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Subject: Process for Florida HOA to Incorporate/Annex Additional Lots
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ScottH21
(Florida)

Posts:7


07/13/2021 11:06 PM  
I have looked online but mostly find similar but different discussions....(i.e. developer adding lots/phases/parcels or merger of HOAs) My situation is different.

Florida Single Family HOA (about 100 lots) founded in 1980.
Operating with original and antiquated 1980 Declaration of Restrictions, Articles of Incorporation, & Bylaws. (Yes, we spent most of 2019 revitalizing, got approval in 12/2019 and recorded in 01/2020).
None of our governing documents speak to "adding" lots or members or increasing size of HOA.
All three governing documents currently require 2/3 member approval to amend.

We have a member that owns a 10 acre (+/-) parcel that adjoins our HOA common area property. Subject property was NOT included or even referenced in our original plat. The member and parcel owner has approached the HOA and expressed interest in having his parcel divided into approximately 1 acres lots and made part of the HOA. In theory, parcel owner would pay an impact fee per lot when the lots are sold (providing us with significant and much needed funds to maintain and improve this common property). Lot owners would be begin paying our assessments... lowering the per member expenses without adding any additional cost (outside of all legal fees to put this together - most of which would likely be paid by parcel owner.) This also benefits the HOA by ensuring that these lots are developed consistently with OUR community standards/restrictions and not become an eyesore or nuisance... as they will be the first impression that members and visitors/guest see when entering our community. So these are three big wins for the HOA.

In becoming part of our HOA, said lots would have access to our unique 10 acre common parcel... boosting the property value of these lots. Perhaps parcel owners pays an impact fee of "x" and property value is boosted 3x, netting him 2x increased value/equity. So this should be a win-win scenario.

We will obviously seek legal advice from a well established and competent HOA law firm. But in the mean time, just trying to determine if this is feasible, my $64,000 question(s) is:
What kind of vote would be needed by our membership to approve such and incorporation/annexation? 2/3 (as required to amend Bylaws an/or Restrictions)? Higher? 100% of members?

720.306 1, (c) states:

Unless otherwise provided in the governing documents as originally recorded or permitted by this chapter or chapter 617, an amendment may not materially and adversely alter the proportionate voting interest appurtenant to a parcel or increase the proportion or percentage by which a parcel shares in the common expenses of the association unless the record parcel owner and all record owners of liens on the parcels join in the execution of the amendment. For purposes of this section, a change in quorum requirements is not an alteration of voting interests. The merger or consolidation of one or more associations under a plan of merger or consolidation under part I of chapter 607 or chapter 617 is not a material or adverse alteration of the proportionate voting interest appurtenant to a parcel.

If adding 10 lots and diluting existing members voting interest by 10 percent, would that trigger the "materially and adversely alter the proportionate voting interest" clause in paragraph (c)? All members, existing and new lots, would have the same voting rights - 1 vote per lot. I'm not sure how to interpret "proportionate." On one hand, I would think it would trigger because their voting interest is reduced from 1/100 to 1/110. On the other hand, all members would have the same proportionate voting interest (1 out of the total voting interest.)

Just trying to understand the process/hurdles/obstacles in putting together such a deal. I'm confident we can get 2/3 approval but 100% would definitely be out of the question.

Any insight would be appreciated.

Thanks!
AugustinD


Posts:1695


07/14/2021 7:09 AM  
ScottH21, a few observations, in preparation for meeting with the HOA attorney:

-- FS 720.306 (1) (c) starts with, "Unless otherwise provided in the governing documents as originally recorded or permitted by this chapter or chapter 617... " One would have to see your governing documents to see what they say about altering the voting interest. Here's a 2020 Florida appeals court decision that does speak a little to this very point on pages 9 and 10: https://law.justia.com/cases/florida/second-district-court-of-appeal/2020/19-1135.html

-- Per FS 720.306 (1) (c), your HOA would have to get approval of all the mortgage holders and other lien holders. Some discussion of circumstances where mortgage holders approval was required has come up here before. Obtaining this approval might require some cleverness in writing ballots (for the purpose of voting for an amendment). See https://findhoalaw.com/mortgagee-lender-approval-for-ccr-amendments/

-- You say the HOA member with the 10 acres would pay the legal fees. But what if the HOA attorney advises the HOA board not to proceed, and the HOA attorney's bill comes to $10,000? The latter question itself is a question for the HOA attorney. Maybe this is not a big deal. Maybe it is (yielding a special assessment of $100 per home).

-- I think your Board should conduct a survey of members, to gauge whether support appears to be high enough to go forward. List the pros and cons of this proposed annexation. Ask if people want it.
ScottH21
(Florida)

Posts:7


07/14/2021 11:19 AM  
Thanks for the reply.

I will give the links a read.

Our docs are silent on adding lots/member/ and altering voting rights.

Appreciate your concerns on the fees. We'll have all that worked out in time. Also agree with surveying the members. I'm confident there will be broad support. At this point, we're just trying to figure out what the roadmap looks like so that when we go to them, we can say such a deal would require "x" percent member approval. If it's 100%, and it probably is, then it's probably DOA.

There are some lease deal workarounds but they wouldn't necessarily solve the "community standards" / restrictions issues.

Another possible option would be to form a micro-hoa and then merge it with ours as the last line of (c) indicates that would not be a "material or adverse alteration of the proportionate voting interest....".

At this point, we just trying figure out a path to accomplish goal so we can explain the goal and the path to get there.
AugustinD


Posts:1695


07/14/2021 11:30 AM  
Posted By ScottH21 on 07/14/2021 11:19 AM
If it's 100%, and it probably is, then it's probably DOA.
Based on a lot of reading over the years about amending CC&Rs, I am not at all persuaded it's 100% for this situation.

Why do you think it might be 100%?
ScottH21
(Florida)

Posts:7


07/15/2021 9:24 AM  
Because we would need to amend our governing documents and because of what is stated in 720:

"Unless otherwise provided in the governing documents as originally recorded or permitted by this chapter or chapter 617, an amendment may not materially and adversely alter the proportionate voting interest appurtenant to a parcel ....... unless the record parcel owner and all record owners of liens on the parcels join in the execution of the amendment."

Amending governing documents to account for new lots would dilute (materially and adversely alter the proportionate voting interest) existing members by 10%. And, we have a sub-class of half the lots (about 50 lots) that adjoin the common property and they are the only class that vote on capital improvements/assessments to that common property. So adding 10 lots (members) to this common property class would dilute them about 20%.

As I stated above, our gov docs require 2/3 to amend but are silent on "materially and adversely" altering proportionate voting interest.

Although the net result/dilution would be the same, the "merger" process mentioned at the end of the same paragraph is not considered material or adverse alteration of voting interest. So that is why I'm thinking setting up an small HOA for the purpose of merger may be an option.
AugustinD


Posts:1695


07/15/2021 9:31 AM  
Posted By ScottH21 on 07/15/2021 9:24 AM
["...] unless the record parcel owner and all record owners of liens on the parcels join in the execution of the amendment."
ScottH21, thank you. I agree it appears 100% of the owners (along with all mortgage holders) must buy into this for the proposed change in voting interests et cetera.
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Forums > Homeowner Association > HOA Discussions > Process for Florida HOA to Incorporate/Annex Additional Lots



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