November 13, 2022 — Hurricanes Ian and Nicole were bad enough, destroying thousands of homes, changing the coastline, and scaring residents and real estate buyers alike. But a new Florida law, SB 4-D: Building Safety, is about to provide a potential killer wave to the Florida condo market.
The Building Safety Law is a reaction to the tragic Surfside building collapse in Miami in 2021. It has several key requirements for condominium associations that most are not yet aware of, especially how fundamentally those will affect their finances. This article will attempt to give a quick snapshot of what is now required, and how things will change. We recommend that if you are on a condo board you get familiar with the law now, because it has several new requirements. As it spells out clearly, failure to meet them is a breach of an officer’s and director’s fiduciary relationship to the unit owners. Sadly, jailhouse humor going round is that it could cause mass resignations of board members across the state. Even if you are not a board member, you should make sure that your board is working on this issue.
The Legislature finds that maintaining the structural integrity of a building throughout its service life is of paramount importance in order to ensure that buildings are structurally sound so as to not pose a threat to the public health, safety, or welfare.From Florida SB 4-D – Building Safety
Two key components
There are several components of the changes coming, but we will discuss the two major ones here. The new requirements go into effect Dec. 31, 2024 and mostly affect buildings of 3 stories or more.
- Milestone Inspection Study
- Structural Integrity Reserve Study
Milestone Inspection Study
Existing buildings must have a milestone study by the end of the year in which they reach 30 years of age (built before July, 1992), or 25 years if within 3 miles of the coastline. Phase 1 of the Inspection Study is a visual examination by a qualified architect or engineer. Phase 2 is required if deterioration is detected. The inspection reports must be made available to owners and local building officials. Failure to comply is a breach of fiduciary responsibility by the officers and directors of the Board. The inspections need to be repeated every 10 years.
Structural Integrity Reserve Study
Associations existing on or before July 1, 2022 must have a structural integrity reserve study completed by December 31, 2024, for each building on the condominium property that is three stories or higher. The study must include, at a minimum, the following items as related to the structural integrity and safety of the building (some of these are new):
b.Load-bearing walls or other primary structural members
e.Fireproofing and fire protection systems
h.Waterproofing and exterior painting
j.Any other item that has a deferred maintenance expense 1067 or replacement cost that exceeds $10,000.
At a minimum, a structural integrity reserve study must identify the common areas being visually inspected, state the estimated remaining useful life and the estimated replacement cost or deferred maintenance expense of the common areas being visually inspected, and provide a recommended annual reserve amount that achieves the estimated replacement cost or deferred maintenance expense.
So what’s the big deal
OK, so we laid out the two major components of the changes to Florida’s condo laws. Believe us, there is a big deal in here.
First of all, condo associations have to realize they must complete their Milestone Inspection Reports by the required dates (Dec. 31, 2024 for most). If they don’t complete the inspections and provide the reports to owners and local building officials, they are in breach of fiduciary responsibility. If phase 1 of the inspection shows problems, they have to move on to phase 2.
Second of all, and most important, most associations’ reserve funds are woefully inadequate. Replacing the 10 required reserve items at today’s prices will be astronomical, even if they have to be funded over their useful life. Catching up will dramatically increase condo fees paid by owners – enough that some will not be able to pay them. Several factors are driving these huge increases:
Reserves for 10 categories must be calculated at full replacement cost. Full replacement cost will be a challenge. But compounding that, they can not be used for other purposes (such as funding insurance premiums) or other categories of expenses. Roof reserves have to be used for roofs, foundation dollars for foundations, etc. Some of these categories, such as windows, were not typically covered in reserves by many associations, adding to the total amount needed to be reserved.
Reserves have to be funded in full. An annual “fully” funding reserve contribution does not require a vote amongst association members. A majority vote is required when an association decides to collect less than the annual “fully” contribution amount. Effective December 31, 2024, members of a unit-owner controlled association may not vote to use reserve funds, or any interest accruing thereon, that are reserved for (the big 10 items) for purposes other than their intended purpose.
Your editor recently attended an online seminar of this bill. There was a lot of gallows humor – suggesting that many condo boards will resign rather than face angry owners confronted with having to fully fund reserves all at once, as well as recommendations to buy retirement real estate in some state other than Florida. The new law has a noble purpose, but its implementation is going to cause a lot of heartburn in the next few years. However, since the law is new and people have not had much time to digest it, the possibility that it will change in the next few legislative sessions is high.
“So you are telling me the law goes into effect Dec. 31, 2024? Good, that tells me I need to have my resignation letter as a board member sent in by the previous week.”Client
We know of one FL condo building with 62 units that is voting to add $300,000 next year to its reserve funds (up from just over $200,000 in 2022), and that is only 50% of what is actually required to be fully funded. The point is that the law affects just about every condo association in Florida (at least the reserve funding portion), so now is the time to get started complying. Even if your Association is not in Florida, good management practice means you should incorporate the sense of the law’s requirements.
For further reading: Building Collapse Highlights Serious Challenges to Florida Condo Boards