GT Alert

Attention Florida Homebuilders: New Laws Governing Homeowners’ Associations Await Governor Bush’s Signature

May 2004
By Michael J. Sabatello, IV, Esq., Greenberg Traurig

  View or download the PDF version of this Alert here.

In its most recent 2004 session, the Florida Legislature adopted, and has sent to Governor Bush for execution, SB 2984 and SB 1184 (collectively, the “Bills”). These new laws will significantly change the rules applicable to Florida homebuilders and homeowners’ associations. Although significant portions of the Bills resulted from the work of the Homeowners’ Association Task Force organized by Governor Bush in 2003, not all of the suggestions of the Task Force were adopted, and new concepts were included in the Bills. This Alert briefly describes some of the new changes that will be implemented if the Bills become law.

"If these new provisions become law, homebuilders will have to take greater care in preparing their declarations of restrictions and contract materials to make sure that they comply with the new laws and adequately provide for the development of the community as the builder intends."

1. Contract Disclosures. The Bills move former Section 689.26, F.S., to Chapter 720 and amend the required disclosure under that provision. Developers may have to begin using the new disclosures as early as July 1, 2004. If a homebuilder fails to provide a prospective buyer with the required disclosure summary before the buyer signs the purchase contract, the buyer may void the contract within three days after receiving the disclosure summary. The buyer cannot waive this cancellation right, but the right terminates automatically at closing. We are currently working with our homebuilder clients to revise their contract documents to include the requisite provisions.

2. Publication of False and Misleading Information. The Bills create Section 720.602, F.S. Under this new section, a new cause of action against a homebuilder is created if a buyer has relied upon any material statement or information published by the homebuilder that is false or misleading. As a remedy, the buyer is given the right to rescind the contract or recover damages before closing, or to recover damages after closing, and to recover attorneys’ fees and costs. It is important to note that false or misleading information published in any advertisements, sales materials, contract documents, closing documents and homeowners’ association materials can give rise to liability. Homebuilders are strongly advised to carefully review their promotional materials, contracts, recorded covenants, articles and bylaws in order to avoid any liability under this new section. These provisions may become effective as early as July 1, 2004.

3. Administration and Management of Associations.

1. Association Contracts. Effective as early as July 1, 2004, new requirements for association contracts will apply. These new rules may significantly impact the traditional operation of the association by the developer prior to turnover to the residents:
   • An association must obtain competitive bids for all significant contracts for services, materials and equipment, i.e., contracts that will consume ten percent or more of the association’s budget. This will apply to agreements between the association and the developer and its affiliates;
   • All contracts for the provision of services must be in writing;
   • All contracts for the purchase or rental of equipment or materials must be in writing if they will not be fully performed within one year; and
   • Contracts with employees of the association, and its attorneys, engineers, association manager, and architects, and contracts entered into before October, 2004, are exempt from the new requirements.
2. Association Financial Reporting. New, more elaborate annual reporting requirements will be imposed on associations beginning October 1, 2004. Once effective, Section 720.303, F.S., will break down reporting requirements based on the size of an association’s revenues, as follows:
   • An association with annual revenues greater than $400,000 must prepare audited financial statements;
   • An association with annual revenues falling between $200,000 and $400,000 must prepare reviewed financial statements;
   • An association with annual revenues falling between $100,000 and $200,000 must prepare compiled financial statements;
   • An association with annual revenues less than $100,000 must prepare a report of receipts and expenditures; and
   • An association with fewer than 50 parcels may elect to prepare a report of receipts and expenditures, regardless of its annual revenues.

Further, an association may change the level of reporting required if approved by the members.

3. Association Record Keeping. As of October 1, 2004, the definition of the official records of an association will be updated to include the required statutory disclosure (as amended) and a “catch-all” provision for any other written records. Members will have broad rights to access and copy these records, although the Bills protect some records from access.
4. Beginning on October 1, 2004, association funds may not be used by a developer to defend any civil or criminal proceeding against the developer or the directors appointed by the developer.
5. New procedures will be established for the recall of directors, effective October 1, 2004.
6. Effective as early as July 1, 2004, a fine levied by an association against an owner will no longer be a lien on that owner’s property, although the association is entitled to recover the reasonable attorneys’ fees incurred to collect the fine.

4. Members’ Rights to Participate in Governance.

1. Board Meetings. The Bills add several provisions to Section 720.303, F.S., granting the following new rights to association members:
   • The right to speak at any board meeting, although the board may prescribe rules of decorum;
   • The right to 14 days’ notice when the board will consider an assessment or a change to the rules governing the use of property in the community; and
   • The right to have the board address a proper homeowner petition.

As a consequence, homebuilders must be more vigilant in holding their annual board and member meetings, and should take care to ensure that each meeting is noticed and conducted properly to protect the integrity of each budget and the corresponding assessment. These new requirements will become effective October 1, 2004.

2. Meetings of Members. The Bills amend Section 720.306, F.S., to require actual notice to members of all member meetings. The bylaws of an association can specify the notice procedures, but if the bylaws are silent, the new statutory provisions will apply. The Bills also give members the right to attend and speak at any membership meeting, although the board may prescribe rules of decorum. Unlike the provisions regarding board meetings, the provisions regarding member meetings may take effect as early as July 1, 2004.

5. Prohibition on SLAPPs. To discourage the use of Strategic Lawsuits Against Public Participation (SLAPP suits), the Bills provide for Section 720.304, F.S., to be amended to prohibit the filing of a frivolous lawsuit, counter-claim, or cross-claim against any owner solely because the owner has exercised the right to petition the government. The owner is entitled to recover treble damages and attorneys’ fees if it is determined that a SLAPP suit was inappropriately filed against the owner. Further, an association will be prohibited from using association funds to prosecute a SLAPP suit. These provisions will take effect October 1, 2004.

6. Acquisition and Use of Defibrillator. Homeowners’ associations, as of October 1, 2004, will be included among those organizations protected under the Cardiac Arrest Survival Act (Section 768.1325, F.S.) from higher insurance premiums and liability arising out of the installation of a defibrillator at their premises.

7. Revival of Declaration of Covenants and Association. As of October 1, 2004, new sections 720.404 through 720.407, F.S., will be created, establishing procedures for reviving a restrictive covenant and association that no longer governs a community.

8. Special Provisions for Small Communities. Section 720.303, F.S., is revised to prohibit a homeowners’ association of fewer than 15 owners from enforcing a provision or rule against a particular parcel owner if the provision was established after the purchase of that parcel by the current owner. As of October 1, 2004, homebuilders in small communities must be careful to have the complete declaration of covenants and all community rules in place before the first retail closing. A homebuilder’s ability to amend the declaration of covenants and revise the community rules will be greatly restricted under this new provision.

9. Additional Member Rights. Beginning on October 1, 2004, an individual parcel owner will have the right to construct a medically necessary access ramp on the owner’s property, place a security sign within 10 feet of the owner’s dwelling, and display a military service flag on certain national holidays.

10. Alternative Dispute Resolution. The Bills provide for alternative methods of dispute resolution such as mediation and arbitration. For example, disputes concerning board elections must be submitted to binding arbitration, but other disputes, such as those about meetings, use rights, etc., must be submitted to mediation. These provisions may take effect as early as July 1, 2004.

It is important to note that the Task Force’s proposed statutory warranties for the common areas of a development were not included in the Bills and that this Alert does not address the Bills’ changes to the laws regulating condominiums, cooperatives, and community development districts.

If these new provisions become law, homebuilders will have to take greater care in preparing their declarations of restrictions and contract materials to make sure that they comply with the new laws and adequately provide for the development of the community as the builder intends. Homebuilders will also need to pay more attention to the operation and management of their controlled associations and more closely adhere to the required corporate formalities to protect the integrity of their budgets and assessments and to minimize potential liability to their homeowners.

© 2004 Greenberg Traurig

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