STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

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

)

Petitioner, )

)

vs. ) CASE NO. 86-0565

)

EDGEWATER CONDOMINIUM )

ASSOCIATION, INC., )

)

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 June 9, 1986 in Font Lauderdale, Florida.

APPEARANCES

For Petitioner: Thomas L. Barnhart, Esquire

725 South Bronough Street Tallahassee, Florida 32301-1927

For Respondent: Bradford J. Beilly, Esquire

Post Office Box 650 Hollywood, Florida 33022

BACKGROUND

By order to show cause dated December 13, 1985, petitioner, Department of Business Regulation, Division of Land Sales, Condominiums and Mobile Homes, has charged that respondent, Edgewater Condominium Association, Inc., had violated various provisions within Chapter 718, Florida Statutes (1985).

In a two count complaint, petitioner has alleged that respondent (a) levied assessments against unit owners for the payment of common expenses in a manner contrary to the proportions or percentages of sharing common expenses provided in the Declaration, and levied a uniform special assessment of $350 per unit for a roof replacement in violation of Subsection 718.115(2), Florida Statutes (1985), (Count I), and (b) held an annual meeting to elect the board of directors by using a ballot whereby persons not in attendance or represented by proxy were allowed to vote for board members in violation of Subsections 718.112(2)(b)1. and 718.112(2)(d)3., Florida Statutes (1985), (Count II).

Respondent disputed both charges and requested a formal hearing pursuant to Section 120.57(1), Florida Statutes (1985). The matter was referred by petitioner to the Division of Administrative Hearings on February 19, 1986, with a request that a hearing officer be assigned to conduct a formal hearing. By

notice of hearing dated March 17, 1986, the final hearing was scheduled for April 26, 1986, in Fort Lauderdale, Florida. Upon motion of respondent, the matter was rescheduled to June 9, 1986 at the same location.

At final hearing, petitioner presented the testimony of Nell Mazotti, Michael Linder and Louis Liebow. It also offered petitioner's exhibits 1-10. All were received in evidence. Respondent offered exhibits 1-4. All were received in evidence.

There is no transcript of hearing. Proposed findings of fact and conclusions of law were filed by petitioner and respondent on June 24 and July 1, 1986, respectively. A ruling on each proposed finding of fact has been made in tide Appendix attached to this Recommended Order.

At issue is whether respondent 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. Respondent, Edgewater Condominium Association, Inc., is a nonprofit corporation and association of unit owners of Edgewater Beach Towers, a condominium project with sixty residential units located at 420 North Surf Road, Hollywood, Florida. It is 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 initially constructed as a sixty five unit project. During the construction phrase, the original developer, K.S.L. Building Corporation, was unable to financially complete the project, and the project went into receivership under the auspices of the primary lender, Home Federal Savings and Loan Association of Florida. Eventually the project was completed and its declaration was filed on January 15, 1971. The respondent took over the active operation of the project that same date.

      
      

   3. An association such as respondent is subject to various Division requirements, including those relating to the levying of monthly assessments on unit owners for common expenses, and the adherence to certain association election procedures. This case stems from a complaint filed with petitioner by an attorney who represented certain unit owners. The complaint related to the manner in which respondent levied both monthly and special assessments over the years, and respondent's use of write-in ballots at annual meetings. This complaint precipitated the instant proceeding.

      
      

2. Count I

   
   

   1. Under Division requirements, an association must levy all monthly and special assessments against unit owners in the proportions or percentages

      provided in the declaration. In this case, the association's declaration identifies five different classes of units, the number of each, and their percentage of ownership in the common elements. They are as follows:

      Type of Unit Percentage No. of Units one bedroom, one bath .01204453 1

      one bedroom, one and

      one half bath .01475458 38

      two bedroom, two bath .01927130 21

      two bedroom, two bath

      deluxe .02205365 1

      recreational units

      and areas .00013262 4

      
      

   2. Paragraph 6 of the declaration specifically provides that the four recreational units "shall not contribute to the common expenses" of the association. This is also confirmed in paragraph 15(a) of the same document. Moreover, at the time the association took control of the project in January 1971, the association was required by order of the circuit court to purchase these four units for $236,000 in order to pay off subcontractor bills still owed at that time. Since their purchase, these units have remained common elements, and therefore no assessments could be properly levied on them.

      
      

   3. Unit 303 is the one bedroom, one bath unit referred to in the declaration, and has served as the manager's unit since the receiver relinquished control to the association in 1971. It, too, is characterized as a common element and is exempt from assessment requirements.

      
      

   4. The original floor plan of the twelfth floor of the structure reflects five penthouse (PH) units, of which unit PH 2/3 is the two bedroom, two bath deluxe unit referred to in the declaration. Uncontradicted testimony established that approximately one-half of that unit's floor space has been dedicated to common use and has served as the swimming pool equipment room. Consequently, the remaining portion of the unit has been properly classified as a one bedroom, one and one-half bath unit for assessment purposes. However, the declaration has never been amended to reflect this change.

      
      

   5. After taking into account the above changes, there are now and have been since 1971 only two classes of units in the project: one bedroom, one and one-half baths, and two bedroom, two baths. They number 39 and 21 units, respectively.

      
      

   6. Since its inception, the association established monthly assessments for only the above two classes of units. The monthly assessments are set forth on respondent's exhibit 1 received in evidence and reflect increases in April 1972, April 1976, October 1980, October 1984, September 1985 and May 1986. In all cases, the two bedroom, two bath monthly assessment has exceeded the smaller unit assessment by at least $10 per month, and most recently the spread increased to $16 per month. However, the assessments have not been calculated using the precise square footage of the units as dictated by the declaration. More specifically, section 15(a) of the declaration provides that "each unit owner . . . shall be liable for a proportionate share of the common expenses." This provision has not been strictly followed. Although the association amended its bylaws in February 1984 to eliminate the word "proportionately" and substitute the word "equally" when referring to future maintenance and special assessment fees, no such change was made to the declaration, and the latter

      document remains controlling. Through its president, respondent asserts it has, in good faith, previously charged the foregoing assessments due to financial and budgetary problems caused by the original developer being forced into receivership. However, she represented that all future assessments will be strictly assessed in accordance with the declaration.

      
      

   7. The notice to show cause alleges, and respondent concedes, that on April 13, 1985, respondent imposed a one-time special assessment of $350 on all unit owners, regardless of the size of the unit, for common element roof repairs made in April 1985. This assessment was calculated in a manner consistent with the way in which all other special assessments have been calculated in the past. According to testimony, the board of directors derived this amount by dividing the roofing contractor's bill of $21,680 by sixty units to arrive at a special assessment of $350 per unit. 1/ This was contrary to the declaration which required that such an assessment be based upon each unit owner's "percentages in the common elements," as well as section 3 of Article VII of the by-laws which states that "special assessments . . . shall be levied and paid in the same manner as hereinabove provided for regular assessments."

      
      

   8. The association opposes any requirement that it retroactively recalculate any assessment on the ground it is now impractical to do so since ownership of units may have changed hands. It also points out that it is willing to strictly adhere to all declaration requirements in the future.

      
      

3. Count II

1. It has been the practice of the association since 1972 to allow persons absent from annual meetings to participate by write-in vote without going through the formality of preparing a written proxy. This practice was confirmed through testimony of a unit owner who had cast a write-in vote on behalf of another unit owner at the 1985 annual meeting. Section 6 of Article V of the association's bylaws requires that voting to transact business matters at meetings shall be done "in person" or "by written proxy." This is also confirmed in Section 2 of Article IV. There is no provision for "write-in" votes in either the bylaws or the declaration. Therefore, this practice was contrary to section 8(d) of respondent's declaration, which provides that "the administration of the condominium shall be in accordance with the bylaws." Respondent has agreed to strictly adhere to this requirement in the future.

   
   

   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).

   
   

3. Respondent is first charged in Count I with violating Subsection 718.115(2), Florida Statutes (1985), in two respects. 2/ That section provides 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 residen- tial condominium, unit owners' shares of common expenses shall be in the same propor- tions as their ownership interest in the common elements.

   It is alleged that respondent "levied assessments against unit owners for the payment of common expenses in a manner contrary to the proportions or percentages of sharing common expenses provided in the Declaration; specifically, the Declaration provides for four (4) different percentages for sharing common expenses; however, maintenance assessments are paid according to two different percentages." It is also alleged that "on April 13, 1985, the board of directors levied a uniform special assessment of $350 per unit for roof replacement, in violation" of the foregoing statute.

   
   

4. Through documentation, oral testimony and stipulation of counsel, it has been established by clear and convincing evidence that respondent levied regular assessments from December 1971 until the issuance of the notice to show cause in contravention of the declaration. Although it was appropriate to levy such assessments on only two classes, such assessments were not shown to be calculated and levied "in the same proportions as (the unit owners') ownership in the common elements." Subsection 718.112(5), F.S. (1985). Similarly, the uniform special assessment of $350 per unit levied in April 1985 was in violation of the same provision, for it should have been assessed in the same proportion as the owner's ownership in the common elements. Accordingly, the charges in Count I have been sustained.

   
   

5. The second count relates to the association's use of write-in votes at the annual meeting held on February 4, 1985, and a charge that this action violates Subsections 718.112(2)(b)1. and (2)(d)3., Florida Statutes (1985). Those subsections read as follows:

   
   

   (b)1. Unless otherwise provided in the by- laws, the percentage of voting rights re- quired to make decisions and to constitute a quorum shall be a majority of the voting interests, and decisions shall be made by owners of a majority of the voting interests represented at a meeting at which a quorum is present. Unit owners may vote by proxy.

   * * *

   (d)3. Any approval by unit owners called for by this chapter, or the applicable declara- tion or bylaws, including, but not limited to, the approval requirement in s.

   718.111(8), shall be made at a duly noticed meeting of unit owners and shall be subject to all requirements of this chapter or the applicable condominium documents relating to unit owner decision making, except that unit owners may take action by written agreement, without meetings, on matters for which action by written agreement without meetings is expressly allowed by the applicable bylaws or declaration or any statute which provides for such action.

   
   

   Of particular relevance is the authorization in subparagraph (2)(b)1. for unit owners to vote "by proxy," and the requirement in subparagraph (2)(d)3. that all votes by unit owners be "subject to all requirements of this chapter or the applicable condominium documents relating to unit owner decision making." Of

   equal significance is the lack of authorization in the law, declaration and bylaws for owners to use so-called write-in votes.

   
   

6. The evidence is clear and convincing that the foregoing statutes were violated by respondent at its annual meeting on February 4, 1985. Although respondent contends that Section 607.101, Florida Statutes (1985), legitimizes these actions because the write-in ballots were actual legal proxies, there was no proof that the write-in ballots were in conformity with that section. 3/ Moreover, even though some legitimate proxies may have been used, there is also evidence that some ballots were simply "write-in" ballots and differed from a formal proxy.

   
   

7. Through its proposed order petitioner suggests that an appropriate penalty is a $2,000 civil fine. It also seeks to have respondent recalculate all residential unit assessments from March 1, 1984, to date and make such further collections or refunds as may be required by this recalculation. 4/ This relief is requested under Subsection 718.501(1)(d)2., Florida Statutes

(1985), which authorizes the Division to "take such affirmative action as in the judgment of the division will carry out the purposes of this chapter." On the other hand, respondent urges that no penalty be imposed, since such a fine would be borne by all members of the association including those who prompted this proceeding. It also opposes any retroactive action relating to monthly assessments on the ground it is impractical and unnecessary. Given the nature of the violations, a $500 fine is appropriate. The association should also be directed to recalculate all monthly assessments beginning on and after May, 1986, which is the date on which the most recent change in assessments occurred, and to make such additional collections or refunds (credits) as may be necessary. By using the most recent date of assessment changes, the likelihood of having changes of ownership since that time is minimized. Finally, the association should be ordered to cease and desist from engaging in such unlawful activities in the future.

RECOMMENDATION

Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that respondent be found guilty of violating Subsection

718.115(2), Florida Statutes (1985), in two respects and Subsections 718.112(2)(b)1. and (2)(d)3., Florida Statutes (1985), in one respect as discussed in the Conclusions of Law Portion of this order. It is further recommended that a $500 civil fine be imposed, that in the future respondent cease and desist from such unlawful activities, and that it recalculate all monthly assessments on and after May, 1986, and make such additional collections or refunds (credits) as may be required.

DONE and ORDERED this 15th day of July 1986, in Tallahassee, Florida.

DONALD R. ALEXANDER

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 15th day of July 1986.

ENDNOTES

1/ If the $21,680 total bill is divided by 60, one arrives at the sum of

$360.33 per unit. The difference between this amount and the $350 amount actually assessed was not explained, but it is not deemed to be crucial to or necessary for a resolution of the issues.

2/ Because the 1985 statutes are identical to or substantial reenactments of earlier statutes in effect when the violations occurred, reference to the existing law has been made for both counts.

3/ Section 607.101 authorizes shareholders of corporations to vote by proxy at shareholder meetings, and provides general requirements relative to their preparation and use.

4/ Petitioner does not explain why the March 1, 1984, date was suggested, or why that date is more equitable or practical than others.

Petitioner:

APPENDIX TO RECOMMENDED ORDER IN CASE NO. 86-0565

1. Covered in finding of fact 1.

2. Covered in findings of fact 2 and 9.

3. Covered in finding of fact 9.

4. Covered in finding of fact 4.

5. Covered in finding of fact 10.

6. Covered in finding of fact 12.

7. Covered in finding of fact 12.

Respondent:

1. Covered in findings of fact 2 and 4.

2. Covered in findings of fact 5 and 8.

3. Covered in findings of fact 5, 6 and 7.

4. Covered in finding of fact 8.

5. Covered in finding of fact 9.

6. Covered in finding of fact 10.

7. Covered in finding of fact 9.

8. Covered in finding of fact 11.

9. Covered in findings of fact 9 and 11.

10. Covered in finding of fact 12.

11. Covered in finding of fact 11.

12. Rejected as being contrary to the greater weight of the evidence.

COPIES FURNISHED:

Thomas L. Barnhart, Esquire 725 South Bronough Street

Tallahassee, Florida 32301-1927

Bradford J. Beilly, Esquire

P. O. Box 650

Hollywood, Florida 33022

E. James 1earney, Director Division of Florida Land Sales

Condominiums, and Mobile Homes 725 South Bronough Street Tallahassee, Florida 32301-1927

Docket for Case No: 86-000565

Orders for Case No: 86-000565