How Florida’s New Nonprofit Laws Will Affect Community Associations

The firm’s latest Miami Herald “Real Estate Counselor” column was authored by shareholder Evonne Andris.  The article, which is titled “How Florida’s New Nonprofit Laws Will Affect Community Associations,” focuses on the significant changes to the Florida Nonprofit Corporation Act under House Bill 797 and their expected impact on community associations. It reads:

. . . The nonprofit corporate governance reforms under the new laws will have a major impact on many Florida community associations, which are organized as nonprofit corporations. Most significantly, the new laws expressly require officers to act in good faith, with reasonable care and in the best interests of the organization.

In addition to reinforcing the fiduciary standards that are already in place for community associations, this will help to establish stronger grounds for claims involving unilateral acts by directors, inadequate reserve planning, inconsistent rules enforcement, or failures in management oversight.

The changes also include clearer statutory procedures for the judicial removal of directors. For associations, unit owners will know what to expect in actions seeking to remove a director, and courts could become more involved in governance disputes involving dysfunctional boards, developer transitions, or allegations of financial mismanagement.

The new legislation’s expansion of corporate powers allowing nonprofits to impose fines or penalties if authorized by their governing documents and establish payment terms will also benefit associations. It will provide stronger statutory support for enforcement and collections practices, but some communities may need to revisit their governing documents to determine whether their current provisions are broad enough to take advantage of the new authority.

The amendments also provide for members to have equal rights and obligations unless the governing documents state otherwise. That language could have important implications for associations with weighted voting, multiple membership classes, special developer rights, or mixed-use structures involving residential and commercial interests. Communities with more complex governance arrangements may need legal review to ensure their governing documents are in compliance.

Rules relating to meetings, notices, proxy voting, remote participation, board composition, and election procedures have also been addressed in response to the growing use of virtual meetings and electronic processes. Again, amendments to association governing documents may be required to avoid any incompatibilities.

Liability protections for officers and directors were also expanded. Given the reluctance for some owners to volunteer to serve on boards due to perceived legal liabilities, the reduced exposure and increased protections should help many communities that are struggling to fill their board seats. Because most associations already have indemnification provisions in their governing documents, they may wish to review their articles in light of these changes to consider whether any amendments to bolster protections are warranted.

Additional procedural and administrative changes to filing requirements, terminology and other matters may also impact associations in meaningful ways. Those that may be considering a merger, or those involved in consolidation or more complex ownership and governance arrangements should take note of these changes and seek the guidance of qualified counsel.

The impact of HB 797 on associations is likely to be foundational, as the changes will influence governance disputes, fiduciary duty claims, enforcement practices, limitations of liability, elections, and board decision-making. Upon it taking effect on July 1 if signed into law, boards of directors and property managers should carefully review their governing documents and consult their legal counsel to identify impacted provisions.

They should determine whether any immediate amendments are necessary or if they will be able to achieve compliance through straightforward process and policy updates. Also worthwhile for many communities will be updating fiduciary duty training for board members, reviewing enforcement authority and fining procedures, evaluating indemnification provisions, and preparing for the possibility of increased owner challenges or litigation. . .

Evonne concludes her article by noting that these changes reflect a broader Florida legislative trend for greater emphasis on accountability and transparency for associations. She writes that the state’s lawmakers are continuing to consider them as sophisticated governance entities that require clearer standards and stronger oversight.

Our firm salutes Evonne for sharing her insights into the expected impact of this new legislation on community associations with the readers of the Miami Herald.  Click here to read the complete article in the newspaper’s website.

Our South Florida community association attorneys write about important matters for associations and other property owners in this blog and our Miami Herald column, which appears every two weeks on Sundays, and we encourage association directors, members and property managers as well as all property owners to click here and subscribe to our newsletter to receive our future articles.