Adams, Steven J. Brisson, Robert C. Steele, George W. Wynne and David Davis II, together with Petitioner's Exhibits 2-5, 7, and 9-11, which were admitted in evidence. Respondents Richard M. Adams and Steven J. Brisson, individually and as general partners of Somerset Development, Ltd., a Florida Limited Partnership, d/b/a the Somerset, a Condominium (Respondents), presented the testimony of Steven J. Brisson and Richard M. Adams together with Respondents' Exhibits 1-5 which were admitted in evidence.
The parties submitted proposed findings of fact and conclusions of law. All proposed findings of fact and conclusions of law have been considered. A
ruling has been made on each proposed finding of fact in the Appendix attached here to and made a part of this Recommended Order.
The following findings of fact are made upon the stipulation of the parties in the Prehearing Stipulation and in the course of the hearing:
Respondents are developers of a condominium as defined by Section 718.103(14), Florida Statutes.
Respondents are developers of The Somerset, a condominium located in Naples, Florida.
The declaration of condominium for The Somerset was recorded in the public records of Collier County on or about August 27, 1979.
No turnover review as prescribed by Section 718.301(4)(c), Florida Statutes (1985), was provided by the developer to the association within 60 days after the date of transfer of control of the association to non-developer unit owners, or has yet been provided to the association.
On or about January 29, 1985, unit owners other than the developer had elected a majority of the members of the board of administration for The Somerset condominium.
Letters of annual financial reports of actual receipts and expenditures were not furnished to unit owners following the end of the calendar years 1980, 1981, 1982, 1983, and 1984.
No vote of the unit owners was taken to waive reserve accounts for capital expenditures and deferred maintenance for each of the years 1980, 1981, 1982, 1983 and 1984.
The following findings of fact are made upon the evidence adduced at hearing.
The turnover review and report mandated by Section 718.301(4)(c), Florida Statutes, must be prepared by a certified public accountant. Respondents sought the necessary review from the firm of Rogers, Hill and Moon, which had done the association's accounting prior to the turnover. However,
Rogers- Hill was unable to perform the review in the required time. Respondents consulted with two other accounting firms, but neither could provide the turnover report.
Respondents suggested to the President of the association that they would pay $1,000 to the association in lieu of the turnover report. The association accepted the offer. Respondents paid $1,000 to the association and gave the association all of Respondents' books, ledgers and receipts.
Respondents did not promulgate and mail to unit owners proposed budgets of common expenses for the fiscal years 1982, 1983 and 1984.
Respondents guaranteed that the assessments for common expenses imposed upon each unit owner would not exceed $75.00 per month from the date of recording the declaration of condominium until the date of turnover of control of the association.
There were no meetings of unit owners of The Somerset condominium until time of the turnover.
According to the original proposed budget, the items designated as reserve items were roof replacement, resurfacing, and painting.
While Respondents maintain that they properly waived the funding of the reserve account for 1980, 1981, 1982, 1983, and 1984, the only evidence offered to support their testimony is the minutes of the annual meeting for each year. However, the credibility of these documents is suspect. The minutes were admittedly all prepared by Respondents in 1985, well after the supposed annual meetings. For the years 1982, 1983 and 1984, David Davis II was a director.
His name appears on the minutes as offered by Respondents. Yet, Davis says he did not attend an annual director's meeting in those 3 years. Davis also says that he never attended a director's meeting at which the funding of reserves was waived. In fact, Davis never attended a director's meeting at which a proposed budget was adopted.
The minutes are inherently unreliable because they were created much later in time and appear to directly conflict with the testimony of Davis. The minutes are also self-serving. Accordingly, it is found that Respondents did not properly waive the funding of the reserve account for the years 1980, 1981, 1982, 1983, and 1984.
Respondents never disclosed to the unit owners that reserves were not funded.
The reserve liability is $8,890.00, calculated at $8.75 per month per unit in Phase I (eight units) from August 31, 1979, and in Phase II (12 units) from November 13, 1981, plus all twenty units for the first quarter of 1985. The original budget allocates $8.75 of the assessments to reserves and the original documents (Section 8.2) specify that assessments are to be paid quarterly on January 1, April 1, July 1, and October 1. Since the turnover occurred on January 29, 1985, the assessments for the first quarter had already been paid to Respondents.
Respondents expended money for reserve-type expenses. Their Exhibit 5 shows reserve-type expenditures totalling $8,164.78. However, certain of these expenditures do not qualify as reserve-type expenses and must be excluded. Specifically, payments of $485.00 to David Chalfant for repairs to leaking windows, of $560.00 to Roy Hutchinson for repairs to doors which rotted out from the rain, and of $470 Bayside Sandblasting to repair steel doors and to sandblast stains on the sidewalk, are not reserve items (roof replacement, resurfacing and painting). Therefore, Respondents established that they paid
$6,649.78 for reserve-type expenses.
Petitioner argues that other items should be eliminated because they are not reserve-type expenses or because they were paid after turnover. These arguments are rejected and it is found that $6,649.78 for reserve-type expenses is accurate and should be offset against the reserve liability.
Respondents owe the Association $2,240.22 in reserve funds.
Paragraph 8.3 of the declaration of condominium for The Somerset provides:
The Board shall, in accordance with Bylaws of the Association, establish an annual budget in advance for each fiscal year, which shall correspond to the calendar year, which shall estimate all expenses for the forthcoming year required for the proper operation, management and maintenance of the condominium. . . . Upon adoption of each annual budget by the Board, copies thereof shall be delivered to each unit owner, and the assessment for each year shall be based upon such budget. . .
The unit owners were not notified of any Board of Directors meeting at which a proposed annual budget would be considered or adopted. Further no unit owner received copies of proposed annual budgets, except for the budget set forth in the prospectus with the original condominium documents.
In fact, no formal meeting of the Board was held to adopt an annual budget.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction of the parties to and the subject matter of these proceedings. Section 120.57(1), Florida Statutes.
Section 718.301(4)(c), Florida Statutes (Supp. 1984), provides as follow:
718.301 Transfer of association control. -
* * *
(4) Prior to, or not more than 60 days after, the time that unit owners other than the developer elect a majority of the members of the board of administration of an association, the developer shall relinquish control of the association, and the unit owners shall accept control. Simultaneously, the developer shall deliver to the association, at the developer's expense, all property of the unit owners and of the association which is held or controlled by the developer, including, but not limited to, the following items, if applicable, as to each condominium operated by the association:
* * *
(c) The financial records
including financial statements of the association, and source documents since the incorporation of the association through the date of turnover. The records shall be reviewed by an independent certified public accountant. The minimum report required shall be a review in accordance with generally accepted accounting standards as defined by rule by the Board of Accountancy. The accountant performing the review shall examine to the extent necessary supporting documents and records, including the cash disbursements and related paid invoices to determine if expenditures were for association purposes and the billings, cash receipts, and related records to determine that the developer was charged and paid the proper amounts of assessments. [Emphasis added].
A review of this section reveals no circumstances under which a developer is excused from obtaining the financial review. A condominium is strictly a creature of statute, Suntide Condominium Association, Inc. v. Division of Florida Land Sales, Condominiums, Department of Business Regulation, 463 So.2d
314 (Fla. 1st DCA 1984), pet. for rev. den. 469 So.2d 750 (Fla. 1985), and only those powers enumerated by the Condominium Act may be exercised.
Control of the association by the Board of Directors was "turned over" to non-developer unit owners on or about January 29, 1985. Subsection 718.301(4)(c), Florida Statutes (1985) explicitly mandates the turnover review in order to determine if expenditures by the developer were for association purposes, and that billings, cash receipts and related records were properly maintained, charged and paid by the developer. Notwithstanding Respondents' willingness to remit $1,000 to the association in lieu of the turnover report, it is only after this accounting is done that it can be determined what amount might be owed by the developer to the association.
Section 718.112(2)(k), Florida Statutes (1983), 1/ provided as follows:
(k) The proposed annual budget of common expenses shall be detailed and shall show the amounts budgeted by accounts and expense classifications, including, if applicable, but not limited to those expenses listed in s. 718.504(20). In addition to annual operating expenses, the budget shall include reserve accounts for capital expenditures and deferred maintenance. These accounts shall include, but not be limited to,
roof replacement, building painting, and pavement resurfacing. The amount to be reserved shall be computed by means of a formula which is based upon estimated life and estimated replacement costs of each reserve item. This subsection shall not apply to budgets in which the level of assessments has been guaranteed pursuant to Section 718.116(8) prior to October l, 1979, provided that the absence of reserves is disclosed to purchasers, or to budgets in which the members of an association have, by a vote of the majority of the members present at a duly called meeting of the association, determined for a fiscal year to provide no reserves of reserves less adequate than required by this subsection. [Emphasis added].
It is uncontroverted that the level of assessments at The Somerset was guaranteed prior to October 1, 1979. However, the absence of reserves was not disclosed to purchasers. Further, no unit owner meetings were noticed or held. Hence, reserves were never waived or reduced by a vote of the majority of the members present at a duly called meeting of the association. Because Respondents did not comply with either of the only statutory provisions which excuse a developer or association from funding reserves, the developer is liable for reserves for the period of time in which he controlled the association -- that is, from the date of recordation of the declaration until the date of turnover of association control.
Section 718.112(2)(f), Florida Statutes (1983), 2/ provided in part as follows:
(f) The board of administration shall mail a meeting notice and copies of the proposed annual budget of common expenses to the unit owners not less than 30 days prior to the meeting at which the budget will be considered. If the bylaws or declaration provides that the budget may be adopted by the board of administration, then the unit owner shall be given written notice of the time and place of the meeting of the board of administration which will consider the budget. The meeting shall be open to the unit owners . . .
Proposed budgets of common expenses for fiscal years 1982, 1983, and 1984 were neither promulgated nor mailed to unit owners. Further, unit owners never received notices of any board meetings at which the budget would be considered.
Section 718.111(3), Florida Statutes (1985), provides in part:
(13) Within 60 days following the end of the fiscal or calendar year or annually on such date as is otherwise provided in the bylaws of the association, the board of administration of the association shall mail or furnish by personal delivery to each unit owner a complete financial report of actual receipts and expenditures for the previous 12 months. The report shall show the amounts of receipts by accounts and receipt classifications and shall show the amounts of expenses by accounts and expense classifications. . .
Respondents failed to mail or furnish by personal delivery to each unit owner a complete financial report of actual receipts and expenditures within sixty (60) days following the end of the calendar year for the years 1980, 1981, 1982, 1983 and 1984.
The failure by Respondents to deliver to the association within 60 days following January 29, 1985, a review of the association's financial records in accordance with generally accepted accounting standards, is a violation of Section 718.301(4)(c), Florida Statutes (Supp. 1984).
The failure by Respondents to include reserve accounts for capital expenditures and deferred maintenance in the proposed budgets for the years 1980, 1981, 1982, 1983, 1984 and 1985 and to fund reserves for each of those years constitutes separate violations of Sections 718.112(2)(k), Florida Statutes (1983).
The failure by Respondents to promulgate and mail to unit owners proposed budgets of common expenses for the fiscal years 1982, 1903 and 1984 constitutes separate violations of Section 718.112(2)(f) and (k), Florida Statutes (1983).
The failure by Respondents to mail or furnish by personal delivery to each unit owner a complete financial report of actual receipts and expenditures within 60 days following the end of the calendar years 1980, 1981, 1982, 1983 and 1984 constitutes separate violations of Section 718.111(3), Florida Statutes (1985).
Respondents are liable to the association for $2,240.22 in reserve funds.
