Q Is there a maximum amount that an assessment can be raised each year? What is the increase based on?

—Fiscally Conservative

A “Under Florida law, there is no maximum amount an assessment can be increased each year,” says attorney Robert Rubinstein of the law firm of Becker & Poliakoff in West Palm Beach. “Florida law requires the budget to be "in an amount which is not less than that required to provide funds in advance for payment of all of the anticipated current operating expenses and for all of the unpaid operating expenses previously incurred."

“While Florida law also requires the budget to include fully funded statutory reserves, it provides the unit owners the option of waiving or reducing those reserves. Unlike the reserves, there is no Florida statute giving owners the option not to fully fund operating expenses. Therefore, whatever the amount is for anticipated current operating expenses and the prior year's deficit, that amount must be in the budget. That means there is no cap or maximum amount assessments can be increased because the assessments must always be sufficient to pay those operating expenses. As operating expenses increase, so does the budget and so do the assessments.

“However, Florida law gives the owners an option to adopt a substitute budget, if the budget adopted by the board exceeds 115% of the prior year's budget. In determining whether the budget exceeds the 115%, only normally recurring annual expenses are counted. Reserves, expenses not expected to be incurred on a regular or annual basis and betterments are excluded from the calculation.

“Even if the owners adopt a substitute budget, that substitute budget must still meet the requirements of law. The obligation for assessments to be in an amount sufficient to cover all anticipated current operating expenses and the prior year's deficit is mandatory, so any substitute budget must still assess for all current operating expenses and the prior year's deficit. This is where reasonable business judgment controls. It is possible the board's reasonable business judgment of what constitutes current operating expenses and the prior year's deficit can be different from that of the owners. In addition, negotiations with service providers or contracting with different service providers can result in lower current operating expenses. Thus, a substitute budget adopted by the owners can be lower than the budget adopted by the board, yet both can be considered in compliance with the law. Keep in mind that reasonable business judgment means there cannot be an abuse of discretion. Ignoring the actual amount of an operating expense, like the amount of an insurance premium, and substituting a lower amount not based on any realistic estimate just to decrease assessments is an abuse of discretion and does not constitute reasonable business judgment.

“Notwithstanding the above, some governing documents have a cap or limit on how much assessments can be increased each year. In Florida, there are strong legal arguments why such caps or limitations are unenforceable, but there are also Florida case law and arbitration decisions stating that such caps or limitations are or could be valid. The complexities involved are beyond this article, but if your governing documents contain caps or limitations on how much assessments can be raised each year, you must consult your community association attorney for a legal opinion.”