Tag Archives: florida statutes

Florida Condominium Association Board Members Voting By Proxy

Posted on January 29, 2014 | 14 Comments

I recently received a question asking if Board members have the right to vote by proxy. The Board member that posed this question was going to be out of town for an important Board meeting and wanted to know if he could give another Board member a general proxy to vote on his behalf.

According to Florida Statute 718.111(1)(b), Board members may not vote by proxy. Further, Board members not present at a meeting may not provide a vote in writing. The only real option for a Board member that is not physically at the meeting location is to vote via phone or webcam. Florida Statute 718.111(2)(b)(5) requires that Board members joining a meeting via phone must be put on speaker such that all meeting attendees can hear the Board member.

If an absentee Board member is only interested in one particular agenda item, there is nothing prohibiting the Board member from calling into the meeting for that vote only so long as a quorum of the Board is otherwise met.

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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Posted in Board Meetings, Florida Statutes

Tagged 718.111, 718.111(1)(b), 718.111(2)(b)(5), board meeting, Board member, condo, condominium, condominium association, florida, florida statutes, general proxy, limited proxy, vera property management, voting, voting by proxy, voting over the phone

Interviewing a Florida Community Association Management Company: Part 2

Posted on January 28, 2014 | 10 Comments

On January 2, 2014, I posted a discussion of five key questions to ask a potential management company. Click here to review that post. Today, we will look at five additional questions.

1. Do you have specific vendors that you work with? Do you receive any type of compensation for recommending specific vendors to Boards?

As one of your property manager’s key responsibilities will be selecting vendors to provide work proposals to the Board, it is important to understand how specific vendors are chosen. Often management companies have lists of preferred vendors that they use regularly. There is nothing inherently wrong with this. In fact, having a manager with experience and strong connections to local vendors is an asset. That being said, the Board should do their best upfront to ensure there are no potentially unethical reasons why a manager may recommend a specific vendor. Conflicts of interest may exist if a manager receives any type of compensation (e.g., cash, professional recommendations, networking opportunities) in exchange for using a specific vendor. A common example of a conflict of interest is key players of a management company having ownership interest in plumbing, maintenance, landscaping or other businesses that an association may hire. A more blatant example would be a management company receiving financial kickbacks from a vendor if a Board hires the vendor. Quite a bit of light has been shed on these conflicts in recent years and management companies have been cleaning up their acts. Still, it is worthwhile to ask the question and judge the manager’s response.

2. Do you have a set minimum threshold for competitive bidding? Are you comfortable with the Board setting a lower threshold than is required by Florida Statutes?

Florida Statute Chapter 718.3026 requires that any project costing more than 5% of the annual budget be competitively bid. Given this, most management companies do not promise competitive bidding below 5% of the association’s annual budget. For a condominium with an annual budget of $100,000, only projects of $5,000 or more would be competitively bid. For a large condominium with a budget of $500,000, only projects of $25,000 or more are required to be competitively bid. In my opinion, 5% is way too high of a figure. I strongly recommend that Boards vote on a lower threshold project size above which competitive bidding is required ($1,000 may be a good starting point). Further, I recommend that Boards confirm with potential management companies that they will honor the lower threshold. More competitive bidding means more work for the manager so the manager may want to adjust their management fee slightly to reflect this lower threshold.

NOTE: It is also worthwhile for the Board to establish a maximum expense amount that the manager may approve without Board consent. Ask the manager what they typically recommend. It often makes sense for the competitive bidding threshold and the manager approval threshold to be the same.

3. Will you be on property to oversee large projects (e.g., painting, paving)? Is there a fee associated with this oversight?

Unless your association has an on-site manager, most management company contracts only guarantee that the property manager will be on-site once per week for 1-2 hours to complete a property inspection. During big projects like painting and repaving, the limited on-site presence of the property manager can leave the Board struggling to meet vendors, review progress, manage parking and traffic patterns, and much more. Many management contracts include a project administration fee (typically 2-5% of project cost) that includes more comprehensive oversight of large projects. This fee is often automatically charged for any projects above a certain dollar amount. Be sure to confirm whether or not there are any additional fees associated with the administration of large projects and clarify what that fee includes. Regardless of whether or not the manager charges a project administration fee, be sure to ask the manager to explain how he/ she will handle a large project that the association expects to take in the near future. This discussion can provide vital insight into the manager’s project management style.

4. Are you comfortable following Board-approved policies?

As is likely clear to those that have read my other posts, I am a strong believer in Board-directed property management. In practice, this translates into Boards drafting and approving policies and procedures for everything from violation identification and fining, to delinquent maintenance fee collections, to rental or sales applications, to the types of door hardware unit owners may choose for their front doors. These polices create a road map for managers to follow and provide obvious metrics against which the Board can review a manager’s performance. These policies also ensure that the manager is acting within the guidelines of the association’s governing documents and that all residents receive consistent treatment.

Most management companies have their own internal policies, particularly relating to maintenance fee collections and violation identification/ fining. They tend to use these same policies and same form letters for every community. For example, the manager’s internal policies may dictate that if a unit owner is more than 90 days past due in paying maintenance fees they are automatically sent to the association’s attorney to have a lien placed on their unit. This may be what the Board prefers. On the other hand, the Board may prefer a different approach (e.g., attempting to work out a payment plan or attempting to garnish rent from a tenant before placing a lien). Because their processes are streamlined and generally applicable to all properties they manage, certain management companies may be reluctant to change their policies for your community. If you are the type of community that wants control over how the day-to-day operations of the association are handled, be sure that the manager is willing to follow all of the Board’s policies and procedures. If you are unsure of how important this is to your Board, consider asking the manager for a copy of their internal policies and reviewing them to determine if they are in sync with the Board’s perspective.

5. How big is your accounting team? What are their qualifications?

As all management companies offer a standard accounting package, many Boards tend not to focus on this aspect of a potential management company. Given the importance of quality bookkeeping, I strongly recommend that the Board take the time to learn as much as possible about the manager’s accounting team. Ask specifically about the size and qualifications (any CPAs on staff?) of the accounting team. Further, request draft financial statements and confirm that the manager is willing to provide customized accounting reports at the request of the Board. Lastly, confirm that the Treasurer of the Board will be able to deal directly with the accountant(s) assigned to your association.

As always, feel free to comment below or shoot me an email.

Emily

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Posted in Management Companies

Tagged 718.3026, accounting, competitive bidding, condo, condominium, condominium association, conflicts of interest, florida, florida statutes, interview questions, management, management company, policies, procedures, project oversight, vendor relationships, vera property management

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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Posted in Financial, Florida Administrative Code, Florida Statutes

Tagged 718.111(13), accounting, annual meeting, audit, cash receipts and expenditures, compilation, condo, condominium association, financial reporting, florida, florida administrative code, florida statutes, reserves, review, Rule 61B-22.006, vera property management, voting, waive down, waiving financial report, year-end financial reporting requirement

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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Posted in Florida Administrative Code, Florida Statutes

Tagged condo, condominium, condominium association, FAQ, florida, florida administrative code, florida statutes, Form CO 6000-4, Frequently Asked Questions and Answers, Rule 61B-23.002, vera property management

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 1^st; 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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Posted in Florida Statutes

Tagged board meetings, Chapter 718, condo, condominium, condominium association, Department of Business and Professional Regulation, electronic communication, financial reporting, fines, florida, florida administrative code, florida statutes, official records, reserves, vera property management, violations

Florida Condominium Association Rules & Regulations: Drafting a Violation Policy and Issuing Fines

Posted on November 7, 2013 | 61 Comments

Every condominium association’s Declaration of Condominium and Bylaws incorporate rules and regulations that homeowners (and their tenants and guests) are obligated to follow. Further, most association Governing Documents allow for Boards of Directors to establish additional reasonable rules and regulations (through a Board vote at a properly called meeting) so long as they do not conflict with anything in the Governing Documents. The Governing Documents are often very long, a bore to read, and confusing for many homeowners. Add to that the variety of different rules the Board adopts and it is not surprising that most homeowners don’t know all the rules they are supposed to follow.

While there is no specific Florida Statute that outlines how rules and regulations adopted by the Board must be communicated, I strongly recommend that each association consider a method for routinely and thoroughly communicating the rules to homeowners and other residents. My preferred method of accomplishing this is by drafting a comprehensive Rules and Regulations document that is accompanied by a Violation Policy, outlining how violations are identified, the consequences of a violation, and the means of appealing a violation. We will go into more detail about the Violation Policy later in the post.

There are several reasons why drafting a current Rules and Regulations document with an associated Violation Policy is so important:

1. Residents are more likely to follow rules if they know them.

2. Residents are more likely to follow rules if there are consequences associated with violating them.

3. For associations that are professionally managed, the Violation Policy provides a clear outline for the management company to follow when identifying violations, sending violation letters, etc. This transfers the control of rule enforcement from the manager to the Board, which is essential as management companies often fail to customize policies such as these to each property they manage.

4. For self-managed associations, the Violation Policy provides the Board a consistent way to enforce the association’s rules, helping to avoid homeowner/ resident claims of personal bias.

The Rules and Regulations along with the Violation Policy should be (1) updated anytime a new rule is passed, (2) reviewed at least annually by the Board, (3) included on the association’s website, (4) provided to new homeowners and residents, and (4) disseminated to the homeowners and residents (via email or snail mail) at least annually but also every time a change has been made.

Components of the Violation Policy

At a minimum, the Violation Policy should include the following sections:

1. Fines Associated with Rule Violations: Often, Boards will choose to have increasing fines for multiple infractions. For example, the first violation may just be a warning, the second a $25 fine, and the third and subsequent violations a $50 fine. The fine can be determined by the number of violations of a unique rule committed by a homeowner/ resident, or by the aggregate number of total violations committed by a homeowner/ resident. It’s up to the Board. However, it is imperative that any fines issued by the Board comply with the association’s Governing Documents and the Florida Statutes. Certain Governing Documents do not allow for fines or have specific rules regarding the issuance of fines.

Florida Statute Rule Regarding Fine Amounts: According to Florida Statute 718.303(3), the Board may issue fines for violations of the association’s rule and regulations. A fine may not exceed $100 per violation; however, an additional fine up to $100 may be levied for each day a violation continues. Fines for a particular violation may not exceed $1,000 in aggregate. Florida Statute 718.303(3)(a) allows the association to suspend a resident’s common elements (i.e., amenities) use rights for a “reasonable period of time” as consequence for failing to abide by the rules and regulations.

2. Corrective Action Time Frame: If a violation requires corrective action on the part of the resident (e.g. a resident’s window shades are not an approved color so the resident will receive a fine AND must remove the shades), the Violation Policy should specify how long the resident has to correct the violation before a subsequent fine is assessed. Further, the policy should outline the action the association may take if a violation requiring corrective action continues for an extended period of time (e.g. the resident refuses to take down the shades). Florida Statute 718.303(1) allows the association to bring legal action against a homeowner or other resident for failure to comply with the rules and regulations.

3. Violation Identification Process: How a violation must be identified and documented should be detailed. These rules should be drafted to eliminate any possibility of bias against a specific homeowner/ resident as well as “he said, she said” situations. A detailed and consistently implemented violation identification process reduces the likelihood of appeal. Sometimes the Governing Documents, often for violations relating to pets or noise, will have a process pre-established; however, in most instances this is not the case and it is up to the Board to create reasonable guidelines. Here are a few recommendations:

a. For visible violations (e.g., storing unapproved items on a balcony), a violation should be captured through a clear photograph of the violation for the association’s records (the ideal way), or by written confirmation that the violation exists by TWO designated persons (i.e., the property manager and the Board). I personally recommend that only the property manager or a Board member be allowed to identify visible violations. If a homeowner/ resident notices a violation, they should inform the property manager and/ or Board member(s) for verification.

b. For noise violations (e.g., loud music, dog barking), a sound recording of the noise should be taken by a designated person (or by the complaining homeowner/ resident) for the association’s records (the ideal way). If this is not possible, written confirmation of the noise should be obtained by TWO persons (i.e., the property manager, the Board members, or residents).

4. Non-Homeowner Residents: The policy should specify how violations are handled when they are committed by non-homeowner residents (e.g., tenants, guests). It is my recommendation that the policy clarify that all non-homeowner residents are required to abide by the rules and regulations of the Association and may be assessed fines if they fail to do so. To encourage homeowners to thoughtfully select non-homeowner residents, and to encourage homeowners to inform them of the rules and regulations, the policy should specify that homeowners are ultimately responsible for any unpaid fines incurred by their non-homeowner residents.

5. Violation Appeal Process: The policy should outline the process homeowners must follow to request an appeal of a violation. This process should include whether or not non-homeowner residents are entitled to request an appeal or if requests must be made by homeowners.

Florida Statute Rule Regarding Fine Appeals: According to Florida Statute 718.303(3)(b), the association must provide homeowners 14 days written notice prior to imposing a fine during which time the homeowner may request an appeal. An Appeals Committee must be established for the purpose and no Board members may be on the committee. If the Appeals Committee does not agree with the proposed fine, the association may not impose it.

6. Violation Letter Template: To ensure consistency, the Board of Directors may wish to draft a violation letter that the property manager, administrative assistant or Board member responsible for issuing violations should use to communicate all violations.

7. Failure to Pay a Fine: The consequences for failure to pay a fine should be outlined in the policy. Per Florida Statute 718.303(3), the Association may not lien a unit if a homeowner fails to pay a fine; however, the association does have the ability to suspend a homeowner’s (and non-homeowner resident’s) common element use rights and voting rights. Further, the association may choose to use a collections agency to collect past due fines. Lastly, so long as the Governing Documents do not prohibit such action, the association may prevent the homeowner from renting their unit if past due fines have accrued.

Florida Statutes Rule Regarding the Suspension of Voting Rights and Common Elements Use Rights: Pursuant to Chapter 718.303(4) and 718.303(5), the association may suspend the voting rights and common elements use rights of any homeowner that is more than 90 days past due in any monetary obligation due to the association. These suspensions must be approved at a Board meeting and the homeowner must be notified in writing of the suspension.

Once the association has begun issuing violation letters and associated fines, the association should maintain a violation log to keep track of violations, fines, appeal status, fine due date, and date of fine payment.

I hope this information has been helpful. As always, I recommend all policies be reviewed by the association’s attorney prior to implementation.

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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Posted in Florida Statutes, rules & regulations

Tagged 718.303, 718.303(3), appeals committee, appeals process, bylaws, common element use rights suspension, condo, condominium, condominium association, declaration of condominium, fine appeals, fines, florida, florida statutes, governing documents, maximum fine, regulations, rules, rules & regulations, vera property management, violation appeals, violations, voting rights

Water Leaks in Florida Condominiums: Association Responsibilities and Cost Reduction Strategies

Posted on October 28, 2013 | 202 Comments

Leaks are common in condominiums and are a constant headache for associations. Given this, you’d think there would be straightforward and consistent process for handling leaks to ensure that everyone shares the burden of repairing the water damage fairly, and in accordance with the association’s governing documents and the Florida Statutes (Chapter 718.111(11) Insurance). Unfortunately, it’s not that simple and more often than not homeowners, or the association, have to come out of pocket to repair damage caused in whole or in part by another. This blog will examine the division of responsibilities and will recommend strategies the association may use to help protect itself and its homeowners.

Rule of Thumb: When dealing with property maintenance or repair, look to the governing documents to determine who is responsible. When dealing with damage caused by a casualty, look to Florida Statute 718.111(11)(f) to determine who is responsible.

Per Florida Statute 718.111(11)(f), the association is responsible for everything except the following, for which the unit owner is responsible: all personal property within the unit or limited common elements, and floor, wall, and ceiling coverings, electrical fixtures, appliances, water heaters, water filters, built-in cabinets and countertops, and window treatments, including curtains, drapes, blinds, hardware, and similar window treatment components, or replacements of any of the foregoing which are located within the boundaries of the unit and serve only such unit.

The legal and insurance community has taken the above to mean that “drywall out” is the responsibility of the Association but “drywall finishes (i.e., texture and paint) in” and “bare floor up” are the homeowner’s responsibility.

Example 1: A Toilet Leak, A Water Heater Leak, A Washing Machine Leak or A Hot Water Heater Leak

A 2^nd story homeowner’s toilet has suddenly begun to leak due to a faulty wax ring, causing damage to the homeowner’s unit as well as the ceiling, walls and floors of the unit below. The association’s documents state that repair and replacement of toilets is the homeowner’s responsibility. As such, the homeowner is required to repair or replace the toilet. However, the damage resulting from the leaking toilet is considered a casualty and would fall under the Insurance Statute.

In this example, there are three parties involved: the Association, the homeowner whose toilet caused the leak, and the below homeowner. We will assume for now that there was no negligence on the part of the homeowner with the leaking toilet (i.e., the homeowner didn’t know, or shouldn’t have known, that the toilet was leaking or going to leak). In this scenario, responsibility for damage caused by the leak would be divided as follows:

The Association will repair the drywall and any damaged studs, insulation or electrical wiring within the walls.
The homeowners will individually repair the personal property within their units, any damaged flooring, and the finishes on the drywall (e.g., paint, texture or wall paper).

Each party may contact their respective insurance company (condominium homeowner’s are not required to have insurance per the Florida Statutes but they may per the governing documents) to help cover the cost of the repairs.

The condominium statutes are silent regarding who is responsible for the cost of the initial dry out of the unit after water damage (i.e., removing standing water and installing proper fans). Obviously both the homeowner and the association are protecting their property by ensuring that all water is removed, no further damage is caused, and no mold issues develop. A proper dry out can be very costly and it is up to the association and homeowner to decide who will pay for this service. In my experience, it is easiest for the association to pay for the dry out as it moves the repair process along and ensures the association is meeting its fiduciary duty to protect the condominium property (failure to properly dry out a unit could cause deterioration to structural parts of the building). Another option is to split the cost with the homeowner. Further, if the homeowner has insurance, and intends to file a claim, the insurance company will often pay for the cost of the dry out.

Example 2: A Toilet Leak, A Water Heater Leak, A Washing Machine Leak or A Hot Water Heater Leak With Homeowner Negligence, Intentional Conduct or Failure to Comply with Association Rules

According to 718.111(11)(j), if damage to the condominium property is caused by homeowner negligence, intentional conduction or failure to comply with the rules of the association, the homeowner is responsible for repairing ALL portions of the damaged condominium property not covered by insurance proceeds. Further, according to 718.111(11)(g), when a homeowner is determined by the association to meet the criteria listed in paragraph (j), the association may complete the repair work to the condominium property (excluding the personal property of the homeowners) and charge the cost of the work to the homeowner. If the homeowner fails to pay, the association may collect the cost as if it were an assessment (see our blog on Collections Policies for more information). The homeowners that have sustained damage to their personal property (i.e. everything covered under Florida Statute 718.111(11)(f)) have the option to pursue legal action against the negligent homeowner.

So, in our example, let’s say that a plumber told the homeowner previously that the wax ring needed to be replaced in the toilet or a leak may occur but the homeowner chose not to make the repair. Or, let’s say that the wax ring actually began leaking because the homeowner (or homeowner’s guest) attempted to make a repair to the toilet himself and failed to properly reset the wax ring. In these case, the homeowner could be perceived as being negligent and the association may choose to complete a full dry out of the unit as well as make all repairs to the common elements (i.e. drywall out), and charge the homeowner that create the leak for the full cost. This statute gives the association a significant amount of power and the association should be careful as to how they enforce it. Negligence is often a matter of perspective and the burden of proof is on the association. As such, the association should obtain an opinion from legal counsel before deciding if they consider a homeowner negligent or not.

Enforcement Tip: Negligence is a very tricky topic. To avoid the likelihood of a legal battle, the association should build negligence into their rules and regulations whenever possible by creating a clear-cut definition of actions that are considered negligent.

As it relates to leaks due to an unexpected casualty, one such rule would be: “Homeowners MUST turn off the water to their unit if the unit is going to be vacant for more than 48 hours”. Leaving water on when there is no one in the unit that would notice a leak has been considered negligence by Florida courts in the past. Because the Board would adopt this as a rule of the association, Florida Statute 718.111(11)(j) allows the association to charge the homeowner who has not complied with this rule the full cost of repairing damage due to a water leak stemming from their unit. This is a particularly effective rule given that leaks from vacant units are frequent and tend to cause more damage than those from occupied units.

Another rule may be: “Homeowner’s (or their guests) must provide proof of liability insurance prior to completing any repairs or renovations to their units. With this rule in place, if a homeowner caused a leak themselves (which happens frequently) the association will either have the homeowner’s insurance information already and can immediately place a claim, or, if the homeowner failed to provide proof of insurance, the association may charge the homeowner the full cost of repairing the damage to the common elements caused by the leak.

Example 3: Professional plumber causes leak while replacing shower faucet

A 2^nd story homeowner hires a plumber to replace the shower faucet. The plumber did not properly seal one of the connections, which began to leak and caused water damage to the ceiling and walls of the unit below. In this scenario, the plumber’s liability insurance would likely cover the cost to repair all damage to the property (including the homeowners’ personal property). However, if the plumber is not insured or refuses to provide his insurance information to the effected parties, the cost of repairs may end up falling to the association and the homeowner who suffered water damage, or their respective insurance companies. The association and/ or effected homeowner could choose to take legal action against the plumber and/ or the homeowner who hired the plumber but this can often be cost-prohibitive, particularly if the damage was not severe. To help reduce the burden on the association and effected homeowners, the association can choose to put specific rules in place relating to maintenance or renovation work completed by a 3^rd party vendor.

Enforcement Tip: The association should consider making it a rule that homeowners MUST utilize licensed and insured vendors, and must provide to the association proof of liability insurance for any vendor working within their unit prior to work commencing. As some vendors may be less willing to provide their insurance information after they have caused a leak at a job site, this requirement protects the association and homeowners, as it will allow the association to immediately place a claim for the damage. Further, if the homeowner failed to obtain proof of insurance, Florida Statute 718.111(11)(j) allows the association to charge the homeowner who has not complied with this rule the full cost of repairing damage to the common elements.

Developing proper strategies for preventing and responding to leaks is a complicated topic and should be discussed with the association’s attorney. A “leak action plan” should be established for all representatives to follow. To avoid legal action, consistent and effective response is key. When making changes to the association’s rules and regulations that have the level of impact these “negligence” rules do, it is important that the association communicate to the membership to ensure that homeowners are properly informed of the new rules.

Feel free to reach out with any questions.

Thanks,

Emily

P.S. If you are a condominium homeowner who has recently experienced a water leak and you are looking for clarification on your rights and responsibilities, please contact us. Ryan (my husband/ co-blogger) offers legal counsel and practical advice on these issues at a reasonable hourly rate for our readers. There are no retainers required or minimum fees. Send me an email at emily@flcondoassociationadvisor.com and I will respond promptly with more information and next steps.

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Posted in Collections, Florida Statutes, Insurance

Tagged 718.111, 718.111(11)(f), 718.111(11)(g), 718.111(11)(j), collections, condo, condominium, condominium association, cost-reduction strategies, drywall, flooring, florida, florida statutes, insurance, leaks, negligence, personal property, responsibility for repair, rules and regulations, water damage

Your Florida Condominium Association’s Collections Policy and Procedures

Posted on August 3, 2013 | 14 Comments

One of the most important responsibilities of condominium associations is to actively collect maintenance fees from each homeowner. To avoid various legal and reputational issues, Boards of Directors must be sure that the process the association uses to collect maintenance fees is consistently applied. Many associations prefer to leave the majority of their collection efforts to their attorney; however, with a thorough collections policy in place, the Board of Directors (or the property’s manager) can easily handle the majority of the association’s collection efforts, which, in turn, can materially reduce the association’s collection-related expenses.

The association’s documents (i.e. Declaration and Bylaws), along with Florida Statutes Chapter 718, provide various collection methods for Boards to use in an effort to keep past-due maintenance fees to a minimum. These tools provide the foundation for successful collection efforts and will be discussed in detail below. We will only be focusing on past due maintenance fees in this blog post and will not be talking about fines, utility bills or any other monetary obligations of homeowners to associations.

I strongly recommend that prior to implementing a new collections policy, the Board have the association’s legal counsel review the policy. Further, I recommend the Board update and re-approve this policy annually to ensure continued compliance with Florida Statutes.

Maintenance Fees

The collections policy should specify how frequently (i.e. monthly, quarterly) and on what date (typically the first day of the month or quarter) maintenance fees are due.

Late Fees and Interest

Most associations’ declarations or bylaws outline whether or not late fees and interest can be charged to homeowners that have accrued past due maintenance fees. If your documents silent on the amount of interest that can be charged, Florida Statute 718.116(3) specifies that interest should accrue at 18% per year. Further, 718.116(3) allows for a late fee for each delinquent payment of up to the greater of $25 or 5% of the monthly/ quarterly maintenance fee.

The Board should determine when and how they will apply interest and late fees to a delinquent homeowner. More specifically, by what date each month must the homeowner have paid their monthly maintenance fee, in full, to avoid accruing a late fees and interest? Will interest begin accruing immediately upon the homeowner’s account becoming delinquent (i.e. after their first missed payment) or will the association wait unit some later date (e.g. after the account becomes 90 days past due) to begin accruing interest? The relative difficulty of properly calculating and accounting for accrued interest should be considered when making these decisions.

The Board should also determine a procedure for waiving late fees and interest in certain situations. For example, the Board may include in its policy that the late fees and interest associated with a homeowner’s first delinquent payment may be waived upon request of the homeowner but that all other late fees and interest may not be waived. Or, they may decide that late fees and interest will never be waived except as part of a settlement or payment plan approved by the Board (we will discuss this more below). Again, it is very important that these rules be applied consistently. The Board must take care not to provide special treatment to certain homeowners based on personal relationships.

Delinquency and Pre-Lien Letters

The association’s strongest weapon against maintenance fee delinquency is their right to lien and foreclose on a unit if the homeowner fails to make maintenance fee payments when due. As such, the lien and foreclosure process should be included in the collections policy.

When a homeowner fails to make a maintenance fee payment when due, the homeowner’s account becomes delinquent and most associations will send a letter to the homeowner informing them of the past due balance on their account (including all late fees and interest accrued) and the next steps the association will take in the event the homeowner fails to pay. This letter should include a copy of the homeowner’s ledger (supplied from the association’s accounting program) and a date by which the homeowner must pay all past due amounts to avoid additional fees. The collections policy should specify when these letters are sent (i.e. how many days after the homeowner’s account becomes delinquent) and through what method(s) they are communicated (e.g. email, USPS).

As required by FL Statute 718.121(4), the association must provide a notice of intent to file a lien (f.k.a. pre-lien) to the homeowner. This notice should also comply with the Fair Debt Collection Practices Act. The above mentioned delinquency letter may serve as the association’s pre-lien letter or the association may send a separate letter to the homeowner. If you would prefer to send a second letter as your pre-lien notice, the collections policy should specify when these letters are sent (generally some point in the second month of delinquency) and through what method(s) they are communicated (e.g. certified mail, return receipt requested as required by FL Statutes).

Lien Filing and Foreclosure

If delinquency and pre-lien letters failed to encourage a delinquent homeowner to cure the past due balance on their account, the association may choose to have their attorney file a lien on the unit. Filing a lien (which is only good for one year) is a prerequisite to foreclosure. If the association has chosen not to foreclose on any units, it may not be worth accruing the attorney’s fees to file a lien. The collections policy should state when the association will direct its attorney to file a lien against a unit (generally when the homeowner is more than 90 days delinquent), and what information should be provided to the attorney at that time.

Whether or not to foreclose a lien (which typically results in the association taking title to the delinquent unit) should be discussed on a case-by-case basis with the association’s attorney as there are many factors to consider including whether the unit is owner-occupied, rented or abandoned, and if there is a mortgage foreclosure case in process. Most importantly, the association should consider if they intend to rent the unit after they have taken title to it through foreclosure. While acting as a landlord can be time consuming for associations, the rental income earned often more than covers the past due fees owed by the old homeowner. The collections policy should outline the broad scenarios in which the association would foreclose on a unit.

Amenities Restrictions

Florida Statute 718.303(4) allows associations to suspend a homeowner’s (and their tenants’ and guests’) right to use the common elements of the property if the homeowner is more than 90 days delinquent in paying their maintenance fees. When possible, associations should use this to their advantage by restricting the homeowner’s access to the property’s pool, gym, clubhouse, car wash, laundry facilities or any other amenities the property offers. For occupied units (and particularly for rented units where the tenant is restricted from using the amenities), this inconvenience can often be enough to encourage homeowners to pay their past due balance. The collections policy should specify which amenities would be restricted as well as how and when they would be restricted. According to FL Statute 718.303(6), the Board must vote to suspend a homeowner’s right to use the common elements at a Board meeting and must notify the homeowner of the amenities restriction via mail or hand delivery.

Lease Restrictions and Rent Garnishment

If a property’s declaration or bylaws allows the Board to approve or deny a proposed lease of a unit, FL Statute 718.116(4) allows Boards to deny a proposed lease of a unit due to a homeowner being delinquent in the payment of maintenance fees. Preventing homeowners from leasing their units is a very important tool for associations and, if allowed by the property’s documents, should be included the collections policy. The policy should specify when a homeowner becomes ineligible to lease their unit, how they are informed of their inability to lease their unit, and what will happen if a unit is leased by a homeowner that is ineligible to lease their unit.

Rent garnishment is the association’s primary weapon against homeowners with past due maintenance fees that are renting their units. Florida Statute 718.116(11)a allows the association to demand that the tenant make lease payments directly to the association until all past due maintenance fees have been paid. Further, if the tenant refuses to make payments to the association, the association may sue for eviction of the tenant. The collections policy should specify when the association will attempt to rent garnish and the process for doing so (the FL Statutes provide specific details on how the tenant and homeowner must be informed). Further, the collections policy should specify when the association would begin eviction proceedings should the tenant fail to make lease payments to the association.

The leasing section of the collections policy should be reinforced by a separate and distinct Leasing Policy (to be discussed is a separate blog post).

Voting Rights

Florida Statute 718.303(5) allows associations to suspend a homeowner’s voting rights if the homeowner is more than 90 days delinquent in paying their maintenance fees. This particular restriction does not tend to do much to encourage homeowners to pay past due balances as those with past due balances tend not to care enough to vote. However, it is worthwhile for the association to include suspending homeowners’ voting rights in their collections policy as the association may reduce the total number of votes necessary to constitute a quorum of the membership by the number of voting rights suspended. This can be a difference maker if the association is struggling to obtain enough votes for their annual meeting, for amendments to the association’s documents, or for any other vote. Similarly to the common elements restriction, according to FL Statute 718.303(6), the Board must vote to restrict voting rights at a Board meeting and must notify the homeowner of the voting restriction via mail or hand delivery.

Payment Plans

If a homeowner has accrued past due maintenance fees and would like to avoid having the association foreclose on their unit, they may wish to establish a payment plan with the association. While each payment plan approved by the Board may be customized for each homeowner, the collections policy should establish the basic guidelines for when the Board may consider a payment plan, how the homeowner should request a payment plan, how a payment plan is approved, who (the association or its attorney) will receive the payment plan installments, whether or not late fees and interest continue to accrue during the implementation of the payment plan, and what will happen if the homeowner fails to abide by the payment plan (typically foreclosure). The collections policy may also want to specify that the Board will not accept any payment plans that reduce the total amount owed by the homeowner.

Settlements

A homeowner with past due maintenance fees may wish to come to a settlement with the association where by they would negotiate with the association some reduction in the amount owed. This typically occurs when the homeowner is looking to sell their unit. The Board will typically negotiate settlements on a case-by-case basis but some basic guidelines can be included in the collections policy including when the Board may consider a settlement, how the homeowner should request a settlement and how a settlement is approved. As I have mentioned before, consistency is key. Whatever the logic the Board choses to use in determining if a settlement is acceptable, they should be sure to apply that same logic to all homeowners and not allow personal feelings enter into the decision making process.

Repayment Order

The collections policy should specify how payments are applied to a homeowner’s past due balance. More specifically, Florida Statute 718.116(3) specifies that payments should first be applied to interest, then to late fees, then to attorney’s fees and costs associated with collection, and then to the delinquent maintenance fees.

Verbal Communications

The collections policy may want to specify the situations in which a member of the Board or the association’s manager will actively reach out (via phone or email) to a homeowner with past due maintenance fees in an attempt to encourage the homeowner to pay. An appropriate time to do this may be prior to the Board voting to lien and foreclose on the property as there is no point in accruing additional legal fees if the homeowner is planning to make payment in full in the coming days or weeks. Further, it may be wise for a representative of the association to offer the homeowner a payment plan, as the homeowner may not have realized this was an option. In my experience, actively communicating with homeowners makes collection efforts more successful.

This post addressed all of the key components of a quality collections policy. If your Board does not have a collections policy, I strongly recommend this be an agenda item at an upcoming Board meeting. If you have any questions or would like our assistance in drafting a collections policy for your property, feel free to reach out to us.

Ryan

Ryan is a Florida condo owner and a director of VERA Property Management, a condominium and homeowners’ association management and consulting firm. VERA will gladly draft a Collections Policy (including delinquency letters, pre-lien letters, rent demand letters and all other relevant notices) for your Association based on the desires of the Board, your association’s declaration and bylaws, as well as the Florida Statutes. Please contact us today for a quote!

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Posted in Collections, Florida Statutes

Tagged 718.116, 718.121, 718.303, collections, common element use rights suspension, common elements, condo, condominium, condominium association, delinquency, florida, florida statutes, foreclosure, in arrears, in-house management, interest, late fees, legal fees, letter, lien, maintenance fees, past due, past due fees, payment order, payment plan, pre-lien, rent garnishment, self-management, unit owner, use rights, vera property management, voting rights, voting rights suspension

Condo Association Reserve Funding: Component Method or Pooling Method

Posted on July 2, 2013 | 43 Comments

Anyone who has been involved with condominium associations knows about reserve funding. Chapter 718.112(1)(f) of the Florida Statutes requires that all associations put aside funds for large future projects such as building painting, roof replacement and any other project expected to cost more than $10,000. The amount of money that the association is going to contribute in any given year to reserves is included in the annual budget and is based on the expected cost and timing of future large projects. As Board members are not generally qualified to determine the remaining useful lives and replacement costs of the various parts of the condominium property, it is imperative that the Association hire a professional engineering firm that will complete a reserve study of the property and provide guidance to the Board. Reserve studies should be updated every 2-3 years to ensure that all estimates are still accurate. There are many different reserve study firms out there but I have had good experiences with Reserve Advisors in the past.

There are currently two different methods used to account for reserve funds. Below I have provided a brief comparison of the two methods.

The first method is called the Component or Straight Line Method. Here are several important things to consider about this method:

Each maintenance project has its own reserve account and annual contributions to each account are determined by taking the current year’s project cost, subtracting the current value in the reserve account, and dividing it by the remaining useful life of the item.
Once money is allocated to a specific reserve account, the Board cannot utilize those funds for any purpose other than that particular project without a majority vote of the homeowners. For example, if the Board has allocated $200,000 to the building painting reserve account based on expected cost, and the project’s actual cost only ends up being $150,000, they cannot use that additional funds for any other purpose. The extra $50,000 would be the initial value of the reserve account for the next time the buildings need to be painted. Likewise, if the project’s actual cost was $250,000, the Board cannot use reserves from any other reserve account to cover the additional $50,000 without a vote of the majority of the homeowners.
Interest earned on reserve funds is kept separately and can be used for any reserve project.
By using the current year project cost, as opposed to the expected project cost at the time of completion, this method does not take inflation into account. For projects that are expected to be completed in 1 or 2 years, this has a limited effect; however, for projects that are not expected to be completed for 15 or 20 years, this can cause an underestimation of the project cost.
Expected interest that the reserve funds will earn is not taken into account in the association’s budget. If your association has material reserve funds, annual interest earned can be a material amount of money which, when using the component method, cannot be included in the reserve contribution calculations. Therefore, in essence, homeowners have to contribute more (the amount of interest earned annually) to the reserve accounts annually under the component method than they would if interest could be taken into account.

The second method utilized is called the Pooling or Cash Flow Method. Here are several important things to consider about this method.

This method is similar to the component method; however, instead of having individual reserve accounts for each project, there is one pool of funds that can be used for any reserve project.
Inflation is taken into account. For example, if a project is scheduled for two years from now, the current estimated cost of the project is $100,000, and annual inflation is expected to be 1%, then this method would require that the reserve pool have $102,010 available two years from now to complete the project. This is calculated as follows: $100,000*(1.01)^2.
Earned interest is included in the reserve pool and anticipated future interest is taken into account. For example, let’s say that the reserve funds are held in a money market account with a .5% annual interest rate. If the pooled reserve account currently has $300,000, annual interest could be roughly estimated at $1,500. This is $1,500 that does not need to be contributed to the reserve pool from maintenance fees.
Reserve studies anticipate property projects thirty years into the future and provide a schedule of annual reserve contributions for each of those thirty years. These schedules are set up to increase by no more than the estimated rate of inflation annually.

The following is an example that shows how the component and pooling methods would work in the same situation. Let’s assume the time has come to replace the roofing on all of the property’s buildings and the reserve account for this project has $250,000. Let’s also assume that the total amount of reserve funds for all projects is $750,000. If the actual cost of the project is $300,000, under the component method, the Board has several options. (1) The Board can wait to do the project until there is $300,000 in the roofing reserve account. If the roof replacement is urgent due to leaking or other issues, this may not be a feasible option. (2) The Board can issue a special assessment on the unit owners to make up the $50,000 deficit. (3) The Board can wait until the following year and increase maintenance fees substantially to make up the $50,000 deficit. (4) The Board can have a homeowner vote to take $50,000 from a different project reserve fund. This 4^th option would require at least 51% of the homeowners to vote. Under the pooling method, the Board would be able to pay the $300,000 out of the $750,000 total reserve funds to complete the project in a timely fashion. The Board would then need to determine how to earn back the extra $50,000 that was used for the roofing project over future years. This could be done through an increase in reserve contributions in future years or, if lucky, another reserve project(s) will cost less than estimated. In the end, the pooling method provides significantly more flexibility to the Board and allows for more efficient project completion. However, it is also possible that the Board could decide to approve a $400,000 roofing proposal even though only $250,000 has been allocated for this project and, in doing so, could set up the community to not have enough funds down the road to complete the next big reserve project. In this case, a special assessment may be required which puts and unfair financial burden on the current homeowners.

So which method is right for your community? That decision is up to the homeowners. In order to switch from the component method (the method the majority of associations use) to the pooling method, a majority vote of the membership is required. If you are considering a switch to the pooling method in your community, there are several things to consider:

When was the most recent reserve study completed? You should obtain a current reserve study using both the pooling and component methods to compare the required annual reserve contributions (typically the component method calls for higher contributions as it is the more conservative approach). If you are trying to avoid an increase in maintenance fees, switching to pooled reserves may help in that effort; however, this should not be the primary factor when deciding whether or not to switch to pooled reserves.
Is the current Board fiscally responsible? Will future Boards be responsible with reserve funds? Pooled reserves allows the Board much more flexibility in reserve spending and, in the case of an irresponsible Board, this can lead to overspending.
Is there a Board member that is comfortable enough with Excel to take the thirty year reserve schedule and adjust it based on actual project costs, changes in interest and inflation rates, and/ or changes in annual reserve contributions? This is very important because before a Board can decide if they should spend more on a particular project than estimated, or if they should complete a project sooner than anticipated, the impact on the reserve pool and future reserve contributions will need to be analyzed. You may be able to have the engineering firm that completed your reserve study complete this analysis for you but there would likely be a fee involved.
How many reserve projects does your property have coming up? If you have a large property with many reserve projects, pooling reserves may benefit your community. Let’s examine why. Large communities may have one or two reserve projects annually and maybe more on rare occasions. If the community uses the component or straight-line method, they can only look to the reserve account for that particular project, and the earned interest account, when determining how much they can spend on that project. If the Board does not have sufficient funds in these accounts to complete the project and they don’t want to use operating funds or issue a special assessment, they may want to use some funds from a different reserve account (one that they think is overfunded or one that has funds remaining after a recently completed project). In order to do this, they would need a majority vote of the membership. Given that the estimates used to determine how much should be reserved for each project can often be inaccurate, it is possible that the Board could need multiple votes of the membership each year to move money between accounts in order to complete reserve projects. If your community is very active and obtaining a majority vote of the membership is easy to do, then this is no problem. However, in many communities, convincing a majority of the homeowners to submit a limited proxy can be a very time consuming task.

This post only serves to provide a brief overview of reserve funding methods. If you need any assistance in determining what the best path is for your community, feel free to email me.

Emily

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Posted in Financial

Tagged 718.112, 718.112(1)(f), accounting, cash flow method, component method, condo, condominium association, florida, florida statutes, pooled reserves, pooling method, reserve accounts, reserve advisors, reserve components, reserve contributions, reserve interest, reserve requirements, reserve study, reserves, self-management, straight line method, switching reserve methods

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 3^rd 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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Posted in Financial, Florida Statutes

Tagged 718.111, 718.111(12)(a)(11), 718.111(13), accounting, audit, bookkeeping, compilation, condo, condominium association, financial, financial reporting, florida, florida administrative code, florida statutes, official records, review, Rule 61B-22.006, self-management, year-end financial report

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