Yesterday, the Fourth District Court of Appeal in Valencia Reserve H.O.A., Inc. v. Boynton Beach Associates XIX, LLC, Case No. 4D18-1320 (Fla. 4th DCA, August 28, 2019), addressed whether the Homeowners’ Association Act’s “fair and reasonable” limitation on developer agreement and the Act’s developer deficit funding guarantee requirements, prohibit the developer from utilizing a “working fund contribution” to pay the developer budget deficit guarantee.
In arriving at its holding, the court may have undermined the statutory “fair and reasonable” developer contracting requirement.
The Declaration of Covenants, Restrictions and Easements for the Valencia Reserve community required each lot purchaser from the developer to pay the Homeowners’ Association a “working fund contribution.” The Declaration stated that the payment which was not an advance of an Individual Lot Assessment, but stated that the payment could offset Operating Expenses during the Guarantee Period and thereafter.
The developer opted to deficit fund and to utilize purchaser working fund contributions to pay down the deficit.
Addressing the HOA Act’s “fair and reasonable” limitation on developer agreements in Section 720.309(1), Florida Statutes (2018), lot purchasers were on notice of the recorded declaration provisions, including the developer’s ability to apply working fund contributions to the deficit. The court held that by purchasing their property, the purchasers “expressly agreed to these terms.” Thus, the owners could not contest that the declaration provisions recorded before purchase were other than fair and reasonable in addition to their agreement.
The court continued, differentiating the limitation of use capital contribution in Sections 720.308(6) and 720.308(4)(b), Florida Statutes (2018). “Working fund contributions” were held not budgeted for “designated capital contributions.” The court buttresses its analysis apparently by reference to the declaration differentiation in terminology, “working fund” versus “capital contributions.” Working funds contributions were deemed by the declaration to be “regular periodic assessments” at least when determining funds available to offset the developer’s deficit funding, and treated as “the first regular periodic assessment due as an upfront lump sum payment.” Apparently a “capital contribution” is something else!
Courts frequently looked beyond labels to help ensure that public policy was fulfilled. Is the policy of requiring, in essence, a segregation of capital contributions, undermined by developer labeling? Perhaps we should expect the end of capital contribution funds in the homeowners’ context.
This decision may also prompt developers to change the label of capital contributions to “working fund” with an explanation of use buried in the declaration. Further, and perhaps more significant, will developers merely attach abusive contracts to the declaration if by simple attachment there is at least constructive notice and thus acceptance of the contract.
As someone once said, dump everything into the declaration! Buyers rarely read the declaration, and publication in the declaration provides the developer disclosure!!
Michael J. Gelfand
Real Property, Probate and Trust Law Section
of The Florida Bar
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Note: This article is not legal advice. Statements and comments made are not those of The Florida Bar or the RPPTL Section
© 2019 Michael J. Gelfand
Michael J. Gelfand
Florida Bar Board Certified Real Estate Attorney
Florida Supreme Court Certified Mediator:
Civil Circuit Court & Civil County Court
Fellow, American College of Real Estate Attorneys