STATE OF FLORIDA DEPARTMENT OF BUSINESS AND PROFESSIONAL REGULATION DIVISION OF FLORIDA CONDOMINIUMS, TIMESHARES AND MOBILE HOMES IN RE: PETITION FOR ARBITRATION ROBERT CARR and LORRAINE CARR, Petitioners, v. Case No. 2012-04-3336 BRIDGEWATER BAY CARRIAGE HOMES ASSOCIATION, INC., Respondents. / FINAL ORDER Pursuant to notice, the undersigned arbitrator of the Division of Florida Condominiums, Timeshares and Mobile Homes conducted a telephonic final hearing in this case on February 28, 2013. During the hearing, the parties presented the testimony of witnesses, entered documents into evidence and cross-examined witnesses. The parties have filed post-hearing memoranda. This order is entered after consideration of the complete record. Appearances For Petitioners: Brian D. Orsborn, Esq. Cheffy Passidomo, P.A. 821 Fifth Avenue South Naples, FL 34102 For Respondent: Ron M. Campbell, Esq. Cole, Scott & Kissane, P.A. 1645 Palm Beach Lakes Blvd. 2 nd Floor West Palm Beach, FL 33401 1
Statement of the Issue The issue in this case is whether Bridgewater Bay Carriage Homes Association, Inc. (hereinafter the Association) improperly suspended the ability of Robert Carr and Lorraine Carr (hereinafter the Carrs) to lease their unit for a year. Findings of Fact 1. Bridgewater Bay Carriage Homes Association, Inc. is the corporate entity responsible for the operation Bridgewater Bay Carriage Homes, a condominium. 2. The Carrs own Unit 4301 in the condominium, therefore they are members of the Association. 3. On February 1, 2012, Jennifer Farley, the property manager for the Association, sent a letter to the Carrs on behalf of the Association informing them that, due to alleged violations of the Association s Declaration, the Carrs would not be permitted to lease their unit for a period of one year. This letter, dated February 1, 2012, states in part: It should also be noted that once the current occupant vacates this unit upon non-renewal of their lease in July, 2012, and due to the numerous violations with your current as well as previous tenants, you will not be permitted to lease a unit for a period of up to one year. 4. The Carrs allege that the Association suspended their ability to lease their unit without notice, arbitrarily, and without verifying the extent of any of the alleged lease violations. 5. Section 13 of the Declaration of Condominium states: In order to foster a stable residential community and prevent a motellike atmosphere, the leasing of units by owners shall be restricted as provided in this Section. The ability of a unit owner to lease his unit to 2
others is a privilege not a right. The privilege may be revoked by the board of directors if it is abused by the owner. Section 13.1(C) of the Declaration of Condominium states, in pertinent part: A proposed lease shall be disapproved only if a majority of the whole board so votes and in such case the lease shall not be made. Appropriate grounds for disapproval include, but not be limited to, the following:... (2) the unit owner has a history of leasing his unit without obtaining approval, or leasing to troublesome lessees and/or refusing to control or accept responsibility for the occupancy of his unit. 6. At the final hearing, the following individuals gave testimony: Petitioner Robert Carr; Jennifer Farley; Helen Yates; Frank Houlihan; Gloria Goddard; and William Scherer. 7 Jennifer Farley testified that her February 1, 2012 letter was sent to the Carrs without providing them notice that the Association was considering suspending their ability to lease. Jennifer Farley further testified that the Association has no procedures or documents addressing the Association s notice to a unit owner when the Association is considering suspension of the ability to lease a unit. Jennifer Farley, as property manager for the last three years, also confirmed that the Carrs were the only unit owners whose ability to lease was suspended by the Association. 8. On April 1, 2012, Robert Carr wrote to Jennifer Farley and the board members of the Association confirming that the Carrs took immediate action to correct this problem and had the tenants vacate the property in March of 2012. Moreover, the Carrs requested that the Association reconsider the penalty imposed which suspended their ability to lease for 12 months as this was a severe penalty, and that this was going to cause financial hardship to the Carrs. 3
9. Further, while addressing the Board s reason for not revoking the suspension at the April 20, 2012 board meeting, Frank Houlihan, Vice President of the Board of Directors for the Association, testified at the final hearing as follows: WITNESS: And the Carrs had asked if we would take the year suspension and limit it to maybe six months. And I can tell you the reason why we didn t do that, if you would like to know? MR. ORSBORN: Sure. WITNESS: One of the things was that, as of February 1st, that letter that came out from Mrs. Farley, they were told that their leasing privileges were suspended that they were going to be suspended for one year. Then, all of a sudden, we start to get leases after they were told they could not lease anymore. Well, and I and is the board s estimation, they weren t getting the message that we said you can t lease. But yet, applications were coming in. So we really, seriously thought about reducing the 12 months to six months. But, again, we started getting these applications and so we said, Well, they re not listening to us. Final Hearing Transcript, p. 227, lines 12-25; p. 228, lines 1-4. 10. Regarding the Association s review of the Carrs file relating to the suspension, Frank Houlihan testified that the review consisted of going back the three years of the violations that occurred from three different renters. Final Hearing Transcript, p. 227, lines 9-11. 11. Moreover, Frank Houlihan testified that anyone can write up a violation and turn it into the management company or Board and that the Association did not verify the alleged violations for accuracy before imposing the suspension. Frank Houlihan testified: Q. Okay. Regarding these violations, is can any tenant or, I mean, not a tenant, I am sorry. Can anyone pretty much write up a violation and turn it in to the management group or the board? 4
A. Well, a lot of these violations are observed by board members. A lot of violations are observed by owners, other owners or renters. And they could write it up, yes. Q. Okay. So when the board is considering what penalties they are going to impose, how without allowing for a hearing and a unit owner to explain whether that alleged violation is correct or not, or accurate, how is the board going to know that when they are making their decisions on penalties when the unit owner hasn t had the opportunity to explain? A. Because, if there is a violation, and the owner is fined, it goes to the fine committee, who then decides if the fine is upheld, and then it comes back to the board. Q. Right. But you have testified is the suspension would you consider the suspension a fine? A. No. Q. So in this situation, it didn t go to the fine committee board. Correct? A. That is correct. Q. So there so, really, you were taking each of the violations that were issued, that they were all just completely accurate, you assumed that they were accurate? A. We we saw the violations, but we knew if what we voted on then would go to the fine committee, who would make that final decision. And if they decided to reduce the fine or to rescind any fines and the owner has the opportunity to attend that meeting, or their representative, like Mr. Scherer attended. So they do have an opportunity to ARBITRATOR JONES: Hold on a minute, Mr. Houlihan. Mr. Houlihan, what he is asking you is: Did you take all of these violations that you reviewed on April 20th at face value and believe them all? THE WITNESS: Yeah. They were all written up. It came from the file, which the owner has a right to review, and they never said that they weren t true..... ARBITRATOR JONES: Mr. Houlihan, listen to me. Are you saying to me that, because all of these documents were in the file, that the Carrs had an affirmative duty to refute every single one of them, even though you never sent them to a finding hearing? Is that what you are saying? 5
THE WITNESS: No, that s not what I m saying. I don t understand her. ARBITRATOR JONES: again. So the question is and let s take the birthday party, THE WITNESS: Yes. ARBITRATOR JONES: Let s you didn t bother to find out what the Carrs or or what the tenant s story was about the birthday party, you just took that there was a birthday party THE WITNESS: No, ma am. ARBITRATOR JONES: -- because of the violation? THE WITNESS: No, ma am. This this was reported to our board by another board member, who talked to the mother at the pool..... ARBITRATOR JONES: And you re saying that this is what Mr. Drummond [board member] said was the truth? THE WITNESS: Yeah. ARBITRATOR JONES: But did Mr. and Mrs. Carr get to ask him a question to determine what the truth was? THE WITNESS: Mr. and Mrs. Carr were not here. That went in that was ARBITRATOR JONES: And that is that is the point of his question, is did you did you give the other side the opportunity to question it? That s all the question is. And I m guessing that the answer is no, and so I m not THE WITNESS: The answer is no. But the Carrs had they have a right to go into their folder and look at anything that is in that folder. ARBITRATOR JONES: So you are telling me now, you told me before, and I m not trying to get argumentative with you, I m just trying to get what you told me straight. But you are telling me that the Carrs had an affirmative duty to go through their folder and look at all of the allegations that are documented there, and then refute them to the board? THE WITNESS: They could. ARBITRATOR JONES: Is that what you are telling me? 6
THE WITNESS: Yes, I am. Final Hearing Transcript, p. 233, lines 1-25; p. 234, lines 1-20, 24-25; p. 235, lines 1-19; p. 236, lines 7-25; p. 237, lines 1-10; see also p. 263, lines 15-21(same); p. 264, lines 1-25 (same). 12. In addition, there was no evidence produced which indicated that the Carrs received notification of the alleged violations in their file. At the final hearing, Frank Houlihan testified: Q. Right. So you are testifying that, when there is a violation, a letter is sent out to both the unit owner and to the actual tenant? A. A copy goes to the tenant. Final Hearing Transcript, p. 240, lines 20-23. 13. Jennifer Farley testified that the Association performs a background check and personal interview before approving any tenant. The Association charges a fee of $150.00 per application. 14. Included in the Carrs file used by the Association to justify the suspensions were complaints about a late application, a broken dryer vent and parking in unauthorized areas. The late application and broken dryer vent did not involve the behavior of the Carrs tenants. Included on one parking complaint dated July 21, 2009 was a notation from the president of the Association that the car in question did not belong to the tenant or the tenant s guest. 15. The only hearing held on any of the violations regarding tenant behavior documented in the file was a hearing held December 8, 2011 by the Association s Fine 7
Committee. The Fine Committee assessed the Carrs a $900.00 fine for their tenant s parking violations. On January 18, 2012, the Association rescinded the fine. 16. Jennifer Farley, as the property manager, confirmed that under similar circumstances the Association decided not to fine or suspend the ability to lease of another unit owner, John Kessler, who is a present member of the Board of Directors of the Association, regarding a problem tenant. Jennifer Farley further confirmed that John Kessler was notified of the problems with this tenant, and that he took active steps by deciding not to renew the tenant s lease. Jennifer Farley also confirmed the Association s position that since John Kessler did not renew the tenant s lease, his ability to lease was not suspended. 17. Moreover, Jennifer Farley admitted at the final hearing that despite the fact that the Carrs also removed the problem tenant at the request of the Association, their ability to lease was suspended. Jennifer Farley testified: Q. As your attorney asked you, Mr. Kessler s right to lease was not suspended because he got rid of his tenant. Correct? A. Correct. Q. Is that what you just said? A. Yes. Q. Okay. And Mr. and Mrs. Carr did get rid of their tenant, did they not? A. Correct. Q. But their right to lease was suspended. Correct? A. Correct. Final Hearing Transcript, p. 138, lines 10-21. 8
18. Likewise, regarding the Association s decisions concerning board member John Kessler and the Carrs, Frank Houlihan testified: ARBITRATOR JONES: Mr. Houlihan, I m just trying to understand here the difference between Mr. Kessler and Mr. and Mrs. Carr. Now, you said it was because they have multiple they had multiple tenants who did this. What I am seeing from the file is that we have the mother and the son, and that lease was not renewed. THE WITNESS: Uh-huh. ARBITRATOR JONES: And then the last tenants or the couple with the adult son, and that lease was not renewed. THE WITNESS: Uh-huh. ARBITRATOR JONES: Are you blaming them for renting to them after having trouble with the mother and the son, renting to these people that had the the couple with the adult son, and then they had violations? Is that why you are treating them differently than Mr. Kessler? THE WITNESS: Mr. Kessler took care of the situation. We went back and looked at the previous three years, and we ARBITRATOR JONES: But what you told me, Mr. Houlihan, with all due respect, is that Mr. Kessler took care of the situation by not renewing the lease. Now, the Carrs did not renew the lease with the previous three tenants. And that is why you have three separate tenants, because we don t have lease renewals. THE WITNESS: Well, I didn t know if they didn t renew the lease. ARBITRATOR JONES: So is that what you re telling me, it s because they THE WITNESS: No. ARBITRATOR JONES: -- had three THE WITNESS: No. They evicted the last tenant was evicted. But the previous two, I I why they did renew the lease, I do not know. ARBITRATOR JONES: Well, it s important, because that is why you told me why they are different, is because Mr. Kessler took care of it. And the reason you said Mr. Kessler took care of it was because he did not renew the lease. Well, we have three nonrenewed leases here. So tell me what the different [sic] is. I am trying to understand this. 9
THE WITNESS: I do not know why the Carrs did not if the the previous two years before the eviction, why they did not renew the lease, I have no idea about that. If they did not renew the lease. Maybe the people left. I do not know. Final Hearing, p. 241, lines 13-25; p. 242, lines 1-25; p. 243, lines 1-15. 19. In May 2012, the Carrs had a potential tenant ready, able and willing to lease their unit, but the potential tenant did not sign a lease agreement after the Carrs were notified by the Association that it was upholding its prior decision to suspend the Carrs right to lease for up to one year. 20. The Carrs entered into a Lease Agreement with Andrea Alvarez. The total lease payments due under this Lease Agreement and amounts to be paid for an annual lease from September 1, 2012 to August 31, 2013 was $1,3367.00 per month. The Carrs were also charged a $125.00 broker fee by the real estate agent who negotiated the lease. This Lease Agreement was submitted in compliance with the terms of the Declaration and By-laws which requires submission of leases for approval. Ms. Alvarez underwent a review by the Association concerning all background checks and credit checks by the Association. Despite Ms. Alvarez being an acceptable tenant to the Association, it declined to approve this lease specifically on the grounds that the Carrs ability to lease was suspended by the Association. Conclusions of Law The undersigned has jurisdiction of the parties and this dispute pursuant to Section 718.1255, Florida Statutes. The Carrs claim that the Association wrongfully suspended their ability to lease their unit for a period of one year. 10
The Association s decision regarding permitting unit owners the ability to lease their units falls within the bounds of the business judgment rule. Under the business judgment rule, a board is given wide latitude in its exercise of discretion in the performance of its duties. See, e.g., DiBiase v. Beneva Ridge Condo. Assn., Arb. Case No. 92-0210, Final Order (January 19, 1994). In applying the rule, a two-prong test should be applied: 1) whether the Association has the contractual or statutory authority to perform the relevant act, and 2) whether the Association s acts are reasonable. Tresize v. Holiday Apts Condo. Ass'n., Inc., Arb. Case 02-4660, Final Order (September 11, 2002). Authority to Suspend Leasing Section 13 of the Declaration of Condominium states: In order to foster a stable residential community and prevent a motellike atmosphere, the leasing of units by owners shall be restricted as provided in this Section. The ability of a unit owner to lease his unit to others is a privilege not a right. The privilege may be revoked by the board of directors if it is abused by the owner. Section 13.1(C) of the Declaration of Condominium states in pertinent part: A proposed lease shall be disapproved only if a majority of the whole board so votes and in such case the lease shall not be made. Appropriate grounds for disapproval include, but not be limited to, the following:... (2) the unit owner has a history of leasing his unit without obtaining approval, or leasing to troublesome lessees and/or refusing to control or accept responsibility for the occupancy of his unit.... As the Declaration gives the Association the ability to disapprove leases if the unit owner has a history of leasing to troublesome lessees, the Declaration gives the Association the authority to disapprove leases for one year. 11
Reasonableness In order to determine whether the Association s actions are unreasonable, a petitioner must show that the Association s actions were arbitrary or irrational. Tresize v. Holiday Apartments Condo. Ass'n., Inc., Arb. Case 02-4660, Final Order (September 11, 2002). The Carrs contend that because they were not given any due process before the suspension, the Association has acted arbitrarily, and therefore unreasonably. The Association contends that since the ability to lease a unit is characterized as a privilege and not a right, the Association may revoke the privilege, without notice, because it deemed that the Carrs had a history of leasing to troublesome renters. It is irrelevant whether the ability to lease a unit is characterized as a privilege or a right. The Declaration only gives the Association the authority to disapprove leases if certain criteria have been met. One of those criteria is if the unit owner has a history of leasing to troublesome lessees. There is no definition of troublesome in the Declaration. Without written standards or procedures for the Association to determine whether a tenant has been indeed troublesome, the term troublesome is vague and subject to arbitrary interpretations and applications. The Association did not give the unit owners or the tenants an opportunity to contradict the complaints. By the very fact that a suspension is punitive, the Association is required to give minimum due process in order not to be considered acting arbitrarily. The Association has severely punished the Carrs for leasing to the very tenants the Association approved after background checks and interviews. 12
Even after the Carrs did not renew the lease of the tenants, the Association punished them while not suspending the ability of a director to lease whose tenants were accused of committing the same violations as the Carrs tenants. Selective enforcement is established if the facts show that the association is enforcing a restriction against one unit owner while allowing other unit owners to violate the same restriction, and an association may not enforce restrictions in a selective or arbitrary manner. White Egret Condominium, Inc. v. Franklin, 379 So. 2d 346 (Fla. 1979). Selective enforcement will not be found absent a showing that the subject violation was comparable to the type of violation which the association has failed to enforce. Scarfone v. Culverhouse, 443 So. 2d 122 (Fla. 2d DCA 1983); Schmidt v. Sherrill, 442 So. 2d 963 (Fla. 4th DCA 1983). The Association could not articulate a rational reason for the disparate treatment. The Association enforced Section 13(c)(2) of the Declaration against the Carrs but did not enforce the provision against Mr. Kessler, therefore the Association has acted in an arbitrary manner against the Carrs. The Association maintains that the Carrs at any time could have reviewed their file and disputed the allegations at any time. This is an unacceptable violation of due process. The Association has a process of determining whether a unit owner or a tenant is in violation of the governing documents and issuing fines. The Association is required by Section 718.303(3), Florida Statutes, to follow notice and hearing requirements to fine a unit owner or tenant a maximum fine of $1,000. The Association only used this procedure with due process safeguards once in regards to the behavior of one of the Carrs tenants. It then rescinded the $900.00 fine it had imposed. 13
The Association had no record other than unsubstantiated allegations to base its finding that the Carrs tenants were troublesome to justify its suspension. Indeed the file contained irrelevant charges not related to the behavior of the tenants and at least one admission in the form of a notation that an allegation was not true. The Association argues despite being required to give due process to punish a unit owner with a fine of $1,000.00, it does not have to give due process to punish a unit owner ten times that amount in lost rent. The Association s argument fails. Consequently, the action of the Association to suspend the Carrs ability to lease their unit for a year was arbitrary and unreasonable, and therefore invalid. Damages The Association gave no other reason for rejecting a lease other than the suspension. As the suspension was invalid, the Carrs are entitled to lost rent for the amount of time they were prohibited from renting their unit. See Meyers v. International Village, Inc., Arb. Case No. 2012-00-8343, Summary Final Order (October 10, 2012) (Unit owner whose was wrongfully prohibited from renting his unit was awarded $11,354.83 in damages for lost rent. The measure of damages for breach of contract is the money damages that are the natural and proximate result of the breach). The signed lease from the prospective tenant entitled Petitioner to receive $1,367.00 per month rental payments beginning September 1, 2012 until August 31, 2013. The Carrs lost another tenant who could have begun renting by at least June 1, 2012. Therefore, the Association will be required to pay the Carrs the amount of $16,404.00 in damages in lost rent for the total of one year s rental of the unit. 14
The Carrs request reimbursement of the $125.00 brokerage fee paid to their real estate agent who negotiated the lease. The Carrs also requested $548.34 in prejudgment interest. Reimbursement for the brokerage fee and prejudgment interest is appropriate and will be awarded. Based upon the above, it is ORDERED: 1. The relief request by Petitioners is GRANTED. 2. Within 30 days of the date of this order, the Association shall reimburse Petitioners $17,077.34 in damages. Florida. DONE AND ORDERED this 22nd day of May, 2013, at Tallahassee, Leon County, Terri Leigh Jones, Arbitrator Department of Business and Professional Regulation Arbitration Section 1940 North Monroe Street Tallahassee, Florida 32399-1030 Telephone (850) 414-6867 Facsimile (850) 487-0870 Trial de novo and Attorney s Fees This decision shall be binding on the parties unless a complaint for trial de novo is filed in accordance with section 718.1255, Florida Statutes. As provided by section 718.1255, 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 in accordance with Rule 61B-45.048, F.A.C. [This space is intentionally left blank. A Certificate of Service follows on the next page.] 15
Certificate of Service I hereby certify that a true and correct copy of the foregoing final order has been sent by U.S. Mail and facsimile to the following persons on this 22nd day of May, 2013: Louis D. D Agostino, Esq. Cheffy Passidomo, P.A. 821 Fifth Avenue South Naples, FL 34102 Fax: 239-261-0884 Attorney for Petitioner Jason Hamilton Mikes, Esq. 9130 Galleria Court, Suite 330 Naples, FL 34109 Fax: 239-596-0987 Attorney for Respondents Ron M. Campbell, Esq. Cole, Scott & Kissane, P.A. 1645 Palm Beach Lakes Blvd. 2 nd Floor West Palm Beach, FL 33401 Fax: 561-683-8977 Respondent Terri Leigh Jones, Arbitrator 16