Condo trouble? Preemptive participation offers protection
Daily Business Review
Commentary by Jonathan S. Goldstein
31 May 2016
Hurdles abound for condominium unit owners concerned about malfeasance.
Owner interests are fractional and proportionate, yet owners risk their
own resources to combat fraud alone.
Provisions in the governing documents and the Florida Condominium Act
enable reimbursement of prevailing party legal fees. The wrongful act
doctrine may permit recovery of fees incurred in relation to
third-party disputes arising from association or director wrongdoing.
However, fee provisions correspondingly place the owner at risk.
Often associations in violation cannot recover damages from the
wrongful perpetrators or insurance proceeds, and owners bear the
expenses. For these reasons, pervasive and preemptive group
participation is paramount.
Undocumented reimbursements and checks made to cash, questionable and
excessive vendor expenditures, unmonitored management influence,
improper use of reserves, absence of meetings, or noncompliant budget
and accounting practices all may warrant pursuing compliance or board
Voting rights can be supplemented with petitions for an election
monitor from the ombudsman's office of the Florida Department of
Business and Professional Regulation, Division of Florida Condominiums,
Timeshares and Mobile Homes and the use of recall procedures pursuant
to Section 718.112(j), Florida Statutes, permitting a membership
majority vote to replace the current board for any reason and outside
of an election. Absent board control, preemptive participation requires
owners to exercise and enforce transparency rights.
The Condominium Act embraces the Sunshine Law requiring open governance and record keeping.
Pursuant to Administrative Rule 61B-23.001(1)(a), a board quorum
gathered to discuss association business constitutes a meeting, which
must be noticed and publicly held (though personnel meetings and
privileged meetings with legal counsel regarding potential or existing
litigation are exceptions). Owners can speak at and record public
meetings. If the board refuses to address an item of concern at a
meeting, a petition from 20 percent of the eligible voting interests
will require the association to call a board meeting regarding that
topic pursuant to Section 718.112(2)(c)(1), Florida Statutes. Obvious
measures to prevent fraud (positive pay banking, dual signatures,
capped invoices paid without board vote, etc.) can be forced on the
agenda for board consideration.
Subsection 718.111(12), Florida Statutes, governs the obligation to
maintain and provide access to official records. A remedy of actual
damages and/or minimum damages of $50 per day for up to 10 calendar
days applies where access is willfully denied.
Using these record access rights, owners can regularly review minutes,
contracts, bids, insurance, management and other reports,
communications as well as general ledgers or other accounting records.
Owners can enforce requirements to maintain mandatory records. Regular
inspections create oversight and financial pressure. Owner rosters
should be obtained for dissemination of constructive mass
communications, taking care to obtain a qualified privilege from
defamation by limiting good faith commentary to fellow owners. Written
inquiries by certified mail can be used to document association
positions and legal opinions (or risk prevailing legal fee waiver).
Budgets and special assessments must be publicly adopted pursuant to
Subsections 718.112(2)(c)(1), (e) and (f), Florida Statutes. Owners
should scrutinize expenditures, which provide a window into fraud.
Section 718.111(13), Florida Statutes, governs annual financial
reporting requirements and requires an association to have mandatory
financial reporting prepared or contracted for within 90 days of the
end of the previous fiscal year, or annually as provided in the bylaws.
Within 21 days of the report's preparation but not later than 120 days
from the trigger date for the reporting deadline, the association must
either send owners a copy of the required financial report, which are
audited financial statements for associations with annual revenues in
excess of $500,000, or a notice of its availability. All financial
records should be analyzed by owners regularly for compliance and
Suspected financial crimes should be reported to law enforcement.
Litigation is the direct enforcement approach with recoverable legal
fees but has increased risk.
Litigation of association transparency requirements are often disputes
requiring pre-suit nonbinding arbitration with the state division,
although claims challenging assessments or for breach of fiduciary duty
are excluded from division arbitration.
The division also provides cost-effective alternatives: a petition for
a declaratory statement on purely legal disputes or an administrative
complaint triggering a division investigation. Division-enforced first
offences result in a warning letter, avoiding association penalties
(punishing owner/victims) while deterring problematic conduct.
Jonathan S. Goldstein, is a senior
associate at Haber Slade. The firm practices in the areas of homeowner
and condominium association law, commercial complex litigation,
construction law, real estate and banking litigation, and aviation
litigation. He can be contacted at firstname.lastname@example.org.