Appeals court decides Centex must pay into HOA reserve

Article Courtesy of The Florida Record

By Sara McCleary

Published February 12, 2017


DAYTONA BEACH -- The 5th District Court of Appeal recently decided in favor of a pair of homeowners representing themselves in a case against their homeowner association at Sullivan Ranch.

According to a report by the Orlando Sentinel, Sara MacKenzie, who had only practiced law for a short time after successfully earning her law degree in the 1980s, and her husband, Ralph, hoped for “a declaration that Centex failed to meet its obligation to make capital contributions to the HOA’s reserve accounts when it controlled the HOA,” according to the appellate court’s decision.

Centex had made an initial $32,300 contribution to the reserve account in 2007 for its developer-owned properties, but did not continue to make payments, the decision further stated. Centex did, however, keep a line item for reserve funds in the budget, and collected the funds for properties not owned by the developer. In lieu of making reserve contributions, Centex paid the development’s operating expenses.

It was a complex matter, according to S. David Cooper, an Orlando lawyer who specializes in HOA conflicts.

“This case involved two conflicting, ambiguous statutes, and the declaration was even more ambiguous,” Cooper told the Florida Record in an email interview. “Arguing legislative intent is difficult because one rarely has a statement from the legislature saying ‘This is what we mean.’”

The conflicting statutes are Section 720.308(1)(b), which stated a developer in control of the HOA “may be excused from payment of its share of the operating expenses and assessments” if it has “obligated itself to pay any other operating expenses incurred that exceed the assessments receivable from other members,” and Section 720.303(6), which clarified that, once established, “the reserve accounts must be funded or maintained or have their funding waived” by a majority vote of members of the HOA.

The MacKenzies — and ultimately, the appellate judges — did not agree with Centex’s interpretation of these statutes.

“Centex interpreted 720.303(6) as not applying to Centex because of the limitation in 720.308(1)(b). Centex also attempted to argue that 720.303(6) only applies to ‘budgeting’ the reserve account, not to ‘funding’ it,” Cooper said. “The court was required to interpret the two statutes in a manner that removed the conflict; thus, 720.308(1)(b) was deemed not to limit reserves. In short, the court said that the ‘assessments’ referenced in 720.308(1)(b) do not include payments to a reserve account.”

The case had initially been decided in favor of Centex by Lake Circuit Judge William Law, but the 5th District Court of Appeal overturned Law’s judgment on Dec. 22 and remanded the case to the trial court to decide the amount Centex owes, according to the Sentinel report. The MacKenzies argued that Centex owes almost $1.13 million.

Upon hearing the appellate court’s judgment, Centex lawyer Matthew Brenner — who declined to comment for this article — filed a request to have the 5th District Court certify an appeal to the Florida Supreme Court, arguing that the decision would negatively impact developers financially and cause abandonment of communities currently under construction. The court denied his request, the Sentinel reported.

Cooper notes that the decision may have a profound impact, though.

“This is a significant case because if that has been the M.O. of Centex for all of their developments, they and all other developers who have created reserves but not funded them may be hit with enormous payments to HOAs all across Florida,” he said.