in price for study updates completed by the same firm. To ensure the association always has the funds to complete routine reserve studies, I recommend including a reserve account for the study itself.

NOTE: If you need a good reserve study firm, I have had great success with Reserve Advisors.

Waiving Reserve Contributions

For those communities where, for whatever reason, fully funding reserves is infeasible, Florida law provides the option to reduce or eliminate reserve funding. Here’s how it works.

Every year, the board must present a proposed budget to the community assuming full reserve funding. The association cannot hold a vote to waive or reduce reserve funding until after a proposed budget with full reserve funding has been provided to the membership. If the board would like to put a vote on the table to reduce or waive reserves funding, then they should provide (along with the proposed budget which must be distributed 14 days prior to the budget meeting): (1) a second budget with waived or reduced reserves and (2) a limited proxy to be filled out by unit owners specifically requesting the membership to vote on the second budget. The proxy must include the following wording per Florida Statutes:

WAIVING OF RESERVES, IN WHOLE OR IN PART, OR ALLOWING ALTERNATIVE USES OF EXISTING RESERVES MAY RESULT IN UNIT OWNER LIABILITY FOR PAYMENT OF UNANTICIPATED SPECIAL ASSESSMENTS REGARDING THOSE ITEMS.

To successfully reduce or waive reserve funding, a majority of the membership (i.e., 51% of unit owners) must vote in favor of the reduction/ waiver.

If by the time of the budget meeting arrives the association has received insufficient votes, the board may delay approving the budget to attempt to collect more votes. Of course, realistically, the board may only postpone so much as the budget should be approved in time for coupon book deliveries prior to year-end. Further, the limited proxies are only valid 90 days from the date of the first scheduled budget meeting. So, if your association would like to vote to waive reserves but getting sufficient unit owner participation will be a struggle, it may be worthwhile to set the budget meeting earlier in the year than you would otherwise.

If a majority vote is not obtained, the board must approve the budget with full reserve funding. If a majority vote is obtained, the board must proceed with the waived or reduced reserve funding. It is important to note that any vote to waive or reduce reserves is only effective for one annual budget. Therefore, the vote must be obtained for every year the board would prefer not to fully fund reserves.

Why Fund Reserves?

Arguably one of the biggest problems facing condominium associations today is the failure to fully fund reserves. Many associations put little to no money aside, creating project delays and large special assessments. With the primary focus being low maintenance fees, boards can easily loose sight of the big picture reasons to fund reserves.

Let’s look at our roof example. The community’s roof has an estimated remaining useful life of 10 years and an anticipated replacement cost of $50,000. If an association does not put aside money routinely in a roof reserve account, then the unit owners would likely have to pay a $50,000 special assessment in 10 years. This is a negative outcome in several ways:

  1. Hesitancy to issue a special assessment or difficultly collecting the special assessment may lead to delays in project completion and further deterioration of the roof (i.e., more roof leaks which cost money to repair.
  2. The special assessment will be a burden on the unit owners.
  3. A special assessment is unfair in that prior unit owners did not have to contribute any money to the roof (though they benefited from it) while current unit owners have to pay for the entire thing. This creates an inequitable distribution of expenses.
  4. Limited reserve funds and a history of special assessments will drive away buyers, keeping home prices lower than they otherwise would have been.

I strongly recommend that every board fully fund reserves. If a board does not feel that full funding is feasible right away, they should still contract for a professional reserve study and establish a long-term plan for achieving full funding by gradually increasing reserve funds each year.

I hope this overview of condominium reserve funding was helpful.

Please let me know if you have any questions,

Emily

 Emily Shaw is a condominium homeowner in Tampa, Florida and a Director of VERA Property Management, a firm providing full-service community association management in the Tampa Bay Area as well as consulting, financial and legal services to all Florida community associations. 

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Florida Condo Association Board Meetings: Unit Owner Rights and Association Responsibilities

Posted on February 25, 2014 | 99 Comments

Board meeting are run in many different ways. Boards can choose a flexible approach, allowing unit owners to chime in at will. Or they may prefer a highly structured approach, with unit owners allowed to speak only if a request to speak was submitted in advance. The fact is both of these methods (and the many in between) are acceptable. The Florida Statutes and Florida Administrative Code (F.A.C) provide limited guidance on unit owner rights and conduct at board & committee meetings, leaving it to the board to determine specifics. Many association board members and managers do not understand the law; they often confuse common meeting recommendations (e.g., 3 minute speaking limits per unit owner) with legal requirements. These misunderstandings can create inconsistency and frustration for all parties.

Given the above, I recommend that associations draft and disseminate a detailed policy outlining board & committee meeting rules. This policy will educate unit owners on their rights, help keep meetings short and focused, and ensure consistent treatment of all unit owners. As I recommend with all policies, the board’s attorney should review the policy initially and the policy should be reviewed annually to ensure continued compliance with the Florida Statutes & F.A.C.

This post will review the law surrounding unit owner rights at board & committee meetings, and provide specific policy construction recommendations for board members.

NOTE: We will not be discussing agendas or meeting notices in this post. We will address these issues in a future post.

Per Florida Statute 718.112(2)(c) and Florida Administrative Code 61B-23:

1. Unit owners may attend all board meetings and all committee meetings with the exception of:

  • Meeting with the association’s attorney where litigation is being discussed;
  • Meetings to discuss personnel (i.e., employee) issues; and
  • Committee meetings specifically deemed private in the bylaws.

NOTE: Regardless of what the bylaws state, committee meetings where (1) final action will be taken on behalf of the board and (2) where budget recommendations will be provided to the board are always open to unit owners per Florida Statutes.

2. Unit owners may speak at meetings regarding items on the agenda for at least three minutes.

3. Unit owners may record (video or audit) meetings so long as the equipment does not produce distracting sounds or lights. Further, the board may adopt any of the following rules:

  • A specific place to assemble audit and video equipment
  • Equipment must be setup in advance of the meeting start
  • Equipment must be stationary throughout the meeting
  • Unit owners must give the board advance notice of  their intentions to record the meeting

4. Associations may adopt reasonable rules governing when and for how long unit owners may speak

Each property’s governing documents may have further guidance on the above; however, generally speaking, this is the extent of the rules surrounding unit owner rights at meetings. The last bullet point above is vague, requiring boards to decide how they want to run their meetings. The approach that best suits your community will depend in large part on the personalities of the board members and the level of unit owner involvement at board meetings. The following paragraphs will discuss the key components of a well-drafted board meeting policy.

Attendance: The policy should explain which types of board and committee meetings unit owners may attend per Florida Statutes, F.A.C., and the community’s bylaws.

Speaking: The policy should specify (1) about what topics unit owners may speak, (2) when unit owners may speak, and (3) for how long they may speak. Let’s look at each of these individually.

Discussion topics: The Florida Statutes are clear that unit owners may speak on any topic listed in the meeting agenda. Questions arise, however, when non-agenda topics are introduced. The concern here is that if a unit owner brings up a non-agenda issue and the board begins a discussion on this issue, the board is denying absent unit owners their right to contribute to the discussion. In short, any material discussion and/or voting on non-agenda items is a violation of FL Statute 718.112(2)(c). To avoid this risk, the policy should stipulate that unit owners tailor their comments to agenda items. The policy may also stipulate that if a unit owner would like a specific item on the agenda, they should contact the association a certain number of days in advance of the meeting.

NOTE: If a unit owner does bring up a non-agenda item, the board should simply do their best to limit the discussion on that topic and, if necessary, add the item to the next meeting’s agenda. Less than a quorum of board members may also speak to the unit owner separately after the meeting. It is not necessary, in my opinion, to comply with the strictest interpretation of the law and never speak one word about non-agenda items. This is unrealistic. Instead, make sure to comply with the spirit of the law and do what you can to let the unit owner know his/ her comments are taken seriously.

Speaking times: In order to be compliant with the rules around a unit owner’s right to speak on agenda items, the association must grant unit owners the right to speak in advance of any board vote on a topic. Obviously, there would be no benefit in boards granting unit owners the right to speak after all of the meeting’s business had been conducted.

This essentially leaves boards with two options: (1) allow unit owners the right to speak on all agenda items at one specific point in the meeting (typically near the beginning), or (2) allow unit owners the right to speak on each agenda item prior to the board voting on each item. There are pros and cons to both options and only your board will know which is best. In my experience, unit owners are partial to the second option as it allows them to first learn about the agenda item and hear the board’s thoughts before commenting.

 Speaking length: The board should specify in the policy any time limits on unit owners’ comments. If your association is interested in running a very structured board meeting where unit owners may speak but there will be no conversation between unit owners and the board, then setting time limits may be possible. In my experience, however, board meetings do not operate this way and time limits are not only difficult to implement but tend to create unit owner resentment. What boards need to be careful of is establishing a time limit and then only enforcing the limit when a unit owner disagrees with the board or is being “difficult”. This can happen more easily that you might think. My recommendation would be to avoid specifying time limits in the policy. In practice, if a unit owner is being unnecessarily long winded and the majority of the board feels he/ she has had sufficient time to speak, the president of the board should simply thank the unit owner and proceed with a vote.

Recording: Florida law gives unit owners the right to record meetings but leaves the details to associations. The policy should specify if unit owners must provide the board advance notice of any recording and how to provide such notice. Further, the policy should specify (1) whether recording devices must be set up in advance of the meeting, (2) a location in the meeting room where recording devices may be placed, and (3) whether recording devices must be stationary during the meeting. Lastly, the policy should specify that the board may require the unit owner to turn off the recording device if it produces any disturbing noises or lights.

Identification/ Sign In: For the purposes of property recording the minutes, all unit owners should be required to sign in upon arrival. Particularly for large properties where neither board members nor managers know all unit owners, the policy should specify if attendees will need to show proof of identification during sign in.

Board Member Materials: One infrequently discussed but relevant issue is a unit owner’s right to a copy of the board’s “information packet”. These packets generally include the most recent financial statements, draft meeting minutes, a manager’s report, and any proposals or other documentation relevant to the agenda items. Distributing packet documents keeps unit owners engaged during the meeting, may elicit useful comments from unit owners, and helps to maintain positive unit owner-association relations. On the other hand, providing this information to unit owners at the meeting may lead to numerous unit owner questions and interruptions, effectively creating a large roundtable discussion that may draw out the meeting for hours.

Most associations do not provide copies of information packets to attendees and there is no clear-cut obligation to do so. In order to decide how the board would like to proceed on this point, it is first important to consider the relevant laws. According to Florida Statute 718.111(12):

  • Unit owners are entitled to review any document considered an association official record. Notably, draft financial statements & meeting minutes are not official records until they are approved by the Board. All other documents relevant to board meetings (e.g., proposals, unit owner requests) become official records as soon as they are considered by the board (i.e., presented at a board meeting).
  • Unit owners may request in writing to view the records and the association has 5 days to comply.
  • Associations may charge the unit owner their actual cost to make them copies of official records.

Based on these laws, if a unit owner provided written notice 5 days in advance of a board meeting requesting they be provided a copy of the board information packet once completed, I believe they would have a right to it (excluding draft financials & minutes).

Given the above, I recommend allowing unit owners to request that a copy of the packet be made available to them at the meeting. I would require that the request be made at least 24 hours in advance of the meeting. Much more than 24 hours in advance may be prohibitive as meeting notices are only required to be posted 48 hours in advance per Florida Statute. Further, I suggest specifying any cost the unit owner will incur (generally a price per page).

Tenants, Other Residents and Unit Owner Representatives: Tenants and other non-owner residents are not granted the right to attend board meetings by Florida law. Similarly, unit owner representatives such as property managers or family members have no right to attend meetings. Given this, it is up to the board to decide if they will allow anyone other than unit owners to attend meetings. It is my recommendation that non-owners be allowed to attend and speak at board meetings if accompanied by the owner. This benefits the association as it prevents tenants, property managers and other interested parties from bypassing the unit owner and going straight to the board with their issues. Further, this provides an opportunity for non-owner residents to voice their opinion which is important particularly for properties with high rental rates.

NOTE: The Department of Business and Professional Regulation has indicated that anyone with a unit owner’s Power of Attorney has the right to attend and speak at board meetings.

I hope this overview of unit owner rights at board meetings has been helpful. If your association has not done so already, consider encouraging the board to draft a policy outlining the items discussed here.

If we can be of any help, please feel free to contact us.

Emily

Emily is a Florida condo owner and a director of VERA Property Management, a condominium and homeowners’ association management and consulting firm serving the Tampa Bay Area.

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Hiring a New Management Company: The Florida Condominium Association Manager Transition Process

Posted on February 18, 2014 | 11 Comments

Do you feel like there are better property managers out there? Have your Board members been hesitant about considering new management because they are concerned the transition process is going to be difficult?

If you relate to the above questions then you are not alone. One reason why ineffective mangers remain in business is that Board members are generally weary of the time, effort and instability they perceive as part of the manager transition process. While management transitions can be stressful and, if handled incorrectly, frustrating for all the community’s residents, a proactive Board of Directors can help to create a seamless transition.

This post will provide general guidance on navigating the management transition process. We will also provide an overview of the key aspects of the transition plan you should see from a new management company.

Don’t rush the management decision-making process. Be sure to start interviewing new management companies at least 60 days before you need to give notice to your current management company. Be sure to review your current management contract to know exactly how and when notice of cancelation or non-renewal must be given. Some management agreements may require notice as much as 90 days in advance.

Negotiate your new management contract. There is always risk associated with hiring a new management company. The manager could fail to live up to the Board’s expectations. Because of this, the Board should ensure that they have negotiated a contract with favorable terms. See our post on contract negotiation here for more details.

Give the new company ample time for transition. Make sure that new management contract is signed at least 60 days before the start date. 60 days is a reasonable amount of time for the new management company to properly transition the administrative aspects of the association (e.g., inform residents, open new bank accounts, transfer financial data), be brought up to speed on outstanding association projects, and generally be ready to go when management officially begins.

Audit your association’s official records. Once the Board has decided to make a management change, one of the first things they should consider doing is auditing the association’s official records.

NOTE: Board members often think of official records maintenance as being the manager’s responsibility and, therefore, don’t spend too much time thinking about it. While it is true that maintaining records is part of the standard management contract, it is ultimately the Board’s responsibility to make sure that records are properly kept in accordance with Florida Statutes (read more about official records requirements here). Remember, when a Board hires a management company, responsibility for compliance with Florida Statutes & association governing documents does NOT shift to the management company. Ultimate responsibility remains with the Board. As we discussed in our post on the Florida Administrative Code, relying on a management company is not an acceptable defense for failing to comply with Florida law.

Transitioning the association’s records is one of the most important aspects of the management transition. Not only is it a requirement of the Florida Statutes that certain records be kept, it is also crucial for the smooth operations of the association (particularly when new management is involved). An advanced audit of the official records may bring to light unexpected issues.

If your management company keeps all your records off property, a Board member(s) should request a meeting with the current manager to review all of the records. Bring our blog post on official records with you as a cheat sheet for everything that should be included. If records are missing, make a list of those records and request that the current management company locate them. Determine which records are kept in hard copy and which in soft. Ask the manager how email communications relating to association business are stored and how you would access them. If the manager tells you emails are not part of the official records, push back. Emails are a very important part of the association’s records. A tremendous amount of detail surrounding historical association events is lost every time an association switches management companies without retaining email records. In my opinion, this point is so important that it may be worth consulting the association’s attorney if the management company refuses to provide them.

If all the records are accounted for but they aren’t organized, don’t sweat it. At this point, you just need to make sure the records are available. Once your association has hired a new management company, organizing the official records can be something you require.

Review the association’s polices. The period prior to a management transition is a great time for the association to review its operational policies and procedures (e.g., collections, sales/ lease, parking, property access, amenities use). If the association has been relying on certain internal policies and forms of their current management company (most frequently for maintenance fee collections and violation identification/ fining), it is worthwhile to request copies of these policies. All policies should be provided to the new manager for his/ her review to ensure policies are applied consistently from one management company to the next. Consistent application helps to create a smooth transition and limits resident complaints. Any policy changes the new manager recommends should be reviewed and approved by the Board.

Establish a transition plan. Be sure to establish a detailed transition plan with the new management company and follow up on the status of the transition weekly. The following outlines the essential aspects of a transition plan. Prior to hiring a new management company, the Board should understand exactly how the new manager plans to handle the transition.

 

Manager Transition Plan Key Components

Board Meetings/ Transition Updates: The new manager should meet with the Board of Directors shortly after contract signing to discuss the specifics of the transition plan. The manager should also agree to provide routine updates (perhaps weekly) on the status of the transition. If possible, the new manager should attend any regular Board meetings that occur in advance of the start of the contract.

Obtain/ Organize Official Records: Management’s first big hurdle is going to be obtaining all of the association’s records from the departing management company. The manager should request the records at the beginning of the transition period, review the records, and provide the Board with a list of missing records (if any). If the new manager is having difficulty obtaining specific records from the departing manager, the Board may need to step in and request those records.

Opening Bank Accounts/ Signers: Management companies typically serve as custodians of their associations’ bank accounts. For simplicity, they will usually only work with one bank. As such, a change in management company often means changing the bank where the association holds its operating (and possibly reserve) funds. As part of the transition, the new manager will need to assist the Board in establishing new bank accounts for the association. This should definitely be done in advance of the contract start date (ideally 30 days before) to ensure there is a location for maintenance fees to be deposited. As part of this process, the Board will need to specify which Board members will be allowed to sign the association’s checks (generally the President and Treasurer). At this point, the Board should request that online access be established so that the manager, Treasurer or other Board members can check the status of the association’s accounts at any time.

Purchasing Coupon Books: With new bank accounts come new coupon books. The manager will need to order these coupon books and have them delivered to residents in advance of day one of the contract to ensure unit owners can pay their maintenance fees on time. Generally, these coupon books are accompanied by an introduction letter from the new management firm.

Resident Communication: Communicating with residents is a crucial aspect of the transition. All management companies send an introduction letter to all unit owners that generally includes a brief paragraph about the company and the manager’s contact information. In my opinion, this letter alone is insufficient. I strongly recommend that the President of the Board personally communicate with all residents explaining reasons for the management change and asking residents for their patience during the transition. Knowing that the Board made a thoughtful and well-informed decision will help to limit resident complaints. I also think the Board should confirm that the manager will not only contact the community’s unit owners but other residents as well (e.g., tenants) to the extent possible. These other residents are often left in the dark by property managers, causing them to complain to their landlords (i.e., unit owners).

Confirm Resident/ Homeowner Contact Info: The new management company should obtain unit owner and resident contact information (e.g., addresses, phone numbers, emails) from the departing management company and should work to confirm this information with each resident. The Board should communicate to the new management company any additional information they would like the management company to maintain for each resident (e.g., parking spot number, number of pets, license plate number, emergency contact).

Meeting with Vendors: The new manager should meet with all of the association’s key vendors to introduce him/herself and get brought up to speed on current projects. The manager should ensure that the association has a W-9 form and current certificate of insurance for each vendor.

Financial Updates: During the month prior to the contract start date, the new manager should obtain financial records through the previous month’s end from the departing management company. If the two management companies have compatible accounting systems, the transfer should be straightforward, with the new management company simply importing all historical data into their system. If there is system incompatibility, the new manager will simply begin maintaining accounting records on day one of the contract. In this case, I recommend making sure the association have the following reports for all prior months: (1) Balance Sheet, (2) Income Statement, (3) Budget-to-Actual, (4) Check Registers, (5) General Ledger & (6) Full Historical Ledgers for each unit owner. Read more about financial records here.

Policies & Procedures: During the month prior to the contract start date, the new manger should obtain all of the association’s current policies and procedures. The manager should review them and provide any recommended changes to the Board. To the extent possible, all key policies and procedures should be in place in advance in advance of contract start.

Annual Report/ Registered Agent: Immediately after the start date of the contract, the new manager should amend the addresses listed on the association’s Florida annual report to the manager’s address (unless Board members prefer their personal addresses). The manager should also ensure that either the manager or the association’s attorney is listed as the association’s registered agent.

Website: If the association provides a website for its communities, the website should be fully operational, with all relevant association records uploaded, in advance of the contract start date. Many managers allow for some customization of the association’s website. The Board should discuss this with the manager to ensure they are fully taking advantage of the website’s features. Read more about the benefits of a condominium website here.

This post provided only a brief overview of the transition process. If you would like to discuss the specifics of your community’s management transition, feel free to reach out.

Thanks,

Emily

Emily Shaw is a Florida condo owner and a director of VERA Property Management, a community associaiton management and consulting firm.

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Your Florida Condominium Board Member Electronic Voting and Communication Policy

Posted on February 2, 2014 | 13 Comments

The use of email and other forms of electronic communication in the operations of condominium associations continues to be a controversial and confusing topic in Florida. The Florida Statutes are significantly behind the times as it relates to technological advances and, therefore, do not provide any guidance around when, if ever, Board email communication and voting is allowed. Further, these issues have not been sufficiently litigated to have a clear understanding of what Florida courts consider legal behavior.

One the one hand, using no electronic communication in this day and age is completely unreasonable. On the other hand, if a Board chooses to conduct all business electronically, the unit owners are denied their right to be present during Board meetings, which violates the law and leads to unit owner distrust of the Board. Given this, all associations can do is comply with the spirit of the Florida condominium statutes (Chapter 718) and use good judgment when conducting association business via email or other electronic communication. In order to ensure all Board members act consistently, I recommend that each association draft and approve a Board Member Electronic Voting and Communication Policy.

Florida Statute Chapter 718.112(2)(c) is clear that all unit owners have the right to attend any meeting of the Board at which a quorum of the Board is present. This means that any gathering of a quorum of the Board, whether at the standard meeting location, in a Board member’s home, or at a local restaurant, is considered a Board meeting if association-related topics are being discussed. It is a common misconception that in order for a gathering of the Board to be considered an official meeting, the Board has to be voting on something. This is not the case.

There are two notable types of meetings that are not open to unit owners:

1. Meetings between the Board and the association’s attorney to discuss litigation and obtain legal advice

2. Board meetings held for the purpose of discussing personnel matters (e.g., employee issues)

The Statute also states that notice of Board meetings (including date, time and location) along with a meeting agenda must be posted conspicuously around the condominium property at least 48 hours in advance of the meeting. This requirement also applies to the two types of meeting mentioned above that are not open to unit owners.

 NOTE: The Statutes are silent regarding where Board meetings may take place. However, the Statutes do specify that the annual meeting must be held within 45 miles of the condominium property so this is a good guideline for all Board meetings.

 Based on the above definition of a Board meeting, an email chain or other form of electronic discussion (e.g., a chat room, web-based conference) where association-related items are being discussed by a quorum of the Board would be considered a Board meeting. Notice for this meeting would have to be posted 48 hours in advance and all unit owners would have the right to attend. As this is impossible in the context of a Board member group email, technically any emails between a quorum of the Board are in violation of the Florida Statutes.

NOTE: In theory, the association could set up some type of web-based conference with a login that all unit owners have. So long as the meeting was properly noticed and all unit owners have access, I believe (though there is no case law to support this that I am aware of) this would comply with the Florida Statutes.

 So, given the rules just discussed, what is a Board to do? My recommendation is to use electronic communication (e.g., email, group texting) but do so in a responsible and considerate way. Remember, Board meeting rules are established to ensure unit owners may remain up-to-date on association issues. Unit owners are only going to become concerned if they feel their rights are being violated and/ or if the Board is acting secretively or unethically. Given this, when considering a Board Member Electronic Voting and Communication Policy, the Board should worry  less about complying with the exact letter of the law and more about ensuring the Board is acting in a way that unit owners would consider appropriate.

NOTE: If a unit owner files a complaint against the association to the Department of Business and Professional Regulation (DBPR) and the DBPR finds the complaint warranted, the association may be fined pursuant to the Florida Administrative Code. Learn more here.

Board Member Electronic Voting and Communication Policy

As association’s policy regarding electronic voting and communication should be reviewed and approved by a quorum of the Board at a properly noticed Board meeting. This gives unit owners the opportunity to provide feedback and helps to protect the Board in the event a unit owner complains about the policy down the road. As I recommend with all policies, the Board should review and re-approve the policy annually (perhaps at the meeting following the annual meeting given the likely presence of new Board members). In my opinion, this policy should include:

1. A requirement that each Board member and the property manager establish an email account for the specific use of association business. The Board member/ property should be required to stop using the account and provide the association access to the account once the Board member/ manager ceases to be involved with the association. Why do this?

  • This requirement can prove to be very useful when a Board member or manager leaves. As association business with attorneys, CPAs, maintenance vendors and unit owners is often conducted via email, losing all of those records can be detrimental to the smooth operations of the association.
  • Depending on the type of communication, these emails may be considered part of the Official Records of the association and, therefore, the association may be required to keep some of them for up to seven years.
  • Knowing that emails may be viewed by future Board members encourages the current Board members/ manager from saying anything via email that they would not want others to read. Comments made via email have hurt associations during litigation when emails were admitted into evidence.

2. A requirement that electronic communications between a quorum of the Board are only to be used as a means to transmit information and not as a discussion forum. For example, a Board member can send an email to the Board providing an update regarding an association project or providing an opinion on an upcoming meeting agenda item (perhaps the Board member won’t be there). These messages should be in FYI format and should not ask the Board to provide feedback. If an informative email from a Board member elicits a back-and-forth discussion, the emails should cease and a Board meeting should be scheduled. There are no restrictions on communications between less than a quorum of the Board.

3. A requirement that no Board voting take place electronically unless there is no other option. For example, the association’s insurance policies are up for renewal in 5 days and the Board’s next meeting is scheduled for tomorrow. At the time of the meeting, the insurance broker was unable to obtain all necessary insurance quotes. Due to scheduling conflicts, a quorum of the Board will not be able to meet again before the policies expire. Once the quotes are received, the Board reviews them and votes via email to renew the current policies.

These types of situations, calling for an electronic vote, arise from time to time and the association’s Board Member Electronic Voting and Communication Policy should outline how to proceed during and after the electronic vote. Here are some general guidelines regarding electronic voting:

1. Robert’s Rules of Order should be followed as best as possible:

  • A Board member should send an email with a motion to the Board
  • Another member should second the motion in an email to the Board and ask “All in Favor?”
  • All Board members should respond to the Board with a “yes” or a “no” vote

2. The vote should be included on the agenda for the next Board meeting and ratified

3. The minutes should provide an explanation as to why the vote was cast via email and a copy of the email chain showing the Board’s vote should be included with the minutes.

NOTE: You may have heard that Boards are allowed to vote via email so long as the vote is unanimous. This relates to non-profit law (Florida Statutes Chapter 617), which allows for voting outside of a Board meeting if all Board members vote unanimously in writing. Whether this Statute allows for written votes via email (as opposed to a signed document) is unclear. Regardless, for condominium associations the Florida Condominium Statutes (Chapter 718) overrule Chapter 617 when there is a conflict and Chapter 718 does not allow Boards to avoid a meeting by voting unanimously in writing.

I hope this overview of electronic Board communication has been helpful. Our management and consulting firm, VERA Property Management, will gladly draft a Board Member Email Voting and Communication Policy for your association. Please contact us today for a quote.

As always, feel free to reach out with questions or comments.

Emily

Emily Shaw is a condominium homeowner in Tampa, Florida and a Director of VERA Property Management, a firm providing full-service community association management in the Tampa Bay Area as well as consulting, financial and legal services to all Florida community associations. 

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Florida Condominium Association Board Election Procedures: Florida Statute 718.112(2)(d) and Florida Administrative Code (F.A.C.) Rule 61B-23

Posted on January 31, 2014 | 300 Comments

The Florida Statutes, in combination with the Florida Administrative Code (F.A.C), provide specific processes and procedures relating to condominium association Board member elections. These rules have been established to ensure fair elections and to provide all unit owners interested in running for a seat on the Board the opportunity to do so. Failure to follow these procedures not only creates unit owner distrust of the Board but may also result in fines pursuant to FAC Rule 61B-21. Further, the association may be required to repeat the entire election process. This post will outline the Board election process and provide guidance on issues including search committees and campaigning.

NOTE: These rules generally do not apply to timeshare condominiums. Condominiums with less than 10 units are not obligated to follow these procedures. In order to adopt different voting and election procedures , an association must obtain a 51% affirmative vote of the membership.

Regular Board elections to fill vacancies created by the expiration of a Board term must be held at the annual meeting of the membership regardless of whether a quorum is present. Any Board vacancies not filled by an election (e.g., not enough people ran for the Board, a Board member resigns) may be filled by a vote of the remaining Board members at a duly called Board meeting.

 

The Election Process

First Notice of Election

The first notice of election must be mailed, emailed (so long as an electronic consent form has been received) or hand-delivered at least 60 days prior to the annual meeting/ election day. This notice may be part of another unit owner communication such as a routine newsletter. There is no specific format in which this notice must be given but the notice should include, at a minimum:

  • The date, time and location of the annual meeting/ election
  • Details surrounding how a unit owner may become a candidate for the Board (discussed below)
  • Details surrounding the information sheet a Board candidate may submit (discussed below)

If the association fails to properly issue the first notice, the association must restart the notification process.

Receipt of Intents to Run for the Board

At least 40 days prior to the annual meeting/ election, all unit owners desiring to be candidates for the Board must inform the association in writing of their intent to run. Unit owners may send a letter (certified mail or regular mail), an email, a fax, or hand-deliver a written statement. I recommend that the association provide an “intent to run” form for unit owners to fill out. The association must issue a written notice of receipt of the unit owner’s intent to run and may deliver this receipt via mail, email, fax or hand-delivery.

At least 35 days prior to the annual meeting/ election, candidates for the Board may submit to the association an information sheet discussing their qualifications/ reasons for running for the Board. The information sheet must be a one-sided, 8.5”x11” sheet of paper. Associations may use two-sided printing when distributing the information sheets (discussed below) to reduce paper usage.

NOTE: At 40 days prior to the annual meeting/ election, if there are fewer candidates for the Board than spaces on the Board to fill, no election is necessary.

NOTE: At 40 days prior to the annual meeting/ election, unit owners that are more than 90 days delinquent in paying a monetary obligation to the association are not eligible to run for the Board. Further, felons that have not had their civil rights restored for at least 5 years are not eligible.

Second Notice of Election

The second notice of election must be mailed or hand-delivered (electronic transmission is not is NOT an option) between 14 and 34 days prior to the annual meeting/ election day. There is no specific format required for this notice but I recommend that it include:

  • Details surrounding how to cast a vote in the Board member election (discussed below)
  • Details surrounding how to fill out and submit the annual meeting limited proxy
  • Explanations of any specific items (e.g., surplus carryover, year-end financial reporting waive down) on which the association is requesting the membership vote

Along with the second notice, the association should include:

  • The agenda for the annual meeting
  • A limited proxy for quorum purposes (if interested, consider adding the vote to waive down the year-end financial reporting requirement to the annual meeting agenda and add the vote to the proxy)
  • A ballot including only the names of all candidates for the Board, listed alphabetically by surname (ensure all ballots are consistent in appearance)
  • An outer envelope labeled with the address of the property manager OR association (wherever you would prefer the votes go) and spaces for the owner’s unit number, name and signature
  • An inner envelope with nothing on the outside (unit owners that own more than one unit should have an inner envelope for each unit they own)

If the association fails to properly issue the second notice, the association must restart the notification process.

Voting in the Election

To cast a vote in the election, a unit owner must write their name, unit number and signature on the outside of the outer envelope. They must select their chosen candidates using the ballot (nothing else is to be written on the ballot, no write-in candidates are allowed) and place the ballot in the inner envelope. The inner envelope(s) must be placed into the outer envelope and should be mailed or hand-delivered to the association/ property manager. Unit owners may cast their votes using the same process at the annual meeting up to the point that outer envelopes begin to be opened. Once a ballot is submitted, it cannot be rescinded or changed.

NOTE: F.A.C has specific rules for voting machines.

Counting Votes

The vote count must be conducted at the annual meeting in a location that is visible to all attendees. Once all ballots have been collected, the names and unit numbers listed on the outer envelopes will be checked against a list of eligible voting by an impartial committee (i.e., no Board members, candidates, or family members of Board members/ candidates). Any outer envelopes without signature shall be marked with the word DISREGARDED and not included in the vote count. Once completed, all inner envelopes should be removed from outer envelopes and placed in a separate receptacle by the impartial committee. The inner envelopes will then be opened. Any inner envelopes with more than one ballot inside should be marked as DISREGARDED and not included in the vote count. The results should be announced at the annual meeting.

NOTE: In order for an election to be valid, at least 20% of the membership must have voted. If not achieved, the association must begin the election process again.

Runoff Elections

If there is a tie vote that creates the need for a runoff election, the association must send a Notice of Runoff Election during the 7 days after the annual meeting/ election. This notice must include a new ballot listing the tied candidates’ names, the candidates’ information sheets, as well as inner and outer envelopes. All previous voting and vote counting procedures must be followed. The runoff election must be held 21-30 days after the annual meeting/ election.

Fair Election Concerns

If unit owners are concerned that the association is not going to run a fair election, an election monitor may be petitioned using DBPR Form CO 6000-9. The F.A.C requires that the greater of 15% of the membership and 6 members sign the petition.

If a unit owner wishes to challenge an election, they must do so using the Department of Business and Professional Regulation’s complaint form within 60 days of the election results.

Election Official Records

The first notice, second notice, intents to run, information sheets, envelopes, and ballots (including those marked as DISREGARDED) are considered official records of the association and must be maintained for at least one year from the date of the election.

Search Committees and Campaigning

The F.AC is very clear that committees designed to officially nominate potential candidates for the Board (“ nominating committees”) are strictly prohibited. That being said, there is no reason why a Board can not put together a search committee responsible for identifying unit owners that may be good Board members and discussing with them the possibility of running for the Board. Further, there is nothing prohibiting current Board members or the association manger from encouraging certain unit owners to run for the Board.

Campaigning for Board elections is allowed per the FAC and the Florida Statutes; however, it is in the best interest of the Board so set up some guidelines regarding campaigning. For example, the Board may identify certain areas (e.g., an information board in a common area) that candidates can post campaign ads so as to avoid a candidate papering the property with “Vote for Me” posters.

NOTE: The community’s manager should remain impartial as it relates to Board elections. If your manager is telling unit owners how to vote in an election, consider submitting a complaint to the DBPR regarding their behavior.

If you have any questions about the above process, do not hesitate to comment or send me an email. Templates for any of the notices or forms discussed above are available upon request.

Emily

Emily Shaw is a condominium homeowner in Tampa, Florida and a Director of VERA Property Management, a firm providing full-service community association management in the Tampa Bay Area as well as consulting, financial and legal services to all Florida community associations. 

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Florida Statute 718.111(13): Everything You Need to Know About the Florida Condominium Association Year-End Financial Reporting Requirement

Posted on January 27, 2014 | 54 Comments

As it is January once again, it is time for condominium associations to produce their year-end financial reports.  As discussed in our post on accounting records, every condo association must produce a year-end financial report of some kind. The type of financial report required depends on the annual revenues and/ or the size (i.e., number of units) of the association. This blog post will review the specific requirements outlined in the Florida Statutes and the Florida Administrative Code (FAC) relating to the preparation and distribution of the year-end financial report, provide guidance on contracting for or completing the reporting requirements, and discuss voting to waive the year-end reporting requirement.

The Year-End (“YE”) Financial Report

 Per Florida Statute 718.111(13):

  • An association that operates fewer than 50 units, regardless of the association’s annual revenues, shall prepare a report of Cash Receipts and Expenditures.
  • An association with total annual revenues of less than $150,000 shall prepare a report of Cash Receipts and Expenditures.
  • An association with total annual revenues of $150,000 or more, but less than $300,000, shall prepare Compiled Financial Statements (“Compilation”).
  • An association with total annual revenues of at least $300,000, but less than $500,000, shall prepare Reviewed Financial Statements (“Review”).
  • An association with total annual revenues of $500,000 or more shall prepare Audited Financial Statements (“Audit”).

Report of Cash Receipts and Expenditures

  • Must report cash receipts and disbursements from each of the Association’s operating and reserve accounts.
  • Must report cash receipts by classifications at the association’s discretion (e.g., Maintenance Fees, Special Assessments, Late Fee & Interest, Fines, Rental Income).
  • Must report cash expenditures by the following classifications: Security, Profession and Management Fees, Taxes, Recreational Facilities, Refuse Collection and Utilities, Law Care, Building Maintenance, Insurance, Administration/ Salary and Reserve Contributions by Reserve Account. While these classifications are specifically listed in the statute, they are not all inclusive and the association may add any additional classifications they feel are relevant.

Per Rule 61B-22.006 of the Florida Administrative Code:

Compilations, Reviews and Audits must be completed on an accrual basis according to Generally Accepted Accounting Principles (GAAP). Further, Reviews and Audits must be completed by a Certified Public Accountant (interestingly, a CPA is not specifically required for Compilations).

This report must include the following financial statements:

  • Accountant’s or Auditor’s Report
  • Balance Sheet
  • Statement of Revenues and Expenses
  • Statement of Changes in Fund Balances
  • Statement of Cash Flows

Notes to the financial statements must include the following reserve funding disclosures:

  • The beginning balance in each reserve account.
  • Total additions to each reserve account.
  • Total amounts expended or removed from each reserve account.
  • The ending balance in each reserve account.
  • Amount required to fully fund each reserve account, or pool of accounts (if using the pooling method), over the remaining useful life of each asset.
  • How reserve items were estimated (typically by a reserve study).
  • The date the reserve estimates were last made.
  • The association’s policies for allocating reserve fund interest (i.e., interest held in a separate reserve account, applied pro-rata to each reserve account, or included in the reserve pool as is the case when using the pooling method).
  • Whether reserves have been waived during the period covered by the financial statements.
  • Any developer converter reserve accounts.

Notes to the financial statements must also include the following other disclosures:

  • How incomes/ expenses are allocated to unit owners (typically by a unit owner’s percentage ownership in the common elements).
  • The purpose and amount of each special assessment (if any) and how the funds were used.
  • The expenses related to limited common elements that are charged to specific unit owners.
  • Disclosures relating to guarantees pursuant to Section 718.116(9), F.S (see the FAC for more details on these disclosures).

Report of Cash Receipts and Expenditures must be completed using a cash basis and must include the reserve funding disclosures, special assessment disclosures and limited common element disclosures listed above.

NOTE: For all YE financial reports, the FAC has specific guidelines for multicondominium associations.

Required Timeframe for Completion and Distribution

Within 90 days of fiscal YE (not calendar YE though most are one and the same) the association must have completed or have contracted for the preparation of the required YE financial report. Within 21 days after the financial report is completed, but not later than 120 days after the end of the fiscal year, the association must mail or hand deliver a copy of the financial report (or a notice that the report is available upon written request) to each unit owner. This must be done without charge to the unit owner. Note that this particular Florida Statute does not allow for electronic distribution (e.g., email, via website) of the financial report. 

Completing The Year-End (“YE”) Financial Report

 A CPA must complete Audits and Reviews per the FAC.  Any qualified accountant may complete Compilations though I would still recommend a CPA. These services can be very expensive ($1,000 – $6,000) so be sure to obtain competitive bids for your YE financial report. Further, be sure that any CPA or accountant the association hires has experience with condominium associations.

If your association’s fiscal year corresponds with the calendar year (January – December), I strongly recommend contracting with a CPA in November or December to ensure the CPA will have time to complete your association’s financial report within 120 days of year-end (tax season typically keeps CPAs very busy). Contracting with a CPA early also helps to ensure the association obtains the best price (CPAs often increase prices for rush projects).

Boards of Directors or associations’ management companies often complete the Cash Receipts and Expenditures report. This report is relatively easy to complete if your bookkeeping has been well kept and you know the rules discussed in this blog. That being said, it is my experience that management companies do not accurately complete this report (particularly the disclosures). Be sure to review your Cash Receipts and Expenditures report in detail before disseminating to the community. We have templates for the Cash Receipts and Expenditures report. Please send me an email if interested. 

Waiving the YE Financial Reporting Requirement

Florida Statute Chapter 718.111(13)(d) allows condo associations to “waive down” their reporting requirement for three consecutive years. What this means is that the membership of an association that is required to have an Audit may vote to complete a Review, Compilation or report of Cash Receipts and Expenditures instead. Likewise, the membership of an association that is required to complete a Review may vote to complete a Compilation or a report of Cash Receipts and Expenditures instead. And so on. It is a common misconception that associations may vote to waive the YE financial reporting requirement all together. This is not allowed.

A majority vote of a properly called meeting of the association’s membership must be obtained in order to waive down the YE financial reporting requirement. This means that a quorum of unit owners must be present at the meeting (either in person or by proxy) and at least 50% of those owners present must vote to waive down the requirement. As a quorum is required to hold the association’s annual meeting, I recommend including the vote to waive down the financial reporting requirement at the annual meeting. This will save the Board the hassle of obtaining two quorums in one year and will save the Association money on printing, envelopes and postage. Specifically, the association may consider including language similar to the following on the limited proxies that are mailed to the membership for the annual meeting:

WAIVER OF YEAR-END FINANCIAL REPORTING REQUIREMENT

I cast my vote to waive the requirement for a <<Compiled, Reviewed or Audited>> financial statement as required by Chapter 718.111(13) of the Florida Statutes and provide in lieu thereof a <<Compiled financial statement, Reviewed financial statement, or Report of Cash Receipts and Expenditures>> in accordance with Chapter 718.111(13) of the Florida Statutes and 61B-22.006 of the Florida Administrative Code.

YES ________ NO ________

This vote is only effective for the current and subsequent fiscal years (e.g., the vote to waive the 2013 reporting requirement must take place in 2012 or 2013).

Per FAC Rule 61B-22.006, the minutes of the meeting during which the waive down vote took place must reflect the number of votes cast to waive the requirement as well as the type of YE financial report that the association will prepare.

I hope this overview has been helpful. If you have any questions, please feel free to comment or reach out via email.

We are pleased to offer year-end financial reporting services (Audits, Reviews, Compilations and reports of Cash Receipts and Expenditures) to all Florida condominium associations through our management and consulting firm, VERA Property Management. Feel free to contact us directly for a quote.

Emily

 Emily Shaw is a condominium homeowner in Tampa, Florida and a Director of VERA Property Management, a full-service community association management and consulting firm.

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Florida Condominium Association Frequently Asked Questions and Answers Sheet

Posted on December 7, 2013 | 188 Comments

Today’s post will be short and sweet.

According to Rule 61B-23.002 of the Florida Administrative Code (F.A.C.), each condominium association must prepare and maintain a Frequently Asked Questions and Answers (FAQ) sheet.  The FAQ sheet must be updated every 12 months. To aid in compliance, the Department of Business and Professional Regulation (DBPR) created F.A.C. Form CO 6000-4, a fill-able PDF consisting of 7 questions relating to unit owner voting rights, maintenance fees and association on-going legal issues. Associations may create their own FAQ sheet but it must be similar in form and substance to CO 6000-4. Compliance couldn’t be easier and yet this rule is often overlooked.

If your association is professionally managed, make sure your LCAM has updated your FAQ sheet and has it available to current owners and potential buyers. The FAQ sheet must be maintained as part of the association’s official records.

As always, we are available to answer any questions you may have.

Emily

Emily Shaw is a condominium homeowner in Tampa, Florida and a Director of VERA Property Management, a full-service community association management and consulting firm serving the Tampa Bay Area.

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The Florida Administrative Code (F.A.C.) and Florida Condominium Associations

Posted on December 4, 2013 | 38 Comments

Sure, you’ve heard of Chapter 718 of the Florida Statutes, that seemingly unending document that governs condominium associations. But there is one other set of rules out there that Board members frequently overlook: The Florida Administrative Code (f.k.a. FAC or F.A.C.). Heard of it? Many Board members have not and yet it is essential to the proper operation of a Florida condominium association.

The F.A.C. combines all rules promulgated by state regulatory agencies. For the purposes of Florida condominium associations, the F.A.C. expands on the guidance provided in Chapter 718 of the Florida Statutes relating to record keeping, financial statement preparation, Board member elections, and other operational issues.

The F.A.C. should be read in conjunction with the Florida Statutes. Failure to comply with the Florida Statutes and the F.A.C. can lead to action by the Department of Business and Professional Regulation (DBPR) including fines of up to $5,000 per violation.

The full FAC can be found at www.flrules.org.

F.A.C. chapters 61B-15 – 61B-25 along with 61B-45 and 61B-50 provide specific guidance on many important condominium topics that are addressed more generally in Chapter 718. For unit owner-controlled (versus developer-controlled) condominiums, the most relevant sections are 61B-21, -22 and -23.

Chapter 61B-21 discusses the actions the DBPR will take in response to complaints submitted by unit owners surrounding an association’s violation of the F.A.C. and/ or Florida Statutes. Violations are separated into minor and major violations; a list of violations is included within the code. Initial minor or major violations are generally handled through communication with the association, warning letters, and distribution of educational materials relevant to the alleged violation. In circumstances where minor or major violations are repeated or an association fails to resolve an initial violation, an investigator from DBPR may be assigned to the case.

The F.A.C. dictates that the DBPR may levy fines against an association of up to $5,000 per violation. Generally fines are determined based on a price per unit. For minor violations, the penalty will range from $1-$5 per unit, up to $2,500 per violation. For major violations, the penalty will range from $6-$20 per unit, up to $5,000 per violation. The total amount ultimately fined may be influenced by a variety of aggravating or mitigating factors listed in the F.A.C. Aggravating factors include substantial harm or financial loss to homeowners; association delay in taking corrective action; and past violations. Mitigating factors include reliance on written expert counsel***; no substantial harm or financial loss to homeowners; and association cooperativeness with the DBPR during the investigation.

***It is important to note here that reliance on a licensed community association manager (LCAM) is not a defense for failing to comply with the F.A.C. or Florida Statutes. It is very important that Board members review the actions of their LCAM to ensure compliance.

Chapter 61B-22 relates to financial and accounting requirements, including budgeting and reserve requirements. This section outlines all the required components of the annual budget; the proper treatment of common expense guarantees; reserve calculations (using both the component and pooled methods); the timing and handling of reserve fund contributions; procedures for waiving or reducing reserve contributions; and the specific requirements of the association’s year-end financial reporting.

Chapter 61B-23 discusses Board meetings and the Board’s fiduciary duty; rules relating to the video taping of Board meetings; the requirement that each condominium pay a $4/ unit annual fee to the DBPR due by January 1st; voting to forego the retrofitting of fire and life safety systems; the use and form of limited proxies; the required Frequently Asked Questions and Answers sheet; the items included in the association’s official records; Board elections/ recalls/ vacancies; and the electronic transmission of notices.

We will review 61B-22 and 61B-23 in more detail in future posts. For now, don’t forget to read the code.

As always, please feel free to reach out with questions.

Emily

Emily Shaw is a condominium homeowner in Tampa, Florida and a Director of VERA Property Management, a full-service community association management and consulting firm serving the Tampa Bay Area.

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Florida Condo Association Accounting Records: Fl Statute 718.111(12)(a)(11)

Posted on June 27, 2013 | 46 Comments

As promised in the discussion of condominium associations’ Official Records, we have dedicated a post exclusively to the accounting records that are required to be maintained pursuant to Florida Statute 718.111(12)(a)(11).

 All accounting records of a condominium association must be maintained for at least 7 years. To be prudent, an association may decide to keep all association records since developer turnover. If your property does not have a lot of storage space for hard copy records, there are many companies that specialize in scanning records electronically and/or storing hard copy records. These services are relatively inexpensive and serve to both reduce clutter and protect the association’s records from fire, theft, or natural disaster.

Most professional management companies use high-end accounting software to maintain the bulk of their associations’ accounting records. This software can cost thousands of dollars so purchasing software like this doesn’t make much sense for the self-managed condominium. For very small condominiums, a program such as excel can be used to maintain the association’s financial statements, including homeowner ledgers. However, for larger condominiums, accounting software such as QuickBooks, which costs in the $300 range, likely makes the most sense. As I have mentioned in previous posts, if the Board of Directors does not have a member with a strong accounting background, hiring a 3rd party accountant to maintain the association’s books may be necessary.

Here’s what the FL Statutes say condo associations must maintain:

1.    Accurate, itemized, and detailed records of all receipts and expenditures.

If this seems very broad to you, that’s because it is. The FL Statutes leave it to each condominium to determine exactly what they need to keep, and in what format, in order to meet this requirement. As part of the association’s routine bookkeeping, all monies received and spent will be entered into the association’s accounting software. Generally, these programs allow the user to enter a description of each deposit or expense. Be sure to enter detailed descriptions for each entry including the parties involved and the reason that the funds were received or paid. You’ll thank yourself for doing this the first time you try to look back at specific transactions from previous years. Further, I strongly recommend you keep all of the following either electronically or in hard copy:

  • Copies of all checks received and written by the association
  • Copies of all monthly bank statements for all association bank accounts
  • Copies of all “lockbox” payment detail if this service is used by the association
  • Copies of all final invoices paid by the association (typically these invoices are kept with the copy of the check that paid the invoice)
  • Copies of all reconciliation reports (showing that the bank statements and the association’s bookkeeping reconcile each month-end)

2.    A current account and a monthly, bimonthly, or quarterly statement of the account for each unit designating the name of the unit owner, the due date and amount of each assessment, the amount paid on the account, and the balance due.

This refers to the balances owed by each homeowner for their maintenance fees. This information should already be maintained in the association’s accounting system and there is nothing else special that needs to be done. These balances should include any accrued late fees or interest. I recommend you keep any other amounts owed to the association (e.g. fines, charges backs for work completed by the association on behalf of the homeowner) on a separate ledger for each homeowner as the association may only lien and foreclose on a unit for past due maintenance fees (and associated late fees/ interest). This makes it easier for the association to provide accurate account balances to the association’s attorney (during collection efforts) or prospective buyers. Along with this requirement, I recommend that the association maintain monthly A/R aging summaries (showing those units that are 30, 60 or 90 days past due).

3.    All audits, reviews, accounting statements, and financial reports of the association or condominium.

What an association must maintain specifically under this requirement depends in large part on the size of the association. According to Florida Statute 718.111(13), each association must produce a year-end financial report (or have contracted for the production of this report) within 90 days of fiscal year-end. The type of report required is as follows:

  • An association that operates fewer than 75 units, regardless of the association’s annual revenues, shall prepare a report of cash receipts and expenditures.
  • An association with total annual revenues of less than $100,000 shall prepare a report of cash receipts and expenditures.
  • An association with total annual revenues of $100,000 or more, but less than $200,000, shall prepare GAAP compiled financial statements.
  • An association with total annual revenues of at least $200,000, but less than $400,000, shall prepare GAAP reviewed financial statements.
  • An association with total annual revenues of $400,000 or more shall prepare GAAP audited financial statements.

Details on how to prepare the above financial report are provided in Rule 61B-22.006 of the Florida Administrative Code. The Florida Statutes allows the voting interests of the association to approve a waiver of compiled, reviewed or audited financial statements for up to three consecutive years.

Along with the above described report, I recommend that the association maintain copies of balance sheets and income statements for each month-end that have been approved by the Board.

4.    All contracts for work to be performed. Bids for work to be performed are also considered official records and must be maintained by the association.

This requirement is relatively self-explanatory; however, there are some simple ways to keep track of all of this information in an organized fashion. I recommend that all long term contracts approved by the association be kept together for reference. It may be helpful to keep a list of all contracts including their maturity dates and renewal/ termination provisions. As mentioned above, all other contracts/ invoices can easily be kept along with a copy of the check that was issued by the association to pay the contract/ invoice. Lastly, all bids that were received for work must be kept as well. I recommend keeping these separate from those bids that were actually approved to avoid confusion.

As was mentioned in a previous post, it is a smart idea to keep a copy of each packet that is provided to the Board at each meeting. These packets typically include all bids related to agenda items so maintaining the packets would comply with the above contracts requirement. These packets also typically include recent financial statements, minutes from the previous meeting, the meeting agenda, and more of the items that are considered part of the official records of the association.

I am available via email if you have any questions or comments.

Ryan

 

Ryan Koski is a condominium homeowner in Tampa, Florida and a CPA and Attorney with Accounting Clinic, Inc. He is also a Director of VERA Property Management, a firm providing full-service community association management in the Tampa Bay Area as well as consulting, financial and legal services to all Florida community associations. 

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Save Time and Money using Email to Communicate with Homeowners

Posted on June 26, 2013 | 9 Comments

For all condominium associations, but especially for self-managed condominiums, any means to save time is essential. If a change in process means you are able to save money too, then it’s a no-brainer. Taking advantage of the Florida Condominium Statutes’ electronic transmission policy does exactly this. In today’s post I am going to outline when associations are allowed to communicate information with residents electronically (i.e. via email) and ways the association can take advantage of this method to save time and money.

Chapter 718 of the Florida Statutes outlines all of the required written communications condominium associations must provide to residents (e.g. annual budget drafts, year-end financial statements, Board election information). In the past, these communications were typically delivered to residents via “snail mail” and, depending on the size of the community, associations were spending hundreds or thousands of dollars per year on paper, printing, envelope and postage costs, not to mention the countless hours of envelope stuffing and label posting involved. Using email can eliminate all of these burdens; however, there is one important step the association must take before shifting to electronic communication.

All association electronic communications must comply with Rule 61b-23.0029 of the Florida Administrative Code. As detailed in the rule, prior to providing communications via email to a homeowner, the homeowner must consent in writing to receive communications electronically. In this day and age, it usually isn’t difficult to encourage residents to agree to receive communications electronically as most prefer this method. The association is required to keep all consents as part of the official records. A simple form with the following language should suffice:

I agree to receive all communications from the Board of Directors of <Name of Condominium Association>, either directly or on behalf of the Association by the current Property Manager, in electronic format utilizing the email address provided below. Communications that are required to be provided in hard copy by Florida Statute will continue to be hand-delivered or sent by mail. 

For those homeowners that have consented to receive communications electronically, the following communications can be sent via email according to the Florida Statutes (718.112):

  1. Notice of any meeting where nonemergency special assessments will be considered
  2. Notice of the Annual Meeting
  3. First and Second Notices of a Board Election
  4. Proposed Annual Budget

Two notable times where the Florida Statutes do not specifically allow email communication are:

  1. Notice for a special budget meeting when the proposed budget is greater than 115% of the previous year’s budget
  2. Year-End Financial Reporting

There is one more important thing to note about electronic communication. Per the Florida Administrative Code, it is the association’s responsibility to shift from electronic communication to traditional mailing if attempts to send a communication via email to a homeowner have failed two consecutive times.

If you haven’t done so in your community already, consider taking advantage of email! Your budget and the environment will thank you.

Emily

emily@flcondoassociationadvisor.com

 

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