Can association use reserve funds to purchase unit in community?

By February 26, 2012Articles, News

Q. Our condo association is considering purchasing a unit in our development at a bargain price, and then renting it out to help with our cash flow. Our condominium documents allow this by giving the association a “right of first refusal.” The association intends to use reserve funds that will not be needed for several years. The reserve funds will not be “spent,” just transferred to an alternative investment. Is the association allowed to use reserve funds to purchase the unit? — B.S.

A. The answer to your question depends on whether your condo association has allocated reserve funds for investment or “contingency” purposes. Generally, reserve funds must be separate from general operating funds and can be spent only on the designated reserve items shown in the association’s budget (i.e. roof replacement, building painting and other capital or maintenance items). In order to use reserves for this investment, a community vote is probably necessary. Under Florida law, an association may use one category of reserve funds towards another purpose, provided the community membership properly votes to do so. To designate an alternative use of reserve funds, the board must call a membership meeting, a quorum must be present, and a majority of the voting interests at the meeting must agree to the alternative use. This is true even if the financial effect of the alternate use is zero or minimal, as in your case. If your board wants to take advantage of this opportunity but cannot get an association vote, I suggest that you discuss a strategy with experienced association legal counsel. One possibility could be a bank loan, and again, your board can potentially utilize a “contingency” reserve account with guidance from your legal counsel.

Q. I live in a single-family home community with a homeowners’ association. I believe the last annual election of directors was not held properly. Our homeowners’ association documents provide for a specific procedure for the election of offices, however, none of the procedures were followed prior to the election or at the annual meeting. Does Florida law provide for some form of recourse when this happens? — K.T.

A. While condominiums have strict statutory deadlines that must be observed prior to the annual election, HOA’s are generally bound only by the election procedure set forth in the community bylaws. If you are certain that the association partially or completely ignored the procedure required by the bylaws, the election results could be challenged and declared to be void if the violation is serious enough. Please be aware, however, that in certain circumstances the courts did not invalidate an election where there was “substantial compliance” with the bylaws. In one case we had, the association sent out a candidate information sheet for only one of the five candidates running for the board. That candidate had an obvious advantage in the election, and a judge might very well declare the election to be invalid because of that error. Thus, you may need to consult with an experienced HOA attorney to determine whether there was “substantial compliance” with the HOA bylaws. If you believe you have sufficient grounds to challenge the election, the Florida HOA statute mandates that you must engage in arbitration with the association through the Division of Condominiums, Timeshares and Mobile Homes (a division of the Florida Department of Business and Professional Regulation, 850-488-1122).

Q. My husband and I live in an older HOA community that was developed in the mid- 1970s. The declaration is from the same timeframe. I recently read an article that said that the declaration for a homeowners’ association can expire and therefore the community’s rules can no longer be enforced. Can you confirm that this is true, and if so, are my association’s documents expired? — C.B.

A. The article you read correctly stated that the declaration of covenants and restrictions for a homeowners’ association (HOA) can expire. Florida’s Marketable Record Title Act (MRTA) provides that recorded covenants and restrictions become legally “stale” after 30 years if not properly revitalized. If your HOA’s documents date back to the 1970s, there is a very good chance that they are stale and should be revitalized immediately. Ideally, an HOA would act preemptively to extend the life of its community’s governing documents before they expire. Florida law provides that HOAs can engage in a streamlined process by filing a notice to preserve its governing documents, provided that such a course of action is approved by two-thirds of the board of directors at a properly noticed meeting. If an HOA fails to preserve its documents as outlined above, Florida Statutes set forth the procedure that permits an HOA to revitalize expired documents. The statutory revitalization process is somewhat more involved than the preemptive method discussed above, but not nearly as difficult as creating a new HOA with brand new documents. In a nutshell, to revitalize its documents, an HOA must do the following 1) establish an organizing committee, 2) draft a proposed revised version of the declaration, articles and bylaws, 3) provide evidence that a majority of the homeowners agree to the revitalization process, and 4) submit these and various other supporting documents to the State of Florida’s Department of Economic Opportunity. Since your declaration probably expired at least 10 years ago, your HOA is at risk of operating without any enforceable restrictions whatsoever. Imagine your community without the legal authority to enforce any rules or restrictions. Experienced legal counsel can guide your association back to where it needs to be through the covenant revitalization process.

Q. My apartment is owned by the condo association that operates the community. I was renting from the prior owner, and now I pay rent to the association which is fine with me. However, the condo’s manager has repeatedly asked that my unit be shown at times that are inconvenient for me. Recently, he had his Realtor attempt to invite himself in. I had already advised the condo board and its manager that I want to be prepared when my unit is shown. Is there any recourse to restrict the association and its Realtor from accessing my unit under Florida Statutes? — A.S.

A. Generally, Florida statutes allow a landlord to enter leased premises only under certain conditions. The condo association is bound by these laws if it is acting as your landlord. If your lease does not specify when your landlord may enter the property, the Florida Residential Landlord and Tenant Act, Chapter 83, Florida Statutes, provides that you must not unreasonably withhold consent to your landlord to enter the dwelling unit from time to time in order to 1) inspect the premises, 2) make necessary or agreed repairs, decorations, alterations, or improvements, 3) supply agreed services, or 4) exhibit the dwelling unit to prospective or actual purchasers, mortgagees, tenants, workers, or contractors. This last provision clearly applies to your case. However, what is considered to be reasonable notice? The statute does not give us the answer, but generally 24-48 hours is considered reasonable under most circumstances. If you continue to have problems with the landlord or its agents entering the unit without notice, you should consult with a Florida real estate attorney.