HB 0839CS

CHAMBER ACTION



1The Civil Justice Committee recommends the following:
2
3     Council/Committee Substitute
4     Remove the entire bill and insert:
5
A bill to be entitled
6An act relating to homeowners' associations; amending s.
7720.303, F.S.; revising the powers and duties of
8homeowners' associations; requiring certain associations
9to be incorporated in this state; removing a provision
10authorizing associations to operate more than one
11community; prohibiting officers and directors from taking
12any action that is inconsistent with the declaration of
13covenants; authorizing associations to settle actions on
14appeal; revising procedures relating to legal actions
15commenced by the association; lowering the dollar amount
16for which the association must obtain approval by the
17members of the association before proceeding with the
18legal action; authorizing the association to enter into
19certain contracts; removing provisions authorizing an
20association to have more than one class of members and to
21issue membership certificates; prohibiting certain
22association defenses; prohibiting associations from
23restricting a member's freedom of association and from
24limiting the number of guests a member may have within a
2524-hour period; providing that officers and directors of
26an association may be personally liable for damages under
27certain circumstances; providing compensation for certain
28members under certain circumstances; providing criteria
29for establishing setback limits; prohibiting the
30association from denying or refusing to approve a member's
31plans for building on the member's property under certain
32circumstances; requiring the budget to provide for annual
33operating expenses; requiring the budget to include
34reserve accounts for capital expenditures and deferred
35maintenance; providing the amount to be reserved;
36authorizing the association to adjust replacement reserve
37assessments annually; authorizing the developer to vote to
38waive the reserves or reduce the funding of reserves for a
39certain period; revising provisions relating to financial
40reporting; revising time periods in which the association
41must complete its reporting; amending s. 720.307, F.S.;
42requiring developers to deliver financial records to the
43board; requiring certain information to be included in the
44records and for the records to be prepared in a specified
45manner; amending s. 720.308, F.S.; providing that a
46guarantee of common expenses shall be effective under
47certain circumstances; requiring the guarantee to meet
48certain requirements; authorizing the guarantee to provide
49certain requirements; requiring the stated dollar amount
50of the guarantee to be an exact dollar amount for each
51parcel identified in the declaration; providing payments
52required from the guarantor to be determined in a certain
53manner; providing a formula to determine the guarantor's
54total financial obligation to the association; providing
55that certain expenses incurred in the production of
56certain revenues shall not be included in the common
57expenses; providing an effective date.
58
59Be It Enacted by the Legislature of the State of Florida:
60
61     Section 1.  Subsections (1), (6), and (7) of section
62720.303, Florida Statutes, are amended to read:
63     720.303  Association powers and duties; meetings of board;
64official records; budgets; financial reporting; association
65funds; recalls.--
66     (1)  POWERS AND DUTIES.--
67     (a)  An association which operates a community as defined
68in s. 720.301, must be incorporated in this state, operated by
69an association that is a Florida corporation. After October 1,
701995, the association must be incorporated and the initial
71governing documents must be recorded in the official records of
72the county in which the community is located. An association may
73operate more than one community.
74     (b)  The officers and directors of an association have a
75fiduciary relationship to the members of who are served by the
76association.
77     (c)  The powers and duties of an association include those
78set forth in this chapter and, except as expressly limited or
79restricted in this chapter, those specifically set forth in the
80governing documents. The officers and directors of the
81association may not take any action that is inconsistent with
82the declaration of covenants.
83     (d)  After control of the association is obtained by
84members from the developers other than the developer, the
85association may institute, maintain, or settle on, or appeal
86actions or hearings in its name on behalf of the all members
87concerning matters of common interest to the members, including,
88but not limited to, the common areas; roof or structural
89components of a building, or other improvements for which the
90association is responsible; mechanical, electrical, or plumbing
91elements serving an improvement or building for which the
92association is responsible; representations of the developer
93pertaining to any existing or proposed commonly used facility;
94and protesting ad valorem taxes on commonly used facilities. The
95association may defend actions in eminent domain or bring
96inverse condemnation actions. Before commencing any legal action
97litigation against any party in the name of the association
98involving amounts in controversy in excess of $50,000 $100,000,
99the association must obtain the affirmative approval of a
100majority of the members of the association voting interests at a
101meeting of the association membership at which a quorum is
102present has been attained.
103     (e)  The association may enter into contracts for the
104benefit of the members of the association, including, but not
105limited to, contracts for maintaining, repairing, or improving
106the common areas of the association. This subsection does not
107limit any statutory or common-law right of any individual member
108or class of members to bring any action without participation by
109the association.
110     (f)  A member does not have the authority to act for the
111association by virtue of being a member of the association. An
112association may have more than one class of members and may
113issue membership certificates.
114     (g)  In any action between a member and the association, it
115shall not be a defense by the association that the association's
116actions, although inconsistent with the declaration of
117covenants, have been uniformly applied.
118     (h)  An association may not restrict a member's freedom of
119association and may not limit the number of guests a member may
120have within a 24-hour period.
121     (i)  An association of 15 or fewer parcels parcel owners
122may enforce only the requirements of those deed restrictions
123established prior to the purchase of each parcel upon an
124affected parcel owner or owners.
125     (j)  The officers and directors of an association may be
126personally liable for damages to a member if the actions of the
127officers and directors demonstrate a pattern of behavior
128designed to harass a member of the association.
129     (k)  Any action of the association by and through the
130officers and directors that limits the legal use of any portion
131of a member's property which is inconsistent with the
132declaration of covenants shall entitle the member to
133compensation for the fair market value of that portion of the
134member's property the use of which is being restricted.
135     (l)  In any association with more than 50 but fewer than 75
136parcels, for purposes of establishing setback limits, any parcel
137of 1 acre or less shall be deemed to have one front for purposes
138of determining the required front setback, if any. Only those
139setbacks specifically set forth in the declaration of covenants
140may be enforced by the association. Where the covenants are
141silent, the applicable county or municipal setbacks shall apply.
142     (m)  The association may not deny or refuse to approve a
143member's plans for building on the member's property unless the
144plan under consideration violates a specific provision of the
145declaration of covenants.
146     (6)  BUDGETS.--
147     (a)  The association shall prepare an annual budget
148providing for the annual operating expenses. The budget must
149reflect the estimated revenues and expenses for that year and
150the estimated surplus or deficit as of the end of the current
151year. The budget must set out separately all fees or charges for
152recreational amenities, whether owned by the association, the
153developer, or another person. The association shall provide each
154member with a copy of the annual budget or a written notice that
155a copy of the budget is available upon request at no charge to
156the member. The copy must be provided to the member within the
157time limits set forth in subsection (5).
158     (b)  In addition to annual operating expenses, the budget
159shall include reserve accounts for capital expenditures and
160deferred maintenance. These accounts shall include, but are not
161limited to, roof replacement, building painting, and pavement
162resurfacing, regardless of the amount of deferred maintenance
163expense or replacement cost, and any other item for which the
164deferred maintenance expense or replacement cost exceeds
165$10,000. The amount to be reserved shall be computed by means of
166a formula that is based upon estimated remaining useful life and
167estimated replacement cost or deferred maintenance expense of
168each reserve item. The association may adjust replacement
169reserve assessments annually to take into account any changes in
170estimates or extension of the useful life of a reserve item
171caused by deferred maintenance. This paragraph does not apply to
172an adopted budget for which the members of an association have
173determined, by a majority vote at a duly called meeting of the
174association, to provide no reserves or fewer reserves than
175required by this paragraph. However, prior to turnover of
176control of an association by a developer to unit owners, the
177developer may vote to waive the reserves or reduce the funding
178of reserves for the first 2 fiscal years of the association's
179operation, beginning with the fiscal year in which the initial
180declaration is recorded, after which time reserves may be waived
181or reduced only upon the vote of a majority of all nondeveloper
182voting interests voting in person or by limited proxy at a duly
183called meeting of the association. If a meeting of the unit
184owners has been called to determine whether to waive or reduce
185the funding of reserves and no such result is achieved or a
186quorum is not attained, the reserves as included in the budget
187shall go into effect. After the turnover, the developer may vote
188its voting interest to waive or reduce the funding of reserves.
189     (7)  FINANCIAL REPORTING.--Within 90 days after the end of
190the fiscal year, or annually on the date provided in the bylaws,
191the association shall prepare and complete, or contract for the
192preparation and completion of, a an annual financial report for
193the preceding fiscal year. Within 21 60 days after the final
194financial report is completed by the association or received
195from the third party, but not later than 120 days after the end
196of the fiscal year or other date as provided in the bylaws,
197close of the fiscal year. the association shall, within the time
198limits set forth in subsection (5), provide each member with a
199copy of the annual financial report or a written notice that a
200copy of the financial report is available upon request at no
201charge to the member. Financial reports shall be prepared as
202follows:
203     (a)  An association that meets the criteria of this
204paragraph shall prepare or cause to be prepared a complete set
205of financial statements in accordance with generally accepted
206accounting principles as adopted by the Board of Accountancy.
207The financial statements shall be based upon the association's
208total annual revenues, as follows:
209     1.  An association with total annual revenues of $100,000
210or more, but less than $200,000, shall prepare compiled
211financial statements.
212     2.  An association with total annual revenues of at least
213$200,000, but less than $400,000, shall prepare reviewed
214financial statements.
215     3.  An association with total annual revenues of $400,000
216or more shall prepare audited financial statements.
217     (b)1.  An association with total annual revenues of less
218than $100,000 shall prepare a report of cash receipts and
219expenditures.
220     2.  An association in a community of fewer than 50 parcels,
221regardless of the association's annual revenues, may prepare a
222report of cash receipts and expenditures in lieu of financial
223statements required by paragraph (a) unless the governing
224documents provide otherwise.
225     3.  A report of cash receipts and disbursement must
226disclose the amount of receipts by accounts and receipt
227classifications and the amount of expenses by accounts and
228expense classifications, including, but not limited to, the
229following, as applicable: costs for security, professional, and
230management fees and expenses; taxes; costs for recreation
231facilities; expenses for refuse collection and utility services;
232expenses for lawn care; costs for building maintenance and
233repair; insurance costs; administration and salary expenses; and
234reserves if maintained by the association.
235     (c)  If 20 percent of the parcel owners petition the board
236for a level of financial reporting higher than that required by
237this section, the association shall duly notice and hold a
238meeting of members within 30 days of receipt of the petition for
239the purpose of voting on raising the level of reporting for that
240fiscal year. Upon approval of a majority of the total voting
241interests of the parcel owners, the association shall prepare or
242cause to be prepared, shall amend the budget or adopt a special
243assessment to pay for the financial report regardless of any
244provision to the contrary in the governing documents, and shall
245provide within 90 days of the meeting or the end of the fiscal
246year, whichever occurs later:
247     1.  Compiled, reviewed, or audited financial statements, if
248the association is otherwise required to prepare a report of
249cash receipts and expenditures;
250     2.  Reviewed or audited financial statements, if the
251association is otherwise required to prepare compiled financial
252statements; or
253     3.  Audited financial statements if the association is
254otherwise required to prepare reviewed financial statements.
255     (d)  If approved by a majority of the voting interests
256present at a properly called meeting of the association, an
257association may prepare or cause to be prepared:
258     1.  A report of cash receipts and expenditures in lieu of a
259compiled, reviewed, or audited financial statement;
260     2.  A report of cash receipts and expenditures or a
261compiled financial statement in lieu of a reviewed or audited
262financial statement; or
263     3.  A report of cash receipts and expenditures, a compiled
264financial statement, or a reviewed financial statement in lieu
265of an audited financial statement.
266     Section 2.  Paragraph (t) is added to subsection (3) of
267section 720.307, Florida Statutes, to read:
268     720.307  Transition of association control in a
269community.--With respect to homeowners' associations:
270     (3)  At the time the members are entitled to elect at least
271a majority of the board of directors of the homeowners'
272association, the developer shall, at the developer's expense,
273within no more than 90 days deliver the following documents to
274the board:
275     (t)  The financial records, including financial statements
276of the association, and source documents from the incorporation
277of the association through the date of turnover. The records
278shall be audited by an independent certified public accountant
279for the period from the incorporation of the association or from
280the period covered by the last audit, if an audit has been
281performed for each fiscal year since incorporation. All
282financial statements shall be prepared in accordance with
283generally accepted accounting principles and shall be audited in
284accordance with generally accepted auditing standards, as
285prescribed by the Board of Accountancy, pursuant to chapter 473.
286The certified public accountant performing the audit shall
287examine to the extent necessary supporting documents and
288records, including the cash disbursements and related paid
289invoices to determine whether expenditures were for association
290purposes and the billings, cash receipts, and related records to
291determine whether the developer was charged and paid the proper
292amounts of assessments.
293     Section 3.  Section 720.308, Florida Statutes, is amended
294to read:
295     720.308  Assessments and charges.--
296     (1)  ASSESSMENTS.--For any community created after October
2971, 1995, the governing documents must describe the manner in
298which expenses are shared and specify the member's proportional
299share thereof. Assessments levied pursuant to the annual budget
300or special assessment must be in the member's proportional share
301of expenses as described in the governing document, which share
302may be different among classes of parcels based upon the state
303of development thereof, levels of services received by the
304applicable members, or other relevant factors. While the
305developer is in control of the homeowners' association, it may
306be excused from payment of its share of the operating expenses
307and assessments related to its parcels for any period of time
308for which the developer has, in the declaration, obligated
309itself to pay any operating expenses incurred that exceed the
310assessments receivable from other members and other income of
311the association. This section does not apply to an association,
312no matter when created, if the association is created in a
313community that is included in an effective development-of-
314regional-impact development order as of the effective date of
315this act, together with any approved modifications thereto.
316     (2)  GUARANTEE OF COMMON EXPENSES.--
317     (a)  Establishment of a guarantee.--If a guarantee is not
318included in the purchase contracts, declaration, or prospectus,
319any agreement establishing a guarantee shall only be effective
320either upon the vote of a majority of all nondeveloper voting
321interests voting in person or by limited proxy at a duly called
322meeting of the association or by agreement in writing without a
323meeting if provided in the bylaws. Such guarantee shall meet the
324requirements of this section.
325     (b)  Guarantee period.--The period of time for the
326guarantee shall be indicated by a specific beginning and ending
327date or event.
328     1.  The ending date or event shall be the same for all of
329the members of a homeowners' association, including members in
330different phases of homeowners' associations.
331     2.  The guarantee may provide for different intervals of
332time during a guarantee period with different dollar amounts for
333each such interval.
334     (c)  Guarantee extension.--The guarantee may provide that
335after the initial stated period the developer has an option to
336extend the guarantee for one or more additional stated periods.
337The extension of a guarantee is limited to extending the ending
338date or event; therefore, the developer does not have the option
339of changing the level of assessments guaranteed.
340     (3)  MAXIMUM LEVEL OF ASSESSMENTS.--The stated dollar
341amount of the guarantee shall be an exact dollar amount for each
342parcel identified in the declaration. Regardless of the stated
343dollar amount of the guarantee, assessments charged to a member
344shall not exceed the maximum obligation of the member based on
345the total amount of the adopted budget and the member's
346proportionate ownership share of the common elements.
347     (4)  CASH FUNDING REQUIREMENTS DURING GUARANTEE.--The cash
348payments required from the guarantor during the guarantee period
349shall be determined as follows:
350     (a)  If at any time during the guarantee period the funds
351collected from member assessments at the guaranteed level and
352other revenues collected by the association are not sufficient
353to provide payment, on a timely basis, of all common expenses,
354including the full funding of the reserves unless properly
355waived, the guarantor shall advance sufficient cash to the
356association at the time such payments are due.
357     (b)  Expenses incurred in the production of nonassessment
358revenues, not in excess of the nonassessment revenues, shall not
359be included in the common expenses. If the expenses attributable
360to nonassessment revenues exceed nonassessment revenues, only
361the excess expenses must be funded by the guarantor. For
362example, if the association operates a rental program in which
363rental expenses exceed rental revenues, the guarantor shall fund
364the rental expenses in excess of the rental revenues. Interest
365earned on the investment of association funds may be used to pay
366the income tax expense incurred as a result of the investment,
367such expense shall not be charged to the guarantor, and the net
368investment income shall be retained by the association. Each
369such nonassessment-revenue-generating activity shall be
370considered separately. Capital contributions collected from
371members are not revenues and shall not be used to pay common
372expenses.
373     (5)  CALCULATION OF GUARANTOR'S FINAL OBLIGATION.--The
374guarantor's total financial obligation to the association at the
375end of the guarantee period shall be determined on the accrual
376basis using the following formula: the guarantor shall fund the
377total common expenses incurred during the guarantee period,
378including the full funding of the reserves unless properly
379waived, less the total regular periodic assessments earned by
380the association from the members other than the guarantor during
381the guarantee period, regardless of whether the actual level
382charged was less than the maximum guaranteed amount.
383     (6)  EXPENSES.--Expenses incurred in the production of
384nonassessment revenues, not in excess of the nonassessment
385revenues, shall not be included in the common expenses. If the
386expenses attributable to nonassessment revenues exceed
387nonassessment revenues, only the excess expenses must be funded
388by the guarantor. For example, if the association operates a
389rental program in which rental expenses exceed rental revenues,
390the guarantor shall fund the rental expenses in excess of the
391rental revenues. Interest earned on the investment of
392association funds may be used to pay the income tax expense
393incurred as a result of the investment, such expense shall not
394be charged to the guarantor, and the net investment income shall
395be retained by the association. Each such nonassessment revenue-
396generating activity shall be considered separately. Capital
397contributions collected from members are not revenues and shall
398not be used to pay common expenses.
399     Section 4.  This act shall take effect July 1, 2006.


CODING: Words stricken are deletions; words underlined are additions.