I have been getting questions left and right about unit owners petitioning for substitute or alternative budgets in Florida condominium associations in the last 90 days. There are two factors that seem to be leading to unusually high annual assessment increases in Florida condominiums. First, we are facing historic inflation and cost increases along with very significant industry wide increases in property insurance premiums. Second, many associations are taking a very detailed look at their reserve funding in light of the Surfside condominium collapse and taking steps to increase or correct their reserve funding.
A common misnomer is that a condominium association cannot increase assessments more than 15% without a member vote. It should be noted that (absent a provision in a particular association’s governing documents to the contrary) there is no restriction in Florida’s Condominium Act on a condominium association board increasing the annual budget by any particular amount or percentage. In reality, a budget increase more than 15% from the prior year is perfectly allowable, but it triggers the right of unit owners to petition for a special unit owner meeting for the purpose of members considering a substitute budget.
In response to such unusually high year-over-year increases in assessments, there have been many groups of unit owners in various associations making attempts to adopt lower substitute budgets. Whether such a goal is wise or not is a topic for another day. This post will provide a summary of the triggers or requirements for submitting such petition and a receiving association’s obligations in responding to a valid petition. This article is applicable to Florida condominium associations only.
Section 718.112(2)(e)2.a., Florida Statutes provides a mechanism for unit owners to require the association to notice and hold a special unit owners meeting at which unit owners may consider and vote on a substitute budget different than the budget adopted by the board of directors, but only where the budget adopted by the board exceeds 115% of assessments for the preceding fiscal year. Per the law, when determining whether the new budget exceeds 115%, you must exclude from the calculation the portions of assessments for reserve contributions and any portions of assessments related to items that are not expected to be incurred on a regular ongoing basis (i.e., one-time capital projects or repairs). Put another way, the calculation is essentially done only on the portion of assessments for ongoing, regular annual expenses. This is an important threshold matter as many of the assessment increases of late are a result of ramped up reserve funding – which increases would not be included in the 115% calculation. If the adopted budget has not increased 115% as calculated under the statute, unit owners do not have the right to petition for a special meeting to consider an alternate budget. In such situations where the budget has not increased by that percentage, the association would disregard a petition by unit owners – no matter how many owners sign it. Note, however, an association’s governing documents might provide a separate procedure for members to cause a special unit owner meeting to be held.
Presuming a budget has increased in excess of 115% under the statute, 10% or more of all voting interests in the association must make a written request to the association for a special unit owner meeting within 21 days of the adoption of such increased budget. An association who receives such written request with the time stated must call, notice and conduct the special unit owners meeting within 60 days of the adoption of the budget. The association’s obligation is simply to schedule and notice the meeting. Neither the association nor the board has any obligation to assist the challenging owners in their endeavor to secure the requisite support for such substitute budget. At the meeting, quorum must be established to conduct business. If quorum is not achieved, the meeting would be closed, and the board’s adopted budget would remain in effect. If quorum is achieved at the special meeting, a substitute budget can only go into effect if approved by a majority of all voting interests in the condominium (unless the bylaws require a greater percentage). Note, the voting threshold is not a majority of those present, but a majority of the total voting interests. Thus, even where quorum is established at the special meeting, if a majority of the total voting interests do not approve a substitute budget, the board’s adopted budget would remain in effect. As one can see, it is a difficult task for unit owners to successfully adopt a substitute budget.
There are many proposed bills circulating in the Florida senate and house of representatives that, if passed, would affect reserve funding and budget requirements in Florida condominiums. The topic of unit owner substitute budgets will continue to be a hot button issue as associations make significant financial changes in response both to pending legislation and the economy.
As always, not all statute sections (or different versions throughout the years) apply to all existing Associations. Provisions in each association’s own governing documents may affect the applicability of certain statutes and procedures. So, associations or owners should consult their legal counsel to ensure what is necessary in each of their own situations.
About the author: Frank S. Ganz is board certified by the Florida Bar Association in Condominium and Planned Development Law. He and others at the firm have represented more than 120 condominium and homeowner’s associations in Volusia, Flagler, St. John’s, and Brevard counties and other areas of the State of Florida. Such representation includes regularly advising association clients on all corporate and operational legal issues including but not limited to levying of assessments and charges, issues with sub-associations, amendments to governing documents, contract negotiations, meeting requirements and procedures, marketable record title, fining and violations, pet policies, developer disputes and more.
Smith Bigman Brock, PA is a full-service law firm serving all of Florida, but primarily representing clients in Volusia County, Flagler County and the surrounding areas. The firm has lawyers who are board certified in the areas of Condominium and Planned Development, Real Estate, Civil Litigation, Marital and Family, and Criminal Trial.