Judges: WILLIAM C. SHERRILL
Agency: Department of Business and Professional Regulation
Latest Update: Jul. 17, 1987
Summary: Respondent fined based on its failure to follow good accounting procedures and delaying of the turnover review.
87-1227STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
DEPARTMENT OF BUSINESS REGULATION, ) DIVISION OF FLORIDA LAND SALES, ) CONDOMINIUMS AND MOBILE HOMES, )
)
Petitioner, )
)
vs. ) Case No. 87-1227
) RADCLIFFE CONDOMINIUMS, INC., ) d/b/a ORCHARDS OF RADCLIFFE, ) A CONDOMINIUM, )
)
Respondent. )
)
RECOMMENDED ORDER
The final hearing in this case was held on June 29, 1987, in New Port Richey, Florida. Appearing for the parties were:
For the Petitioner: Karl M. Scheuerman, Esquire
Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32399-1000
For the Respondent: Paul Haggar, President
Radcliffe Condominium, Inc. 7939 Radcliffe Circle
Port Richey, Florida 33568 Mr. Haggar is not an attorney.
The Petitioner presented testimony from Douglas S. Friend, Paul Haggar, and Eric R. Larsen, and four exhibits which were admitted into evidence. The Respondent presented testimony from Douglas S. Friend and Paul Haggar and one exhibit which was admitted into evidence, but was determined to be hearsay evidence. There is no transcript. The parties have filed proposed findings of fact and conclusions of law.
FINDINGS OF FACT
The incorporation of the condominium association of the Orchards of Radcliffe, a Condominium, (hereinafter "Radcliffe Condominium") occurred on October 19, 1981, and the declaration of condominium occurred on or about December 12, 1981. Interrogatory answers 7 and 9, P. Ex. 3.
The Developer of the Radcliffe Condominium, was the Respondent, Radcliffe Condominium, Inc., d/b/a Orchards of Radcliffe, a Condominium.
The Developer of the Radcliffe Condominium elected pursuant to section 718.116(8)(a)1, Fla. Stat. (1985), to be excused from the payment of its share
of the common expenses and obligated itself to pay that portion of the common expenses incurred during the election period which exceeded the amount assessed against other unit owners. Answer to interrogatory 2(a), P. Ex. 3. The Developer did not offer a guarantee of common expenses pursuant to section 718.116(8)(a)2, Fla. Stat. (1985).
The first closing of a condominium unit at Radcliffe Condominium occurred on January 6, 1982. Interrogatory answer 1, P. Ex. 3.
The turnover of control from the Developer to the condominium association occurred on January 22, 1986. P. Ex. 2.
The Developer of the Radcliffe Condominium did not make monthly payments on the common expenses incurred from about May, 1982, through January, 1986, on some of the units owned by the Developer. The Developer contends that by using funds from related corporations, it paid expenses of maintenance directly to suppliers and creditors as needed, and that in so doing, it paid more than what it had obligated itself to pay monthly for assessments for common expenses on Developer owned units. The Department contends that the Developer did not pay the monthly obligations for units owned, that the failure to make such payments was the cause of the association not having enough funds to pay expenses when due, and that the Developer now owes a substantial amount for back payments. The Developer did in fact pay some bills directly from funds from related corporations.
During the course of the final hearing, the Petitioner withdrew all issues that may have existed in this case concerning whether the Respondent owes any amount for past assessments, or the amount owed. As a result, the Respondent was not permitted to attempt to prove the amount of payments of expenses that were paid directly rather than as monthly unit assessments. Consequently, on this record, no finding of fact can be made as to the amount of direct payments, or whether the amount of such direct payments exceeded the amount of unit assessments owed by the Developer, but not paid.
Within sixty days after turnover, a Developer is required to provide the condominium association with a turnover review.
A turnover review is intended to provide the association with an accounting only for the period during which the Developer had control. A turnover review is intended to show whether the Developer fulfilled its stewardship responsibilities toward the condominium association. It is less formal than an audit, but more formal than a mere compilation.
The Developer provided the condominium association with the turnover review on or about November 28, 1986, eight months late. A substantial reason for the delay was that the Developer did not completely pay the Certified Public Accountant who was hired to do the review. Another substantial reason for the delay was the fact that the Developer did not keep good records of payments of association expenses, and failed to follow good accounting practices in making payments directly rather than through association accounts. See finding of fact 13.
The turnover review reviewed the balance sheet as of June 30, 1986, and the related statements of assessments, revenues, expenses and fund balance, and changes in cash position for the six months ended as of June 30, 1986. P. Ex. 1. The turnover review covered only the six months from January 1, 1986 to June 30, 1986. Thus, the turnover review failed to cover only the period of
time that the Developer had control and had stewardship responsibilities toward the condominium association.
The turnover review incorrectly assumed that the Developer had made a guarantee of common expenses pursuant to section 718.116(8)(a)2, Fla. Stat. (1985). The turnover review did not address the question whether the Developer paid its unit assessments of common expenses pursuant to section 718.116(8)(a)1, Fla. Stat. (1985) because of the erroneous assumption in the review that the Developer had made a guarantee of common expenses pursuant to section 718.116(8)(a)2, Fla. Stat. (1985).
Payment by the Developer of association expenses directly, rather than through association accounts, is contrary to good accounting practices.
Failure to pay assessments when due results in retention by the Developer of funds owed the association. Thus, the failure of the Developer to pay assessments when due resulted in a form of commingling of Developer and association accounts and funds. Payment of expenses owed by the association by the Developer's related corporations was another form of commingling of accounts and funds.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction of the parties and subject matter of this case.
Since the Developer in this case elected to be excused from paying its share of common expenses pursuant to section 718.116(8)(a)1, Fla. Stat. (1985), the Developer's obligation to begin making such payments began on 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 occurred. Since the first unit was closed on January 6, 1982, the Developer became obligated to make common expense payments for Developer owned units beginning on May 1, 1982, and continuing through January 22, 1986.
Although the Developer failed to make monthly common expense assessment payments for Developer owned units, the practical effect of this violation of section 718.116(8)(a)1, Fla. Stat. (1985), and the seriousness of this violation for penalty purposes, cannot be determined on this record because the amount of direct payments of expenses by the Developer cannot be determined due to the withdrawal of that issue by the Department. By withdrawal of this issue during the formal hearing, the Respondent was precluded from presenting evidence of direct payments that might have been in mitigation of a civil penalty.
Pursuant to section 718.301(4)(c), Fla. Stat. (1985), a turnover review must be provided by the Developer within no more than sixty days from the date that control is transferred to the condominium association. The turnover review must cover only the period from the inception of the condominium (incorporation of the condominium association) to the date of the turnover.
The turnover review provided in this case by the Developer, P. Ex. 1, was eight months late, failed to cover the proper period of time (October 19, 1981, through January 22, 1986), inappropriately mixed periods of time of Developer control and condominium association control, and was incorrect in its assumption that the Developer had made a guarantee of common expenses pursuant to section 718.116(8)(a)2, Fla. Stat. (1985). The turnover review did not
address the question whether the Developer paid its unit assessments of common expenses pursuant to section 718.116(8)(a)1, Fla. Stat. (1985) because of the erroneous assumption in the review that the Developer had made a guarantee of common expenses pursuant to section 718.116(8)(a)2, Fla. Stat. (1985). The turnover review thus violated section 718.301(4)(c), Fla. Stat. (1985) with respect to each of these matters.
The Respondent failed to maintain good accounting records of the condominium association in violation of section 718.111(7), Fla. Stat. (1981) and section 718.301(5), Fla. Stat. (1985).
Pursuant to section 718.501(1)(d), Fla. Stat. (1985) the Petitioner has authority to impose a civil penalty of no more than $5,000 against a Developer for any violation of Chapter 718, Fla. Stat. (1985), and may issue an order requiring the Developer to take such affirmative action as will carry out the purposes of Chapter 718.
Although it is clear that the Respondent failed to make payments upon Developer owned assessments for common expenses during the period from May, 1982, through January, 1986, no penalty should be assessed until the Respondent has furnished a proper turnover review and has been afforded an opportunity to show the amounts of direct payments it made with respect to those expenses that were common expenses. Moreover the Petitioner cannot determine in free form agency action what should be done concerning the payments question until a proper accounting has been made. The issue of assessment of a penalty, if any, should remain pending before the Petitioner initially as free form agency action, and may become the subject of a subsequent formal administrative hearing if requested by the Respondent.
The violations concerning failure to follow good accounting procedures, delay of the turnover review, and the impropriety of the turnover review have substantially frustrated the-ability of the Petitioner, as well as the condominium association, to know whether the Respondent has properly or substantially fulfilled its obligations regarding common expenses. A civil penalty of $1,000 is justified for the eight month delay in providing a turnover review, and for providing a turnover review that failed to cover the period of Developer control and failed to determine whether the Developer was charged and paid the proper amount of assessments. Since failure to maintain the accounting records of the condominium association according to good accounting practices is a major cause of the inadequacy of the turnover review, a civil penalty of
$3,000 is justified for failure to maintain the records of the association in accordance with good accounting practices.
The Respondent should be required by order of the Petitioner to provide the condominium association and the Petitioner with a turnover review that fully complies with all requirements of statute and rules governing turnover reviews. A sixty day period should be adequate to complete such a review, such period to run from the date of the final order entered by the Petitioner requiring such a review.
RECOMMENDATION
It is therefore recommended that the Department of Business Regulation, Division of Florida Land Sales, Condominiums, and Mobile Homes enter its final order assessing a civil penalty of $4,000 against Radcliffe Condominium, Inc., d/b/a Orchards of Radcliffe, a Condominium, and requiring Radcliffe Condominium, Inc., d/b/a Orchards of Radcliffe, a Condominium, within sixty (60) days of the
date of the final order to provide the condominium association with a turnover review that complies with the requirements of section 718.301(4)(c), Fla. Stat. (1985) and all other requirements of law governing turnover reviews.
DONE and ENTERED this 17th day of July, 1987
WILLIAM C. SHERRILL, JR.
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 17th day of July, 1987.
APPENDIX TO RECOMMENDED ORDER, CASE NO. 87-1227
The following are rulings upon findings of fact proposed by the parties, using the numbers or designations used by each party, which have been rejected in this Recommended Order:
Findings of fact proposed by the Petitioner:
1. The second sentence has been adopted as a conclusion of law.
Rejected for the reasons stated in finding of fact 7. A conclusion as to whether "enough" money would have been available in association accounts cannot be made since a full accounting of all payments and expenses has not been made or placed in evidence.
The second sentence has been adopted as a conclusion of law.
9. Most of this proposed finding of fact has been adopted as a conclusion of law.
Findings of fact proposed by the Respondent:
The testimony as to discussions with the Petitioner was not sufficiently precise in time for a conclusion to be drawn that either the Respondent was acting diligently toward obtaining the turnover review, or that the Petitioner had consented to the delay.
As a matter of law, the responsibility for the turnover review is upon the Developer, and is not the responsibility of the association's agent. Section 718.301(4)(c), Fla. Stat. (1985). The second paragraph does not establish a defense since the Developer had the responsibility to maintain good records.
The commingling occurred by the retention of funds due the association and the payment of association expenses from accounts not associated with the expenses.
COPIES FURNISHED:
Richard Coats, Director Department of Business Regulation Florida Land Sales, Condominiums
and Mobile Homes The Johns Building
725 South Bronough Street Tallahassee, Florida 32399-1000
James Kearney, Secretary Department of Business Regulation The Johns Building
725 South Bronough Street Tallahassee, Florida 32399-1000
Thomas A. Bell, Esquire Department of Business Regulation The Johns Building
725 South Bronough Street Tallahassee, Florida 32399-1000
Karl M. Scheuerman, Esquire Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32399-1000
Paul Haggar, President Radcliffe Condominium, Inc. 7939 Radcliffe Circle
Port Richey, Florida 33568
Docket for Case No: 87-001227
Orders for Case No: 87-001227
| Issue Date |
Document |
Summary |
|
Jul. 17, 1987 |
Recommended Order
|
Respondent fined based on its failure to follow good accounting procedures and delaying of the turnover review.
|
