Statutory and non-statutory reserves explained

By October 14, 2018News, Questions & Answers

Q: Our HOA Board lists our reserves as being “statutory” and “non-statutory”, what does this mean?

-L.J., Bonita Springs

A: Unlike the Condominium Act (Chapter 718 F.S.) the HOA Act does not mandate reserves for any particular item.  However, it provides in Section 720.303(6)(d) that if replacement reserves are created for any particular capital item by the Developer or established by a vote of the members then the Statute controls them, which means:

1. The Board must adopt a budget each year fully funding those reserve categories unless the members vote waive or reduce funding for that year.

2. The Board can only use the reserve for the purpose intended unless the members approve by a vote to allow a different use.

3. The Board cannot borrow from the reserves without a vote of the members.

These are what are referred to as “Statutory reserves” because they are controlled by the Statute.

However, the Board on its own can decide to create reserves for particular items. Board adopted reserves are completely within the control of the Board which means:

1. The Board can decide to waive or reduce or even eliminate the reserve as it sees fit.

2. The Board can use the reserve for an alternate purpose if it wants too.

3. The Board can borrow from the reserve without approval of the owners.

Since Board adopted reserves are not controlled by the Statute we refer to them as “non-statutory reserves.”

However, keep in mind you need to check your governing documents because they may put additional restrictions on the reserves.

Q: Florida statutes 720 refers to physically handicapped persons right to attend meetings.  Does this term eliminate members that are hearing disabled, sight disabled or even mentally disabled? Example, I’m losing my hearing.  Is the association required to provide a speaker system or even a person to transmit in sign language?

-J.P., Naples

A: No. Section 720.303(2)(a), Florida Statutes, which applies to Homeowner Association Board meetings provides that “[a] meeting of the board must be held at a location that is accessible to a physically handicapped person if requested by a physically handicapped person who has a right to attend the meeting.”  So, the law requires the meeting be “accessible” to the handicapped person.  So, if you are able to physically attend the meeting, despite your unfortunate hearing loss, the Statute does not require the Association to provide a sign language interpreter or a particular type of speaker system.   However, under the Fair Housing Act you are entitled to a reasonable accommodation or modification under certain circumstances.  The application of the Act to your particular situation is beyond the scope of this column but you may wish to consult an attorney as to how it might be used assist you in being able to hear the meeting discussion. 

Q: We are a townhome community of 160 units.  We have had a few units that have gone into bank mortgage foreclosure.  Two in particular owe the HOA over $20k each in legal fees and maintenance assessments.  The Court has given title back to the bank on one unit and we are being awarded only $1,800.00 of the $25,000 owner owes us.  We pay our attorney on time.  Is our attorney doing all he can?

-T.S., Fort Myers

A: I can’t opine on whether your attorney is doing everything he she can but from what you describe it sounds like you are subject to the “safe harbor” provision afforded first mortgage holders who foreclose their mortgage.  When a person buys a condominium, cooperative or homeowners association unit or parcel they are obligated to pay 100% of all past due assessments owed to the Association that have not been paid by the current owner on the day of sale.  This applies even if the person buys the unit or parcel at a foreclosure sale.  However, the law provides that if a bank or person that holds a first mortgage forecloses the mortgage and takes title to the unit or parcel at the sale they are entitled to a special exception commonly referred to as the “safe harbor.”  In such cases the bank is only obligated to pay the Association the lesser of the 1% of the original mortgage amount or 1 year’s worth of past due assessments.  Sometimes, depending on the age of your governing documents, the date of the mortgage, the terms in your governing documents and other factors sometimes the first mortgage holder is not required to pay any past due amount.  Your attorney should be able to explain this in detail for you.

Q: Our HOA Declaration of Covenants have two provisions regarding roof maintenance and repair that contradict each other.  The first Section provides that the “Association has the responsibility for the repair and maintenance of roofs on townhouses.”  The second Section provides that the “repair and maintenance of Townhouse roofs shall be the obligation of the Owners.”  The Association has historically been maintaining and repairing the roofs but some people are saying they should stop doing this.  Which Section controls?

-R.A., Naples

A: Based on the facts you have described the Sections on the responsibility to “repair and maintain” the roofs are diametrically opposed and cannot be reconciled within the four corners of the Declaration.   As such a Court of law would turn to the rules of construction (interpretation) of contracts.  There are two rules that are applicable here:

  1. “When a course of dealing and the terms of a contract conflict, the parties past practice and the written agreement must be construed as consistent with each other.”  Wilson v. Woodward, 602 So. 2d 547, (Fla. 2d DCA 1992).
  1. “Where two clauses of a contract are repugnant and conflict, the first shall stand and the latter fall.” Petrou v. Wilder, 557 So.2d 617 (Fla. 4th DCA 1990).

In this case you indicate that the Association’s past historical practice has been to maintain and repair the townhome roofs which is consistent with the first Section of the Declaration which comes before the second Section.

Based on the rules of interpretation and only based on the facts you have described my opinion would be that the Association is responsible for maintaining and repairing the townhome roofs. 

I would however strongly recommend when the Declaration be amended to eliminate the conflict.

Q: Our Declaration of Covenants prohibits signs except for one for sale sign when the home is for sale.  Presently people are putting political elections signs in their front yards.  Isn’t this a violation of our covenants?

-N.G., Estero

A: Yes, if your covenants are strictly worded.  Community restrictions prohibiting signs are common but often provide an exception “if approved by the Board.”   Every election year this issue comes up and for a Board it is a losing effort to try to enforce the no sign restriction.  Trying to stop political signs during election season generally creates a great deal of anger in the community.  Most people feel it is their right to promote the candidate of their choice by installing a yard sign.  Trying to prevent it is nearly impossible.  I strongly recommend that Boards adopt reasonable rules allowing political signs of a certain maximum size and number for a period of say 60 days prior to the election and removed within 10 days after the election.  This is generally a fair compromise that most people will accept.   Every political season some HOA ends up on the TV news looking bad because they have tried to stop political signs.  If your restrictive covenants do not allow any latitude when it comes to signs I suggest amending the documents to give the Board the authority to adopt reasonable rules as I have described.

Richard D. DeBoest II, Esq., is co-founder and shareholder of the Law firm Goede, Adamczyk, DeBoest & Cross, PLLC. Ask questions about your issues for future columns, send your inquiry to: question@gadcllaw.com. 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.