Condo advice: What's the best loan for condominium renovations?
Editor’s note: Attorneys at Goede, Adamczyk, DeBoest & Cross, PLLC, respond to questions about Florida community association law. The firm represents community associations throughout Florida and focuses on condominium and homeowner association law, real estate law, litigation, estate planning and business law.
Q: Our condominium board wants to renovate our lobby and amenities but the cost would require a loan. The owners are concerned about repayment options. Do you have any recommendations on how to borrow for this purpose?
C.B., Port St. Lucie
A: This is a frequent question and there are a few options. The first question is always whether the board is able to borrow in its discretion, or whether the owners must first vote to authorize the borrowing. It is important to note that the Condominium Act does not directly address this issue and that Chapter 617 governing all not-for-profit corporations provides that the board can borrow subject to limitations in the governing documents. In other words, you should first have your legal counsel review the governing documents to determine who must authorize borrowing. Because this fact can have a significant impact on how the renovation is pursued, you should address this first.
Next, if the loan is substantial, many lenders will require a dedicated special assessment to facilitate repayment of the loan. This makes sense because the lender will want a streamlined revenue source in the event of a default. Again, you should have your legal counsel provide an opinion on whether the board can levy a special assessment for this purpose and the minimum amount necessary in order to repay the loan. It is possible the board has the authority to borrow without a vote of the membership but nevertheless the documents may require a vote to levy a special assessment to repay the loan.
Finally, even if there is a dedicated special assessment, some lenders will further require a lien, mortgage or other encumbrance of personal property, land or bank accounts. If this is true, then again you should have your legal counsel provide an opinion on whether the board can encumber property with or without a vote of the membership. The ability to borrow, special assess and encumber are distinct rights that may have different approval requirements under your governing documents.
Assuming you are able to navigate the above threshold issues to pursue a commitment letter from the lender, Florida law authorizes multiple repayment options. In my experience, many owners abhor paying interest of any kind. To accommodate these owners, Florida law allows the association to provide owners with the option of 1) paying the special assessment in lump sum and avoid all costs associated with borrowing or b) paying over a period of time and paying the financing charges, origination fees, taxes and other charges associated with borrowing. You are not required to provide the option and some lenders will allow you to simply roll the repayments into the operating budget without a special assessment.
Q: We have a number of tenants in our condominium that do not take care of the property or amenities. Can we require a security deposit for damage to the gate, pool, clubhouse or other amenities?
M.M., Vero Beach
A: Possibly, yes. First, the statutes provide that the association may require a security deposit, but the authority must be in the declaration or the bylaws. If the documents do not expressly allow the deposit requirement, you may not require the deposit. Second, the deposit is capped at one month’s rent amount. Third, there are statutory requirements on how to hold the money and how to actually make a claim on the deposit when there is damage. As a result, I recommend you work with a Florida licensed attorney to adopt the appropriate procedures or amend your condominium documents if the documents are currently silent on this issue.
Steven J. Adamczyk Esq., is a shareholder of the law firm Goede, Adamczyk, DeBoest & Cross, PLLC. Visit our website www.gadclaw.com or to ask questions about your issues for future columns, send your inquiry to: question@gadclaw.com. The information provided herein is for informational purposes only and should not be construed as legal advice. The publication of this article does not create an attorney-client relationship between the reader and Goede, Adamczyk, DeBoest & Cross, or any of our attorneys. Readers should not act or refrain from acting based upon the information contained in this article without first contacting an attorney, if you have questions about any of the issues raised herein. The hiring of an attorney is a decision that should not be based solely on advertisement