This shall serve as Wasserstein, P.A.’s newsletter regarding recent legislative changes of which you should be aware. Please feel free to share it with your fellow board members and property managers!
During the 2022 regular legislative session, a grand total of zero bills were passed into law concerning community associations. While this was initially thought to preclude any new laws from being adopted this year, an emergency legislative session was recently held for the primary purpose of addressing the insurance crisis facing the State of Florida. For the past few years insurance carriers have been mired in claims, predominantly from Hurricane Irma, and that, combined with fears emanating from the Surfside collapse and increasing general liability exposure, led to insurance companies going out of business or pulling out of serving the State, or portions of it. This has led to dramatic increases in property and casualty insurance premiums as many of us have experienced on either a personal level or at the association level. So, the Florida legislature was called into emergency session to address this concern and while insurance was the primary focus, because of the backlash at not passing any sort of legislation related to the Surfside collapse during the regular session earlier this year, the legislature also hastily revisited and passed into law bills concerning safety and financial governance for condominiums and cooperatives that are at least 3 stories tall that had previously not been adopted in the regular session. These new laws primarily concern requirements for condominiums and cooperatives of this height to have mandatory structural inspections and to fully fund reserves. The following is a summary of what was adopted:
CONDOMINIUM ASSOCIATIONS AND COOPERATIVES
MANDATORY STRUCTURAL MILESTONE INSPECTIONS OF CONDOMINIUMS AND COOPERATIVES
All condominium and cooperative buildings that are at least 3 stories or more in height must now conduct a “milestone inspection” by a Florida licensed architect or engineer. The milestone inspection must be performed by December 31st of the 30th year of the building’s age. The 30 year mark will be calculated from the building’s original receipt of its certificate of occupancy.
For condominium and cooperative buildings 3 stories or more in height that are located within 3 miles of a coastline, they will have to conduct their milestone inspection a bit sooner--by December 31st of the 25th year of the building’s age.
For any condominium or cooperative buildings 3 stories or more in height with Certificates of Occupancy issued before July 1, 1992, they will have until December 31, 2024 to perform their initial milestone inspection.
Local enforcement agencies will be required to determine and notify condominium and cooperative associations if they require a milestone inspection. The milestone inspection must be completed within 180 days of receipt of notice from the local enforcement agency.
Milestone inspections will consist of two phases:
Phase 1
A licensed architect or engineer conducts a visual inspection of the structural components of the building(s), both habitable and non-habitable. Phase 1 of the milestone inspection will be mandatory.
The architect or engineer will then issue a report to the local building enforcement agency whether the Phase 1 inspection revealed substantial structural deterioration to any building components, in which case, they will then need to move into Phase 2.
Phase 2
At the discretion of the inspector, a Phase 2 inspection will involve either destructive or nondestructive testing, or both.
The inspector will be required to issue a signed and sealed report to the local inspection authority and the condominium or cooperative at the conclusion of the inspection. The report will detail the manner and type of inspection performed, identify any substantial structural deterioration, and describe the extent of the deterioration.
Under the new law, the milestone inspection report will be an official record. Once completed, associations will be required to distribute a copy of the inspector-prepared summary of the milestone inspection report to all unit owners. The condominium or cooperative must also post the summary conspicuously on association property. The full report must also be posted on an association website, if the community is required to have one.
STRUCTURAL INTEGRITY RESERVE STUDIES
Condominiums and cooperatives will now be required to perform a structural integrity reserve study.
Section 718.103 of the Condominium Act and Section 719.103 of the Cooperative Act have been amended to add the definition of “structural integrity reserve study” as a study of the reserve funds required for future major repairs and replacement of the common areas based on a visual inspection of the common areas.
A structural integrity reserve study must be completed at least every 10 years after the condominium or cooperative’s creation for each building on the property that is 3 stories or more in height. Existing associations must have a structural integrity reserve study completed by December 31, 2024 for each building on the condominium or cooperative property that is 3 stories or more in height.
The structural integrity reserve study may be performed by any person qualified to perform such study, however, a licensed engineer or licensed architect must perform the visual inspection portion of the study. A structural integrity reserve study must identify the common areas/elements being visually inspected, state the estimated remaining useful life and the estimated replacement cost or deferred maintenance expense of the common areas/elements being visually inspected, and provide a recommended annual reserve amount that achieves the estimated replacement cost or deferred maintenance expense of each item being visually inspected by the end of its estimated remaining useful life.
The structural integrity reserve study must be kept in the official records for 15 years from the date of the report, and on the website for all condominiums required to have a website.
If a condominium or cooperative fails to complete a structural integrity reserve study, that failure constitutes a breach of an officer’s and director’s fiduciary relationship to the owners. If the officers or directors willfully and knowingly fail to have a milestone inspection performed, the failure constitutes a breach of the officers’ and directors’ fiduciary relationship to the unit owners. Please note that these provisions of this new legislation may result in increased insurance premiums for directors and officers insurance policies and may also result in insurance carriers demanding proof of compliance before issuing or renewing policies.
BUDGETING AND RESERVES
The amount for required reserve items shall now be determined by the most recent structural integrity reserve study. For all condominiums and cooperatives over 3 stories or more in height, line items must minimally include the roof, load bearing walls or other primary structural members, floor, foundation, fireproofing and fire protective systems, plumbing, electrical systems, waterproofing and exterior painting, windows, and any other item that has a deferred maintenance expense over $10,000.
Effective as of December 31, 2024, no unit owner-controlled condominium or cooperative will be permitted to fully waive or only partially fund reserves for items listed on the structural integrity reserve study. Condominiums and cooperatives will instead be required to fully fund those reserve items pursuant to the structural integrity reserve study required. It will also be prohibited to vote to use such reserves for any other purpose for which they were intended. This applies to all condominiums and cooperatives, regardless of size or location.
DEPARTMENT REGULATORY REQUIREMENTS
On or before January 1, 2023, condominiums and cooperatives that are in existence as of July 1, 2022 must provide the following to the Department of Business and Professional Regulation, Division of Condominiums, Timeshares, and Mobile Homes:
1. The name of the condominium or cooperative;
2. The total number of buildings that have 3 stories in height or higher;
3. The total number of units in all such buildings;
4. The counties in which the buildings are located and their physical address for each building.
Any changes to this information must be reported to the Division within six (6) months of any changes.
The Florida Department of Business and Professional Regulation, Division of Condominiums, Timeshares, and Mobile Homes, has the power to enforce compliance for condominiums and cooperatives regarding completion of the milestone inspection reports, structural integrity reserve studies, and reserve funding.
DEVELOPER REQUIREMENTS
Before a developer may turn over a condominium or cooperative, the developer of any building that is 3 stories or more in height must complete a structural integrity reserve study, and must provide this document at turnover
So that sums it up. After reading through them, it is apparent that these laws are certainly well-intended following the previously unimaginable Surfside collapse, but there are fears that while these laws may prevent another physical disaster that they may simultaneously result in financial disaster for many condominium and cooperative communities across the state, especially 55 plus communities where many residents live off of a tight budget tied to social security or other benefits such as pensions or retirement plans that have been negatively impacted by a decreasing stock market. Those factors, combined with maintenance assessments that were already on the rise due to the insurance crisis and record inflation, are now likely to be further accelerated by the cost of mandated inspections and resulting work and more importantly, the newly adopted and previously unprecedented forced full funding of reserves.
Over the years many condominium and cooperative communities were able to keep their maintenance assessments at an affordable rate by either waiving or only partially funding reserves and instead addressing needs as they arose, but in a couple of years (assuming these new laws are not amended) these reduced funding levels for reserves will no longer be an option meaning that communities will have no choice but to increase their budget to be in compliance with the law. Of course, for those who can afford it, it is easy to contend that saving for a rainy day is a prudent way of budgeting for future expenses but the potential financial fallout from forced savings is a real concern for many Floridians who feel like they are piggy banking for work for which they may never benefit from and that they simply cannot afford. Hopefully in the coming years reasonable adjustments to these laws can be made to protect those who are most financially vulnerable, while also making sure that building infrastructures are well-maintained. Certainly a tall task. Stay tuned!
