HOAs, Condos, and Cooperatives: What’s the Difference?
As a Florida community association lawyer, I am often asked about the legal differences between the various types of community associations: Homeowners’ Associations (HOAs), Condominium Associations (Condos) and Cooperative Associations (Co-ops). Sometimes, the differences seem apparent. A standard planned neighborhood of single-family homes is nothing like a high-rise condominium. Other times, it is hard to tell. Some communities of detached single-family homes are organized as condominiums. We call them “land-o-miniums”. Other planned neighborhoods look like HOAs, but are instead operated as Co-ops. What is the legal difference?
The answer is found in the statutory definitions of Co-ops (Section 719.103(12), Florida Statutes), HOAs (Section 720.301(9), Florida Statutes), and Condos (Section 718.103(11), Florida Statutes). A Co-op is the easiest to legally identify. It exists when the land in a neighborhood is owned by a legal entity (i.e. a corporation) and the lot owners have both a membership interest in that entity (i.e. stock) and the right to possess their lot on a continuing basis (i.e. a long-term lease). Co-op members do not own their lot. Instead, they are generally stockholders in the Co-op with a long-term lease to their parcel.
Condos are the next easiest type of association to identify. A condominium is a form of ownership created pursuant to Florida’s Condominium Act in which owners own both their unit and an undivided share in the common elements (everything outside their unit). While condominiums can look like other types of communities, they are generally easy to spot because the units are created by a Declaration of Condominium, sometimes coupled with a condominium plat, which is expressly referenced in each unit’s deed (i.e. Unit B, according to the XYZ Declaration of Condominium).
HOAs are more nuanced. To be an HOA, the association must first be a Florida corporation responsible for operating a community made up of parcel owners. Next, membership in the association must be linked with, and inseparable from, lot ownership. Lastly, the association must have the right to impose liens on homeowners’ property if assessments are unpaid.
It is important to know what type of association you are dealing with because different rules apply to each. Condos are the most heavily regulated and even have a whole chapter of the Florida Administrative Code to themselves. HOAs tend to be less regulated, though new laws are enacted every year to reduce their operational flexibility. If you are not sure what type of community you live in, take a look at the statutory definitions. They may provide the answer.
Participation by Proxy – An Option for Socially Distant HOAs, Condominiums and Cooperative Associations
In these precarious times, attending a meeting of your cooperative, condominium or homeowners’ association (HOA) may be the last thing on your “to do” list. However, your community is important to you, and on some issues, your vote needs to be heard. The most common method of participating at a meeting, without actually being there, is through a proxy.
“Proxy” is a fancy word for agent – someone who is authorized to act as a substitute for another. A proxy form is the document by which the agent (aka the “proxy holder”) is named and appointed. In the context of cooperative, condominium and homeowners’ association meetings, proxy forms come in two types: general and limited. A general proxy allows the proxy holder to vote however she sees fit on any matter that comes up at the meeting. A limited proxy lists the issues on which the proxy holder may vote and instructs her how to vote.
In Florida corporations not-for-profit, the use of proxies (whether limited or general) by members is generally authorized if not prohibited by the Bylaws or Articles of Incorporation. Section 617.0721(2), Florida Statutes. This rule holds true with homeowners’ associations. Section 720.306(8) states that members “have the right, unless otherwise provided…in the governing documents, to vote in person or by proxy.” In order to be valid, an HOA proxy form “must be dated, must state the date, time, and place of the meeting for which it was given, and must be signed by the authorized person who executed the proxy.” Id.
The use of proxies in condominiums and cooperatives is more limited. First, proxies may not, generally, be used to elect board members. Sections 718.112(2) and 719.106(1), Florida Statutes. This prohibition can be lifted by the affirmative vote of a majority of the total voting interest in a cooperative association, or in a condominium with ten or fewer units. Id. Second, general proxies may not be used except in limited circumstances, such as to establish a quorum. Id. Third, the proxy form must substantially conform to the form adopted by the Division of Florida Condominiums, Timeshares, and Mobile Homes of the Department of Business and Professional Regulation (DBPR Form CO 6000-7). Id.
If you are interested in utilizing proxies for an upcoming meeting, bear in mind that a proxy form is not generally valid for a period longer than 90 days after the date of the first meeting for which it was given. Sections 718.112(2), 719.106(1) and 720.303(6), Florida Statutes. Also, you will need to check the Bylaws and Articles of Incorporation to ensure that any additional requirements are met, such as delivering a copy of the proxy form to the association’s Secretary in order to allow him to keep track of how many members will be attending by proxy. Finally, while association members may use proxies as outlined above, directors may not use them to vote at board meetings. Sections 718.111(1), 719.104(8) and 720.303(2).
These are indeed strange times for community associations. While large in-person meetings may be avoided for the time being, that does not mean that members lack the ability to participate or ensure their voice, and their vote, is heard.
HOAs & Condos: When is a verbal resignation valid?
In representing condominiums (condos) and homeowners’ associations (HOAs), I am often asked whether the resignation of a board member or officer is valid. Invariably, the person in question has either announced “I quit” at an open meeting, or simply told another officer of the fact. Is a verbal resignation from the board of a non-profit HOA or condo valid?
The answer to is emphatically NO, unless the bylaws or articles of incorporation expressly allow it. In my experience, community association governing documents generally reference resignation, but do not spell out how it should to occur. If that is the case with your association, the issue is governed by the Florida Not For Profit Corporation Act (Chapter 617, Florida Statutes). Two provisions are relevant. The first is Section 617.0807(1), which states that “[a] director may resign at any time by delivering written notice to the board of directors or its chair or to the corporation.” The second is Section 617.0141(1), which requires any “[n]otice under this act to be in writing, unless oral notice is: (a) expressly authorized by the articles of incorporation or the bylaws.”
When read together, these statutes require a resignation to be in writing unless the association’s bylaws or articles of incorporation expressly allow a verbal resignation. Recent arbitration decisions issued by the Florida Department of Business and Professional Regulations arrive at the same conclusion.
- Sanville v. Venetian Mgmt. Assn., Inc., Case No. 16-04-7565, 2016 WL 7667624, at *3 (Fla. D.B.P.R. Summary Final Order, Nov. 17, 2016) (“Since oral resignations are not explicitly authorized by the Association’s governing documents, resignations from the Association’s board of directors must be in writing and properly delivered to the Association to be effective.”)
- Brand v. Sundance Assn., Inc., Case No. 16-00-5242, 2016 WL 4939974, at *2 (Fla. D.B.P.R. Summary Final Order, July 6, 2016) (“Since oral resignations are not explicitly authorized by the Association’s governing documents, resignations from the Association’s board of directors must be in writing and properly delivered to the Association to be effective. Therefore, Petitioners’ verbal resignations at the November 17, 2015 board of directors meeting were ineffective.”)
- WPB Berkshire a Condominium, Inc. v. Unit Owners Voting for Recall, Case No. 05-04-7905, 2005 WL 3966672, at *4 (Fla. D.B.P.R. Summary Final Order, Oct. 11, 2005) (“Mr. Gilbert erroneously believed that Mr. Ostrovsky had resigned because of certain comments that Mr. Ostrovsky made to Mr. Gilbert. Mr. Ostrovsky did not submit a letter of resignation as required by § 617.0807(1), Florida Statutes, and he has continued to serve as a board member.”)
In sum, for HOAs, condos and other non-profit community associations, “I quit” is not generally enough. Make sure the resignation is in writing and specifies the date it is to be effective. Otherwise, we might not know who is actually on the board!
Parker Named President of Polk Area Real Estate Council
Boswell & Dunlap LLP is pleased to announce that Sean R. Parker has been appointed president of the Polk Area Real Estate Council. The council connects real estate attorneys and professionals throughout Polk County and beyond to provide education, information and resources to consumers and our real estate community, to enhance the practices of real estate attorneys, and to make each real estate experience a successful, positive and rewarding one. Sean’s appointment continues the firm’s century-long commitment to our local real estate community.
Chilton to Host Lakeland HOA Seminar
On January 24, 2020, Robert Chilton will host a free HOA seminar at the Lakeland Public Library on Lake Morton. The event, which begins at 3:00 p.m., will focus on legal issues facing Florida homeowners’ associations and include topics such as meeting procedures, estoppel requests, covenant enforcement and statutory updates. Mr. Chilton has been certified to provide HOA board member education courses by Florida’s Department of Business and Professional Regulation.
All are welcome. However, as space is limited, please contact the firm by January 20, 2020 to reserve your place.
HOAs! Beware The Marketable Record Title Act (MRTA)
For unwary homeowners’ associations, a danger is lurking beneath the water’s surface. If one is not careful, it will strike, swallowing whole a community’s restrictive covenants.
I speak, of course, of MRTA, which was enacted to simply real estate transactions. Before MRTA, a Florida parcel’s title history would theoretically need to be researched back to the initial Spanish land grants. MRTA streamlines that process, providing that certain interests in land are extinguished after 30 years, with limited exceptions, unless those interests are preserved in the manner provided by law. In essence, MRTA eliminates stale claims against property. These can include an HOA’s recorded Declaration of Covenants, Conditions and Restrictions (“CCRs”).
The yardstick for MRTA is the “root of title”. The term “root of title” means “any title transaction purporting to create or transfer the estate claimed by any person which is the last title transaction to have been recorded at least 30 years before the time when marketability is being determined.” § 712.01(6), Fla. Stat. Under MRTA, “when a record owner, alone or with its predecessors in title, has been vested with an estate in land of record for 30 years or more, such owner has marketable title free and clear of all claims [and restrictions] except matters preserved by section 712.03.” Martin v. Town of Palm Beach, 643 So. 2d 112, 114 (Fla 4th DCA 1994).
If MRTA has not already extinguished a community’s CCRs, the HOA has several options to preserve them, including:
- Formal Notice – By recording a formal notice preserving the CCRs, following written notice to each affected owner, pursuant to §§ 712.05(2)(a) and 712.06.
- Summary Notice – By recording a summary notice of preservation approved by the board of directors pursuant to §§ 712.05(2)(b) and 720.3032(2); or
- Valid Amendment – By recording an amendment to the CCRs that is indexed under the association’s legal name and that references the recording information of the CCRs to be preserved pursuant to § 712.05(2)(b).
If MRTA has extinguished the CCRs in a neighborhood, covenant revitalization is possible. §§ 720.403-720.407.
Officers and directors must be wary. They may not turn a blind eye to MRTA. The Homeowners’ Association Act now requires that each year, at its first board meeting (excluding an organizational meeting to select officers) following the homeowners’ annual meeting, the board of directors “shall consider the desirability of filing notices to preserve the covenants or restrictions affecting the community or association from extinguishment under the Marketable Record Title Act[.]” § 720.303(2)(e). Failure to do so could, in certain circumstances, be construed as a breach of the duties each association, director and officer owes homeowners.
In short, beware of MRTA. Ask your attorney to conduct a MRTA analysis. If steps have not been taken to preserve your community’s CCRs, action may be needed.
Chilton to Host Bartow HOA Seminar
On August 30, 2019, Robert Chilton will host a free HOA seminar at the Bartow Public Library. The event, which begins at 2:45 p.m., will focus on legal issues facing Florida homeowners’ associations and include topics such as meeting procedures, estoppel requests, covenant enforcement and statutory updates. Mr. Chilton has been certified to provide HOA board member education courses by Florida’s Department of Business and Professional Regulation.
All are welcome. However, as space is limited, please contact the firm by August 16, 2019 to reserve your place.
BEWARE THE BOARD’S RULES AND REGULATIONS
Do you live in a deed restricted community? If so, you are probably somewhat familiar with the covenants and conditions encumbering your home. You may sleep soundly in the knowledge that those restrictions cannot generally be changed without a well-publicized vote of the homeowners. What then, does one make of that pesky “cease and desist” letter quoting not from the declaration of restrictive covenants, or even the bylaws, but the “rules and regulations” adopted by the board of directors?
Those rules can be more onerous than you think and, more importantly, they can be created and changed at the whim of a select few on short notice.
In all likelihood, the fine print in your restrictive covenants grants to the board of directors of your neighborhood the power to enact rules and regulations governing the common areas, community amenities and even parcel use. Have you been thinking of putting up a small garden flag to celebrate the season? Is your attic bursting with items perfect for a garage sale next weekend? Did you double check your declaration to ensure you were not over stepping the line? Good job. But what about those rules which you did not know existed?
The statutes in Florida governing condominiums and homeowners’ associations are clear that the rule-making power of community associations is alive and well. Section 720.304(1), Florida Statutes, says that “[t]he entity or entities responsible for the operation of the common areas and recreational facilities may adopt reasonable rules and regulations pertaining to the use of such common areas and recreational facilities.” Section 718.123(1) has a similar provision for condominiums. But buried in the fine print of your declaration of restrictions could be a broader mandate; one allowing your board to create nearly any rule it wishes.
When an owner challenges a board’s rule-making powers, Florida courts have adopted a two-prong test. “When a court is called upon to assess the validity of a rule enacted by a board of directors, it first determines whether the board acted within its scope of authority and, second, whether the rule reflects reasoned or arbitrary and capricious decision making.” Beachwood Villas Condo. v. Poor, 448 So. 2d 1143, 1144 (Fla. 4th DCA 1984). Interestingly, the second part of the test (reasoned vs. arbitrary) is often rendered toothless by the business judgment rule, by which courts defer to the business judgment of a board of directors. Cedar Cove Efficiency Condo. Assn., Inc. v. Cedar Cove Prop., Inc., 558 So. 2d 475, 479 (Fla. 1st DCA 1990). More importantly, absent from this analysis is the presumption that such rules shall be construed in favor of the free and unrestricted use of land, as is the case with restrictive covenants. Orange Gardens Civic Assn. v. Harris, 382 So. 2d 1340, 13441 (Fla. 5th DCA 1980).
In sum, it is likely that the board of directors of your community has more power than you think. Check carefully before you decorate for the season or plan a small yard sale. What you do not know can result in an unwanted letter from your association or, gulp, your friendly neighborhood attorney.
LEASE AGREEMENTS: WHY YOU NEED A WRITTEN LEASE
People often feel that they do not need a written lease if they are renting a home from a friend, close acquaintance or family member. This is wrong, wrong, WRONG! If you are leasing from anyone, you need a clear, written lease that outlines the obligations and rights of the tenant and the landlord. Always. No matter what relationship you have with the landlord. And this is especially true when renting from someone with whom you have a close relationship. That may seem counterintuitive, but in my practice, I have seen many relationships needlessly strained because the parties involved did not think they needed a written lease.
The first reason that all leases should be written rather than verbal is clarity. Everyone needs to be on the same page regarding the terms under which the tenant is being allowed to use the property. That way, if there is a disagreement later, there is a well-written document that can answer the questions that may come up. When is rent due? Check the lease. Who is responsible for mowing the grass? Check the lease. How many pets can live in the house? Check the lease. If there is no written lease to reference, there is no simple way to resolve these disputes. Working out a lease agreement in advance gives parties the chance to talk through these details and make sure that everyone knows what is expected of them. Having those expectations clearly defined protects relationships.
Furthermore, written leases protect legal rights better than verbal agreements. There’s a saying in the legal profession: if it didn’t happen on paper, it didn’t really happen. Now, that’s hyperbole, of course, because verbal agreements can be binding, but they create huge problems if a disagreement arises between the parties. If a dispute arises that cannot be resolved by the parties, the matter will typically result in a lawsuit. If the court has no written lease to reference, the court has to make a determination about which party is testifying truthfully about the verbal agreement. Imagine trying to prove what was said in a private conversation six months ago. It is next to impossible even under the best of circumstances, and the inside of a judge’s hearing room during an eviction trial is hardly the best of circumstances. Additionally, the verbal agreement you made may not even be enforceable under the law. § 83.43(6), Fla. Stat., provides that a verbal rental agreement has to be for less than one year in duration. If the parties to a verbal lease agreed that the tenant could occupy the property for two (2) years, that verbal lease could be unenforceable.
A written lease protects assets, legal rights, and, yes, relationships far better than a verbal agreement. If you are a landlord, going into a landlord-tenant relationship without a written lease is gambling with one of the most significant investments you have – real property. If you are a tenant and you do not have a written lease, you are risking your home, in the case of a residential lease, or your business, in the case of a commercial lease. Taking the time to work out a written lease in the beginning saves time, money, and feelings in the end.
HOAS & CONDOS STRUGGLE WITH SHORT-TERM RENTALS. WHAT IS THE REMEDY?
According to FloridaRentals.com, as reported by The Ledger, the Davenport/Four Corners area of Polk County is one of the top 10 vacation rental locations in Florida. This news will be received with trepidation by area HOAs, condominiums and other community associations.
It is not that HOAs and similar communities dislike tourists or visitors. Rather, problems arise because:
- Owners of vacation rentals generally live elsewhere;
- Landlords are incentivized to avoid maintenance costs in order to maximize profit;
- Short-term renters have little motivation to abide by covenants or pay attention to neighbor’s concerns; and
- The folks living next door to a popular VRBO/Airbnb/HomeAway rental may justly conclude that the neighborhood feels less like a close community and more like a collection of transient lodgings.
The solution to short-term rentals is easier if a community’s covenants, conditions and restrictions (CCRs) already prohibit them. Just hire a lawyer and enforce the rules. If the CCRs lack that provision, what is the remedy?
Three options are generally pursued, with varying degrees of success.
1. Amend the CCRs: The safest and surest approach to prohibit short-term rentals is to amend the CCRs to explicitly do so. Reasonable and clear restrictions on renting “whether contained in the original declaration or in subsequent…amendments, are reasonable indirect restraints on alienation” that do not violate public policy or owners’ constitutional rights. William P. Sklar & Jerry C. Edwards, Florida Community Associations vs. AIRBNB and VRBO in Florida, Fla. B.J., Feb. 2017, at 16, 16; Woodside Village Condo. Assn., Inc. v. Jahren, 806 So. 2d 452, 461-62 (Fla. 2002).
2. Enforce the “Residential Use” Restrictions: If a CCR amendment is not doable, some associations pursue the owner on a theory that short-term rentals violate restrictions requiring the property be used only for residential purposes and prohibiting business or commercial uses. This tactic has been rejected by the Courts. “[T]he nature of the property’s use is not transformed from residential to business simply because the owner earns income from rentals.” Santa Monica Beach Property Owners Assn., Inc. v. Acord, 219 So. 3d 111, 115 (Fla. 1st DCA 2017). In such cases, because CCRs are to be strictly construed in favor of the free and unrestricted use of real property, “the omission of an explicit prohibition on” short term rentals is “fatal”. Id. at 116. Note that the outcome changes if the owner is doing more than simply renting, such as operating a small inn or an adult congregate living facility. Id. at 115.
3. Reasonable Rules & Consistent Enforcement: If an amendment cannot be had and enforcing the “residential use” covenant will not succeed, what is an HOA or condominium to do? The solution is two-fold.
A. Tenant Disclosure Rule: First, community associations have a legitimate interest in knowing who is renting a parcel or unit. If owners were allowed to hide a renter’s identity, HOAs would be unable to enforce important statutory rights (i.e. right to intercept rent for unpaid assessments or enforce CCRs against a tenant). A rule requiring that owners submit the names of each renter, and certain information about each lease, is a legitimate exercise of an HOA’s authority. It is also difficult to follow if an owner is engaged in high-volume, short-term leasing. In my experience, owners either slow their rental activity or pay closer attention to ensure compliance with the rule. Either outcome is positive.
B. Consistent Enforcement: Along with the tenant disclosure rule, HOAs and condos should ensure that the CCRs are consistently enforced. If an owner is having to pay fines and incur remedial costs due to the violations of his short-term renters, he will be motivated to pay closer attention to prevent violations in the first place. He may also decide that rentals for longer durations are the better policy, as those tenants have an incentive to be good neighbors.
Short-term rentals, and the websites that enable them, are here to stay. HOAs, condominiums and other communities are not, however, without tools to address the problems that come in their wake. As always, the advice of counsel should be sought.