“Rollover of Excess Funds Normal” – News-Press

“Rollover of Excess Funds Normal” – News-Press

Man holding a toy house, while he holds his chin in doubt.Q: If there is an excess in monies collected from the annual budget, must the excess be returned to owners, or can it be used to reduce maintenance fees for next year? (E.O., via e-mail)

A: The annual budget estimates the revenues and expenses for the year. Although management and boards should obviously endeavor to establish as accurate of a budget as possible, a budget by its nature is nothing more than a projection. Very rarely (probably never) does a budget perform to the penny, and at the end of the fiscal year, there will be an operating surplus or deficit.

The amount of surplus or deficit for the current fiscal year is likewise not known when the budget for the next ensuing fiscal year is adopted, it is again a projection. In most cases, the amount can be reasonably calculated and is taken into account in the next year’s budget.

If there is a deficit, the assessments for the following year should include an amount necessary to fund the deficit, unless some other mechanism is approved, such as using an operating contingency or working capital fund. If the deficit is substantial, special assessments are sometimes required.

When there is a surplus, the statute defines these funds as “common surplus,” but does not regulate their use. In most cases, as with deficits, the anticipated surplus is considered in calculating the following year’s assessments, though resulting in a reduction as opposed to an increase.

Some associations like to “save up” accumulated surplus for cash flow or unexpected contingencies. While the law does not prevent this (or for that matter permit it), this is permissible as long as the subsequent year’s budget has the appropriate line item for the fund. Some bylaws regulate these issues more strictly, and of course should be reviewed, but most don’t.

When an association is “rolling over” excess operating funds to the following fiscal year, the Association’s CPA should be consulted. Although I am advised that these rules do not apply to most condominium associations, there are certain tax reporting scenarios where the excess funds could be subject to income tax. When this is a possibility, it is usually addressed through a “rollover vote” by the members, in accordance with regulations from the IRS regarding this issue.

Q: My neighbor installed a wall-mounted flagpole above his front door with an American flag, but with black stars and stripes and a camouflage background. Our homeowners’ association’s governing documents provide that all exterior improvements require architectural review approval, including flags and banners. Am I permitted to obtain a copy of his architectural review application and approval from the association? (B.R., via e-mail)

A: Yes, a written architectural review committee application and any subsequent written approvals are “official records” of the association and must be made available for inspection and copying by any member of the association or an authorized representative within ten business days of submission of a written request pursuant to Section 720.303(4)(l) of the Florida Homeowners’ Association Act.

Q: I have concerns regarding how the board of my homeowners’ association is managing the community. Is there a state agency that oversees homeowners’ associations that I can file a complaint with? (R.G., via e-mail)

A: Generally speaking, no.

Condominium and cooperative associations are regulated by the Division of Florida Condominiums, Timeshares and Mobile Homes, which is part of the Department of Business and Professional Regulation. The Division has limited jurisdiction to investigate complaints from condominium and cooperative unit owners, primarily relating to access to official records, elections, and financial matters.

The Division does not generally have jurisdiction over homeowners’ associations except for administering arbitration actions for recall and election disputes. Disputes regarding homeowners’ associations are handled by the court system. However, regarding most disputes between an owner and the homeowners’ association, prior to filing a lawsuit the party bringing the dispute must first make a demand to participate in pre-suit mediation.

Joseph Adams is a Board Certified Specialist in Condominium and Planned Development Law, and an Office Managing Shareholder with Becker & Poliakoff.  Please send your community association legal questions to jadams@beckerlawyers.com. Past editions of the Q&A may be viewed at floridacondohoalawblog.com.