On July 1, another Florida law took effect that focuses on condominium associations and the management companies that help operate the system. One focus of the new law is to control potential conflicts of interest with community management companies.
For instance, Susie Smith is the community manager for a condominium association and part of her compensation includes shares in her community association firm. One of the associations she manages needs a new insurance company and she recommends her husband’s company, Acme Insurance Company.
In most cases, Sally would disclose the conflict of interest at the onset. Sally would not be involved in the selection of the insurance company and the organization asked for competitive bids from multiple insurance companies.
In that case, it is the decision of the board to pick the best company for the job, regardless of the conflict. But, they made the decision fully aware of the conflict.
But under a new law, if Sally’s grandfather-in-law is a stockholder in Acme Insurance Company – and it is not disclosed to the association, the contract with the community association management company could be terminated instantly and without warning.
It’s a wide net for conflict of interests and one any association management company should take very seriously.
The attorneys at The Orlando Law Group represent more than 100 communities in Central Florida. If you live in Orlando, Winter Garden, Altamonte Springs, Kissimmee or anywhere throughout Central Florida, The Orlando Law Group is ready to help you.
What constitutes a conflict of interest?
It is pretty straightforward what the new law, HB 1021, says is a conflict of interest:
A community association manager or a community association management firm, including directors, officers, and persons with a financial interest in a community association management firm, or a relative of such persons, must disclose to the board of a community association any activity that may reasonably be construed to be a conflict of interest.
In terms of this statute, two actions must take place for the courts to find a conflict of interest.
First, the community association management firm must have a contract with the association. Then, the business entity where an officer, director or anyone else with a financial interest in the firm, including their relatives, has a transaction with the association.
Who is covered by the conflict of interest?
The statute clearly states the conflict of interest is with the directors, officers and any person with a financial interest in the community association management company. This appears to not cover employees of the association, unless they receive compensation based on the financial results of the company, like stock in the company.
It does include “a relative of those persons.”
That is where this will become difficult for any community association management firm as the new statute clearly defines what a relative is considered in this statute: As used in this section, the term “relative” means a relative within the third degree of consanguinity by blood or marriage.
Within the third degree of consanguinity casts a very wide net. It includes grandparents, grandchildren, great-grandparents, great-grandchildren, aunts, uncles, nieces, and nephews of the director and their spouse. For reference, please see this chart.
The thought that a company has a conflict of interest because a niece of a director’s husband has a share of stock in a contracted company can be considered a stretch, but as of July 1, it is the law in Florida.
Does the new law eliminate conflicts of interest?
While the law casts a wide net, it does not eliminate associations from working with companies that may present a conflict of interest with the community association management company.
First of all, if the proposed cost of the contract is more than $2,500, the association must seek out and accept “multiple” bids from other providers. Frankly, it would be a best practice to seek multiple bids or proposals even without a conflict of interest.
However, today, it is now required by statute, although the number of additional bids is not stipulated.
Once the association has decided to move forward with the conflicted company, the association must:
- List the contract as an agenda item for the next board meeting
- Ensure the disclosures of all conflicts are entered into the minutes of the board meeting
- The contract must be approved by two-thirds of the directors present at the meeting.
- The conflict is disclosed at the next meeting for all the members of the condo association.
- When the contract comes up for renewal, the same steps must be followed again.
If these steps are not followed, the community association management firm’s contract can be canceled immediately and any termination fees, damages or future payments are canceled too. Plus, the contract for the vendor that created the contract can be canceled immediately.
As management firms and associations can have an adversarial relationship, particularly with new board members, not having this addressed with employees could be an easy way to kick out the management company.
What to do now?
For community association management companies, it is imperative the company’s human resources department addresses this with all of the individuals listed in the statute.
For many companies, the number of people who could be impacted by this could be significant. As such, we believe it is best to have any director, officer or anyone with a financial interest sign an affidavit showing there are no conflicts of interest or disclose any that might affect the firm.
The attorneys at The Orlando Law Group can help community management firms with this task in Orlando, Waterford Lakes, Altamonte Springs, Winter Garden, Lake Nona, St. Cloud, Kissimmee, and throughout Central Florida.
If you have questions about anything discussed in this article or other legal matters, give our office a call at 407-512-4394 or fill out our online contact form to schedule a consultation to discuss your case. We have an office conveniently located at 12301 Lake Underhill Rd, Suite 213, Orlando, FL 32828, as well as offices in Seminole, Osceola and West Orange counties to assist you.
The articles on this blog are for informative purposes only and are no substitute for legal advice or an attorney-client relationship. If you are seeking legal advice, please contact our law firm directly.
Last Updated on July 9, 2024 by The Orlando Law Group
