Call Report (Community Association Leadership Lobby)

The following is a report generated by the Law Firm of Becker and Poliakff. They helped draft the changes to the bill know as HB 601 that passed the legislature and is awaiting the signature of the Governor. I continue to recommend each Association maintain a relationship with a law firm and do recommend this one from my personal experience. Thse reports are part of the service member Associations receiveafter retaining the Firm. Please feel free to print this for your Board. If you need help please call me at 689-3053.

Ed

CALL ALERT for May 9, 2008 - Summary of HB 601 Impacting Condominium and Homeowners' Associations, including new Insurance and Reconstruction after Casualty Provisions for Condominium Associations, and SB 2860, the Homeowners' Bill of Rights

As we have previously advised, HB 601 passed during the 2008 Legislative Session. The bill primarily impacts condominium associations, but does have some homeowners' association impacts. In addition, SB 2860, known as the Homeowners' Bill of Rights also passed. The Homeowners' Bill of Rights seeks to improve upon the property insurance reforms enacted in 2007. The following is a summary of the two bills. Note that they have not yet been signed into law by the Governor. However, barring a veto by the Governor, these provisions will soon become law in Florida.

Also, we would like to correct something in our CALL Alert of May 3, 2008, sent the day after the session ended. SB 1820 did not pass as previously reported. Therefore, the fees paid to the Department of Business and Professional Regulation by unit owners in condominiums and cooperatives will remain $4.00 per unit.

HB 601, Relating to the Department of Business and Professional Regulation, Condominium Associations and Homeowners' Associations (Rep. Matt Hudson)

Condominium Insurance and Reconstruction after Casualty

HB 601 includes important insurance and reconstruction after casualty provisions for condominiums. Attorney Ken Direktor, from our West Palm Beach office, chaired the Florida Bar Committee that worked on the re-drafting of Section 718.111(11). Ken played a major role in drafting the reconstruction after casualty provisions in this legislation. In addition, Joe Adams, from our Ft. Myers office, as a former member of the Condominium Advisory Council, also worked and drafted portions of the insurance language in the bill. We would like to thank both Ken and Joe for their leadership and guidance.

Basically, the reconstruction after casualty provisions in the bill provide that after a casualty, if the association insures it, the association repairs it and if there is not enough money from insurance proceeds (because of a deductible or otherwise), the association will assess all of the members to pay for the repairs. However, the association can "opt-out" of this method of allocating expenses and allocate expenses for reconstruction in the manner provided in the declaration of condominium. It also provides that if an owner makes an improvement (for example, a balcony enclosure), the unit owner will be required to insure it and repair it after a casualty, even if the improvement is outside of the unit boundaries. The bill also revises the association's insurance responsibility.

The following is a more detailed review of the insurance and reconstruction provisions in HB 601. Note that many of these provisions are already included in the current law. However, because HB 601 is a complete re-write of 718.111(11), we are including a summary of the entire language, not just the new portions.

Adequate hazard insurance shall be based upon the replacement cost of the property to be insured as determined by an independent insurance appraisal or update of a prior appraisal. The full insurable value shall be determined at least once every 36 months.

An association or group of associations may provide adequate hazard insurance through a self-insurance fund that complies with the requirements of F.S. 624.460-624.488. The association may also provide adequate hazard insurance for a group of no fewer than three communities created and operating under Chapter 718, Chapter 719, Chapter 720, or Chapter 721 by obtaining and maintaining for such communities insurance coverage sufficient to cover an amount equal to the probable maximum loss for the communities for a 250-year windstorm event. Such probable maximum loss must be determined through the use of a competent model that has been accepted by the Florida Commission on hurricane loss protection methodology. However, any such "pooling" insurance issued or renewed on or after July 1, 2008 must be reviewed and approved by the Office of Insurance Regulation.

NOTE: The self insurance and pooling provisions for insurance are in the current law. HB 601 adds a requirement that the "pooling" insurance product must be approved by the Office of Insurance Regulation.

The association may consider deductibles when determining the adequate amount of hazard insurance coverage.

A developer-controlled association must use its best efforts to obtain and maintain adequate insurance. Failure to obtain and maintain adequate hazard insurance constitutes a breach of fiduciary responsibility by the developer-appointed members of the board, unless the members can show that despite such failure, they have made their best efforts to maintain the required coverage.

Policies may include deductibles as determined by the board. Deductibles shall be consistent with industry standards and prevailing practice for communities of similar size and age, and having similar construction facilities. The deductibles may be based upon available funds, including reserve accounts or predetermined assessment authority at the time the insurance is obtained. The board shall establish the amount of deductibles at a meeting of the board. The notice of the board meeting must state the proposed deductible and the available funds and the assessment authority relied upon by the board and estimate any potential assessment amount against each unit, if any.

An association controlled by unit owners shall use its best efforts to obtain and maintain adequate insurance to protect the association, the association property, the common elements, and the condominium property that is required to be insured by the association.

The declaration may provide that condominium property consisting of free-standing buildings comprised of no more than one building in or on such unit need not be insured by the association if the declaration requires the unit owner to obtain adequate insurance for the condominium property.

An association may also obtain and maintain liability insurance for directors and officers, insurance for the benefit of association employees, and flood insurance for common elements, association property, and the units.

Every hazard insurance policy issued or renewed on or after January 1, 2009 for the purpose of protecting the condominium shall provide primary coverage for:

1. All portions of the condominium property as originally installed or replacement of like kind and quality, in accordance with the original plans and specifications.

2. All alterations or additions made to the condominium property or association property pursuant to Section 718.113(2).

3. The coverage shall exclude all personal property within the unit or limited common elements, and floor, wall, and ceiling coverings, electrical fixtures, appliances, water heaters, water filters, built-in cabinets and countertops, and window treatments, including curtains, blinds, hardware, and similar window treatment components or replacements of any of the foregoing.

NOTE: There was a change with respect to air conditioning and heating equipment. Under the current law, the association is not required to insure air conditioning and heating equipment or air conditioning compressors that service only an individual unit, whether or not located within the unit boundaries. HB 601 changes this. The association will be required to insure air conditioning and heating equipment, including all air conditioning compressors.

Every hazard insurance policy issued or renewed or on or after January 1, 2009 to an individual owner must contain a provision stating that the coverage afforded by such policy is excess coverage over the amount recoverable under any other policy covering the same property. Such unit owner policies must include special assessment coverage of no less than $2,000.00 per occurrence.

All improvements or additions to the condominium property that benefit fewer than all unit owners shall be insured by the unit owner or owners having the use thereof, or may be insured by the association at the cost and expense of the unit owners having the use thereof.

The association shall require each owner to provide evidence of the currently effective policy of hazard and liability insurance before request, but not more than once per year. Upon the failure of an owner to provide a certificate of insurance issued by an insurer approved to write such insurance in this state within 30 days after the date on which the written request is delivered, the association may purchase a policy of insurance on behalf of an owner. The cost of such policy, together with reconstruction costs undertaken by the association but which are the responsibility of the unit owner may be collected in the manner provided for the collection of assessments.

All reconstruction work after a casualty shall be undertaken by the association except as otherwise provided. A unit owner may undertake reconstruction work on portions of the unit with the prior written consent of the board of administration. However, such work may be conditioned upon the approval of the repair methods, qualifications of the proposed contract, or the contractor that is used for that purpose. A unit owner shall obtain all required governmental permits and approvals prior to commencing reconstruction.

Unit owners are responsible for the cost of reconstruction of any portions of the condominium property for which the unit owner is required to carry casualty insurance and any such reconstruction work undertaken by the association shall be chargeable to the unit owner and enforceable as an assessment. The association must be an additional named insured and loss payee on all casualty insurance policies issued to unit owners.

A multicondominium association may elect, by a majority vote of the members of the condominiums operated by the association, to operate such condominiums as a single condominium for purposes of insurance matters.

The association shall maintain insurance and fidelity bonding on all persons who control or disburse funds of the association. These persons include, but are not limited to, those persons authorized to sign checks, and the president, secretary, and treasurer of the association.

The association may amend the declaration of condominium without regard to any requirement for approval by mortgagees of amendments affecting insurance requirements for the purpose of conforming the declaration of condominium to the coverage requirements of the statute.

Any portion of the condominium property required to be insured by the association which is damaged by casualty shall be reconstructed, repaired, or replaced as necessary by the association as a common expense. All hazard insurance deductibles, uninsured losses, and other damages in excess of hazard insurance coverage under the hazard insurance policies maintained by the association are a common expense of the condominium except that:

1. A unit owner is responsible for the cost of repair or replacement of any portion of the condominium property not paid by such insurance proceeds, if such damage is caused by intentional conduct, negligence, or failure to comply with the terms of the declaration or the rules of the association by a unit owner, the members of his family, etc., without compromise of the separation rights of any insurer.

2. To the extent the cost of repair or reconstruction for which the unit owner is responsible is reimbursed to the association by insurance proceeds, and, to the extent the association has collected the cost of such repair or reconstruction from the unit owner, the association shall reimburse the unit owner without the waiver of any rights of subrogation.

3. The association is not obligated to pay for repair or reconstruction of casualty losses as a common expense if the casualty losses were known or should have been known to a unit owner and were not reported to the association until after the insurance claim of the association for that casualty was settled or resolved.

An association may, upon the approval of a majority of the total voting interests of the association, opt out of the repair and reconstruction provisions in the statute and allocate repair or reconstruction expenses in the manner provided in the declaration as originally recorded or as amended. Such vote may be approved by the voting interests of the association without regard to any mortgagee consent requirements.

In a multicondominium association that has not consolidated its financial operations, any condominium operated by the association may opt out of the guidelines for repair or reconstruction expense with the approval of a majority of the total voting interests in that condominium.

Any association or condominium vote to opt out of the guidelines for repair or reconstruction expenses must be recorded in a notice setting forth the date of the opt out vote and the page of the official records book on which the declaration is recorded. The decision to opt out is effective upon the date of recording of the notice in the public records by the association. An association that has voted to opt out may reverse that decision by the same vote.

An association is not obligated to pay for any reconstruction or repair expenses due to casualty loss to any improvements installed by a current or former owner of the unit or by the developer if the improvement benefits only the unit for which it was installed and is not part of the standard improvements installed by the developer on all units as part of original construction, whether or not such improvement is located within the unit.

The foregoing shall not apply to timeshare condominium associations. Insurance for timeshare associations shall be maintained pursuant to s. 721.165.

Common Expenses for Fire Safety Equipment or Water and Sewer Service where a Master Meter Serves the Condominium

HB 601 amends Section 718.115(1)(a) to specify that unless the manner of payment or allocation of expenses is otherwise expressed in the declaration of condominium, the expenses of any item or services required by any federal, state, or local governmental entity to be installed, maintained, or supplied to the condominium property by the association, including, but not limited to, fire safety equipment or water and sewer service where a master meter serves the condominium, shall be common expenses whether or not such items or services were specifically identified as common expenses in the declaration of condominium, articles of incorporation, or bylaws of the association.

Estoppel Certificates (Condominium and Homeowners' Associations)

The provisions in HB 601 regarding estoppel certificates apply to condominium associations and homeowners' associations, as follows:

The amount of the fee charged by the association or its authorized agent for the preparation of the estoppel certificate must be included on the certificate.

The authority to charge a fee for the certificate shall be established by written resolution adopted by the board or provided by a written management, bookkeeping, or maintenance contract and is payable upon the preparation of the certificate.

If the certificate is requested in conjunction with the sale or mortgage of a unit but the closing does not occur and no later than 30 days after the closing date for which the certificate was sought the preparer receives a written request, accompanied by reasonable documentation, that the sale did not occur from the payer that is not the unit owner, the fee shall be refunded to that payer within 30 days after receipt of the request.

The refund is the obligation of the unit owner, and the association may collect it from that owner in the same manner as assessments are collected.

Termination of Condominiums

Section 718.117(17)(c)3. was amended to clarify the distribution of proceeds when a condominium is terminated and sold. With regard to purchase-money lienholders, the distribution may not exceed a unit owner's share of the proceeds.

Board Member Abstentions (Condominium Associations)

Section 718.111(1)(b) was amended to state that a director a of the association who abstains from voting on any action taken on any corporate matter shall be presumed to have taken no position with regard to the action.

This change is intended to control over a board member abstention provision that was included in HB 995.

Department of Business and Professional Regulation, Division of Florida Land Sales, Condominiums, and Mobile Homes

HB 601 repeals Chapter 498, the "Land Sales Practices Act". Therefore, the name of the Division of Florida Land Sales, Condominiums and Mobile Homes is changed to Division of Florida Condominiums, Timeshares, and Mobile Homes.

HB 601 also amends the Division's powers and duties as follows:

Permits the Division to submit any official written report, worksheet, or other related paper prepared by and duly authenticated by a financial examiner or analyst to be admitted as competent evidence in any hearing by which the financial examiner or analyst is available for cross-examination and attests under oath that such documents were prepared as a result of an examination or inspection conducted pursuant to the Condominium Act.

The Division may, if it finds that the developer, association, officer, or member of the board is violating or is about to violate any provision of Chapter 718, any rule adopted by the Division, or any written agreement entered into with the Division, and presents an immediate danger to the public requiring an immediate final order, it may issue an emergency cease and desist order reciting with particularity the facts underlying such findings. The emergency order is effective for 90 days, however, if the Division begins an emergency cease and desist proceeding, the emergency cease and desist order remains effective until conclusion of such proceeding.

The Division may petition the court for the appointment of a receiver or conservator. If a receiver is appointed, the Division may apply to the circuit court for an order of restitution whereby the defendant shall be ordered to make restitution of those sums shown by the Division to have been obtained by the defendant in violation of the Condominium Act.

The Division may seek the imposition of a civil penalty through the circuit court for any violation for which the Division may issue a notice to show cause. The civil penalty shall be at least $500.00 but no more than $5,000.00 for each violation. The court may also award the prevailing party court costs and reasonable attorney's fees, and if the Division prevails, may also award reasonable costs of investigation.

The Division may contract with agencies in the state or other jurisdictions to perform investigative functions or accept grants-in-aid from any source.

The Division shall cooperate with similar agencies in other jurisdictions to establish uniform filing procedures and forms.

The Division shall consider notice to a developer to be complete when it is delivered to the developer's address currently on file with the Division.

In addition to its enforcement authority, the Division may issue a notice to show cause, which shall provide for a hearing, upon written request, in accordance with Chapter 120.

The effective date of HB 601 is July 1, 2008.

SB 2860, Homeowners' Bill of Rights (Sen. Jeff Atwater).

This Bill seeks to improve upon the property insurance reforms enacted in 2007 by:

Extending the rate freeze for Citizens Property Insurance Corporation, the state's insurer of last resort, to January 2010. The freeze was set to expire in January 2009;

Allowing single-family residential properties and condominiums with a replacement value of up to $2 million into the Citizens insurance pool (up from $1 million, which was set to begin Jan. 1, 2009);

Requiring Citizens' policyholders of property located in wind-borne regions and with an insured value of $500,000 or more to disclose the property's windstorm mitigation rating to a prospective buyer. (Language in an earlier version of the bill would have required all sellers to provide their property's windstorm rating);

Increasing fines for violations of the insurance code and for unfair trade practices by private insurers;

Extending by one year to January 2010 a provision from last year's insurance bill that requires insurers to get state approval before raising property insurance rates;

Requiring insurers to notify state regulators 90 days before dropping more than 10,000 homeowners' policies in one year;

Requiring insurers to use state-approved methods to predict the risk of hurricanes, a key factor in setting rates.

We will keep you updated as to the progress of these bills and whether they are signed by the Governor into law.

Very truly yours,


Yeline Goin and David Muller, Co-Executive Directors
Community Association Leadership Lobby (CALL)