Many Tall Condominiums Face New Expenses

Surfside Condominium collapsed in June 2021 with $1 billion in property damage and 98 deaths. In May, 2022 Florida’s legislature amended statutes and adopted laws to require structural inspections and reserves for condominiums if three stories or more in height. The legislature amended the statutes in 2023. Many condominiums will find meeting the new statutory requirements expensive. Those expenses will be borne by unit owners.

The first part of the new laws is inspections. Phase 1 milestone inspections are required for residential condominiums by December 31 of their 30th year and every 10 years thereafter. Deadline for those that reached 30 years before July 1, 2022 is end of 2024 and for those reaching 30 between July 1, 2022 and December 31, 2024 the deadline is December 31, 2025. Local enforcement agencies may extend the deadline for good cause or accelerate it to 25 years based on all relevant factors (the original statutes mandated the first inspection within 25 years if within 3 miles of the coastline).

The local enforcement agency is now required to give notice to a condominium when a milestone inspection is required and the association must notify unit owners that the inspection is required within 14 days of receipt of written notice from the local enforcement agency. The association has 180 days after receipt of notice to have an architect, engineer or a person certified as a reserve specialist or professional reserve analyst by the Community Associations Institute or the Association of Professional Reserve Analysts complete the Phase 1 inspection and submit the report to the local enforcement agency. 

The Phase 1 inspection report is a visual examination to determine life safety and adequacy of structural components. If the inspector finds evidence of “substantial structural deterioration” in any building components during a visual examination, a Phase 2 inspection is required. If a Phase 2 inspection is required, an architect or engineer must perform the inspection and file a progress report with the local enforcement agency of the timeline for completion.

A Phase 2 inspection will usually require destructive or invasive action. These inspections are to determine safety and structural integrity and not to determine if a building complies with the Florida Building or Fire Safety Code.

The inspector must file a sealed copy of each inspection report, summary of the report and material findings and recommendations with the association upon completion and the association must provide a copy to each owner within 45 days. The association must also post a copy of the summary on the property and publish the full report on its website. The statutes give local enforcement agencies authority to prescribe timelines and penalties with respect to enforcement.

These milestone inspections will be an expense. The amount of the expense will be determined by the size of the building, conditions and other variables. But the cost of the inspection may pale in comparison to the cost of repair work recommended by an inspection report. And that cost may not be immediate as the statute also mandates structural integrity reserves.

Residential condominiums at least three stories in height must complete a Structural Integrity Reserves Study (“SIRS”) no less often than every 10 years. SIRS must include roof, structure and structural systems, fireproofing and fire safety, exterior painting and waterproofing, plumbing, electrical systems, windows and exterior doors, and other elements with the replacement or repair cost exceeding $10,000 that have an impact on the structural integrity of the building. The 2023 legislature deleted floors and foundation from the list, but those are likely included in “structure.”

SIRS must identify each item inspected, state the estimated remaining useful life for each item, state the estimated replacement cost or deferred maintenance expense of each item inspected and provide a reserve funding schedule with a recommended annual reserve funding for each. The estimated replacement or deferred maintenance cost of each item must be reserved and be sufficient to repair or replace at end of the remaining estimated useful life of the item. Reserves may not be excused for any item for which estimated useful life or estimated replacement cost cannot be determined and the SIRS may recommend no reserve for an item with an estimated remaining useful life of more than 25 years.

All budgets adopted on or after December 31, 2024, must include reserve funding as provided in the SIRS. Owners cannot vote to waive or reduce structural integrity reserves as they have been able to do in the past. That is in part due to what happened at Surfside. Two years before its collapse, Surfside owners had an engineering report of major structural damage and the need for extensive repairs but only 6.9% of the funds to complete repair and replacement projects. Surfside had about $706,000 in reserves while a subsequent study recommended it have $10.3 million.

Structural components in the SIRS must be separately accounted for and reserves collected in accordance with the replacement schedule. The funds collected can only be used for the specific structural component for which they are reserved. Until now, condominium associations have been allowed to either reserve separately for each or use a pooled approach so that in any given year there are sufficient funds to take care of the items requiring repair or replacement that year. The pooled approach generally reduces the total amount of annual reserves collected from owners. It does not appear a pooled reserve budget will be allowed for structural reserves.

The new laws will almost certainly reduce the likelihood of another Surfside tragedy. But in the process, the laws may force owners to sell if they cannot afford higher assessments. Some owners may sell because they simply do not want to pay higher assessments. Purchasers will have to consider cost of funding structural integrity reserves as part of a buying decision.

The new laws will likely impact the resale market value for condominium units. In some cases, value may be hurt if there is need for substantial reserve funding for structural items while others may improve in value when such reserve requirements are small. Safety concerns may also be more applicable when need for structural repairs is immediate and that need is revealed by the milestone inspections. At the same time, mandated reserves for structural items should bring a level of stability to the condominium market as the studies ally fears of the unknown.

The new laws are in their infancy. Time will tell their effect on financials and safety.

William G. Morris is the principal of William G. Morris, P.A. William G. Morris and his firm have represented clients in Collier County for over 30 years. His practice includes litigation and divorce, business law, estate planning, associations and real estate. The information in this column is general in nature and not intended as legal advice.