Q: Our board spent a lot of time developing the 2020 budget. The budget went up to address actual expenses, and assessments also went up. With the election coming up, we are fearful that a newly elected board could re-open the budget and reduce assessments to the 2019 levels. Is this possible?
T.R., Bonita Springs
A: Despite some best efforts to keep assessment levels the same forever, assessments eventually must increase. It is not always a popular move, but the board must adopt a budget which addresses actual and anticipated expenses for the coming year. To answer your question, the board of directors is generally always in charge of the budget and can generally re-open the budget during the fiscal year – particularly if the intention is to reduce the budget. The board would be required to provide a copy of the proposed budget and at least fourteen days’ notice to the owners, but it is possible and commonplace.
As you note, however, this does not necessarily mean it is advisable. First, many associations will adjust the reserve budget in order to facilitate increases in operating expenses. In other words, if the board decides that the windows will last another five years, that reduces the immediate need for window reserve funding, and therefore makes room for higher maintenance expenses. Although this may keep the assessment levels the same, it may be improper if there is no substantiation for the five-year extension in the windows’ useful life. Additionally, if the board falsely believes there will be money available to pay actual expenses, the board could be exposing the association to liability if it has existing contractual relationships that cannot be satisfied at the reduced funding levels. I know it sounds like a novel idea in today’s environment, but “money out” should equal “money in.”
Thus, it is possible a new board could reduce the budget and this authority likely exists in the covenants. That being said, the board must nevertheless exercise business judgment when adjusting the budget to meet actual and anticipated expenses for the existing year.
Q: Are we required to perform a background check on board candidates?
A: No, you are not required to conduct a background check on board candidates. It is important to know that criminal backgrounds do play a major role in board eligibility. When an individual is convicted of a felony (state or federal), that individual typically loses certain civil rights, such as the right to vote, the right to serve on a jury, the right to hold public office and the right to have a gun. In Florida in particular, there are a lot of discussions right now concerning the suspension and reinstatement of these rights. Irrespective of how it happens, both the condominium and homeowner association statutes provide that if you lose those rights, you are not eligible to serve on the board unless civil rights have been restored for at least five years as of the date the candidate seeks election to the board. In other words, if you lose civil rights, you must have actively sought and successfully had your rights restored for at least five years before you nominate yourself to the board of directors.
Additionally, the relevant statutes only apply to situations where you lose your civil rights through criminal acts, so the statute does not impact anyone who is a foreign citizen owning condominium units or single-family homes in Florida. Additionally, to make owners aware of this requirement, many communities will place a notice on the election documents so that potential candidates know whether or not they are eligible.
Finally, the common scenario is that board members or unit owners will eventually run internet searches on each other – whether before the election or after. These self-run searches are typically how we are made aware of problematic histories and your legal counsel can provide assistance to address the ineligible director.
Q: We still have a few unit owners that have not paid their special assessment related to Hurricane Irma repairs. They did not have loss assessment insurance and are claiming they do not have to pay the assessment. Can they condition their payment on insurance coverage?
G. G., Naples
A: No, unit owners may not be excused from special assessment obligations due to lack of insurance. Florida law provides that every insurance policy issued for a residential condominium unit must contain at least $2,000 of loss assessment coverage. This means that when the association levies a special assessment to pay for damage to the condominium property caused by an insurable event, the unit owners’ insurance should reimburse the owner for some or all of the assessment depending on your specific deductible and coverage amounts.
A few additional notes. Florida law does not currently require condominium unit owners to maintain insurance covering their obligations under Florida law. Although the association’s insurance obligations cover a large portion of the condominium property, the unit owner is responsible to insure certain property such as carpets, wall coverings, cabinets, furniture, etc. Although the statute provides that the owner is responsible to insure this property, the statute does not mandate that the owner carry insurance. As a result, it is possible some portions of the property have no insurance at all – including loss assessment coverage.
Secondly, each insurance policy is different. The statute contemplates that each unit owners’ personal HO-6 policy may be slightly different. Some policies may be drafted very narrowly, for example, to exclude any special assessment that is intended to pay for a deductible. Other policies may be drafted very broadly and would cover any special assessment related to a hurricane event. When purchasing your HO-6 insurance, it is important to work with a knowledgeable agent that understands the scope of your particular policy language.
So, if the owner has not paid the special assessment, the board needs to take the next step in its collection procedure. Typically, this would involve sending the owner a notice that the association will record a lien against the unit if the special assessment is not paid within 30 days. There are special requirements for these demand letters, so it is recommended that you work with your legal counsel to follow the appropriate state and federal collections laws as well as your governing documents.
Steven J. Adamczyk, Esq., is a shareholder of the Law firm Goede, Adamczyk, DeBoest & Cross, PLLC. Visit our website www.gadclaw.com, or to ask questions about your issues for future columns, send your inquiry to: firstname.lastname@example.org. The information provided herein is for informational purposes only and should not be construed as legal advice. The publication of this article does not create an attorney-client relationship between the reader and Goede, Adamczyk, DeBoest & Cross, PLLC or any of our attorneys. Readers should not act or refrain from acting based upon the information contained in this article without first contacting an attorney, if you have questions about any of the issues raised herein. The hiring of an attorney is a decision that should not be based solely on advertisements or this column.