HB 0839CS

CHAMBER ACTION



1The Judiciary 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.; requiring the budget to provide for annual
8operating expenses; authorizing the budget to include
9reserve accounts for capital expenditures and deferred
10maintenance; providing the amount to be reserved;
11authorizing the association to adjust replacement reserve
12assessments annually; authorizing the developer to vote to
13waive the reserves or reduce the funding of reserves for a
14certain period; revising provisions relating to financial
15reporting; revising time periods in which the association
16must complete its reporting; creating s. 720.3035, F.S.;
17providing for architectural control covenants and parcel
18owner improvements; authorizing the review and approval of
19plans and specifications; providing limitations; providing
20rights and privileges for parcel owners as set forth in
21the declaration of covenants; amending s. 720.307, F.S.;
22requiring developers to deliver financial records to the
23board in any transition of association control to members;
24requiring certain information to be included in the
25records and for the records to be prepared in a specified
26manner; amending s. 720.308, F.S.; providing that a
27guarantee of common expenses shall be effective under
28certain circumstances; requiring the guarantee to meet
29certain requirements; authorizing the guarantee to provide
30certain requirements; requiring the stated dollar amount
31of the guarantee to be an exact dollar amount for each
32parcel identified in the declaration; providing payments
33required from the guarantor to be determined in a certain
34manner; providing a formula to determine the guarantor's
35total financial obligation to the association; providing
36that certain expenses incurred in the production of
37certain revenues shall not be included in the common
38expenses; providing an effective date.
39
40Be It Enacted by the Legislature of the State of Florida:
41
42     Section 1.  Subsections (6) and (7) of section 720.303,
43Florida Statutes, are amended to read:
44     720.303  Association powers and duties; meetings of board;
45official records; budgets; financial reporting; association
46funds; recalls.--
47     (6)  BUDGETS.--
48     (a)  The association shall prepare an annual budget that
49sets out the annual operating expenses. The budget must reflect
50the estimated revenues and expenses for that year and the
51estimated surplus or deficit as of the end of the current year.
52The budget must set out separately all fees or charges paid for
53by the association for recreational amenities, whether owned by
54the association, the developer, or another person. The
55association shall provide each member with a copy of the annual
56budget or a written notice that a copy of the budget is
57available upon request at no charge to the member. The copy must
58be provided to the member within the time limits set forth in
59subsection (5).
60     (b)  In addition to annual operating expenses, the budget
61may include reserve accounts for capital expenditures and
62deferred maintenance for which the association is responsible to
63the extent that the governing documents do not limit increases
64in assessments, including reserves. If the budget of the
65association includes reserve accounts, such reserves shall be
66determined, maintained, and waived in the manner provided in
67this subsection. Once an association provides for reserve
68accounts in the budget, the association shall thereafter
69determine, maintain, and waive reserves in compliance with the
70provisions of this subsection.
71     (c)  If the budget of the association does not provide for
72reserve accounts governed by this subsection and the association
73is responsible for the repair and maintenance of capital
74improvements that may result in a special assessment if reserves
75are not provided, each financial report for the preceding fiscal
76year required by subsection (7) shall contain the following
77statement in conspicuous type: THE BUDGET OF THE ASSOCIATION
78DOES NOT PROVIDE FOR RESERVE ACCOUNTS FOR CAPITAL EXPENDITURES
79AND DEFERRED MAINTENANCE THAT MAY RESULT IN SPECIAL ASSESSMENTS.
80OWNERS MAY ELECT TO PROVIDE FOR RESERVE ACCOUNTS PURSUANT TO THE
81PROVISIONS OF SECTION 720.303(6), FLORIDA STATUTES, UPON THE
82APPROVAL OF NOT LESS THAN A MAJORITY OF THE TOTAL VOTING
83INTERESTS OF THE ASSOCIATION.
84     (d)  An association shall be deemed to have provided for
85reserve accounts when reserve accounts have been initially
86established by the developer or when the membership of the
87association affirmatively elects to provide for reserves. If
88reserve accounts are not initially provided for by the
89developer, the membership of the association may elect to do so
90upon the affirmative approval of not less than a majority of the
91total voting interests of the association. Such approval may be
92attained by vote of the members at a duly called meeting of the
93membership or upon a written consent executed by not less than a
94majority of the total voting interests in the community. The
95approval action of the membership shall state that reserve
96accounts shall be provided for in the budget and the approval
97action of the membership shall designate the components for
98which the reserve accounts are to be established. Upon approval
99by the membership, the board of directors shall provide for the
100required reserve accounts for inclusion in the budget in the
101next fiscal year following the approval and in each year
102thereafter. Once established as provided in this subsection, the
103reserve accounts shall be funded or maintained or shall have
104their funding waived in the manner provided in paragraph (f).
105     (e)  The amount to be reserved in any account established
106shall be computed by means of a formula that is based upon
107estimated remaining useful life and estimated replacement cost
108or deferred maintenance expense of each reserve item. The
109association may adjust replacement reserve assessments annually
110to take into account any changes in estimates of cost or useful
111life of a reserve item.
112     (f)  Once a reserve account or reserve accounts are
113established, the membership of the association upon a majority
114vote at a meeting at which a quorum is present may provide for
115no reserves or less reserves than required by this section. If a
116meeting of the unit owners has been called to determine whether
117to waive or reduce the funding of reserves and no such result is
118achieved or a quorum is not attained, the reserves as included
119in the budget shall go into effect. After the turnover, the
120developer may vote its voting interest to waive or reduce the
121funding of reserves. Any vote taken pursuant to this subsection
122to waive or reduce reserves shall be applicable only to one
123budget year.
124     (g)  Funding formulas for reserves authorized by this
125section shall be based on either a separate analysis of each of
126the required assets or a pooled analysis of two or more of the
127required assets.
128     1.  If the association maintains separate reserve accounts
129for each of the required assets, the amount of the contribution
130to each reserve account shall be the sum of the following two
131calculations:
132     a.  The total amount necessary, if any, to bring a negative
133component balance to zero; and
134     b.  The total estimated deferred maintenance expense or
135estimated replacement cost of the reserve component less the
136estimated balance of the reserve component as of the beginning
137of the period for which the budget will be in effect. The
138remainder, if greater than zero, shall be divided by the
139estimated remaining useful life of the component. The formula
140may be adjusted each year for changes in estimates and deferred
141maintenance performed during the year and may include factors
142such as inflation and earnings on invested funds.
143     2.  If the association maintains a pooled account of two or
144more of the required reserve assets, the amount of the
145contribution to the pooled reserve account as disclosed on the
146proposed budget shall not be less than that required to ensure
147that the balance on hand at the beginning of the period for
148which the budget will go into effect plus the projected annual
149cash inflows over the remaining estimated useful life of all of
150the assets that make up the reserve pool are equal to or greater
151than the projected annual cash outflows over the remaining
152estimated useful lives of all of the assets that make up the
153reserve pool, based on the current reserve analysis. The
154projected annual cash inflows may include estimated earnings
155from investment of principal. The reserve funding formula shall
156not include any type of balloon payments.
157     (h)  Reserve funds and any interest accruing thereon shall
158remain in the reserve account or accounts and shall be used only
159for authorized reserve expenditures unless their use for other
160purposes is approved in advance by a majority vote at a meeting
161at which a quorum is present. Prior to turnover of control of an
162association by a developer to parcel owners, the developer-
163controlled association shall not vote to use reserves for
164purposes other than that for which they were intended without
165the approval of a majority of all nondeveloper voting interests
166voting in person or by limited proxy at a duly called meeting of
167the association.
168     (7)  FINANCIAL REPORTING.--Within 90 days after the end of
169the fiscal year, or annually on the date provided in the bylaws,
170the association shall prepare and complete, or contract for the
171preparation and completion of, a an annual financial report for
172the preceding fiscal year. Within 21 60 days after the final
173financial report is completed by the association or received
174from the third party, but not later than 120 days after the end
175of the fiscal year or other date as provided in the bylaws,
176close of the fiscal year. the association shall, within the time
177limits set forth in subsection (5), provide each member with a
178copy of the annual financial report or a written notice that a
179copy of the financial report is available upon request at no
180charge to the member. Financial reports shall be prepared as
181follows:
182     (a)  An association that meets the criteria of this
183paragraph shall prepare or cause to be prepared a complete set
184of financial statements in accordance with generally accepted
185accounting principles as adopted by the Board of Accountancy.
186The financial statements shall be based upon the association's
187total annual revenues, as follows:
188     1.  An association with total annual revenues of $100,000
189or more, but less than $200,000, shall prepare compiled
190financial statements.
191     2.  An association with total annual revenues of at least
192$200,000, but less than $400,000, shall prepare reviewed
193financial statements.
194     3.  An association with total annual revenues of $400,000
195or more shall prepare audited financial statements.
196     (b)1.  An association with total annual revenues of less
197than $100,000 shall prepare a report of cash receipts and
198expenditures.
199     2.  An association in a community of fewer than 50 parcels,
200regardless of the association's annual revenues, may prepare a
201report of cash receipts and expenditures in lieu of financial
202statements required by paragraph (a) unless the governing
203documents provide otherwise.
204     3.  A report of cash receipts and disbursement must
205disclose the amount of receipts by accounts and receipt
206classifications and the amount of expenses by accounts and
207expense classifications, including, but not limited to, the
208following, as applicable: costs for security, professional, and
209management fees and expenses; taxes; costs for recreation
210facilities; expenses for refuse collection and utility services;
211expenses for lawn care; costs for building maintenance and
212repair; insurance costs; administration and salary expenses; and
213reserves if maintained by the association.
214     (c)  If 20 percent of the parcel owners petition the board
215for a level of financial reporting higher than that required by
216this section, the association shall duly notice and hold a
217meeting of members within 30 days of receipt of the petition for
218the purpose of voting on raising the level of reporting for that
219fiscal year. Upon approval of a majority of the total voting
220interests of the parcel owners, the association shall prepare or
221cause to be prepared, shall amend the budget or adopt a special
222assessment to pay for the financial report regardless of any
223provision to the contrary in the governing documents, and shall
224provide within 90 days of the meeting or the end of the fiscal
225year, whichever occurs later:
226     1.  Compiled, reviewed, or audited financial statements, if
227the association is otherwise required to prepare a report of
228cash receipts and expenditures;
229     2.  Reviewed or audited financial statements, if the
230association is otherwise required to prepare compiled financial
231statements; or
232     3.  Audited financial statements if the association is
233otherwise required to prepare reviewed financial statements.
234     (d)  If approved by a majority of the voting interests
235present at a properly called meeting of the association, an
236association may prepare or cause to be prepared:
237     1.  A report of cash receipts and expenditures in lieu of a
238compiled, reviewed, or audited financial statement;
239     2.  A report of cash receipts and expenditures or a
240compiled financial statement in lieu of a reviewed or audited
241financial statement; or
242     3.  A report of cash receipts and expenditures, a compiled
243financial statement, or a reviewed financial statement in lieu
244of an audited financial statement.
245     Section 2.  Section 720.3035, Florida Statutes, is created
246to read:
247     720.3035  Architectural control covenants; parcel owner
248improvements; rights and privileges.--
249     (1)  The authority of an association or any committee of an
250association to review and approve plans and specifications for
251the location, size, type, or appearance of any structure or
252other improvement on a parcel, or to enforce standards for the
253external appearance of any structure or improvement located on a
254parcel, shall only be authorized and permitted to the extent
255that the authority is specifically stated or reasonably inferred
256as to such location, size, type, or appearance in the
257declaration of covenants.
258     (2)  If the declaration of covenants provides options for
259the use of material, the size of the structure or improvement,
260the design of the structure or improvement, or the location of
261the structure or improvement on the parcel, neither the
262association nor any committee of the association shall restrict
263the right of a parcel owner to select from the options provided
264in the declaration of covenants.
265     (3)  For the purpose of establishing setback lines that are
266specifically stated in the declaration of covenants, each parcel
267shall be deemed to have only one front for purposes of
268determining the required front setback even if the parcel is
269bounded by a roadway or other easement on more than one side.
270When the declaration of covenants does not provide for specific
271setback lines, the applicable county or municipal setback lines
272shall apply, and neither the association nor any committee of
273the association shall enforce or attempt to enforce any setback
274line that is inconsistent with the applicable county or
275municipal standard or standards.
276     (4)  Each parcel owner shall be entitled to the rights and
277privileges set forth in the declaration of covenants concerning
278the use of the parcel, and the construction of permitted
279structures and improvements on the parcel and such rights and
280privileges shall not be unreasonably infringed upon or impaired
281by the association or any committee of the association. If the
282association or any committee of the association should infringe
283upon or impair the rights and privileges set forth in the
284declaration of covenants, the adversely affected parcel owner
285shall be entitled to recover damages caused by such infringement
286or impairment, including any costs and reasonable attorney's
287fees incurred in preserving or restoring the rights and
288privileges of the parcel owner set forth in the declaration of
289covenants.
290     (5)  Neither the association nor any committee of the
291association shall enforce any policy or restriction that is
292inconsistent with the rights and privileges of a parcel owner
293set forth in the declaration of covenants, whether uniformly
294applied or not. Neither the association nor any committee of the
295association may rely upon a policy or restriction that is
296inconsistent with the declaration of covenants, whether
297uniformly applied or not, in defense of any action taken in the
298name of or on behalf of the association against a parcel owner.
299     Section 3.  Paragraph (t) is added to subsection (3) of
300section 720.307, Florida Statutes, to read:
301     720.307  Transition of association control in a
302community.--With respect to homeowners' associations:
303     (3)  At the time the members are entitled to elect at least
304a majority of the board of directors of the homeowners'
305association, the developer shall, at the developer's expense,
306within no more than 90 days deliver the following documents to
307the board:
308     (t)  The financial records, including financial statements
309of the association, and source documents from the incorporation
310of the association through the date of turnover. The records
311shall be audited by an independent certified public accountant
312for the period from the incorporation of the association or from
313the period covered by the last audit, if an audit has been
314performed for each fiscal year since incorporation. All
315financial statements shall be prepared in accordance with
316generally accepted accounting principles and shall be audited in
317accordance with generally accepted auditing standards, as
318prescribed by the Board of Accountancy, pursuant to chapter 473.
319The certified public accountant performing the audit shall
320examine to the extent necessary supporting documents and
321records, including the cash disbursements and related paid
322invoices to determine whether expenditures were for association
323purposes and the billings, cash receipts, and related records of
324the association to determine whether the developer was charged
325and paid the proper amounts of assessments. This paragraph
326applies to associations with a date of incorporation after
327December 31, 2006.
328     Section 4.  Section 720.308, Florida Statutes, is amended
329to read:
330     720.308  Assessments and charges.--
331     (1)  ASSESSMENTS.--For any community created after October
3321, 1995, the governing documents must describe the manner in
333which expenses are shared and specify the member's proportional
334share thereof. Assessments levied pursuant to the annual budget
335or special assessment must be in the member's proportional share
336of expenses as described in the governing document, which share
337may be different among classes of parcels based upon the state
338of development thereof, levels of services received by the
339applicable members, or other relevant factors. While the
340developer is in control of the homeowners' association, it may
341be excused from payment of its share of the operating expenses
342and assessments related to its parcels for any period of time
343for which the developer has, in the declaration, obligated
344itself to pay any operating expenses incurred that exceed the
345assessments receivable from other members and other income of
346the association. This section does not apply to an association,
347no matter when created, if the association is created in a
348community that is included in an effective development-of-
349regional-impact development order as of the effective date of
350this act, together with any approved modifications thereto.
351     (2)  GUARANTEE OF COMMON EXPENSES.--
352     (a)  Establishment of a guarantee.--If a guarantee of the
353assessments of parcel owners is not included in the purchase
354contracts or declaration, any agreement establishing a guarantee
355shall be effective only upon the approval of a majority of the
356voting interests of the members other than the developer.
357Approval shall be expressed at a meeting of the members voting
358in person or by limited proxy or by agreement in writing without
359a meeting if provided in the bylaws. Such guarantee shall meet
360the requirements of this section.
361     (b)  Guarantee period.--The period of time for the
362guarantee shall be indicated by a specific beginning and ending
363date or event.
364     1.  The ending date or event shall be the same for all of
365the members of a homeowners' association, including members in
366different phases of the development.
367     2.  The guarantee may provide for different intervals of
368time during a guarantee period with different dollar amounts for
369each such interval.
370     3.  The guarantee may provide that after the initial stated
371period the developer has an option to extend the guarantee for
372one or more additional stated periods. The extension of a
373guarantee is limited to extending the ending date or event;
374therefore, the developer does not have the option of changing
375the level of assessments guaranteed.
376     (3)  MAXIMUM LEVEL OF ASSESSMENTS.--The stated dollar
377amount of the guarantee shall be an exact dollar amount for each
378parcel identified in the declaration. Regardless of the stated
379dollar amount of the guarantee, assessments charged to a member
380shall not exceed the maximum obligation of the member based on
381the total amount of the adopted budget and the member's
382proportionate ownership share of the common elements.
383     (4)  CASH FUNDING REQUIREMENTS DURING THE GUARANTEE.--The
384cash payments required from the guarantor during the guarantee
385period shall be determined as follows:
386     (a)  If at any time during the guarantee period the funds
387collected from member assessments at the guaranteed level and
388other revenues collected by the association are not sufficient
389to provide payment, on a timely basis, of all assessments,
390including the full funding of the reserves unless properly
391waived, the guarantor shall advance sufficient cash to the
392association at the time such payments are due.
393     (b)  Expenses incurred in the production of nonassessment
394revenues, not in excess of the nonassessment revenues, shall not
395be included in the assessments. If the expenses attributable to
396nonassessment revenues exceed nonassessment revenues, only the
397excess expenses must be funded by the guarantor. Interest earned
398on the investment of association funds may be used to pay the
399income tax expense incurred as a result of the investment; such
400expense shall not be charged to the guarantor; and the net
401investment income shall be retained by the association. Each
402such nonassessment-revenue-generating activity shall be
403considered separately. Any portion of the parcel assessment that
404is budgeted for designated capital contributions of the
405association shall not be used to pay operating expenses.
406     (5)  CALCULATION OF GUARANTOR'S FINAL OBLIGATION.--The
407guarantor's total financial obligation to the association at the
408end of the guarantee period shall be determined on the accrual
409basis using the following formula: the guarantor shall pay any
410deficits that exceed the guaranteed amount, less the total
411regular periodic assessments earned by the association from the
412members other than the guarantor during the guarantee period,
413regardless of whether the actual level charged was less than the
414maximum guaranteed amount.
415     (6)  EXPENSES.--Expenses incurred in the production of
416nonassessment revenues, not in excess of the nonassessment
417revenues, shall not be included in the operating expenses. If
418the expenses attributable to nonassessment revenues exceed
419nonassessment revenues, only the excess expenses must be funded
420by the guarantor. Interest earned on the investment of
421association funds may be used to pay the income tax expense
422incurred as a result of the investment; such expense shall not
423be charged to the guarantor; and the net investment income shall
424be retained by the association. Each such nonassessment-revenue-
425generating activity shall be considered separately. Any portion
426of the parcel assessment that is budgeted for designated capital
427contributions of the association shall not be used to pay
428operating expenses.
429     Section 5.  This act shall take effect July 1, 2006.


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