Rent Your Condo…I Don’t Think So!

It’s my property and I can do whatever I want with it, right?  Wrong!-at least when it comes to renting out a condominium unit.

Most condominium owners in Florida are allowed to rent their units subject to approval by the governing association.  However, when an owner is delinquent in paying assessments on a unit, the condominium association has the right under Florida Statute 718.116(4) to withhold approval of any lease on the unit, regardless of the reasonability of lease or quality of the tenant (provided, of course, that the governing documents of the condominium allow the association the right to approve or disapprove of leases).

While this law may prove frustrating for owners who might look to the rental income as a way to pay down their assessment debt, the purpose of this law is to prevent delinquent owners from entering into below market leases that they can afford only because of their non-payment of assessments and other obligations such as their mortgage.  Not only does this law protect the community from depressed rental values, but it also helps to avoid the stigma that might be associated with an association permitting a delinquent owner access to a stream of revenue where he or she has little to no expenses and little incentive to pay down their debt.  It also protects a prospective tenant from getting in over their head with a landlord who may have little to no interest in laying out any cash, including that which may be necessary to fund major repairs to the unit such as air conditioning or plumbing.

Now lets say a unit owner pushes hard for approval of their lease and it is at fair market value and the prospective tenant passes an initial screening.  An alternative to disapproving the lease in the manner described above is founded in another law, Florida Statute 718.116(11), that allows an association to demand and receive rental payments from a delinquent owner’s tenant.  If this can be agreed upon as a condition of approval, it may prove to be a viable option for the association and serve as a justification to the rest of the community as to why the lease was approved.  For more information on this option, see “Got Rent? Going After Delinquent Owners’ Rental Income“.

Either way, the association should make sure that it creates a policy for dealing with these scenarios to ensure that all unit owners are being treated fairly and uniformly.

Daniel Wasserstein

E-mail:  danw@wassersteinpa.com

561-288-3999

What Happens When There is a Tie in a Condominium Election? – A Duel Til…

…the Death?  Not quite.

Unless your condominium’s by-laws contain specific guidelines, section 61B-23.0021 of The Florida Administrative Code is what should be relied upon for resolving ties in condominium elections, and I can assure you it does not involve dueling pistols or white wigs.

First and foremost, the issue of a tie is only applicable to scenarios which would result in one or more of the tying candidates not serving on the board.  By way of example, if a particular board has five vacancies and the top two vote-getters both receive the same number of votes then they are both elected as directors, with three spots left to be filled by the next highest vote-getters.  There is no need to address this tie because both individuals end up serving.  However, if there is a tie between two or more candidates that would necessarily result in one of them not serving (ie: three people tie and there are only two remaining board vacancies or two people tie and there is only a single remaining board vacancy), the following procedures, absent any specific by-law provisions, would apply:

Within seven (7) days of the date of the election at which the tie vote occurred the board shall mail or personally deliver to the voters, a notice of a runoff election.  The notice shall inform the voters of the date scheduled for the runoff election to occur, shall include a ballot, and shall include copies of any candidate information sheets which were previously submitted by the candidates (the candidates cannot alter or revise their information sheets for purposes of the runoff).  The runoff election must be held not less than twenty one (21) days, but not more than thirty (30) days, after the date of the election at which the tie vote occurred.  Additionally, the only candidates eligible for the runoff election are those candidates who received the tie vote at the previous election.  This means no one else can decide to throw their proverbial hat in the ring at this juncture.

If your association does happen to have a tie in an election and follows these procedures it will be complying with Florida law and in doing so, should avoid an old-fashioned duel with the DBPR on procedure!

Daniel Wasserstein

E-mail: danw@wassersteinpa.com

561-288-3999

Wheeling and Self Dealing: Can Directors Contract with the Association?

A fiduciary duty is defined as a relationship of trust and confidence between two or more parties.  In Florida, association board members owe a fiduciary duty to their fellow unit owners.  Florida Statute 718.111(1), which governs condominiums, sets forth that “the officers and directors of the association have a fiduciary relationship to the unit owners.”  Florida Statute 720.303(1), which governs homeowners associations, sets forth that “the officers and directors of an association have a fiduciary relationship to the members who are served by the association.”  As a result of these fiduciary relationships, there are several actions that are off limits to board members, but this has led to many misconceptions as well.  Possibly the most common misconception is that a board member (or his or her company) cannot contract with the association because it would be a conflict of interest and thereby, a breach of a fiduciary duty-this is not true.

Florida Statute 617.0832 deals with conflicts of interest for directors of non-profit corporations (ie: condos and HOAs).  It provides that “no contract or other transaction between a corporation and one or more of its directors or any other corporation, firm, association, or entity in which one or more of its directors are directors or officers or are financially interested shall be either void or voidable because of such relationship or interest” provided that 1) the fact of such relationship or interest is disclosed or known to those who are entitled to authorize the contract or transaction and 2) that the contract or transaction is fair and reasonable at the time it is authorized.

As long as this type of contract or transaction is before the board of directors for approval and is authorized by the affirmative vote of a majority of those directors who do not have a relationship or interest in the transaction (and as long as it is more than a single disinterested director that approves), the transaction will be deemed properly authorized under the statute.  It should also be noted that the mere presence or casting of a vote by a director having a relationship or interest in the transaction does not invalidate the process so long as the transaction is otherwise properly authorized.

The most important thing for a board member to consider is that while contracting with the association is statutorily permissible, it may nevertheless carry with it the appearance and stigma of self-dealing.  There is always a possibility that no matter how above board the transaction may be, other owners in the community are likely to think that the transacting director is acting with the same mindset as the cartoon character above.

Lesson: Don’t become the cartoon character.

Daniel Wasserstein

E-mail: danw@wassersteinpa.com

561-288-3999

The Dirty Deed…In Lieu of Foreclosure

When an owner decides that they simply cannot pay their accrued assessment arrearage, they often take steps to either maximize the amount of time that they can hold on to (ie: live in or rent) their property, or alternatively, may endeavor to quickly hand over the subject property to minimize their personal liability.  With regard to the latter, the delinquent owner may make the association an offer where the owner would agree to deed over the property rather than endure the foreclosure process.  In exchange for this quick turn over of title, referred to as a “deed-in-lieu” (in lieu of foreclosure), the owner usually requests a waiver of personal liability for the accrued debt.  Since foreclosure can be both time-consuming and costly, this is often an attractive option to an association, especially where the unit is in habitable condition and the association can quickly get a renter in place.

It is important, however, that the association do its homework before accepting such a deed.  The reason being that there may be other junior lienholders out there with rightful claims that are secured by the property.  The subject property may have no mortgage on it, leading the association to think that it is getting clear title by accepting a deed-in-lieu, but that is not necessarily true.  The association does get title to the property, but that title is still subject to junior claims that may exist against the property.  For example, if the original owner had work performed by a contractor before deeding the property over to the association and that contractor placed a lien, called a mechanic’s lien, on the property due to nonpayment, the contractor would still have a rightful encumbrance on the property which he or she could foreclose on and in doing so, dispossess the association of the property.  Of course, had the association learned of this encumbrance and foreclosed on its own lien rather than accepting a deed-in-lieu, these types of junior claims would have been wiped out (ie: foreclosed) and the association, if it took title through the foreclosure process, would have obtained clear title rather than what this author calls a “dirty deed.”

The lesson is that the quick and easy option often has hidden pitfalls and it is important that your association consult an attorney to discuss and review these types of decisions before any action is taken.

Daniel Wasserstein

E-mail: danw@wassersteinpa.com

561-416-0170