| 1 | A bill to be entitled |
| 2 | An act relating to homeowners' associations; amending s. |
| 3 | 720.303, F.S.; revising the powers and duties of |
| 4 | homeowners' associations; requiring certain associations |
| 5 | to be incorporated in this state; removing a provision |
| 6 | authorizing associations to operate more than one |
| 7 | community; prohibiting officers and directors from taking |
| 8 | any action that is inconsistent with the declaration of |
| 9 | covenants; authorizing associations to settle actions on |
| 10 | appeal; revising procedures relating to legal actions |
| 11 | commenced by the association; lowering the dollar amount |
| 12 | for which the association must obtain approval by the |
| 13 | members of the association before proceeding with the |
| 14 | legal action; authorizing the association to enter into |
| 15 | certain contracts; removing provisions authorizing an |
| 16 | association to have more than one class of members and to |
| 17 | issue membership certificates; prohibiting certain |
| 18 | association defenses; prohibiting associations from |
| 19 | restricting a member's freedom of association and from |
| 20 | limiting the number of guests a member may have within a |
| 21 | 24-hour period; providing that officers and directors of |
| 22 | an association may be personally liable for damages under |
| 23 | certain circumstances; providing compensation for certain |
| 24 | members under certain circumstances; providing criteria |
| 25 | for establishing setback limits; prohibiting the |
| 26 | association from denying or refusing to approve a member's |
| 27 | plans for building on the member's property under certain |
| 28 | circumstances; requiring the budget to provide for annual |
| 29 | operating expenses; requiring the budget to include |
| 30 | reserve accounts for capital expenditures and deferred |
| 31 | maintenance; providing the amount to be reserved; |
| 32 | authorizing the association to adjust replacement reserve |
| 33 | assessments annually; authorizing the developer to vote to |
| 34 | waive the reserves or reduce the funding of reserves for a |
| 35 | certain period; revising provisions relating to financial |
| 36 | reporting; revising time periods in which the association |
| 37 | must complete its reporting; amending s. 720.307, F.S.; |
| 38 | requiring developers to deliver financial records to the |
| 39 | board; requiring certain information to be included in the |
| 40 | records and for the records to be prepared in a specified |
| 41 | manner; amending s. 720.308, F.S.; providing that a |
| 42 | guarantee of common expenses shall be effective under |
| 43 | certain circumstances; requiring the guarantee to meet |
| 44 | certain requirements; authorizing the guarantee to provide |
| 45 | certain requirements; requiring the stated dollar amount |
| 46 | of the guarantee to be an exact dollar amount for each |
| 47 | parcel identified in the declaration; providing payments |
| 48 | required from the guarantor to be determined in a certain |
| 49 | manner; providing a formula to determine the guarantor's |
| 50 | total financial obligation to the association; providing |
| 51 | that certain expenses incurred in the production of |
| 52 | certain revenues shall not be included in the common |
| 53 | expenses; providing an effective date. |
| 54 |
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| 55 | Be It Enacted by the Legislature of the State of Florida: |
| 56 |
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| 57 | Section 1. Subsections (1), (6), and (7) of section |
| 58 | 720.303, Florida Statutes, are amended to read: |
| 59 | 720.303 Association powers and duties; meetings of board; |
| 60 | official records; budgets; financial reporting; association |
| 61 | funds; recalls.-- |
| 62 | (1) POWERS AND DUTIES.-- |
| 63 | (a) An association which operates a community as defined |
| 64 | in s. 720.301, must be incorporated in this state, operated by |
| 65 | an association that is a Florida corporation. After October 1, |
| 66 | 1995, the association must be incorporated and the initial |
| 67 | governing documents must be recorded in the official records of |
| 68 | the county in which the community is located. An association may |
| 69 | operate more than one community. |
| 70 | (b) The officers and directors of an association have a |
| 71 | fiduciary relationship to the members of who are served by the |
| 72 | association. |
| 73 | (c) The powers and duties of an association include those |
| 74 | set forth in this chapter and, except as expressly limited or |
| 75 | restricted in this chapter, those specifically set forth in the |
| 76 | governing documents. The officers and directors of the |
| 77 | association may not take any action that is inconsistent with |
| 78 | the declaration of covenants. |
| 79 | (d) After control of the association is obtained by |
| 80 | members from the developers other than the developer, the |
| 81 | association may institute, maintain, or settle on, or appeal |
| 82 | actions or hearings in its name on behalf of the all members |
| 83 | concerning matters of common interest to the members, including, |
| 84 | but not limited to, the common areas; roof or structural |
| 85 | components of a building, or other improvements for which the |
| 86 | association is responsible; mechanical, electrical, or plumbing |
| 87 | elements serving an improvement or building for which the |
| 88 | association is responsible; representations of the developer |
| 89 | pertaining to any existing or proposed commonly used facility; |
| 90 | and protesting ad valorem taxes on commonly used facilities. The |
| 91 | association may defend actions in eminent domain or bring |
| 92 | inverse condemnation actions. Before commencing any legal action |
| 93 | litigation against any party in the name of the association |
| 94 | involving amounts in controversy in excess of $50,000 $100,000, |
| 95 | the association must obtain the affirmative approval of a |
| 96 | majority of the members of the association voting interests at a |
| 97 | meeting of the association membership at which a quorum is |
| 98 | present has been attained. |
| 99 | (e) The association may enter into contracts for the |
| 100 | benefit of the members of the association, including, but not |
| 101 | limited to, contracts for maintaining, repairing, or improving |
| 102 | the common areas of the association. This subsection does not |
| 103 | limit any statutory or common-law right of any individual member |
| 104 | or class of members to bring any action without participation by |
| 105 | the association. |
| 106 | (f) A member does not have the authority to act for the |
| 107 | association by virtue of being a member of the association. An |
| 108 | association may have more than one class of members and may |
| 109 | issue membership certificates. |
| 110 | (g) In any action between a member and the association, it |
| 111 | shall not be a defense by the association that the association's |
| 112 | actions, although inconsistent with the declaration of |
| 113 | covenants, have been uniformly applied. |
| 114 | (h) An association may not restrict a member's freedom of |
| 115 | association and may not limit the number of guests a member may |
| 116 | have within a 24-hour period. |
| 117 | (i) An association of 15 or fewer parcels parcel owners |
| 118 | may enforce only the requirements of those deed restrictions |
| 119 | established prior to the purchase of each parcel upon an |
| 120 | affected parcel owner or owners. |
| 121 | (j) The officers and directors of an association may be |
| 122 | personally liable for damages to a member if the actions of the |
| 123 | officers and directors demonstrate a pattern of behavior |
| 124 | designed to harass a member of the association. |
| 125 | (k) Any action of the association by and through the |
| 126 | officers and directors that limits the legal use of any portion |
| 127 | of a member's property which is inconsistent with the |
| 128 | declaration of covenants shall entitle the member to |
| 129 | compensation for the fair market value of that portion of the |
| 130 | member's property the use of which is being restricted. |
| 131 | (l) In any association with more than 50 but fewer than 75 |
| 132 | parcels, for purposes of establishing setback limits, any parcel |
| 133 | of 1 acre or less shall be deemed to have one front for purposes |
| 134 | of determining the required front setback, if any. Only those |
| 135 | setbacks specifically set forth in the declaration of covenants |
| 136 | may be enforced by the association. Where the covenants are |
| 137 | silent, the applicable county or municipal setbacks shall apply. |
| 138 | (m) The association may not deny or refuse to approve a |
| 139 | member's plans for building on the member's property unless the |
| 140 | plan under consideration violates a specific provision of the |
| 141 | declaration of covenants. |
| 142 | (6) BUDGETS.-- |
| 143 | (a) The association shall prepare an annual budget |
| 144 | providing for the annual operating expenses. The budget must |
| 145 | reflect the estimated revenues and expenses for that year and |
| 146 | the estimated surplus or deficit as of the end of the current |
| 147 | year. The budget must set out separately all fees or charges for |
| 148 | recreational amenities, whether owned by the association, the |
| 149 | developer, or another person. The association shall provide each |
| 150 | member with a copy of the annual budget or a written notice that |
| 151 | a copy of the budget is available upon request at no charge to |
| 152 | the member. The copy must be provided to the member within the |
| 153 | time limits set forth in subsection (5). |
| 154 | (b) In addition to annual operating expenses, the budget |
| 155 | shall include reserve accounts for capital expenditures and |
| 156 | deferred maintenance. These accounts shall include, but are not |
| 157 | limited to, roof replacement, building painting, and pavement |
| 158 | resurfacing, regardless of the amount of deferred maintenance |
| 159 | expense or replacement cost, and any other item for which the |
| 160 | deferred maintenance expense or replacement cost exceeds |
| 161 | $10,000. The amount to be reserved shall be computed by means of |
| 162 | a formula that is based upon estimated remaining useful life and |
| 163 | estimated replacement cost or deferred maintenance expense of |
| 164 | each reserve item. The association may adjust replacement |
| 165 | reserve assessments annually to take into account any changes in |
| 166 | estimates or extension of the useful life of a reserve item |
| 167 | caused by deferred maintenance. This paragraph does not apply to |
| 168 | an adopted budget for which the members of an association have |
| 169 | determined, by a majority vote at a duly called meeting of the |
| 170 | association, to provide no reserves or fewer reserves than |
| 171 | required by this paragraph. However, prior to turnover of |
| 172 | control of an association by a developer to unit owners, the |
| 173 | developer may vote to waive the reserves or reduce the funding |
| 174 | of reserves for the first 2 fiscal years of the association's |
| 175 | operation, beginning with the fiscal year in which the initial |
| 176 | declaration is recorded, after which time reserves may be waived |
| 177 | or reduced only upon the vote of a majority of all nondeveloper |
| 178 | voting interests voting in person or by limited proxy at a duly |
| 179 | called meeting of the association. If a meeting of the unit |
| 180 | owners has been called to determine whether to waive or reduce |
| 181 | the funding of reserves and no such result is achieved or a |
| 182 | quorum is not attained, the reserves as included in the budget |
| 183 | shall go into effect. After the turnover, the developer may vote |
| 184 | its voting interest to waive or reduce the funding of reserves. |
| 185 | (7) FINANCIAL REPORTING.--Within 90 days after the end of |
| 186 | the fiscal year, or annually on the date provided in the bylaws, |
| 187 | the association shall prepare and complete, or contract for the |
| 188 | preparation and completion of, a an annual financial report for |
| 189 | the preceding fiscal year. Within 21 60 days after the final |
| 190 | financial report is completed by the association or received |
| 191 | from the third party, but not later than 120 days after the end |
| 192 | of the fiscal year or other date as provided in the bylaws, |
| 193 | close of the fiscal year. the association shall, within the time |
| 194 | limits set forth in subsection (5), provide each member with a |
| 195 | copy of the annual financial report or a written notice that a |
| 196 | copy of the financial report is available upon request at no |
| 197 | charge to the member. Financial reports shall be prepared as |
| 198 | follows: |
| 199 | (a) An association that meets the criteria of this |
| 200 | paragraph shall prepare or cause to be prepared a complete set |
| 201 | of financial statements in accordance with generally accepted |
| 202 | accounting principles as adopted by the Board of Accountancy. |
| 203 | The financial statements shall be based upon the association's |
| 204 | total annual revenues, as follows: |
| 205 | 1. An association with total annual revenues of $100,000 |
| 206 | or more, but less than $200,000, shall prepare compiled |
| 207 | financial statements. |
| 208 | 2. An association with total annual revenues of at least |
| 209 | $200,000, but less than $400,000, shall prepare reviewed |
| 210 | financial statements. |
| 211 | 3. An association with total annual revenues of $400,000 |
| 212 | or more shall prepare audited financial statements. |
| 213 | (b)1. An association with total annual revenues of less |
| 214 | than $100,000 shall prepare a report of cash receipts and |
| 215 | expenditures. |
| 216 | 2. An association in a community of fewer than 50 parcels, |
| 217 | regardless of the association's annual revenues, may prepare a |
| 218 | report of cash receipts and expenditures in lieu of financial |
| 219 | statements required by paragraph (a) unless the governing |
| 220 | documents provide otherwise. |
| 221 | 3. A report of cash receipts and disbursement must |
| 222 | disclose the amount of receipts by accounts and receipt |
| 223 | classifications and the amount of expenses by accounts and |
| 224 | expense classifications, including, but not limited to, the |
| 225 | following, as applicable: costs for security, professional, and |
| 226 | management fees and expenses; taxes; costs for recreation |
| 227 | facilities; expenses for refuse collection and utility services; |
| 228 | expenses for lawn care; costs for building maintenance and |
| 229 | repair; insurance costs; administration and salary expenses; and |
| 230 | reserves if maintained by the association. |
| 231 | (c) If 20 percent of the parcel owners petition the board |
| 232 | for a level of financial reporting higher than that required by |
| 233 | this section, the association shall duly notice and hold a |
| 234 | meeting of members within 30 days of receipt of the petition for |
| 235 | the purpose of voting on raising the level of reporting for that |
| 236 | fiscal year. Upon approval of a majority of the total voting |
| 237 | interests of the parcel owners, the association shall prepare or |
| 238 | cause to be prepared, shall amend the budget or adopt a special |
| 239 | assessment to pay for the financial report regardless of any |
| 240 | provision to the contrary in the governing documents, and shall |
| 241 | provide within 90 days of the meeting or the end of the fiscal |
| 242 | year, whichever occurs later: |
| 243 | 1. Compiled, reviewed, or audited financial statements, if |
| 244 | the association is otherwise required to prepare a report of |
| 245 | cash receipts and expenditures; |
| 246 | 2. Reviewed or audited financial statements, if the |
| 247 | association is otherwise required to prepare compiled financial |
| 248 | statements; or |
| 249 | 3. Audited financial statements if the association is |
| 250 | otherwise required to prepare reviewed financial statements. |
| 251 | (d) If approved by a majority of the voting interests |
| 252 | present at a properly called meeting of the association, an |
| 253 | association may prepare or cause to be prepared: |
| 254 | 1. A report of cash receipts and expenditures in lieu of a |
| 255 | compiled, reviewed, or audited financial statement; |
| 256 | 2. A report of cash receipts and expenditures or a |
| 257 | compiled financial statement in lieu of a reviewed or audited |
| 258 | financial statement; or |
| 259 | 3. A report of cash receipts and expenditures, a compiled |
| 260 | financial statement, or a reviewed financial statement in lieu |
| 261 | of an audited financial statement. |
| 262 | Section 2. Paragraph (t) is added to subsection (3) of |
| 263 | section 720.307, Florida Statutes, to read: |
| 264 | 720.307 Transition of association control in a |
| 265 | community.--With respect to homeowners' associations: |
| 266 | (3) At the time the members are entitled to elect at least |
| 267 | a majority of the board of directors of the homeowners' |
| 268 | association, the developer shall, at the developer's expense, |
| 269 | within no more than 90 days deliver the following documents to |
| 270 | the board: |
| 271 | (t) The financial records, including financial statements |
| 272 | of the association, and source documents from the incorporation |
| 273 | of the association through the date of turnover. The records |
| 274 | shall be audited by an independent certified public accountant |
| 275 | for the period from the incorporation of the association or from |
| 276 | the period covered by the last audit, if an audit has been |
| 277 | performed for each fiscal year since incorporation. All |
| 278 | financial statements shall be prepared in accordance with |
| 279 | generally accepted accounting principles and shall be audited in |
| 280 | accordance with generally accepted auditing standards, as |
| 281 | prescribed by the Board of Accountancy, pursuant to chapter 473. |
| 282 | The certified public accountant performing the audit shall |
| 283 | examine to the extent necessary supporting documents and |
| 284 | records, including the cash disbursements and related paid |
| 285 | invoices to determine whether expenditures were for association |
| 286 | purposes and the billings, cash receipts, and related records to |
| 287 | determine whether the developer was charged and paid the proper |
| 288 | amounts of assessments. |
| 289 | Section 3. Section 720.308, Florida Statutes, is amended |
| 290 | to read: |
| 291 | 720.308 Assessments and charges.-- |
| 292 | (1) For any community created after October 1, 1995, the |
| 293 | governing documents must describe the manner in which expenses |
| 294 | are shared and specify the member's proportional share thereof. |
| 295 | Assessments levied pursuant to the annual budget or special |
| 296 | assessment must be in the member's proportional share of |
| 297 | expenses as described in the governing document, which share may |
| 298 | be different among classes of parcels based upon the state of |
| 299 | development thereof, levels of services received by the |
| 300 | applicable members, or other relevant factors. While the |
| 301 | developer is in control of the homeowners' association, it may |
| 302 | be excused from payment of its share of the operating expenses |
| 303 | and assessments related to its parcels for any period of time |
| 304 | for which the developer has, in the declaration, obligated |
| 305 | itself to pay any operating expenses incurred that exceed the |
| 306 | assessments receivable from other members and other income of |
| 307 | the association. This subsection section does not apply to an |
| 308 | association, no matter when created, if the association is |
| 309 | created in a community that is included in an effective |
| 310 | development-of-regional-impact development order as of the |
| 311 | effective date of this act, together with any approved |
| 312 | modifications thereto. |
| 313 | (2) If a guarantee of common expenses is not included in |
| 314 | the purchase contracts, declaration, or prospectus, any |
| 315 | agreement establishing a guarantee shall be effective only upon |
| 316 | the approval of a majority of the voting interests of the |
| 317 | members other than the developer. Approval shall be expressed at |
| 318 | a meeting of the members, voting in person or by limited proxy, |
| 319 | or by agreement in writing without a meeting if provided in the |
| 320 | bylaws. Such guarantee shall meet the requirements of this |
| 321 | section. |
| 322 | (a) The period of time for the guarantee shall be |
| 323 | indicated by a specific beginning and ending date or event. The |
| 324 | ending date or event shall be the same for all of the members of |
| 325 | a homeowners' association, including members in different phases |
| 326 | of the homeowners' association. |
| 327 | (b) The guarantee may provide: |
| 328 | 1. Different intervals of time during a guarantee period |
| 329 | with different dollar amounts for each such interval. |
| 330 | 2. That after the initial stated period the developer has |
| 331 | an option to extend the guarantee for one or more additional |
| 332 | stated periods. The extension of a guarantee is limited to |
| 333 | extending the ending date or event; therefore, the developer |
| 334 | does not have the option of changing the level of assessments |
| 335 | guaranteed. |
| 336 | (3) The stated dollar amount of the guarantee shall be an |
| 337 | exact dollar amount for each parcel identified in the |
| 338 | declaration. Regardless of the stated dollar amount of the |
| 339 | guarantee, assessments charged to a member shall not exceed the |
| 340 | maximum obligation of the member based on the total amount of |
| 341 | the adopted budget and the member's proportionate ownership |
| 342 | share of the common elements. |
| 343 | (4) The cash payments required from the guarantor during |
| 344 | the guarantee period shall be determined as follows: |
| 345 | (a) If at any time during the guarantee period the funds |
| 346 | collected from member assessments at the guaranteed level and |
| 347 | other revenues collected by the association are not sufficient |
| 348 | to provide payment, on a timely basis, of all common expenses, |
| 349 | including the full funding of the reserves unless properly |
| 350 | waived, the guarantor shall advance sufficient cash to the |
| 351 | association at the time such payments are due. |
| 352 | (b) Expenses incurred in the production of non-assessment |
| 353 | revenues, which expenses are not in excess of the non-assessment |
| 354 | revenues, shall not be included in the common expenses. If the |
| 355 | expenses attributable to non-assessment revenues exceed non- |
| 356 | assessment revenues, only the excess expenses must be funded by |
| 357 | the guarantor. For example, if the association operates a rental |
| 358 | program in which rental expenses exceed rental revenues, the |
| 359 | guarantor shall fund the rental expenses in excess of the rental |
| 360 | revenues. Interest earned on the investment of association funds |
| 361 | may be used to pay the income tax expense incurred as a result |
| 362 | of the investment, such expense shall not be charged to the |
| 363 | guarantor, and the net investment income shall be retained by |
| 364 | the association. Each such non-assessment revenue-generating |
| 365 | activity shall be considered separately. Capital contributions |
| 366 | collected from members are not revenues and shall not be used to |
| 367 | pay common expenses. |
| 368 | (5) The guarantor's total financial obligation to the |
| 369 | association at the end of the guarantee period shall be |
| 370 | determined on the accrual basis using the following formula: the |
| 371 | guarantor shall fund the total common expenses incurred during |
| 372 | the guarantee period, including the full funding of the reserves |
| 373 | unless properly waived, less the total regular periodic |
| 374 | assessments earned by the association from the members other |
| 375 | than the guarantor during the guarantee period, regardless of |
| 376 | whether the actual level charged was less than the maximum |
| 377 | guaranteed amount. |
| 378 | (6) Expenses incurred in the production of non-assessment |
| 379 | revenues, which expenses are not in excess of the non-assessment |
| 380 | revenues, shall not be included in the common expenses. If the |
| 381 | expenses attributable to non-assessment revenues exceed non- |
| 382 | assessment revenues, only the excess expenses must be funded by |
| 383 | the guarantor. For example, if the association operates a rental |
| 384 | program in which rental expenses exceed rental revenues, the |
| 385 | guarantor shall fund the rental expenses in excess of the rental |
| 386 | revenues. Interest earned on the investment of association funds |
| 387 | may be used to pay the income tax expense incurred as a result |
| 388 | of the investment, such expense shall not be charged to the |
| 389 | guarantor, and the net investment income shall be retained by |
| 390 | the association. Each such non-assessment revenue-generating |
| 391 | activity shall be considered separately. Capital contributions |
| 392 | collected from members are not revenues and shall not be used to |
| 393 | pay common expenses. |
| 394 | Section 4. This act shall take effect July 1, 2006. |