Introduction

Condominium living in Florida offers a blend of convenience and community but comes with its own set of complexities, especially when it comes to managing finances. One of the most contentious issues that condo associations can face is the imposition of special assessments. These additional fees are levied on unit owners to cover unexpected expenses or major repairs not included in the regular budget. This article provides an in-depth guide on why special assessments may be necessary, how condo associations can defend their decisions, and the key factors unit owners should understand about their rights and responsibilities.

If you have questions about condo board decisions on special assessments, and complying with the new statutory regime on 40-year recertifications, inspections, and milestone reports, please contact Bernhard Law Firm at www.bernhardlawfirm.com, 786-871-3349, abernhard@bernhardlawfirm.com.

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Why Special Assessments Are Sometimes Necessary

Special assessments are not just a financial tool but a necessity in various scenarios. Here are some common reasons:

1. Unexpected Repairs and Maintenance: Older condominiums or those facing unforeseen issues like roof leaks, structural damage, or malfunctioning elevators often need immediate financial intervention. Special assessments allow associations to address these urgent problems promptly without waiting for the next budget cycle.

Condo association boards should be aware that their vote to not pay for necessary repair and maintenance of common elements may violate the Condominium Act, including the statutory prohibition against avoidance of liability for assessments by waiver. In re Colony Beach & Tennis Club Ass’n, Inc., 456 B.R. 545 (M.D. Fla. 2011).

2. Major Upgrades: Upgrading common areas or facilities—such as renovating a clubhouse or upgrading plumbing systems—can exceed the annual budget. In these cases, special assessments provide the necessary funds to undertake significant improvements.

The recent statutory changes after the Champlain Towers collapse, requiring compliance with inspections and milestone reports has caused significant strain in some condominium buildings, and even sell-offs in others. The condo association board should keep in mind that both the prior owner and the new unit owner may carry joint and several liability for unpaid assessments that came due during the ownership of the first owner. Coastal Creek Condo Ass’n, Inc. v. Fla. Trust Servs. Inc., 275 So. 3d 836 (Fla. 1st DCA 2019). However, lenders may be entitled to statutory caps under the Safe Harbor Statute for unpaid assessments after transfer in foreclosure. Fed. Nat’l Mortg. Ass’n v. JKM Servs, LLC for Cedar Woods Homes Condo. Ass’n, Inc., 256 So. 3d 961 (Fla. 3d DCA 2018).

The Board should explore all legal avenues of liability where there has been a recent sale or foreclosure on a unit, and assessments remain unpaid.

3. Reserve Fund Shortfalls: Ideally, reserve funds are set aside for large-scale repairs and replacements. However, if the reserve fund is insufficient due to previous mismanagement or unforeseen expenses, a special assessment may be necessary to cover the gap and ensure the association’s financial stability.

The condo association board and property manager must be aware of the quickly changing statutory landscape on reserve funds, disclosure, and voidability in the wake of the Champlain Towers failures. Florida Statutes s. 718.503 (on nondeveloper unit owner disclosure prior to sale, voidability). The Florida Legislature may be requiring substantial disclosures on the status of a building’s reserves and shortfalls in any contract for sale or lease of a residential unit.

Special Assessments for Reserves, 40-Year Recertification, and Milestones

Special assessments often arise from specific financial and regulatory needs. Here’s a closer look:

1. Special Assessments for Reserves: Reserve funds are crucial for covering major repairs and replacements. If the reserve fund is underfunded—whether due to poor planning or unexpected expenses—a special assessment helps replenish it. Regular reserve studies can highlight funding gaps, making a special assessment necessary to align with recommended levels. Florida Statutes s. 718.112(2)(f) and Florida Admin. Cod 61B-22.005 (reserves) provide rules for capital expenditures and deferred maintenance, including roofing, painting, paving, and any other item with a cost exceeding $10K.

Legislature is strengthening as to required disclosures for anybody investing in a condominium building. See Florida Statutes s. 718.503. The laws seek to require disclosure and provision of the most recent structural integrity reserve studies, and disclosure of contemplated assessments.

2. 40-Year Recertification: In Florida, particularly in older communities and coastal areas, the 40-year recertification process involves thorough inspections of structural and electrical systems to ensure safety. This process can be costly, and special assessments often cover the expenses for inspections and necessary repairs. Timely recertification is crucial not only for legal compliance but also for maintaining property value and safety.

Florida Statutes s. 553.899 is new and provides for mandatory structural inspections for condominium and cooperative buildings. After Champlain Towers, the Florida Legislature determined that maintaining the structural integrity of a building is “of paramount importance . . . so as to not pose a threat to the public health, safety, or welfare” of Floridians. These new mandates put the onus on condo associations to ensure their buildings are brought up to code and compliant with the mandatory inspection and repair procedure under Florida Statutes.

3. Milestones and Major Projects: Significant projects or milestones, such as major renovations or dealing with unplanned major repairs, can exceed the association’s annual budget. Special assessments provide the funds needed to complete these projects, which can enhance the community’s value and address urgent issues effectively.

Defending the Decision to Impose Special Assessments

To effectively defend special assessments, condo associations should consider the following:

1. Transparency and Communication: Clear and detailed communication about why a special assessment is necessary, how the funds will be used, and the benefits to the community is crucial. Transparency helps build trust and can reduce resistance from unit owners.

The condo board should not that the unit owner’s time to challenge the legality and propriety of assessments, is when the assessments were sought to be enforced. Margate Village Condo. Ass’n, Inc. v. Wilfred, Inc., 350 So. 2d 16 (Fla. 4th DCA 1977). Thus, a condo board can avoid conflict, attorney’s fees, and defenses early through clear and detailed communication about assessments.

2. Adherence to Governing Documents: Following the procedures outlined in the association’s governing documents—such as the declaration of condominium and bylaws—helps defend against challenges. This includes obtaining the necessary approvals or holding formal meetings as required.

Under Florida law, all assessments that were properly approved by a condominium board of directors are valid under the condominium bylaws and the Condominium Act. Scutieri v. Sunrise Point Condo Ass’n, 441 So. 2d 670 (Fla. 3d DCA 1983). Thus, it is crucial that the condo board determine which assessments require a membership vote and which can be passed solely by the board, and that the board thereafter precisely follow the declaration of covenants and the Condominium Act as to the procedure to pass assessments.

The condo board should also keep in mind that the burden is on the condo association to prove any allegations in a lawsuit to foreclose a claim of lien for unpaid assessments. Saar v. Wellesley at Lake Clarke Shores Homeowners Ass’n, Inc., 68 So. 3d 417 (Fla. 4th DCA 2011). However, in similar fashion, the burden is on the unit owners to prove the impropriety of an assessment under the governing documents.

3. Detailed Financial Justifications: Providing a thorough financial analysis with cost estimates, comparative quotes, and a breakdown of the assessment amount strengthens the board’s position. Demonstrating that the decision is financially sound and based on professional advice adds credibility.

A condo board’s failure to provide sufficient evidentiary and contractual justification for the amount and division of maintenance fees may be in violation of the Condominium Act, rendering the assessment invalid. Clearwater Key Ass’n-South Beach, Inc. v. Thacker, 431 So. 2d 641 (Fla. 2d DCA 1983).

4. Legal Compliance: Meeting all legal requirements, including proper notice to unit owners and adherence to state and local laws, reduces the risk of legal disputes. Compliance helps ensure that the special assessment process is valid and justifiable.

There may be limited statutory defenses to unit owners seeking to avoid special assessments. For example, under Florida Statutes § 718.116(2), the liability for assessments may not be avoided by a unit owner’s waiver of the use or enjoyment of any common element, or by abandonment of the unit for which the assessments are made.

Additionally, a condo association is required to give a unit owner notice (through pleadings and otherwise) of what is being assessed, why, and what is under claim of lien, prior to having the right to judgment. George v. Beach Club Villas Condo. Assoc., 833 So. 2d 816 (Fla. 3d DCA 2002); Star Lakes Estates Ass’n, Inc. v. Auerbach, 656 So. 2d 271 (Fla. 3d DCA 1995).

5. Exploring Alternative Solutions: Before resorting to a special assessment, exploring alternative solutions—such as phased projects or temporary budget adjustments—can be beneficial. Showing that other options were considered helps justify the need for a special assessment as a last resort.

Condo boards should be aware that a unit owner who prevails in a lawsuit over special assessments may be entitled to repayment of attorney’s fees and costs by the condo association. Tison v. Clairmont Condo F Ass’n, Inc., 288 So. 3d 699 (Fla. 4th DCA 2019). However, the condo association may also be entitled to recover its own attorney’s fees and costs from a unit owner in an action to foreclose upon a special assessment lien. Fortenberry Prof. Bldg. v. Zecman, 581 So. 2d 972 (Fla. 5th DCA 1991). This may even be so although the condo association does not make a net recovery where a unit owner counterclaims. Id.

Understanding the Business Judgment Rule

The business judgment rule is a key concept in defending special assessments. This legal doctrine protects board members’ decisions from judicial review if made in good faith, with due care, and within their authority. Here’s how it applies:

1. What is the Business Judgment Rule?: This rule acknowledges that board members, who are typically volunteers, must make complex decisions for the community. It allows them to do so based on their best judgment without the constant threat of litigation, provided their decisions meet certain criteria.

Under Florida law, the actions of a condominium association’s board in making budget and allocating assessments are subject to business–judgment deference. New Horizons Condo Master Ass’n, Inc. v. Harding, 336 So. 3d 796 (Fla. 3d DCA 2022).

2. Key Aspects of the Business Judgment Rule:
   • Good Faith: Decisions should be made with honest intentions and for the benefit of the community.
   • Due Care: Board members must exercise reasonable care and diligence, including gathering relevant information and seeking expert advice.
   • No Conflict of Interest: Decisions should be free from personal conflicts of interest.
   • Authority: Actions must be within the board’s authority as defined by the governing documents and applicable laws.
3. Defending Special Assessments Under the Business Judgment Rule:
   • Documenting the Decision-Making Process: Keep detailed records of meetings, discussions, financial analyses, and advice received to demonstrate thoughtful and good-faith decision-making.
   • Seeking Expert Advice: Consulting with professionals can help make informed decisions and serve as evidence of due care.
   • Adhering to Procedures: Follow all procedures outlined in the governing documents, including notice and voting requirements.
   • Addressing Conflicts of Interest: Disclose and recuse oneself from decisions where conflicts of interest exist.

Unit Owners’ Rights and Responsibilities

Understanding their rights and responsibilities helps unit owners navigate the special assessment process:

1. Understanding the Process: Familiarize yourself with the association’s governing documents and the procedures for special assessments to better understand board decisions and participate in discussions.
2. Participation in Meetings: Attend board meetings and engage in discussions to voice concerns and seek clarification.
3. Reviewing Financial Reports: Regularly review financial reports and reserve studies to stay informed about the association’s financial health.
4. Seeking Legal Advice: Consult with a legal expert if you believe a special assessment is unjustified or improperly handled.

Conclusion

Special assessments are a crucial tool for condo associations to manage unexpected costs, comply with regulatory requirements, and fund major projects. Effective management of these assessments requires transparency, adherence to governing documents, and clear communication. For unit owners, understanding their rights and responsibilities and staying informed about the association’s financial matters promotes a more cooperative environment. By balancing fiscal responsibility with community harmony, condo associations can navigate these challenges and continue to serve the best interests of their residents.

If you have questions about condo board decisions on special assessments, and complying with the new statutory regime on 40-year recertifications, inspections, and milestone reports, please contact Bernhard Law Firm at www.bernhardlawfirm.com, 786-871-3349, abernhard@bernhardlawfirm.com.