Condominium Regulations – Page 2 – Setnor Byer Insurance & Risk

Condominium Associations Are Not Powerless Against Rule-Breaking Tenants

A consequence of the struggling real estate market is the increased number of condominium units occupied by tenants rather than unit owners. Not surprisingly, many tenants do not have the same commitment–financial or emotional–to the condominium community as owners. As a result, condominium associations have to deal with non-owner tenants who fail to observe the association’s rules more frequently than before.

Fortunately, the Florida Condominium Act provides associations with a solution for dealing with unruly tenants. Under the Act, an association may levy reasonable fines for the failure of the owner of a unit, or its occupant, licensee, or invitee to comply with any provision of the declaration, bylaws, or reasonable rules of the association.

Additionally, an association may suspend, for a reasonable period of time, the right of a unit owner, or a unit owner’s tenant, guest, or invitee, to use the common elements, common facilities, or any other association property for failure to comply with any provision of the declaration, bylaws, or reasonable rules of the association.

The broad wording in the statute, including the use of “occupant” and “tenant”, operates to put a person leasing a unit from an owner within the scope of the law. However, even though this statute is relatively straightforward, there are a few things that associations must understand before levying a fine or imposing a suspension.

A fine or suspension may not be imposed unless the association first provides at least 14 days’ written notice and an opportunity for a hearing to the unit owner, and, if applicable, its tenant.

The hearing must be held before a committee of other unit owners who are neither board members nor persons residing in a board member’s household.

If the committee does not agree, no fine or suspension may be imposed.

If a fine is imposed, it may not become a lien against a unit.

A fine may be levied on the basis of each day of a continuing violation; however, a fine may not exceed $100 per violation, or $1,000 in the aggregate.

If a fine is levied on the basis of a continuing violation, only a single notice and opportunity for a hearing is required.

Being suspended from using the common elements often motivates tenants to abide by the rules. However, absent an agreement to the contrary, a condominium association may be powerless to create an enforceable debt against a unit owner’s tenant like it can against the unit owner. Since the unit owner will be required to pay the fine, he or she will presumably collect the fine from the tenant, and either compel the tenant’s compliance with the rules or have the tenant evicted.

If a unit owner fails to pay a fine resulting from a tenant’s violation of the community’s rules, the owner may be deprived of other rights associated with ownership of the unit. Under the Act, an association may suspend the voting rights of a unit or member due to the nonpayment of any monetary obligation due to the association which is more than 90 days delinquent.

Before imposing such a suspension, it must be approved at a properly noticed board meeting. Upon approval, the association must notify the unit owner, and, if applicable, the unit’s occupant, licensee, or invitee by mail or hand delivery. The suspension of voting rights ends upon full payment of all monetary obligations currently due or overdue the association.

By virtue of these statutory provisions, condominium associations are not powerless to enforce its rules and regulations against those living within the community, regardless of whether they are unit owners or tenants. As is always the case, associations need to have a complete understanding of how to go about imposing a fine or suspension before actually doing so. Otherwise, the association may face problems that are far worse than living with a rule-breaking tenant.

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 more information, please contact us.

Condominium Governance: Guiding Unit Owners through Financial Struggles

The overall health and stability of a condominium community is often viewed as a function of the whole rather than the sum of its parts. As such, those choosing to make their home in a condominium community understand the manner and extent to which their standard of living is dependent upon one another. This is particularly true in the context of a condominium community’s financial situation.

In times of economic prosperity, the dependency among unit owners can operate to make the community greater than its parts. Conversely, periods of economic adversity increase the likelihood that hardships experienced by some unit owners will be felt throughout the community.

Struggling associations often find themselves in a catch-22: raise assessments to compensate for delinquent owners and risk causing additional unit owners to default. Doing more with less may also be counterproductive. Choosing to cut amenities or delay necessary maintenance and repairs can render the community less attractive to prospective purchasers, or allow the community to fall into a state of disrepair, thereby continuing the vicious cycle.

Typically, once an owner falls behind on the mortgage payments, it is not long before other bills, such as insurance and assessments, become delinquent. Knowing this, experienced association board members would be doing a service to their community by providing guidance to those unit owners who are struggling financially. In addition to lending their own experience and expertise, board members now have an additional resource: Fannie Mae’s Know Your Options campaign.

Fannie Mae is a government-sponsored enterprise designed to provide liquidity, stability and affordability to the U.S. housing and mortgage markets. Rather than provide home loans directly to consumers, Fannie Mae operates in the domestic secondary mortgage market and works with various mortgage bankers and brokers to ensure they have the funds to lend to buyers at affordable rates.

In an effort to combat the financial hardships currently facing homeowners across the country, Fannie Mae launched http://www.KNOWYOUROPTIONS.COM. This campaign, which is designed to help homeowners who are struggling with their mortgage payments or facing foreclosure, educates homeowners about various options that may be available.

For each of the following options, the website provides a description of the benefits, how it works, how to take action, and various informational videos.

Options to Stay in Your Home

Refinance. Replace an existing mortgage with a new mortgage with new terms, interest rates and monthly payments.
Repayment Plan. Bring existing mortgage current by adding a portion of past due amounts to regular mortgage payments over a period of time.
Forbearance. Reach an agreement with the mortgage company to temporarily suspend or reduce the monthly mortgage payments for a specific period of time.
Military Forbearance. Similar to non-military forbearance but with additional benefits, such as longer forbearance period and no adverse impact to credit score.
Modification. Reach an agreement with the mortgage company to change the terms of the existing mortgage, such as monthly payment amount, interest rate, length of loan, etc.
Deed-for-LeaseTM. Fannie Mae program allowing owner to lease the home for up to twelve months at current rental rates after transferring title to the mortgage company.

Options to Leave Your Home

Short Sale. Sale of home for less than the balance remaining on the mortgage.
Deed-in-Lieu of Foreclosure. Voluntarily transfer title to the home to the mortgage company in exchange for a release from the mortgage loan.

The website also provides resources for those struggling with their mortgage payments, including:

Fannie Mae Mortgage Help Centers

Housing Counselors

Events

Understanding Your Credit Score

Calculators

Ways Home TM Interactive Video

Helpful Forms (Financial Checklist & Contact Log)

Frequently Asked Questions

Links to Helpful Sites (Fannie Mae Loan Lookup)

Glossary

Finally, the website warns of scams targeting distressed homeowners and promising immediate relief from foreclosure. To avoid becoming a victim of a scam, homeowners should be on the lookout for anyone demanding payment for counseling services (HUD provides such counseling free of charge), or anyone asking a homeowner to sign over their title, redirect their mortgage payments, or stop making their loan payments. These are red flags for a scam.

Condominium board members may not have a statutory obligation to offer financial guidance to struggling unit owners. However, the information available at http://www.knowyouroptions.com can make the difference between a delinquent unit owner and a unit owner who continues to be a contributing member of the condominium community. This difference not only benefits the individual unit owner, but the community as a whole, and that should be the goal of every board member.

If you would like more information about condominium governance and risk management, please contact us.

Maximizing Coverage for Multi-Building Condominium Associations in the Event of Insurer Insolvency

If an admitted insurance company becomes insolvent, the Florida Insurance Guaranty Association (FIGA) generally becomes obligated to pay up to $300,000 for each covered claim. However, for multi-building condominiums, the manner in which the association’s property insurance is structured could affect the amount FIGA will pay if the association’s admitted insurer becomes insolvent.

FIGA provides a mechanism for the payment of covered claims in the event an admitted insurance company becomes insolvent. Once an insurance company becomes insolvent, FIGA is deemed the insurer for covered claims up to the statutory cap.

In the context of a condominium association made up of multiple buildings, does the $300,000 cap apply to all of the buildings or each one separately? According to a Florida appellate court, the answer depends on how the property was insured under the policy.

The case involved a condominium association made up of seven separate buildings, all of which were damaged during Hurricane Wilma. The declarations page of the association’s property insurance policy indicated that the policy covers the seven buildings. Importantly, each building was listed separately in the “Description of Premises,” the coverage and premiums were calculated separately for each building, and each building had its own deductible.

Following the insurance company’s insolvency, FIGA stepped in and paid $299,900 (which represents the $300,000 cap minus the $100 deductible). Though the condominium association believed that each building made up a separate claim entitled to its own $300,000 cap, FIGA treated the loss to all of the buildings as a single claim.

In deciding which party was correct, the court focused on the difference between a policy containing an “aggregate” value for several insured buildings, and a policy containing separate schedules for each of the insured buildings. Specifically, the court noted that:

A distinction must be made between a policy which speaks in terms of a lump-sum obligation or value of the property (“blanket coverage”) and one which separately schedules different items of property (“specific coverage”). In the latter case, each separately treated item of property is in effect covered by a separate contract of insurance and the amount recoverable with respect to a loss affecting such property is determined independently of other items of property.

Applying this rule, the court concluded that the association’s insurance policy provided separate contracts of insurance since the policy spoke in terms of separately scheduled buildings. Since each building was separately listed on the declarations page, with a separate covered amount and separate premiums listed for each building, the court held that each of these seven separate claims should have its own statutory cap of $ 300,000.

The association in this case clearly benefited from having specific coverage as opposed to blanket coverage. However, it is often considered preferable to purchase multi-building property insurance that affords blanket coverage rather than specific coverage because it may offer greater flexibility in terms of coverage and limits.

To reconcile this paradox, it is important to understand that the benefit of the distinction between blanket and specific coverage was not realized until the association’s insurance company became insolvent, thereby implicating FIGA and the $300,000 cap. Had the insurance company not become insolvent, it is possible that the association would have benefitted from the opposite conclusion than that reached by the court.

Unfortunately, since predicting insurer insolvency is difficult, the decision between specific versus blanket property insurance for a multi-building condominium association may prove incorrect when viewed with the benefit of hindsight. By reducing the likelihood of insurer insolvency, however, an association can address the variable that is most likely to affect the outcome—the insurer’s insolvency.

Although there are no guarantees that a particular insurance company will remain solvent, it is commonly understood that financially strong insurance companies are less likely to become insolvent. Unfortunately, doing business with a financially strong insurer may not be a viable option due to increased costs or the lack of options in a particular marketplace. Nevertheless, an insurer’s financial strength should be considered when shopping for insurance.

Though purchasing the association’s insurance may be complicated, officers and directors of the association have a fiduciary obligation to the unit owners. Though this obligation does not necessarily mean that all decisions must be correct, it does mean that they must be informed. This often means that an insurance agent possessing the appropriate experience should be consulted during the process.

If you would like to learn more about insuring condominium association property, or if you would like assistance in obtaining insurance, please contact us.

Collecting Unpaid Assessments: Options for Proactively Pursuing Delinquent Unit Owners

Today, condominium residents are feeling the pain of their neighbors’ financial struggles, particularly in the form of budgetary shortfalls created by unit owners defaulting on their obligation to pay assessments. Assessments, which represent each unit owner’s share of the funds required to pay the association’s common expenses, are the life-blood of an association. The revenue generated by assessments enables the condominium association to undertake the maintenance, management, and operation of the condominium community. Unfortunately, the current slump in the housing market, particularly in Florida, has hit condominium communities especially hard.

Many unit owners simply cannot afford to pay their assessments. Many speculators looking to flip their units for a quick profit have simply disappeared. Additionally, condominium associations may not receive assessment payments from residents whose units are in foreclosure. Whatever the reason, the result is that many condominium associations are not receiving the revenues required to manage and maintain condominium property.

Associations in this situation are often caught in a “lose-lose” situation: raise assessments and risk causing additional unit owners to default. The alternative of doing more with less does not come without risk either. For example, an association choosing to cut amenities or delay necessary maintenance can render the community less attractive to prospective purchasers, or allow the community to fall into a state of disrepair, thereby continuing the vicious cycle.

Fortunately, there are various options authorized by law to maximize the likelihood of successfully collecting unpaid assessments. Importantly, such options, including those listed below, may not be applicable, or may actually be prohibited, in certain situations. For example, suspending a unit owner’s right to use association property may constitute a violation of the automatic stay under the Bankruptcy Code. Thus, legal counsel should be sought before embarking upon one or more of the following options.

Suspension of Rights to Use Common Elements and Voting Rights

Failing to remain current with monies due to the association, including assessments, may jeopardize a unit owner’s right to enjoy the use of the common elements. If a unit owner is delinquent for more than 90 days, the association may suspend the unit owner’s right to use common elements, common facilities, or any other association property until the balance is paid.

The Condominium Act provides that a suspension may be extended to include a unit owner’s occupant, licensee—for example a social guest, or invitee—for example a business guest. However, such a suspension cannot apply to any limited common elements intended to be used only by that unit, common elements that must be used to access the unit, utility services provided to the unit, parking spaces, or elevators.

It is important to note that such a suspension may only be imposed after it has been approved at a properly noticed board meeting. Additionally, once the suspension has been imposed, the association must notify the unit owner of the suspension in writing by mail or hand delivery. If applicable, such notice must also be given to any occupants, licensees, or invitees covered by the suspension.

A delinquent owner’s right to participate in the association’s decision-making process can similarly be limited. Until all amounts are paid in full, an association may suspend the voting rights of a member who is more than 90 days delinquent in paying any monies due to the association.

Charge Interest and an Administrative Late Fee

Assessments and installments on assessments that are not paid when due, bear interest at the rate provided in the condominium’s declaration, if not unlawfully excessive. If the declaration does not include an interest rate, then the appropriate interest rate shall be 18 percent per year.

If authorized by the declaration or the bylaws, an association may charge an “administrative late fee” of up to $25 or five percent of each installment of the assessment, whichever is greater. This fee may be charged for each delinquent installment for which the payment is late. Any payment received by an association must be applied first to any interest accrued by the association, then to any administrative late fee, then to any costs and reasonable attorney’s fees incurred in collection, and then to the delinquent assessment.

Monitor (Nudge) Foreclosure Cases Filed by Lenders against Unit Owners

Since the number of lender-initiated foreclosures has soared in the past few years, it is not surprising to learn that foreclosure rates in some condominium communities approached fifty percent. Since these lenders typically hold superior rights, many associations are reluctant to take action during a lender’s case. Unfortunately remaining passive can prove costly.

During foreclosure there is often little incentive for unit owners to pay assessments. Primary lenders (first mortgagees) are not responsible for unpaid assessments until after the lender takes title to the property. However, once a lender (or its successor) takes title to the unit through foreclosure, it generally becomes liable for the lesser of: 1) unpaid common expenses and regular periodic assessments coming due during the 12 months immediately preceding the acquisition of title; or 2) one percent of the original mortgage debt.

Seeking to delay their liability for unpaid assessments, lenders often allow their foreclosure cases to languish in court. Given the importance of collecting unpaid assessments, even in part, associations should not tolerate long delays. Steps can be taken to commit the lender to a schedule, and remind the lender (and the court) that an interested party will not tolerate unwarranted delays. So, if one or more units seem to be lost in foreclosure, an association should consider discussing its options with legal counsel.

Deficiency Claim

Since a lender’s liability for past due assessments is limited by statute, it is likely that a deficiency for unpaid assessments will remain once the lender’s foreclosure is final. Since unit owners are liable for these unpaid assessments, condominium associations may consider pursuing a deficiency claim against prior owners.

In practice, deciding whether to pursue a deficiency claim will often hinge on the collectability of prior unit owners. Therefore, significant effort will focus on discovering whether a prior owner has sufficient, non-exempt assets to justify the effort and expense.

Those who filed for bankruptcy during their foreclosure will likely be uncollectible, whereas those who purchased one or more units for investment purposes may have unprotected assets. Legal counsel should be consulted to create a profile of optimal targets for a deficiency claim.

Demand Rent Payments Directly from Tenant

Since the struggling real estate market made it virtually impossible to sell condominium units, many owners opted to generate revenue by renting their units. Too often, however, many unit owners failed to use their rental income to pay their condominium assessments. The recent strengthening of the rental market has served to increase the occurrence of this problem.

If the owner of a rented unit is delinquent in paying any amounts due to the association, including assessments, an association may essentially intercept the tenant’s rent by demanding that the tenant make rent payments directly to the association. The Condominium Act outlines the manner in which an association can go about demanding receipt of a tenant’s rent payments. However, given the technical nature of the process, which was amended on July 1, 2011, a condominium association should seek the advice of legal counsel before moving forward with this option.

File and Foreclose on a Lien for Unpaid Assessments

In the past, filing a lien for unpaid assessments has been an effective collection strategy because many unit owners had too much equity to risk foreclosure for a relatively small amount of money. The mere notice of a lien was often enough to compel payment. Today, the relative rarity of encountering a unit owner with positive equity means that condominium associations must contemplate the next step—foreclosing on the lien.

Since those who are delinquent with their assessments are probably also delinquent on their mortgage, many associations previously dismissed foreclosure as a viable option because of the lender’s superior lien. What is the point of foreclosing if the lender can step in at any point and essentially nullify the association’s effort and expense? Things have changed.

The volume of foreclosure filings, coupled with many lenders stalling their cases, may provide associations with a window of opportunity. Associations committed to an aggressive foreclosure campaign can take advantage of a strong rental market to generate revenue by turning their foreclosed units into valuable rental properties.

This approach, however, is not without risk. For example, given the costs of foreclosure and unit renovation, the association may not have enough time to turn a profit if a lender quickly asserts its superior rights to the property. Nevertheless, associations discussing the risks and benefits of lien foreclosure with their legal counsel may find the option more palatable than ever.

Condominium unit owners have common interests beyond the pool and the clubhouse. Because residents share expenses, they have a vested interest in the financial health of their fellow unit owners. With fewer residents contributing, associations must be proactive and (cautiously) aggressive when pursuing unpaid assessments. Otherwise, associations will quickly discover that the financial hardships of some unit owners will be felt by all.

If you would like to learn more about condominium practices and procedures, view our library of courses, or contact us directly.

The More Things Change, the More they Stay the Same: Condominium Associations Must Still Review their Insurance Policies

Condominium associations can be sizeable organizations responsible for overseeing and managing hundreds of residents, possibly thousands. This responsibility often involves hundreds of thousands, or possibly millions of dollars worth of property and revenue. A for-profit organization dealing with similar figures will commit significant resources to protecting its assets. For some reason, however, many condominium associations fail to take the same precautions. Perhaps the most common oversight, and often the costliest, is an association’s failure to review and understand their insurance coverages.

The most common mistake made by insureds is assuming coverage for a particular situation. Unfortunately, as a board member, making assumptions may constitute a breach of their fiduciary duty to the members of the condominium association. When, not if, things go wrong, board members should have a solid understanding of what will be covered by the association’s insurance policies, and perhaps more importantly, what will not be covered.

A recent case highlights the importance of understanding an association’s insurance policies, coverages, and exclusions. A unit owner sued the association for failing to adequately maintain and repair the roof and air conditioning system on the roof of the condominium building. Having experienced two hurricanes in 2004, the building sustained severe water intrusion, which allegedly caused pervasive mold and other damage to plaintiff’s unit. The unit owner alleged negligence, breach of fiduciary duty, and breach of contract.

At the time, the association was covered by two insurance policies: a commercial general liability policy and a Directors and Officers (D&O) policy. The D&O policy, which was the focus of the appeal, contained a “property damage” exclusion, which excluded coverage for loss in connection with any claim made “for or arising out of any damage, destruction, loss of use or deterioration of any tangible property including . . . mold, toxic mold, spores, mildew, fungus, or wet or dry rot.”

Despite the existence of this exclusion, the association nevertheless sought coverage under the D&O policy by filing a lawsuit. The association lost.

According to the court, the plain language of the D&O policy excludes coverage for any claim made “for or arising out of any damage, destruction, loss of use or deterioration of any tangible property.” Under Florida law, the phrase “arising out of” is to be interpreted broadly and encompasses all of the following meanings: originating from, having its origin in, growing out of, flowing from, incident to, or having a connection with.

In accordance with this interpretation, the court noted that the unit owner’s breach of fiduciary duty claim not only had a connection with the property damage, but depended upon the existence of property damage. Consequently, the D&O policy’s property damage exclusion applied to deny coverage to the association.

The lesson to be learned from this case is that board members must know what is and is not covered by their insurance policies. Although the association in this case could not have rewritten the D&O policy to remove the exclusion, it would have known that it could not rely on the D&O policy to cover any losses arising out of property damage.

Incorrectly assuming specific insurance coverage is in place can be devastating. The only way to avoid this problem is to immediately read and understand the association’s insurance policies, because receipt of a denial of claim letter is not the best time to first consider the possibility that a claim may not be covered. Rather, board members should designate an “insurance review day” at least once a year.

If reading the association’s policies does not provide all the answers, contact your agent! Unfortunately, many agents only make themselves available when the association’s policies are up for renewal. This is unacceptable. Your insurance agent should be a resource throughout the year, not only when they are collecting premiums. Insurance has become far too complex to understand without professional guidance.

When it comes to evaluating the association’s insurance coverages, the following items should be discussed with your insurance agent.

Replacement Cost for Building(s): Factor in the type of construction, age, square footage, number of floors, and any other features which may affect the buildings value in terms of replacement cost. An appraisal may be advisable, and possibly required by law. Although the frequency with which this must be done may be set by applicable law, this process should be done at least every two or three years.
Property Coverage, including Wind Coverage: As condominium communities evolve, so to do their risks. For example, new property may have been purchased or built since obtaining current insurance policies. For those condominiums located in coastal areas that are prone to hurricanes, insurance coverage for losses caused by wind (including hurricanes) is absolutely critical even though it is typically expensive. Importantly, some policies have deductibles that only apply to wind claims.
Deductibles: Selecting the appropriate deductible depends on various factors, including the association’s ability to withstand the chosen deductible. Also note that different coverages, even under the same policy, may have different deductibles. While adjusting deductibles may result in a premium reduction, care must be taken to ensure that increasing deductibles does not render the insurance coverage illusory because the association cannot afford the increase.
Umbrella Policy: An umbrella policy is designed to assist an insured once the limits of the underlying policy have been reached. It serves as a failsafe in the event of an exceptionally large claim. Many board members are surprised to discover that such coverage can often be obtained at relatively little expense.
Flood Coverage: Consult with your insurance agent to determine whether the property is in a flood zone. If so, then flood coverage should be obtained.
Other Coverages: Depending on an association’s specific situation, other coverages should be discussed with an insurance agent, such as directors and officers, workers’ compensation (if necessary), employee dishonesty (fidelity), ordinance and law, and business interruption coverage (if applicable).

If your insurance agent is unwilling, or unable to competently and patiently discuss any of the risks facing a particular condominium association, then serious consideration should be given to changing agents. In most cases, getting a new insurance agent does not necessarily mean that existing insurance policies and coverages need to change as well. Oftentimes, the transition can be seamless, even though the benefits can outstanding.

Understanding the risks facing a condominium community is critical to eliminating, or at least reducing such risks. Given the complexity of today’s insurance products, the assistance of an experienced and trusted insurance agent is a must.

If you would like more information about anything discussed in this article, or would like to discuss your association’s insurance needs, please contact us.

The Need for Directors & Officers Insurance for the Condominium Association Board

What is the difference between directors and officers of a small condominium association and those of a million dollar company? Oftentimes, the differences are found in levels of experience and expertise, and in the large salaries and stock options. In the eyes of the law, however, they are more alike than they are different. Yet, despite the fact that directors and officers of condominium associations often share the same legal duties and responsibilities as their highly paid and high profile counterparts, many do not realize the significance, or the ramifications, of their decision to volunteer for their condominium board.

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Those deciding to serve on their condominium association board typically do so with the best intentions. They make every effort to abide by the rules, act fairly, and above all, do that which is best for their community. However, since directors and officers are charged with protecting not only their own homes, but also those of their neighbors, the stakes can be very high, and the consequences of mistakes can be severe.

Given that directors and officers are required to comply with numerous different legal standards, it would be unrealistic to expect them to perform their responsibilities without ever making a mistake. Common law duties, fiduciary obligations, condominium bylaws and declarations, and numerous applicable statutory requirements, all govern the manner in which directors and officers undertake their obligations.

Consider the following situations which may ultimately result in liability for the condominium association, as well as its directors and officers: breach of the duty of care, libel and slander, loss resulting from improper management, ignorance or misunderstanding of condominium bylaws or declaration, failure to maintain proper books and records, conflicts of interest, negligence or recklessness in conducting the association’s business, violations of applicable statutory and common law duties, breach of fiduciary duty, employment-related misconduct, and improper or discriminatory application of condominium rules. Consequently, volunteers with little or no experience or knowledge about what it means to be a director or officer are likely to make a mistake during their efforts to navigate through all of the applicable legal requirements.

Since the combination of strict legal requirements and inexperience generally create a favorable environment for error, prudence dictates that condominium associations insure against the resulting risk. This can be accomplished with a Directors and Officers (D&O) insurance policy.

D&O policies generally protect directors and officers against monetary damages resulting from lawsuits or claims resulting from actions taken in their official capacity. These policies protect against claims that directors and officers have acted improperly, or otherwise failed to act, in their individual or group capacity on behalf of the association. They can offer protection against economic damages resulting from the negligence or wrongdoing of board members. And, depending on the policy form, D&O coverage may apply to the association, as well as its directors, officers, employees, committee members, and volunteers.

While D&O policies do not cover all potential liabilities, such as those resulting from fraudulent or intentional acts, they do provide a much needed security blanket for those directors and officers wanting to serve their community, but who may not possess all of the necessary experience or knowledge. Such policies also reduce the likelihood that assessments will be imposed to pay amounts that would have been covered by a D&O policy.

Another benefit of obtaining D&O insurance is that it removes a significant obstacle in getting the best and brightest individuals to serve their condominium association. Upon discovering that they will be on their own in the event something goes wrong, many individuals decide not to volunteer for service. Additionally, the existence of a D&O insurance policy gives directors and officers the freedom to make the right decisions, even if they are not popular, without fear of liability. The alternative may be a group of directors and officers so paralyzed by fear that little is accomplished.

While making the decision to obtain D&O insurance is easy, choosing the appropriate policy form for a particular situation is not. Since variations among D&O policies can be significant, it is important to select a policy form which addresses any particular risks with appropriate coverage terms. When shopping for a Directors and Officers insurance policy, it is important to use the services of an insurance agent with substantial expertise in this field.

If you would like more information about Directors and Officers Insurance for your condominium association, please contact us.

Condominium Boards Going Red Over Unit Owners Going Green

Did you know that the earth receives more energy from the sun in one hour than the world uses in an entire year? In the past, such a fact was considered trivial. Today, however, it is fueling (pardon the pun) the Going Green movement that has found prominence in local and national political debates and news productions. The need to decrease our dependence on oil and increase our use of renewable energy resources is highlighted by concerns over global warming, turmoil in oil-producing regions, and the recent memory of paying more than $4 per gallon of gasoline.

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Although polling suggests that the green movement is increasing in popularity and that many are doing what they can to reduce their carbon footprint, those trying to harness the power of the sun in their condominium communities have been encountering significant resistance from their condominium association boards. This is reflected by the increasing number of disputes involving unit owners attempting to install solar energy devices. Given the popularity of going green, those who are perceived as obstacles to the movement are achieving unwanted notoriety.

Ordinarily, condominium boards opposing the installation of solar collectors or other energy devices based on renewable energy resources are enforcing restrictions found in the condominium documents (e.g., bylaws, declarations, etc.) that prohibit such installation. Others are ostensibly protecting the appearance or theme of the condominium community by preventing the installation of unattractive or obtrusive devices, regardless of their benefit. However, notwithstanding motivation, legislative mandates are significantly restricting a condominium board’s ability to prohibit the installation of solar collectors or other renewable energy devices.

In Florida, for example, a deed restriction, covenant, declaration, or similar binding agreement may not prohibit solar collectors or other energy devices based on renewable resources from being installed on buildings. In Arizona, an association cannot prohibit the installation or use of a solar energy device regardless of what the community documents provide. Maryland prohibits unreasonable limitations on the installation of solar collectors.

These laws represent a trend toward the protection of a landowner’s right, including a condominium unit owner’s right, to install solar collectors or other energy saving devices on their property. Their rights, however, are not absolute in that these laws typically allow for some restrictions on the installation of such devices.

Thus, while a Florida unit owner may not be denied permission to install solar collectors or other energy devices within the boundaries of a condominium unit, the board may determine the specific location where solar collectors may be installed on the roof. Similarly, in Arizona, an association may adopt reasonable rules regarding the placement of the solar device.

However, it is important to note that these laws typically provide that any such restrictions cannot impair the effectiveness of the device. In practice, this means that a board may not force a unit owner to place the device in a shady area, have the device face the wrong direction, or paint the device to match the community’s appearance, because these efforts may reduce the device’s effectiveness.

Needless to say, handling a request for permission to install a solar collector, or some other device based on a renewable resource, can be perilous. The stakes are significantly increased by the fact that laws protecting the right to install such devices typically allow the prevailing party to recover attorney’s fees in the event litigation arises.

The likelihood of encountering a request for permission to install a solar collector or some other renewable energy device is increasing with every government rebate and tax credit available for those electing to go green. Since improperly handling such a request can have damaging consequences, a board should seek professional advice before taking any action on the request, regardless of what the condominium documents provide. If a request is illegally denied, the board will be left red in the face while the unit owner goes green.

If you would like to learn more about your obligations as a condominium board member, check out our condominium training which has been approved by the State of Florida.

Regulating Religious Displays: A Trap for the Unwary

The holiday season brings with it a flurry of activity. From wish lists and shopping lists to recipes and reservations, this time of year often has the effect of raising spirits more than any other. And, while people express their holiday spirit in different ways, many choose to do so by decorating their homes; inside and out.

Yet, despite the apparent innocence of such an endeavor, the manner in which people choose to decorate the outside of their homes has caused countless “neighborly” disputes among condominium residents. Seemingly trivial protestations that a neighbor’s holiday lights are too bright, that the faux snow is too gaudy, or that nine reindeer are simply too much, can quickly turn serious.

To avoid such a situation, condominium associations often enact either rules banning decorations outright or rules restricting the manner in which owners may decorate the outside of their units. Such use restrictions are generally permissible as long as they are authorized by the condominium’s documents, are enacted for a legitimate purpose, and are enforced fairly and uniformly.

However, in some states, there is a type of decoration that condominium associations cannot ban: religious objects. For example, an Illinois statute provides that “no rule or regulation shall prohibit any reasonable accommodation for religious practices, including the attachment of religiously mandated objects to the front-door area of a condominium unit.”

In Florida, an association may not refuse a reasonable request for permission to attach a religious object on the mantel or frame of a unit owner’s door. The statute provides that unit owners are limited to a single object “not to exceed 3 inches wide, 6 inches high and 1.5 inches deep.”

It is important to note that the protection afforded by these statutes applies all year long. Thus, in addition to protecting the display of religious objects during the holiday season, they also protect their display throughout the year.

These laws represent a relatively new initiative to protect the right of condominium unit owners to decorate their doors or entranceways with religious symbols. The Illinois statute became effective January 1, 2007; the Florida statute became effective October 1, 2008. On September 17, 2008, the Freedom of Religious Expression in the Home Act of 2008 was introduced as a bill in the U.S. House of Representatives. Moreover, some municipalities, such as Chicago, have enacted their own protections in this regard. Condominium association boards should consider the possibility that these developments may indicate a trend that other state and municipal governments may soon follow.

When confronted with a request to display a religious symbol under these laws, condominium boards should proceed cautiously. Although the spirit and intent of these laws seem clear enough, significant room for interpretation and debate remain as to precisely what type of accommodation is required.

For example, unlike Florida’s statute, the Illinois statute does not specify how big the decoration may be. Other than providing that “reasonable” requests must be permitted, the statute fails to provide any specifications. Unfortunately, sensible minds can differ as to what qualifies as reasonable. Thus, disputes in this context are possible, if not likely.

Perhaps the only thing more difficult than defining reasonableness is defining religion. The intellectuals sitting on the United States Supreme Court over the years have found few questions more difficult to answer. And, in those instances where an attempt at a definition was made, never has universal agreement been achieved. It is unlikely that a condominium board will fare any better, so a broad, inclusive approach should be considered.

Moreover, it would be incorrect for a condominium board to assume that these laws only protect religious symbols, such as mezuzot or crucifixes, which are linked to “major” religions. Since these laws make no such distinction, neither may a condominium board. If it qualifies as a religious symbol, regardless of a board member’s personal belief, then a unit owner is entitled to display it. In this context, the majority does not rule.

Needless to say, few topics garner as much passion as religion. People will go to great lengths to defend their religious beliefs and their right to display such beliefs. An association’s failure to abide by these laws may come at a price, and the price of intolerance in this regard won’t be cheap.

Thus, before taking any action to prohibit a unit owner from displaying a religious symbol, even if a condominium’s documents authorize such a restriction, professional counsel should be sought to ensure compliance with any applicable statutes or ordinances.

Is It a “Grand Old Flag” or a Community Eyesore?

Those choosing to live in a condominium community voluntarily concede a measure of their autonomy as homeowners to their condominium association, whose governing board has the power to enact and enforce restrictions on the manner in which unit owners occupy and use their property. In this respect, the powers accorded to an association’s governing board are not insignificant.

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In exercising its authority, a condominium’s governing board is generally free to enact and enforce restrictions as long as the restrictions:

Represent good-faith efforts to further the purposes of the condominium community;
Are consistent with the condominium’s governing documents; and
Comply with public policy.

And, in the absence of unreasonable, discriminatory, arbitrary, or capricious behavior on the governing board’s part, courts will generally consider such use restrictions valid unless they are overridden by the membership in a manner consistent with the condominium’s governing documents. Of course, reasonable people will disagree on which behaviors are discriminatory or arbitrary, making the enforcement of some of these restrictions matters of contention.

There is one right, however, that unit owners in some states do not relinquish upon moving into a condominium community: the right to display the United States flag on their premises. Under many states’ statutes, condominium governing boards are powerless to abrogate the right of unit owners to display a United States flag if they so desire.

In Florida, for example, the law provides that a unit owner may display “one portable, removable United States flag in a respectful way… regardless of any declaration rules or requirements dealing with flags or decorations.”Similarly, in California, “no declaration or other governing documents shall limit or prohibit, or be construed to limit or prohibit, the display of the flag of the United States by an owner,” except as required for the protection of the public health or safety.

Many other states have also enacted laws protecting the right of condominium residents to display the United States flag. And the Federal government has contributed its own legislation to protect this right, enacting the Freedom to Display the American Flag Act in 2005.

Yet even the right to fly “Old Glory” is not absolute. The laws that give condominium unit owners the right to display the United States flag typically allow for reasonable restrictions on that right. For example, condominium associations in Arizona are given the right to adopt reasonable rules and regulations regarding the placement and manner of display of the flag. In Colorado, condominium associations are permitted to regulate the location and size of the flags.

Unfortunately, these “reasonable” restrictions have occasionally proven to be battle lines in heated conflicts between condominium governing boards and unit owners. For example, condominium boards, under the “reasonable restrictions” principle, have prohibited unit owners from displaying the United States flag, arguing that such displays ruin the desired appearance of the condominium community. Unit owners have countered that such a prohibition is unreasonable and discriminatory.

In other instances, condominium boards have used their power to impose reasonable restrictions on flag displays as a pretext for inappropriate actions and overbearing restrictions that in fact have little to do with displaying the flag. Such abuses of power are not only damaging to a community’s spirit but also potentially costly to associations, especially in states such as California that award a prevailing unit owner attorneys’ fees and court costs.

By enacting legislation that protects a condominium unit owner’s right to display the United States flag, states have spoken loudly and clearly on this contentious issue. A condominium association board that merely objects to the manner in which the flag may alter the uniform appearance of the community or that uses its power to retaliate against certain unit owners it dislikes must accept the fact that the law protects unit owners’ rights to display this deeply cherished national symbol. Even when given the power to impose reasonable restrictions on displaying the flag in their communities, association boards would be wise to consult their attorneys before demanding that unit owners take down the “Stars and Stripes” that hangs on their front doors.

Enforcing Condo Use Restrictions: A Potential Legal Minefield for Board Members

Condominium communities offer unique benefits to their residents that may not be otherwise available to those opting for “traditional” homeownership. However, in exchange for these benefits, unit owners must give up a certain degree of freedom of choice that they might otherwise enjoy in separate, privately owned homes. Although it is a tradeoff that many willingly accept when they purchase a unit, abusive condominium associations can cause owners to regret their decisions.

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Limitations on unit owners’ freedoms typically take the form of use restrictions, which, according to one state court, are necessary because “condominium owners live in close proximity and use facilities in common.” These restrictions can range from making the clubhouse a “shoes only” facility to requiring that the board approve the sale of a unit.

According to the Supreme Court of California, use restrictions are an inherent part of any common interest development and are crucial to the stable, planned environment of any shared ownership arrangement. However, despite the need for use restrictions, condominiums have nevertheless become famous, or perhaps infamous, for the manner in which they enact and enforce these restrictions.

Headlines and punch lines have earned abusive condominium association members the unflattering moniker “condo commandos.” Increasingly, however, these individuals are gaining yet another title – that of a defendant. Condominium residents fed up with the abusive tactics employed by some unit owners are routinely seeking recourse in the courts. And since infighting can be as damaging to the community as it is to an association’s balance sheet, condominium boards must be familiar with their powers, as well as the limitations on those powers, to enact and enforce use restrictions.

A condominium association’s authority to enact and enforce use restrictions may come from the condominium’s declaration (or some other document of condominium creation), the condominium’s bylaws, a state’s condominium statutes, and judicial pronouncements. Regardless of the source of an association’s powers, however, an association’s authority is not absolute.

Notwithstanding jurisdictional variations, a condominium’s governing board is generally free to enact use restrictions as long as the restrictions represent good-faith efforts to further the purposes of the condominium, are consistent with the condominium’s governing documents, and comply with public policy. Broadly stated, a condominium’s governing body cannot enact rules bearing no relationship to the health, happiness, and enjoyment of life of the various unit owners.

It follows, then, that the power of a condominium’s governing body to enact use restrictions can be limited when the action is unreasonable, arbitrary, capricious, or discriminatory. Accordingly, in addition to having the requisite authority to enact a specific use restriction, a condominium’s governing body must make sure that any such restriction is not only reasonable but also has been enacted in good faith.

The power of a condominium’s governing body to enforce its use restrictions may also be governed by the “arbitrary and capricious” standard. One court has stated that in order for a governing body to declare that a unit owner has violated a use restriction, it must do so uniformly, in good faith, and not in an arbitrary or capricious manner. In one case, a Florida court held that a use restriction is unenforceable if it has been unreasonably or arbitrarily applied.

An Illinois court adopted a reasonableness test that requires a determination of whether enforcement of a use restriction:

Is arbitrary or capricious, considering whether it promotes the safety and enjoyment of the condominium;
Is non-discriminatory and even-handed;
Is enforced in good faith for the common welfare of unit owners;
Creates potential hardship on unit owners; and
Has been reasonably implemented.

These limitations make clear that the authority of a condominium’s governing body to enact and enforce use restrictions is not absolute.

Condominium unit owners make up a democratic sub-society of necessity that has been described as a quasi-government. They elect their representatives with the expectation of being treated fairly and reasonably. However, even though they consent to having restrictions placed upon the use of their property for the benefit of the condominium as a whole, they have in no way consented to arbitrary or capricious restrictions that achieve no positive benefit. Those who participate in the government of their condominium must keep this in mind when they are called upon to enact or enforce a use restriction. Otherwise, they may discover how quickly they can go from being power-wielding “condo commandos” to defendants arguing their case before a judge.