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Senate Bill 0902

Senate Bill sb0902

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    Florida Senate - 2007                                   SB 902

    By Senator Jones





    13-578B-07

  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

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    Florida Senate - 2007                                   SB 902
    13-578B-07




 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  

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    Florida Senate - 2007                                   SB 902
    13-578B-07




 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

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    Florida Senate - 2007                                   SB 902
    13-578B-07




 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

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    Florida Senate - 2007                                   SB 902
    13-578B-07




 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  

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    Florida Senate - 2007                                   SB 902
    13-578B-07




 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

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    Florida Senate - 2007                                   SB 902
    13-578B-07




 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 prepare an

25  annual financial report within 60 days after the close of the

26  fiscal year. The association shall, within the time limits set

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  

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    Florida Senate - 2007                                   SB 902
    13-578B-07




 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

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    Florida Senate - 2007                                   SB 902
    13-578B-07




 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

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    Florida Senate - 2007                                   SB 902
    13-578B-07




 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

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    Florida Senate - 2007                                   SB 902
    13-578B-07




 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

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    Florida Senate - 2007                                   SB 902
    13-578B-07




 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

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    Florida Senate - 2007                                   SB 902
    13-578B-07




 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

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    Florida Senate - 2007                                   SB 902
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 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  

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