Legislative Update Continued: Recalls and Financial Reporting
In 2017, extensive legislative changes were made to laws governing various condominium governance items, including board member recall procedures and association financial reporting laws. This year, several clarifications have been made to those (in some cases dramatic) changes.
2017 legislation upended the longstanding recall process, requiring immediate control in favor of the replacement board if a recall contains sufficient votes. Previously the incumbent directors were able to remain in power while they challenged a recall at the Association’s expense. The deposed director must now bring an arbitration challenge at their expense. The 2018 legislation clarifies that the recall must be “facially valid”, and that replacement directors take power at the conclusion of the mandatory board meeting required to be called within five business days of receipt of a recall petition (or, if not held, after the deadline for such meeting has passed). A board member who successfully challenges a recall is now entitled to reasonable costs and fees, while giving the respondent in such challenge the ability to seek fees and costs if the petition is frivolous. If the arbitrator determines the recall was invalid, the petitioning director is immediately reinstated. Curiously, if the Board violates its obligation to turn over control because it failed to hold the board meeting within five business days, the recall representative is given a remedy of filing a petition for arbitration but is not provided a remedy for legal fees if they prevail. The owner may be able to seek fees under a different provision of the Condominium Act.
Section 718.111 governs mandatory financial reporting, and 2017 legislation contained various significant changes. Perhaps most significantly, associations with less than fifty units no longer were automatically exempt from providing an audit because of their size, meaning that annual revenues would determine the level of reporting required. Additionally, the legislation required the association to provide its most recent financial report to a unit owner within five business days after receipt of a written request. If the owner reports this failure to the Florida Division of Condominiums, Timeshares, and Mobile Homes, and the Division determines that the association failed to comply, the division provides a written notice to the association demanding compliance within five business days. But what if the association still fails to timely provide such a report? The 2017 legislation seemed to provide that the Association would indefinitely forfeit its right to have its membership vote to reduce the financial reporting requirement in future years, a right available to all associations. The 2018 legislation now clarifies that this penalty only applies to the year in which the request was made and the following year. Associations with less than fifty units still must now determine financial reporting based upon revenues, as this change was not affected.
With frequent legislative changes and nuanced clarifications made via statute, it can be tricky to keep up with the latest rules and requirements. Some new legislation also may not apply retroactively to a given association. Expertise is required to navigate these changes, so associations should consult with an experienced condominium and homeowners’ association attorney to determine if and how these changes affect them.