Editor’s note: Attorneys at Goede, DeBoest & Cross, PLLC respond to questions about Florida community association law. The firm represents community associations throughout Florida and focuses on condominium and homeowner association law, real estate law, litigation, estate planning and business law.
Q: Our condominium association maintains roof reserves. For years, the Board has consistently told us that the reserves were fully funded and that we were in “good shape”. We recently learned that the Board has been anticipating a roof replacement cost of $800,000, but the actual replacement cost is likely $2,000,000. What can we do about this?
-TP, Delray Beach
A: The Florida Condominium Act requires condominium associations to maintain certain reserve accounts for deferred maintenance and replacement. Here, the statute expressly requires the Association to maintain a roof replacement reserve. This means that the Association must exercise business judgment to determine the cost of a new roof with an anticipation of remaining useful life, meaning that the Association is supposed to put enough money away each month so that there is enough money available to replace the roof when the useful life expires without the need for a special assessment.
At the onset, it is important to note that the condominium membership can authorize the Board to waive roof reserves or partially fund roof reserves. Thus, it is possible here that the Board was authorized to fund at $800,000 with full knowledge of the actual cost, but only if the membership voted annually to authorize the Board to partially fund the roof reserves.
Assuming that vote never occurred, or has not occurred every year, this budget is woefully inadequate. We often see this where the Board is trying to keep assessments constant or lower while other costs are increasing. It is relatively simple to argue that the roof should last longer, therefore reducing the annual funding requirements because there is more time to store money away.
The statute provides that the Board may annually adjust the reserve schedule to consider changes in useful life or replacement cost. This means the Board is required to exercise business judgment to determine the remaining life of the roof. How can the Board accomplish this? First, the Board can commission a reserve study or an update of a prior reserve study. This is a relatively inexpensive engineering report where a licensed firm inspects the roof and other common elements and provides a playbook for reserve funding. The benefit of this report is that it is all-inclusive and the Board has a professional study to justify its funding decisions. A second option is to have a licensed roof contractor provide an analysis and estimate for replacement cost. Both of these options provide the Board with professional justification for funding decisions.
The simple reality here is that the Board will either need to revise the reserve budget to make up the extra $1,200,000 in the remaining years of the roof or the Board can revise the budget and levy a special assessment to make up the shortfall in the roof replacement reserve account. A final option is to seek the membership’s approval to maintain a partially funded reserve account if the membership would prefer a special assessment when the roof needs to be replaced. Part of exercising business judgment is obtaining reliable opinions, and therefore the Board should be periodically engaging professionals to provide recommendations so that the reserve schedule is adequate to meet future replacement needs.
Q: Our Bylaws provide that the Board shall contain 5 Directors. We currently only have 4 Directors because one Director resigned. Is this Board illegal if it does not appoint a fifth Director?
-SB, Stuart
A: No, it is not illegal. Even though there is a vacancy, there are 5 Director positions in your situation and a quorum is likely still a majority. A Board can function with 4 Directors because it meets the quorum requirement, but obviously it increases the likelihood and opportunity for deadlock with a 2-2 vote. The decision to fill a vacancy is also highly dependent on timing because it may not be prudent to appoint a Director a few weeks before another scheduled election when the vacancy would be filled anyway.
John C. Goede Esq. is co-founder and shareholder of the Law firm Goede, DeBoest & Cross, PLLC. Ask questions about your issues for future columns send your inquiry to: question@gadclaw.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, 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.