A Condominium Board’s Conundrum When Levying Special Assessments
Pursuant to Section 718.111(1)(a), the officers and directors of condominium association owe a fiduciary duty to the unit owners. This means they have a legal duty to make informed decisions for the benefit of the owners, act in good faith toward the owners, and not exceed their authority as set forth in the governing documents of the Association. Part of the board’s fiduciary duties is to properly maintain the common elements.
Florida condominium law provides that any item that has a deferred maintenance expense or replacement cost of greater than $10,000 must have a reserve account. Specifically, Section 718.112(f)2.a, Florida Statutes states “the budget must include reserve accounts for capital expenditures and deferred maintenance. These accounts must include, but are not limited to, roof replacement, building painting, and pavement resurfacing, regardless of the amount of deferred maintenance expense or replacement cost, and any other item that has a deferred maintenance expense or replacement cost that exceeds $10,000.”
The problem with reserves is that the membership can vote each year to waive the funding of any reserve account. When reserves are consistently waived, and the association then lacks the funds to pay for needed repairs, special assessments are usually the result.
Depending on how an association’s declaration of condominium is written, the levying of a special assessment may be solely a board decision or vote of the membership. Boards are often met with member pushback to special assessments, even when the need for the special assessment is to perform necessary repairs to components whose deteriorating condition pose a life safety hazard to residents, such as repairs or replacement to balconies, rebar, or other critical structures of the condominium. Boards may choose not to pass a special assessment due to heavy objections from members and fear of being removed from the board. However, boards must remember that it is their duty to effectuate the necessary repairs, and if special assessments are the only way to fund those repairs, then they need to make the hard decisions and move forward.
Relying on competent guidance from their engineers, general contractors, legal counsel, and consultants as part of their decision-making process for levying a special assessment likely shields the board’s decisions under the business judgment rule. However, failing to act due to member pushback in the face of professional recommendations to act will likely be evidence leading to liability.
If the decision solely rests with the majority vote of the board, safety should always come first. Boards need to remember that an association, while run by volunteers, is still a corporation that must fulfill its duties and properly maintain finances, including levying special assessments when necessary. If your community is facing necessary repairs, especially to components that pose a life safety hazard to residents, consult with your trusted legal professionals to discuss the options to fund needed repairs.