On March 31, 2011, the Florida Supreme Court issued an unanimous opinion in an important condominium case, Cohn vs. The Grand Condominium Association, Inc.
The case involved an amendment to the Florida Condominium Act concerning how directors must be chosen in a mixed-use condominium (a condominium with both residential and commercial units). The amended law contradicted the provisions for choosing Directors contained in the original Declaration, where the Declaration gave the commercial and retail owners the right to choose the majority of the Board and the new law gave the residential owners that right. The issue was which applied, the new statute or the Declaration? The Court ruled that the terms of the Declaration controlled, not the terms of the statute, because the Declaration had a provision that it incorporated the Condominium Act “as it existed” on the date of recording the Declaration, not a provision that would include “amendments to the Act from time to time” (which is commonly referred to as a future amendments clause).
Why is this important today? This case can now be cited in some circumstances for the proposition that owners and mortgage holders are entitled to rely on the Declaration of Condominium as it existed at the time they take title or make their mortgage loan, and they are not bound by subsequent statutory changes to the Condominium Act, unless there is a future amendments clause in the Declaration. To do so would impair the obligation of the lender’s “contract” with the Association ( i.e. – the Declaration as it existed at the time they made their loan), which is prohibited by The Florida Constitution.
For example, the Condominium Act was amended in the spring of 2010, effective July 1, 2010, to allow Associations to collect rent directly from a tenant when the owner is delinquent in paying any monetary obligation to the Association. Prior to such a change in the law, Associations were forced to file a foreclosure suit and ask for the appointment of a Receiver to collect the rent (unless they had express authority in their Declaration or other Agreement with the owner to collect rent directly). With this new opinion from The Florida Supreme Court, Associations that do not have a future amendments clause may not be able to enforce some of the new sections of the Act. Owners can now argue that under the Declaration and the statute at the time they became an owner, the Association had no right to collect the rent from their tenant without going to Court. Thus, in view of this Supreme Court decision, it is now even more risky to utilize the new rent section of the law to collect rent directly from the tenant without going to Court (unless you amend the Declaration to incorporate amendments to the Condominium Act and then only from the date of recording such an amendment).
It remains to be seen how some of the other statutory changes in the law made by the Legislature in 2010 now apply. For example, banks may now argue that if they made their mortgage loan before July 1. 2010 when the safe-harbor amount was changed from the lesser of 6 months or 1% to 12 months or 1%, they are liable only for the amount under the Declaration and older law (6 months or 1%). This is the clause that is provided in most Declarations.
In Coral Lakes Homeowners vs. Busey Bank, a case dealing with assessments in a homeowners association, not a condominium, the appellate Court wrote:
First mortgagees in this community, although not parties to the Declaration that is the contract between the HOA and its members, are clearly third-party beneficiaries of this contract. See Greenacre Props., Inc. v. Rao, 933 So. 2d 19, 23 (Fla. 2d DCA 2006) (explaining that to enforce rights under a contract like a declaration, “[a] third party must establish that the contract either expressly creates rights for them as a third party or that the provisions of the contract primarily and directly benefit the third party or a class of persons of which the third party is a member”).
To me, it can be argued that the safe harbor amount was enacted for two reasons: to afford Associations the right to collect from a foreclosure purchaser who is not the first mortgage holder the full amount that was then due to the Association, and to limit the liability of the first mortgage holder should they acquire the title. Banks may argue that to apply the newer clause retroactively (in those rare cases when it makes a difference in the dollars paid to the Association) impairs the obligation of their “contract” with the association (i.e. – the Declaration) and thus be unenforceable as to them. There are arguments that suggest that Association may collect the assessment due under the newer provision, but until the Courts address this issue, the law will not be clear.
As always, should you have any questions on this or other issues affecting the operation of your Association, you should consult with your attorney.
DISCLAIMER: THE FOREGOING ARTICLE IS NOT LEGAL ADVICE AND IS FOR INFORMATION PURPOSES ONLY. YOUR READING OF THIS ARTICLE DOES NOT CREATE AN ATTORNEY-CLIENT RELATIONSHIP WHATSOEVER. IF YOU ARE CONSIDERING ANY ACTION WITH LEGAL CONSEQUENCES, YOU SHOULD FIRST CONSULT WITH AN ATTORNEY OF YOUR CHOOSING.