The firm’s Michael L. Hyman authored an article that appeared as a “Board of Contributors” guest column in today’s edition of the Daily Business Review, South Florida’s exclusive business daily and official court newspaper. The article, which is titled “Association Deficits Don’t Excuse Developer From Funding HOA Reserves,” focuses on a recent decision by the Florida Fifth District Court of Appeal that found a developer was not excused from funding reserves while it remained in control of the association and was funding deficits in the operating expenses. Michael’s article reads:
For the developer of the Sullivan Ranch community in Mount Dora north of Orlando, it appears that its decision to stop funding reserves after it established the account and began funding it in 2007 has significantly backfired. The Fifth District Court of Appeal recently overturned a lower court’s summary judgment, which concluded that the developer was excused from funding reserves while it remained in control of the association and was funding deficits in its operating expenses.
The Fifth DCA’s decision in Sara R. Mackenzie and Ralph Mackenzie v. Centex Homes et al. illustrates the importance for developers of HOA communities to tread carefully whenever they attempt to avoid funding for association reserves. Condominium developers are provided with a statutory mechanism to avoid funding for reserves if they guarantee a set minimum level for the association’s entire annual budget during its first two years of existence, but the laws governing HOAs do not include this exemption.
Based on the circumstances in this case, it appears that the developer of the community was either unaware of its statutory requirements governing the funding of reserves or it failed to adequately think through its actions. After establishing the account for the association’s reserves and funding it in 2007, the developer opted to pay Sullivan Ranch’s operating expenses in lieu of making any contributions to the reserve account in the following years, claiming that it had made no guarantee to fund the reserves.