STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF BUSINESS )

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

)

Petitioner, )

)

vs. ) Case No. 85-0011

)

JORN F. AND CRERE KULLER, ) d/ b/a BAHIA EAST CONDOMINIUM, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the above matter was heard before the Division of Administrative Hearings by its duly designated Hearing Officer, Donald R. Alexander, on March 6, 1986 in Fort Walton Beach, Florida.

APPEARANCES

For Petitioner: Robin H. Conner, Esquire

725 South Bronough Street Tallahassee, Florida 32301

For Respondents: John F. and Chere Kuller, pro se

1288 Marler Drive

Fort Walton Beach, Florida 32548 BACKGROUND

By notice to show cause dated October 22, 1985, petitioner, Department of Business Regulation, Division of Land Sales, Condominiums and Mobile Homes, has charged that respondents, John

F. and Chere Ruller, d/b/a Bahia East Condominium, had violated various provisions within Chapter 718, Florida Statutes (1985).1

Generally, petitioner has alleged that respondents (a) violated Subsection 718.115(2), Florida Statutes (1985J, by failing to pay monthly assessments on developer owned units for the years 1980 through 1983 (Count I), (b) violated Subsection 718.112(2)(f), Florida Statutes (1985), by failing to submit

reserves annually and failing to fund required reserves (Count II), and (c) violated Subsection 718.111(13), Florida Statutes (1985), by failing to provide unit owners with an annual financial statement for the years 1980 through 1983.

Respondents disputed the above allegations and requested a formal hearing pursuant to Subsection 120.57(1), Florida Statutes (1985), for the purpose of "prov(ing) once and for all, that these allegations are false." The matter was referred to the Division of Administrative Hearings by petitioner on December 28, 1984, with a request that a hearing officer be assigned to conduct a formal hearing. By notice of hearing dated February 6, 1985, the final hearing was scheduled for February 21, 1985, in Fort Walton Beach, Florida. At the request of petitioner, the matter was rescheduled to April 10, 1985, and was again rescheduled at petitioner's request to March 6, 1986, at the same location.

At final hearing, petitioner presented the testimony of John

F. Kuller, William C. Naftel, Max C. Bolton, Jr. and Eric Larsen and offered petitioner's exhibits 1 and 2. Both were received in evidence. Respondent John F. Kuller testified on his own behalf.

At the close of final hearing petitioner agreed to review certain records of respondents in an effort to amicably resolve this matter. The parties were given thirty days in which to reach an accommodation. When none was attained, a transcript of hearing was ordered and received by the undersigned on May 1, 1986.

In accordance with the undersigned's order of March 10, 1986, proposed findings of fact and conclusions of law were due fifteen days after the transcript of hearing was filed. The same were filed by petitioner on May 16, 1986. A ruling on each proposed finding of fact has been made in the Appendix attached to this Recommended Order.

At issue herein is whether respondents should be disciplined for the alleged violations set forth in the notice to show cause. Based upon all of the evidence, the following findings of fact are determined:

FINDINGS OF FACT

1. Background

   
   

   1. Respondents, John F. and Chere Kuller, were minority partners in a limited partnership which developed and constructed a seventeen unit condominium project known as Bahia East Condominium (project).2 Thee precise location of the project was

      not disclosed, but it is in the Fort Walton Beach area. Respondents, as developers, are subject to the regulatory requirements of petitioner, Department of Business Regulation, Division of Florida Land Sales, Condominiums and Mobile Homes (Division).

      
      

   2. The project was completed in 1979, and its declaration was filed on September 28, 1979. Units immediately went on sale. Financing for these units we" arranged with a Pensacola lending institution, and based upon that institution's commitment, contracts for the sale of all seventeen units were executed by prospective buyers. When the institution experienced financial problems and could not honor its commitment, none of the buyers purchased units. Because of this, the first sale did not occur until October 4, 1980.

      
      

   3. A developer is required to adhere to a number of Division requirements, including the payment of monthly assess meets on developer-owned units, funding a repair reserve, and furnishing annual financial statements to all unit owners. This proceeding stems from a complaint filed by certain unit owners after the developers relinquished control of the project to the homeowners' association on May 11, 1984. Prior to that time, respondents controlled the board of directors of said association, and were responsible for the keeping of its books and records.

2. Count I - Monthly Assessments

   
   

   1. As a general rule, a developer is not liable for the payment of monthly assessments on all unsold units until the first calendar date of the fourth month following the sale of the first unit. This ninety day grace period is commonly referred to as the election period. However, the developer may be excused from future payments if the developer guarantees to each purchaser that the monthly assessment will not increase, for a certain period of time, and obligates himself during this period of time to pay all common expenses incurred above the amount of assessments received from unit owners. In the case at bar, there was no written or oral guarantee by respondents to freeze the monthly assessments. This was confirmed through testimony of a unit owner, and evidenced by a monthly assessment increase that took effect in March, 1984, or prior to the turnover date.

      
      

   2. Between October, 1980 and March, 1984, the cost of the monthly assessment varied with the size of the unit, and ranged from $27.50 for the smallest unit, to $55.00 for a two bedroom, one bath unit, to $82.50 for the largest unit. Since no guarantee was made, respondents were obligated to begin paying assessments on their unsold units in February, 1981. However,

      they failed to do so. Instead, they calculated their other expenses in maintaining the project, and credited the amount of monthly assessments owed against these other expenses. Since other expenses always exceeded the amount of assessments owed, no funds were ever specifically earmarked into the monthly assessment account. Had such assessments been paid from February, 1981 through May 11, 1984, which is the turnover date, respondents' obligation would have been $15,948.64. This amount was derived from records given by respondents to the association at turnover and was not credibly contradicted.

3. Count II - Reserves

   
   

   1. The complaint charges that respondents "failed to submit reserves annually nor fund reserves as required." According to Division requirements, a developer is required to establish and fund a reserve to cover future repairs from the date of declaration until the end of the election period. These funds are then turned over to the association. Beginning after the election period, a developer is required to establish and fund a reserve account in an amount prescribed by the project's declaration. In this case, the project's recorded declaration provided that the reserve had to equal 10% of the total annual monthly assessments paid by unit owners. Therefore, respondents were required to establish a reserve no later than February, 1981, and to fund it by setting aside 10% of the total monthly assessments. Such an account was timely established by respon- dents at a Pensacola bank in January, 1981 in the amount of $480. This amount was spent within three or four months on repairs to an air-conditioner generator and the purchase of reserved parking signs. No additional funds were placed in the reserve account after January, 1981. Each year a projected annual budget was prepared by the developers which included an amount for the reserve, but no funds were ever actually set aside for that purpose. Although this requirement can be waived by vote of the association, respondents conceded that the funding requirement was never waived. Respondents justified their course of action on the theory the association account into which the assessments were placed was running a deficit, and the developers had already guaranteed to cover all expenses. However, this procedure is not sanctioned by statute or rule. According to uncontradicted testimony, had appropriate reserves been funded as required, respondents would have funded $4,770.56 from February, 1981 until the turnover.

4. Count III - Annual Financial Statements

   
   

   1. The final count involves an allegation that respondents "failed to furnish unit owners with an annual financial statement for the years 1980, 1981, 1982 and 1983." According to Division

      requirements, all non-developer unit owners must be furnished a copy of the project's "annual financial statement" each year.

      This document must be prepared and distributed by mail or personal delivery. Respondents claimed that this was done. However, petitioner presented the testimony of two unit owners for the purpose of showing that such statements were not distributed as required. One unit owner, William C. Naftel, received the 1982 statement, but could not recall one way or the other whether he received statements in the years 1981, 1983 and 1984. A second unit owner, Max C. Bolton, Jr., testified he "may have" received such a statement in 1982, but did not receive one for the years 1980, 1981 and 1983.

5. Mitigation

1. This project was respondents' first and only development venture in Florida. Respondents' lack of compliance with Division requirements did not appear to the undersigned to be intentional. Rather, it stemmed from a combination of poor outside advice and a failure on their part to make diligent inquiry as to what precise obligations the statutes and Division rules imposed upon them from an accounting and legal standpoint. At hearing, respondents claimed they have lost a considerable amount of money on the project, which amount far outweighs any claims advanced by the agency.

   CONCLUSIONS OF LAW

   
   

2. The Division of Administrative Hearings has jurisdiction of the subject matter and the parties thereto pursuant to Subsection 120.57(1), Florida Statutes (1985).

10 At final hearing respondents made an ore tenus request to dismiss the charges for the following reason. They attended a hearing in this matter previously set for April 10, 1985, and because no one appeared at the hearing, they are entitled to a "default" against the agency. But that hearing was cancelled by order dated April 9, 1985, based upon a stipulated request of both parties for a continuance. Therefore, because there was no scheduled hearing for the parties to attend, no "default" could occur.

1. Respondents are charged with violating Chapter 718, Florida Statutes, in three respects. Although the alleged violations occurred in 1984, and earlier years, reference to current statutory provisions is appropriate since the statutes in effect at that time are identical to existing statutes, or have been substantially reenacted by the Legislature into their present form. Therefore, reference to the 1985 laws is appropriate.

2. A. Count I - It is first alleged respondents failed to pay a monthly assessment on developer owned units for the years 1980, 1981, 1982 and 1983 as required by Subsection 718.115(2), Florida Statutes (1985). That subsection reads as follows:

   
   

   (2) Funds for the payment of common expenses shall be collected by assessments against unit owners in the proportions or percentages provided in the declaration. In a residential condominium, unit owners' shares of common expenses shall be in the same proportions as their ownership interest in the common elements.

   
   

   The above law makes no distinction between developer owned units and non-developer owned units. Therefore, it is concluded that "funds for the payment of common expenses" must be collected in the same manner from both types of owners.

   
   

3. Subsection 718.116(8)(a)2., Florida Statutes (1985) excuses a developer from payment of monthly assessments if he guarantees no increase in monthly assessments for a certain period of time, and to pay all common expenses not covered by unit owner assessments. The evidence reveals that no such guarantee was made, and accordingly respondents should have begun paying such assessments on unsold units beginning in February, 1981. Although respondents contend their common expense obligation exceeded the amount of assessments they would have paid on unsold units, there is no statute or rule which authorized a waiver of payment under these circumstances.

   Because they failed to pay said assessments from February, 1981 until turnover, it is concluded that they have violated Subsection 718.115(2) for the years 1981 through 1983.

   
   

   1. Count II - Subsection 718.112(2)(k), Florida Statutes (1985), is a substantial reenactment of former Subsection 718.112(2)(f), Florida Statutes (1983). The 1985 law provides in relevant part as follows:

      
      

      (f) Annual budget.

      
      

      1. 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).

      2. In addition to annual operating expenses, the budget shall include reserve accounts for capital expenditures and deferred maintenance. These accounts shall include, but are not 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 does not apply . . . to budgets in which the members of the 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 or reserves less than adequate than required by this section. (Emphasis added)

      
      

      Respondents are charged with failing "to submit reserve annually (or to) fund reserves as required." They must do so absent a waiver of this requirement by the association. The evidence reveals that respondents proposed a budget each year in conformity with the above law that included reserve accounts for capital expenditures and deferred maintenance. However, except for January 1981, they failed to fund the reserve as required.

      There was no waiver of this requirement during any year in question. By failing to fund the required reserve, respondents have violated Subsection 718.112(2)(k), Florida Statutes (1985), from February, 1981 through the turnover date.

      
      

   2. Count III - Subsection 718.111(13), Florida Statutes (1985), provides that:

   
   

   Within 60 days following the end of the fiscal or calendar year or annually on such date as is otherwise provided in the by-laws 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.

   
   

   It is alleged that respondents "failed to furnish unit owners with an annual financial statement for the years 1980, 1981, 1982 and 1983." Testimony established that one unit owner did not receive such statements for the years 1980, 1981 and 1983.

   Respondents did not contradict this testimony with receipts or other credible evidence. Therefore, it is concluded that respondents have violated Subsection 718.111(3), Florida Statutes

   (1985), by failing to furnish a financial statement to one unit owner for the years 1980, 1981 and 1983.

   
   

4. Subsection 718.501(1) (d)4., Florida Statutes (1985), provides in part that:

   
   

   4. The division may impose a civil penalty against a developer or association, or its assignee or agent, 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.

   
   

   Through counsel Petitioner suggests an appropriate civil penalty to be $5,000. This is predicted upon a $2,000 fine each for Counts I and II, and a $1,000 fine for Count III. Since the respondents' acts were not intentional, a $2,500 penalty is more appropriate. This is based upon a $1,000 fine each for Counts I and II, and a $500 fine for Count III.

   
   

5. Petitioner also recommends in its proposed order that respondents repay the association, within 30 days, $9,538.35 which apparently represents the net liability of respondents to the association after being credited for all legitimate and documented unreimbursed expenses incurred by them on behalf of the project prior to turnover. But, the notice to show cause does not assert that the agency intended to seek an accounting of the amount owed by the developers to the association or to use this proceeding as a vehicle to obtain payment from the Kullers for any amounts allegedly owed to the association. In view of this, this relief is denied.

RECOMMENDATION

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

RECOMMENDED that respondents be found guilty of violating Subsections 718.115(2), 718.112(2)(k); and 718.111(13), Florida Statutes (1985), and that a $2,500 civil penalty be imposed; to be paid within thirty days from date of final order.

DONE and ORDERED this 3rd day of June, 1986, in Tallahassee, Florida.

DONALD R. ALEXANDER, Hearing Officer Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32301

Filed with the Clerk of the Division of Administrative Hearings this 3rd day of June, 1986.

ENDNOTES

1/ The notice to show cause also named Horace L. Cline as a respondent. However, Cline did not request a formal hearing and accordingly is not a party in this proceeding.

2/ The majority owner and general partner is Horace L. Cline, who was also named as a respondent. However, he waived his right to a hearing. See footnote 1, supra.

3/ Respondents are charged only with failing to pay said assessments for the years 1980 through 1983. Since none were due in 1980, no violation for that year could have occurred.

Likewise, the year 1984 was not included in the notice, and any omission in that year is therefore irrelevant.

COPIES FURNISHED:

Robin H. Conner, Esquire 725 S. Bronough St.

Tallahassee, FL 32301

John F. and Chere Kuller 1288 Marler Drive

Ft. Walton Beach, FL 32548

Mr. E. James Kearney, Director Division of Florida Land Sales, Condominiums and Mobile Homes 725 S. Bronough Street Tallahassee, FL 32301

Mr. Horace L. Cline Cave Springs, GA 30124

APPENDIX*

Petitioner:

A.1. Covered in finding of fact 3.

2. .Covered in finding of fact 1.

B.1. Covered in finding of fact 2.

1. Covered in finding of fact 5.

2. Covered in finding of fact 6.

3. Covered in finding of fact 3.

4. Covered in finding of fact 3.

5. Covered in finding of fact 5.

6. Rejected as being irrelevant to the issues.

7. Covered in finding of fact 6.

8. Covered in finding of fact 4.

9. Rejected as being irrelevant to the issues.

10. Rejected as being irrelevant to the issues.

11. Covered in finding of fact 6.

12. Covered in finding of fact 6.

13. Rejected as being irrelevant to the issues.

14. Covered in finding of fact 5.

15. Covered in finding of fact 5.

16. Rejected as being unnecessary.

17. Covered in finding of fact 5.

18. Covered in finding of fact 8.

19. Rejected as being irrelevant to the issues.

20. Rejected as being irrelevant to the issues.

21. Rejected as being irrelevant to the issues.

22. Covered in finding of fact 7.

23. Covered in finding of fact 7.

24. Covered in finding of fact 7.

25. Rejected as being irrelevant to the issues.

26. Covered in finding of fact 6.

27. Rejected as being irrelevant to the issues.

28. Rejected as being irrelevant to the issues.

29. Covered in finding of fact 6.

*Respondents did not submit proposed findings of fact and conclusions of law.

Docket for Case No: 85-000011

Orders for Case No: 85-000011