STATE OF FLORIDA DEPARTMENT OF BUSINESS AND PROFESSIONAL REGULATION DIVISION OF FLORIDA CONDOMINIUMS, TIMESHARES AND MOBILE HOMES FINAL ORDER

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1 STATE OF FLORIDA DEPARTMENT OF BUSINESS AND PROFESSIONAL REGULATION DIVISION OF FLORIDA CONDOMINIUMS, TIMESHARES AND MOBILE HOMES IN RE: PETITION FOR ARBITRATION Wayne Wheatley, Petitioner, v. Regency Towers Condominium Association, Inc, Case No Respondent. / FINAL ORDER Procedural History On November 3, 2009, Wayne Wheatley filed a Petition for Arbitration alleging that the Regency Towers Condominium Association, Inc., ( Association ) violated (2), Fla. Stat. (2009) and 5.2(b) of the Declaration of Condominium by contracting for construction of a new clubhouse that contained material alterations, without prior approval of at least 75% of the unit owners. Mr. Wheatley alleged that approval of the unit owners was required because the clubhouse is a common element, and a material alteration to the common elements requires 75% approval of the unit owners. The Association filed an Answer on December 15, 2009, denying the allegation and stating that the proposed construction of the new clubhouse was not a material alteration or improvement to the common elements, but a required reconstruction of the clubhouse after it was destroyed by Hurricane Ivan. The Association further alleged that any differences in the old clubhouse and the newly designed clubhouse were due to building code requirements. 1

2 A Case Management Conference was held on January 12, The Association appeared by counsel, Karl M. Scheuerman, Esq. and Stephen Lowery, Esq. The Petitioner appeared without an attorney. After the Case Management Conference, an Order was entered addressing the following pertinent matters: 1. The Association s Motion to Strike Petitioner s January 5, 2010, Response was DENIED; 2. Both parties were directed to file a memorandum detailing the factual changes in construction between the old clubhouse and the newlyproposed clubhouse, including the cost of the new clubhouse. After receiving the parties memoranda the matter was set for final hearing on February 18, 2010, beginning at 10:00 a.m. The final hearing was held telephonically. The parties presented evidence in the form of documents and witness testimony. At the conclusion of the hearing both parties were directed to file memoranda of law on or before February 26, 2010, identifying any legal issues appropriate for consideration. The Association moved to disqualify the arbitrator in a post-hearing memorandum, as it had done orally during the hearing. That motion is DENIED. This order is entered after considering the complete record. APPEARANCES For the Petitioner: For the Association: Mr. Wayne Wheatley, in pro per P.O. Box 1144 Gulf Breeze, FL Karl M. Scheuerman, Esq. Lutz, Bob, Talfair, Eastman & Lee 2155 Delta Blvd., Ste. 210B Tallahassee, FL Stephen Lowery, Esq. Coastal Association Law Group 139 East Government St. Pensacola, FL

3 Prior to the commencement of the final hearing, the Respondent moved to exclude evidence concerning the cost of rebuilding the clubhouse because it was not relevant to any matter the arbitrator was authorized to determine. After the matter was argued, the motion was DENIED. The Respondent also moved for entry of a Summary Final Order in favor of the Association, asserting that there was no question of fact that the Association s proposed building plan for the new clubhouse constituted a rebuilding of the old clubhouse, pursuant to 9.2 of the Declaration. The motion was DENIED. EVIDENCE As for witnesses, the Petitioner testified as the only witness for his side. The Respondent called 5 witnesses to testify: Ken Turk, Bennett Shuman, Scott Holland, Matt Mooneyham, and Stephen Lashley. With regard to documents, the parties offered 10 documents into evidence, and 9 of them were admitted: The Petitioner offered 5 documents into evidence and 4 of those were admitted: 1. February 8, 2010, letter from Matt Mooneyham, Director of Development Services for Santa Rosa Island Authority ( SRIA ); Exhibit admitted; 2. Two time-stamped photographs of the old clubhouse after it was damaged; Exhibit admitted; 3. Color photographs of new clubhouse superimposed on construction site; Exhibit not admitted; 4. May 15, 2009, Application for Commercial Construction to build the new clubhouse; Exhibit admitted; 5. August 18, 2009, Addendum for Final Cost Adjustments from the Architect to the General Contractor, as pertains to the new clubhouse; Exhibit admitted. 3

4 The Association offered 6 documents into evidence, all of which were admitted: 6. October 27, 2004, letter from SRIA to Ken Turk; 7. May 9, 2005, letter from SRIA to Ken Turk; 8. November 11, 2004, Change Order; 9. December 7, 2004, letter from Bennett Shuman to Ken Turk; 10. October 15, 2009, architectural drawings for the new clubhouse. ISSUE FOR RESOLUTION Did the Association violate (2), Fla. Stat. (2009) and 5.2(b) of the Declaration of Condominium by proposing construction of a new clubhouse without prior approval in writing of at least 75% of the unit owners? Sub-Issues 1. Was it necessary to relocate the old, damaged clubhouse? 2. Does the proposed re-construction of the clubhouse constitute A. The material alteration of a common element; or B. The repair and maintenance of the old clubhouse, rendering the Board s decision for reconstruction of it subject to the Business Judgment Rule? FINDINGS OF FACT 1. The Petitioner is the owner of a unit in the Association and a member of it. 2. The Association is the corporate entity that manages the residential condominium in Escambia County, Florida. 3. The Association s clubhouse, originally built in 1974, was damaged during Hurricane Ivan in September of On October 27, 2004, the Santa Rosa Island Authority [by Deborah Norton and Donald Mayo] sent a letter to Ken Turk, the Association s property manager, stating that substantial damage had been sustained to the Association s clubhouse. 4

5 5. Bennett Shuman concurred in the conclusion that the clubhouse had sustained substantial damage despite having obtained the contrary opinion of a structural engineer Shuman had hired. Fountain E. Conner, the engineer hired by Shuman, rendered an opinion on October 22, 2004, that only non-structural walls of the clubhouse had been destroyed; the clubhouse itself had no structural distress as a result of Hurricane Ivan and could be re-used. employment. 6. Bennett Shuman rejected the opinion of Connor and terminated his 7. SRIA s substantial damage determination was significant because the determination meant A. The cost of restoring the damaged structure to its prior condition equaled or exceeded 50% of the clubhouse market value prior to the hurricane damage; and, B. The clubhouse would have to be rebuilt at a different location, because the original location was now situated in a floodplain. 8. On May 9, 2005, the Santa Rosa Island Authority wrote Mr. Ken Turk a letter advising that, within 60 days, the Association must either A. Rebuild the clubhouse, bringing it current with building code requirements; or, B. Demolish it. 9. Ken Turk, at the request of the Association s Board, estimated the cost to rebuild the clubhouse up to current building code requirements would be $260,000. realtor. 10. Ken Turk, the property manager, is not a builder, contractor, engineer, or 11. The Association s Board had the clubhouse demolished in In January of 2006, the Association s Board considered the following 5 5

6 alternative locations to rebuild the clubhouse, and the attendant cost of each: A. Build now or in the fall of 2006 on the East Tower, porte-cochere, at a cost of approximately $900,000 to $1,000,000.00; B. Purchase a one-bedroom floor unit and convert it into a clubhouse, at a cost of $375,000.00; C. Convert the manager s unit to a clubhouse, at a cost of $50, to 60, D. Purchase a one-bedroom floor unit, convert it to a clubhouse, and sell the manager s apartment to off-set the cost. E. Delay construction of the clubhouse and have it redesigned and built at a location to be determined. 13. In January of 2006, the Board voted in favor of option E. In 2007, the Board determined the new clubhouse location would be on the north side of the condominium towers, over the pond, and covering the area that had been used by owners for a dog run. The Board also decided that the newly-designed clubhouse would have a larger meeting room, so that it could seat people, rather than the people the old clubhouse seated. 14. On May 15, 2009, the Association s chosen architect applied to the SRIA for a Commercial Construction permit to build the redesigned clubhouse. The Permit Application describes the project as a New, elevated, single-story clubhouse for Regency Towers Condominium. The estimated cost of construction is stated as $600,000, and the number of conditioned square feet for the new facility is 2, On June 2, 2009, the SRIA approved the application. 16. As of February 18, 2010, the expected cost of building the new clubhouse was $900, The differences between the old clubhouse and the one proposed to be built are set out below: 6

7 FEATURE OLD CLUBHOUSE NEW CLUBHOUSE Area # of People Accommodated 980 Sq. Feet (conditioned space) Sq. Feet (conditioned space) People People [plus 21 people on outside decking] Location South side of Condo Towers, North side of Towers, 450' across 75 from towers to clubhouse parking lot to the clubhouse Changed Use of Property in Dog Run Area substantially reduced New Location and re-located Security Function / Use Appearance of Roof View Located inside security gates Located outside security gates Meeting room, kitchen area Larger meeting room; exercise room; storage space larger, enclosed kitchen; 495 sq. feet of deck; elevator; storage space Flat, asphalt Pitched with gables, shingles Ocean and pool Road, pond, tennis courts, driveways 18. Witnesses agreed that the new clubhouse is a significant improvement over the old clubhouse. CONCLUSIONS OF LAW The Division has jurisdiction to determine the authority of the board of directors to alter or add to a common element. Sec , Fla. Stat. (2009). Respondent, by his ownership of a unit at the condominium, has standing to challenge the Board s decision to build a new clubhouse, as the Board has specified, without 75% unit owner approval. Sub-Issue I Was it necessary to relocate the old clubhouse? The initial question was whether it was necessary to relocate the old clubhouse after it was damaged by Hurricane Ivan in Relocation of the clubhouse was 7

8 necessary only if the cost of repairing the old clubhouse was more than 50% of its appraised value prior to Hurricane Ivan. In other words, if the clubhouse met the substantial damage determination, the clubhouse could not be rebuilt where it was situated because location of the old clubhouse had subsequently been deemed a flood plain. It would have to be moved. The SRIA concluded in its October 27, 2004, letter that substantial damage had occurred to the clubhouse. Accordingly, this question was determined by the SRIA on October 27, Sub-Issue II Material alteration of a common element, or repair and maintenance? The Petitioner argues that the rebuilt clubhouse constitutes a material alteration of the common elements, requiring that 75% of the unit owners approve it, rather than just the Board of Directors. Conversely, the Association argues that the rebuilding of the clubhouse is not a material alteration, but a discharge of the Board s duty to maintain and repair the common elements, which is 1. Not subject to unit owner approval; and, 2. Entitled to application of the business judgment rule. In order to determine the appropriate interpretation of the facts sub judice, it is necessary to examine the legal principles governing both theories. The Petitioner s argument that the new clubhouse constitutes a material alteration of the common elements is based upon the following legal authority: Section (2)(a), Fla. Stat. (2009), which states, in pertinent part Except as otherwise provided in this section, there shall be no material alteration or substantial additions to the common elements or to real property which is association property except in a manner provided in the declaration as originally recorded or as amended under the procedure provided therein.... 8

9 The Association s Declaration, at 5.2(b), which states in pertinent part b. Alteration and improvement. After the completion of the improvements included in the common elements contemplated by this Declaration, there shall be no alteration nor further improvement of the real property constituting the common elements without prior approval in writing by the owners of not less than 75% of the common elements except as provided by the by-laws, or as reserved herein insofar as additional development is concerned... The Association points to the following legal authority for its argument that the newly rebuilt clubhouse is the reconstruction of a damaged common element not subject to unit owner approval: The Association s Declaration, at 9.1, 9.1(a). and 9.2, stating in pertinent part: 9.1 DETERMINATION TO RECONSTRUCT OR REPAIR. If any part of the condominium property shall be damaged by casualty, whether or not it shall be reconstructed or repaired shall be determined in the following manner: (a) Common element. If the damaged improvement is a common element, the damaged property shall be reconstructed or repaired, unless it is determined in the manner elsewhere provided that the condominium shall be terminated PLANS AND SPECIFICATIONS. Any reconstruction or repair must be substantially in accordance with the plans and specifications approved by the board of directors of the Association, Based upon these Declaration provisions and other legal authority, the Association argues that the Board of Directors has absolute authority to by-pass the requirement for unit owner approval because any alterations made to the new clubhouse result from a change in building code requirements, including requirements for disabled individuals under the Americans with Disabilities Act. The Association also argues that case law has determined that alterations or improvements necessary or beneficial for maintenance, repair, or replacement of a common element, coupled with the expenditure of significant funds, does not necessarily constitute a material 9

10 alteration, triggering the required vote of the unit owners. Tiffany Plaza Condominium Association, Inc., v. Spencer, 316 So. 2d 823 (Fla. 2 nd DCA 1982); Cotrell v. Thornton, 499 So. 2d 1291 (Fla. 2 nd DCA 1984). Under the facts of this case, the Association s argument fails. The clubhouse that has been designed and approved by the Board of Directors constitutes a material alteration to the common elements, and it must be approved by at least 75% of the unit owners before it can be built. Following is the reason for this conclusion. The term material alteration or addition means to palpably or perceptively vary or change the form, shape, elements or specifications of a building from its original design or plan, or existing condition, in such a manner as to appreciably affect or influence its function, use, or appearance. George v. Beach Club Villas Condominium Assoc., 833 So. 2d 816, 819 (Fla. 3 rd DCA 2002) citing Sterling Village Condominium, Inc. v. Breitenback 251 So. 2d 685, 687 (Fla. 4 th DCA 1971). Even disregarding the new location of the proposed clubhouse, it is not a building that has been rebuilt like the old clubhouse, and merely brought up-to-code. The new clubhouse is palpably varied in its size, form, elements, and specifications from the old clubhouse, in all material respects. The changes proposed by this newly-designed clubhouse, are not limited to those necessary to meet code requirements. Accordingly, 9.2 of the Declaration and the Business Judgment Rule will not insulate the Association from its decisions that result in a newly-created clubhouse that has no element of identity with the damaged or destroyed clubhouse. For example, the new clubhouse contains more than twice as much airconditioned space as the old clubhouse. Testimony showed that the Board of Directors wanted a clubhouse that would hold people in the meeting room, rather than the 10

11 40-50 people that could be accommodated in the old clubhouse. The Board ultimately approved a meeting room designed to hold 64 inside, with room for an additional 21 people outside the meeting room on clubhouse decking. The outside covered deck for the new building adds another 495 square feet to the area right outside the meeting room. The new clubhouse has an exercise room, which the old clubhouse did not. The Association cannot point to a code upgrade requirement for adding this room. The kitchen is changed, in that it is now larger and enclosed. The kitchen in the old clubhouse was smaller, not closed off, and was a kitchen area only. The new kitchen plan is not due to a code upgrade. The appearance of the clubhouse has changed substantially, aside from its size. The proposed roof will be a pitched roof, shingled; the old clubhouse roof was flat and made of asphalt. The ceilings inside the old clubhouse were 8 high; the ceilings inside the new clubhouse are 11 high. The old clubhouse was within the secured area of the Association, but the new clubhouse will not be within the secured area. It is difficult to imagine facts that render such a clear-cut case for a material alteration. The arbitration case of A.N. Inc. v. Seaplace Association, Inc., Case No , 1998 WL (Fla. DBPR Arb. Nov. 19, 1998) discusses alterations to an Association s clubhouse, which had been authorized by the Board of Directors without unit-owner approval. Those clubhouse alterations included: 1. Removal of a wood-burning fireplace and chimney and replacing it with a free-standing gas fireplace in another area of the clubhouse; 2. Six new clerestory windows; 3. New and larger windows and doors. 11

12 The arbitrator determined that the fireplace change alone constituted a material alteration because the new fireplace was re-positioned and of a different type than what had been in the clubhouse. Replacement of a clubhouse that serves the same purpose would need to be a replacement substantially similar in appearance and function to fall within the exemption from unit owner approval. See Haines v. The Longwood Condo. Ass n., Inc., Arb Case No , Final Order (April 29, 1994). Because of the striking difference in function and appearance between the old clubhouse and the newly designed clubhouse, these alterations constitute more than mere repair, rebuilding, or maintenance. Therefore, the Association is not entitled to the application of the business judgment rule. The business judgment rule excepts the Association from seeking unit owner approval, unless the Board s actions constitute more than a repair or maintenance of the old clubhouse. Because the alterations at issue are material alterations, the Association has violated (2), Fla. Stat. (2009) and 5.2(b) of the Declaration of Condominium by proposing construction of a new clubhouse without prior approval in writing of at least 75% of the unit owners. Based upon the foregoing, IT IS ORDERED: A. The Respondent s Motion to Disqualify the Arbitrator is DENIED. B. Respondent s Motion to Exclude Evidence of Cost is DENIED; C. Respondent s Motion for a Summary Final Order is DENIED; D. Unit owner approval is REQUIRED for the construction of a new clubhouse; E. The Respondent Association is to immediately cease work on the proposed construction for the new clubhouse, pending approval by 75% of the total voting interests in the association; F. If the requisite 75% unit owner approval is not obtained on or 12

13 before May 17, 2010, the association is to immediately commence the reconstruction of a clubhouse similar in appearance and function to the original clubhouse, with such construction to be completed on or before May 17, DONE AND ORDERED on this 1 st day of March 2010, at Tallahassee, Leon County, Florida. Shirley J. Whitsitt, Arbitrator Dep t. of Bus. and Profess. Reg. - Arbitration 1940 North Monroe Street Tallahassee, FL Fax: (850) Trial de novo and Attorney s Fees This decision shall be binding on the parties unless a complaint for trial de novo is filed within 30 days in accordance with section , Florida Statutes. As provided by section , Florida Statutes, the prevailing party in this proceeding is entitled to have the other party pay reasonable costs and attorney s fees. Any such request must be filed within 45 days in accordance with Rule 61B , F.A.C CERTIFICATE OF SERVICE A true and correct copy of the foregoing final order was mailed by U.S. mail, postage prepaid, this 1 st day of March 2010, by regular mail, postage pre-paid, to: Mr. Wayne Wheatley P.O. Box 1144 Gulf Breeze, FL Karl M. Scheuerman, Esq. Lutz, Bobo, Talfair, Eastman & Lee 2155 Delta Blvd., Ste. 210-B Tallahassee, FL Shirley J. Whitsitt, Arbitrator 13