Post by Admin on Jan 28, 2016 9:21:56 GMT -5
A timely article brought to my attention by a reader outside of S-bag who is in currently attempting an involuntary dissolution of his HOA and has "nearly enough" of the 10% owners signatures. The action is being sought on the basis of 3(3) ...if corporate assets are being wasted or misapplied. If opposed by the HOA (whose apparent total bank balances is less than $9000), this action will eventually require a forensic audit (not a GAP audit) to show the collection of assessments and appropriate expenditures.
Can a Florida HOA be dissolved?
by: Jean Winters, Esq. November 4th, 2011 | 12:15 AM
Recently, a homeowner asked if an HOA can be legally dissolved. The answer is “yes” in some circumstances. If a Declaration of Covenants is still enforceable and subjects the properties of the community to the jurisdiction and control of an HOA, it may be a breach of the board’s fiduciary duty to dissolve the corporation. However in some cases the members may decide to amend the Declaration to allow dissolution, or the Declaration may be unenforceable. An HOA can be dissolved by the membership, by the “corporation” (through its board) or by court order.
The first place to look is the HOA’s governing documents (Covenants and Bylaws). If those are silent, then consider relevant statutes. Florida Statutes Chapter 720 governing HOAs provides for receivership but does not include a provision for dissolution. Therefore, the next step is to look at Chapter 617, that governs not for profit corporations (since most HOAs are not for profit corporations).
Chapter 617 Florida Statutes provides for voluntary and involuntary dissolution.
Voluntary Dissolution
Section 617.1402 Florida Statutes explains the procedures for voluntary dissolution. Voluntary dissolution requires the vote of a majority of members, but only if the members are authorized to vote on dissolution. If members are not authorized to vote on dissolution, dissolution may be effected by a majority vote of directors.
Involuntary Dissolution
Section 617.1430 provides the grounds for judicial dissolution:
1. Petition brought by Department of Legal Affairs — Grounds include fraud (in obtaining the HOAs articles of incorporation), and the corporation’s continued abuse of authority.
2. Petition brought by at least 10% of the members, or a director or anyone authorized by the Articles of Incorporation—
The members (or authorized individual) may petition the court for dissolution IF (1) directors are deadlocked in the management of the association and the members cannot break the deadlock; or (2) the members are deadlocked and are unable to elect successor directors, or (3) if corporate assets are being wasted or misapplied.
3. Petition brought by a creditor, in certain circumstances where the creditor has a judgment and the association is insolvent.
4. Petition brought by the association — where the association desires court supervised dissolution.
As with any corporate dissolution, an association is allowed to “wind up” its affairs (Section 617.1405 and 617.1406). “Winding up” could include conveyance of the common property to the municipality under a plan of dissolution (Section 617.1406). In some cases, owners may choose a purely contractual basis for maintaining the common property.
The practical ability to dissolve depends on the common property and any restrictions on the property’s use or transfer. A “deed restricted” community that has many amenities or shared walls (like a townhouse community) may not practically be able to dissolve. Moreover, private roads are usually not up to the municipality’s code. That has been a death knell for dissolution in some cases, because the expense of widening the roads may be prohibitive. On the other hand, if the only common property is undeveloped land with no amenities, it could be sold or in some circumstances, donated to the municipality (if the municipality will accept it).
Regardless of the circumstances, dissolving an association should be done with the advice of competent legal counsel knowledgable in association and property law
Recently, a homeowner asked if an HOA can be legally dissolved. The answer is “yes” in some circumstances. If a Declaration of Covenants is still enforceable and subjects the properties of the community to the jurisdiction and control of an HOA, it may be a breach of the board’s fiduciary duty to dissolve the corporation. However in some cases the members may decide to amend the Declaration to allow dissolution, or the Declaration may be unenforceable. An HOA can be dissolved by the membership, by the “corporation” (through its board) or by court order.
The first place to look is the HOA’s governing documents (Covenants and Bylaws). If those are silent, then consider relevant statutes. Florida Statutes Chapter 720 governing HOAs provides for receivership but does not include a provision for dissolution. Therefore, the next step is to look at Chapter 617, that governs not for profit corporations (since most HOAs are not for profit corporations).
Chapter 617 Florida Statutes provides for voluntary and involuntary dissolution.
Voluntary Dissolution
Section 617.1402 Florida Statutes explains the procedures for voluntary dissolution. Voluntary dissolution requires the vote of a majority of members, but only if the members are authorized to vote on dissolution. If members are not authorized to vote on dissolution, dissolution may be effected by a majority vote of directors.
Involuntary Dissolution
Section 617.1430 provides the grounds for judicial dissolution:
1. Petition brought by Department of Legal Affairs — Grounds include fraud (in obtaining the HOAs articles of incorporation), and the corporation’s continued abuse of authority.
2. Petition brought by at least 10% of the members, or a director or anyone authorized by the Articles of Incorporation—
The members (or authorized individual) may petition the court for dissolution IF (1) directors are deadlocked in the management of the association and the members cannot break the deadlock; or (2) the members are deadlocked and are unable to elect successor directors, or (3) if corporate assets are being wasted or misapplied.
3. Petition brought by a creditor, in certain circumstances where the creditor has a judgment and the association is insolvent.
4. Petition brought by the association — where the association desires court supervised dissolution.
As with any corporate dissolution, an association is allowed to “wind up” its affairs (Section 617.1405 and 617.1406). “Winding up” could include conveyance of the common property to the municipality under a plan of dissolution (Section 617.1406). In some cases, owners may choose a purely contractual basis for maintaining the common property.
The practical ability to dissolve depends on the common property and any restrictions on the property’s use or transfer. A “deed restricted” community that has many amenities or shared walls (like a townhouse community) may not practically be able to dissolve. Moreover, private roads are usually not up to the municipality’s code. That has been a death knell for dissolution in some cases, because the expense of widening the roads may be prohibitive. On the other hand, if the only common property is undeveloped land with no amenities, it could be sold or in some circumstances, donated to the municipality (if the municipality will accept it).
Regardless of the circumstances, dissolving an association should be done with the advice of competent legal counsel knowledgable in association and property law
As noted by the author, there are practical hurdles to overcome when amenities are extensive and shared; some of these are not divisible eg. shared walls of townhomes. As pointed out, amenities can be maintained under individual contracts. In S-bag's case, little will change as it is currently operating amenities under contracts such as water & sewer operations, garbage collection, management company, financial accounting etc.
The "rubber meets the road" at road maintenance. SLohA owners currently pay TWO entities to maintain roads--Polk County and SLohA assessments. Polk County gets a free ride from Baggers because they perform no service from taxes collected. Polk County will be unlikely to accept our roads to maintain under a proposed plan of dissolution. In that event, the roads remain "privately-owned"--golf carts will continue to be legal--and it will be the owners' option as to how much they will spend on maintenance.
It should be noted that S-bag has been operating amenities under contractual relationships for 15 years--since Covenants began to expire on parcels in 2002. Covenants have very litte to do with anything--obviously. It is difficult to envision something unknown/unfamiliar--especially when one is assaulted with garbage playing on fear and ignorance, as the board is doing. But there are many, many Florida HOA's that are humming right along and living happily in a community without Covenants. As long as the money is there, life goes on.