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Find Blog Articles for Florida’s Condo, HOA and the Management Industry.
So many of our buildings are approaching the 40 year mark, requiring recertification in electrical and structural. Many buildings are younger yet still need major repairs to the concrete, balconies, pool decks and other portions of the common elements. The board is going to need a lot of money. Assuming you don’t have enough in reserves, how do you get it?
Of course, one way is to simply pass a special assessment. In effect, that means that you will have all the money necessary to pay for all the repairs, before the repairs are done. The problem with a special assessment…………. Everyone has to come up with a lot of money relatively quickly, if not immediately. Some people simply don’t have it. If they don’t they face possible foreclosure by the association.
What is certainly becoming the more common way of coming up with money to make repairs to the common elements is for the association to borrow the money from a bank. Rates are still very low and money is very cheap right now. Typically, the bank gives the association a line of credit for one year that the association may draw upon to pay for the cost of repairs. After one year, the funds borrowed from the line of credit are converted to a term loan, usually anywhere from three to seven years.
There are of course many advantages to borrowing rather than assessing. First and foremost, the owners need not come up with their entire share of the special assessment immediately. Instead, they get to pay off the bank loan over several years. In addition, the board can establish payment schedules that would allow the owners to have a choice of paying their share of the loan off immediately and without interest. Or, the board can allow the owners to pay off their share of the loan over time, with interest.
Before signing for the loan, the bank will always ask association’s counsel to review the governing documents and write an “opinion of counsel” as to whether or not the association has the right to borrow money. Under the Florida not for profit statutes, the association has the right to borrow. However, the governing documents should be read carefully because sometimes it clearly states that the association cannot borrow money without a vote of the community.
In terms of collateral, the association is not signing a mortgage encumbering the common elements. Remember, the common elements are owned by the owners and not the association. Instead, the association will be signing a Collateral Assignment of Lien Rights which authorizes the bank to demand the monthly assessments directly from each unit owner, should the association default in its payment obligations to the bank.
If you have any additional questions about how the process works, give us a call. By Eric Glazer, Esq http://condocrazeandhoas.com/
Tags: Assessments, Budgets, Management News
1- The absence of uniform maintenance standards outside of boards should be established.
2- Efforts to make condo repairs of life safety issues should no longer require a full vote of the association membership.
3- Thorough and consistent inspections should be required.
4- Boards should be empowered to borrow money to pay for life safety repairs.
5- Local governments can no longer rely upon sovereign immunity to protect themselves from civil claims.
6- The Florida legislature can no longer raid the $4 door tax trust fund by diverting that money to the general fund.
7- Thirty percent of that money should go towards educating boards and owners about repairs to make buildings safe
A task force report prepared by a section of the Florida Bar recommended that lawmakers overhaul the state’s condominium laws following the Surfside building tragedy that killed 98 people, urging a process to address inspections and ensure proper reserves are in place to make major safety repairs, among other issues.
The task force was formed by The Real Property, Probate and Trust Law Section of the bar, convening lawyers who deal with condominium and association laws. Its purpose was to recommend ways to prevent future failures, not to investigate or place blame for the 12-story building collapse.
“The lack of uniform maintenance standards or protocols, and the unguided discretion given to boards of directors to determine when, how, and if life safety inspections should be performed, requires legislative intervention,” concluded the 179-page report that was released earlier this week.
Champlain Towers was 40 years old and in need of major repairs when it collapsed on June 24. It’s led to officials looking at the need to ensure other aging structures are safe. The task force said 912,376 Florida condo units housing more than 2 million people are at least 30 years old, including more than 105,000 older than 50 years and nearly 328,000 built between 40 and 50 years ago.
Overall, Florida has more than 1.5 million condo units operated by 27,599 condo associations, the report said.
Among recommendations are giving association boards the right to make special assessments for major repairs to protect resident safety without a full association vote. It also requires associations to build up reserves for such projects as recommended by engineers in order to be able to pay for repairs. Those would be in addition to accounts in place for routine maintenance.
While the report said the vast majority of condominium associations are operating in a reasonably safe manner, there needs to be more consistency with inspections and the information provided in them needs to be available to residents.
“Unit owners and boards may also resist such maintenance because of cost, lack of reserves, disruption and inconvenience,” the report said.
The report also recommended allowing condominium boards to borrow money to pay for life safety repairs so the cost could be spread out over years.
Local governments should also have a higher level of accountability for inspection reports, including stripping them of sovereign immunity protections, which limit civil claims against government agencies to $200,000.
“Condominium residents should be entitled to rely on the inspections and reports performed by or on behalf of local governments, and local governments should not be able to avoid responsibility for the content and conclusion of building inspection reports,” it said.
Current law has limitations on associations and unit owners to take civil action against developers for design and construction flaws. Those limitations should be lifted, the report said.
The state division that oversees condominium education and compliance is largely funded by a trust fund built on a $4 per unit fee. The task force recommends the Legislature not be able to “sweep” the trust fund for other state budget purposes.
It also recommends that 30 percent of the trust fund be used to educate association boards and residents about obligations to make repairs to ensure buildings are safe.
Thank You, for the Article:
Tags: Assessments, Board of Directors, Management News, Reserves
1) Senate Bill 602, effective May 7, 2021, provides additional clarification for already existing laws in Chapter 617, Fla. Stat., known as the Florida Not For Profit Corporation Act.
a) §617.0725, Fla. Stat., clarifies that amendments to the articles of incorporation and bylaws of condominium, cooperative, and homeowners associations which effect or impose a quorum or voting requirement greater than the general quorum or amendment vote requirement are not required to be approved by the greater quorum or voting requirement then in effect or proposed to be adopted when voting to lower the threshold.
b) §617.0825, Fla. Stat., adds organizing committees established under §720.405, Fla. Stat. (covenant revitalization), to the existing list of condominium, cooperative, and homeowners associations exceptions to the board committee and advisory committee requirements of §617.0825.
c) §617.1703, Fla. Stat., further clarifies existing law that in the event of conflict between the Florida Not For Profit Corporation Act and Chapter 718 (condominiums), Chapter 719 (cooperatives), Chapter 720 (homeowners associations), and Chapter 723 (mobile home parks), the provisions of those specific chapters apply over that of the Florida Not For Profit Corporation Act.
2) House Bill 463 provides an exemption for certain community associations from the requirements of Chapter 514, Fla. Stat., regulating public swimming pools.
(a) §514.0115, Fla. Stat., provides that “pools serving homeowners associations and other property associations which have no more than 32 units or parcels and are not operating as public lodging establishments are exempt from supervision” under Chapter 514 except for supervision necessary to ensure water quality and compliance with §514.0315 (required safety features), and are subject to §514.05 (denial, suspension, or revocation of permit and administrative fines) and §514.06 (injunctions).
1) House Bill 649 provides associations regulated by Chapters 718 and 719, Fla. Stat., certain rights and obligations as related to ad valorem tax assessment challenges.
(a) §194.011, Fla. Stat., pertains to ad valorem tax assessment challenges and is amended as follows:
i. Confirms the right of associations regulated by Chapters 718 and 719, Fla. Stat., to challenge ad valorem tax assessments.
ii. Requires that an association send a notice of its intent to petition the value adjustment board to all owners which notice must include a statement that by not opting out of the petition, the owner agrees that the association represents that owner in any related proceedings without the need for the owner to be named or joined as a party.
iii. Perfects the right of the association that has filed a single joint petition to seek judicial review or appeal a decision and continue to represent the owners in any related proceedings.
(b) §194.181, Fla. Stat., pertains to any tax assessment challenge and is amended as follows:
i. In any case brought by the property appraiser relating to a value adjustment board decision on a single joint petition filed by an association, the association is the only required party defendant (meaning, the individual owners are not required to be named as parties).
ii. Once the association receives a complaint filed by the property appraiser, it must provide notice to all owners that they may (i) elect to retain their own counsel, (ii) choose not to defend the appeal, or (iii) be represented by the association.
1) As to condominium associations, Senate Bill 56 provides the following changes:
(a) §718.111, Fla. Stat., is amended to add “all acknowledgments made pursuant to §718.121(4)(c)” (*see below) to the list of what consti- tutes official records. In short, this refers to an owner’s acknowledgement that the association will change its delivery method for providing invoices for assessments or statements of account. While the owner acknowledgement constitutes a part of the official records, it is not open to unit owner inspection and copying.
(b) §718.116, Fla. Stat., is revised to extend the timing, from 30 days to 45 days, of the statutorily required delinquent assessment notice (a/k/a, the intent to foreclose letter) that must be sent to delinquent owners informing them that a claim of lien has been filed against their property and that that the association will foreclose its lien if it remains unpaid. Thus, this notice must be given at least 45 days before the foreclosure action is filed. Failure to do so will preclude the association from recovery of its attorney fees and costs.
(c) §718.121, Fla. Stat., pertains to the association liens for delinquent assessments and is amended as follows:
i. “If an association sends out an invoice for assessments or a unit’s statement of account described in §718.111 (12)(a)11.b., Fla. Stat., they must be delivered to the unit owner by first-class United States mail or by electronic transmission to the unit owner’s email address maintained in the association’s official records. (§718.111(12)(a)11.b., Fla. Stat., refers to a current account and a monthly, bimonthly, or quarterly statement of the account for each unit designating the name of the unit owner, the due date and the amount of each assessment, the amount paid on the account, and the balance due.)
ii. “Before changing the method of delivery for an invoice for assessments or the statement of account, the association must deliver a writ- ten notice of such change to each unit owner at least 30 days before the association sends the invoice for assessments or the statement of account by the new delivery method. The notice must be sent by first-class United States mail to the unit owner at his or her last address as reflected in the association’s records and, if such address is not the unit address, it must be sent by first-class United States mail to the unit address. Notice is deemed to have been delivered upon mailing. a)*A unit owner must affirmatively ac- knowledge, electronically or in writing, his or her understanding that the association will change its method of delivery of the invoice for assessments or the unit’s statement of account before the association may change the method of delivering an invoice for assessments or the statement of account.”
iii. New Notice of Late Assessment: “An association may not require payment of attorney fees related to a past due assessment without first delivering a written notice of late assessment to the unit owner which specifies the amount owed to the association and provides the unit owner an opportunity to pay the amount owed without the assessment of attorney fees. Additional collection action cannot be taken for 30 days from the date of the notice. The notice of late assessment must be sent by first-class United States mail to the unit owner at his or her last address as reflected in the association’s records and, if such address is not the unit address, must also be sent by first-class United States mail to the unit address. Notice is deemed to have been delivered upon mailing.”
A rebuttable presumption that the association mailed a notice in accordance with this new law is established if a board member, officer, or agent of the association, or licensed community association manager provides a sworn affidavit attesting to such mailing. In addition, the notice must substantially follow the required statutory format which is provided in the legislation.
iv. The timing of the statutorily required notice of intent to record a claim of lien (a/k/a, the intent to lien letter) that must be sent to delinquent owners informing the owner that a claim of lien will be filed against their property if the delinquency remains unpaid has been changed from 30 days to 45 days.
2) As to condominium associations, Senate Bill 630 provides the following changes:
(a) §627.714, Fla. Stat., addresses residential condominium unit owner coverage and required loss assessment coverage. “If a condominium association’s insurance policy does not provide rights for subrogation against the unit owners in the association, an insurance policy issued to an individual unit owner in the association may not provide rights of subrogation against the condominium association.” “Subrogation” is a right held by most insurance carriers to legally pursue a third party that caused an insurance loss to the insured. This is done in order to recover the amount of the claim paid by the insurance carrier to the insured for the loss. Whether this will cause an increase in insurance premiums is highly debatable, depending upon whom you ask. While only time will tell, it is this author’s personal belief that it will cause an increase in pre- miums because the insurance company responsible for the casualty may not have a manner by which they can recoup their losses from the party that caused the casualty. Additionally, it is important to note that this new “anti-subrogation” law only applies to residential condominiums.
(b) §718.103, Fla. Stat., provides definitions of the terms used in Chapter 718, Fla. Stat., and is amended as follows:
i. The term “multicondominium” is amended from “a real estate development containing two or more condominiums, all of which are operated by the same association,” to “real property containing two or more condominiums, all of which are operated by the same association.”
ii. The term “operation” or “operation of the condominium” is amended to include administration and management of the condominium property “and the association.”
(c) §718.111, Fla. Stat., pertains to official records and is amended as follows:
i. Bids for work to be performed or for materials, equipment, or services must be maintained by the association “for at least 1 year after receipt of the bid.”
ii. In addition to the association’s bylaws and rules, a renter of a unit is now also entitled to inspect and copy the declaration of condominium.
iii. A condominium association “may not require a member to demonstrate any purpose or state any reason for the inspection” of the official records.
iv. An association managing a condominium with 150 or more units and which does not contain timeshare units is already required to post digital copies of certain official records on its website. As an alternative to posting on the website, the association can make the documents available through an application that can be downloaded on a mobile device (otherwise commonly referred to as an “app”).
v. The legislation clarifies the requirement that amendments to the articles of incorporation or other documents creating the association must be posted to the website or app.
(d) §718.112, Fla. Stat., is amended as follows:
i. A condominium association, through board action, may extinguish a discriminatory restriction as provided in §712.065, Fla. Stat.
ii. Board of director term limits are clarified to provide that “[o]nly board service that occurs on or after July 1, 2018, may be used when calculating a board member’s term limit.”
iii. Notice provisions for annual meetings and other unit owner meetings are now separately provided and allow for posting of such notices on association property in addition to posting such notices on the condominium property.
iv. The second notice of election must be provided not less than 14 days nor more than 34 days before the date of the election.
v. Regarding transfer fees, “the association may not charge a fee in connection with the sale, mortgage, lease, sublease, or other transfer of a unit unless the association is required to approve such transfer and a fee for such approval is provided for in the declaration, articles, or bylaws. Such fee may not exceed $150 per applicant” (an increase of $50). “For the purpose of calculating the fee, spouses or a parent or parents and any dependent children are considered one applicant. However, if the lease or sublease is a renewal of the lease or sublease with the same lessee or sublessee, a charge may not be made.” Such fees may be adjusted every five years in an amount equal to the total of the annual increases occurring in certain consumer indexes, with the Department of Business and Professional Regulation (the “Department”) periodically calculating the fee rounded to the nearest dollar and published on its website.
vi. Director recall challenges by the unit owner representative or by a recalled director may be made by filing a court action in addition to filing a petition for arbitration with the Division of Florida Condominiums, Timeshares, and Mobile Homes (the “Division”).
vii. A new provision for “alternative dispute resolution” is mandated to be provided in §718.1255, Fla. Stat., for any residential condominium (discussed below).
viii. A provision which prohibited a non-timeshare condominium association (a/k/a, a residential or commercial condominium association) from employing or contracting with any service provider that is owned or operated by a board member or with any person who has a financial relationship with a board member or officer, or a relative within the third degree of consanguinity by blood or marriage of a board member or officer is removed.
(e) §718.113, Fla. Stat., is amended as follows to add “natural gas fuel” vehicles to the provisions regarding electric vehicles:
i. The rights granted to those needing to charge electric vehicles are now extended to those having natural gas fuel vehicles, including the right to install a natural gas fueling station within the boundaries of the unit owner’s limited common element parking space or exclusively designated parking space and the obligation to pay the cost for the supply and storage of the natural gas fuel.
ii. “The unit owner installing, maintaining, or removing the electric vehicle charging station or natural gas fuel station is responsible for complying with all federal, state, or local laws and regulations applicable to such installation, maintenance, or removal.”
iii. The board of directors “may make available, install, or operate an electric vehicle charging station or a natural gas fuel station upon the common elements or association property and establish the charges or the manner of payments for the unit owners, residents, or guests to use the electric vehicle charging station or natural gas fuel station.” Importantly, this installation, repair, or maintenance of an electric vehicle charging station or natural gas fuel station “does not constitute a material alteration or substantial addition to the common elements or association property.”
(f) §718.117, Fla. Stat., previously provided that a unit owner or lienor may contest a plan of termination by initiating a petition for mandatory non-binding arbitration. Now, such contest must be brought in accordance with §718.1255, Fla. Stat. (further discussed below).
(g) §718.121, Fla. Stat., pertains to liens and is amended as follows:
i. Labor performed on or materials furnished for the installation of a natural gas fuel station, in addition to an electric vehicle charging station, cannot be the basis for the filing of a lien under Part I of Chapter 713, Fla. Stat., against the association, but such a lien may be filed against the unit owner.
ii. The notice of intent to record a claim of lien (a/k/a, the intent to lien letter) which must be provided to the unit owner prior to recording the lien is now deemed “to have been delivered upon mailing.”
(h) §718.1255, Fla. Stat., pertains to alternative dispute resolution and provides for significant changes such that non-binding arbitration for certain matters is no longer mandatory but rather is optional, and instead, the aggrieved party can use the mediation process set out in Chapter 720, Fla. Stat., rather than the aforementioned arbitration process as follows:
i. “Before the institution of court litigation, a party to a “dispute” (defined below), other than an election or recall dispute, must either petition the Division for nonbinding arbitration or initiate pre-suit mediation” in accordance with §720.311, Fla. Stat. Briefly explained, the pre-suit mediation process set out in §720.311, Fla. Stat., requires the aggrieved party to send to the responding party a statutorily required demand to participate in pre-suit mediation providing five mediator options. The responding party must select one of the five mediators within 20 days, and if not, then the aggrieved party may proceed to file their lawsuit and seek attorney’s fees and costs incurred in attempting to obtain mediation. If the responding party does appropriately respond, then mediation must take place within 90 days.
ii. For purposes of using either nonbinding arbitration or pre-suit mediation, a “dispute” refers to any disagreement between two or more parties that involve the following:
a) the authority of the board of directors to require any owner to take action or to not take action involving that owner’s unit or the appurtenances thereto;
b) the authority of the board of directors to alter or add to a common area or element;
c) the failure of a governing body when required by Chapter 718, Fla. Stat., or an association document to
(1) properly conduct elections
(2) give adequate notice of meetings or other actions
(3) properly conduct meetings, or (4) allow inspection of books and records; or
(4) a plan of termination pursuant to §718.117, Fla. Stat.
iii. The arbitration can be binding upon the parties, meaning not appealable in the local circuit court, if all parties in the arbitration agree to be bound in writing. If not, then within 30 days of conclusion of the arbitration, the arbitrator’s final order can be appealed in the local circuit court. Such appeal is heard de novo, meaning anew.
(i) §718.1265, Fla. Stat., pertains to emergency powers which are now updated to include situations such as COVID-19 and provide for new procedures which are essentially a codification of the procedures used during the COVID-19 pandemic.
i. Emergency powers are clarified and expanded such that they can be employed in response to damage or injury caused by or anticipated in connection with an emergency as defined in §252.34(4), Fla. Stat., for which a state of emergency is declared.
a) As defined in §252.34(4), Fla. Stat., an “emergency” means “any occurrence, or threat thereof, whether natural, technological, or manmade, in war or in peace, which results or may result in substantial injury or harm to the population or substantial damage to or loss of property.”
ii. In addition to being able to conduct board and membership meetings with notice given as practicable, committee meetings and elections may also be noticed in such manner, and all such meetings may be conducted, in whole or in part, by telephone, real-time video conferencing, or similar real-time electronic or video communication.
iii. In addition to implementation of disaster plans, emergency plans can now be implemented before, during, or following the event for which the state of emergency is declared which include, but are not limited to, shutting down or off elevators; electricity; water, sewer, or security systems; or air conditioners.
iv. In addition to making decisions regarding whether the property is available or unavailable for entry and occupancy by unit owners, family members, tenants, guests, agents, or invitees in order to protect the health, safety, or welfare of such persons upon advice of emergency management officials or licensed professionals retained by the board, such advice may also be provided by public health officials and other licensed professionals available to the board. This also includes decisions as to whether any portion of the property can be safely inhabited, accessed, or occupied, subject to certain exclusions, discussed below.
v. The mitigation authority is expanded to include mitigation of injury or contagions, in addition to mitigation of damage, and such authority includes taking action to contract for the removal of debris and to prevent or mitigate the spread of fungus or contagion.
vi. Contracting on behalf of any unit owner or owners for items or services for which the owners are otherwise individually responsible but which are necessary to prevent further damage to the condominium property or association property is expanded to include prevention of injury and contagion. In addition to drying out of units, replacing damaged air conditioners and air handlers to provide climate control, etc., specifically referenced is sanitizing of the condominium property or association property, as applicable.
vii. Notwithstanding the power of the board to prohibit access to the property, “an association may not prohibit unit owners, tenants, guests, agents, or invitees of a unit owner from accessing the unit, the common elements, and the limited common elements appurte- nant to the unit for the purpose of ingress to and egress from the unit and when necessary in connection with the sale, lease, or other transfer of a unit” or “with the habitability of the unit or for the health and safety of such person, unless a governmental order or determination, or a public health directive from the Centers for Disease Control and Prevention, has been issued prohibiting such access to the unit. Any such access is subject to reasonable restrictions adopted by the association.”
(j) §718.202, Fla. Stat., pertains to sales or reservations deposits prior to closing and is amended as follows:
i. Currently, so long as proper disclosures are provided, a developer may withdraw escrow funds in excess of 10 percent of the purchase price. The use of such funds is limited, as revised, to payment of “actual costs incurred,” including, but not limited to, expenditures for “demolition, site clearing, permit fees, impact fees, and utility reservation fees, as well as architectural, engineering, and surveying fees that directly relate to the construction and development of the condominium property.”
ii. In addition to existing prohibitions as to what these funds cannot be used for, such as salaries, commissions, and expenses of salespersons and advertising, the use of these funds for marketing or promotional purposes, loan fees and costs, principal and interest on loans, attorneys’ fees, accounting fees, or insurance costs is also prohibited.
(k) §718.303, Fla. Stat., clarifies that fines and use right suspensions are also applicable to tenants in addition to the already included unit owner, licensee, or invitee of the unit owner and that a fine is due five days after notice of the approved fine is provided to the violator.
(l) §718.405, Fla. Stat., is amended to provide that a multicondominium association is not prevented or restricted from “adopting a consolidated or combined declaration of condominium if such declaration complies with §718.104, Fla. Stat. (pertaining to creation of a condominium and contents of a declaration), and does not serve to merge the condominiums or change the legal descriptions of the condominium parcels as set forth in §718.109, Fla. Stat., unless accomplished in accordance with law.” The new provision is intended to clarify existing law and applies to associations existing on July 1, 2021.
(m) §718.501, Fla. Stat., pertains to the authority, responsibility, and duties of the Division and is amended as follows:
i. The Division has expanded jurisdiction to investigate complaints regarding “maintenance” of official records in addition to the existing authority to investigate complaints regarding “access” to official records.
ii. The Division is required to provide, upon request, a list of mediators to any association, unit owner, or other participant in alternative dispute resolution proceedings under §718.1255, Fla. Stat., requesting a copy of the list.
3) As to condominium associations, Senate Bill 1966 provides for the following changes to the board member eligibility requirements and budget process:
(a) §718.112, Fla. Stat., pertains to board member eligibility requirements and the budget adoption process and is amended as follows:
i. As to condominium board member eligibility, presently, if a candidate is delinquent in “any monetary obligation,” then the candidate is not eligible to run for the board. This is revised to further limit the delinquency which would render a candidate ineligible to run for the board to a delinquency merely in the payment of any “assessment obligation” in order to be disqualified.
a) For purposes of determining assessment delinquency, “a person is delinquent if the payment is not made by the due date as specifically identified in the declaration of condominium, bylaws, or articles of incorporation. If a due date is not specifically identified in the declaration of condominium, bylaws, or articles of incorporation, the due date is the first day of the assessment period.”
ii. The board is required to adopt the annual budget “at least 14 days prior to the start of the association’s fiscal year. In the event the board fails to adopt the annual budget in a timely fashion a second time, it shall be deemed a minor violation, and the prior year’s budget shall continue in effect until the new budget is adopted.”
(b) §718.501, Fla. Stat., is amended to provide the Division with the authority to adopt rules regarding the submission of a complaint against an association.
(c) §718.5014, Fla. Stat., is amended to allow the Condominium Ombudsman the ability to relocate his or her principal office, presently required to be located in Leon County, to a place convenient to the offices of the Division.
1) As to cooperative associations, Senate Bill 56 provides the following changes:
(a) §719.104, Fla. Stat., is amended to add “all acknowledgments made pursuant to s. 719.108(3)(b)3” (*see below) to the list of what constitutes official records. In short, this refers to an owner’s acknowledgement that the association will change its delivery method for providing invoices for assessments or statements of account. While the owner acknowledgement constitutes a part of the official records, it is not open to unit owner inspection and copying.
(b) §719.108, Fla. Stat., pertains to association liens for delinquent assessments and is amended as follows:
i. “If an association sends out an invoice for assessments or a unit’s statement of account described in §719.104(2)(a)9.b., Fla. Stat., they must be delivered to the unit owner by first-class United States mail or by electronic transmission to the unit owner’s email address maintained in the association’s official records.” (§719.104(2)(a)9.b., Fla. Stat., refers to a current account and a monthly, bimonthly, or quarterly statement of the account for each unit designating the name of the unit owner, the due date and the amount of each assessment, the amount paid on the account, and the balance due.)
ii. “Before changing the method of delivery for an invoice for assessments or the statement of account, the association must deliver a written notice of such change to each unit owner at least 30 days before the association sends the invoice for assessments or the statement of account by the new delivery method. The notice must be sent by first-class United States mail to the unit owner at his or her last address as reflected in the association’s records and, if such address is not the unit address, it must be sent by first-class United States mail to the unit address. Notice is deemed to have been delivered upon mailing.” “*A unit owner must affirmatively acknowledge, electronically or in writing, his or her understanding that the association will change its method of delivery of the invoice for assessments or the unit’s statement of account before the association may change the method of delivering an invoice for assessments or the statement of account.”
iii. New Notice of Late Assessment: “An association may not require payment of attorney fees related to a past due assessment without first delivering a writ- ten notice of late assessment to the unit owner which specifies the amount owed to the association and provides the unit owner an opportunity to pay the amount owed without the assessment of attorney fees.” Additional collection action cannot be taken for 30 days from the date of the notice. “The notice of late assessment must be sent by first-class United States mail to the unit owner at his or her last address as reflected in the association’s records and, if such address is not the unit address, must also be sent by first-class United States mail to the unit address. Notice is deemed to have been delivered upon mailing.” A rebuttable presumption that the association mailed a notice in accordance with this new law is established if a board member, officer, or agent of the association, or licensed community association manager provides a sworn affidavit attesting to such mailing. In addition, the notice must substantially follow the required statutory format which is provided in the legislation.
iv. Notice of Intent to Lien: The timing of the statutorily required notice of intent to record a claim of lien that must be sent to delinquent owners informing the owner that a claim of lien will be filed against their property if the delinquency remains unpaid has been changed from 30 days to 45 days.
v. Notice of Intent to Foreclose: The timing of the statutorily required delinquent assessment notice that must be sent to delinquent owners informing the owner that a claim of lien has been filed against their property and that the association will foreclose its lien if it remains unpaid has been changed from 30 days to 45 days. Thus, this notice must be given at least 45 days before the foreclosure action is filed. Failure to do so will preclude the association from recovery of its attorney fees and costs.
2) As to cooperative associations, Senate Bill 630 provides the following changes:
(a) §719.103, Fla. Stat., which sets forth the definition of the term “unit,” is amended to provide that “[a]n interest in a unit is an interest in real property.” (This small tweak may be very helpful to cooperative shareholders in their attempts to enter into loans for their cooperative units subject to the proprietary lease.)
(b) §719.104, Fla. Stat., with regard to official records, is amended to provide that the cooperative association “may not require a member to demonstrate any purpose or state any reason for the inspection” of the official records
(c) §719.106, Fla. Stat., pertains to cooperative by-laws and is amended as follows:
i. “A board member or committee member participating in a meeting via telephone, real-time video conferencing, or similar real-time electronic or video communication counts toward a quorum, and such a member may vote as if physically present.”
ii. If the board determines not to certify a recall or fails to certify a recall, then the board must, within five business days, file a petition for arbitration with the Division or file a court action. The unit owners participating in the recall must be named as a party under the petition for arbitration or in a court action. If the arbitrator or court certifies the recall as to any director, the recall is effective upon mailing the final order of arbitration to the association or the final order of the court. If the association fails to comply with the order of the court or the arbitrator, the Division may take action pursuant to §719.501, Fla. Stat.
iii. Director recall challenges by the unit owner representative or by a recalled director may be made by filing a court action in addition to filing a petition with the Division.
iv. A new provision for “alternative dispute resolution” is mandated to be provided in §719.1255, Fla. Stat., for internal disputes arising from the operation of the cooperative.
v. A cooperative association, through board action, may extinguish a discriminatory restriction as provided in §712.065, Fla. Stat.
(d) §719.128, Fla. Stat., pertains to emergency powers which are now updated to include situations such as COVID-19 and provide for new procedures which are essentially a codification of the procedures used during the COVID-19 pandemic.
i. Emergency powers are clarified and expanded such that they can be employed in response to damage or injury caused by or anticipated in connection with an emergency as defined in §252.34(4), Fla. Stat., for which a state of emergency is declared.
a) As defined in §252.34(4), Fla. Stat., an “emergency” means any occurrence, or threat thereof, whether natural, technological, or manmade, in war or in peace, which results or may result in substantial injury or harm to the population or substantial damage to or loss of property.
ii. In addition to being able to conduct board and membership meetings with notice given as practicable, committee meetings and elections may also be noticed in such manner, and all such meetings may be conducted, in whole or in part, by telephone, real-time video conferencing, or similar real-time electronic or video communication. Notice of decisions may also be communicated as provided in this paragraph.
iii. In addition to implementation of disaster plans, emergency plans can now be implemented before, during, or following the event for which the state of emergency is declared which may include, but are not limited to, shutting down or off elevators; electricity; water, sewer, or security systems; or air conditioners.
iv. In addition to making decisions regarding whether the property is available or unavailable for entry and occupancy by unit owners, family members, tenants, guests, agents, or invitees in order to protect the health, safety, or welfare of such persons upon advice of emergency management officials or licensed professionals retained by the board, such advice may also be provided by public health officials and other licensed professionals available to the board. This also includes decisions as to whether any portion of the property can be safely inhabited, accessed, or occupied subject to certain exclusions, discussed below.
v. In addition to requiring evacuation in the event of a mandatory evacuation order, the emergency powers now include the power to prohibit or restrict access to the cooperative property in the event of a public health threat.
vi. The mitigation authority is expanded to include mitigation of injury or contagions, in addition to mitigation of damage, and such authority includes taking action to contract for the removal of debris, to prevent or mitigate the spread of fungus, or to sanitize the cooperative property.
vii. Contracting on behalf of any unit owner or owners for items or services for which the owners are otherwise individually responsible but which are necessary to prevent further damage to the cooperative property is expanded to include prevention of injury and contagion. In addition to drying out of units, replacing damaged air conditioners and air handlers to provide climate control, etc., specifically referenced is sanitizing of the cooperative property.
viii. Notwithstanding the power of the board to prohibit access to the property, “an association may not prohibit unit owners, tenants, guests, agents, or invitees of a unit owner from accessing the unit, the common elements, and the limited common elements appurtenant to the unit for the purpose of ingress to and egress from the unit and when is necessary in connection with the sale, lease, or other transfer of a unit or with the habitability of the unit or for the health and safety of such person, unless a governmental order or determination, or a public health directive from the Centers for Disease Control and Prevention, has been issued prohibiting such access to the unit. Any such access is subject to reasonable restrictions adopted by the association.”
3) As to cooperative associations, Senate Bill 1966 provides the following changes to the budget process:
(a) §719.106, Fla. Stat., is amended to provide that the board is required to adopt the annual budget “at least 14 days prior to the start of the association’s fiscal year. In the event the board fails to adopt the annual budget in a timely manner a second time, it shall be deemed a minor violation, and the prior year’s budget shall continue in effect until the new budget is adopted.”
1) As to homeowners associations, Senate Bill 56 provides the following changes:
(a) §720.303, Fla. Stat., is amended to add “all acknowledgments made pursuant to s. 720.3085(3) (c)3” (*see below) to the list of what constitutes official records. In short, this refers to an owner’s acknowledgement that the association will change its delivery method for providing invoices for assessments or statements of account. While the owner acknowledgement constitutes a part of the official records, it is not open to owner inspection and copying
(b) §720.3085, Fla. Stat., pertains to association liens for delinquent assessments and is amended as follows:
i. “If an association sends out an invoice for assessments or a parcel’s statement of account described in §720.303(4)(j)2., Fla. Stat., they must be delivered to the owner by first-class United States mail or by electronic transmission to the owner’s email address maintained in the association’s official records.” (§720.303 (4)(j)2., Fla. Stat., refers to a current account and a periodic statement of the account for each member, designating the name and current address of each member obligated to pay assessments, the due date and amount of each assessment or other charge against the member, the date and amount of each payment on the account, and the balance due.)
ii. Before changing the method of delivery for an invoice for assessments or the statement of account, the association must deliver a written notice of such change to each owner at least 30 days before the association sends the invoice for assessments or the statement of account by the new delivery method “The notice must be sent by first-class United States mail to the owner at his or her last address as reflected in the association’s records and, if such address is not the parcel address, it must be sent by first-class United States mail to the parcel address. Notice is deemed to have been delivered upon mailing.” “*A parcel owner must affirmatively acknowledge, electronically or in writing, his or her understanding that the association will change its method of delivery of the invoice for assessments or the parcel’s statement of account before the association may change the method of delivering an invoice for assessments or the statement of account.”
iii. New Notice of Late Assessment: “An association may not require payment of attorney fees related to a past due assessment without first delivering a written notice of late assessment to the owner which specifies the amount owed to the association and provides the owner an opportunity to pay the amount owed without the assessment of attorney fees.” Additional collection action cannot be taken for 30 days from the date of the notice. “The notice of late assessment must be sent by first-class United States mail to the owner at his or her last address as reflected in the association’s records and, if such address is not the parcel address, must also be sent by first-class United States mail to the parcel address. Notice is deemed to have been delivered upon mailing. A rebuttable presumption that the association mailed a notice in accordance with this new law is established if a board member, officer, or agent of the association, or licensed community association manager provides a sworn affidavit attesting to such mailing.” In addition, the notice must substantially follow the required statutory format which is provided in the legislation.
2) As to homeowners associations, Senate Bill 630 provides the following changes:
(a) §720.301(8), Fla. Stat., setting forth the definition of the term “governing documents,” is revised to remove adopted rules and regulations therefrom.
(b) §720.303, Fla. Stat., pertains to board meetings, official records, budgets, financial reports, association funds, and recalls and is amended as follows:
i. “In addition to any of the authorized means of providing notice of a board meeting, the association may, by rule, adopt a procedure for conspicuously posting the meeting notice and agenda on the association’s website or an application (an app) that can be downloaded on a mobile device for at least the minimum period of time for which a meeting notice is also required to be physically posted on the association property. Any rule adopted must, in addition to other matters, include a requirement that the association send electronic notice to members whose email addresses are included in the association’s official records in the same manner as is required for notice of a meeting of the members. Such notice must include a hyperlink to the website or such mobile application on which the meeting notice is posted.”
ii. “Ballots, sign-in sheets, voting proxies, and all other papers and electronic records relating to voting by owners” are added to the list of official records which must be maintained by the association, and they must be maintained for at least one year after the date of the election, vote, or meeting.
iii. Although comprising a part of the association’s official records, “[i]nformation an association obtains in a gated community in connection with guests’ visits to parcel owners or community residents” is added to the list of official records which are not subject to member inspection and copying.
iv. If the budget does not include reserve accounts created in accordance with §720.303(6)(d), Fla. Stat., or the declaration, articles, or bylaws do not obligate the developer to create reserves, and the association is responsible for the repair and maintenance of capital improvements that may result in a special assessment if reserves are not provided or not fully funded, each financial report for the pre- ceding fiscal year must contain a statutorily provided statement warning of such consequence in conspicuous type.
v. While a developer is in control of a homeowners association, the developer may, but is not required to, include reserves in the budget. If the developer includes reserves in the budget, the developer may determine the amount of reserves included.
vi. The developer is not obligated to pay for “contributions to reserve accounts for capital expenditures and deferred maintenance, as well as any other reserves the homeowners association or developer may be required to fund pursuant to any state, municipal, county, or other governmental statute or ordinance.”
vii. The developer is also not obligated to pay for operating expenses. In reading this new provision together with other developer funding obligations, this author interprets this provision to mean that the developer is not obligated to pay for operating expenses beyond its parcel assessment obligations if the developer is paying assessments on its parcels as opposed to deficit funding.
viii. The developer is not obligated to pay for “any other assessments related to the developer’s parcels for any period of time for which the developer has provided in the declaration that in lieu of paying any assessments imposed on any parcel owned by the developer, the developer need only pay the deficit, if any, in any fiscal year of the association, between the total amount of assessments receivable from other members plus any other association income and the lesser of the budget or actual expenses incurred by the association during such fiscal year.”
ix. If the board determines not to certify a recall or fails to certify a recall, then the board must, within five business days, file a petition for arbitration with the Department or file a court action. The owners participating in the recall must be named as a party under the petition for arbitration or in a court action. If the arbitrator or court certifies the recall as to any director, the recall is effective upon mailing the final order of arbitration to the association or the final order of the court.
x. Director recall challenges by the owner representative or by a recalled director may be made by filing a court action in addition to filing a petition under §718.1255, Fla. Stat.
(c) §720.305, Fla. Stat., clarifies that a fine is due five days after notice of the approved fine is provided to the owner and, if applicable, to any occupant, licensee, or invitee of the owner.
(d) §720.306, Fla. Stat., pertains to meetings of members, voting and election procedures, and amendments to the governing documents.
i. “A notice required under this section must be mailed or delivered to the address identified as the owner’s mailing address in the official records of the association as required under §720.303(4), Fla. Stat.”
ii. As to leasing, any governing document, or amendment thereto, that is enacted after July 1, 2021, and that prohibits or regulates rental agreements applies only to (i) an owner who acquires title to a parcel after the effective date of the governing document or amendment, or (ii) an owner who consents, individually or through a representative, to the governing document or amendment.
a) Notwithstanding, an association may amend its governing documents to prohibit or regulate rental agreements for a term of less than six months and may prohibit the rental of a parcel for more than three times in a calendar year, and such amendments shall apply to all owners.
b) For the purposes of these rental amendment restrictions, a change of ownership does not occur when a parcel owner conveys the parcel to an “affiliated entity,” when beneficial ownership of the parcel does not change, or when an heir becomes the owner.
c) An “affiliated entity” means “an entity that controls, is controlled by, or is under common control with, the owner or that becomes a parent or successor entity by reason of transfer, merger, consolidation, public offering, reorganization, dissolution or sale of stock, or transfer of membership partnership interests.”
d) “For a conveyance to be recognized as one made to an affiliated entity, the entity must furnish to the association a document certifying that the exclusion applies and provide any organizational documents for the owner and affiliated entity which support the representations in the certificate, as requested by the association.”
e) For the purposes of these rental amendment restrictions, “a change of ownership does occur when, with respect to an owner that is a business entity, every person that owned an interest in the real property at the time of the enactment of the amend- ment or rule conveys their interest in the real property to an unaffiliated entity.”
f) These rental amendment restrictions do not apply to associations with 15 or fewer owners.
iii. Election and recall disputes between a member and an association must be submitted to either binding arbitration with the Division or filed with a court of competent jurisdiction. (This amendment is also reflected in §720.311, Fla. Stat.)
(e) §720.3075, Fla. Stat., is amended to provide that a homeowners association, through board action, may extinguish a discriminatory restriction as provided in §712.065, Fla. Stat.
(f) §720.316, Fla. Stat., pertains to emergency powers which are now updated to include situations such as COVID-19 and provide for new procedures which are essentially a codification of the procedures used during the COVID-19 pandemic.
i. Emergency powers are clarified and expanded such that they can be employed in response to damage or injury caused by or anticipated in connection with an emergency as defined in §252.34(4), Fla. Stat., for which a state of emergency is declared.
a) As defined in §252.34(4), Fla. Stat., an “emergency” means “any occurrence, or threat thereof, whether natural, technological, or manmade, in war or in peace, which results or may result in substantial injury or harm to the population or substantial damage to or loss of property.”
ii. In addition to being able to conduct board and membership meetings with notice given as practicable, committee meetings and elections may also be noticed in such manner, and all such meetings may be conducted, in whole or in part, by telephone, real-time video conferencing, or similar real-time electronic or video communication. Notice of decisions may also be communicated as provided in this paragraph.
iii. In addition to implementation of disaster plans, emergency plans can now be implemented “before, during, or following the event for which the state of emergency is declared which may include, but are not limited to, shutting down or off elevators; electricity; water, sewer, or security systems; or air conditioners.”
iv. In addition to making decisions regarding whether the property is available or unavailable for entry and occupancy by owners, family members, tenants, guests, agents, or invitees in order to protect the health, safety, or welfare of such persons upon advice of emergency management officials or licensed professionals retained by the board, such advice may also be provided by public health officials and other licensed professionals available to the board. This also includes decisions as to whether any portion of the property can be safely inhabited, accessed, or occupied, subject to certain exclusions, discussed below.
v. The mitigation authority is expanded to include mitigation of injury or contagions, in addition to mitigation of damage, and such authority includes taking action to contract for the removal of debris, to prevent or mitigate the spread of fungus, or to sanitize the common areas or facilities.
vi. Notwithstanding the power of the board to prohibit access to the property, “an association may not prohibit owners, tenants, guests, agents, or invitees of an owner from accessing the common areas and facilities for the purpose of ingress to and egress from the parcel and when necessary in connection with the sale, lease, or other transfer of a parcel or with the habitability of the parcel or for the health and safety of such person, unless a governmental order or determination, or a public health directive from the Centers for Disease Control and Prevention, has been issued prohibiting such access to the parcel. Any such access is subject to reasonable restrictions adopted by the association.”
1) Senate Bill 2006 amends various Florida Statutes as relates to emergency management that govern emergency preparations, orders, and disaster recovery as follows:
(a) Prohibits a business entity or a governmental entity from requiring customers to verify COVID-19 vaccination, which includes community associations.
(b) Expands emergency powers for use during public health emergencies.
(c) Provides for legislative oversight and limitations on the duration of executive orders issued by the governor.
(d) Provides for limitations on the duration of emergency orders issued by a political subdivision, including the ability of the governor to invalidate local orders if the governor determines that the order unnecessarily restricts individual rights or liberties.
(e) Provides that an executive order imposing business restrictions or closure of, or restricted in-person attendance at, K-12 public schools must specifically state the reasons for the restrictions or closure.
2) House Bill 403 provides restrictions on local government’s ability to regulate home businesses.
(a) §559.995, Fla. Stat., pertaining to home-based businesses and local government restrictions, is added as follows:
i. Local governments may not enact or enforce any ordinance, regulation, or policy or take any action to license or otherwise regulate a home-based business.
ii. A home-based business must meet the following criteria in order to be considered a home-based business:
a) It must operate from residential property.
b) Employees of the business who work at the residential dwelling must also reside there, except that there may be up to two other employees or independent contractors who do not reside at the residential dwelling who may work at the business. In addition, there can be other remote employees that do not work at the residential dwelling.
c) Parking related to the business activity may not be greater in volume than would normally be expected by similar residents where no business is conducted and must comply with local zoning requirements, along with other compliance requirements.
d) As viewed from the street, the use of the residential property must be consistent with the uses of the residential areas that surround the property.
e) The activities of the home-based business must be secondary to the property’s use as a residential dwelling. The business activities must comply with all relevant local and state regulations. There can be no excessive fumes, noxious odors, vibration, noise, etc.
iii. Provides that the application of these new laws does not supersede any current or future declaration adopted pursuant to Chapter 718 (condominiums), Chapter 719 (cooperatives), and Chapter 720 (homeowners associations).
3) House Bill 421 & House Bill 1101 (effective 10/1/2021) provide revisions to the Bert J. Harris, Jr., Private Property Rights Protection Act, set out in Chapter 70, Fla. Stat. This Act provides relief to private landowners when a law, regulation, or ordinance inordinately burdens, restricts, or limits private property without amounting to a taking under the U.S. Constitution.
(a) §70.001, Fla. Stat., is amended as follows:
i. Provides that the prior owner maintains their Bert Harris claim so long as they filed their claim while they were the property owner.
ii. Clarifies that the term “real property” includes “surface, subsurface, and mineral estates” in addition to appurtenances and improvements to the land, including any other relevant interest in the real property in which the property owner has a relevant interest. However, the term includes only parcels that are the subject of and directly impacted by the action of a governmental entity.
iii. Allows the property owner the right to forgo a jury trial and to elect that the court determine the award of compensation.
iv. Provides for what amounts to a one-year statute of limitations to bring the claim from the time of the governmental notice which brought about the diminution of value.
4) SB 72 was signed into law on March 29, 2021, and, in pertinent part, grants liability protection to businesses and entities from lawsuits related to COVID-19 exposure.
(a) §768.38, Fla. Stat., was created and grants civil liability immunity to business entities and institutions, including, but not limited to, religious institutions and community associations. However, limited liability companies are excluded.
i. To be afforded the immunity, the association (or other business entity) must make a good faith effort to substantially comply with authoritative or controlling federal, state, and local public health standards or guidelines at the time the cause of action accrued. If more than one source or set of standards or guidance was authoritative or controlling at the time, the association’s good faith effort to substantially comply with any one of these sources or sets of standards or guidance will confer immunity from civil liability.
ii. If the court determines the defendant did not make a good faith effort to comply, the plaintiff may proceed with an action against the defendant. To establish liability, the defendant must have acted with gross negligence or intentional conduct, and the foregoing must be proven by clear and convincing evidence (rather than a mere preponderance of the evidence).
iii. There is a shortened one-year statute of limitations within which to bring the claim.
5) SB 60 pertains to code enforcement complaints.
(a) §§125.69, 162.06, 162.21, 166.0415, Fla. Stat., were amended to provide that a code inspector or code enforcement officer may not initiate an investigation of a potential violation of a duly enacted code or ordinance by way of an anonymous complaint unless the code inspector or code enforcement officer has reason to believe the violation presents an imminent threat to public health, safety, or welfare or imminent destruction of habitat or sensitive resources.
6) SB 76 pertains, in pertinent part, to contractors and provides for prohibition of solicitation.
(a) §489.147, Fla. Stat., pertaining to prohibited solicitations regarding roof damage is added as follows:
i. A contractor may not directly or indirectly engage in any of the following practices:
a) Soliciting a residential property owner by means of a “prohibited advertisement.” The term “prohibited advertisement” means “any written or electronic communication by a contractor that encourages, instructs, or induces a consumer to contact the contractor or public adjuster for the purpose of making an insurance claim for roof damage. The term includes, but is not limited to, door hangers, business cards, magnets, flyers, pamphlets, and emails.”
b) “Offering to a residential property owner a rebate, gift, gift card, cash, coupon, waiver of any insurance deductible, or any other thing of value in exchange for the following: 1) Allowing the contractor to conduct an inspection of the residential property owner’s roof; or 2) Making an insurance claim for damage to the residential property owner’s roof.
c) Offering, delivering, receiving, or accepting any compensation, inducement, or reward for the referral of any services for which property insurance proceeds are payable.
d) Interpreting insurance policy provisions or advising an insured regarding coverage or duties under the insurance property insurance policy.
e) Providing an insured with an agreement authorizing repairs without providing a good faith estimate of the itemized and detailed cost of services and materials for repairs undertaken pursuant to an insurance claim; however, a contractor is not in violation if the actual cost of repairs differs from the initial estimate.”
ii. A contractor or unlicensed person who violates this section is subject to disciplinary proceedings and may receive up to a $10,000 fine for each violation.
iii. A contractor may not execute a contract with an owner to repair or replace a roof without including a notice that the contractor may not engage in the practices set forth above. If the contractor does not include such notice, the owner may void the contract within 10 days after execution.
Tags: Condo and HOA Laws, Management News, SFPMA Members
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We have worked with associations in chapter 11 Bankruptcy that needed financing to exit the Bankruptcy or settle lawsuits, from vendors, neighbors, or previous lenders. When an association needs cash, often it stops doing the routine preventative maintenance and capital improvements to the property, so things can spiral out of control very fast.
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Tags: Budgets, Condo and HOA, Management News, Reserves
I hate beating around the bush, so I want to get to the point. A financial crisis is coming and it’s
going to be a big one. It’s also going to hit those that can least afford it. It’s going to result in massive
amounts of foreclosures. It’s going to result in countless cases of elderly persons being displaced
from their homes. The worst part is, it’s absolutely avoidable but I don’t believe any legislator would
ever have the courage to float a bill to save the pending disaster.
I was at a meeting last night in a 55 and over condominium. Elderly owners were complaining that the pipes are getting
old, there are leaks, and they sometimes have to come out of pocket a few hundred bucks in order to clean up the mess in their unit
and/or repair that broken pipe. They are complaining about bills for a few hundred bucks and find it difficult to pay them because
their sole income is social security.
To state the obvious, there is no reserve account. There never will be. Generally, senior citizens don’t believe in reserving
funds for repairs that may be necessary a decade or two from now because they believe they won’t be here anyway. So, year after
year goes by, decade after decade goes by and there is never a reserve fund to fall back on should a major repair become necessary.
Think of how much building has gone on in the past 50 years. It is staggering. But the buildings are getting older. As the buildings
start to approach the 40 year mark or more, things start to break down and repairs become unavoidable. Concrete restoration is
incredibly expensive, and unavoidable. Replacement of pipes is incredibly expensive, and unavoidable. And the same goes for
electrical renovations and roof replacements. All unavoidable. Yet, so many people, especially seniors, are rolling the dice thinking
that none of these repairs will be necessary while they own the property. That may be true for now, but eventually, everyone rolls
a 7.
Like it or not, some form of reserves should be mandatory
and not subject to being waived. There, I said it. Let’s get rid of the
“life expectancy” formula the state says you should follow but nobody
does. It’s a joke anyway. We all know the truth that the life
expectancy of the roof somehow gets longer, the closer you get to the
original estimate of how long it was going to last. Five years ago it
had a five year life expectancy. Money is tight, so today it has a new
10 year life expectancy. Somehow, like fine wine, the roof got better
with age. We all know that happens, and it happens every day. So
how about we make things simple. Let’s just say every condominium
must contribute 10% of its annual budget to reserves for roof,
plumbing, electrical, structural and painting. It all goes into one pot
and it can be used for any repair necessary for those categories. It
can’t be waived. If however an association wants to contribute more,
they can.
If we implemented this, I’m guessing the average monthly
increase for most condominiums that are not already reserving funds
would be anywhere from $25.00 to $75.00 per month per unit. I know
that for some that increase is not easy. However, it’s going to be a lot
more expensive if any one of these inevitable repairs become
necessary and it’s time to pass a special assessment in the thousands
or tens of thousands of dollars. What do you think?
Tags: Assessments, Condo and HOA
To function as intended, a homeowners’ association (HOA) must rely on assessment revenue from its members. Most communities calculate assessments, at least in part, based on an annual budget of anticipated expenses. These typically include the costs involved in performing all of the HOA’s maintenance duties, procuring necessary insurance, and covering overhead, along with any other fixed or reasonably foreseeable outlays. The resulting gross budget is then divided among the members of the association, and homeowners are assessed accordingly.
When creating an annual budget in this manner, it’s generally a good idea to be as precise, analytical, and transparent as practically possible. However, a budgeting approach that relies exclusively on predetermined, repeating, line-item expenses doesn’t leave much room for error. After all, what if an essential common element is unforeseeably damaged—resulting in significant repair or replacement costs—and there’s no money in the budget or insurance to cover the loss? Or it may be that the association has some legal issues arise and incurs attorney’s fees much higher than could have been reasonably anticipated. And, of course, some common elements don’t need maintenance every year, but, when maintenance time comes, it’s costly.
Rather than get caught scrambling for cash when an unexpected contingency or major maintenance need arises, many communities maintain “reserve accounts” or “reserve funds,” as a sort of back-up savings slated for emergencies, long-term upkeep costs, and irregular expenditures. Although reserve funds are often not mandatory, an ample reserve can play a big role in protecting a community’s long-term financial health.
We’re all familiar with the differences between checking and savings accounts. Aside from cash itself, a checking account is as liquid as assets get. You use it to pay bills, buy groceries—the sort of everyday expenditures it takes to run a household. A savings account, on the other hand, serves as a rainy-day fund you can tap when something unexpected arises—like, say, your vehicle needs a new catalytic converter.
Most homeowners’ associations have an operating account or similarly designated checking account to cover the routine expenses. Office supplies and regular maintenance of common elements, for instance, are typically paid from the operating fund.
An HOA’s reserve fund, in contrast, is an account dedicated to unanticipated and deferred expenditures, particularly large ones. The association allocates money toward its reserve account over time so that, when a costly repair or comparable outlay becomes necessary, cash reserves are available to handle the expense without sacrificing day-to-day functions.
By way of example, an HOA might pay out the costs of routine snow removal from its operating account. If the community expects to need plowing a few times each winter, the board will build the costs into the annual budget. But when all the plowing over the years leaves a significant portion of the development’s roads in need of repaving, the money is more likely to come from a reserve fund.
Reserve requirements are not addressed under every state’s HOA laws. And some states that do address them, leave a lot to the board’s discretion. More commonly, reserve account standards are found in a community’s declaration or bylaws. Statutes governing condominiums are usually more explicit in setting forth precisely what is required of an association with regard to reserves.
An association’s annual budget takes into account reasonably foreseeable expenses like landscaping, equipment upkeep, and payroll if the HOA has employees. But when an association-owned building needs a new roof, the community pool requires a major repair, or all the equipment in the fitness center starts breaking down, the unbudgeted costs will need to be paid from reserves.
A reserve fund can also be used to cover expenses that are not necessarily unforeseen, but arise infrequently enough that it wouldn’t make sense to include them within annual budgets. If the community’s tennis courts need to be resurfaced every ten years, the board might hold back in reserve around ten percent of the cost each year so that, when the time comes, the resurfacing costs can be paid outright. Of course, it’s not always so easy to predict precisely how much money will be needed.
For the most part, deciding just how much cash a community needs to hold in reserve is the responsibility of an association’s board. Under state HOA and condominium statutes, board members owe a “fiduciary duty” to the association. See, e.g., Fla. Stat. §§720.303(1), 718.111(1); 765 ILCS 605/18.4. The obligations of a fiduciary are among the highest recognized by the law. In carrying out their responsibilities, a board and its members must act in good-faith, prudently and loyally, and always in furtherance of the association’s best interests. Id.
“Board members must avoid conflicts of interest when budgeting and allocating reserves.”
The duty of good-faith loyalty includes not wasting or misappropriating an association’s money, including reserves. HOA funds should only be used for their intended purposes and in the best interests of the community. Anything less potentially breaches the board’s fiduciary obligation. Condo associations in Florida, for instance, can only expend reserve funds for authorized reserve expenditures or if a specific outlay is approved in advance by majority vote of the association. Fla. Stat. §718.112(2)(f)(3).
In furtherance of their fiduciary duties, board members must avoid conflicts of interest when budgeting and allocating reserves. If a board member, family member, or related business could potentially bid on or otherwise benefit from an association contract, that board member should recuse him or herself from any discussion or voting related to that contract. See, Tex. Prop. Code § 209.0052.
The duty of prudence means taking reasonable steps to avoid a scenario where a cash-strapped HOA is unprepared for a major expense it should have seen coming. This means budgeting realistically and ensuring the association has sufficient reserves. Deciding what is “sufficient,” though, can be difficult because, by definition, reserves pay for expenses that are irregular and not reasonably foreseeable. Even a board making a good-faith effort to act prudently might not recognize all potential expenses a reserve fund needs to cover.
When setting reserve requirements, the key questions board members need to ask are (1) what unbudgeted expenses are likely to arise over an extended timeline; (2) how much are those expenses likely to cost; and (3) how much additional savings will that necessitate per year. Most board members are volunteers just trying to help keep their communities running on all cylinders, so it’s probably unrealistic to expect them to know the answers without some professional assistance—especially in large communities with substantial common elements. Fortunately, though, there are accounting professionals who specialize in “reserve studies” designed to calculate the cash-reserve needs of HOAs and similarly situated organizations.
Reserve funds present something of a conundrum for HOA boards. If you maintain reserves for the express purpose of paying expenses that are unanticipated and infrequent, then how does the board decide how much it needs to hold in reserve? If the association holds back too much, it is essentially over-taxing its members. But if reserves are inadequate, then the HOA might find itself insufficiently liquid to meet its obligations without imposing a costly special assessment or taking out a loan—neither of which is likely to be popular with homeowners.
Reserve studies are intended to help Goldilocks (i.e., the HOA board) find the porridge (i.e., the reserve amount) that’s just right. A reserve study is an examination conducted by a consultant or accounting firm for the purpose of analyzing probable long-term expenses. The idea is to use the analysis to estimate the community’s reserve needs as scientifically as possible.
Along with reviewing the association’s assets (including current reserves), budget, and anticipated revenue, the auditor will survey community equipment, buildings, and other common elements. Based on all available information, the auditor comes up with a long-term schedule of expected repairs, replacements, major maintenance, and any other relevant liabilities likely to affect the HOA’s bottom line.
Once the study is concluded, the board uses the estimates to calculate the level of regular homeowner assessments needed to maintain the optimal reserve account balance. For instance, if the study estimates that a parking lot within the community will need new asphalt in ten years, and that the cost will be around $20,000, the board might adjust the budget and assessments to hold back $2,000 in additional reserves each year. That additional $2,000 is divided among all members’ annual dues so that, when the time comes for new asphalt, the funds are already available in the reserve account.
Of course, a study will in all likelihood identify numerous potential expenditures over the relevant period, and the reserve recommendation will be based on the aggregate anticipated long-term cash needs—not just any single item. But the principle is still the same.
Reserve studies cost money, so they don’t make sense in every situation. In a small association with only minimal commons and simple maintenance duties, a reserve study would probably cost more than the value it could reasonably be expected to provide. At the same time, a large association with elaborate commons and extensive duties would be imprudent not to use a reserve study or other means of scientifically calculating reserve needs.
The appropriate dollar balance for any given community’s reserve fund depends in large part on the size of the association, the nature of the common elements, and the extent of the HOA’s obligations. Some state HOA and condo laws establish specific reserve requirements, but funding needs are more commonly set by the board in accordance with standards detailed in the association’s governing documents. A reserve account is “fully funded” if it covers 100% of the community’s reasonably foreseeable expenses. Many communities choose to set reserve requirements at a percentage of anticipated expenses, as estimated by the board or identified in a reserve study. So, for example, an association might require the board to hold in reserve at least 75% of anticipated expenses at any given time, adjusted based on the schedule for deferred maintenance.
A few states establish specific funding requirements for reserves stated as a percentage of the association’s overall budget. See, e.g., Ohio Rev. Code §5311.081(A)(1) (requiring annual reserve contributions of at least 10% of budget, but allowing waiver by majority vote). More commonly, states adopt statutory principles for reserves but leave the specifics to the discretion of the board or community as a whole. Generally, condo laws go into much more detail when it comes to reserve requirements.
Florida’s condo statute requires an association’s annual budget to include reserves for “capital expenditures and deferred maintenance … [including but not limited to] roof replacement, building painting, and pavement resurfacing,” and any other deferred maintenance or replacement cost exceeding $10,000. Fla. Stat. §718.112(f)2a. For each included item, the calculation must be based on the “estimated remaining useful life and estimated replacement cost or deferred maintenance expense.” Id.
Though Florida’s condo statute requires reserves by default, it also allows a condo association to waive reserve requirements, or require a lesser amount, by majority vote. Id. Florida’s HOA statute likewise makes reserves optional. If a community opts for reserves, the reserve account funding must be calculated based on each asset’s estimated deferred maintenance or replacement cost divided by its predicted useful life remaining. Fla. Stat. §720.303(6)(g).
California requires associations to maintain reserve balances based on reserve studies conducted at least once every three years and including diligent, on-site inspections. Civil Code §5550. The study must, at a minimum, identify all major components the HOA is obligated to maintain, the estimated costs and useful life associated with each, and the annual reserve contribution necessary to defray the costs. Id.
Similarly, Washington requires calculation of reserve contributions in communities with “significant assets” (defined as assets valued at 50% or more of the association’s gross budget) based on regular reserve studies. Wash. Code §64.34.020. At least every three years, the study must be conducted by an independent professional who visually inspects the relevant assets. Notably, though, the Washington statute merely “encourage[s]” HOAs “to establish a reserve account… to fund major maintenance, repair, and replacement of common elements.” Wash. Code §64.34.380.
State legislation routinely recognizes the importance of reserve funds to homeowners’ associations but doesn’t make them mandatory. However, deferred maintenance, repair and replacement of major elements, and surprise expenses will inevitably come up. When adequate reserves aren’t available, a community will need to employ alternate means of paying for these significant costs.
Boards often face a temptation to underfund reserves—or even dip into reserves to pay for what would normally be regular operating expenses—to cover increasing operating costs without raising assessments. Homeowners often object to additional assessments or reject them altogether. But paying a little extra up front to make sure sufficient cash-flow is available for adequate reserves can actually save money over time. And, the alternatives—special assessments, loans, and putting off repairs and replacements—are not particularly attractive options.
“The duty of prudence means taking reasonable steps to avoid a scenario where a cash-strapped HOA is unprepared for a major expense it should have seen coming.”
With a special assessment, the community is paying all-at-once what it could have paid over time. In effect, current owners are footing the bill for costs that were rightfully the responsibility of prior owners. And, of course, special assessments often require member approval. A rejected special assessment is just as helpful to a board facing a major expense as an unfunded reserve account.
If an HOA can’t cover unexpected expenses and long-term maintenance directly from member assessments, there’s also the option of taking out a loan in the name of the HOA. Obtaining a loan probably won’t be too difficult for an association with regular revenue and relatively little debt, but it may require the use of community assets as collateral. And, just as significantly, loans require interest.
Even assuming the HOA can secure a loan with a competitive interest rate, the cost of repaying the loan still ultimately comes from assessments, but members end up paying a lot more than the actual expense cost due to interest and transaction costs. By contrast, an adequately funded reserve account itself earns interest, leading to the opposite result—members pay less out of pocket because money applied to reserves is earning interest up until the expenses become necessary.
And there’s also the option of simply not paying for maintenance, repairs, and replacements that aren’t included in the annual budget. In this scenario, homeowners lose access to benefits of the community. If the pool needs an overhaul, but there’s no money to pay for it, members and their families no longer have a neighborhood pool to swim in. Not to mention, property values may decrease, as the allure of living in a community with a pool is reduced when the pool is inaccessible.
Kicking the can down the road by underfunding reserves almost always leads to losses in the end. With this in mind, Florida’s HOA statute requires associations without reserves to notify members annually that no reserves are held and that special assessments may be enacted to pay for capital expenditures and deferred maintenance. Fla. Stat. §720.303(6)(c).
Inadequate funding can lead to safety concerns as well. Association-owned equipment or facilities that are not receiving scheduled maintenance due to insufficient reserve funding can increase the risk of injury and create unnecessary liability exposure.
Under the right circumstances, insurance coverage can help defray some of the costs caused by underfunded reserves. Many states mandate that HOAs carry insurance coverage. Arizona requires property damage coverage for at least 80% of the value of common elements and liability insurance with coverage limits decided by the board. A.R.S. §33-1253A(1) – (2). Eight states (Alaska, Colorado, Connecticut, Delaware, Minnesota, Nevada, Vermont, and West Virginia) have adopted the Uniform Common Interest Ownership Act (“UCIOA”), which has requirements similar to Arizona’s, along with mandatory fidelity insurance. See, e.g., Conn. Gen. Stat. §47-255.
Insurance, though, isn’t foolproof. A policy won’t cover every major expense that comes up. A property policy might cover losses due to accident but not if damage results from inadequate maintenance. A major expense like a new roof might be needed as a result or ordinary wear and tear that a regular property damage policy excludes from coverage.
And for insurance to help, you have to actually procure a policy. State condo association laws often require insurance, but it’s frequently optional for HOAs. Even in states that ostensibly require insurance like Arizona and the eight UCIOA states, there’s a limitation—a policy must be obtained “to the extent reasonably available.” Id.
HOA insurance is generally a good thing to have; it’s just not a foolproof substitute for reserves. Ideally, it’s more of a supplement, avoiding a scenario in which a catastrophe like a fire or major storm completely saps a community’s reserve funds or forces the association to write off common elements that were once valuable community resources.
Most state HOA laws require associations to make regular budgetary disclosures to members, usually including the status of reserve funding. Florida HOAs, for instance, must prepare yearly budgets estimating anticipated expenses and revenue and identifying any reserve accounts or funds set aside for deferred expenditures. Fla. Stat. §702.303(6)
In Washington, the statutorily mandated annual budget report must state amounts currently held in reserve, estimate year-end reserve balances, propose a plan for funding reserves, and project future reserve balances if the plan is adopted. Wash. Code. §64.38.025. Colorado requires a similar disclosure of present reserve balances, along with the board’s proposal to ensure the community’s reserve needs are adequately funded. Col. Rev. Stat. §38-33.3-209.5.
California requires a detailed reserve report based on the most recent reserve study, including the remaining useful life of each major component, estimated repair or replacement costs, and the amount of reserve money held by the HOA. Civil Code §5565. California HOA members also have a right to notice of “the mechanism or mechanisms by which the board of directors will fund reserves … including assessments, borrowing, use of other assets, deferral of selected replacements or repairs, or alternative mechanism.” Civil Code §5300.
Particularly in condo associations, prospective purchasers often have a right to receive notice of current reserve balances. Tex. Prop. Code § 82.157; A.R.S. §33-1260. Absent an affirmative disclosure requirement, homeowners have a right to request inspection of association records. See, e.g., Fla. Code §720.303(4). Records subject to an inspection typically include financial records and budgets.
A homeowner who believes an association’s board is mishandling or underfunding reserves has a few options. First, the homeowner can bring up reserve issues at the next homeowners’ or open board meeting, or informally discuss concerns with a board member. A formal records request can also help provide detailed information about how reserves are being maintained and used and whether there is in fact a problem.
Because of the democratic character of community associations, there’s also the option of running for the board in the next election or organizing a campaign to amend the association’s declaration to include more stringent or specific reserve requirements. If misconduct or fiduciary lapses are involved, an individual homeowner or group of homeowners usually have standing to pursue legal claims against the board or its members, depending upon the specifics of the situation and whether actual damages have been incurred. It’s almost always a good idea to consult with an experienced attorney before asserting or pursuing legal claims.
In situations involving outright fraud or embezzlement, homeowners should bring the matter to the attention of local law enforcement agencies. Misappropriation of funds entrusted to an individual is criminal conduct in every state, though, of course, the precise standards vary by jurisdiction.
Tags: Assessments, Board of Directors, Budgets, Condo and HOA, Law and Legal, Management News
Condo regulations in Florida have come under close scrutiny since the tragedy in Surfside on June 24, with at least 46 people confirmed dead and 94 still unaccounted for as of midday Wednesday. While investigators warn it could be months before a cause of the collapse is known, attention has turned to the decisions made — or not made — by city officials, consultants, developers and the residents and board members of Champlain Towers South.
“What we’re looking at are specific changes to prevent that from happening again,” William Sklar, an adjunct faculty member of the University of Miami’s law school and task force chair told The Post. “We also want to be realistic relative to the needs of unit owners, and we don’t want to dissuade [board members] from service.” Navigating those competing interests, Sklar and others acknowledged, is a complex mission. What lures many to condos in the first place is precisely what can eventually undermine them: Shared responsibility for maintenance with the perks of private ownership.
Despite the detailed, extensive condo laws in Florida, several real estate experts said the rules are often easy to manipulate or have toothless enforcement.
“Condos are so critical to our local economy, but the state does nothing to bring clarity to it because it’s a cash cow,” said Peter Zalewski, a Florida condo industry analyst. “No one wants to kill the market prices.”
Condo owners and developers aren’t the only ones who may be skittish of changes: Politicians eager to enact tougher oversight in the wake of Surfside are still responsive to the will of voters, said Peggy Rolando, a Miami-based real estate lawyer and co-chair of the Florida Bar Association’s Condominium and Planned Development Committee.
“In Florida, condo owners are a hugely powerful political force,” Rolando said. Board meetings of well-heeled condo associations warrant campaign stops, and some buildings are even large enough to be their own voting precinct, she said.
Even tightening regulations in the name of building safety is likely to face resistance. Experts agreed the current rules that give condo owners significant leeway to defer costly maintenance can lead to a worst-case scenario in which a building becomes too unsafe to inhabit and too expensive to repair.
At the same time, they recognized putting off pricey fixes is sometimes a matter of short-term economic survival. In a place like South Florida, affordable housing is scarce, and many residents are fixed-income retirees who can’t easily absorb sudden spikes in homeowner fees.
“I anticipate a lot of push-pull,” Rolando said. “There’s an expression in South Florida that ‘you’re throwing grandma off the balcony’: If you’re passing laws saying ‘you must fully fund reserves for the entire building’ and price people out of their homes, you’re going to have a very unhappy constituency.”
After the collapse in Surfside, attention — and blame — quickly settled on the Champlain Towers South Condominium Association.
The association is the subject of at least 10 lawsuits filed since the building fell. In each of the complaints, residents detail what they say are oversights and failures of the condo board to act on crucial maintenance they argue contributed to the building’s structural instability.
But a Washington Post investigation found that while plans for repairs dragged on for years even as the building’s 40-year safety certification was coming due, dozens of unit owners in the condo balked at the estimated repair costs, which eventually tallied $15 million. In April 2019, dozens of owners signed a letter raising last-minute objections to the repair plans and asked for a lower assessment. A few months later, five of the seven board members quit.
The tension exhibited by the fallen tower’s condo association underscores why a condo building’s troubles don’t start and end with its board of directors, said Peter M. Dunbar, a longtime legal expert in Florida real estate who has written several reference books on Florida condominium law and management used by the state.
Florida condo board seats are volunteer roles in which elected members are not required to have any specialized training or vetting, even in buildings where board members are responsible for reserve accounts worth hundreds of thousands or even millions of dollars and approve maintenance for complex amenities like elevators and swimming pools.
New board members have 90 days to take an elective course approved by the Division of Florida Condominiums, Timeshares, and Mobile Homes Complaints/Investigations or simply file a statement saying they have read the condominium’s rules and legal documents and understand their duties as a board member, Dunbar said.
“The lack of knowledge is not often where I find the biggest concerns,” Dunbar said. “You may know what you’re supposed to be doing, but are you doing it in a timely fashion, and are you doing it to the extent it’s required? To me, that’s a bigger issue.”
Anyone who serves as a director of an association has what Florida law states is a “fiduciary duty” to the association, or an obligation to act in the association’s best interests where maintenance, finances, quality of life and property value are concerned. In other words, Dunbar said, board members don’t have to know how to fix everything; they just need to hire the right people to assess what needs fixing and then act on those recommendations.
“But because they’re elected, they also have the pressures of their constituents,” Dunbar said. “The difference for the volunteer board is, you can do your best, and a resident can still say, ‘I don’t want to pay,’ and recall you.”
Condo board members face personal liability if they’re found to have acted negligently or criminally in an individual capacity. But most problems that befall condo associations are not from nefarious board members or tightfisted unit owners, said Rolando, the Florida Bar Association’s Condominium and Planned Development Committee co-chair.
More often, personal circumstances or simple human nature cloud decision-making.
“There are very, very few associations that have really extensive, comprehensive reserve structures,” she said. “But if you know your neighbor just lost their job, or just sent their kid off to college, what are you going to do? You have an obligation to do the right thing for the association. But you have people who don’t want to or can’t afford to do the right thing.”
Documents from the Champlain Towers South Condo Association revealed infighting among neighbors as building repairs grew more urgent and more costly; one neighbor recounted toxic board meetings that would devolve into “screaming and yelling.”
The tension can erode the quality of life in a building where board members and condo owners pass one another every day in the lobby, by the pool or walking the dog, Rolando said.
“I have a lot of sympathy for board members because I think it’s rewarding that you can do something that improves your community and has a direct impact,” she added. “But it’s also enormously demanding, unpaid and thankless. I guess it’s like being a mom or something.”
The Florida legislature requires condo associations to have financial reserves for painting, roof repair, paving and any item of deferred maintenance that exceeds $10,000, Rolando said.
Rolando said she sympathizes with unit owners who face unmanageable costs that can balloon from years of neglected or delayed maintenance.
“Mandatory reserves are probably the right thing to do fiscally. But when you’re dealing with human beings with myriad financial issues, do you want to force people into a situation where they can’t afford to pay and will have to sell their unit?” Rolando said. “There are no good answers.”
Members of the new safety task force hinted that changes to safety certifications and inspection schedules are likely to meet the least resistance.
Sklar, the task force co-chair, suggested that South Florida’s 40-year safety recertification program could be significantly narrowed to 10, 25 or 30 years and that it could be applied uniformly statewide; right now, it applies only to Miami-Dade and Broward counties.
Other considerations include expanding inspections to include geological and hydrological factors affecting building stability and structure, and periodic and comprehensive reviews of specific building elements such as concrete, rebar and electrical.
Sklar said the law allowing condo owners to hold an annual vote and waive fully funding the association’s reserves will need to be re-examined as well.
The task force will also consider ways the government can help residents who can’t afford the reserves or maybe bought into a lower-cost building or live on a fixed income.
“We may review if there’s a low-cost, government-backed, subsidized financing available,” he told The Post.
Zalewski, the condo industry analyst, said he hopes the task force also considers making real estate transactions more transparent and favorable to buyers. Under Florida law, a prospective condo buyer has a 15-day right of rescission, or ability to pull out of a pending condo purchase, if they are buying directly from a developer; if the purchase is made from an existing condo owner, the period shrinks to three days.
Zalewski, who is critical of the three-day rescission period, said that amount of time does not give a prospective buyer an adequate period to do the research and inspections that could prevent them from buying into a condo building that has hidden costs lurking down the road.
“The three days doesn’t make sense if you’re worried about the buyer,” he said. “It would change the market overnight because it would force everyone to be on the up and up.”
SURFSIDE, Fla. — Late last year, after years of delays and disputes, the Champlain Towers South Condominium Association began a desperate search for $16.2 million to fix major structural damage that was slowly threatening the Surfside high-rise — and that may have contributed to the building’s partial collapse June 24.
The obvious place to look was the building’s reserve fund — extra money socked away to cover the cost of future repairs. But the account held just $777,000, according to condo board documents — nowhere near enough to soften the blow.
The collapse, which killed at least 64 people and left 76 others missing, occurred before the condo board could collect the needed money from residents and begin repairs. The cause of the collapse is unknown, and investigators, experts and advocates are trying to determine whether the uncompleted repairs played a role, whether the board could have seen the problem coming earlier — and whether a Florida law regulating condo repairs that was repealed a decade ago could have made a difference.
One way to keep track of needed repairs is a “reserve study,” in which condo boards bring in experts like engineers or certified specialists every few years to inspect buildings and estimate how much the boards should collect from residents to prepare for future fixes. The building’s financial documents, obtained by NBC News and NBC 6 South Florida, show that Champlain Towers South had not done a professional reserve study since at least 2016. That decision was legal, but it meant that planning was left to the board, a shifting group of volunteers with little training in building maintenance.
“If the owners would have had a reserve study, if the board was proactive and had funded its reserves, this never would have happened,” said Julio Robaina, a former Republican state legislator.
Robaina sponsored a 2008 law requiring condo associations to hire engineers or architects to submit reports every five years about how much it would cost to keep up with repairs.
The law lasted just two years before it was repealed in 2010, after Robaina left office. Robaina blamed pushback from real estate lawyers and property managers, who he said claimed that the law was too burdensome for condo owners. The legislator who sponsored the repeal, former state Rep. Gary Aubuchon, a Republican real estate broker and homebuilder, did not reply to messages seeking comment.
The repeal left Florida’s condo residents less protected than those in nine states that legally require reserve studies, according to the Community Associations Institute, a nonprofit organization that advocates for condo associations. Thirty-one other states, including Florida, regulate reserves in some way — although Florida is one of three states with loopholes that enable owners to opt out of requirements, the nonprofit said. Ten states have no regulations about reserves at all.
“One of the steps that should be taken by a building, especially an aging building, is having adequate funds available so that when you have to face significant cost challenges there’s an appropriate amount of money available,” said Gary Mars, a South Florida lawyer who represents condo associations.
A survey last year by the Community Associations Institute found that most homeowners associations are hesitant to increase residents’ fees, anticipating opposition, and therefore fail to plan for long-term infrastructure fixes.
“In postponing inspections, reserve studies, and — ultimately — complete repairs or renovations, boards often end up facing an exponentially more comprehensive and expensive project in the long run,” the report said.
Maxwell Marcucci, a spokesman for the Champlain Towers South Condominium Association, declined to comment on reserve studies. In a previous statement to NBC News, he said the condo board was doing its best to ensure the building was safe. “They are not engineers and not building safety experts,” Marcucci said. “They hired experts, trusted experts, and at no point did the experts indicate that there was a threat of imminent collapse.”
The lack of a professional reserve study is a departure from what many experts say is best practice for condominiums, particularly older ones on the coast — like Champlain Towers South, built in 1981 — that have been exposed for decades to corrosive salt and water.
Robaina, who co-owns a property management company, said maintaining healthy reserves “is the single most important action that a condominium board needs to take.”
Florida law requires condo boards to maintain reserves for repairs over $10,000, but it does not say exactly how much to set aside. That means condo boards have some flexibility in avoiding saving for repairs that do not need to be made right away.
In addition, the law allows condo buildings to waive the reserve requirement altogether. Once it has passed its annual budget, a condo board can give residents the opportunity to opt out of collecting reserves by a vote of a majority of unit owners. The votes are common in Florida condo buildings, condo lawyers say.
That is what it appears Champlain Towers South did, lawyers and reserve experts said.
The experts pointed to the board’s reliance on special assessments — additional fees on top of residents’ normal monthly payments — to fund needed repairs. The board imposed a $1 million special assessment in 2016 for hallway renovations and a $350,000 special assessment in 2019 for work on a generator, a fuel pump and a fuel tank. Such lump-sum levies are indicative of a building whose owners have decided not to set aside enough reserves through regular monthly fees, choosing instead to wait until a big-ticket repair is needed to ask residents to pay for it, experts said. Many associations make that choice by repeatedly voting to waive or reduce the funding of their reserves.
“I can’t help but think that the building did that for years and years, which is why there was not enough funds available,” said Matthew Kuisle, Southeast regional director for Reserve Advisors, which prepares reserve studies. “Why would they do that? So they have lower fees. But in the long run, the fees are a small price to pay.”
The shortcomings of that approach started to become clear in 2018, when the board began inspecting the building before a checkup mandated by Miami-Dade County for buildings that reach 40 years old. In an October 2018 report, engineer Frank Morabito alerted the board to “major structural damage” to concrete slabs underneath the building’s pool deck and its entrance drive. He blamed a “major error” in the building’s construction and years of corrosion. He estimated the cost of repairs at $9 million.
Reeling from sticker shock, the board invited a Surfside building official to its November 2018 meeting. The official told the board that the building was “in very good shape,” according to minutes of the meeting. Some residents have said that led them to believe the situation was not dire.
Even so, the board began trying to find a way to repair the damage — and to pay for it.
Disagreements over the costs frustrated board members. Five members quit over two weeks in fall 2019. The condo association has had four presidents since 2018.
By late last year, the board had accepted that there was no safe way forward without doing the massive reconstruction Morabito recommended, along with repairs to a deteriorating roof. Morabito began preliminary work and found that the damage discovered in 2018 had gotten worse. The bill rose to more than $16 million.
The board scrambled for money. It found $707,000 left over from the previous special assessments and $777,000 more in reserves. But a quarter of the reserves were designated for insurance deductibles, leaving $556,000. The board chose not to tap the reserves just in case there was another emergency. That meant the building was short by $15.5 million, which the board voted in April to raise through a special assessment. The cost to residents would be $80,000 to $360,000 per unit.
“A lot of this work could have been done or planned for in years gone by. But this is where we are now,” board President Jean Wodnicki wrote to residents before the vote.
By last month, the board had started work on the roof, and it put other repairs out for bid. Responses were due July 7. Two weeks before the deadline, the building partly collapsed.
The board’s nearly three-year struggle to start work on the concrete replacement project has loomed over the catastrophe’s aftermath. Investigators have not determined what caused the failure; the deteriorating supports are among the possibilities.
Experts say the extent of disrepair documented in the 2018 report raises questions about how the damage went unnoticed previously.
“I read the report, and I wondered how long the building looked that way,” said Robert Nordlund, founder and CEO of Association Reserves, a reserve study firm based in California. “Did it look that way in 1998? 2008? Because clearly there was some significant deterioration in that 2018 report.”
Documents reviewed by NBC News and NBC 6 South Florida, including audits, budgets, financial statements and board meeting minutes, do not indicate when the structural issues noted by Morabito started, though the board did pay to replace leaking pipes in the building’s parking garage in 2016. But the documents do show that the board did not perform professional reserve studies and instead relied on board members to determine how much to set aside for repairs. In 2016, an accountant performing a year-end audit noted that “an independent study has not been conducted to determine the adequacy of the current funding” and that “the estimates for future replacement costs are based upon estimates provided by the budget committee.”
Audits conducted by the same accountant in 2017, 2018 and 2019 included the same language. Last year, a different accountant provided a similar disclaimer.
Mars, the lawyer who represents condo associations, said he believes that the note was “the CPA saying, ‘We don’t have any official documentation to rely on.'”
The accountants who conducted the audits did not respond to messages seeking comment.
Jeffrey Rembaum, another lawyer for condo associations, pointed to figures in the audits that showed that from 2016 to 2020, the board did not update the amount of money needed to replace balconies and concrete. Each year, the board estimated needing $320,000 for the work, even after Morabito’s report found that much more extensive and costly repairs were needed.
“We know the building had millions in concrete repairs on the horizon,” Rembaum said. “So how did it come up with $320,000 for their current needs? If they’d had a reserve study and an engineer looked at what they had, they would have come up with a higher number. That suggests the board wasn’t regularly updating it.”
He added: “This is the effect of the Florida Legislature not requiring a reserve study by qualified people.”
More than a decade since his short-lived law on reserve studies was repealed, Robaina said he hopes lawmakers will change course and reimpose the mandate.
“This is a window of opportunity,” he said, “and unfortunately it took a tragedy that could have been prevented.”
Jon Schuppe reported from New York; Phil Prazan reported from Surfside, Florida
By Jon Schuppe and Phil Prazan, NBC 6 South Florida
Tags: Condo and HOA Laws, Reserves
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