STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF BUSINESS REGULATION, ) DIVISION OF FLORIDA LAND SALES, ) CONDOMINIUMS AND MOBILE HOMES, )

)

Petitioner, )

)

vs. ) CASE NO. 87-1517

) WATERSIDE LAND CORPORATION d/b/a ) GLENWOOD MANOR CONDOMINIUM, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, a hearing was held in this cause on September 24, 1987, in Sarasota, Florida, before Diane A. Grubbs, a Hearing Officer with the Division of Administrative Hearings.

APPEARANCES

For Petitioner: Robin H. Conner, Esquire

Staff Attorney

Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32399-1007

For Respondent: Marcel Cloutier

Secretary/Treasurer Waterside Land Corporation 2701 Ivy Lane

Inglewood, Florida 34224

ISSUES AND BACKGROUND

On February 27, 1987, petitioner issued a Notice to Show Cause which alleged that respondent had violated various provisions of Chapter 718, Florida Statutes, and Chapter 7D-17 and 7D-23, Florida Administrative Code. On March 20, 1987, respondent served petitioner with a Response to Notice to Show Cause and Request for Formal Hearing.

The Notice to Show Cause and response identify the specific violations alleged and issues to be resolved as follows:

1. CHARGE: Respondent, while in control of the association, violated Section 718.116(1)(a) and (8)(a), Florida Statutes (1985), by excusing itself from the payment of its share of common expenses pertaining to assessments on unbuilt developer-owned units in Phase VI and VII of Glenwood Manor by failing to pay assessments on the units until certificates of occupancy were issued;

   
   

   RESPONSE: Respondent denied that it had any liability for assessments on unbuilt developer-owned units in Phases VI and VII of Glenwood Manor Condominiums, and alleged that respondent paid assessments on developer-owned units commencing with the creation of the unit pursuant to Section 718.403, Florida Statutes (1985).

   
   

2. CHARGE: Respondent, while in control of the association, violated Section 718.112(2)(k), Florida Statutes (1980 Supp.), Section 718.112(2)(f), Florida Statutes (1985), and Rule 7D- 23.04(2), Florida Administrative Code (1985), by failing to properly waive or fully fund reserve accounts for capital expenditures and deferred maintenance for the years 1981, 1982, 1984, 1985 and 1986;

   
   

   RESPONSE: Respondent denied that reserve accounts were improperly waived or funded as alleged in the notice, asserting that reserves were properly waived for the years 1981, 1982, and 1984, were not waived for the year 1985, and that respondent was without knowledge as to 1986 because the turnover of the condominium took place prior to the 1986 annual meeting.

   
   

3. CHARGE: Respondent, while in control of the association, violated Section 718.112(2)(h), Florida Statutes (1982 Supp.), and Section 718.112(2)(g), Florida Statutes (1985), by failing to adopt budgets and make assessments for the fiscal years 1984, 1985 and 1986 in an amount no less than required to provide funds in advance for payment of all anticipated current operating expenses and all of the unpaid expenses previously incurred, in that respondent loaned the association $8,000 from May 19, 1983 to May 19, 1985, to cover operating expense, with repayment plus interest due after turnover;

   
   

   RESPONSE: Respondent denied that it failed to adopt budgets and make assessments for fiscal years 1984, 1985 and 1986 in amounts sufficient to provide funds in advance for payment of anticipated current operating expenses and for all of the unpaid expenses previously incurred. Respondent alleged that it adopted in good faith budgets which the association estimated would be

   required to meet these expenses. Respondent admitted loaning money to the association to meet the needs of the association.

   
   

4. CHARGE: Respondent failed to follow its plan of phase development as stated in the original declaration of condominium or amend the plan of phase development, in violation of Sections 718.403(1), (2)(b), (6) and 718.110(4), Florida Statutes (1983), in that the original declaration describes Phase IV as containing eight units while the amendment adding Phase IV created only seven units;

   
   

   RESPONSE: Respondent denied that it failed to follow its plan of phase development as stated in the original declaration of condominium in that the Declaration of Condominium provided that the developer would have the option of constructing a swimming pool in Phase IV and that the construction of the pool would require a reduction in the number of units contained in Phase IV from eight to seven.

   
   

5. CHARGE: Respondent violated Section 718.104(4)(f), Florida Statutes (1985), by creating a condominium in which the aggregate undivided share in the common elements appurtenant to each unit, stated as a percentage, does not equal the whole, in that Glenwood Manor consists of 55 units with each unit owning a 1/56th share of the common elements.

   
   

   RESPONSE: Respondent denied that it created a condominium in which the aggregate undivided shares in the common elements appurtenant to each unit did not equal the whole, and alleged that any reference to a unit owner owning 1/56th undivided share in the common elements is due to a scrivener's error which respondent would be willing to correct to clarify that each unit owner owns 1/55th undivided share in the common element.

   
   

6. CHARGE: Respondent offered 33 condominium units for sale, and entered into purchase contracts in Phase II, III, V, VI and VIII of Glenwood Manor prior to filling the subsequent phase documents with the Division of Land Sales, Condominiums, and Mobile Homes (Division) on February 5, 1986, in violation of Section 718.502(2)(a), Florida Statutes (1984 Supp.), and Rule 7D- 17.03(2), Florida Administrative Code;

   
   

7. CHARGE: Respondent closed on 33 units prior to obtaining Division approval on February 10, 1986, of subsequent phase documents for Phases II, III, V, VI and VII, in violation of Section 718.502(2)(a), Florida Statutes (1984 Supp.), and Rule 7D- 17.01(3), Florida Administrative Code;

   
   

   RESPONSE TO (6) AND (7): Respondent admitted that due to the death of one of its attorneys, it inadvertently did not file the

   subsequent phase documents for Phases II, III, V, VI and VII prior to offering some of those units for sale and closing on the sale, but filed the necessary documents with the Division and obtained the necessary approvals upon realizing that the documents had not been filed.

   
   

8. CHARGE: Respondent accepted a deposit on the purchase contract for unit 605, Phase V, without filing a fully executed escrow agreement for Venice Realty, Inc., with the Division, in violation of Rule 7D-17.02(6), Florida Administrative Code.

RESPONSE: Respondent admitted that due to confusion between respondent and the realtor involved, Venice Realty, Inc. inadvertently accepted a deposit on a contract for the purchase of Unit 605, Phase VI, but that prior to closing on the unit, respondent directed Venice Realty to transfer the deposit to the proper escrow agent which transfer was accomplished.

Respondent requested a formal hearing on the issues thus joined, and on April 9, 1987, this matter was forwarded to the Division of Administrative Hearings for further proceedings. At the hearing, petitioner presented the testimony of Glen Turnow, a resident of Glenwood Manor Condominium and association board member; Candy McKinney, Examination Specialist with the Bureau of Condominiums; John Benton, Financial Analyst, Division of Florida Land Sales, Condominiums and Mobile Homes; and Marcel Cloutier, Secretary/Treasurer of Waterside Land Corporation. Petitioner's exhibits 1-8 were admitted into evidence. Petitioner's Exhibit No. 1, Petitioner's First Request for Admissions and responses, and petitioner's Exhibit No. 2, Petitioner's First Set of Interrogatories, were admitted into evidence as late-filed exhibits. Marcel Cloutier, an officer of Waterside Land Corporation, was accepted as the authorized representative for respondent and testified on respondent's behalf. Respondent did not enter any exhibits into evidence. A prehearing stipulation was submitted by the parties prior to the hearing.

No transcript of the hearing has been filed. However, both petitioner and respondent have filed proposed findings of fact and conclusions of law, and a ruling on each of the proposed findings of fact is included in the Appendix to this Recommended Order.

FINDINGS OF FACT

1. At all times between October 21, 1981, and February 27, 1987, respondent was the developer, as that term is defined by Section 718.103(14), Florida Statutes (1985), of Glenwood Manor Condominium. Glenwood Manor Condominium is a phased condominium consisting of seven (7) phases with fifty-five (55) units located in Sarasota County, Florida. Between October 21, 1981, and

   February 17, 1986, respondent was in control of the Board of Directors of Glenwood Manor Owners Association, Inc. (Association). Control of the Board of Directors of the Association was turned over to the unit owners on February 17, 1986.

   
   

2. The Declaration of Condominium of Glenwood Manor Condominium was recorded in the public records of Sarasota County, Florida, on October 21, 1981. Paragraph II of the Declaration of Condominium provides, in pertinent part, as follows:

   
   

   Developer does hereby declare the property owned by it and first described

   above, to be Condominium property under the Condominium Act of the State of Florida, now in force and effect, to be known as:

   GLENWOOD MANOR CONDOMINIUMS, hereinafter

   referred to as the CONDOMINIUM??, and does submit said Condominium property to Condominium ownership pursuant to said Act. Developer may, but is not obligated to create additional Phases of Development of GLENWOOD MANOR CONDOMINIUMS ... which said Phases,

   if any, shall be operated and managed in conjunction with this Condominium through that certain nonprofit corporation known as: GLENWOOD MANOR OWNERS ASSOCIATION, INC., and

   hereinafter referred to as the "ASSOCIATION." The creation of any such further Phases will merge the common elements of this Condominium with the common elements of such additional Phases. As Developer creates such additional Phases, Developer shall ... record an amendment to this Declaration of Condominium describing the lands and improvements

   so added and the revised percentage of owner- ship in the common elements of this Condominium as so enlarged. (e.s.)

   The details of the phase development are set forth on Exhibit B to the Declaration of Condominium, entitled Phase Development Exhibit, which provides as follows:

   
   

   This Condominium is being developed as a Phase Development under Florida Statute

   718.403. The first Phase of Development, which is the Phase hereby submitted to Condominium ownership, is designated on the Condominium plat described in paragraph II of the Declaration of Condominium above as Phase

   I. It consists of 8 Condominium Units numbered 1 through 8. Each Unit owner will own 1/8th of the common elements and share 1/8th of the common expenses and is entitled to 1/8th of common surplus relative to this Condominium. Phase II consists of 8 proposed Condominium Units as depicted on said condominium plat. At such time as Phase II is added to this Condominium by appropriate amendment of this Declaration of Condominium, if that be the case, the two phases shall then and there be considered as merged. Upon such merger each unit shall be vested with a 1/16th ownership of the common elements of said phases as merged, bear 1/16th of the common expenses of the merged phases and be entitled to 1/16th of the common surplus of the merged phases. At such time as Phase III is added to this Condominium by appropriate amendment of this Declaration of Condominium, if that be the case, the three phases shall then and there be considered as merged. Upon such mercer each unit shall be vested with a 1/24th ownership of the common elements of said phases as merged, bear 1/24th of the common expenses of the merged phases and be entitled to 1/24th of the common surplus of the merged phases. At such time as Phase IV is added to this Condominium by appropriate amendment of this Declaration of Condominium, if that be the case, the four phases shall then and there be considered as merged. Upon such merger each unit shall be vested with a 1/32nd ownership of the common expenses of said phases as merged, bear 1/32nd of the common expenses of the merged phases and be entitled to 1/32nd of the common surlus [sic] of the merged phases. At such time as Phase V is added to this Condominium by appropriate amendment of this Declaration of Condominium, if that be the case, the five phases shall then and there be considered as merged. Upon such merger each unit shall be vested with a 1/40th ownership of the common elements of said phases as merged, bear 1/40th of the common expenses of the merged phases and be entitled to 1/40th of the common surplus of the merged phases. At such time as Phase VI is added to this Condominium by appropriate amendment of this Declaration of Condominium,

   if that be the case, the six phases shall then and there be considered as merged. Upon such merger each unit shall be vested with a 1/48th ownership of the common elements of said phases as merged, bear 1/48th of the common expenses of the merged phases and be entitled to 1/48th of the common surplus of the merged phases. At such time as Phase VII is added to this Condominium by appropriate amendment of this Declaration of Condominium, if that be the case, the seven phases shall then and there be considered as merged. Upon such merger each unit shall be vested with a 1/56th ownership of the common elements of said phases as merged, bear 1/56th of the common expenses of the merged phases and be entitled to 1/56th of the common surplus of the merged phases. (e.s.)

3. The units in Phases II - VII were submitted to condominium ownership pursuant to amendments to the Declaration of Condominium filed in the public records of Sarasota County, Florida, on the following dates:

   
   

   First Amendment Phase II November 16, 1981 Second Amendment Phase III June 10, 1983 Third Amendment Phase IV November 3, 1983 Fourth Amendment Phases V, VI

   and VII April 5, 1984

   
   

4. Each amendment provided for the merger of the common elements of the new phase with the previous phases, listed all units included in the condominium, and indicated the new share of ownership in and expenses for the common elements of the condominium for each unit. For example, the First Amendment of Declaration of Condominium, which added Phase II, consisting of eight units, to the condominium, which initially consisted of eight units, provided:

   
   

   As a result of the addition of the Phase II lands to the Condominium, as set forth above, each unit of Glenwood Manor,

   Condominiums as amended heretofore and hereby, shall be vested with a 1/16th owner- ship of the common elements of the merged Phases I and II lands and each unit shall bear a 1/16th share of the common expenses and be entitled to a 1/16th share of the common surplus of said merged phases of development.

5. Both the First and Second Amendments added eight units to the condominium in accordance with the Phase Development Exhibit included in the Declaration of Condominium. However, the Third Amendment, adding Phase IV, added only seven units to the condominium, resulting in a total of 31 units. The Third Amendment correctly stated that each unit "shall be vested with a 1/31st ownership of the common elements of the merged Phases I, II, III and IV lands and each unit shall bear a 1/31st share of the common expenses ..." However, when the Fourth Amendment was filed, adding Phases V, VI and VII, each consisting of eight units, the share of ownership in the common elements for each unit was stated as 1/56th, whereas the total number of units included in the condominium was correctly shown as 55.

   
   

6. Each amendment to the Declaration of Condominium ratified and confirmed the declaration and plat "[e]xcept as expressly modified" by the amendment.

   
   

7. Unit owner and board member Glen Turnow stated that it was his understanding that he owns 1/55th of the common elements and that each unit owner pays 1/55th of the common expenses at Glenwood Manor; however, he has no documents indicating his ownership interest to be other than 1/56th of the common elements.

   
   

8. Although the amendment creating the units in Phases VI and VII was filed on April 5, 1984, respondent paid no monthly assessments on developer-owned units in Phases VI and VII until Certificates of Occupancy were issued for those phases. Certificates of Occupancy for Phases VI and VII of Glenwood Manor were issued on October 25, 1985, and November 13, 1985, respectively. The assessment per unit of the condominium per month was $55 from April, 1984, through August, 1985; as of September, 1985, the assessment increased to $70 per unit. For the developer-owned units in Phases VI and VII from the date of amendment until the certificates of occupancy were filed, the assessments would have been $17,182.65. At 18 percent simple interest computed from the end of the year respondent owed for the assessments to the day before turnover of the association to the owners, interest on the assessments totals $2,029.92.

   
   

9. Respondent admitted that it paid no assessments on the units in Phase VI and VII until Certificates of Occupancy were issued. Mr. Cloutier testified that respondent did not pay the assessments because it received legal advice that a unit is not in existence until a certificate of occupancy is issued. However, the first assessment was paid on November 4, 1981, and the certificates of occupancy for the first sixteen units were not issued until December 17, 1981. Mr. Cloutier also testified that respondent relied on language in the Declaration of Condominium

   which excused it from paying such assessments until the certificates of occupancy were issued. However, respondent did not introduce into evidence the portion of the Declaration on which it relied. Further, the Fourth Amendment to the declaration, which added the units in Phases VI and VII to the condominium, clearly provided that each unit would bear a proportionate share of the "common expenses." In the declaration "assessment" is defined as the "share of the funds required for the payment of common expenses."

   
   

10. Respondent admitted that it made no guarantee to unit owners at Glenwood Manor Condominium which would excuse it from payment of assessments on developer-owned units other than pursuant to the provisions of Section 718.116(8)(a)1., Florida Statutes (1985), which provides, in pertinent part, as follows:

    
    

    (8)(a) 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 ... in the following cases:

    1. If the declaration so provides, a developer or other person who owns condominium units offered for sale may be excused from the payment of the share of the common expenses and assessments related to those units for a stated period of time subsequent to the recording of the declaration of condominium. The period must terminate no later than the first day of the fourth calendar month following the month in which the closing of the purchase and sale of the first condominium unit occurs ...

       The closing of the purchase and sale of the first unit at Glenwood Manor occurred on October 20, 1981.

       
       

11. Reserves are monies put aside each month to provide for future replacement or repair of major items. The original budget provided for funding of reserves in the amount of $6.00 per unit per month. Funding of reserves at Glenwood Manor for 1981 was waived at a meeting of unit owners on January 10, 1982; for 1982, on January 10, 1982; for 1983 on January 10, 1983, and for 1984, on August 16, 1985. If the reserves cannot be waived retroactively, the respondent would owe $3,036.55 for reserves that were not properly waived. However, respondent made one deposit to reserves in the amount of $1,800; therefore, respondent's total liability for underfunded reserves would be

    $1,236.55.

12. Between May 19, 1983, and May 20, 1985, the developer made the following loans to the association:

    
    

    June 19, 1983 $ 500 at 13 percent interest

    June 3, 1983 $ 500 at 13 percent interest

    August 6, 1984 $1200 at 12 1/2 percent interest

    September 7, 1984 $1500 at 12 1/2 percent interest

    September 28, 1984 $2300 at 12 1/2 percent interest

    March 2, 1985 $ 600 at 12 1/2 percent interest

    May 20, 1985 $1400 at 12 percent interest

    
    

    On July 14, 1983, the first two loans were repaid with interest.

    
    

13. The loans made from the developer to the association during the years 1983, 1984 and 1985 were necessary to provide operating funds for the association. At a meeting of unit owners on August 25, 1985, it was decided that repayment of these loans would take place after turnover of control of the association to the non-developer owners. On the dates these loans were made, the percentages of units which had been sold by the developer were as follows: August 6, 1984 - 56.4 percent; September 7, 1984 - 56.4 percent; September 28, 1984 - 56.4 percent; March 3, 1985 - 60 percent; and May 20, 1985 - 61.8 percent. If the repayment of the loans were based on the percentage of units owned by the developer vis-a-vis the non- developers on the date of the loan, the developer would owe $2954.80 and the non-developer unit owners would owe $4045.20.

    
    

14. Respondent offered 33 condominium units for sale, and entered into purchase contracts for units in Phases II, III, V, VI and VII of Glenwood Manor Condominiums, prior to February 5, 1986. Respondent closed on the sales of 33 units in Phases II, III, V, VI and VII of Glenwood Manor Condominiums prior to February 10, 1986. Respondent first filed subsequent phase documents with the Division of Florida Land Sales, Condominiums and Mobile Homes for Phases II, III, V, VI and VII of Glenwood Manor Condominium on February 5, 1986.

    
    

15. On August 11, 1985, Venice Realty accepted a deposit from the Days for the purchase of Unit 605 at Glenwood Manor Condominium. Ms. McKinney testified that the Division's records indicated only that the Law Firm of Rosen, Able and Bryant would serve as escrow agent for sales of units at Glenwood Manor Condominium. In its answer to the charges, respondent admitted that Venice Realty was not the proper escrow agent for respondent.

    CONCLUSIONS OF LAW

    
    

16. The Division of Administrative Hearings has jurisdiction over the subject matter of and the parties to this proceeding. Section 120.57(1), Florida Statutes.

    
    

17. Section 718.501(1) provides, in pertinent part, as follows:

    
    

    (1) The Division of Florida Land Sales, Condominiums, and Mobile Homes of the Department of Business Regulation ... has the power to enforce and ensure compliance

    with the provisions of this chapter and rules promulgated pursuant hereto relating to the development, construction, sale, lease, ownership, operation, and management of residential condominium units. In performing its duties, the Division has the following powers and duties:

    * * *

    (d) Notwithstanding any remedies available to unit owners and associations, if the Division has reasonable cause to believe the violation of any provision of this chapter or rule promulgated pursuant hereto has occurred, the Division may institute enforce- ment proceedings in its own name against any developer ... as follows:

    * * *

    2. The Division may issue an order requiring the developer ... to cease and desist from the unlawful practice and take such affirmative action as in the judgment of the Division will carry out the purposes of this chapter.

    * * *

    4. The Division may impose a civil penalty against a developer ... for any violation of this chapter or a rule promulgated

    pursuant hereto. A penalty may be imposed on the basis of each day of continuing violation, but in no event shall the penalty for any offense exceed $5,000.

    
    

18. In the Notice to Show Cause, the Division charged respondent with violating Section 718.116(1)(a) and (8)(a) Florida Statutes, by failing to pay assessments on the unbuilt developer- owned units in Phases VI and VII until Certificates of Occupancy

    were issued. Section 718.116, Florida Statutes, provides in pertinent part as follows:

    
    

    (1)(a) A unit owner, regardless of how his title has been acquired ... is liable for all assessments which come due while he is the unit owner ...

    * * *

    (8)(a) 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:

    1. If the declaration so provides, a developer ... may be excused from the payment of the share of the common expenses and assessments related to those units for a stated period of time subsequent to the recording of the Declaration of Condominium. The period must terminate no later than the first day of the fourth calendar month following the month in which the closing of the purchase and sale of the first condominium unit occurs ...

    2. A developer ... may be excused 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 has guaranteed to each purchaser ... that the assessment for common expenses ... imposed upon the unit owners would not increase over a stated dollar amount ... during that period.

19. The developer did not begin paying assessments for the units in Phases VI and VII until the Certificates of Occupancy were issued for those buildings. Respondent admitted that it had made no guarantees to the purchasers of the units which would relieve it from payment of its share of the common expenses, and no other exceptions are applicable. When the Fourth Amendment to the Declaration of Condominium was filed on April 5, 1984, the units in Phases VI and VII were created, and respondent's obligation to bear its share of the common expenses for those units began on that date. In Department of Business Regulation, Division of Florida Land Sales, Condominiums and Mobile Homes v. KNW International Corporation, Inc. d/b/a Casa Verde Club, DBR Docket No. 86152MVC (Final order filed May 7, 1987), the department held that a developer's responsibility for payment of assessments begins when the units are created, stating as follows:

    Respondent's liability for common expenses began upon the creation of a unit notwithstanding that construction of the unit had not been completed. His obligation continues as long as the respondent owns the unit. A condominium is created upon recordation in the public record. See also Hyde Park Condominium Association v. Estero Island Real Estate, Inc., 486 So.2d 1

    (Fla. App. 2nd District 1986) where the court held that unimproved lots are "units" within the meaning of the Condominium Act.

    Therefore, the Respondent is liable for his proportionate share of the common expenses in the same proportion as such units share in the ownership in the common elements.

    
    

20. The evidence presented in this case established that respondent should have paid assessments of $17,182.55 for the units in Phases VI and VII. Section 718.116(3), Florida Statutes, provides that assessments which are not paid when due bear interest at the rate of 18 percent per year when the declaration does not specify a rate. Adding 18 percent interest to the amount owed for assessments results in a total liability of $19,210.16.

    
    

21. Section 718.112(2)(f), Florida Statutes (1985), previously section 718.112(2)(k), Florida Statutes (1980 Supp.), provides as follows:

    
    

    1. Annual budget.--

       1. The proposed annual budget of common expenses shall be detailed and shall show the amounts budgeted by accounts and expense classifications ...

       2. In addition to annual operating expenses, the budget shall include reserve accounts for capital expenditures and deferred main- tenence. 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 cost of each reserve item. This subsection shall not apply to budgets in which the level of assessment has been guaranteed pursuant to s. 718.116(8) prior to October 1, 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 of the association, determined for a fiscal year to provide no reserves or reserves less adequate than required by this subsection. If a meeting of the unit owners has been called to determine to provide no reserves or reserves less adequate than required and such result is not attained, or a quorum is not attained, the reserves as included in the budget shall go into effect.

    
    

22. Section 7D-23.004(2), Florida Administrative Code, 1/ provides as follows:

    
    

    (2)(a) All budgets adopted on or after October 1, 1979, shall include reserves for capital expenditures and deferred maintenance unless the majority of the voting interests of the association present, in person or by proxy, at a duly called meeting of the association, vote to waive, in whole or in part, the reserve requirements ... Any such waiver shall be effective for only one

    annual budget, and the vote must be taken annually to continue to waive the statutory requirements...

    1. In the proposed annual budget, each reserve account shall be stated as a separate item, and the budget shall show the estimated life, estimated replacement cost, and the estimated remaining useful life for each item for which reserves are maintained. Additionally, each budget shall state separately the current balance in each reserve account as of the date the proposed budget is prepared.

    2. Reserves must be included in the proposed annual budget and shall not be waived or reduced prior to the mailing to unit owners of a proposed annual budget.

    3. Reserves required by Section 718.112(2)(f), Florida Statutes, are common expenses and must be fully funded unless properly waived or reduced.

23. From the statutory and rule provisions relating to the annual budget, it is apparent that reserves cannot be waived retroactively. Condominium budgets must be prepared annually. A

    proposed budget must be prepared and provided to unit owners prior to the budget meeting. 2/ Reserves must be included in the proposed annual budget. At a duly called meeting of the association, the voting interests present may vote to waive reserves for a fiscal yea but if the reserves are not waived or reduced, the reserves included in the proposed budget go into effect and must be funded.

    
    

24. While in control of the association, the respondent had the obligation to ensure that reserves were either properly funded or validly waived. However, there are periods of time when the reserves were neither funded nor validly waived, including 1981 and 1984. Petitioner's Exhibit 4, prepared by a financial analyst employed by the petitioner, shows that the total amount of respondent's obligation for reserves that were not validly waived is $3,036.55. Respondent's liability for reserves during the election period, October 21, 1981 through January 31, 1982, was based on all of the units in the condominium regardless of whether respondent owned them. For the remaining periods, petitioner calculated respondent's liability based on the units respondent owned. Because respondent made the election set forth in Section 711.116(8)(a)1., respondent is liable for the entire amount of the reserves that should have been funded during the election period. Section 718.116(8)(a)1. provides that if the developer elects to be excused from the payment of its share of the common expenses, "the developer must pay the portion of common expenses incurred during that period which exceeds the amount assessed against other unit owners." The reserves are part of the common expenses. The common expenses incurred during the election period for reserves was not assessed against other unit owners. Therefore, the portion "which exceeds the amount assessed" is the entire amount. After the election period, respondent is only liable for the reserves on the units owned by respondent.

25. Although respondent's total liability for reserves is

    $3,036.55, respondent did deposit $1,800 in the reserve account which should be credited against that amounts. Therefore, respondent owes the association $1,236.55 for unfunded reserves.

    
    

26. Section 718.112(2)(g) , Florida Statutes (1985), formerly Section 718.112(2)(h), Florida Statutes (1982 Supp.), provides as follows:

    
    

    The manner of collecting from the unit owners their shares of the common expenses shall be stated in the bylaws. Assessments shall be made against unit owners not less frequently than quarterly, in an amount no less than required to provide funds in advance for payment of all the anticipated current

    operating expenses and for all of the unpaid operating expenses previously incurred. (e.s.)

    
    

    Between May 19, 1983, and May 20, 1985, the respondent had to make loans in the amount of $8,000 to the association for the purpose of providing operating funds for the association. Although the assessments were increased from $50 in 1983 to $55 in 1984, that increase was obviously insufficient. The association did not raise the assessment to $70 a month until August of 1985, after the association was $7,000 in debt to the respondent. Respondent was in control of the association during this period of time, and it was respondent's responsibility to ensure that the assessments were sufficient to provide funds in advance for payment of the operating expenses of the condominium.

    
    

27. On the dates the loans were made the developer owned a varying percentage of the units at Glenwood Manor, ranging from

    43.6 percent on August 6, 1984, to 38.2 percent on May 20, 1985. Under the loan pay back plan proposed, which provided for repayment of the loans after turnover of the association, those unit owners who purchased from the developer after the date of turnover would be responsible for a share of the loan liability to the developer. A developer could save a good deal of money, and avoid paying for its share of the common expenses, by keeping assessments artificially low while it owned a substantial number of units and loaning the association the funds necessary to pay for the operating expenses during that time, then collecting repayment of the loans when the developer no longer owned any units in the condominium. In other words, the developer would reap the benefit of the loan because it would be paying less in assessments, but it would have no responsibility for repayment.

    On the other hand, those individuals who subsequently purchase

    units from the developer would receive no benefit from the loan but have the obligation to repay it. Since the effect of the loans in the instant case was to excuse the developer from its share of payment of the common expenses, and because the loans would not have been necessary had respondent adopted adequate budgets in 1984 and 1985, respondent should be held responsible for the repayment of the loans in direct proportion to the percentage of the units which it owned on the date that the loans were made. Thus, respondent should be responsible for $2,954.80 of the loans made to the association, and the association should be responsible for repaying $4,045.20.

    
    

28. Section 718.403, Florida Statutes (1983), entitled "Phase condominiums," provides in pertinent part as follows:

    
    

    1. A developer may develop a condominium in phases, if the original declaration of

       condominium submitting the initial phase to condominium ownership provides for and describes in detail all anticipated

       phases ...

    2. The original declaration of condominium shall describe:

    * * *

    1. The number and general size of units to be included in each phase.

    2. Each unit's percentage of ownership in the common elements as each phase is added.

    
    

29. Respondent failed to follow its plan of phase development as stated in the original declaration in that the original declaration described Phase IV as containing eight units whereas the amendment adding Phase IV created only seven units. Although Section 718.704(6), Florida Statutes (1983), provided that, notwithstanding Section 718.110, amendments adding phases to the condominium did not require the execution of such amendments by unit owners other than the developer, the amendment adding Phase IV did more than simply add that phase. It changed the number of units in that phase and changed each unit's percentage of ownership in the common elements from what was stated in the declaration of condominium. Therefore, respondent violated Section 718.403, Florida Statutes (1983) , because the original declaration provided for eight units in Phase IV, and the original declaration was not amended in accordance with Section 718.110, Florida Statutes (1983), to provide that the number of units in Phase IV would be less.

    
    

30. To compound the problem, respondent filed a subsequent amendment to the declaration, adding Phases V, VI and VII, which was not only inconsistent with the amendment adding Phase IV, but was internally inconsistent. The Fourth Amendment to the declaration created the units in the final phases of the condominium. The original declaration provided that upon completion of the seven phases, each unit owner would own 1/56th of the common elements and bear 1/56th of the common expenses.

    The Fourth Amendment also provided that each unit would own 1/56th of the common elements and bear 1/56th of the common expenses.

    However, only 55 units had been created by the amendments to the declaration and only 55 units were identified in the Fourth Amendment itself.

    
    

31. The undivided share in the common elements appurtenant to each unit stated as percentages or fractions in the aggregate must equal the whole. Section 718.104(4)(f), Florida Statutes. According to the documents of record, 55 unit owners each own 1/56th of the common elements and common surplus. In its answer respondent stated that it would be willing to correct this

    scrivener's error." However, no corrective amendments had been filed by respondent as of the date of the hearing. Since the aggregate undivided shares of ownership of the common elements and common surplus do not equal 100 percent, respondent is in violation of Section 718.104(4)(f), Florida Statutes (1985).

    
    

32. Section 718.502, Florida Statutes (1985), provides in part as follows:

718.502 Filing prior to sale or lease.--

1. A developer of a residential condominium shall file with the division one copy of each of the documents and items required to be furnished to a buyer or lessee by ss. 718.503 and 718.504, if applicable. Until the developer has so filed, a contract for sale of a unit or lease of a unit for more than 5 years shall be voidable by the purchaser or lessee prior to the closing of his purchase or lease of a unit.

   (2)(a) Prior to filing as required by subsection (1), a developer shall not offer a contract for purchase of a unit or lease of a unit for more than 5 years but may accept deposits for reservations upon the approval of a fully executed escrow agreement and reservation agreement form properly filed with the Division of Florida Land Sales and Condominiums ...

   Rule 7D-17.03(2), Florida Administrative Code (renumbered as Rule 7D-17.003(2)), provides as follows:

   
   

2. Subsequent phases(s) shall be filed prior to offering any unit therein for sale or

   lease when the lease period is more than five years.

   
   

   Rule 7D-17.01(3), Florida Administrative Code (renumbered as Rule 7D-17.001(3)), provides as follows:

   
   

3. Upon receipt of a developer's filing, the Division will take action pursuant to these rules ... Until the developer prepares

and delivers to a purchased and to the Division documents that comply with the Condominium Act and these rules and the Division notifies the developer that the filing is proper or is presumed proper pursuant to Rule 7D-17.05, Florida

Administrative Code, the developer shall not close on any contract for sale or contract for a lease period of more than five years.

Respondent admitted that the Division received no documents for any of the units in Phases II, III, V, VI and VII prior to February 5, 1986. Respondent also admitted that it offered 33 condominium units for sale and entered into purchase contracts on those units prior to filing the subsequent phase documents with the Division. Respondent admitted that it closed on the contract for sale on condominium units before obtaining Division approval of those documents. Accordingly, each offer for sale, entry into purchase contract, and closing on those units constitutes a violation by respondent of Section 718.502(2)(a), Florida Statutes (1985), and Rule 7D-17.03(2) and Rule 7D-17.01(3), Florida Administrative Code.

Rule 7D-17.02(6) Florida Administrative Code (renumbered Rule 7D-17.002(6)), provides as follows:

(6) A developer who contracts to sell a condominium parcel when the construction, furnishing and landscaping of the condominium property submitted to condominium ownership have not been substantially completed... shall file with the Division a copy of a fully executed escrow agreement for contract deposits pursuant to Section 718.202, Florida Statutes. An escrow agreement is deemed to be fully executed by the inclusion of the dates of execution and the appropriate signatures. An escrow agreement is the agreement between the developer and the escrow agent establishing the escrow account.

Respondent admitted that Venice Realty accepted a deposit for the purchase of Unit 605 on August 11, 1985. The certificate of occupancy for Building No. 6 was not issued until October 25, 1985. Although a certificate of occupancy establishes that construction is complete, see Section 718.202(4), Florida Statutes, it cannot be concluded, as a matter of law, that the lack of a certificate of occupancy establishes that construction, furnishing, and landscaping have not been substantially completed. Petitioner presented no evidence relating to the degree of completion of the condominium property on August 11, 1985.

Further, there was no evidence presented that Venice Realty was acting as the agent for respondent when it accepted the deposit or that the deposit money was not placed in the escrow account established by respondent's escrow agent in accordance with the escrow agreement filed with the Division. Section 718.202(1),

Florida Statutes, does not require that any monies received from a buyer be paid directly to the escrow agent, it merely states that if the developer contracts to sell a condominium parcel prior to substantial completion "the developer shall pay into an escrow account all payments up to 10 percent of the sale price received by the developer from the buyer towards the sale price." Therefore, the petitioner failed to prove a violation of Rule 7D- 17.02(6), Florida Administrative Code.

RECOMMENDATION

Based on the foregoing findings of fact and conclusions of law, it is

RECOMMENDED that a Final Order be entered finding that respondent committed the violations alleged in Charges 1-7, finding that respondent did not commit the violation alleged in Charge 8, and imposing a civil penalty against respondent of Four Thousand, Two Hundred Fifty Dollars ($4,250), assessed as follows: For the violations set forth in the first charge, $1,000; for the violations set forth in the second charge, $1,000; for the violations set forth in the third charge, $1,000; for the violations set forth in charges four and five, $750; and for the violations set forth in charges six and seven, $500.

It is further RECOMMENDED that the Final Order require that the respondent take the following affirmative action:

1. Within sixty (60) days of the Final Order, file the appropriate documents in the public records of Sarasota County, Florida, indicating that Glenwood Manor Condominium consists of 55 units, and that each unit's share of the common elements, expenses, and surplus is 1/55th. The filing of such amendments shall comply fully with the provisions of Chapter 718, Florida Statutes, and Rule 7D-17, Florida Administrative Code.

   
   

2. Within thirty (30) days of issuance of the Final Order, remit permanently and irretrievably to Glenwood Manor Owners' Association, Inc., the respondent's liability for assessments and reserves in the amount of $19,210.16 for assessments and $1,236.55 for reserves.

   
   

3. Accept as full repayment of the loans made by respondent to the association, the sum of $4,045.20.

DONE AND ENTERED this 4th day of March, 1988, in Tallahassee, Leon County, Florida.

DIANE A. GRUBBS

Hearing Officer

Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 4th day of March, 1988.

ENDNOTES

1/ Rule 7D-23.04(2), Florida Administrative Code. 2/ Section 718.112(2)(e), Florida Statutes.

APPENDIX TO RECOMMENDED ORDER, CASE NO. 87-1517

Rulings on petitioner's proposed findings of fact:

firm.

1. &(m) Accepted in paragraph 12.

   1. Rejected as irrelevant and not supported by evidence.

   2. Accepted to degree relevant in paragraph 7.

Rulings on respondent's proposed findings of fact:

1. Rejected for the reasons stated in the order in paragraphs 8-10, and in conclusions of law.

2. Rejected in that reserves were not properly waived for 1981 and 1984.

3. Rejected as not supported by competent evidence.

4. Rejected to degree it asserts that condominium documents showed that pool was contemplated which would result in only seven units in Phase IV. No such documents were entered into evidence.

5. Not a finding of fact.

6-7. Rejected as not supported by the evidence presented at the hearing, although it is accepted that the filing was not timely.

8. Accepted generally in paragraph 15 and in conclusions of law.

COPIES FURNISHED:

Pamela S. Leslie, Esquire Assistant General Counsel Department of Business Regulation The Johns Building

725 South Bronough Street Tallahassee, Florida 32399-1007

Mr. Marcel Cloutier Secretary/Treasurer Waterside Land Corporation 2701 Ivy Lane

Inglewood, Florida 34224

E. James Kearney, Director Division of Florida Land Sales, Condominiums and Mobile Homes The Johns Building

725 South Bronough Street Tallahassee, Florida 32399-1007

Van B. Poole, Secretary Department of Business Regulation The Johns Building

725 South Bronough Street Tallahassee, Florida 32399-1007

Joseph A. Sole, Esquire General Counsel

Department of Business Regulation The Johns Building

725 South Bronough Street Tallahassee, Florida 32399-1007

Docket for Case No: 87-001517

Orders for Case No: 87-001517