| SB 0902: Relating to Homeowners' Associations |
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S902
GENERAL BILL by Jones (Compare H
0433) EFFECTIVE
DATE: Upon becoming law. 1 A bill to be entitled 2 An act relating to homeowners' associations; 3 amending s. 720.303, F.S.; requiring a 4 homeowners' association to prepare an annual 5 budget that sets out its operating expenses; 6 requiring that the budget set out all fees or 7 charges that are paid by the association; 8 providing that the budget include certain 9 reserve accounts; requiring the association to 10 determine, maintain, and waive reserve accounts 11 under certain circumstances; requiring an 12 association's financial report to contain a 13 conspicuous statement regarding the lack of 14 reserve accounts under certain circumstances; 15 specifying when an association is deemed to 16 have provided for reserve accounts; authorizing 17 the membership of an association to provide for 18 reserve accounts under certain circumstances; 19 providing for the establishment of a reserve 20 account; authorizing an association to adjust 21 replacement reserve assessments; authorizing 22 the membership of an association to elect to 23 provide for no reserves or fewer reserves than 24 required by law; providing that a vote taken to 25 waive or reduce reserves is applicable for a 26 certain period; providing formulas for funding 27 reserves; requiring that reserve funds and 28 accruing interest remain in a reserve account 29 and be used only for certain expenditures; 30 prohibiting developer-controlled associations 31 from voting to use reserves for other than 1 1 intended purposes under certain circumstances; 2 providing an exception; requiring an 3 association to prepare and complete a financial 4 report within a certain period; requiring an 5 association to use certain accounting 6 principles to prepare its financial statements; 7 amending s. 720.307, F.S.; requiring a 8 developer to deliver financial records and 9 source documents to the association; providing 10 requirements concerning financial records and 11 statements; requiring that a certified public 12 accountant examine supporting documents, 13 records, billings, cash receipts, and related 14 records of the association; amending s. 15 720.308, F.S.; providing for the establishment 16 of a guarantee of assessments; providing for a 17 guarantee period; providing for a dollar amount 18 of the guarantee; providing that assessments 19 charged to a member may not exceed a certain 20 amount; providing for the cash payments 21 required from the guarantee; providing the 22 calculation for the guarantee's final 23 obligation; providing that certain expenses may 24 not be included in the operating expenses; 25 requiring the guarantor to fund certain excess 26 expenses; providing that certain interest may 27 be used to pay income tax expense; requiring 28 that certain nonassessment-revenue-generating 29 activity be considered separately; providing 30 that certain portions of the parcel assessment 31 2 1 may not be used to pay operating expenses; 2 providing an effective date. 3 4 Be It Enacted by the Legislature of the State of Florida: 5 6 Section 1. Subsections (6) and (7) of section 720.303, 7 Florida Statutes, are amended to read: 8 720.303 Association powers and duties; meetings of 9 board; official records; budgets; financial reporting; 10 association funds; recalls.-- 11 (6) BUDGETS.-- 12 (a) The association shall prepare an annual budget 13 that sets out the annual operating expenses. The budget must 14 reflect the estimated revenues and expenses for that year and 15 the estimated surplus or deficit as of the end of the current 16 year. The budget must set out separately all fees or charges 17 paid by the association for recreational amenities, whether 18 owned by the association, the developer, or another person. 19 The association shall provide each member with a copy of the 20 annual budget or a written notice that a copy of the budget is 21 available upon request at no charge to the member. The copy 22 must be provided to the member within the time limits set 23 forth in subsection (5). 24 (b) In addition to annual operating expenses, the 25 budget may include reserve accounts for capital expenditures 26 and deferred maintenance for which the association is 27 responsible to the extent that the governing documents do not 28 limit increases in assessments, including reserves. If the 29 budget of the association includes reserve accounts, such 30 reserves shall be determined, maintained, and waived in the 31 manner provided in this subsection. Once an association 3 1 provides for reserve accounts in the budget, the association 2 shall thereafter determine, maintain, and waive reserves in 3 compliance with this subsection. 4 (c) If the budget of the association does not provide 5 for reserve accounts governed by this subsection and the 6 association is responsible for the repair and maintenance of 7 capital improvements that may result in a special assessment 8 if reserves are not provided, each financial report for the 9 preceding fiscal year required by subsection (7) must contain 10 the following statement in conspicuous type: 11 12 THE BUDGET OF THE ASSOCIATION DOES NOT PROVIDE 13 FOR RESERVE ACCOUNTS FOR CAPITAL EXPENDITURES 14 AND DEFERRED MAINTENANCE THAT MAY RESULT IN 15 SPECIAL ASSESSMENTS. OWNERS MAY ELECT TO 16 PROVIDE FOR RESERVE ACCOUNTS PURSUANT TO THE 17 PROVISIONS OF SECTION 720.303(6), FLORIDA 18 STATUTES, UPON THE APPROVAL OF NOT LESS THAN A 19 MAJORITY OF THE TOTAL VOTING INTERESTS OF THE 20 ASSOCIATION. 21 22 (d) An association shall be deemed to have provided 23 for reserve accounts when reserve accounts have been initially 24 established by the developer or when the membership of the 25 association affirmatively elects to provide for reserves. If 26 reserve accounts are not initially provided for by the 27 developer, the membership of the association may elect to do 28 so upon the affirmative approval of not less than a majority 29 of the total voting interests of the association. Such 30 approval may be attained by vote of the members at a duly 31 called meeting of the membership or upon a written consent 4 1 executed by not less than a majority of the total voting 2 interests in the community. The approval action of the 3 membership must state that reserve accounts shall be provided 4 for in the budget and designate the components for which the 5 reserve accounts are to be established. Upon approval by the 6 membership, the board of directors shall provide for the 7 required reserve accounts for inclusion in the budget in the 8 next fiscal year following the approval and in each year 9 thereafter. Once established as provided in this subsection, 10 the reserve accounts must be funded or maintained or must have 11 their funding waived in the manner provided in paragraph (f). 12 (e) The amount to be reserved in any account 13 established shall be computed by means of a formula that is 14 based upon estimated remaining useful life and estimated 15 replacement cost or deferred maintenance expense of each 16 reserve item. The association may adjust replacement reserve 17 assessments annually to take into account any changes in 18 estimates of cost or useful life of a reserve item. 19 (f) Once a reserve account or reserve accounts are 20 established, the membership of the association, upon a 21 majority vote at a meeting at which a quorum is present, may 22 provide for no reserves or less reserves than required by this 23 section. If a meeting of the unit owners has been called to 24 determine whether to waive or reduce the funding of reserves 25 and no such result is achieved or a quorum is not present, the 26 reserves as included in the budget shall go into effect. After 27 the turnover, the developer may vote its voting interest to 28 waive or reduce the funding of reserves. Any vote taken 29 pursuant to this subsection to waive or reduce reserves is 30 applicable to only one budget year. 31 5 1 (g) Funding formulas for reserves authorized by this 2 section shall be based on a separate analysis of each of the 3 required assets or a pooled analysis of two or more of the 4 required assets. 5 1. If the association maintains separate reserve 6 accounts for each of the required assets, the amount of the 7 contribution to each reserve account shall be the sum of the 8 following two calculations: 9 a. The total amount necessary, if any, to bring a 10 negative component balance to zero. 11 b. The total estimated deferred maintenance expense or 12 estimated replacement cost of the reserve component less the 13 estimated balance of the reserve component as of the beginning 14 of the period for which the budget will be in effect. The 15 remainder, if greater than zero, shall be divided by the 16 estimated remaining useful life of the component. 17 18 The formula may be adjusted each year for changes in estimates 19 and deferred maintenance performed during the year and may 20 include factors such as inflation and earnings on invested 21 funds. 22 2. If the association maintains a pooled account of 23 two or more of the required reserve assets, the amount of the 24 contribution to the pooled reserve account as disclosed on the 25 proposed budget may not be less than that required to ensure 26 that the balance on hand at the beginning of the period for 27 which the budget will go into effect plus the projected annual 28 cash inflows over the remaining estimated useful life of all 29 of the assets that make up the reserve pool are equal to or 30 greater than the projected annual cash outflows over the 31 remaining estimated useful lives of all of the assets that 6 1 make up the reserve pool, based on the current reserve 2 analysis. The projected annual cash inflows may include 3 estimated earnings from investment of principal. The reserve 4 funding formula may not include any type of balloon payments. 5 (h) Reserve funds and any interest accruing thereon 6 shall remain in the reserve account and shall be used only for 7 authorized reserve expenditures unless their use for other 8 purposes is approved in advance by a majority vote at a 9 meeting at which a quorum is present. Prior to turnover of 10 control of an association by a developer to parcel owners, the 11 developer-controlled association shall not vote to use 12 reserves for purposes other than those for which they were 13 intended without the approval of a majority of all 14 nondeveloper voting interests voting in person or by limited 15 proxy at a duly called meeting of the association. 16 (7) FINANCIAL REPORTING.--Within 90 days after the end 17 of the fiscal year, or annually on the date provided in the 18 bylaws, the association shall prepare and complete, or 19 contract with a third party for the preparation and completion 20 of, a financial report for the preceding fiscal year. Within 21 21 days after the final financial report is completed by the 22 association or received from the third party, but no later 23 than 120 days after the end of the fiscal year or other date 24
as provided in the bylaws,
the association shall 25
26
27 forth in subsection (5), provide each member with a copy of 28 the annual financial report or a written notice that a copy of 29 the financial report is available upon request at no charge to 30 the member. Financial reports shall be prepared as follows: 31 7 1 (a) An association that meets the criteria of this 2 paragraph shall prepare or cause to be prepared a complete set 3 of financial statements in accordance with generally accepted 4 accounting principles as adopted by the Florida Board of 5 Accountancy. The financial statements shall be based upon the 6 association's total annual revenues, as follows: 7 1. An association with total annual revenues of 8 $100,000 or more, but less than $200,000, shall prepare 9 compiled financial statements. 10 2. An association with total annual revenues of at 11 least $200,000, but less than $400,000, shall prepare reviewed 12 financial statements. 13 3. An association with total annual revenues of 14 $400,000 or more shall prepare audited financial statements. 15 (b)1. An association with total annual revenues of 16 less than $100,000 shall prepare a report of cash receipts and 17 expenditures. 18 2. An association in a community of fewer than 50 19 parcels, regardless of the association's annual revenues, may 20 prepare a report of cash receipts and expenditures in lieu of 21 financial statements required by paragraph (a) unless the 22 governing documents provide otherwise. 23 3. A report of cash receipts and disbursement must 24 disclose the amount of receipts by accounts and receipt 25 classifications and the amount of expenses by accounts and 26 expense classifications, including, but not limited to, the 27 following, as applicable: costs for security, professional, 28 and management fees and expenses; taxes; costs for recreation 29 facilities; expenses for refuse collection and utility 30 services; expenses for lawn care; costs for building 31 maintenance and repair; insurance costs; administration and 8 1 salary expenses; and reserves if maintained by the 2 association. 3 (c) If 20 percent of the parcel owners petition the 4 board for a level of financial reporting higher than that 5 required by this section, the association shall duly notice 6 and hold a meeting of members within 30 days of receipt of the 7 petition for the purpose of voting on raising the level of 8 reporting for that fiscal year. Upon approval of a majority of 9 the total voting interests of the parcel owners, the 10 association shall prepare or cause to be prepared, shall amend 11 the budget or adopt a special assessment to pay for the 12 financial report regardless of any provision to the contrary 13 in the governing documents, and shall provide within 90 days 14 of the meeting or the end of the fiscal year, whichever occurs 15 later: 16 1. Compiled, reviewed, or audited financial 17 statements, if the association is otherwise required to 18 prepare a report of cash receipts and expenditures; 19 2. Reviewed or audited financial statements, if the 20 association is otherwise required to prepare compiled 21 financial statements; or 22 3. Audited financial statements if the association is 23 otherwise required to prepare reviewed financial statements. 24 (d) If approved by a majority of the voting interests 25 present at a properly called meeting of the association, an 26 association may prepare or cause to be prepared: 27 1. A report of cash receipts and expenditures in lieu 28 of a compiled, reviewed, or audited financial statement; 29 2. A report of cash receipts and expenditures or a 30 compiled financial statement in lieu of a reviewed or audited 31 financial statement; or 9 1 3. A report of cash receipts and expenditures, a 2 compiled financial statement, or a reviewed financial 3 statement in lieu of an audited financial statement. 4 Section 2. Paragraph (t) is added to subsection (3) of 5 section 720.307, Florida Statutes, to read: 6 720.307 Transition of association control in a 7 community.--With respect to homeowners' associations: 8 (3) At the time the members are entitled to elect at 9 least a majority of the board of directors of the homeowners' 10 association, the developer shall, at the developer's expense, 11 within no more than 90 days deliver the following documents to 12 the board: 13 (t) The financial records, including financial 14 statements of the association, and source documents from the 15 incorporation of the association through the date of turnover. 16 The records shall be audited by an independent certified 17 public accountant for the period from the incorporation of the 18 association or from the period covered by the last audit, if 19 an audit has been performed for each fiscal year since 20 incorporation. All financial statements shall be prepared in 21 accordance with generally accepted accounting principles and 22 shall be audited in accordance with generally accepted 23 auditing standards, as prescribed by the Florida Board of 24 Accountancy under chapter 473. The certified public accountant 25 performing the audit shall examine to the extent necessary 26 supporting documents and records, including the cash 27 disbursements and related paid invoices to determine whether 28 expenditures were for association purposes. The certified 29 public accountant shall also examine the billings, cash 30 receipts, and related records of the association to determine 31 whether the developer was charged and paid the proper amounts 10 1 of assessments. This paragraph applies to associations having 2 a date of incorporation after December 31, 2007. 3 Section 3. Section 720.308, Florida Statutes, is 4 amended to read: 5 720.308 Assessments and charges.-- 6 (1) ASSESSMENTS.--For any community created after 7 October 1, 1995, the governing documents must describe the 8 manner in which expenses are shared and specify the member's 9 proportional share thereof. Assessments levied pursuant to the 10 annual budget or special assessment must be in the member's 11 proportional share of expenses as described in the governing 12 document, which share may be different among classes of 13 parcels based upon the state of development thereof, levels of 14 services received by the applicable members, or other relevant 15 factors. While the developer is in control of the homeowners' 16 association, it may be excused from payment of its share of 17 the operating expenses and assessments related to its parcels 18 for any period of time for which the developer has, in the 19 declaration, obligated itself to pay any operating expenses 20 incurred that exceed the assessments receivable from other 21 members and other income of the association. This section 22 does not apply to an association, no matter when created, if 23 the association is created in a community that is included in 24 an effective development-of-regional-impact development order 25 as of the effective date of this act, together with any 26 approved modifications thereto. 27 (2) GUARANTEES OF COMMON EXPENSES.-- 28 (a) If a guarantee of the assessments of parcel owners 29 is not included in the purchase contracts or declaration, any 30 agreement establishing a guarantee is effective only upon the 31 approval of a majority of the voting interests of the members 11 1 other than the developer. Approval shall be expressed at a 2 meeting of the members voting in person or by limited proxy or 3 by agreement in writing without a meeting if provided in the 4 bylaws. Such guarantee must meet the requirements of this 5 section. 6 (b) The period of time for the guarantee shall be 7 indicated by a specific beginning and ending date or event. 8 1. The ending date or event shall be the same for all 9 of the members of an association, including members in 10 different phases of the development. 11 2. The guarantee may provide for different intervals 12 of time during a guarantee period and may provide different 13 dollar amounts for each such interval. 14 3. The guarantee may provide that, after the initial 15 stated period, the developer has the option to extend the 16 guarantee for one or more additional stated periods. The 17 extension of a guarantee is limited to extending the ending 18 date or event; therefore, the developer does not have the 19 option of changing the level of assessments guaranteed. 20 (3) MAXIMUM LEVEL OF ASSESSMENTS.--The stated dollar 21 amount of the guarantee shall be an exact dollar amount for 22 each parcel identified in the declaration. Regardless of the 23 stated dollar amount of the guarantee, assessments charged to 24 a member shall not exceed the maximum obligation of the member 25 based on the total amount of the adopted budget and the 26 member's proportionate ownership share of the common elements. 27 (4) CASH FUNDING REQUIREMENTS DURING GUARANTEE.--The 28 cash payments required from the guarantor during the guarantee 29 period shall be determined as follows: 30 (a) If at any time during the guarantee period the 31 funds collected from member assessments at the guaranteed 12 1 level and other revenues collected by the association are not 2 sufficient to provide payment, on a timely basis, of all 3 assessments, including the full funding of the reserves unless 4 properly waived, the guarantor shall advance sufficient cash 5 to the association at the time such payments are due. 6 (b) Expenses incurred in the production of 7 nonassessment revenues, which are not in excess of the 8 nonassessment revenues, shall not be included in the 9 assessments. If the expenses attributable to nonassessment 10 revenues exceed nonassessment revenues, only the excess 11 expenses must be funded by the guarantor. Interest earned on 12 the investment of association funds may be used to pay the 13 income tax expense incurred as a result of the investment. 14 Such expense may not be charged to the guarantor, and the net 15 investment income shall be retained by the association. Each 16 such nonassessment-revenue-generating activity shall be 17 considered separately. Any portion of the parcel assessment 18 which is budgeted for designated capital contributions of the 19 association may not be used to pay operating expenses. 20 (5) CALCULATION OF GUARANTOR'S FINAL OBLIGATION.--The 21 guarantor's total financial obligation to the association at 22 the end of the guarantee period shall be determined on the 23 accrual basis using the following formula: the guarantor shall 24 pay any deficits that exceed the guaranteed amount, less the 25 total regular periodic assessments earned by the association 26 from the members other than the guarantor during the guarantee 27 period regardless of whether the actual level charged was less 28 than the maximum guaranteed amount. 29 (6) EXPENSES.--Expenses incurred in the production of 30 nonassessment revenues, which are not in excess of the 31 nonassessment revenues, may not be included in the operating 13 1 expenses. If the expenses attributable to nonassessment 2 revenues exceed nonassessment revenues, only the excess 3 expenses must be funded by the guarantor. Interest earned on 4 the investment of association funds may be used to pay the 5 income tax expense incurred as a result of the investment. 6 Such expense shall not be charged to the guarantor, and the 7 net investment income shall be retained by the association. 8 Each such nonassessment-revenue-generating activity shall be 9 considered separately. Any portion of the parcel assessment 10 which is budgeted for designated capital contributions of the 11 association shall not be used to pay operating expenses. 12 Section 4. This act shall take effect upon becoming a 13 law. 14 15 ***************************************** 16 SENATE SUMMARY 17 Requires a homeowners' association to prepare an annual budget that sets out its operating expenses. Requires the 18 budget to set out all fees or charges that are paid for by the association. Requires the association to 19 determine, maintain, and waive reserve accounts under certain circumstances. Requires an association's 20 financial report to contain a conspicuous statement regarding the lack of reserve accounts under certain 21 circumstances. Authorizes the membership of an association to provide for reserve accounts under certain 22 circumstances. Provides for the establishment of a reserve account. Provides that reserve funds and accruing 23 interest must remain in a reserve account and be used only for certain expenditures. Requires an association to 24 prepare and complete a financial report within a certain time period. Requires a developer to deliver financial 25 records and source documents to the association. Provides for the establishment of a guarantee of assessments. 26 Provides that assessments charged to a member may not exceed a certain amount. Provides for the cash payments 27 required from the guarantee. Provides that certain expenses cannot be included in the operating expenses. 28 Requires the guarantor to fund certain excess expenses. Provides that certain interest may be used to pay income 29 tax expense. Provides that certain portions of the parcel assessment may not be used to pay operating expenses. 30 (See bill for details.) 31 CODING:
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