Community association lawyers are often presented inquiries from their clients as to whether laws newly adopted by the Florida legislature apply to their governing documents, especially when the new law is contrary to their declaration’s existing provisions. A similar question was recently asked and answered by Florida’s Third District Court of Appeal in the case of The Tropicana Condominium Association, Inc. v. Tropical Condominium, LLC.
Before diving into the facts of the case, a brief explanation of the concepts mentioned by the Court is necessary. By way of summary, the “contracts clause” of the Florida Constitution establishes the general rule that the legislature is prohibited from enacting any law that impairs substantive rights of an existing contract. A declaration of covenants or declaration of condominium, as the case may be, is a contract, too. It is a contract between the members of the association and the association, itself. The declaration describes the contractual obligations of the members’ assessment and maintenance obligations and fully describes the association’s obligations to its members, too. Generally speaking, the laws in place at the time the declaration is recorded are essentially incorporated into the declaration as if they were initially drafted into it upon its creation. If a newly enacted or amended statute impairs a vested substantive right guaranteed by a declaration, the “contracts clause” operates to prevent it from being applied to the declaration. But, if the newly adopted law is of a procedural nature, then it more likely than not does apply.
Substantive laws are with regard to one’s rights and duties, and include, for example, in the condominium context, the configuration and size of a unit, the ownership share in the common expenses and common surplus, and the appurtenances to a unit. On the other hand, procedural laws are laws that dictate how such rights and duties are to be performed. A statute is procedural if it merely establishes how some right or obligation under the declaration is to be performed. For example, Chapter 720 of the Florida Statutes, more commonly referred to as the “Homeowners’ Association Act,” provides that, unless the bylaws of the association provide for a lesser percentage, the quorum requirement for a meeting of the members is 30%. Thus, if the HOA’s declaration requires 50% of the membership to establish a quorum, the quorum requirement is over-ruled by the statute and would be 30% (absent a court order holding otherwise).
While the “contracts clause” creates a general rule against new statutes impairing existing substantive rights as set out in a declaration, there are, of course, exceptions to the rule. In determining whether a statute may be applied to the declaration, the first determination must be whether the statute is procedural in nature or whether it creates, alters, or impairs substantive rights. Procedural statutes will apply to the declaration, whereas substantive statutes do not.
However, even if a statute is deemed substantive in nature, it may be still applied to a declaration if the statute in question contains language that clearly expresses the legislature’s intent that it is to apply retroactively or that the statute is remedial in nature and designed to clarify existing law. Of course, upon judicial challenge, the courts can hold that just because the legislature intended the new law to apply retroactively or be remedial that such application is unconstitutional or otherwise improper for one reason of another.
Another exception to the procedural/substantive argument is, what is often referred to as, “Kaufman” language. When “Kaufman” language is included in a declaration, the association never has to conduct the procedural/substantive analysis. An example of “Kaufman” language follows: “This Declaration is subject to Chapter 718, Florida Statutes, as it is amended from time to time.” The “Kaufman” language is the latter emphasized phrase. By inclusion of such language, all of the changes to the Florida Statutes, including changes to substantive rights, will apply to the declaration, without regard to whether the changes are beneficial or detrimental to the association.
With this general knowledge, we turn back to the facts of The Tropicana Condominium Association, Inc case. In this case, the declaration of condominium provided that the condominium could be terminated at any time by the written consent of all of the unit owners and all institutional mortgages holding mortgages on the units and that amendments to the termination process of the declaration of condominium required unanimous consent of the unit owners. The declaration of condominium was recorded in 1983 and it did not contain “Kaufman” language.
In 2007, the Florida legislature amended the termination provisions of Chapter 718 of the Florida Statutes, more commonly referred to as the “Condominium Act,” to provide that a condominium could be terminated upon the approval of 80% of the unit owners so long as not more than 10% of the unit owners oppose the termination.
The Tropicana Condominium Association made multiple attempts to amend the termination provisions of the declaration of condominium to reduce the threshold needed for termination. However, the amendments failed to receive the unanimous approval of the unit owners. Nevertheless, it appears as though the 2007 amendment to the Condominium Act, requiring the 80% approval to terminate was followed, in direct contravention to the terms for termination as set out in the declaration. Thereafter, the unit owners filed the lawsuit against their association for failing to obtain the unanimous approval of the unit owners.
On appeal, the condominium association argued that, notwithstanding the failure of the association to obtain the required approval for the amendment to the declaration of condominium, the 2007 amendment to the Condominium Act still applied because it provided that “[t]his section applies to all condominiums in this state in existence on or after July 1, 2007.” The Court, however, did not agree. It found that the retroactive application of the 2007 amendment to the Condominium Act “would eviscerate the Tropical’s owners’ contractually bestowed veto rights.”
In discussing the declaration of condominium’s termination provisions, the Court found that the declaration of condominium’s termination provisions created in each unit owner a vested right to veto a termination attempt with the intent of protecting the unit owners. Therefore, applying the 2007 amendment to the Condominium Act would “work a severe, permanent, and immediate change” to the unit owners’ protections against unwanted termination attempts. In other words, even though the termination process is procedural in that it describes how to terminate the condominium, the percentage of unit owner votes required to bring about the termination was considered to be a vested substantive right.
If nothing else, The Tropicana Condominium Association, Inc., case further demonstrates the lack of clarity that exists when making a determination as to the applicability of newly adopted laws when compared against the existing provisions of an association’s declaration, absent the inclusion of “Kaufman” language.
Jeffrey Rembaum, Esq. of Kaye, Bender, Rembaum attorneys at law, legal practice consists of representation of condominium, homeowner, commercial and mobile home park associations, as well as exclusive country club communities and the developers who build them. He is a regular columnist for The Condo News, a biweekly publication and was inducted into the 2012, 2013 & 2014 Florida Super Lawyers. He can be reached at 561-241-4462.