For five months now,
Florida condominiums with buildings that are three stories
or higher have been on notice of F.S. §553.899, a new
statute adopted within Senate Bill 4-D (“S.B. 4-D”) that
requires periodic milestone inspections. This controversial
legislation was enacted in response to the tragic collapse
of Champlain Towers South in Surfside, Florida. The premise
is that once a condominium reaches a certain age, a licensed
engineer or architect will need to perform a milestone
inspection of a qualifying building to determine if there is
any substantial structural deterioration.
F.S. §553.899(2)(b) defines substantial structural
deterioration as:
[S]ubstantial structural distress that negatively affects a
building’s general structural condition and integrity. The
term does not include surface imperfections such as cracks,
distortion, sagging, deflections, misalignment, signs of
leakage, or peeling of finishes unless the licensed engineer
or architect performing the…inspection determines that such
surface imperfections are a sign of substantial structural
deterioration.
The milestone inspection consists of two phases. Phase one
is a visual examination of the habitable and non-habitable
areas of a building, including the major structural
components. If the inspector finds substantial structural
deterioration, a phase two inspection is required. Phase two
may involve destructive or non-destructive testing, and the
findings may lead to expensive remediation work. Either way,
after each phase, the engineer or architect must prepare and
submit an inspection report to the condominium association
and the local government with jurisdiction, and the report
must:
-
Indicate the manner and type of inspection forming the basis for the inspection report;
-
Identify any substantial structural deterioration, within a reasonable professional probability based on the scope of the inspection, describe the extent of such deterioration, and identify any recommended repairs for such deterioration;
-
State whether unsafe or dangerous conditions, as those terms are defined in the Florida Building Code, were observed;
-
Recommend any remedial or preventative repair for any items that are damaged but are not substantial structural deterioration; and
-
Identify and describe any items requiring further inspection.
Making expensive
repairs, however, may not be a realistic option for many
condominiums with substantial structural deterioration.
Further exacerbating this financial burden is that,
beginning in 2025, unit owners can no longer waive reserves
for certain building components. Even condominium
associations with reserves on hand may still need to levy
special assessments to make up for previously unfunded
reserves and those now required by the new
legislation—presuming the existing reserves are not fully
funded and do no cover the items for which reserves are now
mandatory.
Until the recent legislation, the Florida Condominium Act
(and most condominium declarations) allowed unit owners to
waive reserves, which was often exercised to keep
condominium assessments as low as possible. The risk
associated with this practice was illustrated by Champlain
Towers South when it needed $15 million worth of repairs but
had less than $1 million in reserves. This precarious
situation puts condominium unit owners between a rock and a
hard place. Should they pay massive special assessments
(i.e., to make the repairs and fund reserves) knowing it is
unlikely to increase the value of their units? Or should
they terminate the condominium to try and capture the value
of the land, resulting in the loss of their units entirely?
For older condominiums built at a low density or located in
highly desirable areas, the land may be more valuable than
the building itself. In this case, terminating the
condominium and selling out to a redeveloper could result in
unit sale prices way above market value. For older
condominiums located in less desirable areas, however,
termination may be the lesser of two evils. Otherwise, these
unit owners will not only face insurmountable repair and
reserve costs, but also their associations may struggle to
comply with the new regulations.
At this point, it is unclear whether the legislature will
intervene before the first milestone inspection deadline on
December 31, 2024. There are discussions of a potential
glitch bill to fix technical issues with S.B. 4-D,
[1] but the consensus is
that its underlying substance is here to stay, including the
milestone inspection and reserve requirements. The
corresponding and additional economic burdens placed on
existing aging condominiums is thus likely to result in more
terminations as many unit owners simply will have no better
alternative.
[1] For example,
the milestone inspection deadline already passed for some
condominiums per F.S. §§553.899(3)-(4).