TALLAHASSEE — The deadly collapse of
Champlain Towers South in Surfside has brought a
little-noticed loophole in Florida law to the attention of
lawyers, condo management companies, Realtors, insurance
companies and consumer advocates.
Called the “kick the can down the road” provision by one
attorney, Section 718.112 of the Florida Condominium Act
allows condominium associations to waive the rule that their
boards set aside adequate cash reserves to pay for needed
building improvements. All it takes is a simple majority
vote of the condo unit owners who show up at a condo board
meeting to postpone the need for expensive set-asides.
But amid reports that the Champlain Towers South had just
over $777,000 in reserves to pay for what was estimated by
inspectors as a $16.2 million repair bill, and concerns
raised by structural engineers about the upkeep of the
building, questions have emerged about whether the legal
loophole is allowing maintenance to be dangerously deferred,
especially in the state’s most aging high-rises.
Now, many interest groups and public officials want the law
to be updated.
“Going forward, unit owners should not be allowed to
completely waive the funding of reserves — that’s giving
them a rope to hang themselves with,’’ said Eric Glazer, of
Glazer and Sachs, P.A., a Fort Lauderdale law firm that
specializes in condominium law and trains condo boards to
understand their legal and financial obligations.
The challenge, several experts said, will be how to strike a
balance between mandating reserves and maintenance to
prevent tragedy and giving associations discretion over
decisions that will cost homeowners more money.
“I am not saying we take away the power or the discretion of
the board totally, but we may have to make it more precise,
more specific so the board members know what they have to do
to protect the lives of their residents,” said William Sklar,
an adjunct professor at the University of Miami School of
Law and the chair of a task force assembled by The Florida
Bar.
The Florida Bar on Friday convened the Safety Task Force of
the Bar’s Real Property, Probate, and Trust Law Section to
come up with recommendations for legislation and regulations
that could help prevent a future condo tragedy.
A similar task force is being created by engineers. Also
calling for stronger reserve requirements is the Community
Association Institute, the organization that represents
condo boards and managers, as well as Realtors and insurance
companies.
Miami-Dade County Mayor Daniella Levine Cava has assembled a
group of subject matter experts to analyze what more the
county should do to prevent a future tragedy, and Miami-Dade
State Attorney Katherine Fernandez Rundle will lead a grand
jury investigation into broader building safety issues.
MISSED OPPORTUNITY
For condominium activist and former state legislator Julio
Robiana, however, the attention to the issue he spent eight
years pursuing as a state legislator is welcome, but
bittersweet.
Robaina, a North Miami Republican, worked to change the law
to ensure that condo associations, which are composed of
condo owners, are required to conduct more regular safety
inspections of their buildings and set aside enough money to
make needed repairs. But the measures were repeatedly
opposed, often by many of the same organizations now calling
for change.
“A lot of groups lobbied against it — [a] lot of law firms,
even some property management companies,’’ Robaina recalled
last week. “Because, at the end of the day, they didn’t want
to put any burdens on the decision-making of the board
members who would have had to make those decisions that
would have probably prompted special assessments.”
Glazer explained that one of the most frequent opponents to
the law change was “attorneys who represent developers,
because when the maintenance is more [expensive], it’s
harder to sell units. And so the Legislature cares about
giving developers the ability to sell units.”
In 2008, Robaina sponsored a condominium reform bill. For
two years, Florida had a reserve requirement in place.
Robaina said he believes if it hadn’t been repealed in 2010,
it might have prevented the Surfside tragedy that left at
least 94 dead and dozens of others missing as of Monday.
“They would have a grasp and an understanding of where that
building was, and it would have made it easier to understand
the need to sock away money in the future,’’ he said. “If
they would have had funds in a fully funded reserve when
they were alerted to the need for repairs a couple of years
ago and they had the funds sitting there, I don’t think this
board would have been so hesitant because they had no reason
to hesitate.”
PAST CONDO REFORMS
Imposing mandatory reserves was one of several reforms
vigorously sought by a group of condo activists after former
Gov. Jeb Bush, a Republican, and the Florida House convened
two working groups nearly 20 years ago that made a series of
recommendations on strengthening homeowner rights.
“It wasn’t my idea,’’ Robaina said, but grew out of demands
from condo owners who attended hearings held across the
state. “Their No. 1 concern was there wasn’t enough
maintenance being done on their buildings.”
The challenge was that raising funds to pay for the
improvements had become a tug of war between owners, who
often lived in the building and saw the need for
improvements, and absentee owners who often relied on the
property for investment purposes, he said.
Rather than mandate that reserves be set aside, Robaina, who
chaired the House select committee, recommended requiring
that any condominium building greater than three stories in
height conduct an inspection every five years “attesting to
required maintenance, useful life, and replacement costs of
the common elements.”
Condominium associations would be required to prepare an
annual financial report that included an estimate of what it
would cost condo owners to pay for the maintenance issues
uncovered in the inspection reports. The financial report
was also required to show whether the condo association’s
reserves were being funded at a level sufficient to prevent
the need for special assessments and, if not, specify the
amount of assessments necessary to bring the reserves up to
the level necessary to avoid the special assessments.
In 2008, the Florida House and Senate unanimously passed
Robaina’s bill, HB 995.
Then-Gov. Charlie Crist signed the bill into law. But two
years later, as the Great Recession roiled the real estate
market, legislators repealed the five-year inspection
requirement — and the requirement that the annual budget
reflect the reserve needed — in two separate bills.
Former state Rep. Gary Aubuchon, a Naples real estate
broker, tucked the repeal of the five-year inspection
language onto page 101 of HB 663, a 102-page bill that
addressed a host of other building safety issues such as
abandoned property and smoke alarms.
A separate bill, SB 1196, filed by former state Sen. Mike
Fasano, now the tax collector in Pasco County, also removed
the language that required condo associations to rely on
inspection reports when disclosing whether their reserves
were funded at a “level sufficient to prevent the need for a
special assessment.”
Both bills passed with near unanimous approval, and Robaina
voted for both of them. He said Friday that because the
provisions were tucked into larger bills and not discussed,
he did not realize what was in them. “It’s the repercussions
of not reading everything.”
Crist signed the bills into law, and the repeal was not
given much attention.
Some condo law experts say it was pushed by the powerful
development and construction industry when the state and the
nation were still recovering from the 2008 housing boom and
bust. Condo sales had dropped, and many developers had been
unable to relinquish control of condo associations — and
state mandates that came with them — because they had yet to
meet the threshold for sold units.
“All the speculative building that was happening was
screeching to a halt and all these developers are now
holding all of these non-performing assets,” said Charlie
Jimerson, a Jacksonville-based attorney who has represented
hundreds of condo associations over nearly two decades.
Now a Democrat challenging Gov. Ron DeSantis in 2022, Crist
noted the near unanimous vote by the state Legislature and
said in a statement that he now wants the governor and
Legislature “to take swift action to require high rise
condos to undergo regular, thorough inspections, to mandate
financial reserves, and create low-cost loan options to pay
for major structural repairs.”
He said the Surfside condo collapse “could have been
avoided,” and while an investigation has yet to determine
exactly what caused the collapse, “it is clear that there is
not enough regulation of older condo buildings.”
For his part, DeSantis has said that he thinks Champlain
Towers South “had problems from the start” but last
Wednesday would not commit to any state action to address
concerns about aging buildings.
TODAY’S REALITY
An inadequate cash reserve is a common dilemma plaguing
condo associations across the state, a concern that has
become almost inescapable in the aftermath of the Surfside
condo collapse.
Many condo associations, run by elected volunteers, can be
reluctant to implement assessments that build up reserves
for needed repairs and maintenance, as they come under
pressure to keep required fees low to avoid fights with
neighbors.
“They don’t want to create financial obligations for one
another, for themselves or for their neighbors,” Jimerson
said. “They approach problem-solving from a perspective of
how we can get by in the most fiscally prudent way possible
and that requires pinching pennies on service providers, it
requires pinching pennies on reserve studies, and it results
in a lot of can kicking,” he added.
To accommodate penny-pinching condo boards, Florida
lawmakers adopted a provision in the Florida Condominium Act
that allows them to waive the reserve requirement with a
majority vote of the condo association members.
Jimerson said a “very low percentage” of condo associations
he has encountered maintain adequate reserves. Oftentimes,
he says it is because they were reluctant to pay for a
reserve study, a blueprint for action that takes into
account engineering factors and financial projections to
determine how much residents should regularly contribute to
prepare for future expenses.
Lawyers advising condo associations also recommend that
boards approve the reserve waiver.
“If a budget with fully funded reserves is going to impose
an undue economic burden on the unit owners, the best choice
for the board is to call an owners’ meeting and ask that the
owners vote to “partially fund” the reserves,” writes Joe
Adams, a lawyer in the Fort Myers office of Becker Poliakoff
on his Florida Condo and HOA Law blog.
“Certain procedures must be followed, but it is not
complicated,’’ he continued. “If a majority of the owners
voting at a meeting approve the partially funded reserve
(which could include some “phased in catch-up” amounts if
desired), that would be legally proper.”
Associations of older condominiums are more likely to keep
reserves that are inadequate to pay for what is needed,
Sklar said. That primarily includes buildings built before
Hurricane Andrew devastated South Florida in 1992, when
there were less stringent building code requirements in
place and may be ”more apt to have the need for inspections
to determine if there are structural issues.”
In Florida, where millions of people live in condominiums,
mismanaged reserves and building maintenance can lead to
injuries or homeowners’ financial ruin.
“I have a lot of horror stories, where there have been
communities that just flat out did not pay attention to the
symptoms of faulty construction, and they didn’t have a
proactive approach to conducting inspections and reporting,
so it became a real serious, life-safety type of issue,”
Jimerson said.
Some homeowners were forced to forfeit their homes in
foreclosures because they could not afford hefty special
assessments that were imposed to make up for the lack of
reserves. Other condo owners were dragged into costly court
battles to come up with the money.
“Litigation is not cheap, and of course, raising money to
fund the litigation is something that often merits special
assessment, so that can be a challenge,” Jimerson said.
For Jan Bergemann, founder of Cyber Citizens For Justice, a
property owners’ advocacy group that also runs the Florida
HOA and Condo blog, the system is designed to encourage
litigation, and he is skeptical deep reforms will come of
the statewide review.
“You have attorneys and [condo property managers] who cheer
these boards on because they know it will cause trouble and
trouble makes them money,’’ he said.
By contrast, he said his organization has collected dozens
of complaints from condo association members who want their
boards to focus on structural repairs but instead see money
spent on cosmetic improvements to their buildings.
He said the board of the Palace Condo, a 40-story high rise
on Miami’s Brickell Avenue, is now assessing its members
$6.8 million to replace metal railings with glass and cited
as the reason, according to emails supplied to the Miami
Herald, “to facilitate repair and prevent future water
intrusion.”
But some members of the 200-unit condo have complained about
the expense, arguing that it appears to be intended for
cosmetic purposes.
“The board is now being questioned actively by a lot of
owners about our railings,’’ said Alberto Bengolea, one of
the owners who is among those raising concerns. “They say
their engineers have determined that maybe 5% of the
railings need some work, period. But the decision is to
remove all the railings in the building and put in trendy
glass railings. That’s crazy. ... It’s always cosmetics over
structure.”
MOVING FORWARD
One of the most common proposals emerging from the various
groups is to restore the requirement removed in 2010 and
force condo associations to produce reserve studies that
detail how much should be held in reserves to pay for
certain maintenance projects — such as roof replacement,
pavement resurfacing and other large capital projects.
“The reserve issue is going to be one of the central issues
in the discussion,” said Adams, the Becker Poliakoff lawyer
and the member of the Florida Bar task force. “Everything is
on the table.”