Condo & HOA Law, Naples Daily News

Naples Daily News Q&A | August 8, 2021 | Including some form of Contingency Plan for Emergencies in HOA/ Condo Reserves

Steven J. Adamczyk | GADC Florida Attorney

By Attorney Steve J. Adamczyk

 

Q: We have reviewed our reserve schedule and want to include some form of a contingency for emergency repairs in case we find an emergency need for engineering studies or structural repairs.  Some of our owners, however, will object to the assessment increase for something that may not happen.  What do you recommend?

-T.A., Naples

A: This has become a common question in recent weeks and although I agree with your intentions, Florida law does not necessarily support the mechanics of your goal. In Florida, every condominium association must reserve for certain components with broad catchall providing that the association must reserve for replacement or deferred maintenance costing more than $10,000. In order to be included on the reserve account, there must be a specific component with a replacement cost and useful life so that you can determine how much must be set aside each year in order to have enough money in the account to replace that item when the useful life expires. That problem with your plan is that a contingency account neither has a replacement cost nor a useful life. As a result, it would be inappropriate to include a contingency component and fund the account via reserve contributions.

Conversely, the alternative would be to budget for a contingency in your operating budget. Although this is good practice, the counterargument is that the statute restricts the Association’s authority to budget for anticipated revenues and expenses. As a result, while a reasonable contingency is good budgetary practice and would likely be deemed an anticipated expense, it would likewise be inappropriate to include a large contingency in the operating budget to be funded in a single year.

So although there is certainly room for disagreement and debate, in today’s environment, I would make three recommendations. First, I would include a reasonable contingency in your annual operating budget. What is deemed reasonable would be different for each condominium based on your infrastructure and financial condition.

Second, I would spend more time and effort on conducting a thorough and accurate reserve study. If the Board and management are diligent and dedicated to obtaining accurate and exhaustive reserve figures, then surprises should be limited. My partner John just published an article discussing reserve studies and concluded that reserves studies are not always conclusive or able to discover all potential problems and thus this second recommendation may also require additional engineering studies and inspections depending on the design, location, and age of your building.

The third recommendation is to utilize pooled reserves. A pooled reserve utilizes an alternate funding method that is based on cash flow and the need for expenditures based on all of the reserve components in a single pool of funds, as opposed to funding each component based on that component’s specific useful life and replacement cost. One benefit of pooled reserves is flexibility in being able to use funds from the entire pool on expenses for any component in the pool. There are disadvantages to pooled reserves as well, but if your reserve schedule is accurate and complete, the pooling method should provide enough flexibility to serve as a contingency for the components in the pool.

As more and more condominiums shift their focus towards sound reserve practices, you can imagine that the marketplace will also provide new and innovative ideas. In light of recent tragedies, you can also imagine that local, state and/or federal legislation will impact the discussion. Thus, the answer to this question may change in future months/years, but the short answer to your question is that condominium reserves have limitations that do not really support a broad contingency, but there are tools available today that can be helpful and mentioned above. If you have any questions, I recommend you consult your Association’s legal counsel to discuss how your specific condominium documents also impact this analysis.

 

Q: I applied to change the paint color of my house and the Association has still not responded after a month. It is so hard to line up contractors right now and I want to begin the work. Can I force the Board to approve the request?

-L.R., Naples

A: As you would expect, the answer to this question is that it depends. Pursuant to Florida Statutes section 720.3035, a homeowners association’s ability to regulate architectural review is dependent on the language in the governing documents and the specificity contained in those documents.

Your specific covenants are important because it is important to know a) whether the Association is even able to regulate your request to change paint colors; and b) what expectations are created in the covenants.

For example, many covenants provide that the Association has a certain number of days to approve or reject an application. More importantly, many documents provide that the request is deemed approved if the Association fails to approve or disapprove the request within an allotted amount of time. That being said, other documents provide that the request is actually deemed disapproved if the Association fails to timely respond. Another critical element is whether you submitted a complete application because the timeline for consideration is typically triggered by the receipt of a complete application. If the application requires you to provide a color swatch or contractor license, it is possible that the clock has not started to tick.

Thus, most covenants provide the Association has at least 30 days to respond, so it is possible that your application is still being reviewed. Depending on the specific covenants in your community, it is also possible that your request has been decided by the passage of time. If you decide to paint the home without approval, note that the Association could have multiple enforcement tools available under the covenants and Chapter 720 of the Florida Statutes and I would recommend you speak with a licensed Florida attorney.

Q: We are seeing more and more electric vehicles in the condominium and owners are asking to install vehicle chargers. The Board has no objection to this, but our contractors have informed us that the chargers are beginning to overwhelm our infrastructure. Can the Board install a shared charger?

-H.H., Naples

A: Yes. A recent legislative amendment effective July 1 addressed a few issues involving electric and natural gas charging stations. Most of the legislative change was intended to clarify owners’ rights, but there is a new provision of the statute which provides that it is not a material alteration for the Association to install a common and shared charging station. Previously, the analysis provided that the charging station would constitute a material alteration to the condominium property and would need to be authorized by the unit owners unless the cost of the charging station was less than a specific threshold contained in the specific condominium documents for material alterations. Now, the Board could approve the charging station as a common expense and dedicate common areas for charging.

Obviously, this raises a number of issues such as a payment system for the charging itself, limiting hours of use, and ensuring that all owners with electric vehicles have an opportunity to use the charging station. I should also note that the existence of a shared charger would not permit the Board to deny an owner’s request to install a charging station in their limited common element parking space or garage. In other words, yes, the Board can install a shared charging station, but any shared station would be in addition to individual charging stations and owners would have an option to utilize the shared charging station or request to install a private charging station.