A Tampa lawyer talks about what mistakes she’s seen local condo associations making and how they can better prepare for maintenance issues.
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The partially collapsed Champlain Towers South condo in Surfside, Florida Thursday, June 24, 2021. |
Has the Surfside
tragedy increased the number of questions your firm has
gotten from Tampa Bay-area condo associations?
We’ve seen a substantial uptick in communications both from
existing clients and potentially new clients who are
concerned about whether they’re doing what they need to do
to avoid their own Surfside situation. We’ve seen a number
of questions about, ‘What sort of engineering reports are we
required to obtain? What do we need to do to make sure that
we have sufficient money in our reserve account to address
structural integrity problems when they arise? What do we
need to be giving to our members, to make sure that they
feel safe and that they understand that we’ve looked at the
building, and that we’re making sure the building is taken
care of?’
We’re getting these calls all the time. Even existing
clients who have in the past utilized legal resources
sparingly in an effort to save money, they’re relying on
professionals in a way that they didn’t before Surfside.
Has your team added people as a result?
We’ve hired two new attorneys just since Surfside. In the
last year I think we’ve hired four new attorneys.
Our newer hires are handling some of the routine collection
and enforcement work and it’s opening up some of our more
senior associates and partners to handle these general
counsel-type questions from communities that are concerned
after Surfside.
So now that all these community associations and condo
associations are approaching you, have you been finding that
most of them were doing all that they needed to do by the
law?
No, unfortunately I’m finding a lot of holes.
I’m finding a lot of communities, especially 55-plus
communities, where previous boards maybe did not necessarily
understand the association’s obligation to collect money to
reserve for these future repairs and replacements. We’re
seeing communities that haven’t hired an engineer to do a
reserve study in over five or 10 years.
Just so we’re on the same page, a reserve study is what a
condominium or homeowners’ association will obtain. It’s a
report that has an engineer come out to the property,
inspect all the common elements, inspect the things that the
association owns and is responsible for maintaining, and
then figure out what’s the remaining useful life on each
part of the building, or each recreational facility, or
whatever it is that the association is responsible for
maintaining. So the engineers tell you when you need to do
maintenance, and when you need to replace these different
components of your common elements.
Our boards for condominiums and homeowners’ associations are
volunteers. They are not paid, and my clients on these
boards, they come from every walk of life. I’ve had
extremely intelligent folks with zero background in
business, and zero background in construction and
engineering, everything from, a-stay-at home parent to an
executive of a Fortune 500 company. These people are not
really qualified to determine, ‘What is the remaining useful
life on my roof? What is the remaining useful life on the
elevator that takes these seniors up to the 20th floor?’ And
so these reserve studies are absolutely essential, so that
the community can make sure that all of these parts of the
building are being maintained when they need to be
maintained and repaired and replaced as needed.
What I’m finding is a lot of my communities haven’t been
getting these reserve studies, and they maybe haven’t had an
engineer out to look at the property in 10 or 15 years.
Sometimes it’s not a major problem. Sometimes I’ll get a
very well-informed board who has a 15-year-old reserve
study, but has been methodically consulting with
professionals to make sure that their 15- year-old reserve
study is still okay. But I would say the majority of my
communities that are not getting reserve studies are not
prepared. They haven’t had these components of their
buildings evaluated or looked at by professionals. They
haven’t been funding their reserve accounts and they usually
don’t have the money that they need to perform these repairs
and replacements when they need to be done.
To clarify, what is
the legal requirement for how often a reserve study needs to
be conducted?
There isn’t one. That’s part of the problem.
The Legislature tried to impose a mandatory reserve study
requirement a few years ago, and there was a lot of
objection from communities because it was such a major
expense. You get a lot of communities in Florida that are
reserved for people who are 55 years of age and older. And
in a lot of those communities, the people are a lot closer
to 80 or 90 than they are to 55. In those communities, you
get a large number of people who are saying, ‘Why are we
spending $10,000 on this reserve study now and collecting
for components that won’t need to be replaced until I’m no
longer living? I don’t want to pay for that.’ So the fact
that there’s no mandatory requirement is leaving a lot of
discretion.
Now, down in Broward and Miami-Dade counties, there’s a
local requirement that requires a structural engineer to
look at the building once it’s 40 years old and every 10
years thereafter, but that is only a requirement in Broward
and Miami-Dade. The rest of the state of Florida, that’s not
a requirement, and even in Miami and Broward, the
practitioners down there have reached the conclusion that
that may not even be enough. You take a building that’s
sitting next to saltwater in a high velocity wind zone
that’s the frequent subject of flooding, hurricanes, things
along those lines, and you’re going to see substantial
deterioration in the structures of these buildings sometimes
after 20 years or 30 years, and waiting until the 40- year
mark may be too late.
I know that that’s one of the things that the task force
that the Florida Bar put together to look at condominium
laws is considering: What should the requirements be for
obtaining both reserve studies and structural integrity
reports from a certified structural engineer? And that’s one
of the other issues that’s being talked about now after
Surfside - there is not a license in Florida that is
specifically given to engineers who specialize in reviewing
the structural integrity of buildings. So you might have an
engineer whose background is in something completely
different, who just feels that he or she is able to analyze
the structural integrity of the building, but there’s
no licensing bureau that makes sure they’ve taken a test and
they really know what to look for.
I’ve read there’s essentially a loophole in state law that
allows condo boards to avoid keeping enough money in
reserves to cover maintenance. Is that also headed for a
change?
I wouldn’t be surprised if the changes that the Legislature
proposes substantially limit the ability of the unit owners
to waive full funding of reserves, or to put less money in
their reserve accounts than they really need in order to
replace these items.
The way it works now is condominiums are required to put
enough money into these reserve accounts every year so that
they have the money that they need in the year that they
need to perform repairs and replacements. That amount of
money is supposed to be based on the reserve study that they
get from a professional engineering company. But what they
can do if they don’t want to fully fund those accounts, is
they can hold a membership vote to waive full funding of
reserves. The board can propose any number that the board
feels would be acceptable to membership. If you get 51
percent of the members that show up and approve that
decision, then you won’t have a fully funded reserve account
and you’re not going to have the money that you need in
order to replace the items in the building that need to be
replaced when the time comes.
I see communities all over Florida giving their members the
option to waive full funding of reserves because they just
don’t want to come out-of-pocket to put that money in a safe
place for a rainy day when they’re not sure that it’s going
to benefit them.
There’s a flip side to this argument. Some people say, ‘If I
want to live in a community and I want to take my money and
invest it in the stock market and get a higher rate of
return than the association is going to get by stockpiling
it in a reserve account, I should be able to do that. And
when you need the money, just ask me to pay it and I’ll have
it.’ There are a lot of people in Florida that take that
approach. There are a lot of communities where there are
investors.
But that becomes a problem in other communities, low-income
communities, or maybe 55-plus communities where others might
just not understand how it works, and they may not have the
money saved away. And if you can’t afford to pay this
special assessment when it’s levied, when the board
realizes, ‘Hey now, it really is time to replace the roof’ —
people lose their homes over these special assessments. You
might have a special assessment of $30,000, if you realize
all of a sudden that ‘We haven’t been funding our reserve
accounts and the stucco of our building is falling down.’
Any last pieces of advice?
If board members are unsure, if they don’t understand how
these reserves work, they really shouldn’t just be relying
on their management company. They have an obligation, a
fiduciary duty to make sure that their community is doing
what they need to do to be legally compliant, and even in
some situations, go beyond what’s legally required. Right
now there is no obligation under Florida law for the board
of directors that are responsible for maintaining a 40- or
50-year-old building to do anything about it. But I would
urge them to consider that sometimes going above and beyond
what’s legally required is really necessary.
I would encourage people to reach out and ask a
professional, and don’t wait until you’ve got that report
from the engineer that says you’ve got $15 million’s worth
of damages like they did in Surfside.