Florida’s Condominium Act confers broad authority upon condominium associations to manage and maintain the communities they serve. Included within an association’s authority is the significant power to enter into contracts. This power, however, does have its limits.
As a general principle, an officer or director of a condominium association must discharge all of his or her duties: in good faith; with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and in a manner he or she reasonably believes to be in the interests of the association.
These general standards of conduct also apply in the context of entering into association contracts. However, since the process of contracting is rife with opportunity for mismanagement, malfeasance, and dishonesty, board members must adhere to various additional statutory requirements governing association contracts.
Contracts for the purchase, lease, or renting of materials or equipment that will not be fully performed within one year from the date of the contract must be in writing. Contracts for the provision of services, regardless of their duration, must also be in writing.
Importantly, if any such contract requires a payment by the condominium association exceeding five percent of its total annual budget, including reserves, the association must obtain competitive bids before entering into the contract. However, the statute specifically provides that the association is not compelled to accept the lowest bid when entering into such a contract.
Not all contracts are subject to these additional requirements. For example, the statute excludes certain services from the foregoing requirements, including contracts with:
- employees of the association;
- attorneys, accountants, architects, and engineers;
- community association managers and timeshare management firms; and
- landscape architects.
The statute also contains additional safeguards designed to protect against potentially harmful conflicts of interest. Before an association can enter into a contract with a director of the association, or with any entity in which such director has a financial interest, various procedural steps must be taken, such as disclosing the potentially conflicting relationship, prohibiting the interested director from voting on the contract, or concluding that the contract is fair and reasonable for the association.
The disclosure of a potential conflict of interest and the manner in which it was handled must be included in the written minutes. As a final safeguard, the statute provides that the entire matter may be submitted for a vote of approval by the association members.
In some cases, a condominium association can enter into a contract without adhering to the foregoing requirements, such as in the case of an emergency or if the business entity with which the association desires to enter into a contract is the only source of supply within the county serving the association.
Finally, a condominium association with ten or fewer units may opt out of these statutory requirements if two-thirds of the unit owners vote to do so. The vote to opt out may be accomplished by a proxy as long as the proxy specifically states those requirements that the voter is rejecting by the proxy vote.
It should come as no surprise that those electing to serve their condominium community in a leadership capacity are held to a higher standard of conduct. This higher standard is clearly evident when it comes to entering into association contracts. Board members must not only do what is in the best interests of their community, but they must also understand and adhere to any additional requirements. Board members who fail in this respect may find that instead of serving their community, they have damaged it.
If you would like to learn more about condominium association contracts, consider our online course entitled Bidding and Contracting for Services: A Primer for Condominium Association Leaders.
Additionally, clients of Setnor Byer’s Condominium Program enjoy access to various risk management services, such as Setnor Byer’s Risk Management Group and Unit Owners’ Report Line, as well as our affiliate’s Board Member Education Certification, which has been approved by the Division of Florida Condominiums, Timeshares, and Mobile Homes.
If you would like any additional information, or would like to discuss how we can serve you and your association, please contact us.