Rembaum's Association Roundup
During this past session of the Florida legislature, new laws in regard to condominium association director and officer conflict of interest became effective July 1, 2017. These new laws are set out sections 718.302 and 718.112(2)(p), Florida Statutes, and when read together create quite a conflict themselves. As you soon discover there is a significant distinction between a contract for services versus a contract for goods. On the one hand, one provision prohibits the association from contracting with a director, officer, their relatives, or their company for services and, on the other hand, the other provision seems to allow a contract with a director, officer, their relatives, or their company with the proper disclosure to, and the approval of, the association’s board of directors.
More specifically, section 718.112(2)(p), Florida Statutes, provides that:
“Service providers; conflicts of interest.— An association, which is not a timeshare condominium association, may not employ or contract with any service provider that is owned or operated by a board member or with any person who has a financial relationship with a board member or officer, or a relative within the third degree of consanguinity by blood or marriage of a board member or officer. This paragraph does not apply to a service provider in which a board member or officer, or a relative within the third degree of consanguinity by blood or marriage of a board member or officer, owns less than 1 percent of the equity shares.”
On the other hand, section 718.3027, Florida Statutes, provides that:
“Conflicts of interest.—
(1) Directors and officers of a board of an association that is not a timeshare condominium association, and the relatives of such directors and officers, must disclose to the board any activity that may reasonably be construed to be a conflict of interest. A rebuttable presumption of a conflict of interest exists if any of the following occurs without prior notice, as required in subsection (4):
(a) A director or an officer, or a relative of a director or an officer, enters into a contract for goods or services with the association.
(b) A director or an officer, or a relative of a director or an officer, holds an interest in a corporation, limited liability corporation, partnership, limited liability partnership, or other business entity that conducts business with the association or proposes to enter into a contract or other transaction with the association.
(2) If a director or an officer, or a relative of a director or an officer, proposes to engage in an activity that is a conflict of interest, as described in subsection (1), the proposed activity must be listed on, and all contracts and transactional documents related to the proposed activity must be attached to, the meeting agenda. If the board votes against the proposed activity, the director or officer, or the relative of the director or officer, must notify the board in writing of his or her intention not to pursue the proposed activity or to withdraw from office. If the board finds that an officer or a director has violated this subsection, the officer or director shall be deemed removed from office. The vacancy shall be filled according to general law.
(3) A director or an officer, or a relative of a director or an officer, who is a party to, or has an interest in, an activity that is a possible conflict of interest, as described in subsection (1), may attend the meeting at which the activity is considered by the board and is authorized to make a presentation to the board regarding the activity. After the presentation, the director or officer, or the relative of the director or officer, must leave the meeting during the discussion of, and the vote on, the activity. A director or an officer who is a party to, or has an interest in, the activity must recuse himself or herself from the vote.
(4) A contract entered into between a director or an officer, or a relative of a director or an officer, and the association, which is not a timeshare condominium association, that has not been properly disclosed as a conflict of interest or potential conflict of interest as required by s. 718.111(12)(g) is voidable and terminates upon the filing of a written notice terminating the contract with the board of directors which contains the consent of at least 20 percent of the voting interests of the association.
(5) As used in this section, the term ‘relative’ means a relative within the third degree of consanguinity by blood or marriage.”
Based upon the language as set out in section 718.3027, Florida Statutes, it appears that the condominium association may contract with a service provider where a conflict of interest exists if (i) the conflict is disclosed to the board; (ii) the proposed activity is listed on, and all contracts and transactional documents related to the proposed activity are attached to, the agenda of the board meeting at which the proposed activity is considered by the board; (iii) the interested party leaves the meeting during the discussion of, and the vote on, the activity and recuses himself/herself from the vote on the contract.
Some additional clarity is clearly needed to help navigate the situation. As related to contracts for goods section 718.3027, Florida Statutes, is applicable because no conflict is created in the statutes for these types of contracts. But there is a conflict in the statutes as to contracts for services. On the one hand, section 718.112(2)(p), Florida Statutes, provides that the association cannot engage a director, officer, or their relatives for the provision of services to the association. On the other hand, section 718.3027, Florida Statutes, tells us that the association can do so, so long as certain requirements are met. So, which statute should be followed?
Given that these statutes are new to Chapter 718, these provisions have not been analyzed by the courts. Therefore, there is no judicial guidance as to the application of these provisions. With that in mind, application of existing rules of statutory interpretation apply. As to existing contracts, there exists both United States and State of Florida Constitutional protections against government impairment in existing contracts. In addition, neither statute provides for retroactive application. Therefore, unless and until a court provides to the contrary, any contract in existence prior to the effective date of the new legislation that fails to adhere these new laws remains in full force and effect.
As to new contracts, meaning post July 1, 2017, a prudent condominium board would not enter into a new contract for services with an interested director or officer. Alternatively, the board member could resign. However, the board may also roll the dice and contract with the interested director or officer by following the requirements of section 718.3027, Florida Statutes. Only time will tell if the dice game was worthwhile.
If your condominium association is grappling with these issues, then consulting with the association’s lawyer is strongly recommended.
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. Mr. Rembaum is a Certified Specialist in Condominium and Planned Development Law. He is the creator of ‘Rembaum’s Association Roundup’, an e-magazine devoted to the education of community association board members, managers, developers and anyone involved with Florida’s community associations. His column appears monthly in the Florida Community Association Journal. Every year since 2012, Mr. Rembaum has been selected to the Florida Super Lawyers list and was also named Legal Elite by Florida Trends Magazine. He can be reached at 561-241-4462.
