What can owners do to stop the board and manager from depleting reserve accounts?

By April 15, 2012Articles, News

Q. Our condo association appears to be misusing reserve funds. The board spends money on whatever it wants and disregards the reserve accounts. We are very much at risk for a special assessment because of this. Even worse, the property management company is encouraging it. The manager stated at a board meeting that we can move money from any reserve account to the operating account. What can be done to stop the board and its manager from continuing this spending? — S.M.

A. Chapter 718 of the Florida Statutes, The Condominium Act, is pretty clear when it comes to the use of reserve funds. First, the association does not have the option of using reserve funds for other purposes without approval from a majority of the unit owners. For example, reserve funds in the roofing account must be used for roofing repairs unless the members approve otherwise. Second: Reserve funds must be segregated from the general operating funds and must be specifically identified as reserves. Reserve funds may be commingled with operating funds for investment purposes, provided that the reserves are accounted for separately and the balance in the account is never less than the identified balance of the reserve accounts. The Florida Division of Condominiums, Timeshares and Mobile Homes has jurisdiction over matters involving violations of The Condominium Act. You can file a complaint with the Division, and if the Division finds reasonable cause that a violation exists, it will assign an investigator to review the misuse of reserve funds in your community. Alternatively, you can engage a Florida attorney to pursue any legal remedies you have as a unit owner.

Q. Our community is set up with multiple neighborhood associations and a “Commons” association that operates the amenities. There is a feeling in our community that the commons association is not set up as a condo association and therefore is not required to operate like a condo association. I would like to see the commons board adopt a budget with reserves and operate legally like a condo association. Is this a typical set up? What do you suggest? — M.R.

A. We represent many communities that are organized in a similar fashion. You are correct that most “Master,” “Commons,” or “Recreation” associations that are formed to operate the common facilities must operate as condominium associations under Chapter 718, Florida Statutes. If the commons association operates and maintains the facilities, and membership in this association is mandatory for each unit owner who uses these facilities, the association is subject to the provisions of The Florida Condominium Act (See the definition of “Association” in section 718.103, Florida Statutes). If your commons association meets this definition, it must properly approve an annual budget which should include mandatory reserves for maintenance and capital expenses. Further, the commons board of directors is generally not authorized to incur expenses that are not in the budget. The proposed budget for the commons association should be sent to all unit owners at least 14 days prior to the board meeting at which the budget will be considered for approval.

Q. My HOA board is considering the installation of speed bumps to deter excessive speeding in our community. Some residents have raised concerns about the adverse effect on emergency response time. A neighboring landowner has also threatened to sue if we install speed bumps because he claims an easement over our community roads to access his property. Can our HOA board safely install speed bumps without this liability? — R.D.

A. Many communities are quick to consider speed bumps or other speed control measures, but it is first important to determine if your community in fact has a speeding problem. A small number of speeding vehicles is not necessarily a reason to install speed bumps. Your HOA can impose $100 daily fines and take other legal action directly against those residents who are speeding. To determine if your community has a larger speeding problem, the Sheriff’s office will allow your HOA to borrow various speed control devices that can capture the data you need. You can also pay the Sheriff’s office to come into your community and issue speeding citations. If your board feels that speed bumps are warranted, it should consider any detrimental impact on emergency response time as speed bumps will also slow the speed of fire and ambulance vehicles. Finally, the neighboring landowner will not have a claim against your HOA provided that the speed bumps do not unreasonably interfere with his ability to access his property. In a recent court decision in Florida, the judge rejected the notion that speed bumps can never be installed over an access easement. It is a caseby – case analysis. In evaluating the interference with access rights, a court will consider the number of speed bumps, their height, the spacing between speed bumps, the necessity for their placement in the particular area, and their effect on vehicles and traffic flow.

Q. I hear so many conflicting opinions on my condo association’s insurance obligations. Can you add some clarity to the issue? Which parties are responsible for insuring which portions of my condo building? Thank you for the clarification. — R.M.

A. I understand your frustration. There are many expert columns and opinions on the association’s insurance obligations, but most are difficult to understand and apply. Section 718.111(11) of the Florida Statutes governs the issue. It is a difficult statute to navigate. We will do our best to summarize for you. The condominium association is responsible for providing hazard insurance for “all portions of the condominium property as originally constructed (including replacements of like kind).” What does this mean? It means that the association is responsible for the following: roof and roof cover, exterior walls, unfinished interior unit walls (including the drywall), common areas (including structural, electric and HVAC) and air-conditioning systems that serve living units. The association is not responsible for insuring the following portions of the living units: floors, walls or ceiling coverings, electrical fixtures, water heaters, water filters, cabinets, countertops, appliances, window treatments and personal property within the units. The unit owner is responsible for insuring these items. Unit Owner coverage must also contain at least $2,000 of loss assessment coverage. The purpose of loss assessment coverage is to protect the owner from an assessment for property damage because a) the association’s insurance coverage was inadequate or did not cover the peril at issue; or b) the association has a deductible. If your unit owner policy limits the loss assessment coverage to $1,000 because of an association deductible, despite the $2,000 statutory minimum, you should consult with your insurance agent. According to George Schmelzle, president of Insurance and Risk Management Services Inc. in Naples, admitted carriers doing business in Florida should include an endorsement to increase that $1,000 limit in order to comply with Florida’s statute mandating a minimum limit of $2,000.