New condo safety rules likely to put low-income and fixed-income condo owners in a bind that might end in foreclosure.
The Florida legislature’s unanimously approved condominium safety regulations are raising fears that a provision in the law could place too big of an onus on individual unit owners — particularly those in lower or fixed income brackets — who could be forced into foreclosure because they are unable to pay higher fees to meet the new law’s requirements.
At issue is a requirement in the legislation, passed in May in response to the collapse of the 12-story Champlain Towers South in Surfside last year, that condominium associations have enough money in reserves to repair structural problems that may arise as well as take care of deferred maintenance.
The problem is how those reserves are to be calculated, which, the way the law is written, could create a massive burden for associations and unit owners, says Patricia Staebler, a state certified appraiser and a reserve specialist. Staebler, whose Sarasota firm Staebler Appraisal and Consulting works with condo associations, points to what she sees as flaws in the new law in hopes that lawmakers will revisit it and make fixes before it goes into effect in two years.
“If you want to summarize, I would say the immediate and short-term action is for the legislature to have a chat with resource providers who are going to teach them,” she says. “Item number two, remove all (mechanical, electrical and plumbing) services” from the list of structural components.
On its face, and in the opinion of many in the state, including Staebler, the new rules go a long way toward preventing a repeat of the Surfside collapse that killed nearly 100 residents.
What the law did was create milestone inspections for buildings that are more than three stories tall.
Most buildings will have to be inspected once it reaches its 30th birthday — based on when it received its certificate of occupancy. For buildings within three miles of the coast, the inspection needs to be done at the 25th birthday.
From then on, inspections have to occur every 10 years.
While most people think of gleaming beachfront condos when they talk about Florida living, 912,376 of the 1.5 million condominium units in the state are more than 30 years old, according to an October 2021 report from the Florida Bar. Of those, 105,404 are more than 50 years old.
The units are governed by 27,588 associations.
The inspections will be done in two parts, with phase one calling for a visual examination of the major structural components of a building and an assessment of its conditions. There is a phase two, but it’s not required if there aren’t signs of substantial deterioration during the first inspection.
If there is trouble, phase two calls for the person who did the inspection to submit a sealed inspection report with a summary of the findings and recommendations sent to the condominium or association board. Local officials with jurisdiction over the building must also get a copy of the report.
This report has to describe how the building is deteriorating and identify recommended repairs.
Where the concern lies is in the second part of the law, which requires associations and co-ops to have reserve funding in place to pay for issues affecting the structural integrity of a building and for maintenance identified in a structural integrity reserve study. This is a state-mandated study that every building three stories or taller must complete every 10 years in order to create a financial plan for future repairs and maintenance.
The study of common areas has to state how much useful life remains and estimate the replacement cost or the deferred maintenance cost. Plus, it must come with a recommendation for the annual reserve amount.
At a minimum, the study must include an inspection of any item that has a deferred maintenance expense or replacement cost topping $10,000. That includes the roof, load-bearing walls, floors, foundation, fireproofing and fire protection systems, plumbing, electrical systems, waterproofing and exterior painting and windows.
The problem, Staebler says, is lawmakers included the mechanical services alongside the structural items, “which points to a lack of understanding what structural really means and it will increase the financial burden even more.”
Among the items she believes lawmakers must go back and remove from the list of services are electrical, plumbing and fire protection systems because they aren’t related to the structural components of building.
She says forcing associations to have the funding set aside for future repairs of these items “will lead to extremely high assessments and will bankrupt associations.”
“People will lose their homes. Living in condominiums will become unaffordable for the mainstream public.”
While this may seem like hyperbole, the reason for sounding the alarm is because the new law calls for associations to set aside funds for the individual components rather than pooling funds.
She uses an air conditioning unit as an example of how the new system will work and why she’s worried.
Let’s say, she says, an HVAC unit has about a 10-year life cycle and could cost about $10,000 to replace. The way the new law is structured, when the unit is five years old the association will need to have $5,000 in the bank, in an account separate from that of other items, and then add $1,000 each year for the its replacement.
If you break that down by individual components, she says associations will have to raise millions and not be able to touch a penny of that money if something else needs repaired until it’s time for the repair or replacement of the individual component.
She has clients who are now scraping by with about $200,000 a year by pooling funds. By requiring component funding, these associations likely need to have $800,000 to $1 million.
Where will that money come from? Unit owners.
“It will not affect necessarily livelihood of the upper middle class and beyond,” she says. “But now, when we are talking about the medium income, low medium income condominiums, just imagine what impact that will have on the association and the unit owner.”
The majority of Florida condo dwellers fall into that latter category.
The challenge state leaders face as they consider what, if anything, to do about the reserves provision is if money is not set aside for repairs or maintenance beforehand, associations will be forced to pass special assessments in order to address those issues, or emergencies, at the time. Or worse, if the work isn’t completed you could one day see a repeat of Surfside.
This creates a Catch 22 for low- and middle-income residents who must pay now or later when in most cases they can’t afford to pay either time.
And advisory task force studying condominium laws and safety for the Florida Bar found in October that the effect of special assessments on those with fixed incomes and limited resources creates a financial burden that’s difficult, if not impossible, for individuals to carry.
The task force recommends that government agencies — federal, state and local — create programs that offer low interest loans to pay for special assessments. While this may only be a Band-Aid, it could at least help offset the immediate cost to unit owners unable to pay when work is needed.
The solution Staebler offers is to change how the reserves are funded in the new law by removing the mechanical components from the legislation.
Will either happen? Only time will tell.
The Community Association Institute, a Washington, D.C.-based organization, pushed for the legislation and praised the results.
But, as with any new law, sometimes the unintended consequences aren’t immediately apparent, and tweaks are needed. With that in mind, the CAI says it will work “closely with policymakers before the bill takes effect in 2024 to be certain the new requirements and directives are workable and practical for Florida’s impacted associations.”