New Florida Condo Law Puts Limits on Bulk Owners

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House Bill 1237 contains purchase, management and disclosure requirements that negatively affect bulk owners. – By Perry C. Rohan, MBA, LCAM

On July 1st, 2017, Florida House Bill 1237 became effective, adding new provisions and making amendments to existing Statutes contained in Chapter 718 of Florida Condominium Law. The changes were incorporated to provide new rights and legal remedies to traditional residential owners, but some of these same changes will now negatively affect “bulk owners.”

A bulk owner is a person who acquires more than seven condominium parcels within the same community. In many instances, the bulk owner is on the board of directors for the community, and in some cases, the bulk owner(s) make up the entire board of directors. With board representation and with a “member vote” for each unit owned, bulk owners can effectively control the entire management and financial functions of a community. In some cases, bulk owners leverage their board positions to create lucrative maintenance or service contracts [with the association] through companies they are affiliated with financially. House Bill 1237 imposes new restrictions and disclosure requirements on such contracts.

Bulk owners will want to pay close attention to four provisions in the bill. First, the bill amends s. 718.111(9), F.S., to prohibit a board member from purchasing a unit at a foreclosure sale resulting from the association’s foreclosure on its lien for unpaid assessments or taking title by deed in lieu of foreclosure. Since bulk owners often purchase units by these methods, board members who are bulk owners will no longer be able to add to their portfolio in this way. The new statute prohibits the manager and the management company from purchasing association- foreclosed property as well.

Second, the bill creates s. 718.3025(5), F.S., which prohibits 3rd party vendors providing maintenance or management services to an association, or board members of these 3rd party contractors, from purchasing property subject to lien by the association.  The bill provides traditional resident owners with the right cancel service contracts that may be in place by bulk owners. The statute says if a party contracting to provide maintenance or management services to an association, or a board member of such a party, owns 50 percent or more of the units in the condominium, then the remaining unit owners (the minority owners) may cancel such contracts by a majority vote between them.  This likely does not apply to existing contracts, but will come into play for contracts that are executed after July 1, 2017.

The bill also creates s. 718.112(2)(p), F.S., prohibiting an association from employing or contracting with any service provider that is owned or operated by a board member, any person who has a financial relationship with a board member, or even a relative by blood or marriage. Bulk owner board members, by virtue of their voting power, often carry great influence in decisions made by the board. It is not uncommon for a company affiliated with a board member to win the landscape contract or provide the janitorial service for the community. These “conflicts of interest” are now prohibited, unless the Board member or their relative owns less than 1 percent of the equity shares in the service provider.  For those conflicts that fall below the 1 percent equity threshold, those contracts now require disclosure and there are detailed procedures (see below) for making such disclosures.

Finally, the bill creates s. 718.3027, F.S., providing procedures for disclosure and notice of potential conflicts of interest. The bill provides that an officer or director of an association, and their relatives, must disclose to the board any activity that may be construed as a conflict of interest. A presumption of a conflict of interest exists if, without prior notice:

  • Any director, officer, or relative of a director or officer enters into a contract for goods or services with the association; or
  • Any director, officer, or relative holds an interest in a corporation, LLC, LLP, partnership or other business entity that conducts business with the association or proposes to enter into a contract with the association.

The disclosure requirements now mandate that the entire proposal contract for goods or services must be listed on the agenda of an upcoming meeting, with a copy of all related documents delivered to the unit owners. At the board meeting, the board member with the affiliated business interest can make a presentation but must leave the room and is thereby recused from the vote. Procedures for withdrawal of proposal or resignation of the board member are further prescribed. Lack of proper “notice” of said meeting renders the contract voidable, and the contract can be terminated by 20% of the voting interests of the association.

Bulk Ownership of condominiums was authorized by the Florida Distressed Condominium Act of 2010, in an effort to help rescue communities from financial ruin. Since that time, bulk owners have purchased thousands of units, some of them at bargain prices, and now seven years later, most condominium

“The Florida Distressed Condominium Act was essential to the recovery of Florida’s condominium market”, says Carlos R Arias, Partner with Arias Bosinger, PLLC. “Unfortunately, Governor’s Scott veto of HB 653, which would have permanently extended the Act, and the Florida legislature’s imposition of strict conflict of interest laws will make it more difficult for distressed condominiums find the same relief moving forward”. 

Further research and proper due diligence is now needed to assess how bulk owners will continue to thrive as these new laws place limits on their abilities to acquire property and manage the affairs of the association.

The information contained herein is not intended to be, and should not be, construed or used as legal advice. The contents are intended for general information purposes only, and you are urged to consult with counsel concerning the effect any proposed legislation may have on your association or other legal questions you may have.

Perry C. Rohan is the Director of Business Development for FirstService Residential in the Central Florida Region. Perry can be reached by email at perry.rohan@fsresidential.com

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Author: rohanorganization

Perry C. Rohan, MBA, REALTOR, LCAM Licensed Real Estate Broker, Florida & New York CPM® Candidate – Institute of Real Estate Management Perry is the Director of Business Development and Client Services for FirstService Residential, North America's leading property management company. He is a licensed Florida Real Estate Broker with more than 15 years of sales, marketing and property management experience with single and multifamily residential investment properties, and condominium and homeowner associations. He has served in sales, sales management and marketing roles for more than 50 residential real estate developers, and Perry has also been involved in more than $600 million of sales and rental transactions, helping hundreds of buyers, renters and investors secure new homes and rental investment properties. Perry has served as a Community Association Manager responsible for directly managing condominium and homeowner associations involving more than 1100 residential units and operating budgets in excess of $2 million annually. He has previously served as a Regional Director for a property management company, providing supervisory leadership and oversight of 13 community association managers responsible for more 45 condominium and homeowner associations encompassing more than 8000 residential units. Perry has also served on the executive management team for the largest homeowners association in the United States, providing association management services for a 26,000 home community with more than 100 employees and an $8 million operating budget. He has an undergraduate degree (BA) in Marketing from the University of South Florida and a master’s degree (MBA) in business from the University of Miami. Perry is also a Florida licensed Community Association Manager (LCAM) and a licensed real estate broker in New York. TESTIMONIALS I am truly impressed with Mr. Rohan’s high level of professionalism… Calls and correspondence from residents are always handled promptly, courteously and then followed up with diligent work to expedite solutions. He quickly responds to emergency situations, supervises vendors and initiates repairs when needed. Mr. Rohan keeps our community operating like a smooth running machine. Dave S., President of the Board of Directors for Wellington Shores Perry Rohan stands out as the best property manager that I have experienced working with during my tenure as HOA President. He is self-motivated, proactive, professional, organized, respectful, and communicates well. I would strongly recommend Perry Rohan as Property Manager to any community or development that is looking for an outstanding and knowledgeable Property Manager. Shannon C., President of the Board of Directors for Shaughnessy Village

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