STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
STATE OF FLORIDA, DEPARTMENT ) OF BUSINESS REGULATION, ) DIVISION OF FLORIDA LAND SALES ) AND CONDOMINIUMS, )
)
Petitioner, )
)
vs. ) CASE NO. 83-3026
)
SUJAC ENTERPRISES, INC. )
)
Respondent. )
)
RECOMMENDED ORDER
Following notice, a formal Section 120.57(1), Florida Statutes' hearing was held on April 10, 1984, in Jacksonville, Florida. Charles C. Adams was the Hearing Officer. This Recommended Order is being entered following the receipt and review of Petitioner's proposed Recommended Order and the memorandum in argument offered by the Respondent. The last of these items was filed with the Division of Administrative Hearings on May 24, 1984. To the extent that the proposal and argument are consistent with the Recommended Order they have been utilized. To the extent that these materials are inconsistent with the Recommended Order they are rejected based upon lack of relevance, materiality or as being contrary to facts found.
APPEARANCES
For Petitioner: Karl M. Scheuerman, Esquire
Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32301
For Respondent: Jerry A. Funk, Esquire
1020 Atlantic Bank Building Jacksonville, Florida 32202
ISSUES
The issues in this matter concern an Administrative Complaint/Notice to Show Cause, which has been brought by the Petitioner against the Respondent charging various violations of Chapter 718, Florida Statutes. Those accusations are more completely described in the conclusions of law.
FINDINGS OF FACT
The parties in the person of their counsel entered into a written prehearing stipulation, by which certain facts were agreed to. Those facts are as follows:
Stipulated Statement of Facts:
The Petitioner herein is the State of Florida, Department of Business Regulation, Division of Florida Land Sales and Condominiums.
The Respondent in this matter is Sujac Enterprises, Inc., the developer of a residential condominium known as Ginger Park Condominium located in Jacksonville, Florida. Mr. Jackson M. Jobe is the president of the developer corporation.
Transition from developer control of the condominium association occurred pursuant to Section 718.301, Florida Statutes, on November 1, 1983. Prior to this date, Respondent Sujac Enterprises, Inc., was in control of the condominium association.
On April 18, 1983, The Division received a condominium complaint from unit owner, Cynthia A. Doallas, filed against Sujac Enterprises, developer of the Ginger Park Condominium.
The Division investigation file was opened on April 20 and this investigation was assigned to Janice Snover, specialist and investigator.
The Declaration of Condominium was recorded March 12, 1982. The condominium association was incorporated February 16, 1982.
Section 8.4 of the declaration of condominium provides for an assessment guarantee for so long as the developer shall own any condominium units within the condominium. At the time of this stipulation, the developer still owns at least one condominium unit within the condominium.
The developer controlled association failed to maintain the accounting records provided by Section 718.111(7)(a), (b), Florida Statutes, during the period beginning with the incorporation of the association through at least March 1983. Accounting records were assembled after March of 1983.
Mr. Phillip DiStefano was elected to the board of administration in March of 1983 in accordance with Section 718.301(1) , which provides that when unit owners other than the developer own 15 percent or more of the units, the unit owners other than the developer shall be entitled to elect no less than one-third of the members of the board of administration. Mr. DiStefano was elected by unit owners other than the developer.
The developer through its president instituted recall procedures pursuant to the procedure as outlined in Section 718.112(2)(g), Florida Statutes, against board member Phillip DiStefano, by circulating a form entitled "Removal of Director or Directors." Mr. Jobe solicited signatures for the agreement, and further, voted the developer corporation's unsold unit votes in favor of the recall. Mr. DiStefano was recalled, with a sufficient number of unit owners other than the developer voting in favor of recall to approve the recall.
The developer controlled condominium association failed to provide to unit owners a financial statement of actual receipts and expenditures for the fiscal/calendar year ending December 21, 1982, within 60 days of the end of the year. This financial statement was, however, provided to unit owners approximately three months after the 60 day time period provided in Section 718.111(13), Florida Statutes, had elapsed.
The following additional facts are found based upon the presentation made at the final hearing:
At the point of the final hearing, the developer still owned a condominium unit within the condominium.
The developer had allowed other persons to take charge of the accounting procedures of the condominium association from the inception of the association through March 1983. Those other persons operated on the basis of a checkbook in which check stubs were maintained and deposit slips kept. Some invoices were also maintained. These records, in addition to not being maintained by the developer when the developer was serving as the association in this period through March 1983, were not in accordance with good accounting practices. Moreover, they did not contain an account for each unit, designating the name and current mailing address for the unit owner, with the amount of each assessment, the dates and the amounts in which the assessments came due and the amount paid upon these individual accounts, with the balance due being reflected.
As revealed by an audit which the developer had requested of an accountant which it hired, this audit dating from June 7, 1983, there was a deficit in the reserve account on that date. This discovery was made prior to the transfer of the accounting records from the developer to other condominium unit owners. In effect, on June 7, 1983, the reserve account for capital expenditures and maintenance was insufficiently funded. The exact amount of deficit was not shown in the course of the hearing. Therefore, it has not been demonstrated that the deficit of June 7, 1983, corresponds to the deficit in the reserve account in the amount of $1,186.18, effective December 31, 1983 as found by Petitioner's accountant.
Respondent in its efforts to refute responsibility for the reserve deficit has failed to demonstrate, by way of defense, that charges incurred on behalf of other condominium unit owners should reduce the developer's deficit responsibility. This pertains to its reference to prepaid insurance, pest control and construction costs related to a fence.
The reserve account for capital expenditures and maintenance is a common expense.
The developer, pursuant to Section 8.4 of the declaration of condominium is responsible for the deficit in the reserve account as reflected on June 7, 1983, in keeping with the assessment guarantee set forth in that section. That guarantee continued until the account was tranferred to the other condominium unit owners.
Features of the aforementioned guarantee related to responsibility to insure against additional assessments attributable to deficits other than those in the reserve account, i.e. for other forms of common expenses, developer's share, only would occur at the point of sale of the last condominium unit. That contingency had not occurred at the time of the conduct of the final hearing.
The developer kept the accounting records from April 1983 until June 1983. Subsequently when the records were turned over to the other condominium unit owners as a part of the transition of association control, the developer failed to have a transitional review conducted by an independent accountant related to financial records of the association.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the subject matter and the parties to this action. See Section 120.57, Florida Statutes.
COUNT I
Respondent has been accused in that at a time when the developer was in control of the association, it failed to maintain accounting records required by Section 718.111(7)(a) and (b), Florida Statutes, from the inception of that control until March 1983. This violation has been shown in that the developer controlled association did not maintain the accounting records, it allowed others to maintain those records in the questioned period. The records that were maintained by the others were not in keeping with good accounting practices. Finally, during the subject period, accounts for each unit were not maintained, and no designation was made as to name and current mailing address of the individual unit owners, the amount of assessments, the dates and amounts which the assessment came due, the amount paid upon the account and the balance due.
COUNT II
Respondent is also accused of having failed to pay the association the amount of common expenses incurred during the guarantee period (inception through the closing of all of the units in the condominium), which exceed the amount of assessments generated from unit owners other than the developers, as required by Section 718.116(8)(b), Florida Statutes. That section in law states:
(8) No unit owner may be excused from the payment of his share of the common expense of a condominium unless all unit
owners are likewise proportionately excused from payment, except as provided in subsection (6) and in the following cases:
* * *
(b) A developer or other
person owning condominium units or having an obligation to pay condominium expenses may be ex cused from the payment of his share of the common expense which would have been assessed against those
units during the period of time that he shall have guaranteed to each purchaser in the purchase contract, declaration, or prospectus, or by agreement between the developer and a majority of the unit owners other
than the developer, that the assessment for common expenses of the condominium imposed upon the unit owners would not increase over a stated dollar amount
and shall have obligated himself to pay any amount of common expenses incurred during that period and not produced by the assessments at the guaranteed level receivable from other unit owners.
In accordance with this provision, and pursuant to the declaration of condominium at Section 8.4, dealing with an assessment guarantee, the developer/Respondent only becomes responsible for honoring this aspect of the guarantee related to common expenses upon the sale of the last condominium unit which it owns. That contingency has not occurred and the Respondent is not in violation of this provision of law.
COUNT III
The developer is charged with improperly calling for the removal of the unit owner representative to the board of directors, who was elected by unit owners other than the developer as set forth in Section 718.301(1), Florida Statutes, in violation of Section 718.112(2)(g) Florida Statutes. Although the Respondent lobbied for the removal of DeStefano as a board member, the appropriate number of unit owners other than the Respondent voted for such removal without the necessity to include the unauthorized vote of the Respondent. There being no prohibition against such lobbying efforts, Respondent is not found to have violated the provision of law set forth in this paragraph.
COUNT IV
It is alleged that the Respondent, when it served as the developer controlled association, failed to fund the reserves during the period of inception through at least June 1983, in violation of Section 718.112(2)(k), Florida Statutes. As late as June 7, 1983, a time at which the Respondent still had control of the association, there was a deficit in the reserve account, establishing the fact that the Respondent had failed to fund the reserve account during the questioned period, a violation of this provision of law. In keeping with that statutory provision and the guarantee at Section 8.4 of the declaration of condominium, and the reserve account being a matter of common expense, Respondent would have been responsible for adequate reserves being found in the account for capital expenditures and deferred maintenance up to the time of transfer of developer control of the condominium association to the other condominium unit owners, which transfer occurred on November 1, 1983.
COUNT V
Finally, the Respondent is charged, at the time when the developer controlled the association, with failing to provide to the other unit owners a financial statement of actual receipts and expenditures for the fiscal/calendar year which ended December 31, 1982, within 60 days of the end of the year, in violation of Section 718.111(13), Florida Statutes. This information was provided but it was several months beyond the allowed 60 days. Consequently, Respondent violated Section 718.111(13), Florida Statutes.
Based upon a consideration of facts found and conclusions of law reached, it is
It is recommended that a final order be entered which imposes a penalty in the amount of $2,500 for those violations established pertaining to Count I, IV and V and that Counts II and III be dismissed.
DONE AND ORDERED this 3rd day of July 1984, in Tallahassee, Florida.
CHARLES C. ADAMS
Hearing Officer
Division of Administrative Hearings The Oakland Building
2009 Apalachee Parkway
Tallahassee, Florida 32301
(904) 488-9675
Filed with the Clerk of the Division of Administrative Hearings this 3rd day of July, 1984.
COPIES FURNISHED:
Karl M. Scheuerman, Esquire Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32301
Jerry A. Funk, Esquire
1020 Atlantic Bank Building Jacksonville, Florida 32202
E. James Kearney, Director
Division of Land Sales and Condominiums The Johns Building
725 South Bronough Street Tallahassee, Florida 32301
Gary Rutledge, Secretary Department of Business Regulation The Johns Building
725 South Bronough Street Tallahassee, Florida 32301
=================================================================
AGENCY FINAL ORDER
=================================================================
STATE OF FLORIDA DEPARTMENT OF BUSINESS REGULATION
DIVISION OF FLORIDA LAND SALES, CONDOMINIUMS MOBILE HOMES
STATE OF FLORIDA, DEPARTMENT OF BUSINESS REGULATION,
DIVISION OF FLORIDA LAND SALES, CONDOMINIUMS AND MOBILE HOMES,
Petitioner,
vs. CASE NO. 83-3026
DOCKET NO. 83170MVC
SUJAC ENTERPRISES, INC.
Respondent.
/
FINAL ORDER
This order is entered by the Director of the Division of Florida Land Sales, Condominiums and Mobile Homes, Department of Business Regulation, State of Florida, pursuant to Section 120.59, Florida Statutes. The findings of fact as stipulated by the parties as well as those determined by the hearing officer in the recommended order are hereby adopted in the final order. The conclusions of law contained in the recommended order, to the extent of any inconsistency with the conclusions of law set forth herein, are hereby rejected. The recommended penalty is accepted.
FINDINGS OF FACT
The parties through their respective counsel entered into a written prehearing stipulation by which certain facts were established. Those facts are as follows:
Stipulated Statement of Facts:
The Petitioner herein is the State of Florida, Department of Business Regulation, Division of Florida Land Sales and Condominiums.
The Respondent in this matter is Sujac Enterprises Inc., the developer of a residential condominium known as Ginger Park Condominium located in Jacksonville, Florida. Mr. Jackson M. Jobe is the president of the developer corporation.
Transition from developer control of the condominium association occurred pursuant to Section 718.301, Florida Statutes, on November 1, 1983. Prior to this date, Respondent Sujac Enterprises, Inc., was in control of the condominium association.
On April 18, 1983, the Division received a condominium complaint from unit owner, Cynthia A. Doallas, filed against Sujac Enterprises, developer of the Ginger Park Condominium.
The Division investigation file was opened on April 20 and this investigation was assigned to Janice Snover, specialist and investigator.
The Declaration of Condominium was recorded March 12, 1982. The condominium association was incorporated February 16, 1982.
Section 8.4 of the declaration of condominium provides for an assessment guarantee for so long as the developer shall own any condominium units within the condominium. At the time of this stipulation, the developer still owns at least one condominium unit within the condominium.
The developer controlled association failed to maintain the accounting records provided by Section 718.111(7)(a), (b) Florida Statutes, during the period beginning with the incor-poration of the association through at least March 1983. Accounting records were assembled after March of 1983.
Mr. Phillip DiStefano was elected to the board of administration in March of 1983 in accordance with Section 718.301(1), which provides that when unit owners other than the developer own 15 percent or more of the units, the unit owners other than the developer shall be entitled to elect no less than one-third of the members of the board of administration. Mr. DiStefano was elected by unit owners other than the developer.
The developer through its president instituted recall procedures pursuant to the procedure as outlined in Section 718.112(2)(g) , Florida Statutes, against board member Phillip DiStefano, by circulating a form entitled "Removal of Director or Directors." Mr. Jobe solicited signatures for the agreement, and further, voted the developer corporation's unsold unit votes in favor of the recall. Mr. DiStefano was recalled, with sufficient number of unit owners other than the developer voting in favor of recall to approve the recall.
The developer controlled condominium association failed to provide to unit owners a financial statement of actual receipts and expenditures for the fiscal/calendar year ending December 21, 1982, within 60 days of the end of the year. This financial statement was, however, provided to unit owners approximately three months after the 60 day time period provided in Section 718.111(13), Florida Statutes, had elapsed.
The following additional facts are found based upon the presentation made at the final hearing:
At the point of the final hearing, the developer still owned a condominium unit within the condominium.
The developer had allowed other persons to take charge of the accounting procedures of the condominium association from the inception of the association through March 1983. Those other persons operated on the basis of a checkbook in which check stubs were maintained and deposit slips kept. Some invoices were also maintained. These records, in addition to not being maintained by the developer when the developer was serving as the association in this period through March 1983, were not in accordance with good accounting practices. Moreover, they did not contain an account for each unit, designating the name and current mailing address for the unit owner, with the amount of each
assessment, the dates and the amounts in which the assess-ments came due and the amount paid upon these individual accounts, with the balance due being reflected.
As revealed by an audit which the developer had requested of an accountant which it hired, this audit dating from June 7, 1983, there was a deficit in the reserve account on that date. This discovery was made prior to the transfer of the accounting records from the developer to other condominium unit owners. In effect, on June 7, 1983, the reserve account for capital expenditures and maintenance was insufficiently funded. The exact amount of deficit was not shown in the course of the hearing. Therefore, it has not been demonstrated that the deficit of June 7, 1983, corresponds to the deficit in the reserve account in the amount of $1,186.18, effective December 31, 1983 as found by Petitioner's accountant.
Respondent in its efforts to refute responsibility for the reserve deficit has failed to demonstrate, by way of defense, that charges incurred on behalf of other condominium unit owners should reduce the developer's deficit responsibility. This pertains to its reference to prepaid insurance, pest control and construction costs related to a fence.
The reserve account for capital expenditures and maintenance is a common expense.
The developer, pursuant to Section 8.4 of the declaration of condominium is responsible for the deficit in the reserve account as reflected on June 7, 1983, in keeping with the assessment guarantee set forth in that section. That guarantee continued until the account was transferred to the other condominium unit owners.
Features of the aforementioned guarantee related to responsibility to insure against additional assessments attri-butable to deficits other than those in the reserve account, i e for other forms of common expenses, developer's share, only would occur at the point of sale of the last condominium unit. That contingency had not occurred at the time of the conduct of the final hearing.
The developer kept the accounting records from April 1983 until June 1983. Subsequently when the records were turned over to the other condominium unit owners as a part of the transition of association control, the developer failed to have a transitional review conducted by an independent accountant related to financial records of the association.
CONCLUSIONS OF LAW
The Division of Administrative Hearings and the Department of Business Regulation have jurisdiction over the subject matter and the parties to this action.
COUNT I
Respondent has been accused in that at a time when the developer was in control of the association, it failed to main-tain accounting records required by Section 718.111(7)(a) and (b), Florida Statutes, from the inception of that control until March 1983. This violation has been shown in that the developer controlled association did not maintain the accounting records, it allowed others to maintain those records in the questioned period. The records that were maintained by the others were not in keeping with good accounting
practices. Finally, during the subject period, accounts for each unit were not maintained, and no designation was made as to name and current mailing address of the individual unit owners, the amount of assessments, the dates and amounts which the assessment came due, the amount paid upon the account and the balance due.
COUNTS II AND IV
Respondent in Count II of the Notice to Show Cause was charged with failure to finance the deficit incurred during the guarantee period, in violation of Section 718.116(8)(b), Florida Statutes. In Count IV, Respondent was charged with a failure to fund the reserve accounts during the guarantee period in violation of Section 718.112(2)(k), Florida Statutes. To the extent that these two counts are interrelated, as more fully explained herein, they will be discussed together, and will not be considered separate violations.
The Hearing Officer below ruled that although the funding of the reserve accounts was an obligation of the developer given the existence of a guarantee, the developer was responsible for the actual funding the reserve accounts only after the expiration of the guarantee period. Accordingly, the hearing officer determined that a violation of Section 718.112 (2)(k) existed, and further, that no violation of Section 718.116 (8)(b) had been established.
Section 718.112(2)(k) provides that unless reserves are waived in accordance with that subsection, the annual budget shall include reserve accounts. That unless waived, funding of reserves is mandatory. Section
718.112 (2)(h), (k), Florida Statutes. Given the fact that in this case reserves were not waived for the period in question, the obligation to insure that reserves were fully funded is a developer obligation of the guarantee period. Reserves being a common expense, 1/ both in a nonguarantee situation and in a guarantee situation assessments for reserves and for any other common expense must be made against units not less frequently that quarterly. Section 718.112(2)(h). If the bylaws so provide, assessments may be levied with greater frequency. Ibid.
In a guarantee situation, Section 718.116(8)(b) requires that the guarantor fund any deficit or shortfall incurred during the guarantee period, represented by the difference between common expenses incurred during that period and actual assessments generated from other unit owners. Reserves, being a common expense unless waived, constitute part of the deficit or shortfall which the developer is obligated to finance in a guarantee situation. A shortage in the reserve accounts as established in this case signifies that the developer is not funding the deficit or shortfall.
It may be seen from the above analysis that Section 718.116(8)(b) is the operative portion of the Condominium Act establishing the obligation of the developer to finance deficits or shortfalls incurred during a guarantee period. Section 718.112(2)(h), (k) speaks to the timing of the funding. As explained above, assessments for common expenses must be levied not less frequently than quarterly. Therefore, during a guarantee period where reserves are not waived, reserves must be funded by the guarantor not less frequently than quarterly during the guarantee period itself. The findings of fact adopted herein establish that at two distinct points in time during the guarantee period, reserves were not adequately funded. Respon-dent has, therefore, violated Sections 718.112(2)(k) and 718.116 (8)(b), Florida Statutes.
COUNT III
The Notice to Show Cause in Count III charged the developer with improperly calling for the removal of a unit owner representative to the board of directors in violation of Section 718.112(2)(g), Florida Statutes. The hearing officer concluded that no prohibition existed on developer lobbying efforts directed towards a unit owner representative to the board of directors, and accordingly, determined that no violation of Section 718.112(2)(g), was established.
Section 718.112(2)(g) provides:
Subject to the provisions of s.718.301, any member of the board of administra tion may be recalled and removed...by the vote or agreement in writing by a majority of all unit owners. [Emphasis added].
Section 718.301 in pertinent part provides:
When unit owners other than the developer
own 15 percent or more of the units in a condo minium..., the unit owners other than the developer shall be entitled to elect no
less than 1/3 of the members of the board of administration....
As expressly provided, the recall provisions of Section 718.112(2)(g) must be read in para materia with the rights afforded unit owners other than the developer provided in Section 718.301(1), Florida Statutes. This subsection grants to unit owners other than the developer what might be viewed as guaranteed minority representation on the board of adminis-tration of the condominium association at the point in time when unit owners other than the developer own 15 percent or more of the units in the condominium. In this manner, unit owners other than the developer are insured a voice in the operation of the developer controlled association. Because the unit owner representative is elected by unit owners other than the developer, it follows that only unit owners other than the developer may participate in the recall of that representative.
In the present case, it was established that Respondent lobbied for the removal of Mr. DiStefano, the unit owner repre-sentative on the board of administration. In addition to lobbying, the developer Respondent voted for such removal. Thus, beyond lobbying, the developer actually participated in the voting procedure for the recall of Mr. DiStefano. This activity constitutes a violation of Section 718.112(2)(g), A Florida Statutes.
COUNT V
Finally, the Respondent is charged, at the time when the developer controlled the association, with failing to provide to the other unit owners a financial statement of actual receipts and expenditures for the fiscal/calendar year which ended December 31, 1982, within 60 days of the end of the year, in violation of Section 718.111(13), Florida Statutes. This information was provided but it was several months beyond the allowed 60 days. Consequently, Respondent violated Section 718.111(13), Florida Statutes.
IT IS, THEREFORE, ORDERED THAT:
Respondent shall cease and desist from further viola-tions of Sections 718.111(7)(a), (b), 718.116(8)(b), 718.112(2) (g), 718.112(2)(k) and 718.111(13), Florida Statutes.
In accordance with the recommended order, Respondent shall remit to the Division within twenty (20) days of the date of this final order, a civil penalty in the amount of $2,500 for those violations established pertaining to Counts I, IV and V. No further penalty is imposed for the violations of Counts II and III of the Notice to Show Cause.
Respondent shall immediately employ the services of an independent Certified Public Accountant for the purposes of conducting the turnover review required by Section 718.301(4)(c) Florida Statutes. Although Respondent was not charged with a violation of this subsection and is accordingly not subject to a civil penalty for this infraction, it was established in the findings of fact that the turnover review was not conducted by the Respondent. The turnover review shall be conducted in accordance with the provisions of this final order and with the provisions of Section 718.301(4)(c). Particularly, but not exclusively, the current deficit extant in the reserve accounts shall be computed and funded immediately by the developer.
This final order may be appealed pursuant to Section 120.68, Florida Statutes, and the Florida Rules of Appellate Procedure, within 30 days of the date of this order as filed.
DONE AND ORDERED this 26th day of September, 1984.
E. JAMES KEARNEY, DIRECTOR Division if Land Sales, Condominiums and Mobile Homes 725 South Bronough Street Tallahassee, Florida 32301
ENDNOTE
1/ Review Section 718.115(1), (2), Section 718.103(1), (7), and Section
718.111(6).
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that a true and correct copy of the foregoing has been furnished by U.S. Mail to JERRY A. FUNK, ESQUIRE, 1020 Atlantic Bank Bldg., Jacksonville, Florida 32302; CHARLES C. ADAMS, Hearing Officer, Division of Administrative Hearings, The Oakland Building, 2009 Apalachee Parkway, Tallahassee, Florida 32301 and KARL M. SCHEUERMAN, STAFF ATTORNEY, Department of Business Regulation, 725 South Bronough Street, Tallahassee, Florida 32301, this 26th day of September, 1984.
Issue Date | Proceedings |
---|---|
Sep. 28, 1984 | Final Order filed. |
Jul. 03, 1984 | Recommended Order sent out. CASE CLOSED. |
Issue Date | Document | Summary |
---|---|---|
Sep. 26, 1984 | Agency Final Order | |
Jul. 03, 1984 | Recommended Order | Impose $2500 fine on Respondent for failing to keep adequate records/money in reserve and for failing to provide financial statements on time. |