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Condo Q&A: What Happens to Unspent Money?

It may or may not be returned to owners. Also: What oversight rules will change due to the Surfside tragedy? Here’s what the Florida Bar recommends.

STUART, Fla. – Question: Are there differences between Florida Chapters 720 and 718 law as to what HOAs vs. condo associations can do with unspent monies left over from assessments for specified projects? Are they required to return those monies to their owners? Can they put it in the general fund, use it on another assessment or some other use? Thank you. – T.C., Treasure Coast

Answer: When you say assessments for specified projects, I assume you mean special assessments adopted by the board outside of the normal budget for a particular project. In such cases, Section 718.116(10) for Condominiums and Section 719.108(9) for Cooperatives both provide that “the funds collected pursuant to a special assessment shall be used only for the specific purpose or purposes set forth in such notice. However, upon completion of such specific purpose or purposes, any excess funds will be considered common surplus, and may, at the discretion of the board, either be returned to the unit owners or applied as a credit toward future assessments.”

Chapter 720 for Homeowner Associations does not contain this provision, so you should check your governing documents to determine if they dictate what must be done the surplus. If the documents are silent, then it would be a board decision to either return the surplus to the owners, place it in the operating or reserve accounts, or use it for some other proper purpose.

If, however, you mean in the regular annual budget there is a line item for a particular project and at its conclusion there is a surplus leftover, then in such cases the Statutes do not dictate what must be done with those funds, and it is unlikely your documents do either. Typically that surplus would be retained in the operating account and then, at the end of the year, rolled into the next annual budget. The board could choose to return the operating surplus, but I do not find that to be the typical practice.

Question: What are some of the possible changes in the law that may be made as a result of the Champlain Towers South building collapse? – L.Z., Delray Beach

Answer: As a result of this tragedy, The Florida Bar formed the Condominium Law and Policy Life Safety Advisory Task Force. The task force’s mission was to review the condominium and other laws and suggest amendments that would help prevent future accidents.

On Oct. 12, the task force issued its report with numerous recommendations. Below I will highlight some of the proposed changes which are intended, for now, to apply to “high rise” condominium and cooperative buildings, which are defined as a building that is three stories or more in height.

  1. Impose a mandatory maintenance schedule for certain critical infrastructure components and thereby eliminate some of a board’s discretion to put off necessary maintenance and repairs.
  2. Eliminate provisions from governing documents that require unit owner approval for a board to impose a special assessment or borrow money for the funding of necessary maintenance and repair projects.
  3. Impose a nonwaivable every-five-year engineering study of the critical infrastructure components that is much more in depth than a typical reserve study. The study would have to answer certain questions on a standardized form. The report would have to be prepared by an engineer or architect.
  4. Require the five-year report to be posted on the association’s website and provided to all prospective purchasers of units.
  5. Allow owners to sue the association if it fails to produce the five years’ report.
  6. Establish nonwaivable reserves or only 50% waivable reserves for certain critical infrastructure components. Add “waterproofing” as a statutory reserve component. Require 75% of the owners present and voting to waive or reduce reserves, as opposed to the current majority present and voting.
  7. Eliminate pooling of funds allocated to critical component reserves.
  8. Prohibit the state from taking the $4 per door annual fee paid to the Division of Condominiums and using it for other non-condominium or cooperative purposes.
  9. Provide avenues beyond traditional loans and special assessments to raise money for necessary infrastructure maintenance and repairs, such as government-backed low interest loans and establishing special taxing districts similar to a Municipal Service Taxing Unit.
  10. Eliminate the ability of the community association manager, management company and other professionals from avoiding liability for bad advice by using indemnification clauses in their contracts.

Keep in mind these are only recommendations from the task force and what the Legislature actually passes into law could be, and likely will be, different. Nevertheless, it goes without saying that certain reforms are necessary to avoid future tragedies such as Surfside.

Richard D. DeBoest, Esq., is a Partner of the Law Firm Goede, DeBoest & Cross. The information provided herein is for informational purposes only and should not be construed as legal advice. The publication of this article does not create an attorney-client relationship between the reader and Goede, DeBoest & Cross, or any of our attorneys. Readers should not act or refrain from acting based upon the information contained in this article without first contacting an attorney, if you have questions about any of the issues raised herein. The hiring of an attorney is a decision that should not be based solely on advertisements or this column.

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